samchain/econo-pairs-v1 huggingface dataset:
The likely accuracy of these expected responses is extremely unclear. But “no deal” expectations are already affecting financial markets. As the perceived probability of a “no deal” Brexit has risen, sterling has weakened and UK short-term interest rates have shifted downward (Chart 31). Having expected rates to rise modestly at the time of the May Inflation Report, financial markets now expect UK interest rates to fall over the next year or so, before rising gradually. 28  All speeches are available online at www.bankofengland.co.uk/speeches  28  Chart 31: UK short rates Per cent  2 1.75 1.5 1.25 1 0.75 0.5 0.25 0  2014  2016  2018  2020  Latest (cob 18 July)  2022  May 2019 IR  Sources: Bloomberg LP and Bank calculations. Notes: May 2019 IR line refers to 15-day average curve used to condition the May Inflation Report projections. This forward path of interest rates is, in practice, a rather peculiar one. It is likely to reflect a probabilityweighted mix of two quite different possible outcomes for the economy – a “deal” scenario in which the economy grows and a “no deal” scenario in which some expect it could shrink. In that sense, the market path of interest rates is not an accurate reflection of the most likely path of interest rates. To illustrate, consider a simple thought-experiment. Assume, in the event of a “no-deal”, the economy followed the course expected by companies in Chart 30.

Chart 8: Real pay by region 1998-2007  2009-2018  Average annual real pay growth (per cent) 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5  Sources: ONS and Bank of England calculations. Notes: Data at annual frequency using median gross weekly pay in ASHE deflated by CPI. Regional calculations at NUTS1 level. Over the past decade, average growth rates of real pay in every UK region have fallen into negative territory and well below average GDP growth rates in the economy over the same period (1.3%). The worst-affected regions have been the East Midlands and London. Scunthorpe has been towards the lower end of this pack, with real pay falling by, on average, 0.8% per year over the past decade. The distribution of real pay rises across the wage distribution tells a nuanced story (Chart 9). In the decade prior to the crisis, real pay growth was fairly evenly distributed. The one exception was the top two wage deciles, where real pay growth averaged 2 ¼% – 0.5 percentage points higher than in the lower deciles. The global financial crisis (2008-11) saw a sharp and significant amplification of these pre-crisis trends. The distribution of real pay rises fell below zero for all income groups. But while for the top two income deciles real pay shrank by only 2%, for the bottom two deciles it fell by 4%. This widened pre-existing wage inequalities. For the poor, this really was a Great Recession.
The council should comprise members who do not represent a political party, but a particular field of expertise: business, banking or economics.” One example of an existing body of this type is the Swedish Fiscal Policy Council, which was established in 2007 as an agency under the government. In the UK, an interim Office for Budget Responsibility (OBR) was recently set up. And in the euro area, the budgetary surveillance of the European Commission is referred to as the “preventive arm” of the Stability and Growth Pact. But, as highlighted by the commission itself: “In order to function effectively, it requires a common understanding of the economic and fiscal policy challenges in the European Union, and a strong political commitment to addressing them.” How to enforce a strong political commitment to address the fiscal bias is still very much an unresolved question. BIS Review 113/2010  7  The second question is how to secure adequate international coordination in both crisis prevention and crisis resolution. International coordination is important  As the chart shows, foreign banks’ share of the market in Norway is approximately 1/3. In some countries, foreign banks’ share of the market is higher or even 100%, with no domestic banks at all. Today a bank’s regulation is laid down and supervised by the authorities in the bank’s home country. When foreign banks’ share in a market is large, this challenges the concept of a level playing field insofar as national supervisory authorities do not coordinate their work.

