samchain/econo-pairs-v1 huggingface dataset:
Even loans with a longer duration could in principle be financed by short-term borrowing on the interbank market. The lending rate in the interbank market will thus comprise the bank's financing cost for this loan and is therefore an important factor when the bank decides the lending rate it will offer the company. For loans with a longer fixed term, expectations of the development of the repo rate during the duration of the loan will affect the financing cost and thus the lending rate the bank sets for a longer term loan. A bank that has a surplus to invest can in the same way choose between investing it in the interbank market and lending money. The interbank rate will thus influence the lending rate the bank offers households and companies as it comprises an alternative yield. In addition to the interbank rate, however, the banks' lending rates are determined by many other factors. When setting interest rates, the banks must of course compensate themselves for the credit risks connected with the loan and at the same time reserve funds in their own capital to meet any future losses. The fact that banks from time to time make differing assessments of borrowers' credit rating should not in itself affect how much the banks' lending rate changes when the repo rate is raised. The impact from monetary policy should not, therefore, change merely as a result of the banks changing their assessments of the credit risk.

It is intuitively easy to understand that the amount of money in the economy is a decisive factor for the price of the goods produced in the country. In modern economies, where payments are largely made electronically, the monopoly on issuing banknotes is no longer an equally evident condition for enabling monetary policy to determine price trends. Today, it is instead the right to determine the terms in the systems for large electronic payments between banks and the opportunity to influence how much the banks shall borrow or deposit in the Riksbank that enable us to steer interest rates. For electronic payments to be able to function as money, it is necessary for the central bank to be perceived as guarantor for these means of payment in the same ways as with banknotes. This role can only be fulfilled by a central bank and in this way one can say that the possibility to determine price trends in the economy still lies with the monopoly on issuing money. The Riksbank governs the shortest interest rate in the interbank market, so that it normally remains close to the monetary policy-steered repo rate. The fact that the Riksbank can steer the interbank rate is primarily due to the fact that each individual bank participating in the system handling large interbank payments - known as the RIX system - always has an opportunity to borrow and deposit money in the Riksbank overnight at the lending and deposit rates set by the Riksbank.
Most of these initiatives can be grouped into three major categories:   Actions to significantly reduce the probability of failure of large systemically important financial institutions.   Measures to broaden the oversight of the financial system to include activities that occur outside of the core banking system. The shadow banking system, which is composed of the wide range of financial intermediation activities that occur outside  2  BIS central bankers’ speeches  of the traditional purview of bank regulators, needs greater attention. In particular, shadow banking activities that involve maturity transformation are vulnerable to shocks because such activities do not have the support of bank deposit guarantees or access to central bank liquidity and, thus, are vulnerable to funding runs.   Steps to strengthen the resolution regime and the core financial market infrastructure to ensure that when a large complex financial firm fails, the failure doesn’t threaten to bring down the entire financial system. Turning to the first set of initiatives designed to reduce the probability of failure of large, systemically important financial institutions (SIFIs), the tougher capital and liquidity regimes that the Basel Committee has devised are probably the most important elements. On the capital side, Basel III significantly increases requirements with respect to both the quantity and quality of capital. On the quantity side, there have been two important changes.

To conclude, the main challenges ahead are twofold. First, a "wise" exit from the macroeconomic policy stimulus in order to strike a right balance between the need to support economies and prevent accumulation of imbalances. Second, shifting the focus back to structural and transformational policies to address deep seated pre–crisis structural bottlenecks, as well as new structural hurdles that will be left as a legacy of the pandemics, which might not be even well known at the current juncture. This is the only way forward towards transformation of the traditional economies into more smarter, inclusive and greener economies. Finally, when written in Chinese, the word 'crisis' is composed of two characters. One represents danger and the other represents opportunity. I hope that, we have left the danger behind us, and now we will use the opportunities to elevate the wellbeing of our economies. 1 IMF WEO, April 2021. 2 Global Competitiveness Report, 2019. 3 https://www.worldbank.org/en/publication/global-economic-prospects  3/3  BIS - Central bankers' speeches
They follow current changes in prices, primarily petrol and food prices, and ruble exchange rate fluctuations. The third important factor we took into account is consumer demand. Lending underpins consumption but slowing wage growth constrains a rise in demand. Consumption growth slowed down after a short-term acceleration in November, which was likely associated with preemptive purchases of non-food goods in the run-up to the VAT hike. We can see it from retail sales figures. The rise in consumer activity does not exert pressure on prices. This, among other things, is an important reason of a moderate VAT pass-through to prices. The fourth factor is external conditions. A number of changes which only started to emerge in December, intensified at the beginning of this year. The US Fed and the European Central Bank eased their rhetoric as regards the monetary policy outlook. Improvements were seen in markets’ expectations regarding the negotiations of international trade restrictions. These factors supported emerging market currencies and reduced their risk premiums. We may say that external risks declined in this part. At the same time, geopolitical risks remain in place. Oil prices in the first quarter were higher than projected in the baseline scenario. However, risks are high that oil production will exceed consumption this year. Finally, overall monetary conditions have changed little if at all since the start of the year. Deposit rates have edged higher, while loan rates have stabilised.

