samchain/econo-pairs-v1 huggingface dataset:
They concluded from the evidence of the crisis that at least five stylized facts should be reflected in macro-financial models: coexistence of bank and bond finance, substitution from bank to bond financing, increasing credit spreads, stickiness of equity prices and endogenous procyclicality of bank leverage. 5 In the pre-EMU economic modelling world, therefore, there was no need to counter financial imbalances and financial instability as the financial sector did not play a crucial role from a macroeconomic perspective. Similarly, under the assumption of self-equilibrating markets, there was no need to monitor macroeconomic imbalances and disequilibria on the labour, product or financial markets. With an assumed stable private sector, apart from exogenous shocks, the only source of instability acknowledged were governments and their fiscal profligacy. This supported the decision to elevate only governance of fiscal policies to the European level. With the benefit of hindsight, it is obvious that this architecture was unstable. Like the neglected build-up of financial imbalances and high indebtness that led to the crisis, the initial design of the European Monetary Union was a victim of the economic thinking then dominant. A few lessons have to be drawn now. Lesson number one: the greater integration of euro area financial markets implied that our economies became more prone to contagion. Financial integration run ahead and European-level financial supervision was non-existing.

The recent reforms to strengthen the euro area fiscal framework – the so-called six-pack and the fiscal compact – are welcome and go in the right direction. But they remain within the logic of the Maastricht Treaty where responsibility for fiscal policies is exclusively in national hands. This creates an inherent credibility problem, as for fiscal frameworks to be fully credible, they have to enforceable. This is impossible without a further and deeper sharing of budgetary sovereignty. This could be achieved by giving European institutions greater competence to effectively compel euro area Member States – in a graduated manner if and when the situation deteriorates – to take the necessary fiscal policy decisions. This would correspond to a further sharing of national sovereignty. But for both weaker and stronger countries, it is in fact an opportunity to regain substantive sovereignty as opposed to formal sovereignty. For the weaker countries, measures that put the soundness of their fiscal policies beyond doubt will allow them to be fully sovereign, in the sense that they can use fiscal policy in its vital economic stabilisation role and take free decisions about taxes or types of expenditure without fear of excessive discipline from financial markets. For the latter, sharing sovereignty at the European level will allow them to effectively protect their domestic economies from spillovers from the rest of the euro area. Moreover, they will no longer be placed into situations where they are de facto forced into taking decisions to avert imminent catastrophe.
Furthermore, in some cases housing prices did go up high, with clear indications that there was a bubble. However, their financial systems made it through and remained stable and,  1  A flexible inflation targeting regime balances the cost of output fluctuations with those of inflation instability, and the result should be a decline in both, output and inflation volatility. For an exposition of this framework and how it relates to the definition of the inflation target parameters see De Gregorio (2009a). BIS Review 113/2009  1  despite the current difficulties, have avoided acute financial crises. This is the case of, for example, Australia and Spain. Naturally, when facing disproportionate increases in housing prices, both the increase in credit and the boom in construction are symptoms that the downturn will be severe. Still, this need not result in a systemic financial meltdown. In any case, monetary policy can and does help in the creation of bubbles, although not so much by the level of the interest rate but by the monetary policy strategy with which financial turmoil is dealt with. In the United States, the strategy of turning a blind eye to the period of soaring asset prices and then, when the bubble burst, reducing aggressively interest rates used to be the Fed’s strategy (the “mop-up strategy” according to Blinder and Reis, 2005). This approach was first used on the “Black Monday” of October 1987, then with the breakdown of Long-Term Capital Management (LTCM) and later with the bursting of the high-tech bubble.

