samchain/econo-pairs-v1 huggingface dataset:
2  BIS central bankers’ speeches  And they are long lived – probably on average around 15 years from one peak to the next.4 In contrast, business cycles are typically relatively short-lived affairs: for instance, the average duration of business cycles in the UK and US economy in the post-war period has been estimated at 5 ½ years.5 However, though financial cycles build up much more slowly than business cycles, the amplitude – the swings between the peaks and troughs – is greater. In the UK the peak-totrough variation in credit has been around 40 percentage points on average for financial cycles, whereas the average peak to trough change in GDP in the business cycle has been around 10 percentage points. Financial cycles do not always mirror or drive business cycles. To a headline writer, the fact that credit grew twice as fast as GDP for 10 years before 2007 and that household debt rose from levels of around 100% of household income in 1997 to 155% shouts “unsustainable, debt financed growth”. But over those 10 years, the economy was not obviously growing at abovenormal rates and inflation remained subdued, albeit aided perhaps by the favourable terms of trade shock that followed China’s admission to the World Trade Organisation in 2001.6 While the increase in debt may have had some impact on growth, the UK certainly did not appear to enjoy a credit financed boom.

The debt-to-GDP ratio in 2020 is expected to grow by more than 20 pp under scenario 1 and by some 25 pp under scenario 2, up to 116.8% and 120.6% of GDP, respectively. High public debt also means future vulnerability. In the short term this risk has been mitigated: first by the measures taken by the ECB, which have prevented fragmentation of the euro area sovereign debt markets; and second by the European response, with the launch of mechanisms to jointly address the costs of the pandemic. However, if such a high level of public debt were to remain in place over time, the Spanish economy would be exposed to a situation of chronic vulnerability to changes in investor sentiment in the financial markets. For its part, the negative net international investment position of the Spanish economy and the foreign debt position have risen, in terms of GDP, as a consequence of valuation effects and of the fall in output. Specifically, in 2020 Q2, the negative net international investment position stood at 77.4% of GDP, 6.5 pp more than in Q1, influenced by the sharp contraction in output. The nation’s gross external debt rose by € billion in 2020 Q2, owing solely to valuation effects, to 188.1% of GDP, a record high. The high net liability position of the Spanish economy continues to be another factor of vulnerability, especially in the present setting of high uncertainty over future economic developments.
With regard to trades, Hong Kong continues to serve as the major channel for the rest of the world to access Mainland China. Notwithstanding the decrease in the proportion of China’s exports of goods going through Hong Kong, our role as the intermediate hub for trading has never been diminished. Nowadays, the offshore trade conducted through Hong Kong and the re-export trade of Hong Kong still accounts for 30% of China’s total trade volume. And what kind of role has Hong Kong been playing in the reform and modernisation of the banking system in China? Can you recall the difficult times in the 1990s? In 1994, China implemented the significant reform of the exchange rate system and introduced the unification of the official and swap exchange rates. At the same time, transformation of stateowned banks into commercial banks started. Due to various reasons related to the history and the system of Mainland banks, the bad debt ratio of the banking system was very high. The International Monetary Fund once estimated that the total bad debt in China’s banking  BIS Review 166/2010  1  system reached RMB2.3 trillion, accounting for 23% of the total loans of the banking system and 19% of the GDP. At that time, many people were not optimistic about the prospect of China because they thought the reform of the banking system would unlikely be able to succeed. If the reform failed, not only would economic growth slow down, the entire system of reform and opening up may also collapse.

Some said that the development in the last three decades was a miracle and was almost incredible. Instead, I would describe it as a “world-shaking” development. Having encountered enormous difficulties and challenges at every single stage of reform and opening up, China, as the country with largest population in the world, managed to carry out an unprecedented transformation from a planned economy to a market economy. As there was no precedent to learn from, China could only rely on its own efforts and took one step at a time. Hong Kong has played an extremely important and irreplaceable role during the process of China’s reform and opening up. At the initial stage of opening up, China focused on attracting foreign investors to set up manufacturing factories. Hong Kong manufacturers were the first to move their operations to Mainland China. In the past 30 years, Hong Kong has always been the largest source of direct investment in the Mainland. In 2009, Hong Kong invested $ billion in China, accounting for one half of the total foreign investment in the country. In the course of investing in China, not only has Hong Kong injected capital but, more importantly, it has introduced skills in production and management. In the past decade, the Mainland projects in which Hong Kong invested have gone through some significant changes. The focus has been shifted from investment in the manufacturing industry to a range of diversified and multi-dimensional investments that include investment in all kinds of service industries.
9  As described, there is more to do in some of these areas. But increasingly the emphasis is on implementation and, with it, assurance – how we supervise firms against these regulatory requirements and hold them to account that identified barriers to resolvability are removed and stay removed. In describing the progress towards end-state resolvability, I want to pick out three areas that will be a focus in the period ahead. (a) Internal MREL The first is internal MREL. One lesson that the crisis brought home is that the distribution of resources within groups matters. While in life, firms might want to run themselves by business lines on a consolidated basis, failure and resolution occurs at legal entity level. It is understandable then that since the crisis that there has been a discernible tendency for host authorities to hold onto more resources, capital and liquidity, or to force activity in branches into subsidiaries. The aim at FSB level with TLAC was to lean against this tendency towards fragmentation of international groups by providing comfort to authorities cross-border, not only that groups would have sufficient external TLAC to be resolvable but also that resources would be prepositioned as internal TLAC in material subsidiaries in host jurisdictions. Previous international regulation of financial resources in groups has, like the Basel Accord, typically focussed more on the consolidated level. Now applying TLAC regulation at legal entity level has brought with it challenges.

