HOUSE PRICES AND THE ECONOMY

UK house prices more than doubled from 1985 until 1989, with house price inflation over the previous year peaking at 34 per cent in the fourth quarter of 1988. The ratio of house prices to average incomes reached levels which surpassed even those experienced during the 1972-73 house price boom. This sharp increase in housing wealth has been a major factor in the fall in the savings ratio over the past three years. This forecast release examines the prospects for future house price movements, discusses the sources of the recent house price boom and finally considers the possible impact on consumer expenditure.     

THE DYNAMICS OF REGIONAL POPULATION AND EMPLOYMENT GROWTH

The authors investigate what Muth labels as the "chicken and egg" or what others label it as "jobs follow people" versus "people follow jobs" debate by studying the dynamic relationships of changes in population and employment in the snowbelt, the sunbelt, and the nine census regions of the United States. The vector autoregressive (VAR) modeling method is used for the annual time series data (1955–1988) on population and employment. The Granger causality tests show that, in the snowbelt region, population tends to precede employment, while in the sunbelt region, the opposite is true. The impulse response functions generated for the forecasting decade suggest that "jobs follow people" in the snowbelt and "people follow jobs" in the sunbelt. Similar findings in general hold for the census regions belonging to the snowbelt and sunbelt. These findings raise doubts about the proposition of others that the growth process is either demand or supply-driven in all phases of regional growth.     

ECONOMETRIC MODELLING OF UK HOUSE PRICES USING ACCELERATED IMPORTANCE SAMPLING*

We consider stochastic and dynamic extensions of a model for UK house prices proposed by Hendry (1984). Numerical integrations are carried out by means of an accelerated importance sampling technique developed by Richard and Zhang (1996a,b). We find that prices ‘perfectly’ adjust to a stochastic latent variable (‘excess demand’) whose distribution only depends upon observable characteristics of the market, not upon its own lagged values.     

COMMENTS ON THE DYNAMICS OF REGIONAL POPULATION AND EMPLOYMENT GROWTH

There has been much discussion about whether population growth causes employment growth or vice versa. This study supplements the work of Mathur and Song by confirming that population growth causes employment growth in die Snowbelt and die reverse in die Sunbelt. Also, regional growth rates of population and employment alternated between convergence, divergence, and convergence during 1955-88.     

LOWER OIL PRICES AND THE UK ECONOMY

Demand for oil remains weak, and OPEC production is running ahead of quota in most member countries, so the possibility that oil prices could fall in the near future has increased. In this Forecast Release we examine the medium-term impact on the UK economy of lower oil prices. We find that, if the government does not intervene to protect the exchange rate, there is an immediate stimulus to output growth. The inflation rate, though, is 1–2 percentage points higher after three years.     

WORKERS' COMPENSATION COSTS AND REGIONAL GROWTH DYNAMICS*

This paper attempts to gauge the effect of workplace regulation, against the background of other influences, on the increasing or decreasing competitive advantage of particular regions relative to the nation. We employ two measures of regional growth. The first is the differential rate of investment growth across states between 1978 and 1984. The results for output growth show that states both in the South and outside the South stand to lose their competitive edge in manufacturing activity from rising unit labor cost and energy cost. Rising taxes hurt industrial activity in the North but are not critical in the South. Agglomeration economies that benefit the North, apparently have no detrimental effect in the South. Rising workers' compensation cost is significant in the decline in southern competitiveness; it is not in the North. Both regions enhance their competitive position when local markets grow. For regional manufacturing investment, we find that unit labor cost and energy cost have no significant effect on the competitive position of states in the South. However, taxes and workers' compensation costs hurt investment opportunities in South.     

NATIONAL AND REGIONAL WAGE CURVES IN JAPAN 1981–2001

There is evidence in many countries of an inverse relationship between the real wages paid to workers and the unemployment rate in their local labor market, a so-called wage curve. However, the evidence to date for Japan has been rather limited. In this paper, we estimate wage curves for Japan using pooled cross-section time-series data from 1981 until 2001. The presence of a wage curve is confirmed. The wage curve has become slightly more elastic after the bubble economy of the 1980s than it was in the pre-bubble and mid-bubble period. The unemployment elasticity of pay is greater for males than for females. We also estimate regional wage curves using time-series data. The male wage curve elasticity is larger in the northern regions of Hokkaido and Tohoku and the western region of Shikoku, while it is smaller in the central regions of Hokuriku, Tokai and Kinki.     

