Summary of Quarterly Bulletin 2010 Q1

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.

Interpreting equity price movements since the start of the financial crisis (760k)
By Mika Inkinen of the Bank's Foreign Exchange Division and Marco Stringa and Kyriaki Voutsinou of the Bank's Macro Financial Analysis Division.
Equity markets have experienced large price movements since the financial crisis began in mid-2007. Understanding the factors that drive equity prices is important for policymakers as they may contain information about the future course of the economy. This article uses a simple model to decompose recent equity price movements into changes in earnings expectations, the risk-free rate and the equity risk premium. Indicative evidence suggests that changes in earnings expectations can account for some, but by no means all, of the shifts in equity prices since mid-2007. Policy actions by central banks and governments are likely to have supported equity prices, for example by lowering government bond yields and reducing the likelihood of more severe downside risks to the economy materialising. The latter may also have contributed to a fall in the implied level of the equity risk premium, which had increased sharply during the financial crisis.

The Bank's balance sheet during the crisis (421k)
By Michael Cross of the Bank's Foreign Exchange Division, Paul Fisher, Executive Director Markets and Olaf Weeken of the Bank's Sterling Markets Division.
This article sets out how monetary policy implementation and liquidity provision during the financial crisis have affected the size and composition of the Bank of England's balance sheet. It extends and updates a recent speech by Paul Fisher, Executive Director Markets, and describes the main components of the Bank's balance sheet prior to and during the crisis.

Changes in output, employment and wages during recessions in the United Kingdom (523k)
By Renato Faccini and Christopher Hackworth of the Bank's Structural Economic Analysis Division.
Employment has fallen during this recession but by much less than the fall in output. This article examines how the behaviour of the labour market compares with previous recessions. A number of factors, including greater flexibility in real wages, may have helped to mitigate the fall in employment to date. But there is considerable uncertainty about how the labour market will evolve.

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