samchain/econo-pairs-v1 huggingface dataset:
Proposals for possible solutions From this discussion, I would like to propose the following possible solutions to the Swedish monetary policy problems: We should consistently choose the repo rate path that best stabilises inflation around the inflation target and resource utilisation around a normal level, regardless of whether GDP growth is high or low, and regardless of whether the repo rate is high or low. If the chosen repo rate path then offers a threat to financial stability – which would appear to be a rare situation – this should be taken into account and this repo rate path excluded if it is appropriate. The motives for these actions should then be explained. When choosing a repo rate path, we should take into account house prices and household borrowing if they affect the forecasts for inflation and resource utilisation in the short or long term. If such considerations affect the repo rate path, we must carefully justify our decision. For instance, we should explain why potential advantages in the longer run are greater than potential disadvantages for inflation and resource utilisation in the short run. If house prices and household borrowing become unsustainable, or are judged to entail other problems, then other and better instruments should be used to deal with this than the repo rate. Trying to use the policy rate to slow down house prices and household debt could lead to high costs for the real economy in terms of lower production and employment, and higher unemployment.

More generally, if house prices and household indebtedness are regarded as a problem, then this problem needs to be analysed and specified in greater detail to assess which means can be used to deal with it. Is the problem some form of market failure? Does it involve an externality? Is it due to a lack of information to borrowers, and is it thus a consumer protection issue? It is only when we have specified the problem that we can determine suitable measures to deal with it. However, as far as I can see, there is hardly any indication that current house prices and household indebtedness are a problem. In Sweden, mortgages do not present any threat to financial stability. This is because – unlike in the United States – mortgages are personal (what are known as full recourse loans). They do not lead to any loan losses of significance for the mortgage institutions. Mortgages did not lead to any loan losses worth mentioning even in the 1990s crisis – the banks’ loan losses were primarily caused by loans for commercial property. Household debt thus does not present any threat to financial stability in Sweden. Can house prices and household debt involve any other problems? I cannot see any indications that a house price bubble is building up or that house prices will become unsustainable in the longer run. The house price indicator published by The Economist usually points to Swedish house prices in relation to rent levels being over-valued by up to 40 per cent.
2  See ECB (2009), Financial Stability Review, Special Feature B for a discussion on the concept of systemic risk. 3  For an overview, see Bisias, D., M. Flood, A. W. Lo and S. Valavanis (2012), “A Survey of Systemic Risk Analytics”, Office of Financial Research Working Paper No. 0001, January. 4  Hollo, D., M. Kremer and M. Lo Duca (2012) “A Composite Indicator of Systemic Stress in the financial system”, ECB Working Paper No. 1426, March. BIS central bankers’ speeches  1  short-term interest rate) in a MS-VAR, to illustrate the dynamic interaction of systemic financial instability and the macroeconomy in the euro area. 5 CATFIN, a VAR and Expected Shortfall measure at system-wide level calculated with non-normal distributions with fat tails, showing the predictive capacity of financial volatility regarding real economic downturns was proposed by Allen et al. 6 Similarly, Giglio et al. examine 19 measures of systemic risk for the US and 10 measures for the UK and the EU from the perspective of how well they forecast macroeconomic downturns. 7 They also build dimension-reduced risk indexes using principal components and partial quantile regression to demonstrate the robust performance of some indexes in anticipating future macroeconomic downturns. These efforts in developing composite indexes are complementary to the on-going research on the concept of a financial cycle as a sort of a generalisation of the old concept of credit cycle, distinct from the concept of the economic or business cycle. The ECB paper presented this morning by Hiebert et al.

And we are revising our tax code to make it more competitive for a wide range of financial services, including corporate treasury activities, the fund industry, private equity and wealth management. Closing remarks 48. Ladies and gentlemen, I started my speech with the question why Hong Kong is irreplaceable. In the past 15 minutes or so I highlighted the strength of Hong Kong’s ecosystem as an international financial centre, the scale of opportunity ahead and the actions we are taking to maintain our competitiveness. I hope you will agree with me that Hong Kong’s exceptional resilience under recent pressure reinforces – rather than calls into question – its long-term future as a global financial hub. 49. The legal profession has an important role to play in this journey, and I look forward to our continued close collaboration. 50. Thank you. 5/5  BIS central bankers' speeches
There is nothing unfair in comparing Italy to Spain in June and July 2012. The situation was very similar. We were very close, we were on the edge…  The situation was the same and the two countries took two different paths. Spain decided to take an EU programme for the banks, whereas Italy committed itself to making it on its own. Do you think that decision explains the divergence between the two countries since then? Again, I don’t want to make a direct comparison. The situation in Spain in 2012 was different – the government had an absolute majority in Parliament, we were lucky in that. And the clean-up of banks in Spain was far-reaching. It was not easy; it was bloody, I can assure you. But we did it and, after that, we were able to deal with an issue like Banco Popular. That was not easy, either. Then, Spain gained a lot of competiveness because of labour market reforms. Those are the two factors. But I don’t want to make a comparison with Italy. I am only focusing on Spain now. By 2013 Spain had started to grow again, and it has outperformed its peers for the last five or six years. So do you think frontloading that effort paid off? Yes, I think so. In Spain there was a government with an absolute majority, but even then we had a difficult time, politically speaking, after that.

