Peter J. N. Sinclair

• University of Birmingham

The paper looks at the ‘new normal’ in so many of the world's central banks, and specifically the UK. It examines the position of the monetary policy framework, instrument settings, the underlying models, unconventional policy measures, real interest rates, and the interface with macroprudential policy. It explores both the advantages and challenge...

For many of us, the world is far too complicated to allow economic analysis to furnish a clear answer on an issue of policy. Ezra Mishan disagreed. For him, as for his teacher and mentor, Milton Friedman, economics was a system of reasoning that cried out to be used for that purpose - and especially so if prevailing orthodoxy was in error. Mishan w...

Policy interest rates do not have to be short. The means by which monetary authorities influence prices and quantities can differ, but the obstacles to altering one rather than the other are not insuperable. Inflation is sluggish, and expectations of future interest rates—long and short, nominal and real—are diverse and uncertain. These factors det...

This paper explores the issue of whether rates of interest should and do tend to exceed rates of growth, a key determinant of debt sustainability. It goes on to consider the argument for debt renegotiation in circumstances where sustainability is in grave doubt.

In his essay on public credit, Hume advances two arguments in favour of government borrowing and five against. It is interesting to cast his various arguments and claims in terms of modern models, or their variants, to see how they might be formalized - and thus potentially supported, or qualified, or contradicted. Some of Hume's observations seem...

This paper scrutinizes the economic case for adopting a system of macroprudential regulation, the instruments that may be available to conduct it, and the practical implications for policy.

In his essay on public credit, Hume advances two arguments in favour of government borrowing and five against. It is interesting to cast his various arguments.

This paper poses, and then attempts to answer, eleven questions about the principles and practice of inflation targeting under contemporary conditions.

Understanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses. This paper examines exchange rate pass-through to the monthly import price index in South Africa during 1980-2009. A methodological innovation allows various short-run pass-through estimates to be calculated simply without reco...

Despite the increasing role of foreign direct investment (FDI) in economic development, very limited research has been carried out on the causal links between trade, FDI and economic growth in Asian economies. This study examines empirically the inter-play between exports, imports, FDI and economic growth for nine Asian economies by conducting mult...

Despite the phenomenal development in stock markets in China, there is little research on the linkage between stock prices and economic growth in Greater China: mainland China, Hong Kong and Taiwan. This article represents a step towards systematically investigating the relationship between stock market performance and economic growth in Greater Ch...

This paper endeavours to illustrate the consequences of a credit squeeze by inserting a standard model of retail banks into some familiar macroeconomic models. Some possible policy conclusions are drawn about the benefits of incentives to increase lending at these times, and to reduce it in much better times.

The payment of bonuses can bring big benefits. But harm, too, can result. In the financial sector, this is especially true, above all when they are related to noisy indicators of performance over brief periods. This paper starts by exploring these ideas, then proceeds to examine credit rating agencies and their role in the 2007 credit crunch. It em...

Preliminaries What was Tony Blair's economic legacy? Inferring the economic effects of government policy is never an easy task. We need to ask how things would have differed had policies been different. Posing that counterfactual faces challenges. There are many other influences on events, apart from what government does. Economic entities depend o...

This paper examines two tax regimes in a world where abilities to earn differ. It compares the distributions of utilities under a “flat” tax regime where all income is subject to a common tax rate, and proceeds finance a common transfer paid to all, with one with a menu of tax rates and transfers from which each can select the combination that suit...

Despite its varying pattern of cyclical ups and downs, the British economy has, on average,grown at 2.5% per year for six decades, with minimal breaks in trend. So history warns us that government policies to change that trend may have little effect. There is a bit more movement in the trend growth of national income per head, which has been weaken...

price stability conflates two ideas: low inflation, and steady inflation. The typical quadratic objective function is unsatisfactory in various ways. Blindness to a mean-amplifying, variance-preserving transformation of inflation rates is one of them, and fixation with the year unit another. Average inflation steadiness over longer periods is valua...

We develop a two-period model where a risk-averse entrepreneur decides on the size of an investment project and how to finance it. He can use debt and/or equity finance; an incentive compatibility constraint limits the extent to which the project can be financed with equity. With debt, he may, in certain circumstances, credibly threaten default to...

This paper reexamines the case for subsidizing employment. One superficially promising approach, based on the idea that government cofinancing of unemployment benefits could induce firms to lay off too many workers in bad times, turns out to be an unsatisfactory argument for employment subsidies when worker-firm contracts are optimal. But efficienc...

Many central banks have seen a recent increase in their autonomy in monetary policy, and also a transfer of supervisory and regulatory responsibilities to other bodies. But the maintenance of financial stability is, and remains, a core function for all central banks. This paper presents details of 37 central banks' functions and powers as they stoo...

