Bank of England

Displaying 1-40 of 55 results

  • White Papers // Jun 2011

    Investment Adjustment Costs: An Empirical Assessment

    The authors evaluate the empirical evidence for costs that penalize changes in investment using U.S. industry data. In aggregate models, such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena. So far no attempt has been made to estimate these...

    Provided By Bank of England

  • White Papers // Apr 2011

    Cyclical Risk Aversion, Precautionary Saving And Monetary Policy

    This paper analyses the conduct of monetary policy in an environment in which cyclical swings in risk appetite affect households' propensity to save. It uses a New Keynesian model featuring external habit formation to show that taking note of precautionary saving motives justifies an accommodative policy bias in the face...

    Provided By Bank of England

  • White Papers // Apr 2011

    Global Rebalancing: The Macroeconomic Impact On The United Kingdom

    This paper considers the implications for the United States, the United Kingdom and the Rest Of the World (ROW) of shocks that may contribute to a further reduction in global current account imbalances using a Dynamic Stochastic General Equilibrium (DSGE) model. The authors consider a shock that increases domestic demand...

    Provided By Bank of England

  • White Papers // Dec 2010

    Extracting Information From Structured Credit Markets

    Structured credit instruments offer an insight into markets' perceptions of the extent of future credit defaults. Claims of different seniorities incur losses only if defaults reach different magnitudes, so their relative value offers an insight into the likelihood of losses being of different severities. This paper matches the traded values...

    Provided By Bank of England

  • White Papers // Dec 2010

    Forecasting In The Presence Of Recent Structural Change

    The authors examine how to forecast after a recent break. They consider monitoring for change and then combining forecasts from models that do and do not use data before the change; and robust methods, namely rolling regressions, forecast averaging over different windows and Exponentially Weighted Moving Average (EWMA) forecasting. They...

    Provided By Bank of England

  • White Papers // Nov 2010

    Monetary Policy, Capital Inflows And The Housing Boom

    A range of hypotheses have been put forward to explain the boom in house prices that occurred in the United States from the mid-1990s to 2007. This paper considers the relative importance of two of these hypotheses. First, global imbalances increased liquidity in the US financial system, driving down long-term...

    Provided By Bank of England

  • White Papers // Oct 2010

    The Impact Of Payment Splitting On Liquidity Requirements In RTGS

    This paper examines the impact that payment splitting could have upon the liquidity requirements and efficiency of a large-value payment system, such as the United Kingdom's CHAPS. Using the Bank of Finland Payment and Settlement Simulator and real UK payments data the authors find that payment splitting could reduce the...

    Provided By Bank of England

  • White Papers // Oct 2010

    Monetary Policy Rules And Foreign Currency Positions

    Using an endogenous portfolio choice model, this paper examines how different monetary policy regimes can lead to different foreign currency positions by changing the cyclical properties of the nominal exchange rate. The authors find that strict inflation-targeting regimes are associated with a short position in foreign currency, while the opposite...

    Provided By Bank of England

  • White Papers // Oct 2010

    DSGE Model Restrictions For Structural VAR Identification

    The identification of reduced-form VAR model had been the subject of numerous debates in the literature. Different sets of identifying assumptions can lead to very different conclusions in the policy debate. This paper proposes a theoretically consistent identification strategy using restrictions implied by a DSGE model. Monte Carlo simulations suggest...

    Provided By Bank of England

  • White Papers // Oct 2010

    Changes In The Transmission Of Monetary Policy: Evidence From A Time-Varying Factor-Augmented VAR

    This paper re-examines the evolution of the US monetary transmission mechanism using an empirical framework that incorporates substantially more information than the standard tri-variate VAR model used in most previous studies. The formulation has two substantive advantages over earlier work: the additional information summarized by the common factors that are...

    Provided By Bank of England

  • White Papers // Aug 2010

    The Financial Market Impact Of Quantitative Easing

    As part of its response to the global banking crisis and a sharp downturn in domestic economic prospects, the Bank of England's Monetary Policy Committee (MPC) began a program of large-scale asset purchases in March 2009, with the aim of injecting additional money into the economy and so increasing nominal...

    Provided By Bank of England

  • White Papers // Jul 2010

    Liquidity-Saving Mechanisms And Bank Behaviour

    This paper investigates the effect of Liquidity-Saving Mechanisms (LSMs) in interbank payment systems. The authors model a stylized two-stream payment system where banks choose how much liquidity to post and which payments to route into each of two 'Streams': the RTGS stream, and an LSM stream. Looking at equilibrium choices...

