a column by Pontus Rendahl and Lukas B. Freund for VOX: CEPR’s Policy Portal
In recent years, some have claimed that banks create money ‘ex nihilo’.
This column explains that banks do not create money out of thin air.
From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. In addition to bank solvency representing a constraint on private money creation, banks require access to liquid reserves in order to be able to engage in money creation.
Continue reading
Showing posts with label Bank_of_England. Show all posts
Showing posts with label Bank_of_England. Show all posts
Thursday, 19 December 2019
Monday, 24 June 2019
The case for market-based stress tests
a column by John Vickers for VOX: CEPR’s Policy Portal
The stability of the financial system depends on the capital of banks and other financial institutions. But the measurement of bank capital depends on regulatory accounting methods, which, as events a decade ago showed dramatically, do not always reflect economic realities in a timely fashion. This column argues that market-based measures should play a greater role in regulatory assessment than is current practice, in particular in stress tests.
The column opens as follows: I found this fascinating!
“I underwent a stress test of a personal kind at 8 o’clock one morning three years ago when I was about to be interviewed on BBC Radio’s Today programme by the formidable John Humphrys. The subject was bank capital requirements, on which I thought the Bank of England had adopted a softer than prudent policy stance.1 A few minutes before the interview, as the news was being read, John Humphrys came into the room where I was waiting and said something like this: “It’s a complicated topic. We need to make it intelligible to the listeners. So is it alright to talk about bank capital as like a pot of money that they keep on one side for a rainy day?”
“Given the terms in which bankers, commentators and, alas, regulators including central bankers often speak about banks “holding” capital and so on, it is entirely natural that John Humphrys would think that the pot-of-money metaphor was apt. But he wasn’t sure and he took the trouble to check. No, it’s not like that at all, I explained (off air, thank goodness). A pot of money is an asset, but equity capital is on the liability side of the balance sheet – part of banks’ funding structure. It is the difference between two big numbers – the estimated value of their assets and their liabilities (i.e. obligations to depositors, bond-holders, etc.). He got the point instantly and somehow managed to make the interview both intelligible and free of the pot-of-money fallacy.”
Continue reading
The stability of the financial system depends on the capital of banks and other financial institutions. But the measurement of bank capital depends on regulatory accounting methods, which, as events a decade ago showed dramatically, do not always reflect economic realities in a timely fashion. This column argues that market-based measures should play a greater role in regulatory assessment than is current practice, in particular in stress tests.
The column opens as follows: I found this fascinating!
“I underwent a stress test of a personal kind at 8 o’clock one morning three years ago when I was about to be interviewed on BBC Radio’s Today programme by the formidable John Humphrys. The subject was bank capital requirements, on which I thought the Bank of England had adopted a softer than prudent policy stance.1 A few minutes before the interview, as the news was being read, John Humphrys came into the room where I was waiting and said something like this: “It’s a complicated topic. We need to make it intelligible to the listeners. So is it alright to talk about bank capital as like a pot of money that they keep on one side for a rainy day?”
“Given the terms in which bankers, commentators and, alas, regulators including central bankers often speak about banks “holding” capital and so on, it is entirely natural that John Humphrys would think that the pot-of-money metaphor was apt. But he wasn’t sure and he took the trouble to check. No, it’s not like that at all, I explained (off air, thank goodness). A pot of money is an asset, but equity capital is on the liability side of the balance sheet – part of banks’ funding structure. It is the difference between two big numbers – the estimated value of their assets and their liabilities (i.e. obligations to depositors, bond-holders, etc.). He got the point instantly and somehow managed to make the interview both intelligible and free of the pot-of-money fallacy.”
Continue reading
Monday, 30 October 2017
323 years of UK national debt
a column by Martin Ellison and Andrew Scott for VOX: CEPR's Policy Portal
A new dataset for the market value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It shows that the 20th century saw a shift to financing debt by inflation and low bondholder returns, rather than through fiscal surpluses. This column uses a counterfactual analysis to show that long bonds have been an expensive way of financing debt, especially after a financial crisis. Had the government issued only three-year bonds since 1914, the level of debt in 2017 would have been lower by 28% of GDP.
Continue reading
I must say that despite being professors of this and that (mainly, of course, economics) the writers for VOX manage to make their subjects understandable (sort of).
