THE DECISIONS OF THE SHADOW MONETARY POLICY COMMITTEE AND MONETARY POLICY COMMITTEE SINCE 2002

We analyse the decisions of the Monetary Policy Committee (MPC) and the recommendations of the Shadow Monetary Policy Committee (SMPC) over the period 2002–2011. We find that the SMPC policy recommendations have to a large extent agreed with the policy actions of the MPC on interest rates. We offer some suggestions as to how the recommendations of the SMPC could be enhanced.     

CHAOS AND COMPLEXITY IN ECONOMICS

Books reviewed in this article:
William A. Barnett, John Geweke and Karl Shell (eds) (1989) Economic Complexity: Chaos, Sunspots, Bubbles and Nonlinearity
W. A. Brock and A. G. Malliaris (1989) Differential Equations, Stability and Chaos in Dynamic Economics
Carl Chiarella (1990) The Elements of a Nonlinear Theory of Economic Dynamics
Tönu Puu (1989) Nonlinear Economics Dynamics
Kumaraswamy Velupillai (ed.) (1990) Nonlinear and Multisectoral Macrodynamics     

DEVELOPMENT IN THE UNITED KINGDOM

The United Kingdom abolished domestic property taxation, the major autonomous revenue source for local authorities, in 1989 (Scotland) and 1990 (England and Wales). The introduction of a flat rate personal charge (called by the Government 'the community charge' and by its opponents 'the poll tax') aroused huge political controversy. The choice of a substitute tax, to operate from 1993, and based at least partly on property, was one of the major domestic issues in the recent General Parliamentary Election. This paper examines the background to the abolition of domestic property taxation and why it was such a key political issue, explains why the "community charge" failed and describes the immediate prospects.     

Collateral,loan guarantees,and the lenders’ incentives to resolve financial distress

This paper proposes that the timing for when collateral is pledged will affect the lenders’ incentives to resolve financial distress. It demonstrates that, if the amount of collateral pledged in a loan contract exceeds a critical value, the borrower's project may be inefficiently liquidated once he becomes financially distressed. It also shows that a fairly priced loan guarantee provided by a third party can partially alleviate this inefficient liquidation problem. This paper predicts that riskier borrowers will pledge more collateral, which is consistent with the empirical findings of Berger and Udell [Berger, A. N., & Udell, G. F. (1990). Collateral, loan quality, and bank risk. Journal of Monetary Economics, 25, 21–42] and Leeth and Scott [Leeth, J. D., & Scott, J. A. (1989). The incidence of secured debt: evidence from the small business community. Journal of Financial and Quantitative Analysis, 24, 379–394].     

The London Business School with Gower Publishing

With the benefit of hindsight, we can see that the course of the world economy in 1988 was a product not so much of the stock market crash of October 1987 but of the reaction to the crash. Monetary policy and to a lesser extent fiscal policy were eased and consumer spending responded to cuts in interest rates and rising real incomes. With the world recovery in its sixth year, capacity pressures began to emerge and investment also boomed, helped by a lower cost of capital. As a result of this strong private sector demand, OECD output increased 4 per cent in 1988 as a whole and industrial production and world trade rose even more rapidly. Against the background of buoyant demand and output, inflationary fears have resurfaced. Since the spring monetary authorities in most countries have been tightening policy, raising interest rates by early 1989 above the levels which helped bring about the stock market crash. Their aim is to effect a slowdown in demand before a significant upward movement in inflation and inflationary expectations takes hold. In our judgement the present policy stance will achieve its aim of a "soft landing" for the world economy. The pick-up in world inflation is contained below 5 per cent and by the second half of this year inflation eases, paving the way for a relaxation of monetary policy. Output growth slows from 4 per cent to 3 percent in 1989 and 2 per cent in 1990, picking up again as interest rates are lowered in 1991–2.     

Book Reviews

Book reviewed in this article: Clark, Gordon L. 1989: Unions and communities under siege: American communities and the crisis of organized labor. Henderson, J. 1989: The globalisation of high technology production: society, space and the restructuring of the modern world. Holston, James 1989: The modernist city: an anthropological critique of Brasilia. Jasso, Guillermina and Mark R. Rosenzweig 1990: The new Chosen People; immigrants in the United States. Jessop, B. 1990: State theory: putting capitalist states in their place. Logan, J.R. and T. Swanstrom (eds) 1990: Beyond the city limits: urban policy and economic restructuring in comparative perspective. Watson, S. 1989: Accommodating inequality: gender and housing.     

