samchain/econo-pairs-v1 huggingface dataset:
29  These percentages should be considered as the lower bound of the total impact of the interest rate rise, as this would also reduce agents’ income, through its negative impact on economic activity, and would curb the accumulation of wealth on account of the higher net interest burden. 30  Moreover, these were the households whose energy expenditure increased the most, as a proportion of their consumption, in 2020 and 2021. 15  High debt levels also mean that public finances are more sensitive to interest rate movements. However, the low interest rate levels of recent years have led to a continuous decline in the interest burden as a percentage of GDP, while at the same time, longer average debt maturities have limited the short-term impact of higher issuance costs. Under a scenario of gradual interest rate rises consistent with the latest projections, the debt burden is expected to stabilise as a percentage of GDP. Under that same scenario, an additional 100 bp increase in short and long-term interest rates, with all other variables remaining constant, will drive up interest payments by 0.4 pp of GDP by 2024. 16  In the Spanish banking industry stress tests, two potential stress scenarios – dubbed adverse and severe – were simulated for the period 2022-2023.

More banks made such issuances in 2021, giving rise to greater cost dispersion.18 There was also a significant increase in unsecured debt issuances, in this case at a slightly higher cost than in 2020. Meanwhile, deposits at Spanish banks continued to grow in 2021, albeit at slower rates than in the previous year.19  17  The risk-free interest rate benchmark. 18  The rising cost of Tier 2 debt owes, at least in part, to smaller banks issuing these instruments to comply with MREL resolution requirements. This factor may have had an important impact, given that MREL requirements are binding from 1 January 2022 and banks must reach the required levels. 19  The balance of bank deposits held by the resident private sector in Spain rose by 4.1% in 2021, compared with growth of 8.9% in 2020. 10  Overall, the average cost of liabilities20 has fallen in the last two years, down to 0.5% at end-2021, below its pre-pandemic level (slightly over 1%). After falling in 2020, the cost of capital rose in the first ten months of 2021,21 but then fell back again, to 8.1% at December 2021.
What was considered here was a very simple economy for ease of clarity. But, the broad results derived are equally valid to a modern economy with billions of transactions. These results can be summarized as follows: First, if the money supply increases, while the output remains unchanged, then, the general price level will tend to increase. Second, if the money supply increases at the same rate as the increase in the output, then the general price level remains unchanged. Third, if the money supply does not increase, when the output has increased, then, the general price level will fall. Fourth, if the money supply has remained unchanged or even raised when the output has fallen (a negative supply shock), then the prices would rise to a still higher level. In the above example, coconut constituting real output represented the aggregate supply of goods and services, measured in real terms. The total amount of money in the hands of the people represented the demand for coconuts. Since the money value of coconuts is an imaginary concept, that demand could be described as the nominal aggregate demand for goods and services. What would happen to the general price level will depend on the interplay of these two demand and supply forces. The rest of the analysis follows the normal microeconomic theory. If the aggregate demand is higher than the aggregate supply, there will be an excess demand in the economy. That excess demand will generate pressure for the general price level to rise.

Now, suppose, through a miracle, the money endowment of people doubles to 200 units, while the number of coconuts remains unchanged at 10. Then, the price of coconuts in terms of money rises to 20 units from the earlier 10 units. What has happened here is that when the amount of money doubled, while the production of coconuts had remained unchanged, the prices too have doubled. What would happen to the price level, if the number of coconuts too doubled along with the doubling of money? Then, 20 coconuts would be exchanged for 200 units of money. Hence, the price level would remain unchanged at 10 units of money per coconut. Now, suppose that the number of coconuts doubles to 20, while the amount of money remains at 100 units. In this case, the price level has to fall from 10 units of money to 5 units of money. Let’s consider one more possibility. Suppose that there has been a merciful hurricane and it destroys exactly a half of the original number of coconuts, leaving the balance half intact for use by people. Now, in this economy, there are only 5 coconuts against 100 units of money. It is not difficult to discern that the prices would rise to 20 units of money per coconut. What would happen if the amount of money too is raised to 200 units in this scenario? Then, the price of coconut would skyrocket to 40 units of money.
But, whatever may be the reasons behind these failures, the challenge that we now face is as to how to manage risks optimally in this even more challenging environment, knowing that the opinions provided by the rating agencies may not be too accurate, after all. 5. Let me now highlight another couple of recent developments. One such development is the greater significance of the sovereign wealth funds in the context of the phenomenal rise in reserves in non-Western countries. In the midst of the recent sub prime crisis, these funds have injected significant amounts of long term funds to the large ailing institutions to resurrect them or to prevent them from continuing with poor financial health. In that sense, the sovereign funds have acted as an immensely useful stabilizing force during the financial crisis. However, the injection of such funds has been received with mixed feelings in the geo-political context. I would think the debate on this development is just beginning and it would be useful for all of us to carefully watch the movement of this issue in time to come. Another important development in reserve management is the extensive use of external fund managers. External fund managers are being increasingly engaged by central banks, as many central banks are yet to acquire the technical skills and competencies required to manage the new asset classes that are developing in these dynamic market conditions.

