samchain/econo-pairs-v1 huggingface dataset:
And if the foreign exchange market had anticipated a higher cost of finance for sterling borrowers after Brexit you’d probably have seen the same expectation in other financial markets – a steeper yield curve, perhaps, or higher premia in UK banks’ funding markets. That hasn’t really happened. Chart 4: Weaker productivity in tradable sector depresses the exchange rate  Chart 5: Supported by cross-country evidence  PNT /PT SNT /ST  DNT /DT YNT /YT  Source: Penn World Table  A more likely channel, to my mind, involves expected supply. Go back to that relationship in [1] and imagine now that something happens to push up the cost of producing or selling tradable goods. Perhaps productivity 8  in that sector grows less rapidly (relative to that in our trading partners) . Or perhaps tariff and/or non-tariff barriers are imposed on international trade. Either way, if the relative cost of producing or selling tradable 9  output goes up then so must its relative price (Chart 4 ). In effect, the currency falls to help absorb these costs. In doing so it spreads them throughout the economy: even those in the non-traded sector have to work longer to buy the same quantum of imports. 7  Sometimes this point is expressed in terms of the “sustainable” current account deficit but it amounts to the same thing. Cost is inversely related to productivity. 9 Note that a contraction in tradable productivity, which is the denominator in the SNT/ST curve, shifts it to the right.

How they respond is one important determination of economic growth this year. Usually, one of the more positive aspects of an exchange-rate depreciation is that, by raising their profitability, it encourages the expansion of firms in the tradable sector. With the world economy in better health than for some time, there is certainty every incentive to do that today. On this occasion that response might be more muted than usual, however, because it’s not clear how long the sweet spot will last. If the currency market is right the UK’s future trading relationships will be less favourable; if it’s too pessimistic sterling is likely to rebound. Either 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  way, future returns in the tradable sector may not be as healthy as they are right now. This may act as something of a deterrent to longer-term, sunk-cost investments in that sector. In what follows I’ll begin by looking at sterling and what economics has to say about its reaction to the referendum result. I’ll then say something about how depreciations work in small open economies, in particular their impact on profitability and investment in the tradable sector. There’s a short concluding section. Sterling’s response to the EU referendum: some exchange-rate economics So let’s begin with the depreciation and its proximate cause, the outcome of referendum. The link between the two was clear long before the vote itself.
2  1  See Tucker, PMWT, 2008 “Making monetary policy by Committee” Bank of England Quarterly Bulletin 2008 Q3 (forthcoming) for some thoughts on the relatively collective nature of the MPC’s forecasts given its one person, one vote decisions on Bank Rate. 2  I have to say that the textbook stress on the mean (or expected value) might be somewhat overdone in some circumstances, in particular where the mean is materially influenced by certain types of low probability/high impact risks. I hope the following will illustrate that. Imagine, not in the current context, that there is a risk of a dollar collapse against the euro, the currency of the UK’s largest trading partner, but without a similar risk of sterling collapsing. Say the probability is judged to be low, but the impact large; so that, in the probability-weighted way, it is enough to shift the mean outlook for future inflation. If (if) the risk crystallised,  BIS Review 112/2008  1  Now, putting this together, the following inference can be drawn; and I hope that I shall be excused if I plod through this in slow motion. Focusing on a roughly two-year horizon, if inflation was most likely to be below target in the context of the August modal forecast for output, then it would be even further below target if the MPC’s view in August of the downside risks to growth were to materialise (ie consistent with the mean path for output but no further adverse shock to costs).