Book Reviews

Personnel Management For The Single European Market Mark Pinder, London: Pitman, 1990 The Essentials of Employment Law David Lewis, London: IPM, 3rd edition 1990 The Quest For Productivity: a Case Study of Fawley After Flanders Bruce W. Ahlstrand, Cambridge: Cambridge University Press, 1990 Ontinuous Improvement: Quality Control Circles in Japanese Industry Paul Lillrank and Noraki Kano, Ann Arbor: Centre for Japanese Studies, University of Michigan, 1989 Reluctant Entrepreneurs: The Extent, Achievements And Significance of Worker Takeovers in Europe Rob Paton (with the assistance of Rainer Duhm, Silvia Gerhardi, Jean-Louis Laville, Carlos Otero-Hidalgo, Roger Spear and Anne Westenholz) Milton Keynes: Open University Press, 1989     

RECENT BOOKS ON BUSINESS CYCLES

Books Reviewed in this article:
Robert J. Gordon (ed.) (1986) The American Business Cycle. Chicago and London:
Andrew W. Mullineux (1990) Business Cycles and Financial Crises. Hemel Hempstead:
Jan Reijnders (1990) Long Waves in Economic Development. Aldershot:
Peter Skott (1989) Conflict and Effective Demand in Economic Growth. Cambridge:     

BOOK REVIEWS

Book reviewed in this article: Allen, J. and L. McDowell, 1989: Landlords and property; social relations in the private rented sector. Brake, K. 1988: Phönix in der Asche - New York verändert seine Stadtstruktur. Bratt, R. 1989: Rebuilding a low-income housing policy. Castells, M. 1989: The informational city. Chase-Dunn, C. 1989: Global formation: structures of the world-economy. Coleman, W. and H. Jacek (eds) 1989: Regionalism, business interests and public policy Damer, S. 1989: From Moorepark to Wine Alley - The rise and fall of a Glasgow housing estate. Gottdiener, M. and N. Komninos (eds), 1989: Capitalist development and crisis theory: accumulation, regulation and spatial restructuring. Hardoy, J. and D. Satterthwaite, 1989: Squatter citizen: life in the urban third world. Hirson, B. 1989: Yours from the Union: class and community struggles in South Africa 1930–1947. Lai, B.B. 1990: The romance of culture in an urban civilization: Robert E. Park on race and ethnic relations in cities. Mackenzie, S. 1969: Visible histories: women and environments in a post-war British city. Maguire, M. 1990: Work, employment and new technology: a case study of multinational investment in Northern Ireland. Montgomery, J. and Å. Thornley (eds), 1990: Radical planning initiatives: new directions for urban planning in the 1990s. Pennington, S. and B. Westover, 1989: A hidden workforce: homeworkers in England, 1850–1985. Prigge, W. and W. Kaib (eds), 1988: Sozialer Wohnungsbau im internationalen Vergleich. Schultz, S.K. 1989: Constructing urban culture: American cities and city planning, 1800–1920. Slater, D. 1989: Territory and state power in Latin America: the Peruvian case. Stewart, J. and G. Stoker (eds) 1989: The future of local government. Ward, D. 1989: Poverty, ethnicity, and the American city, 1840–1925: changing conceptions of the slum and the ghetto.     

Goodness of fit in confirmatory factor analysis: The effects of sample size and model parsimony

The purpose of the present investigation is to examine the influence of sample size (N) and model parsimony on a set of 22 goodness-of-fit indices including those typically used in confirmatory factor analysis and some recently developed indices. For sample data simulated from two known population data structures, values for 6 of 22 fit indices were reasonably independent ofN and were not significantly affected by estimating parameters known to have zero values in the population: two indices based on noncentrality described by McDonald (1989; McDonald and Marsh, 1990), a relative (incremental) index based on noncentrality (Bentler, 1990; McDonald & Marsh, 1990), unbiased estimates of LISREL's GFI and AGFI (Joreskog & Sorbom, 1981) presented by Steiger (1989, 1990) that are based on noncentrality, and the widely known relative index developed by Tucker and Lewis (1973). Penalties for model complexity designed to control for sampling fluctuations and to address the inevitable compromise between goodness of fit and model parsimony were evaluated.     

THE MEASURE OF INFLATION

Different measures of inflation have their pros and cons. Changing the Monetary Policy Committee's inflation target to an inflation measure that excludes housing costs and is not widely used by economic decision-makers may well be problematic.     

The monetary policy strategy of the Bank of England in 2020–21: An assessment

Excessive money creation during the Covid pandemic has resulted in Britain's worst episode of inflation since 1990–91. The backdrop to this failure of monetary policy is the Bank of England's aggregate demand/aggregate supply framework together with the Monetary Policy Committee's neglect of broad money. An alternative way to operate monetary policy is urgently needed. A significantly improved monetary policy outcome could be achieved by shifting from trying to steer the economy using interest rates and quantitative easing or quantitative tightening to reliance on the relative stability of income velocity (the ratio of nominal GDP to broad money) as a means of managing aggregate demand.     

MANAGING THE DEBT PROBLEM: HISTORICAL PARALLELS AND CONTEMPORARY POLICY

Books reviewed in this article:
Barry Eichengreen & Peter H. Lindert (Eds.) (1989) The International Debt Crisis in Historical Perspective.
Jeffrey D. Sachs (Ed.) (1989) Developing Country Debt and Economic Performance.
Graham Bird (Ed.) (1989) Third World Debt: The search for a solution.     