A central bank can appropriately be assigned the task of promoting sustainable economic growth, while maintaining long-term price stability and ensuring the health of the financial system. This way of articulating policy goals has the advantage of meeting the public’s need to understand the basis for monetary policy decisions, and may help, therefore, to enhance the democratic accountability of monetary policy. Once monetary policy is firmly committed to price stability, how can a central bank best reach that goal? Clearly, at an operational level, no single formula or implementation strategy can be expected to succeed in all countries and under all circumstances; possible approaches can take many different forms. The choices depend on a country’s history, economic conditions, traditions and institutions. But all successful approaches share two important features: first, they focus on a long-term time horizon and, second, they provide a clear and public standard for the assessment of policy. What is most significant is not the specific way a central bank chooses to seek price stability, but rather the underlying commitment to that goal. While monetary policy aimed at long-run price stability is critical to fostering sustainable economic growth, central banks’ role in promoting growth and, more generally, a healthy economy goes beyond the conduct of monetary policy. Through involvement in financial regulation and supervision, as well as in the oversight of payments system operations, central banks play a key role in preserving and enhancing the safety and soundness of the banking and financial system.
Not only are the pharmaceutical industry and merchanting relatively insensitive to exchange rate fluctuations; they are also much more important for the development of the current account than for the economy as a whole. This can be seen, for example, in employment statistics. The pharmaceutical industry and merchanting companies together employed approximately 50,000 people here in Switzerland in 2016. By contrast, the exchange rate-  8  Merchanting is defined as the purchase of goods in a third country and the subsequent resale of the same goods to another third country. The goods are neither imported into nor exported from the country. Page 10/13  sensitive industries of the other five goods categories pictured here accounted for more than 325,000 employees. 9 In sum, three special factors are particularly responsible for Switzerland’s persistently high current account surplus. First, statistical distortions lead to the current account surplus in Switzerland being overstated. These distortions can be attributed to special ownership structures of multinational companies in Switzerland as well as lower inflation rates in Switzerland than abroad. Second, after correcting for these distortions, the current account surplus can be explained by the ageing population and a well-funded occupational pension system. Third, the current account is dominated by two industries which are relatively insensitive to the exchange rate and which are much more important for the development of the current account than for the economy as a whole.

How can the persistent current account surplus, textbook economic theory and the SNB’s own assessment be reconciled? Is the surplus in Switzerland perhaps even the result of a monetary policy designed to deliberately push down the exchange rate in order to boost exports? 1 International debate about certain countries’ current account surpluses and unfair exchange rate policy has intensified in recent years. In this context, Switzerland has been on the US Treasury’s ‘monitoring list’ since 2016, although it is not designated a ‘currency manipulator’ in the associated report as it does not meet all the relevant criteria. However, Switzerland is being specially monitored. We are maintaining a constructive dialogue on this matter with the responsible government agencies in the US. Foreign authorities and international organisations recognise Switzerland’s special position, and appreciate the rationale for the SNB’s monetary policy measures. According to the latest External Sector Report of the International Monetary Fund (IMF) of July 2017, Switzerland’s current account is in line with macroeconomic conditions, and its monetary and fiscal policy is considered appropriate. Yet, international debate about current account surpluses and deficits has at times been heated and not always objective. Some observers have repeatedly denounced Switzerland for its persistent surplus. As criticism has focused on the SNB’s monetary policy, I am naturally keen to give you my analysis of the situation. Before we get into the details, let me outline the crux of my argument.
But our productivity growth has been dismal How is it possible for us to have grown relatively strongly with poor productivity performance but without generating inflation pressure? The answer is simple. We have grown by using the spare labour supply in the economy after the great recession. This spare labour supply was not just the post-recession stock of unemployed workers. It was also people who were in work but wanted to work longer hours. It was people who were not previously participating in the workforce who now wished to work. It was people who we would have expected to retire but who decided to stay in work. And it was workers from abroad. It is true to say that this reservoir of labour supply available to the economy has been larger and deeper than we or others would have predicted on pre-crisis trends. We have had what economists would call a “positive labour supply shock”. The crisis, recession and hit to living standards have clearly changed attitudes to work; more people want to work and work more hours than before. And the impact of those two domestic trends – higher participation in the workforce and people wanting to work more hours – are the most important elements of this positive “shock” relative to what we expected, outweighing factors like higher net inward migration. The numbers are striking. In the 10 years prior to the crisis, growth in the hours worked in the UK economy, accounted for 23% of the UK’s overall economic growth.

