Summary of Quarterly Bulletin
Winter 2002
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 
(4.6M). |
|
| Markets
and operations
(190k) |
This article reviews developments in international and domestic financial markets, drawing on information from the Bank of England's market contacts, and describes the Bank's market operations in the period 23 August 2002 to 22 November 2002. |
| 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. What do measures of core inflation really tell us?
(102k) (by Alan Mankikar and Jo Paisley of the Bank's Conjunctural Assessment and Projections Division). Despite the widespread use of the term 'core inflation', there is neither a widely accepted theoretical definition, nor an agreed method of measuring it. The wide range of conceptual bases is potentially confusing, particularly when the measures display different trends. This article offers an overview of some of the issues. It examines how core inflation has been defined, sets out to what extent the concept might be useful for policy-makers and assesses the wide range of available measures in the United Kingdom. Estimating the impact of changes in employers' National Insurance Contributions on wages, prices and employment
(70k) (by Brian Bell, Jerry Jones and Jonathan Thomas of the Bank's Structural Economic Analysis Division). This article explains how changes in payroll taxes might affect real wages and employment. It then estimates the responses of relative wages, prices and employment to the changes in employers' National Insurance Contributions (NICs) that occurred in 1999. The empirical evidence is based on industry-level data and exploits valuable variation in the extent to which these changes in the payroll tax affected different industries. Equity valuation measures: what can they tell us?
(226k) (by Anne Vila Wetherilt and Olaf Weeken of the Bank's Monetary Instruments and Markets Division). This article examines the usefulness of summary statistics, such as the price-earnings ratio and the dividend yield, that are commonly used in valuing equity markets. But these measures are very sensitive to assumptions made about the (unobservable) equity risk premium, as well as to the precise definitions of earnings or dividends used in the calculations. This limits their usefulness as summary statistics of equity valuations. Profit expectations and investment
(64k) (by Seamus Mac Gorain of the Bank's Monetary Instruments and Markets Division and Jamie Thompson of the Bank's Structural Economic Analysis Division). This article examines the relationship between expectations of future profits and companies' physical investment. Theory suggests that increased profit expectations should raise share prices as well as investment. But this correlation between investment and share prices may be rather weak if investors' opinions of companies' prospects differ from those of the companies' managers. Using a simple aggregate investment equation, the article illustrates that measures of profit expectations based on current profits and analysts' earnings forecasts appear to be more informative for investment than stock prices themselves. This result is consistent with recent research at the Bank using company data. Financial pressures in the UK household sector: evidence from the British Household Panel Survey
(85k) (by Pru Cox, John Whitley and Peter Brierley of the Bank's Domestic Finance Division). Household indebtedness has risen rapidly in relation to incomes in recent years. But aggregate data cannot indicate which types of households-by age, income or wealth-have accumulated the most debts. This article uses information from the latest British Household Panel Survey (for the year 2000) to provide some evidence on that issue. The survey suggests that debt-to-income ratios vary widely across households. The youngest and lowest - income households increased their debt-to-income ratios by most-and from the highest levels - between 1995 and 2000. But the households with the highest absolute levels of debts tended also to have the highest incomes and net wealth in both years. A large proportion of this wealth was held in housing assets. Such households did not, however, hold substantially more liquid assets than less indebted households. Although households were relatively sanguine about their higher levels of debt, that confidence could be eroded if circumstances deteriorated. Overall, changes in the distribution of household debt in recent years suggest that the household sector may be somewhat more vulnerable to an adverse shock than the aggregate measures indicate. Money market operations and volatility in UK money market rates
(160k) (by Anne Vila Wetherilt of the Bank's Monetary Instruments and Markets Division). The Bank of England implements UK monetary policy by influencing short-term interest rates in its money market operations. The way in which the Bank operates in the market has changed significantly over time, but the aim throughout has been to ensure that the behaviour of short-term interest rates is consistent with monetary policy decisions, whether made by the Chancellor of the Exchequer or, since 1997, by the Bank's own Monetary Policy Committee. Operational choices by the central bank, together with developments in the markets themselves, are likely to have affected the volatility of short-term interest rates. This article outlines various measures of volatility in sterling money markets. |
| Reports | The
Centre for Central Banking Studies
(2.7M) (by Peter Sinclair, Director, Centre for Central Banking Studies). The Bank of England's Centre for Central Banking Studies (CCBS) conducts training, seminars and collaborative research with and for central banks in the rest of the world. It enjoys contact with some 150 of these, and now averages over 1,000 training contacts each year in all. The typical medium is a week-long course in London or abroad. These cover nearly all subjects of concern to central banks, with a growing emphasis, among other topics, on forecasting and econometric modelling for monetary policy. CCBS handbooks and other publications are read all over the world; some 8,000 electronic download requests for handbooks are received each month. The external balance sheet of the United Kingdom: recent developments
(98k) (by Robert Westwood of the Bank's Monetary and Financial Statistics Division and John Young of the Bank's Domestic Finance Division). The external balance sheet (or international investment position) gives the most complete picture of the stock position of a country in its financial transactions with the rest of the world. The very breadth of coverage of the data leads inevitably to problems of measurement and valuation. Nevertheless, subject to certain qualifications, the data can throw some light on macroeconomic and financial stability issues related to the United Kingdom's cross-border financial links. This article, one in an annual series, discusses the recent evolution of the United Kingdom's external balance sheet, reviewing along the way some of the main methodological issues that impinge on an interpretation of the data. It concludes that, despite a persistent current account deficit, the balance of probability is that the United Kingdom still has net external assets, or at least the capacity to generate net investment income from overseas. There are also some grounds for optimism that the structure of its assets and liabilities has left the United Kingdom in a fairly strong position to withstand financial shocks. Public sector debt: end-March 2002
(73k) (by Paul Burton of the Bank's Monetary and Financial Statistics Division). Public sector net debt (PSND) stood at £310.0 billion as at end-March 2002, £4.1 billion higher than at end-March 2001. This was equivalent to 30.4% of GDP, some 0.9 percentage points lower than at end-March 2001. This annual article examines the structure of the financial liabilities of the UK public sector. |