A new dataset for the market value of British government debt makes a long-run analysis of fiscal sustainability and debt management possible. It shows that the 20th century saw a shift to financing debt by inflation and low bondholder returns, rather than through fiscal surpluses. This column uses a counterfactual analysis to show that long bonds have been an expensive way of financing debt, especially after a financial crisis. Had the government issued only three-year bonds since 1914, the level of debt in 2017 would have been lower by 28% of GDP.
Continue reading
I must say that despite being professors of this and that (mainly, of course, economics) the writers for VOX manage to make their subjects understandable (sort of).
Tuesday, 30 July 2013
Bank of England Quarterly Bulletin
2013 Q2 | Volume 53 No. 2 provides the following:
Topical articles
Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?
By Abigail Haddow and Chris Hare of the Bank’s Conjunctural Assessment and Projections Division, John Hooley of the Bank’s International Finance Division and Tamarah Shakir of the Bank’s Macroprudential Strategy Division
The onset of the financial crisis in 2008 brought an end to the ‘Great Stability’ period, making prospects for UK and global economic growth appear not just weaker, but more uncertain. This elevated uncertainty is likely to have adversely affected spending decisions and contributed to the depth of the recent recession and the weakness of the recovery. While uncertainty is not directly observable, this article constructs an aggregate measure of the economic uncertainty faced by households and companies, based on a number of proxy indicators. It also provides some quantitative analysis of the impact of uncertainty on economic activity, drawing a distinction between shocks to uncertainty that are short-lived and those that are more persistent.
Do inflation expectations currently pose a risk to the economy?
By Becky Maule and Alice Pugh of the Bank’s Monetary Assessment and Strategy Division
People’s expectations about future inflation play an important role in determining the current rate of inflation. There is a risk that the recent prolonged period of above-target inflation, which the Monetary Policy Committee (MPC) judges is more likely than not to continue over much of the next two years, may cause inflation expectations to become less well anchored. By pushing up wages and prices, higher inflation expectations could lead to inflation becoming more persistent. At the moment, most indicators are consistent with inflation expectations remaining anchored to the target, although there is tentative evidence that financial market measures of inflation expectations have become a little more responsive to developments in the economy. There are currently few signs to suggest that prices and wages have increased as a result of higher inflation expectations. The MPC will continue to monitor and assess indicators closely.
Public attitudes to monetary policy
By Michael Goldby of the Bank’s Monetary Assessment and Strategy Division
This article examines the latest results from the Bank/GfK NOP survey concerning households’ awareness and understanding of monetary policy, and their satisfaction with the way the Bank is conducting monetary policy. Results from the latest surveys indicate that public awareness of the policy framework has remained broadly constant over the past year at a reasonably high level. Satisfaction with the way the Bank sets interest rates in order to control inflation remains much lower than before the financial crisis. While remaining positive over the past year, net satisfaction fell to a series low in 2012 Q3, before recovering a little in subsequent surveys. The extent of satisfaction with the Bank has moved closely with changes in consumer confidence, which in turn is linked to a range of macroeconomic variables including GDP growth, inflation and unemployment.
Cross-border bank credit and global financial stability
By Bob Hills and Glenn Hoggarth of the Bank’s International Finance Division
This article looks in detail at one aspect of global liquidity: cross-border credit provided by banks. Cross-border banking can potentially have considerable benefits, especially by diversifying the available sources of lending and borrowing, and by increasing banking competition. But such flows can also amplify risks in times of stress. As this article sets out, cross-border bank lending contributed to the build-up in vulnerabilities before the recent crisis, and exacerbated the bust once the crisis hit. The article then considers possible policy responses, arguing in particular that policymakers need to ensure that they can properly monitor these flows, from the point of view of recipient countries and the global system as a whole.
The Old Lady of Threadneedle Street
By John Keyworth, curator of the Bank’s Museum (and the Old Lady’s oldest and longest-serving employee)
The popular nickname for the Bank of England dates back to a caricature of the institution from the 1790s. An exhibition in the Bank’s Museum celebrates two centuries of visual comment, some of which is discussed in this short article. Fascinating
Central counterparties: what are they, why do they matter and how does the Bank supervise them?
