http://www.bis.org/cbhub/list/country/country_united kingdom/index.rss Latest research hub papers from United Kingdom en http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp447.pdf Bank of England Working papers by Marius Jurgilas and Filip Žikeš Implicit intraday interest rate in the UK unsecured overnight money market 2012-03-22T12:39:00Z Implicit intraday interest rate in the UK unsecured overnight money market 2012-03-22T12:39:00Z Full text http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp447.pdf Filip Žikeš Marius Jurgilas Marius Jurgilas and Filip Žikeš 2012-03 Bank of England Working papers E42 E58 G21 http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp446.pdf Bank of England Working papers by Martin M Andreasen, Marcelo Ferman and Pawel Zabczyk The business cycle implications of banks' maturity transformation 2012-03-22T12:39:00Z This paper develops a DSGE model in which banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show within a real business cycle framework that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model, where we find that maturity transformation reduces the real effects of a monetary policy shock. The business cycle implications of banks' maturity transformation 2012-03-22T12:39:00Z Full text http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp446.pdf Martin M Andreasen Pawel Zabczyk Marcelo Ferman Martin M Andreasen, Marcelo Ferman and Pawel Zabczyk 2012-03 Bank of England Working papers E22 E32 E44 G21 http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp445.pdf Bank of England Working papers by Shekhar Aiyar, Charles W Calomiris and Tomasz Wieladek Does macropru leak? Evidence from a UK policy experiment 2012-03-22T12:39:00Z Does macropru leak? Evidence from a UK policy experiment 2012-03-22T12:39:00Z Full text http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp445.pdf Tomasz Wieladek Shekhar Aiyar Charles W Calomiris Shekhar Aiyar, Charles W Calomiris and Tomasz Wieladek 2012-03 Bank of England Working papers E32 E51 F30 G21 G28 http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp444.pdf Bank of England Working papers by Richard Harrison Asset purchase policy at the effective lower bound for interest rates 2012-03-22T12:39:00Z Asset purchase policy at the effective lower bound for interest rates 2012-03-22T12:39:00Z Full text http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp444.pdf Richard Harrison Richard Harrison 2012-03 Bank of England Working papers E52 E58 http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp443.pdf Bank of England Working papers by George Kapetanios, Haroon Mumtaz, Ibrahim Stevens and Konstantinos Theodoridis Assessing the economy-wide effects of quantitative easing 2012-03-22T12:39:00Z Assessing the economy-wide effects of quantitative easing 2012-03-22T12:39:00Z Full text http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp443.pdf George Kapetanios Ibrahim Stevens Konstantinos Theodoridis Haroon Mumtaz George Kapetanios, Haroon Mumtaz, Ibrahim Stevens and Konstantinos Theodoridis 2012-03 Bank of England Working papers C11 C32 E52 E58 http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp442.pdf Bank of England Working papers by Jonathan Bridges and Ryland Thomas The impact of QE on the UK economy - some supportive monetarist arithmetic 2012-03-22T12:39:00Z This paper uses a simple money demand and supply framework to estimate the impact of quantitative easing (QE) on asset prices and nominal spending. We use standard money accounting to try to establish the impact of asset purchases on broad money holdings. We show that the initial impact of £200 billion of asset purchases on the money supply was partially offset by other 'shocks' to the money supply. Some of these offsets may have been the indirect result of QE. Our central case estimate is that QE boosted the broad money supply by £122 billion or 8%. We apply our estimates of the impact of QE on the money supply to a set of 'monetarist' econometric models that articulate the extent to which asset prices and spending need to adjust to make the demand for money consistent with the increased broad money supply associated with QE. Our preferred, central case estimate is that an 8% increase in money holdings may have pushed down on yields by an average of around 150 basis points in 2010 and increased asset values by approximately 20%. This in turn would have had a peak impact on output of 2% by the start of 2011, with an impact on inflation of 1 percentage point around a year later. These estimates are necessarily uncertain and we show the sensitivity of our results to different assumptions about the size of the shock to the money supply and the nature of the transmission mechanism. The impact of QE on the UK economy - some supportive monetarist arithmetic 2012-03-22T12:39:00Z Full text http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp442.pdf Jonathan Bridges Ryland Thomas Jonathan Bridges and Ryland Thomas 2012-03 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp441.pdf Bank of England Working papers by Martin M Andreasen An estimated DSGE model: explaining variation in term premia 2011-12-14T12:39:00Z This paper develops a DSGE model