| 2011 Q3 |
The United Kingdom’s quantitative easing policy: design, operation and impact  (166k)
By Michael Joyce, Matthew Tong and Robert Woods of the Bank’s Macro Financial Analysis Division.
In response to the intensification of the financial crisis in Autumn 2008, the Bank of England, in common with other central banks, loosened monetary policy using both conventional and unconventional policy measures. In the United Kingdom, the principal element of these unconventional measures was the policy of asset purchases financed by central bank money, so-called quantitative easing (QE). Over the period March 2009 to January 2010, £200 billion of assets were purchased, overwhelmingly made up of government securities, representing around 14% of annual GDP. This article reviews the motivation for these central bank asset purchases and describes how they were implemented. It goes on to review a range of evidence for the impact of the asset purchases made to date, both on financial markets and more widely on the economy. While there is considerable uncertainty about the magnitudes, the evidence suggests that QE asset purchases have had economically significant effects. |
| 2011 Q1 |
Understanding the recent weakness in broad money growth (120k)
By Jonathan Bridges, Neil Rossiter and Ryland Thomas of the Bank’s Monetary Assessment and Strategy Division.
The growth of broad money in the UK economy has slowed dramatically since the start of the recession. In part, that weakness reflects reduced borrowing by households and companies during the recession. But money balances held by asset managers also fell as deposits were used to purchase new equity and long-term debt issued by the banking sector in response to the financial crisis. Offsetting the weakness from these two factors was the programme of asset purchases — so-called ‘quantitative easing’ or QE — conducted by the Bank of England on behalf of the Monetary Policy Committee, which boosted broad money holdings. The evidence from the monetary data suggests that the programme of asset purchases contributed to an increase in asset prices and, ultimately, an increase in nominal demand in the economy, corroborating other evidence from financial market prices. |
| 2010 Q4 |
The history of the Quarterly Bulletin (92k)
By Richard Windram of the Bank’s Inflation Report and Bulletin Division and John Footman, Secretary of the Bank.
This edition marks the 50th anniversary of the Quarterly Bulletin. Over the years, the Bulletin has been one of the main conduits through which the Bank has communicated its thinking to the wider public. This article reviews the history of the Bulletin — both its origins and its subsequent evolution — as well as examining some of the insights that can be gleaned from its pages on some of the key central banking issues of the time. |
| 2010 Q3 |
Monetary Policy Roundtable (38k)
On 14 July, the Bank of England and the Centre for Economic Policy Research hosted the fourth Monetary Policy Roundtable. These events are intended to provide a forum for economists to discuss key issues affecting the design and operation of monetary policy in the United Kingdom. As always, participants included a range of economists from private sector financial institutions, academia and public sector bodies. At this fourth Roundtable there were four discussion topics: what have we learnt about inflation dynamics? quantifying the effects of quantitative easing; global prospects and the impact on the UK economy; and monetary and fiscal policy. |
| 2009 Q2 |
Quantitative easing (378k)
By James Benford, Stuart Berry, Kalin Nikolov and Chris Young of the Bank's Monetary Analysis Division and Mark Robson of the Bank's Notes Division.
The Monetary Policy Committee's recent decision to expand the money supply through large-scale asset purchases (or 'quantitative easing') shifted the focus of monetary policy towards the quantity of money as well as the price of money. With Bank Rate close to zero, asset purchases should provide an additional stimulus to nominal spending and so help meet the inflation target. This should come about through their impact on asset prices, expectations and the availability of credit. However, there is considerable uncertainty about the strength and pace with which these effects will feed through. That will depend in part on what sellers do with the money they receive in exchange for the assets they sell to the Bank of England and the response of banks to the additional liquidity they obtain. The MPC will be monitoring a range of indicators in order to assess the impact of its asset purchases and therefore judge the appropriate stance of monetary policy. |
| 2007 Q3 |
Interpreting movements in broad money (638k)
By Stuart Berry, Richard Harrison, Ryland Thomas and Iain de Weymarn of the Bank's Monetary Analysis Division.
Understanding the role of money in the economy has always been an important issue for policymakers. And the pickup in broad money growth and decline in credit spreads over the past three years together with more recent financial market turbulence has made it a particularly pertinent issue. Monetary data can potentially provide important corroborative or incremental information about the outlook for inflation. But understanding the possible implications of money for the economic outlook requires a detailed assessment of the causes of money growth. Such an assessment must recognise the interactions between money and credit creation and the information contained in both price and quantity data. This article provides an overview of the potential channels through which money growth may affect inflation and the Bank's current empirical approach to analysing developments in monetary aggregates.
