samchain/econo-pairs-v1 huggingface dataset:
But, while significant progress has been made since the end of the recession, there remain a number of headwinds that have offset the improvement in the underlying fundamentals. As a result, we have yet to see any meaningful pickup in the economy’s forward momentum. The most notable recent headwind, of course, has been the large amount of fiscal drag this year from the payroll and income tax increases and the budget sequester. Also noteworthy is the tightening of financial market conditions that has occurred since May. As we move into 2014, the fiscal headwinds should abate somewhat. As that occurs, the improving underlying fundamentals of the economy should begin to dominate, pushing up the overall growth rate. But this is just a forecast, it has not been realized yet. That is one reason why I supported the FOMC’s decision last week to maintain the current pace of our Treasury and mortgagebacked security purchases. In my view, the economy still needs the support of a very accommodative monetary policy. Adjustments to that policy need to be anchored in an assessment of how the economy is actually performing, how financial conditions are evolving, and how this affects the longer-term outlook and the risks around it. Our decisions on how to adjust our policy tools – for example, the pace of asset purchases and forward guidance with respect to the level of short-term rates – must be rooted in the ongoing flow of information that informs our judgments about the prospects for a sustainable recovery.

Credit institutions are now proceeding more cautiously in their lending to this sector and interest rate terms are changing. Oil prices seem to be stabilising, and in spite of mounting labour market pressures, wage drift has been contained. The Central Bank’s policy rate hike is beginning to spread through the economy; monetary policy is transmitted with an inherent lag in all cases, and this has even been exaggerated by Iceland’s unique economic conditions at present. The most important change in the wake of the September policy hike, however, was that indexed bond yields began to rise at last. It was vital for monetary policy to begin to have an effect in the parts of the economy which showed the clearest signs of overheating, i.e. soaring private consumption growth. Although all these points represent an interesting and positive development, on their own they do not justify changing the policy that the Central Bank has been pursuing. Substantial pressures still exist in the economy, demand is buoyant and there are undeniably sizeable imbalances. These factors must be seen in context. While recent information on the short-term outlook should obviously be observed, it is even more vital to look at indicators for longer-term developments. In effect the Central Bank has no other option – like God’s mills, the Bank’s instruments grind slowly, but grind exceedingly well, if patience and foresightedness guide the way. The Central Bank has made no secret that the current strength of the króna is not sustainable in the long run.
We are closely monitoring the progressive increase in the demand for loans for investment, operating capital and stock enhancement, and the gradual decrease in demand for debt rollover. High-frequency data also signal a recovery in the labor market on the back of the reopening. Although employment in the services sector has been recovering more slowly amid pandemic-related restrictions and is still slightly below its prepandemic level, employment growth in the industry and construction sectors as well as the non-farm employment has exceeded pre-pandemic levels. We consider that the services employment will also exceed its pre-pandemic levels in the upcoming period. In the last couple of years, our economy suffered a variety of shocks, with the pandemic in the lead. The Central Bank has adopted a policy that curbs the  6  lasting effects of these shocks, safeguards domestic and external balances and prioritizes price stability as the ultimate goal. We are closely monitoring the current account and external financing data. Currently, the upward trend in exports, the recovery in tourism and the significant decline in gold imports support the ongoing improvement in the external balance. According to the provisional foreign trade data for August, our exports particularly to Europe are quite strong. The strong momentum in vaccination since June played an important role in the improvement of the risk perception towards Turkey and the easing of restrictions. In this context, we are getting positive signals on the recovery in tourism activity.

