The deepening recession in Europe during the first half of 1993 has resulted in increasing pressure on the stability of exchange rates. The Exchange Rate Mechanism went through a crisis in late-July/early-August., and very wide fluctuation bands were adopted on the 2nd of August. Table 1 presents our forecast for output and inflation, which helps put the turmoil on the exchanges in context. Output is expected to fall in Germany and France in 1993, but the causes and consequences differ considerably. The recession in the former country may just take output back to a little below capacity whereas in France there has been a good deal of spare capacity for some time.

The Review is pleased to give hospitality to CLARE Group articles, but is not necessarily in agreement with the views expressed; responsibility for these rests with the author. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, W.J. Carlin, J.S. Flemming, C.A.E. Goodhart, J.A. Kay, R.C.O. Matthews, D. Miles, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.FG. Scott, Z.A. Silberston, J.H.B. Tew, S. Wadhwani and M. Weale.

Between 1950 and the oil price increase of 1973, British Coal lost most of its markets for direct sales to industry and households. Its hold over electricity generation actually strengthened in the 1960s and 1970s, as competition from petroleum faded and the contribution from nuclear energy was delayed and limited by technical and financial problems. But competition from coal imports has increased; and a radically new technology for using natural gas to generate electricity has developed.

This new technology arrived simultaneously with the privatisation of electricity supply. The new structure of ownership has not changed the fundamental nature of the choices open to generators or big customers, but has liberated decision making from some key constraints, and removed some powers from Ministers. Coal imports and gas usage are rapidly eroding British Coal's market, towards a level one tenth of 1960's sales. By the time the public noted the speed of the final contraction of coal, in the autumn of 1992, it was already too late even for a modest application of the brakes. The author argues that this is to be regretted.

For the future, the nuclear question remains open, but is perhaps a dubious bet for the UK after all the effort and errors of the past.

This article describes the current versions of six major macroeconometric models, and analyses their overall properties as revealed in standard simulation experiments. Particular attention is given to a policy issue of long-standing importance, namely the control of the size of the government budget deficit. Analysis of the impact on the government budget deficit of a range of policy instruments under a number of deficit-funding regimes shows that there is considerable disagreement between the models on the size and time-profile of these effects. Modelling of the exchange rate remains a key issue in assessing differences in model behaviour.

This article presents estimates of the contribution of physical capital to explaining labour productivity differences between Britain and four of her major competitors, the United States, Germany, France and Japan. The paper uses a standardised method to estimate capital stocks in the five countries. It presents arguments why this may be preferable to comparing official capital stock figures since the latter are sensitive to differences in measurement techniques used by the statistical offices. In the aggregate economy differences in physical capital are important in explaining labour productivity levels in Britain relative to the United States, Germany and France but cannot explain Britain's labour productivity advantage over Japan. In manufacturing Britain's lower capital per unit of labour also helps explain her lower labour productivity levels relative to all four countries but the contribution of capital is generally lower in manufacturing than for the aggregate economy. For both the aggregate economy and manufacturing differences in capital growth rates help explain Britain's productivity growth performance in the past three decades relative to the United States and Japan but have little explanatory power relative to Germany and France.