Publications

The Effects of Macroprudential Policy on Banks' Profitability

Despite the importance of profitability to banks’ growth and stability, there have, to our knowledge, been no studies which assess the effect of macroprudential regulation on banks’ profitability, a key aspect of the transmission of macroprudential measures. We seek to fill this lacuna with...

The Fed’s enhanced swap lines and new interventions in the Treasury market

In March 2020, the Federal Reserve enhanced its existing swap lines with foreign central banks, and introduced additional temporary swap lines with other central banks, in order to support the smooth functioning of U.S. dollar funding markets during the coronavirus epidemic. The Federal Reserve...

Brexit and the Euro

The year 2019 marked the 20th anniversary of the establishment of the Euro. It was also the last full year before the UK formally left the European Union. This paper examines the relationship between the UK and the euro area. We look at the economic distance between core and periphery groups of...

What does leadership look like in schools and does it matter for school performance?

We consider the role played by school leaders in improving pupil attainment, going beyond previous studies by exploring the leadership roles of deputy and assistant heads and classroom-based teachers with additional leadership responsibilities. Using panel data for state-funded secondary schools in...

Below the Aggregate: A Sectoral Account of the UK Productivity Puzzle

Publication date: 18 Oct 2019 | Publication type: NIESR Discussion Paper | Theme: Trade, Investment & Productivity | NIESR Author(s): Riley, R, Rincon-Aznar, A, Samek, L | JEL Classification: E22, E23, L60, L70, L80, L90, O47 | NIESR discussion paper number: 508

We analyse new industry-level data to re-examine the UK productivity puzzle. We carry out an accounting exercise that allows us to distinguish general macroeconomic patterns from sector trends and idiosyncrasies, providing a roadmap for anyone interested in explaining the puzzle. We focus on the UK...

The evolution of tax implicit value judgements, redistribution and income inequality in the UK: 1968 to 2015

An issue of interest in the literature that explores the drivers of inequality is the distributional bearing of tax and transfer policy, where an important theme concerns changes in the relative treatment of alternative population subgroups. We develop an empirical approach for quantifying the...

A Century of High Frequency UK Macroeconomic Statistics: A Data Inventory

This paper provides an inventory of the available macroeconomic statistics in the UK for the last hundred years or so. The focus is on documenting the higher frequency (daily, monthly and quarterly) macroeconomic data that are available after the World War 1, rather than longer run annual time...

The Indeterminacy Agenda in Macroeconomics

This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by...

Tax Policy for Innovation

A large number of countries around the world now provide some kind of tax incentive to encourage firms to undertake innovative activity. This paper presents the policy rationale for these incentives, discusses their design and potential effectiveness, and reviews the empirical evidence on their...

Some International Evidence for Keynesian Economics Without the Phillips Curve

Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-Model outperforms the three-equation New-Keynesian (NK)-model in post war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-...

Nominal GDP growth indexed bonds: Business Cycle and Welfare Effects within the Framework of New Keynesian DSGE model

We examine the welfare effects of GDP-indexed bonds in a New Keynesian DSGE model. We add to a literature showing that the issuance of GDP-indexed bond may help stabilise public debt and so give more room for countercyclical fiscal policy, by conducting a careful general equilibrium welfare...

Distressed Banks, Distorted Decisions?

Exploiting differences in pre-crisis business banking relationships, we present evidence to suggest that restricted credit availability following the 2008 financial crisis increased the rate of business failure in the United Kingdom. But rather than "cleansing” the economy by accelerating the exit...

A Comparison of Earnings Related to Higher Level Vocational/Technical and Academic Education

We use the earliest cohort of English secondary school leavers with newly available Longitudinal Education Outcomes data (622,000 pupils in 2002/03) to compare earnings of people with higher vocational/technical qualifications to those of degree holders. The unusually rich data allow us to estimate...

The Bank Capital-Competition-Risk Nexus - A Global Perspective

The Global Financial Crisis (GFC) highlighted the importance of a number of unresolved empirical issues in the field of financial stability. First, there is the sign of the relationship between bank competition and financial stability. Second, there is the relation of capital adequacy of banks to...

