Monthly Archives: October 2016

Bitesize: Periodicity of GBP/USD trading activities

Jihyoung Yi.

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.

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Filed under Bitesize, Currency, Financial Markets, Financial Stability

Does market liquidity risk affect Euro corporate bond returns more seriously in stress periods?

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.

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Filed under Financial Markets, Financial Stability

A dynamic model of financial balances for the United Kingdom

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.

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Filed under Macroeconomics, New Methodologies

Bitesize: Power and progress

Arthur Turrell.

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.

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Filed under International Economics, Macroeconomics

Bitesize: 250 years of the bond-equity correlation

Matt Roberts-Sklar.

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.

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Filed under Bitesize, Economic History, Financial Markets

Bitesize: How 20-somethings are getting onto the housing ladder in London

Sachin Galaiya.

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.

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Filed under Bitesize, Microprudential Regulation

Bitesize: Mapping the UK’s trade

Jonathan Fullwood.

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.

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Filed under Bitesize, International Economics

Bitesize: The improvement in the gender labour force participation gap

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…

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Filed under Bitesize, Economic History, International Economics, Macroeconomics

Bank Underground goes bitesize…

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.

Enjoy!

John Lewis, Managing Editor

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