Proposals to modify the measurement of broad money in the United Kingdom: a user consultation (521k)
By Stephen Burgess and Norbert Janssen of the Bank's Monetary and Financial Statistics Division.
The concept of money traditionally relates to goods or assets that are generally accepted as media of exchange. In practice, there is considerable disagreement about how money should be measured. To ensure its measure of broad money remains relevant, the Bank regularly reviews the theoretical and practical basis of its definition of M4, as part of its long-term research programme. This article explains the Bank's analysis undertaken over the past year, in which a key issue has been to question whether the present boundary between the money-creating and the money-holding sectors is still appropriate. The Bank proposes to move that boundary in a few places, to address some changes that have taken place in the global financial system in recent years. In most other respects, the Bank's measure of broad money will be unaffected, as there are no compelling reasons for further modifications. The Bank welcomes readers' views on the proposals discussed in this article, by the end of December. |
| Summer 2006 |
Cost-benefit analysis of monetary and financial statistics (181k)
By Andrew Holder of the Bank's Monetary and Financial Statistics Division.
Data collected by the Bank of England from UK banks are used in compiling a range of economic statistics published by the Bank, the Office for National Statistics and other organisations. These data help the Bank maintain monetary and financial stability, and contribute to many other economic analyses. But data collection inevitably imposes some costs on those supplying the information. This article describes a cost-benefit analysis (CBA) framework that has been developed to help balance the demands on data suppliers with the needs of users. It sets out some of the practical solutions employed in applying CBA to monetary and financial statistics and early results of the project. |
| Autumn 2005 |
Long-run evidence on money growth and inflation (675k)
By Luca Benati of the Bank’s Monetary Assessment and Strategy Division.
We investigate the correlation between inflation and the rates of growth of narrow and broad money in the United Kingdom since the 19th century. Empirical evidence points towards a remarkable stability across monetary regimes in the correlation for longer-run trends in the data, but some instability in the short to medium term. Additional evidence from the United States confirms the overall stability of the correlation for the longer-run trends.
Publication of narrow money data: the implications of money market reform (286k)
By Norbert Janssen of the Bank’s Monetary and Financial Statistics Division and Peter Andrews of the Bank’s Monetary Assessment and Strategy Division.
The published M0 series comprises notes and coin in circulation and bankers’ operational balances at the Bank of England, with the latter accounting for a very small part of the whole. As part of the money market reforms to be introduced in 2006, banks and building societies will be able to hold interest-bearing reserve accounts at the Bank of England that will be much larger than their former operational balances. After the reform, the Bank plans to discontinue publication of M0 and instead publish separate series for notes and coin in circulation and banks’ and building societies’ reserves. |
Spring
2005 |
Divisia
money
(116k)
By Matthew Hancock of the Bank's Monetary Assessment and
Strategy Division.
This article reviews the Bank's measure
of Divisia money - a gauge of the money supply that gives
greatest weight to those components most used in transactions
- and explains some recent changes to its calculation. These
changes aim to make the Bank's series more theoretically
appealing and to make use of some recently developed statistics.
Five improvements have been made. First, a new approach
has been introduced to determine the benchmark interest
rate. Second, new effective interest rate data have been
incorporated. Third, the level of aggregation has been changed
slightly. Fourth, non break-adjusted levels are now used
as the denominator in the Divisia calculation. Finally,
a series for aggregate Divisia excluding other financial
corporations, and a set of monthly series, have been introduced.
In this article we begin with a discussion of the purpose
of Divisia money, then we set out the changes that have
been made, and the motivation behind them. Throughout we
describe the impact of the changes on the Bank's series. |
| Summer 2004 |
Assessing
the stability of narrow money demand in the United Kingdom
(179k)
By Kathryn Grant, Gertjan Vlieghe and Andrew Brigden of
the Bank's Monetary Assessment and Strategy Division.