    Provided By Bank of England

  • White Papers // Jul 2010

    Liquidity Costs And Tiering In Large-Value Payment Systems

    This paper develops and simulates a model of the emergence of networks in an interbank, RTGS payment system. A number of banks, faced with random streams of payment orders, choose whether to link directly to the payment system, or to use a correspondent bank. Settling payments directly on the system...

    Provided By Bank of England

  • White Papers // Jul 2010

    The Sterling Unsecured Loan Market During 2006 - 08: Insights From Network Theory

    The authors model the unsecured overnight market in the United Kingdom as a network of relationships and examine how the structure has changed over the recent period of crisis. Using established network techniques, they find strong evidence of the existence of a core of highly connected banks alongside a periphery....

    Provided By Bank of England

  • White Papers // Jul 2010

    Evolving Macroeconomic Dynamics In A Small Open Economy: An Estimated Markov-Switching DSGE Model For The United Kingdom

    This paper carries out a systematic investigation into the possibility of structural shifts in the UK economy using a Markov-switching Dynamic Stochastic General Equilibrium (DSGE) model. The authors find strong evidence for shifts in the structural parameters of several equations of the DSGE model. In addition, the results indicate that...

    Provided By Bank of England

  • White Papers // Jul 2010

    Using Estimated Models To Assess Nominal And Real Rigidities In The United Kingdom

    This paper aims to contribute to the understanding of inflation dynamics in the United Kingdom by estimating two dynamic stochastic general equilibrium models and assessing the role of nominal and real rigidities within them. The authors first obtain an empirical representation of the monetary transmission mechanism in the United Kingdom...

    Provided By Bank of England

  • White Papers // Jul 2010

    New Insights Into Price-Setting Behaviour In The United Kingdom

    It is important to understand how companies set prices, since price-setting behavior plays a key role in the monetary policy transmission mechanism. Many surveys have been conducted in a range of countries to shed light on this issue by asking companies directly about how they set prices. This paper reviews...

    Provided By Bank of England

  • White Papers // Jul 2010

    How Do Individual UK Producer Prices Behave?

    This paper examines the behavior of individual producer prices in the United Kingdom, and uncovers a number of stylized facts about pricing behavior. First, on average 26% of producer prices change each month, although there is considerable heterogeneity between sectors and price changes occur less frequently when measured by the...

    Provided By Bank of England

  • White Papers // Jun 2010

    Time-Varying Inflation Expectations And Economic Fluctuations In The United Kingdom: A Structural VAR Analysis

    This paper examines how the interaction between inflation expectations and nominal and real macroeconomic variables has evolved for the United Kingdom over the post-WWII period until 2007. The authors model time-variation through a Markov-switching structural vector autoregressive framework with variants of the sign restriction identification scheme to back out the...

    Provided By Bank of England

  • White Papers // Jun 2010

    Deep Habits And The Cyclical Behaviour Of Equilibrium Unemployment And Vacancies

    The authors extend the standard textbook search and matching model by introducing deep habits in consumption. The cyclical fluctuations of vacancies and unemployment in the model can replicate those observed in the US data, with labor market tightness being 20 times more volatile than consumption. Vacancies display a hump-shaped response...

    Provided By Bank of England

  • White Papers // Jun 2010

    Technology Shocks, Employment And Labour Market Frictions

    Recent empirical evidence suggests that a positive technology shock leads to a decline in labor inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labor market frictions address this problem, without otherwise altering the functioning of the model? The authors develop...

    Provided By Bank of England

  • White Papers // Jun 2010

    Liquidity-Saving Mechanisms In Collateral-Based RTGS Payment Systems

    This paper studies banks' incentives regarding the timing of payment submissions in a collateral-based RTGS payment system and how these incentives change with the introduction of a Liquidity-Saving Mechanism (LSM). The authors show that an LSM allows banks to economize on collateral while also providing incentives to submit payments earlier....

    Provided By Bank of England

  • White Papers // Jun 2010

    An Economic Capital Model Integrating Credit And Interest Rate Risk In The Banking Book

    Banks often measure credit and interest rate risk separately and then add the two risk measures to determine their overall economic capital. This approach misses complex interactions between the two risks. The authors develop a framework where credit and interest rate risks are analyzed jointly. They focus on a traditional...

