samchain/econo-pairs-v1 huggingface dataset:
I’ll ask why the communications about the risks that built up were insufficient to prevent the crisis. The fourth part is a what if? What if the Risk Board had existed in the early 2000s – could the factors that led to the crisis have been identified and averted? The answer should point to some of the key advantages of (and reasons for) the EU’s new macro-prudential function. 1. The setting-up of the European Systemic Risk Board  The idea of establishing a body to monitor and assess systemic risk at European level was first mooted in the late 1990s. 2 It took over a decade and a financial crisis to implement it. Let me recall the milestones of the setting-up of the ESRB institutional framework. Following the recommendations of the de Larosière Report, in February this year, the main features of the institutional framework for macro-prudential supervision were defined by the Communication published by the European Commission on 27 May as well as the Conclusions approved by the ECOFIN Council on 9 June and by the European Council on 18 and 19 June. The European Systemic Risk Board will be responsible for the macro-prudential oversight of the financial system within the European Union. It will seek to prevent or mitigate systemic risks within the financial system, so as to avoid widespread financial distress, and it will contribute to a smooth functioning of the Internal Market and ensure a sustainable contribution of the financial sector to economic growth.

would the economic downturn take on the shape of a U? Or would the USA simply experience a recession in the backwater of the burst IT bubble? At the Riksbank we were discussing a “banana-shaped” development from an early state, which could best be interpreted as a very long drawn out U. And even in the USA, the assessments had already changed from V to U even before the catastrophe and there was talk here and there of the possibility of a recession. The positive figures expected with regard to consumption and investment had largely failed to materialise, despite interest rate reductions and tax relief, while unemployment had increased and consumers found it more difficult to pay their debts. Nor had the stock exchange shown the upturn expected by many. Of course, the tragic events in the USA will have a severe dampening effect on the business cycle, at least in the short term. A number of central banks, headed by the Federal Reserve, have therefore lowered their steering interest rates. The Executive Board of the Riksbank also decided last week to lower the repo rate by 0.5 percentage points from 4.25 per cent to 3.75 per cent. Subdued inflationary pressure as a result of lower resource utilisation both in Sweden and abroad was judged to overshadow any price increases caused by the continuing weak krona. We stated in the press release that “the uncertainty occasioned by last week’s act of terrorism creates the risk of a further dampening of global demand.
These major provisions have been possible because Spanish banks, with their retail business and the significance of their banking franchise, were able to obtain high levels of profitability in the recent past, despite maintaining some of the lowest levels of leverage among European banking systems and having to retain a portion of such profits under the system of countercyclical provisions in place. On top of that, Spanish banks have increased their capital buffer over minimum requirements by € billion – around 5% of GDP – in the last three years. After the first crisis of mistrust, the Greek debt crisis, the Bank of Spain, within the European Union, led the disclosure process through the carrying out and subsequent publication of stress tests which, in a coordinated fashion, were conducted by the European supervisory authorities. Spain, whose weight in the Community banking system is around 8%, was represented in the stress tests by 27 banks, 30% of the total number analysed. This figure meant that information on 90% of the Spanish system was disclosed, compared with the minimum of 50% required by the European authorities. All listed Spanish commercial banks and all savings banks were subjected to this exercise. Significantly, the exercise consisted of very tough scenarios for Spain and it was carried out under the attentive eye and control of the Spanish supervisor. For instance, it assumed that the Spanish economy was going to undergo a second recession, with a cumulative fall in GDP of close to 3 percentage points.

