John Lewis
How poor has the past decade of productivity growth been by historical standards? Exceptionally.
Continue reading “Bitesize: The past decade’s productivity growth in historical context”
Author: BankUnderground
Is the tail wagging the dog? The impact of VIX exchange traded products on equity volatility
Olga Maizels
Volatility returned to markets in early February, sparked by strong US wage growth data. After months of calm, the S&P 500 equity index fell by 4% on 5 February and the VIX – a measure of US equity volatility that is sometimes referred to as Wall Street’s “fear gauge” – experienced its largest one-day move in its 28-year history. Interestingly, measures of volatility in other markets, including interest rates and currencies, moved by much less. So what caused the outsized spike in the VIX? Some of the rise was linked to rebalancing flows associated with VIX exchange-traded products (ETPs), which can amplify moves in the volatility market. The events have also led to some questions whether developments in VIX ETPs can also affect the S&P 500 itself –whether the ‘tail’ can wag the ‘dog’.
UK trade: going steady since the 1960s
Tommaso Aquilante, Enrico Longoni, Patrick Schneider
Countries’ goods exports are normally defined in terms of what has been shipped when and where. Recent literature (e.g. Besedeš and Prusa, 2011 and Besedeš et al, 2016) shows that looking at how long trade relationships have been in place is important as well. Using highly granular data, we show that over 60% of the value of UK nominal goods exports is in very mature trading relationships, by which we mean exports of a particular product between a pair of countries in a given year. This is true even with substantial churn (new relationships starting and old ones ceasing) going on all the while, and for exports in real terms as well.
What can regional data tell us about the UK Phillips Curve?
Alex Tuckett
The Phillips Curve (PC) is an old concept in economics, but it is a durable one. The simple idea behind the PC is that the lower the rate of unemployment, the faster wages will grow. If the PC has changed over time, that can have important implications for monetary policymakers. Analysis of regional UK data suggests that the PC has shifted down over time, but has not necessarily become flatter. Higher levels of educational attainment are likely to have contributed to this shift.
Continue reading “What can regional data tell us about the UK Phillips Curve?”
What did the CBPS do to corporate bond yields?
Calebe de Roure, Ben Morley and Lena Boneva
In August 2016 the MPC announced a package of easing measures, including the Corporate Bond Purchase Scheme (CBPS). In a recent staff working paper, we explore the announcement impact of the CBPS, using the so called “difference in differences” (or “DID”) approach. Overall – to deliver the punchline to eager readers – this analytical technique suggests that the announcement caused spreads on CBPS eligible bonds to tighten by 13bps, compared with comparable euro or dollar denominated bonds (Charts 1b, 2). Continue reading “What did the CBPS do to corporate bond yields?”
Bitesize: UK real interest rates over the past three centuries
John Lewis
How low are UK real interest rates by historical standards? Using the Bank’s Millennium of Macroeconomic Data, I compute real bank rate, mortgage rates, and 10-year government bond yields over time.
Continue reading “Bitesize: UK real interest rates over the past three centuries”
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.
Continue reading “The UK’s productivity puzzle is in the top tail of the distribution”
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.
Continue reading “How does monetary policy affect the distribution of income and wealth?”
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
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.