samchain/econo-pairs-v1 huggingface dataset:
However, going out to eat still costs far more than it did, relative to other stuff. So you’ll probably be inclined to go less often. But what do you do with the money you would’ve spent? Do you simply switch it to other things, leaving your aggregate consumption unchanged? Or do you reduce your total spending as well, and instead save a little more? At least for the idealised consumer of simple economic theory, two things turn out to matter for this decision. One is the extent to which there are other, close substitutes for the taxed activity. If you liked cooking at home, or indeed anything else, almost as much as going to a restaurant you’d be more inclined to switch your spending immediately to these other things. Your total consumption wouldn’t change much. In general, a hike in a particular sales tax will have smaller effects on aggregate spending, and result instead in more expenditure-switching, if it’s levied on something for which there are similar (and untaxed) alternatives. The other important factor is how long you expect the policy to last. If he thinks the tax hike is permanent, our idealised consumer of economic theory would substitute his spending straightaway towards other goods or services, regardless of whether they’re close substitutes. If not – if he expects the government to come to its senses at some point, and reverse the policy – he’ll be more inclined to wait until that happens.

This will, in turn, help raise the comfort level and can usefully avoid potential policy missteps and create policy synergies that eventually foster confidence of investors. This is the kind of trust that no amount of legal text, conditions precedent, or covenants can match, but is developed through the friendship and goodwill among friends within the region. Countries in the same region tend to possess better understanding and coordination, and therefore, policies and initiatives at the regional level can be more effective and timely. Second, while the Asian financial crisis was a wake up call for Asia on the need for regional liquidity facility, Asian countries need to consider making such facility sufficiently large and effective with timely disbursement in light of the current global crisis. During the Asian financial crisis, more than 75% of the IMF’s financial package for Thailand came from the funding within the region. The present global situation has also reconfirmed the vision set for the by the Chiang Mai Initiative (CMI) that Asia needs to have its own regional liquidity facility to protect itself from contagion, be it caused within the region or from outside. It is therefore timely that coordination and cooperation among countries be further strengthened to ensure that prompt remedial actions can be put in place in light of the ongoing global financial crisis.
For instance, scenarios should take account of the extent to which many firms might respond to a common shock in a similar way, with potential implications for market prices or market liquidity. The likely amplification of price moves as financial institutions attempt to exit “crowded” trades and liquidity dries up is an important example. Indeed, given the importance of market liquidity for the efficient execution of banks’ dynamic hedging strategies and for their activities in the wholesale funding and credit risk transfer (CRT) and securitisation markets, it is essential that stress tests factor in extreme, yet plausible, scenarios for liquidity conditions in these markets, recognising that market liquidity can evaporate very quickly, particularly for complex structured financial instruments. And it is also essential to factor in increased liquidity needs linked to contingent calls, associated, for instance, with funding margin payments. Capital and liquidity buffers A sizeable buffer of capital and liquidity can help a bank to withstand a shock that threatens its solvency or would otherwise leave it with insufficient liquidity to meet its obligations as they fall due. But a bank’s private choice as to the size of its capital or liquidity buffer may not be aligned with the socially optimal choice, as firms will not naturally take account of (or “internalise”) the implications of their distress or failure on the financial system more broadly – for example through the possibility of contagion to other firms and impairment of the financial intermediation system. That provides the justification for prudential regulation.

