samchain/econo-pairs-v1 huggingface dataset:
Moreover, the small size of the domestic labour market and the extent of migration in and out of the country in past years suggest that in the event of an external shock specific to Malta, the labour market is sufficiently flexible to adapt. On a number of counts, in fact, labour market indicators are already comparable to those of the euro area. The resemblance is not complete, but further progress in this regard is to be expected as public sector employment is downsized further and as the structural reform programme continues to unfold. A similar conclusion emerges from a comparison with the euro area of the structure of the domestic financial sector and indicators of real convergence; the degree of similarity is already significant, although there remains scope for some catching up with respect to income and price levels. As far as fiscal policy is concerned, this has rarely been used for fine tuning purposes in Malta. If anything, the disciplinary mechanisms of EMU should serve to reverse the current trend of negative balances, allowing fiscal policy to respond to the needs of the economy and leaving monetary policy to focus more on price stability. As for the exchange rate, by pegging the Maltese lira to a basket of currencies, which is recognized as being the preferred regime for a small, open economy, the monetary authorities have long since given up the exchange rate as a tool of adjustment.

As far as ERM II is concerned, the minimal exchange rate movements observed over the past few years suggest that Malta would have kept within a hypothetical ERM II band. The indications are, therefore, that this criterion, too, is achievable. Indeed, this should not be any more difficult than the current task of maintaining a hard peg with a currency basket. This leaves the fiscal criteria as the major outstanding problem since the budget deficit is well above the 3% limit and the debt ratio likewise exceeds the 60% reference value. The need to curb the deficit is widely acknowledged and is a central objective of the Government’s Convergence Programme 2004-2007. This is most welcome because progress in the area of fiscal consolidation and structural reforms is desirable not only because of the need to satisfy the Maastricht criteria. It is also required to support the exchange rate as long as Malta continues to pursue a fixed exchange rate regime. Progress in this direction is certainly also necessary if we want to have a smooth passage through ERM II. Indeed, the size of the fiscal deficit is a determinant of the degree of exchange rate fixity which a country can afford, and thus also has implications for the width of the band which will apply to the Maltese lira in ERM II.
This mechanism is often described in terms of three different channels: the interest rate channel, the credit channel and the exchange rate channel. These channels are intertwined with each other and the division is mostly for explanatory reasons. The interest rate channel can be used to influence the cost of saving and borrowing. A lower interest rate means that it becomes less expensive for companies to finance investments and for households to borrow for consumption. Lower interest rates normally also make saving less attractive. 6  BIS Review 41/2009  Interest rate changes also affect the economy through the credit channel. Lower interest rates generally increase the net present value, that is the value today, of the cash flows that financial assets are expected to generate in the future. Lower interest rates also increase the demand for real assets, for example housing. In this way, the prices of both real and financial assets increase. As these assets are used as collateral for loans, the creditworthiness of households and companies also increases. This leads banks and other financial institutions to be less restrictive in their lending and means that they can lend more. This in turn stimulates investment and consumption and thus increases inflationary pressures in the economy. Through the exchange rate channel, monetary policy can influence the value of the currency. Normally, a reduction of the repo rate leads to a weakening of the krona. This is partly because Swedish assets appear less attractive than investments in other currencies.

