samchain/econo-pairs-v1 huggingface dataset:
While this would certainly involve outlays, these would be offset by reduced defaults. Whether there is a net cost or not depends on the reduction in the default rate that would come with principal reduction and how this reduction would affect the performance of the overall housing market and the economy. Based on recent data on borrower behavior,17 my staff calculates that the taxpayer (through the effect on Fannie Mae and Freddie Mac) would be better off with earned principal reduction under a base case of roughly flat house prices and persistent weakness in the jobs market. Under a scenario of modest house price increases, the combination of fewer defaults and shared appreciation also produces a net benefit. This result occurs before taking into account the positive externalities of nudging house prices onto a stronger path, which would reduce the magnitude of losses on loans that do default. On an expected value basis, such a program appears still more compelling, since  17  Lender Processing Services data. BIS central bankers’ speeches  9  Fannie Mae and Freddie Mac are currently exposed to the downside risk of further declines in home prices. Of course, just focusing on the impact on Fannie Mae and Freddie Mac is much too narrow even from a taxpayer perspective. If you believe as I do that improving the outlook for housing would materially strengthen the over economy, one must also include the fiscal benefits generated by stronger economic growth.

Earned principal reduction Investment firms that purchase delinquent mortgages routinely reduce principal in order to maximize value on these loans. It would make sense for Fannie and Freddie to do this as well in order to minimize loss of value on the delinquent loans they guarantee. However, I am uncomfortable with the notion that “underwater” borrowers who owe more on their mortgages than their homes are worth should have to go delinquent before they have a chance of securing a reduction in their mortgage debt. I believe we should also develop a program for earned principal reduction for borrowers who are underwater but keep on making their mortgage payments. Such a program would strengthen the incentives for mortgage holders who are underwater to continue to stay current on their loans, and reduce the likely number of defaults and REO sales. Negative equity is one of the most significant predictors of mortgage default across all types of mortgage products, including when you control for credit scores and level of income documentation. While recent underwater borrowers have not been defaulting at a rapid pace, they are also not prepaying, implying that underwater mortgages remain “at risk” for a prolonged period of time to any adverse shock to the borrower. It is admittedly challenging to predict how underwater borrowers will ultimately perform and this performance will be sensitive to the path of home prices.
There are similarities between today’s financial turmoil and the Swedish bank crisis The current financial turmoil and the Swedish bank crisis actually have a number of common denominators. Harvard professor Kenneth Rogoff together with Carmen Reinhart of Maryland University has pointed to a number of similarities between the US mortgage turmoil and a number of earlier financial crises, including the Swedish bank crisis at the beginning of the 1990s. Some common denominators for the period prior to the outbreak of the crisis include a rapid increase in property and share prices, the fact that the current account deficit was large and growing and that economic growth had declined from an earlier high level. One important difference is that the exchange rate regime has not played a prominent role in the US case. Too low risk premiums and abstruse risks But it is also possible to find more specific parallels to the Swedish bank crisis. In both cases lending has increased rapidly at the same time as the banks have underestimated and therefore not taken sufficient payment for the credit risks. In Sweden this was linked to the banks – after decades of credit regulation – lacking a developed strategy for managing and pricing credit risk. When deregulation came in the mid-1980s they were quite simply unused to loan losses. But such tendencies could also be seen prior to the recent market turmoil. For a long time, risk premiums for credit risk-related securities were remarkably low. The uncertainty has led to an increase.

