samchain/econo-pairs-v1 huggingface dataset:
1  The circumstances in which financial markets can affect the real economy were covered in my speech: ‘Market finance and financial stability: will the stretch cause a strain?’ (February 2018). 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  So as we consider the bear of stretched valuations in credit markets and the bergs of leverage and liquidity that could affect the resilience of those markets, I’ll look at whether each is an issue just for market risks or also of relevance to the wider economy too. Let’s begin with the moonwalking bear in debt markets. Consider this:  The yield on a basket of dollar-denominated corporate bonds is now closer to the expected average short-term risk-free rate over the life of those bonds than at any time in the past twenty years (see slide 3). The premium investors earn for taking interest rate and credit risk is squeezed. On the face of it that suggests an unusual degree of investor confidence about the interest rate outlook and corporate prospects generally.2 This compression of the premium has meant that – unusually – dollar corporate bond yields haven’t risen, even as the US risk-free rate has. (slide 4)  Perhaps companies, globally, have become less risky? That seems to be the view in the market for credit default swaps at least. Two years ago, the average annual premium of insuring against investment-grade corporate default was 85bp of the amount insured. Today, it is 50bp.

Over time, the size of the internationally exposed sector will be affected by the portion of petroleum revenues that is absorbed by the Norwegian economy but will be unaffected by monetary policy. Any  2  BIS Review 8/2002  appreciation of the krone may, nevertheless, affect the speed at which changes occur in the business sector. To maintain a balance in the Norwegian economy, the phasing in of petroleum revenues must be countered by a monetary policy stance that is tighter than it would otherwise have been. This may be accomplished through a higher interest rate, an appreciation of the krone, or both. On balance, we expect moderate growth in the mainland economy in the next two years. The projections for GDP growth that were presented in the October 2001 Inflation Report were approximately on a par with the growth potential of the economy. Household consumption and public spending are the main forces underpinning growth. Fixed investment and exports are restraining growth. Brisk growth in consumption is resulting in high demand for labour in public and private services. Low international growth and lower petroleum investment are curbing employment growth. A tight labour market is generating continued high growth in labour costs. An expansionary fiscal policy, growth in private consumption and a continued high rise in labour costs contribute to a high rise in prices for domestically produced goods and services. At the same time, we expect a temporary decline in prices for imported consumer goods.
That increasing short-termism in turn led to the increasing amplitude of the business cycle, so that inflation rose progressively higher from economic peak to peak and unemployment rose progressively higher from economic trough to trough. I am convinced that, with others, we really have taken on board the lessons of that experience. The requirements that public debt to GDP is kept at a stable and prudent level, with borrowing over the economic cycle limited to finance investment spending, constrain the use of fiscal policy as a short-term instrument. And monetary policy has been given the distinct role as the primary instrument for short-term aggregate demand management, with a target for retail price inflation, not simply as an end in itself, as some people still seem to imagine, but as a measure of the extent to which the growth of demand is held consistently broadly in line with the underlying - sustainable - growth of supply-side capacity. The past ten years have in fact been a period of unusual stability in that broader sense for the UK economy as a whole. Inflation has been consistently low throughout that time - close to, and recently modestly below, our present 2½% target. But that has not been achieved at the expense of consistently high interest rates, and weak growth and high unemployment, as many people initially feared that it would.

Risk assessment We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers become more confident and save less than currently expected. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. If supply bottlenecks last longer and feed through into higher than anticipated wage rises, price pressures could be more persistent. At the same time, the economic outlook could deteriorate if the pandemic worsens, which could delay the further reopening of the economy, or if supply shortages turn out to be more persistent than currently expected and hold back production. Financial and monetary conditions The recovery of growth and inflation still depends on favourable financing conditions for all sectors of the economy. Market interest rates have eased over the summer, but reversed recently. Overall, financing conditions for the economy remain favourable. 2/3  BIS central bankers' speeches  Bank lending rates for firms and households are at historically low levels. Lending to households is holding up, especially for house purchases. The somewhat slower growth of lending to firms is mainly due to the fact that firms are still well funded, because they borrowed heavily in the first wave of the pandemic. They have high cash holdings and are increasingly retaining earnings, which reduces the need for external funding. For larger firms, issuing bonds is an attractive alternative to bank loans. Solid bank balance sheets continue to ensure that sufficient credit is available.
It is not surprising that these questions arise. But if they are to be discussed, it is important to separate the two tasks the Riksdag (the Swedish parliament) has given us – monetary policy and financial stability. This may not be so easy, as the areas in many ways affect one another. However, I shall try to make things a little clearer. Two different tasks… What is happening right now is important, both with regard to financial stability and monetary policy. The financial turbulence has also been included in our analyses of both areas, ever since the problems connected to the mortgage market in the United States became apparent last summer. However the perspectives are different. The stability perspective concerns how the banks, the payment system and the financial system in general are affected by the financial crisis. The monetary policy perspective concerns how inflation and developments in production and employment may be affected. … which are in many ways linked As I recently mentioned, our two fields of activity are closely linked. The financial turbulence that has spread around the world to a large extent has its roots in the problems in the United States, linked to financial stability. This has led to extensive losses in the bank system in the rest of the world, to considerable uncertainty and poorer functioning in the financial markets. This is of course important to economic activity. However, economic activity in its turn affects factors that are important to financial stability.

