samchain/econo-pairs-v1 huggingface dataset:
Third, increasing cost pressures have made it more difficult to sustain profit margins without raising prices. Energy and import prices are one source of higher costs. Another is the cost of employing labour which has been rising faster than the growth of real take-home pay. Higher pension costs for  BIS Review 9/2007  1  companies, on the one hand, and higher taxes, petrol and utility prices for employees, on the other, have opened up a gap between increases in the pay bill and real take-home pay. If investment and employment growth are to be maintained, the burden of these higher costs must either be passed back in the form of reduced input costs or forward as higher prices. So far, pay pressures have been subdued, but not sufficiently so to mitigate the rise in costs to employers. As a result, companies have scaled back their demand for labour and looked to raise prices. The risks to money spending, inflation expectations and cost pressures were not overlooked by the MPC and were explicitly identified as upside risks to inflation both in speeches and in our monthly minutes back in 2005. In the event, the upside risks to inflation did materialise to some extent. And a year ago, the MPC thought the risks to GDP growth were on the downside. Yet, the total output of the UK, leaving to one side the energy sector, has been rising at an annual rate of over 3%.

But the continued relative decline of manufacturing – and indeed the strength of sterling – over the past decade or so reflects, not the stance of monetary policy, but the remarkable wind of change that has blown across the world economy with the advent of China, India and much of the former Soviet Union into the world trading system. To their great credit, business people and politicians have not resisted changes to the structure of the British economy, unlike many of their counterparts abroad. As a result, total output and employment here have grown rapidly, and our living standards are higher than could have been sustained with policies aimed to defend the old industrial structure. Those changes, however, have led to the closure of many manufacturing companies. There are over a million fewer people employed in manufacturing now than a decade ago, and 200,000 fewer in the West Midlands. It is just over a hundred years since car production started at Longbridge, just over thirty years since it was nationalised, and no vehicle has been built there for over a year. But there are also many success stories. Since I became Governor, I have made regular monthly visits to the regions and countries of the United Kingdom, and visited around one hundred companies, large and small, new and old.
•  Growth in total credit reflects Singapore’s growing role as regional financial centre. •  Banks in Singapore are intermediating surplus funds to meet credit demand throughout Asia, particularly for productive economic activities like trade financing. •  The increase in resident credit-to-GDP ratio is less sharp, from 125% to 155% over last three years. •  Domestic credit growth is broad based across both households and corporates, including financing capacity expansions by the petrochemical industry. Nonetheless, the strong flow of domestic credit to real estate is a concern: •  Housing loans by banks grew 18% each year over last three years. BIS central bankers’ speeches  3  •  Housing loans as a percentage of GDP now stands at 46%, up from 35% three years ago. When interest rates rise and if property prices fall, any risks built up will materialise. •  A return to normal monetary conditions is not far off. •  Financial markets are already reacting to anticipated tapering and unwinding of quantitative easing (QE) in the US. •  Long-end bond yields are already rising as markets price in higher interest rates. So how do we stack up against this global backdrop? Our banking system remains sound. •  Our local banks have strong financial positions. They are well-capitalised with prudent provisions against loss. •  There is a healthy buffer against property price reductions. In fact, the average outstanding housing loan-to-value ratio in the banking system is just under 50%.

