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BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly THERE’S MORE TO HOUSE PRICES THAN INTEREST RATES In the decade from 1990 to 2000, UK house prices rose by just 30% while rates more than halved, falling from 11% to 5%. Then from 2000 to the start of the financial crisis in 2008, house prices doubled while rates barely budged. Since the crisis rates have fallen to just above zero and house prices have risen by a further 20%. IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). CCP PORTING, ARE THERE LESSONS TO BE LEARNT FROM ELSEWHERE Fernando V. Cerezetti and Gerardo Ferrara Post-crisis regulatory reforms have reshaped and increased the amount of clearing activity in the OTC derivatives market. An emerging issue is so-called “client porting” - i.e. how central counterparties (CCPs) can transfer positions from one clearing member (CM) to another in the aftermath of one member defaulting.BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly THERE’S MORE TO HOUSE PRICES THAN INTEREST RATES In the decade from 1990 to 2000, UK house prices rose by just 30% while rates more than halved, falling from 11% to 5%. Then from 2000 to the start of the financial crisis in 2008, house prices doubled while rates barely budged. Since the crisis rates have fallen to just above zero and house prices have risen by a further 20%. IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). CCP PORTING, ARE THERE LESSONS TO BE LEARNT FROM ELSEWHERE Fernando V. Cerezetti and Gerardo Ferrara Post-crisis regulatory reforms have reshaped and increased the amount of clearing activity in the OTC derivatives market. An emerging issue is so-called “client porting” - i.e. how central counterparties (CCPs) can transfer positions from one clearing member (CM) to another in the aftermath of one member defaulting. WHERE IS IFRS 9 TAKING THE COST OF FUNDING OF BANKS 1 day ago · IFRS 9 versus IAS 39. In 2018, IFRS 9 came into effect, replacing IAS 39.IFRS 9 has important implications especially for banks, as they mostly hold financial assets. IAS 39 is based on the incurred-loss model, which allows recognition of credit losses (in the form of provisions) only when there is objective evidence of impairment, dividing loans into performing and impaired loans (Figure1).
THE REAL EFFECTS OF ZOMBIE LENDING IN EUROPE Belinda Tracey 'Zombie lending' occurs when a lender supports an otherwise insolvent borrower through forbearance measures such as repayment holidays and temporary interest-only loans. The phrase was first coined for Japan in the late 1990s, but more recently several authors have documented that zombie lending to European firms has been widespread following the sovereign debt LOAN LOSS PROVISIONS IFRS 9 versus IAS 39. In 2018, IFRS 9 came into effect, replacing IAS 39.IFRS 9 has important implications especially for banks, as they mostly hold financial assets. IAS 39 is based on the incurred-loss model, which allows recognition of credit losses (in the form of provisions) only when there is objective evidence of impairment, dividing loans into performing and impaired loans (Figure 1).FORBEARANCE LENDING
Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England or its policy committees. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly MONTAGU NORMAN AND THE TRANSFORMATION OF THE BANK By 1944, the proud institution, which in 1914 had been run by a board with little central banking experience, had espoused professionalism. Remarkably, this transformation was accomplished internally without major disruption. This post suggests how this was done, analysing the important role played by the then Governor of the day, Montagu Norman. MACROPRUDENTIAL REGULATION Emerging markets (EMs) have become more exposed to the global financial cycle in recent years. Positive liquidity shocks – that is, a loosening of global funding market conditions – have led to exchange rate appreciations, reductions in long-term bond yields, stock market booms, and increased gross capital flows to EMs (Bhattarai et al (2018)). BITESIZE: THE AGE EVOLUTION OF FIRST-TIME BUYERS The age distribution of FTBs has only shifted very slightly rightwards over time. The mean and median age are only about 12 and 16 months older respectively in 2018 than in 2006. This can still be reconciled with declining home-ownership rates amongst the young because the absolute numbers are bigger. Halving the flow of 20,000 30-year oldFTBs
TRADE: THE BENEFITS OF FOREIGN BANKS Stijn Claessens and Neeltje van Horen. Foreign banks can be important for trade. They can increase the availability of external finance for exporting firms and help overcome information asymmetries. Consistent with these channels, we show that firms in emerging markets tend to export more when foreign banks are present, especially when the parentbank is
HOUSES ARE ASSETS NOT GOODS: WHAT THE DIFFERENCE BETWEEN John Lewis and Fergus Cumming A tulip bulb produces flowers. Those flowers are what people actually enjoy consuming, not the bulb. Whilst that’s blindingly obvious for tulips, the equivalent is also true for housing. The physical dwelling is the asset, but it’s the actual living there (aka “housing services”) that people consume. The twothings sound
BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. WHERE IS IFRS 9 TAKING THE COST OF FUNDING OF BANKS 11 hours ago · IFRS 9 versus IAS 39. In 2018, IFRS 9 came into effect, replacing IAS 39.IFRS 9 has important implications especially for banks, as they mostly hold financial assets. IAS 39 is based on the incurred-loss model, which allows recognition of credit losses (in the form of provisions) only when there is objective evidence of impairment, dividing loans into performing and impaired loans (Figure1).
HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly THE DIFFERING EFFECTS OF GLOBALIZATION ON TRADE VERSUS Rebecca Freeman and John Lewis Compass on old map Better communications, enhanced transport links, integration agreements between governments, and other factors have all helped increase global economic interconnectedness over the past few decades. Yet, comparing a state-of-the-art gravity model for trade versus migration reveals important differences in the evolution of globalization over LENDER-OF-LAST-RESORT Huaxiang Huang and Ryland Thomas. The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act of 1844 (Morgan (1952)).). The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.. The Act gave the Bank of England an effective monopoly in the issue of JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. VENETIANS, VOLCKER AND VALUE-AT-RISK: 8 CENTURIES OF BOND Paul Schmelzing, Harvard University. Paul Schmelzing is a visiting scholar at the Bank from Harvard University, where he concentrates on 20th century financial history. In this guest post, he looks at the current bond market through the lens of nearly 800 years of economic history. The economist Eugen von Böhm-Bawerk once opined that “thecultural
HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1).BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. WHERE IS IFRS 9 TAKING THE COST OF FUNDING OF BANKS 11 hours ago · IFRS 9 versus IAS 39. In 2018, IFRS 9 came into effect, replacing IAS 39.IFRS 9 has important implications especially for banks, as they mostly hold financial assets. IAS 39 is based on the incurred-loss model, which allows recognition of credit losses (in the form of provisions) only when there is objective evidence of impairment, dividing loans into performing and impaired loans (Figure1).
HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly THE DIFFERING EFFECTS OF GLOBALIZATION ON TRADE VERSUS Rebecca Freeman and John Lewis Compass on old map Better communications, enhanced transport links, integration agreements between governments, and other factors have all helped increase global economic interconnectedness over the past few decades. Yet, comparing a state-of-the-art gravity model for trade versus migration reveals important differences in the evolution of globalization over LENDER-OF-LAST-RESORT Huaxiang Huang and Ryland Thomas. The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act of 1844 (Morgan (1952)).). The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.. The Act gave the Bank of England an effective monopoly in the issue of JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. VENETIANS, VOLCKER AND VALUE-AT-RISK: 8 CENTURIES OF BOND Paul Schmelzing, Harvard University. Paul Schmelzing is a visiting scholar at the Bank from Harvard University, where he concentrates on 20th century financial history. In this guest post, he looks at the current bond market through the lens of nearly 800 years of economic history. The economist Eugen von Böhm-Bawerk once opined that “thecultural
HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). THE REAL EFFECTS OF ZOMBIE LENDING IN EUROPE Belinda Tracey 'Zombie lending' occurs when a lender supports an otherwise insolvent borrower through forbearance measures such as repayment holidays and temporary interest-only loans. The phrase was first coined for Japan in the late 1990s, but more recently several authors have documented that zombie lending to European firms has been widespread following the sovereign debt LOAN LOSS PROVISIONS IFRS 9 versus IAS 39. In 2018, IFRS 9 came into effect, replacing IAS 39.IFRS 9 has important implications especially for banks, as they mostly hold financial assets. IAS 39 is based on the incurred-loss model, which allows recognition of credit losses (in the form of provisions) only when there is objective evidence of impairment, dividing loans into performing and impaired loans (Figure 1). HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. SETTING BOUNDARIES: FINDING THRESHOLDS IN BANK REGULATION The UK regulatory framework has 53 thresholds for deposit-takers. These are concentrated in capital (17), reporting (11) and remuneration (8) policy. 33 are UK specific and the rest are international. And while 13 different metrics are used to set the thresholds, the most common by far is assets (26). The asset thresholds vary widely and range THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are whollyFINANCIAL CRISIS
Financial crises affect firm growth not only in the short-run, but even more so in the long-run. Some firms permanently gain while others lose and cash is a crucial asset to have when the credit cycle turns. As we show in a new Staff Working Paper, having cash at hand allows firms to continue to invest during the crisis while industry rivals HOW DOES MONETARY POLICY AFFECT FIRMS? Second, interest rates affect the economy through changing asset prices and collateral values, which alters firms’ access to credit. Third, a key collateralisable asset for firms is the housing of directors and monetary policy works in part by shifting its value. Saleem Bahaj works in the Bank’s Research Hub, A ngus Foulis andGabor Pinter
BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. HOUSES ARE ASSETS NOT GOODS: WHAT THE DIFFERENCE BETWEEN John Lewis and Fergus Cumming A tulip bulb produces flowers. Those flowers are what people actually enjoy consuming, not the bulb. Whilst that’s blindingly obvious for tulips, the equivalent is also true for housing. The physical dwelling is the asset, but it’s the actual living there (aka “housing services”) that people consume. The twothings sound
BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly THE DIFFERING EFFECTS OF GLOBALIZATION ON TRADE VERSUS Rebecca Freeman and John Lewis Compass on old map Better communications, enhanced transport links, integration agreements between governments, and other factors have all helped increase global economic interconnectedness over the past few decades. Yet, comparing a state-of-the-art gravity model for trade versus migration reveals important differences in the evolution of globalization over HOW DOES MONETARY POLICY AFFECT FIRMS? Second, interest rates affect the economy through changing asset prices and collateral values, which alters firms’ access to credit. Third, a key collateralisable asset for firms is the housing of directors and monetary policy works in part by shifting its value. Saleem Bahaj works in the Bank’s Research Hub, A ngus Foulis andGabor Pinter
LENDER-OF-LAST-RESORT Huaxiang Huang and Ryland Thomas. The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act of 1844 (Morgan (1952)).). The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.. The Act gave the Bank of England an effective monopoly in the issue of HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). VENETIANS, VOLCKER AND VALUE-AT-RISK: 8 CENTURIES OF BOND Paul Schmelzing, Harvard University. Paul Schmelzing is a visiting scholar at the Bank from Harvard University, where he concentrates on 20th century financial history. In this guest post, he looks at the current bond market through the lens of nearly 800 years of economic history. The economist Eugen von Böhm-Bawerk once opined that “thecultural
BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly THE DIFFERING EFFECTS OF GLOBALIZATION ON TRADE VERSUS Rebecca Freeman and John Lewis Compass on old map Better communications, enhanced transport links, integration agreements between governments, and other factors have all helped increase global economic interconnectedness over the past few decades. Yet, comparing a state-of-the-art gravity model for trade versus migration reveals important differences in the evolution of globalization over HOW DOES MONETARY POLICY AFFECT FIRMS? Second, interest rates affect the economy through changing asset prices and collateral values, which alters firms’ access to credit. Third, a key collateralisable asset for firms is the housing of directors and monetary policy works in part by shifting its value. Saleem Bahaj works in the Bank’s Research Hub, A ngus Foulis andGabor Pinter
LENDER-OF-LAST-RESORT Huaxiang Huang and Ryland Thomas. The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act of 1844 (Morgan (1952)).). The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.. The Act gave the Bank of England an effective monopoly in the issue of HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). VENETIANS, VOLCKER AND VALUE-AT-RISK: 8 CENTURIES OF BOND Paul Schmelzing, Harvard University. Paul Schmelzing is a visiting scholar at the Bank from Harvard University, where he concentrates on 20th century financial history. In this guest post, he looks at the current bond market through the lens of nearly 800 years of economic history. The economist Eugen von Böhm-Bawerk once opined that “thecultural
THE REAL EFFECTS OF ZOMBIE LENDING IN EUROPE Belinda Tracey 'Zombie lending' occurs when a lender supports an otherwise insolvent borrower through forbearance measures such as repayment holidays and temporary interest-only loans. The phrase was first coined for Japan in the late 1990s, but more recently several authors have documented that zombie lending to European firms has been widespread following the sovereign debt SETTING BOUNDARIES: FINDING THRESHOLDS IN BANK REGULATION The UK regulatory framework has 53 thresholds for deposit-takers. These are concentrated in capital (17), reporting (11) and remuneration (8) policy. 33 are UK specific and the rest are international. And while 13 different metrics are used to set the thresholds, the most common by far is assets (26). The asset thresholds vary widely and range CONSUMPTION IN THE TIME OF A PANDEMIC: TRACKING UK Sinem Hacioglu Hoke, Diego Kaenzig and Paolo Surico The response to the Covid-19 pandemic has included closure of retail outlets and social distancing. How large was the resulting consumption fall in the UK? In a new paper, we try to answer this question using a transaction-level dataset of over 8 million individual transactions.This gives
