samchain/econo-pairs-v1 huggingface dataset:
Today, I want to explore those deeper questions and what they mean for policy. But before raising the pessimists’ challenge, let me first keep with recent practice by setting out this year’s reasons for optimism. Grounds for optimism The news from the UK is positive. Inflation has fallen, from more than 5% in 2011 to 2.2% now, jobs are being created at a rate of 60,000 per month, and growth is – for the moment – the strongest in the advanced world.1 This recovery is relatively recent, having started in earnest during the second quarter of the year. Its timing and pace caught most unawares. Certainly, the cumulative run of economic surprises has dwarfed those of the other major advanced economies (Chart 2). With the wisdom of hindsight, there were three main drivers of the recovery: a marked reduction in extreme uncertainty (Chart 3); significant progress on repairing the core of the financial system, with risk-weighted capital ratios doubling in recent years; and a marked improvement in household balance sheets, where debt to income ratios have fallen by about 30 percentage points. Together, improved access to finance and raised expectations of future prospects led to a reduction in precautionary savings by households, a modest recovery in consumer spending, a revival in housing investment from very low levels and an increase in business confidence to a 15-year high.

The strength of the UK recovery and the fall in its unemployment rate suggest that the equilibrium real interest rate is now rising gradually back towards zero. The Ghost of Christmas Past should not be forgotten. A recovery may be gaining pace but our economies are a long way from normal. Leverage is still high and weak demand for advanced economy exports could persist for some time. The Ghost of Christmas Yet to Come suggests that it is unlikely that equilibrium interest rates will return to historically normal levels any time soon. This prospect puts a premium on macro-prudential policies and financial reforms to manage the associated risks without abandoning the need to keep interest rates in line with the equilibrium level. So while it is unsurprising that the ideas behind secular stagnation are being revived, it would be a mistake to rush to a more extreme macroeconomic response. There is a long history of pessimism in economics, from Thomas Malthus through Alvin Hansen to Robert Gordon. Such worries have proven misplaced in the past and scepticism is warranted now. Don’t forget that the US economy is more than 13 times larger than when Hansen first formulated his ideas. Similar performance must again be possible. Central banks are playing a catalytic role to help deliver it but their contribution will ultimately be limited. The most important drivers of long term prosperity will be measures taken by others to increase the growth of supply, particularly those that reinforce an open, global economy.
AIG’s failure to pay all of its contractual obligations in full would likely constitute a selective default resulting in a downgrade. That downgrade not only would have triggered potential terminations and collateral calls at AIG’s Financial Products unit (AIG FP), but also would have resulted in substantial value destruction at AIG’s insurance companies. Large annuity distributors likely would have stopped selling AIG products, replacing them with better-rated, more stable competitors. High-end life insurance sales would have decreased significantly,  BIS Review 73/2010  3  and remaining sales would have been vulnerable to adverse selection. Withdrawals and surrenders among existing customers would have increased, depleting cash reserves and creating pressure for asset sales at depressed levels. As a result of a downgrade, many of AIG’s insurance companies may have been unable to write new business, and state and foreign insurance regulators may have begun seizing AIG insurance company assets in their respective jurisdictions. Conditional lending would not have allowed AIG to remain a going concern, but rather would have pushed it into bankruptcy. II. Continuing pressures on AIG  By the end of September 2008, AIG had drawn $ billion from the Fed Facility. While successful in providing AIG with the liquidity it needed to avoid default and bankruptcy in the short term, over the longer term AIG’s borrowings from the Fed Facility were perceived by some to be potentially unsustainable.