THE VERY RAPID INCREASE OF JAPANESE TOURISTS ABROAD AND THE ROLE OF NATIONAL WEALTH

The strong performance of the Japanese economy, rising stock and land prices in Japan, as well as the strong yen, have prompted Japanese to travel abroad in ever increasing numbers in recent years. Despite several obstacles against growth, such as limited vacation time for employees of Japanese corporations, relatively expensive airline tickets, capacity limitations of international airports in Japan, booming resort development in Japan itself, and imposed constraints on Japanese direct investment abroad, Japanese travelers abroad, the majority of whom are tourists, increased from less than five million in 1985 to almost 10 million in 1989. The traditional demand function based on income and price may not explain all of the growth of Japanese overseas tourism, since some of the increase in Japanese travelers may stem from increases in expected future income based on increased wealth. This wealth effect hypothesis is tested using a log-linear regression model. It is found that wealth is a better predictor of overseas tourism levels than income. The effect of wealth increases on overseas tourism is also found to have a lag time of about one year. For this reason, it is proposed that the slowing in the Japanese economy this year will negatively impact Japanese overseas tourism next year.     

THE ECONOMIC PERFORMANCE AND REGIONAL SYSTEMS OF CHINA'S CITIES*

Employing cluster analysis of selected economic indicators, this paper classifies Chinese cities into various levels according to their total urban economic strength and per capita economic performance. Regional characteristics of China's urban system are identified and policy-related measures for improving the economic efficiency of Chinese cities are suggested. In general, China''s urban economy appears to be undergoing a transition from a centrally planned economy into a market-oriented one, particularly in cities along the coast and the lower reaches of the Yangzi valley.     

A SURVEY OF THE EFFECTS OF THE MINIMUM WAGE ON PRICES

Abstract.  It is well established in the literature that minimum wage increases compress the wage distribution. Firms respond to these higher labour costs by reducing employment, reducing profits, or raising prices. While there are hundreds of studies on the employment effect of the minimum wage, there are merely a handful of studies on its profit effects, and only a couple of dozen studies on its price effects. Furthermore, a comprehensive survey on minimum wage price effects is not available in the literature. Given the policy relevance of this neglected issue, in this paper we summarize and critically compare the available evidence on the effects of minimum wages on prices.     

PICKING WINNERS? A SURVEY OF THE MEAN REVERSION AND OVERREACTION OF STOCK PRICES LITERATURE

Abstract. This paper surveys, and suggests a possible synthesis of, two growing literatures concerning stock market anomalies. The first concentrates on identifying contrarian trading rules, capable of generating profits, when securities are segregated on the basis of past earnings, or share price performance. The other simply examines the time-series properties of security prices to find evidence of low-frequency negative autocorrelation, or 'meanreversion'. We seek to articulate the points of interdependence between the two strands of research and the problems of joint hypothesis testing implied by the close relation between 'Overreaction'and 'mean-reversion'tests.     

REGIONAL CONVERGENCE AND THE ECONOMIC PERFORMANCE OF PERIPHERAL AREAS IN TURKEY

The objective of this paper is to examine regional convergence and core-periphery relations in Turkey. The main question explores the degree to which there has been a transformation of interregional disparities in terms of "convergence" and performance of peripheral regions in Turkey by considering GDP per capita over the 1980-97 period. As a result of σ and β convergence (absolute and conditional) analyses, following Barro and Sala-i-Martin (1995), there is no evidence for convergence across both provinces and the functional regions in Turkey from 1980 to 1997. Moreover, a high level of the spatial dependence was revealed. Therefore, the level of regional GDP per capita growth was highly related to the neighbors and disparities are still obvious between the east and west of Turkey. Most of the new dynamic areas are also located in the west. Notwithstanding policies for "Priority Provinces in Development" (PPD), the findings of the convergence analysis indicates that PPDs do not grow faster than core-developed provinces. Moreover, the majority of them remained as poor regions with their neighbors. While the PPDs share similar features compare to the developed provinces, they are differentiated in terms of their performance.