samchain/econo-pairs-v1 huggingface dataset:
This may continue to boost mainland output. In the past few years, household demand has been underpinned by low interest rates, high real wage growth and higher asset prices. According to preliminary national accounts figures, private consumption increased by 4.3 per cent last year. House price inflation has slowed somewhat, but remains high. Housing starts in 2004 were at the highest level for several years. Home refurbishment is probably also rising sharply. Overall, the supply of capital to households has increased sharply. Debt accumulation was slightly higher than 11 per cent in 2004 and is now considerably higher than growth in household disposable income. This largely reflects the sharp rise in house prices since the mid-1990s. According to TNS Gallup’s consumer confidence indicator for the first quarter of 2005, households are still highly optimistic with regard to their personal finances and the domestic economy. Our regional network confirms this view with reports of strong growth in companies that provide goods and services to households. On the whole, household consumption and housing investment are projected to show fairly strong growth over the next few quarters. Despite the strong upturn in the mainland economy, the rise in the number of employed has been fairly modest. Productivity rose quite sharply in the first few quarters after economic growth picked up. Normally, strong productivity growth is gradually followed by an increase in employment. The current upturn has lasted about two years.

Certainly, the more flexible is your economy (in terms of public finances, the labour market, and so on), the easier it is to cope with shocks and the less monetary policy is needed. However, the case of the Eurozone shows how tricky it is when the absorber in the form of monetary policy is switched off and nothing replaces it. The shocks are bigger and hurt more. Listeners themselves can answer the question of whether the labour market and labour law are likely be made more or less flexible (and dismissals made easier) in the future. In doing so, they will answer the question of whether there will be a need in the future for more or less domestic monetary policy in the Czech Republic, a country whose conservative population is so averse to upswings and downswings. 1/3  BIS central bankers' speeches  The “convergence trilemma” The standard “monetary trilemma”, which you know very well (a country cannot simultaneously have a fixed exchange rate, an open capital account and autonomous monetary policy), is accompanied in a converging economy of our kind with something I call the “convergence trilemma”. No country can simultaneously have high convergence growth, a fixed exchange rate, and low macroeconomic imbalances, be they internal or external. In our case, catching up with our wealthier, low-inflation Western peers means a long-term tendency for our currency to appreciate. This is hardly consistent with a permanently fixed exchange rate.
It was once widely held that monetary policy could achieve somewhat lower rates of unemployment by allowing somewhat higher rates of inflation, and that it could do this without risking a  BIS Review 54/2006  1  substantial acceleration of inflation. This view proved to be mistaken because it did not correctly account for the role inflation expectations played in inflation dynamics. Economic concepts that are critical to our understanding of the economy may be difficult or impossible to capture in practice. One such concept is the neutral or equilibrium interest rate, which is the rate that, if sustained over some period of time, is likely to be consistent with an economy growing at potential with low inflation. Plausible estimates for the prevailing level of this rate have a range of at least 100 basis points, and the center of the estimates tends to move around quite a bit. Another concept that is difficult to estimate precisely is the economy's potential, or sustainable, growth rate. The acceleration in productivity growth in the United States in the late 1990s, for example, led us to revise our estimates of how fast the economy was likely to be able to grow at that time without undermining price stability. We also face considerable ignorance about the precise channels through which policy actions ultimately affect the economy, as well as how long those effects will take to show up and how large they will be when they do show up.

The issue of communication is particularly relevant in the current economic environment. For much of the past three years, financial markets have reflected a high degree of certainty about the near-term outlook for monetary policy in the United States. Market expectations in the weeks preceding each of the last 16 Federal Open Market Committee (FOMC) meetings attached a probability close to one that the FOMC would raise the target for the federal funds rate by 25 basis points. Also, there was very little probability attached to inter-meeting moves over this period, or to moves in increments larger than 25 basis points. And, although market expectations about how far the FOMC would ultimately move were revised significantly over the course of this period as the economic outlook was revised, these changes occurred without the Committee needing to deviate from the near-term path. This period of unusual certainty in the path of the fed funds rate was the result of a confluence of factors. When the Committee first moved to tighten policy in June 2004, the fed funds rate was at the historic low of 1 percent, and it was clear that policy would have to move a substantial distance to get back within the range of plausible estimates of the neutral rate. Over the course of the following months the incoming data tended to reinforce the case for a progressive move up in the target rate.
Optimists already see a stabilization of the situation and light at the end of the tunnel, and they may well be right. But deepening recession in Japan, emerging problems in Latin America, and questions about the stability of the U.S. and European markets still raise serious concerns that what began as a regional crisis may swell into a crisis of global proportions. Hong Kong is located at the very heart of the East Asian region, and our economy is intricately, and increasingly, linked with the other economies in the region. It is therefore hardly surprising that we should have experienced some considerable stress as a result of the Asian crisis. Over the last year we have seen a roughly 50% decline in the value of property and stocks, a rise in unemployment, and a forecast contraction of 4% in our GDP for 1998. Although the stock market and property prices have seen something of a rebound during the last month, the pain of what has become an extensive economic adjustment continues, and is likely to continue for some time. It is necessary to stress, however, that this is an adjustment, not a collapse, and that it has been one of the least dramatic, and least traumatic, of all the upheavals in the region. In US dollar terms, the Hang Seng Index has, since the crisis erupted last July, seen the smallest decline of any stock market in the region. Our banking system has remained stable and solvent.