With a strong foundation in place, supervisors can then select the alternatives within Basel II that are most appropriate for their own circumstances. In addition to the steps I have outlined for supervisors, there is also a wider set of preconditions that we as central bankers can help to promote, including appropriate macroeconomic policies which are consistent and sustainable over time. All these considerations allow us to underline the notion that the achievement of financial stability must be based on a broad range of tools which we should all seek to strengthen. I don’t want to play down the challenge of achieving a coherent approach to financial stability that fosters financial innovation, promotes a level playing field and ensures that the banking system can remain resilient in the face of internal and external shocks. Nevertheless, I believe that the effective implementation of Basel II will contribute to the proper functioning of the economy under a wide range of circumstances. Conclusion To conclude, I think that Basel II recognises the importance of a combination of micro and macro factors for achieving greater financial stability. Furthermore, I would say that Basel II incorporates some of the key basic principles that are also built in modern approaches to monetary policy: a flexible and forward-looking approach, anticipatory rather than reactive behaviour to risk, and the need to take into account market views.
29 Recent work indicates that trade unions in the US played an important role in supporting the wages of lower-skilled workers during the years of the 3rd Industrial Revolution, thereby helping to limit increases in inequality over this period. See Farber, H S , Herbst, D, Kuziemko, I and Naidu, S (2018), ‘Unions and Inequality over the Twentieth Century: New Evidence from Survey Data’, NBER Working Paper No. 24587. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  So building on the past, what could be done this time? First, everyone can contribute to a better understanding of the new skills that will be required. That includes granular reviews by firms of the mismatches between their current talent pool and future needs; estimates by the creators of general purpose technologies of the breadth of their potential applications; and reporting by public institutions on the aggregate pace of automation and trends in the labour market. The rate-limiting factor of technology adoption is often the skill-set of existing employees. For that reason alone, business has an enormous interest in effective workforce training. And the providers of generalpurpose technologies have a responsibility to explore how they can develop their products in ways that maximise job-creation or broader social benefits. For example, DeepMind established an Ethics and Society Research Unit to help technologists put ethics into practice, and to help society anticipate and direct the impact of AI so that it works for the many.

But this equilibrium could be unstable in a different inflation environment. Indeed, markets seem to be aware of some inflation “tail risks” and are hedging against these risks through gold and the CHF, whose prices have reached historical highs. In the Euro Area, we consider that any lasting backstop has to come from governments. This is why we have been asking for a speedy implementation and greater flexibility in the EFSF and very much welcome decisions taken in this regard in July and in October. At this stage, therefore, the euro area is paying a double price. One for its mistakes and one for its virtues. The mistakes, for governments, was to allow the piling up of debt through unsustainable fiscal policies over a decade, and then to create ex nihilo a doubt as to their willingness to pay those debts. And we are also paying the price for our virtue and our refusal to liquefy public debt through massive monetization of our fiscal deficits. I believe that virtue will eventually be rewarded. In the next decade, markets and lenders will trust those currencies that, whatever the circumstances, are managed with one overriding priority: preserving price stability and the intrinsic value of the currency unit. On this fundamental basis, we can look at the future of the euro with strong and realistic optimism. I see the recent decision by the Swiss central bank to peg the CHF to the euro as a confirmation of this statement.
Indeed, funding conditions have improved so much (not just in prices but in terms of quantities) that it is safe to say that bank funding is no longer a constraint on lending for most UK banks – the larger banks tell us that they are “awash” with liquidity. If you were to go back around two years, tightening funding conditions for the banking system was one of the big issues policy makers and banks were discussing, and it’s striking to see how conditions have changed completely since then. Costs have come down so much that some banks have been able to get funding in the market as cheaply, or cheaper, than we are providing in the Scheme. This is important to understand – it means the scale of FLS draw downs is not a measure of success. In fact the more stressed market conditions are, and the higher market funding costs rise, the more we would expect banks to draw from the Scheme. Going forward, the FLS should help to keep funding costs down by serving as a backstop marginal funding source if market funding costs were to rise. Stage 2: quoted terms and credit availability The second stage in achieving our objective was a reduction in lending rates to the economy and an improvement in credit availability. This has happened, albeit more slowly than initially anticipated.

