Felix Ward, Moritz Schularick, Òscar Jordà and Alan M Taylor
In April the Bank hosted a workshop organised jointly with the IMF and ECB, on the theme of “International Spillovers of Shocks and Macroeconomic Policies”. In this guest post, the authors of one of the papers presented look at how and why co-movement of international equity prices has increased over time.
Asset markets in advanced economies have become integrated to a degree never seen before in the history of modern finance. This is especially true for global equities starting in the 1990s. We find that this increase in synchronization is primarily driven by fluctuations in risk-appetite rather than in risk-free rates, or in dividends. Moreover, we find that U.S. monetary policy plays a major role in explaining such fluctuations. This transmission channel affects economies with both fixed and floating exchange rates, although the effects are more muted in floating rate regimes.
Does macroprudential regulation spillover to foreign financial systems through inter-bank linkages? This question has received a lot of attention in recent years given the discord between the international nature of the global financial system and its regulation and supervision by national jurisdictions (e.g. this article). For example, subsidiaries of Spanish banks issue almost half of all credit issued by commercial banks in Mexico. These subsidiaries are also fully owned by their parent banks headquartered in Spain. Therefore, it is quite natural to ask whether macroprudential regulations in Spain can have unintended consequences on the Mexican financial system and the Mexican economy in general. While Mexican subsidiaries of Spanish banks are de-jure ring-fenced from regulations in Spain, does this hold de-facto?
Ambrogio Cesa-Bianchi , Chris Redl, Andrej Sokol and Gregory Thwaites
Volatile economic data or political events can lead to heightened uncertainty. This can then weigh on households’ and firms’ spending and investment decisions. We revisit the question of how uncertainty affects the UK economy, by constructing new measures of uncertainty and quantifying their effects on economic activity. We find that UK uncertainty depresses domestic activity only insofar as it is driven by developments overseas, and that other changes in uncertainty about the UK real economy have very little effect.