This was far from the market consensus and the actual figures, given that the Spanish economy ended 2010 with a growth rate of 0.6%. Further, the haircuts applied to assets were most notable: 28% in the case of housing, 50% in that of uncompleted housing and 62% in that of land prices. In addition, a fall in net operating income of 40% was assumed, one of the most severe for all the countries involved in the exercise. Let me insist on the rigor of our stress testing, as some have broadly criticised the test because some banks from other countries were given a seal of approval only to collapse a few months later. Not only we tested all the banks but the information published by Spanish banks for the stress test was more detailed than that of the other countries. Our aim was to enable analysts and investors to check the stress test for themselves and know what volumes of problem exposures and expected portfolio losses were involved. As a result of the measures mentioned (greater disclosure, amended regulatory framework for savings banks and progress in restructuring), Spanish banks, not only the leading ones  2  BIS central bankers’ speeches  but also a large number of medium-sized banks and savings banks, were once again able to re-fund themselves on international wholesale markets, although the cost of funds continued to reflect the sovereign risk premium.
Accordingly, the policy rate has been kept constant since February, while the weighted average of reserve requirement ratios for Turkish lira liabilities was hiked by 410 basis points in March and April  2  BIS central bankers’ speeches  (Table 1). Meanwhile, in April, FX reserve requirement ratios were differentiated by maturity where short-term FX reserve requirement ratios were increased slightly. Thus, the policy mix composed of policy rates and reserve requirement ratios has been adjusted to deliver a monetary tightening, implying a more cautious monetary stance (Chart 2). Table 1. Weighted Average of TL and FX Required Reserve Ratios (Percent) Decision Date  TL Weighted Average  FX Weighted Average  January 24, 2011  9.4  11  March 23, 2011  13.2  11  April 21, 2011  13.5  12  Source: CBRT. Although credit growth slowed quarter-on-quarter in the first quarter, the rate of increase in loans has yet to fall to levels compatible with financial stability (Chart 3). The upward trend in loans is driven by both supply and demand side factors. While intense competition is effective on the supply side; the favorable economic outlook and the improvement in employment conditions help to keep demand for loans robust. However, we expect that credit utilization will continue to lose pace in the second quarter due to the lagged effects of the current monetary tightening. 2. Chart 3. Chart 4. Loans  TL Business Loan and Deposit Rates  (Nominal, January 2007=100)  (Annual, Percent, 4-week Average)  Source: CBRT.

Monetary policy should not, and in the end cannot, prevent such changes in relative prices. They will show up either in higher consumer prices or in a lower level of other prices and pay. Either way, the result is the same – a loss of real purchasing power. This year our real take-home pay will rise at a slower pace than national productivity. Rising fuel, gas, electricity and food prices, mean that average real take-home pay will stagnate this year. It will not be an easy time, and I know that some families will find it particularly difficult. But it is only a temporary slowing in the growth of our real take-home pay and remember that this is the opposite side of the coin to the falls in prices of manufactured goods from countries such as China and India, which in the nice decade allowed our standard of living to rise at a rate faster than productivity. The squeeze on real take-home pay will arguably be an even more significant restraint on consumer spending this year than the credit crunch. And it will affect the housing market too – lower demand in the high street will go hand in hand with lower demand in the property market. I have said in the past that there is no causal link between house prices and consumer spending. That remains the case. How closely they move together depends on the underlying forces that are driving them both.
Against this background, the Commission’s recent legislative proposals on Credit Rating Agencies, which the ECB broadly supports, is also discussed by this Committee. Credit ratings have a direct impact on the market functioning and the wider economy. A sound and robust framework must thus be created. This framework should be geared towards the following objectives: to reduce market volatility; to enhance the quality of rating process; and to restore market confidence. The two issues that are of particular importance are, first, the assurance of appropriate underlying methodologies and the transparency of ratings; and second, the reduction of hardwiring of ratings in legislation and market practices. Ratings simplify complex risk assessments. But they should only be one of several inputs for investors. In particular, they should be no substitute for financial institutions and other investors to carry out their own assessment. This is the main step towards avoiding mechanistic reliance on external credit ratings. Let me say a few words on how the ECB itself uses ratings. In practice, for the large majority of marketable securities (such as sovereign bonds) the Eurosystem Credit Assessment  1  Subject to approval by Finnish Parliament. BIS central bankers’ speeches  3  Framework mainly uses the ratings issued by eligible credit rating agencies. At the same time, the Eurosystem does not mechanically rely on these assessments, as it is aware of the limitations of methodologies.

