Nicholas Oulton | London School of Economics and Political Science (original) (raw)
Papers by Nicholas Oulton
George Allen and Unwin eBooks, 1973
RePEc: Research Papers in Economics, 2017
Palgrave Macmillan eBooks, 1976
The behaviour of labour productivity in the United Kingdom since the onset of the recession in ea... more The behaviour of labour productivity in the United Kingdom since the onset of the recession in early 2008 constitutes a puzzle. Over four years after the recession began labour productivity is still below its previous peak level. This paper considers the hypothesis that economic capacity can be permanently damaged by financial crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The main finding is that a banking crisis as defined by Reinhart and Rogoff on average reduces the short-run growth rate of labour productivity by between 0.6% and 0.7% per year and the long-run level by between 0.84% and 1.1% (depending on the method of estimation), for each year that the crisis lasts. A banking crisis also reduces the long-run level of capital per worker by an average of about 1%. The corresponding effect on GDP per capita is about double the effect on GDP per worker since there is a long-run, negative effect on the employment ratio.
the United States but not the United Kingdom?
Statistical Software Components, 1998
The Manchester School
What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfar... more What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Heckscher‐Ohlin‐Samuelson (HOS), two‐good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions. This follows from a continuous‐time analysis using Divisia index numbers. However in the case where imports are intermediate inputs and competition is imperfect, an improvement in the terms of trade does raise GDP: the size of the effect depends on the size of the markup of price over marginal revenue. I argue that the con...
We examine the hypothesis that capacity can be permanently damaged by financial, particularly ban... more We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on 61 countries over 1955-2010. A banking crisis as defined by Reinhart and Rogoff reduces the long-run level of GDP per worker, and also that of capital per worker, by on average 1.1%, for each year that the crisis lasts; it also reduces the TFP level by 0.8%. The long run, negative effect on the level of GDP per capita, 1.8%, is substantially larger. So there is also a hit to employment. JEL codes: E23, E32, J24, G01, O47
Science, 2014
“GDP rose by 0.3% in the fourth quarter.” “China's GDP will be larger than that of the U.S. b... more “GDP rose by 0.3% in the fourth quarter.” “China's GDP will be larger than that of the U.S. by 2020.” Such statements are frequently encountered, and most educated people understand broadly what they mean. But not many people have an in-depth understanding of the concept of gross domestic product nor of how it is measured in practice. So a book that sets out to explain the basics is welcome. Diane Coyle opens her book with Andreas Georgiou, someone probably very few people have heard of and quite hard to track down, even on Google. The former head of Greece's national statistical agency, Georgiou is due to be tried for corruption and making false statements, offences that carry a prison sentence of 5 to 10 years. His crime? Telling the truth about the Greek government's budget deficit. The budget deficit as a proportion of GDP was a number critical to Greece's negotiating position when it applied for one of its recent bailouts. Georgiou's refusal to falsify the figures is what landed him in trouble. His case illustrates the importance of GDP in economic policy-making and also the passions that it can arouse. In six short chapters, Coyle (an economist at Oxford University) discusses how the concept of GDP was developed, starting with the 17th-century English savant William Petty and continuing through the pioneering contributions of Simon Kuznets, Colin Clark, and Richard Stone (Kuznets and Stone each won a Nobel Prize in Economics). She describes how their research led to an international effort under the aegis of the United Nations to define what came to be called the System of National Accounts (SNA), a remarkable example of international cooperation. The SNA has gone through a series of revisions since 1953, the latest of which (2008) is currently being rolled out around the world (with a few obvious exceptions, like North Korea). For a time a rival, the Material Product System, was promoted and enforced by the Soviet Union, but that has been abandoned. So the SNA rules alone, at least for now. Coyle structures the book around epochs in economic history, seen from a Western perspective. She uses each epoch to illustrate how GDP was employed for policy purposes. Social and economic problems have led to criticisms of the GDP concept and sometimes to revisions to the SNA. The first chapter, “From the eighteenth century to the 1930s: war and depression,” explains how these dire events led the U.S. and U.K. governments to start producing