samchain/econo-pairs-v1 huggingface dataset:
Second, I shall discuss two fundamental or purist solutions which, although infeasible in the short run, do provide us with some ideas about how we might deal with these problems in our imperfect world. Third, I shall describe some practical steps – a “middle way” to improve the international financial system. These are the bricks which are slowly being laid in place. Fourth, in the context of the middle way, I shall argue that transparency is of crucial importance. Notwithstanding the weaknesses in domestic policies pursued by a number of emerging market economies, there is a structural fault in the nature of international capital flows. Short-term debt flows, especially bank finance, are highly volatile. Unless that problem is tackled the potential for future crises will remain. 1  BIS Review 95/1999  2. What is the source of the problems? “Small open economies are like rowing boats on an open sea. One cannot predict when they might capsize.”1 So wrote Joseph Stiglitz, Chief Economist at the World Bank. He also likened the international financial system to a road which, after too many accidents, raises more doubts about the design of the road than the drivers involved. The analogy with travel has been taken up by Larry Summers, who compared global financial markets with jet aeroplanes. Travel is faster and, on the whole, safer. But crashes, when they do occur, are more spectacular. Whichever form of travel you prefer, one thing is clear. In recent years, the passengers have suffered from severe travel sickness.

We should have an optimistic view of the future and at the same time make sure our stance is realistic and consistent. Time is ripe for Albania to start producing more goods and services than before. Despite the admirable progress in this context, the gap is still wide. Agriculture and industry remain two important branches of the economy operating far from their potential. Additionally, other sectors that have revitalized during the transition years require more orientation and tuning. These measures will enable better diversification of the Albanian economy, augmenting its stability with the passing of time. Other challenges I believe relate to the country’s external position, implying the reduction of current account deficit and the provision of alternative resources of foreign currency inflows. Therefore, I think that the role of the state needs to be more pronounced, not only in terms of completing the legal and regulatory basis but also of concluding a number of important structural reforms, in particular those related to the land, ownership titles, pensions, to the support of the small and medium-size business, to the further improvement of business environment and the ongoing upgrade of national infrastructure. The further strengthening of safety nets, in the context of a stable fiscal and financial position, is an obligation whose accomplishment would reduce both the real and perceived risk of the Albanian economy, hence creating incentives for the growth of domestic and foreign investments.
So if the incentives to invest in new physical capital have been depressed since the Great Recession, by things like higher rise premia or problems in the banking system, perhaps the same applies to investment in human capital. It’s also possible the relative supply of low-skilled labour has risen. We know, for example, that migration flows have risen significantly over the past fifteen years, and that immigrants are more likely to take low-skilled jobs than UK-born workers (see, for example, the Report of the Migration Advisory Committee (2014)). So if easier immigration has made the overall supply of labour more responsive to economic conditions in this country – if, as if often argued, it’s flattened the Phillips curve (Bean (2006), Bentolila (2008)) – it’s probably done so to a greater extent for low-skilled than high-skilled workers. So when the UK economy grows faster than its neighbours, as has been the case over the past couple of years, you’d expect to see greater inward migration and a disproportionate rise in the supply of low-skilled labour in particular. I came across a possible example of this on a recent Agency visit. The head of a small business told me his firm had been looking to hire an accountant. They’d originally wanted someone very experienced who might in time fill the shoes of the finance director. However, they soon realised that the only way they could get someone like that was to bid them from an existing job within the UK – apparently a costly and lengthy process.