    Provided By Bank of England

  • White Papers // Mar 2010

    Shocks To Bank Capital: Evidence From Uk Banks At Home And Away

    This paper assesses how shocks to bank capital may influence a bank's portfolio behavior using novel evidence from a UK bank panel data set from a period that pre-dates the recent financial crisis. Focusing on the behavior of bank loans, the authors extract the dynamic response of a bank to...

    Provided By Bank of England

  • White Papers // Mar 2010

    Evolving UK Macroeconomic Dynamics: A Time-Varying Factor Augmented VAR

    Changes in monetary policy and shifts in dynamics of the macro economy are typically described using empirical models that only include a limited amount of information. Examples of such models include time-varying vector auto regressions that are estimated using output growth, inflation and a short-term interest rate. This paper extends...

    Provided By Bank of England

  • White Papers // Mar 2010

    Imperfect Credit Markets: Implications For Monetary Policy

    The authors develop a model for monetary policy analysis that features significant feedback from asset prices to macroeconomic quantities. The feedback is caused by credit market imperfections, which dynamically affect how efficiently labor and capital are being used in aggregate. The paper offers three insights. First, the monetary transmission mechanism...

    Provided By Bank of England

  • White Papers // Mar 2010

    The Geographical Composition Of National External Balance Sheets: 1980 - 2005

    This paper constructs a data set on stocks of bilateral external assets and liabilities for a group of 18 countries, including developed and emerging economies. The data set covers the years 1980 to 2005 and distinguishes between four asset classes: foreign direct investment, portfolio equity, debt, and foreign exchange reserves....

    Provided By Bank of England

  • White Papers // Mar 2010

    Contagion In Financial Networks

    This paper develops an analytical model of contagion in financial networks with arbitrary structure. The authors explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure, and asset market liquidity. The findings suggest that financial systems exhibit a robust-yet-fragile tendency:...

    Provided By Bank of England

  • White Papers // Mar 2010

    Time-Varying Dynamics Of The Real Exchange Rate. A Structural VAR Analysis

    This paper is to explore the evolution of real exchange rate dynamics over time. The authors use a time-varying structural vector auto regression to investigate the role of demand, supply and nominal shocks and consider their impact on and contribution to fluctuations in, the real exchange rate, output growth and...

    Provided By Bank of England

  • White Papers // Mar 2010

    All Together Now: Do International Factors Explain Relative Price Comovements?

    Recent research has found evidence of increasing co movement in CPI inflation rates across industrialized countries. This paper considers whether this can be attributed to greater global integration of product markets. To examine this question, the authors build a data set of 28 matched product category price indices for fourteen...

    Provided By Bank of England

  • White Papers // Mar 2010

    Evaluating And Estimating A DSGE Model For The United Kingdom

    The authors build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In an attempt to put this approach on a more formal basis, they estimate the model in two stages. First, they evaluate a...

    Provided By Bank of England

  • White Papers // Mar 2010

    Household Debt, House Prices And Consumption In The United Kingdom: A Quantitative Theoretical Analysis

    Household debt and house prices in the United Kingdom rose substantially between 1987 and 2006. In this paper the authors use a calibrated overlapping generation's model of the household sector to examine the extent to which changes in demographics, lower inflation, and a lower long-run real interest rate may explain...

    Provided By Bank of England

  • White Papers // Feb 2010

    International Credit Constraints, Trade And Financial Markets Linkages And The Output Correlation Puzzle Preliminary, Do Not Cite Or Circulate

    Do open economy models with credit constraints resolve the output correlation puzzle? Building on Deverex & Yetman (2009), the authors develop a two good open economy model with international credit constraints that features both strong cross-border trade as well as - financial linkages. They show how endogenous movements in the...

    Provided By Bank of England

  • White Papers // Nov 2009

    Do Supermarket Prices Change From Week To Week?

    This paper examines the behavior of supermarket prices in the United Kingdom, using weekly scanner data supplied by Nielsen. A number of stylized facts about pricing behavior are uncovered. This paper adds to that exploratory effort, and examines how prices behave for around 280 products in 240 different supermarkets across...

    Provided By Bank of England

  • White Papers // Nov 2009

    International Spillover Effects And Monetary Policy Activism

    This paper examines how the preferences of a large economy's central bank affect the trade-off between output and inflation volatility faced by the central bank of a small open economy by analyzing the impact of a global cost-push shock. The authors demonstrate that under the assumption of producer currency pricing,...

