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.
Small, young private firms in China have long been struggling to obtain formal bank loans. To bypass financial constraints, these firms have resorted to alternative, less formal financing sources. In this context, Chinese authorities are aiming to develop a more formal, market-based, and better regulated credit sector. In a Staff Working Paper, I argue that carefully designed credit sector reforms are crucial to avoid throwing out the baby with the bath water. Despite the interest rate liberalisation progressively implemented by Chinese authorities, a general crackdown on alternative finance would remain detrimental to the dynamism of small enterprises. Selectively tightening the limits around informal financing could better balance financial stability on the one hand, and welfare and efficiency on the other.
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.
Arthur Turrell, Bradley Speigner, James Thurgood, Jyldyz Djumalieva, and David Copple
‘Big Data’ present big opportunities for understanding the economy. They can be cheaper and more detailed than traditional data sources, and on scales undreamt of by survey designers. But they can be challenging to use because they rarely adhere to the nice neat classifications used in surveys. We faced just this challenge when trying to understand the relationship between the efficiency with which job vacancies are filled and output and productivity growth in the UK. In this post, we describe how we analysed text from 15 million job adverts to glean insights into the UK labour market.
UK GDP growth slowed sharply at the beginning of this year. Over the same period, Britons suffered through unseasonably cold weather, popularly known as “The Beast from the East”. Are the two related?
Marilena Angeli and Jack Meaning
Would removing the 1p and 2p coins from circulation cause inflation? Or deflation? Or neither? Our analysis, and the overwhelming weight of literature and experience, suggests it would have no significant impact on prices because price rounding would be applied at the total bill level, not on individual items and it would only affect cash transactions, which make up a low proportion of spending by value. Even if individual prices were rounded on all payments, analysis of UK price data suggests no economically significant impact on inflation.
Arthur Turrell, Bradley Speigner, James Thurgood, Jyldyz Djumalieva and David Copple
Recently, economists have been discussing, on the one hand, how artificial intelligence (AI) powered by machine learning might increase unemployment, and, on the other, how AI might create new jobs. Either way, the future of work is set to change. We show in recent research how unsupervised machine learning, driven by data, can capture changes in the type of work demanded.
Will Holman and Tim Pike
Firms are increasingly investing in automation, substituting capital for labour, as workers become more scarce and costly. We are seeing multiple examples, from automation in food processing to increasingly-common self-service tills. This push for productivity growth is one of the key themes from our meetings with businesses in the past year, which we think suggests a reversal of a decade-long trend.
Ben Dyson and Jack Meaning
A “Central Bank Digital Currency” (CBDC) may sound like it’s from the future, but it’s something that many central banks are researching today, including those in Sweden, Canada, Denmark, China, and the European Central Bank and Bank of International Settlements (BIS). In a new working paper, we set aside questions about the technological, regulatory and legal aspects of central bank digital currency, and instead explore the underlying economics. Could the existence of a CBDC make it easier or harder for central banks to guide the economy through monetary policy? And could the existence of CBDC make the monetary transmission mechanism (MTM) faster or slower, stronger or weaker?