samchain/econo-pairs-v1 huggingface dataset:
Leeper, E. M. (1991), “Equilibria under 'active' and 'passive' monetary and fiscal policies”, Journal of Monetary Economics, Vol. 27, No. 1, pages 129-147. Meeks, R. (2017), “Capital regulation and the macroeconomy: Empirical evidence and macroprudential policy”, European Economic Review, Vol 95, pp125-141. Rey, H. (2013), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, Federal Reserve Bank of Kansas City Economic Policy Symposium. Sargent, T. and Wallace, N. (1981), “Some unpleasant monetarist arithmetic”, Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 5, No. 3. Svensson, L. (2015), “Monetary policy and macroprudential policy: Different and separate?” presented at the conference ‘Macroprudential monetary policy’, Federal Reserve Bank of Boston’s 59th Economic Conference, available at https://www.bostonfed.org/macroprudential2015/papers/Svensson.pdf. Tucker, P. (2011), “Macroprudential policy: building financial stability institutions”, Speech given at the 20th Annual Hyman P. Minsky Conference, available at https://www.bankofengland.co.uk/speech/2011/macroprudential-policy-building-financial-stability-institutionsspeech-by-paul-tucker. 16  All speeches are available online at www.bankofengland.co.uk/speeches  16

Consequently, it would convert the tendency of the region to be negatively contaminated from global developments into an opportunity, a positive impact, in order to achieve high and stable economy growth in the long run. Thank you! BIS central bankers’ speeches  3
Perhaps we have made some progress over these 5,000 years, since it seems that the years of plenty are now somewhat longer than the lean years. But little more than that. As central bankers and supervisors, we cannot therefore conceive of doing away with cycles. But we may try to reduce their intensity and effects, and I do honestly believe we can. Each cycle is different, but the severity of recessionary problems arises from two main sources. First, the excessive leverage of economic agents. And further, the weak position from which financial institutions face the downturn. On one hand, due to the problems stemming from excessive credit growth. And on the other, because banks do not take advantage of the years of plenty to build up reserves or provisions. With less leverage, and greater resilience on the part of banks, we will not avert cycles, but we will experience cycles that are less painful for our citizens. There are two ways in which we can act both as central bankers and as supervisors. As central bankers, we can avoid explosive growth in debt. And as supervisors, we can demand more thrifty behaviour from our banks. I will develop these two arguments in my speech. The procyclicality of credit and debt is a familiar phenomenon to economists. During cyclical upturns, a breeding ground for excessive optimism and, subsequently, the widespread underpricing of risk tends to develop. The financial markets behave as if risk falls during upswings and grows during recessions.

It is curious, for example, to see how the usual indicators of risk premia – such as CDS, bond spreads and so on – tend to touch bottom around cyclical peaks. However, the reality is quite different. During recessions risks do not increase; they simply materialise. And they do so after having built up during the boom. During expansions, households and firms tend to overestimate the future growth of their income and raise their degree of leverage in an attempt to bring their current spending patterns into line with this expected flow of future income. Banks, likewise short-sighted, also overestimate the ability of their borrowers to pay and their own ability to find, at low cost, the funding needed to meet the growing demand for loans. BIS Review 149/2008  1  When the downturn sharply curtails optimism and borrowers and lenders suddenly revise their expectations, the full scale of the imbalances that have built up emerges, triggering financial pressures that fuel – and are in turn fuelled by – the cyclical slowdown, setting in train a vicious circle that ends in deep crisis. Admittedly, this harmful effect of real growth on credit growth cannot be avoided; but it can be mitigated by means of a monetary policy that takes it into account.
This will tend to push down on real interest rates and push up on property prices. At the same time, younger households will be able to service a higher level of debt to fund consumption and higher housing costs. A more leveraged household sector may not in itself generate a greater financial stability risk: a higher level of debt is more sustainable in a low for long world.20 And, in aggregate, higher debt would be accompanied by higher savings. But low for long, for the reasons I set out earlier, may incentivise a loosening of underwriting standards driving asset prices and debt levels above levels that could be justified by lower trend interest rates. This could be exacerbated by amplification mechanisms in the financial system such as an increase in collateral values. A more leveraged real economy is also more vulnerable to macro-economic tail events. Analysis since the crisis had demonstrated that more highly indebted households cut back more heavily on consumption during downturns.21 And a shock to house prices, for example as a result of a large adverse shock to employment, could generate strong negative wealth effects. 19 See Sushko and Turner (2018) and Anadu et al (2018).

