samchain/econo-pairs-v1 huggingface dataset:
Rates of infant mortality have fallen by th  8  40 percentage points since the end of the 18 century. The estimated lifespan of a human has risen by a 9  factor of over two. And estimated male skeleton heights have risen by 5-10cm. 10  Humans have grown,  financially and physiologically, in lockstep. The world has moved from a Malthusian Era to a Golden one. 5  Stiglitz, Sen and Fitoussi (2009). For example, Clark (2009). 7 Malthus (1798). 8 Our World In Data: https://ourworldindata.org/child-mortality 9 Our World In Data: https://ourworldindata.org/life-expectancy 10 Haldane (2015a). 6  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  A Story with One “i”  What explains this extra-ordinary inflexion point in the history of economic growth and living standards? So fundamental is this question to so much of social and economic history that, understandably, it has attracted huge amounts of empirical, historical, social and theoretical research. Out of this cloud of evidence, a clear sunbeam of understanding has emerged about the deep causes and catalysts of economic growth. th  If you ask a schoolchild what happened in England around the middle of the 18 century, as I often do, many will give you the right answer. It marked the dawn of the Industrial Revolution. But what exactly was this a revolution in and what exactly caused it? In the standard account, the catalyst for this revolution in economic growth came from a single source, from one “i” - ideas.

Since at th  least the middle of the 19 century, the Bank of England has become one of the key institutional safeguards against recession risk and financial crisis. 41  Indeed, today, those roles are defined in statute. Non-state institutions have also played an important role in protecting those facing the adverse side-effects of economic change. This included many religious, philanthropic and charitable organisations and citizen th  movements that emerged from the 18 century onwards, often as a direct response to hardship brought about by technological change. These institutions offered, and many continue to offer, a combination of financial, housing, training and emotional support to those in need. 39  Clark (2009). Figures refer to government command of output as a percentage of GNP in England. Other 19th century legal changes that supported individuals from adverse side-effects of economic change included recognition of limited liability companies and constraints on the ability of courts to sentence debtors to prison. 41 Anson et al (2017), for example, discuss the emergence of the Bank of England as lender of last resort. 40  11  All speeches are available online at www.bankofengland.co.uk/speeches  11  To mention one, the Young Men’s Christian Association (YMCA) was founded in 1844, at around the time of Engels’ pause. It was established explicitly to meet the housing and social needs of young men who had moved from rural towns and villages to find work in factories in the cities.
It is difficult at present to determine the future direction for monetary policy, which will depend partly on the development of the Iraq crisis and the effects of its possible outcome on inflation prospects. Before I go on to discuss history, let me emphasise one more thing. The repo rate decision we consider most appropriate depends on the overall direction expected for economic policy. Recently, there have been claims that this is an appropriate time to counteract the weakening of the economy with a more expansionary fiscal policy. Some debaters even claim that it would be desirable in the present situation to give up the principles that have guided budgetary policy in recent years, with an expenditure ceiling and surplus target. I don't agree with that at all. If there is short-term room for manoeuvre and it is possible to obtain higher growth and employment without threatening the inflation target, this should be safeguarded by lowering the repo rate. To relinquish the fiscal policy regulations when they may be really put to the test would send a very negative signal to all those who analyse the Swedish economy. This could in turn risk having directly counter-productive effects on the interest rate and thereby on economic developments. Monetary policy 2000-2002 Let me return to a retrospective look at the development of the inflation rate and the monetary policy conducted. The Riksbank has published an appendix in the Inflation Report that is intended to facilitate the evaluation of monetary policy during the period 2000-2002.