This way of organizing regulation will be an even bigger challenge when new regulation designed to hinder the build-up of systemic risk is introduced, since a host country and the home countries of banks operating in the host country may be in different stages of the business cycle. Output gap in the Nordic countries  This is illustrated in this chart showing output gaps in the Nordic countries. Today most economies are closely integrated with other economies, both through trade and through  8  BIS Review 113/2010  financial markets. Still there may be significant differences both in the timing (and amplitude) of peaks and troughs in the business cycle and in the functioning of financial markets. Asymmetries between countries mean that the appropriate regulatory parameters to dampen systemic risk will not necessarily be the same for all countries at the same time. To be effective, regulatory parameters, for instance those calibrated to ensure the buildup of countercyclical buffers, need to encompass all banks operating in the same jurisdiction, as put forward in the July 2010 BIS proposal. Finally, I will say a few words on crisis resolution. Resolution actions taken in one country in response to a crisis can have effects on banks in other countries that do not choose to introduce the same resolution actions. For instance, issuance of government guarantees in one country can weaken banks in neighboring countries without such guarantees (since government guarantees provide an incentive to move deposits to banks in these countries).
Having said that, the HKMA will of course have its own views on what levels of sophistication of risk management we would expect to see in different types of banks. While we won’t mandate particular approaches, we will expect to see levels of risk management that are commensurate with the types and levels of risk being run. So, for example, we won’t necessarily expect even a large bank with significant credit risk to implement advanced IRB. But we would expect a bank of such a type to have a fairly advanced internal credit rating system. As another example, we would generally expect banks with a significant level of market risk to implement a models based approach to measuring the risk. BIS Review 31/2003  1  This flexible approach - in contrast to the approach being adopted by some other supervisors, who are mandating that particular approaches be adopted by particular types of banks - is, we feel, the most appropriate approach for Hong Kong. In Hong Kong we have a wide variety of banks, RLBs and DTCs. We have different nationalities. We have different sizes. We have banks that focus on the retail market, and ones that focus on the wholesale market. We have banks that specialise in mortgage lending, ones that specialise in SME lending, and ones that are jacks of all trades. It’s perfectly appropriate, therefore, that with such a wide variety of banks there should be a wide variety of credit risk management and other risk management practices.

The real point is whether, given the bank’s particular circumstances, the risk management practices they adopt are adequate. And that, primarily, is a matter for the bank’s management to determine, although we will of course, given our statutory responsibilities, also have an interest in this. I stress these points for three particular reasons. First, because I don’t want anyone to think that we are against banks taking risk. We’re not. That’s the business they’re in. We simply want to make sure they recognise and manage the risk effectively. Second, because I want to make clear that we are not hell bent on driving banks to invest in unnecessarily sophisticated risk management systems. What’s appropriate will clearly vary from bank to bank, depending on the nature and scale of their business and the risks they run. Third, because I want to be perfectly clear that Basel II is not some underhand means of making life difficult for smaller banks by raising the hurdle too high in terms of what they need to spend on risk management and on regulatory compliance. Indeed, on the contrary, the whole thing is carefully designed so as to accommodate banks of all shapes and sizes. So, how will Basel II change banking in Hong Kong? The answer, I would suggest, is that we won’t see any dramatic changes overnight, but we will over time see some re-focusing of how the risks within banks are addressed, both by banks themselves and by the supervisors.
As Krueger (2018) discusses, there are other types of “implicit contract” which might dilute workers’ bargaining power. See also Manning (2003). 25 Autor et al (2017b). 26 Autor et al (2017b). 27 Autor et al (2017b). 28 Benmelech, Bergman and Kim (2018). 29 Mueller, Ouimet and Simintzi (2017). 30 Abel, Tenreyro and Thwaites (forthcoming). 24  12  All speeches are available online at www.bankofengland.co.uk/speeches  12  Implications for Monetary Policy  Let me conclude with some reflections on current and prospective pay developments. A year ago, prospects for pay were cloudy. Average weekly earnings growth – excluding the volatile bonus component – was running at a 2% annual rate, in line with its growth over the preceding three years. Average pay settlements were running at just over 2%. Signs of a pay pick-up had, to that point, proved to be false dawns. A year on, I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly. Average weekly earnings growth (excluding bonuses) has risen to 2.9% – a clear rise and a little stronger than the MPC had expected at the time of its Inflation Report in August. Pay settlements have risen to 2.8% in a similar pattern (Chart 23). Measures of labour market tightness have increased to their highest levels since before the crisis and, in some cases, ever. Looking beneath the headline figures, evidence of an up-tick in pay is clearer still.

