samchain/econo-pairs-v1 huggingface dataset:
In practice, these fan charts are constructed on the basis of the experience of past forecast errors and the MPC’s judgement of the present degree of uncertainty. Given that the period of the MPC has been characterised by a time of unusual stability followed by one of unusual volatility, the more subjective element of this approach has proved to be fully justified. However, an alternative guide to the MPC’s internal deliberations on this issue might also be provided by a more explicit consideration of a range of approaches to measurement of the output gap and its impact on inflation. The policy horizon In considering the policy decision month by month, the MPC has tended to put weight on the projection for CPI inflation around two years ahead. This has not meant simply changing policy in response to whatever the central forecast is at that horizon; policy decisions will also take into account the pattern of deviations from the target over the whole three-year forecast period, and, importantly, the balance of risks around the central projection. There are clear and familiar benefits to having a forward-looking policy regime. A Taylor rule regime based on current data would have the considerable disadvantage that it would be more likely to result in volatility of output growth, and also that policy might tend to react too strongly to unreliable current data. But it is less clear precisely how far ahead the policy horizon should be.

The new concept has so far proven to be very effective in a turbulent environment, enabling the SNB to react to major shocks independently and flexibly. Moreover, it has strengthened confidence in the successful preservation of monetary stability. Compared with the SNB’s last quarterly assessment in March, many indicators now suggest strongerthan-expected growth. However, high commodity prices, rising capital market interest rates and turbulences in the equity and foreign exchange markets may also present new risks. On the whole, we still consider our strategy of gradual normalisation to be appropriate. Should the environment change, however, the SNB will not hesitate to review its monetary stance and adjust it, if necessary. The current cyclical boom should not obscure the fact that the Swiss domestic market still needs further structural reforms to ensure sustained economic growth, thus safeguarding our prosperity and preparing the economy for the demographic challenges ahead. BIS Review 56/2006  1
Activity has picked up in Central European countries, and the Swedish labour market has become tighter. Therefore, it is uncertain how large the supply of labour from these countries will be in the period ahead. Household debt has risen sharply since the mid-1990s. At the same time, house prices have increased markedly. To some extent, developments in the 1990s can probably be viewed as a delayed adaptation to the deregulation of the housing and credit markets in the 1980s, after many households burned their fingers in the wake of deregulation. In recent years, household income growth has been solid and household confidence in the future is very high. Coupled with expectations of low real interest rate over time, this may have provided an additional boost to house prices. Long periods of sharply rising asset prices and debt may be a potential source of subsequent instability in output and employment. The sharp rise in house prices and debt in other countries are probably also ascribable to low real interest rates over time. Household debt is high in Norway, but is even higher in Denmark and the Netherlands. This probably reflects a long history of well developed mortgage financing in these countries. Inflation stabilised early in the 1990s after falling from a high level in the previous decade. Through the 1990s, inflation generally remained in the interval 1½ – 3½ per cent. Inflation has varied slightly more in the past few years.

BIS central bankers’ speeches  1  •  Doing so, without recourse to public funds. What this implies for the size of MREL and TLAC is the same. Resources should be sufficient to support the continuation of critical economic functions at the point of resolution. Based on an assumption that going concern capital is eroded on the way in to resolution, this implies that there is sufficient loss absorbency to convert to equity capital to stabilise the firm. Stabilisation for this purpose means having resources available to allow the firm to be reauthorised by all relevant home and host supervisors and to maintain market access. All of these factors are set out in the EBA’s technical standard. The same considerations are described in the principles that cover the FSB Term Sheet. It is worth pausing to unpack what this is likely to mean for different sorts of firm and different group structures. Certainly for G-SIBs, the assumption lying behind the calibration of TLAC is that given the size and complexity of their operations and their activities cross-border it is hard to conceive of a significant restructuring at the point of resolution. Rather the accent is on stabilising the firm via bail-in 2 to restore solvency to buy time for an orderly restructuring and/or a solvent wind-down afterwards. This should be good for the system and, by preserving value, for creditors of the firm. By contrast, a very small bank may need no MREL beyond its current capital requirements.
If a policy is not very effective on its primary objective, one of the consequences could be unnecessarily large policy changes. •  The authorities need to be able to co-ordinate or communicate in some way about what they are doing and why. Otherwise one can show that there is a risk in some circumstances of a dynamic being created which is destabilising (eg where one authority tries to offset the effects of another in turn). •  And perhaps most importantly, the targets need to be achievable & coherent as a set. Let me explore this last point briefly by taking an extreme case. If the MPC were to be set a target of absolute zero unemployment, that would be physically impossible and however hard they tried, it would not be achieved. If they did try hard nevertheless, it would probably lead to an over-expansion of the economy that threatened both financial stability and prudential safety and soundness. In a less extreme case one could imagine an MPC target for money supply growth which, given time-varying shocks to the velocity of money, might not be consistent with the other objectives. Applying these conditions to the UK authorities So the first question I want to ask is whether the MPC, FPC and PRA Board have been set an achievable and coherent set of targets? Is it possible to achieve CPI inflation at 2%, financial stability, and safety and soundness of firms simultaneously 7?