One is timing: it is hard to roll out internal TLAC for a group until TLAC requirements are in place in all the jurisdictions relevant for the material subsidiaries. The Bank is in the middle of consulting on its internal 10  MREL policy but many other jurisdictions – notably the Banking Union, Switzerland and Japan – have still not set policy. Another challenge is arithmetic: to the extent that there are financial dependencies between legal entities within a group the sum of solo RWAs is likely to be greater than consolidated RWAs. If a full TLAC requirement were applied to each subsidiary then the sum of the internal TLAC would exceed the consolidated TLAC requirement for the group as a whole. 9  The Bank of England published loss-absorbing capacity requirements for major UK banks in 2016 shortly after responding to the Treasury Committee’s inquiry into capital. See http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/capital-andresolution/written/69208.pdf. 10 The Bank of England published a consultation paper on its approach to setting a minimum requirement for own funds and eligible liabilities (MREL) within groups on 2 October 2017. See https://www.bankofengland.co.uk/-/media/boe/files/financialstability/resolution/internal-mrel-consultation-october-2017.pdf?la=en&hash=33594C3FB3C7F1D129033AFE4E3A2BF20A4F9AA8 . 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  This was addressed in the TLAC term sheet in two ways: -  by limiting internal TLAC only to subgroups and subsidiaries that are material to the group, accounting for more than 5% of RWAs or income.
In particular, since 2011, the large international banks have almost doubled their highest quality capital, from $ trillion to $ trillion in 2017. Moreover, since the start of the crisis, they have halved their leverage and improved their liquidity profiles, mainly thanks to an increase in high-quality liquid assets. Progress has also been made in other areas, such as simplifying and boosting transparency in the OTC derivative markets, including through the use of central clearinghouses, and measures have been taken to reduce some of the risks arising from non-bank financial intermediation. Nonetheless, we cannot ignore the persistence of certain risks and vulnerabilities. First, although large banks are now less leveraged, overall debt levels remain very high. Global public-sector and non-financial private-sector debt has increased by some 40 percentage points (pp) since the financial crisis to reach 250% of global gross domestic product (GDP); public-sector debt has increased significantly in the advanced economies and privatesector debt in the emerging economies, especially in China. Second, there has been an increase in the weight of non-bank financing. The weight of other financial intermediaries (OFIs)1 in the global financial system has been growing in recent years, and reached 30% in December 2016, according to the latest data available. This trend is confirmed by the growth in non-bank financial intermediation, which generates similar risks to banking; its weight in the global financial industry increased from 11.6% in 2010 to 13.4% in 2016.