Thirdly, the Federal Republic is a major world competitor in sectors such as machine tools and industrial equipment. Its global competitiveness is a major asset for the euro area given how closely intertwined EMU countries are. Therefore, I would point out to all those who argue in a similar fashion that what looks as a disadvantage for the euro area as a whole from a specific angle is in reality an advantage when seen from the right perspective. Il Sole 24 Ore: But in a more general way Ms Lagarde did point out that the euro area is experiencing large economic imbalances. Is there a Europe-wide agenda to solve this problem? Trichet: The aim must be to elevate significantly growth potential in all countries through the structural reforms that are overdue in Europe. This will remain strategically important in the  2  BIS Review 45/2010  next decade. The 2020 Agenda will have to be implemented in a more effective way than the 2010 Lisbon Agenda, as President Van Rompuy has recommended. More generally let me say that given the nature of monetary union, some countries, because of a rapidly aging population for example, will have to run current account surpluses, while other countries with very significantly fewer pension liabilities will not be called to run such surpluses. Similarly, some countries, to regain competitiveness, will have to keep inflation below the EU average.
Interestingly, the higher interest rates have been attracting some inflow of funds into the Hong Kong dollar, as investors took advantage of the higher return and as borrowers chose to finance their activities by raising US dollars and switching them into Hong Kong dollars, being comfortable about a little currency mismatch given our strong commitment to the link with the US dollar. As a result, Hong Kong’s foreign reserves have continued to 19 Foreign currency assets as at end of: $ billion  June 1997 July 1997 August 1997 September 1997 October 1997 November 1997 December 1997 January 1998  82.9 81.7 85.3 88.1 91.4 96.5 92.8 98.1  BIS Review 19/1998  -8grow, contributing further to the easing of Hong Kong dollar interest rates at the longer end of the yield curve. Pain of Adjustment 26. There is no doubt, however, that the discipline of the currency board system requiring rather harsh adjustments through interest rate changes means that there are innocent parties who may rather unfortunately be affected. I am conscious of the plight of, for example, the businessmen who happened to have interbank rate related loans due for interest rate fixing on 23 October 1997, or the home mortgage payers who have now to live with a mortgage rate, after two increases, which is 150 basis points higher than before, or those who have been investing their life long savings in the stock market, the property market and other asset markets, seeing these markets fall under the influence of higher interest rates.

This trend is particularly pronounced in the APEC economies in which the economic activities are now more diversified – with the growing importance of the services sector, with the agricultural sector becoming more advanced and the industrial sector being supported by a supply chain of small and medium scale businesses. In the APEC region, SMEs account for 90% of the total business establishments and 60% of total employment. In Malaysia, SMEs constitute 99% of all businesses and 57% of total employment. In terms of output, the SME sector in Malaysia accounts for 35% of gross domestic product and 20% of total exports. The SMEs have the advantage of having greater flexibility and the ability to adjust more quickly to changes in the market. The SMEs also have the potential to meet the new challenges to raise productivity and performance. There is therefore enormous potential for SMEs to create significant positive value for the economy, and thus contribute towards sustainable and balanced economic growth, employment and social stability. This morning allow me to take this opportunity to share with you some reflections on SMEs in the more globalised economy, and the role of financial institutions and Governments in supporting the SME sector in the future environment. Prospects for SMEs in a more globalised economy Globalisation has been described as one of the defining changes of the 21st century. More importantly perhaps, is the dramatic change in the nature of the globalization process.
The primary factor behind the falling inflation rate is a growing confidence in inflation targeting, which during the years following 1993 gradually affected inflation expectations. In recent years the repo rate in Sweden has been lower than the corresponding steering interest rates in the USA, the UK and the EMU area. Many doubted whether Sweden as a small country outside of the euro area would ever be able to live with short-term interest rates lower than those set in Frankfurt. However, we have succeeded in doing so for some time. If one looks at the short-term real interest rates now, they are at approximately the same level as in the euro area and Sweden, at around 2 per cent. The fact that we in Sweden succeeded in achieving a good growth rate during the second half of the 1990s without causing overheating and raised interest rates, was because we started off with a very low level of resource utilisation. Following the crisis at the beginning of the 1990s, unemployment was at a record high level and there was considerable unutilised capacity in industry. It was not until recently, since the end of last year, that we have begun to approach the capacity ceiling. Furthermore, Sweden has shown a positive development in private saving throughout the entire 1990s, and the household sector's burden of debt is currently much lower than it was after the crisis at  BIS Review 34/2001  1  the beginning of the last decade.