And yet, in many parts of the world, monetary policies remain somehow permissive. The reason for this paradox can be found in the dilemma faced by many countries, which maintain some link between their currencies and the US dollar, in order to prevent an unwanted appreciation of their exchange rate. However, according to Mundell’s  BIS Review 63/2008  1  incompatibility triangle, a country cannot tie its currency to another currency and simultaneously conduct an independent monetary policy, when capital flows freely between countries. As a consequence, many emerging economies are currently led to partially "import" the US monetary policy although their situation and position in the economic cycle are fundamentally different. This situation could be very unstable and dangerous. First, real exchange rate appreciation – which is bound to occur anyway – takes place through increased inflation rather than nominal exchange rate appreciation. Indeed, inflation in many emerging countries is currently accelerating. Second, at the world level, we might be piling up inflationary pressures, which could develop further in 2009-10. There is an explosive mix of rising commodity prices and permissive monetary policies, which could create an ongoing spiral, and, if it were allowed to develop, would specially hurt the poor countries, most of which are net food importers. It is our common and joint responsibility to do everything in our power to avoid such an outcome. Let me now turn to another major challenge: the impact of financial innovation on the conduct of monetary policy.
We must continue to do so if we want to win our economic marathon. Paterson showed us the need for a central bank. Its modern variant is a leading macroprudential institution, well equipped to face the challenges of promoting a balanced expansion. Hume demonstrated the virtues of free trade. The UK, already one of the most open economies, can help lead the development of new EU trade deals as our businesses diversify their markets. Smith showed us the importance of social capital. With a financial system that is a global good and a national asset, the UK is leading financial reforms to build a resilient global financial system with fair and effective markets at its core. And finally Wells and McColgan showed us the enormous pay-offs for hard work, dedication and perseverance. Winning the economic marathon will take similar determination. But the prize of a durable expansion is great and, if inspired by some of Scotland’s many heroes, we should not fail. BIS central bankers’ speeches  5  Chart 1: Average GDP growth (2008–2013) of UK export destinations(a)(b) %  11%  23%  4.5 4.0 3.5 3.0 2.5 2.0 1.5  2012 share of UK exports =66%  1.0 0.5  US, EU, Switzerland, Japan  (a) (b)  6  Commonwealth  Other emerging markets  0.0  Bars show the mean calendar-year GDP growth rate between 2008 and 2013 for all countries included in the groupings. UK export share data is not available for all countries.

In this age of increased connectivity and correlation of markets, respondents felt that a shock event such as a terrorist attack, pandemic or geopolitical instability could cause market disruptions. Respondents also highlighted the current liquidity in the financial markets. They observed that speculative liquidity was circulating in the financial system. This has led to historically unprecedented pricing and terms. When referring to the new players in the financial markets, respondents spoke of hedge funds and private equity in the same breath as “highly leveraged”, “covenant-lite structures” and “large speculative positions”. In the current low interest rate environment, many yield-hungry investors have become hedge providers for institutions. Respondents expressed concern about the systemic risks such providers posed and their default risk in a severe market correction. In summary, the responses to the survey indicated that there seems to be a heightened level of risk in the macroeconomic and financial environment. Nevertheless, these responses are encouraging from another perspective. They indicate that financial institutions are aware of this heightened level of risk. With acceptance comes preparedness for the risks that may materialize in future. It is important for banks not to become complacent. As banks pursue the many opportunities that lie ahead, we must not let our guard down. Banks must not be lulled into a false sense of security by the external environment’s bullishness and resilience to shocks so far. We must not allow ourselves to get over-confident with our knowledge and analyses of the risks out there. Risks may deviate from expectations.
27  All speeches are available online at www.bankofengland.co.uk/speeches  27  Chart 3: Literacy rates in Western Europe  Sources: OurWorldInData.org, based on Buringh and Van Zanden (2009) and Broadberry and O’Rourke (2010). Chart 4: Long-run UK GDP growth  Sources: Broadberry and Wallis (2017) and Bank calculations. 28  All speeches are available online at www.bankofengland.co.uk/speeches  28  Chart 5: Expanding and contracting periods in UK GDP growth  Sources: Broadberry and Wallis (2017) and Bank calculations.

In addition, as part of their strategic reorientation, both big banks announced measures which will further enhance their resilience. For instance, both institutions are planning to further expand their loss-absorbing capital, to reduce their risks and, in particular, trim their balance sheets as well as to pursue a policy of dividend restraint. The National Bank welcomes the increase in the big banks’ resilience achieved thus far, as well as the announced measures to further improve their capital situation. The consistent  BIS central bankers’ speeches  1  implementation of these measures is important for two reasons: First, leverage has remained high despite the improvement in the capital situation. Second, the risks in the environment – and thus the associated potential losses for the big banks in the event of a further escalation of the European debt crisis – remain considerable. Situation at domestically focused banks I would now like to turn to the situation at domestically focused banks. The risks associated with the environment in which these banks operate increased during the past six months. Indeed, the isolated signs of a slowdown of growth in the mortgage and real estate markets observed in the second quarter did not materialise in the third quarter. In particular, prices in the different segments of the residential real estate market continued to rise at a sustained pace. At the same time, growth in the mortgage loan volume was still considerably higher than GDP growth. Imbalances have therefore grown.
In that sense we may be a victim of our own success on the exchange rate front, although I would not wish to place too much weight on this point - it may be a viable alternative only for a minority. However, if funding needs can be properly satisfied via alternative routes, we ought perhaps to rest content. Our role at the Hong Kong Monetary Authority is to help ensure that the infrastructure will allow the market to develop if borrowers and lenders wish it to, rather than to force the pace artificially. I believe, however, that there may be a stronger underlying interest in debt instruments among prospective borrowers and lenders than is currently visible on the surface. The move to list Exchange Fund notes on the Stock Exchange and the advent of the Mandatory Provident Fund are examples of potential significant new sources of demand for debt instruments. It is a challenge for all of us to identify and exploit these and any other pockets of latent interest. The Hong Kong Monetary Authority is in regular dialogue with the Hong Kong Capital Markets Association and we maintain an open mind, and an even more open ear, to ideas which people like you may have about the development of our markets. I should mention that we have regular contact also with the authorities of other centres in the region in order that we can gain from each other’s experience in such matters.

