Can ‘stablecoins’ be stable?

Ben Dyson

Cryptoassets (or ‘cryptocurrencies’) are notoriously volatile. For example, in November 2018, Bitcoin – one of the more stable cryptoassets – lost 43% of its value in just 11 days. This kind of volatility makes it difficult for cryptoassets to function as money: they’re too unstable to be a good store of value, means of exchange or unit of account. But could so-called ‘stablecoins’ solve this problem and finally provide a price-stable cryptoasset?

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Look abroad! Global financial conditions and risks to domestic growth

Fernando Eguren-Martin and Andrej Sokol

What’s the relationship between financial conditions and risks to growth in an economy? And, in a world of highly integrated financial markets, to what extent are these “local” risks rather than reflections of global developments? In this post we offer some tentative answers. Financial conditions, measured across a broad range of asset classes and countries, display an important common component reflecting global developments. Loose financial conditions today increase the likelihood of a growth boom over the following few quarters, but when global financial conditions are loose, they increase the chances of a sharp contraction further ahead, highlighting some of the challenges of managing risks to growth across time from a policy maker’s perspective.

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A Closer Look at the BoC-BoE Sovereign Default Database

David Beers and Jamshid Mavalwalla

Defaults on sovereign debt – the term commonly used to denote debt issued by national governments and other fiscally autonomous territories – are a recurring feature of public finance. They are more widespread than is often appreciated, since 1960 involving 145 governments, over half the current sovereign universe. Examples include the many governments ensnared in the Latin American and Eastern European debt crises of the 1980s. More recently, there have been big bond defaults by Russia (1998), Argentina (2001), Greece (2012), and Puerto Rico (2015). On a smaller scale, scores of sovereign defaults can occur each year on one or more types of debt. Some, such as Sudan’s, have dragged on for decades and remain unresolved (Chart 1).

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Low-Carbon Macro

Carsten Jung, Theresa Löber, Anina Thiel and Thomas Viegas

Governments have pledged to meet the Paris Target of restricting global temperature rises to ‘well below’ 2˚C.  But reducing CO2 emissions and other greenhouse gases means reallocating resources away from high-carbon towards low-carbon activities. That reallocation could be considerable: fossil fuels account for more than 10% of world trade and around 10% of global investment.  In this post, we consider the macroeconomic effects of the transition to a low-carbon economy and how it might vary across countries. While much of the discussion has focussed on the hit to economic activity and the potential for job losses in higher-carbon sectors, we highlight that the transition also offers opportunities. And the overall impact depends crucially on when and how the transition takes place.

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‘The world turned upside down’: How the global economy was hit by the crisis

David Young

For the global economy, it was the best of times, and then it was the worst of times.  Buoyed by very strong growth in emerging markets, the global economy boomed in the mid-2000s.  On average, annualised world GDP growth exceeded 5% for the four years leading up to 2007 – a pace of growth that hadn’t been sustained since the early 1970s.  But it wasn’t to last.  In this post, I illustrate how the failure of Lehman Brothers in September 2008 coincided with the deepest, most synchronised global downturn since World War II.  And I describe how after having seen the fallout of the Lehman collapse, macroeconomic forecasters were nevertheless surprised by the magnitude of the ensuing global recession.

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Global Financial Cycles and risk premiums

Felix Ward, Moritz Schularick, Òscar Jordà and Alan M Taylor

In April the Bank hosted a workshop organised jointly with the IMF and ECB, on the theme of “International Spillovers of Shocks and Macroeconomic Policies”. In this guest post, the authors of one of the papers presented look at how and why co-movement of international equity prices has increased over time.

Asset markets in advanced economies have become integrated to a degree never seen before in the history of modern finance. This is especially true for global equities starting in the 1990s. We find that this increase in synchronization is primarily driven by fluctuations in risk-appetite rather than in risk-free rates, or in dividends. Moreover, we find that U.S. monetary policy plays a major role in explaining such fluctuations. This transmission channel affects economies with both fixed and floating exchange rates, although the effects are more muted in floating rate regimes.

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Pumping Iron: How can metals prices help predict global growth?

Tom Wise

Estimates of GDP growth are published with a considerable lag – even in some major economies we still only have partial data on what GDP growth was in Q1 2018. So ‘nowcasting’ GDP using more timely indicators of economic activity is an important way of assessing the strength of the world economy in real time. Good indicators are timely, correlated with measures of world activity and should outperform simple benchmarks. Unlike other global indicators such as business surveys or trade data, metals prices are available minute by minute. They also tend to move closely with world GDP. This post assesses how well they perform at nowcasting world GDP.

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UK trade: going steady since the 1960s

Tommaso Aquilante, Enrico Longoni, Patrick Schneider

Countries’ goods exports are normally defined in terms of what has been shipped when and where. Recent literature (e.g. Besedeš and Prusa, 2011 and Besedeš et al, 2016) shows that looking at how long trade relationships have been in place is important as well. Using highly granular data, we show that over 60% of the value of UK nominal goods exports is in very mature trading relationships, by which we mean exports of a particular product between a pair of countries in a given year. This is true even with substantial churn (new relationships starting and old ones ceasing) going on all the while, and for exports in real terms as well.

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The Spanish Connection – Consequences of a macroprudential regulation in Spain on Mexico

Jagdish Tripathy

Does macroprudential regulation spillover to foreign financial systems through inter-bank linkages? This question has received a lot of attention in recent years given the discord between the international nature of the global financial system and its regulation and supervision by national jurisdictions (e.g. this article). For example, subsidiaries of Spanish banks issue almost half of all credit issued by commercial banks in Mexico. These subsidiaries are also fully owned by their parent banks headquartered in Spain. Therefore, it is quite natural to ask whether macroprudential regulations in Spain can have unintended consequences on the Mexican financial system and the Mexican economy in general. While Mexican subsidiaries of Spanish banks are de-jure ring-fenced from regulations in Spain, does this hold de-facto?

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Population ageing and the macroeconomy

Noëmie Lisack, Rana Sajedi and Gregory Thwaites

An unprecedented ageing process is unfolding in industrialised economies. The share of the population over 65 has gone from 8% in 1950 to almost 20% in 2015, and is projected to keep rising. What are the macroeconomic implications of this change? What should we expect in the coming years? In a recent staff working paper, we link population ageing to several key economic trends over the last half century: the decline in real interest rates, the rise in house prices and household debt, and the pattern of foreign asset holdings among advanced economies. The effects of demographic change are not expected to reverse so long as longevity, and in particular the average time spent in retirement, remains high.

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