samchain/econo-pairs-v1 huggingface dataset:
We have been able to observe that it is a broad-based decline in inflation, to the extent that all major components are affected.6 Low inflation has come to be a widespread phenomenon and many countries and regions have recently reported inflation rates clearly below their targets. Inflation has fallen particularly sharply in the euro area. The fact that this happens in a situation where there is plenty of spare capacity – which is the case in large parts of the euro area – is not particularly surprising. However, the downturn in Swedish inflation is larger and has been going on for longer than in other countries. And the question is why... One possible reason, which was also discussed in an article in the latest Monetary Policy Report in February, is that Swedish companies have not been passing on their cost increases to consumers as much as is normal.7 They have thus not increased their prices to the extent that one might expect, given the historical relationships with unit labour costs and import prices faced by producers. There may be several reasons for this, but one is that margins may decline when economic activity is weak, which is also noted in the article. Current research using US data implies that price mark-ups vary positively with the business cycle.8 Another reason may be that the weak development in the euro area has hit Swedish exports hard and that this has contributed to resource utilisation being lower than normal over a long period of time.

Such effects probably leave a mark on the development of service prices, as services are not traded internationally to the same extent as goods. Increases in services prices have been small in Sweden since the end of 2012 – both compared with normal developments and compared with other countries (see Figure 2b). A further explanation for the abnormally low price increases could be expectations of an abnormally low future inflation rate. In monetary policy analysis one usually assumes that there is a forward-looking element in the pricing, as it may be perceived as costly to change prices. If one is expecting weak demand and thus low price increases in the future, one will not want to increase one’s prices very much today. Expectations of a low future inflation rate can thus become self-fulfilling and this is something we would prefer to avoid, as it makes it more difficult to attain the inflation target in the future. According to surveys of inflation expectations among money market participants, employers’ and employees’ organisations as well as purchasing managers, expectations for 1 and 2 years ahead have declined recently, which may have significance for pricing behaviour. Inflation expectations 5 years ahead are fairly well anchored around 2 per cent, but it is important that the development of the past couple of years does not continue so that the longer-term expectations also end up far from the target (see Figure 3). Figure 3.
At an appropriate moment during the QT process, we proposed to switch from using a simple floor system to a framework in which we allow reserves holders to determine how many reserves they need. Under this approach, the Bank would stand ready to lend reserves, at Bank Rate, in unlimited amounts against high quality collateral, through periodic Open Market Operations (OMOs) during the QT phase. Such an approach does not seek to ‘oversupply’ reserves in order to maintain a floor system, and so avoids the need to estimate the point of reserves scarcity. The Bank’s balance sheet should naturally be somewhat smaller under this system than it would be under an ‘ample reserves’ floor. That’s partly because we would not need to build in a buffer to account for uncertainty over the true level of the PMRR. But it’s also because the balance sheet cost for banks obtaining reserves via OMOs is likely to require there to be a degree of reserve scarcity before banks will participate.24 As a result, the quantity of reserves should settle within the PMRR, where some reserves scarcity is evident. See for instance ‘Observations on Implementing Monetary Policy in an Ample-Reserves Regime’ by Lorie K. Logan, at https://www.newyorkfed.org/newsevents/speeches/2019/log190417 24 Because they are secured funding transactions, OMOs will involve a leverage exposure, and will be subject to haircuts, which lower the value of reserves lent relative to the collateral supplied.