The Central Bank Governors' Symposium 2002 examined the architecture of the world's financial system. Horst Koehler, Managing Director of the IMF, and the Bank of England's two Deputy Governors at the time, David Clementi and Mervyn King, gave the main addresses. This article summarises what they said. It also gives a precis of eight background pap...

The Bank of England's Centre for Central Banking Studies (CCBS) conducts training, seminars and collaborative research with and for central banks in the rest of the world. It enjoys contact with some 150 of these, and now averages over 1,000 training contacts each year in all. The typical medium is a week-long course in London or abroad. These cove...

In an economy free of all imperfections, inflation should be slightly negative. Prices should keep dropping, at the real rate of interest. Any higher rate of sustained inflation (or lower deflation) would reduce the benefits from holding real money. Central banks typically aim for modest positive inflation, however. This article explores five types...

This paper reviews the merits of the various techniques used by authorities when resolving individual or widespread bank failures in developed and emerging market economies. In particular, the various banking crisis resolution techniques available to the authorities are classified and then compared with the techniques that have been used in practic...

For monetary policymakers worldwide, developing a practical understanding of how monetary policy transmits to the economy is a day-to-day challenge. The data such policymakers have is imperfect, the maps they use are continually redrawn. With such uncertainty, understanding this complicated issue is rarely straightforward. This book, a collaboratio...

This study investigates the causal links between trade, economic growth and inward foreign direct investment (FDI) in China at the aggregate level. The integration and cointegration properties of quarterly data are analysed. Long-run relationships between growth, exports, imports and FDI are identified in a cointegration framework, in which this pa...

This paper looks at the general principles underlying pensions systems, and the relative merits of different kinds of system of state superannuation payments. A pay as you go system is, it is argued, usually inferior to a fully funded one. The paper presses the case for the view that redistribution is a cogent argument--perhaps the most cogent argu...

A model is considered in which an entrepreneur uses debt to finance a risky investment project. He may in certain circumstances credibly threaten default on the loan, which is then renegotiated. However, lenders will never lend so much that default is credibly threatened in all states. There exists a "credit ceiling" which, if binding, implies unde...

Asia's "Open Regionalism" Alternative to Preferential Trade Agreements: Promising, Attractive, or Vulnerable to Cronyism? Peter Sinclair and David Vines Starting with a world where all countries apply Nash-optimal tariffs against all imports, we ask when, if ever, a group of countries can gain by trading freely ("promise") and when, if ever, it pay...

The policy of allowing households to choose whether to have their water consumption metered is investigated . A simple model is constructed, in terms of which it is shown that such a policy is optimal within an appropriate range of parameter values for the demand and supply of water.

How can we best explain the behavior of exports into Britain and Germany from 1975 to 1995? Our study uses a highly disaggregated data det to find some evidence of hysteresis in trade flows (rather stronger for German imports than for British) and the role of technology proxies, particularly cumulated research and development spending (better attes...

Are home and foreign products equally close substitutes? Our study uses highly disaggregated data to investigate the home preference bias in the Swedish fabricated metals sector, which appears to be declining.

Any government’s expenditure needs should ideally be met from lumpsum taxes. Taxes on labour earnings distort labour supply. They contravene the Pareto-efficiency principle requiring equally between the marginal product of labour and the marginal rate of substitution between leisure and consumption. Equiproportionate sales taxes on different consum...

This article surveys four aspects of Britain's post‐war economic experience. We explore the main features of employment and production, and some major developments in the housing and energy markets. This is followed by a brief scrutiny of currency changes, and then by a more detailed look at wages, inflation and unemployment. The main part of the p...

A decade ago, Central and Eastern European countries were isolated economically from Western economies and integrated among themselves through the Council for Mutual Economic Assistance (CMEA). Now that the CMEA along with Czechoslovakia, the Soviet Union and Yugoslavia have disintegrated, one question is whether some form of integration or re-inte...

The interest rate should fall with global warming. Remedial policy should allow for this endogeneity. In the simplest infinite-horizon model yielding a steady-state, one can derive the trend that an ad valorem fossil fuel tax should take to internalize the externality from emissions. It is negative. If implemented, it would reduce fossil fuel deple...

This paper outlines the general principles that underlie the economic analysis of the substantive body of the law and the productions of judicial and legal services. Reform of tort law and the reform of the UK legal service sector are considered using this economic analysis. The efficiency and the degree of state provision and subsidy are assessed...

