Chance favours the prepared mind: What linked micro data can tell us about the housing market

Perttu Korhonen

Good analysis requires new discoveries, creativity, even luck. But innovation is not just a matter of chance — it favours those who are ready for it, which in this case means having the right data. Utilising micro-data to answer new and different questions is a good start, but the next step is to link such item-level information from various sources together. That way we can create analytical opportunities beyond the sum of the parts. In this post I show how a unique linked dataset on the UK housing market reveals that buy-to-let buyers secure a greater discount from the asking price than other buyers.

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Did Quantitative Easing boost bank lending?

Nick Butt, Rohan Churm & Michael McMahon

When faced by a slowing economy and contracting credit what policy should be used? There is a body of evidence to suggest that QE is an effective means to boosting asset prices, aggregate demand and inflation, but it’s far less clear whether it improves the flow of credit to the economy. In theory, increases in deposit funding caused by such purchases might lead banks to increase lending. In this post we explore how this might occur. But we find no evidence that this happened in the UK. This may reflect the fact that QE worked instead through a so called ‘portfolio rebalancing channel’ and that the resulting churn in banks’ deposit funding stopped any such channel from operating. Continue reading “Did Quantitative Easing boost bank lending?” →

Will a Fed rate hike affect house prices in emerging markets?

Ambrogio Cesa-Bianchi and Alessandro Rebucci

In some parts of the emerging world, housing markets have grown well ahead of income in recent years. Will a US monetary policy normalisation bring about a correction in house prices as the search for yield unwinds and capital flows back to the US? Looking at the past through the prism of a structural VAR, we think the answer is “yes it will”. Shocks to global liquidity have much larger effects on house prices in emerging markets than in advanced world economies. A tightening in global liquidity conditions also leads to a rapid capital account reversal, exchange rate depreciation and hence a sharp fall in consumption.

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Seeking feedback: Towards a New Keynesian Theory of the Price Level

John Barrdear

How do central banks achieve nominal stability? In a new working paper, I show that in a version of the textbook New Keynesian model with incomplete information, beyond establishing the steady-state inflation rate a central bank doesn’t need to do anything for prices (and not just the rate of inflation) to remain determinate and stationary. The paper is available via the Staff Working Paper No.532 or my research page (a non-technical summary is here). It’s still a work in progress and any feedback is welcome, so please feel free to contact me.

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Does business intelligence still point to labour market slack?

Alastair Cunningham & Glynn Jones

One of the puzzles arising from the economic recovery has been the difficulty of squaring sharp falls in unemployment with – at least until recently – only slow growth in average earnings. The common interpretation is that there’s still more slack than “normal” in the labour market. However, in this post, we argue that there has been a more marked labour market tightening so that there is now slightly less slack than “normal”. That suggests that earnings growth has been suppressed by factors other than labour market slack – leaving a risk that wage inflation will pick up sharply if and when those factors wash out.

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Who benefits from the implicit subsidy to ‘too big to fail’ banks?

Rhiannon Sowerbutts and Peter Zimmerman

Governments have often supported troubled banks whose failure would damage the wider economy. The expectation of such bailouts amounts to free insurance for those who have lent money to these ‘too big to fail’ (TBTF) banks. This amounts to an ‘implicit subsidy’ from the government, with a value that may be as large as £100bn. But where does this money go? We think most of the benefit goes to those who own or work for banks. But verifying this empirically is a challenge requiring further research.
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Estimating and interpreting term premia in UK government bond yields: global influences on a small open economy

Iryna Kaminska, Andrew Meldrum and Chris Young

Since March 2009, UK long term rates have moved around a lot – as shown in Figure 1 – despite Bank Rate being held fixed. To understand these movements you need to understand term premia. In this blog, we suggest that much of the movement in term premia reflects global factors.

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Back to the future: why we’re optimists in the secular stagnation debate

Saara Tuuli & Sandra Batten

Seven years after the financial crisis, global growth remains anaemic and the policy setting is nowhere near normal. Some commentators have suggested that this reflects some kind of ‘secular stagnation’ which set in before the crisis. This would have profound consequences for future growth and development in both wealthy and poorer countries. We are more optimistic, and see a raft of emerging technologies that could transform growth in many sectors. In this post, we summarise the current debate and offer our views on it.

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Banks are not intermediaries of loanable funds – and why this matters

Zoltan Jakab & Michael Kumhof

Problems in the banking sector played a critical role in triggering and prolonging the Great Recession. Unfortunately, standard macroeconomic models were initially not ready to provide much support in thinking about the role of banks. This has now changed, with many new papers that study the interaction of banks with the macroeconomy. However, as emphasized by Adrian, Colla and Shin (2013), there are many unresolved issues. In our new paper “Banks Are Not Intermediaries of Loanable Funds – And Why This Matters” (Jakab and Kumhof (2015)), we argue that many of them can be traced to the fact that virtually all of the newly developed models are based on the intermediation of loanable funds (ILF) theory of banking. Continue reading “Banks are not intermediaries of loanable funds – and why this matters” →

Oil is not as it seems: Expectations of future oil supply key to explaining drop in price

Gene Kindberg-Hanlon & Menno Middeldorp

The sharp fall in the oil price in late 2014 was mostly due to supply rather than demand, with expectations of future supply more important than shifts in current production. We can conclude this by comparing a model using economic data with another using asset prices that capture expectations of future oil supply. Our supply side explanation implies the fall in the oil price is mostly good news for the UK and other oil importers, rather than mainly a signal of a weaker global economy.

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