Miguel García-Posada and Sergio Mayordomo
In February, the Bank hosted its inaugural Bank of England Agenda for Research (BEAR) conference, with the theme of ‘The Monetary Toolkit’. As part of our occasional series of Guest Posts by external presenters at Bank research events, the authors of one paper from the BEAR conference outline their findings on the effect of negative rates on Spanish banks…
Continue reading “Adapting lending policies in a ‘negative-for-long’ scenario”David Ronicle
Macroeconomic outcomes in Britain’s interwar years were terrible – they featured two of modern Britain’s worst recessions, unemployment twice peaked above 20% and was rarely below 10% and there were two periods of chronic deflation. Policy, meanwhile, was pulled in multiple directions by multiple objectives – employment, price and financial stability and debt sustainability. These challenges gave birth to modern macroeconomics, inspiring the work of John Maynard Keynes. In a new working paper, I apply modern empirical techniques to look at the period with fresh eyes. I find that monetary and fiscal policy played a central role in macroeconomic developments – and that outcomes could have been better had policymakers been less wedded to the traditional policy consensus, and especially the Gold Standard.
Continue reading “Monetary and fiscal policy in interwar Britain”Mahmoud Fatouh and Ioana Neamțu
Since 2009, contingent convertible (CoCo) bonds have become a popular instrument European banks use to partially meet their capital requirements. CoCo bonds have a loss-absorption mechanism (LAM). When LAM is triggered, the bonds convert to equity capital or have their principal written down, providing more loss-absorbing capacity while a bank is still a going concern. The existing literature argues these bonds could increase risk-taking if shareholders gain at the expense of CoCo holders when the trigger is hit. In our two papers, we assess this argument theoretically and empirically. We show that the risk-taking implications of CoCo bonds rely on the direction and the size of the wealth transfer between shareholders and CoCo holders when LAM is triggered.
Continue reading “CoCo bonds and the risk appetite of banks: sweet or sour relationship”Thibaut Duprey, Artur Kotlicki, Daniel Rigobon and Philip Schnattinger
Just as doctors monitor in real time the vital signs of their hospitalised patients to determine the best course of treatment, economists are turning towards a real-time tracking of economic conditions to inform policy decisions (for example, through proxy for GDP and inflation). In a recent paper, we introduce a new quasi-real time estimation of business opening and closure rates using data from Google Places – the dataset behind the Google Maps service. We find that the lifting of COVID-19 restrictions in Canada coincides with a wave of re-entry of temporarily closed businesses, suggesting that government support may have facilitated the survival of hibernating businesses.
Continue reading “Measuring business dynamics in real time”Saleem Bahaj, Sophie Piton and Anthony Savagar
Recessions typically discourage entrepreneurs from starting new businesses. During the Great Recession, a ‘generation’ of start-ups went missing which contributed to a slow recovery in employment. Two years after the pandemic started, evidence for the UK suggests a very different story: the pandemic inspired many entrepreneurs to start new businesses and this supported the recovery in employment.
Continue reading “Booming entrepreneurship during the Covid-19 pandemic”Lena Anayi, John Lewis and Misa Tanaka
Since the onset of Covid-19, firms and workers have adopted and adapted to new working arrangements, which involved some workers primarily or exclusively working from home (WFH). What lessons – if any – can be drawn from this experience to inform future of work? A previous blog post examined how WFH might affect productivity. This blog post reviews more recent research on the experience of WFH during Covid, and considers what can be learnt about the impact of WFH on time use, workplace interactions and productivity.
Continue reading “What did we learn from working from home during Covid?”Marco Bardoscia, Benjamin Guin and Misa Tanaka
There is a lively debate about whether and how capital regulations for banks and insurers should be adjusted in response to climate change. The Bank of England will host a conference later this year to discuss the points in favour of and against adjustments to the regulatory capital framework to take account of climate-related financial risks. The call for papers asks for research on appropriate capital tools to address these risks, eg whether risks point to microprudential tools which are firm specific or rather macroprudential system-wide ones. Moreover, it asks for research on an appropriate time horizon over which the risks should be considered and how scenarios and forward-looking data should be used. This post will review the existing literature and identify some key gaps.
Continue reading “Climate and capital: some outstanding issues”Jack Page
Systemic financial crises occur infrequently, giving relatively few crisis observations to feed into the models that try to warn when a crisis is on the horizon. So how certain are these models? And can policymakers trust them when making vital decisions related to financial stability? In this blog, I build a Bayesian neural network to predict financial crises. I show that such a framework can effectively quantify the uncertainty inherent in prediction.
Continue reading “Uncertainty in financial crisis prediction: a Bayesian approach”Mai Daher and Christiane Kneer
Many UK firms weathered the Covid shock by taking on debt. Small and medium-sized enterprises (SMEs) in particular borrowed at an unprecedented rate and their debt increased by around a quarter since end-2019. But debt that allowed SMEs to survive the pandemic could now hamper the recovery as indebted firms may struggle to invest and grow. Debt on SMEs’ balance sheets could also make firms more vulnerable to future shocks and could amplify downturns if indebted firms reduce investment more following shocks. To understand how investment might evolve, our recent FS paper examines how leverage affected SME investment during and after the Global Financial Crisis (GFC) and discusses potential differences given regulatory and other changes since the GFC.
Continue reading “Debt and investment: what can we learn from SMEs’ investment behaviour during and after the Global Financial Crisis?”Timothy Munday
How easy is it to understand this sentence you are currently reading? How easy it is to understand this sentence that has dependency arcs that are longer that make it more difficult to read? How about if my writing is magniloquent? Or what if I use normal words? Writing style matters for how easy it is to read text. This post asks if writing style can influence how long markets take to digest Bank of England monetary policy information. I find that Bank of England publications that summarise their content in the first sentence, and use less unexpected vocabulary, are associated with a faster time for swap markets to reach a new equilibrium price following the publication release.
Continue reading “More than words: Bank of England publications and market prices”