samchain/econo-pairs-v1 huggingface dataset:
Financial market participants pay considerable attention to the monetary policy decisions made by central banks, for these are, in a broad sense, the “guardians” of liquidity. Excessively expensive liquidity is likely to result in a suboptimal volume of investment and, in turn, in an inefficient under-use of society’s productive resources. Likewise, when monetary conditions are excessively lax, some liquidity may be directed to financing projects with poor returns. If this situation prevails for some time, inflation arises, the average productivity of investment declines, asset prices deviate from their normal or fundamental values and the economy as a whole loses its ability to maintain a sustained growth path. When deciding on monetary conditions, central banks must understand the mechanisms underlying the workings of the economy in order to react to potential dangers and opportunities in due manner and course. No diagnosis could ever be complete without a careful analysis of how the entire circulatory system is behaving. From that standpoint, central banks can then be thought as of being the heart, initially controlling the price of the transactions conducted in the money market. Commercial banks would naturally fit into this analogy as the veins and arteries, for they have the last word on the destination of the funds they are being endowed with, a decision that pertains greatly to the sphere of banks’ credit management.

Those dangers are often linked to excessive risk-taking in the credit or asset markets leading to episodes of financial instability. In that situation, it may be difficult for monetary policy to meet its objectives since the relationship between certain key variables and interest rates becomes unstable. Moreover, as market volatility increases, the ability of central banks to affect the relevant interest rates becomes more uncertain. The conduct of monetary policy then becomes much like steering a boat in the middle of a dark stormy night. Even if the likelihood of such episodes of macroeconomic distress is low, the considerable implications in the economy and in terms of welfare have led to increasing concern among central banks and much discussion and research on what the monetary policy response to this kind of underlying risk could and should be. There is now a broad consensus among central bankers that they should not directly target asset prices, and I must include myself among those who share this view. Detecting unsustainable patterns of asset prices or indebtedness ratios in real time is a complex task in practice. But even if central banks were able to do so, there would still be a lot of uncertainty as to how those financial imbalances would react to a specific change in monetary policy.
The various forms of misconduct impose direct costs such as fines, legal fees in investigating allegations and defending lawsuits, and internal monitoring costs that should matter to firms. In this view, a principal benefit to a financial firm of having a strong culture that builds trustworthiness is the avoidance of the bad behavior that can carry significant monetary costs and can inflict destructive damage to the organization’s reputation. Firms should have every incentive to manage and internalize those potential costs. More broadly, there may be additional adverse effects on other firms or the financial sector as a whole if there is a widespread lack of trust in financial services. Similarly, my colleague Michael Strine has argued that the financial industry exists, in part, to enhance the public good and thus faces a higher degree of social responsibility due to its role in supporting the broader economy.4 Both of these effects suggest a role for the public sector in facilitating appropriate behavior and conduct in the financial services industry. Supervision can contribute to this through support for the development of effective internal governance regimes, prudent risk management policies, and strong compliance and control structures, all within a framework of effective oversight from the Board of Directors. Conclusion To conclude, I’ve spoken today about the conceptual rationale for public sector intervention through supervision and some practical issues related to how we execute on our supervisory responsibilities at the Federal Reserve Bank of New York.

They can insist upon higher standards of financial reporting and transparency, facilitating better risk assessment of the counterparties and borrowers. And, on the more technical level, they can also ensure that the risks arising from the payments system infrastructure - especially the wholesale payments system - are minimised, reducing the danger that a failure of one institution will set off a chain reaction among other financial institutions that are its direct creditors. The importance of strengthening our defences in all these various ways against systemic financial disturbances can hardly be over-emphasised. Over the past 15 years something like 150 of the 180 or so member countries of the IMF have experienced significant banking sector distress, in many cases amounting to full-blown crises. Some Bank of England estimates of the costs of financial instability suggest that banking crises have over the past 25 years caused a cumulative loss of output of as much as 15-20% of GDP in the countries concerned. But finance is, as I say, inherently a risk business. And however much effort we put in to accident prevention - however vigilant we are - we have to recognise that accidents will occur. So we have to be prepared to limit the damage that they may cause.
Very long-dated bonds were in particularly high demand – a fact which resulted in a flattening of the yield curves. Yields on ten-year government bonds in both the US and Germany have fallen by around 60 basis points since the beginning of the year, due in part to the monetary policy decisions of the major central banks. For instance, the Bank of Japan’s decision in January to apply negative interest to central bank deposits took markets by surprise. In March, the ECB decided to further expand its asset purchase programme and took its deposit rate deeper into negative territory. In the same month, the US Federal Reserve signalled that interest rates were likely to rise less quickly than originally anticipated. Yields on the ten-year government bonds of some highly rated countries like Switzerland and Germany touched new lows in June. In Switzerland, for example, the yield on ten-year Confederation bonds fell to –0.5%. Most recently, they have been trading around 40 basis points lower than at the beginning of the year. More than 90% of outstanding Confederation bonds are currently negative yielding (slide 2). However, Switzerland is certainly not the only country witnessing this scenario, which has now become a global phenomenon; some 17 states are currently reporting sub-zero yields on government bonds and, overall, more than a quarter of government bonds outstanding worldwide are trading at negative yields. On the foreign exchange markets, the US dollar and pound sterling have depreciated on a trade-weighted basis since the beginning of the year (slide 3).