I would like to note that like other central banks, we also have considerations regarding the temporary nature of price movements resulting from supply shocks. While maintaining the tight monetary policy focusing on demand factors and their consistency with our medium-term inflation target, we will be giving more weight to decomposing the effects of supply shocks in the upcoming period. Before I finish my evaluations on inflation, I would like to make a few notes on the pricing behavior. Recently, price increases in certain products have exceeded their historical averages. When we look into the products that made the highest contribution to inflation, we observe that in August, annual price increases in those products exceeded the average price increases of the last 10 years by more than three to four times. Although one reason for this situation, as I mentioned before, is developments such as the pandemic-led increases in commodity prices and supply constraints, these factors alone may not fully explain the price increases in some products. However, we consider that such pricing behavior will converge to its pre-pandemic level as the economic and social normalization gains pace in the upcoming period. Lastly, when we look into exchange rate developments, we see that the improvement in our reserves is consistent with our forecasts. Reserves increased by USD 30 billion from USD 85-90 billion to USD 115-120 billion. Swap agreements, rediscount credits, gold ore purchases and reserve requirement steps have been the primary factors contributing to reserves.
Investment in IT, which had been growing at around 20% a year, actually fell in the first quarter. As a result, and as in the UK, the US has experienced a fall in manufacturing output while consumption and the housing market appear more resilient. Prompt action by the Federal Reserve has so far limited the slowdown to a downturn in inventories and fixed investment. Whether the slowdown in the US will be more prolonged than is embodied in the current consensus view will depend critically upon personal consumption. And, in turn, that will depend upon expectations of future productivity and hence income growth in the US. If there were to be a reappraisal of the extent of the increase in productivity growth in the US, then there might be a further downward revision of asset prices and a lower path for consumption spending. So far, the evidence, both from consumption directly, and financial markets indirectly, suggests that no major reappraisal has occurred. Share prices have fallen from their peaks of last year. But price to earnings ratios remain well above historical levels. The average P/E ratio in the US since 1900 was around 14. The ratio peaked at over 30, falling back to current levels of well over 20. Interestingly, the divergence of valuation between hi-tech and other companies has virtually disappeared in recent months. There has also been a reduction in the perception of downside risks to equity returns.

Our ongoing focus on international standard setting and policymaking, including in relation to climate change  The final aspect of competitiveness I would like to discuss today is the future role of the PRA and  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  UK in shaping policy and engaging with other regulators at an international level. Even prior to withdrawal from the EU this was an area in which the PRA invested considerable time and effort, and post-departure this assumes even greater importance – now more than ever, it is important that the UK view and experiences are captured as part of international standard setting process. We are well positioned here given that Vicky Saporta, our Executive Director of Prudential Policy, also serves as Chair of the International Association of Insurance Supervisors (IAIS). Why is this important to UK competitiveness? International standards aim to create a common language for the supervision of internationally active insurance groups; to level the playing field internationally for insurers; and to simplify regulation for large international groups. To this end, the implementation of common international standards should serve to reduce barriers to cross border insurance activity globally, allowing for new international activity and removing friction where this is already taking place. Ensuring that the UK views are reflected properly in any international standards that are created reduces the risk that UK insurers are faced by regulatory regimes that are not wholly compatible with their business models and lines of business.
Moreover, much of this was funded by short term capital inflows. When the asset bubble collapsed the banks and the companies or individuals who had borrowed foreign currency to finance the investments were unable to repay. The problem was compounded by the depreciation of domestic currencies that increased the real burden of debt repayments. •  Second, banks in a number of economies were ordered or persuaded by governments to lend heavily to companies that were not commercially viable. This “policy” lending destroyed the banks’ incentive to exercise credit judgment and allowed the companies concerned to become overleveraged and thus vulnerable to economic downturn. 1  BIS Review 53/1999  •  Third, over-exposure to connected parties was endemic in some economies. Such lending is not usually made at arm’s length and will seldom satisfy normal credit criteria. •  Fourth, partly because much lending in the region was politically influenced or insider in nature, there was not much opportunity to develop a proper credit culture or adequate credit skills. Name lending and relationship lending were widespread. This went hand in hand with an over-reliance on collateral whose value of course diminishes sharply when asset values collapse - assuming of course that the security can be enforced in the first place, which has certainly not been the case in countries such as Thailand. •  Fifth, a feature of the lack of credit skills was a failure to recognize bad debts and to face up to the full scale of the bad debt problem.

