Ricardo's threads | Nothing contributes so much to the prosperity and happiness of a country as high profits

Bank leverage constraints and bond market illiquidity during the COVID-19 crisis

11/24/2021 European Central Bank Central banks

The outbreak of the coronavirus (COVID-19) pandemic led to heightened uncertainty and a “dash-for-cash” in March 2020. Investors moved out of risky assets and into safe assets. The mutual fund sector in particular was hit by unprecedented investor redemptions and faced fire sale pressure as a result. Typically, banks that engage in securities trading – dealer banks – absorb such bond sales, supporting market liquidity, but regulation may limit their ability to do so by requiring them to maintain a certain leverage ratio.

Worrying about the US inflation outlook

11/19/2021 National Institute of Economic and Social Research UK

In October 2021, the US 12-month CPI inflation rate reached its highest level in the US since 1990, 6.2 per cent year-on-year. Pent-up demand and higher energy prices have been a major factor in the increase but supply chain shortages and increases in other commodity prices also explain more recent increases (see Sanchez Juanino, Macchiarelli and Naisbitt, 2021).

What next after the largest month on month rise in the CPI since April 1993

11/17/2021 National Institute of Economic and Social Research UK

CPI Inflation rose to 4.2% from the previous months 3.1%, slightly higher than we had expected. The anticipated twin effects of the increase in the OFGEM price cap and an increase in the VAT rate on hospitality (partially reversing the July 2020 reduction) both impacted the figure as did surging petrol and diesel prices. Since there was a base effect of 0% dropping out from September 2020, all the change in headline inflation in October arises from the new inflation in the month September to October 2021 which represents the largest month on month increase since April 1993.

CPI Inflation, September 2021

10/20/2021 National Institute of Economic and Social Research UK

CPI Inflation fell to 3.1% from the previous months 3.2%. Inflation was expected to fall as there was a “base effect” of -0.4% as the increase in inflation in August-September 2020 dropped out (this spike of 0.4% was partly due to the rebound from the Eat Out to Help Out and VAT cut in August 2020). However, in addition to this base effect, there was a significant element of new inflation, with prices rising by 0.3% between September and August. This followed from a very sharp rise of 0.7% in July-August.

How well do community evidence-based interventions scale up to other communities?

10/18/2021 National Institute of Economic and Social Research UK

In a previous blog, we wrote about the importance of establishing an evidence base for interventions and identified funding as a key issue. This has been exacerbated by the COVID-19 pandemic. How can services provide the best possible evidence-based interventions if the funding for service delivery and evaluation is not available?

Low rates and bank stability: the risk of a tipping point

10/14/2021 European Central Bank Central banks

Policy rates in advanced economies are unusually low. What effect does this have on bank stability? I identify two competing effects. On the one hand, low rates harm bank profits by squeezing interest margins. On the other hand, they boost the value of long-term assets held by banks. Using a standard banking model, I determine the policy rate level at which these two forces cancel each other out, i.e. the tipping point. Past this tipping point, the net effect of low rates on bank capital is negative.

Improving the recruitment of older workers

09/30/2021 National Institute of Economic and Social Research UK

With the close of the furlough scheme at the end of September, there are growing signs that older workers have remained stuck on furlough during the reopening while younger workers have returned comparatively swiftly to work.

As furlough comes to an end, recruitment procedures are not fit for purpose for older workers

09/28/2021 National Institute of Economic and Social Research UK

Johnny Runge (Senior Social Researcher, NIESR) & Rose Lasko-Skinner (Demos)
“I just feel that some people are of the opinion that you’re not fired up, you’re not ambitious. I think it’s hard for someone to understand that… I’m nearly 60, but I’m still ambitious.” – Interview participant, woman, 59, working in retail, Yorkshire and the Humber.

A novel risk management perspective for macroprudential policy

09/22/2021 European Central Bank Central banks

When considering the use of macroprudential instruments to manage financial imbalances, macroprudential policymakers face an intertemporal trade-off between facilitating short-term expected growth and containing medium-term downside risks to the economy. To assist policymakers in assessing this trade-off, in this article we propose a risk management framework which extends the well-known notion of growth-at-risk to consider the entire predictive real GDP growth distribution, with a view to quantifying the macroprudential policy stance.

Time for the Bank to Walk the Walk

09/17/2021 National Institute of Economic and Social Research UK

Lockdown ended on 19 July; the furlough will end on 30 September. The economy is set to reach its pre-pandemic activity level, but the Bank of England’s extreme monetary accommodation appears to go on forever. It is past time for the Bank to act to bolster its credibility and to act to avoid un-anchoring inflation expectations.

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