samchain/econo-pairs-v1 huggingface dataset:
First, a number of European politicians are calling for increased transparency requirements relating to actual portfolio positions of SWFs. 19 A more far-reaching development are the calls for legislation that would block SWFs from taking major stakes in companies in any strategic sectors. 20 Second, a number of politicians have proposed the principle of reciprocity as a guiding principle for granting market access to SWFs. 21 For example, Jean-Claude Juncker, the Luxembourg Prime Minister and Euro-group president, has stated, "Countries that protect their own markets cannot expect to be allowed to make unimpeded investments in Europe." 22 In a strict sense, the principle of reciprocity means that SWFs are only allowed to invest in a foreign country if companies in that country are allowed to invest freely in the home country of the SWF. Since many SWFs are located in countries which are financially less open than a typical OECD country, a strict application of the reciprocity principle would place strong limitations on SWF investments. Third, Larry Summers has suggested that if SWFs were to invest through intermediary asset managers, most risks associated with SWFs would be mitigated, if not avoided. 23 Incidentally, Summers argues that the added benefit of such an indirect investment philosophy is that it generates a better risk-return profile. Fourth, there is now considerable political momentum behind the idea of a code of conduct or a set of guidelines for SWFs.

As you know, the GIC recently committed to subscribe to CHF 11 billion of a mandatory convertible bond which will be issued by UBS in an effort to raise capital in the aftermath of losses on large sub-prime mortgage positions. Subject to the UBS shareholders’ approval, the GIC will in due time become a significant shareholder in UBS. In the process, UBS will significantly strengthen its balance sheet and thereby maintain a substantial capital cushion relative to the regulatory minimum. A strengthened capital cushion is to be welcomed. First and foremost, it serves as a confidence-building measure. Moreover, in uncertain times, a solid capital cushion provides insurance against a further potential deterioration in the global macroeconomic environment. Who is this new Asian investor in the largest Swiss bank? The GIC was set up in May 1981 with an original seed capital of several billion dollars from the Monetary Authority of Singapore (MAS). 28 The central bank reserves had grown steadily throughout the 1970s as a result of public sector surpluses. The GIC’s objective was to invest the portion of foreign reserves, which was surplus to the needs of the central bank for its monetary policy management, in longer-term assets. The mandate of the GIC is to preserve at a minimum the international purchasing power of its assets against inflation and global exchange rate risk. The objective of the GIC is commercial, focusing on long-term investment returns. In many ways, it is similar to the objectives of the large European public pension funds.
In this context, 2011 will remain a difficult year for almost all economic agents, especially for Spanish banks, which must strive to defend their bottom line. Their net interest income will come under pressure from the stagnation of business volumes and the increase in financing costs, although, to qualify this, the pass-through of higher marginal rates to average margins is relatively slow. Furthermore, despite the substantial efforts made, the Banco de España’s provisioning rules will continue to compel banks to carry on recording provisions to restructure their assets. Against this backdrop, banks must counter the negative pressure on  6  BIS central bankers’ speeches  profitability through cost containment, especially in those banks involved in restructuring processes. Banks will continue to suffer from the flatness of their main line of business, namely lending. Solvent demand will remain low and, if credit usually only recovers at the end of an adjustment phase, in the Spanish case, since households and corporations have to reduce their debt, solvent demand for credit can be expected all the more to take longer to grow. Given this outlook, it is most important that the banking sector is ready to provide credit when the related solvent demand recovers in parallel with the improvement in the situation of corporations and households. Accordingly, the restructuring measures adopted to date have prevented the survival of zombie banks which, were it not for their integration into the best banks, would have ultimately proven useless for providing credit.