This situation therefore, suggests that there must be now some innovative rethinking, about this process of reserve management. It should also prompt the reserve managers of the reserve accumulating countries to look beyond their  BIS Review 99/2008  1  traditional methods, and intensely search for new avenues for performance enhancement. 1. The philosophy in reserve management in our region has been historically based upon a very conservative approach which focuses on managing foreign exchange reserves, by limiting investment decisions to very low risk, very low return, highgrade instruments. Perhaps, as a result, there has been no significant cross investments of foreign exchange reserves within the countries in the South Asian Region. Of course, there is evidence of mostly concessional loans or similar types of direct investments, but not in the case of traditional financial investments, issued by our respective countries. It may therefore, be useful for those of us in the South Asian Region, particularly in the context of SAARC, to explore the possibilities of cross investment in financing instruments within our own Region. In that way, we would be able to shift and retain capital in this Region, which can then be applied in the development of our own Region. My dear friends, we speak of regional cooperation in lofty terms. We speak of our historical ties. We speak of our shared destinies. We speak of our common culture.
Intermediaries contribute to link both sides and bridge gaps of incentive and information frictions, by managing credit risk, liquidity risk and transforming maturities; thus contributing to a better resource allocation and fostering growth. Proper regulation, with a sound balance of risks assessment, can help prevent unsustainable and irresponsible credit growth, reducing the probability of insolvency while allowing banking institutions develop profitable businesses. So, it is not a question on whether or not to regulate, but rather how much to regulate, and how to do it without impairing efficient allocation of resources. Regulation has not been an obstacle to financial development in Chile in the 35 years since the debt crisis. Chilean capital markets—broadly defined—evolved in tandem with economic growth. The 1986 Banking Law was key in fostering this process, but it was hardly the only piece of the financial architecture that changed significantly. Notably, the creation of a defined contribution pension system, and subsequent capital market reforms, together with capital market openness, have dramatically changed the size, composition, depth, and strength of the financial sector in Chile. By funneling household savings into capital markets, Pension Funds were especially important to the early development of a deep debt market; and their contribution to market-making benefited from a stable macroeconomic environment with controlled inflation, extensive use of the UF, and the restructuring of Central Bank’s debt into longer maturities. A deeper and more liquid debt market also facilitated the pricing of debt issued by private companies in local markets.