Summing up, although I described our market infrastructure in Hong Kong as relatively mature, you will have realised - if you were ever in any doubt - that there is no shortage of change and of potential new opportunities, although possibly not so many as in one or two of the other economies, which I reviewed earlier. I hope that all of you will participate in the continuing evolution of Hong Kong’s capital markets, and use Hong Kong as your base for incursions into other territories where similar or greater opportunities exist. Our aim in Hong Kong is to provide an open and welcoming environment for business, and to be judged on our merits as a truly international centre which possesses that all important critical mass across the full range of financial, professional and commercial services and is ideally located as a hub for the region’s future development. Note: FDI=inward foreign direct investment; for India the first three columns are 198896, and the fourth 1991-96. BIS Review 52/1999  4  5  BIS Review 52/1999
This means that foreign savers are exposed to the exchange rate risk that the dollar’s value might change relative to their own currencies. Finally, one might expect that over time, as their holdings of dollar-denominated assets increased, foreign savers would demand higher interest rates, but, in fact, U.S. interest rates – in both nominal and real terms – have been generally declining over the past three decades 1 (Chart 3). These facts are at odds with the prevailing view that spendthrift U.S. consumers and governments are pulling those savings into the United States. Indeed, for some time the “twin deficits” view held that large fiscal deficits in the United States were causing large U.S. current account deficits. However, even when the federal government ran surpluses in the late 1990s, our current account deficit continued to increase. Subsequent research at the Federal Reserve Bank of New York indicates that the link between fiscal deficits and capital inflows is not as strong as commonly suggested. 2 Before proceeding, a few important qualifications are in order. First, despite the large flow of foreign saving into the United States, our international financial position does not appear precarious at the present time. The United States still has substantial investments in foreign countries, and income from U.S. investments abroad still exceeds the income generated by U.S. assets owned by foreigners. Part of the reason is that U.S. firms operating abroad earn higher rates of profit than foreign firms operating here.

This requires many steps, including systemic risk oversight and solving the so-called too-big-to-fail problem. In this respect, we need to think hard about what we can do to prevent the type of speculative bubbles that occurred from causing so much damage in the future. In particular, are there macro prudential tools that the Federal Reserve and other regulators can use to limit leverage and speculation and thus prevent the type of asset price booms and busts that have proved so troublesome? Second, we need viable exit strategies from this recent period of monetary and fiscal policy stimulus. On the monetary policy side, we have been working hard to ensure that we have the tools in place so that we can be effective in tightening monetary policy when the time is right, even with an enlarged balance sheet. Third, we need a rebalancing of global economic growth. That means a smaller share of consumption relative to GDP in the United States and offsetting shifts in Asia. Circumstances have improved considerably from what they were a year ago. But job creation is still much too slow and we have much to do on the regulatory side to make our financial system more resilient and robust. Thank you very much for your kind attention. I would be happy to take a few questions. 5  Financial Market Turmoil: The Federal Reserve and the Challenges Ahead, William C. Dudley. Federal Reserve Bank of New York, March 6, 2010.
If agents expect inflation to go down towards a target, they will price their goods accordingly and inflation persistence will be lower. If, in contrast, agents expect inflation to persist in high levels, they will price goods higher, making inflation more persistent and more difficult for the central bank to bring it down. As stated in Bernanke (2007): “a one-off change in energy prices can translate into persistent inflation only if it leads to higher expected inflation and a consequent “wage-price spiral”. With inflation expectations well anchored, a one-time increase in energy prices should not lead to a permanent increase in inflation, but only to a change in relative prices.” Credibility of the target in an inflation-targeting regime is therefore a key asset. If we were to give up on the inflation commitment, the future adjustment of interest rates to rein in inflation would have to be much larger, with adverse consequences on economic activity and relative prices, in particular the exchange rate. Indeed, we have witnessed many experiences where a persistent rise in inflation has required strong monetary policy actions, the most notable case being the great inflation of the USA in the 1970s and early 80s. The control of inflation in Chile has also come with a decline in inflationary persistence. Therefore, a credible commitment to price stability brings along output stability. Output stability, in turn, is an important factor to foster economic growth and the consequent social progress that comes with it (Ramey and Ramey, 1995, and Fatas, 2002).

