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The banking crisis that followed the collapse of Northern Rock in 2007 resulted in an urgent need to inject liquidity into the financial system. In order to resolve these issues, the Bank of England asked Professor Klemperer, an expert in auction theory, to help re-dseign its long-term market operations to allow the Bank of England to auction loans backed by financial collateral of varying quality. Since 2010, this has been adopted as the Bank of England's standard mechanism for its long-term repurchase operations. The potential impact of the new auction design extends beyond the Bank of England to other central banks, private industry and to industry regulators.
Derek Bunn has led a research programme on understanding competition, market evolution, and prices in electricity markets. He and other researchers in the LBS Energy Markets Group have modelled production facilities in detail, their explicit ownerships, and the price-formation process. Their use of computational learning provides subtle insights which have eluded conventional approaches. The LBS group was the first to do this, and the approach is now widely applied. Relevance of the work is recognised via funding from major energy companies and research organisations. In terms of external impact, this work has informed extensive advice to several government inquiries, stimulated further research, and is actively used by commericial businesses.
Research led by Stephen Taylor has resulted in the development of forecasting methods for financial market prices and [text removed for publication] analytical tool at the Macro-Financial Analysis Division of the Bank of England. These methods have been cited in papers by employees of the European Central Bank, the Central Banks of Brazil, Norway and Mexico and the Italian Securities and Exchange Commission. The ability to manage risk by making more accurate predictions about financial market prices has been particularly important since the onset of the economic and financial crisis in 2008. Taylor has developed forecasting methods to make the best use of information recorded about recent asset and derivative prices, providing more precise expectations about future stock index levels, exchange rates and interest rates. Taylor's 2005 text on `Asset Price Dynamics, Volatility and Prediction' has also had significant and far-reaching impact on students learning about Finance and Economics worldwide.
The energy regulator, Ofgem, drew on research from the University of Birmingham when it instructed the electricity industry to re-design transmission charges that recover £1.6 billion per year. This instruction, issued in May 2012, was the culmination of Project TransmiT which Ofgem launched in September 2010. As part of TransmiT, Ofgem commissioned three teams of academics to consider whether changes to transmission prices were desirable and, if so, to recommend changes. One of these teams was from the Universities of Birmingham and Strathclyde. The changes introduced by Ofgem — which aimed to send more accurate signals of the cost of dealing with low-carbon electricity — were those recommended by the Birmingham and Strathclyde team. As a consequence, the research has fundamentally shaped a significant change to the future of electricity pricing in Great Britain, affecting the costs incurred by the industry and the payments made by every consumer in the country.
Property market investors (from large institutional investors to potential home buyers) need to have confidence on the level of risk and returns associated with their transactions. Without such confidence, property markets will fail to operate efficiently.
This case study reports on the development of a number of different property indices by Aberdeen-based researchers which have increased information on, and therefore the transparency of, specific markets. The commercial real estate and urban regeneration indices have been widely adopted by industry and influence investment portfolio decisions. The residential indices are used by surveyors, mortgage lenders and influence the housing choices of the general public.
This study is part of a research project on China's electricity industry conducted jointly with the Université de la Méditerranée in France, and Swiss Electricity Ltd, and is funded by the EU. Despite three decades of market-oriented reforms in China, the electricity price-formation process is still state-controlled. The study shows how this process induces electricity producers to manipulate costs to gain an advantage when negotiating prices with the state. Consequently, despite government intervention, industrial consumers in China pay as much as their counterparts in developed Western economies with liberalised electricity sectors. These findings have informed the latest plans for price reform being prepared by the electricity regulator in China.