samchain/econo-pairs-v1 huggingface dataset:
I would like to highlight three main aspects of this work: First, the financial crisis revealed that banks held insufficient capital, excessive short-term market funding and inadequate liquidity buffers. The new Basel III framework sets out stricter requirements. Higher and better-quality capital will increase banks’ resilience to pronounced fluctuations in the economy without their having to tighten lending abruptly. The new rules aim to moderate growth in banking in periods of expansion. Second, the new framework includes macroprudential tools that can be applied as necessary. Banks may be subject to additional capital requirements if credit growth in the wider economy is excessive. The requirement is intended to ensure that banks build up an extra capital buffer when systemic risk increases. Loan-to-value ceilings on mortgage loans may also be imposed. Third, the authorities must acquire tools that enable banks to be wound up in an orderly manner. In this context, it is important that the structure of banking groups is transparent. Banks must also draw up plans for their own liquidation in the event of difficulties. Owners and creditors – not taxpayers – must bear the losses. The interest rate on banks’ funding will then reflect the risk they take rather than an implicit government guarantee. This will in itself have a preventive effect. In some areas, banking sector regulation in Norway has been stricter than in other countries. Over time, this has been a strength, not a weakness, for Norwegian banks.

The social partners can apply a low and stable rate of inflation when they negotiate the share of economic growth to be taken out as real wages and set their ambitions with regard to employment. The guidelines and the financial crisis The financial crisis in 2008 put the economic policy guidelines to a severe test. The interest rate cuts that followed from the inflation target led to a reduction in households’ annual interest expenses of around NOK 40 billion. The krone acted as a buffer. The burden on leveraged companies was eased and many investment projects became profitable in an environment of lower interest rates. Monetary policy made a substantial overall contribution to Norway’s resilience to the crisis. 3  Speech delivered at the Petroleum Seminar at the Norwegian Association of Economists on 2 November 1988. 4  BIS central bankers’ speeches  Chart 6: Real interest rate. Per cent. August 1987 – February 1990 and June 2008 – December 2010 Chart 7: Registered unemployment. Per cent. August 1987 – February 1990 and June 2008 – December 2010 Well anchored inflation expectations made monetary policy effective – the reduction in Norges Bank’s key policy rate was perceived as a decline in the real interest rate. Other central banks experienced that there was little scope for reducing the real interest rate to a sufficiently low level. This downturn contrasts sharply with the downturn in the 1980s when the interest rate had to be maintained at a high level to defend the krone exchange rate.
While the nature of shocks and propagation mechanisms still largely remain on the battlefield of economic theory, empirically observed patterns and the consequences of the materialisation of risks necessitate our reaction, which should be based on our best knowledge and abilities. Allow me to get into more detail here. Optimal policy responses in a multi-country setting require a careful examination of real and financial cycles, both domestic and international. For that purpose, let us look at five important patterns that seem to characterise them. First, financial cycles seem to have a lower frequency and higher amplitudes compared to standard business (real) cycles. Credit and asset price cycles may take long to develop their potential to destabilize the financial system. Further on, such a potential may emerge regardless of watchful micro-prudential supervision or stable inflation. The resulting notion of systemic risk may be identified as the interplay of macroeconomic shocks that make financial sector vulnerable, the contagion resulting from financial interconnectedness and endogenous financial imbalances associated with credit booms, credit leverage and risk taking behaviour of financial institutions 3. Second, there are still no mechanisms in place to engineer sustainable synchronisation of cyclical movements across Europe. The question of cyclical synchronisation arises as particularly important within the international setting. This is the factor that makes policy responses even more complex, especially within a currency union such as the euro area, where the damage of suboptimal policy responses might exceed mere fiscal costs and output losses – they may threaten the future of the euro itself.

