monetary policy in extraordinary times : slides
TRANSCRIPT
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
1/16
Monetary Policy in Extraordinary Times
Prof. David Miles
CEPR Lecture, London Business School
Wednesday 23rd February
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
2/16
2
Level of Output Relative to Pre-Crisis Trend DuringPast Recessions (a)
(a)I use GDP and trend growth estimates from Hills, Thomas and Dimsdale ( Bank of England Quarterly Bulletin 2010) tocreate this chart. The authors use a Hodrick-Prescott filter to separate the trend and the cyclical components of real GDPgrowth. I assume that their trend growth estimate at the start of each recession would have prevailed during the followingseven years had the recession not occurred. The chart shows deviations of actual GDP from this projected trend growth.The dotted line for the latest recession uses the MPCs mean projection for output growth over the forecast horizon asreported in the February 2011 Inflation report.
88
90
92
94
96
98
100
1 2 3 4 5 6 7
2008
1990
1979
1929
1973
Years from sta rt of the recessionIndexbasedin
yearofpeaklevelofoutput
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
3/16
3
Commodity Prices (in , Jan 2007 = 100)
Note: The total commodities series uses the GSCI index.
0
50
100
150
200
250
300
Jan/07 Jan/08 Jan/09 Jan/10 Jan/11
Agriculture and livestock
Industrial Meta ls
Oil
Total Commodities
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
4/16
4
Public Sector Stock of Net Debt (% of GDP)
0
50
100
150
200
250
300
1855 1875 1895 1915 1935 1955 1975 1995
Source: 1855-2007 Hills, Thomas and Dimsdale (Bank of England Quarterly Bulletin 2010), 2007-2009 ONS series code RUTO.
Note: The ONS calculate public sector net debt as financial liabilities less liquid assets and does not include all assets andliabilities of the public sector. The public sector, including the banks classified to the public sector, owns considerable amountsof illiquid assets, but these are not taken into account in the calculation of net debt.
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
5/16
5
Annual Inflation
Source: ONS
-5
0
5
10
15
20
25
30
963 1973 1983 1993 2003
CPI RPI %
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
6/16
6
Projected Level of GDP
Source: Bank of England Inflation Report, February 2011
Note: The width of this fan chart over the past is to take account of likely revisions of the data.
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
7/16
7
Bank Rate Since 1964
Source: Bank of England
0
2
4
6
8
10
12
14
16
18
%
1700 1800 20001900
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
8/16
8
CPI Inflation and the Contribution of VAT, EnergyPrices and Import Prices
Source: Bank of England Inflation Report, February 2011
Note: The blue swathe sums the minimum and maximum of the individual estimated impacts of VAT, energy prices and import prices on CPI inflation.
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
9/16
9
Interest Rates Faced by Households and Firms
Source: Bank of England and Bank of America Merrill Lynch
0
5
10
15
20
00 01 02 03 04 05 06 07 08 09 10 11
Bank RateHousehold unsecured borrowing rateHousehold deposit rateHousehold secured borrowing rateCorporate borrowing rate (bond yields)
Per cent
Note:-the corporate borrowing rate series uses an index of BBB-rated sterling corporate bonds issued by non-financial companies with acurrent average maturity of 8.5 years.- the household lending and deposit rate series show data on quoted rates by UK Monetary and Financial Institutions.
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
10/16
10
Quarter-on-quarter Inflation Rates
Note: Seasonally adjusted. Projections from 2011 onwards are for the mode.
0
1
2
3
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Percentage change on a quarter earlier
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
11/16
11
UK Debt by Sector as % of GDP
0
50
100
150
200
250
300
350
400
450
500
1987 1990 1993 1996 1999 2002 2005
Corporate
Household
Financial
%
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
12/16
12
Monetary and Financial Institutions Assets
0
200
400
600
800
1000
1200
1987 1990 1993 1996 1999 2002 2005 2008
% of nominal GDP
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
13/16
13
Leverage of UK Major Banks
0
10
20
30
40
5060
70
80
90
2005 2006 2007 2008 H12009
2009 H12010
Max -min range Median Ratio
Source: Banks published financial accounts.
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
14/16
14
UK Banks Leverage Ratio (a)
(a) UK data on leverage use total assets over equity and reserves on a time-varying sample of banks, representing the majority of the UK banking system, in terms ofassets. Prior to 1970 published accounts understated the true level of banks' capital because they did not include hidden reserves. The solid line adjusts for this. 2009observation is from H1.(b) Change in UK accounting standards.(c) International Financial Reporting Standards (IFRS) were adopted for the end-2005 accounts. The end-2004 accounts were also restated on an IFRS basis. Theswitch from UK GAAP to IFRS reduced the capital ratio of the UK banks in the sample by approximately 1 percentage point in 2004.
0
5
10
15
20
25
30
35
40
1880 1900 1920 1940 1960 1980 2000
(c)(b )
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
15/16
15
UK Banks Liquidity Ratio (a)
(a)From 1968 the liquidity ratio is: Cash + Bank of England balances + money at call + eligible bills + UK gilts as a percentage ofbanks' total asset holdings. Pre-1968 the ratio is calculated as the liquid assets of the London Clearing Banks as a percentage ofgross deposits.
-
8/7/2019 Monetary Policy in Extraordinary times : Slides
16/16
16
Economic Impact of Reducing Leverage from 30 to 15 (Doubling Tier1 Capital from 8.4% to 16.8% of risk-weighted assets) Basis Points
Source: Miles, Yang, Marcheggiano (2011)
Tax effect, Tax effect, Base case: no taxNo tax effect
no M -M 45% M -M effect, 45% M-Mand 75% M -M
Change in banks WACC 38.0 22.5 17.9 7.7
Change in PNFC WACC 12.7 7.5 6.0 2.6
Fall in long run GDP 31.7 18.8 14.9 6.4
Present value of GDP lost1268 751 596 256