By Amandeep Rehlon of the Bank’s Market Infrastructure Division and Dan Nixon of the Bank’s Media and Publications Division
The Government introduced major changes to the system of financial regulation in the United Kingdom in April 2013, including creating the Financial Policy Committee and transferring significant new supervisory responsibilities to the Bank. As part of this, the Bank is now responsible for the supervision of central counterparties, or CCPs. This article explains what CCPs are, setting out their importance for the financial system — including the benefits they bring and some of the risks they could present if not properly managed. It also summarises the Bank’s approach to supervising CCPs and describes some of the key priorities the Bank will be pursuing.
Recent economic and financial developments
Markets and operations
This article reviews developments in financial markets between the 2013 Q1 Quarterly Bulletin and
24 May 2013, drawing on the qualitative intelligence gathered by the Bank in the course of meeting
its objectives of monetary and financial stability. The article also sets out usage of the Bank’s
operations since the previous Bulletin.
Report
A review of the work of the London Foreign Exchange Joint Standing Committee in 2012
This article reviews the work undertaken by the London Foreign Exchange Joint Standing
Committee during 2012
Summaries of speeches and working papers
Topical articles
Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?
By Abigail Haddow and Chris Hare of the Bank’s Conjunctural Assessment and Projections Division, John Hooley of the Bank’s International Finance Division and Tamarah Shakir of the Bank’s Macroprudential Strategy Division
Do inflation expectations currently pose a risk to the economy?
By Becky Maule and Alice Pugh of the Bank’s Monetary Assessment and Strategy Division
Public attitudes to monetary policy
By Michael Goldby of the Bank’s Monetary Assessment and Strategy Division
Cross-border bank credit and global financial stability
By Bob Hills and Glenn Hoggarth of the Bank’s International Finance Division
The Old Lady of Threadneedle Street
By John Keyworth, curator of the Bank’s Museum (and the Old Lady’s oldest and longest-serving employee)
Central counterparties: what are they, why do they matter and how does the Bank supervise them?
By Amandeep Rehlon of the Bank’s Market Infrastructure Division and Dan Nixon of the Bank’s Media and Publications Division
Recent economic and financial developments
Markets and operations
Report
Summaries of speeches and working papers
- Bank of England speeches
- Summaries of recent Bank of England working papers – The Bank of England’s forecasting platform: COMPASS, MAPS, EASE and the suite of models
Monday, 22 April 2013
Bank of England Quarterly Bulletin (2013 Q1)
With apologies for the lateness. I seem to have been a bit lax in the “fetching” department (i.e. those publications that do not have a reliable feed have to retrieved according to my sources list which I have been ignoring lately).
Executive summary
Recent economic and financial developments (pages 5–18)
Markets and operations. This article reviews developments in financial markets and the Bank’s official operations in the period between the previous Bulletin and 22 February 2013. Market sentiment improved significantly, reflecting a continued positive response to central bank policy measures adopted by both the European Central Bank and the Federal Reserve during the 2012 Q4 review period. Confidence was buoyed further in the New Year as policymakers in the United States reached an agreement to avert the approaching ‘fiscal cliff’. In response to these developments, there was an increase in investors’ willingness to bear risk, providing support to a broad range of assets and prompting some significant adjustments in exchange rates. The article also describes a prospective new tool for reducing counterparty credit risk exposures.
Research and analysis (pages 19–77)
Changes to the Bank of England (by Emma Murphy and Stephen Senior).
In April 2013, a new regulatory framework for the UK financial sector will come into force, which will result in the Bank of England gaining significant new responsibilities. This article gives an overview of the changes that are happening to the Bank, including the creation of the Prudential Regulation Authority (PRA) and the Financial Policy Committee (FPC), and new responsibilities in relation to financial market infrastructures. The PRA, as part of the Bank, will be responsible for the microprudential regulation of deposit-takers, insurers and major investment firms. It will promote the safety and soundness of these firms, focusing on the adverse effects that they can have on the stability of the financial system; and contribute to ensuring that insurance policyholders are appropriately protected. The FPC, which has operated in interim form since 2011, will be formally charged with identifying, monitoring and taking action to remove or reduce risks to the resilience of the financial system as a whole. The Bank will also become responsible for regulation of certain post-trade market infrastructures, including central counterparties and securities settlement systems. The article also looks at the important revised governance processes that are being put in place to ensure that the Bank carries out its new responsibilities effectively and transparently and is fully accountable to Parliament and the public.
The profile of cash transfers between the Asset Purchase Facility and Her Majesty’s Treasury (by Nick McLaren and Tom Smith).
