Ray Barrell’s research while affiliated with Brunel University London and other places

Policymakers need to know if the structure of competition and the degree of banking market concentration change the incidence of financial crises. Previous studies have not always come to clear conclusions. We use a new dataset of 19 countries where we include capital adequacy and house price growth as factors affecting crisis incidence, and we find a positive role for bank concentration in reducing incidence. In addition, we look at New Industrial Economics indicators of market structure and find that increased market power also reduces crisis incidence. We conclude that attempts to increase competition in banking, although welcome for welfare reasons, should be accompanied by increases in capital standards.

We examine factors affecting OECD bilateral Foreign Direct Investment (FDI) stocks over 1995–2016. We emphasize the effect of regional trade agreements, the European Union (EU) and the North American Free Trade Area (NAFTA). We find that EU membership is a significant determinant of FDI even when we condition on other gravity variables. The importance of robust economic institutions and freedoms is discussed, with implications for countries that are reducing such freedoms. European Integration has raised intra Single Market FDI by over 40%. The UK has no labour market or competitive environment advantage above the rest of the EU in attracting FDI, and it will lose stocks after departure. We show that distance matters, but the effect is declining slowly.

There are large and long-lasting negative effects on output from recurrent financial crises in market economies. Policy makers need to know if these financial crises are endogenous and subject to policy interventions or are exogenous events like earthquakes. We survey the literature about the links between credit growth and crises over the last 130 years. We then go on to look at the determinants of financial crises both narrowly and broadly defined in market economies, stressing the roles of bank capital, available on book liquidity, property price bubbles and current account deficits. We look at the role of credit growth, which is often seen as the main link between the macroeconomy and crises, and stress that it is largely absent. We look at the role of the core factors discussed above in market economies from 1980 to 2017. We suggest that crises are largely unrelated to credit developments but are influenced by banking sector behaviour. We conclude that policy makers need to contain banking excesses, not constrain the macroeconomy by directly reducing bank lending.

This article considers the cross-border lending stock from 19 advanced countries to European countries using quarterly data for 1999–2016. An extended model based on home and host country characteristics conditioned on distance and mass primarily measured by GDP is used to explain the behaviour of cross-border lending stocks. We focus particularly on the competitive structure of domestic banking markets and on the role of EU integration using indicators from the New Industrial Economics literature. Our results suggest EU integration has had a large effect on cross-border lending, although this has been partly reversed after Euro debt crisis. This reversal probably arises more from the actions of home country bank regulators rather than from the rise in risk premia in host countries. We show that in general lender rather than borrower factors are more important, and that more concentrated or less competitive lender countries do more cross border lending, especially in less concentrated or more competitive borrowers. Our results are robust across a range of specifications.

The Institute is a world leader in macroeconomic modelling and forecasting. It has produced quarterly economic forecasts for around sixty years, supported by macroeconomic models. The aim of the original builders of macroeconomic models was to transform understanding of how economies worked and use that knowledge to improve economic policy. In the early years, when computers were rare, macroeconomic modelling was a new frontier and Institute economists were among the first to produce a working model of the UK economy. It is remarkable how quickly models were being used to produce forecasts, assess policy and influence the international macroeconomic research agenda. The models built at the Institute were mainstream in the sense that they followed the contents of standard macroeconomic textbooks, developed with the subject, and fitted the facts as they were known at the time. There were continual improvements in understanding as the subject developed in response to new ideas and developments in the global economy. This article celebrates the development of macroeconomic modelling at the Institute and the contribution it has made to public life.

Macroprudential policy is now based around a countercyclical buffer, relating capital requirements for banks to the degree of excess credit in the economy. We consider the construction of the credit to GDP gap looking at different ways of extracting the cyclical indicator for excess credit. We compare different smoothing mechanisms for the credit gap, and demonstrate that some countries require an AR(2) smoother whilst other do not. We embed these different estimates of the credit gap in Logit models of financial crises, and show that the AR(2) cycle is a much better contributor to their explanation than is the HP filter suggested by the BIS and currently in use in policy making. We show that our results are robust to changes in assumptions, and we make criticisms of current policy settings.

This paper examines the factors affecting bilateral Foreign Direct Investment (FDI) stocks from 14 high income countries to 31 OECD countries over the period 1995-2015. We specifically emphasise the effect of regional trade agreements such as the European Union (EU) and the North American Free Trade Area (NAFTA) along with membership of the Currency Union. Our empirical analysis applies the generalised method of moments (GMM) estimator to a gravity model of bilateral FDI stocks. The findings imply that EU membership is a significant determinant of FDI even when we condition on the variables that follow from the application of the gravity model. We look at the effects of the North American Free Trade Area on within block FDI and find no similar effect. Our results suggest that European Integration has a large effect on FDI stocks, raising intra Single Market FDI noticeably. We note that the UK’s departure from the Single Market may reduce the stock of intra EU FDI by up to 30 per cent in the long run. In addition, the findings point that the UK has no labour market or competitive environment advantage above the rest of the EU in attracting FDI.

This paper examines the factors affecting bilateral FDI stocks from 14 high income countries to all OECD countries over the period 1995 -2012. We specifically emphasise the effect of bilateral exchange rate volatility along with membership of CU and the EU. Our empirical analysis applies the generalised method of moments (GMM) estimator to a gravity model of BFDI stocks. The findings imply that exchange rate volatility and EU membership are significant determinants of FDI even when we condition on the variables that follow from the application of the gravity model. This study also considers the extent to which the East Asia and the global financial markets crises and systemic banking crises have exerted an impact on BFDI. We note that a high degree of exchange rate volatility discourages BFDI, but that adopting the single currency has not promoted further BFDI flows between the Euro zone countries. Furthermore, our results suggest that European Market Integration has a large effect on FDI stocks, raising intra Single market flows noticeably.

This article considers the cross-border lending stock from 19 advanced countries as directed towards 28 European countries using quarterly data for the period 1999- 2014. A "gravity" model is conditioned on distance and mass primarily measured by GDP as a benchmark adapted to explain the behaviour of cross-border lending stocks. We focus particularly on the role of EU integration on cross border banking, and show that there is no role for ‘time zone’ effects. The data permits an analysis of the effect of financial crises. These are differentiated by type into systemic banking crises and the Euro debt crisis Our results suggest that well-functioning institutions and EU Integration have a large effect on cross-border lending. However, there seems to be little impact from the single currency and from eliminating bilateral exchange rate volatility. These results are robust to a range of econometric specifications, samples, and institutional characteristics.