In addition, an economic or financial crisis often would prompt a rethink of our approach to policy-making and of relevance, a re-evaluation of the statistics we use as the basis for our decisions. In this regard, the recent Global Financial Crisis is no different. Allow me to highlight two lessons from the recent financial crisis. First, the crisis highlighted that our understanding of the financial system was insufficient. Financial innovation had resulted in a significant increase in financial intermediation taking place outside the regulated banking sector – what is today known as shadow banking. Excessive risk-taking and leverage, by both regulated and shadow financial institutions, had significantly increased the vulnerabilities in the financial system. Focus on the stability of BIS central bankers’ speeches  1  individual institutions alone was not sufficient. Instead, attention is required on the stability of the financial system as a whole. These underscore the importance of improving data coverage to keep pace with the constantly evolving economic and financial landscape. Second, the unprecedented scale and scope of the crisis demonstrated that the interplay between exposures in the regulated financial system, the unregulated shadow banking system and the real economy can have interrelated implications. Financial imbalances – in the form of excessive leverage and asset price bubbles – had built up amid stable inflation prior to the crisis. Consequently, the long drawn out process of deleveraging and balance sheet repair by financial institutions, households and governments have suppressed aggregate demand amid less effective expansionary policies.
And the terrorist attacks on September 11 2001, and the wars in Afghanistan and Iraq, added to uncertainty. So the environment in which the MPC has had to operate has not been without excitement. But did the economy respond to that excitement in a self-regulating way? It is clear from the performance chart that the supply side of the UK economy has undergone substantial change – the average rate of growth of output per head has increased from 2.1% between 1950 and 1996 to 2.4% in the past decade. It could be argued that the structural reforms of recent decades have made the UK economy and, in particular, the labour market, more flexible. Greater flexibility has enabled unemployment (and its natural rate) to fall steadily. Structural reforms also led to more stable growth of employment and output. If businesses are to stabilise employment in the face of changes in costs, employees must accept fluctuations in the real value of their take-home pay. When import prices fell sharply, employees benefited from rapid growth in real take-home pay. More recently, however, businesses have faced higher energy costs and employees have accepted somewhat weaker growth of real take-home pay. The acceptance of necessary adjustment in real take-home pay has helped to stabilise employment growth which, over the past decade, has been four times less variable than over the previous five decades. That has shifted the “stability possibility frontier” faced by the MPC inwards, enabling the MPC to keep inflation more stable than in the past.

First, I want to look at the changes in the behaviour of the UK economy in recent years. How far is the improvement attributable to the MPC? Second, I want to review how the MPC has operated as a decision-making body. Has the process lived up to its billing as the most effective way of reaching technical judgements on the level of Bank Rate? Third, and most important of all, I want to consider the challenges to the MPC for the next ten years. What can we learn from the experience of the first decade that may help us to improve over the next? 1. Changes in the UK economy  In examining the first ten years of the MPC a natural starting point is to ask what has been its impact on the UK economy since 1997. The objective of the MPC is, of course, to meet its inflation target. Chart 1 shows that since the mid-1990s, inflation in the UK has been lower than for a generation. And  1  How a decision would be reached in such unlikely circumstances is explained in King (2002a). 2  Not-so-bad is an acronym for the “not of the same order but also desirable” decade. See King (2004). 3  I am indebted to Professor Peter Hennessy who, in his admirable book Never Had It So Good: Britain in the 1950s, drew attention to the context of Macmillan’s remarks which were made in a speech in Bedford on 20 July 1957.
In Singapore, the MAS conducts courses in banking supervision and capital markets which we have extended invitations to both our Asian and Middle Eastern counterparts to participate in. We must think of many other platforms and vehicles which could facilitate people-to-people interactions, including those involving think-tanks, universities, training institutes, and private sector financial bodies like the Association of Banks for example. There is also a financial stability dimension to these networks. As cross-border financial transactions increase, effective supervision will require countries to foster greater cooperation with their regulatory counterparts. The Monetary Authority of Singapore, for example, is in discussions to conclude MOUs with the UAE’s Emirates Securities and Commodities Authority and Qatar’s Financial Centre Regulatory Authority to provide for training and supervisory cooperation. I have highlighted earlier that investment agencies in our two regions are now managing sizeable foreign reserves. There is much scope for our investment agencies to touch base with each other, exchange knowledge of global markets, share the latest in reserve management techniques, and help each other navigate in one another’s regional hinterlands where appropriate. We could even co-invest in specific investment opportunities when they arise. Building educational bridges Finally, a few remarks on education, and how we can bring our young people together. We all know how much education matters, for all our societies. It is the bedrock for human development, and the means for whole societies to realise their potential. But there is further significance in education as we address the issue of strengthening ties between Asia and the Middle East.