The Bank of England Asset Purchase Facility Fund Limited (APF) is a wholly-owned subsidiary of the Bank of England, used to make purchases of public and private sector assets for monetary policy purposes. It is fully indemnified by Her Majesty’s Treasury (HMT). Initially, it was envisaged that payments due under the indemnity would be settled when the asset purchase scheme ended. But on 9 November 2012 it was agreed to alter this arrangement and establish a process for ongoing quarterly transfers between the APF and HMT. This article explains how the possible size of the transfers varies depending on a number of uncertain factors, including the future path of Bank Rate, and the price at which the assets held by the APF are ultimately sold. While the initial transfers are from the APF to HMT, it is likely that they will be offset by payments in the opposite direction in the future. But the ultimate net amount that will be transferred is uncertain, and a wide range of outcomes is possible.
Private equity and financial stability (by David Gregory).
In the mid-2000s, there was a dramatic increase in acquisitions of UK companies by private equity funds. The leverage on these buyouts, especially the larger ones, was high. The increased indebtedness of such companies could make the corporate sector more susceptible to default, posing a risk to the stability of the financial system in the United Kingdom. Moreover, this risk is compounded by the need for companies to refinance debt maturing over the next few years in an environment of much tighter credit conditions. Since the crisis began, there has been some evidence of loans to private equity sponsored firms performing poorly but a complete picture will not become clear until more investments have been exited by private equity funds. From a macroprudential policy perspective it will be important to monitor the use of debt in acquisitions in the future. But there is also potentially a role for private equity to play in promoting recovery in a downswing, in particular at the current juncture, by restructuring companies in difficulty.
Commercial property and financial stability (by James Benford and Oliver Burrows).
The commercial property market played a key role in the recent financial crisis in the United Kingdom. A rapid build-up of debt tied to commercial property investments pre-crisis supported a boom in prices. The consequent bust led to a sharp rise in non-performing loans. This article documents some of the main developments in the commercial property market and explores the behaviour of its key players: occupiers of property, investors and lenders. It finds that the structure of the market evolved significantly during the boom period and that an increase in the use of leverage and maturity mismatch contributed to both the rise in prices and the subsequent fall. Going forward, it will be important to consider these factors when assessing the risks that the commercial property market can pose to the stability of the financial system. The new Financial Policy Committee will be alert to these risks and deploy tools to counteract them, where necessary, in order to protect financial stability.
The Agents’ company visit scores (by Jon Relleen, David Copple, Matthew Corder and Nicholas Fawcett).
The Bank’s Agents collect economic intelligence from the business community around the United Kingdom. Since 2007, the Bank’s Agents have been assigning company visit scores (CVS) based on the 5,500 bilateral meetings that they have with individual UK firms every year. The CVS have three attributes that make them useful for analysis. First, they are very timely. Second, firm-level data allow a consideration of the differences in business conditions across companies and sectors. And third, the scores cover some variables where official data are unavailable. This article introduces the CVS data set. It explains how they are assigned before going on to show some initial examples of how they have been used for internal analysis at the Bank, including analysis of trends in employment and capacity utilisation. The Bank places great importance on the confidential nature of discussions between Agents and company contacts — the analysis using the CVS presented in this article is based on aggregated and anonymised data.
The Bank of England Bank Liabilities Survey (by Venetia Bell, Nick Butt and James Talbot). The Bank of England began conducting a survey of banks’ liabilities in 2012. Developments in banks’ liabilities — retail and wholesale funding and capital — can have a substantial impact on credit conditions. The Bank already uses data and intelligence from discussions with market participants to inform its analysis of such developments. But there are benefits from a regular survey, which provides consistent, comparable data; information on the factors affecting developments in liabilities; as well as the reporting of institutions’ expectations of future developments. This new survey will also supplement the data collected on the asset side of bank balance sheets by the Bank of England’s Credit Conditions Survey, which was launched in 2007. The first results of the Bank Liabilities Survey will be published on 26 March 2013. This article explores the reasons for launching this new survey and describes its design and coverage, including details of the questions asked.
Report (pages 79–82)
Monetary Policy Roundtable
This edition also contains a summary of the main points made by participants at the most recent Monetary Policy Roundtable hosted by the Bank of England and the Centre for Economic Policy Research, on 11 December 2012.
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank, MPC or FPC members.