It
is widely accepted that the introduction of cash-saving
technologies, such as credit and debit cards, and the growing
network of automated teller machines (ATMs) contributed
to a prolonged upward shift in narrow money velocity towards
the end of the 20th century. This article considers whether
this upward shift might plausibly have come to an end. First,
it presents data on four distinct manifestations of financial
innovation, and asks whether the pace of change in each
might have slowed. Second, it uses time-series data stretching
back more than 100 years to present estimates of the demand
for narrow money during different time periods. It finds
tentative evidence that, since the early 1990s, narrow money
velocity has been a broadly stable function of the short-term
rate of interest. |
| Autumn 2003 |
The optimal rate of inflation: an academic perspective
(80k)
By Peter Sinclair, Houblon-Norman Fellow and Professor
of Economics at the University of Birmingham.
In an economy
free of all imperfections, inflation should be slightly
negative. Prices should keep dropping, at the real rate
of interest. Any higher rate of sustained inflation (or
lower deflation) would reduce the benefits from holding
real money. Central banks typically aim for modest positive
inflation, however. This article explores five types of
imperfection: inertia in nominal prices, the need for distorting
taxes, market power for retail banks, the value of the option
to cut nominal interest rates in bad times, and menu costs.
It concludes that the combined effect of these imperfections
is in practice likely to justify a small positive rate of
inflation. |
| Spring 2003 |
Monetary
policy and the zero bound to nominal interest rates
(93k)
By Tony Yates of the Bank's Monetary Assessment and Strategy
Division.
Some commentators have recently discussed the
possibility that certain countries may experience a period
of general price deflation. In such a situation, nominal
interest rates may reach their lower bound of zero. This
article concludes that the evidence available suggests that
such a situation is highly unlikely to occur in the United
Kingdom. It reviews what the academic literature has to
say about the scope for alternatives to cutting interest
rates in the improbable event that nominal interest rates
do reach zero. |
| Autumn 2002 |
Money
and credit in an inflation-targeting regime
(85k)
By Andrew Hauser and Andrew Brigden of the Bank's Monetary
Assessment and Strategy Division.
This article is one of
a series on the UK monetary policy process. It discusses
how the assessment of money and credit data fits into the
Bank's quarterly forecast round. Monetary statistics are
available more rapidly than most other economic data and
provide early information on the near-term economic outlook.
The analysis on money and credit might be used to adjust
some output of the Bank's macroeconometric model. It could
also help the MPC to assess the risks around its central
projections, reflected in the inflation and GDP fan charts. |
| Summer 2002 |
No
money, no inflation—the role of money in the economy
(177k)
In this article, Mervyn King, Deputy Governor, examines
the apparent contradiction that the acceptance of the idea
inflation is a monetary phenomenon has been accompanied
by the lack of references to money in the conduct of monetary
policy during its most successful period. The disappearance
of money from the models used by economists is, however,
more apparent than real, with official interest rates playing
the leading role as the instrument of policy, with money
in the wings off-stage. Nevertheless, there are real dangers
in relegating money to this behind-the-scenes role. |
| Summer 2001 |
Explaining
the difference between the growth of M4 deposits and M4
lending: implications of recent developments in public
finances
(74k)
By John Power and Peter Andrews of the Bank's Monetary
Assessment and Strategy Division.
The growth of sterling
lending by UK monetary financial institutions to the UK
private sector has substantially exceeded the growth of
UK private sector sterling deposits over the past two
years. This article considers the possible influence on
this growth differential of two events in the past financial
year: the unexpected extent of the Government's cash surplus;
and the assumption by the Debt Management Office of responsibility
for government cash management. The article also describes
how the gap between sterling lending and deposits was
financed over the past two years.
Although monetary aggregates are no longer officially
targeted for monetary policy purposes, analysis of these
quantities plays an important role in the Bank's regular
assessment of the outlook for inflation.
In its regular monetary policy analysis, the Bank primarily
examines the banking sector's sterling liabilities and
assets with the UK private sector. These quantities, known
as M4 deposits (M4) and M4 lending (M4L) respectively,
constitute a sub-section of the banking sector's overall
balance sheet. The Bank focuses on M4 and M4L in particular
(rather than the overall levels of banking sector deposits
and lending) because, given that these quantities are
country and currency-specific, they would be expected
to relate closely to UK economic activity.