I will pick out a few of the highlights for discussion. First let me note that the “stress” so far has not involved any actual exit from accommodative policies in the advanced economies. The change in the outlook was initiated by speculation about the possibility that the FOMC might start to slightly reduce the rate at which it is adding stimulus! It would have been a more severe stress if policy rates had actually been changed. Many firms for whom maturity transformation is a major part of their business model will actually be better off if the short-term rates at which they fund themselves are relatively unchanged while longer-term rates rise. Have markets got it wrong? If so then in my view that was not obviously in the price reactions since May (although the extent of the fixed-income sell-off may turn out to have been overdone, especially for the UK) – rather it was the expectations that had become embedded prior to May which had become overly certain even if, at that time, it supported the intent of monetary policy in both the US and Europe. It is important to remember that monetary policy is about decision making under uncertainty. Considerable uncertainty. Policy makers get surprised by economic developments just like everyone else, and that news is often visible to the market before the authorities can even think about the right responses, let alone respond to them.
Following the approval of the budgetary stability law by Parliament, it is crucial that all the instruments envisaged in it, particularly the monitoring and control mechanisms and those aimed at ensuring that the targets set are met by all levels of government, be set in train immediately. I think it is worth looking more closely at this law because the success of the fiscal consolidation process depends largely on whether it is applied properly. The 2011 budget outturn highlighted the consequences of the unavailability of information, which prevented budget deviations from being detected in time and delayed the activation of mechanisms to ensure the consolidation targets were met. The new stability law should significantly improve the transparency of government action in at least three respects. First, it is essential for the budget outturn of local and regional governments to be published regularly, with the same periodicity, level of detail, lag and ease of access as that of the State. Second, the information contained in the State and regional government budgets must be improved, so that the assumptions underlying revenue and expenditure projections are known and the information is made available on these items in national accounts terms, which is the relevant definition for the existing fiscal rules. Finally, the information in the adjustment plans at the various levels of government should be made public and presented in a format allowing it to be analysed and compared with the initial budgets. In addition, the mechanisms obliging government deficits to be corrected have clearly proved to be insufficient.

The credibility of this strategy, which calls for absolute rigorous compliance with the short-term objectives set in the 2012 draft Budget law, will determine whether economic agents regain their confidence in our economy, which is the key to a sustained recovery of activity. Thank you. BIS central bankers’ speeches  7
Inflation target and transparency When the Riksbank originally decided to adopt an inflation target, time was short and did not permit extensive analyses. In my opinion, experience to date of the inflation target policy has been favourable. One major advantage of having an established and distinct inflation target for monetary policy is that this can be combined with transparency. Market agents can form a clear picture of the grounds for the Riksbank’s actions. It is, moreover, comparatively easy to understand how the policy functions, which should help in gaining public support for the target. The inflation target is an instrument for stabilising expectations about the conduct of monetary policy; a lack of transparency and distinctness in monetary policy makes it more difficult for inflation expectations to adjust to the target. This in turn can make it more difficult to achieve high, stable growth. In recent years the Riksbank has accordingly been aiming for greater transparency. A highly qualified staff has been built up, intensive efforts have been devoted to developing models and analyses, routines have been constructed for monetary policy preparations and decisions, and a new interest rate management system for monetary policy has been launched. The endeavour to promote transparency is evident in the Riksbank’s participation in public hearings by parliamentary committees, in inflation reports, speeches, discussions and seminars of various kinds, and in the publication of specialist reports.