A large part of the collateral the banks pledge for these loans will probably be comprised of covered mortgage bonds. The measures should therefore also have a positive effect on the functioning of the mortgage market. Together with the measures taken by other central banks, this should lead to better liquidity in the financial markets globally. A further measure is that the Riksbank as recently as today decided to establish a loan facility in Swedish krona to increase access to loans of longer duration. There have thus been disruptions in the financial markets, but the Riksbank, other government agencies and central banks have taken action to improve the functioning of the markets. We will of course continue to follow developments very closely. We are constantly updating our analyses and we are prepared to take action if necessary. In addition, as I have already mentioned, we have close contacts with the banks, market participants, other government agencies and our central bank colleagues in other countries. Monetary policy When the Executive Board met for our most recent monetary policy meeting on 3 September, the decision was to raise the repo rate by 0.25 percentage points to 4.75 per cent. However, the forecast for how the repo rate would develop in future was lowered in relation to the interest rate path that had been presented in July. The July forecasts contained a fairly high probability for a further two raises during the autumn.
This suggests these gains have come principally from rises in property and pension wealth. In other words, the gains have been skewed towards those in society who own their own home or who have sizable pension pots. That skewed wealth picture is confirmed if we look at measures of median, as opposed to mean, wealth using household-level data (Chart 10). Since 2006, average net household wealth has risen by around 25%, from £ to £ Over the same period, median household wealth has increased more modestly, by around 15%, from £ to £ Overall, then, although the aggregate data suggest a fairly robust recovery, a drill-down paints a more nuanced picture. The rising economic tide has not lifted all boats. Indeed, a sizable fraction of households have seen no recovery in their disposable incomes, a rise in job insecurity and at best modest rises in their wealth. For them, the “recovery puzzle” may not be  5  Gallie D et al (2016). 6  Gregg and Gardiner (2015)  7  Gallie, Felstead, Green and Inanc (2016)  8  Citizens Advice (2016). BIS central bankers’ speeches  5  so puzzling. These data also suggest that distributional factors may be important when understanding “whose recovery”. Let me now turn to those. Disaggregating the jigsaw There are a number of ways in which the economic jigsaw can be rearranged to provide a different picture of the UK’s economic fortunes.

BIS central bankers’ speeches  depression. 5 And there have been several notable shifts in the nature of employment which may have affected people’s satisfaction with their job. One is in the changing nature of employment. The number of people in self-employment has risen from 3.6 million in 2005 to around 4.7 million today and so, less dramatically, have numbers of workers on temporary contracts. Those on zero-hours contracts have risen from 120,000 to 800,000. Some of this shift in employment practices is likely to have been a voluntary choice by workers to increase their job flexibility – for example, those nearing retirement or returning to work after childcare seeking part-time employment. But this is not the full story. Around 15% of those working part-time would prefer to be in full-time employment. And around a third of those on temporary contracts would prefer to be on permanent contracts. For those individuals, the darkside of labour flexibility – job insecurity – may be being felt. Some measures of job insecurity are consistent with that. For example, job insecurity would tend to lower the likelihood of people moving jobs. 6 As Chart 6 shows, job-to-job flows began rising slowly after 2010 but remain at levels well below their pre-crisis levels. Meanwhile, surveys suggest around a quarter of workers currently are afraid of losing their jobs, the highest level in several decades. 7 Citizens Advice has recently estimated that around 4.5 million workers in England and Wales are in insecure employment.
The crucial factor to succeed in the global knowledge economy is the country’s ability to develop intellectual capital. Only those who understand the importance of innovations for growth will thrive and prosper in the coming decades. Unfortunately, CEE region lags badly behind the leaders in terms of its current and future ability to generate innovation. One of indicators measuring current ability to innovate is the number of researchers. In the mid-1990s CEE-4 (the Czech Republic, Hungary, Poland and Slovakia) and Asian NIEs had similar number of researchers per million people, while two years ago NIEs had almost twice as many persons employed in R&D per million people in comparison with CEE-4. Future knowledge potential of particular country or region can be measured by tertiary enrolment ratio. Tertiary enrolment ratio in the CEE-4 countries improved to 50 percent in 2004, but still remains well below 62 percent in the EU-15 and 82 percent in the United States.. Because of a relatively small population and a number of structural deficiencies it is very unlikely, that increase in the number of students in CEE-4 that have occurred in recent decade will translate into higher innovation potential in the coming years, unless a dramatic change in policies in CEE-4 is made. This is also confirmed by a dramatically low number of patents registered in the CEE countries and extremely low number of scientific publications.