The duration of these stops will depend on the COVID-19’s behavior, but in any case, it will take a big toll on second-quarter investment. The baseline scenario assumes that these projects will resume normally towards the third quarter of this year. We must bear in mind that the economy’s performance since last October provides a weak starting point to deal with the COVID-19 emergency. Although the latest IMACEC2 showed a recovery in activity levels— including the February figure (2.7%) we published this morning—the sanitary measures affect more acutely those sectors that had already been hit by the social unrest. Also, household consumption is coming from a significant contraction in the latter part of last year, while investment was sustained by construction and other works, mainly mining projects. In the labor market, the national unemployment rate as reported by the National Statistics Institute for the moving quarter ending in February showed a bigger increase than in previous months, while other indicators point to a marked worsening in employment quality. Particularly striking is that in recent months a large proportion (92%) of the increase in total employment has been in salaried informal jobs, which do not provide the benefits that formal salaried employment does, including paid sick leave (Figure 7). Some financial variables such as the exchange rate, stock prices, and credit growth were also in less favorable levels than they showed at the onset of the social crisis.
I am confident that the FOMC’s plan will promote good market functioning in the Treasury and agency mortgage-backed securities markets as the portfolio declines, and that it will not prove disruptive to the U.S. mortgage market or the U.S. Treasury’s debt management program. And I am also confident that the plan’s design, and the FOMC’s clear communication prior to the plan’s implementation, will mitigate the risk of sharp or outsized asset price reactions to the decline in the portfolio’s size over time. I want to expand on this last point. We cannot and should not prevent Treasury and MBS prices from reacting to relevant economic and financial developments, or indeed from gradually moving over time in response to the progressive decline in the size of the Federal Reserve’s holdings and consequent increase in the amount of securities held by the private sector. In fact, we actively want asset prices to respond appropriately and fully to economic and financial news. Over the coming years, such news could span a wide variety of topics, such as central bank policy in this country and abroad, the ongoing debate over fiscal policy, and the evolution of expectations for the longer-run neutral rate of interest. That said, we do seek to mitigate the risk that our operational actions contribute to unnecessary surprise, disruption, or volatility. I am confident that the FOMC’s plan appropriately manages this risk. Now, confidence doesn’t mean certainty: there is always a risk that events could unfold differently from expectations.

As shown in Panel 10, market participants assign about one chance in four to such a scenario unfolding, so communications about how the FOMC might respond to such an outcome in the future might have the effect of bolstering confidence even today. 12 / 15  BIS central bankers' speeches  Returning to Panel 9, it is notable how much uncertainty there is about the size of the balance sheet, even in the no-zero-lower-bound scenario shown on the left. This likely reflects a few factors: MBS repayments remain uncertain up to the cap; future demand for currency, bank reserves, and non-reserve liabilities is hard to know precisely; and the FOMC has not yet decided on a longer-run framework for the implementation of policy. As a result, it seems appropriate to me that there should be an appreciable amount of uncertainty, which should decline over time as these matters become clearer so long as normalization continues uninterrupted. Conclusion Let me conclude now by reiterating the message of confidence with which I began my remarks. I am confident that the FOMC’s gradual and predictable plan to normalize the balance sheet will reduce the balance sheet’s size at an appropriate pace, that it will promote good market functioning, that it will not disrupt the mortgage market or Treasury debt issuance, and, importantly, that it will mitigate the risk of sharp or outsized asset price reactions.
BIS central bankers’ speeches  1  Following the financial crisis, of course, the developed world has been in exactly that position: the neutral real rate of interest has been extremely depressed, official interest rates have been pushed to the zero lower bound and central banks have employed unconventional means of easing monetary policy. Were it to occur right now, sustained deflation would therefore pose more of a risk than at times when the neutral real rate was higher. But, in my view, those risks are nonetheless relatively contained. For one thing I think the evidence suggests that unconventional policy is effective: even if they don’t circumvent it entirely, asset purchases help soften the constraint of the zero lower bound. Second, with the financial system gradually improving my guess is that the neutral real rate of interest is more likely to rise than fall over the next couple of years. Third, and most importantly, I think the chances of a sustained and widespread deflation are in any case low. That’s certainly what the international experience suggests. That experience is substantial: we have annual CPI data since 1960 for over 70 countries, a total of over 3,000 data points. In only 70 cases (barely 2% of the sample) have consumer prices actually fallen and in the majority of those inflation was positive the following year.

