Montagu Norman and the transformation of the Bank

Chris Swinson

This post contributes to our occasional series of guest posts by external researchers who have used the Bank of England’s archives for their work on subjects outside traditional central banking topics.

In 1944, the Bank of England’s historian, John Clapham, looked back at the ways in which the Bank had changed since 1914 and remarked:

‘ . . . it would not be fantastic to argue that the Bank in 1944 was further . . . from 1914 than 1914 was from 1714.’

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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 19^th 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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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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Global real rates, 1311–2018

Paul Schmelzing

Paul Schmelzing is an academic visitor to the Bank of England, currently based at Yale University. In this guest post, he summarises his research on the differential between real interest rates and real growth rates over the past seven centuries…

There is a lively academic and policy debate about whether a build-up of excess savings in advanced economies has created a drag on long-term interest rates. In a recent paper, I provide new context to these discussions. I construct a long-run advanced economy (DM) public real interest rate series geographically covering 78% of DM GDP since the 14^th century. Using this series, I argue that current interest rate trends cannot be rationalized in a “secular stagnation” framework that has been “manifest for two decades”. Rather, historical data illustrates that advanced economy real rates have steadily declined for more than five centuries, despite important reversal periods. This post draws from long-run economic history to provide additional insights concerning the current interest rate environment.

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Handel and the Bank of England

Ellen T. Harris

This guest post is the third of an occasional series of guest posts by external researchers who have used the Bank of England’s archives for their work on subjects outside traditional central banking topics.

George Frideric Handel was a master musician — an internationally renowned composer, virtuoso performer, and music director of London’s Royal Academy of Music, one of Europe’s most prestigious opera houses. For musicologists, studying his life and works typically means engaging with his compositional manuscripts at The British Library, as well as the documents, letters, and newspapers that describe his interaction with royalty, relationships to others, and contemporary reaction to his music. But when I began to explore Handel’s personal accounts at the Bank of England twenty years ago, I was often asked why. For me the answer was always ‘follow the money’. Handel’s financial records provide a unique window on his career, musical environments, income, and even his health.

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The ownership of central banks

David Bholat and Karla Martinez Gutierrez

Around the world, central banks have a number of different ownership structures. At one end of the spectrum are central banks, like the Bank of England, that are wholly owned by the public sector. At the other end are central banks, like the Banca d’Italia, whose shareholders are wholly private sector entities. And there are central banks, like the Bank of Japan, that lie in-between. But do these differences matter?

In this blog post, we explore the variety of central bank ownership structures, both historically and globally. We also suggest areas for future research on the topic.

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Bitesize: The travels of Montagu Norman

Mike Anson, Georgina Green and Ryan Lovelock

Montagu Norman was the Bank of England’s longest serving Governor (1920-44) and one of the leading players on the interwar international financial stage. He was a controversial and enigmatic character who pioneered co-operation between central banks.

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Opening the machine learning black box

Andreas Joseph

Machine learning models are at the forefront of current advances in artificial intelligence (AI) and automation. However, they are routinely, and rightly, criticised for being black boxes. In this post, I present a novel approach to evaluate machine learning models similar to a linear regression – one of the most transparent and widely used modelling techniques. The framework rests on an analogy between game theory and statistical models. A machine learning model is rewritten as a regression model using its Shapley values, a payoff concept for cooperative games. The model output can then be conveniently communicated, eg using a standard regression table. This strengthens the case for the use of machine learning to inform decisions where accuracy and transparency are crucial.

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The Great War and the Bank of England as Market Maker of Last Resort

Mike Anson, David Bholat, Mark Billings, Miao Kang and Ryland Thomas

During the global financial crisis, some central banks acted as market makers of last resort, buying and selling securities in financial markets when trading in them had stalled. Some commentators claimed this role was “a completely new” one for central banks. In this blog, we show, on the contrary, that the Bank of England acting as a ‘market maker of last resort’ has precedent. Using newly transcribed micro-level data which we are publishing today, we detail how officials intervened in the 1914 financial crisis in a way that has at least a passing resemblance to the actions the Bank took during the Great Financial Crisis (GFC) of 2007-09.

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A question of interest: Is UK household debt unsustainable?

Lewis Kirkham and Stephen Burgess.

UK household debt is high relative to income. But is it “unsustainable”? Some commentators say “it is”; others say “there is no reason to worry”. To investigate, we build a simple model of the economic relationships between household debt, house prices and real interest rates which we believe must hold in the long run. In our model there is no single threshold beyond which debt suddenly becomes unsustainable, but we argue that household debt should be broadly sustainable under any rise in real interest rates of up to about 2 percentage points (pp) from current levels. We also show that falling real interest rates may have contributed around 20-25pp to the rise in the household debt-to-GDP ratio since the 1980s.

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