samchain/econo-pairs-v1 huggingface dataset:
As the financial markets have begun to normalise, the krona has strengthened, and there is reason to believe it will continue to strengthen if the normalisation continues. But at the same time, renewed unrest could lead to further periods with a weaker krona exchange rate. The assessment of the development of the exchange rate during the coming period is, as always, very uncertain. Concluding remarks The development of the exchange rate is very important to a small, open economy like Sweden’s. The effects of the exchange rate on the economy can be divided up into effects on inflation and effects on the real economy, which are mainly through international trade. BIS Review 3/2010  13  It is very difficult to forecast exchange rates accurately, but there are good reasons, at least in the slightly longer term, to expect the krona to appreciate. At the same time, experiences show that the krona rate is sensitive to the unrest in the financial markets. The conditions in the financial markets have normalised and the krona has strengthened this year. A continued normalisation of the financial markets points to a continued strengthening of the krona. If the unrest increases again the krona may once again weaken in the short term. However, this possibility is not included in the Riksbank’s main scenario. If the krona strengthens in the future, as indicated by our forecasts, one can expect this to subdue GDP growth somewhat and to keep down inflation.

4  The new profit margin will be (120–115)/115, which is just over 4 per cent of the purchase price. 5  Goldberg and Knetter (1997) summarise the results of the research. Adolfson (2004) also provides an excellent survey, together with new results. 6  See, for example, McCarthy (2000) and Bachetta and van Wincoop (2003). 7  However, there are some complications with dividing CPI into import prices and other prices. See Hansson and Johansson (2007). 8  See Burnstein, Eichenbaum and Rebelo (2002). BIS Review 3/2010  3  be various strategic reasons for not allowing import price increases to have a complete passthrough to consumers. Figure 1 illustrates some of the conclusions regarding the pass-through of the exchange rate. It shows the nominal exchange rate together with import and consumer prices in Sweden. We can see that import prices for consumer goods clearly co-vary with the nominal exchange rate, although there is no perfect correlation. It would thus appear that changes in the exchange rate nevertheless have a relatively large effect on these prices. Figure 1 Consumer prices, import prices of consumer goods and nominal trade-weighted exchange rate (TCW index) in Sweden Annual percentage change  Note. The import prices refer to consumer goods in the producer sector. Consumer prices are the CPI with a fixed interest rate (CPIF). Sources: Statistics Sweden and the Riksbank. We can also see that the relationship with the exchange rate is much weaker for consumer prices than for import prices.
So, as you can see, designing a simpler framework is not a simple task! Our discussion paper elaborates on all these choices, and I hope to have whetted your appetite to get involved in the discussion by responding to our paper. Leverage Ratio and MREL reviews Next, I want to move on to something a bit more relevant in the shorter-term to some of the larger BSA members with us today – the links between the leverage ratio and MREL reviews. I am conscious that at the moment this may be relevant to only a handful of you, so in case you are still listening to my speech I will aim to be brief. The Prudential Regulation Committee and the Financial Policy Committee are conducting a review of the UK leverage ratio framework in light of the now-finalised international standards.3 At the same time, the Bank, as Resolution Authority, is conducting a review of its MREL framework and how it applies to mid-tier firms.4 As many of you know, this alignment of timings is not coincidental as the two are closely linked. How so? At first look, one link is through the calibration of MREL. For firms subject to bail-in resolution strategies, MREL is calibrated as twice the applicable minimum requirements set by the PRA. So if a firm is subject to a minimum leverage ratio requirement, this will typically be doubled-up in their MREL. But the two are linked in another way, which gives this doubling-up an additional significance.

