samchain/econo-pairs-v1 huggingface dataset:
The hard yards - speech by Andrew Bailey i  Given at the Society of Professional Economists Annual Dinner  The hard yards ‐ speech by Andrew Bailey | Bank of England  Page 1  Published on 27 September 2021  Andrew Bailey looks at the varying forces currently acting on the economy and what they mean for monetary policy. One is the supply bottlenecks that are affecting the availability of goods and services. While they will push up on the cost of living, that will likely only be temporary. The labour market presents more of a puzzle. Job vacancies have been at record levels, but as the furlough scheme ends, it is uncertain what will happen to hiring and wages. The Monetary Policy Committee focuses on medium-term inflation rather than transient factors. But if these factors are likely to be more persistent, the committee will step in and adjust monetary policy as needed. Speech I am going to speak this evening about the state of the economy and about monetary policy as the recovery from Covid unfolds. The title of this speech, The Hard Yards, is I think a saying that originated in sailing, though I associate it more with forward play in rugby. I remember saying, around a year ago when the recovery looked rapid, that the hard yards were yet to come, and while I don’t want to claim any great prescience, it appears to be turning out that way.

Such an outcome is likely to raise the rate of unemployment consistent with stable wage growth i.e. the NAIRU. The second outcome is different. Vacancies may be temporarily higher, and above their steady state level in the short-run, if firms are anticipating that it will be harder to find workers in the future when unemployment falls. In that scenario, demand picks up, the impact of matching frictions in the labour market dissipate over time, and both vacancies and unemployment fall. The NAIRU would be less affected in this scenario. Another possible explanation is that the level of advertised vacancies is elevated due to employers overestimating the growth of demand to come just as the speed of the recovery falls off. In this case, some of the vacancies turn out not to be jobs as employers change their mind, or at least hiring is put back. The implications of these labour market outcomes are quite different for growth, inflation, and thus monetary policy, which illustrates the uncertainty we face. Before turning to inflation, I want to say something on earnings. On the face of it, headline earnings are elevated. Pay growth of around 8% for July (the latest available number) is very high.
It shows a sharp decline following the collapse in investment during the global financial crisis, and a subsequent recovery, which flattened off as a result of the weak investment in the period prior to Covid (Chart 7). The Covid shock has been profound, and has required an increase in public and business debt to smooth the impact. This is a necessary and sensible response. It means that the economic impact of Covid will be spread over time – how long we don’t know because it is too early to predict. But that cost has to be managed, and it will be easier to do that with a higher trend rate of growth, boosted by stronger investment. Let me add that this investment is also needed to support the transition required by climate change and the necessity of enabling a more digital economy. These are challenges and opportunities. The message is simple: stronger growth in potential supply supported by stronger investment and productivity growth will make the Covid recovery easier. Monetary policy has a role to play here, in ensuring there is sufficient growth in demand to match any increase in potential supply growth. The MPC’s actions during the pandemic may also have helped reduce 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  the extent of scarring. The Bank’s Financial Policy Committee is also taking steps to ensure there is appropriate supply of finance for productive investment.

Smaller firms have been the most vulnerable to the shock and, despite the mitigating measures put in place, are more likely to be affected by solvency problems. Naturally, differences in credit risks across sectors of activity (besides the most directly affected sectors) and in the geographical distribution of the exposures may also contribute to the possible future heterogeneity of the impact of the crisis on banks. As regards the geographical aspect, the high impact of the pandemic in 2020 H1 in some foreign countries that are material to Spanish banks suggests that the benefits of geographical diversification could be lesser in this crisis than during the global financial crisis. However, the contribution of foreign business to Spanish banks’ return on ordinary activities increased in 2020 as a whole, and the growth in impairment allowances was relatively contained in various material countries. In any event, the potential uneven performance of the banking business in the different geographical areas needs to be monitored. Moreover, in view of the possible materialisation 9  Indeed, the distribution among banks of the percentage of credit exposure to the sectors hit hardest by the pandemic (e.g. hospitality and transportation and storage) is very concentrated, at values of close to 20%. 9  of permanent damage to some sectors of economic activity with asymmetric recovery paths, it is important to continue monitoring changes in credit quality.
But are they? Well, in the crisis we learnt that decision-makers often were not. IT systems, data architecture and related processes were not up to the mark. Against that backdrop, we assessed how banks aggregate data and report risks. The yardstick was a set of global best practices that were defined by the Basel Committee on Banking Supervision. These are known as the BCBS 239 principles. The result of our review: many banks do not meet the global standards. As usual, we will therefore be very explicit on how these banks should improve. And we will closely monitor the progress made by the respective banks to ensure that they meet relevant standards. Ladies and gentlemen, good risk data is one thing. But processing such data is another matter. And that leads me to my next topic: internal models. Many large banks use these models to calculate their risk-weighted assets, which then serve as a basis for calculating capital requirements. Over the past years, internal models have diverged greatly, not least due to the fact that supervisors applied different standards when authorising them. In response, we have launched a project called TRIM. That stands for “targeted review of internal models”. It aims to ensure two things: first, that the playing field is level; second, that internal models produce reliable and comparable results. The calculation of risk-weighted assets should be driven by actual risks rather than by modelling choices. TRIM will help to raise trust in how banks calculate their risks.