Full text (PDF 96pp)
Executive summary
Recent economic and financial developments (pages 5–18)
Markets and operations. This article reviews developments in financial markets and the Bank’s official operations in the period between the previous Bulletin and 22 February 2013. Market sentiment improved significantly, reflecting a continued positive response to central bank policy measures adopted by both the European Central Bank and the Federal Reserve during the 2012 Q4 review period. Confidence was buoyed further in the New Year as policymakers in the United States reached an agreement to avert the approaching ‘fiscal cliff’. In response to these developments, there was an increase in investors’ willingness to bear risk, providing support to a broad range of assets and prompting some significant adjustments in exchange rates. The article also describes a prospective new tool for reducing counterparty credit risk exposures.
Research and analysis (pages 19–77)
Changes to the Bank of England (by Emma Murphy and Stephen Senior).
In April 2013, a new regulatory framework for the UK financial sector will come into force, which will result in the Bank of England gaining significant new responsibilities. This article gives an overview of the changes that are happening to the Bank, including the creation of the Prudential Regulation Authority (PRA) and the Financial Policy Committee (FPC), and new responsibilities in relation to financial market infrastructures. The PRA, as part of the Bank, will be responsible for the microprudential regulation of deposit-takers, insurers and major investment firms. It will promote the safety and soundness of these firms, focusing on the adverse effects that they can have on the stability of the financial system; and contribute to ensuring that insurance policyholders are appropriately protected. The FPC, which has operated in interim form since 2011, will be formally charged with identifying, monitoring and taking action to remove or reduce risks to the resilience of the financial system as a whole. The Bank will also become responsible for regulation of certain post-trade market infrastructures, including central counterparties and securities settlement systems. The article also looks at the important revised governance processes that are being put in place to ensure that the Bank carries out its new responsibilities effectively and transparently and is fully accountable to Parliament and the public.
The profile of cash transfers between the Asset Purchase Facility and Her Majesty’s Treasury (by Nick McLaren and Tom Smith).
The Bank of England Asset Purchase Facility Fund Limited (APF) is a wholly-owned subsidiary of the Bank of England, used to make purchases of public and private sector assets for monetary policy purposes. It is fully indemnified by Her Majesty’s Treasury (HMT). Initially, it was envisaged that payments due under the indemnity would be settled when the asset purchase scheme ended. But on 9 November 2012 it was agreed to alter this arrangement and establish a process for ongoing quarterly transfers between the APF and HMT. This article explains how the possible size of the transfers varies depending on a number of uncertain factors, including the future path of Bank Rate, and the price at which the assets held by the APF are ultimately sold. While the initial transfers are from the APF to HMT, it is likely that they will be offset by payments in the opposite direction in the future. But the ultimate net amount that will be transferred is uncertain, and a wide range of outcomes is possible.
Private equity and financial stability (by David Gregory).
In the mid-2000s, there was a dramatic increase in acquisitions of UK companies by private equity funds. The leverage on these buyouts, especially the larger ones, was high. The increased indebtedness of such companies could make the corporate sector more susceptible to default, posing a risk to the stability of the financial system in the United Kingdom. Moreover, this risk is compounded by the need for companies to refinance debt maturing over the next few years in an environment of much tighter credit conditions. Since the crisis began, there has been some evidence of loans to private equity sponsored firms performing poorly but a complete picture will not become clear until more investments have been exited by private equity funds. From a macroprudential policy perspective it will be important to monitor the use of debt in acquisitions in the future. But there is also potentially a role for private equity to play in promoting recovery in a downswing, in particular at the current juncture, by restructuring companies in difficulty.
Commercial property and financial stability (by James Benford and Oliver Burrows).
The commercial property market played a key role in the recent financial crisis in the United Kingdom. A rapid build-up of debt tied to commercial property investments pre-crisis supported a boom in prices. The consequent bust led to a sharp rise in non-performing loans. This article documents some of the main developments in the commercial property market and explores the behaviour of its key players: occupiers of property, investors and lenders. It finds that the structure of the market evolved significantly during the boom period and that an increase in the use of leverage and maturity mismatch contributed to both the rise in prices and the subsequent fall. Going forward, it will be important to consider these factors when assessing the risks that the commercial property market can pose to the stability of the financial system. The new Financial Policy Committee will be alert to these risks and deploy tools to counteract them, where necessary, in order to protect financial stability.
The Agents’ company visit scores (by Jon Relleen, David Copple, Matthew Corder and Nicholas Fawcett).