which explains variation in the nominal and real term structure along with inflation surveys and four macro variables in the UK economy. The model is estimated based on a third-order approximation to allow for time-varying term premia. We find a fall in nominal term premia during the 1990s which mainly is due to lower inflation risk premia. A structural decomposition further shows that this fall is driven by negative preference shocks, lower fixed production costs, and positive investment shocks. An estimated DSGE model: explaining variation in term premia 2011-12-14T12:39:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp441.pdf Martin M Andreasen Martin M Andreasen 2011-12 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp437.pdf Bank of England Working papers by Haroon Mumtaz Estimating the impact of the volatility of shocks: a structural VAR approach 2011-10-31T17:38:59Z A large empirical literature has examined the transmission mechanism of structural shocks in great detail. The possible role played by changes in the volatility of shocks has largely been overlooked in vector autoregression based applications. This paper proposes an extended vector autoregression where the volatility of structural shocks is allowed to be time-varying and to have a direct impact on the endogenous variables included in the model. The proposed model is applied to US data to consider the potential impact of changes in the volatility of monetary policy shocks. The results suggest that while an increase in this volatility has a statistically significant impact on GDP growth and inflation, the relative contribution of these shocks to the forecast error variance of these variables is estimated to be small. Estimating the impact of the volatility of shocks: a structural VAR approach 2011-10-31T17:38:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp437.pdf Haroon Mumtaz Haroon Mumtaz 2011-10 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp438.pdf Bank of England Working papers by Philip Bunn and Colin Ellis How do individual UK consumer prices behave? 2011-10-31T17:38:59Z This paper examines the behaviour of individual consumer prices in the United Kingdom, and uncovers a number of stylised facts about pricing behaviour. First, on average 19% of prices change each month, although this falls to 15% if sales are excluded. Second, the probability of price changes is not constant over time. Third, goods prices change more frequently than services prices. Fourth, the distribution of price changes is wide, although a significant number of changes are relatively small and close to zero. Fifth, prices that change more frequently tend to do so by less. We find that conventional pricing theories struggle to match these results, particularly the marked heterogeneity, which argues against the use of 'representative agent' models. How do individual UK consumer prices behave? 2011-10-31T17:38:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp438.pdf Philip Bunn Colin Ellis Philip Bunn and Colin Ellis 2011-10 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp440.pdf Bank of England Working papers by Michael Hatcher Time-varying volatility, precautionary saving and monetary policy 2011-10-31T17:38:59Z This paper analyses the conduct of monetary policy in an environment where households' desire to amass precautionary savings is influenced by fluctuations in the volatilities of disturbances that hit the economy. It uses a simple New Keynesian model with external habit formation that is augmented with demand and supply disturbances whose volatilities vary over time. If volatility fluctuations are ignored by policy, interest rates are set at a suboptimal level. The extent of 'policy bias' is relatively small but of greater importance the higher the degree of habit formation. The reason is that habit-forming preferences raise risk aversion, increasing the importance of the precautionary savings channel through which volatility fluctuations impact upon inflation and output. Time-varying volatility, precautionary saving and monetary policy 2011-10-31T17:38:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp440.pdf Michael Hatcher Michael Hatcher 2011-10 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp439.pdf Bank of England Working papers by Konstantinos Theodoridis An efficient minimum distance estimator for DSGE models 2011-10-31T17:38:59Z Recent studies illustrate that under some conditions dynamic stochastic general equilibrium models can be expressed as structural vector autoregressive models of infinite order. Based on this mapping and the theoretical results about vector autoregressive models of infinite order this paper proposes a minimum distance estimator that: a) matches the k-period responses of the whole vector of the observable variables described by the structural model - caused after a small perturbation to the entire vector of the structural errors - with those observed in the historical data, which have been recovered through the use of a structurally identified vector autoregressive model, and b) minimises the distance between the reduced-form error covariance matrix implied by the structural model and the one estimated in