samchain/econo-pairs-v1 huggingface dataset:
But the pattern is again uneven, with the largest gains in London (47%) and the South-East (25%), whereas in Wales the gains are smaller (8%) and in the North East there has been a small fall in wealth. With  9  6  In other words, this is a standard “Benthamite” (Bentham (1789)) social welfare function of the form : 𝑆𝑆𝑆𝑆 = ∑𝑖𝑖 ln 𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖 where 𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖 is gross value-added for region i See, for example, Sen (1970). Other forms of social welfare function – such as those proposed by Rawls (1974) and Sen (1973) – place greater weight on those with lower initial levels of well-being. They would suggest weaker profiles for social welfare than those shown here. BIS central bankers’ speeches  wealth in the former regions already higher than in the latter, the upshot has been a widening in the regional distribution of wealth. As with income, these wealth data can be translated into a measure of social welfare. Chart 14 plots that relative to aggregate wealth since 2007. The well-being benefits from higher wealth have been roughly half as large as would have been the case had these gains been evenly distributed regionally. This evidence goes some way towards reconciling the macro data and the micro stories from my regional visits. Whose recovery? To a significant extent, those living in London and the South-East of England. (b)  Income distribution  A different lens on recovery comes from looking at how income gains are distributed across households.

This limit ensures that banks still have to borrow from the Eurosystem at the monetary policy rate set by the Governing Council. Here is where the ANFA comes in. Its purpose is to limit the size of the NCBs’ non-monetary policy portfolios, net of the related liabilities, and thus to ensure that the Eurosystem can effectively implement the single monetary policy. Of course, when performing national tasks, the NCBs must comply with the Treaty including the prohibition of monetary financing. Moreover, if these tasks were to interfere with monetary policy in any other way, they can be prohibited, limited or have conditions placed on them by the Governing Council. The publication of the previously confidential ANFA text was a unanimous decision of the ECB and the NCBs in the Eurosystem to live up to our commitment to be transparent. This publication should resolve misunderstandings about ANFA. In particular, it clarifies that the sole purpose of ANFA is to set limits for non-monetary policy operations related to national tasks of the NCBs, which they are allowed to conduct according to the Treaty. Nothing more and nothing less. These limits ensure that the NCBs’ operations do not interfere with the objectives and tasks of the Eurosystem and, in particular, with the single monetary policy. BIS central bankers’ speeches  3  Finally, complementing the information on ANFA, the ECB also published data on the Eurosystem’s aggregate net financial assets. The NCBs will follow suit and disclose their respective net financial assets when publishing their annual financial accounts.
Meanwhile, on the global front, the collapse of the Bretton Woods system, with the United States declaring in 1971 that it would cease to redeem US dollars for gold 6  from its reserves, challenged the system of fixed exchange rates that the global economy was used to operate in. In addition, the 1973 oil crisis caused inflation to escalate in all countries, including Sri Lanka, often resulting in a destructive wageprice spiral. In Sri Lanka, inflation increased to 14.4 per cent by December 1973, the highest level of inflation the country experienced until then during its postindependent history. Elsewhere in the world, following the collapse of the Bretton Woods system of exchange rates, the international community was getting used to floating exchange rates, where each currency’s value was determined by the international demand for the currency. This was a new normal, prior to which money has historically been based on a valuable commodity such as gold. Post-liberalisation Monetary Policy Framework In November 1977, Sri Lanka embarked on a major economic liberalisation move, marking paradigm shift from inward looking restrictive policies towards a liberal regime under which trade and payments were liberalised to a great extent. To be consistent with the new liberal regime, the Central Bank abandoned the fixed exchange rate regime and moved to a more market based system of exchange rate management. On 15th November 1977, the prevailing dual exchange rates were unified at an initial rate of Rs. 16 against the US dollar.

