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The Committee on Climate Change: A policy analysis
Get PDFDomestic action on climate change is increasingly important in the light of the difficulties with international agreements and requires a combination of solutions, in terms of institutions and policy instruments. One way of achieving government carbon policy goals may be the creation of an independent body to advise, set or monitor policy. This paper critically assesses the Committee on Climate Change (CCC), which was created in 2008 as an independent body to help move the UK towards a low carbon economy. We look at the motivation for its creation in terms of: information provision, advice, monitoring, or policy delegation. In particular we consider its ability to overcome a time inconsistency problem by comparing and contrasting it with another independent body, the Monetary Policy Committee of the Bank of England. In practice the Committee on Climate Change appears to be the ‘inverse’ of the Monetary Policy Committee, in that it advises on what the policy goal should be rather than being responsible for achieving it. The CCC incorporates both advisory and monitoring functions to inform government and achieve a credible carbon policy over a long time frame. This is a similar framework to that adopted by Stern (2006), but the CCC operates on a continuing basis. We therefore believe the CCC is best viewed as a "Rolling Stern plus" body. There are also concerns as to how binding the budgets actually are and how the budgets interact with other energy policy goals and instruments, such as Renewable Obligation Contracts and the EU Emissions Trading Scheme. The CCC could potentially be reformed to include: an explicit information provision role; consumption-based accounting of emissions and control of a policy instrument such as a balanced-budget carbon tax
Official Central Bank Interventions in the Foreign Exchange Markets: A DCC Approach with Exogenous Variables
Get PDFThis paper assesses the impact of official central bank interventions (CBIs) on exchange
rate returns, their volatility and bilateral correlations. By exploiting the recent publication of intervention data by the Bank of England, this study is able to investigate fficial interventions by a total number of four central banks, while the previous studies have been limited to three (the Federal Reserve, Bundesbank and Bank of Japan). The results of the existing literature are reappraised and refined. In particular, unilateral CBI is found to be
more successful than coordinated CBI. The likely implications of these findings are then discussed
Strategic investment and international outsourcing in unionised oligopoly
Get PDFWe critically consider the conventional belief that the attractiveness of international outsourcing lies in cheaper labour costs overseas and that it offers a means to ‘escape’ the power of unions. We develop an oligopoly model in which firms facing unionised domestic labour market choose between producing an intermediate in-house or outsourcing it to a non-unionised foreign supplier that makes a relationship specific investment in developing the intermediate. We show that outsourcing typically results in higher wages and does not always reduce marginal costs. Trade liberalisation favours outsourcing particularly for the relatively less efficient firms
Scotland: A New Fiscal Settlement
Get PDFExecutive Summary
Many commentators have criticised the strategy currently used to finance the Scottish Parliament – both the block grant system, and the small degree of fiscal autonomy devised in the Calman report and the UK government’s 2009 White Paper. Nevertheless, fiscal autonomy has now been
conceded in principle. This paper sets out to identify formally what level of autonomy would be best for the Scottish economy and the institutional changes needed to support that arrangement.
Our conclusions are in line with the Steel Commission: that significantly more fiscal powers need to be transferred to Scotland. But what we can then do, which the Steel Commission could not, is to give a detailed blueprint for how this proposal might be implemented in practice.
We face two problems. The existing block grant system can and has been criticised from such a wide variety of points of view that it effectively has no credibility left. On the other hand, the Calman proposals (and the UK government proposals that followed) are unworkable because, to function, they require information that the policy makers cannot possibly have; and because,
without borrowing for current activities, they contain no mechanism to reconcile contractual spending (most of the budget) with variable revenue flows – which is to invite an eventual breakdown. But in its attempt to fix these problems, the UK White Paper introduces three further
difficulties: new grounds for quarrels between the UK and Scottish governments, a long term deflation bias, and a loss of devolution
Second-Order Approximation to the Rotemberg Model around a Distorted Steady State
Get PDFLess is known about social welfare objectives when it is costly to change
prices, as in Rotemberg (1982), compared with Calvo-type models.
We derive a quadratic approximate welfare function around a distorted steady state for the costly price adjustment model. We highlight the similarities and differences to the Calvo setup. Both models imply
inflation and output stabilization goals. It is explained why the degree of distortion in the economy influences inflation aversion in the Rotemberg framework in a way that differs from the Calvo setup
The effects of entry in thin markets
Get PDFWe consider entry of additional firms into the market for a single commodity
in which both sellers and buyers are permitted to interact strategically. We show
that the market is quasi-competitive, in that the inclusion of an additional seller
lowers the price and increases the volume of trade, as expected. However, whilst
buyers benefit from this change under reasonable conditions on preferences, we
cannot conclude that sellers are always made worse off in the face of more intense
competition, contrary to the conventional wisdom. We characterize the conditions
under which entry by new sellers may raise the equilibrium profit of existing
sellers, which will depend in an intuitive way on the elasticity of a strategic analog
of demand and the market share of existing sellers, and encompass completely
standard economic environments
Inter-Connectedness In The Scottish Economy, 1998-2004
Get PDFThe measurement of inter-connectedness in an economy using input-output
tables is not new, however much of the previous literature has not had
any explicit dynamic dimension. Studies have tried to estimate the degree of
inter-relatedness for an economy at a given point in time using one inputoutput
table, some have compared different economies at a point in time but
few have looked at the question of how inter-connectedness within an economy
changes over time. The publication in 2009 of a consistent series of inputoutput
tables for Scotland offers the researcher the opportunity to track
changes in the degree of inter-connectedness over the seven year period 1998
to 2004.