the data. This estimator encompasses those in the literature, is asymptotically consistent, normally distributed and efficient. The J-type overidentifying restrictions statistic that results from this methodology can be used for the evaluation of the structural model. Finally, this study also develops the theory of the bootstrapped version of the estimator and the statistic introduced here. Monte Carlo simulation evidences based on a medium-scale DSGE model reveal very encouraging results for the proposed estimator when it is compared against modern - Bayesian maximum likelihood - and less modern - maximum likelihood and non-efficient IR matching - DSGE estimators. An efficient minimum distance estimator for DSGE models 2011-10-31T17:38:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp439.pdf Konstantinos Theodoridis Konstantinos Theodoridis 2011-10 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp436.pdf Bank of England Working papers by Lewis Webber and Matthew Willison Systemic capital requirements 2011-10-13T12:37:59Z The credit risk that an individual bank poses to the rest of the financial system depends on its size, the type of exposures it has to the real economy, and its obligations to other institutions. This paper describes a system-wide risk management approach to calibrating individual banks' capital requirements that takes into account these factors and which correspond to a policymaker's chosen target for systemic credit risk. The optimisation strategy identifies the minimum level of aggregate capital for the system and its distribution across banks that are consistent with a chosen objective for systemic credit risk. This parameterises a trade-off between efficiency and stability. Systemic capital requirements 2011-10-13T12:37:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp436.pdf Matthew Willison Lewis Webber Lewis Webber and Matthew Willison 2011-10 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp435.pdf Bank of England Working papers by Iryna Kaminska, Dimitri Vayanos and Gabriele Zinna Preferred-habitat investors and the US term structure of real rates 2011-07-28T12:37:59Z We estimate structurally a model of the term structure of interest rates that is consistent with no arbitrage but allows for demand pressures. The term structure in our model is determined through the interaction of risk-averse arbitrageurs and preferred-habitat investors with preferences for specific maturities. The model is estimated on US real rates during the 2000s and allows for two factors: one corresponding to the short rate and one to preferred-habitat demand. We find that the puzzling drop in long rates during 2004-05 (Greenspan conundrum) is driven by the demand factor. International reserves, foreign official holdings of longer-term US Treasuries may all be proxies for the preferred-habitat demand factor. For example, foreign purchases in the year to July 2004 appear to have lowered the ten-year rate by about 100 basis points. Foreign purchases have larger effects following periods when arbitrageurs have lost money. Preferred-habitat investors and the US term structure of real rates 2011-07-28T12:37:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp435.pdf Iryna Kaminska Gabriele Zinna Dimitri Vayanos Iryna Kaminska, Dimitri Vayanos and Gabriele Zinna 2011-07 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp434.pdf Bank of England Working papers by George Kapetanios and Tony Yates Evolving UK and US macroeconomic dynamics through the lens of a model of deterministic structural change 2011-07-28T12:37:59Z Using a model of deterministic structural change, we revisit several topics in inflation dynamics explored previously using stochastic, time-varying parameter models. We document significant reductions in inflation persistence and predictability. We estimate that changes in the volatility of shocks were decisive in accounting for the great moderations of the United States and the United Kingdom. We also show that the magnitude and the persistence of the response of inflation and output to monetary policy shocks has fallen in these two countries. These findings should be of interest in those seeking to resolve theoretical debates about the sources of apparent nominal and real frictions in the macroeconomy, and the causes of the Great Moderation. Evolving UK and US macroeconomic dynamics through the lens of a model of deterministic structural change 2011-07-28T12:37:59Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp434.pdf George Kapetanios Tony Yates George Kapetanios and Tony Yates 2011-07 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp432.pdf Bank of England Working papers by Stephen Millard An estimated DSGE model of energy, costs and inflation in the United Kingdom 2011-07-26T12:41:00Z In this paper, I estimate a dynamic stochastic general equilibrium (DSGE) model of the United Kingdom. The basic building blocks of the model are standard in the literature. The main complication is that there are three consumption goods: non-energy output, petrol and utilities; given relative prices and their overall wealth, consumers choose how much of each of these goods to consume in order to maximise