At that time the price increases were driven instead by expectations that prices would continue to rise strongly in the future. When it eventually became evident that these expectations were not going to materialise, the prices fell quickly. Such speculative elements do not appear to exist today. At the same time, property companies’ earnings and debt-servicing ability are good. As things stand today, the property sector will hardly cause any large loan losses for the banks and so it does not constitute a threat either to the stability of the financial system. Housing prices and household debt Over the past one to two years we in the Riksbank’s Executive Board have devoted quite a bit of attention to the house market, where a rapid rise in prices has gone hand in hand with an increase in household debt. But it is important to distinguish between the conclusions we have come to regarding  1/6  the significance for financial stability and the discussions we have had in connection with our monetary policy decisions. I will come back to this. That house prices have risen rapidly in Sweden and many other countries can hardly have escaped anyone’s attention. In Sweden, house prices in the past ten years have more than doubled, and the upswing has been especially strong in metropolitan areas. Increasing house prices have been accompanied by an accumulation of household debt. Due to the fall in interest rates, households’ interest costs have dropped, despite the rise in debt.
Adoption of the Hague Securities Convention by countries around the world will improve legal certainty for cross-border collateral arrangements, which is important for bilateral counterparties, clearing and settlement systems. And there are new market-led initiatives underway to bring some utility-type clearing services to the present bilateral arrangements for OTC derivatives. These efforts to improve the clearing and settlement infrastructure for the OTC derivatives market are important because they help make it easier for firms to understand and manage their bilateral risk exposures. Markets work better, particularly in times of stress, when firms are able to operate with greater certainty about their direct counterparty exposures. In this context, it is worth reflecting on whether it makes sense to build on these efforts by developing and utilizing central counterparty clearing arrangements in the more standardized part of the OTC derivative market. To be sure, poorly designed central counterparties can increase risk, and they necessarily concentrate operational risk. But well designed central counterparties can play an important role in reducing systemic risk in markets. This is a complicated challenge for instruments that are inherently complex and constantly evolving, and for which calculating exposures can be difficult. And attracting a critical mass of strong participants can be daunting. But it makes sense to think about whether use of a centralized clearing utility could provide significant advantages over the present bilateral arrangements by increasing transparency, enabling multilateral netting, and providing centralized risk controls, collateral management, and margin requirements.

This monetary policy stance has meant that long-term interest rates in the advanced economies have held at very low levels, while very generous pricing in certain financial markets has been the case. Indeed, some prices are at all-time highs, in a setting in which  BIS central bankers’ speeches  1  investor yield search appears to be playing a predominant role compared with other considerations based more on the fundamentals of these assets. This scenario on international money and financial markets poses risks, as it is likely to undergo abrupt changes in the face of expectations emerging over the withdrawal of monetary stimuli or, what comes down to the same, of expectations over sustainable improvements in growth rates that advise less expansionary monetary policies. Developments in and outlook for the Spanish economy In the course of 2013 the Spanish economy showed a degree of dynamism and, from the third quarter onwards, positive GDP growth rates. This trajectory has continued into 2014, meaning that the year might finalise on a path in line with the forecast forwarded in the Spanish Economic Projections Report published by the Banco de España in March, that is to say, with annual average growth of 1.2%. This recovery has also been discernible in the labour market. The pace of job destruction slackened in 2013, until showing slight job creation in the closing months of the year. The improvement has progressively strengthened to date in 2014.
In such a hypothetical case, we would thus not “give up the inflation target” and suddenly start conducting an entirely different policy and, for example, raise the interest rate. There would still be reason to conduct a policy that is as expansionary as we deem possible, to avoid taking longer than necessary to attain the target. However, one consequence might be that the Riksbank’s communication becomes even more central. The damage in a situation where monetary policy is not made more expansionary, despite inflation being expected to undershoot the target for a long time, will be much less if the general public can be convinced that the target has not been abandoned, but that it is merely a question of taking longer than normal to attain it. Clarifying this would be a difficult but hopefully not impossible task. Often unclear whether the criticism applies to monetary policy or the target Having gone through how I view the current situation and discussed a few related aspects, I would now like to widen the perspective a little and talk about more fundamental issues. More specifically, I thought I would go into why we have the framework we have, with an inflation target and a floating exchange rate, and what benefits this system provides. This is not the first time I have done so, but I  8 Jansson (2016). 6 [17]  believe it is useful and important to remind people of this now and then.

