samchain/econo-pairs-v1 huggingface dataset:
Pay Power Speech given by  Andrew G Haldane Chief Economist Bank of England Acas “Future of Work” Conference Congress Centre, London 10 October 2018  The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Will Abel, Shiv Chowla, Tomas Key, Brad Speigner and Ben Stokes for their help in preparing the text. I would like to thank Ben Broadbent, Clare Macallan, Becky Maule, Mette Nielsen, Silvana Tenreyro and Jan Vlieghe for their comments and contributions. This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. 1  All speeches are available online at www.bankofengland.co.uk/speeches  It is great pleasure to be here at the Acas Annual Conference whose theme this year is the “Future of Work”. It is a particular pleasure to have Brendan Barber as Chair. As a member of the Bank of England’s Court between 2003 and 2012, Brendan’s insights on the labour market and wider economy were crucial in helping the Bank steer a policy course through a period of first macroeconomic calm and then extra-ordinary macroeconomic storm following the global financial crisis. It is the labour market that I want to discuss today.

With workers fearful of unemployment – and employers having less need to attract workers given the large pool of unemployed – voluntary job moves plummeted, falling from around 1% of the working population pre-crisis to a low of around 0.5% in 2009. As the economy and jobs market has recovered, and job insecurity has fallen, more people have voluntarily moved jobs to secure a higher wage. Job-to-job flows today are back to their pre-crisis averages. In this tightening market, the pay growth of “twisters” has picked up markedly, from a little under 4% in the  8  All speeches are available online at www.bankofengland.co.uk/speeches  8  aftermath of the crisis to over 7% now. 11  Through the direct (batting average) channel, this has in turn  boosted aggregate pay growth. More surprising, however, is how little impact strong employment has had on those not moving job. Wage growth for “stickers” has flat-lined at around 2%. Despite a tightening labour market, companies have so far not felt compelled to pay-up to any significant degree to retain workers. The indirect, or behavioural, channel for pay pressures has largely been missing during the recent jobs recovery. This may be a sign that stickers’ pay is behaving differently than in the past. Chart 15 plots two empirical Phillips curves – one for twisters, the other for stickers. The twisters’ Phillips curve is behaving relatively similarly to the past, with pay broadly as expected given the tightness in the jobs market.
The fourth article of the Central Bank Law states that the Bank is responsible “ to monitor the financial markets; to regulate the volume and circulation of the Lira, to establish payment and securities transfer and settlement systems and to set forth regulations to ensure the uninterrupted operation and supervision of the existing and future systems and to determine the procedures and conditions of reserve requirements and liquidity  5  Hoggarth, G. Reidhill, J. Sinclair, P. (2004). On the Resolution of Banking Crises: Theory and Evidence. Bank of England Working Paper. No.229. BIS Review 38/2005  5  requirements by taking into consideration the liabilities of banks and other financial institutions as deemed appropriate by the Bank.” In this article it is also stated that the Bank will take measures for enhancing the stability in the financial system and take regulatory measures with respect to money and foreign exchange markets as well. Hence, The Bank is equipped to take necessary measures in times of external shocks and in fact proved that during the 9/11 event and also the Iraqi War in 2003. Distinguished Participants, After the 2001 crisis, besides amendments in the Central Bank Law, many steps were immediately taken to strengthen the financial sector. At first, the “Banking Sector Restructuring Program” was put into practice in May 2001. The main goal of the program was to eliminate the distortions in the financial sector, improving its intermediary function and thus enhancing its competitiveness by international standards.