The dependent variable for these models is the four-quarter growth rate of whole economy total average weekly earnings. As such, the residuals from these regressions will be serially correlated, and so we report Newey-West standard errors. Specification 6 is run on annual data back to 1892; the dependent variable is annual nominal wage growth. Trend productivity growth is calculated as a five-year trailing average. 31  All speeches are available online at www.bankofengland.co.uk/speeches  31
In H1 2022, growth has continued and broadened across sectors, coming in at 4.4% on a year-on-year basis. The economy is currently 6% above its pre-pandemic levels. The output gap is positive at 0.6% of potential GDP, meaning the economy is operating slightly above its underlying capacity. The external-oriented sectors such as manufacturing and financial services are facing some headwinds in light of weaker growth prospects in the global economy. But the domestic-oriented and travel-related sectors are performing strongly, benefitting from the easing of mobility and travel restrictions here and in the region. The labour market has tightened and wage growth is running ahead of productivity gains. The seasonally adjusted resident unemployment rate has declined to 3.0%, the lowest rate since end-2018. Yet, total employment is still 2.5% below the pre-pandemic level – mainly because Singapore lost 15% of its non-resident workforce since December 2019. Job vacancies are at record high levels with broad based increases across sectors. The vacancy-to-unemployment ratio is at its highest level since 1998. Resident wages have risen by an average 6.2% year-on-year over the past three quarters, running slightly ahead of real productivity growth of 5.5%. Imported inflation reflecting supply disruptions caused by the Russia-Ukraine war has significantly added to price pressures. Import prices facing Singapore have surged by 27% in May this year, compared to the same period last year. About 80% of this was contributed by higher oil and food prices.

If there are fresh shocks to global energy and food supplies arising from the ongoing conflict in Ukraine or a significant overheating of the domestic labour market, inflation  may end up being higher and more persistent. TAMING INFLATION MEANS SLOWER ECONOMIC GROWTH  The outlook for a gentle easing of inflationary pressures globally is also premised on strong monetary policy actions by central banks. Monetary policy dampens inflation by reducing aggregate demand to be in line with aggregate supply. In most countries, this is achieved through higher interest rates that dampen consumption and investment demand. A slowdown in economic growth is necessary to restore macroeconomic stability and balance. The central banks of the major economies have been tightening monetary policy. The US Federal Reserve has raised interest rates three times since March 2022. The European Central Bank has yet to raise rates but has indicated it will do so this month. The Bank of England as well as the central banks of Canada, Australia and others have also been withdrawing monetary policy accommodation. Central banks are expected to further tighten monetary policy substantially over the next 6 months. Global economic growth in 2023 is likely to be slower. Tighter financial conditions, coupled with a squeeze in real incomes as a result of rising prices, will exert a drag on growth. It is difficult to forecast the extent of the growth slowdown next year given the complex interplay of multiple factors. It may be more instructive to think of possible scenarios.
We also saw that commodity prices had risen, as had food prices (Figure 6). Business tendency data from the National Institute of Economic Research also indicated that food prices would continue to rise. Inflation expectations, which normally fluctuate fairly substantially, had also shown a weak trend increase since summer 2005 and were at around 2.5 per cent for households in August, according to the National Institute of Economic Research’s survey (Figure 7). House prices had also continued to rise over the summer, while household borrowing had continued to increase at roughly the same rate as during the first quarter. BIS Review 111/2007  1  To summarise, there were in my view strong domestic reasons for raising the repo rate to 3.75 per cent in September. This could in itself also have justified a slightly higher forecast for the repo rate. But there was a counteracting effect from developments in the United States and the unrest on the financial markets. My conclusion was therefore that the repo rate forecast from June provided a fairly good picture of the most likely path for the repo rate over the coming years. If it were the case that the US economy suffered a deep recession with severe contagion effects, the Riksbank would have reason to reconsider its views. Advantages of an own interest rate forecast This leads me on to our experiences so far of the Riksbank’s publishing its own forecast for the repo rate.

