The Bank of England has announced:
The 2009 Q1 issue of the Bank of England Quarterly Bulletin is published today. It contains the following articles and reports:
- Foreword, by Spencer Dale, Chief Economist and Executive Director – Monetary Analysis and Statistics, Bank of England.
- Markets and operations. This regular quarterly commentary discusses recent developments in global capital markets. It also reviews the Bank’s official operations.
- Price-setting behaviour in the United Kingdom: a microdata approach. This article examines how often prices change and how much they change by analysing data on individual price quotes. The evidence suggests that, on average, prices change once every four to five months. Evidence from higher frequency supermarket data suggests that prices change more often than this – once every two weeks. More generally, the work shows that the frequency of price changes varies across different sectors and product groups.
- Deflation. This article examines the different economic costs associated with deflation. It explains that it is important not to confuse the economic costs associated with the circumstances that caused prices to fall with the costs of deflation itself. The costs of deflation are most likely to be associated with debt deflation and downward nominal wage rigidities. But if policy responds sufficiently promptly and decisively then these costs are likely to be modest and short-lived.
The report contains the usual high-quality BoE research and commentary.
While interesting and valuable, the decomposition of the LIBOR spread into credit and non-credit components is fishy in the extreme. As explained in the box on page 498 of the 2007-Q4 Bulletin, the decomposition relies on the CDS spread being a perfect estimate of credit qualtiy – which we know is not true since there is a huge component of non-credit pricing in related bond prices … which in turn rely on equity prices as being a perfect valuator of a company’s assets. These calculations simply measure the degree of internal consistency between the various markets, but if the linchpin is removed, you’re not left with much.
After all, stock prices are determined largely by the sentiments of stock-brokers and, as Assiduous Readers will know, if a stockbroker gives you a choice between investment advice and having lunch … pick lunch.
There are a lot of great charts and commentary in the Bulletin and I won’t reproduce them all. I’ll just close with a topic near and dear to preferred share investors: Tier 1 vs. Sub-Debt spreads:
