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© 2004 International Monetary Fund

March 2004

IMF Country Report No. 04/55

United Kingdom: Selected Issues

This Selected Issues paper for the United Kingdom was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on February 18, 2004. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the United Kingdom or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

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Front Matter Page

INTERNATIONAL MONETARY FUND

UNITED KINGDOM

Selected Issues

Prepared by Julio Escolano, Keiko Honjo, and Petya Koeva (all EUR)

Approved by European Department

February 18, 2004

Contents

  • I. Aging and the U.K. Pension System

    • A. Introduction

    • B. Features of the U.K. Pension System

    • C. Long-term Public Spending on Pensions: The Government’s Projections and Assumptions

    • D. Risks to the Long-term Public Pension Projections

    • E. The Government’s Strategy

    • F. Conclusions

  • Text Box

    • The Three Tiers of the U.K. Pension System

  • References

  • II. The Interest Rate Sensitivity of U.K. Demand How Different Is It From the Euro Area and the United States?

    • A. Introduction

    • B. Properties of the U.K., Euro Area, and U.S. Business Cycles

    • C. Comparison of Interest Rate Sensitivity

    • D. Housing and Consumption

    • E. Conclusion

  • Table

    • 1. Cross-Correlations with GDP (1980:1-2003:1)

  • Figures

    • 1. Impulse Responses: Base VAR Model with U.K. Output

    • 2. Impulse Responses: Base VAR Model with Euro Output

    • 3. Impulse Responses: Base VAR Model with U.S. Output

    • 4. Selected Key Housing Sector Variables

    • 5. Impulse Responses of the U.K. Consumption VAR

  • Appendix

    • Data Sources and Definitions

  • References

  • III. The June 2003 EMU Assessment

    • A. Introduction

    • B. An Analytical Framework

    • C. The Five Tests and the Twelve Issues

    • D. Conclusions: Seven Areas for Further Work

  • Text Boxes

    • 1. Effects of EMU on Trade and Growth

    • 2. Consumption and the Housing Market

    • 3. Quantifying the Welfare Cost of Output Volatility

    • 4. Is the United Kingdom Currently Affected by an Idiosyncratic Shock?

  • Figures

    • 1. The Relative Return Curve

    • 2. Private Consumption Contribution to GDP Growth

    • 3. Relative Contribution of Private Consumption to GDP Growth

    • 4. Real House Prices and Consumption per Capita

    • 5. Correlation Coefficients between Private Consumption Growth and House Price Inflation, 1971-2001

    • 6. UK: Real House Prices

  • Tables

    • 1. Implied Effect of Joining EMU

    • 2. Seleceted Housing Market Features

  • Appendices

    • I. The Option Value of Delaying EMU Entry

    • II. Domestic and Foreign Direct Investment (FDI)

  • Appendix Figure

    • A1. Ten-Year Benchmark Government Bond Yields

  • Appendix Tables

    • A1. Inward FDI Flows by Origin

    • A2. FDI Inflows into EU “Out” Countries

    • A3. FDI Inflows from Outside the EU

  • References

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United Kingdom: Selected Issues
Author:
International Monetary Fund