You may recall that in the movie Wall Street, Michael Douglas kept on saying: “Greed is good!” When this kind of mindset, which puts the individuals’ interests above the firm’s and the firm’s interests ahead of the client’s, becomes prevalent, it will inevitably lead to highly undesirable if not disastrous outcomes not just for the users but for the financial system as a whole. So while greed is probably an inherent part of human nature, a successful financial firm or an IFC must ensure that it can develop and cherish a culture and values that will restrain excessive greed in the interests of giving customers a fair deal. Only in doing that will an IFC be able to sustain its position and competitive edge over a long period of time. We all understand that an IFC also represents a brand, a quality that customers trust in terms of efficiency, reliability and integrity. It takes  BIS central bankers’ speeches  3  decades or even centuries to build a brand, but only days to destroy it if any of the qualities of competence, control or culture are eroded. Ladies and gentlemen, I have talked about the qualities or power of the 3Cs and I hope you will agree with me that, if Hong Kong wishes to remain competitive as the region’s premier IFC, we will have to do everything we can to strengthen our “soft power”.
But in its current implementation the output of the risk margin formula is too sensitive to interest rates[2], and when rates are low it is higher than it need be to fulfil its purpose. And this has driven a misallocation of capital, away from longevity risk, a misallocation which is relentlessly increasing as volumes of business not covered by transitional measures grow. Overall outcome of the review We are working on these and other specific topics, and looking forward to receiving views in response to HMT’s call for evidence which closes later this month. It is important to get these reforms right. But we cannot consider reforms to individual measures in isolation: at the end of the process we have to be confident that the package of measures continues to deliver the right overall level of resilience at firm and sector level and supply of financial services demanded by the economy. That has always been the reality – calibration of individual measures has to derive both from bottom up analysis and top down assessment of their cumulative impact. The fact that the risk margin is too high for its own purpose does not mean that when everything is added up, overall levels of resilience are themselves wrong. To be clear, though, the Prudential Regulation Authority (PRA) enters this review with no goal of either decreasing or increasing total capital in the sector. In fact at this stage we have not been presented with persuasive evidence that current levels are manifestly too high or too low.

It is in the interests of firms and the people of the United Kingdom, whose interests the Bank of England exists to serve, that we have that debate and that it be informed not by caricatures of each other’s positions, but by a shared understanding of both the costs and benefits of the capital element of prudential regulation, as well as its place in the wider regime. I would like to thank Alan Sheppard, Anthony Brown, Charlotte Gerken, David Humphry, and Manuel Sales for their help in preparing these remarks. 1. https://www.gov.uk/government/publications/solvency-ii-review-call-for-evidence 2. Letter from Sam Woods: Solvency II Risk Margin 3. Ask not what the economy can do for insurers – ask what insurers can do for the economy - speech by Anna Sweeney  Goldilocks and the three pillars: how much capital is just right? ‐ speech by Anna Sweeney | Bank of England  Page 5  Anna Sweeney Executive Director, Insurance  Sign up for latest updates  Goldilocks and the three pillars: how much capital is just right? ‐ speech by Anna Sweeney | Bank of England  Page 6
Chart 1: House price: earnings  Chart 2: Flow of new mortgage borrowing  House price to earnings ratio Whole UK South and East London  Quarterly mortgage lending £  14  80000  12  70000  10 8  60000  Value of new lending if transactions remained at pre-crisis levels  50000 40000  6 4  97 99 01 03 05 07 09 11 13 15 17 19  30000 20000  2  10000  0  0  Value of new mortgage lending  99 00 01 03 04 05 07 08 09 11 12 13 15 16 17 19 Quarterly value of new mortgage transactions, excluding pure remortgaging. Counterfactual assumes that the number of mortgage approvals remains at its pre-crisis peak, while house prices and LTVs follow the realised out-turn. This exercise therefore doesn’t take into account potential feedback from transactions to house prices. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  What lay behind this relatively “quiet” decade for the UK housing market? Housing is a very complex market with multiple drivers on both the supply and the demand side. There is a great deal of debate in the academic literature about the drivers of house prices and the role played by credit conditions. These provide a number of lenses through which to look at the UK housing market over this period. Housing supply is for obvious reasons an in-elastic market in most countries.