11 For example, the share of corporate debt owed by listed UK companies with a ratio of net debt to EBITDA  greater than four was 35% in 2018, compared to 28% in 2007. And the share of debt owed by highly leveraged US companies has reached pre-crisis levels of above 40%. 12 Globally, this share was around 60% on average in 2019Q1-Q3, close to record highs. 13 For example, PRA data indicates that the share of new lending with leverage above 7 times would increase from 18% to 28% if add-backs and subsequent borrowing were included. 14 The share of new mortgages issued at LTV ratios of 90% or more was 20% in 2019Q2 compared to 22% in 2006-07. 15 The spread of quoted 2-year fix rates at 90% LTVs over 2-year fix rates at 75% LTVs fell to below 0.5% in 2019H1, compared to a post-crisis average of more than 1.5%. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches  7  For insurance companies and pension funds the impact of low for long on the valuation of their liabilities, combined with the rigidity of returns expected by some claimholders (and specified in defined benefit pension schemes), puts pressure on their balance sheets. This has led to changes in asset allocation, with greater investment in less liquid, lower quality assets.
Investors who thought they had purchased safe AAA-rated assets found that these assets were very vulnerable to a housing bust and that the ratings were unreliable predictors of the risk of loss. The poor performance of these securities, in turn, made investors much less willing to invest in structured-finance products more generally. Secondary market liquidity evaporated, which exacerbated the difficulty in valuing the securities. This made the market even less attractive, causing risk premia to widen further, which only worsened the valuation problems. As this process unfolded, the result was a virtual shutdown of the securitization market for residential mortgage assets not backed by the federal government directly (Ginnie Mae) or implicitly (Fannie Mae and Freddie Mac). The subprime and the Alt-A mortgage markets,  BIS Review 28/2009  1  which relied heavily on the securitization process dried up. Of course, this just reinforced the downward pressure on housing prices, which, in turn, led to increased delinquencies and foreclosures. This deterioration undermined the value of the securities further. It was a vicious feedback loop in action. The poor performance of highly-rated mortgage securities caused investors to begin to shun securitizations more generally. The shutdown of the securitization markets led to significant pressure on bank balance sheets. Banks could no longer securitize non-conforming mortgages or the collateralized loan obligations associated with leveraged buyouts and other private equity activity that they had financed. Moreover, bank backstop liquidity lines were triggered as SIVs and conduits could no longer issue asset-backed commercial paper.

It would not be surprising that when we’re done, hedge fund assets (before leverage) will have fallen in half or more from their peak of about $ trillion. Of course, the Madoff scandal and other episodes of misappropriated funds have further undermined confidence, reinforcing the redemption pressure. Most importantly, the pressure on the financial system has been exacerbated by the deterioration in the economic outlook following the Lehman failure. Before last fall, the causality ran mostly from the turmoil in the financial system to the real economy. Since then, the real economy has contracted sharply and this has reinforced the balance sheet pressure on banks and the forced deleveraging process. So where do we go from here? Well fortunately, it is not all bad news – there are a number of programs that have been enacted that have already made a difference. And several new initiatives are being enacted now that should help to support and bolster the financial system. Those areas where the Federal Reserve and the Federal government have responded in force are doing somewhat better. Banks and dealers have plenty of access to liquidity. The Term Auction Facility or TAF – in which funds are auctioned off to banks – and the Term Securities Lending Facility or TSLF – in which auctions are held to borrow Treasuries from the Federal Reserve – have recently been undersubscribed, indicating that the facilities have been sufficiently sized to meet the demand for liquidity.
As a central bank, our portfolio varies in profile: from more the things you probably won’t see or hear about – such as a multi-year investment to simplify a complex web of six middle office valuation and operational control systems and over 60 interlinking system exports by introducing a single data management system, affectionately known as MOSR; to the things you definitely will have heard about (not least because I have already mentioned it today) – such as our ambitious and innovative renewal of the infrastructure at the heart of UK payments – RTGS7. Change of course comes with risks and costs, and those need to be managed carefully. But it also offers potential in the long run to reduce costs, increase efficiency, and improve resilience. A more efficient post trade system could reduce settlement times and operational risks. In a world where, internationally, economies are growing and opening – resilient post-trade markets will need to service an ever growing sector of users. 4  Carney, M. (2019). A Platform for Innovation. Available at: https://www.bankofengland.co.uk/speech/2019/mark-carney-speech-atinnovate-finance-global-summit-2019 5 Carney, M. (2018). New Economy, New Finance, New Bank. Available at: https://www.bankofengland.co.uk/speech/2018/markcarney-speech-at-the-lord-mayors-bankers-and-merchants-dinner-mansion-house 6 Ramsden, D. (2019). Embracing Fintech. Available at: https://www.bankofengland.co.uk/speech/2019/dave-ramsden-speech-atinnovate-finance-global-summit-2019 7 RTGS Renewal Programme: A blueprint for a new RTGS service for the United Kingdom.

