samchain/econo-pairs-v1 huggingface dataset:
7  According to data from the Home Mortgage Disclosure Act, there were 31.8 million refinancings of first-lien single-family mortgages over 2008–2013, with an average (median) loan amount of $ $  8  For evidence on the importance of capacity constraints for time-varying margins in mortgage pricing, see Fuster, Goodman, Lucca, Madar, Molloy and Willen, 2012, The Rising Gap between Primary and Secondary Mortgage Rates, Federal Reserve Bank of New York Economic Policy Review, 19(2), pp. 17–39. 9  This is documented for instance in another paper presented yesterday, by Andersen, Campbell, Meisner, Nielsen and Ramadorai (2015), “Inattention and Inertia in Household Finance: Evidence from the Danish Mortgage Market”. 10  For evidence that lenders are less willing to originate FRMs if mortgage securitization markets are illiquid or frozen, see Fuster and Vickery (2015), “Securitization and the Fixed-Rate Mortgage”, Review of Financial Studies, 28(1), pp. 176-211. Research presented in yesterday’s academic sessions finds that a bank’s access to external bond finance influences the composition of mortgages it originates: see Foá, Gambacorta, Guiso and Mistrulli (2015), The Supply Side of Mortgage Finance. 11  One proposal for such innovation that would have increased pass-through during the crisis is the “automatic stabilizer mortgage” of Eberly and Krishnamurthy, 2014; see http://www.newyorkfed.org/research/conference/2015/mortgage_design/Eberly_Janice_052015.pdf. BIS central bankers’ speeches  3  foreclosures, and associated credit losses. But a number of proposals have argued that mortgage balances should be explicitly indexed to movements in home prices in some way. 12 I hope I have whetted your appetite for today’s events.

A risk-sharing argument may call for the effects of monetary policy to be more evenly spread across households. On the other hand, monetary policy might have to adjust interest rates more dramatically in a world of widespread FRMs, which would affect some potential borrowers a great deal. Furthermore, FRMs require an extensive financial-sector risk transfer system 10, which may be costly, and may concentrate risks in systemically risky ways. Thus, there are clearly many tradeoffs that need to be carefully considered. Moreover, as academic research has emphasized, optimal mortgage choice depends on a borrower’s characteristics and financial circumstances. It therefore seems desirable that the mortgage finance system makes a range of different contracts available to borrowers, and be open to sensible innovations in contract design. 11 Although I have focused on ARMs, interest rate adjustability is only one of many important aspects of mortgage design that will be considered in the discussions today. Another important issue, for example, is how home price movements are shared between the borrower and lender. Home price risk is already partially borne by lenders and other mortgage investors, since a fall in home prices increases mortgage defaults and  6  See Agarwal, Driscoll and Laibson, 2013, “Optimal Mortgage Refinancing: A Closed-Form Solution”, Journal of Money, Credit and Banking, Vol. 45, No. 4, pp. 591–622.
The forecasts for growth, the unemployment rate, and inflation that FOMC participants have been submitting since 1979 have always been conditioned on each participant’s views of the future path of policy most likely to foster outcomes consistent with our dual mandate responsibilities – what we refer to as the appropriate path for policy. As of last January, our quarterly Summary of Economic Projections (SEP) now include the projected paths for the federal funds rate and qualitative information about the balance sheet that make up these views. I believe this move significantly enhances policy accountability. For example, suppose inflation were running higher than we would like, and the economic projections in the SEP showed it coming down over the next couple of years. In the absence of policy projections, the public would not know whether the FOMC thought inflation would simply come down on its own or whether it thought that a monetary tightening would be required to reduce inflationary pressures. The inclusion of participants’ policy projections will help communicate such judgments. Furthermore, households and businesses will be able to make better informed decisions if they have a clearer notion of future policy rates; the potential for reduced uncertainty could also lower the risk premium embedded in longer-term interest rates. Now, clearly, our forecasts of what rates are going to be three years from now will often be wrong – and sometimes by a good deal.

