This paper is concerned with two limited but complex questions: to what extent was the recession of 1979–81 foreseen in the forecasts made while I was Editor in 1977–9, and does the experience of that episode provide any general lessons for forecasters?

Drawing on nationally representative data collected for two age cohorts in the UK, this paper a) assesses the effect of multiple independent socioeconomic risk factors in shaping the transition from school to work; and b) identifies potential protective factors enabling young people to beat the odds. By comparing experiences and findings across two cohorts we assess the generalisability of findings across contexts, i.e. the 2008 and 1980s recessions. The results show that some young people exposed to even severe socioeconomic risks avoid being NEET (not in education, employment or training). Factors that appear to reduce the cumulative risk effect in both cohorts include prior attainment, educational aspirations and school engagement, as well as the social mix of the school environment.

The National Institute had planned a seminar to mark the launch of Christopher Dow's new book Major Recessions. The seminar had to be cancelled, because Christopher Dow died a few days before it was due to be held. As some kind of substitute, the CLARE Group decided to publish this review article. The sections of the article have different authors, but they have been designed to be complementary in scope and the authors have discussed them with each other and with other members of the Group, especially A.J.C. Britton, W.J. Carlin, C.A.E. Goodhart, P.M. Oppenheimer, M.V. Posner and J.R. Sargent. The Review is pleased to give hospitality to CLARE Group articles, but is not necessarily in agreement with the views expressed.

Robin Matthews starts with some comments on the style in which, and background from which, Dow wrote this work and which concentrates on five major British recessions of the 20th century. He presents five of Dow's more general conclusions with comments. This section is followed by a review by Mike Artis of Dow's analysis of the five major recessions (1920–1, 1929–33, 1973–5, 1979–82 and 1989–92) regarded as episodes in economic history. One of Dow's main theses is that major recessions permanently reduce productive capacity. Martin Weale examines statistically his suggestion that they reduce demand by consumers whose income expectations adjust in that way — for which he finds little support. John Flemming addresses the 25 ‘golden’ postwar years without a major recession presenting a critical analysis of Dow's method of distinguishing between major and minor recessions. Matthews and Flemming consider his treatment of the question whether major recessions are inevitable, how they might be avoided, and how their effects might be mitigated. While hankering for postwar controls Dow's Keynesianism is subtle. Finally Matthews suggests an analogy with Schumpeter's Business Cycles which survived a critical review by Kuznets, Dow's treatment of his data being much more thoughtful than Schumpeter's even if some parts of his model seem rather shaky.

The financial crisis that started in August 2008 has reached a climax in the autumn of 2008 with a wave of bank nationalisations across North America and Europe. Although banking crises are not uncommon, this is the largest since 1929–33. This paper discusses the build-up to the crisis, looking at the role of low real interest rates in stimulating an asset price bubble. That bubble was stocked by financial innovation and increases in lending. New financial products were not stress tested and have failed in the downturn. After discussing the bubbles we look at the collapse of the complex asset structure, and then put the crisis in the context of the literature. The paper concludes with a discussion of policy implications of the crisis, and advocates a significant improvement in the regulatory structure.

In designing an expansionary fiscal package, a key consideration is the exchange rate. This is because undue and possibly destabilising movements in the exchange rate in response to domestic expansion could trigger expectations that the policy will be reversed, and such expectations might indeed be fulfilled. An understanding of the consequences of domestic expansion for the exchange rate is therefore crucial.

No one can deny the outstanding success of the East Asian economies in the last two decades of rapid economic growth backed by surging capital inflows. Key questions posed by the current crisis are: what went wrong, and why? how to fix it? and, how to prevent a recurrence? To answer them, the article begins with a brief overview of recent developments in the miracle economies of East Asia, focusing mainly on Korea, Indonesia and Thailand. We focus too on some of the shadows that came to darken the glittering success story—on declining competitiveness and growing financial vulnerability; and on regulatory failures in banking. Then we take a leaf from Charles Kindleberger's book (1996) on Panics, Manias and Crashes and discuss—with historical precedents—various types of financial crisis: speculative attacks on pegged exchange rates, asset bubbles, stock market crashes and bank runs. Based on the distinction between illiquidity, due to a shortage of cash, and insolvency arising from a failure of economic prospects, we go on to outline three main views of the current crisis.

