samchain/econo-pairs-v1 huggingface dataset:
12  Slagstad, Rune (1998), “De nasjonale strateger” (National strategists), Pax  BIS central bankers’ speeches  15

I should however be clear about one extremely important caveat in this process of adjustment and about something that seems to be often misunderstood. The risk appetite of the Bank of England – both as macro and as micro prudential regulator of the UK banking system – has not changed. The financial crisis led to a reassessment of our tolerance to risks that could jeopardise financial stability. It brought home that systemic financial crises were not something that only happened in history books and in emerging economies. We learned they were both possible and indeed even more explosive and damaging in modern, advanced economies and in their interdependent financial systems. And we learned the costs to the real economy when financial stability is lost. GDP per person in the UK is barely above its pre-crisis level. This reassessment both of the probability and of the cost of damage to financial stability is the foundation of this unprecedented reform programme. As we learn how the new regulatory framework operates through the credit cycle we may, nay will, adjust – in any direction – reforms that are not operating as intended. We will do this in consultation with the industry and other stakeholders – the Open Forum on financial markets which the Bank of England will hold on 11 November is an example of this process. But, as the memories of the crisis fade, as they inevitably will, we will not reset our underlying tolerance of risks to financial stability. There is no “back to future”.
The Riksbank considered at the meeting that the amortisation culture needs to improve with regard to both new and old  10  6  See the article “Stricter capital requirements for Swedish banks – effects on the macroeconomy”, Monetary Policy Report, July 2014, Sveriges Riksbank. BIS central bankers’ speeches  loans, and that the Financial Stability Council should discuss a proposal for an amortisation requirement at its meeting in November. Such requirements can be formulated in different ways and affect all borrowers or a particular group, such as new borrowers or borrowers with a high loan-to-value ratio. It is therefore important to closely analyse different types of amortisation requirement and how they affect household indebtedness and the macro economy in general. It is also important to take into account the experiences of other countries. Prior to the meeting in November, the Council will make an overall analysis of the household situation and discuss the need for further measures with regard to household indebtedness. My assessment is that a package of complementary macroprudential policy measures are probably needed to help manage various aspects of the risks linked to household debt, and that such a package could be more effective than individual measures.

The IMF proposes, for instance, in its annual review of the Swedish economy, a combination of macroprudential measures aimed at the demand for loans: amortisation requirement, limits to the loan amounts in relation to income and a stricter mortgage cap, lowered from 85 to 75 per cent of the value of the housing.11 Measures within other policy areas must also be considered to manage household indebtedness All in all, I think that the new framework for macroprudential policy is a very important step with regard to both discussing systemic risk and managing household indebtedness. My assessment is that there is a fairly large degree of consensus that household indebtedness is developing in an unsustainable manner. The important thing now is that we do not get stuck in the analysis of the problems, but that macroprudential policy measures are implemented before the problems materialise. However, I also believe that measures in other policy areas may be necessary. The basis for the high level of household indebtedness is that we have had substantial imbalances in the housing market for several years. For the third year in a row, the European Commission pointed out in its report on macroeconomic imbalances that measures need to be taken with regard to the Swedish housing market. The Commission proposed, in addition to further macroprudential policy measures, measures to improve the tax system and increase housing construction.12 One element in this is the tax deduction, which has favoured mortgage borrowing.
What I am objecting to here is not that the forecasts are adjusted with assessments that take into account factors that affect the forecasts but are not captured in the usual models. On the contrary, I have always advocated such an approach and have even discussed how this can be done more systematically in a number of research papers. 7 I think that it is quite correct to take into account house prices, indebtedness, imbalances and so on to the extent that they affect the forecasts for inflation and the real economy. All information that affects the forecasts is relevant. The problem arises when one allows these factors to undermine target attainment for inflation and resource utilisation. In practice, this gives them the status of separate targets for monetary policy. This makes monetary policy unclear and hard to understand. Moreover, as I see it, the Sveriges Riksbank Act and its preparatory works do not provide scope for any other targets for monetary policy than inflation and resource utilisation. 8 I believe that it is important that the Riksbank’s decisions and communication in the future do not give the impression that monetary policy is focused on anything other than inflation and resource utilisation. In their 2006 evaluation of Swedish monetary policy in the period 1995–2005, Giavazzi and Mishkin (2006) also say that the Riksbank’s statements on housing prices led many people to perceive the Riksbank’s message as confusing, which made things unclear and undermined confidence in monetary policy.