This could in turn create imbalances on the labour market. Many analysts argue that, instead of the most important aim of 10 [17]  wage formation being to safeguard the international competitiveness of industry, it should be to achieve balance in the labour market as a whole. 10 Another important aspect highlighted in the discussion is the extent to which this wage standardisation is always compatible with an inflation-targeting regime. The reason for highlighting this issue is the strikingly low overall nominal wage growth in the economy despite a healthy economic situation and more or less on-target inflation. That wage agreements in Swedish industry have been restrained is due to a large extent to modest wage growth in our European competitor countries, probably because many of these countries have been hit very hard by the international financial crisis and subsequent European debt crisis. As the agreements in industry also set the standard for wage agreements in other sectors that are only partly or not at all exposed to competition, these agreements will also be low. From a theoretical perspective, this type of wage standardisation should not be incompatible with inflation targeting in the long term as the euro area’s inflation target is very much in line with Sweden’s. But in periods when wage growth in the euro area is unusually low, standardisation based on the industrial sector contributes to low wage growth in the Swedish economy as well.
Figure 6 Job creation by category  Wages (*)  (annual change, percent)  (annual change, percent)  15 8  8  Self-employment 7 10 6  Nominal 7  5  5  4  4  9 6  Wage  3  5  0  0  -3  -5  6  3  3  Real  2  2  1  1  -10 0  -6 11  12  13  14  15  16  17  0 11  12  13  14  15  16  17  (*) Both the nominal and the real correspond to the average of the annual variation of IREM and CMO. Source: National Statistics Institute (INE). 11. Domestic financial conditions remain favorable, particularly in terms of interest rates. Notwithstanding, credit volumes have decelerated with respect to previous years, as a result of overall subdued demand. Despite some increase in recent data, NPL ratios remain low, a clear sign that slower growth has not affected the financial health of companies and households. 12. The evolution of the local stock market has caught some attention lately, since the IPSA has increased about 17% this year and more than 30% since December 2015. Although these numbers might ring some bells, the performance of the Chilean index does not differ significantly from other regional stock markets and its recent behavior might just be a catch up from very low levels.

For a start, the economy was clearly well suited to participate in Economic and Monetary Union (EMU): it has a long history as a market economy; it is already closely integrated with the euro area through trade and finance; it has close similarities with the euro area in the sectoral composition of output and employment as well as in terms of business cycle synchronisation; it enjoys a relatively high level of development, with a per capita GDP close to the euro area average; and its currency has a long history of stability. The euro, furthermore, offered the prospect of enhancing the economy’s potential to grow faster. The elimination of exchange rate risk and currency conversion costs should result in increased trade, while the low interest rate and inflation environment of the euro area should make for reduced business costs and greater macroeconomic stability. Combined with the fiscal discipline associated with monetary union, this is expected to translate into higher credit ratings and improved investment prospects. From a central banker’s perspective, moreover, a key benefit of euro area membership will be the elimination of the risks inherent  BIS Review 110/2007  1  in managing a small, vulnerable currency and their replacement by the greater security afforded by the world’s second most important currency. Finally, the object of our quest, that is participation in EMU, was desirable for another reason. We were aware that we would thus become part of a framework that has been successful in fostering economic growth and employment creation.
Guidance that provides clarity around both short-term interest rates and the balance sheet might help to anchor interest rate expectations—for example by indicating while purchases continue that the central bank intends to maintain overnight interest rates at low levels even after the completion of asset purchases.38 Lesson 6: Focus on one tool during normalization Uncertainty associated with managing multiple tools and the degree of substitutability between them poses possible challenges in removing policy accommodation after a zero lower bound episode, as the central bank switches from conducting policy with one lever to another. It therefore seems prudent to take a gradual approach to normalization, emphasizing one tool at a time. The Fed’s adopted normalization approach has thus far been an effective one. Starting to raise rates first, and waiting to start reducing the balance sheet until normalization in the level of overnight rates is well underway, has helped to ensure that the economic recovery is sufficiently advanced before making changes to the balance sheet.39 This strategy has reduced the likelihood that an unexpected adverse shock to the economy not long after the start of policy tightening would have necessitated a return to the zero lower bound on the federal funds rate and 7 / 13  BIS central bankers' speeches  potentially a reversal in balance sheet normalization.

