House Prices, Housing Investment and Demography Forecasts from the LBS/Abbey National Model of the UK Housing Market

A new housing sector has been incorporated into the London Business School model. This article outlines the new housing model, summarizes the research which has gone into its construction, and presents a forecast of the UK housing market. Using the new housing model, we forecast a moderate recovery in the housing market in the later part of 1991 and 1992. This recovery is however short-lived and does not result in such high rates of house price increase as previous house price booms (Chart 1).
Cuts in interest rates following entry to the exchange rate mechanism of the EMS prompt a recovery in house prices from the middle of 1991. House price inflation then peaks with an increase in average UK house prices in 1992 of 11 per cent over the previous year. Increases in real personal disposable income are modest, by the standards of the 1980s, and for this reason the recovery does not develop the momentum of previous house price booms. House price inflation moderates again in 1993 falling back to around 7 per cent. Housing starts and housing investment recover only slightly from their present depressed levels.
the recovery in house prices is weaker than that foreseen in our April Forecast Release. This is because real personal disposable income is now forecast to grow more slowly during 1991. Sterling's membership of the ERM is followed by a fall in interest rates, but it is the timing of interest rate cuts rather than their magnitude which differs from the earlier forecast. The changed profile of interest rates has altered the house price forecast only marginally.     

The Financial Milieu of the IASB and AASB

This paper considers the implications of the convergence of the accounting standards of the International Accounting Standards Board with those of the Australian Accounting Standard Board. Australia seems well placed to comply with the international accounting standards in 2005, but not quite in the way the boards would have us imagine. While actively seeking funds from large multinational corporations and elite accounting firms, the AASB is dominated by stakeholder groups with what are described as "corefinancial" and "partial-financial" interests. This financial milieu may offer cosy deals for the key stakeholders, but does little in the way of civic responsibilities and accounting service for the wider public .     

Factor Substitutability in Australian Manufacturing with Emphasis on Energy Inputs*

In this paper a model of the production structure in the aggregate Australian manufacturing sector is estimated, emphasizing the use this sector makes of energy inputs. A translog cost function is estimated with time-series data for four inputs, capital services, labour services, energy and materials and likewise an energy submodel is estimated for solid fuels, oil, electricity and gas. The substitutabilily and the complementarity relationships between the various factor inputs and between the various fuels are examined: an interesting finding is that capital and energy are substitutes and labour and energy are complements. Factor price elasticities are calculated and turn out to be quite significant. The study concludes that rising energy prices will induce significant shifts in both the mix of fuel inputs and the level of aggregate energy utilization.     

THE IMPACT OF CLEAN FUEL SPECIFICATIONS ON ADELAIDE RETAIL PETROL PRICES*

In March 2001, the South Australian Government introduced a clean fuel policy which it claimed was designed to protect air quality. This paper quantifies the policy's impact on relative Adelaide retail prices for unleaded petrol through Box‐Jenkins autoregressive integrated moving average methodology coupled with Box and Tiao intervention analysis. The analysis uses weekly price data spanning from January 2000 until the beginning of June 2002. It finds the clean fuel policy had a statistically significant impact on relative retail petrol prices, resulting in an increase of almost 1.9 cents per litre and, therefore, costing Adelaide motorists around an extra $15.8 million per annum. Based on claims that the quality of fuel produced by the local Adelaide refiner did not change in response to the implementation of the clean fuel policy, the paper concludes that the increase in relative retail petrol prices was most likely associated with the exercise of market power rather than an increase in refinery production costs.     

Optimal Universal and Categorical Benefit Provision with Classification Errors and Imperfect Enforcement

We determine the optimal combination of a universal benefit and categorical benefit when individuals differ in their ability to work and, if able to work, their productivity. The categorical benefit is conditioned ex ante on applicants being unable to work and ex post on recipients not working. The awards test makes Type I/II errors. If the ex post condition is (i) not enforced, the optimal categorical benefit is positive only if the awards test has discriminatory power, while maximum welfare falls with both error propensities; but if (ii) fully enforced, the optimal categorical benefit is positive always and maximum welfare can increase with the Type II error propensity.     

Briefing Paper: Non-Manufacturing Investment and UK Aggregate Demand

The standard view of business fluctuations gives the leading role to investment, in both fixed capital and stocks, which raises aggregate demand in boom and reduces it in slump. The recent behaviour of the UK economy seems to have been a particularly marked departure from the standard model. Movements in personal consumption have played an unusually important role in both the rapid increase of demand from 1986 to 1989 and in the current recession. Stock investment, owing to improvements in the technology of stock control, is no longer a driving force. Manufacturing investment, while rising during the boom, contributed relatively little to increasing demand. The conventional wisdom now has it that recent UK experience is that of a consumption driven business cycle.
This Briefing Paper argues that this down-playing of the role of investment has been overdone. What has deceived the eye is the concentration on manufacturing. Investment did make a very large contribution to the recent boom, with the biggest increases in investment undertaken by non-manufacturing industry: a component of demand which attracts little regular scrutiny and less understanding. The textbook model still applies to the UK.