And there is scope for greater deployment of our savings within our two regions, as investors in both regions look for improved returns. We are seeing the beginnings of a fruitful and meaningful relationship in financial sector cooperation. There is much scope for regional financial centres like Singapore and Kuala Lumpur to provide a gateway for fund flows between the Middle East and Asia. Singapore can by no means be a complete financial centre for the Middle East. That role will be played by financial centres in the Middle East. But we can and will complement and work in partnership with financial centres in the Middle East, and other Asian centres like KL. We can provide a gateway to take Middle Eastern investors into Southeast Asia and China, and to take investors from the region into the Middle East. What can we do to facilitate and spur on these financial ties and build sturdy bridges? Allow me to make three observations. First, the wealth management industry can play a pro-active role in helping investors to diversify their portfolios by introducing them to opportunities in Asia and the Middle East. In so doing, we will also help Asian and Middle Eastern capital markets grow and become deeper and more liquid. We are already seeing asset managers based in Singapore receiving investment mandates from investment agencies in the Middle East.
The Desk’s January Survey of Primary Dealers indicates that the median respondent expects the FOMC to purchase about $ trillion in securities over the course of 2013 and early 2014, roughly equally split between Treasuries and agency MBS. As a group interested in forecasting, you will appreciate that while individual survey respondents may provide a modal expectation for asset purchases – that is, the total amount that they think the FOMC is most likely to purchase – they also place probability on a variety of other outcomes. If a respondent is more uncertain about the economic outlook, the way the FOMC will respond to the outlook, or the Committee’s assessment of the efficacy and costs of purchases, he or she will place much higher odds on a wider range of outcomes for the size of the Federal Reserve’s portfolio. The Survey of Primary Dealers asks respondents about their individual forecast distribution about the size of the Federal Reserve’s portfolio in the future.5 These individual probability distributions can then be aggregated by simple averaging to form an estimate of the probability attached to different sizes of the Federal Reserve’s portfolio. The evolution of this probability distribution can be seen in Figure 1. As can be seen, the probability attached to a very small amount of purchases or a very large amount of purchases has come down over the last few months.

Simon M Potter: The implementation of current asset purchases Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the Forecasters Club of New York, New York City, 27 March 2013. *  *  *  I would like to thank Katherine Femia and Linsey Molloy for help in preparing these remarks along with members of the Markets Group Staff for their comments and suggestions, including James Egelhof, Joshua Frost, Lorie Logan, Julie Remache, Roman Shimonov, and Nathaniel Wuerffel. These remarks are an expanded version of those given to the Annual Primary Dealers meeting on March 1. Thank you very much. It’s a pleasure to be here today to talk with you all about the Federal Reserve’s ongoing policy actions and the role of the Trading Desk (the Desk) at the Federal Reserve Bank of New York in implementing those policies on behalf of the Federal Open Market Committee (FOMC). As always, the views expressed here are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Outcome-based purchases At the September 2012 FOMC meeting, the Committee decided to increase policy accommodation by purchasing an additional $ billion per month of agency mortgagebacked securities (MBS) and to continue the Maturity Extension Program (MEP). Then at its December meeting, the Committee decided to continue buying $ billion per month in longer-term Treasury securities following the completion of the MEP.
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Growth in real wages has been negative for all bar three of the past 74 months. The cumulative fall in real wages since their pre-recession peak is around 10%. As best we can tell, the length and depth of this fall is unprecedented since at least the mid-1800s (Table 1). •  Productivity – GDP per hour worked – was broadly unchanged in the year to 2014 Q2, leaving it around 15% below its pre-crisis trend level. The level of productivity is no higher than it was six years ago. This is the so-called “productivity puzzle”. 1  House prices are measured using the average of the Halifax and Nationwide indices. 2  Okun’s original misery index, which was also referred to as the “discomfort factor”, comprised unemployment and inflation. 3  Adding real wealth and/or real borrowing costs to the index does not alter the underlying trends. 4  The value for 2014 is an estimate based on projections consistent with the August 2014 Inflation Report. 2  BIS central bankers’ speeches  Productivity has not flat-lined for that long in any period since the 1880s, other than following demobilisation after the World Wars. •  Annual real interest rates – for example, rates earned by households on time deposits adjusted for consumer price inflation – are around zero. They have been near-zero for close to four years. Real deposit rates have not been that low since the 1970s, when inflation was in double digits.
On the one hand, productivity growth has serially disappointed and could continue to do so in future. In that case excess demand could build more quickly and inflation could stay above target. That said, I am optimistic about the potential for Fintech and other new technologies to lead to productivity gains, either directly or by driving competition, and in turn to potentially higher, and non-inflationary, wage growth. 15  One thing to emphasise about our central forecast is that it is conditional on the market yield curve. At the time of the May Inflation Report that yield curve was pricing in roughly three rate rises over the three years covered by our forecast. And those three rate rises were one of the forces preventing excess demand rising faster in the forecast and inflation from remaining persistently above target. To demonstrate what would happen without those rate rises, we also publish a version of the forecast in the Inflation Report showing what would happen if Bank Rate remained unchanged (Chart 13). In that version of the forecast inflation does not fall back to target. Instead excess demand and domestic cost pressures build much more rapidly. And so inflation stays persistently at around 2.4%, little changed from where it is now and materially above our inflation target. 15  I set out my views on the opportunities presented by Fintech in a speech in March – see: Ramsden, D (2018), “The Bank of England – Open to Fintech”, speech at HMT’s International Finance Conference, London, 22 March 2018.

