Summary of Quarterly Bulletin
May 1995

Research work published by the Bank is intended to contribute to debate, and is not necessarily a statement of Bank policy.

Bond yield changes in 1993 and 1994: an interpretation (46k)
(by Joe Ganley and Gilles Noblet of the Bank's Monetary Assessment and Strategy Division)
looks at a number of the explanations put forward for the turnaround in government bond markets, from their prolonged rally in 1993 to a protracted period of turbulence and reassessment for most of 1994. It presents the results of research exploring the role of monetary policy credibility in the yield changes over the two years.

Bond prices and market expectations of inflation (39k)
(by Francis Breedon)
describes the method-introduced last November-used for deriving from gilt prices the inflation expectations that appear regularly in the Inflation Report. It assesses how well the derived expectations would have predicted inflation in the past.

Inflation and economic growth (95k)
(by Professor Robert Barro)
presents results assessing the effect of inflation on economic performance. These suggest that an increase in average inflation of ten percentage points a year reduces the annual growth of real GDP per head by 0.2­0.3 percentage points and the ratio of investment to GDP by 0.4­0.6 percentage points. The article continues the Bulletin's occasional series of pieces by contributors from outside the Bank.

Risk measurement and capital requirements for banks (41k)
(by Patricia Jackson of the Regulatory Policy Division)
reviews developments in banks' use of statistically based tests to measure risks in both their traditional lending and borrowing, and their securities and derivatives trading, activities. It discusses how their increasing use is influencing the development of international capital standards.