samchain/econo-pairs-v1 huggingface dataset:
In the short term, effectively manage the risks of Brexit As part of their tasks, the ACPR and the Banque de France closely monitor two main types of risk associated with the prospect of Brexit: those that could threaten financial stability and those that could undermine customer protection. It is important to avoid the cliff-edge that would arise from a No Deal Brexit. The economic consequences would naturally be far more serious for the United Kingdom than for the rest of the European Union. At this stage, our analysis, like that of the ECB, which as you know jointly carried out an in-depth technical study with the Bank of England, has not identified any major risks to financial stability. In the words of Mr Draghi: “It would really take an extraordinary amount of lack of preparation to materialise the financial stability risks that might come from a hard Brexit.1 The clearing of interest rate derivatives nevertheless deserves particular attention, as the UK clearing houses have a virtual monopoly in the sector. In the event of a No Deal Brexit and without taking any specific measures, this could represent a systemic risk. Therefore, should it unfortunately be necessary, we support the solution adopted by the European Commission to temporarily recognise the equivalence of the UK legislative framework under EMIR 1 and to authorise the United Kingdom’s clearing houses to continue providing clearing services to European financial institutions until EMIR 2 comes into effect.

Of course, by its very nature clearing is an activity that generates major economies of scale, and thus encourages concentration. But greater competition is absolutely necessary to stimulate financial innovation. Fortunately, LCH SA will centralise repo transactions at the beginning of 2019. More generally, we would like to see the development in Paris of an enhanced and extended clearing services offering in the area of interest rate derivatives. More broadly, Brexit represents an opportunity for Europe to effectively transform its own savings, in order to enhance its ability to finance the real economy: what I call the Financing Union for Investment and Innovation. This involves better steering the euro area’s abundant savings to absorb shocks within the euro area more effectively and to meet investment and innovation needs in fields such as digital technology, energy transition and the equity financing of SMEs. In practice, the creation of a true Financing Union requires the acceleration of the Capital Markets Union and the completion of the Banking Union. The second pillar on the resolution of failing banks is more important still than a possible common deposit guarantee scheme. And it is essential to remove barriers for pan-European banks. This was the policy agenda of the FrancoGerman declaration in Meseberg in June 2018: but I insist on the urgent need to make it a reality today.
The domestic components, however, look set to continue their strong courses. The high confidence levels by both the consumers and the businesses should ensure that domestic demands for both consumption and investment continue to expand. The repair that had been made to the balance sheets of commercial banks – and many of them are now back to making substantial profits – should allow them to once again serve the economy. The improvement in debt equity ratios of many private companies also opens the road for them to start thinking up new investment projects. Even on the external components, the fact that Asian countries have been trading more and more among themselves can also help shield them from temporary turbulences in the American and European economies, should there be any. Our GDP growth forecast for 2003 is between 3.5 to 4.5, with both core and headline inflation at 0.5 – 1.5. This is in fact a forecast that has taken into view of the uncertainty caused by the possible war. Therefore, if the external environment does not deteriorate much from the present trend, if the war is brief and limited in scope, our forecast has a significant upward potential, and growth could actually be higher than 4.5 percent. But the biggest question in your mind is perhaps how does the government plan to manage its financial obligations, since a large part of the GDP growth in the past year did come from fiscal stimulus.

