Category: International Economics

Credit constraints and housing market access

Belinda Tracey and Neeltje van Horen

The Help-to-Buy (HTB) programme introduced in 2013 reopened the 95% loan to value (LTV) segment of the UK mortgage market, thereby reducing the minimum deposit requirement for many first-time buyers (FTBs) from 10% to 5% (Chart 1). That policy change offers a useful natural experiment to study how deposit constraints shape access to homeownership. We previously demonstrated that this easing of deposit constraints generated a clear increase in local spending. In a recent paper, we show that lowering this constraint increases FTB home purchases, particularly among households without access to external financial support for their deposit.

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When travel restrictions became trade frictions: evidence from Covid-era border closures

John Lewis

Covid travel restrictions limited movement of people but also made cross-border goods trade more difficult.  Did this contribute to the fall in global goods trade during the pandemic, and if so by how much? In a recent paper using a structural gravity model on global trade flows with domestic trade, I show that a full closure reduced trade for a typical country pair by around 19%, implying a peak hit to global trade of about 23% in 2020 Q2. Hits were larger for nearby partners, and were concentrated in road and air freight, with seaborne trade unaffected. These differences explain why some countries could close borders with smaller trade hits than others. Trade rebounded as restrictions eased, suggesting no lasting scarring.

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Climate change increases bilateral trade costs (through its impact on maritime shipping)

Maximilian Huppertz

It is well established that climate change affects productivity, but its effects on trade costs have not been studied. Ignoring these and focusing solely on productivity could lead to an underestimate of its overall impact. It could also create a source of climate-related risk, with the potential to affect the financial system through trade finance and insurance. In a recent Staff Working Paper, I show that climate change indeed affects trade cost, driven by its impact on maritime trade in particular. Focusing on productivity alone leads to a roughly 9% underestimate of the overall impact. My methodology is easy to embed in studies of the overall impact of climate change.

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The Bank Underground Christmas Quiz 2025

Image of the Bank of England during Winter with partial snowfall.

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!

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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.

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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.

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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.

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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.

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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?

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