The rate of unemployment will also continue to be high in the years ahead (Figure 4). Is increasing the repo rate and tightening monetary policy therefore the right thing to do? It means that CPIF inflation will be lower and further from the target and that unemployment will continue to be unnecessarily high compared to what it would be with a lower repo rate and a more expansionary monetary policy. In this speech I would like to talk about three subjects. The first is that in my opinion the existing framework for monetary policy could be improved if monetary policy consistently focused on stabilising inflation measured in terms of the CPIF at around 2 per cent and on stabilising unemployment around a sustainable rate. This would make monetary policy simpler, clearer and more robust. In line with this I have entered a reservation in favour of a lower repo-rate path and a more expansionary monetary policy as this would lead to CPIF inflation increasing and coming closer to the target and to unemployment falling towards a sustainable rate. Second, I believe that it is important that the Riksbank’s decisions and communication in the future do not give the impression that monetary policy is focused on anything other than inflation and resource utilisation. There has been an intensive discussion in the media and in market newsletters about a new focus for monetary policy, for example on stabilizing house prices and limiting household indebtedness.
Although many ECB watchers at the time favoured holding or reducing rates, on the basis of subsequent events it is widely recognised that this decision was appropriate and served to anchor longer-term private inflation expectations securely. A second example that underscores the ability to take decisions in difficult circumstances is the rise in interest rates in July 2008. It is now often put aside because subsequent developments were overtaken by the eruption of the crisis, but there is no doubt that inflation expectations were rising noticeably at the time. The decision of the Governing Council at the time demonstrated its determination to continue solidly anchoring inflation expectations including in difficult circumstances. At the height of the financial crisis, this reputation has helped to stabilise inflation expectations, including contributing to guard the euro area against the materialisation of the risk of deflation. BIS Review 103/2009  7  IV. Concluding remarks  Allow me to conclude. This morning, I have outlined four main cornerstones of the exit strategy from our nonstandard monetary policy measures. They reflect: our reputation for swift and decisive action when it is required; our technical and institutional ability to act; the forward-looking initial design of the measures; and, above all, the link to our monetary policy strategy and the primary objective of securing price stability in the euro area over the medium and longer term. Stressing the importance of the exit strategy should not be confused with its implementation.

Ability to act  Of course, notwithstanding these design features, exit will require a number of policy decisions. Therefore, an important question and the third cornerstone of our exit strategy is whether a central bank has the technical and institution capability to take such decisions. a. Technical capability and the operational framework  On the technical side, the question is whether we need to set up new rules and procedures to exit. This is not the case. The ECB’s operational framework is well equipped to facilitate  6  BIS Review 103/2009  the unwinding of non-standard measures when the need arises. The framework embodies a rich and flexible set of instruments, including fine-tuning operations, for the absorption of abundant liquidity – promptly if necessary. Moreover the framework permits short-term interest rates to be changed while keeping some non-standard measures in place, should continued credit support be needed. This feature is of great consequence: it means that the Governing Council can choose the way in which interest rate action could be combined with the unwinding of the non-standard measures. There is no pre-determined sequence between a change in interest rates and unwinding of non-standard measures. Hence, the Eurosystem retains appropriate flexibility as to the way in which interest rate action will be combined with the unwinding of the additional credit support measures, notably its extended framework for longer-term refinancing operations. In short, the ECB has in place all the technical ability to absorb liquidity as required. b.
For instance, for banks, it is important to allow for the fact that  2  BIS Review 101/2009  the size of an institution is already taken into account in the prudential ratios, since capital requirements are proportionate to exposures. It is also important to bear in mind that the diversification of business lines, which goes hand in hand with a certain size of institution, may be a factor of resilience that should not be discouraged. This is an important and delicate task that has been entrusted to the FSB. 2. Developing multilateral surveillance  I will now turn to collective surveillance. Let me start with the following simple observation: the crisis did not emerge from where we were expecting. Our warning systems, both at the national and regional levels, let us down. Above all, we did not have an overall, across-theboard view of the vulnerabilities. We omitted to take into account the interactions between global economic imbalances, international financial stability and national regulation and supervision. The crisis took us by surprise because it broke out at the heart of the system, i.e. in the US financial sector. Unlike other recent financial crises and in particular the Asian crisis at the end of the 1990s, contagion spread from the industrialised countries to the rest of the world. Surveillance instruments, in particular those of the IMF, were chiefly designed to detect a balance of payments crisis, whereas this crisis first affected the financial systems. We were prepared for a foreign exchange crisis, i.e.