The first section of this article sets out the formal
definition of M4 and its accounting relationship with
the banking sector's balance sheet counterparts. The second
section outlines how the new government cash management
arrangements could affect the monetary statistics. The
third section details the Government's cash surplus in
2000/01 and its monetary implications. The fourth section
accounts for the difference between M4 and M4L growth
in 2000/01. |
| May 2000 |
Money,
lending and spending: a study of the UK non-financial corporate
sector and households
(64k)
By Andrew Brigden of the Bank's Stuctural Economic Analysis
Division, Alec Chrystal of the Bank's Monetary Assessment
and Strategy Division and Paul Mizen, consultant to the
Bank's Monetary Assessment and Stategy Division.
Many empirical
studies over the past three decades or so have reported
estimates of the determinants of consumption, investment
and the demand for money. This article summarises recent
Bank work that seeks to understand more fully the demand
for bank and building society loans, and the interactions
between these borrowings and the demand for money and decisions
to consume and invest. This work aims to enhance our understanding
of the links between the monetary sector and real spending
decisions.
The main aim of this article is to assess whether the
data on bank and building society lending to private non-financial
corporations (PNFCs) and households contain information
that could improve our understanding of the links between
monetary policy and aggregate demand.
The article demonstrates that it is possible to estimate
relationships that explain lending to firms and households,
and that lending is driven by the same factors that drive
the more intensively researched categories of money demand,
consumption and investment. The results have improved
our understanding of the links between money and credit
and the spending decisions of households and firms. There
do appear to be significant interactions between lending
to firms and households, and money, consumption and investment.
The estimated system of equations potentially gives a
framework that helps us to interpret the likely impact
of observed credit growth on future spending. These estimates
are tentative and require further empirical verification.
Notwithstanding these reservations, channels that involve
credit as well as money balances appear to matter for
the transmission mechanism of monetary policy. |
| May 1997 |
The information in money (42k)
By Mark
S Astley of the Bank's Structural Economic Analysis Division
and Andrew G Haldane of the Bank's Monetary Assessment and
Strategy Division.
The monetary and credit aggregates are
among many indicators used to consider future prospects
for inflation. This article assesses the information contained
in money and credit about future real activity and inflation.
Some of the sectoral components of money and credit are
found to have explanatory power over certain disaggregated
components of spending. But none of the aggregates is sufficiently
reliable to justify looking only at money when formulating
an inflation assessment. |
| November 1996 |
The demand for Divisia money by the personal sector and by industrial and commercial companies (44k)
By Norbert Janssen of the Bank's Monetary Assessment and Strategy Division.
This article updates previous Bank analysis of Divisia money. It assesses the demand for Divisia money by the personal sector and by industrial and commercial companies (ICCs). Divisia money weights the component assets of M4 according to an estimate of the transactions services they provide. As an index of total liquidity in the economy Divisia might therefore be more closely related to spending than simple-sum monetary aggregates. The article concludes that a sectoral analysis of Divisia money can contain important information about future spending. |
| May 1996 |
Understanding broad money (95k)
By Ryland Thomas of the Bank's Monetary Assessment and Strategy Division.
Broad money is at the heart of the monetary transmission mechanism and consequently plays an important role in the assessment of inflationary pressures. This article examines the factors behind stronger broad money and credit growth in 1995, using recent econometric research undertaken at the Bank.
Seasonal adjustment of UK monetary aggregates (17k)
By Marco Bianchi of the Bank's Monetary Instruments and Markets Division.
This note describes a study recently published by the Bank on ways to adjust monetary aggregates for seasonal variation. |
| February 1996 |
Can we explain the shift in M0 velocity? Some time-series and
cross-section evidence (88k)
By Norbert Janssen of Monetary Assessment & Strategy Division.
The steady upward trend in narrow money velocity in the United Kingdom slowed in the 1990s, coinciding with fewer cash-saving financial innovations and lower inflation. |
| February 1995 |
Influences on broad money growth (52k)
By Chris Salmon of the Bank’s Monetary Assessment and Strategy Division.
Reviews the evolution of the role of broad money indicators in the monetary policy framework, and considers the factors currently influencing the growth of M4-focusing on the effects of disintermediation and balance-sheet restructuring. It compares the UK position with recent trends in Australia, Canada and the United States. |
| February 1994 |
The determination of M0 and M4
By Francis Breedon and Paul Fisher of Economics Division summarises recent
Bank research on M0 and M4. The research confirms the leading
indicator properties of M0, and in explaining M4's behaviour,
underlines the importance of the role of wealth and of a
sectoral approach. It also suggests that there may be benefits
in the simultaneous estimation of equations for consumption
and personal sector M4 holdings. |