It would be beneficial to have more discussion of, and attention paid to, the question of how to stimulate competition. In this particular case a beneficial change appears to have strongly stimulated competition. If we are to achieve increased competition in other areas, too, it is necessary to constantly emphasise consumer interests so that allocation of resources becomes as efficient as possible and protected sectors are not allowed to operate inefficiently to the detriment of potential growth. 2  Statistics Sweden calculates households’ consumption of pharmaceuticals to be approximately SEK 10 billion a year. BIS Review 37/2003  5  What can we learn from 150 years of history? To summarise, there have been many changes in the Swedish economy in recent times. The external framework is currently characterised by considerable fiscal policy and monetary policy stability, which facilitates planning and decision-making for both households and companies. Both our own history and that of other countries shows clearly that a stable external framework is an important basis for economic growth. We have also gone back to being open towards the outside world. During the war we were not, for obvious reasons. After that we were open for a long period according to the rhetoric, but less so in practice. Today we have regained a freedom for ideas, products, services and production factors that is reminiscent of the late 19th century and early 20th century. In both of these aspects we appear to have done our homework.
In this scenario, commodity prices are envisaged to go below the assumptions presented in the baseline scenario; credit conditions are projected to remain tight for a while and recovery in foreign demand would be a prolonged and slower process due to the late recovery in the global economy. Meanwhile, crude oil prices are projected to drop to USD 45 per barrel and remain at this level throughout the forecast horizon. This projection is above the one presented in the January Inflation Report, as OPEC announced that it would not allow sharp falls in oil prices. Meanwhile, it is foreseen that food prices inflation would remain below the baseline scenario and therefore will become 5.5 percent by the end of 2009 and 5 percent afterwards. Against this background, assuming that measured policy rate cuts continue throughout 2009, it is projected that with 70 percent probability, inflation will be between 3.9 and 6.5 percent with a mid-point of 5.2 percent at the end of 2009, and between 2.7 and 6.3 percent with a mid-point of 4.5 percent at the end of 2010. Furthermore, inflation is expected to go down to 4.2 percent by the end of 2011. To sum up, these forecasts indicate that in the case of a longer-than-expected slowdown in global economic activity, inflation would remain below the medium-term forecasts even if the measured policy rate cuts continue throughout 2009 (Graph 28).