But it’s less obvious, at least to me, what macroeconomic developments I should expect if risk premia rose due to an “exogenous” rise, say due to reduced market making, in the volatility of asset prices. We also need to be able to make sense of shifts in relative risk premia on different asset classes. We need models that can say something useful about the compression, and then widening, in credit and liquidity risk premia that in some ways define the current financial turmoil. We need to know whether or not those shifts reflect changes in fundamentals, or unwarranted “exuberance” or “fear” in the markets; and whether or not they have implications for demand and supply conditions in the real economy. Second, very little has been said about how, or whether, the supply of money (or monetary policy) may affect risk premia. Years ago Brunner and Meltzer set out a view 20 of how shocks to the supply of base money were transmitted to the economy through effects on asset prices over and above the impact on the risk-free discount rate, but through liquidity (and maybe other risk) premia. More recently, some policymakers, 21 have conjectured that swings in the supply of broad money (via bank lending) can be associated with shifts in risk premia too. The thought is that in a world in which different assets are not perfect substitutes for each other, whether money is over or under-supplied can affect the relative value of other financial assets.
The weak growth in productivity during 2001 and falling profits can also have a subduing effect on wage developments. During 2003 and 2004 the labour market situation is expected to gradually improve, which could contribute to a larger wage drift. A large part (70 per cent) of wages is determined at a local level. At the same time, inflation is expected to be slightly lower, which should have a subduing effect on the wage agreements signed. On average, wages are expected to increase by 4.1 and 4.3 per cent respectively during 2003 and 2004. Pricing and wage formation are influenced by inflation expectations among the different parties concerned, and therefore comprise an important part of the monetary policy analysis. Since March, households’ inflation expectations have remained around 2.5 per cent for one year ahead and the National Institute of Economic Research’s latest economic barometer shows that companies’ inflation expectations have remained more or less unchanged. (Diagram 5 - Actual inflation (CPI) as well as households’ and companies’ inflation expectations). In April, inflation measured in terms of CPI amounted to 2.5 per cent. The effects of the disturbances in supply that temporarily contributed to higher prices on energy and certain foodstuffs last year have abated, which has contributed to a decline in the inflation rate. In the short term, inflation is expected to continue to decline as these temporary effects disappear from the inflation measure. (Diagram 6 -  4  BIS Review 37/2002  Inflation. Outcome and main scenario).

Nonetheless, these developments will likely lead to some tightening in credit conditions for households and businesses, which in turn will weigh on spending. It is still too early to gauge the magnitude and duration of these effects, and I will be closely monitoring the evolution of credit conditions and their potential effects on the economy. The Federal Reserve has a dual mandate to promote maximum employment and price stability. These goals are intrinsically linked-price stability is essential to sustaining maximum employment over the long term and for the economy to reach its full potential. Right now, while there are some indications of gradual cooling in the demand for labor, the labor market remains very tight. Job growth continues to be robust. Job openings far outnumber applicants. And at 3.5 percent, the unemployment rate is near 50-year lows. That brings us to inflation. Inflation soared to a 40-year high of 7 percent last June, as measured by the personal consumption expenditures (PCE) price index. It has since  1/4  BIS - Central bankers' speeches  moderated to 5 percent, and the most recent data indicate that this trend of slowing inflation is continuing. Still, inflation is well above the FOMC's longer-run goal of 2 percent. This inflation target is an important bedrock principle for the FOMC. It provides a "North Star" for policy decisions and helps to improve the public's understanding of our goals and actions.1 We are committed to attaining-and maintaining-a sufficiently restrictive policy stance to achieve our 2 percent longer-run goal.
Although each plan is different in their rationales and implementation, their intended outcomes can be summarized along three key dimensions – (1) to reduce cost of financial services for households and businesses (2) to deepen financial inclusion and (3) to facilitate financial connectivity in the region. Allow me to delve into some details. Starting with reducing costs of financial services. As the Thai economy can no longer compete on supply of cheap labors, cost competitiveness in other areas are critical. In light of this objective, the Financial Sector Master Plan and the Payment System Roadmap envisage  that cost savings in the financial sector due to more efficient operation of financial institutions and the payment system would be passed on to the real sector and the households. Here, I would like to note that the term financial institutions go beyond banks and finance companies to include non-bank players like e-Payment service providers and FinTech (Financial Technology) firms as well. 3/5  BIS Central Banker's Speeches  The Bank of Thailand believes that the very foundation for improved financial services’ efficiency is through the adoption of digital technology and shared infrastructure. The former comprises digitization of operations, product offerings and service channels. An example of the shared services initiatives is the PromptPay system, the Minister of Finance mentioned in the speech. PromptPay is an integrated retail fund transfer system that will allow  individuals, businesses, and government to transfer funds across service providers at low costs with ease, flexibility and resilience.