To make the macroeconomic effects of QE more concrete: previous Bank of England analysis suggests that the initial £ billion of QE during QE1 may have increased GDP by 1.5%–2% and inflation by 0.75pp–1.5pp.19 Using similar estimates in a 2016 speech, Mark Carney, estimated that if the MPC had left monetary policy – Bank Rate and QE – unchanged in the financial crisis, the level of GDP would have been 8% lower and 1.5 million more people would have been out of work.20  Whether the £ of QE we announced last March had the same impact is a complex question, and there are arguments in both directions as to whether its impact will turn out to have been larger or smaller. On the one hand, government bond yields have been very low by historical standards and it is possible that there may be limits to how much more QE can do to push them down. On the other hand, our March purchases in particular took place as I have said against a backdrop of extreme market disorder. Our purchases, alongside other policy measures here and abroad, were instrumental in restoring order, and indeed we deliberately carried them out at an unprecedentedly fast pace to achieve that – in the words of the Governor, Andrew Bailey, we “went big and fast”. Had we not done this then that market disorder might, as we said at the time, have led to an unwarranted tightening of monetary and financial conditions, and an even sharper contraction in GDP.
To conclude, I have personally conveyed to the Government and to the main opposition party the need for certain regulatory changes that might notably improve finding solutions in keeping with the principles informing our actions to date, which as you are well aware, were backed by a recently approved parliamentary motion. The purpose of my testimony today is not to debate what must be done in future, since that is evidently the primary responsibility of the Government and the parliamentary groups, since  4  BIS Review 42/2009  any changes must ultimately be approved by this House. However, I do want to mention some changes which we would view very favourably. For example, providing savings banks with the wherewithal to increase their own funds, at least on a comparable footing with Banks. This is important because, as I have reiterated today, it is essential to consider all possible private solutions before asking taxpayers to contribute more public funds. Evidently we must comply with the requirements of Monetary Union membership. But in this connection, one desirable institutional change, along the lines of the deposit guarantee funds that have worked so well for us, would be to avoid, as has occurred in the case of CCM, calling a cabinet meeting every time taking control of an institution is called for. These and other changes should also strive to ensure the orderly restructuring of banking institutions and, while maintaining the necessary discretion specific procedures require, comply with all government and parliamentary reporting procedures deemed necessary.

Thank you very much. BIS Review 42/2009  5
Since 2017, it has been compulsory for companies in Great Britain with over 250 employees to report gender pay gaps each financial year. Data for 2018 published earlier this year shows a gender pay gap of around 10% across reporting UK organisations.1 The UK government has also begun a consultation on requiring companies to publish ethnicity pay gaps on an annual basis.2 While 63% of employers monitor ethnicity pay gaps, only 31% of employers currently publish them.3 The Bank of England has published data on its gender pay gap since 2017 and on its ethnicity pay gap since 2018. While it is widely recognised that these pay gap measures may be imperfect proxies for pay inequality, greater transparency about pay gaps can serve as an important incentive device. Publishing companies’ pay gaps encourages them to explain and, with time, close these gaps. The benefits of doing so, for individual companies and the economy at large, have been found to be large. For example, closing the gender pay gap has been estimated to add £ billion (or 27% of GDP) to UK GDP by 2025 (McKinsey (2016)), while full representation of BAME individuals across the labour market, through improved participation and progression, could add an additional £ billion (or over 1% of GDP) per year (BEIS (2017)). Internationally, similar moves to improve pay gap reporting are underway.

Today, financial firms with around $ trillion assets under management have committed to harmonised reporting using the Task-Force on Climate-related Financial Disclosures (TCFD) template.16 This has encouraged wider scrutiny of, and actions to mitigate, the risks to companies’ profits and balance sheets posed by climate change. Pay gap disclosure could have a similarly profound behavioural effect on companies. Fourth, there is also a strong case for improving the sets of data available publicly to monitor progress towards equality of pay and opportunity in the workplace. One example of useful additional data would be longitudinal data tracking individuals from school into employment, perhaps using administrative data or new surveys. This would help to understand the key determinants, and obstacles, to career and pay progression. Fifth and finally, published pay gap data are imperfect and can sometimes give a misleading impression of diversity patterns. We have demonstrated how raw pay gap data can sometimes give rise to puzzles. We 15  https://www.gov.uk/government/publications/business-population-estimates-2019/business-population-estimates-for-the-uk-andregions-2019-statistical-release-html 16 TCFD (2019). 34  All speeches are available online at www.bankofengland.co.uk/speeches  34  have also demonstrated, however, that a careful consideration of various compositional factors can resolve these puzzles and provide a clearer picture of underlying patterns. There is no reason why companies could not use these techniques when interpreting their own results.
This led to the increase in international reserves from 52 billion US dollars at the end of 2005 to almost 67 billion US dollars by the end of last year. In addition, the forward obligation rose from 3.8 billion US dollars in 2005 to 6.9 billion US dollars in 2006. These FX interventions and exchange rate movements do have implications for our own balance sheet. First, the appreciation resulted in the unrealized loss from FX valuation of the international asset we hold when marked-to-market in baht. Simply put, the value of our international reserves in baht terms has fallen purely due to the falling US dollar and other major currencies vis-à-vis the baht. Second, FX interventions lead to increased domestic liquidity. As a result, monetary sterilization is required to remove the resultant liquidity and safeguard price stability. This is a necessary and justified cost to central banks for preserving price stability, and safeguarding the economy against excessive exchange rate movements. Such losses are an unavoidable consequence of central banking operations under a managed floating exchange rate regime. As regional currencies have sharply strengthened over the past year, most central banks in the region will also be facing a similar challenge. The key point here is that, our foreign assets, measured in foreign currency terms, have not fallen. More importantly, the goal of a central bank is to maintain monetary and financial stability.