All these regulatory developments, combined with changes to pillar II capital requirement amounts, could lead to over-calibration: each individual decision may be warranted; but their somewhat disorderly accumulation is not. And naturally, in setting these requirements, we must not jeopardise the level playing field between euro area banks and their international competitors. -  Third, consistency in the interaction between authorities, which should be improved: the case of Banco Popular in Spain, although it was resolved satisfactorily, also demonstrated the importance of swift and close cooperation between supervisory and resolution authorities, both at European and national levels. There is no denying that there is still a need to better coordinate the roles of the different European authorities – the SSM and ECB, the SRM, the Commission, and the European Banking Authority – in order to have a more clearly established “pilot in the plane” for crisis management. We still need to define the roles in order to decompartmentalise the different pillars and guarantee a continuum, which is vital to the smooth running of operations. But we must give our unequivocal support to these authorities in the performance of their duties: when the SSM, chaired by Danièle Nouy, and the ECB propose standards for the provisioning of new non-performing loans, they are operating fully within their remit to prevent future crises and ensure the convergence within the euro area that is at the heart of the Banking Union.
This evidence suggests the pulse of the Phillips curve has quickened as the labour market has tightened. Unlike over much of the past decade, estimated wage equations are now broadly tracking pay (Chart 5). A year ago, the Bank’s forecasts of average weekly earnings growth into mid-2018 was 2.5%. Wage growth in the year to 2018 Q2 was 2.4%. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13  How are these pay developments affecting the monetary policy outlook? Inflation is currently above the Bank’s 2% target. That is entirely due to the effects of past external price shocks, notably sterling’s post-referendum depreciation. As these external effects fade, inflation is projected to be maintained at or slightly above its target by a slow build in domestic cost pressures, underpinned by a rise in wage growth. The rise in wages projected by the Bank is, to coin a phrase, limited and gradual. Private sector pay is assumed to rise from 3% currently to around 3 ¾% three years hence, or around 25 basis points per year. That is below the pace at which wage growth has built over the past few years. Over the same period, unemployment is projected to fall further below its natural rate, though again at a slower pace than over recent years. The path of domestic costs in the economy depends on developments in firms’ productivity, as well as in pay. Weak productivity means even low nominal pay increases can be inflationary.

21  All speeches are available online at www.bankofengland.co.uk/speeches  21  Chart 8: Financial markets’ inflation expectations (5 year – 5 year breakevens)  Per cent  9 8 7 6 5 4 3 2 1 0  1985  1988  1991  1994  1997  2000  2003  2006  2009  2012  2015  2018  Sources: Bloomberg and Bank calculations  Chart 9: Involuntary part-time share of employment and average net desired hours, alongside unemployment  Per cent  Hours per person  10  0.7 0.6 0.5  8  0.4 0.3  6  0.2 0.1 4  0 -0.1  2  -0.2 -0.3  0 2001  -0.4 2003 2005 2007 2009 Involuntary part-time share (LHS) Net additional desired hours (RHS)  2011  2013 2015 2017 Unemployment rate (LHS)  Sources: ONS and Bank calculations. Notes: Involuntary part-time workers are those that would like a full-time job but haven’t been able to find one. Average net desired hours is the average number of additional hours that employed individuals would like to work at their current hourly rate.
BIS Review 119/2009  3  The winding down of extraordinary measures has started In Norway, it has been appropriate to start winding down the unconventional measures earlier than in other countries. In recent months, liquidity has not been supplied through the currency swap lines or liquidity in foreign currency. Loans at long maturities have not been provided since February – several of the loans have now matured. As the markets are now returning to normal, the supply of liquidity will be adjusted so that the money market rate reflects the key policy rate. We want the banks to redistribute liquidity in the interbank market. The underlying structural liquidity in the banking system, i.e. liquidity excluding Norges Bank’s liquidity provision, has been negative in recent years. Structural liquidity was influenced by ingoing and outgoing payments via the government’s account in Norges Bank and is projected to increase ahead, primarily because the government can partly finance increased lending to state banks, payments from the Government Bond Fund and the State Finance Fund and share subscriptions by drawing on their large deposits in Norges Bank. The banking system’s demand for central bank loans can then decrease considerably. The swap arrangement involving covered bonds in exchange for government securities has made a considerable contribution to securing banks’ long-term funding. This spring we saw that the covered bond market started to reopen. The minimum price in the swap arrangement is thus adjusted to the interest rate forming in the market.

