Gbenga Ibikunle, Khaladdin Rzayev, 09 May 2020

Dark pools, which are trading venues that do not offer pre-trade transparency, are often suspected of causing difficulties with price discovery, and of adversely affecting market quality. This column studies the effects of COVID-19-induced volatility on trading in dark pools. Increased volatility is found to be linked with an economically significant shift of market share from dark pools to lit exchanges.

Scott Baker, Nicholas Bloom, Steven Davis, Stephen Terry, 13 April 2020

While assessing the economic impact of COVID-19 is essential, it is challenging due to the extreme speed with which the crisis unfolded. This column uses three forward-looking uncertainty measures to quantify the enormous increase in economic uncertainty over the past weeks. Feeding these COVID-induced uncertainty shocks into a model of disaster effects predicts a year-on-year contraction in US real GDP of nearly 11% as of 2020 Q4.  About 60% of the forecasted output contraction is estimated to be due to COVID-induced uncertainty. 

Francis Kramarz, Julien Martin, Isabelle Mejean, 11 December 2019

Economists continue to disagree about whether international trade exacerbates or diminishes volatility. This column presents firm-level evidence from French exporters and their European trading partners over 15 years to show that firm-level volatility increases individual-level and aggregate-level volatility. High concentration among buyers as well as suppliers can amplify these shocks.

Vladimir Asriyan, Luca Fornaro, Alberto Martin, Jaume Ventura, 30 September 2019

We live in a world of low interest rates and volatile asset values. This column argues that in such a bubbly world, we can no longer disregard the role of money as a store of value, and the role of monetary policy as a supplier of stores of value. Indeed, monetary policy plays a key role by expanding and stabilising the supply of unbacked assets at an optimal level.  

Jon Danielsson, Robert Macrae, 12 August 2019

The type of risk we most care about is long-term, what happens over years or decades, but we tend to manage that risk over short periods. This column argues that the dissonance of risk is that we measure and manage what we don't care about and ignore what we do.

Wilko Bolt, Maarten R C van Oordt, 14 May 2019

What drives the volatility of Bitcoin? This column explains a theoretical framework to link exchange rates to currency creation, speculative behaviour, and real growth in goods and services transactions. It suggests that the exchange rate will be less sensitive to speculators' beliefs when a virtual currency becomes more established as a means of payment. 

Jon Danielsson, 02 January 2019

Christiane Nickel, Derry O'Brien, 20 November 2018

Just like other central banks, the ECB generally monitors a range of measures of underlying inflation to help distinguish noise from signal in headline inflation. This column describes measures of underlying inflation that are routinely used at the ECB for measuring euro area headline inflation and provides some insights on their interpretation. Each of the measures has merits and shortcomings and they should be taken together in arriving at a first-pass assessment of developments in headline inflation. At the same time, the measures need to be complemented by a more structural examination of their driving forces in order to better understand the inflation process.

Bezirgen Veliyev, 01 November 2018

Bezirgen Veliyev of Aarhus University talks to Ben Chu of The Independent about new ways to measure volatilty of asset prices. The interview was recorded at the Royal Economic Society 2018 Annual Conference.

Isaiah Hull, Conny Olovsson, Karl Walentin, Andreas Westermark, 23 August 2018

Large movements in house prices can have broad and substantial effects on the macroeconomy. This column uses property-level data to identify the key drivers of house price volatility and decompose this into national, regional, local, and idiosyncratic components. There is substantial cross-sectional variation in house price risk, with higher firm concentration, employment volatility, and manufacturing share of output and employment associated with greater risk. 

Jon Danielsson, 30 May 2018

Ambrogio Cesa-Bianchi, M. Hashem Pesaran, Alessandro Rebucci, 24 April 2018

During 2016-17, market analysts and policymakers grappled with the puzzling coexistence of subdued market volatility and heightened policy uncertainty and geopolitical risk. The rise in world growth expectations can explain some but by no means all of the decline in market volatility during this period. This column argues that excess optimism about future growth prospects might have fuelled the decline in volatility. This would imply that gradual unwinding of such expectations could bring more bursts of market volatility, as we have begun to witness since the start of 2018.

Jon Danielsson, Marcela Valenzuela, Ilknur Zer, 26 March 2018

Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high volatility as a warning signal, this column argues that such an alarm comes too late, arriving only once a crisis is already under way. A better warning is provided by low volatility, which is a reliable indication of an increased likelihood of a future crisis.

Tito Cordella, Anderson Ospino, 14 August 2017

While some studies suggest that financial globalisation increases volatility and leads to economic instability, others appear to show that it leads to more efficient stock markets, with higher returns but no increase in volatility. Using a new measure of financial globalisation, this column argues that, on average, it has no significant effect on stock market volatility in developed markets, but it decreases volatility in emerging and frontier markets, where domestic shocks are likely to play a relatively greater role.

Joshua Aizenman, Yothin Jinjarak, Gemma Estrada, Shu Tian, 19 July 2017

The impact of the Global Crisis of 2008 played out differently in middle-income countries compared to developed countries. This column argues that the associations of growth level, growth volatility, shocks, institutions, and macroeconomic fundamentals have changed in important ways after the crisis. Educational attainment, share of manufacturing output in GDP, and exchange rate stability appear to increase the level of economic growth. Exchange rate flexibility, education attainment, and lack of political polarisation reduce the volatility of economic growth.

Kangni Kpodar, Patrick Imam, 08 May 2017

The debate over regional trade agreements is ongoing. It has been argued that they can heighten exposure to shocks as they lead to more specialisation, and conversely that they can alleviate volatility by improving policy coordination within the anchors of a formal trade contract. This column suggests that the benefits from lowering long-term growth volatility tend to dominate potential costs, with the magnitude of this effect depending on the depth of the regional integration and the development stage of trade partners. 

Barry Eichengreen, Poonam Gupta, Oliver Masetti, 24 February 2017

According to conventional wisdom, capital flows are fickle. Focusing on emerging markets, this column argues that despite recent structural and regulatory changes, much of this wisdom still holds today. Foreign direct investment inflows are more stable than non-FDI inflows. Within non-FDI inflows, portfolio debt and bank-intermediated flows are most volatile. Meanwhile, FDI and bank-related outflows from emerging markets have grown and become increasingly volatile. This finding underscores the need for greater attention from analysts and policymakers to the capital outflow side.

Alan Moreira, 15 February 2017

Investors tend to sell when markets get scared. In this video, Alan Moreira explains that other strategies can overperform the classical strategy. This video was recorded at the Brevan Howard Centre in December 2016.

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