3/3  BIS - Central bankers' speeches
This is largely due to improved growth prospects in the emerging markets and to the fact that while in the advanced economies interest rates are and will continue to be low, in emerging countries monetary policy rates have been going up, to very high levels in some of them (figure 10). In Chile, the current account balance for this year (i.e., our expenditures in excess of our income) will be not too different from zero, which means that there will not be a significant net capital inflow to finance excess spending (figure 11). It is thus important to note that I have not mentioned among the causes of the peso appreciation net capital inflows, which in some countries may be having some significant impact. In the 1990s we did receive substantial net capital inflows, but today they are not the main point. Certainly this calls for continual followup because the funds will always flow to the economies with the better prospects for growth, including Chile. As I said, sometimes these flows can trigger lasting misalignments in the real exchange rate with respect to its trend fundamentals. IV. Final remarks  We are well aware of the challenges facing exporters under the present circumstances. In particular, we understand the difficulties exporters in the agricultural sector are enduring, whose primary destinations – Europe and the US – have not fully recovered yet from the financial crisis, and with which our currency has appreciated more. This situation is particularly complex in some regions.

–  Export quantities continued to improve with the year-on-year growth rate in a high positive. This represents both the pick-up in our trading partners' purchasing power and our staying ability to compete. Another factor that continued to firm up the recovery process came from the fiscal front. –  During the first four months of fiscal year 2002, the budget disbursement rate accelerated compared to same period last year. This front-loaded fiscal stance will surely contribute to a sooner recovery. I must note here, however, that the jury is still out on what these early signs may portend. I believe the impassioned judgment on the speed of the recovery must await more data. Ladies and gentlemen, It is rather unfortunate that while economists are busy debating whether these early signs point to a tangible recovery, the recent strong boom in the stock market seemed to have overwhelmed that debate. On this point, let me say that we need to distinguish between the recent asset price performance and the economic fundamentals. It is true that the performance of the listed SET firms has improved. The improvement was led in part by better-than-expected profitability of listed companies. Corporate profits in general were also on the rise in 2001, compared to 2000. With this improvement, we are now more able to segregate the winners that is, the strong performers -- from those lagging behind. This presents a stark contrast to the previous pictures in which almost all sectors were judged to have performed poorly.
Resolution plans may envisage measures such as the sale of the business or the creation, through the segregation of certain assets and liabilities, of so-called bridge banks, which perform, after resolution, the bank’s critical functions with a significantly smaller balance sheet. Some of these resolution measures other than a bail-in might be potentially appropriate in the case of commercial banks pursuing a traditional business model. The bank resulting from a resolution process where these strategies are implemented will generally have lower capital requirements than the original institution and, therefore, a lower MREL might be required of it. I thus believe there is substantial leeway for adjusting MREL requirements on the basis of more accurate assessments of capital needs during the resolution process and, in particular, of the strategies foreseen in each bank’s resolution plans. 4 Transition  In light of the foregoing, even if the minimum volume of the loss-absorbing instruments that banks should have is revised downwards, the new MREL demands may undeniably only be assumed by a large number of banks if they have a sufficiently lengthy transition period to comply with the requirements. This transition period will, moreover, be necessary so that the market should not have to absorb a large number of issues over a limited period of time. Indeed, the European Commission’s recent proposal includes the possibility of setting for each bank a time margin for compliance with the MREL requirement, although this margin would be decided on a case-by-case basis by the resolution authority, i.e.

