samchain/econo-pairs-v1 huggingface dataset:
House prices increased faster than people’s incomes – from five times earnings in 2000 to over eight times earnings by 2007. As most people borrow to buy houses, this drove up outstanding household mortgage debt from 50% of GDP to around 85%. Household debt as a whole went from around 110% of household income to over 165%. Commercial property prices doubled and lending to support commercial property investment trebled. Should the Bank have tried to rein this in? The MPC’s objectives made no mention of financial stability. Much of the international thinking at the time was that central banks should not try to use monetary policy tools like interest rates to address asset bubbles and financial stability risks. Rather they should deal with the consequences of such risks if they crystallised. Or, in the jargon of the day, not to “pop bubbles”, but to “mop up” the mess if and when they burst. Responsibility for financial stability at the time was shared jointly the Bank, HM Treasury and the Financial Services Authority, the latter body responsible at the time for regulating banks and building societies. True, the Bank as whole did have an objective to contribute to the maintenance of the stability of the financial system as a whole. But it had no formal powers with which to do this. The FSA had powers but its focus was on individual institutions rather than vulnerabilities building across the system as a whole.

Jacqueline Loh: Public-private partnership – the way forward for natural catastrophe risk management in Asia Opening address by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at the 5th Institute of Catastrophe Risk Management Symposium, Singapore, 24 April 2014. *  *  *  Professor Bertil Andersson (President, Nanyang Technological University, Singapore), Professor Haresh Shah (Founding Chairman, Institute of Catastrophe Risk Management (“ICRM”)), Professor Pan (Director, ICRM), Distinguished guests, ladies and gentlemen, good morning. Introduction 1. It is my pleasure to join you today at the 5th ICRM Symposium. The theme for this year’s Symposium, “Financing of Natural Catastrophes in Asia – The Role of Private Sectors, Governments and Regulators in Natural Catastrophe Management”, highlights the importance of having both the private and public sectors collectively manage natural catastrophe risks. Management of catastrophe risks spans a spectrum of activities across the entire risk management value chain, from raising risk awareness, to promoting effective risk assessment and pricing, and co-developing ex-ante risk financing solutions. This is a very relevant discussion topic, at a time when Asia is facing increasing vulnerability to natural catastrophes. 2. In keeping with the conference theme, I will be sharing a few observations on how we can strive towards sustainable risk financing using a Public-Private Partnership (“PPP”) approach. Asia is more at risk from natural catastrophes 3. Over the last 30 years, Asia has borne the brunt of natural catastrophe losses, accounting for almost half of the world’s estimated economic losses from natural disasters1.
If a settlement bank encounters difficulties and there are no back-up solutions, there will be a risk of widespread disruption of the payment system. This risk can be reduced through good back-up systems. Second-tier banks have recently improved their back-up solutions. Most banks have an account at Norges Bank. In the course of 2013, all 106 of the second-tier banks with an account at Norges Bank have submitted authorisations permitting the bank to be moved up automatically to first-tier level if the settlement bank should fail, enabling them if necessary to participate in net settlements at Norges Bank directly at short notice. This makes second-tier banks and the settlement system as a whole less dependent on the private settlement banks. The authorisations have strengthened financial stability. Banks participating directly in net settlements are required to have sufficient cover for their clearing positions. Satisfying this requirement is the banks’ own responsibility. They can do this by either depositing funds at Norges Bank or pledging approved securities in favour of Norges Bank. Our analyses show that the great majority of second-tier banks have sufficient liquidity in Norges Bank’s settlement system to be able to participate directly in the net settlements. However, clearing positions can vary widely. Banks participating directly in the settlements over time must maintain sound liquidity management. Conclusion Allow me to conclude by highlighting that new and improved regulation of banks will help to reduce the likelihood of deep financial crises.