    Provided By Bank of England

  • White Papers // Nov 2009

    Endogenous Choice Of Bank Liquidity: The Role Of Fire Sales

    Banks' liquidity is a crucial determinant of the adversity of banking crises. In this paper, the authors consider the effect of fire sales and entry during crises on banks' ex-ante choice of liquid asset holdings. They consider a setting with limited pledgeability of risky cash flows relative to safe ones...

    Provided By Bank of England

  • White Papers // Aug 2009

    Inflation Dynamics With Labour Market Matching: Assessing Alternative Specifications

    This paper reviews recent approaches to modeling the labor market, and assesses their implications for inflation dynamics through both their effect on marginal cost and on price-setting behavior. In a search and matching environment, the authors consider the following modeling set-ups: right-to-manage bargaining versus efficient bargaining, wage stickiness in new...

    Provided By Bank of England

  • White Papers // Aug 2009

    How Do Different Models Of Foreign Exchange Settlement Influence The Risks And Benefits Of Global Liquidity Management?

    Large, international banking groups have sought to centralize their cross-currency liquidity management: liquidity shortages in one currency are financed using liquidity surpluses in another currency. The nature of risks to financial stability emerging from global liquidity management depends on how these foreign exchange transactions settle. The authors analyze these risks...

    Provided By Bank of England

  • White Papers // Aug 2009

    International Financial Transmission: Emerging And Mature Markets

    With an increasingly integrated global financial system, the authors frequently observe that shocks to individual asset markets affect financial markets worldwide. The aim of this paper is to quantify the co movements between bond markets in the US and emerging market economies using daily data from prior to the East...

    Provided By Bank of England

  • White Papers // Jul 2009

    Asset Pricing Implications Of A New Keynesian Model

    To match the stylized facts of goods and labor markets, the canonical New Keynesian model augments the optimizing neoclassical growth model with nominal and real rigidities. The authors ask what the implications of this type of model are for asset prices. Using a second-order approximation, they examine bond and equity...

    Provided By Bank of England

  • White Papers // Dec 2010

    Extracting Information From Structured Credit Markets

    Structured credit instruments offer an insight into markets' perceptions of the extent of future credit defaults. Claims of different seniorities incur losses only if defaults reach different magnitudes, so their relative value offers an insight into the likelihood of losses being of different severities. This paper matches the traded values...

    Provided By Bank of England

  • White Papers // Dec 2010

    Forecasting In The Presence Of Recent Structural Change

    The authors examine how to forecast after a recent break. They consider monitoring for change and then combining forecasts from models that do and do not use data before the change; and robust methods, namely rolling regressions, forecast averaging over different windows and Exponentially Weighted Moving Average (EWMA) forecasting. They...

    Provided By Bank of England

  • White Papers // Nov 2010

    Monetary Policy, Capital Inflows And The Housing Boom

    A range of hypotheses have been put forward to explain the boom in house prices that occurred in the United States from the mid-1990s to 2007. This paper considers the relative importance of two of these hypotheses. First, global imbalances increased liquidity in the US financial system, driving down long-term...

    Provided By Bank of England

  • White Papers // Oct 2010

    The Impact Of Payment Splitting On Liquidity Requirements In RTGS

    This paper examines the impact that payment splitting could have upon the liquidity requirements and efficiency of a large-value payment system, such as the United Kingdom's CHAPS. Using the Bank of Finland Payment and Settlement Simulator and real UK payments data the authors find that payment splitting could reduce the...

    Provided By Bank of England

  • White Papers // Oct 2010

    Monetary Policy Rules And Foreign Currency Positions

    Using an endogenous portfolio choice model, this paper examines how different monetary policy regimes can lead to different foreign currency positions by changing the cyclical properties of the nominal exchange rate. The authors find that strict inflation-targeting regimes are associated with a short position in foreign currency, while the opposite...

    Provided By Bank of England

  • White Papers // Oct 2010

    DSGE Model Restrictions For Structural VAR Identification

    The identification of reduced-form VAR model had been the subject of numerous debates in the literature. Different sets of identifying assumptions can lead to very different conclusions in the policy debate. This paper proposes a theoretically consistent identification strategy using restrictions implied by a DSGE model. Monte Carlo simulations suggest...