Indeed, the average size of the resulting institutions is two and a half times larger, which boosts their competitiveness and facilitates the raising of external funding. Second, to reduce the excess capacity in their branch networks and central services. The adjustment envisaged in the restructuring plans would involve a reduction of 10 to 25% in the number of branches and 12 to 18% in the number of employees. These cuts are in addition to those which had already been made previously, of 5% in branches and 4% in staff from their peak levels in 2008. However the ultimate objective of the integration processes was to strengthen the viability of the resulting institutions with the funds and management capacity of the savings banks best positioned to  2  BIS central bankers’ speeches  lead each of the integration processes, and to contribute to cleaning up savings banks’ balance sheets. In fact, thanks to these processes, savings banks have recognised additional losses on their loans and receivables and foreclosed assets for more than € billion. Finally, the savings banks law was amended in an effort to increase the professionalism in the management of these institutions, and to open them up to market discipline and the possibility of raising share capital to strengthen their solvency. In parallel with the restructuring of the savings banks, there has been a significant drive to clean up balance sheets in the Spanish banking sector and to ensure that assets are appropriately valued.
To develop a robust rebalancing strategy, we must understand why there are other, also highly competitive investors, who take the other side of these trades. We also need to understand our own edge, the comparative advantage – or disadvantage – of the size, time horizon, and governance structure of the fund. These issues are all intimately linked to questions on the research frontier of financial economics. So far, the rebalancing strategy has served the fund well. From 1998 to 2011, around 0.5 percentage point – a considerable portion – of the total annual return can be attributed to rebalancing. We believe rebalancing will also be important going forward, but we need to further deepen our understanding of time-varying expected returns and risks. The other main topic of today’s conference – well-functioning markets – is also of particular interest to us. Without well-functioning markets, the massive reallocation of wealth from oil in the ground to a claim on a small share of future global output would not have been feasible. Well-functioning financial markets are also, through the allocation of real resources, important for sustained growth at a global level. The financial crisis displayed great challenges related to how the markets function. We saw mispricing of risk, and the difficulties of managing financial imbalances. Other problems were related to liquidity. Trading of fixed income instruments take place at the desks of the large investment banks. The problems of these banks in September 2008 implied a literally closing of the main fixed income markets.

In the case of this country these adverse international influences really began to affect us just as overall demand was already weakening in response to the earlier monetary, and incidentally fiscal, tightening. The result was a very sharp decline in industrial – especially manufacturing – confidence, and widespread, and often exaggerated, fears of recession, which in turn appeared to undermine consumer confidence. The slowdown – or soft landing – we had been consciously seeking to engineer threatened quite rapidly to become a much sharper decline – or harder landing – than we had either expected or needed. And that, of course, is why we promptly changed our monetary policy stance as we did, cutting interest rates by 2% to 5½% in the space of five months. In doing so, we have demonstrated that the inflation target is – as we have frequently said it is – symmetrical, so that we would be at least as determined and aggressive in cutting rates if we thought we were likely to undershoot the inflation target as we had been earlier in raising rates to avoid an overshoot of the inflation target. So, where do we go from here? I would strongly advise you to regard anyone who claims to know with any great certainty where we go from here with the gravest possible suspicion. Forecasting the economy is very definitely an art rather than a science – though some artists craft their work rather more carefully than others.
ANNUAL GROWTH AND CONTRIBUTIONS  4.0  CHART 1  Projections  %  4.0  2.0  2.0  0.0  0.0  -2.0  -2.0  Projections  %  -4.0  -4.0 2011  2012  2013  2014  2015  NET EXTERNAL DEMAND  2016  2017  2018  2011  2019  2012  2013  2014  2015  2016  2017  2018  2019  IMPORTS OF GOODS AND SERVICES EXPORTS OF GOODS AND SERVICES NET EXTERNAL DEMAND  NATIONAL DEMAND  GROSS DOMESTIC PRODUCT  SOURCES: INE and Banco de España. FORECASTS FOR THE SPANISH ECONOMY: EMPLOYMENT AND UNEMPLOYMENT GDP GROWTH(%) Contributions of employment and labour productivity (pp) Projections  4  CHART 2  UNEMPLOYMENT RATE (% of the labour force) Projections  28 25  2 22 0  19 16  -2 13 -4  10 2013  2014  2015  2016  LABOUR PRODUCTIVITY  2017  2018  EMPLOYMENT  GDP  2019  2013  2014  2015  2016  2017  2018  2019  SOURCES: INE and Banco de España. particularly marked in the euro area; the progressive normalisation of monetary and financial conditions; and the very limits on the growth of domestic demand, such as, for example, those derived from the current, historically low levels of the household saving rate. On Banco de España estimates, the Spanish economy’s already positive output gap will widen during 2019 (see Chart 3).