But demographic shifts can also impact the macroeconomic environment more broadly. I will briefly discuss the impact of demographic shifts on potential growth and monetary policy. Then, I will discuss other likely macroeconomic and financial stability outcomes, via the impact of ageing on savings and investment. 1. Direct impact on potential growth and monetary policy  Ageing can weigh on monetary policy notably through its impact on potential output. For a central bank, potential output and output gap developments are of major concern. From a more practical point of view, among many other measures, the Eurosystem uses Taylor-like rules to determine its monetary policy stance. According to these rules, the central bank’s rate should be close to the natural interest rate, i.e. the rate consistent with output at its potential level and stable inflation. The difficulty lies in how to assess the gap between observed and potential output. You see that potential output matters in our reaction function and since demographic developments are a key parameter for potential output, demographics ultimately directly concern monetary policy as well. What are the main consequences of demographics for potential output? The decline in the working age population due to ageing should negatively affect potential output in the long run, through the decrease in the labour force contribution and productivity, all other things being equal.
In this context, it is worth noting that the United States had led the world with its Federal Deposit Insurance Corporation (FDIC) Improvement Act in 1991 in establishing a state-ofthe-art resolution regime for depository institutions to avoid the panics and runs associated with the risk of insolvency of a financial institution, while at the same time protecting the taxpayers. However, this regime did not address how to efficiently resolve holding companies  4  In the 1930s, Congress had passed legislation giving the Federal Reserve additional flexibility in its lender-oflast-resort powers but these were removed with the passage of the small business investment act in 1958. 5  Most of this information can be found at the Board of Governors of the Federal Reserve System’s Credit and Liquidity Programs and the Balance Sheet. 4  BIS Review 81/2010  that included a depository institution, investment banks or other financial institutions that were tightly and very intricately woven into the global financial system. Perhaps because many thought that March 2008 was the height of the crisis, the overwhelming importance of this lesson coming out of the Bear Stearns episode did not translate into this gap in our regulatory framework being addressed with sufficient urgency. As I will discuss momentarily, the gap re-emerged as a main accelerant of the crisis with the collapse of Lehman Brothers in September of that same year.

Instead the objective was to assess their capital needs under a deeper and longer recession than was the consensus in early 2009, and then require them to meet these capital needs in the very near term, before the adverse scenario developed. One important rationale for the program was that the presence of the additional capital would make the adverse scenario less likely. The credibility of this strategy was dependent on the availability of the U.S. Treasury’s Capital Assistance Program to provide capital if the private market was unable to do so. Moreover, a brave decision was made to be transparent about the procedures the supervisors were using in their assessment and to pre-commit to disclose detailed results. In addition, the main measure of capital needs would be in terms of common equity rather than the preferred equity that was used in the U.S. Treasury’s Capital Purchase Program. BIS Review 81/2010  7  The assessment process took just under three months to complete. It involved many innovations in the supervisory process that will continue to influence the approach to the supervision of large complex financial institutions in the future. The results of the assessment were striking. Under the more adverse scenario of a longer and deeper recession, the twoyear loss rates on average across the 19 banks were projected to be as high as experienced during the Great Depression. Further, this average hid an incredible amount of heterogeneity across both banks and asset classes.
In addition, low interest rates minimize the cost to the United States of our substantial negative net debt position. In addition, the fact that our foreign indebtedness is for the most part denominated in our own currency is a huge advantage in the event the dollar were to come under significant downward pressure. That is because a decline in the dollar would raise the value of the income earned on our foreign direct investment and foreign-currency denominated assets, relative to the income that foreigners earned on their dollar-denominated investments in the United States. All else being equal, this would boost our net investment income balance. Note that borrowing per se is not necessarily a bad thing. The key is what the borrowing is used for – to finance consumption or investment. And, if it is used to fund investment, it is also important how productive that investment turns out to be over time. So what did we do with this inflow of foreign saving? We invested in a substantial volume of physical capital, particularly residential and nonresidential real estate (Chart 4). It seems clear that one important factor behind this investment was the decline in long-term interest rates. For example, from 2003 through 2005 mortgage rates declined to just under 6 percent on average, the lowest level since the first half of the 1960s. These lower mortgage interest rates were capitalized into asset prices. Rising prices for residential and nonresidential real  1  Brender, Anton and Florence Pisani. 2007.

