(a) Saving ratios calculated using the average consumption and disposable income levels for each group of households. Numbers in parentheses show their share of total income in 2007. Shares do not sum to 100 due to rounding. (b) High-debt mortgagors are defined as having outstanding mortgage debt of more than twice their annual disposable income. All other mortgagors are low debt. Chart 2: Ratio of UK exports to UK-weighted rest of G7 imports(a) Indices: 2003 Q1 = 100 140 Goods  130  Services  120 110 100 90 80 70  1994  1997  2000  2003  2006  2009  2012  Sources: Eurostat, Japan Cabinet Office, ONS, Statistics Canada, Thomson Reuters Datastream, US Bureau of Economic Analysis and Bank calculations. (a) Chained-volume measures of UK goods (services) exports divided by real imports of goods (services) in Canada, France, Germany, Italy, Japan and the United States, weighted using UK 2011 goods (services) export shares from the 2012 Pink Book. UK goods exports data have been adjusted for MTIC fraud by an amount equal to the ONS goods import adjustment. BIS central bankers’ speeches  7  Chart 3: Net international investment positions (% of GDP) Percentage point changes since 2000 Germany France Greece  Ireland Italy  60  Spain Portugal  40 20 0 -20 -40 -60 -80  -100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012  Source: Eurostat.
The public’s recognition of this incentive may help hold down inflation expectations and cause inflation expectations to be more firmly anchored. In addition, TIPS may give the Treasury access to a broader investor base, which also may reduce the Treasury’s overall borrowing costs. The comparison between the prevailing interest rates on TIPS versus nominal Treasuries provides insight into the relative costs associated with issuing a marginal dollar of debt. But just as important is whether TIPS issuance, by displacing nominal Treasury issuance, reduces the level of interest rates that the Treasury pays on its nominal issuances. This would occur if TIPS were not perfect substitutes for nominal Treasury securities and if the demand for nominal Treasuries were downward sloping – that is, not completely elastic. The first condition almost certainly holds given the different attributes of TIPS versus nominal Treasuries. If they were perfect substitutes, then there would not be a liquidity premium for nominal Treasuries relative to TIPS. The second condition seems likely to hold since numerous studies have found that an increase in the net amount of Treasury borrowing leads to higher expected borrowing costs for the Treasury. How big might this effect be? That’s difficult to estimate. A few studies 6 have found that an increase in supply in a particular segment of the Treasury yield curve has contributed to a rise in yields.