The Ministry of Finance has been tasked with setting the level of the countercyclical capital buffer. Norges Bank has been tasked with preparing a basis for the buffer decision and providing advice to the Ministry of Finance regarding the level of the buffer. In preparing the basis for the buffer decision, Norges Bank will exchange information and assessments with Finanstilsynet. Since March of this year, Norges Bank has published an assessment of the need for a countercyclical capital buffer in the Monetary Policy Report in addition to its monetary policy assessment. Norges Bank will give its first advice on the level of the buffer to the Ministry of Finance in connection with the next Monetary Policy Report, to be published at the beginning of December. Text slide: Criteria for an appropriate countercyclical capital buffer In line with the purpose of the countercyclical capital buffer, Norges Bank has formulated three criteria for setting an appropriate buffer rate. The buffer should ensure that the resilience of banks is strengthened during an upturn. The buffer requirement should be viewed in the light of other requirements applying to banks, particularly when new requirements are introduced. One of the most important purposes of the capital buffer is to alleviate stress in the financial system. History shows that the foundation for banking crises is laid during upturns. When financial imbalances build up, this increases the likelihood of substantial losses in the entire banking system.
The recovery thus seems to be holding, but it should be acknowledged that expectations for economic growth in the area continue to be very moderate in the short and medium term. The ECB continues with an expansionary policy stance. We have reached an all-time low in the interest rates on the main refinancing operations, now at 0.25%; since July, a forward guidance policy has been pursued, conveying to economic agents the ECB’s decision to keep interest rates low for a prolonged period and to maintain generous liquidity provision. Maintaining and stepping up this expansionary monetary policy has naturally had to do with the recent course of inflation, proxied by the consumer price index, which stood in October at 0.7% for the euro area as a whole, a rate substantially off the target of 2%. Against this background, the first signs of the start of a recovery in the Spanish economy have begun to emerge. As you know, in the third quarter of this year Spain posted its first positive quarter-on-quarter rate of change in GDP since mid-2011. In the past two quarters, consumer spending has shown signs of stabilising, and even of picking up slightly. This positive trend should continue over the coming year, although the need for households to carry on reducing their debt will probably check the expansionary behaviour of this demand component.

As such we found ourselves pursuing austere macroeconomic policy, which worked to curtail excessive spending and restrain aggregate demand, thereby improving Thailand’s external accounts and stemming capital outflows. At the same time, we had to adopt stricter prudential standards to raise confidence in our financial institutions. Banks inevitably had to scramble to raise capital in order to meet the provisioning requirements under our new and stricter definition of “non-performing loan”. In addition to the adoption of international best practice with regard to asset classification and provisioning, other banking practices had to be upgraded. For example the industry has had to get used to a new way of doing business, pursuing good corporate governance, improved disclosure, stronger accountability and better risk management and control. These are indeed significant changes from the traditional way business had been conducted in the past, and in turn will need commitment of management and staff, inputs and resources to bring the industry to full compliance with international best practices, not to mention a new supervision framework for the authorities. The new financial institution law, pending consideration by Parliament, will provide the BOT with a clear mandate and accountability to regulate and supervise financial institutions under a new framework, including such procedures as prompt corrective action, and reduced scope for use of judgment, among other things. On our part, the central bank has also gone through a process of self-examination.
2  Holthausen, C. and T. Ronde (2004): “Cooperation in international banking supervision”, ECB Working Paper 245. 3  On financial stability as a public good, see for instance Beck et al (2010): Bailing out the Banks: Reconciling Stability and Competition An analysis of state-supported schemes for financial institutions. 4  Banking union and the future of banking, speech by Vítor Constâncio, Vice-President of the ECB, at the IIEA Conference on “The Future of Banking in Europe”, Dublin, 2 December 2013; Towards the Banking Union, speech by Vítor Constâncio, Vice-President of the ECB, at the 2nd FIN-FSA Conference on EU Regulation and Supervision “Banking and Supervision under Transformation” organised by the Financial Supervisory  BIS central bankers’ speeches  1  developed before the crisis. Without unified supervision, it was impossible to contain the build-up of such imbalances in the pre-crisis period. National supervisors had to respect the single market rules and lacked the macro-prudential tools to offset the effects of large capital inflows. As I have often underlined, private debt intermediated by the banks, more than public indebtedness, was at the heart of developments in peripheral countries.5 By introducing supervision at the European level, the Banking Union now offers a possibility to better pre-empt such developments in the future – and therefore to better protect the real economy and financial stability in the whole area. A third objective of the Banking Union is the contribution it can provide to financial integration, by separating banks’ robustness from sovereigns and consequently reduce markets’ fragmentation.