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.
That was badly neglected around the western world in the years running up to the current crisis. (And it remains a risk going forward.) Resilience sounds, and is, highly desirable. But it is not a free good. There are trade-offs. And here lies an important contrast with monetary policy. No one seriously believes that there is a trade off in the long run between, on the one hand, inflation and, on the other hand, growth and employment. While a monetary authority can pump up nominal demand to enhance output and employment in the short run, in the long term the impulse is dissipated in a higher price level, with the economy’s real equilibrium determined by real factors alone. But in the financial stability arena, there is a long-run trade off. An economy with a repressed financial system is unlikely to experience financial instability, but it would have plenty of other problems. In consequence, the authorities have to set standards of resilience suited to tail events without impairing the wider functioning of the economy. But we also need to be equipped to raise the required standard of resilience in the light of changing circumstances, notably if we judge the world to have become more threatening than previously foreseen. That is the basis for macroprudential policymakers, such as the UK’s FPC, being able to deploy “cyclical” instruments, as I shall describe later.

The international dimension I have discussed the interaction of the UK’s macroprudential regime with our domestic arrangements for microsupervision and for monetary policy. But the third set of interactions will be with our counterparts in other countries. This is especially important to the UK. London hosts what is probably the world’s most international financial centre. Crucially for us, it is not an entrepot. It is more than an important source of jobs and tax revenues. Many of the overseas firms active in the City are also active in providing services to parts of the UK’s real economy. We therefore have a double stake in their safety and soundness. If they get into distress, there are spillovers to UK financial firms through wholesale markets, but also at least a temporary reduction in the financial services available to UK firms and households. For all these reasons, the UK has a special stake in the adequacy of international standards for financial firms and markets. And, hosting many subsidiaries of major global firms, our supervisors need to play a special role in the collective consolidated supervision of internationally Systemically Important Financial Institutions (SIFIs). This extends into the macroprudential arena. At a global level, we are active participants in the Financial Stability Board. And, regionally, the UK authorities will be engaged in the European Supervisory Authorities. Our Governor is first Vice Chairman of the European Systemic Risk Board (on which I and Adair Turner, Chairman of the FSA, also sit).
If cost pressures become higher than in the main scenario, the Riksbank may need to raise the repo rate more. This could occur if wages rise more quickly or if productivity increases more slowly than expected. If the financial unrest persists and international economic activity will be weaker than expected, the interest rate may instead need to be lower. The direction for monetary policy in practice will  BIS Review 132/2007  7  depend on how new information on economic developments abroad and in Sweden will affect the prospects for economic activity and inflation. (Slide 15) Conclusion The Swedish economy is doing well. And the essential purpose of our work is to ensure good economic growth that is sustainable in the long term. As things look today, we are assuming that the interest rate path in our forecast will contribute to inflation being in line with our target around two years ahead. We believe that this will at the same time contribute to a balanced development in production and employment. (Slide 16) And we also believe that the changes we have made in our communication will help enable us to fulfil the requirements made of us in a better way. We have made the changes in our communication to become even clearer and more open. We always have this ambition, and have had it since the inflation target was introduced. But it is not merely with regard to communication that we are constantly reviewing and trying to develop our methods of working.

In particular, downside risks to the achievement of our employment and inflation goals amid very low interest rates were compelling arguments for a relatively cautious and predictable approach to policy. This proved its worth: The U.S. economy continued to expand at a healthy pace even as the Fed raised rates numerous times. For those who follow the Fed closely, you’ve noticed that the FOMC has been slimming down its statements of late and using less forward guidance about the future path of policy. In this vein, the FOMC in its recent statement removed language indicating that monetary policy remains accommodative.3 Let me make clear, these more concise statements do not signify a shift in our monetary policy approach. Instead, they represent the natural evolution of the language describing the factors influencing our policy decisions in the context of the strength of the economic outlook and inflation being near our 2 percent longer-run goal. These changes in our communication of policy views are a sign that we are nearing the end of the process of normalizing monetary policy and are inching closer to conducting normal monetary policy. Arguably, it’s been a long time since monetary policy was normal, so it’s worth describing what “normal” looks like in some detail. At its most basic level, monetary policy-making will remain the same: The path of interest rates will continue to be guided strategically by our dual mandate objectives and shaped tactically by the data and their implications for the economic outlook.
Thus, annual CPI variation went from its 9.9 percent peak of October 2008 to 4.5 percent in April. Most measures of inflation expectations show a decline in recent months, particularly for the short term (Figure 9). The baseline scenario of this Report assumes that year-on-year inflation will continue on a downward path in the coming months with large swings between the end of this year and the  4  BIS Review 65/2009  beginning of 2010. This, because of the changes in the basis of comparison that include high figures from May through October 2008 and negative ones that accumulated from last November to February (Figure 10). Therefore, in the baseline scenario, annual CPI inflation will be negative from the end of the third quarter to the beginning of the fourth, to close the year 2009 at 0.6 percent. Then it should pick up gradually, to reach 3 percent at the end of the policy horizon, this time the second quarter of 2011. The rate of annual variation of core indicators has also dropped, a trend that will prevail until the first half of 2010, when they will start growing steadily to also hit 3 percent by the end of the policy horizon (Table 3). The path projected for inflation rests on a number of assumptions. On one hand, import costs will not be a source of additional inflationary pressures. Commodity prices will post small increases in the next two years, in line with the slow recovery foreseen for the world economy.

