As a new year begins and the blog starts afresh in 2026, we wanted to take a moment to reflect on the highlights of the blog in 2025.
Continue reading “Our top five posts of 2025”Our top five posts of 2025
Category: International Economics
The Bank Underground Christmas Quiz 2025
Bank Underground is about to take a break for the festive season. In keeping with tradition, we are pleased to present the annual Bank Underground Christmas Quiz! This year, it’s been prepared with the kind assistance of the Bank of England’s Archive team. We hope you enjoy testing your knowledge of the Bank’s history, especially how it has marked Christmas in years past. We wish our readers a very happy festive season!
Continue reading “The Bank Underground Christmas Quiz 2025”Trade fragmentation and inflationary pressures
Ludovica Ambrosino, Jenny Chan and Silvana Tenreyro
Macroeconomic Environment Theme
The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Macroeconomic Environment Theme which focuses on the changing inflation dynamics and unfolding structural change faced by monetary policy makers.
Global economic trends have changed markedly over the past two decades. The global financial crisis represented a turning point, with trade openness plateauing and fragmentation steadily increasing before rising sharply during the pandemic and Russia’s invasion of Ukraine. Trade fragmentation is increasingly driven by national security concerns, the rise of ‘friendshoring‘, and the emergence of competing trade blocs. For policymakers, this raises a central question: how will trade fragmentation shape inflation dynamics, and what are the implications for monetary policy? A recent paper addresses this question by analysing trade fragmentation in a model where the inflationary effects depend on the adjustment of demand alongside supply.
Continue reading “Trade fragmentation and inflationary pressures”All shocks are different: insights from sentiment and topic analysis using LLMs
Iulia Bucur and Ed Hill
Modern language models – think OpenAI’s GPTs, Google’s Gemini or DeepSeek – are powerful tools: but how can we use them in economic policymaking? Economic analysis often relies on decompositions to understand macroeconomic data and inform counterfactuals. But these decompositions are typically obtained from numerical data or macroeconomic models and so may overlook nuanced insights embedded in unstructured text. We propose decomposing the metrics which Large Language Models (LLMs) can derive from text data to offer insights from large collections of documents in a highly interpretable format. This approach aims to bridge the gap between natural language processing (NLP) techniques and economic decision-making, offering a richer, more context-aware understanding of complex economic phenomena.
Continue reading “All shocks are different: insights from sentiment and topic analysis using LLMs”How fixed are global exchange rates?
Roger Vicquéry and Kevin Hjortshøj O’Rourke
While the collapse of the Bretton Woods system in 1973 has traditionally been seen as heralding a major shift towards floating exchange rates, the extent of this transition away from fixed arrangements has been called into question by a ‘New Consensus’ view. We provide a new index to measure exchange rate fixity at the global level, which restores the conventional account of international monetary history over the last 70 years: according to our measurement global exchange rate fixity is now only about a third of its Bretton Woods level. We highlight how this transition to floating arrangements was largely driven by anchor currencies ceasing to be pegged to one another.
Continue reading “How fixed are global exchange rates?”Could digitalisation of finance lead to more disruptive international capital flows?
Simon Whitaker
Digital currencies and the tokenisation of financial assets could speed up the movement of money and assets between institutions and across borders. Historically, the liberalisation of capital flows led to debates about the impact on macroeconomic and financial stability. Bouts of instability – for example the 2008 global financial crisis – provoked calls to put ‘sand in the wheels’ of financial markets. In this blog I argue there is no reason why lubricating capital flows through digitalisation should herald a new era of financial instability. But the architecture of the global financial safety net may need to evolve to contain risks to the international monetary and financial system.
Continue reading “Could digitalisation of finance lead to more disruptive international capital flows?”Central banks, big and small
Benjamin Kingsmore
Central banks do a lot of things: they implement monetary policy, regulate financial institutions, manage payment systems and analyse economic developments. Many of their tasks are crucial to the functioning of a modern economy. And to make all this happen in practice, armies of unseen officials do the necessary implementing, regulating, managing and analysing. In this post I try to answer some questions about these officials: how many are there? Where are they? And if you wanted to host a party for central bankers, what would be the most convenient location?
Continue reading “Central banks, big and small”The Bank Underground Christmas Quiz 2024
Before Bank Underground goes off on its Christmas holidays, it’s time for the Annual Bank Underground Christmas Quiz! We hope you enjoy testing your knowledge on our festive themed questions on economics, finance and all things central banking…
Continue reading “The Bank Underground Christmas Quiz 2024”Weathering the storm: the economic impact of floods and the role of adaptation
Rebecca Mari and Matteo Ficarra.
Floods are the most costly natural disaster in Europe. In the UK, they account for around GBP1.4 billion in annual losses. Yet, evidence on the macroeconomic implications is inconclusive. GDP often shows a puzzling delayed response, and prices can be pushed in opposite directions. Using a novel county level data set for England for the years 1998–2021, we estimate the impact of flooding on output and inflation at the sector level. Sectors react heterogeneously to floods, which explains well aggregate evidence. Prices respond in sectors related to both headline and core inflation, which has crucial implications for monetary policy. We further show that investing in flood defences mitigates the economic burden of floods by strongly reducing the risk of flooding.
Continue reading “Weathering the storm: the economic impact of floods and the role of adaptation”Nonbank lenders as global shock absorbers
David Elliott, Ralf Meisenzahl and José-Luis Peydró
Capital flows and credit growth are strongly correlated across countries. Macroeconomic evidence suggests that this ‘global financial cycle’ is largely driven by US monetary policy: expansionary policy by the Federal Reserve drives increases in lending globally, while contractionary Fed policy leads to a tightening of global financial conditions. Existing academic literature emphasises the role of banks in propagating these US monetary policy spillovers. But in recent decades, nonbank financial intermediaries have grown in importance. In a recent paper, we investigate the impact of US monetary policy on international dollar lending by nonbanks relative to banks, and show that nonbank lenders play an important role in absorbing US monetary policy shocks.
Continue reading “Nonbank lenders as global shock absorbers”