BIS central bankers’ speeches  5  There are a couple of other difficulties related to the use of national policies. The shock absorbing capacity of fiscal policy is in too many instances limited by the narrow fiscal space existing before the crises. The recession has further eroded fiscal positions and fiscal rules have failed to tame unsustainable fiscal paths so that the ability of fiscal policies in the EU to deal with another blow of crises is quite limited. Also, a need for national macroprudential policy immediately opens the issues of harmonisation and coordination on the international level in order to avoid unintended consequences, which I will comment in more detail later on. Additionally, for macroprudential policy to be effective it must be intrusive, affecting the “normal behaviour” of agents and markets 19, yielding benefits in reducing long-term costs generated by the systemic risk that makes it hard to attenuate public interest thus creating a central bank’s legitimacy paradox 20. Unconventional expansionary monetary policy, which was pursued after reaching the zero lower bound, and out of the fear of “the risk of doing nothing” 21, may be risk-inducing by fuelling search for yield behaviour. Abundant liquidity and low borrowing costs have the capacity to generate bubbles, confirming a notion that rational individual decisions may lead to irrational social outcomes – albeit as a reaction to highly non-conventional policies.
12  For suggestions on improving resolution options for systemically relevant financial institutions, cf. also “The Squam Lake Report: Fixing the Financial System”, Princeton University Press, May 2010. 6  BIS central bankers’ speeches  they also restore creditors’ incentives to monitor risk. Cocos can therefore be viewed as partial substitutes for unusable or impractical bankruptcy procedures, as they ensure that one major class of stakeholders – which would otherwise be outside the risk calculus loop – is now interested in monitoring the bank’s risk attitude and contributing to containing the prorisk bias of the other stakeholders. The Swiss solution Resolving the TBTF issue is a first order of priority. It is of utmost importance for Switzerland, given the relative size of the two big banks in relation to economic output.13 The recent history of developments has helped us to understand that our two big banks are not only too big to fail, but that circumstances could arise under which they would be too big to be rescued as well. The solution chosen by the Swiss authorities to address this important problem is fully in the spirit of the above conceptual discussion. It relies on higher capital requirements and a capital surcharge proportional to the systemic externality with a substantial part of the extra capital taking the form of Cocos. It also imposes organisational measures fulfilling the objective of allowing for a “partial” bankruptcy and thus reducing the size of the TBTF externality.

In addition to the fact that individual shareholders are often small and scattered, they only have limited ways of exerting pressure on management, short of disposing of their share. Importantly, the reality of limited liability seriously biases shareholders’ perspective on risk. While shareholders benefit from the upside of risk-taking, they are not symmetrically penalised on the  3  The focus here is placed on a typical banking institution, but other financial institutions might be similarly affected. BIS central bankers’ speeches  3  downside. This asymmetry is particularly acute in the case of highly levered institutions. For these institutions, the return on equity in good times is high, say above 20%. The trade-off between high returns if the risky gamble pays off, and zero, if it does not, is particularly lopsided. Both limited liability and the natural highly leveraged nature of banking thus come with a natural propensity for socially excessive risk-taking on the part of banks’ owners. In this sense, shareholders cannot be relied upon to impose on managers the socially optimal level of risktaking.4 Managers What about the bank’s managers? Here theory tells us that, apart from reputation and other soft considerations, the behaviour of managers will crucially depend on the link between their remuneration and the firm’s performance. What is at issue here is less the level of managerial remuneration. More important is the relationship between the remuneration and the medium to long-run performance of the bank.
Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years. Turning to the monetary analysis, the annual growth rates of M3 and loans to the private sector declined further in September, to 1.8% and -0.3% respectively. These concurrent declines support the assessment of a moderate underlying pace of monetary expansion and low inflationary pressures over the medium term. In the next few months, the annual growth rates of monetary aggregates will most likely be affected downwards by base effects that are associated with the intensification of the financial turmoil one year ago. More fundamentally, however, the growth of M1 and M3 continues to reflect the current constellation of interest rates. While the narrow spread between the rates on different short-term deposits fosters shifts in the allocation of funds to the most liquid assets contained in M1, the steep slope of the yield curve also encourages such shifts from M3 to longer-term deposits and securities outside M3. The annual growth rate of bank loans to the non-financial private sector turned slightly negative in September, with annual loan growth to both non-financial corporations and households declining further and being negative. At the same time, the monthly flows of loans to households remained positive and even increased, while those of loans to nonfinancial corporations were negative. In the case of households, the latest data provide further confirmation of a levelling-off at low rates.

