Monthly Archives: March 2018

The UK’s productivity puzzle is in the top tail of the distribution

Patrick Schneider

UK productivity growth has been puzzlingly slow since the crisis. After averaging 2% every year in the pre-crisis decade, growth in labour productivity (output per hour worked) has slowed to an average of only 0.5%. Extensive research and commentary on the productivity puzzles has suggested myriad causes for the malaise – including ‘zombie’ firms hoarding resources, sluggish investment in the face of uncertainty, mismeasurement and more – and have dismissed others that no longer seem plausible – including temporary labour hoarding. Using firm-level data, I show that slower aggregate growth is entirely driven by the more productive firms in the economy.

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Filed under Macroeconomics, New Methodologies

How does monetary policy affect the distribution of income and wealth?

Philip Bunn, Alice Pugh and Chris Yeates

Following the onset of the financial crisis, the Monetary Policy Committee (MPC) cut interest rates to historically low levels and launched a programme of quantitative easing (QE) to support the UK economy. How did this exceptional period of monetary policy affect different households in the UK? Did it increase or decrease inequality?  Although existing differences in income and wealth means that the impact in cash terms varied substantially between households, in a recent staff working paper we find that monetary policy had very little impact on relative measures of inequality. Compared to what would have otherwise happened, younger households are estimated to have benefited most from higher income in cash terms, while older households gained more from higher wealth.

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Filed under Macroeconomics, Monetary Policy

Our new home on twitter: @BoE_Research

We now have a dedicated staff-run twitter handle for Bank of England Research, @BoE_Research. From now on, this will be the main place for all our research related tweets, including those about Bank Underground. This gives us space to cover blog posts and Staff Working Papers in more depth, plus conferences, journal publications and other news involving Bank of England research(ers). As with Bank Underground and Staff Working Papers, it’s staff-run rather than representing official views of the Bank.

Please follow @BoE_Research to keep up to date with all our research news.

John Lewis, Managing Editor

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Open letters: Laying bare linguistic patterns in PRA messages using machine learning

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 linguistic style is related to the nature of the bank. For instance, banks that are closest to failure get letters that have a lot of risk-related language in them. In this blog, we discuss the linguistic features that most sharply distinguish different types of letters, and the machine learning algorithm we used to arrive at our conclusions.

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Filed under Banking Supervision, Microprudential Regulation, New Methodologies, Text mining

Monetary policy spillovers in the first age of financial globalisation: ripple or a riptide?

Georgina Green

In the first age of financial globalisation, from around 1880 to 1913, many countries tied their currencies to the mast of gold. The Bank of England’s unparalleled influence over this period is depicted by the Lady of the Bank, seated on the globe with a shower of gold coins to one side, which is carved into the Bank’s pediment. There was an old saying in the City that the Bank’s rate could draw gold from the moon. But could it?

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Filed under Economic History, Monetary Policy

Can central bankers become Superforecasters?

Aakash Mankodi and Tim Pike

Tetlock and Gardner’s acclaimed work on Superforecasting provides a compelling case for seeing forecasting as a skill that can be improved, and one that is related to the behavioural traits of the forecaster. These so-called Superforecasters have in recent years been pitted against experts ranging from U.S intelligence analysts to participants in the World Economic Forum, and have performed on par or better by accurately predicting the outcomes of a broad range of questions. Sounds like music to a central banker’s ears? In this post, we examine the traits of these individuals, compare them with economic forecasting and draw some related lessons. We conclude that considering the principles and applications of Superforecasting can enhance the work of central bank forecasting.

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Filed under Macroeconomics, Monetary Policy, New Methodologies

The 2016 Sterling Flash Episode

Joseph Noss, Liam Crowley-Reidy and Lucas Pedace

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Filed under Currency, Financial Markets, Financial Stability, New Methodologies

Peer to Peer – Scale and Scalability

Anna Orlovskaya and Conor Sewell

Peer to Peer (P2P) lending is a hot topic at Fintech events and has received a lot of attention from academia, journalists, various international bodies and regulators.  Following the Financial Crisis, P2P platforms saw an opportunity to fill a gap in the market by offering finance to customers and businesses struggling to get loans from banks.  Whilst some argue they will one day revolutionise the whole banking landscape, many platforms have not yet turned a profit.  So before asking if they are the future, we should first ask if they have a future at all. Problems such as a higher cost of funds, or limited ability to scale the business, may mean the only viable path is to become more like traditional banks.

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Filed under Banking, Financial Markets