The Bank’s Agents collect economic intelligence from the business community around the United Kingdom. Since 2007, the Bank’s Agents have been assigning company visit scores (CVS) based on the 5,500 bilateral meetings that they have with individual UK firms every year. The CVS have three attributes that make them useful for analysis. First, they are very timely. Second, firm-level data allow a consideration of the differences in business conditions across companies and sectors. And third, the scores cover some variables where official data are unavailable. This article introduces the CVS data set. It explains how they are assigned before going on to show some initial examples of how they have been used for internal analysis at the Bank, including analysis of trends in employment and capacity utilisation. The Bank places great importance on the confidential nature of discussions between Agents and company contacts — the analysis using the CVS presented in this article is based on aggregated and anonymised data.
The Bank of England Bank Liabilities Survey (by Venetia Bell, Nick Butt and James Talbot). The Bank of England began conducting a survey of banks’ liabilities in 2012. Developments in banks’ liabilities — retail and wholesale funding and capital — can have a substantial impact on credit conditions. The Bank already uses data and intelligence from discussions with market participants to inform its analysis of such developments. But there are benefits from a regular survey, which provides consistent, comparable data; information on the factors affecting developments in liabilities; as well as the reporting of institutions’ expectations of future developments. This new survey will also supplement the data collected on the asset side of bank balance sheets by the Bank of England’s Credit Conditions Survey, which was launched in 2007. The first results of the Bank Liabilities Survey will be published on 26 March 2013. This article explores the reasons for launching this new survey and describes its design and coverage, including details of the questions asked.
Report (pages 79–82)
Monetary Policy Roundtable
This edition also contains a summary of the main points made by participants at the most recent Monetary Policy Roundtable hosted by the Bank of England and the Centre for Economic Policy Research, on 11 December 2012.
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank, MPC or FPC members.
Full text (PDF 96pp)
Wednesday, 12 September 2012
Labour market institutions and unemployment volatility: evidence from OECD countries
Bank of England Working Paper No. 461 by Renato Faccini (Queen Mary, University of London)and Chiara Rosazza Bondibene (NIESR and Royal Holloway, University of London) published August 2012
Abstract
Using publicly available data for a group of 20 OECD countries, we find that the cyclical volatility of the unemployment rate exhibits substantial cross-country and time variation. We then investigate empirically whether labour market institutions can account for this observed heterogeneity and find that the impact of various institutions on cyclical unemployment dynamics is quantitatively strong and statistically significant.
The hypothesis that labour market institutions could increase the volatility of unemployment by reducing match surplus is not supported by the data. In fact, unemployment benefits, taxation and employment protection appear to reduce the volatility of unemployment rates.
In addition, we find that the precise nature of union bargaining has important implications for cyclical unemployment dynamics, with union coverage and density having large and offsetting effects.
Finally, we provide evidence suggesting that interactions between shocks and institutions matter for cyclical unemployment fluctuations. However, institutions only account for about one quarter of the explained variation, which implies that they are important but they are not the entire story.
JEL classifications: E32, E6, J01, J08
Full text (PDF 46pp)
Abstract
Using publicly available data for a group of 20 OECD countries, we find that the cyclical volatility of the unemployment rate exhibits substantial cross-country and time variation. We then investigate empirically whether labour market institutions can account for this observed heterogeneity and find that the impact of various institutions on cyclical unemployment dynamics is quantitatively strong and statistically significant.
The hypothesis that labour market institutions could increase the volatility of unemployment by reducing match surplus is not supported by the data. In fact, unemployment benefits, taxation and employment protection appear to reduce the volatility of unemployment rates.
In addition, we find that the precise nature of union bargaining has important implications for cyclical unemployment dynamics, with union coverage and density having large and offsetting effects.
Finally, we provide evidence suggesting that interactions between shocks and institutions matter for cyclical unemployment fluctuations. However, institutions only account for about one quarter of the explained variation, which implies that they are important but they are not the entire story.
JEL classifications: E32, E6, J01, J08
Full text (PDF 46pp)
Wednesday, 16 November 2011
Bank of England Quarterly Bulletin September 2011
and no, it’s not the bank – it’s me being shamefully neglectful of my “fetch” list
Summary of Quarterly Bulletin 2011 Q3 (Volume 51 Number 3)
Recent economic and financial developments
Markets and operations (page 184)
This article reviews developments in sterling financial markets, including the Bank’s official operations, between the 2011 Q2 Quarterly Bulletin and 26 August 2011. The article also summarises market intelligence on selected topical issues relating to market functioning.