Banks will need to further build on this significant progress in order to meet the challenges going forward. These include macroeconomic challenges, growing pressure from increasing competition, and the changing regulatory environment. Obviously, the ability to meet these challenges varies among banks. But we, as regulators, are well prepared to steer a steady course for the banking system as a whole. As you know, the first phase of the Financial Sector Master Plan has been completed. We have already seen significant consolidation and increased efficiency of the banking sector. We are moving onto the second phase of the Master Plan, which will further step up the pace of reform. This will increase the efficiency of the system and ensure that it can meet intensified competition that will come with globalization. BIS Review 20/2007  3  Let me emphasize that globalization is a pervasive process. Given financial innovations, it can transcend national borders even without an explicit market opening. Our liberalization strategy is to ensure strengthening of the domestic system, and allow gradual opening of the banking sector. This will mean new entries into the system, as well as more intensified competition between existing players. The phasing of this process will be consistent with continued economic and financial stability. The banking system must be prepared for greater competition. Improved risk management framework will be the critical success factor for banks' ability to meet future challenges. These include the adoption of IAS 39, currently underway, and the new Basel Capital Accord at the end of next year.
The development of real wages shows how much of the wage increases are left when a deduction is made for inflation. Real wages have increased by an average of 2.5 per cent since 1995, while they did not increase at all during the 1980s (see Figure 15). In real terms, wages have thus developed much better over the last 15 years than during the 1980s. The third area relates to inflation and monetary policy. Monetary policy was also changed in the light of lessons learned in the past, in this case during the periods of high inflation in the 1970s and 1980s. An explicit inflation target and an independent Riksbank have had a positive impact. Inflation has been low and stable since the mid-1990s and has largely been in line with the target (see Figure 16). The success of the inflation-targeting policy is also linked to the fact that fiscal policy and wage formation have been much more effective since the mid-1990s. We have thus learned from the past, and as a result Sweden’s economy is well equipped to meet the future. It is important that we make the most of this strong initial position in the period ahead, and monetary policy must of course play its part in this. So, what course can we expect development to take in Sweden in the future, and how can monetary policy help to smooth the way?

First, our forecast presupposes that it will be possible to manage the debt crisis in Europe so that the acute problems can be resolved. There is a risk that the problems will continue and that the debt crisis in Europe will get worse, which may lead to weaker economic activity in Sweden and abroad. If this proves to be the case, monetary policy in Sweden will have to be more expansionary to mitigate the effects of the more severe crisis. Conversely, it is possible that political agreements will be reached fairly soon and that the financial unease will subside more quickly than we expected. This could lead to stronger economic activity in Sweden and abroad than expected, and it will then not be necessary for the repo rate to be so low. Secondly, the outcomes for inflation abroad have been surprisingly high recently, despite falling commodity prices and weaker economic activity. There is therefore a risk that the situation abroad will be characterised by economic stagnation and high inflation, so-called stagflation. Central banks abroad may then be faced with a very difficult balancing act. The risk of further weakening economic activity will reduce the scope for raising policy rates to  6  BIS central bankers’ speeches  combat inflation, which may result in inflation continuing to be high. All in all, there is therefore a risk that inflation abroad may not fall to the extent we expect. This will lead to higher inflation in Sweden too through higher import prices.
While this has become a common practice, ideally more competitive retakaful operators who provide reinsurance in accordance with Shariah principles need to be established so that the takaful industry would not be dependent indefinitely on conventional reinsurance as the conduit to which they can mitigate risk. More importantly, retakaful operators ultimately serve to strengthen and enhance the financial capacity of the takaful industry, and the synergistic by-products emanating from the interactive business alliances would contribute towards the overall betterment and robustness of the Islamic financial system. Indeed, there is much to be gained by the takaful operators in particular, and the Islamic financial industry in general, by having access to an adequate and competitive market of the retakaful facility. It is therefore important to increase the collaborative efforts and examine plausible ways to address this gap in the takaful industry. Our quest to create a dynamic Islamic financial system is to achieve the ultimate objectives of developing an Islamic financial system that will be able to contribute significantly to the overall development of our economy through the intermediation process. Thus, Islamic banking and finance industry needs to extend its agenda towards the development of a comprehensive Islamic financial system. The Islamic banking and finance should strive to add value towards enhancing greater integration to the economy and the financial system.