All those with a say in price and wage formation must also realise that the Riksbank’s endeavour is to fulfil the inflation target. The repo rate increase in December was therefore important when the overall assessment of future inflation pointed to the target being exceeded. Inflation outlook somewhat more favourable Information of some relevance for the assessment of future inflation has become available since the December report. It concerns the crisis in Asia, the early stages of the wage negotiations, and the rent negotiations. The crisis in Asia has deepened both in terms of its effects on financial markets and as regards its probable consequences for global economic growth and inflation in the coming years. The extent of the effects cannot yet be assessed reliably but there are many indications that they will be greater than most people envisaged at the end of last year. This  BIS Review 5/1998  -7-  suggests that in the coming months the statistics will point to a more subdued growth of Swedish exports and industrial production. Some wage agreements have been concluded, for instance for the paper industry. They still cover just a small segment of the labour market but many observers consider that the existing settlements will serve as a guide elsewhere. It is difficult to arrive at a definite assessment of what these settlements imply for total wage increases but a cautious conclusion could be that the outcome will be somewhat below the Riksbank’s estimate in the main scenario, at least for 1998.
The Bank’s investment management organisation analyses these companies thoroughly, in order to identify long-term investment opportunities, reduce the Bank’s exposure to undesirable risk and the like. We use such analyses in order to safeguard the portfolio. There are companies 3/5  BIS central bankers' speeches  where we prefer not to be an owner. If we see that a company has a business model that we do not regard as sustainable, it may lead to divestment. But unlike the ethically justified divestments, these risk-based divestments are justified by purely commercial considerations. All together, the fund has made risk-based divestments of 282 companies since 2012. The first divestments were of palm oil companies, whose activities entail destruction of rainforests. Since then, the fund has divested of a number of other companies, where the common denominator has been that we have observed inadequate management of risks such as those related to the environment and climate change, corruption and human rights. Chart: Return effects of risk-based divestments Our experience from this work has been favourable. We exploit the fund’s characteristics, primarily its long-term horizon, to reduce risk and – in any case as it appears today – also to improve the fund’s return. Since 2012, risk-based divestments have contributed to increasing the return by an amount equivalent to around 0.27 percentage point of the value of the fund’s equity portfolio, measured against the benchmark index. This is the equivalent of around NOK 7 billion.

During time, the banking sector has increased the number of branches, has improved its products to the public and has increased its intermediating role to provide an important contribution in the economic development of the country. At the same time, the entrance of well-know European banking groups from Austria, Greece, Italy and France, has been associated with consolidation in the banking industry. As it is the case in the entire region, the banking sector dominates the financial sector in our country. Our supervisory work aims at adopting the best international standards in the field. As a result, our legal and regulatory framework is considered to be consistent in achieving our objective of a stable and sound development of the banking activity, and is continuously improved. From the practical aspect, we combine both regulatory and risk based supervision. BIS Review 43/2009  1  The data reported from the banking sector are analyzed off-site and verified on-site. We also try to stay in close contacts and cooperate with foreign supervisory authorities, as an important instrument in improving the effectiveness of the supervisory work. Nowadays, the assets of the banking sector represent around 87 percent of the country’s GDP. Loan portfolio has reached around 37 percent of GDP. Due to increasing competition after the privatization, its growth has been very strong in the last 4 years, albeit starting from a low base. Deposits represent around 80 percent of the banking sector liabilities, and the loan/deposit ratio stood at around 62 percent.
For instance, a recent ECB study has shown that, following the introduction of a quantitative definition of price stability, inflation persistence has considerably diminished in the euro area, in Switzerland and in five inflation-targeting countries. 2 While a large component of the switch in expectations formation is due to the genuine regime change, the exceptional speed of the adjustment would not have been possible without extensive communication about the onset of a new regime. Communication in difficult times Central bank communication – if supported by an established strategy – might well be a quiet and uneventful activity. In difficult times, however, when the economic outlook darkens exceptionally and confidence falters, communication becomes even more important to explain how the central bank intends to gear its policy. We have, on the one hand, the need to take and communicate swift action in implementing the appropriate monetary policy and in refinancing commercial banks. On the other hand, we need to communicate clearly the adherence of the central bank to the long-term objectives of policy and the way it intends to steer the policy course back to a normal path once the abnormal circumstances and risks have subsided. Communication in difficult times is inherently challenging for all central banks. However, it is facilitated by two fundamental components of the ECB’s monetary policy strategy. The first is the quantification of a price stability objective. This grants a very significant level of predictability.

For its part, the ECB has established a practise of making its policy transparent and in setting new benchmarks in the area of central banking communication. That being said, on each occasion, a central bank has to carefully assess the relevance, clarity and timeliness of the information. Transparency is a key ingredient of an effective monetary policy. Communication is an ongoing challenge and effective communication will always be characterised by a degree of flexibility and adaptability in order to respond swiftly to a rapidly changing economic environment. Thank you very much for your attention. BIS Review 160/2008  3