HOW BRITAIN PAID FOR WAR: BOND HOLDERS IN THE GREAT WAR A sample of British investors in war loans underscore how wildly skewed the distribution of wealth was at the outbreak of war. More than 40% of the capital raised in the 3-1/2% War Loan 1925-28, issued in November 1914, came from financial institutions and businesses. By number of investors, these were only 3.1% of the sample. MICROPRUDENTIAL REGULATION That is good news for many sectors and activities, including microprudential regulation. In this post, we show how machine learning can be applied to help regulators. In particular, we outline our recent research that develops an early warning system of bank distress, demonstrating the improved performance of machine learningtechniques
DECOMPOSING CHANGES IN THE FUNCTIONING OF THE STERLING Rupal Patel Repo markets form part of the plumbing of the financial system. They allow participants to borrow cash against collateral and buy back this collateral at a higher price at the end of the transaction. When there is a blockage in repo it has repercussions on financial markets. Since 2014 there have been significant JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT.BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are whollyFINANCIAL CRISIS
Financial crises affect firm growth not only in the short-run, but even more so in the long-run. Some firms permanently gain while others lose and cash is a crucial asset to have when the credit cycle turns. As we show in a new Staff Working Paper, having cash at hand allows firms to continue to invest during the crisis while industry rivals JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: THE AGE EVOLUTION OF FIRST-TIME BUYERS The age distribution of FTBs has only shifted very slightly rightwards over time. The mean and median age are only about 12 and 16 months older respectively in 2018 than in 2006. This can still be reconciled with declining home-ownership rates amongst the young because the absolute numbers are bigger. Halving the flow of 20,000 30-year oldFTBs
IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). THE SPECIAL RELATIONSHIP: UK AND US BOND YIELDS Absolutely! Bond yields do feed through to financing costs for households, companies and of course the government. For example, UK mortgage rates increase by around 50bp on average in response to a 100bp increase in US swap rates. As the UK is a small open economy with a large financial sector, these international financial linkagesare
BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are whollyFINANCIAL CRISIS
Financial crises affect firm growth not only in the short-run, but even more so in the long-run. Some firms permanently gain while others lose and cash is a crucial asset to have when the credit cycle turns. As we show in a new Staff Working Paper, having cash at hand allows firms to continue to invest during the crisis while industry rivals JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage BITESIZE: THE AGE EVOLUTION OF FIRST-TIME BUYERS The age distribution of FTBs has only shifted very slightly rightwards over time. The mean and median age are only about 12 and 16 months older respectively in 2018 than in 2006. This can still be reconciled with declining home-ownership rates amongst the young because the absolute numbers are bigger. Halving the flow of 20,000 30-year oldFTBs
IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). THE SPECIAL RELATIONSHIP: UK AND US BOND YIELDS Absolutely! Bond yields do feed through to financing costs for households, companies and of course the government. For example, UK mortgage rates increase by around 50bp on average in response to a 100bp increase in US swap rates. As the UK is a small open economy with a large financial sector, these international financial linkagesare
THE REAL EFFECTS OF ZOMBIE LENDING IN EUROPE Belinda Tracey 'Zombie lending' occurs when a lender supports an otherwise insolvent borrower through forbearance measures such as repayment holidays and temporary interest-only loans. The phrase was first coined for Japan in the late 1990s, but more recently several authors have documented that zombie lending to European firms has been widespread following the sovereign debt SETTING BOUNDARIES: FINDING THRESHOLDS IN BANK REGULATION The UK regulatory framework has 53 thresholds for deposit-takers. These are concentrated in capital (17), reporting (11) and remuneration (8) policy. 33 are UK specific and the rest are international. And while 13 different metrics are used to set the thresholds, the most common by far is assets (26). The asset thresholds vary widely and range PRICING GDP-LINKED BONDS Fernando Eguren-Martin GDP-linked bonds are sovereign debt instruments with repayments linked to the evolution of a country's GDP. Originally proposed by Shiller in the 90s, they have recently been re-invoked in the debate around the policy response to the Covid-19 pandemic. These instruments present an obvious attraction for issuers: repayments arelower at times when