But perhaps it has been equally important that it has been possible to adjust workforces and wage growth at a local level. First, companies can adapt the use of labour to production by using overtime, part-time positions or contract labour. Moreover, the supply of labour is highly flexible. When demand rises, the number of job-seekers increases. Those who are already employed work more. During an upturn, we have in particular observed an increase in labour force participation among young people. Along the same lines, the number of persons in education tends to rise when unemployment is rising. When labour demand increases, we see an influx of job-seekers from our neighbouring countries. In addition, close to 30 000 persons had some form of employment in Norway throughout or during parts of 2001, but resided in Sweden. With the enlargement of the EU Norway has become part of a larger labour market. Enlargement also provides scope for increased trade in services. This increases the production capacity of the Norwegian economy. For example, it seems that capacity in the construction industry has increased. The activity level is now very high, and there are still no signs of rising wage growth. Hence, labour mobility can eliminate bottlenecks in the labour market. Employment is also strengthened by local wage negotiations. Some of the newer industries apply performance-related pay to a greater extent, allowing firms to reduce costs more easily while retaining employees when earnings decline. There also seems to be wage flexibility in more traditional industries.
For example, that between the G-SIB, share registrar and the relevant Central Securities Depositories (CSDs) or International CSDs, as resolution authorities we have worked out the plumbing to find a way to distribute the shares already in issue (or new equity) to the bondholders that will take ownership of the firm via the bail-in. Most of this is a matter of building on existing technology and market conventions that are used in liability management exercises and sovereign or other debt restructurings. A difference perhaps is that as regulators we need to ensure shareholder control thresholds are observed and that we are comfortable with any resulting change in control. Equally important is the question of how and when we will carry out valuations for the purpose of the bail-in and how we will comply with listing and disclosure requirements through the process. In the event of a G-SIB failure we are unlikely to be in a position to fix bail-in amounts at the resolution weekend. Rather, come Monday morning, we will announce, first the universe of debt that has been immobilised (and thus the solvency we can put back into the balance sheet of the bank in resolution); and second the independent valuation process that will ensue. Valuation and setting the terms of the bail-in might take several months.

Whether for market counterparties, central banks or backstop providers, lending decisions are much easier to contemplate where solvency is assured in the operating entities that need funding. Work in FSB to date has concentrated on what is necessary to stabilise G-SIBs at the point of entry to resolution, whether changes to firms to make them resolvable - like TLAC and operational continuity requirements - or to market contracts and conventions - like the ISDA Protocol or access to FMIs. But bail-in is not the end of the task. It is a prelude to whatever reorganisation is necessary to restore a firm to viability or to wind it down. Importantly though bail-in buys the time for that process to be orderly. Post bail-in restructuring runs as a thread through some of the other initiatives I have mentioned. It is part of the operational continuity principles. And, as part of the access to FMI work we are keen to investigate how easy it would be in resolution to dismantle the quasiFMI functions – payment services, clearing and custody – provided by G-SIBs to clients, financial and non-financial. However easy or difficult it is to transfer or wind-down services provided by a G-SIB, clients may have contingency providers themselves or may want to rely on the portability of their positions to move. If they are to move we need to find a way for that to happen in an orderly way. Post bail-in restructuring is also where ring-fencing of UK banks fits in.
2  BIS Review 17/2006  Important components in the assessment of what constitutes a good interest rate path – and which stress the element of judgment in this assessment – are expressed in a set of criteria that should be met. The criteria are included in the Inflation Report. Criteria have been set for robustness and financial stability. It is also appropriate to assess interest-rate setting against cross-checks such as simple monetary policy rules. The central balance is nevertheless between the inflation outlook and the outlook for capacity utilisation in the economy, expressed in the chart as the output gap. The projections are from Inflation Report 3/05. If monetary policy is to anchor inflation at the target, the interest rate must be set so that inflation moves towards the target. Inflation should be stabilised close to the target within a reasonable time horizon, normally 1-3 years. Provided inflation expectations are on target, the inflation gap and the output gap should be in reasonable proportion to each other until they close. Looking ahead, the inflation gap and the output gap should normally not be positive or negative at the same time. Several of the recommendations from Norges Bank Watch can be translated into how we should weigh the outlook for these two variables against each other. According to the report, Norges Bank’s inflation projections through 2005 were fairly accurate. Inflation has risen somewhat but is still very low, even 2½ years after the cyclical change.