The idea that there was more slack than headline measures of unemployment were suggesting was one that I put particular weight on when I started on the MPC last autumn – in other words that there was more room for the economy to grow without generating inflation above target in the medium term. That was one reason why I voted (in the minority) for no change at the November policy meeting. 14  During the MPC’s annual  supply stocktake in February we made a judgement to revise our estimate of the economy’s equilibrium unemployment rate from 4½% to 4¼%: in other words, a judgement that there was indeed some more slack in the labour market. That left me more comfortable with the balance of risks around the MPC’s central assumptions than I had been previously. At the same time, by the February Inflation Report, annual wage growth in the data had picked up materially relative to what we had been expecting at the November meeting. In November the most recent observation for whole economy regular pay had been of just 2.1% growth (in August). And we were forecasting it to only pick up very slightly over the next six months. But by the February Report it had picked up to 2.4% growth (in November) and we were forecasting a further pick-up to 2.8% over the next few months.
Subsequently, we started an unprecedented – in terms of size and speed – process of interest rate cuts that was one of the largest in the world, bringing the MPR to developedeconomy levels. Between January and July of 2009, we cur 775 basis points off the MPR and also established a mechanism – the term-liquidity-facility, FLAP – to grant funds to the financial system at the same rate as the MPR for a six-month period (figure 7). 2  BIS central bankers’ speeches  Time and again I wonder what else we could have done to cushion the international recession. In hindsight, it is difficult to think that macroeconomic policies could have averted the collapse in demand, considering its size and speed, and particularly because it was triggered by a severe deterioration in economic expectations. The normal lags of monetary and fiscal policies do not allow containing such a major drop in economic activity while it is happening. Nonetheless, expansionary measures were key to attenuate the fall and also boost the expansion that began in the second quarter of 2009 and continues to this day. The recession was severe, but short. The monetary stimulus was vital in getting out of the recession so quickly. Our economy was recovering strongly until it was smashed by an earthquake and tsunami in February 2010, with devastating consequences.

Effective financial infrastructure is as important to Hong Kong as is the extensive and far more visible physical infrastructure that we see around us. And Hong Kong is fortunate to be equipped with a financial infrastructure that is as advanced, reliable and efficient as the road, rail and airport facilities that keep our city moving. Since 1994 the HKMA has implemented a number of major reforms to Hong Kong’s payment and settlement systems. The largest of these reforms was the launch, in December 1996, of Hong Kong’s Real Time Gross Settlement (RTGS) system for interbank payments in Hong Kong dollars. This state-of-the-art system is widely acknowledged to be one of the most advanced and robust of its kind. It has served Hong Kong remarkably well, and made an important contribution to maintaining financial stability during the Asian financial crisis, which erupted not long after its introduction. Our experience with the RTGS system, and in particular the technology produced for it, plays an essential role in the development of the next great milestone, the US dollar clearing system. The US dollar is the currency in which most world trade in merchandise and financial products is denominated. Because of Hong Kong’s role as an international financial centre, and the fact that our own currency is linked to the US dollar, there is extensive holding of US dollars and a considerable trade in US dollar-denominated assets.