Economics Weekly by Lloyds TSB

After a run of monthly economic indicators suggesting that the worst of the economic downturn has past, and some stabilisation and improvement in financial markets (accompanied by big profit announcements by some investment banks for Q2), some commentators believe that recovery is all but assured.

After a run of monthly economic indicators suggesting that the worst of the economic downturn has past, and some stabilisation and improvement in financial markets (accompanied by big profit announcements by some investment banks for Q2), some commentators believe that recovery is all but assured. Unfortunately, the reality may be rather more complicated, as economic and market indicators are not showing recovery but a deceleration in the pace of economic contraction.

One way of assessing this perception is to look at volatility in
a range of financial and market indicators. If risk perceptions rise, one would expect volatility to rise, but if risk perceptions fall, then volatility would be expected to fall as well.

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