Global fiscal and current account imbalances The negative correlation recorded during the crisis between the current account and the fiscal balances has been largely in line with expectations. In the long run, however, current account deficits could well increase again globally if the fiscal expansion which has taken place in recent years is not reined in. In fact, the available evidence suggests that the adjustment of current account imbalances has so far been largely cyclical. The reduction in trade imbalances following the crisis has slowed and, in several cases, has started to reverse. In both the United States and China we are already close to pre-Lehman levels in absolute terms. The sheer asymmetry in size and composition of the fiscal stimulus in advanced countries compared with any measures taken in emerging economies is likely to magnify the expected resurgence of current account imbalances. Similarly to the pre-crisis situation, advanced economies’ indebtedness would be financed with capital flows from emerging economies. This implies not only a massive misallocation of global capital, but also undermines the credibility of any initiative to rebalance savings and investments both within and across the main regions of the global economy. As a result, it risks creating – once again I should say – delusional expectations in financial markets about the sustainability of imbalanced financial and trade flows. Policy discussions are likely to return to where they were a few years ago. The crisis has given us the opportunity to question their analytical and practical basis.
The data include the period between May 2004 and December 2004. †Workforce – people of 15 and more years of age in Q1, 2004. Analysts also point out that the dynamically growing Chinese economy, which uses more and more commodities, contributes to a significant increase in their prices, and may potentially drive up inflation. However, considering the increased competitive pressure, the possibility of shifting higher cost of commodities (e.g. oil) onto the final prices is limited 12 . In addition, in view of fierce competition on the labour market and the changes referred to above, the risk of growing wage demands is limited, and so are the so-called second-round effects. Re 3) Over the past three decades, the financial sector has become highly international. Financial services, provided under strictly regulated, separate, domestic financial systems in the past, are now provided under ever more open, competitive and global system. One of the measures of globalisation in the financial services sector is the growing volume of cross-border capital flows. Cross-border transactions in the bonds and shares segment are now exceeding 90 trillion (thousand billion) US dollars per annum, which translates into USD 250 billion daily 13 . Moreover, the size of financial markets and their meaning to the global economy becomes ever greater. According to McKinsey Global Institute 14 , the total value of global financial assets is now USD 118 trillion, whilst as far back as in 1980 they were only 12 trillion.

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Low-income workers in emerging markets, for example, may find it more difficult to adapt, given weaker safety nets and fewer financial resources available to deal with adverse economic shocks. The bigger the adjustment process, the more the gains from trade will tend to be eroded. While the rise in the skill premium from trade liberalization has been well established for both developed and developing countries, determining the aggregate impact of trade on jobs has been more challenging. To date, the evidence has been mixed. We need further research in this area to determine with more confidence a reasonable range of estimates for these employment effects. Although evidence of the extent to which jobs have been lost due to global trade is inconclusive, job losses that are attributed to trade tend to be viewed differently. That is, they are seen as having been “lost to foreigners” and are often viewed as a consequence of the policy decision to liberalize trade in the first place. The challenge of adjusting to open trade is a serious issue that has not received the degree of attention it fully deserves. This may partly reflect the fact that the burden has been borne unequally and spread out over a long time period. It also may reflect the fact that the winners from trade have often tended to have a stronger voice than those who have been the losers. Research has documented that the effects on individuals of job dislocation—including those resulting from trade—can be significant and long lasting.