A weaker exchange rate affects inflation directly in that imported goods will become more expensive. At the same time, domestic goods become cheaper than foreign goods. This leads to a decline in imports and a rise in exports. Higher demand for domestic goods contributes to an increase in resource utilisation and inflationary pressures. Inflation expectations are also important to the way in which companies set prices and to how wage formation functions, and thereby to the development of inflation. If everyone is confident that inflation will remain low, the companies do not need to change their prices so often, and employees do not need to increase their wage demands. This makes it easier for the Riksbank to achieve the inflation target. This then is mainly how monetary policy is supposed to work normally. But when the financial markets are not working normally the transmission mechanism is also affected. The various channels simply do not work as effectively as they usually do. This also makes the link between monetary policy and financial stability particularly important. Monetary policy and financial stability are interlinked As you know, the Riksbank has more than just a monetary policy mandate. In addition to maintaining price stability, the Riksbank also has the task of promoting a safe and efficient payment system. We thus have two main tasks: monetary policy and financial stability. These tasks are of course interlinked even under normal conditions.
The total market capitalisation of the largest global banks is currently only around $ trillion. Fully internalising the output costs of financial crises would risk putting banks on the same trajectory as the dinosaurs, with the levy playing the role of the meteorite. It could plausibly be argued that these output costs are a significant over-statement of the damage inflicted on the wider economy by the banks. Others are certainly not blameless for the crisis. For every reckless lender there is likely to be a feckless borrower. If a systemic tax is to be levied, a more precise measure may be needed of banks’ distinctive contribution to systemic risk. One such measure is provided by the (often implicit) fiscal subsidy provided to banks by the state to safeguard stability. Those implicit subsidies are easier to describe than measure. But one particularly simple proxy is provided by the rating agencies, a number of whom provide  2  The levy on US banks announced by the US government in January takes the $ billion loss and recoups it over 10 years rather than 20. 3  IMF (2009). 4  The results are plainly sensitive to the choice of discount rate and trend growth rate. Other things equal, the higher the discount rate and the lower the trend growth rate, the smaller the losses. 2  BIS Review 40/2010  both “support” and “standalone” credit ratings for the banks. The difference in these ratings encompasses the agencies’ judgement of the expected government support to banks.

If we look more closely at household financial wealth, we find that it is spread over various assets, with insurance claims the most important at the end of 2004. By paying premiums into various insurance schemes, mainly life and pension insurance, households earn the right to future disbursements from the insurance companies. These premiums accounted for more than a third of household financial wealth at the end of 2004. The investment instruments perhaps most commonly referred to, securities and bank deposits, accounted for less than a quarter of total wealth. Household gross financial wealth must be seen in the context of the debt accumulated by households as a group. Even when this is taken into account, the household sector as a whole has positive net financial wealth. As a share of disposable income, household net financial wealth increased from the end of the 1980s to the mid-1990s. In relation to disposable income, debt was reduced, while household wealth increased. From the end of the 1990s, household debt and wealth have risen in tandem. Net wealth has remained fairly stable at around 50 per cent of disposable income. The rise in household debt must be seen in the context of the strong rise in house prices. From oil to financial wealth Household saving is part of the country’s total saving. As a nation, we can save by investing in fixed assets in Norway or by making financial investments abroad.
In the medium to long term, the interest rate that domestic policymakers must set to meet their inflation targets and keep a balance between demand and supply is strongly influenced, through the integration of capital markets, by such global rates. These are the product of real global factors. For the past thirty years, a number of profound structural changes in the world economy have pushed down on the level of world real interest rates perhaps by as much as 450bps. Researchers at the Bank of England have estimated a decomposition of these changes, suggesting, in declining order of importance: slowing potential growth, the rise in saving due to demographic forces; higher credit spreads, lower desired investment given a lower relative price of capital, changes in income distribution; excess saving in emerging markets, and declining public investment. Collectively these factors could account for the lion’s share of the 450bp fall observed in the past 30 years and suggest that global real rates may remain low – perhaps around 1% – in the long term. 25 In the short run, the domestic real rate that balances demand and supply can deviate from this long-term global level reflecting a range of transitory factors – including demand and supply shocks from fiscal policy, credit markets and exchange rates. It is critical domestic policymakers judge the scale and persistence of these factors and take them into account to meet their domestic objectives.

Simulations using the Bank’s main forecasting model suggest that the Bank’s monetary policy measures raised the level of GDP by around 8% relative to trend and lowered unemployment by 4 percentage points at their peak. Without this action, real wages would have been 8% lower, or around £ per worker per year, and 1.5 million more people would have been out of work. In short, monetary policy has been highly effective. 12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12  Financial outcomes So monetary policy has been highly effective in doing its job, but what have been the distributional effects on financial outcomes? Has monetary policy robbed savers to pay borrowers? Has the MPC been Robin Hood in reverse? In a word, no. Chart 15: … as have all income quintiles  Chart 14: The poorest have gained the most while all wealth quintiles have gained since 2006-8… Lowest wealth Second lowest wealth Middle wealth Second highest wealth Highest wealth  Total net wealth (% change since 2006-8) 60  Lowest income Second-lowest income Middle income Second-highest income Highest income  % change since 2006 12 10  50 8 40  6 4  30  2  20  0 10  -2 -4  0 2006-8 2008-10 2010-12 2012-14 Source: Wealth and Assets Survey (WAS, ONS) and Bank Calculations. 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Family Resources Survey (FRS) and Bank Calculations. Income deflated by the consumption deflator.
It includes a number of important recommendations to ensure that we are best equipped to take forward the next stage of the work, including how the Bank as resolution authority can gain the greatest leverage possible by using the supervisory machinery of the PRA to ensure firms prepare for resolution while respecting statutory obligations requiring structural separation of supervision and resolution functions. 11  Conclusion  This transparency and public assurance should help in one other key respect. Effective resolution of a globally systemic bank will require cooperation and coordination between a range of authorities in a number of jurisdictions. These need to have confidence that an effective resolution - and one that treats all jurisdictions fairly - can be carried out by the home resolution authority. Absent that, they may need to take action that would frustrate a successful resolution for the bank as a whole. 10  Two further major pieces of the framework will be published shorty – our statement of policy setting out the requirements for internal MREL, and our final policy on valuations. 11 BRRD (DIRECTIVE 2014/59/EU) – Article 3 – states that there should be “Adequate structural arrangements … in place to ensure operational independence and avoid conflicts of interest” between the supervisors of firms and the resolution authority of firms when the two functions are carried out by same public authority.

Andrew Bailey: A resilient financial system Speech by Mr Andrew Bailey, Governor of the Bank of England, at the TheCityUK Annual Dinner, London, 10 February 2022. * * * It’s a pleasure to be here this evening, and let’s take the fact that we are able to be here as a positive sign of things to come. Adrian, it’s timely to recall that, early on in the Covid era, you and I started to talk about the importance of ensuring that the financial system was able to support the economy through the pandemic, and about the need to mobilise to ensure that long term capital would be available for businesses as we came out of the pandemic and beyond. Those discussions formed an important input to the work of the Productive Finance Working Group, work which continues and for which I want to thank John Glen for his leading role and commitment and Nikhil Rathi too. That work is not done, but it has more momentum and substance as a consequence of our early engagement. I am going to say a few words on the subject of resilience, what it means in finance and how important it is. In March 2020, nearly two years ago, we had our initial very difficult time with some financial markets, the so-called “dash for cash” where weaknesses in the system of market based finance amplified the initial covid shock.
The Board of Governors recently decided to change the rules on required reserves, the first phase of which will enter into force today. The required reserve ratio will be lowered, thereby releasing liquidity for the banking system amounting to 8 b.kr., which ought to enable a reduction in interest rates in the banking system. Further changes are planned later in the year. By law, the Central Bank shall promote an efficient and safe financial system, including payment systems domestically and with foreign countries. Payment systems and securities settlement systems are important components of the financial system, which makes it vital to ensure that they are active and reliable. This may sound like a fairly modest task, but it can be compared to a building that obviously serves its purpose well – we rarely ponder the piping and wiring that are hidden from our sight yet are vital to ensure that the building functions properly. The same can be said of payment systems and settlement systems. The financial system would definitely not be tenable if secure systems for payment intermediation and settlements were not in place. The Central Bank has formulated a policy on these issues with the aim of adjusting Iceland’s systems to international standards. In doing so it has taken particular account of an assessment made by the International Monetary Fund in 2000, on the extent to which Iceland’s payment systems observe the so-called Core Principles. In the IMF’s view, Iceland fulfilled only three of the ten Principles at that time.