The substantial increase in new equity investments, despite the effects of the global financial and economic crisis, demonstrates how favourable the Zambian investment climate is in attracting foreign investment. BIS central bankers’ speeches  1  Distinguished Guests, It is also encouraging to note that the Government’s diversification efforts are yielding favourable results. The survey findings show that the concentration of foreign direct investment in the mining sector is reducing as evidenced by the substantial FDI inflows to other sectors such as manufacturing, wholesale and retail trade, and the tourism sector in 2009. Evidence from South East Asia and the recent global financial and economic crises show that high volatility in foreign private capital if not properly monitored and managed, can induce financial and macro-economic instability. In light of this the results of the Foreign Private Investment and Investor Perception Survey are important and intended to assist the Government to effectively monitor and manage these flows. In addition, better information on investor perceptions will assist Government in designing policies and programmes that will help enhance Zambia’s favourable investment climate. Further, the results of the survey should prove useful to the private sector and other stakeholders as they highlight some concerns which Government should address as well as the overall business profitability and performance prospects of various sectors. The importance of timely and reliable information on capital flows in the design of appropriate policy responses by Government and thus enhancing macroeconomic stability can hardly be overemphasised.
BIS Review 98/2008  7  Market-driven financial market developments need the support of critical infrastructure, namely: (1) Information that allows efficient decision making and pricing on various asset markets, financial as well as related markets such as real estate market, which are still very lacking in many emerging markets, and may be an area of public support. (2) Legal reforms to ensure an enabling environment for innovation in products and business models for the financial system. And (3) Human resource with proper competency in modern financial and risk management are scarce and is becoming a bottleneck for development. The authority may need to step in to facilitate training and accredition of professional standards, if it has external benefits. Notwithstanding these challenges, however, notable progress has been made by emerging markets in the past decade, much of which is catalysed by comprehensive economic reform in which market-oriented economic and financial liberalization have been the main features. For East Asia, despite the progress made, significant gap still exists in diversification, efficiency and robustness when compared to the role played by financial markets in developed economies. Looking ahead, in addition to the pressure from globalization, the shift in demographic structure will also be an additional pressure. This is to say some smaller emerging markets will face an aging population and the increase in demand for wealth management, while the supply of local products are limited for diversification. This will pose challenges for inter-temporal allocation of resource and risk.

The world around us is changing so rapidly, and the challenges we face so multi-faceted, that our best hope for creating sensible financial policy and effective conditions for sustainable development must lie in working together. This has certainly been our experience in Malaysia, particularly in recent periods. Let me just mention three of these partnerships. In Islamic and sustainable finance, the Value-based Intermediation Community of Practitioners or VBI COP has played a key role in driving the industry-wide implementation of VBI principles. The COP has been instrumental in developing practical frameworks, tools and guidance that have 2/3  BIS central bankers' speeches  been widely adopted by the industry in supporting the offering value-based financial solutions that are aligned with the SDGs. As an example, for green finance, the Islamic banking industry is supporting approximately 4,500 renewable energy and green projects worth more than USD2.2 billion. On climate, the Bank and Securities Commission Malaysia have established the Joint Committee on Climate Change or JC3 to pursue collective climate actions. The Committee brings regulators and the financial industry together to promote alignment and drive climate actions in five areas – risk management, governance and disclosures, green finance and innovation, data and capacity building. Finally, sustainable finance would ring hollow without ensuring that our communities – especially our most vulnerable communities – have the means and ability to make good financial decisions.
The 12-month rate of change of the harmonised index of consumer prices (HICP) fell by 0.8% in September, and underlying inflation, which excludes energy and food prices, stood at 1%. In fact, since 2013, average euro area inflation has also been 1%, less than half the rate observed during the first 10 years of EMU (2.1%). This absence of inflationary pressures and the weakness of demand, along with the deteriorating global environment, led to a further downward revision to the Eurosystem inflation projections, to 1.2% in 2019 and 1% in 2020. In 2021, inflation is forecast to stand at 1.5%, clearly below the monetary policy objective. In turn, the long-term inflation expectations derived from financial markets are at historic lows. In short, the euro area macroeconomic setting is characterised, first, by a downward revision to growth forecasts that were already relatively weak and remain subject to downside risks, owing to the persistence of trade tensions and other geopolitical uncertainties, such as those relating to the final Brexit outcome, and which in some countries of the area, such as Germany, even point to a risk of imminent recession; and, second, by medium-term inflation projections that have also been revised downwards and are well below levels that could be considered compatible with the ECB’s price stability mandate. This is the background to the measures adopted by the Governing Council of the ECB at its September meeting.