their utility. Each of the consumption goods is produced according to a sector-specific production function and sticky prices in each sector imply sector-specific New Keynesian Phillips Curves. I show how this model, once estimated, could form a useful additional input within a policymaker's 'suite of models' by considering its implications for the responses of various macroeconomic variables to different economic shocks and by decomposing recent movements of energy and non-energy output and inflation into the proportions caused by each of the shocks. An estimated DSGE model of energy, costs and inflation in the United Kingdom 2011-07-26T12:41:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp432.pdf Stephen Millard Stephen Millard 2011-07 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp433.pdf Bank of England Working papers by Richard Harrison, Ryland Thomas and Iain de Weymarn The impact of permanent energy price shocks on the UK economy 2011-07-26T12:41:00Z This paper outlines the properties of one of the models used at the Bank of England for analysing the impact of energy prices on the UK economy. We build a dynamic general equilibrium model that includes a variety of channels through which energy prices affect demand and supply. On the demand side we model household consumption of final energy goods (petrol and utilities) separately from other goods and services. On the supply side, we model the production of final energy goods and the way that they enter the production process of other goods and services. We calibrate the model using UK data and examine how the various channels in the model contribute to the responses to permanent energy price shocks of a similar magnitude to those observed in the recent data. We show the effects of such shocks have important implications for monetary policy. The impact of permanent energy price shocks on the UK economy 2011-07-26T12:41:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp433.pdf Richard Harrison Iain de Weymarn Ryland Thomas Richard Harrison, Ryland Thomas and Iain de Weymarn 2011-07 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp412.pdf Bank of England Working papers by Ben Norman, Rachel Shaw and George Speight The history of interbank settlement arrangements: exploring central banks' role in the payment system 2011-06-13T12:39:00Z Modern central banks have come to view payment systems as a key area of strategic interest, both as part of their responsibilities for financial stability and for the implementation of monetary policy. By considering the evolution of interbank settlement arrangements and central banking functions in the context of a number of diverse historical country case studies, this paper seeks to improve understanding of the development of, and reasons for, central banks' current roles. Starting from a situation where the earliest banks gradually began to accept claims on each other, banks introduced a variety of innovations to clear and settle between themselves more efficiently. Focusing particularly on the lender of last resort function - a key characteristic of a central bank - this paper explores whether institutions at the centre of clearing and settlement arrangements developed central bank-like characteristics. The history of interbank settlement arrangements: exploring central banks' role in the payment system 2011-06-13T12:39:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp412.pdf George Speight Rachel Shaw Ben Norman Ben Norman, Rachel Shaw and George Speight 2011-06 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp429.pdf Bank of England Working papers by Sergi Lanau Domestic financial regulation and external borrowing 2011-05-31T14:54:00Z This paper studies the relationship between domestic financial regulation and the incentive of non-banks to borrow from banks abroad using BIS banking data in a gravity framework. Conditional on a large set of macroeconomic controls, we find that under tighter domestic financial regulation non-banks borrow more abroad. Non-banks in a country on the upper quartile of a financial deregulation index borrow 21%-28% more than non-banks in a country with minimum regulation. The finding also holds for more disaggregated regulation measures. Interest rate controls and entry barriers to the banking sector are the most relevant types of regulation. The results in this paper indicate that international borrowing and lending is a prominent element to be taken into account in designing financial stability tools. Domestic financial regulation and external borrowing 2011-05-31T14:54:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp429.pdf Sergi Lanau Sergi Lanau 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp428.pdf Bank of England Working papers by Tomohiro Ota Intraday two-part tariff in payment systems 2011-05-31T14:54:00Z This paper studies the optimal intraday pricing in payment systems and its impact on banks' payment behaviour and intraday liquidity management. A model is developed to compare the performance of two different mechanisms to reduce payment delay: a throughput guideline and a tariff that varies over time, and concludes that a linear time-varying tariff achieves a