Also, we estimate that indirect effects from a gas price shock are quite persistent, peaking after one year.9 Thus, even if gas prices have returned to levels close to those at the start of the war in Ukraine, the upward effects of gas prices on core inflation could still be significant in the short term. Moreover, the transmission of inflationary pressures reflects specific demand and supply-side factors linked to the pandemic and the lifting of mobility restrictions. For 4  See F Borrallo, F, L. Cuadro-Sáez, M. Pacce and I. Sánchez. (2023). “Consumer food prices: recent developments in the euro area and Spain”. Economic Bulletin - Banco de España, 2023/Q2, 01. 5  See Alonso I, L. López, D. Santabárbara and M. Suárez-Varela (2022) “The EU economies’ natural gas inventories in 2022 and 2023 under two hypothetical scenarios”. Box 2, “Quarterly report on the Spanish economy”, Economic Bulletin 4/2022, Banco de España. 6  See Costain J, A. Nakov and B. Petit (2022), “Flattening of the Phillips curve under state-dependent prices and wages”, Economic Journal 132 (642), pp. 546-581. 7  See González Mínguez, J., S. Hurtado, D. Leiva-León and A. Urtasun. (2023). “The spread of inflation from energy to other components”. Economic Bulletin - Banco de España, 2023/Q1, 02. 8  Borrallo, F., L. Cuadro -Sáez and J. J. Pérez (2022). “Rising food commodity prices and their pass-through to euro area consumer prices”, Analytical Articles, Economic Bulletin 3/2022, Banco de España. 9  López, L., S. Párraga and D. Santabárbara (2022).
The MPC’s inflation target sits within the Bank’s wider mission – set out in our founding charter from 1694 – to promote the good of the people of the United Kingdom. These are not just words from an old charter. It is the heart and soul of what we do. It is therefore important to us to listen to what the people of the United Kingdom have to say. We of course also talk to financial market participants through our market intelligence gathering, and our Agents travel to all corners of the country. We join them regularly in this work. I personally go on visits to each of the 12 regions and nations of the UK at least once a year to hear from businesses and organisations first-hand. Page 3  Bank of England outreach programmes Listening to people from all parts of the United Kingdom  But today I would like to focus on our outreach programmes: our citizen’s forum consisting of 12 regional panels, each chaired by a devoted volunteer from the local community, and currently counting 4,000 members; our community forums for charities and the people they support; and our youth forum specifically for young people aged 16 to 25. These are the events where we talk with and listen to people from all walks of life. We set out some of the high-level themes from those conversations in a report from the chairs of the regional panels published today. What we hear from them is sobering.

If new mortgage rates rise by 3 percentage points, as market rates currently suggest, the ‘typical’ monthly interest payment will go up by just under £  Page 11  Bank of England outreach programmes Listening to people from all parts of the United Kingdom  It is no surprise that people who talk to us at our outreach events are worried about rising interest rates too. This is not just those on variable rates or those nearing the end of their fixed-term mortgage deals. Even if home ownership feels remote for many younger people, they worry that rents could rise as landlords look to pass through higher mortgage rates. Some older people have been able to save enough through the pandemic to pay off their mortgages early, but many struggle themselves or worry how younger people will cope. These concerns bring home that, by increasing Bank Rate by close to 4 percentage points, we have tightened monetary policy significantly. It is having an impact. Let me say two things about that. First, with the external shocks that have hit the economy, there is no easy way out. People on lower incomes are struggling to make ends meet. We must ensure that the situation does not get worse through homemade inflation taking hold. The UK labour market remains very tight. Since the start of the Covid pandemic, we have seen a large increase in the number of people who do not take part in the labour market in this country. The UK labour force has shrunk.
Today I would like to talk a bit about what went wrong, where we are today, some new initiatives that are underway, what lessons we should take from the crisis and some steps we need to take so this doesn’t happen again. It is well-recognized that one important catalyst for this financial crisis was the easy credit and loose underwriting practices that fueled the boom in the U.S. housing sector. The ability of virtually anyone to get a loan to buy a house pushed up home prices significantly faster than incomes. To keep the boom going, underwriting standards were progressively relaxed, but even with that support to demand, inevitably the boom proved unsustainable. As the boom reversed and housing prices began to fall, the bad underwriting practices and the mispricing of risk became readily apparent. When prices are rising no one needs to default, they always have the option of refinancing or selling the house at the now higher price. But when prices are dropping, there is no easy way out. The result has been a sharp rise in delinquencies and foreclosures as the bust has played out. The fact that these poorly underwritten loans were used in the construction of very complex collateralized debt obligations or CDOs, with risks that were not well understood and grossly mispriced – made a bad situation even worse.