The Rt Hon Sir Edward George: The Bank of England’s monetary policy objective and recent challenges Speech by The Rt Hon Sir Edward George, Governor of the Bank of England, to the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) Birmingham, 11 April 2002. *  *  *  I've had a long-time interest in the RSA. I was honoured to be elected as a fellow in 1986. But this is the first time I've participated in one of your programmes. The Society, unusually, brings together people from different backgrounds and disciplines - across the arts to the sciences, but with a common interest in social and economic progress in the broadest sense. That diversity, but also commonality, of interest is reflected in the RSA Journal, which I find a fascinating read - whenever I get the time. It's reflected, too, in your lecture program so that I find myself slotted in between a lecture entitled "The feel good factor", on a medical theme, and another entitled "Chaos is good for you!" describing a creative approach to business management! In fact I have been invited to talk about the "Monetary Challenges" we are currently facing - and, when you've heard what I have to say, you may feel that this juxtapositioning is not wholly inappropriate. But let me begin by explaining what it is that we are trying to do through monetary policy at the Bank of England, and why.
Putting these factors together, I would argue that the outlook for inflation is likely to remain low for the foreseeable future. The November FOMC forecasts for core inflation in 2012 were concentrated near 1.8 percent, and the forecasts for total inflation in 2013 and 2014 were in the range of 1.5 percent to 2.0 percent. My own assessment is that inflation will be at the lower end of these ranges. Fed performance Given the high unemployment rate and low job growth, I think it is clear that the Fed has fallen short in achieving its goal of maximum employment. As for the price stability component of our dual mandate, the majority of FOMC participants – including me – judge that our objective is for overall inflation to average 2 percent over the medium term. With my own view that inflation is likely to run below this rate over the next few years, I believe we will miss on our inflation objective as well. What Is the right course for policy? The traditional course of action when inflation is below target and real output is expected to be below potential is to run an accommodative monetary policy. I support such accommodation today. And I believe the degree of accommodation should be substantial. I believe that the disappointingly slow growth and continued high unemployment that we confront today reflects the fact that we are in what economists call a “liquidity trap.” Let me explain.

It is now two and a half years since the Great Recession ended and the recovery began. Yet, despite both accommodative monetary policy and fiscal stimulus, the pace of improvement has been painstakingly slow. Real gross domestic product (GDP) is only just  BIS central bankers’ speeches  1  back to where it stood at its pre-recession peak. Employment growth is barely enough to keep pace with the natural growth in the labor force and the unemployment rate remains extraordinarily high. However, recent news about the performance of the economy has been more promising. Motor vehicle sales have returned to their upward trend following supply disruptions caused by last spring’s horrible Japanese tsunami. U.S. manufacturing is expanding – boosted by the recovery in the automotive sector, as well as growing worldwide demand for materials and equipment in the energy, mining and agricultural sectors. Consumer spending outside of autos appears to be rising at a moderate rate, and employment growth, although still tepid, is showing signs of improvement. Initial unemployment insurance claims are down and layoffs have fallen, contributing to a decline in the unemployment rate of 0.5 percent over the past quarter. So, the economy is looking somewhat better than it did a few months ago. But this does not mean we are seeing a massive surge in economic activity. The data shows only modest improvement in growth to rates that are near or just somewhat above the economy’s longer-run potential. Moreover, the pace of economic activity needs to accelerate further to boost confidence.
However, for the sake of clarity, I also intend to now run through some of the important information that has been received since the monetary policy meeting on 12 February. However, I will not be saying anything about what the new information means to future interest rate developments. This is something that we Executive Board members will have to decide at our next monetary policy meeting. The material for the February decision In the Monetary Policy Report published in February an account is given of the way in which the majority of the Executive Board view the prospects for inflation and development of the real economy in Sweden and abroad during the coming years. The monetary policy considerations are also shown and the assessments are based on the forecast for the repo rate described in the report. The main scenario of the report forecasts continued high cost pressures in the Swedish economy and weaker economic growth both abroad and in Sweden, albeit still good. It can be added that the forecast had changed only marginally since the December Monetary Policy Update. Growth in the United States and the euro area is expected to be considerably lower than last year and also lower than the trend development. Even in the world as a whole growth is expected to slow but remain good since emerging markets such as China and India are expected to continue to grow at a rapid rate.

The outcome had not been published at the time of the monetary policy meeting, but it was largely as expected. Households in the euro area appear to have been very restrictive with their consumption expenditure. Retail trade turnover fell at the end of last year and it is also possible to discern from survey data that household confidence has declined. As in the United States, more prolonged problems in the financial markets can lead to developments being weaker than in the main scenario. My view in February of developments in Sweden Inflation has gradually risen in Sweden in recent years. On average, measured in terms of the CPI, inflation was 2.2 per cent last year, which is close to the inflation target. The upswing in inflation was partly due to resource utilisation in the economy having increased and cost pressures having risen. Hourly wages increased more rapidly than before at the same time as productivity growth slackened considerably. Inflation has been very low for several years, but in 2007 rising cost pressures were a factor that contributed to inflation reaching the target. Underlying inflation, measured in terms of the CPIX, was however 1.2 per cent as an average for 2007. During the autumn of last year inflation rose very quickly and, measured in terms of the CPI, reached 3.5 per cent in December. Underlying inflation, measured in terms of the CPIX, rose to 2 per cent in December.
I point this out because some of those who developed a sudden interest in the Icelandic economy overlooked the background to the depreciation of the króna so far this year which is important to keep in mind. The Central Bank’s main objective is to contribute to a twelve-month rate of inflation as close as possible to 2½%. For various reasons this target has proved difficult to attain recently. Probably the most important factor has been the structural changes in the mortgage loan market in 2004, with the easing of the Housing Financing Fund’s lending rules and the subsequent entry of commercial banks and savings banks into the market. These changes caused real estate prices and private consumption to surge. In the recent term, house price inflation has accounted for the lion’s share of the increase in the CPI. The Central Bank had hoped that house price inflation would slow down or stop before the króna began to weaken. If housing prices had risen by little or nothing, they could have offset the effects of the eventual depreciation. Regrettably the outcome was as I described, i.e. the króna fell sooner and faster than had been expected, and before real estate price inflation began to come down to a sufficient degree. Inflation will therefore clearly remain some way above target over the months to come. BIS Review 46/2006  1  A necessary economic adjustment lies ahead. One of the chief characteristics of the Icelandic economy is its high degree of flexibility and adaptability.

