Bitesize: Exploring UK sectoral productivity

Ian Billett and Patrick Schneider.

As time goes to infinity, the probability that a productivity analyst will wonder ‘which sectors are driving these trends?’ goes to one. We present an interactive sectoral productivity tool to help you explore this question without any fuss.

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Bitesize: More on the bond-equity correlation

Matt Roberts-Sklar.

In a previous post I showed that bond and equity returns are negatively correlated, having been positively correlated for most of the 18th-20th centuries. The time series was long (three centuries) and the chart was just for the UK, prompting two very reasonable questions: 1) does your story hold for countries other than the UK? and 2) what’s happened to this correlation recently?

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Venetians, Volcker and Value-at-Risk: 8 centuries of bond market reversals

Paul Schmelzing, Harvard University.

bu-guest-post2Paul Schmelzing is a visiting scholar at the Bank from Harvard University, where he concentrates on 20th century financial history. In this guest post, he looks at the current bond market through the lens of nearly 800 years of economic history.

The economist Eugen von Böhm-Bawerk once opined that “the cultural level of a nation is mirrored by its interest rate: the higher a people’s intelligence and moral strength, the lower the rate of interest”. But as rates reached their lowest level ever in 2016, investors rather worried about the “biggest bond market bubble in history” coming to a violent end. The sharp sell-off in global bonds following the US election seems to confirm their fears. Looking back over eight centuries of data, I find that the 2016 bull market was indeed one of the largest ever recorded. History suggests this reversal will be driven by inflation fundamentals, and leave investors worse off than the 1994 “bond massacre”.

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The Bank Underground Christmas Quiz

Bank Underground is about to take a hard-earned festive break.  But before the blog goes off on its Christmas holidays, it’s time for the now annual tradition of the Bank Underground Christmas Quiz.  Test your knowledge on our ten festive themed questions on economics, finance and all things central banking…

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Unto us a lender of last resort is born: Overend Gurney goes bust in 1866

John Lewis.

The 1866 collapse of Overend Gurney sparked widespread panic as investors flocked to banks and other institutions demanding their money back.  Failure to provide substantial liquidity threatened to bring down the entire financial system.  The Governors of the Bank of England asked the Chancellor to relax the constraints of the 1844 Bank Charter Act, by granting an indemnity to allow the issue of unbacked currency.  The Chancellor’s reply, and the policy response it initiated, would save the day, and go down in central banking history as pivotal in the foundation of the “lender of last resort”, a function which has been fundamental to central banking practice ever since.

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The Nightmare before Christmas: Financial crises go global in 1857

Tobias Neumann.

A railway boom in America’s Midwest goes spectacularly bust.  Sixty-two of New York’s commercial banks close – out of sixty-three. Meanwhile in Britain, a decade gilt-edged by gold discoveries in Australia and fuelled by the Crimean War was beginning to lose its lustre.  Thus the scene was set for the first global financial crisis shaking markets in New York, London, Paris and across the world.  A crisis so severe it forced the Bank of England to “break the law” to survive.

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The ghost of crises past, present and future: The Bank Charter Act goes on trial in 1847

Huaxiang Huang and Ryland Thomas.

The financial crisis of 1847 has often been dubbed “The trial of the Bank Charter Act  of 1844 (Morgan (1952)).  The Act sought to remedy the errors of crises past by trying to prevent the overissue of banknotes that many had felt was the major cause of previous crises in 1825 and 1837.   The Act gave the Bank of England an effective monopoly in the issue of new bank notes and those additional notes had to be backed one for one with gold.   But this had a crucial unintended consequence:  it made it difficult for the Bank to act as a lender of last resort.  When the crisis struck, the limits imposed by the Act effectively had to be suspended.

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Christmas special: Financial Crises in the 19th century

John Lewis.

Today we begin a 3-part series of posts telling the story of a period of financial boom and bust in British economic history, when crises hit with almost clockwork regularity:  1847, 1857 and 1866.  We delved deep into the Bank’s archives to reveal letters exchanged between Governors and Chancellors of the Exchequer temporarily suspending the law, read the diary entries of the people at the heart of the turmoil, and perused the Bank’s ledgers of the time to bring the crises to life.  Together these three episodes were crucial in shaping the evolution of the Bank’s role into what we now think of as a central bank; the lessons learned during this time resulted in half a century of financial stability and are as relevant now as they were then.

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Mind over matter: is scarcity as much about psychology as it is economics?

Dan Nixon.

“Unlimited wants, scarce resources”. This is the economic problem.  But once basic needs are met, how much should scarcity – having “enough” – be understood as a psychological problem? Is it possible to cultivate an “abundance mindset”? And what does all of this mean for how economics is taught?

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The world trade slowdown (redux)

Gene Kindberg-Hanlon and David Young.

The volume of world trade is now 17% below where it would be had it grown at pre-crisis trend after 2011.  This post argues that most of this gap can be explained by weakness in world GDP, but stalling expansion in global value chains (GVCs) is playing an increasingly important role.  We also argue that this shortfall can’t be explained by shifts in the geographical or the expenditure split of global GDP growth. While world trade grew twice as quickly as world GDP pre-crisis, it is likely to grow at about the same rate as world GDP in the future.  This matters: weak trade could explain half of the 1pp fall in annual global productivity growth since the crisis.

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