In practice, the opposite happened (Charts 2 and 3). Capital and liquidity ratios have fallen secularly in the UK and US for over a century. Since the start of the 20th century, capital ratios have fallen by a factor of around five in the US and UK. Liquidity ratios have fallen by roughly the same amount in half that time. Taken together, these balance sheet trends indicate a pronounced rise in banking system risk and hence in potential demand for state insurance. They have also affected the returns required by bank shareholders. As banks moved up the risk spectrum, the return required by shareholders has predictably increased. Between 1920 and 1970, the return on UK banks’ equity averaged below 10% per annum, with low volatility of around 2% per year (Chart 4). This was roughly in line with risks and returns in the non-financial economy. The 1970s signalled a sea-change. Since then returns on UK banks’ equity have averaged over 20%. Immediately prior to the crisis, returns were close to 30%. The natural bedfellow to higher return is higher risk. And so it was, with the volatility of UK banks’ returns having trebled over the past forty years. 4  Indeed, contract incompleteness is one of the reasons banks exist in the first place (Rajan (1998)). 5  See, for example, King (2009). 2  BIS Review 139/2009  This regime shift upwards in the risk and return profile of UK banks can be explained by the fall in their capital ratios.
That in turn may lead them to set higher wages and prices to compensate and thus to the elevated level of inflation persisting. Measures of inflation expectations for the year ahead, for both households and businesses, have moved upwards, though no more than one would expect given the outlook for inflation (Chart 11). Measures of inflation expectations further ahead, which might be more indicative of a fundamental shift in perceptions of the inflation climate, have though mostly remained well anchored (Chart 12). But this is something we are watching closely, in particular for any signs that higher inflation expectations are leading businesses to raise pay and prices. There are elements of all these mechanisms present in our latest projections, but there is a risk that they will turn out to be more powerful than in our central view. And, as noted earlier, there is the risk of further increases in the prices of commodities, especially that of oil. Certainly, my own judgment is that, if anything, inflation may prove a little more persistent next year than presently embodied in our projections. 7  This is sometimes referred to as the “battle of the mark-ups” in the unemployment literature; see e.g. P. R. G. Layard, S. J. Nickell and R. Jackman (1991), Unemployment: Macroeconomic Performance and the Labour Market. 6  BIS central bankers’ speeches  On its own, that might appear to imply that Bank Rate needs to rise faster than implied by the market yield curve that underpins our projections.

These trends show that the propensity to save and retain the funds in the banking system remains high. Household savings are growing dynamically, within the historical trends. However, the unique character of the crisis has implications on its structure. Given the unpredictability, the propensity for long-term savings is decreasing, while the share of these deposits in the total household deposits from April last year until now reduced by five percentage points. On the other hand, in the corporate sector, the growth rates are significantly above the historical average, with restraint from investment activity and growth of assets. The past crisis episodes were characterized by a reduction in corporate deposits, which shows that the corona-crisis prompts different behavior. The pandemic increases the propensity to hold liquidity and save, in conditions of pronounced and prolonged unpredictability. Besides the growth of savings in banks, in conditions of a pandemic, there is an increasing propensity of households to invest in real estate. Actually, in conditions of low interest rates, relatively stable disposable income, reduced possibilities and needs for consumption, change in the models of work, globally there is an increase in the demand for real estate and in the real estate prices. Unlike most economic indicators, which collapsed during the pandemic, real estate prices are increasing. In the EU countries, in the first half of this year, real estate prices registered an average growth of nearly 7%, compared with the growth of around 4% in the past few years.
In 2007, GDP growth averaged 3.8%, the result of some easing in domestic demand and an improvement in the contribution of net external demand to output growth. Against this background, the slowing trajectory on which the Spanish economy embarked during 2007 was consistent with the tailing off of some of the impulses behind the buoyancy of spending in previous years, and with the maturing of the business cycle. Undoubtedly, the raising of interest rates by the ECB – from end-2005 to June 2007 – and the increasingly subdued rises in house prices began to temper consumption and residential investment decisions as early as 2006. This gradual loss of momentum in domestic demand continued in 2007, but  BIS Review 44/2008  1  was not reflected on a similar scale by GDP, owing to the offsetting effect of net external demand. Adding to this domestic adjustment dynamic was, from summer 2007, the effect of international financial market instability. This translated into a deterioration in agents' expectations, and made itself felt in some spending components – consumption and, above all, residential investment – as early as late 2007, but more clearly in the opening months of this year. However, the weakening in consumption is based on comparison with the relatively high end2007 figures, with growth close to 3%, held up by the dynamism of disposable income.

