samchain/econo-pairs-v1 huggingface dataset:
The hard yards - speech by Andrew Bailey i  Given at the Society of Professional Economists Annual Dinner  The hard yards ‐ speech by Andrew Bailey | Bank of England  Page 1  Published on 27 September 2021  Andrew Bailey looks at the varying forces currently acting on the economy and what they mean for monetary policy. One is the supply bottlenecks that are affecting the availability of goods and services. While they will push up on the cost of living, that will likely only be temporary. The labour market presents more of a puzzle. Job vacancies have been at record levels, but as the furlough scheme ends, it is uncertain what will happen to hiring and wages. The Monetary Policy Committee focuses on medium-term inflation rather than transient factors. But if these factors are likely to be more persistent, the committee will step in and adjust monetary policy as needed. Speech I am going to speak this evening about the state of the economy and about monetary policy as the recovery from Covid unfolds. The title of this speech, The Hard Yards, is I think a saying that originated in sailing, though I associate it more with forward play in rugby. I remember saying, around a year ago when the recovery looked rapid, that the hard yards were yet to come, and while I don’t want to claim any great prescience, it appears to be turning out that way.

By occupation, consistent with qualifications, the gender pay gap is smaller for professional and administrative occupations than for skilled trades, customer service and plant operatives (Chart 9). For almost all occupations, the gender pay gap is higher outside London. In 2018, the gender pay gap outside London remained higher for managers, skilled trades and elementary occupations. For the rest of the occupations, the pay gap in London overtook the respective gap outside London. Broadly speaking, occupations with median hourly pay of more than £ (managers, professional, and associate occupations) have lower gender pay gaps than occupations where the median hourly pay is less than £ (sales and customer services, and elementary occupations). Relatedly, there is a clear inverse relationship between the gender pay gap and female-dominated professions. Occupations with a lower share of females tend to be characterised by higher gender pay gaps and vice versa, consistent with increased female representation shrinking gender pay gaps cross-sectionally, if not always over time. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  Chart 9: Median gender pay gap by occupation, sample average Gender pay gap, per cent 35  London  Other  30  25  20  15  10  5  0 Managers  Professional  Associate Administrative Skilled trades professionals  Male male  Personal service  Sales and customer  Process and plants  Elementary  Female female  Source: ONS Labour Force Survey and Bank of England calculations.
The initial shock on the global economy did not differ much from the one that hit in the 1930s. There were many similarities between the Great Depression and the Great Recession. Worth noting are the initial fall in manufacturing output and trade, the collapse of stock prices and credit, and the increase in bond spreads (see Eichengreen and O’Rourke, 2010). These remarkable similarities in the first months of the crisis were alarming. The questioning of the profession was also worrisome. However, the subsequent evolution of the global economy was quite different from that of the Great Depression, and it was certainly the result of good macroeconomic management. There was a failure in crisis prevention, but the policy response has been good so far. More remarkable has been the response of emerging market economies. In particular, Latin America, a region that historically magnified the global cycle, this time will perform better than the world economy’s average. The world has still many macroeconomic problems to solve before we can declare victory. Indeed the same policies that averted a collapse require careful review to avoid planting the seeds for the next crisis. 3  On this issue, Rancière et al. (2008) find that “countries that have experienced occasional financial crises have on average grown faster than countries with stable financial systems”. 4  BIS Review 84/2010  First, there is a need to think seriously about moral hazard. It is true that during the crisis this was a second order problem.

