Fossicking in the dark or twenty-twenty foresight?

Rishi Khiroya and Lydia Henning

If you asked people what skill they would most love to have, you might receive answers like ‘to fly’, ‘to be invisible’ or even ‘predicting the future’. If you asked people who worked in financial markets in particular, ‘accurately predicting the future’ would probably be top of the list. From economic trends to political shifts, market participants have a stake in anticipating what comes next. We use data collected from the Bank’s Market Participants Survey (MaPS) to see how market predictions have tended to compare with what subsequently unfolds over the period of high uncertainty and volatility that has been observed in the wake of the pandemic – and how predictive accuracy has varied depending on the time horizon in question.

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Some implications of climate policy for monetary policy

Francesca Diluiso, Boromeus Wanengkirtyo and Jenny Chan.

This post examines key aspects of climate mitigation policies that could matter for monetary policy, using insights from structural climate macroeconomic models (Environmental Dynamic Stochastic General Equilibrium). Three main findings emerge: first, mitigation policies – like carbon pricing – can be a direct source of shocks, creating potential trade-offs for monetary policy (Carney (2017)). Second, the degree to which these policies are anticipated affects their macroeconomic impacts. Third, different climate policies may alter the transmission of conventional business-cycle shocks, therefore affecting the calibration of optimal monetary policy. We focus on the 3–5 year horizon, abstracting from longer-run considerations and changing trends such as interactions with the zero lower bound, the natural interest rate, or transitional effects on productivity and output.

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Beyond the average: patterns in UK price data at the micro level

Lennart Brandt, Natalie Burr and Krisztian Gado

The Bank of England has a 2% annual inflation rate target in the ONS’ consumer prices index. But looking at its 700 item categories, we find that very few prices ever change by 2%. In fact, on a month-on-month basis, only about one fifth of prices change at all. Instead, we observe what economists call ‘sticky prices’: the price of an item will remain fixed for an extended amount of time and then adjust in one large step. We document the time-varying nature of stickiness by looking at the share of price changes and their distribution in the UK microdata. We find a visible discontinuity in price-setting in the first quarter of 2022, which has only partially unwound.

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Measuring business dynamics in real time

Thibaut Duprey, Artur Kotlicki, Daniel Rigobon and Philip Schnattinger

Just as doctors monitor in real time the vital signs of their hospitalised patients to determine the best course of treatment, economists are turning towards a real-time tracking of economic conditions to inform policy decisions (for example, through proxy for GDP and inflation). In a recent paper, we introduce a new quasi-real time estimation of business opening and closure rates using data from Google Places – the dataset behind the Google Maps service. We find that the lifting of COVID-19 restrictions in Canada coincides with a wave of re-entry of temporarily closed businesses, suggesting that government support may have facilitated the survival of hibernating businesses.

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Lehman Brothers: 10 years on

The collapse of Lehman Brothers in September 2008 will forever be remembered as a pivotal moment in the global financial crisis. TV pictures flashed around the world of staff carrying their belongings out of their offices as their employer filed for bankruptcy. But few observers watching at the time foresaw the tumultuous events that would be unleashed in the weeks and months that followed. And the consequences endured: for policymakers, academics and market participants alike, the world was never quite the same again.

In this special series of posts, we turn the clock back to 2008 to look at how the crisis unfolded and what those events revealed about the economic and financial system. This week, we’ll publish four posts, each focussing on a different aspect. Today’s opening post explores how trouble in the subprime US mortgage market ended up creating a global emergency. Subsequent posts will look at the sharp contraction in cross-border lending, the turmoil in money markets, and knock-on effects on the global economy.

The authors take a diverse range of approaches- some draw on earlier academic work, some focus on the evolution of the data, others try to piece together the mechanics of the system. As ever, we welcome your discussion of our work- either using the comments facility at the foot of each post, tagging @BoE_Research on twitter or best of all – via by writing a response on your own blog!

John Lewis, Managing Editor