Their relationships with sponsor banks are sometimes very ambiguous. There may be a gap between the legal commitments taken by the banks through liquidity support and credit enhancements, and the “true” level of responsibility they felt obliged to take to protect their reputation. This conjunction of complexity and fragility may have been too much for the system to bear. So it is worth to pause and ask ourselves whether we can eliminate those vulnerabilities and still keep the benefits associated with securitization, especially in terms of financial innovation. One good starting point is to look at the economic and financial rationale for securitization. Securitization is meant to perform two functions: the first, and most "advertised" in recent years, is to allocate and distribute risks, hopefully to those agents and investors best equipped and most willing – to carry it. The "slicing and tranching" process allowed banks to offload credit risk from their balance sheets and transfer it to other financial investors. But, historically, securitization is borne out of the more simple desire to shortcut banking intermediation by using markets to directly match the needs of lenders and borrowers. Since both have different liquidity preferences, this usually involves the issuance of tradable – i.e. liquid-securities which can be sold to the ultimate investors. Thus, a well functioning securitized system would meet two characteristics: (1) allow for a permanent reallocation of risk between market participants according to their preferences, expectations and risk aversion; and (2) make liquidity (market liquidity) permanently available throughout the system.
Indeed, by urging governments to aim at a fiscal position “close to balance or in surplus” in the medium term, the pact enables them to let fiscal deficits increase during recessions without exceeding the 3% reference value. In short, it allows them to create a fiscal buffer during normal economic periods that can be drawn on to counter economic divergences or asymmetric shocks. To summarise that overall issue, the “Optimal Currency Area” theory has frequently been called upon by economists who criticized EMU and expressed concerns about giving up the exchange-rate policy instrument as a response to asymmetric shocks - in particular to asymmetric shocks within a monetary union. I would like to point out, first, that one of the most remarkable effect of the European integration has been the increasing symmetry of shocks. Second, Professor Mundell himself, in support of EMU, made an interesting clarification at the beginning of 1998: in the event of a shift in demand from one member country to another, creating unemployment in the first and inflationary pressure in the second, flexible exchange rates would not be able to solve the problem. I quote: “If the argument for devaluation were valid, it could be applied to every state or sub-region in any country, with a proliferation of new currencies, so they could be devalued!”.

This is done for instance in our Financial Stability Report, which is published twice a year, and in speeches held by Executive Board members. We also try to influence market participants who are important to financial stability. Part of this work includes regular contacts with the banks, other government agencies and our central bank colleagues in other countries. Most of our work concerns preventing problems and ensuring that the payment system functions as smoothly as possible. We can do this in many different ways. Some concrete examples are the recent actions taken by the Riksbank and other government agencies. I shall return to what these actions entail shortly. We work to prevent financial crises from arising. But if they do nevertheless arise, it is also our task to manage them. We have to be prepared to take action although we hope that we will never need to do so. This preparedness includes, for instance, regularly holding crisis exercises, both internally and together with other Swedish authorities, and sometimes together with central banks and authorities in other countries. The work on financial stability is reminiscent of fire safety work. We have to provide information about the risks, but it is also our job to be prepared to put out the “fires”. And to be able to do this efficiently, we must have practised. In purely practical terms, we have the possibility to take a number of different measures if this should prove necessary.
I entirely agree with Howard Davies that it is essential that the Basel framework, if it is to remain a global standard, continues to encompass a menu of options which accommodate different needs. I also do not wish to gloss over the fact that there are some very knotty areas in the proposals that have to be tackled before the Basel Committee can deliver on its objectives of greater risk sensitivity and comprehensiveness. The FSA is today going to tackle four of the most difficult, namely credit risk mitigation, operational risk, internal ratings, and interest rate risk in the banking book. I would like to take this opportunity to make a few observations on those areas that are of particular interest to us. Use of internal credit ratings The Bank has, as some of you may know, been devoting considerable thought to development of the internal ratings based approach to setting capital for credit risk. This is in part because we have been able to utilise the expertise we have built up in the course of our work on credit risk modelling, on which the Bank and the FSA held a joint conference last year. But more importantly, it is also because we consider this part of the Basel proposals to be of the utmost importance to achieving a balanced and stable framework. In particular, the availability of this approach is a very important safety valve for the market pressures and distortions that could otherwise arise from the use of external ratings.

Several options need to be explored, including the possibility of offering a choice of approaches to supervisors, or an evolutionary framework whereby the system could develop in sophistication over time. In principle, we would certainly like to see a system that a reasonably large number of banks could sensibly aspire to. There are only two caveats that I would make. First, of course, there are the implications for supervisory resources if a very large population of banks have to have their internal ratings systems approved. And secondly, even a simple framework has to observe certain minimum requirements. This means the ability to relate an internal rating to a quantifiable concept, such as loss-given-default or default probability; the ability to demonstrate that this relationship is historically valid, or - in the likely absence of long runs of data - at least plausible; and third, as I said before, a forward-looking dimension to the rating. Whilst the Bank of England is doing its best - I hope with some success - to help the economy avoid the booms and busts of previous decades, banking is likely to remain a cyclical industry, and to my mind it would be simply imprudent to base ratings and capital on a borrower’s position at the top of an economic cycle. Operational risk Use of internal ratings will of course raise many of the sorts of difficulties for testing and validation that were identified for credit risk modelling.