samchain/econo-pairs-v1 huggingface dataset:
The depth of Spain’s problems, along with the lack of a suitable European response, has led moreover to the crisis becoming systemic, acutely affecting countries with problems of a different nature and magnitude. True, there has been some progress in European governance in recent years, with the strengthening of procedures already in place, the design of new macroeconomic surveillance procedures and the implementation of new Treaties. These treaties include that establishing the European Stability Mechanism, and the Treaty on Stability, Coordination and Governance in the euro area, which makes provision for the so-called Fiscal Compact. But this progress has not been sufficient to stabilise the situation, partly due to the lack of broad consensus that is apparent in the stance and statements of different European authorities. In these circumstances, action by the European Central Bank has been key to easing the moments of greatest tension and extending the time available to adopt the necessary measures in other economic policy areas. Evidently, the ECB cannot resolve the serious underlying problems of this crisis, be they national or related to the European architecture. It can only address some of the manifestations of these problems, in particular those reflected in financial markets, with a view to smoothing the way so that governments can take the corresponding measures. Spain is a clear example of an economy in which Eurosystem action has overcome critical situations and has provided the time needed to set in train ambitious reforms in various areas.

Nor can it be ruled out that the temporary tax increases approved this year may have to remain in place for longer or be replaced in time by other permanent measures. BIS central bankers’ speeches  3  I believe that in a country as decentralised as Spain, and in light of the deviations that arose in 2011, what was needed was to accompany budgetary consolidation with a significant strengthening of the institutional framework, so that all tiers of government might be called on to meet their commitments. Fortunately, the recently approved Organic Law on Budgetary Stability is a substantial improvement here. Moreover, it is fully attuned to the recent EU reforms on governance. Also, the agreement reached a few days back between the central and regional governments under the aegis of the Fiscal and Financial Policy Council on the deficit targets for 2012 and on the consolidation plans to attain these targets is excellent news. This lays the foundations for avoiding overruns such as those witnessed last year. What is crucial now is the swift and effective implementation of the instruments envisaged in this Organic Law, in particular the monitoring and control mechanisms for public finances at all levels of government, and those intended to enforce compliance with the targets set by all of them. The law proposes substantially improving general government transparency at the different stages of the budgetary process. In particular, timely detection of budgetary deviations is considered essential so as to adopt measures.
Some form of unforeseen event, such as changes in regulations or macroeconomic shocks, would probably be necessary to cause prices to fall sharply. The fact that interest rates will rise in the long term should be included in household expectations and can hardly be regarded as an unforeseen event in any economic scenario. The market for apartment buildings has also been characterised by rising prices since 1994. Regulations such as those on utility value, and the system of central rent negotiations, normally leads to stable, even developments in the prices of apartment buildings. However, the conversion of rental properties into tenant-owner associations has resulted in recent years in relatively sharp price rises for apartment buildings. Price developments can, of course, be affected by changed conditions such as a substantial increase in new construction or a rapid decline in demand. However, a low level of housing construction and a high demand for housing, particularly in metropolitan regions, indicates that this will not be the case. Conclusion The Riksbank’s work on monetary policy and financial stability emphasises the importance of transparency, clarity and predictability. These are also important factors in the securities markets in which mortgage institutions are active. I hope that mortgage institutions’ own actions, coupled with the new legislation, will help to render the market for housing finance more efficient. BIS Review 35/2004  3

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By imbalancing the asset portfolios of the institutional investors that sell us gilts, QE works in part through shifting the risk premia (broadly defined) on a wider class of financial assets. I would not expect that to be over and done with quickly. An analogy: it is sometimes alleged that the boom leading up to the crisis was in credit markets but did not really affect equity markets. I do not agree. Arbitrage does connect markets – eventually. The boom in Leveraged Buy Outs was precisely a mechanism for using underpriced debt to buy “cheaper” equity, which would have driven down the ex post equity risk premium had it taken its course uninterrupted by the crash. Similarly now, the effects of imbalanced investment portfolios will, most likely, spread through different capital markets – and so into wealth and the availability and cost of capital – gradually. A second mechanism, rather less remarked – except perhaps in international central banking circles – is how QE here and the injection of money by other central banks effectively contribute to the financing of the banking system. By buying assets from the non bank private sector, we increase deposits with the banks: broad money. We also put extra reserves – balances with the Bank – into the hands of the banks themselves. To the extent that those reserves holdings exceed individual banks’ demand for a liquidity buffer, they can use them either to expand lending or, alternatively, to repay (maturing) debt, and so help to deleverage their balance sheets.

But is also makes the case for policymakers developing macroprudential instruments that could be used to lean against future credit booms and for making our financial system more resilient. If we could manage that, it might be the most significant extension in the overall international macro policy framework in a generation. Price stability, financial stability and sustainable growth. They need each other. 14  For example, see Reinhart C M and K S Rogoff (2009), “The Aftermath of Financial Crises”, American Economic Review: Papers and Proceedings 2009, 99:2, 466–472 and Hoggarth G and V Saporta (2001) “Costs of banking instability: some empirical evidence”, Bank of England Financial Stability Review, Issue 10, June. 10  BIS Review 21/2010  Charts Chart 1: UK GDP and sectoral output(a)  Chart 2: World industrial production Contribution to annualised quarterly industrial production growth (pp)  15 10 5 0 -5 -10 -15  High Income Countries Developing countries excl China China World Total  -20 -25 -30  2007Q1  2007Q3  2008Q1  2008Q3  2009Q1  2009Q3  (a) Chained-volume measures. GDP is at market prices. Indices of sectoral output are at basic prices. Source: World Bank  Chart 3: Business investment to GDP ratio(a)  Chart 4: Nominal GDP  (a) Chained-volume measures. Recessions are defined as two consecutive quarters of falling output (at constant market prices) estimated using the latest data. (a) At current market prices.
So we are not required to raise  1  This estimate is taken from the Bank of England Financial Stability Report, October 2007, Box 1 (Mapping the financial system). It comprises the estimates of total global securities markets, less bank deposits. BIS Review 22/2008  3  interest rates sharply to counteract the rise in inflation which we expect over the next few months. We can decide what is appropriate in the light of all the circumstances. And the purpose of the Open Letter regime is to give us an opportunity to explain how we propose to use our discretion. Over the years the MPC has explained that it seeks to achieve its inflation objective in the medium term by varying interest rates to steer overall demand relative to supply. If price and wage setters do recognise that the imminent pick-up in inflation will be short-lived, then the implications of the spike for monetary policy, and for the necessary balance of demand versus supply, should be limited. But if price and wage setters start to expect higher inflation to persist, then the Committee will need to restrain demand, and so generate some slack in the economy, in order to bring inflation expectations, and inflation itself, back down. Clearly therefore it is a matter of intense interest to understand how people form and revise their expectations. Unfortunately our understanding is very incomplete.

BIS Review 22/2008  7  Chart 5: Commodity price developments  US $ per barrel  Index, 2000=100  100 90  Economist food price index (right hand axis)  80  Chart 6: GDP growth probabilities from February 2008 Inflation Report  250  200  70 60  150  50 40  100  30 20  50  10 Brent dollar oil price (left hand axis) 0  1990  0 1993  1996  1999  2002  2005  2008  Chart 7: CPI inflation probabilities from February 2008 Inflation Report  8  BIS Review 22/2008
In my opinion, a good checklist for a policy-maker on monetary policy issues is what Donald L. Kohn at the Federal Reserve has put forward on several occasions. He considers that three conditions I mentioned earlier must be met before central banks “lean against the wind”. And these are the three arguments I mentioned earlier. The first condition is that it must be possible to identify a bubble sufficiently early and with sufficient certainty. Secondly, the assessment must be that there is a good chance that a slightly higher interest rate will really slow down the untenable developments. Finally, one must count on being able to gain “enough” by preventing a bubble in relation to what a tighter monetary policy might cost in the short term. I believe that most people will agree that these are sound conditions to use as a foundation. However, the views regarding when the conditions are actually met can vary. Professor Kohn’s first condition probably entails the greatest difficulty. Although we are constantly developing our forecasting methods and models and they are becoming increasingly sophisticated, I do not expect that we will be able to reach a stage in the foreseeable future where we can be entirely sure that something we assess as an incipient bubble actually is a bubble. This is largely due to the nature of things, or rather the nature of the bubble.

This is a challenge that calls for the involvement of all levels of government. From this standpoint, it is very important to adapt the analysis of public finances and its economic policy implications to the current Spanish situation, marked by highly decentralised public spending. Leaving aside the transfers between different tiers of  BIS Review 117/2006  5  government and interest payments, which reflect past financing patterns, the volume of spending by territorial governments is almost two and a half times that within the State sphere. Such a figure shows the enormous increase in the role of these agents, which has significant consequences for budgetary policy conduct, both in terms of its contribution to macroeconomic equilibrium and as regards its influence on the economy’s growth capacity in the medium and long run. From the standpoint of the contribution to macroeconomic equilibrium, the initial data on the regional governments' budgets for 2007 point to a balanced budget target for the year. We might wonder, however, whether the macroeconomic situation I have described, at a cyclical juncture marked by a prolonged expansion, would require the setting of somewhat more ambitious targets, in line with the spirit of the new Budgetary Stability legislation, even though these are only legally binding as from the 2008 budget. Also, from the standpoint of their contribution to long-term growth, the role of the territorial governments in managing the public spending items of most relevance for improving the Spanish economy's competitiveness acquires considerable importance.
We absolutely must keep a clear line around central banking. 26 Which brings me to the third “instrument” I want to say something about today. Capital of Last Resort However much the authorities do to forestall or alleviate a crisis by providing liquidity, I fear that we cannot rule out that very rarely the banking system will end up needing to be supported by some ultimate source of capital. We absolutely must be prepared to let banks fail when, in systemic terms, it is safe to do so. Such decisions call for technocratic judgment. But, as we have seen, sometimes disorderly bank insolvencies would bring systemic distress. For that reason, at least three things follow. First, each country needs a Special Resolution Regime for distressed banks, and probably more widely; we cannot rely on general insolvency law to help control threats to system stability. Thank goodness, the UK now has such a regime for banks, and the Bank will draw lessons about whether it needs refinement over time. Second, given the prevalence of internationally active banks in a globalised economy, national authorities just must be able to work together – in reality; when it matters – to control the resolution of banks whose activities cross borders. 27 And third, as by now  26  This was re-affimed recently in a joint statement by the US Federal Reserve and the Department of the Treasury (www.federalreserve.gov/newsevents/press/monetary/20090323b.htm).

It is part of the supervisors’ job to take that wider, systemic view and sometimes to curb practices which even prudent banks might, if left to themselves, regard as safe.” See, Blunden G, “Supervision and Central Banking”, Bank of England Quarterly Bulletin, August 1987. 8  Page 206 of the 1999 paperback reprint of Bagehot (1873), “Lombard Street” in the Wiley Investment Classics series. 9  For example, see Eddie George’s 1993 lecture “The pursuit of financial stability”; Mervyn King’s September 2007 letter to the Treasury Select Committee, “Turmoil in financial markets: what can central banks do?”; and, most recently, the document on the Bank’s liquidity insurance facilities, “The Development of the Bank of  BIS Review 67/2009  3  some difficult issues around the transparency of collateral policy, and about how to avoid incentivising imprudent liquidity management. The time-consistency problem and collateral policy Like so much in central banking, time-consistency is at the centre of it. That a time-consistency problem can bedevil monetary policy is well known 10 , and motivates an institutional framework in which independent central banks have clear mandates for fighting inflation. Much less is said about what might be equally serious time-consistency problems in the sphere of financial stability. They can be especially apparent in central banks’ collateral policy. Given banks’ incomplete cover against their maturity mismatch, central banks have long stood ready to “discount” – or lend against the collateral of – certain assets in unlimited amounts.
It is surprising that this issue is still outstanding, despite the fact that it is more than ten years since the bank crisis occurred and despite a draft bill being taken up for consultation five years ago. We play a central role in the monitoring work and concentrate our task to assessing how the financial system functions and what risks might arise. Our Financial Stability Report is very important here. The aim of this report is to identify potential risks and to influence market operators with good analyses. The third part of the stability work – crisis management – arises because the central government might need to take action to avoid a crisis that threatened the stability of the system. In order to manage a crisis, the central government must be able to assess what consequences will arise if an institution suffering problems should become bankrupt. If these consequences are judged to be serious, the central government must also be able to take measures to alleviate the effects. In extreme cases the central bank can act as “lender of last resort” (provide emergency liquidity assistance, ELA) if this is necessary to prevent the bank system from collapsing. A lot has happened with regard to stability work since 1997 and the work changes continuously as the world around us changes. For instance, the increase in the banks’ operations abroad means that foreign borrowers also need to be analysed to a greater extent. In addition, the stability work must follow the increasing integration of the financial markets.

Stefan Ingves: The Riksbank's role in the economy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at Umeå University, Umeå, 6 February 2006. *  *  *  Let me begin by thanking you for the opportunity to come here and talk to you! Travelling around the country and meeting representatives of different regions, industries and sectors of society is an important part of the openness the Riksbank wishes to maintain. These trips provide us with input for our discussions at the bank, while we build up confidence in our operations. This is my first public appearance as Riksbank Governor, and it feels good to stand here in front of students, teachers, local politicians, regional business representatives and other Umeå residents. I hope we will have a stimulating discussion and I will certainly do my best to answer your questions. Introduction After living and working abroad for many years, it is an honour, as well as exciting and a pleasure to be back in Sweden and at the Riksbank. The bank I left some years ago is now different in many ways. The most important change is that the Riksbank has been governed since 1999 by an Executive Board, consisting of a Governor and five deputy governors, which makes all of the strategic decisions, including monetary policy decisions. Previously the interest rate decisions were formally made by the General Council, which now instead appoints the members of the Executive Board.
5  All speeches are available online at www.bankofengland.co.uk/speeches  5  1980s, to around $ over the past decade (Chart 1). Chart 1: Weather-related losses worldwide (1980-2017)  $ billions (2015 values)  350  Uninsured losses 300  Insured losses Moving average total economic losses (a)  250  Moving average insured losses (b) 200 150 100 50 0 1980 82  84  86  88  90  92  94  96  98 2000 02  04  06  08  10  12  14  16  (a) Total Economic Losses = Insured + Uninsured losses. (b) 10-year moving average Source: Munich Reinsurance Company, Geo Risks Research, NatCatSERVICE  General and reinsurers insurers have long deployed sophisticated modelling of climate and weather-related physical risks, and have adjusted their cover and business models accordingly. Lloyd’s of London underwriters, for example, are required to consider climate change explicitly in their business plans and underwriting models. Their genius has been to recognise that the past is not prologue and that the catastrophic norms of the future are in the tail risks of today. For example, by holding capital at a one-in-200 year risk appetite, under a forward-looking capital regime, UK insurers were able to withstand the events of 2017, the worst year on record for weather-related insurance losses at around $ Given evidence that suggests increasing levels of physical risk, insurers will need to consider the potential impact of more intense and clustered weather-related events.

Whether it concerns developing a European system of financial supervision or setting up a Systemic Risk Council under the auspices of the ECB and the ESCB, these ideas are truly conducive to greatly strengthening the surveillance of risks both at individual institution level and for the European financial system as a whole. The reforms that I have just described should make it possible for the incentives of financial system players to be compatible with the stability of this system. The crisis has highlighted two types if not of incompatibility, at least of divergence that need to be corrected. First, within the financial industry itself. Financial innovation and developments in the business models of financial intermediaries have weakened credit discipline in favour of a strict return-oriented discipline. Regulators are working on correcting the regulatory sources of these incentives, which are dangerous for financial stability. I am thinking notably of the work aimed at reducing regulatory arbitrage and at countering the short-termism encouraged by certain prudential and accounting provisions. Second, we need to reconverge the incentives of private- and public-sector players. Their divergence is a natural phenomenon in periods of economic and financial boom. In these periods, regulators and supervisors find it harder to limit risk-taking when the risks to financial stability are unclear and competition is fierce. Maximising profit and competition considerations stand in the way of prudence and the prevention of financial imbalances. Countering these forces requires in particular the implementation of an independent macroprudential policy.