Quarterly Bulletin
Productivity Articles
| Spring 2004 | 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. 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. |
| Summer 2003 | Assessing
the extent of labour hoarding
(103k) (by Guillermo Felices of the Bank's Structural Economic Analysis Division). The strength of employment during the recent slowdown is sometimes taken as evidence of labour hoarding. But the extent of such hoarding is difficult to measure. This article reviews different definitions of labour hoarding and a variety of ways of measuring it using aggregate data. Most of these measures indicate that labour has been underutilised during the recent slowdown, implying that firms have indeed hoarded labour to some extent. However, the magnitude of the reduction in utilisation differs across these measures. The evidence also suggests that the recent decrease in utilisation has been limited compared with previous episodes in which labour utilisation was significantly below trend. |
| Autumn 2002 | Ageing
and the UK economy
(66k) (by Garry Young of the Bank's Domestic Finance Division). This article argues that overall living standards in the United Kingdom are set to double over the next 50 years alongside a sharp increase in the proportion of people over retirement age. While there are clear risks to this outlook, these would be present even without demographic change. Nevertheless an ageing population does appear to increase the risks to the financial welfare of individuals, especially in their old age. If people living longer do not save more when they are working, then either they have to consume less in their old age or work for longer than would have been the case had greater provision been made for retirement. This risk is heightened by general uncertainty about asset returns which becomes more important as the number of people reliant on private pensions increases. |
| Autumn 2001 | Capital
flows and exchange rates |
| Summer 2001 | Has there
been a structural improvement in US productivity?
(85k) (by Stuart Berry of the Bank's International Economic Analysis Division and David England of the Bank's Monetary Assessment and Strategy Division). Annual labour productivity growth in the United States has averaged 2.8% a year since 1996, compared with an average rate of 1.6% during the preceding 25 years. This marked increase in productivity growth has been a key component of what many commentators have suggested is a 'new economy'. Given the US slowdown since the second half of 2000, a key question is the extent to which these gains reflect structural improvements, rather than cyclical factors. The evidence so far points towards a large role for structural improvements in productivity. If these gains prove to be more cyclical, however, this would have important implications for corporate performance, financial markets and, ultimately, output and inflation. |