Economic Policy Group Report 2012, SNS Förlag, draw the conclusion that there is not sufficiently strong argument to supplement the Riksbank’s inflation target with an explicit target for unemployment, or for raising the inflation target. BIS central bankers’ speeches  7  , where π is the forecast for inflation, π* is the inflation target and y-y* is the forecast for resource utilisation in the economy. The parameter λ represents the importance the central bank gives to stabilising the real economy in relation to stabilising inflation.14 It is thus a question of finding the interest rate that minimises the squared forecast deviations between actual inflation and the inflation target during the forecast period and the squared forecasts for resource utilisation.15 This theoretical description has been very useful in developing the policy of inflation targeting. It captures in an intuitive and relatively simple way the essence of inflation targeting and it has helped to structure our thinking.16 However, the step from theory to practice is far from as simple and straightforward as one might think. One often gets the impression from the current debate that “clarity” in monetary policy means that the central bank should follow this theoretical description very closely. Accordingly, monetary policy decisions should be justified on the basis of a detailed quantified path for both resource utilisation and the deviation of inflation from the target.
Corporate margins are expected, also temporarily, to absorb part of the imported price shock and the corporate margin rate should bottom out in 2023 before gradually returning to its pre-Covid crisis level by 2025. However at the same time, the “tariff shield” implemented by government to protect households and firms from the rise in energy prices is very costly for public finances. I will come back to this issue in a few minutes. II.4 The ex-post distribution: some tentative recommendations Let me conclude with some general considerations about the ex-post distribution of the energy and terms-of-trade shocks. It would likely be too ambitious to  Page 13 of 14 attempt to pin down an optimal burden sharing among economic agents. But we can define a number of conditions to be met. Regarding the share of the burden supported by public finances, government policies cannot durably suppress the real income loss suffered by the domestic economy: it can only reallocate it across categories of households and firms, as well as across time by transferring the burden to future generations. For this reason, government measures must be as much as possible temporary: the share born by public finances must decrease after the peak of the shock. Nor should these measures run counter to the incentives to reduce our energy consumption. From this point of view, the tiering mechanisms set up in Germany and the Netherlands are going in the right direction, by preserving the price signal on the marginal consumption.

Let me therefore underscore that the move was taken just because we were concerned that the confidence we had established in the commitment to low inflation would be eroded when inflation rose rapidly and unexpectedly, clearly exceeding our target, at the same time as the exchange rate weakened dramatically. In many respects this development was confined to Sweden. When we lowered the interest rate in September, the situation was different. It is true that the krona was still weak and inflation above the target, but the terrorist attacks in the United States threatened to almost paralyse an entire world and subdue activity even more. Looking ahead, there are no grounds for ruling anything out. The repo rate depends as usual on our assessment of inflation one to two years ahead. The current assessment is being made against the background, for example, of international economic activity that threatens to be weaker than we foresaw in the Inflation Report in May. By itself, this points to a more favourable picture of inflation. On the other hand there is, for instance, the weak exchange rate. For a time, moreover, inflation has been higher than we counted on. To some extent this has to do with more transitory price increases for certain goods. But even when these are excluded, inflation has continued to creep up. The ultimate conclusion from our assessment is something to which we will be returning in connection with the publication of the year’s third Inflation Report on 16 October.
Third, there is room for an intermediate level of integration, as shown in a simple but illustrative matrix:  BIS central bankers’ speeches  5  I would call it “full coordination of national policies”, a presently missing link between integration, as we have for monetary policy decision-making, and rule-based surveillance, as it is currently the case for national fiscal policies in Europe and which is clearly lacking teeth. And I don’t think we are ready for a fully-fledged fiscal union with a common fiscal capacity and the great mutual trust it requires. In addition to the completion of banking union, the needed part of EMU reform is to set up a strong institution to fully coordinate national fiscal and structural policies. It would help to make the euro area more than the sum of its parts. Jean Monnet famously declared that “nothing is possible without men, but nothing lasts without institutions.” The idea of a Finance Minister of the Euro area is not new: Marcel Fratzscher and the DIW for instance recently advocated for “a joint finance minister”, aware that a single currency “requires an economic convergence process and close coordination of economic policy with common rules”3. But let me specify her/his concrete tasks. I see four of them. First, the Minister would be in charge of preparing the euro area-wide collective strategy to fulfill its sustainable growth mandate and collectively agreeing the division of tasks through the setting of individual performance targets for Member States.