official statistics of GDP, building on earlier nonofficial estimates by Kuznets and Clark. In the chapter, she also lays out the main accounting identities that form the framework of the SNA. The most important is that GDP in current prices equals the sum of final expenditures (consumption plus investment plus government expenditure on goods and services plus exports minus imports), the sum of factor incomes (wages plus profits), or the sum of value added in each industry (sales minus the cost of materials and bought-in services). In principle, expenditure = income = output, though in practice they differ because of errors and omissions in the data. ![Figure][1] “The economy as a machine.” Bill Phillips built his economic computer (1949) to show the flow of income in the UK economy. PHOTO: © SCIENCE MUSEUM/SCIENCE & SOCIETY PICTURE LIBRARY The earliest estimates of GDP were in current prices, which made it difficult to compare different years because there was no correction for inflation. Nor was it obvious how to compare GDPs of different nations measured in their respective currencies. At a high level of generality, the solution to these two puzzles is the same, a price index. Measuring domestic prices is complicated and something that Coyle could have dwelt on more. Within each category of expenditure, say, soft drinks, you select a basket of products. Then for each product, you have to track the prices of examples (say, a six-pack of regular Coca-Cola) in the same outlet over time (usually every month). The average of the prices of the selected products then forms the price index for soft drinks. Exactly the same method is used in cross-country comparisons. But now you have to collect the price of a six-pack of Coca-Cola (and the many other products) in different countries at the same point in time. The result is called a purchasing power parity. It might seem simpler (and cheaper) just to use exchange rates to make international comparisons. Coyle provides a good discussion of why this would not in general be sensible. Coyle is a friend to GDP. Indeed, she ends the book noting, “GDP, for all its flaws, is still a bright light shining through the mist.” But she is certainly not an uncritical friend. Throughout the book, and especially in the last chapter, she offers several criticisms of the GDP concept. First (though more clarification than criticism), GDP is a measure of output, not welfare (I agree). Second, considering GDP as a measure of output, some of the…
The Economic Journal, 1995
LSE Research Online Documents on Economics, 2013
The behaviour of labour productivity in the United Kingdom since the onset of the recession in ea... more The behaviour of labour productivity in the United Kingdom since the onset of the recession in early 2008 constitutes a puzzle. Over four years after the recession began labour productivity is still below its previous peak level. This paper considers the hypothesis that economic capacity can be permanently damaged by financial crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The main finding is that a banking crisis as defined by Reinhart and Rogoff on average reduces the short-run growth rate of labour productivity by between 0.6% and 0.7% per year and the long-run level by between 0.84% and 1.1% (depending on the method of estimation), for each year that the crisis lasts. A banking crisis also reduces the long-run level of capital per worker by an average of about 1%. The effect on GDP per capita is about double the effect on GDP per worker since there is a long-run, negative effect on the employment ratio.
We examine the hypothesis that capacity can be permanently damaged by financial, particularly ban... more We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on 61 countries over 1955-2010. A banking crisis as defined by Reinhart and Rogoff reduces the long-run level of GDP per worker, and also that of capital per worker, by on average 1.1%, for each year that the crisis lasts. The long run, negative effect on the level of GDP per capita, 1.7-1.8%, is substantially higher.
The Boskin Commission has claimed that the US Consumer Price Index (CPI) is currently overestimat... more The Boskin Commission has claimed that the US Consumer Price Index (CPI) is currently overestimating the true rate of inflation by 1.1 percentage points per annum. This article assesses the evidence for this conclusion and its implications for the measurement of past and future US economic performance. 1 f Boskin is right, US GDP growth in the period 1970 to 1996 has been underestimated by about 0.9 per cent per annum. Some at least of the methodological changes recommended by Boskin will probably be adopted. As a result US GDP growth will appear to rise, eventually by as much as 0.5 per cent per annum, even though no genuine improvement in economic performance has actually occurred. Boskin has implications for the UK too. Recent evidence suggests that use of a formula recommended by Boskin for averaging price quotes together can by itself reduce UK inflation by 0.4 per cent per annum.