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.
The Need for Clarification  BIS Review 77/1999  2  Further clarification is particularly necessary at this time, notwithstanding the point that the general principles outlined in my 1994 statement still apply. The banking environment has changed quite dramatically in the past five years. Last year, after many years of growth, Hong Kong, in common with much of the rest of the region, entered a period of sharp recession, with all the stresses and uncertainties that this has brought to the banking sector. The face of banking across the world has also developed rapidly in the last five years. There are strong justifications for the HKMA not only to restate the principles under which we are ready to provide liquidity support to institutions experiencing difficulties, but also to further clarify the objectives, the mechanics, and the limits of this support. As I have said, it has so far not been necessary for the HKMA to exercise its role as lender of last resort, though we have, on one or two occasions, said that we stand ready to do so. Given the volatility that has been generated by the Asian financial crisis and the serious problems that have been faced by banks elsewhere in the region, this is in itself a remarkable testament to the resilience and prudence of our banking sector. It also underlines the effectiveness of our regulatory and supervisory system, which, as any good system should, takes a preventive rather than a curative approach.

And we emerged from all this with the most robust banking system in the region. Indeed, the HKAB and HKMA partnership is a very important one, as we continue, in accordance with the requirement laid down in the Basic Law, to develop Hong Kong as an international financial centre. And there are many more challenges ahead for us that require an even stronger partnership to handle. We are all well aware of the forces of globalisation and technological advance, and the opportunities and risks associated with them. The Asian financial turmoil has also put us on clear notice that those forces, made more potent by the activities of the highly leveraged institutions, can be brutal and do not tolerate excesses or mistakes. It takes great effort, particularly in a small and entirely open international financial centre, for both the regulated and the regulator to harness these forces, and derive and maximise the benefits that undoubtedly flow from them. This process is likely to involve changes to both the structure of the banking sector and to the supervisory framework, perhaps to the extent of affecting special interest groups. But the fact of the matter is that changes are inevitable. And in coping with them, we have a choice between either dealing with the relevant issues ahead of time, making full use of our strong partnership, or leaving them to the brute forces of the market.
Now things have changed dramatically. As of last year, financial stability became the protagonist in monetary policy management in developed countries. 6 At the industrialized countries, particularly the United States, the potential distortions in financial markets were swept under the carpet. Furthermore, concern about the existence of an asset price bubble was nobody’s priority. An asset price bubble means that the price may be driven by variables other than its fundamentals. For example, stocks may be overpriced in comparison with the companies’ future stream of profits, or homes may be appraised at more than the living services they can provide. In other words, prices may be pushed up artificially, and the problem is that when the bubble bursts, it splatters across the financial markets and the overall economy. Regarding how can monetary policy deal with the bubbles, as with the downfall of technological company stocks early this decade, the best strategy during the Greenspan era was believed to be “do nothing and clean up the mess when the bubble bursts” (Blinder and Reis, 2005). Laissez-faire is based on the idea that bubbles are hard to identify and also difficult to affect through monetary policy. Cleaning up afterwards consisted in providing liquidity, which normally was accompanied by aggressive interest rate cuts. A major criticism to this strategy was that it favored bubbles, because financial markets internalized the final rescue.

Actually, the overall purpose of financial stability is the proper functioning of markets and to avoid having to arrive at these degrees of turbulence and dislocation. From the macroeconomic standpoint, risks must be overseen and signaled, because the primary  6  The Fed does not have an explicit financial stability objective, although its role in this matter is widely known. See, for example, Plosser (2007). 7  The idea is that investors could sell their shares at a given minimum price in the future, which is equivalent to a put option. 4  BIS Review 150/2008  objective is to prevent major crises. And if they do occur, every necessary measure must be taken to limit the damaging effects of their propagation. Two points are worth commenting here in the policy options menu, and which can be complementary to monetary policy decisions: one is the information that monetary and credit aggregates can provide, and the other is the role played by macro-prudential regulation. An asset price increase induced by rapid credit growth is a first sign that these assets may be overvalued and financial markets are taking excessive risks. This is particularly important in the case of real-estate, which frequently end up in a financial catastrophe. Monetary aggregates in general, but especially the wider money aggregates as well as credit aggregates may signal unsustainable tendencies.
Swedish enterprises have quickly gained a leading position in the new fields. Sweden can be said to act as something of a European centre for the new information technology. Even the older companies, such as large state-owned enterprises, are adapting to the new technology. The ability to transform a small, open economy is again proving feasible. The key to growth has been the capacity to introduce innovations and get the whole economy to expand on a wide front in connection with the historical ‘revolutions’. But as I have shown, growth is not just a matter of the innovations as such; it also involves their spread. In other words, an invention by itself is not enough. 5  4  Greenwood, J. & Yorukoglu, M. (1997), 1974, Carnegie-Rochester Conference Series on Public Policy, June, pp. 49–95. BIS Review 10/2001  A country must also possess or create the appropriate structures that can enable growth to really get going. Perhaps one of the principal driving forces is knowledge, as Alfred Marshall, the father of modern political economy, already pointed out in the late 19th century. Remember that a long time usually elapses before these changes occur in earnest. Railways existed as a technical innovation well before the construction of railroads took off. The automobile saw the light of day long before the era of motoring. So the development of new systems and new infrastructure takes time — in some cases a long time. Basically it is a matter of societal changes and they do not happen overnight.

