Fog in the Channel? How have equity markets reacted to Brexit news?

Srdan Tatomir, Iryna Kaminska, Marek Raczko and Gregory Thwaites

How have equity markets responded to news about Brexit? To answer this we split firms into those whose share prices are particularly sensitive to Brexit-related news, and those which are not.  The latter group provides a “control sample”, against which to assess the impact of individual pieces of news on the former. The ratio of the two groups’ prices gives a barometer of equity market sentiments around Brexit. So far, this measure points to downward pressure on valuation of companies more exposed to Brexit. The bulk of the fall occurred on the night of the referendum, with little movement afterwards, suggesting little additional “news” from subsequent developments beyond the immediate aftermath.

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Filed under Financial Markets

Opposing change? The price impact of removing the penny

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.

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Filed under Currency, Macroeconomics, Monetary Policy

Gender diversity on Bank Board of Directors and performance

Ann Owen and Judit Temesvary

Earlier this year the Bank hosted a joint conference with the ECB and the Federal Reserve Board on Gender and Career Progression. In this guest post one of the speakers, Ann Owen, discusses her work with Judit Temesvary on how the composition of boards affects decision making and ultimately performance in the banking sector.

The representation of women on boards of US bank holding companies has increased (chart 1), but nevertheless remains well below the share of women in the overall employee base (chart 2).  While this also raises questions of equity, our research asks if a lack of gender diversity on bank boards has an economic impact on their performance.   We find that it does, and that this effect depends on 1) the existing level of gender diversity on the board, and 2) the level of bank capitalization.  If risk-weighted capital ratios are a proxy for the quality of bank management, our findings suggest that at well-managed banks, gender diversity has a positive impact on bank performance- but only once a threshold level of diversity is reached.

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Filed under Banking, New Methodologies

When Harry Fired Sally: The Gender Punishment Gap

Mark Egan, Gregor Matvos and Amit Seru

Earlier this year the Bank hosted a joint conference with ECB and the Federal Reserve Board on Gender and Career Progression. In this guest post, Mark Egan, Gregor Matvos and Amit Seru summarise the paper they presented on the differential punishment of male and females in the US financial industry.

The gender pay gap – that women earn lower wages than men – is well known. Is that where the disparity in the workplace ends? No. In a new working paper, we document the existence of the “gender punishment gap”. We study the career trajectories of more than 1.2 million men and women working in the US financial advisory industry and examine how their careers evolve following misconduct. Women face more severe punishment at both the firm and industry level for similar missteps. Following an incidence of misconduct, women are 20% more likely to lose their jobs and 30% less likely to find new jobs relative to their male counterparts. The punishment gap is especially prominent in firms with few female managers.

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Filed under Financial Markets, Microprudential Regulation

Using machine learning to understand the mix of jobs in the economy in real-time

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.

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Filed under Macroeconomics, New Methodologies

What a difference a day makes

Matt Roberts-Sklar

What a difference a day makes BANNER

Often when analysing financial markets, we want to know the statistical distribution of some financial market prices, yields or returns. But the ‘true’ distribution is unknown and unknowable. So we estimate the distribution, based on what we’ve observed in the past. In financial markets, adding one data point can make a huge difference. Sharp moves in Italian bond yields in May 2018 are case in point – in this blog I show how a single day’s trading drastically alters the estimated distribution of returns. This is important to keep in mind when modelling financial market returns, e.g. for risk management purposes or financial stability monitoring.

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Filed under Financial Markets, Financial Stability

Who supplies liquidity in CHAPS?

Evangelos Benos and Christina Fritz

Every day UK banks and corporates (“participants”) make sizeable payments to each other through CHAPS, the country’s high-value payment system. However, these payments are liquidity-intensive: every payment must be pre-funded, i.e. the payer must have in place the full amount to be paid. This can be costly, so each participant would prefer to first receive some money from another one and then make its own payments by recycling the received amount. However, this still requires that some participants supply intra-day liquidity to the system by making the first payments. But who are these participants? This post shows that it is typically the smaller ones and also those perceived by markets to be riskier that get the ball rolling…

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Filed under Financial Stability, Market Infrastructure

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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Filed under International Economics, Macroeconomics

Tight labour markets and self-service beer: is the productivity slowdown about to reverse?

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.

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Filed under Macroeconomics, Monetary Policy

Bank of England and Financial Times Schools blogging competition: And the winner is…

….Tyler Curtis from Hall Cross Academy, Doncaster, whose winning post, How lab-grown burgers could feed the world, is published today on Bank Underground and in the FT. You can also read the post selected by our judges as the runner-up, Facebook bank anyone? by Nicola Medicoff of St Paul’s Girls School, Hammersmith.

We had almost 200 entries from schools all over the UK, spanning an enormous range of topics. We had an enjoyable but tough task in whittling down the entries down to a final shortlist of 5.  The winner was picked  by our expert panel of Chris Giles (Economics Editor, FT), Martin Sandbu (Author of Free Lunch, FT), Silvana Tenreyro (Monetary Policy Committee member) and Sonya Branch (General Counsel at the BoE).  Sonya commented “I was enormously impressed by the number of innovative and thought provoking entries we received from students. The top two entries were particularly inspiring and challenge those of us who deal with these issues as part of our day jobs to think differently.” And Silvana added “It was thrilling to read so many insightful, thoughtful and well-crafted pieces.

A big thankyou to all those who took part. It was brilliant to read so many blog posts from the policymakers, commentators, business leaders and journalists of the future.  Whatever the future holds for the economy, we will have some very smart economists to help us understand it!

John Lewis

Managing Editor

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