This was an overnight 7  devaluation of the basic exchange rate by 120 per cent! The rupee was then allowed to float under a managed exchange rate regime. Accordingly, compared to the end 1976 exchange rate of Rs. 8.83 per US dollar, the exchange rate was recorded at Rs. 15.56 at end 1977. This sharp devaluation addressed the overvaluation of the rupee observed under the fixed regime. The subsequent managed exchange rate regime allowed some flexibility to determine the value of currency largely on the basis of market demand and supply, while attempting to prevent the overvaluation of the rupee by maintaining the real value of the rupee against movements of a basket of major currencies. The Aftermath of the Managed Float The introduction of the managed floating exchange rate was a welcome move from the perspective of a liberal macroeconomist. However, this resulted in new challenges to the conduct of monetary policy, particularly as the exchange rate was no longer available to anchor inflation expectations like in the past. The Central Bank also had to face a new challenge, as the government started to run extremely large fiscal deficits funded mainly by concessional external funding to develop public infrastructure such as the accelerated Mahaweli scheme. Annual fiscal deficits averaged 13.3 per cent of GDP between 1978 and 1983, External current account deficits averaged 10.8 per cent of GDP between 1979 and 1983. Year-on-year inflation averaged 15.6 per cent during February 1978 and January 1985, with a peak of 32.5 per cent in August 1980.
This is particularly important in the euro area – as opposed to, say, the United States – because fiscal transfers go only through the EU budget to compensate regions that lose competitiveness and become permanently depressed. The bedrock of economic union is completing the Single Market to allow for higher factor mobility. To a certain extent, the failure of markets to self-equilibrate before the crisis was because markets were incomplete. For instance, the single market in services remains unfinished, despite the fact that the areas covered by the Services Directive account for more than 45% of EU GDP. There are also significant remaining barriers to labour mobility, for example linked to the portability of pensions and national insurance contributions. However, it clear that competitiveness is a more complex issue that solely factor mobility. It depends on national traditions and economic structures. What role can the centre therefore  8  BIS central bankers’ speeches  play in ensuring competitiveness? For some fundamental issues linked to adjustment within monetary union – like flexibility of wage formation – we could envisage best practices established through guidelines for all countries set at the euro area level. But there are also dangers in over-harmonisation. We are seeing currently that system competition can play an important role in stimulating structural reform. A more nuanced way forward may be to strengthen the framework for encouraging country-specific reforms.

11  The distinction between output legitimacy (government for the people ) and input legitimacy (government by the people) was introduced in 1970 by Fritz Scharpf from the Max Planck Institute for the Study of Societies. For its use in the discussion of European affairs, see Scharpf, F. (1999) “Governing in Europe: effective and democratic?” Oxford University Press. 12  Gordon, Robert (2012). “Is US economic growth over? Faltering innovation confronts the six headwinds”, CEPR Policy Insight No 63. See also Cowen, Tyler (2011) The Great Stagnation: How America Ate All the Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better” Dutton Books. BIS central bankers’ speeches  9  This means that it gains accrued importance the attention that will have to be given to the other form of political legitimacy referred by Scharpf the input legitimacy (government by the people) – that is, increasing citizens’ participation in European decisions. In some ways this may appear as contradictory with the search for effectiveness linked with the first form of legitimacy that requires now stronger central deciding bodies. To understand the great difficulty in addressing this issue, we have only to think about the analogy we could establish with the political trilemma of the world economy recently enunciated by Dani Rodrik: 13 “we cannot simultaneously pursue democracy, national determination and economic globalization” I will not enter into such complications. I will recall, however, that in this context, we should never forget that Europe is not a Nation or a State.
The Bank would be accountable to Parliament for operating the instruments of monetary policy to achieve the objectives of monetary policy, which would be determined by the Government. 21 The operational independence of the Bank of England is an example of power flowing from the people via Parliament within carefully circumscribed limits. Independence in turn demands accountability in order that the Bank commands the legitimacy it needs to fulfil its mission. By publishing its analysis, giving testimony, and delivering speeches, the Bank explains how it is exercising its powers to achieve its clearly defined policy Remits. 19  Even the “fish weirs” clause (33) can be read, in hindsight, as a protection both of the public good (in Roman law terms, res publica) and of the freedom of navigation: the same principle for the which the English entered into the Seven Years War of 1756–63, whose costs, in turn, brought about the American Revolution of 1776. 20  George, E. (2000), “Central bank independence”, speech at the SEANZA Governors’ Symposium, 26 August 2000. 21  See, for example, King, M. (2000), “Monetary policy: theory in practice”, 7th January 2000. King attributes the “constrained” versus “unfettered” distinction originally to Ben Bernanke and Frederick Mishkin. BIS central bankers’ speeches  7  To illustrate these points, I will conclude with some reflections on monetary policy. Our objective, given to us by Parliament, is to maintain price stability and, subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.