Moreover, a higher interest rate aimed at influencing the housing market would not eliminate the source of repeated credit cycles. There is a risk of a bubble in both the housing and the foreign exchange market when credit growth is high, as observed in Iceland and Hungary and perhaps even New Zealand in the years prior to the financial crisis. Interest rates were high in national currencies, but households and enterprises chose to borrow in low-interestrate currencies. 9 There was probably a sentiment of euphoria in the Norwegian housing market in 2006 and 2007, but the boom was financed by loans in NOK and not foreign currency. Should we seek to avert bubbles in the housing market even when medium-term inflation prospects are moderate? On this point, it is our judgement that a distinction must be made between giving greater weight to credit growth and house price inflation in the reaction function and defining house price inflation as an independent monetary policy objective. Socalled “leaning against the wind” would not require adjustments to Norges Bank’s approach, bearing in mind our reaction function which already gives weight to asset price movements and credit growth. 10  6  See for example Bernanke, Gertler and Gilchrist: “The Financial Accelerator and the Flight to Quality”, The Review of Economics and Statistics, 78(1), 1996, pp. 1-15. See also Nina Langbraaten (2001): “Formuespriser – konsekvenser for pengepolitikken? (Asset prices – consequences for monetary policy? )”, Penger og Kreditt No 4.
From my previous experiences, especially as head of the Directorate General Operations, and presently also, as President of the French Banking and Insurance Supervisory Authority, I measure what your contributions can provide in operational terms (risk assessment) and also in terms of analysis (research, advice, BACH data base). The works of your Committee, and so to say its affiliates, is useful and I would like to take the opportunity of this plenary meeting to encourage you to keep the same stance. From the perspective of a NCB, your contributions are important in so far they provide platforms for exchanging our thoughts, our know-how and, last but not least, for exchanging data within the Eurosystem but also with statistical institutions, witness in that regard is all what is being done with the European Group Register managed by EUROSTAT and now with the Committee for Monetary Financial and Balance of payment statistics. Obviously, Balance sheet and Profit & Loss information, or more generally information on non-financial companies, have a real bearing on our institutions in line with a twofold objective: assessing individual companies and using aggregated company data to perform macro economic analyses or researches. First, it is important for micro-analyses in the assessment of individual companies using classic ratio-based firm analysis methods. This can help us to evaluate our collateral, or portfolios of banks if we are involved in banking supervision.