Further, measures have been set in place to mitigate the effects of banking crises, when they occur, on the public coffers and the economy in general. As regards solvency requirements, the reform agenda has practically concluded, while awaiting the Basel Committee’s final agreement on the so-called Basel III accord. Today I shall focus on the second objective of the international reform agenda, i.e. on the package of measures aimed at smoothing the management of bank crises while preserving financial stability and minimising the use of public funds. At the base of the regulatory reform in this area is the work of the Financial Stability Board (FSB) conducted at the behest of the G-20 following the Lehman Brothers debacle. In 2011 the FSB published the Key Attributes of Effective Resolution Regimes for Financial Institutions, which lay down the principles for ensuring an orderly resolution of banking institutions. Indeed, the Key Attributes specify the powers and tools the administrative authorities should have to see through the orderly resolution of non-viable banks, ensuring the maintenance of their core functions and their restructuring at the least possible cost to the taxpayer. The Key Attributes further envisage the availability of recovery and resolution plans for each institution that set out a roadmap ahead of a potential crisis situation. Lastly, they establish the principle whereby bank shareholders and creditors are those who should bear the bulk of the costs of the crisis.
8  In this regard, over the years more and more countries are easing the requirements to work with the micro and administrative data produced by the public sector. I believe 13  that Spain should not lag behind in this endeavour. In keeping with this assessment, Banco de España provides researchers with the micro data of some of the surveys it conducts, such as the Survey of Household Finances and the Survey of Financial Competences. But more needs to be done. In this regard, we are committed to extending the availability of micro data to other products, such as the balance sheet data of non-financial corporations and some banking data. In this respect, Banco de España has recently joined INEXDA, a network of central banks whose aim is to exchange experiences in the management of granular data in order to facilitate their use by external researchers. Also, we must strive to have other public institutions join us in this initiative. Although the Spanish public sector currently provides samples of administrative data regarding, among others, tax returns and social security records, there is ample room for improvement in this area.

I agree with Raymond Goldschmidt,1 who said: “It is hard to define, but recognisable when encountered”. But any definition would surely refer to the crucial roles of confidence, resilience and reliable liquidity. These are the indicators if you like of what is a state of financial stability. In times of instability or crisis, that confidence - and with it liquidity - can evaporate. Bank runs are phenomena that result from loss of confidence: resulting from or causing withdrawal of liquidity. The fear of collapse of other non-bank financial institutions could also give rise to a drain on liquidity. The huge cost of preparing for Y2K was about preventing the dangers of loss of liquidity. And the horrific events of 9/11 required a temporary massive injection of liquidity. The starting point for this confidence is the players in the market place. It relies on integrity in individual firms and markets, effective standards and high quality prudential controls and risk management practices. But to underpin integrity and confidence in the financial system as a whole also requires financial stability oversight. In the first instance this relies on effective supervision. This is a key aspect of the prevention of financial instability. Financial stability oversight must also look at the system as a whole. So it is involved with the oversight of concentrations and of risk correlations, interrelationships and interdependencies. There is a premium on understanding channels of risk transfer and likely behaviour in response to shocks. This is what enables an appropriate policy response.
But sharing across all generations, including the unborn, requires collective or public insurance through variations in the national debt.22 Consider an annuity provider who faces the risk that an increase in the average longevity of its pool of annuitants will lead to a shortfall in its funds. The annuity provider would clearly like to hedge this risk in some way. One way of doing that would be for it to have assets on its balance sheet that pay out more if the average longevity of its annuitants increases. Financial markets are currently developing ‘longevity bonds’ along these lines.23 The interest rate on longevity bonds is linked to some measure of unexpected changes in average life expectancy. In the case of the recently announced European Investment Bank-BNP Paribas bond, the payout each year for the next 25 years will be a fixed sum multiplied by the proportion of people in England and Wales who were 65 in 2003 that are still living in that particular year. So if five years from now 90% of the cohort are still alive, the payment in that year will be 90% of the fixed sum. The cash flows to a buyer of this bond will decline over time, but decline less rapidly if people live longer. The demand for such a hedge against longevity risk we might expect to come from pension funds and other providers of annuities.