I must not fail to mention that, since May, the figures – including those relating to the use of Official Credit Institute credit lines – point to a less sharp contraction in lending to companies, a trend that is all the clearer if, along with bank loans, other channels of corporate financing, such as securities issues, are included. In respect of the initiatives to promote an appropriate flow of credit to SMEs, which are so important throughout the European Union and, of course, in Spain, some of the ideas tabled are rather unrealistic, owing to their technical complexity, to political difficulties or to both. However, certain corrections that can make a positive impact are indeed possible. On the national regulatory front, certain changes have been adopted. Further to Circular 4/2013, the Banco de España has revised the definition of SMEs, adopting the broader criterion recommended by the European Commission; moreover, with the entry into force in late September of the Entrepreneurs’ Law, the discount factor applied to capital consumption envisaged in the new Basel III and European regulations has been introduced early. I would also like to clarify that the contractionary behaviour of business lending at the aggregate level may prove and, indeed, is proving compatible with a reallocation of resources within the sector, meaning that the reduction in credit for some companies runs alongside an increase in credit for those which, in the opinion of credit institutions, are better placed to undertake profitable projects.
The economic fundamentals of the euro area are sound and there are no major imbalances that would require a lengthy process of adjustment. The expectation of a recovery in the euro area in 2002 is furthermore supported by favourable financing conditions and by real disposable income benefiting from past and expected future declines in inflation. There is also increasing confirmation that economic activity outside the euro area is picking up, which should lead to a gradual strengthening of the external demand for euro area products and services. While the strength of the recovery remains uncertain, there are good reasons to expect a return of economic growth to levels in line with potential towards the end of the year. Turning to short-term price developments, annual consumer price inflation picked up substantially in January. Part of this increase was expected, as it related to base effects stemming from falling energy prices in early 2001 and to higher indirect taxes in some euro area countries. Furthermore, the increase reflected a considerable rise in unprocessed food prices due to adverse weather conditions in parts of Europe. Part of the latter effect seems to have been reversed in the meantime, as preliminary data for February indicate. Some increases have also been observed in oil prices and in the rate of growth of services prices in January.

The more efficiently euro area product and capital markets function, the greater the success of labour market reforms will be in creating employment opportunities. We are now at your disposal for questions. 2  BIS Review 15/2002
It is also conceivable that stock market investment is now considered to be somewhat less risky than before, in which case the expected return may have become somewhat lower. But the stock market reaction to these new signs may have been rather hasty. Experience has shown that financial markets are sometimes liable to overshoot when adjusting upwards or downwards. My intention today, however, is not to opt for a particular view. I am more interested in initiating a discussion and would like to take this opportunity of asking the share investors who are present here: Which conclusion do you find most valid? An increase of 3 percentage points in the growth of total factor productivity above the long-term trend leads to an upward shift in the real return to capital from 6.0% initially to 6.2% (1.031x6) after one year, 7.0% (1.035x6) after five years and 8.1% (1.0310x6) after ten years, that is, an increase of about 2 percentage points after ten years. BIS Review 137/1999  6