I will list two important challenges: First is how we can share our resources and expertise to capitalize on the region’s growth. Second is how we can match regional demand with regional supply of savings and investment for the much-needed infrastructure development. 13. On the first challenge. Our resources will be better utilized if we regard our neighbors not as competitors but rather as partners in the regional production network. Here, we need to explore new opportunities to create industry clusters in the region by taking on our diverse comparative advantages and specialization. An existing example here is the cluster of industries relating to the garment industry, where one GMS country imports textile yarn from another country, manufactures it into apparels and then exports it to countries outside the region. 14. The second challenge concerns infrastructure financing. The projects that I mentioned earlier cannot be efficiently realized without proper funding mechanisms.
A solution that at one point in time matches the requirements made of us will perhaps not work at all when conditions change. And the world around us is of course anything but static. Then there is also a measure of “learning by doing” in this. From unchanged repo rate… Up to October 2005 our inflation forecasts were made under the assumption that the policy rate would not change during the forecast period. The advantage of this method was that it illustrated in a simple manner when there was reason to change the policy rate. If the forecasts showed that inflation two years ahead would be lower than two per cent, this was a signal that the interest rate needed to be cut. If inflation would be higher, the interest rate usually needed to be raised. This rule was easy to understand and was therefore a good educational tool. This characteristic was particularly important when the rule was introduced. It was a question of winning back confidence in monetary policy and anchoring inflation expectations around the new target of two per cent. To succeed in this it was necessary for households, companies and the financial markets to understand the motives behind the monetary policy decisions. Here the simple rule probably played an important role. However, there were also considerable disadvantages. For instance, it is not a particularly realistic scenario for the policy rate to remain unchanged a couple of years ahead. It was therefore difficult to make forecasts that were totally coherent.

However it is also because we live in a changing world, where we must adapt as demands on our operations change – demands that may come from various directions. My theme today is that a modern, independent central bank needs to take many considerations in its monetary policy work, not least in its communication. There are above all two aspects that we must always take into account. The first is that we have a responsibility as an authority towards the Swedish people and their political representatives. The second is that we must communicate and interact with the financial markets when we implement our monetary policy. I intend to devote the major part of my speech to illustrating some different aspects of the demands made of us. The areas I intend to talk about are transparency, signalling and the future interest rate path. There are no sharp dividing lines between these areas. How we regard the future interest rate path is, for instance, part of our signalling, and the quality of our signalling in turn has significance for how transparent we are. Transparency in itself is part of our role as a public authority. But I nevertheless consider it worth discussing them under separate headings. The role as authority and interaction with the market Let me before I do so say a few more words about our role as public authority and our interaction with the market. I intend to begin with the latter aspect.
One way of evaluating how effectively the central bank implements monetary policy is therefore to simply investigate how well the market participants have predicted the changes in the central bank's interest rate path. We can also analyse how well the expectations regarding the future interest rate adapt to the central bank's new interest rate path after the announcement. 10 Figures 11 and 12 are examples of the type of figure that can be studied in this case. These relate to the first interest rate decision I was involved in making, in June 2007, and to the latest decision from February this year. Summary Let me now sum up by first returning to the question I raised at the start: when evaluating monetary policy with an inflation target, why is it not enough to simply compare outcomes and targets for inflation? One reason is that inflation reacts with varying time lags and to different degrees to monetary policy measures. Inflation is also affected by shocks that are difficult to identify or that occur at a later date. The central bank does not therefore have complete control over inflation. Inflation can be on target even if the central bank has acted wrongly but been lucky, or deviate from the target even if the central bank has acted correctly but been unlucky. Another reason is that the Riksbank and other central banks with inflation targets conduct flexible inflation targeting, which means that they strive to both stabilise inflation around the inflation target and to stabilise the real economy.