Inflation is still being restrained by the fall in prices for imported consumer goods, increased competition in a number of markets and the current period of lower nominal pay increases. The trend in prices for consumer goods over the past two or three years is a result of favourable developments in the Norwegian and global economies. Low inflation is being accompanied by real income growth and a rise in production. It cannot be ruled out that small open economies are particularly vulnerable to fluctuations in international prices. Deviations from the inflation target in Norway are broadly in line with Sweden and New Zealand, but are larger than for example in the UK and Canada. Developments in recent years have also been influenced by the fairly large favourable disturbances to which the Norwegian economy has been exposed. Developments in Norway’s terms of trade provide an illustration of this here. As consumers, we enjoy the benefits of falling prices for many imported goods. As a nation, we benefit from a fall in prices for the goods we import in relation to prices for the goods we export. Norway’s terms of trade are improving. The impact of the rise in oil and gas prices is particularly strong – and the domestic economy is shielded to a certain extent through the oil fund mechanism – but there have also been terms-of-trade gains in the mainland economy. The situation in Norway differs from that of our Nordic neighbours.
It will then return gradually to 3% by the second half of 2013, to stay in the neighborhood until the end of the projection horizon, this time the third quarter of 2014. The CPIEFE will converge to 3% later than foreseen in June (figure vi). This trajectory assumes that wages will be adjusted according to productivity and the inflation target. A methodological assumption is that the RER will remain around its recent figures during the forecast horizon. Finally, the baseline scenario uses as a working assumption that the MPR will remain stable over the short term. The baseline scenario reflects the developments that the Board believes to be the most likely to occur with the information at hand at the statistical closing of the Report. However, there are risk scenarios that, if materialized, might change – significantly, in some cases – the macroeconomic outlook and, therefore, the course of monetary policy. On this occasion, after evaluating the alternative scenarios, the Board estimates that the risk balance for output and inflation is unbiased. Abroad, the risks described during the past several quarters have not changed significantly. The situation of the Eurozone is complex. The materialization of the announcements will not be easy and the passing of time will bring more problems to the economies of peripheral Europe, so a severe aggravation of the financial crisis in the Eurozone or even more extreme scenarios with systemic implications cannot be ruled out.

It cannot therefore be argued with great conviction that it is possible to identify one particular interest rate forecast that provides the indisputably “best” trade-off in monetary policy. More often than not, there will be a number of possible interest rate paths that might be said to provide a reasonable balance in view of the uncertainty involved. The results of this trade-off are presented in the Monetary Policy Report in the form of a chart that presents central projections for the interest rate, inflation and capacity utilisation in the economy. The formulation of a precise inflation target, our projection for the interest rate 3-4 years ahead and our desire to achieve a balance between output and inflation stability may perhaps give an impression of excessive optimism with respect to managing the economy and invite a repeat of earlier attempts to fine-tune the economy. But it is important to bear in mind the lessons drawn from the 1970s and 1980s, i.e. high stabilisation policy ambitions may lead to wide fluctuations in the economy, with high and variable inflation. In our conduct of monetary policy, we must not underestimate the uncertainty surrounding the decisions taken. Even if Norges Bank publishes an interest rate forecast, this does not mean that the interest rate will follow this precise path throughout the projection period. Forecasts of inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions.
The conclusion is that however good the decisionmaking material is, it can never be comprehensive or unequivocally interpreted. I have mentioned previously that developments in the financial sector and the effects on the real economy cannot be easily captured. I have also, in connection with the discussion on household borrowing, mentioned how we can assess effects in the longer term. Since we cannot make meaningful forecasts for an unlimited period of time, we must restrict the forecast horizon. But this is not set in stone in the sense that it should prevent us from considering problems that may arise in a few years’ time. Moreover, there are risk scenarios that are difficult to capture in terms of forecasts. Even if your ambition is to base the monetary policy decision on what are termed unbiased forecasts, in which upside and downside risks are balanced, you should be aware of the  10  For a description of how decision-making data for monetary policy decisions are prepared, see the speech “The monetary policy decision-making process” by Irma Rosenberg held on 13 June 2008. BIS central bankers’ speeches  9  difficulties involved. In practice, however, such forecasts have difficulties in capturing everything perfectly. In practice, you may wish to guard against some outcomes that you consider to be particularly harmful and that should therefore be avoided at all costs.