Let me salute the presence of Mr. Jaroslav Hanák, President of the Czech Confederation of Industry, Mr. Karel Novotnỳ, Deputy Minister of the Czech Ministry of Industry and Trade and Mr. Bogdan Pandelică, State Secretary of the Romanian Ministry of Economy. They will address the audience right after my brief remarks. I extend a warm welcome to His Excellency Mr. Jiři Šitler, the Ambassador of the Czech Republic. The Forum will focus normally on micro level, on real economy issues. Allow me to say a few words about the macroeconomic perspective in Romania, which is the main area of interest for central bankers. The macro perspective is relevant since is the canvas on which the picture of business relations is to be set up. No doubt the crisis has taken its toll on Romania’s economy, given the large imbalances which had been steadily accumulating during the boom years. Whether the crisis has ended or not at European level is still a matter of debate. What may be said for certain is that Romania undertook the necessary adjustments during 2009–2012 period and the preconditions for sustainable growth are now in place. Indeed, the result of these adjustments may already be seen in the 2013 economic performance, which hopefully marks a turnaround in Romania’s economic development: rapid economic growth (judged by the current EU standards), sizeable adjustment in the current account deficit, historically low inflation, while keeping the fiscal deficit well below 3%.
At that time, loan losses among the Swedish banks were very large, as I clearly remember from my position as head of the Swedish Bank Support Authority then. The banks’ loan losses were from the commercial property sector, which was devastating for profitability; it was a solvency crisis rather than a liquidity crisis. During the most recent global financial crisis, loan losses on the domestic market were very limited; most losses arose on loans to the Baltic region. This time, the solvency of the banks was not threatened; instead, an acute  10  The average rate of inflation since 1995 has been 1.2 per cent, when measured in terms of the CPI. The interest rate situation was rather different when the inflation target was introduced than it is now. As household mortgage interest expenditure is included in the CPI, the large decline in interest rates has contributed to a lower consumer price index. Average inflation measured as the CPI with a fixed mortgage rate (CPIF) has been 1.6 per cent since 1995. BIS central bankers’ speeches  5  shortage of liquidity in the banks arose when the functioning of the capital markets deteriorated. This was managed by means of extensive loans from the Riksbank. Important lesson – financial stability and price stability are interlinked One major question after the financial crisis was whether monetary policy should give greater consideration to financial stability.

The participation of banks in the debt guarantee schemes is voluntary, and the very limited use of these guarantees may reflect a decline in the demand for credit and/or the desire of the banks to continue deleveraging their balance sheets. It is, however, important to ensure that other constraining factors are addressed, for example that the disincentives associated with the provision or pricing of these debt guarantees are promptly addressed, so as to help banks finance additional lending to the private sector. Possible further measures A relevant question is whether the tight financing conditions and the continuing stresses on the banking system require further measures by governments and central banks in order to help revive the extension of bank credit to the economy. The answer regarding the need and the nature of potential further measures depends on the causes or determinants of the prevailing financing conditions and on the structure of the financial system. To the extent that (i) financial market stresses, (ii) the deleveraging process, (iii) uncertainty about the economic outlook and about potential further bank losses, and (iv) low confidence impair the functioning of the credit and bank funding markets and the transmission of the effects of monetary policy, “non-standard” measures aimed at reducing funding uncertainty and enhancing the functioning of the credit market and, consequently, the monetary policy transmission mechanism, may represent possible courses of action.
18  Kohn (2006, 2008) specifies three conditions that should be fulfilled for central banks to take “extra action” to deal with a possible asset-price bubble: “First, policymakers must be able to identify bubbles in a timely fashion with reasonable confidence. Second, a somewhat tighter monetary policy must have a high probability that it will help to check at least some of the speculative activity. And third, the expected improvement in future economic performance that would result from the curtailment of the bubble must be sufficiently great.” He concludes, also in 2008 and after thorough considerations, that those conditions would rarely be met. See also Kohn (2009). 6  BIS Review 16/2010  In particular, if there is evidence of rapidly-rising house prices and mortgage loans, and these developments are deemed to be unsustainable and a possible bubble, there are much more effective instruments than policy rates. Restrictions on loan-to-value ratios and minimum mortgages and requirements of realistic cash-flow calculations for house buyers with realistic interest rates are much more effective in putting a break on possible unsustainable developments than a rise in the policy rates. In particular, more transparency about future policy rates, in the form a policy-rate path published by the central bank, may help in providing realistic information about future interest rates.

(1997), “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets”, European Economic Review 41, 1111–1146. Svensson, Lars E.O. (1999), “Inflation Targeting: Some Extensions”, Scandinavian Journal of Economics 101, 337–361. Svensson, Lars E.O. (2003), “Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others”, Journal of Economic Perspectives 17(4), 145–166. Svensson, Lars E.O. (2005), “Monetary Policy with Judgment: Forecast Targeting”, International Journal of Central Banking 1(1), 1–54. Svensson, Lars E.O. (2009a), “Evaluating Monetary Policy”, in Koenig, Evan, and Robert Leeson, eds., From the Great Moderation to the Great Deviation: A Round-Trip Journey Based on the Work of John B. Taylor, forthcoming, www.larseosvensson.net. 8  BIS Review 16/2010  Svensson, Lars E.O. (2009b), “Flexible Inflation Targeting: Lessons from the Financial Crisis”, speech on September 21, 2009, www.riksbank.se. Taylor, John B. (2007), “Housing and Monetary Policy”, in Housing, Housing Finance, and Monetary Policy, Federal Reserve Bank of Kansas City Jackson Hole Symposium, 463–476. Walsh, Carl E. (2009), “Using Monetary Policy to Stabilize Economic Activity”, in Financial Stability and Macroeconomic Policy, Federal Reserve Bank of Kansas City Jackson Hole Symposium. White, William R. (2006), “Is Price Stability Enough?”, BIS Working Paper No. 205, www.bis.org. Woodford, Michael (2007a), “The Case for Forecast Targeting as a Monetary Policy Strategy”, Journal of Economic Perspectives, Fall 2007. Woodford, Michael (2007a), “The Case for Forecast Targeting as a Monetary Policy Strategy”, Journal of Economic Perspectives, Fall 2007.
The type of time series model chosen for the comparison is, despite its simplicity, difficult to surpass, according to several international studies. Moreover, they have analysed how far ahead we can make forecasts with good accuracy, that is to say what forecasting memory the different variables have.5 They have also looked at whether there are tendencies to systematically over-estimate or under-estimate the different variables, that is, whether the forecasts have any bias. What does the analysis show about our forecasting performance? Let us first look at the entire period and compare our forecasts for GDP, employment and CPIX with outcomes. CPIX is a measure of underlying inflation, which until recently was known as UND1X. Hardly surprisingly, it appears that the forecasts have varied in accuracy (Figure 1). For instance, we have under-estimated employment growth recently (Figure 2). Nor did we predict the sharp rise in inflation spring 2001 in our assessments the previous year. However, we were more successful in capturing the downswing in inflation during 2003 (Figure 3). But how do things look in more detail for the different variables? Forecasts for GDP growth With regard to the GDP forecasts, we have periodically been accurate and close to the outcome, while we have fallen short on other occasions (Figure 1). It is often particularly difficult to make forecasts in an economic turnaround. Compared with the time series model that is used to gain a perspective of the forecasting memory, we make better GDP forecasts up to a year ahead.

I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy’s momentum is sustainable in the presence of less accommodative financial conditions. I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived. 3  6  Lockhart (2014). BIS central bankers’ speeches  References Federal Open Market Committee, 2014, Summary of Economic Projections(external-pdf), Washington, DC, September 17. Kocherlakota, Narayana, 2013, “A time of testing,” speech, St. Paul Chamber of Commerce, St. Paul, MN, November 12. Lockhart, Dennis, 2014, “Thoughts on liftoff,” speech, Global Interdependence Center, Sixth Annual Rocky Mountain Economic Summit, Jackson Hole, WY, July 11. BIS central bankers’ speeches  7
Each sector may be in financial surplus or deficit, but the surpluses and deficits must, in accounting terms, sum to zero (although in terms of available statistics they may not, because of errors and omissions); every piece of deficit is necessarily matched by a piece of surplus. Typically, one might envisage the savings surplus of the household sector being channelled through the banks and financial markets to fund a deficit in the corporate sector, arising from its capital investment and working capital needs. In this context the deficit in the corporate sector seems perfectly acceptable. Why, then, should a deficit in the public sector raise particular anxiety? Isn't the situation where the public sector has a funding need analogous to that where private sector corporate entities have such needs? Not necessarily so. A number of factors may differentiate the two situations. What are these factors and what are the special considerations which may apply in the case of the public sector deficit? •  First, when assessing the impact of different deficits one may need to look behind them, to associated developments in the real economy. For example, a financial deficit may reflect, at one extreme, spending on current consumption, and particularly on imports with no resulting benefit to domestic employment; or it may reflect, at the other extreme, investment which generates jobs and greater efficiency within the domestic economy.

