Bank of England Working Papers -
Abstracts 1992 (no. 1-5)
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The following are brief abstracts of working papers. Those papers that are out of print are marked as such (oop). For details of how to obtain copies of working papers, both in and out of print, see the Working Papers main page.
You can also view the full text of working papers 23 and 24 (from 1994) and working papers since 1997 as PDF files, readable with the latest version of Adobe Acrobat (this is available free from Adobe's Website ). The working papers are listed with the most recent papers first.
Working Paper No 5 (oop)
“Financial Deregulation and Household Saving”
by Tamim
Bayoumi
An overlapping generation model of the effects of financial deregulation is developed. The results indicate that deregulation will produce an exogenous short-run fall in saving, some of which will be recouped over time, while increasing the sensitivity of saving to wealth, current income, real interest rates and demographic factors. Empirical tests using regional saving data for the United Kingdom are reported, and found to generally accord with the theoretical model. It is estimated that deregulation caused an autonomous fall of 2¼% in the personal saving rate of the United Kingdom over the 1980s.
Working Paper No 4 (oop)
“Testing for short-termism in the UK stock market”
by
David Miles
This paper uses data on the stock market valuations of a large sample of UK companies to assess if that market displays short-termism. Tests are undertaken of whether discount rates, implicit in market valuations, applied to cash flows which accrue in the longer term are too high, both absolutely and relative to the rates applied to cash flows in the near term. Prima facie evidence that these longer-term discount rates are too high is found, a result consistent with the existence of short-termism.
Working Paper No 3 (oop)
“Output, Productivity and Externalities - the Case of Banking”
by R J Colwell and E P Davis
Concepts in banking output, and the empirical literature on bank productivity - which employs output concepts - are critically surveyed. Related issues concerning externalities from banking activity, which entail a deviation of private from social measures of banking output, are outlined. For output, the national accounts, production and intermediation approaches are compared. As regards productivity, both partial and total factor productivity measures, and the DEA and parametric approaches to the latter are assessed. The externalities from banking are shown to include contributions to economic development, external economies of scale between institutions, and contagious effects of failures. Among the most striking results in the prevalence of technical inefficiency in banking. In addition, externality issues are rarely considered in combination nor assessed empirically. But more generally, it is also suggested that measurement techniques have often outpaced the theory of what is to be measured, notably in fields such as joint production, risk and competition. Alternative approaches to address these issues are suggested.
Working Paper No 2 (oop)
“Testing real interest parity in the European Monetary System”
by Andrew G Haldane and Mahmood Pradhan
Current discussions on Economic and Monetary Union (EMU) in Europe have stressed the need for enhanced integration of goods and factor markets as a pre condition of moving as costlessly as possible to a single currency system. The real interest differential - and hence tests of real interest parity - provide a summary measure of the degree of residual integration necessary such that these conditions are met. Empirical tests suggest a rejection of real interest parity among European Monetary System (EMS) member countries, at least during recent years. Further, a decomposition of the differential suggests that imperfect integration of goods markets, as reflected in a failure of ex-ante PPP, is largely responsible for this finding.
Working Paper No 1 (oop)
“Real
interest parity, dynamic convergence and the European Monetary System”
by Andrew G Haldane and Mahmood Pradhan
Is further economic convergence between European Monetary System (EMS) member countries desirable? This paper addresses some of the convergence issues currently being raised in the debate over Economic and Monetary Union (EMU) in Europe, with particular emphasis on the behaviour of real interest rates. The important distinction between static and dynamic convergence is highlighted. A standard analytical framework is presented which illustrates the importance of the components of the real interest differential - namely capital controls, risk premia and the real exchange rate - as endogenous mechanisms for the transmission of policy. As such, variations in the real interest differential are shown potentially to be important for ensuring dynamic convergence to a steady-state EMU.