So they decided instead to employ two much more junior and less well trained people. One worked for them already; the other, from outside the UK, they found in relatively short order after advertising on an EU-wide basis. The firm would end up being less productive than it might have been (two people are now doing the work of one). But there’d be a compensating fall in its average wage and, given the relative availability of less experienced employees, it made sense for them to go down this route. What I’m suggesting has more to do with relative quantities, not relative wages, and more to do with the short than the longer run: at a time when the UK has been outgrowing its neighbours, you’d expect easier immigration to amplify the rise in the relative supply of lowskilled employment. Some concluding remarks Let me sum up and, in doing so, say something about the implications for monetary policy. As macroeconomists, monetary policymakers like to deal in simple aggregates and averages. Output is doing this, employment that and wages the other. We know that the  8  More recently, economists have argued that computer technology substitutes most directly for the low-tomedium skill tasks. This would help to explain why the changes in the distribution of pay have had a “U” shape, with positive effects not just on high-skill pay but that at the low end as well (Goos and Manning (2003), Autor et al. (2006)).
If we compare this situation with the overall economic crunch of 2008–2009, we can see that GDP dropped over 10% at the time, while in 2015–2016 it contracted by slightly more than 3%, given that the oil price drops were similar. We will be able to revise our estimates in April, when Rosstat publishes its updated statistics for 2016. Preliminary estimates suggest that GDP started showing quarterly growth as soon as 2016 Q2 (Q3 according to previous estimates). Annual industrial production growth entered positive territory in the first quarter of last year. Estimates of industrial production statistics for the beginning of this year need calendar adjustment. This February is two working days shorter than last year, which results in different volumes. If adjusted for this factor, industrial production continued to expand, adding more than 1% YoY in February. This calendar effect will also manifest itself in overall Q1 readings. After a long period of instability, we can see clearer signs of investment recovery. Production and imports of investment goods are growing. Surveys confirm that investment demand is on the rise. Businesses are building up stockpiles as they expect demand to recover. These expectations may soon prove right. We predict consumption to increase in annual terms as soon as the second quarter. It will come after expansion in production and will not create inflation risks. Third, the short-term risks stemming from Finance Ministry operations have not materialised.

It is very important for the economy to have inflation anchored at 4%. What stands in the way? The uncertainty of external factors, including oil prices. We are conservative about it and therefore will pursue our monetary policy, and easing thereof, with great care and precision, taking these external factors into account. Households still have high inflation expectations. There is a risk that they will be too slow in verging towards our inflation target. This 10 / 14  BIS central bankers' speeches  is also a risk which may sustain conditions of high inflation. Taxes are still adding to the uncertainty. However, we realise that at some point forthcoming tax decisions will have inflation repercussions. Certainly, we have taken all of these factors into account. Again, we assume that we will always analyse the situation, analyse newly received data on the current situation, revise our forecasts and make decisions accordingly. I have already said that we believe 0.25 pp to be an appropriate pace for reducing the key rate to a specified level, which we have actually already reached. However, we may deviate from this pace of 0.25 pp during this period. Is there any difference between 9.75% and 10%, and does our rate work? The rate works, as we can clearly see. It effectively determines short-term rates on the money market and ultimately translates these into rates on bank loans and deposits. This takes effect with a certain lag.
  Second, there are reasons to believe that so-called longer-term scarring damage to the economy will be more limited than in some past recessions, but there will most likely be structural change which will influence the future of supply and demand.   Third, it is important to boost supply capacity to raise the sustainable rate of growth in the economy and thereby ease the task of managing the necessarily higher level of public and corporate sector debt.   And fourth, taking all of this together, and consistent with the current setting of monetary policy and the outlook for the economy as set out in the February Monetary Policy Report, it is important to emphasise the role of the forward guidance that the MPC has adopted, and the announcements made a month ago on so-called toolbox issues. The Covid Economy  The economic impact of Covid has in aggregate been very large. We expect that by the end of the first quarter, UK GDP will still be around 12% below its level at the end of 2019, a huge shortfall. The impact has been synchronised across economies – the similarities of this shock far exceed the differences in terms of economic impact. That said, within economies – the UK included – the impact of Covid has been highly uneven across sectors. Those that conduct activity involving large amounts of close human contact have obviously been most seriously affected.