First that it was simply due to reversal of capital flows, to a failure of collective action on the part of creditors which could and should have been solved by supplying extra liquidity—or by forcing creditors to roll over their loans. Second the view that the miracle had grown into a bubble that had finally had to burst: so the problem was essentially one of insolvency. Finally the view that we prefer, that the panic was not wholly groundless (and rescue efforts were bound to be difficult) mainly because weak regulation combined with implicit deposit guarantees had left local bankers free to gamble with the money that global capital markets had poured into their parlours. Panic set in when foreign depositors realised that there were not enough dollar reserves left for the guarantee to be credible. This account (championed most notably by Paul Krugman of MIT) involves both illiquidity and insolvency and helps to explain why the IMF was unwilling simply to throw money at the problem.

Why did the crisis spread like wildfire around the region? Was it because a bank run due to shaky fundamentals in one country was imitated elsewhere, as investors joined the herd heading for the exit? This and other accounts of contagion are discussed before turning to ideas for crisis prevention and management, and a brief account of future prospects for the region. The article concludes by outlining immediate steps to resolve the current financial crisis and by proposing international monetary reforms to prevent a recurrence.

Banking and finance are inherently pro-cyclical, a condition exacerbated by a combination of Basel II and mark-to-market accounting. But these latter measures have many advantages, so the need is to devise other counter-cyclical macro-prudential policies. This fragility was further enhanced by a decline in bank liquidity (reliance on wholesale funding) and a shift in govenance from partnerships to limited liability public companies. Some commentators have seen the solution to such pro-cyclicality in the guise of direct constraints on bank activity, such as the promotion of ‘narrow banking’ or limits on bank size. While there are arguments for toughening regulation as systemic risk increases, direct constraints are simplistic; more sensible ideas involve the adoption of better designed macro-prudential regulation, perhaps with some version of banking self-insurance. Quite what the future holds for bank regulation remains, however, to be decided.

This paper describes research that integrates Keynesian and Walrasian economics in a new way. The author develops a model in which high unemployment can persist and any unemployment rate can occur as an equilibrium. Equilibrium is selected by the self-fulfilling beliefs of asset market participants. Using this new framework, the author argues that fiscal policy is not the best solution to the problem of restoring full employment. A policy of asset market management, similar to quantitative easing, is put forward as a more effective approach.

Financial instability can have large adverse effects on an economy. One major cause of instability is asset price bubbles. This paper starts by considering how such bubbles can arise due to the expansion of money and credit. The ways in which subsequent financial instability occurs are then discussed. Banking crises can arise due to panics or as a result of the business cycle. Contagion and financial fragility can cause small disturbances to have large effects. Finally, policy issues are touched upon.

Britain, like any other open economy, is linked through exports and imports to the movements of prices and production in the world at large. But the emergence of the City of London as a major international financial centre forged an extra link between the fortunes of the British and world economies, which was still very strong in the inter-war period. It is appropriate, therefore, to preface this account of the economic recovery in Britain after the Depression with a brief reminder of the circumstances prevailing in the world economy at that time.

The article examines the weaknesses and inefficiencies of the Soviet centralised planning system, and the means by which Gorbachev and his colleagues sought to reform it. Along with the objective difficulties in the way of ‘marketisation’ (lack of practical experience and market infrastructure, lack of agreement about the final objective of reform, obstruction by vested interests, ideological pre-conceptions, popular distrust), grave policy errors were committed (unbalanced budget, inflation ary money-creation, loss of control over incomes, reluctance to increase prices). Meanwhile the rise of natioralism, and the de-legitimation of the regime and of the Party, created a power-vacuum, which by 1991 made impossible the implementation of any policy. Disruption of inter-republican and inter-regional supply links, and drastic cuts in imports, are causing serious declines in production. The failed coup accelerated the process of disintegration.

This article uses a dataset covering ten advanced economies (Australia, Belgium, Canada, France, Germany, Netherlands, Norway, Sweden, United Kingdom and the United States) to explore the role of real wages as an influence on employment and unemployment in the Great Depression and more generally in the 1920s and 1930s. The distinction between employment and unemployment movements during the Great Depression helps to clarify the role of supply side influences on the national heterogeneity of unemployment increases during the Great Depression. We find little general econometric evidence for the idea that movements in product wages had strong influences on employment either during the period of rising unemployment associated with the depression of the 1930s or more generally with the data which exist for the 1920s and 1930s.

This note examines labour market performance across countries through the lens of Okun's Law. We find that after the 1970s but prior to the global financial crisis of the 2000s, the Okun's Law relationship between output and unemployment became more homogenous across countries. These changes presumably reflected institutional and technological changes. But, at least in the short term, the global financial crisis undid much of this convergence, in part because the affected countries adopted different labour market policies in response to the global demand shock.

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 challenges involved in any move to return towards pre-crisis arrangements, and offers suggestions for possible ways in which current policy dilemmas might be resolved.