The paper is in two parts. A simple measure of inter-connectedness is
introduced in the first part of the paper and applied to the Scottish tables. It is
shown that although the aggregate results might appear to indicate a degree of
import substitution was taking place this result is not robust to industrial
disaggregation. In the second part of the paper an extraction method is applied
to an eleven sector disaggregation of the Scottish economy in order to estimate
how interconnectedness has changed over time for each industrial sector. It is
shown that for the majority of sectors the degree of interconnectedness with
the rest of the Scottish economy has grown for others, in particular Financial
Services and Energy and Water Supply it has not
The Living Wage: Reducing inequality in the UK?
Get PDFThe revival of support for a living wage has reopened a long-run debate over the extent to
which active regulation of labour markets may be necessary to attain desired outcomes.
Market failure is suggested to result in lower wages and remuneration for low skilled
workers than might otherwise be expected from models of perfect competition.
This paper examines the theoretical underpinning of living wage campaigns and
demonstrates that once we move away from idealised models of perfect competition to
one where employers retain power over the bargaining process, such as monopsony, it is
readily understandable that low wages may be endemic in low skilled employment
contracts. The paper then examines evidence, derived from the UK Quarterly Labour
Force Survey, for the extent to which a living wage will address low pay within the
labour force. We highlight the greater incidence of low pay within the private sector and
then focus upon the public sector where the Living Wage demand has had most impact.
We examine the extent to which addressing low pay within the public sector increases
costs. We further highlight the evidence that a predominance of low pay exists among
public sector young and women workers (and in particular lone parent women workers)
but not, perhaps surprisingly, among workers from ethnic minority backgrounds. The
paper then builds upon the results from the Quarterly Labour Force Survey with analysis
of the British Household Panel Survey in order to examine the impact the introduction of
a living wage, within the public sector, would have in reducing household inequality.
The paper concludes that a living wage is indeed an appropriate regulatory response to
market failure for low skilled workers and can act to reduce age and gender pay
inequality, and reduce household income inequality among in-work households below
average earnings
The Expenditure Impacts of Individual Higher Education Institutions (HEIs) and their Students on the Welsh Economy: Homogeneity or Heterogeneity?
Get PDFThis paper replicates the analysis of Scottish HEIs in Hermannsson et al
(2010a) for the case of Wales in order to provide a self-contained analysis that
is readily accessible by those whose primary concern is with the regional
impacts of Welsh HEIs. When we treat each of the twelve Higher Education
Institutions (HEIs) that existed in Wales in 2006 as separate sectors in
conventional input-output analysis, their expenditure impacts per unit of final
demand appear rather homogenous, with the apparent heterogeneity of their
overall impacts being primarily driven by scale. However, a disaggregation of
their income by source reveals considerable variation in their dependence upon
funding from the devolved Welsh Assembly Government and their ability to
draw in income/funding from external sources. Acknowledging the binding
budget constraint of the Welsh Assembly Government and deriving balanced
expenditure multipliers reveals large differences in the net-expenditure impact
of HEIs upon the Welsh economy, with the source of variation being the origin
of income. Applying a novel treatment of student expenditure impacts,
identifying the amount of exogenous spending per student, modifies the
heterogeneity of the overall expenditure impacts. On balance this suggests that
the impacts of impending budget cut-backs will be quite different by institution
depending on their sensitivity to public funding. However, predicting the
outcome of budget cutbacks at the margin is problematic for reasons that we
identify
Negative investment in China: financing constraints and restructuring versus growth
Get PDFThis paper attempts to address a puzzle in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative net investment is commonly found at the microeconomic level. Using a large firm-level dataset, we test three hypotheses to explain the existence and extent of negative investment in each ownership group: what we term the efficiency (or restructuring) hypothesis, the (lack of) financing hypothesis, and the (slow) growth hypothesis. Our panel data probit estimations shows that negative investment by state-owned firms can be explained
mainly by inefficiency: owing to over-investment or mis-investment in the past, these firms have had to restructure and to get rid of obsolete capital in the face of increasing competition and hardening
budgets. The financing explanation holds for private firms, which have had to divest in order to raise capital. However, rapid economic growth weighs against both effects in all types of firms, with a larger impact for firms in the private and foreign sectors. A tobit model, estimated to examine the determinants of the amount of negative investment, yields similar conclusions