We argue that unmeasured investments in intangible organizational capital-associated with the rol... more We argue that unmeasured investments in intangible organizational capital-associated with the role of information and communications technology (ICT) as a "general purpose technology" - can explain the divergent U.S. and U.K. TFP performance after 1995. GPT stories suggest that measured TFP should rise in ICT-using sectors, perhaps with long lags. Contemporaneously, investments in ICT may in fact be associated with lower TFP as resources are diverted to reorganization and learning. In both the U.S. and U.K., we find a strong correlation between ICT use and industry TFP growth. The U.S. results, in particular, are consistent with GPT stories: the TFP acceleration was located primarily in ICT-using industries and is positively correlated with industry ICT capital growth from the 1980s and early 1990s. Indeed, as GPT stories suggest, controlling for past ICT growth, industry TFP growth appears negatively correlated with increases in ICT capital services in the late 1990s. A s...
LSE Research Online Documents on Economics, 2015
Space-time consistency in the national accounts means that the relative size or standard of livin... more Space-time consistency in the national accounts means that the relative size or standard of living of a country today is the same whether we measure it by an earlier PPP extrapolated to the present using relative inflation rates from the national accounts or by the current PPP. Empirically, space-time inconsistency is extensive. Theoretically, space-time consistency prevails if the consumer’s utility function (or the revenue (GDP) function) is homothetic and if Divisia price indices are used to deflate nominal consumption (or GDP), both over time and across countries. Hence the inconsistency we observe is due to either (a) non-homotheticity in consumption (or production); (b) approximation error when discrete chain indices are used instead of continuous Divisia indices; or (c) errors in domestic price indices and PPPs. Based on detailed data from the 1980 and 2005 International Comparisons Program and the Penn World Table, I conclude that errors in price indices and PPPs are the maj...
George Allen and Unwin eBooks, 1973
RePEc: Research Papers in Economics, 2017
Palgrave Macmillan eBooks, 1976
The behaviour of labour productivity in the United Kingdom since the onset of the recession in ea... more The behaviour of labour productivity in the United Kingdom since the onset of the recession in early 2008 constitutes a puzzle. Over four years after the recession began labour productivity is still below its previous peak level. This paper considers the hypothesis that economic capacity can be permanently damaged by financial crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The main finding is that a banking crisis as defined by Reinhart and Rogoff on average reduces the short-run growth rate of labour productivity by between 0.6% and 0.7% per year and the long-run level by between 0.84% and 1.1% (depending on the method of estimation), for each year that the crisis lasts. A banking crisis also reduces the long-run level of capital per worker by an average of about 1%. The corresponding effect on GDP per capita is about double the effect on GDP per worker since there is a long-run, negative effect on the employment ratio.
the United States but not the United Kingdom?
Statistical Software Components, 1998
The Manchester School
What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfar... more What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Heckscher‐Ohlin‐Samuelson (HOS), two‐good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions. This follows from a continuous‐time analysis using Divisia index numbers. However in the case where imports are intermediate inputs and competition is imperfect, an improvement in the terms of trade does raise GDP: the size of the effect depends on the size of the markup of price over marginal revenue. I argue that the con...
