Adam Brinley Codd, Daniel Krause, Pierre Ortlieb and Alex Briers We both drive cars, but the US drives on the right while the UK drives on the left. We both walk, but we do so on sidewalks in the US and pavements in the UK. We both have asset managers, who want to take leveraged … Continue reading Leverage finds a way: a comparison of US Treasury basis trading and the LDI event
Financial Markets
Natalie Burr, Julian Reynolds and Mike Joyce Monetary policymakers have a number of tools they can use to influence monetary conditions, in order to maintain price stability. While central banks typically favour short-term policy rates as their primary instrument, when policy rates remained constrained at near-zero levels following the global financial crisis (GFC), many central … Continue reading To the lower bound and back: measuring UK monetary conditions
Alex Kontoghiorghes Do lower taxes lead to higher stock prices? Do companies consider tax rates when deciding on their dividend pay-outs and whether to issue new capital? If you’re thinking ‘yes’, you might be surprised to know that there was little real-world evidence (let alone UK-based evidence) which finds a strong link between personal investment … Continue reading Another reason to care about investment taxes
Ed Hill Once the stuff of science fiction, quantum technologies are advancing fast. Individual quantum computers are finding a range of applications, primarily driven by the immense speed-ups they offer over normal computers. And soon the nascent quantum internet should connect those isolated computers together. This blog post starts to think about what this new … Continue reading Schrodinger’s market: what the quantum internet could mean for the financial system
Julia Giese and Charlotte Grace In response to the global financial crisis, the Bank of England (BoE) began using Product-Mix Auctions (PMA) to provide liquidity insurance to financial institutions. The PMA, designed by Paul Klemperer, allows the quantity of funds lent against different types of collateral to react flexibly to the economic environment and market … Continue reading How auction design can make a difference: the case of the Bank’s Indexed Long-Term Repo Facility
Francesca Diluiso, Barbara Annicchiarico and Marco Carli While climate change is often seen as a long-term concern, climate mitigation policies can have different short-term effects, since they affect the transmission mechanism of conventional macroeconomic shocks. In a new working paper, we show that cap-and-trade schemes lead to lower volatility in GDP and financial variables, and … Continue reading Beyond emissions: the interplay of macroprudential regulation and climate policy
Yuliya Baranova, Eleanor Holbrook, David MacDonald, William Rawstorne, Nicholas Vause and Georgia Waddington The functioning of major government bond and related repo markets has deteriorated on several occasions in recent years as trading demand has overwhelmed dealers’ intermediation capacity. Seeking a remedy, Duffie (2020) proposes a study of the costs and benefits of a clearing … Continue reading Central clearing and the functioning of government bond markets
Saleem Bahaj, Robert Czech, Sitong Ding and Ricardo Reis Few topics captivate our attention like the enigma of inflation. Understanding where the market thinks inflation is headed is crucial for policymakers, investors, and anyone who wants to keep their financial ducks in a row. And that’s where inflation swaps come into play. They are like … Continue reading Decoding the market for inflation risk
Julian Oakland Exchange-traded funds (ETFs) are supposed to be simple and straightforward, and for the most part they are, but one group punches well above its weight when it comes to market impact. In this post, I show that leveraged and inverse (L&I) ETFs generate rebalancing flows that: (1) are always in the same direction … Continue reading Leveraged and inverse ETFs – the exotic side of exchange-traded funds
Nicholas Vause and Carolin Pflueger Recently, Pflueger, Siriwardane and Sunderam (2020) proposed a new measure of investor risk perceptions based on the cross-section of stock prices. Using that measure, they found that when risk perceptions are high, the cost of capital of risky firms is high and subsequently real investment and employment decline in the … Continue reading Risk perceptions and economic activity in the United Kingdom