Specifically, it is particularly worrying that almost half of the unemployed have been in this situation for over a year and that the unemployment rate among low-skilled population groups stands at over 25%. The serious mismatch between the skills of employees and the unemployed that tends to arise in such cases suggests there is a need for active employment policies to foster the employability of all socio-demographic groups using the tools that have proven to be effective for each of them. A rigorous evaluation of all the existing programmes is therefore necessary. In addition to considerations of economic efficiency, as highlighted by a recent analysis by the Banco de España, a lower unemployment rate is directly reflected in an improvement in levels of inequality. This positive effect of employment on income inequality would be 12/14  strengthened by reducing the high level of temporary employment in the labour market, provided this decrease did not come at the price of reducing the incentives for permanent hiring. As regards productivity, Spain’s levels are low by international standards. Improving the dynamics of this variable requires measures in various areas. In particular, it calls for improvements in human and technological capital. In this regard, it is necessary to bolster the legal framework for education to raise quality and address the challenges posed by globalisation, technological progress and automation. This reform also needs to foster innovation in universities and channel it toward the productive system.
For the time being, there is no point speculating on when interest rates will be cut. On the contrary, as you know from the voting we published, some Bank Board members are still thinking about raising rates further – our monetary policy meeting is next Wednesday. A strong koruna played an important role in the turnaround in inflation. We adjusted the monetary policy strategy in July 2022. We stabilised interest rates and verbally supported a strong koruna. In a speech at Masaryk University in November 2022, I presented the conditions under which our koruna would be strong again (Michl, 2022). Although we did not raise the CNB's repo rate further to more than 7%, we managed to have a record-strong currency. The average monthly exchange rate of the koruna to the euro was the strongest ever in April 2023, reaching CZK 23.44 to the euro (for comparison, it was CZK 23.55 to the euro in July 2008). I will always be proud if we have a strong koruna during my mandate. In 2023 Q1, the strongest-ever koruna together with the highest interest rates since 1999 created the tightest monetary conditions in more than twenty years (a more detailed analysis is available in our blog post published on the CNB website, see Adam and Michl, 2023). The strong exchange rate made imports cheaper and tightened monetary conditions also for exporters. The large ones in particular had not been influenced by our monetary policy too much until then, since they were taking out loans in euros.

However, that is a political decision and it is not within my competence. In any case, we need our tightest monetary policy in twenty years to be accompanied by a credible budget consolidation plan, which the public will trust to support our efforts to reduce inflation. Inflation is our responsibility. However, we are in this together with the government. We need support from fiscal policy and from you. Reducing inflation is in the country's interest. We have already tamed several money flows in the economy. Above all, reducing the country's debt is now needed for a long-lasting return of inflation to low levels. However, banks should also raise interest paid on all household deposits and motivate people to save even more. And this is what we should fight for together. For less debt and more savings. In the interest of the republic. References Adam, T. and Michl, A. (2022). Inflace v R:cyklický i acyklický píbh? [Inflation in the Czech Republic: A cyclical or acyclical story?] (cnBlog – official blog of the Czech National Bank). Adam, T. and Michl, A. (2023). Inflace klesá – prbžné vyhodnocení dezinflaního procesu v esku [Inflation is falling – an interim assessment of the disinflation process in the Czech Republic] (cnBlog – official blog of the Czech National Bank). Bianchi, F. and Melosi, L. (2022). Inflation as a Fiscal Limit (external link). (FRB of Chicago Working Paper No. 2022-37). 5/6  BIS - Central bankers' speeches  Cochrane, J. H. (2023). The Fiscal Theory of the Price Level. Princeton University Press.
Ladies and Gentlemen, Let me now turn to the last success factor: inclusiveness, which is probably the weakest achievement among the three success factors so far. However, inclusiveness is something that has increasingly gained attention from Thai policymakers in recent years, as it was part  4  IMD, 2010. BIS central bankers’ speeches  3  of the root cause of political unrest. I believe that inclusiveness will be one of the long-term solutions for Thailand political stability. Yet, I should stress that inclusiveness has a different concept from equality. It focuses on creating equal opportunity rather than equalizing income. Income equality ultimately means that the reward system is independent of performance which erodes efficiency. Inclusiveness, on the other hand, refers to having equal opportunity which still preserves efficiency through reward incentive system while allowing the rich and the poor to have the same economic opportunity. As such, inclusiveness refers to equal access to public infrastructure such as education, fair competition and equal treatments of law and regulation to all. In this way, inclusiveness will provide equal exposure to yield the benefits from economic prosperity. Improving inclusiveness in Thailand will be a long process but some initiatives have already been put in place. These include decentralization of public spending, better access to education, informal sector debt alleviation, and better credit access for low income group.