Given the improved economic performance, it has become necessary to re-align and configure our currency in line with macroeconomic fundamentals. The currency rebasing exercise will have implications on businesses in the economy including changes to accounting software, tax aspects, ATMs, cash registers, etc. The success of the currency rebasing exercise will largely depend on our partnership with the commercial banks. Ladies and gentlemen, as you will note all these measures are aimed at improving efficiency conduct of business in our economy and commercial banks have a very crucial role to play in all these. The expectation is that all of you represented here will support the central bank to ensure that collectively, we build a financial sector that is modern and responsive to the needs of our economy. Chairperson, as a central bank, we will continue to foster an environment where dialogue between all key stakeholders can be promoted both at individual bank level as well as at Industry level. Despite the policy changes embarked on, there remains a lot to be done in the areas of financial inclusion, financial education and consumer protection in the banking  2  BIS central bankers’ speeches  industry. In this regard, the Bank of Zambia has developed branchless banking frameworks and a national strategy for financial education in partnership with other stakeholders. As a regulator, we are committed to ensure an open and competitive banking environment.
3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  happened over the past year isn’t a surprise, given the drop in employment (Chart 2 provides the comparison). Whatever their contribution to recent rates of inflation we can at any rate expect the effects of lower participation and the CJRS to fade soon enough. The participation rate is likely to rise again as the labour market recovers and the furlough scheme is being wound down. So today, in the interests of thinking about what might prove more persistent sources of inflation, I want to concentrate on other things, stuff that’s not directly evident from the aggregate data. In doing so I’ll be expanding on a theme – the broad description might be “mismatch” – that I touched on in a talk earlier this year and that my fellow MPC members Michael Saunders and Jonathan Haskel have also developed in their recent speeches3. One of the things I pointed out at that time was that, despite the weakness in aggregate UK consumption, some areas of spending had been pretty strong. Broadly speaking, and for understandable reasons, the pandemic had induced a sizeable shift in UK consumer spending from services to goods. And shifts in spending of this sort, at least until (and unless) they’re met by matching shifts in supply, tend to push up average prices. In part that’s just because retail goods prices tend to be more flexible than those of services.

Moreover, the ratio of total credit to nonhydrocarbon GDP remained stable, whereas credit to the private sector/nonhydrocarbon GDP increased somewhat in 2013 to reach 23.45% (21.35% in 2011). In 2013, while pursuing their provisioning efforts, banks consolidated their financial soundness indicators. Solvency ratios remain high, much higher than required under the prevailing regulation and in line with the recommended level under Basel III. The banking sector soundness is anchored to high capital adequacy ratios and high profitability and liquidity. The solvency ratios are in line with those of comparable emerging market economies. In 2013, an assessment of the banking sector carried out by the International Monetary Fund and the World Bank has helped define further directions in deepening banking sector reforms and strengthening banking system stability in Algeria. Effective implementation has started in the first quarter of 2014 with the enactment by the Council on Money and Credit of three regulations related to the solvency ratios, large exposures and participations, and loans classification and provisioning. The minimum Tier 1 capital ratio has now been set at 9.5%, higher than recommended by the Basel Committee, and the regulatory capital ratio has been set at 12%. Moreover, as regards the strengthening of the capacity in assessing the banking sector risk, Bank of Algeria will rely, as of the beginning of 2015, on the effective use of the new stress test model, and on the generalization of the bank rating system.
A weaker króna would have a multiple impact in the form of higher inflation, not least in the climate of overheating which has prevailed in Iceland recently, a resulting fall in living standards and difficulties for companies and credit institutions. Exchange rate policy reforms For quite some time now the Central Bank has been examining the option of abolishing the formal fluctuation bands for exchange rate policy and adopting instead direct inflation targeting as the basis of monetary policy. Articles on this topic have appeared in the Bank's publications in recent times and international agencies have recommended serious consideration of inflation targeting as the main monetary policy goal. The fixed exchange rate framework has gradually been eased and the fluctuation bands have been extended in phases, as I mentioned earlier. Indeed, the extension of the bands in autumn 1995 can be claimed to represent the first step towards instituting a new foreign exchange framework, with the next step taken in February last year. The Central Bank sees many factors in favour of adopting inflation targeting, which is a logical continuation of the flexible exchange rate policy that has been pursued. Monetary policy based on formal inflation targeting enjoys growing support and has been adopted by an increasing number of countries. Industrialised nations which have done so include Australia, the UK, Canada, New Zealand, Switzerland and Sweden.

BIS Review 51/1999  2