Monetary policy and happiness

Philip Bunn and Alice Pugh

It has been well established that macroeconomic outcomes, such as recessions and unemployment, can have important impacts on households’ well-being. So it follows that monetary policy decisions can affect happiness too. In a recent working paper we use a novel approach to assess how the unprecedented loosening in monetary policy in response to the 2008 global financial crisis affected the well-being of UK households. The framework we use could be used to assess the welfare implications of other monetary policy responses, including to the spread of Covid-19 during 2020.

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The language of rules: textual complexity in banking reforms

Zahid Amadxarif, James Brookes, Nicola Garbarino, Rajan Patel and Eryk Walczak

The banking reforms that followed the financial crisis of 2007-08 led to an increase in UK banking regulation from almost 400,000 to over 720,000 words. Did the increase in the length of regulation lead to an increase in complexity?

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Global financial cycles since 1880

Galina Potjagailo and Maik H. Wolters

Global financial cycles: a long-term affair

Today’s financial system is global: credit and several financial asset classes show booms and busts across countries, sometimes with severe repercussions to the global economy. Yet it is debated to what extent common dynamics rather than domestic cycles lie behind financial fluctuations and whether the impact of global drivers is growing. In a recent Staff Working Paper, we observe various global financial cycles going as far back as the 19th century. We find that a volatile global equity price cycle is nowadays the main driver of stock prices across advanced economies. Global cycles in credit and house prices have become larger and longer over the last 30 years, having gained relevance in economies that are more financially open and developed.

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Covid-19 briefing: epi-macro 101

Cristiano Cantore, Federico Di Pace, Riccardo M Masolo, Silvia Miranda-Agrippino and Arthur Turrell

The Covid-19 crisis has led to a swift shift in the emphasis of macroeconomic research. At the centre of this is a new field of inquiry called ‘epi-macro’ that combines epidemiological models with macroeconomic models. In this post, we give a brief introduction to some of the earliest papers in this fast-growing literature.

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Setting boundaries: finding thresholds in bank regulation

Zahid Amadxarif, Paula Gallego Marquez and Nic Garbarino

“We’ve done a lot to lower prudential barriers to entry into the banking sector […] but have we done enough to lower the equivalent barriers to growth?” asked PRA CEO Sam Woods in a recent speech. To make regulation proportionate, policymakers adapt regulatory requirements to the risks posed by each firm. But regulators face a trade-off between addressing systemic risks in a proportionate way and limiting regulatory complexity. New thresholds can create complexity and cliff-edge effects that can discourage healthy firms from growing. We identify regulatory thresholds for UK banks and building societies using textual analysis on a new dataset that contains the universe of prudential rules.

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Thinking historically

Austen Saunders

Central banks want to learn from history. They can do so by drawing on decades of work by economic historians, as well as their own archives which manifest layers of institutional memory. But the path from page to policy can be difficult to find. Central banks need therefore to invest in the capacity of their own staff to think historically. This will help them use evidence from the past to make better decisions in the future. In practice, this means producing historical research as well as consuming it. Institutions like central banks need to be fluent participants in the conversations which bridge the distance between past and present.

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Covid-19 briefing: post-lockdown macro

Michael Kumhof

In the wake of Covid-19 lockdown, macroeconomic policymakers have to deal not only with the immediate contraction in the economy, but also with the medium and longer term macro-consequences. Over the past four months, the macroeconomic literature on these topics has expanded rapidly. This post reviews the literature that considers the channels via which the shock affects the economy, and the macroeconomic policy options for dealing with the aftermath, taking as given the shock caused by the virus and the lockdown.

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Bitesize: Emerging market currency risk: evidence from the COVID-19 crisis

Simon Lloyd, Giancarlo Corsetti and Emile Marin

A striking regularity around global economic crises is that the dollar tends to appreciate sharply against emerging market (EM) currencies as capital flows out of EMs. In this respect, the adjustments observed since the onset of the COVID pandemic are no exception. Since the end of February, EM currencies have depreciated by around 15% (on average) and non-resident portfolio outflows from EMs summed to nearly $100 billion over a period of 45 days.

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The macro consequences of dollar shortages and central bank swap lines during the Covid-19 pandemic

Fernando Eguren Martin

Dollar shortages in funding markets outside the United States have been a recurrent feature of the last three major crises, including the turmoil associated with the ongoing Covid-19 pandemic. The Federal Reserve has responded by improving conditions and extending the reach of its network of central bank swap lines, with the aim of channelling US dollars to non-US financial systems. Despite the recurrence of this phenomena, little is known about the macroeconomic consequences of both dollar shortage shocks and central bank swap lines. In this post (and in an underlying Staff Working Paper) I provide some tentative answers. 

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