In accordance with the goal of stability and its role as guardian of the currency, the CB has as a permanent objective the maintenance of a sound financial system. The quest for excellence in supervisory standards, in line with the best international practices, is a permanent challenge for the CB. In this respect, it is important that the modernization process be sped up in the supervision and regulation areas, with the aim of solidifying the Country’s position in risk management and the  prevention of banking crises. There are many examples of severe financial system crises in emerging countries which led to significant losses of income and production, with disastrous impacts on society. Brazil may face challenges but will work to avoid crises. Banking supervision and the set of prudential rules play a major role in this process. In the short run, important challenges include the improvement of methods to evaluate the quality of financial system information, and the implementation of the new Credit Risk Center, which aims at enhancing the effectiveness of off-site supervision. In the long run, we will seek to enhance supervisory transparency and the implementation of the new Basel capital accord, without forgetting the issues related to supervisory autonomy and legal protection for supervisors. I am committed to maintaining rigorous supervision procedures, because this is the only way to assure the stability of the system. But it is also important for inspections to have a beginning, a development and an end.
Ravi Menon: Decentralised finance and the future of money Panel remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Andrew Crockett Memorial Lecture by Mark Carney, via Video Conference, 28 June 2021. * * * Thank you for the opportunity to engage on Mark Carney’s deeply thoughtful lecture. Mark has given us a powerful rendition of the transformation taking place that will “re-wire” our monetary and financial systems. Centrifugal forces are driving financial functions away from the traditional core. These forces are not just affecting money, but all aspects of the monetary system. Mark also reminds us that, amid this transformation, money has to be anchored on “values of trust, resilience, dynamism, solidarity and sustainability”. I cannot agree more. I’d like to focus on: the decentralisation of finance across the three ‘I’s of the monetary stack — intermediaries, infrastructure, and instruments; and how central banks and regulators can potentially shape this decentralisation in a way that upholds the critical values of money that Mark has highlighted. Let me begin with Intermediaries, at the top of the monetary stack. The delivery of retail financial services is being decentralised. This is happening in two ways. First, finance by non-financial players. There is now a much broader range of non-traditional – and often unregulated intermediaries in the retail finance space. This is not just BigTechs, but also FinTechs and smaller technology firms. These players provide payments, lending, savings and investments as complements to their core digital service.

And you have asked me, particularly, as Deputy Governor of the Bank to talk about Economic and Monetary Union, and the way it will impact on your business. Let us, therefore, move quickly on to that point. Whenever I have accepted an invitation to speak about EMU over the last couple of years, I have done so with the hope that when the day came to speak, the clouds of uncertainty surrounding the project would have cleared - both in terms of developments among the countries committed to going ahead, and in terms of the UK’s position. But my hopes have so far been confounded, and indeed the events of the last couple of weeks have complicated matters even further. This is not the time or place to talk in detail about the Bundesbank’s little local difficulty with Herr Waigel. And it is too early to assess the consequences for the project of the results of the French election. But it is clear that new elements of uncertainty have entered the scene, making it harder than ever to forecast the outcome next year. Looking at the markets’ own assessment, our interpretation of movements in the forward FX markets since the autumn is that the markets have become more persuaded that the euro will begin, but that it will be a broader, and possibly weaker euro. Until last summer the assumption appeared to be that only seven or eight countries would make up the hard core.
For instance, the Riksbank is one of few central banks to publish its own forecast for the policy rate and possibly the only central bank where the minutes state which Board member has said what during the monetary policy meetings. 1  Inflation has been low for longer in Sweden than in many other countries In recent years, international interest in Sweden as an object of study has been more due to economic developments here, and to the measures the Riksbank has taken, rather than the changes in the monetary policy framework. Despite the Swedish economy developing relatively well since the global financial crisis 2008-2009 (see Figure 1), inflation began to fall earlier in Sweden than in the rest of the world. This has meant that inflation has undershot the target and been lower than in many other countries for a long time (see Figure 2). This has in turn contributed to the Riksbank considering it necessary to cut its policy rate below zero,  * I would like to thank Mikael Apel for his help in writing this text, Elizabeth Nilsson for translating it into English,  Goran Katinic for help with the slides and Björn Andersson, Gina Bayoumi, Claes Berg, Charlotta Edler, Gabriela Guibourg, Marianne Nessén, Marianne Sterner and Anders Vredin for their valuable comments. 1 Another completely fresh example is the Riksbank’s thoughts on introducing a digital currency (see Skingsley, 2016). 1 [20]  which only a few other central banks have done so far.