One is an apparent reluctance on the part of banks to raise fresh capital except where the market thinks that it is beyond doubt that they need to do so. Given the feedback from credit conditions to asset prices and the real economy and so potentially to banks’ future earnings, it might seem slightly odd for banks internationally to be maintaining distributions to shareholders but tightening credit availability in order to preserve resources. This has to be seen in the wider context. One possible explanation for banks holding back from raising fresh capital is that they may want to avoid giving an adverse signal about themselves. If there is a co-ordination problem, the regulatory authorities internationally should be able to tackle it, allied to ensuring prudent valuations of legacy portfolios. But another possible explanation is that, like some other market participants, bankers may believe that many legacy assets are fundamentally undervalued at present and that the markets for securitised assets will, with time, recover and reopen. On that view, banks are avoiding becoming overcapitalised on a fundamentals (or forward looking) basis, and so setting off another expansionary phase in the credit cycle, a little further down the road. The serious puzzle which that underlines is why there is a dearth of buyers for the supposedly undervalued paper. With the terms and availability of financing from banks and dealers having tightened, levered funds are hardly likely to be the US Cavalry.
Otherwise, a durable single currency would not be feasible. Yet given that political union in Europe over the short term is inconceivable, will a monetary union not be able to survive without political union? In my view, the most important lesson we’ve learned in this crisis is that it is possible to enjoy the benefits of a single currency without political union, but only if strong divergences between the member countries are avoided. This has been understood by the European Union and is what has prompted the changes to the Stability and Growth Pact and to economic governance, which are intended precisely to correct divergences before they become so great that they are difficult to redress. And it must be acknowledged that here a good deal of progress has been made over the past year. The unfolding of the crisis has shown that the governance model in place to date in the EU has been of no use in ensuring economic policy consistency or in managing crisis episodes flexibly and effectively. It’s now clear that public finances were not sufficiently restructured in the upturn, that macroeconomic divergences were excessive and that we need a well-designed financial aid mechanism to assist ailing countries swiftly and effectively. Mindful of this, European governments and institutions have taken major steps towards correcting deficiencies in three fundamental areas: the strengthening of fiscal discipline, closer surveillance of macroeconomic maladjustments and the creation of a permanent crisis-management framework.

Starting with fiscal discipline, public debt levels will be more closely monitored and countries will have better incentives to comply with their commitments, through the introduction of broader and transparent sanctioning arrangements, which will moreover be applied at an earlier stage and, as far as possible, automatically. Further, the reform of national fiscal frameworks is being promoted, so that budgetary policy rules and surveillance systems will be adopted that help curtail spending. Moreover, a new framework for the prevention and correction of macroeconomic imbalances is being established. The aim of this mechanism is the early identification of the emergence of potentially “excessive imbalances”. When imbalances are considered to be too big, an excessive imbalance procedure will be initiated which will include recommendations for the adoption of corrective measures. The third key element of EU economic governance reform is the creation of a permanent crisis-management instrument, the so-called European Stability Mechanism, which will come into force in mid-2013. Geared to lend up to € billion, this mechanism will provide funds to countries with liquidity problems under strict conditionality. Finally, a mention for the Euro Plus Pact, approved in March by the euro area Heads of State and of Government. This pact involves a commitment at the highest political level to adopt the measures needed to attain competitiveness and employment-promoting objectives, to contribute to the sustainability of public finances and to reinforce financial stability.
Given these factors, I entered a reservation against the decision, preferring a much lower repo-rate path than the one proposed by the majority. At the next monetary policy meeting in July, there will be a new assessment, with new four-panel figures. 5  So-called mean squared gaps are also shown, although they are not needed in this case to judge which of the alternative repo-rate paths leads to the best target attainment. 4  BIS central bankers’ speeches  Objections to monetary policy focusing on inflation and unemployment The Sveriges Riksbank Act, the government bill proposing it and economic analysis thus all provide strong support, in my opinion, for monetary policy aiming to stabilise inflation around the target and unemployment around a long-run sustainable rate. At the same time, it is clear that the majority of Executive Board members have conducted a monetary policy that aims to do something other than this. As I discuss in detail in Svensson (2011), the majority of the Executive Board began to raise the repo rate in July 2010, despite the forecast for CPIF inflation being below the target and the forecast for unemployment being above any reasonable long-run sustainable rate. In recent years, according to the forecasts made at the time of each monetary policy meeting, a lower repo-rate path than the one chosen by the majority would have led to better target fulfilment for both inflation and unemployment.