By component, BANCO DE ESPAÑA  8	 TESTIMONY BY THE GOVERNOR OF THE BANCO DE ESPAÑA BEFORE PARLIAMENT IN RELATION TO THE DRAFT STATE AND SOCIAL SECURITY BUDGET FOR 2019  PUBLIC SPENDING IN THE DRAFT STATE BUDGET  CHART 8 PENSION EXPENDITURE (a)  PRIMARY EXPENDITURE (a) As % of annual change  As % of annual change  Projections  Projections  10  10 5  8  0 -5  6  -10  4  -15 2  -20 -25  0 2010  2011  2012  2013  STATE  2014  2015  2016  2017  2018  2019  2010  2011  2012  2013  2014  2015  2016  2017  2018  2019  GENERAL GOVERNMENT  SOURCES: IGAE, Plan Presupuestario 2019, State Budget 2019 and Banco de España. a Cash-basis outturn data, 2018 Budget outturn projection and initial 2019 Budget, except general government spending, which is National-Accounts-based. among the payments subject to greater discretionality, purchases of goods and services will grow by 2.7%; capital expenditure by 7.9%; and expenditure on staff by 4.8%. Among the expenditure items influenced by the behaviour of the financial, macroeconomic or demographic fundamentals, interest payments in cash terms will grow by 4.6% in 2019, while, in the social security budget, spending on contributory pensions will increase by 5.3% and that on unemployment benefits by 1.2%.
The Swiss put CHF6 billion of funds into UBS. None of this counts the costs to the broader economy. The UK suffered from a credit crunch, particularly for lending to SMEs: the businesses that make up LBG and RBS – the two banks in receipt of state support – accounted for over 50% of the pre-crisis stock of corporate lending. The damage to economies generally from a financial system on long lasting lifesupport has been deep and wide. In the UK, five years later the economy is still smaller than before the crisis. Around half of a million more people remain out of work. With the costs of bank failures so high and the choices when they did so unpalatable, it is perhaps not surprising that post-crisis there had been pressure to reduce the probability of failure, particularly for large international banks, as close to zero as possible. Indeed, some have argued that banks should become unlevered mutual funds – effectively the solution is to ban banking. Others argue that regulation cannot hope to lower the probability of failure. With greater resources, the banks will always be one step ahead and find new ways to game the rules. Instead the authorities should focus efforts on ensuring that is completely safe for banks to fail. Large banks should be broken up into many smaller businesses that are easy, individually to resolve, even if that means forgoing economies of scale. The international regulatory community has taken a different two-pronged approach.

12 While we recognise that there could be further changes pending the finalisation of IBA’s proposal, there was broad consensus within the Committee that we should keep building on the strong momentum generated over the past year. Let me share with you four key takeaways of the SC-STS, arising from these latest developments. 13 First, the proposed extension of LIBOR discontinuation means that SOR will end when LIBOR ends in mid-2023. This has two benefits: One, it will allow about 70% of existing stock of legacy SOR cash products [6] or about $ of bilateral and syndicated loans to mature before the new deadline. This is a good development, as financial institutions will have a smaller stock of legacy transactions to manage. Two, the extension provides time to do more to actively transition legacy SOR contracts to SORA, and to deal with the most challenging legacy transition issues. We seek to complete this transition as an industry by no later than end-2022. Stopping new use early 14 Second, it must still be the case that we stop adding to legacy SOR exposures as soon as practicable. Hence: There was unanimous support within the SC-STS to cease the use of SOR in new cash market products by April 2021, as originally announced.
But such lending is well-collateralised, so low risk, and is always intended to be temporary: to overcome a one-off shock or to bridge to a more lasting solution. To discourage reliance on these operations, standard practice is to charge a penalty rate relative to market prices. These liquidity insurance operations are an integral part of the Sterling Monetary Framework which delivers our monetary policy objectives (See Fisher, 2009 for further details). The Bank of England does not have access to funds that could be used to sustain commercial lending operations. We do not have the power to raise tax, nor do we have significant retail deposits, nor the freedom to borrow in large scale in the wholesale markets for non-monetary purposes. 3 More generally, in a capitalist economy, it is private sector or, in some cases, national savings which ultimately fund the banking system. And it is the job of financial intermediaries to translate those savings efficiently into private sector spending. In contrast, the fiscal authorities (including national wealth funds where they exist) can access private sector funding via taxation or by borrowing in large scale. There are many instances throughout UK economic history where the government has intervened to support private markets, or indeed individual firms. There are well-known risks associated with such action, including the loss of public money and/or an inefficient allocation of capital in the economy. There are also substantial and well-known potential benefits if the intervention corrects a market failure or achieves a wider social objective.