    Provided By Bank of England

  • White Papers // Oct 2010

    Changes In The Transmission Of Monetary Policy: Evidence From A Time-Varying Factor-Augmented VAR

    This paper re-examines the evolution of the US monetary transmission mechanism using an empirical framework that incorporates substantially more information than the standard tri-variate VAR model used in most previous studies. The formulation has two substantive advantages over earlier work: the additional information summarized by the common factors that are...

    Provided By Bank of England

  • White Papers // Jul 2010

    Liquidity-Saving Mechanisms And Bank Behaviour

    This paper investigates the effect of Liquidity-Saving Mechanisms (LSMs) in interbank payment systems. The authors model a stylized two-stream payment system where banks choose how much liquidity to post and which payments to route into each of two 'Streams': the RTGS stream, and an LSM stream. Looking at equilibrium choices...

    Provided By Bank of England

  • White Papers // Jul 2010

    Liquidity Costs And Tiering In Large-Value Payment Systems

    This paper develops and simulates a model of the emergence of networks in an interbank, RTGS payment system. A number of banks, faced with random streams of payment orders, choose whether to link directly to the payment system, or to use a correspondent bank. Settling payments directly on the system...

    Provided By Bank of England

  • White Papers // Jul 2010

    The Sterling Unsecured Loan Market During 2006 - 08: Insights From Network Theory

    The authors model the unsecured overnight market in the United Kingdom as a network of relationships and examine how the structure has changed over the recent period of crisis. Using established network techniques, they find strong evidence of the existence of a core of highly connected banks alongside a periphery....

    Provided By Bank of England

  • White Papers // Jul 2010

    Evolving Macroeconomic Dynamics In A Small Open Economy: An Estimated Markov-Switching DSGE Model For The United Kingdom

    This paper carries out a systematic investigation into the possibility of structural shifts in the UK economy using a Markov-switching Dynamic Stochastic General Equilibrium (DSGE) model. The authors find strong evidence for shifts in the structural parameters of several equations of the DSGE model. In addition, the results indicate that...

    Provided By Bank of England

  • White Papers // Jul 2010

    Using Estimated Models To Assess Nominal And Real Rigidities In The United Kingdom

    This paper aims to contribute to the understanding of inflation dynamics in the United Kingdom by estimating two dynamic stochastic general equilibrium models and assessing the role of nominal and real rigidities within them. The authors first obtain an empirical representation of the monetary transmission mechanism in the United Kingdom...

    Provided By Bank of England

  • White Papers // Jul 2010

    New Insights Into Price-Setting Behaviour In The United Kingdom

    It is important to understand how companies set prices, since price-setting behavior plays a key role in the monetary policy transmission mechanism. Many surveys have been conducted in a range of countries to shed light on this issue by asking companies directly about how they set prices. This paper reviews...

    Provided By Bank of England

  • White Papers // Jul 2010

    How Do Individual UK Producer Prices Behave?

    This paper examines the behavior of individual producer prices in the United Kingdom, and uncovers a number of stylized facts about pricing behavior. First, on average 26% of producer prices change each month, although there is considerable heterogeneity between sectors and price changes occur less frequently when measured by the...

    Provided By Bank of England

  • White Papers // Aug 2010

    The Financial Market Impact Of Quantitative Easing

    As part of its response to the global banking crisis and a sharp downturn in domestic economic prospects, the Bank of England's Monetary Policy Committee (MPC) began a program of large-scale asset purchases in March 2009, with the aim of injecting additional money into the economy and so increasing nominal...

    Provided By Bank of England

  • White Papers // Jun 2010

    Time-Varying Inflation Expectations And Economic Fluctuations In The United Kingdom: A Structural VAR Analysis

    This paper examines how the interaction between inflation expectations and nominal and real macroeconomic variables has evolved for the United Kingdom over the post-WWII period until 2007. The authors model time-variation through a Markov-switching structural vector autoregressive framework with variants of the sign restriction identification scheme to back out the...

    Provided By Bank of England

  • White Papers // Jun 2010

    Deep Habits And The Cyclical Behaviour Of Equilibrium Unemployment And Vacancies

    The authors extend the standard textbook search and matching model by introducing deep habits in consumption. The cyclical fluctuations of vacancies and unemployment in the model can replicate those observed in the US data, with labor market tightness being 20 times more volatile than consumption. Vacancies display a hump-shaped response...