THE 364 ECONOMISTS AND THE 1981 BUDGET: AN EXAMINATION OF THE EMPIRICAL EVIDENCE

Earlier this year we passed the 25th anniversary of the letter to The Times from 364 economists protesting about government economic policy in general and the 1981 Budget in particular. In a recent publication, Stephen Nickell, then a member of the Monetary Policy Committee of the Bank of England, defended the letter. This article contends that Nickell's argument was wrong. This is not merely a matter of historical interest, it is important that the issues are understood if mistakes are not to be made in economic policy in the future.     

TRANSITION OF THE HOUSING SECTOR IN THE EAST CENTRAL EUROPEAN COUNTRIES

The fall of socialism in 1989–1990 led to the end of the East European housing model, which was based on the limitation of property rights, extensive central planning and politically determined allocation of subsidies. This paper aims to present a clear picture of the current housing situation through a reliable information system. The major observation is that in the countries studied, the housing situation is relatively good; it is not housing shortage, but die inefficiency of the institutional system, affordability and deferred maintenance that are the main problems. Based on the idea of "enabling policies" - policies that facilitate the activities of the key stakeholders in the sector while providing an essential element of the social safety net - the paper establishes the goals and objectives that should guide the formulation of policy and institutional reforms within the sector, and defines priorities for actions to be taken by national and local governments and by international agencies in support of governments.     

A LITERATURE SURVEY ON PROPOSED AFRICAN MONETARY UNIONS

This study provides a survey of recent advances in the literature on proposed African monetary unions. The survey comprises about 70 empirical papers published during the past 15 years. Four main strands are discussed individually and collectively. They comprise the proposed: (i) West African Monetary Zone (WAMZ), (ii) East African Monetary Union (EAMU), (iii) Southern African Monetary Union (SAMU) and (iv) African Monetary Union (AMU). We observe a number of issues with establishing the feasibility and/or desirability of potential monetary unions, inter alia, they are variations in: choice of variables, empirical strategies, sampled countries and considered periodicities. We address this ambiguity by reviewing studies with scenarios that are consistent with Hegelian dialectics and establish selective expansion as the predominant mode of monetary integration. Some proponents make cases for strong pegs and institutions as viable alternatives to currency unions. Using cluster analysis, disaggregating panels into sub-samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications. We caution that for inquiries using the same theoretical underpinnings, variables and methods just by modifying the scope/context and periodicity may only contribute to increasing the number of conflicting findings. Authors should place more emphasis on new perspectives and approaches based on caveats of, and lessons from the European Monetary Union (EMU) and CFA zones.     

Central bank rules in historical perspective

This article explains that, while Walter Bagehot׳s Lombard Street had a rule about the central bank׳s role as a lender of last resort, it was not a precursor of the rules-based approach to monetary policy. Monetary policy rules came into fashion in the 1980s and 1990s when it became clear from the 1970s just how dangerous discretion could be. Under different historical circumstances before that and in more recent times, it was rules that seemed much inferior to discretion.     

SHORTER REVIEWS

Book reviewed in this article: Behnken, I., M. du Bois-Reymond and J. Zinnecker 1989: Stadtgeschichte als Kindheitsgeschichte: Lebensraüme von Groβstadtkindern in Deutschland und Holland um 1900. Benton, L. 1990: Invisible factories: the informal economy and industrial development in Spain. King, D. and J. Pierre (eds) 1990: Challenges to local government. Pickvance, C. and E. Preteceille (eds) 1990: State restructuring and local power: a comparative perspective. Lowe, P. and M. Bodiguel (eds) 1990: Rural studies in Britain and France. Thornley, A. 1990: Urban planning under Thatcherism: the challenge of the market.     

BOOK REVIEWS

Book reviewed in this article: Assies, W., G. Burgwal and T. Salman, 1990: Structures of power, movements of resistance: an introduction to the theories of urban movements in Latin America. Lombardi, M. and D. Veiga (eds), 1989: Las ciudades en conflicto: una perspectiva latinoamericana. Breckner, I. et al., 1989: Armut im Reichtum: Erscheinungsformen, Ursachen und Handlungsstrategien in ausgewählten Großstädten der Bundesrepublik. Brumfield, W.C. (ed.), 1990: Reshaping Russian architecture: western technology, utopian dreams. Crompton, R. and K. Sanderson, 1990: Gendered jobs and social change. Portes, A., M. Castells and L.A. Benton (eds), 1989: The informal economy: studies in advanced and less developed countries. Ross, R.J.S. and K.C. Trachte, 1990: Global capitalism: the New Leviathan. Von Beyme, K., 1987: Der Wiederaufbau: Architektur und Städtebaupolitik in beiden deutschen Staaten.     

Multivariate distributions characterized by a relationship between mean residual life and hazard rate

In this paper, we characterize some multivariate distributions based on a relationship between the multivariate hazard rate, as defined by Johnson and Kotz (1975) and Marshall (1975), and the multivariate mean residual life as defined by Arnold and Zahedi (1988). The results are extensions of the results obtained earlier by Roy (1989, 1990) and Ma (1996, 1997). Received July 1997