So despite the market analysts’ own interest rate expectations being in line with the Riksbank’s published interest rate path for the coming six months and higher further ahead, they were surprised by the Riksbank’s upward revision of the interest rate path. One might ask why market agents’ expectations of the Riksbank’s interest rate path differed from their own forecasts for the repo rate. One interpretation is that they believed they had weighed together information on inflationary pressures in the economy in a different way than the Riksbank. This is nothing strange in itself. Assessing economic developments is not an exact science and different forecasters may very well draw different conclusions regarding the underlying inflationary pressure in the economy. But what surprises me, if this is the  4  BIS Review 111/2007  correct interpretation, is that the market nevertheless reacted so strongly to the assessment we made in June. Another interpretation might be that some analysts thought the Riksbank’s assessment of inflation prospects and interest rate development did not differ significantly from their own assessments, but that the Riksbank did not want to revise the interest rate forecast made in February by that much, for reasons of prestige. I do not know whether this could have been part of the explanation, but I believe and hope that it was not. We Executive Board members have always been careful to point out that the interest rate path we publish is a forecast, and like other forecasts is reconsidered each time we make a decision.
There is nowhere to hide. Quietly maintaining a policy of bailing out banks is not a free option for governments and their taxpayers. Anyone tempted to argue against pursuing the resolution policy agenda would effectively be wanting to increase the (contingent) burden on the taxpayer. That would be liable to increase the pressure for fiscal austerity. As well as avoiding bailout by taxpayers, we must avoid liquidation – putting a failed bank through a standard bankruptcy procedure. That brings chaos. Resolution regimes are a way for the authorities to avoid the direct hit to the public finances while at the same time containing disorder in the financial system. That can lead to a much better financial system, with stronger market discipline and so less stability-threatening imprudence. Contemplating this, some commentators are concerned that one particular resolution tool – commonly known as bail-in – entails losses for bond holders. That is a misthink. All resolution tools put losses on to debt holders and creditors. Because that is the only place they can go. Bail-in is just one technique for delivering that. Its distinguishing characteristic is that it applies losses up front based upon a valuation rather than at the end of a liquidation of assets. As such, it prospectively avoids an unnecessary destruction of value. But there is no silver bullet. We need resolution tools that work in different contexts for different types of bank/dealer. That means having a rich set of tools but with a common trigger for going into resolution.

Paul Tucker: Resolution – a progress report Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at the Institute for Law and Finance Conference, Frankfurt, 3 May 2012. All speeches are available online at www.bankofengland.co.uk/publications/speeches. *  *  *  Thank you very much for inviting me to join this important conference. The EU have made a massive contribution to global planning for resolution regimes to address the fundamental problem of Too Big To Fail, inputting very significantly to the G20 Financial Stability Board’s Key Attributes for Resolution Regimes. It comes as no surprise, therefore, that the EU is committed to implementing that International Standard, via a Directive. As Chair of the FSB’s Resolution Steering Group, I thought the most useful thing I could do this morning is to give a brief progress report, and also to air some emerging thoughts on how to operationalise the FSB’s high policy. Preliminaries: what this is about For those who hesitate to grasp the nettle of implementing resolution regimes, I want to stress that the genie is out of the bottle. While myopia gripped the financial markets in the years leading up to the crisis, they are now seized of the risks on bank balance sheets. That will be reflected in the prices of the debt of those who bear that risk. If the risk in banking is not incorporated into the yields of bonds issued by banks themselves, then it will be reflected in higher sovereign borrowing costs.
In turn, as supervisors on the Basel Committee have been developing standards for the disclosure of components of capital, for loan accounting, and for other topics of mutual concern, we have sought out the views of representatives of the accounting profession. This dialogue will continue. I should add that we are currently seeking new opportunities for discussion on issues of mutual concern with accounting standards-setting bodies and private sector accounting professionals. Current status & future work for the Basel Committee  I know that you are eager to know where the Committee stands at the moment. As I suggested, the Committee and its member organisations are closely reviewing all of the comment letters received so far. Working groups have been discussing potential refinements to the proposals to address the concerns raised during the consultation. The Committee itself will meet tomorrow. Our agenda is straightforward: we will evaluate the industry’s views and consider the solutions proposed by the Committee’s working groups. No conclusions are foregone at this stage. The members of the Committee are in agreement that our primary responsibility is to develop an agreement that is sensitive to risk, forward-looking, and fit for the service of twenty-first century banking. But we are also conscious of the need to avoid unnecessary burden and to provide the industry with as much certainty as possible.

I’ll begin with a few words on the conclusion of the third consultation period and a short summary of the major themes we gleaned from the comments we received. Since we have discussed the new capital requirements themselves extensively over the past several months, I would next like to address some of the other equally important issues that the BBA and others raised in their comment letters. BIS Review 42/2003  1  The conclusion of the third consultation period  Allow me to begin with a report on the very busy summer we had in Basel. It’s fair to say that we received more responses on the third consultative paper than we expected. Over 200 comments were submitted by the conclusion of the comment period in July though that was less than the 250 comments we received on the second consultative document two years ago. What was not surprising was the depth of interest in the proposals and the considerable degree of thought and care that respondents demonstrated in their letters. In this regard, the Committee owes a debt of gratitude to the many members of the industry and the public who have supported our work over the past several years. The considerable time and attention that especially the BBA and its members have devoted to the development of the New Accord are evident in the high quality of your comments and suggestions. You have offered constructive thoughts and creative solutions.