“Core” inflation is still running at over 1% and, barring another steep decline in food and energy prices over the next year, headline inflation is likely to rise quite steeply in early 2016. I’m also struck by the rarity of persistent deflation in the past 15, particularly amongst countries with an independent monetary policy. As we’ve seen, long periods of falling prices were perfectly common during the Gold Standard. That’s inevitable under a commodity peg if, over any period of time, the commodity itself is in fixed supply. The same was true in other countries at the time and, infamously, during the Great Depression. It was only when Britain came off gold, in 1931, that its nominal income started to accelerate 16. And since the Second World War, and the abandonment of commodity standards, positive inflation has been the norm – so much so, in fact, that the commonly cited example of the Japanese deflation is almost unique. Chart 12a Deflation episodes are rare  Chart 12b Even rarer in countries with floating exchange rates  Source: Bordo and Eichengreen, IMF and OECD  Source: Bordo and Eichengreen, IMF and OECD  Note: Sample 1960-2010; 3300 observations  Note: Sample 1960-2010; 3300 observations. 15  A very recent paper by Claudio Borio and co-authors at the BIS makes the same point (Borio et al. (2015)); see also Broadbent et al (2010). 16  For more on the contractionary effect of the Gold Standard during the Great Depression, see Eichengreen (1996).
“The Riksbank has aggressively, using a high repo rate, tried to prevent household debt from rising” The first part of the criticism can in turn be divided into different parts. For one thing, it claims that the Riksbank has leaned against the wind aggressively, and for another thing that household debt has been the main, if not the only, reason for this policy. I intend to comment on these points one by one. So how much has the Riksbank in practice leaned against the wind in recent years? My view here is clear. The monetary policy conducted after the crisis has for the most part been governed by traditional monetary policy motives, that is, the expected development of economic activity and inflation over the coming years. Giving consideration to the risks associated with the developments in household debt and housing prices has been part of our assessment, but a relatively minor part. The picture painted in the criticism has been quite different. Here the starting point is instead that the Riksbank’s concern over developments in household debt was the main motive for raising the repo rate after the financial crisis. Much of the criticism even seems to assume that household debt was the only motive for raising the repo rate.

With this one should factor in the other elements of EMU: the arrangements in place to promote fiscal discipline and economic policy co-ordination; and the pursuit of price and financial stability by the European Central Bank (ECB). These contribute to a stable macro-economic environment which, together with the climate of greater predictability ensuing from reduced exchange rate risk, support investment and growth. It is with this perspective in mind that fellow central bankers and government officials in the other new Member States have expressed their preference for an early adoption of the euro. It also constitutes the motivation for the Maltese Government’s commitment to implement the necessary reforms that will prepare the economy for the heightened levels of competition ensuing from the Single Market, while providing businesses with a favourable environment in which they should be better able to profit from Malta’s entry in the euro area. New opportunities for business The benefits of the single currency for business could be substantial, and will occur along the various stages from EU entry through the ERM II period to entry in the euro area. They will, however, become more tangible when the euro is introduced as an accounting and physical currency. At that point, the value of the Maltese lira in terms of the euro will be fixed and foreign exchange risk in euro will be eliminated. The need for dual accountancy systems and software will likewise be reduced.
In the terms used by Greenwood et al (2017), resilience needs to be “dynamic”. As past evidence has shown, too rigid a regulatory system will soon become otiose. And there are already calls, in some quarters and in some countries, for a rethink and rewrite of regulatory rules on which the ink is barely dry.3 This poses both opportunities and threats. The opportunities arise from the need to keep the regulatory framework fresh and agile. With the best will in the world, no one could say with certainty how the far-reaching and interwoven reforms to regulation over the past decade will precisely land. Judging how the financial system might adapt to future trends in financial technology is even harder to predict. As new evidence, incentives and innovation arise in the financial system, the opportunity is created for regulators to learn and adapt the regulatory framework (Carney, 2017a). Equally, there are also threats to financial stability from any process of change. History is replete with examples of regulatory standards being diluted or dismantled in the name of enhancing the dynamism of the financial system and the economy. To follow this course unthinkingly would risk repeating regulatory 3  For example, Calomiris (2017), Greenwood et al (2017), Duffie (2017). 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  mistakes from the past, recent and distant. Only ten years on from the biggest crisis in several generations, there are already some eerie echoes of those siren voices.

Furthermore, given the nature of the crisis, the restrictive measures and the movement limitation, part of the population faced a forced reduction of the consumption, primarily the consumption of different services, which is characteristic for persons with higher income and with greater capacity and propensity to save. Third, given that all future economic flows are determined by the extremely uncertain epidemiological curve, in such an environment, the precaution motive has a great role in the depositors' behavior. The European Commission surveys for both our country and for the countries of the Western Balkans also show that the respondents' perceptions in 2020 and in 2021 are in favor of the view that due to the economic situation in this period, savings are more favorable decision, compared to recent years. At the same time, the surveys of our Statistical Office show a decrease in the utilization of savings as a source of income during 2020. What has been happening to the savings in the banking system in our country from the beginning of the pandemic onwards? The deposit potential is increasing with a relatively solid intensity of over 8% on an annual basis, whereby the dynamics of increase is very similar to that of the period 2018 - 2019. Such dynamics does not resemble a bit the developments during the global financial crisis, when in a short time the deposit growth slowed down, which from around 20%, reduced to around 7% on an annual level.