Rather, she is impressively balanced and fully aware, at least in my opinion, that her legacy will be whether she can successfully complete Act V by realizing the Fed’s mandate to maintain price stability while providing the monetary means to achieve full employment. All of which means that despite the mighty efforts of Captains Bernanke and Yellen and their officers and crew, present company included, we do not know how “The Grand Experiment” drama will end. We certainly all hope it proves an inspiring history, not a tragedy. But, we will not know for some time. We will not know until the curtain drops on Act V. R.I.P? Betsy Duke had it right: Only when we have normalized monetary policy – only when the play is done – will we know if QE3 rests in peace or comes back to haunt us. Only when it is done will we know if “The Grand Experiment in Modern Monetarism” is a smash hit or a bomb or something in between. As Yogi Berra said and Lenny Kravitz sang: “It ain’t over till it’s over.” But one thing I know for sure: This speech is over. Thank you for listening. And now, Mickey, time and patience permitting, I would be happy to avoid answering any questions you and your colleagues might have.
Data has been weighted to the known offline population proportions for age, gender, government office region, working status and social grade. Respondents were asked, “as a result of the coronavirus pandemic, would you say that your household savings have increased, decreased, or stayed the same?”  Chart 13: Sterling deposits held by households and PNFCs (monthly flows into M4ex) Households  £ billion  PNFCs  60 50 40 30 20 10 0 -10  Jan - 19  Apr - 19  Jul - 19  Oct - 19  Jan - 20  Apr - 20  Sources: Bank of England and Bank calculations. Note: Chart does not include flows into non-intermediate OFCs’ M4. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  Which of these two paths will play out in practice? Back in May, the MPC observed that the balance of risks to the outlook was skewed to the downside. Subsequent positive news on demand has, in my opinion, more than counterbalanced the rise in downside risks to employment. To my mind, this leaves risks to the outlook slightly more evenly balanced than in May, if still with a downside skew. “The Fourth Quarter”  Looking beyond 2020, there is plainly a high degree of uncertainty about the economy. That in part reflects uncertainty about the virus and the policy responses to it. But it also reflects uncertainties about the path of the economy itself.

A third factor is that the fracturing of supply chains during the Covid crisis, national and international, would tend to increase the cost of goods and services, if it proves durable. Against these inflationary forces of course needs to be weighed the disinflationary effects of much higher degrees of (double jeopardy) uncertainty, weaker demand and potentially higher saving rates in the economy. With heavy weights on either end of the inflationary see-saw, it is unclear at this stage which will tip the balance. Those uncertainties are, to some extent, reflected in the differing responses of agents’ inflation expectations. Since the crisis, households’ expectations have tended to drift up, companies’ expectations have drifted down and financial markets’ expectations are relatively unchanged. Given the strong forces acting on inflation in either direction, the MPC is being especially vigilant in monitoring trends in inflation expectations. Perhaps the long-range forecast about which I have greatest confidence concerns the data and statistics used, by the Bank and others, to monitor the economy. The emergence of a new suite of fast indicators, including from the UK Office for National Statistics, has significantly shifted the technological frontier when monitoring the economy. That shift is likely to be permanent, improving the granularity and the timeliness of both our statistics and our understanding of economic trends. The Policy Response  Let me conclude by discussing the policy response to these searing developments in the global economy. Like the crisis itself, these responses have been unprecedented in speed and scale.
Slide 9: Key characteristics The large size, the very long time horizon and a lack of immediate liquidity needs are three key characteristics of the Fund. Together, they form the backbone of the Fund’s investment strategy: •  First, the long-term horizon for the Fund implies a substantial capacity for taking on risk. We are able to act as a countercyclical investor. •  Second, the size facilitates a broader diversification of investments, moving towards a more global portfolio. In early summer 2007, after a thorough assessment by Fund’s owner, the equity share was to be raised from 40 to 60 per cent. From summer 2007 to 2009, the Fund bought EUR 160 billion worth of equities in international markets. For this sum, the Fund was able to buy 1.0 per cent of Europe’s listed equities – and 0.5 per cent of the equities listed on the other continents. The largest volume of transactions was carried out right through the financial crisis of 2008 and 2009. Indeed, there probably were times when the Fund was the only sizable buyer in the market, which probably helped to stabilise financial markets in this period. The long-term horizon also enables us to vary the risk level of the Fund, through rebalancing asset classes: If the equity share increases to more than 4 percentage points from the target weight of 60 per cent, we will sell equities and buy bonds. Conversely, we will sell bonds and buy equities when stock prices have fallen.

After more than 40 years in banking, many of them in Hong Kong, he is about to retire from the field. He is thus currently much in demand among his many friends within the financial community, who wish to fete him on his retirement. He is also receiving bookings in his new, risk-taking career as popular singer and entertainer – a field in which we wish him every success. I take this opportunity to pay tribute to David for his outstanding contributions to Hong Kong during difficult and challenging times, not just in the financial sphere, but also in the many community and charitable activities in which he is involved. Ladies and gentlemen, it is an honour to welcome Governor Jaime Caruana as speaker, and Mr David Eldon as discussant. I now have much pleasure in inviting Governor Caruana to deliver the seventh HKMA Distinguished Lecture. 2  BIS Review 9/2005