The disadvantageous levels of human capital compared with those in other developed economies are apparent in both workers and employers. On Eurostat data, in Spain 40.5% of the self-employed, 35.1% of employers and 32.6% of employees have a low educational level, compared with much smaller percentages (24.8%, 20.1% and 19.8%, respectively) in the euro area as a whole. 6  See, for example, D. Acemoglu and P. Restrepo (2018), “The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment”, American Economic Review, vol. 108, pp. 1488-1542. 12/18  Spain also has a shortfall in terms of the proportion of the population with profiles related in some way to disciplines such as engineering or mathematics. For example, 9% of university graduates in Spain have qualifications in mathematics, science or IT, compared with 14% in Germany or 11% in the European Union as a whole. It is also foreseeable that the massive eruption of new technologies will result in greater importance being afforded to non-cognitive skills (such as a desire to innovate, self-control, ability to concentrate, or adaptability to a changing environment),7 in which Spain also performs poorly in the international comparison. It therefore seems advisable to rethink the institutional design of the educational system, the content of the curriculum and the learning system itself. In this respect, it is crucial to treat this project of improving human capital as a collective task.
The risk-sensitive management of a bank therefore needs to be matched by risksensitive regulation. The risk-weighted capital ratio requirements address this, ensuring that a bank engaging in transactions with higher returns – and hence higher risk – also has to hold more capital. Accordingly, the risk weight applied to a speculative foreign investment is markedly higher than that applied to a mortgage in Switzerland. That being said, it is often difficult to estimate and model risks precisely. For this reason, a simple, non-risk-based capital ratio has now also been introduced, stipulating that a bank’s 2  3 4  These banks thus had a de facto state guarantee – their creditors could assume that the government would cover large losses and indemnify them in the event of a bankruptcy. Accordingly, they were prepared to deposit money with the banks at comparatively favourable terms. This funding advantage in turn allowed the banks to take on large risks. Overall, such a constellation is not ideal from the perspective of society as a whole as it creates a ‘moral hazard’ issue. The short-term parameter is referred to as the Liquidity Coverage Ratio, while the longer-term requirement is known as the Net Stable Funding Ratio. The risk-weighted capital requirement is referred to as the Risk-Weighted Assets Ratio, or RWA Ratio for short. Banks are permitted to use their own models for calculating RWA. However, to prevent overly low RWA figures being reported and ensure comparability between banks, the framework stipulates an ‘output floor’ for the RWA calculated by the banks.

Against the backdrop of an apparently healthy financial system, market participants report a substantial rise in transactions leverage, erosion in the use of loan covenants, more favorable financing terms for hedge fund counterparties, and especially a pressure to reduce initial margin against OTC derivatives exposure to hedge funds. But the concern is that this sustained period of very low credit losses and low volatility works to hold down measures of the underlying economic risk in these exposures. This combined with the range of factors I just discussed, raises the odds that market participants will be faced with negative surprises in the event of a more adverse macroeconomic  2  BIS Review 55/2006  environment. And this could have more negative implications for market dynamics and liquidity as market participants react to those losses and attempt to reduce their exposure to future losses. These concerns are not particularly new, and my sense is that they are widely shared among the people and institutions that are closest to these markets. They do not, in my view, challenge the overall judgment that these changes in the credit markets on balance are likely to make the financial system more resilient rather than more fragile. But they do suggest the need for greater caution by financial institutions in several important areas. First, it is very important that the major dealers make the investments necessary to improve the operational infrastructure that underpins the credit derivatives and broader OTC derivatives market.