Work done by my Federal Reserve colleagues, Thomas Laubach and John Williams, suggests that the so-called neutral real  BIS central bankers’ speeches  5  federal funds rate today may be close to zero. 4 This presumably reflects still-persistent headwinds from the financial crisis, such as the constraints on mortgage credit availability to prospective borrowers with lower FICO scores. Second, one might expect that it will still take additional time for these headwinds to fully subside. This implies that the neutral short-term rate may be depressed for some time. Third, my assessment is that the long-run equilibrium real federal funds rate is lower now than in the past, reflecting the likelihood that potential real GDP growth is lower due to slower growth of the labor force and more moderate productivity growth performance. Another important factor that will affect the trajectory of short-term rates is how financial market conditions respond to a rise in short-term rates. Monetary policy works on the economy through how it affects financial market conditions. Economic conditions at any point in time warrant a particular set of financial market conditions so the FOMC can best achieve its objectives of maximum employment and price stability. The FOMC chooses a policy stance to help support financial market conditions that will lead to economic outcomes consistent with its objectives. An important aspect of current financial market conditions is the very low bond term premia around the globe.
In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt No Deal Brexit would entail, but even its ability to do that would be constrained by the limits to the MPC’s tolerance of above target inflation. While the possibility of No Deal has increased, it is not a given. Along another path, it is possible that domestic political events or negotiations with the EU could lead to a longer period of uncertainty over the eventual future relationship, even in the event that an agreement is struck. On past performance, the longer these uncertainties persist, the more likely it is that growth will remain below potential raising the prospect of both softer domestically generated inflation and resurgent imported inflation if recent sterling weakness were to endure. Once again, the MPC would need to weigh the opposing forces when setting policy. Finally, some form of agreement remains possible. After all, that is the avowed preference of both the UK and EU. In this event, consistent with the MPC’s most recent projections, as details of the future relationship gradually emerge, business investment recovers and household spending picks up, resulting in excess demand and inflationary pressures gradually building. In the Committee’s judgment, this path for the economy would likely require limited and gradual interest rate increases. The coming months could be decisive. If there are material Brexit developments, the MPC will transparently assess their implications and set policy to achieve the 2% inflation target in a sustainable manner. I.

As the directives produced by the EU are often compromises between views expressed by different countries, it is not certain that the final result will be the most efficient solution for the securities markets. If the EU wants to promote competitive economies, it must also ensure that this does not result in a competitive advantage based on more or less explicit subsidies. The best way to build up competitiveness is by creating environments for competition. It is only then that the economies will become efficient. Competitiveness in itself is not the goal; efficiency is. Some issues for the future In this speech I have pointed out some long-term developments that affect the future of the securities markets. Unfortunately, they give rise to more questions than answers. I would like to conclude with a few questions you can ponder. In recent years, inflation in many countries has fallen, and inflation expectations have stabilised at a level that reflects the monetary policy targets. This can reasonably be said to have reduced the uncertainty in the financial markets caused by fluctuating prices. Interest rates have also fallen and this, combined with reduced uncertainty over price trends, has increased households’ incentives for borrowing. It has affected house prices, but may also affect other asset prices. At the same time, it strengthens institutional investors’ search for yield. Does this mean that the risks in the financial system will increase and make it easier for exaggerated speculation, such as the IT bubble in the stock market, to develop?