    Provided By Bank of England

  • White Papers // Jun 2010

    Technology Shocks, Employment And Labour Market Frictions

    Recent empirical evidence suggests that a positive technology shock leads to a decline in labor inputs. However, the standard real business model fails to account for this empirical regularity. Can the presence of labor market frictions address this problem, without otherwise altering the functioning of the model? The authors develop...

    Provided By Bank of England

  • White Papers // Jun 2010

    Liquidity-Saving Mechanisms In Collateral-Based RTGS Payment Systems

    This paper studies banks' incentives regarding the timing of payment submissions in a collateral-based RTGS payment system and how these incentives change with the introduction of a Liquidity-Saving Mechanism (LSM). The authors show that an LSM allows banks to economize on collateral while also providing incentives to submit payments earlier....

    Provided By Bank of England

  • White Papers // Jun 2010

    An Economic Capital Model Integrating Credit And Interest Rate Risk In The Banking Book

    Banks often measure credit and interest rate risk separately and then add the two risk measures to determine their overall economic capital. This approach misses complex interactions between the two risks. The authors develop a framework where credit and interest rate risks are analyzed jointly. They focus on a traditional...

    Provided By Bank of England

  • White Papers // Mar 2010

    Shocks To Bank Capital: Evidence From Uk Banks At Home And Away

    This paper assesses how shocks to bank capital may influence a bank's portfolio behavior using novel evidence from a UK bank panel data set from a period that pre-dates the recent financial crisis. Focusing on the behavior of bank loans, the authors extract the dynamic response of a bank to...

    Provided By Bank of England

  • White Papers // Mar 2010

    Evolving UK Macroeconomic Dynamics: A Time-Varying Factor Augmented VAR

    Changes in monetary policy and shifts in dynamics of the macro economy are typically described using empirical models that only include a limited amount of information. Examples of such models include time-varying vector auto regressions that are estimated using output growth, inflation and a short-term interest rate. This paper extends...

    Provided By Bank of England

  • White Papers // Mar 2010

    Imperfect Credit Markets: Implications For Monetary Policy

    The authors develop a model for monetary policy analysis that features significant feedback from asset prices to macroeconomic quantities. The feedback is caused by credit market imperfections, which dynamically affect how efficiently labor and capital are being used in aggregate. The paper offers three insights. First, the monetary transmission mechanism...

    Provided By Bank of England

  • White Papers // Mar 2010

    The Geographical Composition Of National External Balance Sheets: 1980 - 2005

    This paper constructs a data set on stocks of bilateral external assets and liabilities for a group of 18 countries, including developed and emerging economies. The data set covers the years 1980 to 2005 and distinguishes between four asset classes: foreign direct investment, portfolio equity, debt, and foreign exchange reserves....

    Provided By Bank of England

  • White Papers // Mar 2010

    Contagion In Financial Networks

    This paper develops an analytical model of contagion in financial networks with arbitrary structure. The authors explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure, and asset market liquidity. The findings suggest that financial systems exhibit a robust-yet-fragile tendency:...

    Provided By Bank of England

  • White Papers // Mar 2010

    Time-Varying Dynamics Of The Real Exchange Rate. A Structural VAR Analysis

    This paper is to explore the evolution of real exchange rate dynamics over time. The authors use a time-varying structural vector auto regression to investigate the role of demand, supply and nominal shocks and consider their impact on and contribution to fluctuations in, the real exchange rate, output growth and...

    Provided By Bank of England

  • White Papers // Mar 2010

    All Together Now: Do International Factors Explain Relative Price Comovements?

    Recent research has found evidence of increasing co movement in CPI inflation rates across industrialized countries. This paper considers whether this can be attributed to greater global integration of product markets. To examine this question, the authors build a data set of 28 matched product category price indices for fourteen...

    Provided By Bank of England

  • White Papers // Mar 2010

    Evaluating And Estimating A DSGE Model For The United Kingdom

    The authors build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In an attempt to put this approach on a more formal basis, they estimate the model in two stages. First, they evaluate a...

    Provided By Bank of England

  • White Papers // Mar 2010

    Household Debt, House Prices And Consumption In The United Kingdom: A Quantitative Theoretical Analysis

    Household debt and house prices in the United Kingdom rose substantially between 1987 and 2006. In this paper the authors use a calibrated overlapping generation's model of the household sector to examine the extent to which changes in demographics, lower inflation, and a lower long-run real interest rate may explain...

