Shifting the composition of start-up cohorts can boost macroeconomic performance

Ralph de Haas, Vincent Sterk and Neeltje van Horen

Anaemic productivity growth and limited business dynamism remain key policy concerns in Europe and the US. Policies to improve macroeconomic performance often target existing firms. Examples include tax measures to stimulate firm-level Research & Development and structural reforms to eliminate distortions in labour, financial, and product markets. In a new paper we investigate an entirely different policy lever, one that has so far remained largely unexplored: influencing the types of firms that are being started in the first place. Using a comprehensive new data set on European start-ups, we show how tax policies that shift the composition of new start-up cohorts could deliver meaningful macroeconomic gains.

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Cryptoassets, the metaverse and systemic risk

Owen Lock and Teresa Cascino

Cryptoassets could have important roles within the metaverse – a decentralised, immersive next generation of the internet. Cryptoassets enable verifiable ownership of digital items, and when built to common standards, can move interoperably between web applications – increasing the asset’s value proposition. They can also align the incentives of developers, content creators, users and investors on metaverse platforms, and are required to incentivise miners and validators to add metaverse-based transactions to the underlying blockchain. We argue that if an open and decentralised metaverse grows, existing risks from cryptoassets may scale to have systemic financial stability consequences. Widespread adoption of crypto in the metaverse, or any other setting would require compliance with robust consumer protection and financial stability regulatory frameworks.

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Who took out mortgage payment holidays during the pandemic?

Georgina Green

The take-up of mortgage payment holidays in the UK during the Covid-19 pandemic was extraordinary: according to UK Finance, holidays granted reached a peak of 1.9 million during the pandemic, or roughly one in six mortgages. But which households benefited from the scheme? In this post I use rich UK household survey data to conduct an in-depth analysis of the distribution of the debt-relief scheme at an individual level. I find that borrowers struggling to keep up with payments during Covid applied for a holiday, suggesting the scheme played an important role in preventing a sharp rise in defaults. There is also evidence that some households may have taken them as insurance against future shocks, possibly dampening precautionary spending cuts.

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Rolling substitutions in financial markets: did quantitative easing in 2020 lead to portfolio rebalancing?

Jack Worlidge

Purchases of government bonds have been a prominent tool that has helped central banks meet inflation objectives when short-term interest rates have been constrained by their effective lower bounds. But how does QE work? There are a range of channels through which QE can/might operate, though there remains uncertainty over the relative size and importance of these channels. This post presents new evidence from granular transaction data consistent with a portfolio rebalancing channel. Specifically, during the Bank’s latest QE programme (known as QE5) investors were found to have bought less new gilt issuance and bought more risky assets like corporate bonds.

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Adapting lending policies in a ‘negative-for-long’ scenario

Miguel García-Posada and Sergio Mayordomo

In February, the Bank hosted its inaugural Bank of England Agenda for Research (BEAR) conference, with the theme of ‘The Monetary Toolkit’. As part of our occasional series of Guest Posts by external presenters at Bank research events, the authors of one paper from the BEAR conference outline their findings on the effect of negative rates on Spanish banks…

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Monetary and fiscal policy in interwar Britain

David Ronicle

Macroeconomic outcomes in Britain’s interwar years were terrible – they featured two of modern Britain’s worst recessions, unemployment twice peaked above 20% and was rarely below 10% and there were two periods of chronic deflation. Policy, meanwhile, was pulled in multiple directions by multiple objectives – employment, price and financial stability and debt sustainability. These challenges gave birth to modern macroeconomics, inspiring the work of John Maynard Keynes. In a new working paper, I apply modern empirical techniques to look at the period with fresh eyes. I find that monetary and fiscal policy played a central role in macroeconomic developments – and that outcomes could have been better had policymakers been less wedded to the traditional policy consensus, and especially the Gold Standard.

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CoCo bonds and the risk appetite of banks: sweet or sour relationship

Mahmoud Fatouh and Ioana Neamțu

Since 2009, contingent convertible (CoCo) bonds have become a popular instrument European banks use to partially meet their capital requirements. CoCo bonds have a loss-absorption mechanism (LAM). When LAM is triggered, the bonds convert to equity capital or have their principal written down, providing more loss-absorbing capacity while a bank is still a going concern. The existing literature argues these bonds could increase risk-taking if shareholders gain at the expense of CoCo holders when the trigger is hit. In our two papers, we assess this argument theoretically and empirically. We show that the risk-taking implications of CoCo bonds rely on the direction and the size of the wealth transfer between shareholders and CoCo holders when LAM is triggered.

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Measuring business dynamics in real time

Thibaut Duprey, Artur Kotlicki, Daniel Rigobon and Philip Schnattinger

Just as doctors monitor in real time the vital signs of their hospitalised patients to determine the best course of treatment, economists are turning towards a real-time tracking of economic conditions to inform policy decisions (for example, through proxy for GDP and inflation). In a recent paper, we introduce a new quasi-real time estimation of business opening and closure rates using data from Google Places – the dataset behind the Google Maps service. We find that the lifting of COVID-19 restrictions in Canada coincides with a wave of re-entry of temporarily closed businesses, suggesting that government support may have facilitated the survival of hibernating businesses.

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Booming entrepreneurship during the Covid-19 pandemic

Saleem Bahaj, Sophie Piton and Anthony Savagar

Recessions typically discourage entrepreneurs from starting new businesses. During the Great Recession, a ‘generation’ of start-ups went missing which contributed to a slow recovery in employment.  Two years after the pandemic started, evidence for the UK suggests a very different story: the pandemic inspired many entrepreneurs to start new businesses and this supported the recovery in employment.

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What did we learn from working from home during Covid?

Lena Anayi, John Lewis and Misa Tanaka

Since the onset of Covid-19, firms and workers have adopted and adapted to new working arrangements, which involved some workers primarily or exclusively working from home (WFH). What lessons – if any – can be drawn from this experience to inform future of work? A previous blog post examined how WFH might affect productivity. This blog post reviews more recent research on the experience of WFH during Covid, and considers what can be learnt about the impact of WFH on time use, workplace interactions and productivity.

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