The idea is that because some dealers are likely to be long some trades to one dealer and short some trades to other dealers, passing both sets of trades through a single CCP can reduce the aggregate amount of risk in the system. This would occur as the long trades are netted out against the short trades, leaving only the remaining smaller net exposure of the dealer to the CCP. 2  BIS central bankers’ speeches  Inserting a CCP in between two counterparties to a trade can also help reduce the “run risk” faced by a potentially troubled dealer. As we saw during the crisis, market participants often abruptly pull their trades away from a dealer that they perceive to be weak, which in turn can have the self-fulfilling effect of magnifying market or liquidity pressures on the dealer. If, however, trades with the dealer are cleared through a CCP, direct exposures to the dealer are eliminated and replaced by exposures to the CCP itself. This risk shifting can reduce the incentives to suddenly halt trading with a dealer, for example, due to uncertainty about the dealer’s financial condition or future prospects. Mandatory reporting of trades to trade repositories is designed to ensure that the details of each contract are preserved and available to the regulatory authorities. Finally, the fact that CCPs will be central to the system dramatically increases their importance. In essence, global CCPs will be systemically important.
GDP growth per head of population averaged less than 0.1% per year. Just try and imagine those rates of growth. They meant it took more than a millennium for living standards to double. 1  Stiglitz, Sen and Fitoussi (2009). For example, Coyle (2014). 3 Two recent excellent books (Pinker (2018), Rosling (2018)) chart this and other dramatic improvements in societal well-being over time. 4 De Long (1998). 2  2  All speeches are available online at www.bankofengland.co.uk/speeches  2  This growth experience is likely to have had an important psychological, as well as financial, impact. The average person would not see any improvement in living standards over their lifetime. Their lived experience was imperceptibly different than their parents, grandparents or indeed great, great grandparents. People’s lives were lived on a travellator. Rising living standards was not a social norm. Secular stagnation was. You could argue, with some justification, that measures of GDP at this time might have been missing a trick. We did not have any formal, statistical means of measuring incomes and outputs in the economy until well th  into the 20 century, with the development of the National Accounts. And GDP anyway underplays important factors shaping people’s well-being, such as levels of nutrition, infant mortality and longevity. 5  6  Yet, as best we can tell, alternative well-being metrics tell broadly the same story. Rates of infant mortality were unchanged over this period. Life expectancy flat-lined at 30 to 40 years. Levels of calorific intake stood still.

Anson, M, Bholat, D, King, M and Thomas, M (2017), ‘The Bank of England as lender of last resort: new historical evidence from daily transactional data’, Bank of England Staff Working Paper, No. 691. Autor, D (2014), ‘Education, and the Rise of Earnings Inequality Among the “Other 99 Percent”, Science, 23 May 2014, pp. 843-851. Autor, D (2017), ‘Economic and political consequences of China’s rise for the United States: lessons from the China shock’, IFS Annual Lecture 2017, 22 June 2017. Baddeley, M (2006), ‘Convergence or Divergence? The Impacts of Globalisation on Growth and Inequality in Less Developed Countries’, International Review of Applied Economics, Vol. 3, pp. 391-410. Bolton, P (2012), ‘Education: Historical statistics’, House of Commons Library, Standard Note SN/SG/4252. Bresnahan, T and Trajtenberg, M (1995), ‘General purposes technologies ‘Engines of growth’?’, Journal of Econometrics, Vol. 65, No. 1, pp. 83-108. Broadberry, S and Wallis, J (2017), ‘Growing, Shrinking, and Long Run Economic Performance: Historical Perspectives On Economic Development’, NBER Working Paper, No. 23343. Brynjolfsson, E and McAfee, A (2014), The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, W. W. Norton & Company. Brynjolfsson, E, Rock, D and Syverson, C (2017), ‘Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics’, NBER Working Paper, No. 24001. Bughin, J et al (2017), ‘Artificial Intelligence – The Next Digital Frontier?’, McKinsey Global Institute Discussion Paper.
If we look at a simple scatter plot showing how current account variations and real exchange rate variations have been related since the early 2000s [Slide 6], the conclusion is quite pessimistic: over this period, yearly variations in the real exchange rate have only been weakly negatively related to current account adjustments. One interpretation, however, is that a rebalancing requires large real exchange rate variations and therefore implies large costs in terms of welfare for deficit countries. In addition, this relation may differ a lot between the “build-up” periods of global imbalances and periods of “rebalancing”. If we split the sample into the period before and after the “peak” of these global imbalances in 2006 [Slide 7], there is indeed a clear asymmetry: current account variations were more strongly related to real exchange rate movements in the four years following the “peak” (rebalancing period) compared to the four years before the peak in global imbalances (build-up period). There are many reasons why this relationship could change over time: for example it has been shown on the export side that very productive exporters react less strongly to real exchange rate movements than small and unproductive exporters.5 This means that when there is a need for rebalancing, a lot happens through the import side and, in deficit countries, through demand compression. 2. The funding of large imbalances Let me turn now to the financial side of the current account and discuss the sustainability of excessive current account imbalances, focusing mainly on the level and composition of the funding.