UK fiscal policy is about to tighten significantly. The average annual reduction in the cyclically-adjusted budget deficit is projected by the OBR to increase from around ½ per cent of GDP over the past two years to around 1 per cent of GDP over the next two – and the IMF expects the UK to undergo the largest fiscal adjustment of any major advanced economy over the next five years. 30 Taken together, these factors suggest that the “equilibrium” real rate of interest – the rate needed to keep the economy operating at potential and inflation on target – which was sharply negative during the crisis, will continue to be lower than on average in the past. It also seems likely that the equilibrium interest rate will move only slowly back up towards historically more “normal” levels. Everything else equal, that suggests a prospective tightening cycle that, once it starts, will be longer and shallower than those of the past. In other words, we expect Bank Rate increases to be gradual, and limited to a level below past averages. What does that actually mean? The Bank of England is around half a millennium younger than Magna Carta. To put the limited and gradual expectation in historical context, short term interest rates have averaged around 4½ per cent since around the Bank’s inception three centuries ago, 31 the same average as during the pre-crisis period when inflation was at target.
On this issue let me refer briefly to some proposals for increasing the inflation target to avoid the possibility of hitting the lower bound of monetary policy and potentially falling into a liquidity trap. Our hard won experience indicates that we can have a relatively low inflation target (let’s say 2% or 3%) and still be able to deal appropriately with the challenges that the lower bound on interest rate imposes. Indeed, there was no emerging market that was limited by low inflation to undertake expansionary monetary policy. Indeed, the unprecedented monetary loosening in Latin America was possible precisely because of the conquest of inflation that took place in the last couple of decades. The critical issue when interest rates are at their lower bound is the credibility of monetary policy. If monetary policy is capable of committing to keep the interest rate low for all the time needed to stimulate the economy, the inflation target level issue becomes less relevant. Credibility allows for higher levels of flexibility. Flexibility in this case includes the set of actions that many central banks implemented in order to deal with the need for stimulating the economy once the monetary policy rate reached the lower bound. 2 One extra point regarding the prescription of having a higher inflation target. If the proposal for developed economies is having an inflation target of, say, 4%, the inflation target for an emerging market economy should presumably be somewhat higher, given the larger shocks that affect them.

Ardian Fullani: Recent economic developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Joint Press Conference of the International Monetary Fund (IMF) mission, the Ministry of Finance and the Bank of Albania, Tirana, 9 March 2010. *  *  *  Honourable Mr. Minister of Finance, Honourable Mr. Bell, Honourable participants, During the last two weeks we have had an intensive dialogue with the IMF Mission, which visited Tirana in the framework of periodic consultations in terms of the observance of Article IV. During these discussions there is appraised the good performance of the Albanian economy during the past year and there is also emphasized the need for pursuing prudent economic policies, designed and implemented in the context of strengthening the macroeconomic and financial stability. Also, special attention has been paid to the need for ongoing structural reform that will support our long-term economic growth. The Albanian economy has recorded a positive economic growth during the past year and has successfully tackled the direct and indirect shudders of the global economic crisis. Moreover, the Albanian economy has passed the test, by maintaining the domestic economic and financial balances, which serve as a prerequisite for a sustainable and long-term growth. Thus, inflation rate fluctuated around 2 to 3 percent during 2009; the country’s external balances have shown correction signs, while the Albanian banking system remains robust and well-capitalized. However, the economic growth rate slowed down significantly during 2009.
…to our own interest rate path These problems disappeared or at least were much alleviated when we chose to present our own forecast for the interest rate path. One important reason why the new interest rate assumption was introduced was so that it would become easier to understand the motives behind our decisions. This creates better opportunities to evaluate monetary policy. It thereby provides good conditions for accountability and legitimacy for an independent central bank like the Riksbank. To refer back to what I said earlier this evening – I believe that the new system will enable us to better meet the requirements for openness and clarity made of us in our interaction with the general public and the financial markets. As I mentioned earlier, it is probably difficult a central bank to be much clearer than this with regard to what they consider to be well-balanced monetary policy. We gain an even better tool for influencing expectations among households, companies and agents in the financial markets. This is a precondition for monetary policy to function well. One aspect that may not have been given so much attention is that it has become simpler for households planning their private economy to form an impression of which direction the interest rate will take. Previously, many people were probably forced to rely entirely on financial advisers to understand how the Riksbank envisaged interest rate developments a couple of years ahead. Now this information is available in our Monetary Policy Report.