And a lot is happening in the Bulk Purchase Annuities (BPA) market: pension scheme funding levels have greatly benefited from the rise in interest rates[2], and the UK insurance industry is preparing itself for record levels of bulk purchase annuity transfers[3]. De-risking corporates of their legacy defined benefit schemes brings substantial benefits to UK plc, and the additional capital insurers inject contributes to the security of pension scheme members. This structural shift in the provision of retirement income also gives insurers an increasingly important role as long term investors in the UK real economy. Insurers therefore need to balance the short term financial and reputational incentives to grow rapidly, with long term and enduring financial strength, to meet the long term needs of policyholders and the economy. I spoke to you last year about the conditions for long-term sustainable growth in the annuity sector. This year, in the face of considerable temptation to capture business opportunities, I will argue that  Page 3  BPA writers need to exercise moderation. In that vein, let me invite you to a not quite Epicurean three course feast. By way of starter, I will first reflect on recent BPA market developments and then move to our main course, which focuses on three areas: an expansion of risk appetites; a reliance on third party capacity; and greater interconnectivity with the wider financial system. These clearly call for effective governance, business and risk management.
[7] Europe therefore urgently needs to make faster progress towards creating a true capital markets union, with a strong focus on equity markets. Euro area equity markets remain too shallow and risk-sharing across borders too limited to lift the economy onto a more sustainable growth path. There is also a geopolitical dimension: financial market structures are gradually readjusting after the United Kingdom’s exit from the EU. Green finance has the potential to tip the scale to one side or the other and act as a catalyst for promoting the provision of financial services more broadly throughout the euro area. Second, faster progress is needed on disclosure and standardisation. For markets to better support the greening of the economy, and to mitigate risks to financial stability, asset prices need to correctly reflect the externalities associated with climate change. At the current juncture, however, financial markets are suffering from various market failures. Uncertainty about what actually qualifies as green activity is one of them. Common and clear definitions are a fundamental building block for facilitating the market pricing of environmental risks. The adoption in mid-June of the European Commission’s taxonomy regulation was an important step in establishing a classification system for sustainable economic activities. But three words of caution are in order. First, the framework is expected to become fully operational only after the adoption of its delegated acts in 2021 and 2022 and so will provide limited guidance at a time when issuance needs are reaching historical  levels.

Specifically, compared with the forecasts published at end-2021, our latest macroeconomic projections published in June expect real GDP growth of 4.1% in 2022 and 2.8% in 2023 (1.3 percentage points (pp) and 1.1 pp, respectively, below the December 2021 projections), while inflation is expected to stand at 7.2% on average in 2022 and at 2.6% on average in 2023 (3.5 pp and 1.4 pp, respectively, above the estimates published in December 2021). The risks to our baseline scenario are tilted to the downside in the case of activity and to the upside in the case of inflation. All against a backdrop of extraordinary uncertainty, linked in particular to the duration and intensity of the war in Ukraine. A greater degree of passthrough of the recent increases in prices and costs to other prices in the economy and to wages is an additional and very significant source of risk. Other sources of risk include the uncertainties surrounding the pace of the effective roll-out of the NGEU programme in Spain and the possible consequences of monetary policy normalisation in terms of the degree of tightening of financial conditions. 2  In any event, in the absence of any fresh shocks or an escalation of the war in Ukraine, these projections would still be consistent with the Spanish economy holding on a gradual recovery path – that could see it reach pre-pandemic GDP levels in the second half of 2023 – and with inflation rates remaining high in the coming months and subsequently moderating gradually thereafter.
One model, colloquially known as ‘Twin Peaks’, would replace the whole of the present system with two Commissions: a Financial Stability Commission, with responsibility for systemic risk, the prudential supervision of all major institutions, and conduct of business regulation of wholesale activities, and a Consumer Protection Commission, which would be in charge of conduct of business regulation in retail markets, as well as detecting market manipulation and insider dealing. It would also carry out prudential supervision of those stock brokers and fund managers who deal with private clients, and of independent intermediaries. The advocates of this model argue that it would better match regulation with both institutions and functions, in particular on the wholesale side. The underlying contention is that the traditional separation between banking, securities and insurance is breaking down, so that there is now a less meaningful difference between institutions and functions. BIS Review 21/1997  -6-  I am not persuaded of the merits of this case. Although the activities of banks and securities firms do overlap at the margin, this is not true of the core activities. Banks in particular continue to have a number of distinctive characteristics. First, there are the risks associated with the maturity transformation seen in their balance sheets. Banks experiencing a drain in their liquidity, perhaps because of a classic ‘run’, could be driven into insolvency through the forced realisation of illiquid assets at ‘fire-sale’ prices.

