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This paper examines the dynamic implications of international trade in a two‐sector overlapping‐generations economy with endogenous growth. It analyses the global dynamics of this model for both a closed economy and a two‐country world economy. It shows how international trade can cause the world economy to sort itself out into groups of fast and slow‐growing economies and can also cause one country to catch up and overtake another's growth rate. It thus provides theoretical support for empirical papers which find that the world distribution of income is diverging.

AbstractHas skilled immigration into the UK led to a reduction in the training of native‐born workers? To address this concern, this paper describes a theoretical model where immigration can affect the training of native‐born workers both positively and negatively, and where its effects may differ according to the characteristics of the migrant and of the training firm's sector. It then investigates this issue empirically using UK Labour Force Survey data from 1995 to 2018. At the aggregate level, there is a small positive association between skilled immigration and native training rates. However, a more disaggregated analysis finds that the relationship between immigration and native training depends on the skill level of the immigrant, the skill level of trainees, and the sector into which immigration occurs. In particular, traded goods sectors show a positive association between training of UK‐born workers and both unskilled and skilled immigration. In non‐traded high‐wage sectors, the association between skilled immigration and UK‐born training is negative. These findings highlight the importance of allowing for heterogeneous effects from immigration when formulating policy or when modelling immigration's effects across the wider economy.

This paper investigates the determinants of UK interest rates using a factor‐augmented vector autoregression model (VAR), similar to the one suggested by Bernanke, Boivin and Eliasz (Quarterly Journal of Economics, Vol. 120 (2005), No. 1, pp. 387–422). The method allows impulse response functions to be generated for all the variables in the data set and so is able to provide a more complete description of UK monetary policy than is possible using standard VARs. The results show that the addition of factors to a benchmark VAR generates a more reasonable characterization of the effects of unexpected increases in the interest rate and, in particular, gets rid of a 'price puzzle' response present in the benchmark VAR. The extra information generated by this method, however, also brings to light other identification issues, notably house price and stock market 'puzzles'. Importantly the out‐of‐sample prediction performance of the factor‐augmented VARs is also very good and strongly superior to those of the benchmark VAR and simple autoregression models.

We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Unlike most of the previous literature this approach does not require that the contemporaneous reaction of some variables to fiscal policy shocks be set to zero or need additional information, such as the timing of wars, in order to identify fiscal policy shocks. The paper´s method is a purely vector autoregressive approach which can be universally applied. The approach also has the advantages that it is able to model the effects of announcements of future changes in fiscal policy and that it is able to distinguish between the changes in fiscal variables caused by fiscal policy shocks and those caused by business cycle and monetary policy shocks. We apply the method to US quarterly data from 1955-2000 and obtain interesting results. Our key finding is that the best fiscal policy to stimulate the economy is a deficit-financed tax cut and that the long term costs of fiscal expansion through government spending are probably greater than the short term gains.

We propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions. Unlike most of the previous literature this approach does not require that the contemporaneous reaction of some variables to fiscal policy shocks be set to zero or need additional information, such as the timing of wars, in order to identify fiscal policy shocks. The paper's method is a purely vector autoregressive approach which can be universally applied. The approach also has the advantages that it is able to model the effects of announcements of future changes in fiscal policy and that it is able to distinguish between the changes in fiscal variables caused by fiscal policy shocks and those caused by business cycle and monetary policy shocks. We apply the method to US quarterly data from 1955-2000 and obtain interesting results. Our key finding is that the best fiscal policy to stimulate the economy is a deficit-financed tax cut and that the long term costs of fiscal expansion through government spending are probably greater than the short term gains.