Hydrological summary for the United Kingdom: June 2013

The monthly summary of hydrological conditions in the United Kingdom is compiled as part of the National Hydrological Monitoring Programme (a joint CEH and BGS enterprise). The report features contemporary data for rainfall, river flow, reservoir and groundwater levels in the form of maps and graphs. A commentary is provided on the status of the nation’s water resources and any notable hydrological events during the month. The National River Flow and National Groundwater Level Archives help provide an historical context for these contemporary assessments. Financial support for the production of the Hydrological Summaries is provided by Defra, the Environment Agency, the Scottish Environment Protection Agency, the Rivers Agency in Northern Ireland and the Office of Water Services

Overlapping memory replay during sleep builds cognitive schemata

Sleep enhances integration across multiple stimuli, abstraction of general rules, insight into hidden solutions and false memory formation. Newly learned information is better assimilated if compatible with an existing cognitive framework or schema. This article proposes a mechanism by which the reactivation of newly learned memories during sleep could actively underpin both schema formation and the addition of new knowledge to existing schemata. Under this model, the overlapping replay of related memories selectively strengthens shared elements. Repeated reactivation of memories in different combinations progressively builds schematic representations of the relationships between stimuli. We argue that this selective strengthening forms the basis of cognitive abstraction, and explain how it facilitates insight and false memory formation

Optimal Fiscal Feedback on Debt in an Economy with Nominal Rigidities

We examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is optimal. We look at the extent to which different degrees of fiscal feedback enhances or detracts from the ability of the monetary authorities to stabilise output and inflation. Using an objective function derived from utility, we find the optimal level of fiscal feedback to be small. There is a clear discontinuity in the behaviour of monetary policy and welfare either side of this optimal level. As the extent of fiscal feedback increases, optimal monetary policy becomes less active because fiscal feedback tends to deflate inflationary shocks. However this fiscal stabilisation is less efficient than monetary policy, and so welfare declines. In contrast, if fiscal feedback falls below some critical value, either the model becomes indeterminate, or optimal monetary policy becomes strongly passive, and this passive monetary policy leads to a sharp deterioration in welfare.Fiscal Policy, Feedback Rules, Debt, Macroeconomic Stabilisation

What Should Fiscal Councils Do?

N/AFiscal policy Council; Fiscal policy; Government policy;

Fiscal Policy as a Stabilisation Device for an Open Economy Inside or Outside EMU

Extending Gali and Monacelli (2004), we build an N-country open economy model, where each economy is subject to sticky wages and prices and, potentially, has access to sales and income taxes as well as government spending as fiscal instruments. We examine an economy either as a small open economy under flexible exchange rates or as a member of a monetary union. In a small open economy when all three fiscal instruments are freely available, we show analytically that the impact of technology and mark-up shocks can be completely eliminated, whether policy acts with discretion or commitment. However, once any one of these fiscal instruments is excluded as a stabilisation tool, costs can emerge. Using simulations, we find that the useful fiscal instrument in this case (in the sense of reducing the welfare costs of the shock) is either income taxes or sales taxes. In contrast, having government spending as an instrument contributes very little. In the case of mark-up shocks tax instruments which can offset the impact of the shock directly are highly effective, while other fiscal instruments are less useful. The results for an individual member of a monetary union facing an idiosyncratic technology shock (where monetary policy in the union does not respond) are very different. First, even with all fiscal instruments freely available, the technology shock will incur welfare costs. Government spending is potentially useful as a stabilisation device, because it can act as a partial substitute for monetary policy. Finally, sales taxes are more effective than income taxes at reducing the costs of a technology shock under monetary union. If all three taxes are available, they can reduce the impact of the technology shock on the union member by around a half, compared to the case where fiscal policy is not used. Finally we consider the robustness of these results to two extensions. Firstly, introducing government debt, such that policy makers take account of the debt consequences of using fiscal instruments as stabilisation devices, and, secondly, introducing implementation lags in the use of fiscal instruments. We find that the need for debt sustainability has very limited impact on the use of fiscal instruments for stabilisation purposes, while implementation lags can reduce, but not eliminate, the gains from fiscal stabilisation.

The Costs of Fiscal Inflexibility - Extended

Extending Gali and Monacelli (2004 ), we build an N-country open economy model, where each economy is subject to sticky wages and prices and, potentially, has access to sales and income taxes as well as government spending as fiscal instruments. We examine an economy either as a small open economy under flexible exchange rates or as a (small) member of a monetary union. In a small open economy when all three fiscal instruments are freely available, we show analytically that the impact of technology and mark-up shocks can be completely eliminated, whether policy acts with discretion or commitment. However, once any one of these fiscal instruments is excluded as a stabilisation tool, costs can emerge. Using simulations, we find that the useful fiscal instrument in this case (in the sense of reducing the welfare costs of the shock) are sales taxes. In contrast, having government spending as an instrument contributes very little. In the case of mark-up shocks tax instruments which can offset the impact of the shock directly are highly effective, while other fiscal instruments are less useful. The results for an individual member of a monetary union facing an idiosyncratic technology shock (where monetary policy in the union does not respond) are very different. First, even with all fiscal instruments freely available, the technology shock will incur welfare costs. Second, government spending is potentially useful as a stabilisation device, because it can act as a partial substitute for monetary policy. Finally, income taxes are helpful in reducing the cost of a technology shock, although sales taxes remain the most effective instrument. If all three taxes are available, they can reduce the impact of the technology shock on the union member by around a half, compared to the case where fiscal policy is not used. Finally we consider the robustness of these results to two extensions. Firstly, introducing implementation lags in the use of fiscal instruments and, secondly, introducing government debt, such that policy makers take account of the debt consequences of using fiscal instruments as stabilisation devices. We find that implementation lags can reduce, but not eliminate, the gains from fiscal stabilisation, while the need for debt sustainability has limited impact on the use of fiscal instruments for stabilisation purposes, particularly under commitment..

Electoral uncertainty and the deficit bias in a New Keynesian Economy

Recent attempts to incorporate optimal fiscal policy into New Keynesian models subject to nominal inertia, have tended to assume that policy makers are benevolent and have access to a commitment technology. A separate literature, on the New Political Economy, has focused on real economies where there is strategic use of policy instruments in a world of political conflict. In this paper we combine these literatures and assume that policy is set in a New Keynesian economy by one of two policy makers facing electoral uncertainty (in terms of infrequent elections and an endogenous voting mechanism). The policy makers generally share the social welfare function, but differ in their preferences over fiscal expenditure (in its size and/or composition). Given the environment, policy shall be realistically constrained to be time-consistent. In a sticky-price economy, such heterogeneity gives rise to the possibility of one policy maker utilising (nominal) debt strategically to tie the hands of the other party, and influence the outcome of any future elections. This can give rise to a deficit bias, implying a sub-optimally high level of steady-state debt, and can also imply a sub-optimal response to shocks. The steady-state distortions and inflation bias this generates, combined with the volatility induced by the electoral cycle in a sticky-price environment, can significantly raise the costs of having a less thankfully benevolent policy maker.New Keynesian Model; Government Debt; Monetary Policy; Fiscal Policy, Electoral Uncertainty, Time Consistency.