That is in line with the intention in our advice from 2017 and will contribute to reducing the exposure of the state’s wealth to oil price risk. 1/2  BIS central bankers' speeches  The report to the Storting on the Government Pension Fund provides for among other things the possibility of investing in unlisted renewable energy infrastructure within the environmental mandates. As we have indicated previously, Norges Bank will approach investment opportunities and build expertise gradually. Investments in unlisted infrastructure will be a topic for the Executive Board’s work on the new strategy plan to apply from 2020. On 10 April 2015, the Central Bank Law Commission was appointed. Precisely four years later, the Government put forth a proposal on a new central bank act. At that time, the Storting had already endorsed retaining Norges Bank as the operational manager of the GPFG. For Norges Bank, the proposal on a new central bank act entails a number of changes, such as increasing the capacity of Norges Bank’s Executive Board in the area of capital management. Norges Bank has already made considerable strides in adapting the internal organisation to the changes ensuing from the new central bank act. The main exposures that are decisive for the GPFG’s long-term performance are decided by the Ministry of Finance and anchored in the Storting. This year’s report to the Storting on the GPFG includes several measures to further develop the investment strategy. But the objective remains firm: The highest possible return at an acceptable risk.
Sources: Reuters EcoWin and the Riksbank  A simplified illustration of this can be provided by describing the banks’ lending rate as a function of the central bank’s policy rate plus an interest rate margin or spread:  itlending  it   t . The interest rate margin (  t ) is a function of the compensation taken by the banks for administrative costs and capital costs, risk premiums, the banks’ profit margins, and loan-tovalue and amortisation requirements. Loan-to-value and amortisation requirements are not directly visible in the interest rate applied to the customer, but, in order to illustrate their effects on an aggregated level, these can be recalculated in terms of interest relatively simply. When risk propensity fell during the financial crisis, the interest rate margin increased as a consequence of both higher risk premiums and lower loan-to-value ratios. This counteracted the cut in the policy rate. When central banks and governments subsequently adopted various measures to increase confidence on the markets, risk premiums fell in a similar way. The lending rate thus fell without a change in the policy rate being required. Now, it is not only during a crisis that there exists reason to consider the financial sector’s significance for the transmission mechanism. As I have just discussed, one of the consequences of a crisis is that the regulations of banks and other institutions will become more stringent. The intention of this is to reduce the socioeconomic costs that can result from banking.

It should be pointed out that the reason that a central bank may wish to lean against the wind does not have to be because it only wishes to safeguard financial stability. That may be the case, but it may also be a purely monetary policy decision. The bank may simply wish to attempt to avoid severe fluctuations in the real economy and inflation, even if these are not deemed to be associated with financial stability problems. Leaning against the wind is not a problem-free strategy. Three primary counterarguments have been put forth. 7 Firstly, the imbalance must be identified at a sufficiently early stage. Attempting to rectify the imbalance too late may be problematic as monetary policy acts with a time lag. If property prices fall steeply immediately following an increase of the policy rate by the central bank, the delayed effects of the interest rate increase will reinforce the negative effects on the economy of the falling property prices. Of course, one must also be sufficiently certain that an imbalance really is building up. If the upturn is being caused by fundamental factors, a higher interest rate would hinder growth unnecessarily. Secondly, one has to rely upon being able to deal with the property price increase through reasonable increases of the policy rate. One hypothesis is that the optimistic mood often prevailing during a boom in the property market means that significant increases of the policy rate are required to have an effect.
This has facilitated the growth of entrepreneurs by providing finance to about 1.3 million crowdfunding projects. Crowdfunding platforms also allow entrepreneurs to closely engage with their customers – themselves investors – to shape and refine product ideas. A good example is the role played by crowdfunding in the rise of virtual reality (VR), which was largely ignored by traditional funders after its disappointing performance in the 1990s. Oculus Rift or the VR technology as we know would never have happened without crowdfunding. Such success stories can be an inspiration for our SMEs. With SMEs in Malaysia facing difficulty in obtaining capital and mezzanine financing, crowdfunding and P2P platforms can be further explored to meet such funding needs. Third, the matching of funds enabled by fintech also has great application within the social financing space. In particular, we see the potential of digitising the collection and utilisation of zakat, waqaf and sadaqah as holding great promise. The efficiency and transparency enabled by technology not only provides greater convenience to customers, but more importantly, builds public trust and confidence in the system. In turn, this will see wider participation and greater contributions towards social impact initiatives such as those to improve education, widen access to healthcare and extend humanitarian relief. We are already seeing encouraging developments in this space. For example, SkolaFund raised over RM200,000 in 2016 to fund 25 students from less-privileged families studying in universities and colleges in Malaysia.

At best, risk managers end up being tolerated as a necessary evil and constraint to innovation, rather than valuable partners to significantly lift a firm’s growth potential. Today, risk managers are tasked to identify and mitigate risks in day-to-day business decisions. This inherently assumes that risk managers in the office are going to be always better at identifying risks in new business ventures than the individuals on the ground who are charged to lead and execute them. In a fast changing world, this is particularly problematic because it is more likely to place unrealistic expectations on risk managers. Of greater concern, it may not permit timely responses to emerging risks. It also slows the pace at which a firm can learn from and adapt their risk tolerance to new ways of doing business as it gains experience. The path forward therefore lies in making business leaders better risk managers. The role of risk 2/5  BIS central bankers' speeches  managers in turn should evolve from directly supporting individual business decisions, to continuously pushing for more clearly defined risk appetite frameworks through engagements with the board, senior management and business leaders; by ensuring that management guidance is consistent with the risk appetite; and communicating the risk appetite in precise and specific terms across the organisation. Organisations will rarely get it right the first time.