I. Monetary policy is doing its duty, and has already done a lot  I am well aware that some recent monetary policy decisions of the Governing Council are hotly debated in Germany. The expression of such criticism reflects, at a minimum, the need to explain our monetary policy decisions better. However, I’d like to argue that our recent monetary policy decisions are very much in line with the principles of stability that German culture incarnates so well. Let me elaborate on three of these principles. First, independence. The divergent inflation performance of the major industrialized economies after the collapse of the Bretton Woods system had a profound effect on the subsequent conduct of central banks. On the practical side, Germany was seen to have navigated the so-called stagflation episode of the 1970s considerably better than others. The Bundesbank was role model for the independence of other central banks. Second, a clear mandate for price stability. The Eurosystem was built on these foundations as enshrined in the Maastricht treaty. We also adopted, as early as 2003, a transparent quantitative definition of price stability as an inflation rate close to but below 2% over the medium term – very close to the present definition of the US Fed, the BoE or the BoJ: so this is nothing new or specific to the ECB. From 1999 to 2011, the HICP inflation rate averaged 2% in the euro area, remarkably consistent with the objective.
It is reasonable to ascribe this difference to petroleum revenue spending. In principle, this development should have occurred. If we are to benefit from the petroleum revenues, they must be used to stimulate domestic demand. The wealthier we are, the higher demand for services is. Many services cannot be imported, but must be provided domestically. This requires a higher share of employment in sheltered sectors. The question is how rapidly and to what extent this shift should occur. Changes in industry structure involve costs in that the capital invested may remain idle and labour resources may be used less efficiently in periods. It may take time and be difficult to re-establish the use of these resources. Restructuring costs are probably so substantial that we should take them into account when we decide how fast petroleum revenues should be used in the Norwegian economy. An economist at Norges Bank has looked at the level of petroleum revenue spending that minimises restructuring costs, and in that respect represents the most efficient use of revenues. In his analysis, Farooq Akram7 assumes that petroleum revenues are not permanent, and that the mainland economy will continue to expand. This implies that the return on the Petroleum Fund will eventually decline as a share of national income. If we use the entire return as stipulated in the fiscal rule, earlier changes in industry structure will have to be reversed in the long run. Production resources will have to be shifted back from the sheltered to the internationally exposed sector.

But these difficulties are not excuses for not trying. And we have tried; although I must confess, on the basis of the reaction from some of the politicians to the actions we have taken recently, that the returns on our efforts to promote a better general understanding of monetary issues in Hong Kong have not been impressive. 12. So we must try harder, and we will. There are then the questions on how and the areas in which we need to concentrate our efforts. On the former I shall seek advice from my colleagues. On the latter, the recent episode surrounding our operations in the stock and futures markets, culminating in the defeated Motion Debate in the Legislative Council on 30 September 1998 to review the HKMA, provides excellent guidance. If one filters away the noise from political posturing, including the rather unpleasant and unnecessary personal attacks, there are three areas that require attention. Basic Monetary Concepts 13. The first area that requires attention concerns various concepts in modern monetary management that need to be more effectively put across. This is essential if discussions on the technical issues are to be more meaningful. I am aware that this is not intended to be a lecture on monetary economics, so let me just bring out one or two of them here for illustration. 14. Under our linked exchange rate system, stability in the exchange rate is ensured through the control on what is called the monetary base.
We are proposing this as the first step in collaboration. I hope that the Association will actively participate in this. Specifically, by expressing the interests of smaller, regional banks. Incidentally, I support the idea that we look separately, systemically at approaches for the development of banks with a basic licence. A certain period has passed, we met regularly, and discussed this topic. Certainly, I support the initiative that Mr Aksakov expressed. Another important issue that I want to mention, in fact, cannot help but mention is cyber security. Yes, the epidemic has accelerated digital transformation both in customer service and, actually, in the internal processes of financial organisations. This is certainly linked with increased cyber risks. Risks are posed not only by attacks by fraudsters but by the acceleration of digital transformation due to the pandemic: practice shows that inobservance of information security, often due to the fact that the bank wants to launch a new service onto the market, can lead to vulnerabilities in technology and the theft of customers’ funds. A recent example of one of the banks once again confirmed this. Also, it is clear that, when deciding to go online and expand their online services, banks need to take into account information security issues and the costs involved. As we see it, security should be a priority equal to profit. This should be the same KPI as, for example, industrial and transport safety. The role of information security in the financial sector should be just as key.

Together, these developments bode well for the macroeconomy, suggesting that U.S. households can return to more normal patterns of borrowing to smooth consumption and to invest in autos and houses. Still, despite the return to more normal patterns of borrowing, it is worth pondering the significance of the recent change in the composition of household debt as student loans have grown to be the second-largest category of household debt after mortgages. While these loans provide critical access to schooling, they may constrain the consumption choices of young people, especially those who graduate in periods of poor employment prospects. BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches  BIS central bankers’ speeches  13  14  BIS central bankers’ speeches  BIS central bankers’ speeches  15  16  BIS central bankers’ speeches  BIS central bankers’ speeches  17