FX assets are traded continuously across the globe. The majority of GBP/USD trades, however, are executed during typical trading hours in London and New York (NY). Saravelos and Grover (2016) find that: (i) FX moves during these hours are most highly correlated to the overall daily move; and (ii) there is statistically significant periodicity where GBP tends to depreciate in the London morning and appreciate in the NY afternoon against the US dollar.
Continue reading “Bitesize: Periodicity of GBP/USD trading activities”
Wolfgang Aussenegg, Louisa Chen, Ranko Jelic and Dietmar Maringer.
Investors require compensation for holding risky assets – an example is the bond liquidity premium for holding debt assets. In stress conditions, market liquidity can evaporate and lead to disorderly movements in prices. The Bank of England’s recent Financial Stability Report (p.29) documents a decline in the market liquidity of some government and corporate bonds, accompanied by a reduction in dealer activity. Does market liquidity risk affect bond returns more seriously in stress times than in normal times? Does a higher cost of funding for dealers in stress times cause bond returns to be more sensitive to liquidity shocks? Focusing on Euro-dominated investment-grade corporate bonds, we conduct a quantitative analysis in a regime-switching model, and confirm a ‘yes’ answer to both of these questions.
Continue reading “Does market liquidity risk affect Euro corporate bond returns more seriously in stress periods?”
Stephen Burgess, Oliver Burrows, Antoine Godin, Stephen Kinsella and Stephen Millard.
How can large open economies deal with persistent imbalances now and into the future? This question became particularly pertinent in the Great Moderation where, despite stability in output and inflation, sectoral financial balances, both within and across countries, widened. In a recent Staff Working Paper, we developed a model of the UK economy to assess how economic and financial imbalances are likely to evolve over longer periods. Here, we show how we can use this model to examine the evolution of financial balances under different scenarios. We think models like this can form a useful addition to the suite of models called upon by policy-makers to help in their decision making.
Continue reading “A dynamic model of financial balances for the United Kingdom”
Energy is the fundamental currency of the physical world, while GDP is the imperfect catch-all measure of economic progress. The plot shows electricity generation per capita against GDP per capita for 2015. The bubble areas represent population size, while the colours are the fraction of power which is produced from renewable sources – with light green a high percentage and dark green a low percentage.
Continue reading “Bitesize: Power and progress”
For most of the 18th-20th centuries, government bonds usually behaved like a risky asset. When equity prices fell, bond yields rose, i.e. bond and equity returns were positively correlated (bond prices move inversely to yields). But since the mid-2000s, bond and equity returns have been negatively correlated, i.e. bonds became a hedge for risk. Before this, the last time this correlation was near zero for a prolonged period was the long depression in the late 19th century.
Continue reading “Bitesize: 250 years of the bond-equity correlation”
There are two ways people can make their resources go further when buying a home.
One is to increase the loan-to-value (LTV) ratio and hence increase the amount available to buy a house for a given deposit.
The other is to lengthen the term over which the mortgage is repaid, which increases the size of loan associated with a given level of monthly repayments.
Continue reading “Bitesize: How 20-somethings are getting onto the housing ladder in London”
With trade negotiations apparently looming, one may wonder with whom the UK trades most. Given the geospatial aspect of the data, perhaps a map may help. Even better, how about a cartogram?
Cartograms can be formed by distorting a map so that the areas of countries correspond to the relative values of some measure.
Continue reading “Bitesize: Mapping the UK’s trade”
Thomas Viegas and Gabija Zemaityte.
Many things have being trending down globally over the recent decades: real interest rates, productivity, world trade, you name it! And it’s generally acknowledged that these falls are problematic for policymakers. However, there is one downward trend which has been welcomed with open arms…
Continue reading “Bitesize: The improvement in the gender labour force participation gap”
A picture is worth a thousand words…
So starting this week we are launching a new type of bitesize post: short and snappy, based around one or two charts.
To get the ball rolling, the first two will be published today, with more to come later this week. But don’t worry- our longer, regular, posts aren’t disappearing. From next week onwards we’ll be publishing a mixture of bitesize posts and regular length ones.
John Lewis, Managing Editor
Since the financial crisis the UK’s fiscal and current account balances have persistently been in deficit. These ‘twin’ deficits are significant in historical terms, with a record peacetime fiscal deficit in 2009 and a record current account deficit in 2015. But how closely related are these ‘twins’ and do they pose a risk to financial stability? Using a new ‘from-whom-to-whom’ dataset I find that the two deficits are not directly related to each other and are being financed through relatively stable channels.
Continue reading “Double trouble? How closely related are the UK’s ‘twin’ deficits and should we be concerned?”