Summary of Quarterly Bulletin
May 1997

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

Comparing the monetary transmission mechanism in France, Germany and the United Kingdom: some issues and results (142k)
(by Erik Britton and John Whitley of the Bank's Conjunctural Assessment and Projections Division).
In this article, Erik Britton and John Whitley analyse the importance of structural differences between the economies of the United Kingdom, France and Germany for the response of output and prices to changes in monetary policy. They review previous studies and report results from a complementary empirical approach, summarising the evidence as inconclusive. They argue that some of the commonly cited differences are not really structural and that even where they are, they do not automatically imply that one economy will be more sensitive than another to a change in monetary policy.

Economic models and policy-making (46k)
(by John Whitley of Conjunctural Assessment and Projections Division).
In this article, John Whitley describes and evaluates the role of macroeconomic models at the Bank of England in the process of policy advice. He outlines how large macroeconometric models were used in the 1970s and 1980s; the reasons why they did not meet the needs of policy-makers; and how the need to incorporate uncertainty about the workings of the economy into policy-making has led to a more eclectic and judgmental approach to models at the Bank of England.

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.

Features of a successful contract: financial futures on LIFFE (47k)
(by Allison Holland and Anne Fremault Vila of the Bank's Markets and Trading Systems Division).
The success of a futures contract, defined as its long-term survival, has generally been linked to the existence of a large and volatile spot market and to a design that makes the contract highly effective for hedging purposes. This article examines the importance of these and other factors, using data on the financial futures contracts introduced by LIFFE between 1982 and 1994.

The first year of the gilt repo market (95k)
The gilt repo market began in January 1996, and in March 1997 the Bank started conducting daily money-market operations in gilt repo. This article reviews the growth and structure of the market, looks at the uses of gilt repo that have contributed to this growth, and describes its impact on the gilt market and the sterling money markets in terms of greater liquidity, lower financing costs, improved hedging opportunities, and the development of a liquid market in secured money.

The gilt-edged market: the Bank of England's relationship with the gilt-edged market makers and inter-dealer brokers (28k)
The Bank of England announced in December 1996 that it would no longer require the gilt-edged market makers (GEMMs), its counterparties in the gilt market, to be separately capitalised firms. This change, which took effect from 3 March 1997, allows firms to merge their specialist gilt-edged market-making subsidiary into their main operating entity if they so wish. The Bank's counterparties must, however, continue to satisfy a range of obligations. The paper sets out these obligations and the facilities available to market makers. The paper also covers the role in the gilt market of the inter-dealer brokers, who provide a service to the GEMMs and continue to be subject to supervision by the Bank.

The Bank of England's operations in the sterling money markets (19k)
On 3 March the Bank introduced reforms to its daily operations in the sterling money markets, through which it implements monetary policy. The changes relate to the mechanics of its day-to-day operations in the money markets; they do not alter its basic approach to implementing monetary policy, which remains to manage short-term interest rates through open market operations. This article describes the arrangements for the Bank's money-market operations, including those aspects which have not been changed.

Executive summary of the single monetary policy in Stage 3 (15k)
This is a summary published by the European Monetary Institute (EMI) of its report on the alternative strategies for conduct of a single monetary policy by the European System of Central Banks (ESCB) in Stage 3 of Monetary Union. This follows the article in the previous edition of the Quarterly Bulletin which gave the Bank's views on the EMI's proposals for the operational framework.

The financing of technology-based small firms: an update (19k)
(by Adrian Piper and Melanie Lund of the Bank's Business Finance Division).
In October 1996, the Bank published a report on the problems faced by technology-based small firms. A summary of the main findings and recommendations was published in the February Quarterly Bulletin. This article outlines recent discussion of this issue and highlights areas where the Bank intends to carry out further work.