Summary of Quarterly Bulletin
Spring 2004
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 
(1.6M). |
|
|
Markets and operations
(258k) |
This article reviews developments since the Winter Quarterly Bulletin in sterling and global financial markets, UK market structure and the Bank's official operations. |
| 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. Durable spending, relative prices and consumption
(122k) (by John Power of the Bank's Structural Economic Analysis Division). In real terms, the growth of durable spending has substantially outpaced that of spending on other goods and services since the mid-1990s. But that gap largely reflects the effects of falling relative prices: nominal spending on durables and on non-durables has grown at similar rates during that period. This article uses a simple framework to assess the behaviour of the real and nominal ratio of durables to non-durable spending in the long run. It also considers the current position of the ratios in more detail and provides some assessment of how we might expect them to have evolved given prevailing cyclical factors. Asset pricing and the housing market
(100k) (by Olaf Weeken of the Bank's Monetary Instruments and Markets Division). House prices have risen rapidly in recent years. While there is little doubt that the rates of increase observed are unsustainable, there is uncertainty as to the sustainability of the level of house prices. This article applies asset-pricing theory to the housing market to gain additional insights into some of the factors accounting for this rise in house prices. It presents estimates of the ratio of house prices to net rentals (a concept close to an equity market's price to earnings ratio). This ratio is currently well above its long-term average, a situation that in the past has often been followed by periods in which real house prices have fallen. However, a simple 'dividend' discount model of the housing market suggests that lower real interest rates can account for part of the increase in the ratio of house prices to net rentals since 1996. Nevertheless, to account fully for this increase, the housing risk premium would need to have fallen too. Comparing the implied housing risk premium now with that in the late 1980s may suggest that house prices are closer to sustainable levels now than was the case in the late 1980s. However, because of data and model limitations no firm conclusions can be drawn. The relationship between the overnight interbank unsecured loan market and the CHAPS Sterling system
(77k) (by Stephen Millard and Marco Polenghi of the Bank's Market Infrastructure Division). This article uses data on CHAPS Sterling transactions to describe the segment of the unsecured overnight loan market that settles within CHAPS. It assesses the size, timing and importance of these transactions for the underlying payments infrastructure. Advances and repayments of overnight loans are estimated to have accounted for around 20% of CHAPS Sterling activity by value over our sample period; four CHAPS Sterling members send and receive virtually all payments corresponding to these loans; and, finally, the value of CHAPS Sterling payments associated with this market rises towards the end of the CHAPS day. How much does bank capital matter?
(99k) (by David Aikman and Gertjan Vlieghe of the Bank's Monetary Assessment and Strategy Division). In this article we consider how the composition of banks' balance sheets between capital and deposits affects the transmission of economic shocks. We use a small, stylised model of the economy to analyse under which conditions firms are unable to borrow as much as they would like from banks, and banks are unable to attract as many deposits as they would like from households. We show that, following shocks to aggregate productivity and bank net worth, the response of output in this model economy with credit constraints is both larger and longer-lasting than in a similar economy where credit constraints do not bind. This is because an adverse shock lowers bank capital, which constrains lending to firms and amplifies the fall in output; and it takes time for banks to rebuild their capital so it takes time for output to return to its initial level. We find that, in our model, only a small proportion of the fluctuations of output in response to productivity shocks is due to the bank capital channel, but this channel is more important when there are direct shocks to bank capital. |
| Reports | Measuring
total factor productivity for the United Kingdom
(99k) (by Charlotta Groth, Maria Gutierrez-Domenech and Sylaja Srinivasan of the Bank's Structural Economic Analysis Division). A good understanding of productivity growth is important for understanding aggregate supply capacity, and so for the conduct of monetary policy. To understand the sources of supply capacity well, it is important to measure output and factor inputs correctly. This article summarises recent and ongoing research at the Bank of England on improved measures of factor inputs. This work explicitly accounts for changes in the quality of these inputs and for the flow of services available from them, as well as for the costs of adjusting the level and utilisation of the inputs over time. This research was presented at a workshop on 'measuring factor inputs' held at the Bank of England in December 2003.
|
