OECD Economic Studies No. 17, Autumn 1991

Is P-star a good indicator of inflationary pressure in OECD countries?

Peter Hoeller and Pierre Poret

The P-star approach has been developed by the U.S. Federal Reserve as a new indicator of inflationary pressures. This paper assesses its usefulness for 20 OECD Member countries. Regression results are presented and in-sample tracking ability and forecasting performance of the equations are compared to rival inflation models and official OECD projections.

Stock market volatility in OECD countries: recent trends, consequences for the real economy, and proposals for reform

Paul Kupiec

This paper examines the historical patterns among the returns and return volatilities of stock market indices for 15 OECD countries over the last thirty years. It characterises trends in gross volatility and measures of inter-market correlations, describing the degree and manner in which these statistics have changed over time. It discusses the implications of transitory periods of excess volatility for real economic activity and considers financial policies that have been proposed in the United States to limit such volatility. The results suggest that the past three decades have coincided with a world-wide increase in the average levels of volatility in stock returns as well as a general increase in the strength of the positive correlations among national stock index returns and the conditional volatilities of these returns. The evidence to date does not suggest that the increase in volatility has had strong effects on economic activity.

Infrastructure and private-sector productivity

Robert Ford and Pierre Poret

In a recent study, David Aschauer concluded that the significant slowdown of the growth of private-sector total factor productivity in the United States in the early 1970s was due to the contemporaneous slowdown in the rate of investment in public-sector infrastructure. If he is right, the obvious policy implication is that boosting infrastructure investment would be a good way to promote economic growth, a course that has been recommended by some economists. This note examines data for twelve OECD countries and finds that support for Aschauer’s hypothesis is not strong. In particular, the regression results presented here are not sufficiently robust to provide much support for the policy of a sharp rise in infrastructure investment.

Energy prices, taxes and carbon dioxide emissions

Peter Hoeller and Markku Wallin

Taxes levied on the carbon content of fuels (carbon taxes) are being considered in many OECD countries as a possible policy instrument to reduce carbon dioxide emissions. This paper first reviews the policy response in OECD countries to the threat of global warming. It then discusses the link between carbon emission intensities and current energy prices. It examines the relative price effects of current energy policies and the implicit carbon taxes reflected in present energy taxation for different fuels. Finally, the likely effect of a carbon tax on energy prices and emission intensities is discussed.

Real interest rate trends: the influence of saving, investment and other factors
Warren Tease, Andrew Dean, Jorgen Elmeskov and Peter Hoeller

This paper examines the trends in saving, investment and real interest rates. In doing so an attempt is made to identify some of the major influences on real interest rates in the past. In addition, some prospective influences on the course of real interest rates - government saving, the demand for funds from non-OECD countries and demographics - are considered.

Controlling government spending and deficits: trends in the 1980s and prospects for the 1990s

Howard Oxley and John P. Martin

During the 1980s most OECD governments launched medium-term strategies to restore greater balance to the public finances. It was generally agreed that the brunt of the strategy should be borne by expenditure cuts rather than tax increases. This paper describes how governments achieved better budgetary control in the 1980s, examining trends in deficits, revenues and expenditures. The focus throughout is on general government which accounts for most of public sector activity in OECD countries. It also assesses the main spending pressures which OECD governments are likely to face in the 1990s and suggests some possible policy responses.