Effective fiscal measures are necessary in order to prevent monetary policy from bearing the brunt of these pressures, since this would have an excessive impact on the traded goods sector. The firmer the fiscal stance is at the peak of construction activity, the smaller is the increase in the real exchange rate that will inevitably will accompany it, with a correspondingly beneficial effect on current export and most competing industries. Ladies and Gentlemen The global economy is shrouded in uncertainty. A low rate of growth has been attained in most industrialised countries since 2001 and the recovery is slower than had been hoped. The war in Iraq heightens this uncertainty. Favourable economic conditions among main trading partner countries is important for Iceland’s terms of trade. A special cause for concern is therefore the deteriorating outlook in the euro region, which is important for Iceland’s foreign trade. The situation in Iceland is quite different. A prolonged growth phase was followed by one year, 2002, of a minor contraction, but at present we foresee a new period of growth when our task will be to maintain economic balance. Expectations of greater prosperity are already clearly visible. I would like to conclude by thanking the Office of the Prime Minister and other government authorities for their pleasant cooperation. I also thank the financial institutions for their good collaboration. Last but not least, I would like to thank the employees of the Central Bank for their fine work, without which the Bank could not have achieved such impressive results.
2  BIS Review 43/2007  there have been significant changes in the dynamics of inflation since the MPC was set up.4 Table 1 shows the mean, standard deviation and persistence of inflation over various periods. Inflation has been significantly lower on average, less variable, and fluctuations in inflation have tended to be less persistent. More generally, the impact of the MPC is revealed by what I have called the “Performance” and “Stability” charts – charts 2 and 3. In terms of average rates of output growth per head and of inflation, charts 2a and 2b show the relative position of the UK economy among the G7 as a whole both before (taken here to be the period 1950 to 1996) and after (1997-2006) the creation of the MPC. Ideally, a good performance means that a country would be towards the top right hand corner of the charts – inflation is plotted on an inverted scale. The average record on growth and inflation over the period 1950-96 (chart 2a) was not good relative to the rest of the G7. Indeed it was arguably the worst. In contrast, after the MPC was set up the United Kingdom performed better than most if not all of the G7 countries. So although changes in the world economy may have proved helpful to achieving lower inflation, the fact that the UK improved not only its absolute but also its relative performance – moving from last to first in the G7 league table – is encouraging.

Yet there are many commentators who still refer only to the central path. It would be extremely dangerous to start publishing fan charts for future interest rates unless we were confident that all commentators would understand the probabilistic nature of such statements. When the Riksbank first published a fan chart for its future policy rate in February this year, an article written by one of the most sophisticated investment banks totally ignored the probabilistic nature of the exercise. Against that background, would we be able to convince the media’s huge audiences for personal finance advice that they should not base their decisions on our central projections for interest rates because they will almost certainly not come to pass? Overall, then, I do not think that a compelling case has yet been made for the MPC to publish a forecast of the path for Bank Rate. But we must certainly provide the information necessary for financial market participants to form their own view as to the likely path of interest rates, and we must always be trying to improve the quality of that information. We shall also keep in close touch with our colleagues in central banks that do publish forecasts of policy rates to see what we can learn from their experience. If we feel that there are net benefits from following their example, then we will do so. 16  See Goldman Sachs (2006). 17  There are many ways of aggregating individual votes on paths of interest rates, but none is particularly attractive.
Housing finance has, as in Sweden, often been an issue of great political interest, which is reflected in all the above factors. Outstanding residential mortgage loans /GDP 1998. Per cent 70 60 50  %  40 30 20  Greece  Italy  France  Spain  Belgium  Portugal  Ireland  Austria  Finland  EU  Germany  Sweden  UK  Netherlands  0  Denmark  10  Sourc e: EMF 1998  It might be thought that standardised financial products such as housing loans should be very suitable for cross-border sales, but cross-border activity has been little to date. This is probably related to the housing loan market being primarily focused on private customers, who are difficult to reach without a local distribution network. It remains to be seen what internet can change in that respect. However,  1  BIS Review 113/1999  why should people not purchase a housing loan on the net, when they now pay bills and carry out other transactions that way. There are already today good possibilities for finding the cheapest housing loan on the market via internet, so technology will certainly increase transparency and competition even within the traditional more inert private sector. We are far from the time when Swedish house owners waited respectfully for years to move their building credit at the bank to a real five-year loan at a housing loan institution.

Philipp Hildebrand: Swiss monetary policy and financial markets Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Autumn forecast of the Swiss Institute for Business Cycle Research, Zurich, 5 October 2006. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch)  *  *  *  Transparency and communication enhance the impact and the precision of monetary policy. Monetary policy functions through expectations. This means that it is first and foremost expectation management. Central banks strive for transparency regarding their methods and approaches. All in all, the current economic and, in particular, the structural uncertainties are resulting in a greater range of possible economic scenarios and thus also in an increase in the range of expectations regarding our future monetary policy. In other words, being transparent does not automatically mean being predictable. Therefore, the Swiss National Bank (SNB) considers it particularly important to communicate its monetary policy concept to the markets and the public. This allows them to arrive at similar conclusions to those reached by the SNB. BIS Review 92/2006  1