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The inflation measure used by the European Central Bank excludes housing costs that are borne by home owners even though they make up more than a tenth of household final consumption expenditure in the euro area. Has the exclusion of owner-occupied housing costs driven a wedge between the official harmonised index of consumer prices (HICP) and the cost of living? To answer this question, a measure of the user cost of housing capital has been constructed for every euro area country (except Luxembourg). User costs are measured taking into account property taxes but net of tax breaks that home owners enjoy on mortgage repayments. The user cost measure is combined with the HICP to derive a “broad” inflation estimate. For the sake of comparison, an alternative estimate has been put together using imputed rents. The main conclusion is that owner-occupied housing costs have an impact. Another important conclusion is that the effect of owner-occupied housing costs on inflation varies noticeably with the method used to incorporate them into the price index. The paper finally discusses the choice of the method from the point of view of economic policy makers. "This Working Paper relates to the 2005 OECD Economic Survey of Euro Area (www.oecd.org/eco/surveys/Euroarea)"

Economics --- Euro Area

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Women have contributed a great deal to Ireland's economic growth, including by joining the labour force in large numbers. The rise in female participation since 1990 has been amongst the strongest in the OECD, but from a low base. Female participation rates remain below the OECD average for all except the under-thirties. Cultural attitudes and low educational attainment among older women are factors, but policy settings play a role as well. Support to families is not targeted at working parents, implying that the return to work is low for many mothers. Working parents of school-age children also face difficulties in reconciling employment and work because out-of-school care is insufficiently developed. The tax system should be further improved to support second earners, most of whom are women, so as to strengthen their incentive to enter the labour market and reduce the bias in favour of the home production of services such as childcare. This paper reviews these issues and offers recommendations to continue to create a more favourable environment for women who want to enter the labour market.

Economics --- Ireland

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Over the next decades, many OECD countries are anticipating large increases in public spending as a result of population ageing and other long-term structural trends. The need to put public finances on a sustainable footing is widely recognised, but progress has been uneven and slow. Some policy makers may feel that action can be deferred for a few years at little cost because of the long-term nature of the problem. This paper questions this perception by proposing a model of the political costs of consolidating public finances. The main finding is that even a short delay increases political cost of consolidation quite markedly when ultimately policy makers are facing a deadline by which sustainability must be restored. The conclusion is very robust to changes in assumptions and specification. A variant of the model shows that with an infinite horizon the incentive to consolidate is weaker, which highlights the importance of setting a deadline. This paper relates to the 2007 Economic Survey of the Euro area (www.oecd.org/eco/surveys/euroarea).

Economics

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The 2007-2009 period has been characterised by an oil shock followed by a financial crisis. Higher oil prices and the prospect of higher borrowing costs are likely to reduce the productive potential of OECD economies. The present study provides illustrative numerical estimates of the impact under different scenarios using a stylised model based on a production function. In a scenario where real borrowing costs for firms return to their 1991-2001 average as opposed to staying at the level at which the capital stock in place at the end of 2007 had been invested, the impact on equilibrium GDP could be in the order of 2%. If the real oil price stays at $80 per barrel, up from the $50 average at which the capital stock in place in 2007 had been invested, the impact on equilibrium GDP could be in the order of 1%.

Economics

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Central banks have responded with exceptional vigour to the crisis by using their traditional interest-rate tools to their limits and deploying a wide range of unconventional measures. This paper documents these responses in a systematic way, reviews the evidence about their impact, and discusses the need to exit from these measures. Unconventional monetary policy measures appear to have been broadly successful in terms of improving conditions in financial markets and stabilising the real economy. In line with the improvement in functioning of financial markets, however, these unconventional measures should be gradually removed. Given the considerable changes in the size and composition of central banks' balance sheets, the exit will likely involve the combination of various tools. More challenging questions surround the decisions of when and how fast the current exceptional amount of stimulus should be reduced and then eliminated. A particularly important goal will be to preserve the hard-won anchoring of inflation expectations and dissipate any hypothetical fears that central banks? greater risk exposure and purchases of bonds issued or backed by governments might have reduced their independence regarding monetary policy decisions.

Economics