Research and analysis
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.
Monetary Policy Roundtable (page 258)
On 24 June, the Bank of England and the Centre for Economic Policy Research hosted the sixth Monetary Policy Roundtable. These events are intended to provide a forum for economists to discuss key issues affecting the design and operation of monetary policy in the United Kingdom. As always, participants included a range of economists from private sector financial institutions, academia and public sector bodies. At this sixth Roundtable there were two discussion topics: will the protracted period of above-target inflation lead to further upward pressure on prices?; and how will the contrasting fortunes of the household and corporate sectors play out?
Speeches
Full document (PDF 98pp)
Summary of Quarterly Bulletin 2011 Q3 (Volume 51 Number 3)
Recent economic and financial developments
Markets and operations (page 184)
This article reviews developments in sterling financial markets, including the Bank’s official operations, between the 2011 Q2 Quarterly Bulletin and 26 August 2011. The article also summarises market intelligence on selected topical issues relating to market functioning.
Research and analysis
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.
- The United Kingdom’s quantitative easing policy: design, operation and impact (page 200)
By Michael Joyce, Matthew Tong and Robert Woods of the Bank’s Macro Financial Analysis Division.
In response to the intensification of the financial crisis in Autumn 2008, the Bank of England, in common with other central banks, loosened monetary policy using both conventional and unconventional policy measures. In the United Kingdom, the principal element of these unconventional measures was the policy of asset purchases financed by central bank money, so-called quantitative easing (QE). Over the period March 2009 to January 2010, £200 billion of assets were purchased, overwhelmingly made up of government securities, representing around 14% of annual GDP. This article reviews the motivation for these central bank asset purchases and describes how they were implemented. It goes on to review a range of evidence for the impact of the asset purchases made to date, both on financial markets and more widely on the economy. While there is considerable uncertainty about the magnitudes, the evidence suggests that QE asset purchases have had economically significant effects.
- Bank resolution and safeguarding the creditors left behind (page 213)
By Geoffrey Davies and Marc Dobler of the Bank’s Special Resolution Unit.
Not for the first time, the global banking crisis illustrated the vulnerability of banks to a loss of confidence by their depositors, other creditors and counterparties. The experience highlighted the need to have special arrangements for dealing with failing banks — a ‘special resolution regime’ — that provides the authorities with the tools necessary to reduce the systemic risks arising from a bank’s failure while at the same time limiting the taxpayers’ exposure to the costs. The United Kingdom’s own Special Resolution Regime for dealing with failing banks and building societies was born out of the difficulties in dealing with the failure of Northern Rock in the autumn of 2007.
- Developments in the global securities lending market (page 224)
By Matthew Dive of the Bank’s Payments and Infrastructure Division, Ronan Hodge and Catrin Jones of the Bank’s Financial Institutions Division and James Purchase of the Bank’s Sterling Markets Division.
Securities lending plays an important role in supporting financial markets. For example, it can improve market liquidity, potentially reducing the cost of trading and increasing market efficiency. But by increasing the interconnections between institutions it can pose potential risks to financial stability, which are exacerbated by a lack of transparency in the securities lending market. Since the onset of the financial crisis, market participants have attempted to address some of these risks, and fundamental changes to market infrastructure are being discussed, such as the use of central counterparties. New regulations under way to improve the resilience of the financial system may also impact both the risks to financial stability from securities lending and its benefits.
- Measuring financial sector output and its contribution to UK GDP (page 234)
By Stephen Burgess of the Bank’s Conjunctural Assessment and Projections Division.
In the decade before the financial crisis, the UK financial services sector grew more than twice as fast as the UK economy as a whole. But there are many conceptual difficulties associated with measuring output in finance. This article describes the contribution of the financial sector to GDP and assesses the uncertainty around recent estimates. There is some evidence that financial services output grew less quickly over the recent past than the official data suggest, although this probably had only a small impact on the rate of growth of overall GDP.
- The Money Market Liaison Group Sterling Money Market Survey (page 247)
- By Ben Westwood of the Bank’s Sterling Markets Division.
