UK productivity fell sharply during the recession of 2008-9, and recovered only sluggishly after that. It currently remains substantially below a continuation of its pre-crisis trend. This contrasts very sharply with the experience of other post-war recessions in the UK when the fall was less sharp and the recovery quicker; it is also very different from experience in the US, where productivity has held up quite well, but where aggregate job loss has been more severe than in the UK. Understanding the reasons for recent productivity weakness is of first order importance to macroeconomic policy, as stressed by both the Monetary Policy Committee and the Office for Budget Responsibility. The main aim of the research is to investigate the underlying causes for recent productivity weakness in the UK, examining in particular the mechanisms by which the banking sector crisis might have affected the supply side of the UK economy, and focusing on how it has affected company performance. These mechanisms are identified by examining differences in the performance of individual firms or sectors according to their reliance on bank finance in order to grow. The research analyses company- and sector-level data from a range of secondary data sources, highlighting patterns in the data consistent with different explanations for the productivity slowdown. The research addresses the following questions: 1. How widespread across sectors and UK companies is the productivity slowdown since the financial crisis? How does this differ to the recession of the early 1990s? 2. What has been the impact of the banking sector crisis on bank credit conditions experienced by UK companies? 3. What are the mechanisms through which bank credit conditions might have affected the performance of UK companies and what are the magnitudes of these effects? 4. What is the evidence that UK productivity weakness has been associated with factors unrelated to tight credit conditions; labour hoarding in particular? The main focus of the research is on analysing reasons for productivity weakness directly related to the banking crisis. One possible mechanism is that lack of credit availability has stunted the development of high-productivity, mainly young and small bank dependent firms and provided some protection for older established companies. In other words, the banking crisis may have reduced the efficiency with which inputs and outputs are allocated across firms. To investigate this, productivity growth is decomposed into productivity changes that occur because of developments within individual firms and productivity changes that occur because of changes in the efficiency with which resources are allocated across firms. If the banking crisis was an important contributor to UK productivity weakness, as distinct from recession, then the expectation is that productivity decline should have arisen in large part due to a drop in the efficiency with which resources are allocated across firms. The research develops from existing data sources measures of the impact of the banking sector crisis on bank credit conditions experienced by different types of UK companies. Next it gauges the importance of tight credit conditions on company performance adopting a quasi-experimental approach, comparing outcomes for firms who are likely to be vulnerable to tight credit conditions to outcomes for firms who are less likely to be vulnerable to tight credit conditions before and after the financial crisis. The banking crisis provides in essence a natural experiment for studying the impact of tight credit conditions on real economic outcomes. The research studies the impact of the financial crisis on a number of company performance measures, including productivity, investment, firm survival rates, and job creation. Although not the main focus, the extent of firm-level labour hoarding, and how this may have contributed to recent productivity weakness, is also analysed.

Abstracts are not currently available in GtR for all funded research. This is normally because the abstract was not required at the time of proposal submission, but may be because it included sensitive information such as personal details.

Abstracts are not currently available in GtR for all funded research. This is normally because the abstract was not required at the time of proposal submission, but may be because it included sensitive information such as personal details.

Abstracts are not currently available in GtR for all funded research. This is normally because the abstract was not required at the time of proposal submission, but may be because it included sensitive information such as personal details.

SUMMARY The objective of this Fellowship is to stimulate an open and informed debate on the coherence of alternative currency and fiscal arrangements for Scotland. This issue is at the heart of whether full or further devolution will be successful. Since independence is likely to be irreversible, at least for several years, an informed debate requires understanding all of the currency and fiscal options across a spectrum of sovereignty rights, whether or not they are part of a referendum. Scotland's future currency and fiscal arrangement is at the heart of whether full or further devolution will be successful. The Parliament of Great Britain with full currency, fiscal and political union began with the Acts of Union in 1707 and has endured longer that all other monetary unions between nations. Monetary unions which have logical inconsistencies have always been eventually exposed by an unforeseeable economic shock. History is replete with instances in which failed unions lead not only to economic crises but often political division. The academic community has a responsibility to propose currency and fiscal arrangements which have integrity and be unapologetic in highlighting those which are inconsistent. The current economic crisis shows how failure to understand risks and misaligned incentives in the financial system can undermine policy frameworks. The number of financial crises around the world over the last three decades, and in particular the recent global crisis, shows how private sector risks can become public sector liabilities as the state remains the ultimate insurer of systemic risk. With the large transfer of financial sector exposures to the public sector the previous working assumption of a division between currency (or monetary) policy and fiscal policy has become exposed as an over-simplification. The traditional approach of an optimal currency area developed in the 1960s must be extended to include financial sector risks. Only when financial sector risks are fully incorporated can the integrity of the new currency and fiscal arrangements be judged. This Fellowship aims to make this extension. The liabilities of the banking system are assumed to be contingent fiscal risks of the state. This brings financial supervision and non-monetary policies (i.e. bank support policies) by the central bank into the centre of the debate. This creates a clear link between monetary and fiscal policies. These risks are central to Scotland - a small and open economy with a large financial sector. Failure to consider currency, fiscal and financial arrangements together would be a serious omission in this debate. This Fellowship will examine Scotland's currency and fiscal policy options from a joint macro-economic and macro-financial perspective. The macro-economic perspective looks at the structure of an independent Scottish economy (more oil-based and without the Barnett fiscal transfer) and fiscal sustainability. The core of the Fellowship is building the first large-scale global econometric model of Scotland. This will be an extension of NIESR's National Institute Global Economic Model (NiGEM) which has over 40 model subscribers, mainly in the policy community, including the Bank of England, the FSA, the ECB, the OECD, the IMF. The macro-financial perspective will focus on the Scottish banking system as a state contingent liability. The key issues are what are the choices of institutional arrangements for providing financial sector support (such as lender of last resort and deposit insurance) and who will be the regulator. While it is possible to contract-out these operations, this will involve a fiscal cost and raise moral hazard issues.