Although only a minority of households may be credit constrained they are probably sufficient  4  Young, G (1996), “The influence of financial intermediaries on the behaviour of the UK economy”, NIESR Occasional Paper No 50. 5  This is discussed in detail in the Bank’s memorandum to the House of Commons Treasury Committee’s inquiry into “The Monetary Policy Committee of the Bank of England: ten years on”, Quarterly Bulletin, 47(1), 2007Q1, 24- 38. 6  Credit Conditions Survey, http://externalboeweb/publications/other/monetary/creditconditions.htm  BIS Review 7/2008  3  in number to depress household spending somewhat, possibly reversing a little of the decline in the saving ratio seen since the early 1990s (Chart 9). In a similar way a tightening of corporate lending conditions will affect some companies’ investment. The Deloitte CFO survey taken in early December finds that 20% of firms expect the recent credit market events to have a negative impact on their capital spending in 2008. 7 This tightening of credit conditions would be exacerbated by any further weakening in the financial position of banks due to a slowdown in the wider economy. Slower growth and a rise in unemployment in particular would lead to higher loan defaults. There are signs that this is already happening in consumer lending in the US. Weakening property prices would reduce the amount that lenders could realise in the event of default.
The efforts made to strengthen preparedness have probably contributed to the fact that the Swedish authorities were better equipped to deal with a crisis in the financial system this time than they were in the early 1990s. It is also probable that the lessons learned during the crisis of the 1990s have provided a number of insights and greater risk awareness on the part of many of the players in the financial sector; even though we can assume that some of these lessons have been forgotten. This should in turn mean that the Swedish banks were in a somewhat more favourable position at the outbreak of the current crisis than many banks in other parts of the world. The current crisis has revealed new weaknesses Despite the measures taken by the Riksbank and other central banks to promote stability, it is clear that hardly any of the authorities around the world predicted the global extent and complexity of the current financial crisis. The indications that could be discerned here and there that risks and bubbles were developing were not strong enough to convince enough people of the need for countermeasures. Above all, it seems that there was no clear overall picture of the possible global consequences if any of these bubbles burst. Previous financial crises have, after all, mainly been generated domestically and have thus been a primarily national concern.

Here we can discern the two core tasks that the Riksbank still has: to maintain price stability and to promote a safe and efficient payment system. Banks are of central importance Nowadays, a very large part of what we normally refer to as money consists of funds in accounts at the banks, and a very large proportion of the payments made take the form of transfers between the accounts provided by the banks. The banks therefore play a central role in the financial system. Although banks in various forms have existed for many centuries, it was not until the 19th century that the financial sector began to develop on a large scale. The emerging industries needed funding. There was also a need for major infrastructure investments, for example in the railways. The banks acted as credit intermediaries, thus enabling the investments to be made. They gathered together our savings surplus and converted it into loans. Even though the financial markets are much more sophisticated today than they were in the 1800s, the basic role is the same, that is to mediate credit and provide payment services. These functions are indispensable to a modern society. If they were to fail, the entire economy would suffer extensive and indiscriminate damage. This is what gives the financial sector its unique position. Banks entail bank crises The expansion of the banks also led to bank crises. In Sweden, for example, the expansion of the 1870s ended in the severe crisis of 1878-1879.
The remedial legislative response to the financial crisis in the United States was the DoddFrank Act.7 While the Federal Reserve Act did not use the words “financial stability”, this was not the case with the Dodd-Frank Act. Instead of being observed in the penumbra, financial stability is an open and obvious topic of the new law. Title 1 of the Dodd-Frank Act is named the “Financial Stability Act of 2010.” One of Title 1’s most consequential provisions is Section 165, which empowers the Board of Governors to develop enhanced prudential standards for systemically important financial institutions.8 In a provision directly affecting central bank powers, the Congress instructs the Federal Reserve to develop prudential standards “to prevent or mitigate risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large interconnected financial institutions.”9 There are other provisions of the Dodd-Frank Act granting new powers to the Federal Reserve with respect to financial stability, and time does not permit me to review all of them here.

The global financial crisis has tested both the ECB and the organization that I am privileged to serve, the Federal Reserve. The Federal Reserve’s financial stability role, my topic for today, was at the center of the response to the crisis in the United States. Because this was the worst financial crisis in the United States since our Great Depression, conditions within our national economy produced instability, which naturally provoked a reaction from the Federal Reserve. From my personal perspective, one of the most inspiring moments was when Chairman Bernanke spoke in February of 2009 at the National Press Club. There, he said “the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity . . . .”1 No statement encapsulated the financial stability objective as succinctly and as clearly. In speaking here at the ECB, I would be remiss if I did not mention a substantially similar statement by ECB President Mario Draghi in July of 2012. President Draghi said that “[w]ithin our mandate, the ECB is ready to do whatever it takes to preserve the euro”.2 Whenever I have referenced President Draghi’s “whatever it takes” statement, Antonio is quick to note that President Draghi, unlike Chairman Bernanke, appended a forecast to his version of “whatever it takes”. He assured everyone that “it will be enough”.
These reports showed fan charts in which inflation was much more likely to be below the target than above it throughout the two to three year horizon over which the Bank produces its forecasts. The central projection in both Inflation Reports we produced last summer suggested inflation would fall to around 1% or just above in the first half of 2011 and to struggle to return to the target after that. This was the economic backdrop against which I and other members of the MPC took the key decisions to put in place the monetary policy settings which we currently have in place today: sharp falls in demand and rises in unemployment; great uncertainty about recovery prospects; and a general expectation of persistent below target inflation. The Bank was not alone in its prognosis – this was the general view of the forecasting consensus last summer. A year on, however, the economic situation has changed. There are still many uncertainties about future economic prospects. But there are four features of the current position of the economy which are now very different from the situation we faced last summer – the world economy has bounced back, the UK economy is also recovering, the margin of spare capacity does not appear to be as large as we had expected a year ago, and inflation has run above target rather than falling below it. Before moving on to talk about monetary policy, I will briefly discuss these four factors in turn.