COVID-19 BRIEFING: EPI-MACRO 101 Cristiano Cantore, Federico Di Pace, Riccardo M Masolo, Silvia Miranda-Agrippino and Arthur Turrell The Covid-19 crisis has led to a swift shift in the emphasis of macroeconomic research. At the centre of this is a new field of inquiry called ‘epi-macro’ that combines epidemiological models with macroeconomic models. In this post, wegive a brief
FINANCIAL CRISIS
Financial crises affect firm growth not only in the short-run, but even more so in the long-run. Some firms permanently gain while others lose and cash is a crucial asset to have when the credit cycle turns. As we show in a new Staff Working Paper, having cash at hand allows firms to continue to invest during the crisis while industry rivals HOW DOES MONETARY POLICY AFFECT FIRMS? Second, interest rates affect the economy through changing asset prices and collateral values, which alters firms’ access to credit. Third, a key collateralisable asset for firms is the housing of directors and monetary policy works in part by shifting its value. Saleem Bahaj works in the Bank’s Research Hub, A ngus Foulis andGabor Pinter
DECOMPOSING CHANGES IN THE FUNCTIONING OF THE STERLING Rupal Patel Repo markets form part of the plumbing of the financial system. They allow participants to borrow cash against collateral and buy back this collateral at a higher price at the end of the transaction. When there is a blockage in repo it has repercussions on financial markets. Since 2014 there have been significantDEFAULT FUND
Posts about Default Fund written by BankUnderground. A vestigial structure is an anatomical feature that no longer seems to have a purpose in the current form of an organism. BITESIZE: WHAT MIGHT PENSION FUNDS DO WHEN BOND YIELDS Matt Roberts-Sklar. Government bond yields fell sharply mid-2019, especially at longer maturities. For defined benefit pension funds, lower yields tend to mean deficits widen as discounted liabilities increase by more than the value of their assets. How might pension funds respond to this? In a recent working paper, we set out a model of defined benefit pension fund asset allocation. THE SPECIAL RELATIONSHIP: UK AND US BOND YIELDS Absolutely! Bond yields do feed through to financing costs for households, companies and of course the government. For example, UK mortgage rates increase by around 50bp on average in response to a 100bp increase in US swap rates. As the UK is a small open economy with a large financial sector, these international financial linkagesare
BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are whollyFINANCIAL CRISIS
Financial crises affect firm growth not only in the short-run, but even more so in the long-run. Some firms permanently gain while others lose and cash is a crucial asset to have when the credit cycle turns. As we show in a new Staff Working Paper, having cash at hand allows firms to continue to invest during the crisis while industry rivals THE DECLINING ELASTICITY OF US HOUSING SUPPLY Estimated elasticities. Our IV estimates suggest that supply elasticities have fallen across-the-board since the last housing boom (Figure 2). For instance, the median MSA in the sample experienced a decline in its elasticity of 2.63 during the 1996-2006 housing boom, to 1.75 during 2012-17. In other words, a 1% rise in local houseprices would
IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. LENDER-OF-LAST-RESORT Huaxiang Huang and Ryland Thomas. The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act of 1844 (Morgan (1952)).). The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.. The Act gave the Bank of England an effective monopoly in the issue of JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. GENDER DIVERSITY ON BANK BOARD OF DIRECTORS ANDCALIFORNIA DIVERSITY BOARD OF DIRECTORSDIVERSITY IN BOARDS OF DIRECTORSDIVERSITY ON BOARDDIRECTOR OF DIVERSITY AND EQUITYDIRECTOR OF DIVERSITY JOBSDIRECTOR OF DIVERSITY SALARY Ann Owen and Judit Temesvary Earlier this year the Bank hosted a joint conference with the ECB and the Federal Reserve Board on Gender and Career Progression. In this guest post one of the speakers, Ann Owen, discusses her work with Judit Temesvary on how the composition of boards affects decision making and ultimately performance HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1).BANK UNDERGROUND
Austen Saunders. 1 March 2021 was the 75th anniversary of the Bank of England’s nationalisation. While its stock formerly passed into public ownership in 1946, Lord Catto (the Governor) and Hugh Dalton (the Chancellor of the Exchequer) had negotiated the terms of the Bank’s nationalisation the summer before. THE OWNERSHIP OF CENTRAL BANKS David Bholat and Karla Martinez Gutierrez Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are whollyFINANCIAL CRISIS