But for an NCB member of the Eurosystem, the micro analyses have a particular importance within the European Credit Assessment Framework if it is recognised as an In-house Credit Assessment System. Those NCBs which run an ICAS (currently Austria, France, Germany and Spain) use balance sheet data for the assessment and prediction of default risk under a set of precisely defined conditions. The ICAS statute is demanding but it is worthwhile because it can play an important role for monetary policy operations. For this purpose, we need to rely on a good methodology, commonly agreed and depending to a large extent on an ability to deliver a sound and solid assessment of non-financial companies. This helps NCBs to fulfil one of their core functions, which is the refinancing of commercial banks and we experience that daily. On this very important subject – the ability to assess credit risk of non financial companies as offering a possibility to expand the amount of eligible collaterals – I took note that several NCBs are about to join the four present ICAS: this is a signal of the  BIS central bankers’ speeches  1  relevance of this mechanism to help the commercial banks to develop their loans and, hence, support economic growth.
In addition, the decline in the growth of loans to the private sector has come to a halt and credit demand has recently strengthened. These developments need to be closely monitored, as they may start to point to upward risks to price stability, in particular during a period of economic recovery. BIS Review 40/2002  1  Overall, the outlook for price stability is now less benign than it was in November 2001, when we last adjusted the key ECB interest rates. Inflation has so far declined less steeply and less rapidly than we expected at the turn of the year. This has been partly due to the temporary factors I mentioned before, and to the renewed increase in oil prices in the first quarter of 2002. At the current juncture, even though the appreciation of the exchange rate of the euro will contribute to easing inflationary pressures, we will continue to closely monitor all relevant developments, against the background of the risk that the deviations from price stability, which followed the exceptional clustering of upward shocks on inflation over the past couple of years, may be transmitted into longer-term inflation expectations, thereby potentially affecting wage and price-setting behaviour. In order to maintain price stability, it is crucial that wage moderation prevails in the future. In this respect, we are concerned about recent trends in wages. The importance of wage developments in line with our definition of price stability cannot be overemphasised.

The unemployment rate is 8-1/4 percent – well above the rate anyone on the FOMC sees as being consistent with our longer-run goal; in my view, this is a substantially higher rate than one might attribute to supply-side factors, such as extended unemployment insurance and a heightened degree of mismatch in labor markets. Realistically, this is a 2-1/4 to 3 percentage point deviation from our current maximum employment objective. Because this occurred with nominal interest rates stuck at the zero lower bound since December 2008, I believe it’s hard to say that we are not in a liquidity trap. Recently, the U.S. data have been more encouraging, with the labor market improving and private demand showing a little more traction. Without a doubt, these are welcome developments. But even the more optimistic forecasts see output increasing only moderately above its potential growth rates; no one has an expectation for a surge in activity that would quickly close resource gaps. At the same time, the outlook for inflation is subdued, with most FOMC participants’ forecasts for increases in total personal consumption expenditures prices averaging roughly between 1-1/2 and 2 percent over the next three years. Furthermore, private sector long-run inflation expectations are quite well anchored.
We can’t be sure since no two historical episodes are ever exactly the same. Until underlying growth resumes, we can’t be certain that it will, of its own accord. At the very least, that makes me pause to consider when policy should start to be normalised or even whether further loosening might be justified. The recovery in 2010 was driven by a particularly strong contribution from business investment and stock-building (Chart 4). The latter was always likely to offer a transitory boost to overall growth as companies returned stock holdings towards their desired levels, after de-stocking during the recession. And investment was always likely to make some positive contribution – at least once delayed projects and routine maintenance were re-started. But that boost is unlikely to persist without a pick-up in final demand to justify it. And consumer spending, the most important component of UK demand, has been stagnant for a year (Chart 5). The current behaviour of consumption is markedly different to that during the 1980s and 1990s when consumption had broadly regained its pre-recession level by this point in the cycle, rather than being around 4% below it (Chart 6). BIS central bankers’ speeches  3  Chart 4  Chart 5  Contributions to 4-quarter GDP growth(a)  Household consumption(a)  Percentage points 6 4 2 0 -2  Consumption Government spending Investment Stockbuilding Net trade GDP (per cent)  -4 -6 -8  2000  2002  2004  2006  2008  (a) Investment includes valuables. excluding the alignment adjustment.

I see little evidence that inflation expectations might generate the start of a wage-price spiral for example. There are, however, immediate downside risks to the growth outlook. Although my central expectation is that the recent weakness will just be a soft patch, I do worry about a more  8  BIS central bankers’ speeches  prolonged weakness in demand, and in particular, consumer spending. That could knock the recovery off course for a sustained period, shifting the balance of risks around medium-term inflation to the downside. With that risk in mind, putting up Bank Rate could be exactly the wrong thing to do at this precise moment. If it further damaged consumer confidence then it could be the marginal factor that makes a soft patch turn into something worse. Of course, at some point, Bank Rate will have to rise: interest rates will need to normalise if, once the spare capacity in the economy has been eliminated, monetary policy is to be consistent with the 2% target. And because of the lengthy lags involved, Bank Rate will need to start the long journey back to more normal settings well before the degree of spare capacity is eliminated. But for now, I believe there remains time to allow the economy to recover before the eventual tightening begins. I am not trying to give any hints today as to exactly when that will be. I honestly don’t know. I can only continue to assess the data and the outlook as it changes, month by month.