As for the customs system, Thailand has continued to improve the customs system over the past five year as attested by the improvement in indicators of trade across borders, which is a category in Ease of Doing Business assessment, done by the International Finance Corporation (IFC). Export-related requirements in terms of number of documents or period of procedure have been reduced or shortened over time. These improvements and further works will certainly help promote efficiency in international trades. With regards to the issue of human resources, I see that the reliance on migrant labour to fill the current labour shortage is not a long-term viable solution for Thailand. In fact, the economy, with joint efforts of private and public sectors, needs to raise labour productivity by upgrading production technology that uses higher skilled labour. Finally, let me close by stressing that the three success factors: growth, sustainability and inclusiveness are necessary and complementary to achieving long-term economic progress for Thailand. For the central bank’s part, many of the issues discussed this evening are beyond the functional scope of the Bank of Thailand. Our main role is to ensure sustainable growth by maintaining macroeconomic stability through appropriate monetary policy and financial regulations. For this, I can assure you that we are fully committed to our role and responsibility.
Further, non-standard measures – most recently, the Outright Monetary Transactions (OMTs) – have significantly contributed to an improved euro area financing environment, mainly stemming from an improvement in financial market sentiment and an alleviation of vulnerabilities affecting the supply of bank credit to firms and households. In addition, the OMTs announcement has helped to narrow sovereign spreads and to restore investor confidence. However, the ECB’s (non-standard) measures can only be temporary solutions. Most importantly, market participants have to continue their efforts to facilitate the transition to a less central-bank reliant, more market-based financial system, for which the ECB’s measures, as well as the recent progress concerning the Single Supervisory Mechanism, have hopefully laid the foundations. One market segment that suffered considerably during the financial crisis was the market for asset-backed securities (ABSs), the revival of which I consider essential for the provision of finance to the corporate sector. Given the restricted funding sources and elevated bank funding needs, a trend towards more disintermediation from larger corporate issuers has been observed in recent years, and this trend will most likely continue. By contrast, small and medium-sized enterprises (SMEs) are more dependent on their respective domestic banking sectors and are subject to tighter credit conditions than larger firms that have greater access to global financial markets. The question arises as to how these restrictions could be overcome. A reopening of the ABS market may be one way of enhancing funding conditions for SMEs.

In ten years’ time the Fund is projected to be twice as high as annual GDP 6 . Total public expenditure accounts for somewhat less than half of GDP. The Fund may then become about four times as large as total government expenditure. With Fund withdrawals in line with the fiscal rule of 4 per cent, the return will be able to finance 15–20 per cent of government expenditure in ten years. A large share of government spending will thereby be financed without the functioning of the economy being exposed to tax disturbances. Chart: Time line Construction of the Fund The first capital transfers to the Fund were managed in the same way as Norges Bank’s foreign exchange reserves, which are invested in government bonds issued by our main trading partners. The purpose of the Fund, however, is entirely different from that of foreign exchange reserves and the operational management of the Fund must thus also be different. The main difference is the investment horizon. The Fund is meant to span a long period, preferably many decades. Through 1996, about NOK 40 billion was transferred to the Fund and it became clear that the Fund would be sizeable. It would be accurate to say that there were divergent viewpoints within Norges Bank when it was discussed whether the Bank should take on the assignment of managing the Fund. Three challenges were considered in particular. First: Norges Bank could risk impairing its reputation by accepting this assignment.
That is, the Ministry of Finance became the banks’ counterparty in the swap arrangement. We thereby avoided an expansion of the central bank’s balance sheet while improving the liquidity and funding situation of our banks. The most recent global financial crisis has taught us that it is vital to focus on the financial system as a whole, and not only on its components. Many of the risks that played a role in the recent crisis were identified by central banks and international financial institutions. However, not enough attention was paid to the ways in which these risks were interconnected and how they reinforced each other. System-wide risk amplified the financial crisis and its global repercussions. An international response to the management of systemic risk has been to introduce macroprudential regulation. BIS central bankers’ speeches  1  However, incorporating systemic oversight in the financial stability framework poses considerable analytical and operational challenges for most countries. Indeed, we as economists have relatively limited understanding of the design and effectiveness of macroprudential policies. But, even when inflation targeting was introduced, not much was known about how to go about implementing it. Practice and research developed in parallel, interacting. We hope to see similar developments regarding macroprudential policies. To this end, Norges Bank, like many other national and international monetary authorities, is actively working to further develop the conceptual and analytical foundations for macroprudential policy.

This multiplier lies between the estimates published by the Fed for the two variants of their FRB/US model: one in which expectations are formed using a VAR and the other in which they are model consistent. In the former, a 1 percentage point shock to the federal funds rate boost GDP by around ¾%; in the latter, the same shock boosts GDP by around 1½%. 12  All speeches are available online at www.bankofengland.co.uk/news/speeches  12  That seems a bit extreme, since the US and China are far less closely integrated through trade, financial and labour market linkages than are the UK and the EU. For example, 45% of the UK’s trade is with the EU, while under 20% of the US’s trade is with China and only 7% of China’s trade is with the US. It is possible that concerns about still-quiescent inflation in major economies and the related risk of a global liquidity trap are contributing to the recent large moves in interest rates. In the US, core PCE inflation fell back below the FOMC’s 2% target earlier this year. In the euro area, core inflation has been hovering around 1% for much of the past five years. For both economies, market measures of long-term inflation expectations have drifted down over the past year (Chart 10).