The relevant models change from one forecast to another. 4  BIS Review 73/2004  behaviour of the economy. The results of that discussion are published once a month, and the Committee, as it did yesterday, appears regularly in front of Parliamentary committees. So I turn now to the question of how information and judgments of risks can be communicated to the general public. 4. Communicating about risks with the public  Although it is often impossible to be precise about the risks surrounding a decision, it is vital that policymakers resist the temptation to communicate a false sense of certainty. Two key principles should govern the communication of risks to the public. First, information must be provided objectively and placed in context so that risks can be assessed and understood. Second, experts and policymakers must be open about the extent of our knowledge and our ignorance. Transparency about what we know and what we don’t know, far from undermining their credibility, helps to build trust and confidence in policy-makers. (a)  (Mis)understanding probabilities  The first principle states that information about probabilities should be placed in context. A simple example illustrates the difficulty we all have in interpreting probabilities when the context is unclear. The stock market is volatile and difficult, if not impossible, to predict over short periods. At the beginning of the week the chance of the market rising over the following week is roughly the same as the chance of its falling.
In response to certain kinds of developments – in the jargon, so-called “supply shocks” that move output and inflation in opposite directions – inflation can be returned to target relatively slowly in order to minimise harmful fluctuations in output. But this is subject to the “constraint” that inflation ultimately has to be returned to the target and has to be done so in such a way that maintains the target’s credibility. Inflation targeting is not a sham: the discipline of the inflation target is paramount. But it can be operated in a manner that also supports output and employment as long as – and only as long as – our credibility is maintained. Without credibility there can be no discretion. This concern with the consequences for growth and employment within an inflation targeting regime is sometimes referred to as “output smoothing”. Monetary policy does not have the ability to affect the level of output in the long-run, but it can help to smooth out cyclical variations. More recently, it has underpinned references to “flexible inflation targeting”: the MPC has the flexibility to vary the speed with which inflation is returned to target depending on the circumstances.

Most colourfully was the observation, again made by Mervyn King, that an inflation target does not compel policymakers to behave like “inflation nutters”: there is scope to care about stabilising output and employment as well as controlling inflation.3 That monetary policymakers should be concerned with the implications of their actions for the real economy – for the growth of output and for the strength of employment – must surely seem right to all of us. The late Eddie George – who, together with Mervyn King, perhaps did more than anyone to cement the importance at the Bank of England of low and stable inflation – stressed repeatedly that low inflation “is not an end in itself .... [it is] a necessary means to the end of sustainable growth of output and higher living standards”.4 It’s important that we don’t lose sight of this overriding aim. Eddie was equally clear that, in the long run, the best contribution that monetary policy could make to achieving a prosperous and vibrant economy was to deliver enduring price stability. He had seen at first hand the pernicious costs of the high and variable inflation of the 70s and 80s: companies and households unable to budget and plan efficiently; resources misallocated; long-term contracts avoided for fear that large swings in inflation would end up biting one party or the other. The value of hard-earned savings eroded.
11  Chart 5: Risk weight variability in the trading book(a)(b)(c)(d) 1,000  Max-min range  Chart 6: Risk weight variability in the IRC model(a)  66.2  Median  1,000  5.3  3.9  Max-min  1100 12  30 78  100 88  2.3  Median  21  129  183 127  100  100  10  1  10 VaR  sVaR  IRC  8 12 13 18 19 20 21 22 23 24  All-in  Source: BCBS (a) From the BCBS hypothetical portfolio exercise for the trading book. (b) Sample consists of 15 banks. (c) Values have been normalised by the median. For each model, the ranges represent the simple average of the normalised minima and maxima for all portfolios the model was applied to. For the all-in portfolio, the supervisory multiplier was held constant. (d) Numbers on bars indicate maximum - minimum ratios. Source: BCBS (a) From the BCBS hypothetical portfolio exercise for the trading book. (b) Sample consists of 15 banks. (c) Values have been normalised by the median. (d) Numbers on bars indicate maximum-minimum ratios.

8  BIS Review 132/2007