The Bank of England recently initiated a new survey of the sterling money market on behalf of the Money Market Liaison Group. This market — where short-term wholesale borrowing and lending in sterling takes place — plays a central role in the Bank’s pursuit of its monetary and financial stability objectives. Participants include banks, other financial institutions and non-financial companies, who use the market to manage their liquidity, by investing over short periods and raising short-term funding. The survey supplements the Bank’s long-standing gathering of market intelligence and will increase public understanding of the market. Over time, it is expected to help identify emerging structural trends in the market, helping policymakers assess the impact of their actions on the behaviour of market participants. This article introduces and presents the results of the inaugural survey launched in May 2011.
- An estimated DSGE model of energy, costs and inflation in the United Kingdom
- The impact of permanent energy price shocks on the UK economy
- Evolving UK and US macroeconomic dynamics through the lens of a model of deterministic structural change
- Preferred-habitat investors and the US term structure of real rates
Monetary Policy Roundtable (page 258)
On 24 June, the Bank of England and the Centre for Economic Policy Research hosted the sixth Monetary Policy Roundtable. These events are intended to provide a forum for economists to discuss key issues affecting the design and operation of monetary policy in the United Kingdom. As always, participants included a range of economists from private sector financial institutions, academia and public sector bodies. At this sixth Roundtable there were two discussion topics: will the protracted period of above-target inflation lead to further upward pressure on prices?; and how will the contrasting fortunes of the household and corporate sectors play out?
Speeches
Full document (PDF 98pp)
Wednesday, 13 July 2011
Bank of England Quarterly Bulletin Q2 June 2011
The Bank’s summary is rather long for a blog post so I’ve cut some of the article summaries.
Each article is available as a separate PDF file (click on title). Alternatively you may download the complete issue (178pp).
Recent economic and financial developments
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.
Compared with the post I’ve just written about the repayment of student loans using information from a BIS press release this was a doddle. All links worked first time and went to the right place etc etc. Although getting the HTML correct for the formatting of the individual entries was a bit fiddly.
Each article is available as a separate PDF file (click on title). Alternatively you may download the complete issue (178pp).
Recent economic and financial developments
- Markets and operations (281k) This article reviews developments in sterling financial markets, including the Bank’s official operations, between the 2011 Q1 Quarterly Bulletin and 20 May 2011. The article also summarises market intelligence on selected topical issues relating to market functioning.
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.
- Assessing the risk to inflation from inflation expectations (118k)
By Clare Macallan and Tim Taylor of the Bank’s Monetary Assessment and Strategy Division and Tom O’Grady of the Bank’s Structural Economic Analysis Division.
- International evidence on inflation expectations during Sustained Off-Target Inflation episodes (57k)
By Matthew Corder and Daniel Eckloff of the Bank’s Monetary Policy Unit.
The high level of UK inflation in recent years raises the possibility that inflation expectations may drift upwards, making the period of above-target inflation last for longer.- Public attitudes to monetary policy and satisfaction with the Bank (57k)
By Sally Hills and Clare Macallan of the Bank’s Monetary Assessment and Strategy Division.
- The use of foreign exchange markets by non-banks (73k)
By James O’Connor and James Wackett of the Bank’s Foreign Exchange Division and Robert Zammit of the Bank’s Sterling Markets Division.
- Housing equity withdrawal since the financial crisis (70k)
By Kate Reinold of the Bank’s Structural Economic Analysis Division.
Some interesting stuff in here about housing value. Not too geeky.- Using internet search data as economic indicators (72k)
By Nick McLaren of the Bank’s Conjunctural Assessment and Projections Division and Rachana Shanbhogue of the Bank’s Structural Economic Analysis Division.
Data on the volume of online searches can be used as indicators of economic activity. This article examines the use of these data for labour and housing markets in the United Kingdom. These data provide some additional information relative to existing surveys. And with further development, internet search data could become an important tool for economic analysis. This article is sufficiently interesting to warrant a post in its own right – and this is what I’ll do with it!- A review of the work of the London Foreign Exchange Joint Standing Committee in 2010 (55k) This article reviews the work undertaken by the London Foreign Exchange Joint Standing Committee during 2010.
Compared with the post I’ve just written about the repayment of student loans using information from a BIS press release this was a doddle. All links worked first time and went to the right place etc etc. Although getting the HTML correct for the formatting of the individual entries was a bit fiddly.
Subscribe to:
Posts (Atom)