better outcome unless the payment system experiences a system-wide liquidity shock. We show that settlement delay can be socially efficient, contrary to general understanding of the literature, when it reduces the aggregate cost of liquidity. The theoretical model suggests that the tariff eliminates the inefficient settlement delay that does not contribute to lowering the cost, while leaving the socially efficient delay. Intraday two-part tariff in payment systems 2011-05-31T14:54:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp428.pdf Tomohiro Ota Tomohiro Ota 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp427.pdf Bank of England Working papers by Marcelo Perlin and Jochen Schanz System-wide liquidity risk in the United Kingdom's large-value payment system: an empirical analysis 2011-05-31T14:54:00Z When settling their own liabilities and those of their clients, settlement banks rely on incoming payments to fund a part of their outgoing payments. We investigate their behaviour in CHAPS, the United Kingdom's large-value payment system. Our estimates suggest that in normal times, banks increase their payment outflows when their liquidity is above target and immediately following the receipt of payments. We use these estimates to determine the robustness of this payment system to two hypothetical behavioural changes. In the first, a single bank stops sending payments, perhaps because of an operational problem. In the second, it pays out exactly what it previously received, relying exclusively on the liquidity provided by other system members. Using the observed uncertainty around our estimated behavioural equations, we derive probabilistic statements about the time at which the bank's counterparties would run out of liquidity if they followed their estimated normal-time behaviour. System-wide liquidity risk in the United Kingdom's large-value payment system: an empirical analysis 2011-05-31T14:54:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp427.pdf Jochen Schanz Marcelo Perlin Marcelo Perlin and Jochen Schanz 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp426.pdf Bank of England Working papers by Andrew Benito and Jumana Saleheen Labour supply as a buffer: evidence from UK households 2011-05-27T12:39:00Z This paper examines labour supply adjustment - both hours worked and participation decisions. The analysis focuses on the response of each to financial shocks, employing data from the British Household Panel Survey. Results suggest that employees whose financial situation deteriorates relative to what they expected, increase their labour supply in response. That response is consistent with models of self-insurance that incorporate labour supply flexibility. The shock reflects several factors including financial wealth and a partner's employment situation. The response is significantly larger for those who change job, consistent with the importance of hours constraints within jobs. The propensity to participate in the labour market also appears to respond to the financial shock but that is somewhat less robust than the hours response. Labour supply as a buffer: evidence from UK households 2011-05-27T12:39:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp426.pdf Jumana Saleheen Andrew Benito Andrew Benito and Jumana Saleheen 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp425.pdf Bank of England Working papers by Philip Liu, Haroon Mumtaz and Angeliki Theophilopoulou International transmission of shocks: a time-varying factor-augmented VAR approach to the open economy 2011-05-27T12:39:00Z A growing literature has documented changes to the dynamics of key macroeconomic variables in industrialised countries and highlighted the possibility that these variables may react differently to structural shocks over time. However, existing empirical work on the international transmission of shocks largely abstracts from the possibility of changes to the international transmission mechanism across time. In addition, the literature has largely employed small-scale models with limited number of variables. This paper introduces an empirical model which allows the estimation of time-varying response of a large set of domestic variables to foreign money supply, demand and supply shocks. The key results show that a foreign monetary policy tightening resembles the classic beggar-thy-neighbour scenario for the United Kingdom in the period 1975-90. In more recent periods, the response is negative but largely insignificant. International transmission of shocks: a time-varying factor-augmented VAR approach to the open economy 2011-05-27T12:39:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp425.pdf Philip Liu Angeliki Theophilopoulou Haroon Mumtaz Philip Liu, Haroon Mumtaz and Angeliki Theophilopoulou 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp424.pdf Bank of England Working papers by Shekhar Aiyar How did the crisis in international funding markets affect bank lending? Balance sheet evidence from the United Kingdom 2011-05-03T17:40:00Z Evidence abounds on the propagation of financial stresses originating in the US mortgage market to banking systems worldwide through international funding markets. But the