Asset quality also began to show initial signs of deterioration as would be expected given the fall in property prices and the increased strain put upon the cash flow of the affected companies and their employees. BIS Review 32/2003  1  From mid-May however the operating environment of the banks improved as SARS was brought under control. It would be premature to say that the SARS effect has dissipated entirely. In particular, the full effects on asset quality may take some time to show through. But most of the banks that we have talked to are now saying that the impact of the specific factor of SARS on their results for 2003 is expected to be relatively mild. However, the underlying problems in the economy, which SARS helped to magnify, are still with us. Thus, while the balance sheets of the banks remain strong, the earnings outlook for 2003 remains uncertain; and the banks continue to face a number of challenges. One of these is the state of the property market. The heavy reliance of the banks on property lending is well known: residential mortgage lending, in particular, accounts for 35% of the total domestic loans of the retail banks. Property prices have fallen sharply since the Asian Crisis, and the effect of SARS was to produce a further downward spiral. In the three months from March to May, property prices are estimated to have fallen by 8%.
Third, given the geographical diversification of the two big banks, an activation of the CCB focused on domestic risk-weighted assets would not have a material impact on these banks’ overall capital situation. Finally, by contributing to financial stability and hence reducing the risk of domestic banking crises, the CCB should help increase the overall long-term attractiveness and competitiveness of the Swiss financial sector. How the CCB works Let me now address four key questions pertaining to the functionality of the CCB; and, for that matter, of any macroprudential instrument targeted at containing the cyclical dimension of systemic risk. First, how do we know that imbalances have reached a level such that an activation of the CCB is warranted? 12  These minimum requirements are twofold: First, at least 10% of the value of the collateral must be provided in equity from sources other than borrower’s pension assets. Second, the mortgage debt on residential properties has to be repaid such that it amounts to no more than two-thirds of the collateral value after 20 years. BIS central bankers’ speeches  5  As mentioned earlier, identifying unsustainable developments in asset and credit markets is inherently difficult. Thus, the aim cannot, and should not, be to surgically prick bubbles or to fine tune asset-price or credit market developments. It is easier, however, although not trivial, to identify situations of intensified financial stability risk. In such cases, taking precautionary action is fully justified.

There have been over 9 million reported cases of Covid globally and over half a million reported deaths, around 0.01% of the global population.1 As a point of comparison, the Spanish flu of 1918 recorded 33 million deaths or close to 2% of the global population back then.2  During the first few months of the year, and unlike in 1918, most countries put in place social distancing measures to contain the spread of the virus, albeit at different times and with differing degrees of stringency (Chart 1). Predictably – indeed, intentionally – these measures severely curtailed movement of goods, services and peoples, constricting economic activity across a very wide range of sectors and countries. 1  Data from European Centre for Disease Prevention and Control. Estimates of the death toll are uncertain. The number quoted here averages the mid-range of estimates in Patterson and Pyle (1991), Johnson and Mueller (2002) and Spreeuwenberg et al (2018).
In the few cases where counterparties have defaulted, for instance in the case of a subsidiary of Lehman Brothers, the Eurosystem was able to fully cover its exposure by seizing the posted collateral. At the same time, the collateral framework ensured that banks were able to obtain sufficient amounts of central bank liquidity throughout the crisis. This became most visible in the context of the two Very Long Term Refinancing Operations that the ECB conducted in 2011 and 2012. In these operations banks obtained collateralised central bank liquidity in the order of EUR 524 billion within only 10 weeks. This basic set-up of the collateral framework has remained the same since the beginning of monetary union; the three constituent parts of the Eurosystem collateral framework, i.e. (i) the counterparty framework, (ii) the basic eligibility criteria for underlying assets and (iii) the risk control measures, have remained largely unchanged. The Eurosystem maintains a broad counterparty framework and its eligibility criteria are still based on the same principles as at the beginning. This shows that the design of the Eurosystem collateral framework is in general very robust. However, some changes were necessary to guarantee a smooth implementation of monetary policy at times of financial market stress that led to a general reduction in access to market funding.