In the case of such a lambda, the point of contact will be lower down to the left, for example at point C, where the Taylor curve is flatter. The inflation forecast will then be further from the target while the forecast for resource utilisation will be closer to a normal level. It is of course not so easy to determine what a reasonably large lambda should be for a central bank. Neither the Riksbank nor other central banks have yet announced whether they apply a specific lambda and if so what this lambda is. In those cases where the decisions are made by a committee made up of several members, as at the Riksbank, it is also possible that different members attach different degrees of importance to the stability of the real economy. A question that then arises is how these different views should be aggregated. Nor is it entirely certain that monetary policy decision-makers are even clearly aware of the importance they attach to stability compared with the stability of inflation. If the central bank's forecasts are only based on a known model, like the Riksbank's main model Ramses, it is possible to determine the position of the modified Taylor curve and which point the Riksbank's main scenario in each Monetary Policy report corresponds to. 8 In practice, the Riksbank's forecasts and those of other central banks are based on several different models and a great deal of judgement.
Or might there be reasons for Sweden and other countries to specially design our own solutions, over and above those imposed by international regulations? Lending and house prices in Sweden relatively unaffected by the crisis One area where Sweden stands out in comparison with many other countries, is the development of house prices and household indebtedness. As I noted earlier, house prices  1  See, for instance, the report “An assessment of the long-term economic impact of stronger capital and liquidity requirements” by the Basel Committee and the Financial Stability Board (http://www.bis.org/publ/bcbs173.htm). BIS central bankers’ speeches  1  in many countries have fallen heavily after being pushed up in a credit-driven boom over a number of years. In Sweden, too, house prices and lending to households have risen substantially. But here we have not experienced any corresponding fall in housing prices in connection with the crisis; we can just distinguish a minor dent in the curve (Figure 1). Lending to households has also continued to increase rapidly. It has been profitable for the banks to fund the increase in Swedish mortgage borrowing in the international capital markets. Funding in foreign currency has shown an increase trend (Figure 2). This has meant that Swedish households have been able to obtain mortgages at a lower cost and probably to a greater extent than would otherwise have been the case. But this method of funding is not entirely without risk.

As a central bank, we have to be prepared for all contingencies. And likewise, the financial sector should prepare for the worst: a no-deal Brexit. At the same time, I hope, of course, that Europe and the United Kingdom will find an agreement allowing for a transition period that gives everyone time to prepare for an orderly Brexit. I would like to end with a personal question. The ECB needs a new President next year. Would that be a job for you? No one can “apply” to become the ECB President. It’s in the hands of Heads of States and governments, and that discussion has not started. 3/3  BIS central bankers' speeches
It has not yet been established what kind of transition scenario we would have in Sweden. Nor is it yet clear how much time would be required, partly because the political process has not yet chosen a transition scenario and partly because changes are constantly being made in operations and IT systems that affect the time required for a potential transition. Examples of measures that reduce the time required for a potential membership are that IT systems that are being modernised for other reasons are designed to also process euros. Within the Riksbank we are working on reducing the length of time calculated as necessary for the production of Swedish euro coins. The result of our preparations and those of the financial sector are reported, as I mentioned earlier, in regular progress reports. Number 8 will be published in May. Conclusion In the event of a "yes" in a Swedish referendum on full participation in the third stage of the EMU, the whole of society needs to prepare for a cash changeover, and many decisions need to be taken as to how we shall proceed. In this situation Sweden would be under slightly different conditions than the current euro countries, as euro banknotes and coins already exist in the market. This is a circumstance that we must take into account in our planning, but despite this we will have considerable assistance from the fact that twelve countries have already implemented an introduction of the euro. We all have a lot to learn from studying their methods.

Chart 4: Global economic policy uncertainty reached record highs Index 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 2019  US implements first China-specific tariffs Iraq invasion 9/11  1999  2001  London bombings Ukraine / ISIS  Madrid Transatlantic bombings aircraft plot  USS Cole bombings  1997  Paris attacks  2003  2005  2007  2009  2011  2013  2015  2017  Source: Baker, S, Bloom, N and Davis, S (2015), “Measuring economic policy uncertainty”, NBER Working Paper No. 21633. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  Chart 5: Expected corporate earnings growth expectations sharply lower Expected growth in earnings per share in 2019 Indices: 02 Jul 2018 = 100 140 120 100 80  S&P 500 FTSE All-share  60  Euro Stoxx  40  MSCI EM  20 0  Jul. 18  Sep. 18  Nov. 18  Jan. 19  Mar. 19  May. 19  Sources: Eikon from Refinitiv and Thomson Reuters I/B/E/S. Chart 6a: Global business confidence down Differences from averages since 1999 2.0 (number of standard deviations)  Median  1.5 1.0 0.5 0.0 -0.5 G7 swathe -1.0 Jan. 16  Jul. 16  Jan. 17  Jul. 17  Jan. 18  Jul. 18  Jan. 19  Sources: OECD Business Confidence Indicator and Bank calculations.