In this context, I would like to start my speech by once more underlining that inflation developments in Turkey in the first quarter of 2009 should be considered in the light of these global conditions. In the first quarter of 2009, consumer prices increased by 1.05 percent and annual consumer inflation became 7.89, remaining within the limits of the uncertainty band. Backed by the significant slowdown in economic activity and improvement in cost-based effects, the decline in inflation gained ground and spread across all subgroups. In addition, the short-term exchange rate pass-through on consumer prices remained limited in the previous quarter. The contribution of all main groups excluding tobacco and gold, which posted high-rated price hikes to annual inflation weakened in the first quarter of the year. While the contribution of food and energy to annual inflation decreased especially due to the marked decline of annual inflation in energy prices, the contribution of services prices also continued to diminish owing to the fall in costs and the slowdown in domestic demand (Figure 1).
In the context of benefits for Switzerland, I have already discussed why the argument that EMU membership would induce the Swiss political authorities to embark upon a necessary and otherwise impossible economic reform program should be dismissed. For the United Kingdom, the economic cost-benefit assessment of EMU membership is a different one. Analogous to the Swiss case, the UK would lose monetary policy as a flexible instrument to respond to asymmetric domestic shocks such as the current steep rise in domestic house prices (Chart 6). However, unlike Switzerland, the UK would gain from lower interest rates. In this context, it must be remembered that the Bank of England’s post-monetary independence highly successful monetary policy under an inflation targeting regime follows a long period of stop-and-go monetary policy and relatively high inflation (Chart 7). The argument that EMU would somehow induce further structural reforms is equally irrelevant for the UK as it is for Switzerland though partly for different reasons. As I outlined earlier, initiated by the economic shock experience of the late 1970s, the United Kingdom has independently and autonomously embarked upon a long-standing and far-reaching economic liberalization course. The current nature of the relative business cycles between the UK and the Euro-zone points to higher economic costs of UK membership in EMU than for continental European countries. This is illustrated by the different interest rates settings of the ECB and the Bank of England in recent times.

3  Because Swiss GDP statistics do not fully take into account the improvement of the terms of trade regularly realized by the tradable sector, the growth differential between Switzerland and other advanced economies is overstated but remains significant nevertheless. See e.g., Term-of-Trade Changes and Real GDP: Evidence from Switzerland, Ulrich Kohli, SNB Quarterly Bulletin, June 2002. BIS Review 24/2004  3  Monetary policy and EMU Accession to a monetary union transfers the power over monetary policy from the national to the union level. There are costs and benefits to such an abdication of monetary sovereignty. Nominal interest rates are equalized throughout a monetary union and the nominal exchange rate is no longer available as a tool for alleviating the impact of asymmetric shocks. Necessary economic adjustments between different countries of a monetary union must therefore occur through various price and factor movements. As I have already suggested, imposing real wage adjustments in particular can be politically costly. In the case of both the UK and Switzerland, these potential costs of EMU membership are mitigated by virtue of flexible labor markets in both countries. In the case of Switzerland, EMU accession would also lead to the loss of an interest rate bonus our country has traditionally enjoyed. At least partly, this bonus is rooted in the credibility of the Swiss National Bank, acquired over a long period of independent and successful monetary policy (Chart 2).
The uncertainties due to commodity price fluctuations also stand out as an important issue for the monetary policy communication and expectations management by the central banks. Structure of the commodity price dynamics is also of great importance for they constitute an input for the monetary policy decisions of the central banks. For example, the sources of the commodity price fluctuations and the nature of the shocks are extremely influential for the determination of the policy responses to these fluctuations. Similarly, not only the level but also the volatility of commodity prices can have a significant effect on the macroeconomic activity. For example, a shock affecting the level of crude oil prices may have a different effect on economy, if it is observed in a period where the volatility of prices is also higher. BIS central bankers’ speeches  1  Inflation  IV  III  Growth  I  II  As I have briefly mentioned before, an increase in the commodity prices creates downward pressure on the growth prospects, and upward pressure on inflation. In Turkey, the investment incentive package that was announced yesterday will support our economic growth through the supply side, and the tighter monetary policy will eliminate the inflation risks. The sessions on each day of the conference will provide platforms for studies which are of very rich content and great potential benefit for policymakers. For example, macroeconomic effects of the commodity price dynamics and possible corresponding policy responses are among the main themes elaborated during the conference.

Jean-Pierre Roth: Are we still on the growth track? Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the General Meeting of the Schaffhausen Regional Association of Industry and Commerce, Stein am Rhein, 18 March 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  After the economic downturn witnessed in the second half of 2004 and at the beginning of 2005, the question arises whether Switzerland will remain on the growth track. Jean-Pierre Roth believes it is and anticipates GDP growth to be in the range of 1.5% this year. Owing to the favourable international economic situation, the economy in Europe is likely to pick up again, which will also benefit the Swiss export industry. At the same time, we can assume that domestic demand will continue to grow at a moderate pace. The decline in important economic data during the last few months, however, suggests that economic growth in the first half of 2005 will remain weak. This notwithstanding, involves the risk of declining corporate and consumer confidence, which in turn would jeopardise economic development. It is also doubtful whether the weak dollar and high oil prices have already had their full impact or whether it is yet to unfold. Based on such considerations, the National Bank decided to leave the three-month Libor rate at 0.75% in mid-March.