Bank Leverage Ratios, Risk and Competition - An Investigation Using Individual Bank Data

Following experience in the global financial crisis (GFC), when banks with low leverage ratios were often in severe difficulty, despite high-risk-adjusted capital measures, a leverage ratio was introduced in Basel III to complement the risk-adjusted capital ratio (RAR). Empirical testing of the...

The Impact of the Introduction of the National Living Wage on Employment, Hours and Wages

Publication date: 21 Feb 2019 | Publication type: NIESR Discussion Paper | Theme: Employment & Social policy | NIESR Author(s): Aitken, A, Dolton, P, Riley, R | NIESR discussion paper number: 501

In 2015 the UK government announced the introduction of a new ‘National Living Wage’ (NLW) that would apply to those aged 25 and above from April 2016. At a rate of £7.20, this represented a significant increase of 7.5% over the existing National Minimum Wage (NMW) rate. Previous research has...

The Fiscal Theory of the Price Level in Overlapping Generations Models

We demonstrate that the Fiscal Theory of the Price Level (FTPL) cannot be used to determine the price level uniquely in the overlapping generations (OLG) model. We provide two examples of OLG models, one with three 3-period lives and one with 62-period lives. Both examples are calibrated to an...

Monetary and Exchange Rate Policies for Sustained Growth in Asia

The more advanced economies in Asia are experiencing slower growth rates. Structural reforms are the most important policies for keeping growth rates up, but this paper takes the growth slowdown as given and focuses on implications for monetary policy. The key policy implication is the importance...

Young people’s education choices and progression to Higher Education; A comparison of A-Level and Non-A-Level students in Key Stage 5, their subject choices and transitions to university

This study analyses students’ choices when leaving Key Stage 4 (KS4) to Key Stage 5 (KS5) for pupils progressing to either academic A-Level or vocational “Non-A-Level” Level 3 programmes. Using school-level data (published by the Department for Education) and linked administrative data, which...

Understanding and Confronting Uncertainty: Revisions to UK Government Expenditure Plans

We develop a simple model that motivates fiscal stabilisation policy, in the presence of economic and control uncertainty. An examination of a real-time database of economic variables and forecasts shows that our knowledge of the current and future state of the economy is subject to significant...

Real-time Forecast Combinations for the Oil Price

Baumeister and Kilian (2015) combine forecasts from six empirical models to predict real oil prices. In this paper, we broadly reproduce their main economic findings, employing their preferred measures of the real oil price and other real-time variables. Mindful of the importance of Brent crude oil...

Is Football a Matter of Life and Death – Or is it more Important than that?

Football is the national sport of most of the planet. This paper examines how happy the outcomes of football matches make us. We calibrate these results relative to other activities and estimate the dynamic effects these exogenous events have on our utility over time. We find that football – on...

The Lack of Wage Growth and the Falling NAIRU

There remains a puzzle around the world over why wage growth is so benign given the unemployment rate has returned to pre-recession levels. It is our contention that a considerable part of the explanation is the rise in underemployment which rose in the Great Recession but has not returned to pre-...

The Role of Financial Policy

I review the contribution and influence of Milton Friedman’s 1968 presidential address to the American Economic Association. I argue that Friedman’s influence on the practice of central banking was profound and that his argument in favour of monetary rules was responsible for thirty years of low...

Implementing Macroprudential Policy in NiGEM

In this paper we incorporate a macroprudential policy model within a semi-structural global macroeconomic model, NiGEM. The existing NiGEM model is expanded for the UK, Germany and Italy¹ to include two macroprudential tools: loan-to-value ratios on mortgage lending and variable bank capital...

Effects of asset purchases and financial stability measures on term premia in the euro area

We study the effects of the announcements of ECB asset purchases and of financial stability measures in the euro area in the wake of the global financial crisis and the euro area sovereign debt crisis on ten-year government bond term premia in eleven euro area countries. We find that the term...