Financial crises affect firm growth not only in the short-run, but even more so in the long-run. Some firms permanently gain while others lose and cash is a crucial asset to have when the credit cycle turns. As we show in a new Staff Working Paper, having cash at hand allows firms to continue to invest during the crisis while industry rivals THE DECLINING ELASTICITY OF US HOUSING SUPPLY Estimated elasticities. Our IV estimates suggest that supply elasticities have fallen across-the-board since the last housing boom (Figure 2). For instance, the median MSA in the sample experienced a decline in its elasticity of 2.63 during the 1996-2006 housing boom, to 1.75 during 2012-17. In other words, a 1% rise in local houseprices would
IS THERE REALLY A GLOBAL DECLINE IN THE (NON-HOUSING Consistent with the exclusion of housing and self-employment from the US corporate sector, all measures behave similarly in the US. They exhibit a ~6% decline from 1980 to 2015, concentrated in the post-2000 period. This confirms the well-known decline of the US labour share. By contrast, the series evolve quite differently outside the US. LENDER-OF-LAST-RESORT Huaxiang Huang and Ryland Thomas. The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act of 1844 (Morgan (1952)).). The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.. The Act gave the Bank of England an effective monopoly in the issue of JANE AUSTEN’S INCOME: INSIGHTS FROM THE BANK OF ENGLAND Using data from the Bank of England Archive, I estimate how much she paid, and can then back out an estimate of her income. Based on this work, I calculate that her income from Mansfield Park was a fairly modest £310 (about £22,000 at today’s prices), substantially less for example than the £2,100 earned by Maria Edgeworth for Patronage CENTRAL BANK DIGITAL CURRENCY: DLT, OR NOT DLT? THAT IS The topics of central bank digital currency (CBDC) and distributed ledger technology (DLT) are often implicitly linked.The genesis of recent interest in CBDC was the emergence of private digital currencies, like Bitcoin, which often leads to certain assumptions about the way a CBDC might be implemented – i.e. that it would also need to use a form of blockchain or DLT. GENDER DIVERSITY ON BANK BOARD OF DIRECTORS ANDCALIFORNIA DIVERSITY BOARD OF DIRECTORSDIVERSITY IN BOARDS OF DIRECTORSDIVERSITY ON BOARDDIRECTOR OF DIVERSITY AND EQUITYDIRECTOR OF DIVERSITY JOBSDIRECTOR OF DIVERSITY SALARY Ann Owen and Judit Temesvary Earlier this year the Bank hosted a joint conference with the ECB and the Federal Reserve Board on Gender and Career Progression. In this guest post one of the speakers, Ann Owen, discusses her work with Judit Temesvary on how the composition of boards affects decision making and ultimately performance HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). THE DECLINING ELASTICITY OF US HOUSING SUPPLY Bruno Albuquerque, Knut Are Aastveit and André Anundsen Housing supply elasticities – builders’ response to a change in house prices – help explain why house prices differ across location. As housing supply becomes more inelastic, the more rising demand translates to rising prices and the less to additional housebuilding. In a new paper, we use THERE’S MORE TO HOUSE PRICES THAN INTEREST RATES In the decade from 1990 to 2000, UK house prices rose by just 30% while rates more than halved, falling from 11% to 5%. Then from 2000 to the start of the financial crisis in 2008, house prices doubled while rates barely budged. Since the crisis rates have fallen to just above zero and house prices have risen by a further 20%.DEFAULT FUND
Posts about Default Fund written by BankUnderground. A vestigial structure is an anatomical feature that no longer seems to have a purpose in the current form of an organism. HOUSES ARE ASSETS NOT GOODS: WHAT THE DIFFERENCE BETWEEN John Lewis and Fergus Cumming A tulip bulb produces flowers. Those flowers are what people actually enjoy consuming, not the bulb. Whilst that’s blindingly obvious for tulips, the equivalent is also true for housing. The physical dwelling is the asset, but it’s the actual living there (aka “housing services”) that people consume. The twothings sound
HOW DID THE BANK’S FORECASTS PERFORM BEFORE, DURING AND Nicholas Fawcett, Riccardo Masolo, Lena Koerber, Matt Waldron. Introduction: forecasting and policy-making Forecasting is difficult, especially when it concerns the future. If we needed a reminder, the 2008-09 financial crisis demonstrated that macroeconomic forecasts can be highly inaccurate when the economy is buffeted by large shocks (see, for example, Figure 1). A QUESTION OF INTEREST: IS UK HOUSEHOLD DEBT UNSUSTAINABLE Lewis Kirkham and Stephen Burgess. UK household debt is high relative to income. But is it “unsustainable”? Some commentators say “it is”; others say “there is no reason to worry”. To investigate, we build a simple model of the economic relationships between household debt, house prices and real interest rates which we believemust hold