3 Today, with my focus on the mortgage and real estate markets, I would like to explain the cyclical dimension of systemic risks in greater detail. Experience shows that cyclical systemic risks often stem from the mortgage and real estate markets. Upheavals on these markets after periods of excessive price and credit growth have repeatedly triggered chain reactions with a negative impact on the banking system, public finances and the economy as a whole. History also shows that crises originating in mortgage and real estate markets entail particularly high costs for the economy as a whole, for example by causing recessions that are typically long and severe. 4  3 4  Cf. Zurbrügg F., After the storm: ten years on, how weatherproof is the Swiss banking system today?, speech held at the University of Lucerne, 6 September 2018. Cf. Jordà, O., M. Schularick, and A.M. Taylor (2015), ‘Leveraged bubbles’, Journal of Monetary Economics, vol. 76(S): 1–20. Page 3/12  Let me remind you of the example from Switzerland in the early 1990s. After a long period of rising real estate prices, mortgage interest rates increased and prices declined significantly. This triggered a banking crisis, which in turn led to a recession and a lengthy phase of economic stagnation. The global financial crisis of 2008 was also closely connected with declining prices on real estate markets, particularly in the US, the United Kingdom, Spain and Ireland. In this case, lax lending standards prior to the crisis proved to be a key factor.
Back in February this year the MPC asked the Bank to take steps, and the PRA to engage with PRA-regulated firms, to ensure negative rates could be implemented in practice if needed; that work is due to complete in August. And the MPC have begun work to reconsider our previous guidance on the appropriate strategy for tightening monetary policy, as we committed to in our February minutes. Of course I am just one of nine members of the MPC navigating a path for the economy on this journey – different MPC members will have their own views about where the economy is heading and what the appropriate path should be. The personnel on the expedition are also changing; at the August MPC meeting we will temporarily be down to eight members and there will be two new members joining later in the year. Back in March last year the outlook for the economy was in pretty uncharted territory. Over time prospects have become clearer and we have become more able to rely on the map provided by our forecasts. Now that the recovery is becoming more established, and the risks are once again two sided, we are heading back to more familiar, but still challenging, ground. The map is becoming more detailed and the contours for the immediate path ahead are filling in, but at the same time choosing the precise direction of travel is becoming less straightforward.

The improvement reflects the expansion of domestic demand - that is increase in consumption and private investments - whereas foreign demand appears weak and fiscal policy continues the consolidating trend. The new information obtained in the first half of the year is in line with this judgement. The intensity of supply shocks, which led to the rapid decline in inflation over the first half of the year, seems to decrease. Inflation recorded a slight increase in May, reaching at 0.7%. This performance confirms our judgement about the transitory nature of the abovementioned shocks. However, our analyses confirm that the balance of inflationary pressures is still weak. Economic activity remains below potential, suggesting that the return of inflation to target will be a gradual and medium-term phenomenon. Our monetary policy has assumed a stronger stimulating stance over 2016. After two consecutive cuts in April and May, the key interest rate currently stands at 1.25%. The strengthening of the monetary stimulus has led to lowering the interest rates across all segments of the financial market, thus stimulating the increase in consumption and private investments. The Bank of Albania deems that the financial setting - characterised by low interest rates and ample liquidity - should encourage banks for a more positive approach towards lending. Banking sector’s soundness indicators have been improving, in response to economic activity recovery and other measures undertaken by Albanian authorities. Liquidity and capitalisation indicators maintain good parameters, whereas the stock of nonperforming loans - albeit fluctuating - has been put under control.
Stabilising inflation stems from the objective of price stability in the Sveriges Riksbank Act. Stabilising resource utilisation stems from the emphasis in the preparatory works for the Sveriges Riksbank Act, that the Riksbank, without prejudice to the price stability target, should support the goals of general economic policy with a view to maintaining sustainable growth and a high rate of employment. House prices and household debt The arguments for raising the repo rate more than is justified by inflation and resource utilisation have emphasised developments in house prices and household indebtedness. There have also been references to potential financial imbalances building up. However, these arguments do not show what effect the repo rate is expected to have on house prices and indebtedness, or which financial imbalances are referred to. Nor is it clear what effects and risks might be involved, or how we can evaluate the effects and risks in relation to the cost of inflation and resource utilisation being too low. As household debt mostly consists of mortgages and these are used to buy housing, house prices and household debt are really two sides of the same coin. If house prices increase, then household debt increases. If we want household debt to increase more slowly, then house prices must increase more slowly. Thus, slowing down the increase in house prices and the increase in household debt is essentially the same thing. Regardless of whether or not these factors are a problem, the repo rate would appear an unsuitable instrument for influencing house prices and debts.