Nor do I have any claim to originality – Milton Friedman and Anna Schwartz wrote in their monetary history of the US that the most notable feature of the revival of the US economy after 1933 was not its rapidity but its incompleteness[1]. I, and other MPC members, have also used the analogy of a bridge to describe the role of economic policy in the age of Covid, the bridge to the other side of Covid. We are still on that bridge. The rate of recovery has slowed over recent months, and that slowing is continuing. Relative to the fourth quarter of 2019, on the latest data to July, the level of GDP was 3.5% lower. That’s around one percentage point below the level consistent with the August Monetary Policy Report. There is a crucial distinction here between growth rates and levels of activity. It is inevitable in a bounce-back that the growth rate will slow as the recovery nears its end-point. It is not though inevitable – or desirable – that the previous level is not regained. Recovery in some consumer-facing services appears to have been delayed. We had seen a recovery in activities such as eating in restaurants, but activity is levelling off, notwithstanding our contribution this evening. Consistent with the impact of supply bottlenecks and disruption, construction output fell in July, and manufacturing output stalled. Surveys and the reports of the Bank’s Agents, suggest the impact of these supply-chain issues is broadening out.
In normal times, if the ECB lowers its key rates, the banks’ financing costs decrease, allowing them to pass these lower costs on to the lending rates they offer to customers, companies or households. BIS central bankers’ speeches  3  However, we noticed that this channel was no longer functioning correctly in the euro area. In fact, we noticed that a drop in key rates was feeding through to lower lending rates in certain parts of the euro area, but not everywhere. This means a fundamental aspect of our monetary policy and of its efficacy – i.e. its singleness – was impaired. As a result, major differences in bank lending rates appeared across euro area countries, which could not be explained by disparities by the fundamentals of the countries concerned. For example, two hotels with the same activities and financial characteristics and located on each side of the Austro-Italian border are obliged to borrow at substantially different rates. This is not because of a real difference in the credit risk. In reality, this rate differential stems from the fact that certain segments of the financial markets had developed fears regarding a possible break-up of the euro area. They were adding to the rates they were offering certain countries a risk premium to cover a “re-denomination” of bonds into the local currency.

The public deficit of the euro area has shrunk from 6.3% in 2009 to 4.1% in 2011. At the current juncture, this is clearly an asset for us and an element of confidence both for the markets and  BIS central bankers’ speeches  1  economic agents, and needs to be further enhanced. In addition to these efforts at the national level, a much stronger framework for common discipline has been put in place, which represents a major step forward towards a more integrated economic union. It is crucial that all of the efforts in this area are pursued with determination. Now turning to competitiveness, here too the progress already made in terms of structural reforms and the adjustment of unit production costs in many countries is very encouraging. Never in the recent past have the European economies been reformed so much in such a short space of time. I could cite many examples, in Spain (labour market and financial sector reforms), Italy (pension and services market reforms) and in France, where an important pension reform was made in 2010 and where structural reforms on the labour market and on the goods and services market are in preparation. These structural reforms constitute the necessary foundation for dynamic and sustainable growth in the future and they must be vigorously pursued. Furthermore, at the European level, the new Stability Pact includes a surveillance mechanism for macroeconomic imbalances, which had been missing up till now.