Strengthen the continuing efforts aiming at market transparency Experience shows that uncertainty and incomplete information are determining factors in mimetic behaviour. These shortfalls in market transparency make mimetic behaviour seem rational to agents, who prefer to follow bigger participants, who are thought to be better informed, rather than develop their own analysis. Strengthening transparency therefore continues to be a priority. One of the objectives of transparency is to enable better differentiation of borrower creditworthiness. A key feature of mimetic behaviour is that all borrowers are "tarred with the same brush". So when one emerging economy encounters difficulties, all neighbouring countries, or countries that share common characteristics, are treated in the same way – regardless of their actual economic and financial situation. The same applies to businesses operating in the same economic sector. Transparency has substantially increased since the Asian crisis, thanks to a solid global consensus. Let us continue and reinforce these efforts. Take into account the medium and long-term perspective of some market participants Some investors, such as pension funds and insurance companies, have to invest funds in order to enable their customers to build up wealth over the medium and long term, notably in preparation for retirement. Consequently, these types of investors are supposed to behave differently from traders and short-term investors, who are working on a very different time horizon. But at times it seems that they are all pushed to behave in much the same way, on the basis of a very short-term horizon.
Financial economists of course studied banks and financial markets much more closely, but they used predominantly partial equilibrium models and showed less interest in the way the financial system interacted with the wider economy. In fact, the pre-crisis paradigm in macroeconomics predicted neither the onset nor the severity of the crisis in any meaningful fashion for the conduct of policy. Unconditional trust in the selfrepairing capacities of financial markets, or simple neglect, had led to deregulation and lax supervision in the years preceding the crisis. Low quality capital with little loss-absorbing capacity, underestimation of asset risk, excessive and overlooked leverage, ignorance of the interconnections, disregard for the liquidity buffers, low resilience of the funding markets, and pervasive fraud, especially in the sub-prime sector were just a few of the factors that produced the most severe financial crisis since the Great Depression. The evolution of the financial and sovereign debt crises As the crisis unfolded, the interbank funding market dried up and credit availability contracted sharply. Annual credit growth to the private sector fell from 9.3% in 2007 Q4 to –2.1% in 2009 Q3 in the United States and from 8.5% to 0.7% in the euro area over the same period. The effect on economic activity was sudden and significant. Between 2008 Q3 and 2009 Q2, GDP declined by 2/7  BIS central bankers' speeches  3.6% in the United States and by 4.9% in the euro area.

We cannot write a rule to take care of every situation that may occur, and as a forward looking supervisor we are applying judgement in conditions of uncertainty about the future. How firms deal with the uncertainty of the future will also shape their culture. I firmly believe that what we can best do in this area is to provide a clear sense of direction and guidance through open communication starting with those of us at the top, in which we are clear on what we expect of firms. Open and transparent communication of this sort should then be supplemented by the clear understanding that we will all stick to the script. Trust is important. Consumers need to be confident in the firms that they choose to use, and inevitably trust is an important part of that confidence. Likewise, as supervisors, our judgements are inevitably conditioned on whether we can trust the people with whom we deal. Good culture is a product of trust and it matters a lot for both prudential and conduct regulators. Culture is everywhere and nowhere in firms; everywhere in the sense that it is shaped and determined by all the features of the firm – its people, organisation, reward structures etc; and nowhere because culture is not a tangible thing sitting on a shelf that can be prodded and changed of itself.