Widespread theoretical and empirical research shows that changes in policy rates have little effect on house prices, but a substantial effect on production, jobs and unemployment. A typical conclusion is that, all else being equal, an increase in the policy rate of 1 percentage point reduces house prices by around 1.5 per cent, but at the same time reduces GDP by around one third, that is, about 0.5 per cent. So to reduce house prices by 15 per cent may require raising the repo rate by as much as 10 percentage points. But this would cause GDP  BIS Review 158/2010  3  to fall by around 5 per cent. These estimates are of course uncertain, but nevertheless imply very high real costs in terms of GDP. 2 If house prices and household indebtedness would be regarded as a problem, there are more effective instruments than the policy rate, which also have less negative effects. Some examples are the mortgage ceiling introduced by Finansinspektionen (the Swedish Financial Supervisory Authority), a mortgage tax or limited tax deductions for mortgages, a property tax, a reserve requirement for mortgages, and so on. As a comparison, a higher repo rate functions not only as a tax on mortgages, but also a tax on loans for production, investment and trade. This in turn leads to the large costs to the real economy I mentioned earlier. Are house prices and household indebtedness a problem?
The economic crisis that began in 1997 represents the latest national challenge. True to historic form, Korea has responded decisively and vigorously to that challenge, with the Bank of Korea playing a critical role in the overall effort. A strong case can be made that, of all the countries affected by the broader crisis in the emerging markets, Korea has gone furthest to repair the damage and institute underlying reforms to prevent future crises. That said, in Korea and elsewhere, the recovery is not yet complete, and more remains to be done. The depth, breadth and rapidity of economic and technological developments of the last several years clearly underscore the increasingly international nature of policy challenges, and the dramatic transformation of the international financial landscape. The intensified integration of markets - reflecting the globalization of capital, production and labor - has increased the risk of contagion, making it virtually impossible for any country that wants to be part of the global trading system to insulate itself from external forces. The crisis and the recognition that we have entered a new environment have set in motion a range of efforts dedicated to building a new international financial architecture. My remarks today will focus on what I believe can be done, from my perspective, to enhance domestic financial resiliency, within the context of these international efforts, and particularly on two essential building blocks: a strong financial system and a sound and stable macroeconomic environment.

To be sure, history is replete with examples of how quickly a once comfortable reserve cushion can dissipate when countries attempt to buy stability rather than earn it by adjusting policy. Nonetheless, markets often seem to take comfort when authorities are perceived to step in with “judicious” market smoothing. Here again, credibility is key in assuring market participants that the central bank’s focus is on preventing disorderly markets rather than on trying to manipulate market prices. As you are aware, much of the emerging world has moved toward floating rates in recent years. For those countries that have made the change in East Asia, it would appear that the new monetary/exchange regimes, despite their very difficult starts under the most inauspicious of circumstances, now appear to be serving countries well. Inflation is in the very low single-digit range in all of the newly floating economies, and in many instances the successful effort to bolster monetary credibility has been reflected in short-term interest rates that have declined to historically low levels. Moreover, authorities have gained new degrees of freedom to manage their economies and to respond to changing internal and external circumstances. But if the promised benefits of monetary discretion are to be fully realized going forward, markets need to understand the objectives and the framework by which the monetary authorities will decide future policy actions. In this regard, I would note that some countries have looked to inflation targeting as a framework to accomplish that end.
Since then, Norway has benefitted greatly from the opportunities that the petroleum sector has provided. The spillover effects from the oil sector to the wider Norwegian economy are substantial. Oil-related jobs can be found throughout the country. More than 10 percent of all employed persons in Norway either directly or indirectly work for the oil industry. Innovation and skills development in the industry have also benefitted other sectors. From where Norway stands today, one may get the impression that our history as an oil nation is only a story about success. This is not the case. Chart: Oil and gas revenues and government spending Policymakers’ handling of Norway’s newly discovered petroleum wealth got off to a rather bumpy start. During the first 25 years of oil production, Norway experienced two deep recessions. Both downturns were rooted in wildly optimistic income expectations. In the 1970s, public spending surged before oil export revenue started to kick in. Eventually the government had to tighten fiscal policy. In the 1980s, a credit-fuelled consumption boom in the private sector led to necessary cut-backs after the oil price plunge in 1986. The turbulence made clear how vulnerable a small economy is to terms of trade disturbances. Let that part of our history stand as a warning. But lessons were learned, and formed the basis for the framework that was put in place from 1990 and onwards. During the past 50 years, Norway has experienced how oil prices can change almost overnight in response to international politics, economic disturbances or disruptive technologies.

The productivity gains to the economy can be more long lasting than the petroleum industry itself. And never forget: The real test of how a petroleum producing country has managed its fortune, will come when the boom in the petroleum industry ends. Oil and gas resources do not last forever. Emphasis should therefore be given to further development of human capital as the primary source of long-term prosperity and wealth. Thank you for your attention. 4/4  BIS central bankers' speeches