From day to day or month to month, the price of gold can swing violently. But over much longer time spans, gold holds its real value rather well. This paradox is explored in this paper; it is explained by the notion that a well informed market should overreact to news about the fundamentals governing its long run value; and then, in the absence of...

It is often that greenhouse gas emissions should be curbed by taxes on activities that generate them. This paper continues the case for taxes on fossil fuels in the context of an infinite-horizon growth model. Under simple conditions, a constant tax rate on energy use is found to exert no real effect: energy taxes just squeeze rents and have no imp...

Various reasons for imitation are considered, among them information-cost saving, calculation and decision-cost saving, strategic behavior, and externalities. Imitation can generate multiple equilibria, where self-interest and public interest diverge, imitation penalizes self-interest, but, when agents act differently, stringent conditions are requ...

This chapter examines the effect of fiscal expansion on the price level. The short answer to the question ‘Is fiscal expansion inflationary?’ is this. There is a variety of reasons for thinking that it could be initially disinflationary. President Reagan’s fiscal policies in the United States — the only large economy in the world to have reduced bo...

A collection of papers on the relevance of Keynes' economic theory after 50 years. It covers a diversity of topics relating the theory to subjects varying from the effect of fiscal reflation upon employment, and the significance of public sector borrowing to the international dimension.

This chapter provides an overview of what economics is about. Economics is not a subject that can be learned, like mathematics, as a series of propositions that follow from one another with the neatness of a Chinese box. It is much more like medicine, compounded of imperfect knowledge, worldly wisdom, obscure jargon, and scientific analysis. An eco...

The theory of wages deals mainly with two questions—what determines the general level of wages and the share of labor in the national product and why do wages differ in different places and occupations? Wage rates are generally expressed in terms of the full-time weekly rate of wages—sometimes called nominal wages. But the nominal wages payable in...

This chapter provides an overview on interest and profit. Interest is the price paid for the hire of loan-capital; more briefly, it is the price of a loan. The immediate reason why interest is paid is that loan-capital is scarce. The amount of money that people are willing to lend every year falls far short of the amount that would be borrowed if n...

This chapter explains the phenomenon of demand. A rise in the price of one good can affect the demand for others and in different directions. The reason for this is the principle of substitution. It states that if the relative price of two goods changes in such a way that a consumer with given preferences is neither better off nor worse off than be...

This chapter discusses problems of economic policy. The most important problem with which economics has to grapple is how to ensure a continuous improvement in the standard of living without wide fluctuations in employment. This calls for full and stable employment of the country's manpower, an enlargement of its stock of productive assets, and a p...

This chapter provides an overview of the national income. There are three groups of economic agent who contribute to expenditure in a closed economy. There are households, producers, and the government. The supply of money, let us suppose, is a unique, readily definable variable controlled by the government and pre-set at a particular value in mone...

This chapter provides an overview of British financial institutions. The most important single source of capital is self-finance: just as the private householder relies heavily on his own savings when he buys capital equipment such as a motor car, a washing machine, or a bedroom suite, so the average business usually turns first to appropriations f...

This chapter provides an overview of the distribution of income. There are two sides to the theory of distribution. One is concerned with the definition, measurement, and explanation of economic inequalities. The other is the theory of factoral distribution. The factoral theory is the study of how and why the national income is divided between thos...

This chapter discusses production, consumption, and trade. Economic theorists exclude from production all services that yield nothing tangible and they measure the growth of production by an index composed entirely of physical products like coal and steel. Nor are the Soviet economists without some claim to orthodoxy because they derive their pract...

This chapter discusses the interrelationships of supply and demand. The effect of a change in price is never confined to a single product; there are repercussions on the prices of other products, linked with the first either in supply or in demand. These repercussions can be classified under five headings: joint supply, joint demand, composite supp...

This chapter describes the role of government. Governments are not only important elements in the functioning of the economy but also enjoy political as well as economic power and can use that power to make deliberate changes in the economic system. Money is the currency of one system and votes of the other. As the two systems interact, it is neces...

This chapter provides an overview of the factors that determine the supply of a commodity. Cost controls supply in two ways. It controls the volume of output that each firm finds it profitable to produce and it controls the number of firms that can carry on at a profit. If the cost of producing a commodity rises, other things remaining the same, th...

This chapter discusses the cost of supply in relation to output and time. The cost of producing any commodity is fundamentally the cost of detaining productive resources so as to make their services available to the industry producing the commodity rather than to some other industry. Cost measures the pull of competing attractions. If the cost of a...

This chapter discusses the localization of industry. Geographical specialization can be looked at from two different angles. The influence of labor costs on the location of industry within a country is generally limited. It might seem unlikely, unless the country is large, that there should be wide differences in rates of pay or in labor efficiency...

