Research

with Thomas D Smith
International Journal of Central Banking, Vol 13, Number 3, September 2017

Assessing vulnerabilities to financial shocks
with Jack Fisher
Bank of England Staff Working Paper 636, 2016

Secular drivers of the global real interest rate
with Thomas D Smith
Bank of England Staff Working Paper 571, 2015

Abstract: Long-term real interest rates across the world have fallen by about 450 basis points over the past 30 years. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which secular trends could have driven such a fall. Although there is huge uncertainty, under plausible assumptions we think we can account for around 400 of the 450bps fall. Our quantitative analysis highlights slowing global growth as one force that may have pushed down on real rates recently, but shifts in saving and investment preferences appear more important in explaining the long-term decline. We think the global saving schedule has shifted out in recent decades due to demographic forces, higher inequality and to a lesser extent the glut of precautionary saving by emerging markets. Meanwhile, desired levels of investment have fallen as a result of the falling relative price of capital, lower public investment, and due to an increase in the spread between risk-free and actual interest rates. Moreover, most of these forces look set to persist and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at (or slightly below) 1% in the medium to long run. If true, this will have widespread implications for policymakers — not least in how to manage the business cycle if monetary policy is frequently constrained by the zero lower bound.

Coverage:

James Hamilton in Econbrowser

Vice Chairman Stanley Fischer speech

Gavyn Davies' blog

Martin Wolf's blog

Larry Summers' blog (also in the FT and Washington Post

Brad Delong's blog

Niall Ferguson in The Sunday Times

David Smith in The Sunday Times 

Brookings Hitchins Roundup

Stephen Williamson New Monetarist Economics

The Corner 

Macrothoughts

Tyler Cowen's Marginal Revolution

Timothy Taylor's Conversable Economist

Nick Bunker - Washington Centre for Equitable Growth

Quick take:

VoxEU column 

Bank Underground part 1

Bank Underground part 2

Centre for Macro Discussion Paper - executive summary


How have world shocks affected the UK economy?
with Shiv Chowla and Lucia Quaglietti
Bank of England Quarterly Bulletin, Q2, 2014

Abstract: The UK economy is closely integrated into the wider global economy. These ties mean that global developments affect the economic fortunes of the United Kingdom. This article presents model-based estimates which suggest that world shocks have driven around two thirds of the weakness in UK output since 2007. Trade linkages are an important channel for the transmission of world shocks to the UK economy. But financial linkages and spillovers through uncertainty are significant, too — and together are likely to account for the majority of the impact of world shocks on the United Kingdom since 2007.

Coverage:

Ben Broadbent speech: the UK economy and the world economy

Quick take:

VoxEU column

Understanding the macroeconomic effects of working capital in the United Kingdom
with Emilio Fernandez-Corugedo, Michael McMahon and Stephen Millard
Bank of England Working Paper no. 422, 2011

Abstract: In this paper we first document the behaviour of working capital over the business cycle stressing the large negative effect of the recent credit contraction on UK firms working capital positions. In order to understand the effects of working capital on macroeconomic variables, we solve and calibrate an otherwise standard flexible price DSGE model that introduces an explicit role for the components of working capital as well as a banking sector which intermediates credit. We find that financial intermediation shocks, similar to those experienced post-2007, have persistent negative effects on economic activity; these effects are reinforced by reductions in trade credit. Our model admits a crucial role for monetary policy to offset such shocks.

The impact of the financial crisis on supply
with Andrew Benito, Katharine Neiss and Simon Price
Bank of England Quarterly Bulletin, Q2, 2010

Abstract: Output fell sharply in the United Kingdom during the recent global financial crisis, some of which is likely to have reflected a contraction in the economy’s supply capacity. This article considers the impact of financial crises on supply and the potential channels through which supply may have been affected during the recent recession. It is likely that the downturn has resulted in a fall in companies’ effective supply capacity although the magnitude of that impairment is difficult to gauge.