Category Archives: New Methodologies

How lab-grown burgers could feed the world

Tyler Curtis

Tyler Curtis, from Hall Cross Academy, Doncaster is the winner of the Bank of England/Financial Times schools blogging competition. In his winning post, he looks at how artificial meat could reshape the economy and our environment…

Food, glorious food! But how glorious is it, especially meat, when its production is reminiscent of Mary Shelley’s Frankenstein? Traditionally, a significant portion of the world’s workforce has been employed in agriculture throughout history, forcing us to allocate massive amounts of scarce resources to the sector. Today, nearly 27 per cent of people work in agriculture worldwide, according to the World Bank (the figure is just 1 per cent in the UK). However, the industry is on the verge of a new revolution.

Continue reading

Comments Off on How lab-grown burgers could feed the world

Filed under Guest Post, New Methodologies

The UK’s productivity puzzle is in the top tail of the distribution

Patrick Schneider

UK productivity growth has been puzzlingly slow since the crisis. After averaging 2% every year in the pre-crisis decade, growth in labour productivity (output per hour worked) has slowed to an average of only 0.5%. Extensive research and commentary on the productivity puzzles has suggested myriad causes for the malaise – including ‘zombie’ firms hoarding resources, sluggish investment in the face of uncertainty, mismeasurement and more – and have dismissed others that no longer seem plausible – including temporary labour hoarding. Using firm-level data, I show that slower aggregate growth is entirely driven by the more productive firms in the economy.

Continue reading

9 Comments

Filed under Macroeconomics, New Methodologies

Open letters: Laying bare linguistic patterns in PRA messages using machine learning

David Bholat and James Brookes

In a recent research paper, we show that the way supervisors write to banks and building societies (hereafter ‘banks’) has changed since the financial crisis. Supervisors now adopt a more directive, forward-looking, complex and formal style than they did before the financial crisis. We also show that their language and linguistic style is related to the nature of the bank. For instance, banks that are closest to failure get letters that have a lot of risk-related language in them. In this blog, we discuss the linguistic features that most sharply distinguish different types of letters, and the machine learning algorithm we used to arrive at our conclusions.

Continue reading

Comments Off on Open letters: Laying bare linguistic patterns in PRA messages using machine learning

Filed under Banking Supervision, Microprudential Regulation, New Methodologies, Text mining

Can central bankers become Superforecasters?

Aakash Mankodi and Tim Pike

Tetlock and Gardner’s acclaimed work on Superforecasting provides a compelling case for seeing forecasting as a skill that can be improved, and one that is related to the behavioural traits of the forecaster. These so-called Superforecasters have in recent years been pitted against experts ranging from U.S intelligence analysts to participants in the World Economic Forum, and have performed on par or better by accurately predicting the outcomes of a broad range of questions. Sounds like music to a central banker’s ears? In this post, we examine the traits of these individuals, compare them with economic forecasting and draw some related lessons. We conclude that considering the principles and applications of Superforecasting can enhance the work of central bank forecasting.

Continue reading

3 Comments

Filed under Macroeconomics, Monetary Policy, New Methodologies

The 2016 Sterling Flash Episode

Joseph Noss, Liam Crowley-Reidy and Lucas Pedace

Continue reading

Comments Off on The 2016 Sterling Flash Episode

Filed under Currency, Financial Markets, Financial Stability, New Methodologies

Completing Correlation Matrices

Dan Georgescu and Nicholas J. Higham

Correlation matrices arise in many applications to model the dependence between variables. Where there is incomplete or missing information for the variables, this may lead to missing values in the correlation matrix itself, and the problem of how to complete the matrix. We show that some of these practical problems can be solved explicitly, via simple formulae, and we explain how to use mathematical tools to solve the more general problem where explicit solutions may not exist. “Simple” is, of course, a relative term, and the underlying matrix algebra and optimization necessarily makes this article more mathematically sophisticated than the typical Bank Underground post.

Continue reading

1 Comment

Filed under Insurance, New Methodologies

Stirred, not shaken: how market interest rates have been reacting to economic data surprises

Jeremy Franklin, Scott Woldum, Oliver Wood and Alex Parsons

How do markets react to the release of economic data? We use a set of machine learning and statistical algorithms to try to find out.  In the period since the EU referendum, we find that UK data outturns have generally been more positive than market expectations immediately prior to their release. At the same time, the responsiveness of market interest rates to those data surprises fell below historic averages.  The sensitivity of market rates has also been below historic averages in the US and Euro area, suggesting international factors may also have played a role. But there are some signs that the sensitivity has increased over the past year in the UK.

Continue reading

2 Comments

Filed under Financial Markets, Macroeconomics, New Methodologies

Is the economy suffering from the crisis of attention?

Dan Nixon

Smartphone apps and newsfeeds are designed to constantly grab our attention. And research suggests we’re distracted nearly 50% of the time. Could this be weighing down on productivity? And why is the crisis of attention particularly concerning in the context of the rise of AI and the need, therefore, to cultivate distinctively human qualities?

Continue reading

9 Comments

Filed under Macroeconomics, New Methodologies

Bitesize: Flourishing FinTech

Aidan Saggers and Chiranjit Chakraborty

Investment in the Financial Technology (FinTech) industry has increased rapidly post crisis and globalisation is apparent with many investors funding companies far from their own physical locations.  From Crunchbase data we gathered all the venture capital investments in FinTech start-up firms from 2010 to 2014 and created network diagrams for each year.
Continue reading

2 Comments

Filed under International Economics, Market Infrastructure, New Methodologies

New machines for The Old Lady

Chiranjit Chakraborty and Andreas Joseph

Rapid advances in analytical modelling and information processing capabilities, particularly in machine learning (ML) and artificial intelligence (AI), combined with ever more granular data are currently transforming many aspects of everyday life and work. In this blog post we give a brief overview of basic concepts of ML and potential applications at central banks based on our research. We demonstrate how an artificial neural network (NN) can be used for inflation forecasting which lies at the heart of modern central banking.   We show how its structure can help to understand model reactions. The NN generally outperforms more conventional models. However, it struggles to cope with the unseen post-crises situation which highlights the care needed when considering new modelling approaches.

Continue reading

Comments Off on New machines for The Old Lady

Filed under Microprudential Regulation, Monetary Policy, New Methodologies