The bank proved incredibly successful, leveraging its brand affinity and customer loyalty to acquire over 300,000 customers within their first 24 hours, one million within five days, and reaching six million customers within a year. 14 Thus, within a year of opening, Kakao Bank had a third of the number of customers of Shinhan Bank, the largest bank in South Korea. This was despite the fact that Central Bank of Kuwait - Public ‫ عام‬- ‫بنك الكويت المركزي‬  - 10 -  financial inclusion in South Korea was already at 95% at the time. You can imagine how long will it take for Kakao Bank to become the largest bank in the country. This example demonstrates that banks cannot take customer loyalty for granted. They need to ensure that customers engage with them not because they have to, but because they want to. And the only way to ensure that is by not only understanding customers, but also becoming central to their evolving needs. ii. Battle for Value To win the battle for customer loyalty, banks must provide value, which is the second battle. Winning this battle requires banks to adopt a more proactive approach when positioning themselves with respects to their customers. It is not enough to be on the sidelines as, say, a purely auto financing or mortgage provider. Banks need to position themselves at the center of the ecosystem, providing their customers with the best products, services and advice as and when customers require.
Second, the Rule has the desirable feature that when economic shocks push the economy away from the central bank’s objectives, the Taylor Rule prescribes a policy response that can help push the economy back toward the central bank’s goals. Third, a number of studies have shown that Taylor Rules are robust in the sense that they generally perform quite well across a range of different assumptions about how the economy is structured and operates. Despite these attractive features, I don’t believe that any prescriptive rule, including the Taylor Rule, can take the place of a monetary policy framework that incorporates the FOMC’s collective assessment of the large number of factors that impact the economic outlook. 1  Jonathan McCarthy, Paolo Pesenti, Argia Sbordone and Joseph Tracy assisted in preparing these remarks. BIS central bankers’ speeches  1  As I see it, the Taylor Rule has several significant shortcomings that can be detrimental to the attainment of the Federal Reserve’s mandated objectives. These shortcomings are not just theoretical; they have been very relevant to monetary policy in recent years. First, the Taylor Rule is not forward-looking. Its policy prescription is based on the current size of the output gap and the deviation of current inflation from the Fed’s objective, not on how these variables are likely to evolve in the future.

As the savings show, our new rules do an even better job of recognising the characteristics associated with lending to pools of SMEs compared to other forms of credit-giving. The status of the New Accord Let me conclude with a word on the status of our work. The Committee has asked for final public comments on the “third draft” of the rules by July 31 of this year. We would certainly welcome comments on any aspect of the proposals related to SME lending and will give full consideration to whether any final changes may be necessary. The Committee expects to approve and publish the final text of the New Accord this year, and for the new rules to be implemented at the end of 2006, which gives bankers and supervisors three years to prepare. Other countries are likely to seek to adopt the New Accord in roughly the same timeframe, or perhaps thereafter, depending on national circumstances. While this will require substantial efforts from bankers and supervisors, we all acknowledge that better tools are needed for measuring the risks that banks face. Likewise, we know that, for banking supervision to remain robust and relevant, our rules must keep pace with changes in the industry. This includes incorporating what we’ve learned about the unique characteristics of small business lending in recent years. We are confident that the New Accord will be worthy of the efforts made. Thank you for your attention. I would be very happy to answer any questions you may have.
Lars Nyberg: The mortgage market from a Riksbank perspective Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at The Swedish Bankers’ Association’s Annual Bank Meeting 2004, Stockholm, 11 November 2004. *  *  *  First and foremost, thank you for the invitation to speak at the bank meeting today. The mortgage market is the focus of today’s meeting and I will discuss this market from a Riksbank perspective. But what is that exactly? The Riksbank’s remit is to conduct monetary policy in such a way that leads to stable prices, but also to promote stability and efficiency in the payment system. For both of these tasks, the situation in the mortgage market since the mid-1990s, with increasing household debt and rising housing prices, has been of great interest. Is this development sustainable? And if not, what should be done? Incidentally, we share these issues with a number of other countries in the Western world. I intend to begin with a brief reminder of how we arrived at this situation. Then I will discuss the risks to financial stability. Finally I will give my views on the possible implications for the inflation target and monetary policy. Housing prices and debt Since 1996 house prices have risen by just over 80 per cent in current prices. Swedish household debt has increased by 85 per cent over the same period (Figure 1).