To achieve this objective, emphasis is being given to financial infrastructure and institutional development, aimed at enhancing efficiency of the system and building the internal resilience and competitive position of the takaful operators, while meeting the needs of the nation. This includes providing the foundations for the development of the financial markets and strengthening the institutional development. As part of this process, the benchmarking exercise is an important tool to enhance performance and to guide the takaful operators on improvement of their business strategies. To reinforce this, a service quality index has also been initiated to promote the development of worldclass products and services. This is also complemented with a comprehensive consumer education programme so as to promote product transparency and increase accountability. The introduction of financial advisers is also a further element to facilitate consumer access to a wider range of financial products. Amongst the most imminent challenges is the creation of the critical mass in the market to allow for meaningful cross-border alliances at the regional and global level. The establishment of an adequate number of takaful operators in the market is also crucial to provide the groundwork for the setting-up of more retakaful operators, in terms of sustaining business support and providing the economies of scale in order for the retakaful industry to develop. Currently there is still a dearth in the number of players providing the retakaful facility, resulting in takaful operators ceding to conventional reinsurers.
I mention this only because some of the commentary claims not so much that QE is potentially fuelling too much inflation, and helping governments that way, but that it’s doing so by artificially depressing the cost of new debt issuance in a manner that does not (somehow) have any impact on inflation. 9  Broadbent (2014). Note that, while the impact of QE is arguably detectable in Chart 7 – the launch in 2009, for example, in the UK and the US, and again this year – it’s not as if bond yields are (or were) otherwise static. They moved around just as much beforehand, generally downwards over this period and especially so during global downturns. They might reasonably have been expected to do so in response to the pandemic, even without QE. Nor are these changes well correlated with fiscal news. As I said earlier, a model of bond yields that has them responding only to government debt and/or QE performs poorly in the data. For more on what’s depressed long-term “neutral” interest rates, see for example, Vlieghe (2018), Broadbent (2014) and the August 2018 Inflation Report. 10 If the perceived risk were that the authorities would try to “inflate away” the debt, it would be priced into conventional bonds alone (and therefore into the “breakeven” spread between the yields on conventional and indexed debt); if people worried about formal default yields on both would be affected.

Going the other way, very rapid inflations have been bad for real output growth and they’ve also tended to push up the real cost of public-sector debt thereafter, via a higher risk premium. For those reasons, and even from the narrow perspective of the government finances alone, I think these  11  Giovannini and de Melo (1993). 11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  simulations should be seen as relatively optimistic, at least over the longer term. But they do at least give us some sort of handle on the marginal effects of higher inflation. As a starting point, we should begin by recognising that if the extra inflation is fully anticipated it will have very little impact on the public finances. That’s because investing institutions, which care about real returns, could then take account of it in the price they’re prepared to pay for the debt. If everyone knew in advance that inflation was about to rise permanently by (say) 1% point you’d expect nominal yields to be 1% point higher, across the curve, than they otherwise would’ve been. In real terms, the government wouldn’t pay any less for its debt – the newly sold debt, at least – even after the inflation arrives. The real value of the principle declines by an extra one per cent a year. But the interest payments – the coupons – are also a percentage point higher.