The greater degree of consistency across banks embodied in the new approach will allow the Bank to be more focused in performing its supervision. The tools of supervision, such as Review Team Visits and Reporting Accountants Reports on internal controls, will be targeted at the areas of greater risk and concern in individual banks. We shall very shortly be issuing a consultation paper setting out how we plan to implement the model in practice. That paper will show that we have tried to model parts of our approach on best practice in the US. The City of London may not always have been a preferred habitat for camels, but you may well see some genetically modified examples on the streets there quite soon. A better understanding of the risk profile of each supervised institution will assist the Bank in setting risk asset ratios. As you all know, Basle sets a minimum capital ratio of 8 percent of risk weighted assets. The 8 percent ratio is sometimes interpreted as a ‘one-size-fitsall’ standard. The Bank, however, sets the trigger capital ratio for each authorised bank at, or above, the 8 percent floor and considers an adjustment to that trigger ratio whenever we see a substantial change in that bank’s risk profile. Where does this all leave us in comparison with other regulators? I suggested earlier that our flexible, judgmental approach is somewhat distinctive. But we are no longer, if indeed we ever were, outliers on the supervisory spectrum.
In that regard, there is now reasonable global consensus that the origin of the turmoil could be traced to excessive risk taking due to pure and simple greed; recklessness driven by intense, unadulterated greed; leading to the creation of massive “bubbles” in many developed economies, that were not supported by a robust, representative real asset base. No doubt, such risk taking had often been fuelled by lax and short-sighted regulation. To make matters worse, many rating agencies too, tacitly and indirectly, encouraged the excessive risk taking by assigning top ratings to toxic financial instruments, thereby helping to blow up the bubble even bigger. The bubble creating drivers had also been strongly supported by the global ability to transact business at unbelievable speeds and in mind-boggling volumes. This capacity provided the scope to move capital, wealth and resources across borders instantaneously, almost without restrictions or regulatory oversight, at the press of a button. But whatever may have been the drivers, the end result was that this greed and its ill-effects created and nurtured massive “bubbles” in many developed economies; and the subsequent puncturing of these massive bubbles has now revealed just how hollow and empty the financial structures that we relied upon, had been. However, even at that stage, the usually conservative multi-lateral “watchdogs”, rating agencies and experienced academics could not realize, let alone predict, that the world’s financial system was fast reaching breaking point!

May I therefore, at the concluding session of this important Symposium at the historic University of Cambridge make an appeal to the global financial community to continue to keep the events of 2007/2009 fresh in mind, continue to protect and improve our systems, and continue to build sustainable frameworks to deliver prosperity to the people of the world. Thank you. 4  BIS Review 106/2009
But the different steps that have been gradually taken on a political level should, as I see it, be able to alleviate a confidence crisis that is largely political. This would point to an orderly resolution of the euro crisis. It then remains to be seen whether the crisis flaring up around Greece now can have more farreaching consequences. In a worried, nervous climate even a problem that only affects one small country can have contagion effects. Could things go better than we are forecasting? I have earlier listed various downside risks. Are there any conditions under which growth might be better than we are forecasting? My assessment is that this is the case, although things look uncertain right now and we cannot expect any rapid improvements. I think it is worth pointing out that we only expect a cautious recovery in growth in the euro area from the end of 2012 and onwards. What we are now seeing is a confidence crisis of gigantic proportions, but it also means that if political measures can build up confidence step by step, the economy in the euro area can recover with greater force than we are predicting. As I mentioned earlier, there are countries in the euro area with good fundamental conditions for a stronger recovery. In the United States there are good conditions for a better outcome. In this situation growth can be somewhat stronger than the fairly modest growth we are predicting. Particularly if housing construction picks up again, after several years of adjustment.

Job losses in construction and government, however, continue to weigh down growth. Meanwhile, New York City’s unemployment rate has edged down steadily over the past year, though it remains unacceptably high at 8.9 percent. Unfortunately, as in the rest of the nation, much of the recent drop in the unemployment rate has come from people withdrawing from the labor force so that they are no longer counted as unemployed. Some of the unemployed have been able to find jobs, but not in large numbers thus far. Where do Queens’ residents find employment? While many of them commute to work in other boroughs (primarily Manhattan), Queens has a formidable industrial base of its own. As the home to the city’s two major airports, the volume of air traffic coming through Queens ranks third highest among U.S. counties. Not surprisingly, then, transportation is Queens’  BIS central bankers’ speeches  5  largest industrial specialty; it accounts for 12 percent of total employment – four times the national average. Air transportation alone accounts for 6 percent of Queens’ jobs, or 15 times the nationwide share. But, of course, Queens has a diverse economy, with jobs in industries ranging from medical care to construction, not to mention printing and a number of other manufacturing industries that benefit from being in a large population center. During the recent recession, Queens’ dynamic economy was hard hit, yet it proved more resilient than Manhattan’s and much of the nation’s.