In the Czech Republic, depositors very soon started searching for higher interest rates, or higher yields, in smaller “saving unions” with inherently riskier business models, as these institutions are also covered by the DGS and suddenly became to a given limit riskless for savers due to the disappearance of co-payment. Some of these institutions had to leave the market recently, eating up large sums from the pre-paid funds of the domestic DGS. I’m fairly sure that without this moral hazard behaviour induced by the harmonisation of the DGS rules the impacts on the system would not have been so pronounced. Or take another example. The regulatory debate on financial benchmarks in the world (and within the EU) influences sometimes adversely the willingness of banks to contribute to the benchmarks also in the markets where no improper behaviour of contributors has been proven or even detected so far. So it is great to harmonise and to coordinate. But you always have to bear in mind that you should not harmonise and coordinate towards rules that are riskier than the previous uncoordinated rules were on average. The third constraint is the one Claudio Borio of the BIS calls the “time inconsistency of financial stability policies”.
So instead they did the next worst thing: they sought higher return on equity by increasing the riskiness of their asset pool. This explains their venture into sub-prime and leveraged lending and various kinds of securitised exotica. Chart 9 looks at the leverage and risk positions of European versus US banks. European banks lie in the North West, as they exploited the absence of a leverage constraint to expand their balance sheets in search of higher return on equity. US banks, by contrast, located themselves in the South-East with lower leverage but higher risk per unit of assets. For US banks, this was a best response strategy for boosting shareholder payoffs. When risk on these high-default assets materialised, however, the result was the same as for European banks – deep losses, often cushioned by the state. •  Out-of-the-money options: The payoffs to high-risk lending can be replicated using an alternative strategy of writing deep out-of-the-money options. This can be achieved, for example, by selling protection in the CDS market. The writer of that protection receives an insurance premium and thus a steady source of income in  14  Keynes (1931). 15  Haldane (2009), Beale et al (2009). 6  BIS Review 139/2009  good states of the world. Because of that, this strategy appears to generate “alpha” – excess returns – during the good times. In fact, this strategy is a wolf wrapped in sheep’s clothing; it is beta dressed up as alpha.

GFXC signup data from the GFXC global index of public registers, https://www.globalfxc.org/global_index.htm. 14  All speeches are available online at www.bankofengland.co.uk/news/speeches  14
First among them is that it is not the absolute level of Bank Rate which matters, but where it is relative to some “equilibrium” rate that would maintain demand in line with supply in the economy and keep inflation close to target. The size and nature of the shocks that accompanied the financial crisis meant that this equilibrium level fell dramatically in 2008–09. So far, in fact, that even cutting Bank Rate to a record low of 0.5% was not enough to prevent the unemployment rate rising. And in order to head off a further deterioration in the economy, the MPC embarked on a programme of Quantitative Easing (QE) designed to further support the economy. In total, the MPC has purchased £ billion of government bonds through a scheme we call the Asset Purchase Facility (APF). The persistence of those shocks and their after effects – including the need for ongoing fiscal consolidation, high levels of household indebtedness, and the subsequent events in the euro area – mean that the equilibrium rate is probably recovering only gradually. And I note at this point that at least some of this recovery in the equilibrium rate is likely to be matched by a fading of the stimulus from QE.

6 An alternative interpretation is that the true expectation of market participants is for Bank Rate to increase more quickly than that, but that they are particularly worried about downside risks and are happy to accept a lower expected return in exchange for insurance against bad outcomes. 7 This would be consistent with the risks to the world economy that have come to the fore over the past year as emerging economies grapple with the twin challenges of transitioning to slower potential output growth and lower commodity prices. Although the direct trade links between emerging economies and the UK are relatively small, the indirect effects of a more dramatic emerging market slowdown through confidence and financial channels could be significant. I suspect this latter interpretation is closer to the reality. Personally speaking, should the downside risks from the world economy fail to materialise, and absent further shocks, once wage growth has returned to a level consistent with inflation returning to target I would expect the economy to warrant a path for Bank Rate that increases more quickly than implied by the market yield curve used to condition the November Inflation Report. I think it is interesting to note that surveys of economic forecasters – a more direct measure of the expected future path of interest rates – show expectations for a faster pace of increases in Bank Rate. Having said that, I think all agents, and all members of the MPC, expect the future path to be gradual and limited. 3.