In this context, it should be borne in mind that in the long term, central banks can affect inflation and can have a corresponding impact on the nominal exchange rate, but they cannot affect the real exchange rate in the long run. If the real exchange rate rises because of an increase in the equilibrium real exchange rate and the Central Bank halts the rise in the nominal exchange rate, the real exchange rate will ultimately rise in any case, through larger wage increases and inflation. If the Bank had halted the rise in the exchange rate at all costs, inflation would probably be well above the target already, and it is very unlikely that inflation expectations would be at target. This would also have been inconsistent with the Bank’s legally mandated price stability objective. It would also have been quite costly, as the credibility of monetary policy would have been gone and interest rates in the future would need to be higher in order to restore that credibility. If there is the will to impede the rise in the real exchange rate and mitigate the crowding-out effect that tourism has on other sectors, which is certainly needed, but without sacrificing price stability, it must be done with policy instruments that can have a lasting impact on the real exchange rate, such as tighter fiscal policy.
This is certainly an area where I think dialogue amongst the industry would be beneficial to share information on the various approaches taken to modelling and setting impact tolerances. This will help individual firms understand where they are outliers and to consider if that is appropriate and justifiable. Getting this right over time will be key in supporting robust scenario analysis and ultimately, firms’ resilience. Findings on mapping and testing Our policy also set the expectation that, by the end of March this year, firms would have done enough mapping and testing to identify IBS and set impact tolerances, but we did not expect mapping and testing frameworks to be fully developed. From our conversations on this topic so far, it appears that firms have typically leveraged existing frameworks and tools at this stage. 4 It is also clear that the maturity of firms’ thinking in these areas varies significantly. This may be understandable, as firms still have time before the final deadline in March 2025, but it indicates that significant further work is required in the next three years for firms to embed fully coherent mapping and testing frameworks. Summary of initial supervisory review So, to summarise, our view based on our initial supervisory work is that meaningful progress was made by firms in developing their Op Res capabilities ahead of the first deadline in March 2022.

Yves Mersch: Policy needs, knowns and unknowns in the aftermath of the crisis Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at UBS, Zurich, 4 February 2016. *  *  *  I would like to thank Valerie Jarvis for her assistance in preparing this speech. Ladies and Gentlemen, I would like to thank Valerie Jarvis for her assistance in preparing this speech. Coming out of a crisis, one of the biggest challenges that policymakers face is uncertainty about the state of the economy. We can respond to this, of course, by looking at stylised indicators, such as inflation or employment. But for a forward-looking monetary policy, that’s not sufficient. We need to know the strength of the inflation pressures building up over the medium-term – that is, whether the economy is over-heating or under-cooking relative to its underlying potential. It is for that reason that central banks have traditionally used the concept of potential output – the level of output consistent with price stability – to gauge inflationary pressures. 1 If actual output is above potential output, there is a positive “output gap” and we can expect upward pressures on inflation. And if actual output is below potential, the opposite will be the case and disinflation will follow. In general terms, I see nothing wrong with this way of thinking. The economy is vastly complex and we need simplifying frameworks for assessing “how it’s doing” overall.
Several EU countries (such as Germany, Sweden, Italy and Portugal) have established a link between the level of benefits or retirement age and life expectancy or economic performance. Another important aspect is the role that private saving can play as a supplement to the benefits offered by the pay-as-you-go (PAYG) public pension system. In this respect, the recent legislative proposal to encourage collective pension schemes – which in general are less well developed in Spain than in other EU countries – essentially aims to increase the share of the population covered by these schemes. For this purpose, the reform establishes the creation of public occupational pension funds and facilitates the creation of occupational schemes in the collective bargaining framework. Tax relief is also envisaged to encourage occupational schemes, in keeping with the pattern observed in recent years where tax incentives have been focused on occupational schemes to the detriment of personal pension schemes. A recent Banco de España publication suggests that making contributions to occupational pension schemes may be a useful channel through which to generate new retirement saving. Specifically, it is estimated that total saving could increase by 31 euro cent for each euro contributed to such schemes, after subtracting the related tax credit. (vii) The challenge of the fight against climate change and the green transition The fight against climate change and the transition towards a more sustainable economy are, without doubt, among the most significant challenges facing Spain.

Moreover, in the coming months the Iberian mechanism to cap the price of gas and lower that of electricity which was recently approved in Spain and Portugal, in agreement with the European Commission, will foreseeably exert downward pressure on energy prices in Spain. In any event, in the absence of any new shocks or an escalation of the war in Ukraine, such a revision of the April 2022 projections would still be consistent with the Spanish economy holding on a gradual recovery path – one that could see it reach pre-pandemic GDP levels in the final stretch of 2023 – and with inflation rates remaining high in the coming months and subsequently moderating gradually. The rise in inflation As I mentioned earlier, the rate of inflation rose significantly in 2021 worldwide and accelerated further in early 2022. Moreover, this surge is proving to be more persistent than initially expected. The underlying causes of this increase include, first, the rapid recovery in demand following the removal of the restrictions to contain the pandemic in an environment characterised by continued production constraints. Second, commodity prices, particularly those of energy commodities, have risen sharply on international markets. Energy prices have been affected by a decrease in the supply of gas for geopolitical reasons and a lack of infrastructure maintenance during confinement. The gradual reduction of investment in fossil fuel extraction as a result of green policies in recent years has also affected energy prices.