Internal supervisor: Emil Kostadinov (warwick.ac.uk)

External supervisor: a member from BoE

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The Bank of England offers up to 2 opportunities for 2 students, one student per topic. Please indicate which topic you would like to work on in your application formLink opens in a new window.

Topic 1: Financial development, diversity and stability

Summary

The project aims at calculating a measure of financial development of territorial systems in the UK that is intrinsically linked to its institutional diversity dimension. To this aim, we will use public data by the ONS and follow the algorithm introduced by Hidalgo and Hausmann. The unit of observation will be UK counties (ITL3) or other sub-regional units. We will then test whether more financially developed (diverse) local financial systems are characterised by a greater financial and economic stability or resilience to external shocks. The project is empirical and builds on previous studies that considered Italian provinces and that can be used as reference:

• Pisicoli, B. (2023). Financial development, diversity, and economic stability: Micro and systemic evidence. International Economics, 175, 187-200.
• Pisicoli, B. (2022). Banking diversity, financial complexity and resilience to financial shocks: evidence from Italian provinces. International Review of Applied Economics, 36(3), 338-402.

The study may be extended in its scope and geographical coverage in case the student has access to additional data.

 Required skills

Micro-econometrics techniques, Data processing. Access to BvD data (Orbis, Bankfocus) or similar data on banks and firms’ balance sheet is a plus.

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Topic 2: Energy price shocks, trade in energy and productivity – an international perspective

Summary

The invasion of Ukraine in 2022 was followed by a strong hike in energy prices - globally and especially in Europe - leading to a surge in inflation and depressed GDP across many countries. But how was labour productivity affected?

André, Costa, Demmou and Franco (2023) for example find that increases in energy prices lead to a fall in productivity in the short-run, but an increase in the medium-run. For the UK on the other hand, an analysis employing the approach of Känzig (2021) did not find any significant impact of energy price shocks on labour productivity.

However, in ongoing work I show that the impact of energy prices on productivity is affected by the energy trade balance (energy exports minus imports), and that not accounting for it might lead to biased results. This might explain the inconclusive findings for the UK.

Your project aims at performing an empirical analysis of energy price shocks on labour productivity, while controlling for the energy trade balance. The plan is to do the analysis for a wide range of countries. Starting with the country level, the analysis can later be extended by disaggregating at the sectoral level, if time permits.

The first step is to compile a panel dataset of several countries, using national account, trade and energy consumption data. Extending the Känzig-syle oil price shock series (Känzig, 2021) might also be necessary. In the second step the empirical analysis is performed by estimating panel local projections (basically repeated OLS panel regressions). Therein labour productivity is regressed on the Känzig oil price shocks as well as on the energy trade balance of each country and further controls and fixed effects. In case you are familiar with vector autoregressions (VARs) the analysis can also be complemented by a panel VAR.

If time permits the next step is to collect data at the sectoral level for each country and redo the analysis at this level. The sectoral analysis comes with some further challenges, which we would discuss and address together.

(If interested and experienced we can also discuss the implementation of a DSGE model to illustrate and quantify the mechanisms at play as a final step of the analysis. This however would most likely be pursued in a follow up to the Research Support Programme project.)

Related literature

• André, C., Costa, H., Demmou, L., & Franco, G. (2023).Rising energy prices and productivity: short-run pain, long-term gain?. OECD Economics Department Working Papers.s
• Berthold, B., Cesa-Bianchi, A. & Di Pace, F. (2023) The Heterogeneous Effects of Carbon Pricing: Macro and Micro Evidence. Mimeo.
• Känzig, D. R. (2021). The macroeconomic effects of oil supply news: Evidence from OPEC announcements. American Economic Review, 111(4), 1092-1125.

Required skills

Required:

• Knowledge of basic econometrical methods, particularly panel regressions
• Experience with statistical software (R, Stata or Python)
• Experience with data work, particularly with aggregate data like national accounting data

Optional:

• Knowledge of time series methods, particularly local projections, VARs and panel VARs
• Experience with computational software (Matlab or Julia)
• (Knowledge of DSGE models and experience with Dynare)