Does deglobalisation make economies more resilient to recessions?

Marco Garofalo

Are less open economies more resilient to downturns? There is general agreement on the benefits of openness, but its adverse link to volatility is ambiguous. On the one hand, globalisation makes countries less sensitive to domestic disturbances, yet it also makes them more exposed to foreign shocks. In this post, I use local projections (LP) to show that international business cycles since 1870 appear to support a positive effect of openness on the economic resilience of a country, and that we may thus expect the current international slowbalisation trend to worsen future recessions.

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Quantifying culture and its implications for bank riskiness

Joel Suss, David Bholat, Alex Gillespie and Tom Reader

‘Bad cultures’ at banks are often blamed for scandals and crises, from the global financial crisis to the mis-selling of payment protection insurance (PPI) in the UK. Yet surprisingly little research has tested this claim. This is because quantifying culture is difficult to do. Our working paper gives it a go. Leveraging unique access to data available to regulators, we diagnose the cultural health of the UK banking sector. We find that banks with organisational cultures two standard deviations below the sector average are associated with a 50% increased risk of failure.

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The consumption response to borrowing constraints in the mortgage market

Belinda Tracey and Neeltje van Horen

How is household consumption affected by borrowing constraints in the mortgage market? In a new paper, we answer this question by studying the UK’s Help to Buy (HTB) program over the period 2014–16. The program facilitated home purchases with only a 5% down payment and resulted in a sharp relaxation of the down-payment constraint. We show that HTB boosted household consumption in addition to stimulating housing market activity. Home purchases increased by 11%, and the increase was driven almost entirely by first-time and young buyers. In addition, household consumption grew by 5% more in parts of the UK more exposed to the program. Relaxing the down payment constraint thus has important macroeconomic effects that extend beyond the housing market.

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