    Provided By Bank of England

  • White Papers // Nov 2009

    Do Supermarket Prices Change From Week To Week?

    This paper examines the behavior of supermarket prices in the United Kingdom, using weekly scanner data supplied by Nielsen. A number of stylized facts about pricing behavior are uncovered. This paper adds to that exploratory effort, and examines how prices behave for around 280 products in 240 different supermarkets across...

    Provided By Bank of England

  • White Papers // Jun 2011

    Investment Adjustment Costs: An Empirical Assessment

    The authors evaluate the empirical evidence for costs that penalize changes in investment using U.S. industry data. In aggregate models, such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena. So far no attempt has been made to estimate these...

    Provided By Bank of England

  • White Papers // Apr 2011

    Cyclical Risk Aversion, Precautionary Saving And Monetary Policy

    This paper analyses the conduct of monetary policy in an environment in which cyclical swings in risk appetite affect households' propensity to save. It uses a New Keynesian model featuring external habit formation to show that taking note of precautionary saving motives justifies an accommodative policy bias in the face...

    Provided By Bank of England

  • White Papers // Apr 2009

    Labour Market Flows: Facts From The United Kingdom

    In this paper the author uses the Labor Force Survey to obtain stylized facts about worker gross flows in the United Kingdom. The author analyses the size and cyclicality of the flows between employment, unemployment and inactivity. The author also examines job-to-job flows, employment separations by reason, flows between inactivity...

    Provided By Bank of England

  • White Papers // Apr 2009

    Common Determinants Of Currency Crises: Role Of External Balance Sheet Variables

    This paper investigates the role of external balance sheet variables as determinants of currency crises in Emerging Market (EME) and advanced economies. A random effect probit model is used in a panel of 40 countries with monthly data over the January 1980 - December 2004 period. The main results of...

    Provided By Bank of England

  • White Papers // Mar 2009

    Foreign Exchange Rate Risk In A Small Open Economy

    Resolving the forward premium puzzle requires a volatile foreign exchange rate risk premium that covaries negatively with the expected depreciation rate. Earlier work has shown how models featuring consumption habits can generate such premia when either trade costs or 'Deep habits' are assumed. The authors show that as long as...

    Provided By Bank of England

  • White Papers // Mar 2009

    What Lies Beneath: What Can Disaggregated Data Tell Us About The Behaviour Of Prices?

    This paper uses a factor-augmented vector auto regression technique to examine the role that macroeconomic and sector-specific factors play in UK price fluctuations at the aggregate and disaggregated levels. Macroeconomic factors are less important for disaggregated prices than aggregate ones. There also appears to be significant aggregation bias - the...

    Provided By Bank of England

  • White Papers // Mar 2009

    Dynamics Of The Term Structure Of UK Interest Rates

    This paper models the evolution of monetary policy, the term structure of interest rates and the UK economy across policy regimes. The authors model the interaction between the macro economy and the term structure using a time-varying VAR model augmented with the factors from the yield curve. The results suggest...

    Provided By Bank of England

  • White Papers // Feb 2009

    Output Costs Of Sovereign Crises: Some Empirical Estimates

    Avoiding the broader output losses to their economy is likely to be the key reason why governments avoid debt crises. Despite this, there has been little work that seeks to quantify output losses associated with such crises. This paper seeks to fill this gap. The authors find that debt crisis...

    Provided By Bank of England

  • White Papers // Feb 2009

    Why Do Risk Premia Vary Over Time? A Theoretical Investigation Under Habit Formation

    Empirical evidence suggests that risk premia are higher at business cycle troughs than they are at peaks. Existing asset pricing theories ascribe moves in risk premia to changes in volatility or risk aversion. Nevertheless, in a simple general equilibrium model, risk premia can be procyclical even though the volatility of...

    Provided By Bank of England

  • White Papers // Feb 2009

    Extracting Inflation Expectations And Inflation Risk Premia From The Term Structure: A Joint Model Of The UK Nominal And Real Yield Curves

    This paper analyses the nominal and real interest rate term structures in the United Kingdom over the fifteen-year period that the UK monetary authorities have pursued an explicit inflation target, using a four-factor essentially affine term structure model. The model imposes no-arbitrage restrictions across nominal and real yields, enabling to...

    Provided By Bank of England