We examine the hypothesis that capacity can be permanently damaged by financial, particularly ban... more We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on 61 countries over 1955-2010. A banking crisis as defined by Reinhart and Rogoff reduces the long-run level of GDP per worker, and also that of capital per worker, by on average 1.1%, for each year that the crisis lasts; it also reduces the TFP level by 0.8%. The long run, negative effect on the level of GDP per capita, 1.8%, is substantially larger. So there is also a hit to employment. JEL codes: E23, E32, J24, G01, O47
Science, 2014
“GDP rose by 0.3% in the fourth quarter.” “China's GDP will be larger than that of the U.S. b... more “GDP rose by 0.3% in the fourth quarter.” “China's GDP will be larger than that of the U.S. by 2020.” Such statements are frequently encountered, and most educated people understand broadly what they mean. But not many people have an in-depth understanding of the concept of gross domestic product nor of how it is measured in practice. So a book that sets out to explain the basics is welcome. Diane Coyle opens her book with Andreas Georgiou, someone probably very few people have heard of and quite hard to track down, even on Google. The former head of Greece's national statistical agency, Georgiou is due to be tried for corruption and making false statements, offences that carry a prison sentence of 5 to 10 years. His crime? Telling the truth about the Greek government's budget deficit. The budget deficit as a proportion of GDP was a number critical to Greece's negotiating position when it applied for one of its recent bailouts. Georgiou's refusal to falsify the figures is what landed him in trouble. His case illustrates the importance of GDP in economic policy-making and also the passions that it can arouse. In six short chapters, Coyle (an economist at Oxford University) discusses how the concept of GDP was developed, starting with the 17th-century English savant William Petty and continuing through the pioneering contributions of Simon Kuznets, Colin Clark, and Richard Stone (Kuznets and Stone each won a Nobel Prize in Economics). She describes how their research led to an international effort under the aegis of the United Nations to define what came to be called the System of National Accounts (SNA), a remarkable example of international cooperation. The SNA has gone through a series of revisions since 1953, the latest of which (2008) is currently being rolled out around the world (with a few obvious exceptions, like North Korea). For a time a rival, the Material Product System, was promoted and enforced by the Soviet Union, but that has been abandoned. So the SNA rules alone, at least for now. Coyle structures the book around epochs in economic history, seen from a Western perspective. She uses each epoch to illustrate how GDP was employed for policy purposes. Social and economic problems have led to criticisms of the GDP concept and sometimes to revisions to the SNA. The first chapter, “From the eighteenth century to the 1930s: war and depression,” explains how these dire events led the U.S. and U.K. governments to start producing official statistics of GDP, building on earlier nonofficial estimates by Kuznets and Clark. In the chapter, she also lays out the main accounting identities that form the framework of the SNA. The most important is that GDP in current prices equals the sum of final expenditures (consumption plus investment plus government expenditure on goods and services plus exports minus imports), the sum of factor incomes (wages plus profits), or the sum of value added in each industry (sales minus the cost of materials and bought-in services). In principle, expenditure = income = output, though in practice they differ because of errors and omissions in the data. ![Figure][1] “The economy as a machine.” Bill Phillips built his economic computer (1949) to show the flow of income in the UK economy. PHOTO: © SCIENCE MUSEUM/SCIENCE & SOCIETY PICTURE LIBRARY The earliest estimates of GDP were in current prices, which made it difficult to compare different years because there was no correction for inflation. Nor was it obvious how to compare GDPs of different nations measured in their respective currencies. At a high level of generality, the solution to these two puzzles is the same, a price index. Measuring domestic prices is complicated and something that Coyle could have dwelt on more. Within each category of expenditure, say, soft drinks, you select a basket of products. Then for each product, you have to track the prices of examples (say, a six-pack of regular Coca-Cola) in the same outlet over time (usually every month). The average of the prices of the selected products then forms the price index for soft drinks. Exactly the same method is used in cross-country comparisons. But now you have to collect the price of a six-pack of Coca-Cola (and the many other products) in different countries at the same point in time. The result is called a purchasing power parity. It might seem simpler (and cheaper) just to use exchange rates to make international comparisons. Coyle provides a good discussion of why this would not in general be sensible. Coyle is a friend to GDP. Indeed, she ends the book noting, “GDP, for all its flaws, is still a bright light shining through the mist.” But she is certainly not an uncritical friend. Throughout the book, and especially in the last chapter, she offers several criticisms of the GDP concept. First (though more clarification than criticism), GDP is a measure of output, not welfare (I agree). Second, considering GDP as a measure of output, some of the…
The Economic Journal, 1995
LSE Research Online Documents on Economics, 2013
The behaviour of labour productivity in the United Kingdom since the onset of the recession in ea... more The behaviour of labour productivity in the United Kingdom since the onset of the recession in early 2008 constitutes a puzzle. Over four years after the recession began labour productivity is still below its previous peak level. This paper considers the hypothesis that economic capacity can be permanently damaged by financial crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on a panel of 61 countries over 1955-2010. The main finding is that a banking crisis as defined by Reinhart and Rogoff on average reduces the short-run growth rate of labour productivity by between 0.6% and 0.7% per year and the long-run level by between 0.84% and 1.1% (depending on the method of estimation), for each year that the crisis lasts. A banking crisis also reduces the long-run level of capital per worker by an average of about 1%. The effect on GDP per capita is about double the effect on GDP per worker since there is a long-run, negative effect on the employment ratio.