At the same time, we have a very close co-operation with our colleagues on the other side of the Atlantic, which proved to be useful precisely in the times we are living. The international meetings, in particular the global economy meeting of central bank governors and the G20, provide regular forum for a thorough and open discussion between the participating  2  BIS Review 18/2009  Governors, particularly with Governor Zhou, who plays a very important role in these meetings. China Finance: To what extent do you see the need to reform the international monetary system and the global financial regulatory system in the light of lessons learned so far from the ongoing financial crisis? Trichet: The current crisis stands out because it affects the heart of the global financial system. Its root cause was a wide-spread underassessment of the quantity of risks and marked an undervaluation of the price of risks in the global financial system, especially in the most advanced economies. One of the reasons why this could happen was the widely held view that regulation should not stifle financial innovation and that markets knew best and could – for the most part – regulate themselves adequately. The turmoil has shown that this attitude was deeply misleading. When the turmoil set in, many financial institutions realised that their risk management systems were not as reliable and robust as they had believed them to be and, indeed, should have been.
Here on an LFS basis the rate of unemployment fell from the recent peak of over 10½% in November 1993 to below 6% in July this year for the first time since these data were collected; and, on the Claimant Count basis, unemployment, which touched 10% in the winter of 1992--93, had fallen to 3.8% in August, the lowest rate since June 1975. But I freely acknowledge that it doesn't necessarily feel like that today - certainly not to everyone. I am only too well aware that there are a lot of people in every part of the UK - both business people who've been under real pressure and employees who have lost their jobs - who will react to these statistics by saying "Well you could have fooled me!" That may well be true of some of you here this evening. The Bank receives detailed reports every month from each of our 12 agencies throughout the UK, including reports from Sue Camper based in Cardiff. Many of you will know Sue already - and I encourage those who don't to make yourselves known to her. The reports which she and her fellow agents make each month, based on their direct, first hand, knowledge of what's happening in their area, are fed directly into our Monetary Policy Committee process. They play a vital part in informing our understanding of the macro-economic statistics which in themselves can only capture the overall, aggregate, picture.

But the pressures we currently face go well beyond that. The effects of BSE and then of foot and mouth disease on agriculture, and the impact on the rural economy more generally, have been wholly abnormal. And the pressures on the wider economy have recently been hugely aggravated by the international economic environment - first, by the persistent strength of sterling against the euro; then, by the global economic slowdown - including the dramatic contraction of activity in the previously booming high-tech sectors, and most recently by the vicious terrorist attacks in the United States. With the best will in the world, there is nothing that we can do - certainly not through our domestic monetary policy - that goes to the causes of these problems. That's obviously true in the case of the problems in agriculture. Many people suppose that interest rates would have a predictable effect on exchange rates, but in fact it's not as simple as that. Many other factors influence exchange rates which can respond perversely to interest rate changes even for quite long periods of time. Despite the 4% cut in the US rates this year the dollar is still stronger against the euro - where rates have fallen by only 1% - than before the interest rate cuts started. And sterling, too, rose against the euro even though we cut interest rates earlier, and by more, than the ECB.
From 1995 onwards the average rate of inflation, measured with UND1X, has been fairly close to the 2 per cent target. This has been accompanied by higher GDP growth than before. A part of the higher growth is of course explained by there being plenty of unutilised resources after the crisis in the early 1990s. BIS Review 24/2002  5  Variations in inflation and GDP growth Thirteen industrialized countries  1995-00  6  6  5  5 St. dev. inflation  St. dev. inflation  1970-90  4 USA 3  Sweden  2 Germany  4 3 2  1  1  0  0 0  1  2  3  St. dev. GDP growth  4  Sweden  USA  Germany 0  1  2  3  4  St. dev.GDP growth Source: The Riksbank  It cannot be argued that inflation targeting countries would have done worse if they had followed the same strategy as Germany and Switzerland, or that those two countries would have done equally well if they had targeted inflation. It is also conceivable that similar results would have been achieved with other monetary strategies, such as the pragmatic procedure at the U.S. Federal Reserve or the fixed exchange rate regimes – amounting in practice to a delegation of monetary policy to the Deutsche Bundesbank – that were used at times in, for example, France, Italy and Denmark.

Debt markets are profoundly disrupted and international movements of capital have been highly volatile over the last two years. Fifth remark. The intervention capacities of central banks are of course limited. They can remedy temporary market disruptions and situations of illiquidity caused by uncertainty. Recently they have intervened to an unprecedented extent, as reflected in their balance sheets. But they cannot permanently substitute financial markets and banks when financial intermediation malfunctions. Likewise, low or zero interest rates can contribute to stabilising  BIS central bankers’ speeches  1  the economy in periods of crisis, but if maintained over a protracted period, they can create distortions, encourage the formation of bubbles and create risk for long-term investors. Indeed, on this topic, I would like to make one observation. The question of monetary financing of deficits was raised by David Thesmar. Such financing cannot in any way resolve the problem of the dislocation between savings and investment, either at the national level or at the global level. Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation... to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation.