samchain/econo-pairs-v1 huggingface dataset:
Monetary policy is really conducted whenever a central bank releases information that affects markets' expectations about the future path of short-term interest rates and about the expected effects of that path on the economy. Monetary policy could therefore be defined as the process of managing expectations about the future path of the monetary policy instrument and the probable effects of that path on the economy. In this context, transparency is a crucial element of a successful monetary policy strategy. 3 If a central bank wants to implement its monetary policy strategy efficiently, it should communicate its intentions and expectations to financial markets and to the public as clearly as possible. In other words, based on its assessment of the available data, it should lay out the likely direction of the monetary policy path  3  See for example Blinder et al. (2001) for an in-depth overview of the benefits of transparency in central banking. BIS Review 30/2006  3  as well as the expected economic effects of that path. Central bank transparency then allows markets to better anticipate the future path of short-term rates, the effect of this path on other financial market prices and ultimately the impact on the real economy. The monetary policy transmission process is thus rendered more efficient. Transparency has a second advantage: It reduces uncertainty and may therefore lead to lower volatility in various financial markets.

Arguably, bond prices and exchange rates are mostly affected directly via the expectations hypothesis of the term structure and interest rate parity relations, while the effects on other assets are likely to be more indirect. Let me give an example: Imagine a central bank which eases its monetary policy stance by lowering expectations about the future path of short-term interest rates. Lower expected short-term rates will directly affect bond prices and the exchange rate. They will also increase other asset prices by lowering the discount rate to be applied when discounting future proceeds. The indirect effects due to higher expected demand will raise stock and housing prices and further contribute to the total impact of monetary policy. 2. The role of transparency and credibility in monetary policy  The previous example illustrates that monetary policy primarily works through expectations about future changes in short-term interest rates. It is therefore useful to think of any interest rate decision as "the first step along a path", as Alan Blinder put it (1998). In other words, it is not so much current short-term interest rates which define the stance of monetary policy. What matters is what financial market participants expect the future path of short-term interest rates to be, as well as the consequences of that path on financial markets and ultimately on the real economy. Setting the interest rate at official board meetings is therefore only one part of conducting monetary policy. The other part relates to the release of information that affects market expectations.
Secondly, it is important that the authority that is given responsibility for macroprudential policy is also equipped with the right tools, that is, given the possibility to intervene at an early stage when risks that could lead to negative effects on the Swedish economy have been identified. Sweden’s place in the global financial system and our domestic conditions mean that we cannot delay any longer in designing a framework for financial stability and macroprudential policy; we need to get this in place as soon as possible. ...and we need an even better analytical base However, to be able to make the best possible analyses and thus design effective tools to counteract the risks of high indebtedness, we also need to have better statistics on household borrowing. This has also been pointed out by both the IMF and the European Commission in their assessments of the Swedish economy.5 As a preliminary step towards improving the analytical base we at the Riksbank have asked the Swedish banks to provide us with data on households’ loans. The data collected by the Riksbank will be used to analyse how vulnerable the Swedish households are and how potential risks are distributed among the population. Finansinspektionen already makes good  5  “Sweden – 2013 Article IV Consultation: Concluding Statement of the Mission”, IMF, 31 May, 2013. “Council Recommendation (COM(2013) 377 final)”, European Commission, 29 May, 2013. BIS central bankers’ speeches  5  analyses and have on several occasions gathered random samples among newly-granted loans.

Monetary policy needs a more long-term focus As I see it, we need to make it clear in the monetary policy analysis how monetary policy affects the risk of a financial crisis arising and how such a crisis scenario would look. As financial imbalances usually build up over a long period of time, this means that, in practice, we need to look beyond the three-year perspective that normally forms the base for our forecasts. Monetary policy is already forward-looking, but with a more long-term focus we could also include target attainment in the longer run. So, to what extent can monetary policy affect the probability of a crisis occurring? Well, it is mainly the effect of the repo rate on debt that is important in this context, as the probability of a financial crisis increases when indebtedness is high or when debt increase at a faster rate than normal.2 As the interest rate entails the cost of taking on debt, monetary policy has an effect on indebtedness. In the short-term perspective it seems as though the relationship between the repo rate and household debt is not very strong. However, if households expect the prevailing low interest rates to persist, and therefore increase their debts to unsustainable levels, the effects can be substantial.
This performance applies to the whole system without the bank whose license was revoked and CB Victoria which is still under special supervision. All these indicators and results are especially rewarding because they have been achieved in a very harsh year! At the same time, however, nobody entertains the illusions that the hardships and trials to the banks in our country are over. Because most likely in 2015 as well the banking community  2  BIS central bankers’ speeches  will work in a testing business environment, where I do not rule out the possibility of new attempts to deliver blows against the sector, motivated by the intertwining economic, political and media interests, such as those we saw against the Bulgarian banking system right after KTB and CB Victoria were placed under special supervision. The passing 2014 year has shown how dangerous to society, as well as useless for their authors, such attacks can actually be. Remember how, right here before you, a year ago I called your attention to the fact that we could expect political tension to rise and the topic of banks to be turned into an object of pre-election campaign and party bickering. Regrettably, this unpleasant prediction has come true. Throughout the past year we were not spared statements by party representatives who administered negative public judgments and pronounced the gloomiest of predictions about the banks in the country.

Within the first group fall all those challenges in 2014 that were not at all unexpected. We have commented these challenges in previous years. Thus, for instance, the forecasts that this year also the economic growth would not accelerate, have materialised. That has held back the quality of bank assets from improving more tangibly. Accordingly, loan demand from enterprises and households has stayed weak. As a result, for yet another year, the banks’ profitability has been subdued and their possibilities for income from lending, i.e. their core activity, have remained limited. Also expected were the tasks related to the transposition into the Bulgarian legislation of the Capital Requirements Directive and the Capital Requirements Regulation adopted in 2013 by the European Parliament and the Council of EU. This time last year in my statement before you I qualified this as a kind of a “supervisory revolution” and the largest one-off change to have occurred in our supervisory framework over the last more than 15 years. Earlier this year, amendments were adopted in the Law on Credit Institutions and in the regulatory framework, including by dropping out a few key BNB ordinances, Ordinance No 9 being one of them which governed the specific provisions for credit risk. In place of the specific provisions allocated until then, the banks made additional accounting provisions under the International Financial Reporting Standards (IFRS), thus reducing the book value of loans past-due by more than 90 days.
Continuing financial disintermediation also involves increased competition for credit institutions. It is well known that, if trade credit is excluded, the bulk of borrowing by Spanish non-financial corporations has traditionally been in the form of bank loans. This funding structure is similar to that observed in other European countries, such as Germany or Italy, but contrasts with the greater weight of financial markets in other economies such as the United States and the United Kingdom. Following the outbreak of the most recent crisis, a gradual increase in the weight of business funding raised on financial markets through the issuance of fixed-income securities has been observed in Spain and in other developed countries. This phenomenon especially affects large corporations. Among the factors potentially contributing to this development are the regulatory changes in the financial arena, imposing stricter requirements on banking activity, as mentioned earlier, and the corporate sector purchase programmes by central banks, which has reduced the cost of issuing these assets. Looking ahead, this trend towards the expansion of capital markets might continue if progress can made on the European project to create a capital markets union. Also, a potential increase in long-term savings linked to the ageing of our society could also contribute in the same direction. Although a greater diversification of financing sources could potentially be positive for nonfinancial corporations, making them less vulnerable to adverse shocks affecting a specific financing channel, for credit institutions it could entail a reduction in business volume and income.

05.10.2018  The challenges to the Spanish banking industry Conference on banking, profitability and monetary normalisation /Universidad de Deusto, KPMG and El Correo Pablo Hernández de Cos Governor  Good morning. Let me first thank the organisers for their kind invitation to me to participate in this Deusto University event. It is a pleasure to be here with you today and to share some thoughts on the Banco España’s view of the main challenges currently facing the Spanish banking industry. As is well known, credit institutions were greatly affected by the last crisis. This was manifest in a strong rise in impaired assets, including both non-performing loans and real estate foreclosures, and in a significant fall-off in profitability, which even turned negative in 2012. To address these problems it was necessary to undertake intense recapitalisation and restructuring in the industry. As a result, there has been a notable and generalised improvement in Spanish banks’ financial position. Also contributing here have been the recent roll-out of an extensive package of regulatory measures and the favourable course since 2013 of the macroeconomic setting and financial conditions, assisted by the ECB’s monetary policy measures and by other actions at the European and domestic levels. The Spanish banking industry’s improved financial position in recent years can clearly be seen both in terms of asset quality and in its profitability and solvency levels.
It intensified in August the same year, with the bankruptcies of the British bank, Northern Rock, and troubled banks in Denmark and Germany. On 15 September 2008, the crisis took a new and dramatic turn when Lehman Brothers filed for bankruptcy. The next day, money markets seized up. Confidence between banks had been compromised. Liquidity dried up, interest rates rose sharply and equity prices fell. Exchange rate volatility – the daily fluctuations in the exchange rate – showed a marked rise. Bond markets in turn shut down. In the days and weeks that followed, banks tightened credit standards on new loans to households and enterprises. At that time, global economic growth was already slowing, but the situation deteriorated significantly throughout the last few months of 2008. The turnaround hit hard, with synchronised effects on virtually all financial and goods and services markets, not only in the US but also in Europe, Asia, Latin America and Oceania. For a long period there were hopes that growth in China and other emerging market economies would hold up. But they are also severely affected by the crisis. During the year, we saw a bank, credit and liquidity crisis in the financial system which gradually came to encompass a crisis in the real economy. The contraction in the world economy has resulted in a substantial decline in traditional exports, and global trade has fallen markedly since autumn last year. The global downturn also led to a marked fall in prices for oil and other commodities through autumn 2008.

At end-2008, the largest ownership interests were in British Mondi (8.7 per cent), Australian Babcock & Brown Infrastructure Group (7.8 per cent) and Finnish UPM-Kymmene (5.8 per cent). In bond markets, the largest issuers are sovereign states. The Fund will therefore normally have large holdings of government debt. The Fund’s average share of market capitalisation in fixed income markets at the end of 2008 was around ½ per cent. The Fund has a longer investment horizon than the vast majority of other market participants. The important question is therefore how sound today’s investments prove to be in the long term. The government now owns a fair share of the global business sector. This represents real value that will provide a return reflecting both global economic growth and the risk related to fluctuations in equity prices. Active ownership Active ownership has also become an important part of Norges Bank’s investment operations. The purpose is to help safeguard financial wealth for future generations by promoting good corporate governance and encouraging high ethical, social and environmental standards at investee companies. As a shareholder in almost 7 900 companies, Norges Bank has both rights and obligations in relation to these companies. Our long time horizon exposes us to developments in markets traditionally of less concern to more short-term investors. We use our position as a shareholder to address topics relating to traditional shareholder rights, such as the right to equal treatment and influence.
In order to counteract, for instance, that certain changes in charges lead to CPI exceeding the target, we would be obliged to carry out a monetary policy that would either lead to the use of resources in the economy being too low or too high. Provided that inflationary expectations are not affected, we can, to avoid unnecessary fluctuations in output, therefore decide in certain cases to conduct a monetary policy that leads to the CPI target not being achieved in a 1-2 year time perspective. For instance, we have normally decided to disregard certain factors that affect CPI by focusing monetary policy on UND1X - a price measure that disregards housing costs and indirect taxes and fees. Concern for macroeconomic stability can in certain cases also justify our extending or shortening the time horizon. It is, for instance, conceivable that it may be justified to extend the target horizon if we make the assessment that there is a risk of a substantial increase in inflation immediately after the normal horizon. If, in such a situation, we wait to increase the interest rate and thus comply with the main rule, we could subsequently end up in a situation where we were forced to increase the interest rate very sharply to avoid inflation expectations accelerating and persisting when inflation rises  BIS Review 98/2000  4  rapidly. However, a large interest rate increase would have negative effects for output and employment in the short term.

Secondly, it is necessary that central government finances continue to be in surplus in the next 10-15 years, which can be used for amortisation. A lighter debt burden creates scope for future increases in costs. The government’s expenditure ceiling and balance targets aim at creating such space. At present, the prospects for growth in the economy are so good that the surplus in central government finances is expected to be sufficient to amortise central government debt at a rapid rate and to reduce income tax. The challenge lies in maintaining this ambition over a long period. It is therefore important that economic policy is focused on creating the conditions for growth. In this perspective, it would in my opinion be unfortunate to take decisions on a shortening of working hours since it would worsen the prospects for growth by reducing the supply of labour. By taking responsibility for stable prices and financial stability, the Riksbank can make a contribution to creating favourable conditions for long-term good and even growth. 1  BIS Review 98/2000  Stable inflationary prospects and free resources make possible low interest rates The strong upswing that we are now experiencing has been supported by the Riksbank being able to keep the interest rate at a relatively low level due to low inflationary pressure. Despite us being ahead of Europe in the cycle, we have an instrumental rate which is one per cent lower than in the euro area.
We aim to protect the system, not to keep in being unviable banking capacity …...” And, paraphrasing Mervyn King in 2007: “if the [authorities] underwrite any [risk] that threatens to damage the economy as a whole, it encourages the view that as long as a bank takes the same sort of risks that other banks are taking then it is more likely that their problems will be insured ex post.” Extrapolating, common principles for LOLR, MMLR and COLR might include that the terms must help prevent and contain crises; not incentivise imprudent behaviour; be timeconsistent, which is to say that they must be credible; and lead to an exit strategy. Elsewhere in the repertoire, we are clear, for example, that the costs of LOLR should fall to shareholders; and that the costs of deposit insurance should be recovered by levies on the banking sector as a whole. Building on that, one possible way through the COLR maze might conceivably be to establish, over the medium term, a regime where the eventual cost of any COLR would in some way be allocated back to the banking system itself rather than to the general taxpayer. If it is unavoidable that, instead of allowing banks to fail, the banking system occasionally needs to be rescued through injections of equity capital, “insurance” is in effect being extended to ordinary creditors generally and not just to retail depositors. The funding of that insurance would, perhaps, be extended in a similar fashion.

In other words, a central bank policy of lending against only the best assets is likely to prove time inconsistent when it comes to the crunch. This is not an ivory tower problem. It is a real problem. It is why the Bank of England confirmed last year that we do stand ready, via our public facilities, to lend against a wide range of collateral, subject crucially to appropriate haircuts and other terms. To do otherwise would be futile; it would lack credibility. And to do so is consistent with Bagehot’s dictum that central banks should lend against “everything which in common times is good ‘banking security’ ”. 12 The Bank has already published an initial list of collateral eligible in its dedicated liquidityinsurance facilities. Looking ahead, the Bank plans to expand the list, and to promulgate detailed eligibility criteria reflecting its risk tolerance and experience gained from managing  England’s Market Operations: A consultative paper by the Bank of England”, October 2008. Mark Carney, Governor of the Bank of Canada, has also set out his principles for the Bank of Canada’s liquidity provision. 10  Broadly, if the monetary authority thinks it can achieve above “trend” output growth or employment for a while by reducing interest rates, it may be tempted to let inflation temporarily rise above the rate it has promised to deliver.
I will assess these global developments before turning to what they may mean for the UK’s economic prospects. Global financial market developments In recent months, the expected paths of policy interest rates in advanced economies have shifted sharply lower, most notably in the US where an expectation of two further rate hikes over the next three years has flipped to four rate cuts by the end of next year. In the euro area, markets have begun to price in further rate reductions and asset purchases (Chart 1 and the charts in the annex). Chart 1: Expected paths of policy rates shifted sharply downwards Per cent 3.5  Dotted lines: November 2018 Dashed lines: February 2019 Solid lines: June 2019  3.0 2.5  United States Federal funds rate  2.0 1.5 1.0  United Kingdom Bank Rate  0.5 0.0  2016  2017  -0.5  Euro area  ECB deposit rate  2018  2019  -1.0 2020  2021  2022  Sources: Bank of England, Bloomberg Finance L.P., ECB, Federal Reserve, Eikon from Refinitiv, Tradeweb and Bank calculations. Notes: The June 2019 and February 2019 and November 2018 curves are estimated using instantaneous forward overnight index swap rates in the 15 working days to 19 June 2019, 30 January 2019 and 24 October 2018 respectively. The federal funds rate shows the top of the target range. 1  Shakespeare used it to refer to a literal change wrought by the sea.

The additional tariffs threatened by the US on China and on auto imports more generally would raise average US tariffs to rates not seen in half a century (Table 2). If implemented, they could reduce global GDP by an additional 0.6% through direct trade channels alone (Table 1). 4 5  US tariffs on steel and aluminium and the reciprocated 25% tariff on $ of US imports from China. The hit to global GDP may be cushioned somewhat by trade diversion, which will likely benefit non-China Asian EMEs. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches  7  Table 1: Direct effects of tariff increases small but indirect effects potentially far greater Change in level of GDP (%) US  China  Euro area  UK  World (PPP-weighted)  Measures taken in previous years  -0.4  -0.3  -0.1  -0.1  -0.1  Additional US-China tariffs implemented in May and June 2019  -0.5  -0.4  -0.2  -0.1  -0.2  Additional marginal reduction in GDP in the event that… US-China raise tariffs on all imports to 25%  -0.5  -0.5  -0.1  -0.1  -0.2  US imposes 25% tariffs on all auto imports and all countries reciprocate  -1.2  -0.3  -0.3  -0.2  -0.4  -2.1  -1.2  -0.6  -0.4  -0.8  Total if all measures are implemented  Sources: Bank calculations. Notes: The table shows the peak impact over a three-year period.