One of the key reasons for embarking on the policy of Quantitative Easing was to reverse this downward shift in money spending, which would have pulled down inflation sharply if it had continued. As Chart 3 shows, this trend in nominal demand has indeed reversed. GDP and domestic demand measured in money terms rose at an annualised rate of around 5.5% in the last 3 quarters for which we have data, and total final expenditure – which also includes export demand – grew by nearly 7%. On all the three main measures of nominal demand, growth is now back to or above the pre-recession average rate. This is a rapid turnaround from the sharp falls seen in late 2008 and early 2009. 4  BIS Review 99/2010  Chart 3: UK Nominal Demand Growth Percent 8  1997 Q1 - 2007 Q4 average  7  2009 Q3 - 2010 Q1 average (annualised)  6 5 4 3 2 1 0 GDP  Domestic Demand  Total Final Expenditure  Note: Domestic demand defined as public and private consumption and investment spending Source: Office for National Statistics  Business surveys are also showing a generally positive picture. Chart 4 shows the latest responses from the British Chambers of Commerce’s survey – which points to a particularly strong rebound in manufacturing, with a slower recovery in the services sector. But both manufacturing and services are showing a return to growth, alongside positive expectations that the recovery in demand will continue.
It is hugely more complex than macro-economic management, being affected as it is by the whole range of public policy issues, often involving difficult political judgements on how to strike the right balance between social and economic considerations. I will have little more to say about the supply side. My involvement is on the macro-economic side. Macro-economic management can do relatively little directly to contribute to improvement on the supply side, but - if we succeed in maintaining stability we can nevertheless contribute to more rational economic decision-making by the private sector, based upon real rather than purely nominal considerations; and that can help improve our supply-side performance indirectly. As the emphasis of macro-economic management - overall fiscal policy and monetary policy taken together - shifted towards stability, a growing distinction emerged between the role of overall fiscal policy, which is set for the medium term, and a more specific role for monetary policy, which became the principal instrument for shorter-term stabilisation. This distinction crystalised first with the adoption of an explicit inflation target as the objective of monetary policy, following our exit from the ERM in 1992, and subsequently, in 1997, when the Bank, through the Monetary Policy Committee, was given independent operational responsibility - legitimised through transparency and public accountability for the achievement of the Government's inflation target.

Christian Noyer: G20 roadmap – how finance can help rebalance the world economy Introductory speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Paris Europlace Financial Forum, Paris, 6 July 2010. *  *  *  Before I start let me thank the organizers for inviting me to this conference: they have managed to put together an outstanding program and it is a great pleasure for me to exchange views with the other participants in this round table. I was asked to introduce the discussion on “G20 Roadmap: How Finance Can Help Rebalance the World Economy”. The title of this session contains some of the most important concepts on the current policy agenda: “finance”, “rebalancing the world economy” and “the G20 Roadmap”. Let me take them in turn. “Finance”, first. Since 2008, the world is going through the deepest financial crisis since the second World War, and hence never before has the word finance been so crucial in the policy agenda. This financial crisis has had very high real costs: real output, industrial production, trade flows, to name just a few key variables, have contracted markedly during the crisis. In addition, the fiscal positions and the public debt of many countries have also deteriorated markedly in the past two years. Yet, it is important to recall that these real and fiscal problems largely stem from the financial issues that plagued our economies in the past decade.