Priority actions should, therefore, focus on addressing the underlying issues, and efforts at further expanding the already established toolkit come next. This would require bold steps at both the EU and national levels to regain confidence in the future of EU integration. At the EU level, there are institutional issues to be addressed concerning the future of the integration process. The five scenarios recently proposed by Commission President JeanClaude Juncker shed light on the possible patterns of integration between the EU members. However, there remains a potential conflict between the prospects of “multiple-speed” developments and advancing real convergence between the euro area and the rest of the EU. The EU needs to move promptly on this issue, in order to address uncertainties. The national authorities, at their end, should promote financial stability and fiscal solvency, and address structural weaknesses and bottlenecks. The experience of Bulgaria may be indicative of what can be done by an EU member state that is not yet member of the euro area. From the central bank perspective this involves: (i) a sound banking sector; (ii) fiscal consolidation; and (iii) structural reforms. Good progress has been made in Bulgaria with regard to the first two areas. A comprehensive asset quality review in 2016 helped restore confidence in the banking sector. Bank lending is recovering, the overall profit is near historical highs and a process of market-based consolidation in the sector is underway, including a recent deal with a strategic investor from the euro area.
Today, we ask the European Commission and President Van Rompuy, who have been charged with this task, to put forward proposals that go as far as possible in this regard: we need to significantly enhance fiscal and economic governance in the euro area. 2  BIS Review 154/2010  Does global governance simply mean the convergence or merging of the approaches followed by the main international bodies? A lot of changes are happening in this regard: the IMF is in the process of reforming its internal governance, with emerging countries being granted more seats. The European countries have agreed to reduce their representation. With regard to the informal governance of the global economy and finance, the G20 has replaced the G7. This means that henceforth all the emerging countries as well as the industrialised countries with a systemic influence at the global level bear full responsibility for the governance of the integrated global economy. How do you envisage this governance developing in the medium and long term? Governance today is still founded on the notion of sovereign states in a “Westphalian” world, which does not correspond to the new governance needs of an integrated global economy. The big challenge right now is to speed up the move to a system of global governance that fits the new world that we have created over time, in particular over the past 20 years following the collapse of the Soviet empire and the conversion of large emerging countries to the market economy.

In this regard, we are naturally supporting efforts by the French Treasury and insurers to improve the prudential treatment of long-term equity investments already during the 2018 review. On a topical note, I would add that it is crucial for supervisors to apply all prudential requirements with equal rigour. The string of failures by insurers doing business on the French market under the FPS, particularly in construction insurance, is a reminder of the importance of this. The ACPR is obviously working hard to deal with this crisis, which is affecting tens of thousands of French policyholders. But the requisite convergence of supervisory practices also needs to become a reality very soon. I know that Gabriel Bernardino and EIOPA are making this a priority. Finally, let me be clear: it is unreasonable to apply the new IFRS17 accounting framework right now, given the current state of the discussions. Aside from the complexities of creating a European governance framework for these standards, there is also an obvious issue of timing, and fortunately, the IASB appears to be reopening discussions on this. Implementing IFRS17, which will be costly and complex, will follow on from implementation of Solvency 2, a process that has kept insurers very busy. Beyond the question of timetabling, there are major substantive issues. We want an agreement on identifying groups of loss-making contracts. As it stands, the draft is unworkable. We also want to see completion of the discussions on the treatment of reinsurance contracts held.
Oil prices have increased sevenfold since 1999; industrial metals have increased threefold since 2001. Similarly, the extraordinary gold bull market at the end of the seventies occurred in the context of rising oil and commodity prices. This parallelism, however, is not perfect. The average correlation between weekly price changes of gold and oil throughout the last 20 years is a mere 0.1. For metals, the correlation with gold is slightly higher but remains below 0.2. Both correlations have varied heavily within the period; currently, they are clearly on the high side (Graph 1). Graph 1: Correlation between gold, metals and oil prices Gold - Metals (GSCI)  Gold - Oil (Brent)  0.8  0.6  0.4  0.2  0  -0.2 Correlation of weekly price changes over a 1-year period -0.4 01.01.1983  01.01.1988  01.01.1993  01.01.1998  01.01.2003  Despite similarities in price movements, the gold market has a number of distinct features relative to other commodity markets. Arguably, the most important distinction is the fact that the ratio of available supply to annual production is much higher for gold than for other commodities. A significant proportion of the estimated 160,000 tonnes of all gold worldwide available in the form of jewellery, bars, coins, etc. (sixty times the annual mine production) could be brought to market at relatively low cost.