Had the APF done so, in addition to strong primary market private sector demand, it would undoubtedly have helped to drive down market spreads. But it would also have risked displacing that private sector demand, to little purpose in my view. In fact, a greater intervention in this market during this period could have made things worse – the problem was in the functioning of the market, not a lack of demand for the assets. It would be fair to say that the corporate bond scheme attracted some criticism in its early months. Many observers misunderstood the nature and purpose of the scheme and considered that the small amounts bought were a sign of failure. But, as I have stressed tonight, the objectives of the scheme were not based on buying a particular amount. In fact, over the past year, the corporate bond market overall has performed consistently strongly and in line with the original objectives of the scheme: There has been record issuance of sterling corporate bonds (Chart 5); spreads for eligible bonds have halved (Chart 6); bid-offer spreads have narrowed; and the bond-CDS basis 6 has also contracted significantly. These asset purchases do seem to have played their part in improving the access of investment grade corporates to bond market financing. The one disappointing feature of the sterling corporate bond market is the continuing problem of secondary market illiquidity.
I said just now that I wanted to address two questions, the first of which was why the subject is so important. Well, in this murky and difficult area, there is perhaps one aspect which commands a fair consensus, which is that financial crises, specifically banking crises, produce real economic costs. There are the immediate direct costs to the public sector if crisis-hit banks require lender of last resort support or have to be bailed out, and longer term costs to growth. There is a lively debate on how to measure the latter, which I hope we can take further during this conference, as one of the papers is addressing this very subject, but I would describe the range of estimates in some countries as starting at large and ending at very large indeed. Interestingly, on some measures, the longer term output costs seem to end up higher in developed countries than in emerging market countries, in the main we think because crises in developed countries have typically dragged on for long er. On top of evidence about the impact of financial instability, there is also evidence that the incidence of banking crises has become more frequent over the past 20 years. In fact four out of the G-10 countries have suffered a banking crisis of one sort or another in the last ten years. It is thus clear that financial instability remains a hugely relevant topic to both developed and emerging market economies.

On the other hand, since the inflation forecast is not only an important internal decision-making tool, but also a crucial communication device, market participants have a good knowledge of the central bank’s forecast and can compare their own view on the economy with the central bank’s one. This implies that both the central bank and the market are well informed about each other’s forecast. It is clear that a huge portion of uncertainty is inherent to any practical forecasting. Moreover, from the monetary policy perspective this uncertainty is complicated by the fact that the results of today’s monetary policy action will be effective with a significant lag. On top of that, from the economic theory we know not only that today’s monetary policy decision is important, but also that the expectation about future monetary policy has an important impact. With a certain degree of simplification we can state that in general any future value of inflation depends on three main factors. These are the current state of the economy and its underlying inflationary pressures, current and future monetary policy actions and, of course, future economic shocks. Consequently, the surrounding uncertainty can also be divided into similar parts. Let me first shortly address the last point, something we can call the “shocks” uncertainty. It is necessary to admit that both today’s central bank forecast and today’s central bankers’ decision are deterministic from this point of view.
I will go on to look at why, post-pandemic, the market might be very different to the post-GFC period and some of the broader implications were house prices to resume their pre-GFC trend of rising significantly above earnings. Finally I will look, at what, if any, implications this might have for policy. 1  Countries included in this calculation are: Australia, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Israel, Italy, Japan, South Korea, Luxembourg, Netherlands, Norway, New Zealand, Sweden, United States. The authors acknowledge use of the dataset described in Mack, A., and E. Martínez-García. 2011. "A Cross-Country Quarterly Database of Real House Prices: A Methodological Note." Globalization and Monetary Policy Institute Working Paper No. 99, Federal Reserve Bank of Dallas. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  The post financial crisis period. In the 30 years following the liberalisation of the financial sector in the 1980s, outside recessionary periods, house prices in the UK grew consistently faster than earnings. There were two periods of particularly fast growth in house prices relative to incomes. The first was in the late 1980s, ahead of the early 1990s bust, and was driven by that liberalisation. The second was from the late 1990s up until the global financial crisis, and may have been linked to the Bank of England’s independence in 1997 and the consequent reduction in interest rates as inflation expectations and risk premia fell.

Tripathy et al, “Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK” show that constrained banks issued fewer high LTI mortgages after the FPC’s policy was introduced. They also find evidence supporting the macroprudential benefits of the policy. The local areas with greater exposure to constrained lenders experienced smaller declines in house prices in the aftermath of the EU referendum in June 2016, when house prices fell across most UK regions. 15  11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  The distinction between expectations effects and credit constraints matters in another way. To the extent that demand for housing is simply subdued by dampened household expectations about the future, there is no ‘loss’ to households. If however, demand for housing is held back by credit constraints, transactions which are desired are ‘lost’. One needs to be careful however about assuming that relaxation of credit constraints will lead to all otherwise ‘lost’ transactions taking place. The thought experiment I carried out earlier suggested that almost 10 million additional transactions would have occurred from 2007 to 2020 had transactions remained at their-pre financial crisis level. But this assumed that house prices remained at the actual levels we saw over the period. In the absence of increased supply, the evidence suggests that much of the additional demand would have fed into higher prices, raising indebtedness in the short term but eventually choking off the additional demand.