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RA5a: Structure,environment and staffing policy


The Department of Economics and Finance has changed extensively since the 1996 RAE, when it made its submission to the Accountancy panel. The University then took the decision to raise the profile of economics (including financial economics) within the Department. A substantial reorientation of personnel and their academic research has now occurred through the appointment of economists to vacant posts and to three new professorial posts. The Economics Section of the Department comprises fourteen members and is split into two broad research groups: Industrial and Labour Economics (ILE) and Macro and Financial Economics (MFE). It is now more appropriate to submit the research of this section to the Economics and Econometrics panel.
Like other departments aspiring to the highest quality in research, we sustain research across a broad range of topics in both microeconomics and macroeconomics. This research ranges from pure theory, through applied econometrics, to policy-orientated research associated with advising public bodies. In addition, research in financial economics is one of the main strengths of the MFE group, and distinguishes us from Economics departments in most universities. The linking of macroeconomics and financial economics results in a broader understanding of the policy-relevant issues in financial economics research, and the consideration of financial implications expands the menu of pertinent topics for research in macroeconomics. It is expected that this balance of research interests will be broadly maintained for the foreseeable future.
Research Structure

University Level
Research is supported through the allocation of research funds to Departmental devolved budgets, and through the work of the University Research Committee (URC) and the Research Services Bureau (RSB). Devolved budgeting enables departments to choose the best mix of academic staff, support staff, equipment and other research expenses. During 1996-2000 the URC has allocated more than £5m to departments, through competitive bidding and external assessment, in order to appoint new senior researchers and to support new research projects. The latter include BRIEF (Brunel Research Initiative and Enterprise Fund) awards to recently-appointed staff. In the next period of assessment, the University plans to recruit 60 additional research-active staff. URC monitors research progress in the University through reviews, reports, regular visits to departments, and the monitoring of teaching/research load splits for individual academics. RSB supports the gaining and maintaining of research grants. Additionally, the Vice-Chancellor controls a Fund that is used selectively to support research by newly-appointed professors.

The Department has benefited from the University’s policy of channelling funds into those areas most likely to succeed. In the current RAE period, Economics has had its number of Professorships raised from three to six, and BRIEF awards totalling £36.9k have been awarded to six members of staff. Allocations from the Vice-Chancellor’s Fund totalling £47.5k have been made to new professors, and a post of ‘Professor Associate’ has been created, the current incumbent being Andrew Clare of the Bank of England (see RA6).

Brunel is one of ten UK institutions taking part in an innovative scheme (the ‘newroute PhD’) funded by the British Council and HEFCE. The scheme aims to develop new PhD programmes with an enhanced taught element, as well as the traditional thesis, for international students. The Department of Economics and Finance is one of six Brunel Departments offering this PhD from September 2001.

Departmental Level
The Department takes the view that successful research depends on the development of a thriving ‘research culture.’ It is the provision of resources, especially time and access to electronic information and mathematical and statistical software that enable this research culture to flourish.

In the period 1996-2000, all members of staff have had teaching contact hours limited to three days per week, if they so wished. In addition, the Department has given staff the option of a teaching load with no lecturing in one of the two semesters of the academic year.

The provision of computing facilities is generous. All members of staff are allocated a desktop (mostly Pentium III) for their office (and, through the provision of personal research funds - see below) nearly all have laptops. In addition, the Department has access to the University’s two multiprocessing Sun computers and there are direct links to MIMAS and the CRAY T3E in Manchester. The Department has site licences for Eviews, MFIT4, RATS, Scientific Workplace and STATA, and individual or block licences for PCGIVE/FIML/Ox, GAUSS, LIMDEP and TSP. It has its own copy of Compustat, and maintains an on-line link to Datastream. It has full discussion paper subscriptions with the CEP, CEPR and NBER.

In 1999-2000 members of staff were allocated £1,200 each to use in research-related activities of their own choice. In 2000-1 the allocation is between £900 and £1900 per person, with higher amounts being awarded to those who make applications during the year for external research funding. In 1999, all research-active staff were also allocated a one-off sum of £2,500 to purchase computer hardware/software.

The Research Committee, which is chaired by the Director of Research (Bennett), has its own budget (£7,000 in the current year), but the budget may be increased through negotiation with the Head of Department (Ioannidis). The committee plays a significant role in identifying and satisfying research resource requirements. It allocates the money on the basis of submissions received from members of staff for additional research funds (in excess of the individual allocations specified above). The committee keeps a detailed database of all the on-going research, tracking it through the working paper stage to submission, revision and eventual publication. The committee pools information on all applications made for external research funds, and its members read and advise on new applications.