During the recent crisis the currencies in “high interest rate countries” such as Australia and New Zealand weakened substantially against “low interest rate countries” such as Japan and the United States, which once again led to a speedy settlement of carry positions. One contributory factor to the inflows of capital to the emerging markets in Asia and Latin America, as I mentioned earlier, is the relatively low interest rate levels in the “old” industrial nations in North America and Europe. The low interest rates in, for example, the United States, make it profitable to borrow dollars in order to invest in other currencies that provide a higher return at given exchange rates. Several of the countries that are now experiencing capital inflows are unwilling to allow their currencies to appreciate against the US dollar despite the fact that the inflows are creating appreciation pressures. This is understandable in the light of experiences from, for instance, the Asian crisis. Exchange rates can be come highly volatile if they are completely adapted to highly volatile capital flows. But at the same time, the unwillingness to allow the exchange rate to appreciate probably strengthens tendencies towards capital inflows, as it enables speculation in carry trade, as I described earlier. Let me now leave the “speculative” element of the foreign exchange market and talk about the more long-term development of the exchange rate.
In February the Riksbank introduced a new system which means that we publish a forecast for the repo rate together with a probability distribution. Previously the interest rate path has only been published in connection with the Monetary Policy Reports issued three times a year. But in September the Executive Board took the decision that the interest rate path and forecasts for certain key variables should also be published at the monetary policy meetings where no report was published. There are several advantages to the Riksbank publishing its own interest rate forecast. We can then explain more clearly to the general public and market agents how we view future interest rate developments, which makes it easier to evaluate monetary policy. Clearer communication should also mean that monetary policy becomes more efficient. Through the influence on interest rate expectations the Riksbank can to a greater degree influence interest rate setting in the economy. Another advantage of having our own interest rate forecast is that it becomes simpler to explain how we view the driving forces behind economic developments and also the objective and effects of monetary policy. At the same time, it should contribute to giving greater depth to the analyses and discussions of monetary policy conducted both within and outside of the Riksbank. Up to February this year, when I myself still worked as an analyst, I like many others tried to interpret the Riksbank’s communication and what it might mean for future interest rates.

(If only a single firm needed support they could be directed to the DWF.) Consistent with all the Bank’s facilities, only firms judged to be solvent and viable would be eligible to participate. Subject to that, all counterparties that have access to DWF would be eligible to participate in any ECTR operations. Although the facility has been announced, the Bank has not yet offered any operations under the ECTR. That reflects our judgment that market conditions have not yet been consistent with a likely demand for its use. The Bank would revisit this decision in the event of any marked deterioration in market conditions. Conclusion In this speech today, I have set out some of the principles behind the Bank of England’s revised, permanent and public facilities for providing liquidity insurance to the banking system. We expect banks to self-insure for most of their liquidity needs – and while there has been encouraging progress to date, more is needed on that front. But if necessary, the Bank of England stands ready to provide support to solvent and viable institutions, against sufficiently good collateral, for an appropriate fee. It is important that commercial banks preposition their collateral so that due diligence can be performed and the maximum benefit achieved. The new Sterling Monetary Framework, which has been reformed almost in its entirety since 2007, reflects our experience during the crisis and lessons from some of the temporary measures that had to be put in place.
With commodity price inflation running at over 25% annually in sterling terms, a renewed surge in the oil price and evidence that manufacturers’ input costs are picking up again, I believe we are likely to see continued upward pressure on inflation from global price pressures as the recovery in the world economy continues. Fiscal tightening and financial restructuring So while we should not rule out further volatility from the global economy, the most likely outcome is that the world economy is likely to provide a helpful backdrop to UK growth, with Asia and emerging markets contributing particularly powerfully, though with the associated risk of more upside shocks to inflation. However, the UK recovery also faces domestic headwinds from the rebalancing of public finances and the continued restructuring of the financial sector. Here too, however, it is important to put current concerns in perspective. In relation to the prospective fiscal tightening, the first point to make is that the overall public spending plans appear much less draconian than the view projected in the media debate over the summer – when 25% or even 40% departmental cuts were being discussed. Individual areas of public spending may face a significant squeeze to allow growth in areas where commitments to increase spending have been made – such as pensions and health. But taking all these swings and roundabouts into account, the total amount of government spending is still set to increase over the next five years in cash terms.