in 2017, 0.9% of GDP in Germany and 0.7% of GDP in the Netherlands). This suggests that a fiscal boost in those countries could help to correct intra-euro area imbalances, be it through public investment spending or tax cuts for households. So, what is the solution? More than ever, there is a need today for active multilateralism to face our global challenges. In the uncertain world of 2018, it is the responsibility of a strong Europe, along with Canada and some Asian partners, to convey this message. Let me conclude by focusing on the intra-European level. The euro area is experiencing an excess of savings relative to investment of about 3.5% of GDP (12-month cumulated current account for the period ending in November 2017). Savings should circulate more freely across Europe, to where investment needs are, especially towards productive investment, and one notable way of achieving this is by shoring up equity which is the key to an innovation economy. A large part of the solution lies at the European level, with the building of what I call a “Financing Union for Investment and Innovation” (FUII), that would merge together the initiatives already in place – the “Capital Markets Union” (CMU) of course, but also the Banking Union and the Juncker Plan. In the Governing Council, we all find it regrettable that CMU is presently the forgotten child in the political discussions about the strengthening of the euro area.
In the first stage, the markets had difficulty perceiving the dimension of the damage caused by the crisis and considered that such an incident would be overcome shortly and/or would not reach significant levels. As a matter of fact, especially in the first half of 2008, one of the most discussed items on the agenda of international financial circles was whether there would be a decoupling of economies or not. In that period, many economists and market specialists supported the idea that the crisis that emerged in advanced economies would have a limited impact on emerging economies and that emerging economies had the capacity of compensating the global demand deficit, which was to be observed. In conclusion, they claimed that there would be a distinct decoupling in the growth dynamics of country groups. It has been fortunate that the expected decoupling has not been as intense as estimated. It is inevitable for both developed and emerging economies to be affected by global economic turbulence in a period characterized by the progressively rising interdependent nature of global economies. However, the scale of the impact has differed from one country to another. When we look back, we see that the resilience of countries in the face of the crisis has been determined mainly by four structural factors. It is possible to examine them under four headings as (1) Floating exchange rate regime (2) Resilience of the banking system (3) Countercyclical monetary policy and (4) Room for maneuver provided by the fiscal discipline implemented in the pre-crisis period.

The USD 700 billion worth of stimulus package, which was prepared in September 2008 to enable the government to assume bad debts of US financial institutions and which was considered the biggest state intervention in recent years, was pending at the US House of Representatives for a long time due to the harsh reaction from the public. In the meantime, there was a negative reaction from the public towards the excessively high salaries of banking sector managers, who frequently was urged a readjustment to the remunerations of managerial staff. Furthermore, new arrangements were brought onto the agenda for stricter supervision and to restrict the activities of the financial sector. In addition to these developments, views related to inefficient functioning of public institutions in charge of supervising the financial sector, primarily the Federal Reserve, in the pre-crisis period, raised intense criticism on these institutions, too. Meanwhile, under the name of financial protectionism there have been advocates of the discourse that international banks should halt their functions abroad and instead lend to the corporate sector experiencing difficulty in finding funds at home. On the heels of “Denial” and “Anger”, the global crisis entered the third and most disturbing stage in the final quarter of 2008 and the first quarter of 2009. We can define the common public feeling that prevailed in the whole world in this period as “panic” and “fear of collapse”.