The Impact of Management Practices on SME Performance

We examine the impact of management practices on firm performance among SMEs in Britain over the period 2011-2014, using a unique dataset which links survey data on management practices with firm performance data from the UK’s official business register. We find that SMEs are less likely to use...

The Household Fallacy

We refer to the idea that government must ‘tighten its belt’ as a necessary policy response to higher indebtedness as the household fallacy. We provide a reason to be skeptical of this claim that holds even if the economy always operates at full employment and all markets clear. Our argument rests...

Consumption Dynamics, Housing Collateral and Stabilisation Policies: A Way Forward for Policy Co-Ordination?

We decompose aggregate consumption of heterogeneous consumers by modelling both savers and their links to collateral constrained borrowers through a bank which prices credit risk. Savers own both firms and the commercial bank while borrowers require loans from the commercial bank to effect their...

Pricing Assets in a Perpetual Youth Model

Publication date: 31 Jan 2018 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Farmer, R | NIESR discussion paper number: 485

This paper constructs a general equilibrium model where asset price fluctuations are caused by random shocks to beliefs about the future price level that reallocate consumption across generations. In this model, asset prices are volatile, and price-earnings ratios are persistent, even though there...

Did Central Banks Cause The Last Financial Crisis? Will They Cause The Next?

Recent history suggests that raising interest rates higher than warranted by macroeconomic prospects would not be the right policy for financial stability. The significant tightening of monetary policies in the advanced economies from mid-2004 to mid-2006 failed to stop increased risk-taking in the...

Peer Effects and Social Influence in Post-16 Educational Choice

This paper investigates whether the educational choices that young people make after the completion of their GCSEs (at age 16) are influenced by their peers. More specifically, it takes advantage of the variation in peer groups that arises when students move from primary to secondary school in...

Central bank swap lines and CIP deviations

We study the use of US dollar central bank swap lines as a tool for addressing dislocations in the foreign currency swap market against the USD since the global financial crisis. We find that the use of the Federal Reserve’s USD central bank swap lines was mainly related to tensions in US money...

Union Density, Productivity, and Wages

We exploit tax-induced exogenous variance in the price of union membership to identify the effects of changes in firm union density on firm productivity and wages in the population of Norwegian firms over the period 2001 to 2012. Increases in union density lead to substantial increases in firm...

Exploring the importance of behavioural endogeneity for policy projections

Behavioural endogeneity is appealing functionality for any analytical tool designed to explore the implications of public policy alternatives. This study improves the evidence base for choosing between alternative approaches for projecting decision making by exploring two key research questions: (i...

The macroeconomic effects of banking crises: evidence from the United Kingdom, 1750-1938

This paper investigates the macroeconomic effects of UK banking crises over the period 1750 to 1938. We construct a new annual banking crisis series using bank failure rate data, which suggests that the incidence of banking crises was every 30 or so years. Using our new series and a narrative...

The power of self-interest: Effects of subsidies for adult education and training

Education and training among the working-age population has become an increasingly important policy issue as working lives have lengthened and the pace of technological change has quickened. This paper describes the effects of a reform that broadened access to public subsidies for adult Vocational...

Mutual gains? Is there a role for employee engagement in the modern workplace?

I examine the history of employee engagement and how it has been characterised by thinkers in sociology, psychology, management and economics. I suggest that, while employers may choose to invest in employee engagement, there are alternative management strategies that may be profit-maximising. I...

Foreign Investment and Shared Sovereignty

Publication date: 3 Jul 2017 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Armstrong, A | NIESR discussion paper number: 475

This study investigates how the legal provisions contained in Bilateral Investment Treaties (BITs) affect foreign direct investment inflows in OECD countries. This stands in contrast to the existing literature on two counts: first, we examine separate investor protection provisions contained in...

The interest rate effects of government debt maturity

Using an empirical model, this paper finds that shortening the average maturity of US Treasury debt held outside the Federal Reserve by one year reduces the five-year forward 10-year yield by between 130 and 150 basis points. Based on a pre-crisis period, these estimates suggest that portfolio...