[11] Productivity growth impacts R* through firms’ optimal level of capital for production, in other words the demand for capital from firms. Lower productivity reduces the potential returns on new investment (the marginal product of capital) and this reduces firms’ demand for capital at a given interest rate. In equilibrium this reduction in demand lowers R*. The model simulations suggest that this effect accounts for almost half of the decline in Global R* over this period. Population ageing has been driven by a decline in population growth rates relative to the high levels seen following the Second World War and a marked increase in life expectancy. Importantly, however, in the model the impact of ageing comes almost entirely from the rise in longevity, rather than the decline in population growth rates. What this means is that the effect of population ageing on the trend real rate is not a consequence  Page 8  of the so-called ‘baby boom’. Instead, it reflects the fact that the oldest generations in the population – including older retirees – also tend to be those who have accumulated the most wealth. This naturally occurs as households accumulate wealth over their working life, in order to fund their retirement. This means that a shift in the age distribution towards these cohorts, in other words population ageing, will increase total wealth in the economy. [12] The equilibrium real interest rate falls to incentivise firms to invest this additional wealth into productive capital.
Global economic outlook  Let me turn to the global economic outlook. Growth was modest in the advanced economies in the first quarter of 2023. Although inflation declined again in many countries, it remains clearly above central banks’ targets. Core inflation in particular is still stubbornly elevated. Page 2/8  Zurich, 22 June 2023 Thomas Jordan, Martin Schlegel and Andréa M. Maechler  News conference  Against this background, numerous central banks have tightened their monetary policy further, albeit at a somewhat slower pace than in the previous quarters. The growth outlook for the global economy remains subdued. This is in particular attributable to the loss of purchasing power due to inflation in recent quarters and to tighter monetary policy. At the same time, inflation is likely to remain elevated worldwide for the time being. Over the medium term, however, it should return to more moderate levels, not least thanks to the more restrictive monetary policy and due to the economic slowdown. Our scenario for the global economy remains subject to large risks. In particular, the high level of inflation in some countries could be more persistent than expected. Equally, the energy situation in Europe could deteriorate again in Q4 2023 and Q1 2024. Swiss economic outlook  What is the economic outlook for Switzerland? GDP growth was solid in the first quarter of 2023. The services sector gained momentum, and there was also a slight increase in value added in manufacturing. The labour market remained robust, and overall production capacity has been well utilised.

Banks’ sight deposits held at the SNB will be remunerated at the SNB policy rate of 1.75% up to a certain threshold. Sight deposits above this threshold will be remunerated at an interest rate of 1.25%, and thus still at a discount of 0.5 percentage points relative to the SNB policy rate. Inflation forecast  I would like to address the development of inflation. Inflation has declined significantly in recent months, and stood at 2.2% in May. This decrease was above all attributable to lower inflation on imported goods, in particular lower prices for oil products and natural gas. Our new conditional inflation forecast is based on the assumption that the SNB policy rate is 1.75% over the entire forecast horizon (cf. chart 1). Through to the end of 2023, the new forecast is below that of March. The lower oil and gas prices and the stronger Swiss franc are having a dampening effect over the short term. From 2024 onwards, the new forecast is higher than in March, despite today’s increase in the SNB policy rate. The reasons for this are ongoing second-round effects, higher electricity prices and rents, and more persistent inflationary pressure from abroad. The new forecast puts average annual inflation at 2.2% for 2023 and 2024, and 2.1% for 2025 (cf. table). In the forecast period, inflation is likely to be increasingly driven by higher prices of domestic goods and services. Without today’s policy rate increase, the inflation forecast would be even higher over the medium term.