OPEN LETTERS: LAYING BARE LINGUISTIC PATTERNS IN PRA David Bholat and James Brookes In a recent research paper, we show that the way supervisors write to banks and building societies (hereafter ‘banks’) has changed since the financial crisis. Supervisors now adopt a more directive, forward-looking, complex and formal style than they did before the financial crisis. We also show that their language and THE SPECIAL RELATIONSHIP: UK AND US BOND YIELDS Absolutely! Bond yields do feed through to financing costs for households, companies and of course the government. For example, UK mortgage rates increase by around 50bp on average in response to a 100bp increase in US swap rates. As the UK is a small open economy with a large financial sector, these international financial linkagesare
DOES PRODUCTIVITY DRIVE WAGES? EVIDENCE FROM SECTORAL DATA Alex Tuckett Since 2008, aggregate productivity performance in the UK has been substantially worse than in the preceding eight years. Over the same period, aggregate real wage growth has also been significantly lower – it has averaged -0.4% per annum from 2009-16, compared with 2.3% per annum from 2000-08. The MPC, and others, havedrawn
WHO BENEFITS FROM THE IMPLICIT SUBSIDY TO ‘TOO BIG TO FAIL Rhiannon Sowerbutts and Peter Zimmerman Governments have often supported troubled banks whose failure would damage the wider economy. The expectation of such bailouts amounts to free insurance for those who have lent money to these ‘too big to fail’ (TBTF) banks. This amounts to an ‘implicit subsidy’ from the government, with a valuethat may
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COVID-19 BRIEFING: MONETARY POLICY STRATEGY POST-COVID _Richard Harrison, Kate Reinold and Rana Sajedi_ The Covid shock has created substantial and unprecedented challenges for monetary policymakers. This post summarises the key literature on the immediate monetary policy response to the shock, including both tools and short to medium-term strategy issues (but leaving aside the longer-term question of fiscal-monetary interactions). Continue reading “Covid-19 briefing: monetary policy strategypost-Covid” →
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16 November 202013 November 20205 Minutes
MONTAGU NORMAN AND THE TRANSFORMATION OF THE BANK_Chris Swinson_
_This post contributes to our occasional series of guest posts by external researchers who have used the Bank of England’s archives for their work on subjects outside traditional central bankingtopics._
In 1944, the Bank of England’s historian, John Clapham,
looked back at the ways in which the Bank had changed since 1914 andremarked:
_‘ . . . it would not be fantastic to argue that the Bank in 1944 was further . . . from 1914 than 1914 was from 1714.’_ Continue reading “Montagu Norman and the transformation of theBank” →
BankUnderground
Banking
, Economic History
4 Comments
11 November 202011 November 20207 Minutes
COVID-19 BRIEFING: COVID-19 CRISIS, CLIMATE CHANGE AND GREEN RECOVERY_Misa Tanaka_
The Coronavirus pandemic and measures to contain contagion had far reaching consequences on economic activities, which also led to a sharp fall in CO2 emissions. This has sparked new debate about how the recovery from the crisis could be made compatible with the Parisclimate goals
.
In this post, I survey the emerging literature on the link between the economic recovery from the aftermath of the pandemic and climatechange.
Continue reading “Covid-19 briefing: Covid-19 crisis, climate change and green recovery” →BankUnderground
Macroeconomics
4 Comments
09 November 202005 November 20205 Minutes
HUBBLE? BUBBLE? VALUATION TROUBLE? _Can Gao, Ian Martin, Arjun Mahalingam and Nicholas Vause_ Since Covid-19-related crashes in March, major stock indices around the world have bounced back. This is despite little or no recovery in corporate earnings expectations. As a result, forward-looking price-to-earnings ratios have increased, rising above long-run average values in most large advanced economies and approaching record highs in the United States. Commenting on such valuations, some market participants have suggested there is ‘a great deal of optimism priced into the market’
and that stock prices ‘cannot defy economic gravity indefinitely’.
This post takes a closer look at stock valuations, focusing on the UK, and drawing both on a textbook model and new research from academia. Continue reading “Hubble? Bubble? Valuation trouble?” →BankUnderground
Financial
Markets ,
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29 October 202029 October 20208 Minutes
FINANCIAL SHOCKS, REOPENING THE CASE_David Gauthier_
Since the tumultuous events of 2007, much work has suggested that financial shocks are the main driver of economic fluctuations. Ina recent paper
,
I propose a novel strategy to identify financial disturbances. I use the evolution of loan finance relative to bond finance to proxy for firms’ credit conditions and single out the shocks born in the financial sector. I apply and test the method for the US economy. I obtain three key results. First, financial shocks account for around a third of the US business cycle. Second, these shocks occur around precise events such as the Japanese crisis and the Great Recession. Third, the financial shocks I obtain are predictive of the corporatebond spread.