At the same time, these periods of change are crucially important for economic development. In the centuries before the 1800s economic growth measured as GDP per capita averaged only 0.1 to 0.2 per cent a year. At that rate, doubling the standard of living took roughly 500 years. The change was obviously hardly noticeable to a single generation. In the first half of the 19th century, when agriculture was transformed in Sweden, GDP growth per capita averaged 0.4 per cent a year. Even at that rate, standards of living did not improve dramatically. From 1850 up to the present, however, per capital GDP has grown at an average annual rate of about 2 per cent, leading to a notable change in our living conditions. With that rate, the standard of living doubles every 35 years, which means that a marked improvement has been experienced by each generation. Concluding remarks The points I have tried to make in the light of the historical perspective can be summarised as follows: •  Despite falling prices for IT shares and the economic slowdown in the United States, the IT revolution has come to stay. In fact it has only just started. •  The development of the new information technology will continue in the coming decades and bring about considerable changes in many walks of life. This refers, of course, to new production processes, new products, new forms of consumption and new consumable goods and services. This may affect the location of production and thereby employment.
Some countries therefore ran persistent deficits in good times or maintained high levels of debt. But the greater imbalances in fact emerged in the private sector. Looking at the data for EMU’s first decade, imbalances in the private sector far exceeded those in the public sector. 5  Tobias Adrian, Paolo Colla and H. Song Shin (2012), “Which financial frictions? Parsing the evidence from the Financial Crisis of 2007–2009”, Federal Reserve of New York Staff Reports. 6  Schoenmaker, D. (2011): “The Financial Trilemma”, in Economics Letters, 111 pages 57–59. BIS central bankers’ speeches  3  Between 1999 and 2007, the ratio of public debt to GDP in EMU declined on average by 5.6 percentage points. But in the same period, the ratio of private sector debt to GDP increased by 26.8 percentage points. For the same period, in the stressed countries, the cumulative increase in the private debt ratio to GDP versus the public debt one, amounted respectively, to 49 and 24 per cent for Portugal, 75 and minus 35 per cent for Spain, 101 and minus 10 per cent for Ireland, 217 and 4 per cent for Greece. Private debt levels were able to increase so significantly because the integration of national markets allowed for higher borrowing from abroad and increased leverage. For instance, from 2001 to 2006 MFI holdings of cross-border securities issued by non-MFIs increased by almost 44%. And as we now know, these flows were not perfectly optimised by rational private agents.

Political life and legitimacy continues to occur mostly at the level of nation-states. This implies that to foster legitimacy we have to act on the two levels the European and the national by giving for instance, the European Parliament a stronger euro area dimension and engaging national parliaments more in euro area discussions. I wanted to highlight the importance of these issues but as I said I will not dwell upon them further. Conclusion Let me then conclude. The euro area was designed in the 1990s and we should not be too critical of the fact that its architecture was influenced by the prevailing economic theory. However, we now have more than a decade of practical experience of sharing a single currency in Europe. It is unacceptable if we do not learn the lessons of that experience. The most important lesson is that, to maximise its benefits, the single currency needs strong common institutions. Strong institutions to supervise and stabilise the single financial market. Strong institutions to guide fiscal policies and preserve budgetary sovereignty. Strong institutions to guarantee competitiveness and encourage sustainable growth. And strong institutions to engage citizens more closely in the European project. In this effort the European and national dimensions of legitimacy must be balanced. Nevertheless, we must also recall that Nations are a construct of man, not a natural reality, meaning that our consciousness and our knowledge are socially constituted. A form of civic community among strangers was somehow created to shape several European nation-states only as late as the XIX century.