transmission of this external funding shock to the real economy via bank lending is surprisingly underexamined, given the central importance ascribed to this channel of contagion by policymakers. This paper provides evidence of this transmission for the UK-resident banking system, the largest in the world by asset size. It uses a novel data set, created from detailed and confidential balance sheet data reported by individual banks quarterly to the Bank of England. I find that the shock to foreign funding caused a substantial pullback in domestic lending. The results are derived using a range of instruments to correct for endogeneity and omitted variable bias. Foreign subsidiaries and branches reduced lending by a larger amount than domestically owned banks, while the latter calibrated the reduction in domestic lending more closely to the size of the funding shock. How did the crisis in international funding markets affect bank lending? Balance sheet evidence from the United Kingdom 2011-05-03T17:40:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp424.pdf Shekhar Aiyar Shekhar Aiyar 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp423.pdf Bank of England Working papers by Filipa Sá and Francesca Viani Shifts in portfolio preferences of international investors: an application to sovereign wealth funds 2011-05-03T17:40:00Z Reversals in capital inflows can have severe economic consequences. This paper develops a dynamic general equilibrium model to analyse the effect on interest rates, asset prices, investment, consumption, output, the exchange rate and the current account of a shift in portfolio preferences of foreign investors. The model has two countries and two asset classes (equities and bonds). It is characterised by imperfect substitutability between assets and allows for endogenous adjustment in interest rates and asset prices. Therefore, it accounts for capital gains arising from equity price movements, in addition to valuation effects caused by changes in the exchange rate. To illustrate the mechanics of the model, we calibrate it to analyse the consequences of an increase in the importance of sovereign wealth funds (SWFs). Specifically, we ask what would happen if 'excess' reserves held by emerging markets were transferred from central banks to SWFs. We look separately at two diversification paths: one in which SWFs keep the same allocation across bonds and equities as central banks, but move away from dollar assets (path 1); and another in which they choose the same currency composition as central banks, but shift from US bonds to US equities (path 2). In path 1, the dollar depreciates and US net debt falls on impact and increases in the long run. In path 2, the dollar depreciates and US net debt increases in the long run. In both cases, there is a reduction in the 'exorbitant privilege', ie, the excess return the United States receives on its assets over what it pays on its liabilities. The model is applicable to other episodes in which foreign investors change the composition of their portfolios. Shifts in portfolio preferences of international investors: an application to sovereign wealth funds 2011-05-03T17:40:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp423.pdf Filipa Sá Francesca Viani Filipa Sá and Francesca Viani 2011-05 Bank of England Working papers http://www.bankofengland.co.uk/publications/workingpapers/wp422.pdf Bank of England Working papers by Emilio Fernandez-Corugedo, Michael McMahon, Stephen Millard and Lukasz Rachel Understanding the macroeconomic effects of working capital in the United Kingdom 2011-05-03T17:40:00Z The most recent recession has been associated with a financial crisis that led to a large widening of spreads and quantitative restrictions on lending. As well as affecting investment, such a credit contraction is likely to have had a large effect on the working capital positions of UK firms and this, in turn, is likely to have affected the United Kingdom's supply potential, at least temporarily. However, the role of such disruptions in the business cycle is not well understood. In this paper we first document the behaviour of working capital in the United Kingdom. In order to understand the effects of working capital on macroeconomic variables, we then solve and calibrate a DSGE model that introduces an explicit role for the components of working capital (net cash, inventories, and trade credit). We find that this model produces the standard responses of macroeconomic variables to productivity shocks, but we also find that financial intermediation shocks, similar to those experienced in the United Kingdom post-2007, have persistent negative effects on economic activity; these effects are reinforced by reductions in trade credit. Our model also documents a crucial role for monetary policy to offset such shocks. Understanding the macroeconomic effects of working capital in the United Kingdom 2011-05-03T17:40:00Z Full text http://www.bankofengland.co.uk/publications/workingpapers/wp422.pdf Lukasz Rachel Michael McMahon Emilio Fernandez-Corugedo Stephen Millard Emilio Fernandez-Corugedo, Michael McMahon, Stephen Millard and Lukasz Rachel 2011-05 Bank of England Working papers