Continue reading “Financial shocks, reopening the case” →BankUnderground
Banking
, Macroeconomics
22 October
202020 October 2020
4 Minutes
MACHINE LEARNING THE NEWS FOR BETTER MACROECONOMIC FORECASTING _Arthur Turrell, Eleni Kalamara, Chris Redl, George Kapetanios andSujit Kapadia_
Every day, journalists collate information about the world and, with nimble keystrokes, re-express it succinctly as newspaper copy. Events about the macroeconomy are no exception. So could there be additional valuable information about the economy contained in the news? In a recent research paper,
we ask whether newspaper stories could help to predict future macroeconomic developments. We find that news can be used to enhance statistical economic forecasts of growth, inflation and unemployment — but only by using supervised machine learning techniques.
We also find that the biggest forecast improvements occur when it matters most — during stressed periods. Continue reading “Machine learning the news for better macroeconomicforecasting” →
BankUnderground
Macroeconomics
, New
Methodologies
20 October
202019 October 2020
5 Minutes
LEFT FEELING UNSETTLED: WHAT ARE SETTLEMENT FAILURES, HOW PREVALENT ARE THEY, AND WHAT DO WE DO ABOUT THEM? _Gary Harper, Pedro Gurrola-Perez and Jieshuang He_ WHAT IS A SETTLEMENT FAIL? Imagine you’ve booked tickets for a flight, and go to pick them up and pay for them on the day. You arrive at the airport but find out the airline has overbooked, and already given your ticket away. Worse yet, because you’ve missed this flight you’re going to miss an onward connection. But, you’ll likely get a replacement ticket in a day or two as compensation. Continue reading “Left feeling unsettled: what are settlement failures, how prevalent are they, and what do we do about them?” →BankUnderground
Financial
Stability
, Market
Infrastructure
12
October 202009 October 20207 Minutes
THE LEVERAGE RATIO: A BALANCE BETWEEN RISK AND SAFETY_Jonathan Smith_
What was the root cause of the financial crisis? Ask any economist or banker and undoubtedly they will at some point mention leverage(see e.g. here
, here
and here
).
Yet when a capital requirement based on leverage — the leverageratio requirement
— was
introduced, fierce criticism followed (see e.g. hereand here
).
Drawing on the insights from a working paper,
and thinking about the main criticism — that a leverage ratio requirement could cause excessive risk-taking — this seems not tohave been the case.
Continue reading “The leverage ratio: a balance between risk andsafety” →
BankUnderground
Banking
, Financial Stability,
Macroprudential Regulation,
Microprudential Regulation2
Comments
06 October 202005 October 20207 Minutes
WIR SIND DIE ROBOTER: CAN WE PREDICT FINANCIAL CRISES? _Kristina Bluwstein, Marcus Buckmann, Andreas Joseph, Miao Kang, Sujit Kapadia and Özgür Şimşek_Financial crises
are recurrent events in economic history. But they are as
rare as a Kraftwerk
album, making their prediction challenging. In a recent study,
we apply robots — in the form of machine learning— to
a long-run dataset spanning 140 years, 17 countries and almost 50 crises, successfully predicting almost all crises up to two years ahead. We identify the key economic drivers of our models using Shapley values. The
most important predictors are credit growth and the yield curve slope, both domestically and globally. A flat or inverted yield curve is of most concern when interest rates are low and credit growth is high. In such zones of heightened crisis vulnerability, it may be valuable to deploy macroprudential policies.
Continue reading “Wir sind die Roboter: can we predict financialcrises?” →
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02 October 202030 September 20207 Minutes
MARKET FRAGILITY IN THE PANDEMIC ERA _Gerardo Ferrara, __Maria Flo_ra and Roberto Renò Financial markets process orders faster now than ever before. However, they remain prone to occasional dysfunction where prices move away from fundamentals. One important type of market fragility is flash events. Identifying such events is crucial to understanding them and their effects. This post displays the results from a new methodology to identify these, but also longer lasting V-shaped events, as we show here with an application to three sovereign bond markets. Continue reading “Market fragility in the pandemic era” →BankUnderground
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September 202028 September 20204 Minutes
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