Members of staff are encouraged to present papers at key conferences anywhere in the world. No case has yet occurred in which finance has not been made available to cover expenses. All necessary funds have been made available from individuals’ research budgets, supplemented from the Research Committee’s budget if required. Expectations of research standards are correspondingly high. The Department runs an active seminar series for outside speakers (typically one per week during term) and a programme of internal workshops where preliminary research findings can be presented in an informal setting. All members of staff make presentations at these workshops.

The Department of Economics and Finance has a long-standing discussion paper series. The discussion papers are archived at the University of Warwick, regularly sent to about 50 institutions, and are available on-line.

PhD Programme

Research students are treated as essentially junior members of staff (they are provided with offices, computers, photocopying facilities, etc.). They are only taken on if they have an appropriate Master’s degree, if there are at least two potential supervisors and if the Director of Research and the Convenor of the PhD programme consider the project feasible. All research students are required to attend any MSc modules that the Convenor deems appropriate and they are all given training in a matrix programming language. From October 2000, a formalised scheme of training sessions (60 hours per annum), specifically for PhD students, began in Advanced Economic Theory, Financial Economics and Econometrics.

The PhD programme is structured with a view to producing strong candidates for academic posts. It draws on the ESRC research-recognised MSc programme. (In the year 2000-1 we have 98 MSc students.) Further development of the PhD programme is a major priority. In the last two years the Department has devoted substantial funds in the form of bursaries to promising PhD students (£41,000 in 2000-1). About half of the Department’s PhD graduates are now employed in universities (recently, for example, at Brunel, City, Oslo and Manchester Universities), the remainder finding employment in the private sector, especially in financial institutions.

Research Groups

The research of the Department is broadly organised into two groups, Industrial and Labour Economics (ILE) and Macro and Financial Economics (MFE). There is some overlap in their membership, reflecting synergies between the research areas. Each group contains both senior and more junior researchers. Membership of the groups and the main areas of activity are discussed below.
Industrial and Labour Economics (ILE)

Membership comprises Bennett, Cave, Garino, Georgellis, Iossa, Liu, Martin, Rauh and Sessions. The group has strengths in three main areas:

(i) Firm behaviour/regulation. Bennett, Garino and Iossa are theorists; Liu is an econometrician who does some theoretical work, while Cave produces both theoretical and policy-oriented research, and he is actively involved in public policy-making. Much of Bennett’s and Liu’s work has been on transition economies, while Cave has edited a book on regulation in the transition. However, Cave’s major contributions deal with the communications industry. Iossa’s work has been mainly on regulation under asymmetric information. Collaboration between these members of staff now focuses on the role of ownership in various contexts, and includes the theoretical analysis of public-private partnerships.
(ii) Labour Economics. Georgellis and Sessions work primarily in applied labour economics, with some emphasis on urban and regional issues. They each have a wide range of international collaborators and contacts. They have recently been working together, with a research assistant, on aspects of self-employment. Martin's research, some of which is undertaken in collaboration with Garino, is both theoretical and applied, focusing on skills and turnover.

(iii) Pure theory. Garino’s research is primarily in contract theory (she also undertakes econometric testing of some of her models), and Rauh’s interests are in search theory and general equilibrium theory. Both Garino’s and Rauh’s research overlaps with that of sub-group (i): Rauh’s study of price controls overlaps with the more applied work on regulation, while Garino’s abstract research on contract theory complements the current research on ownership. Informal discussions between theorists and researchers doing applied work are found to benefit both sides.