Academic Review of Asset Lives in the UK

Publication date: 31 Jan 2017 | Publication type: NIESR Discussion Paper | Theme: Trade, Investment & Productivity | NIESR Author(s): Rincon-Aznar, A, Riley, R, Young, G | NIESR discussion paper number: 474

In this study, commissioned by the Office for National Statistics (ONS) we provide a comprehensive and independent review of the asset lives’ assumptions used in the computation of the UK national capital stocks. Despite being regarded as one of the key inputs feeding into the Perpetual Inventory...

Finance and Credit in a Model of Monetary Policy

Economies is the extent to which a workhorse advanced economy model can yield important insights for monetary policy-making. We note that the standard sticky-price, monopolistically competitive model does not allow analysis of money and credit dynamics and led to a concentration of research on...

The UK Economy in the Long Expansion and its Aftermath

In the aftermath of the inflation and recessions of the 1970s and early 1980s, from the early 1990s onwards there was a major upswing in most advanced countries. In the UK it was the longest period of economic expansion on record. But it came to an abrupt end in 2007, with the freezing of the...

Fiscal Policy Spillovers

Publication date: 20 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Carreras, O, Kirby, S, Liadze, I, Piggott, R | NIESR discussion paper number: 468

This paper uses the National Institute Global Econometric Model (NiGEM) to quantify the magnitude of fiscal spillover multipliers in each Euro Area country following a fiscal shock to one particular Euro Area country. Spillover multipliers lie between 0.01 and 0.3 per cent when the fiscal shock...

Macroprudential tools, transmission and modelling

Publication date: 20 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Carreras, O, Davis, P, Piggott, R | NIESR discussion paper number: 470

The purpose of this paper is twofold. First, we review the theoretical and empirical literature on macroprudential policies and tools. Second, we test empirically the effectiveness of several macroprudential policies and tools using three datasets from the IMF and BIS that cover up to 19 OECD...

The fiscal and monetary determinants of sovereign bond yields in the Euro Area

Publication date: 20 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): , Carreras, O, Kirby, S, Meaning, J | NIESR discussion paper number: 466

This paper investigates the determinants of sovereign bond yields in the Euro Area through the lens of the expectations hypothesis adjusting for measures of risk. This allows us to see the extent to which monetary policy, which controls the path of short-term nominal interest rates, is a driver of...

The monetary and fiscal framework of the EMU in times of high debt and constrained interest rates

Publication date: 20 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Hurst, I, Liadze, I, Meaning, J | NIESR discussion paper number: 467

This paper looks at the monetary and fiscal interaction in the European Monetary Union and how the two arms of macrostabilisation policy are affected by high levels of sovereign debt and short-term interest rates at, or around, their lower bound. Using the National Institute’s Global Econometric...

The New Art of Central Banking

Publication date: 20 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Chadha, J S | NIESR discussion paper number: 472

This article outlines some of the intellectual lessons learnt by central bankers during the financial crisis. The key question is whether a broader range of policy options than simple inflation targeting has to be considered in order to limit instability. Interactions with overseas pools of savings...

Quantifying Fiscal Multipliers

Publication date: 20 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | NIESR Author(s): Carreras, O, Kirby, S, Liadze, I, Piggott, R | NIESR discussion paper number: 469

This paper uses the National Institute Global Econometric Model (NiGEM) to quantify the magnitude of fiscal multipliers in each Euro Area country when fiscal policies are enacted in each country in isolation and when there is international coordination of fiscal policies. We find that fiscal...

Linking Retirement Age to Life Expectancy in a Bismarckian System - The Case of Germany

Publication date: 5 Oct 2016 | Publication type: NIESR Discussion Paper | Theme: Macroeconomics | External Author(s): Vogt, V, Althammer, J | NIESR discussion paper number: 465

In times of decreasing mortality, one way to stabilise a PAYG pension system is to interrelate the retirement age to the anticipated average lifespan. This paper investigates two approaches for Germany: one is to keep the average retirement duration constant, the other to define a constant share of...

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