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Home > News and Publications > Summary of Quarterly Bulletin 2008 Q3

Summary of Quarterly Bulletin 2008 Q3

22 September 2008


Each article is available as a separate pdf file; click on the appropriate title to access the relevant file. Alternatively you may download the complete issue (3.9mb).

Recent economic and financial developments
Markets and operations (1.7mb)
This article reviews developments in sterling financial markets since the 2008 Q2 Quarterly Bulletin up to the end of August 2008. The article also reviews the Bank's official operations during this period.

Research and analysis
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.

Market expectations of future Bank Rate (588k)
By Michael Joyce and Andrew Meldrum of the Bank's Monetary Instruments and Markets Division.
This article discusses various financial instruments that can be used to infer the Bank Rate expectations of financial market participants and examines how well these measures have predicted Bank Rate in the past. It also examines the role of model-based and survey information in assessing financial market Bank Rate expectations. The article suggests that it is important to adjust market interest rates for credit, liquidity and term premia when inferring expectations. It finds that credit and liquidity premia can largely be accounted for, either through the choice of financial instrument or by making some simple adjustments. Although recent advances in term structure modelling provide some useful techniques for adjusting for term premia, there is considerable uncertainty about how robust they are. It remains prudent therefore not to rely on any one measure and instead to use a variety of methods and information for this purpose.

Globalisation, import prices and inflation:  how reliable are the 'tailwinds'? (425k)
By Alex Bowen and Karen Mayhew of the Bank's Monetary Analysis Division.
It is sometimes argued that increasing globalisation and openness to trade has exerted downward pressure on inflation in developed countries by, for example, reducing import prices. But, as recent experience of rising commodity prices suggests, globalisation may sometimes be associated with rising import prices. And, even when import prices were falling, the consequences for inflation depended on whether the changes in real incomes brought about were anticipated by households and how monetary policy reacted. Studies that neglect expectations and the role of monetary policy in determining inflation are likely to mismeasure the impact of globalisation on domestic inflation.

How has globalisation affected inflation dynamics in the United Kingdom? (438k)
By Jennifer Greenslade and Stephen Millard of the Bank’s Structural Economic Analysis Division and Chris Peacock of the Bank’s International Finance Division.
This article discusses how globalisation may influence the way inflation moves over the business cycle in the United Kingdom. Globalisation may do this by affecting how costs respond to changes in economic activity in the United Kingdom or by affecting how inflation responds to changes in costs. Some evidence is presented that suggests globalisation may have led to an increase in the importance of import prices relative to domestic economic activity in explaining changes in firms' costs. But, once this has been taken into account, the response of inflation to movements in costs does not appear to have changed over recent years. This suggests it is increasingly important to understand what drives movements in import prices, particularly given the rapid rise in global food and energy prices over the past year.

The economics of global output gap measures (492k)
By Misa Tanaka and Chris Young of the Bank’s International Economic Analysis Division.
The United Kingdom is a relatively small, open economy. The Monetary Policy Committee monitors global influences on UK costs and prices as part of its assessment of the outlook for CPI inflation. One suggested measure of these global influences is the global output gap, defined as the deviation of world demand from world potential supply. This article considers the relevance of such a measure in assessing global influences on UK costs and prices. It argues that there are a number of conceptual problems and measurement issues relating to the global output gap.

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