cnb.cz/cs/verejnost/servis-pro-media/autorske-clanky-rozhovory-s-predstaviteli-cnb /Klausova-draha-permanentka/ 3 https://www.cnb.cz/cs/o_cnb/cnblog/Inflace-v-CR-cyklicky-ci-acyklicky-pribeh/ 4 https://www.cnb.cz/cs/verejnost/servis-pro-media/autorske-clanky-rozhovory-s-  predstaviteli-cnb/Krotitele-nakladove-inflace/ 5 For details, see https://www.cnb.cz/cs/o_cnb/cnblog/Jak-dlouhy-je-spravny-horizont-  menove-politiky/. 3/4  BIS - Central bankers' speeches  6 https://www.cnb.cz/cs/verejnost/servis-pro-media/autorske-clanky-rozhovory-s-  predstaviteli-cnb/Zapisky-z-Jackson-Hole-1-00001.-dil/ 7 https://www.cnb.cz/cs/verejnost/servis-pro-media/autorske-clanky-rozhovory-s-  predstaviteli-cnb/Jdeme-prikladem-brzdime-platy-v-CNB/  4/4  BIS - Central bankers' speeches
Such timing issues are one reason why the MPC has consistently stressed that the implications of Brexit for monetary policy would not be automatic. The inflation outlook will balance the inflationary effects of the exchange rate, imported inflation due to higher tariffs and a steeper Phillips curve from supply chain and labour market impacts, with the disinflationary impacts of reduced EU demand for UK goods and services, adverse effects on spending, including business investment, from the anticipation of lower growth,  56  and any  effects of uncertainty on domestic demand. The timing and scale of all these effects is of course subject to tremendous uncertainty. The MPC’s remit specifies that, in exceptional circumstances such as Brexit, the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity. That is why immediately following the referendum the Bank of England announced a series of monetary and financial measures to support the economy. These measures were calibrated to balance the trade-off that emerged immediately after the referendum between ensuring a sustainable return of inflation to target and supporting jobs and growth (Chart 15). This stimulus is working. Credit is widely available, the cost of borrowing is near record lows, the economy has outperformed expectations, and unemployment has reached a 42 year low. As a consequence, the trade-off between inflation and spare capacity is diminishing. 56  Blanchard, O, Cerutti, E and Summers, L (2015), ibid.

If not addressed, this pro-cyclicality could erode the solvency cushions that banks should be holding against the effects of economic downturns. Addressing this is one of the most important remaining challenges of Basel II and is particularly associated with the implementation of the more sophisticated approaches of the new capital framework. Despite reassuring noises from the Basel Committee, this is not going to be an easy problem to address. Few people, and definitely not banking supervisors, can foresee the peaks and troughs of economic cycles. But our inability to perfectly foretell the future should not be a pretext for inaction. An effective supervisory review process will be critical to create a counter-weight to the cyclical tendencies of the new capital framework, in order to prevent increased incidences of failures and financial instability. Managers of banks and bank directors have an even more important role to play. They have the primary responsibility for identifying and assessing various threats to solvency of their own bank, including the risks that are partially covered or not covered at all under Pillar 1 of the framework. They also need to be cognizant of the cyclicality arising from their quantitative tools and should have sufficient compensatory mechanisms against the cyclicality of regulatory capital requirements. These issues are referred to in Pillar 2 of Basel II. This is what we refer to as “Supervisory CAR”, to address risks not covered or not fully covered by the formulae in Pillar 1.