Commentary on RA2 for the ILE Group

The following comments cover the entries in RA2 for the ILE Group. The square brackets contain the relevant publication number in RA2 for the member of staff concerned.
Bennett. [1], with Maw (Swansea), applies industrial organisation theory to transition economics. It is the first paper to examine the relationship between privatisation policy and industrial structure. [2] relaxes a restrictive assumption of Weitzman’s prices-versus-quantities model, deriving a generalised formula that allows for degrees of inefficiency in goods allocation. [3], with Dixon (York), develops a macro model of the Chinese economy and demonstrates the ‘perverse’ effects of several policy variables. [4], with Estrin (LBS) and Hare (Heriot-Watt) models firms in transition economies as labour-managed oligopolists, facing resource bottlenecks, and making low-quality goods.
Cave. [1], with Williamson (INSEAD) focuses on the effect of regulation on business strategy. [2], with Donnelly (Coopers & Lybrand), which has attracted many citations, considers settlement rates for international telecommunications operators. It shows that monopoly operators will rarely agree on a common rate system, but that, when colluding with its national regulatory authority, an operator will always have the incentive to insist on uniform rates as a precondition for negotiation. [3], with Tavakoli (St Andrews) sets up and estimates a dynamic logit model of tv-viewing behaviour. [4] identifies stages in the evolution of UK telecommunications regulation and examines implications for regulation.
Garino. [1], with Martin (Brunel), combines the efficiency wage and union-firm approaches to wage determination. [2], with Simmons (York), develops a three-period model of house purchase by risk-averse consumers and, testing it on UK data, finds that the jump in mortgage arrears and repossessions in the late 80s was an equilibrium. [3], with Sarno (Oxford), develops an overlapping-generations model of housing demand and uses it to test for bubbles in the UK housing market. [4], with Simmons (York), considers a loan contract with risk-neutrality and no commitment. Contrary to existing literature, it shows that this will not necessarily lead to randomised cheating and auditing.
Georgellis. [1], with Wall (Federal Reserve Bank, St. Louis) shows the significant roles of regional heterogeneity and regionally-correlated disturbances in UK self-employment. [2], with Bougheas (Nottingham), develops a search-theoretic model of marriage formation and dissolution. Divorce costs are shown to affect the probabilities both of divorce and of marriage. [3] with Clark (Orleans) and Sanfey (EBRD) finds that workers reporting job dissatisfaction are statistically more likely to quit, while wage changes are better predictors of quits than wage levels are. [4], with Lange (Robert Gordon) shows, for Germany, that training enhances gender differences in labour market outcomes.
Iossa. In [1], with de Fraja (York), she proposes ‘output floor’ regulation for monopolies and shows that this policy generally outperforms the more conventional policy of price-cap regulation. In [2] she integrates two branches of the literature on regulation under asymmetric information, thereby deriving a relationship between the desirability of decentralisation and the substitutability/complementarity of goods. In [3] she shows that in a market with volatile demand, price regulation results in lower prices and informative rents than quantity regulation. In [4], with Stroffolini (Naples), she analyses, for price cap regulation, the incentive of a firm to acquire information on a random cost variable.
Liu. [1]-[3] are joint with Hay (Oxford). [1] develops a theoretical model of the relationship between firm efficiency and growth of market share. The model is tested with data for 180 UK manufacturing firms over 20 years. It is concluded that higher market share tends to be the result of greater efficiency, rather than anti-competitive behaviour. This has important implications for regulatory policy. [2] develops a model of oligopolistic investment behaviour and tests it on a panel of 114 firms, while [3] examines the determinants of acquisition behaviour. [4], with Lui (London Guildhall), investigates the TFP changes in Chinese reformed state enterprises over the decade 1980-9.
Rauh. [1] is a significant generalisation of the search literature. Instead of the conventional assumption that agents know the distribution of prices, Rauh assumes that only the mean and variance are known. [2] generalises search models by dropping the assumption that agents have homogeneous beliefs. The analysis is consistent with the empirical evidence that prices are often dispersed for a homogeneous commodity.
Sessions. Each item is with Brown (Leicester). [1], which is also with Fakhfakh (CEE, Paris), is the first systematic study of the effects of profit-sharing and ESOPs on absenteeism. Both effects are found to be negative. [2] attempts to disentangle regional from demographic influences on a British worker’s chance of becoming unemployed. Regional factors are found to be particularly significant, indicating that, to alleviate unemployment significantly, microeconomic policies may be needed. [3] finds ‘weak’ evidence that schooling signals productivity. [4] shows that the individual cost of unemployment is a relatively strong signal of the demand for grievance procedures.

Macro and Financial Economics (MFE)

Membership comprises Bennett, Davis, Ioannidis, Luintel, Madsen, Martin and Seccia.

(i) Research on monetary policy, inflation and unemployment is a major strength of this group, being the main interest of Madsen, an applied economist, and Martin, whose work is both theoretical and applied. Research on financial economics by Davis (see (ii) below) also relates to monetary policy. Additionally, Ioannidis works on aspects of inflation. Madsen is a new appointment from the University of Western Australia. He is a prolific researcher, and has built up a detailed international data set for the whole of the 20th century. Work on monetary policy will be significantly enriched by the new links with the Bank of England through Davis and the appointment of Andrew Clare as ‘Professor Associate’ (see RA6).
(ii) A second strength of the group is in policy evaluation and empirical analysis. Ioannidis and Luintel are applied econometricians, each with a wide range of interests in financial economics. Luintel has a particular expertise in development finance. Davis, who was a Senior International Financial Advisor at the Bank of England until mid-2000, is the leading expert on financial fragility and the financial and macroeconomic implications of the development of pensions funds and institutional investors. He has strong links with the international policy-making and research community. It is expected that the MFE group will be able to develop further by attracting increasing numbers of well-qualified research students in this subject area.
(iii) The group also produces theoretical research. Seccia is currently working with Luintel on the effect of financial controls in a general equilibrium framework. Bennett’s macro research complements Luintel’s applied approach by formulating theoretical macro-models of emerging market economies.
Commentary on RA2 for the MFE Group
The following comments cover the entries in RA2 for the MFE Group. The square brackets contain the relevant publication number in RA2 for the member of staff concerned.