This chapter discusses the demand for money. Money is anything that, by custom or law, is generally acceptable without question in payment for goods and services or in final settlement of a debt. Money, on the other hand, is accepted by one not necessarily for its own sake but because one knows that other people will accept it; one knows that there...

This chapter explains inflation. When the pace of change is slow, the movement is not so easy to observe and as some prices may be rising while others are falling, it may be difficult to say whether, on the average, prices are going up or coming down. But it is obviously desirable to have a more exact measure, and this is provided by what are known...

This chapter discusses the supply of money. Banknotes are oblong pieces of paper decorated with a promise to pay whereas a bank account is an entry in a ledger. This entry gives the right to ask the bank for a specified amount of currency. Checks themselves are not money; they are devices for transferring the ownership of bank money from one person...

This chapter provides an overview of the growth of business units. A firm may seek to expand from two fairly distinct motives. It may be attracted by the prospect of lower costs of production or by the prospect of higher prices. The monopoly motive is generally most prominent when a firm grows by combination, while the economy motive is generally t...

This chapter provides an overview on the mechanism of international adjustment. The balance of payments may become unfavorable because of pressures on it from inside or outside the country. It drives up the price of imported goods, including foodstuffs and raw materials and spreads to domestic costs of production as money wages chase the cost of li...

This chapter focuses on the finance of large-scale production. A joint-stock company or business corporation is a body corporate with a common seal, carrying on business under the management of a board of directors and owned by a group of shareholders. After registration, the company enjoys certain privileges that enable it to overcome the legal ob...

This chapter focuses on the price mechanism in the market economy. The price mechanism describes the system by which prices adjust themselves to the pressure of demand and supply and in their turn operate to keep demand and supply in balance. The price mechanism is the product of a market economy in which consumers and producers exercise freedom of...

This chapter explains the mechanism of supply and demand. Supply means the quantity offered for sale by producers and demand is the quantity that consumers are willing to buy. Demand conditions and supply conditions are generally independent of one another, whereas price affects demand and supply simultaneously. The fact that supply and demand both...

This chapter provides an overview of the fluctuations in the national income. The national income fluctuates sometimes violently and with terrible consequences for large groups of people. Between 1929 and 1932, the national income of the United States fell, in money terms, by over 50% and the wage and salary bill by 40%; between 1938 and 1942, nati...

This chapter discusses growth, transformation, and development. In a growing economy, a great many things increase simultaneously. There is usually more labor, more capital, more trade, a higher standard of living, and so on. These purely quantitative changes may be called growth. The structure of the economy has, thus, constantly to be adapted to...

This chapter describes the factors of production. Productive resources are usually classified by economists under three broad headings: labor, land, and capital. The first of these represents human resources; the second natural resources; and the third man-made resources. All three factors have a physical existence: they are tangible resources capa...

This chapter discusses the social aspects of pricing. The price of a commodity measures the value that consumers set on an extra unit of it; its marginal cost measures the cost of producing such a unit. If price is above marginal cost, too little of the commodity is being produced. Equality between price and marginal cost secures the right balance...

This chapter presents an analysis of small-scale production. The overwhelming majority of business units are extremely small; many are one-man businesses and many more employ only a handful of workers. Over a wide span of industry, the typical situation is one of what is described as oligopoly, that is, domination of the market by a small group of...

This chapter explains the principles of monopoly and competition. Competition is fundamentally the offer of a substitute; monopoly is fundamentally the absence of substitutes. But there can never be an entire absence of substitutes. So long as the purchasing power is limited, everything on which one might be induced to spend the money is in a sense...

International trade occurs because those conducting it see profit in it. A commodity is exported from one country to another because its price is—or would otherwise be—higher in the second country than the first. As a rule, traders buy cheap and sell dear. International trade, like other kinds of trade, originates in the scarcity and diversity of p...

This chapter provides an overview on the balance of payments. Each country has its own money, which is not freely accepted abroad, but must be changed into foreign money at a rate that may be either fixed or variable. The rate of exchange, whether fixed or variable, is a price; and like any other price, it must be such as to balance supply and dema...

This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...

What constitutes a trend in economics may sometimes be hard to identify. The movement of some economic variable is examined between two dates; but unless the dates are rather far apart, history often shows that such apparent movements merely reflect temporary rises or falls, followed by movement at an altered pace — or even by movement in the oppos...

The economy of every country is a kaleidoscope. Some industries expand; others contract. Consumers face changes in income and prices, and alter their pattern of spending. Producers alter their purchases of inputs and their pattern of outputs. In aggregate, there are alternating phases of boom and slump. In the wage hierarchy, we see changes in the...