These enhancements could reduce barriers to trade: cutting transaction costs on international trade just by one percentage point would save firms $ in Africa alone. And with a focus on remittances as well as wholesale and retail payments, ultimately improve financial inclusion and help to alleviate poverty. That is what I call a worthwhile vision! Enhancing cross-border payments has been an objective for many decades. What is different now is that we have a clear vision, targets and a holistic approach on how to address the disparate set of underlying frictions. And the work is taking place at a time of rapid innovation in the payments industry and national payment systems, creating an opportunity to build on existing change programmes. Cross-border payments are high on the agenda for public policymakers and financial institutions. A lot has been achieved recently through the collaborative effort of authorities worldwide, including of many of you here today. We have developed frameworks on operating hours and access policies to support public authorities to enhance their domestic systems and increase interoperability. We have consulted on harmonisation requirements to ensure that the  Page 3  new ISO20022 standards are used consistently around the globe. We have identified specific regulatory and legal barriers to seamless payment processing and proposed solutions. CPMI has recently published a set of recommendations[4] to improve adoption of risk-free PvP settlement in foreign exchange markets. Central banks and the private sector have successfully tested cuttingedge technologies for cross-border payments through BIS Innovation Hubs.
In particular, a decline in global economic integration could increase companies’ pricesetting power, meaning that they would be able to push through price increases more easily. However, from the current perspective, it is difficult to assess precisely how these structural factors will develop, and how they will influence inflation dynamics. There is further uncertainty with regard to the room for manoeuvre in monetary policy, i.e. the gap between the neutral level of interest and the effective lower bound. After the decades-long decline in interest rates, the question now is whether there are factors that could stop this downward trend, or even turn it around. I am thinking here of factors such as the tendency towards deglobalisation and increased investment in climate protection and defence – all of which could lead to a lasting rise in the need for capital and thus also in interest rate levels globally. What do these considerations mean for the SNB’s monetary policy in the post-pandemic era? On the one hand, ensuring price stability must be our absolute priority. On the other hand, we will have to live with a high level of uncertainty over the medium to long term. This applies not only to temporary fluctuations in prices and the economy, but also to the fundamental equilibria in the economy. Structural factors could mean that the environment remains inflationary for a longer period of time. However, strong economic turmoil could quickly put us back at the lower bound on interest rates.

And in some cases there is also a willingness among central banks themselves to adopt a looser interpretation of their existing mandates. This tendency has strengthened noticeably of late. In our case, for example, there have been a series of motions in parliament calling on the SNB to do more with regard to climate protection. The same applies to the issue of inequality, ever since the use of central bank balance sheets to tackle the global financial crisis has increasingly raised questions regarding the redistribution of wealth. Time and again, there have been initiatives from politicians demanding that central banks directly finance government tasks. For example, a popular initiative was recently launched in Switzerland seeking to amend the Federal Constitution to give the SNB a direct role in financing the national pension scheme. How is the SNB to deal with these demands? All these concerns – from climate protection to the redistribution of wealth and securing pension provision – are important matters that are Page 9/16  rightfully being raised. That said, I am convinced that attempting to solve these issues with monetary policy instruments would entail a significant threat to the effectiveness of monetary policy over the medium to long term. The SNB naturally has to take into account the influence that changes in the economic structure have on inflation. For example, climate change can have an effect on potential growth, and this has to be considered when setting the monetary policy stance. However, the mandate of a central bank must not be overburdened.