Davis. [1], with Fagan (European Monetary Institute) assesses the role of financial spreads as monetary indicators in Europe. [2] analyses the complementarity of institutionalisation and EMU in shifting Europe towards a securitised financial system. [3], with De Bandt (Banque de France) was one of the first applications of the Panzar-Rosse H-Statistic to assessing competitiveness in subsets of banks (small versus large) and of income (interest versus non-interest). [4] analyses pensions funds as financial intermediaries, showing that they fulfil a number of functions more efficiently than banks or direct holdings do.
Ioannidis. [1], with Clarke (Cardiff), by using ‘real’ stock market prices, finds, in contrast to previous studies, that the relationship between merger activity and real stock returns is stable. [2], with Silver (Cardiff), decomposes price increases for UK consumer durables into quality and other components. This is important for CPI-measurement, for when prices increase, this may not be ‘inflation.’ [3], with Driffield (Cardiff), uses the Kalman filter to show that in the UK petrol industry threats by the regulatory authorities have induced lower profit margins. [4], with Matthews (Cardiff), shows that the supply of credit affects the variability of price and output, but does not have long-run effects.
Luintel. [1]-[2] are with Demetriades (Leicester). [1] shows that the subsidy policies adopted in many Asian countries, which have attracted widespread criticism, may be beneficial in the context of financial repression, but only if there is good governance. This explains their failure in India, but success in S. Korea, and is of considerable policy relevance. [2] shows that financial controls have adversely affected growth in India. [3], using black market exchange rate data, finds strong support for PPP, but no evidence for properties such as survivorship bias. [4], with Khan (Camire, Luxembourg), investigates the relationship between financial development and growth in 10 developing countries.

Madsen. [1] tests leading macro models of unemployment on OECD data. It identifies the factors that most influence unemployment and suggests policy measures. [2] finds that, contrary to conventional belief, export price elasticities are either unbiased or biased towards zero. [3], with Yang (Minot State) shows that, with menu costs, retail prices are more likely to be flexible upward than downward, whereas the opposite asymmetry is likely for input prices. [4] integrates the supply side into a foreign-trade model, which is estimated using pooled cross-section and time-series OECD data. Partly due to adverse supply-side effects, exchange rates are found not to affect trade balances.
Martin. [1] uses cointegration techniques to test theories of price setting on UK macroeconomic data. It finds that domestic prices are determined by marginal costs and world prices, rather than average or normal costs. [2], with Haskel and Kersley (both Queen Mary, London), establishes that employment flexibility reduces the propensity of firms to increase nominal price. [3], with Bratsiotis (Manchester), is the first to establish that inflation targeting will reduce equilibrium unemployment. [4] combines two previously distinct versions of efficiency wage theory into a single, more general framework.
Seccia. [1] studies the informational properties of rational expectations equilibria for non-convex economies; it shows that there exists an economy with no fully-informative equilibria but a continuum of non-informative ones. [2], with Polemarchakis (CORE, Louvain), shows that monetary policy can determine the information revealed by prices, and thus can have real effects. However, full information does not necessarily allow an optimal allocation.

Staffing Policy

The prime criterion for appointing staff has been, and will continue to be, potential or achieved academic excellence. This is measured in terms of having published or being expected to publish a steady flow of work in journals of international repute or as research monographs. In making new appointments, subject expertise has played a part, to the extent that it exploits synergies with members of the two research groups, though a less important one. As shown above, we have developed significant clusters of researchers with common interests. The primary criterion for promotion in the University is research excellence.

Newly-appointed young members of staff are allocated an experienced mentor who encourages their academic development The mentor gives advice on the writing and submission of papers and research proposals, and ensures that they have the necessary resources to realise their potential. For the first three years of their employment, they are given significantly reduced teaching/administration loads, and their teaching is bunched into one semester per year. Additionally, the receipt of BRIEF awards (see Research Structure above) has in the last five years given six young new appointees the option of ‘buying out’ some of their teaching.

Users of this website should note that the information is not intended to be a complete record of all research centres in the UK

Copyright 2002 - HEFCE, SHEFC, ELWa, DEL

Last updated 17 October 2003

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