We examine the hypothesis that capacity can be permanently damaged by financial, particularly ban... more We examine the hypothesis that capacity can be permanently damaged by financial, particularly banking, crises. A model which allows a financial crisis to have both a short-run effect on the growth rate of labour productivity and a long-run effect on its level is estimated on 61 countries over 1955-2010. A banking crisis as defined by Reinhart and Rogoff reduces the long-run level of GDP per worker, and also that of capital per worker, by on average 1.1%, for each year that the crisis lasts. The long run, negative effect on the level of GDP per capita, 1.7-1.8%, is substantially higher.
The Boskin Commission has claimed that the US Consumer Price Index (CPI) is currently overestimat... more The Boskin Commission has claimed that the US Consumer Price Index (CPI) is currently overestimating the true rate of inflation by 1.1 percentage points per annum. This article assesses the evidence for this conclusion and its implications for the measurement of past and future US economic performance. 1 f Boskin is right, US GDP growth in the period 1970 to 1996 has been underestimated by about 0.9 per cent per annum. Some at least of the methodological changes recommended by Boskin will probably be adopted. As a result US GDP growth will appear to rise, eventually by as much as 0.5 per cent per annum, even though no genuine improvement in economic performance has actually occurred. Boskin has implications for the UK too. Recent evidence suggests that use of a formula recommended by Boskin for averaging price quotes together can by itself reduce UK inflation by 0.4 per cent per annum.
We argue that unmeasured investments in intangible organizational capital-associated with the rol... more We argue that unmeasured investments in intangible organizational capital-associated with the role of information and communications technology (ICT) as a "general purpose technology" - can explain the divergent U.S. and U.K. TFP performance after 1995. GPT stories suggest that measured TFP should rise in ICT-using sectors, perhaps with long lags. Contemporaneously, investments in ICT may in fact be associated with lower TFP as resources are diverted to reorganization and learning. In both the U.S. and U.K., we find a strong correlation between ICT use and industry TFP growth. The U.S. results, in particular, are consistent with GPT stories: the TFP acceleration was located primarily in ICT-using industries and is positively correlated with industry ICT capital growth from the 1980s and early 1990s. Indeed, as GPT stories suggest, controlling for past ICT growth, industry TFP growth appears negatively correlated with increases in ICT capital services in the late 1990s. A s...
LSE Research Online Documents on Economics, 2015
Space-time consistency in the national accounts means that the relative size or standard of livin... more Space-time consistency in the national accounts means that the relative size or standard of living of a country today is the same whether we measure it by an earlier PPP extrapolated to the present using relative inflation rates from the national accounts or by the current PPP. Empirically, space-time inconsistency is extensive. Theoretically, space-time consistency prevails if the consumer’s utility function (or the revenue (GDP) function) is homothetic and if Divisia price indices are used to deflate nominal consumption (or GDP), both over time and across countries. Hence the inconsistency we observe is due to either (a) non-homotheticity in consumption (or production); (b) approximation error when discrete chain indices are used instead of continuous Divisia indices; or (c) errors in domestic price indices and PPPs. Based on detailed data from the 1980 and 2005 International Comparisons Program and the Penn World Table, I conclude that errors in price indices and PPPs are the maj...