But in Spain, regardless of the political party in power, the pro-European approach is guaranteed, even when you look at the two extremes, Vox and Podemos. They don’t question the euro. Maybe they have different approaches regarding fiscal policy, but they don’t say they want to leave the euro. No, not at all. In fact, when you look at credit default swap (CDS) markets, the implied probability of Spain leaving the euro is very, very low. In the case of Italy, it is not very low. Is it possible, then, that part of the spread between Bonos and BTPs is due to that redenomination concern for Italy? Again, it’s not a matter of making comparisons between countries. In the case of Spain, the main reforms were labour market reforms and cleaning up the banks. Those are the drivers of Spain’s good performance, in my view. And those are the elements that have to be maintained over the coming years. De Nederlandsche Bank President Klaas Knot recently said that divergence among euro area countries is making it increasingly difficult to set a single monetary policy that fits all of them. He expressed concerns about the sustainability of ever-diverging trends. Would you agree with him? There are no ever-diverging trends. There is the concrete case of Italy, which is underperforming. But six or seven years ago the underperformers were Spain, Greece and Ireland, and now they are overperformers. It’s changed quite a lot.
Exceptional lending above this presumptive limit would be possible in order, to provide operational flexibility in extreme cases – for example, those threatening systemic stability. That is why the framework is one of presumptive limits rather than strict rules. But granting exceptional access should require much greater ex ante justification and ex post accountability. For example, exceptional access programmes should be automatically referred to the new Independent Evaluation Office of the IMF. This would raise the hurdle for granting exceptional access and provide greater clarity to debtors and creditors about the support countries could expect from the official community. The logical consequence of limited official finance is that inevitably there will be times when a reprofiling of sovereign debt may be necessary for some countries. Some have argued that sovereign debt restructuring or default is potentially too disastrous to contemplate, for the country or indeed for the world economy. The Russian default in 1998, and the disruption to world markets that followed from it, is often cited as evidence for the prosecution. More careful analysis suggests two rather different conclusions from the Russian experience. First, the Russian default was disruptive in part because it came as a surprise to market participants. Private creditors had planned on one assumption – exceptional IMF financing, or the "moral hazard" play as it was labelled by the market – and were surprised when their comfort blanket was removed. Greater clarity and stronger presumptions about the size and form of Fund financing would have reduced the surprise and the accompanying contagion.

3  “Allmänhetens syn på bankerna” (The Swedish public’s opinion of banks), Temo survey, March 2006, The Swedish Bankers’ Association. 4  Bergman, Guibourg and Segendorf, “The costs of paying – private and social costs of cash and card”, Working Paper Series, (No. 212), Sveriges Riksbank, September 2007. 2  BIS Review 16/2008  Moreover, the increased use of cards is an international trend. For instance, if we look at developments among our Nordic neighbours, we can see that card payments have enjoyed rapid growth in these countries also. As regards the choice between debit cards and credit cards, it is clear that Swedish card users favour debit cards. In 2006, the number of debit card payments accounted for around 80 per cent of all card payments. Charge cards and combined charge cards or credit cards dominate the remaining share of card payments. Cheques have disappeared As I said, card payments have begun to replace cash payments of smaller amounts. They have also replaced a large number of cheque payments in Sweden. In 1990 every seventh transaction was paid for by cheque. Cheque payments accounted for just over one-tenth of the value of non-cash payments. Today cheque payments account for just some tenths of a per cent of both the value of the payments as well as the number of transactions. The death of the cheque in Sweden is of interest, for it was quick and unexpectedly painless. The story is as follows: Over time cheque handling became increasingly unprofitable for the banks.
The first frontier, I would like to mention tonight, is the reaction of monetary policy to observed changes in asset prices, of course, in order to prevent creation of asset bubbles in equity or real estate markets. Many economists and economic journalists argued recently that if the central banks reacted to the sharply rising asset prices between years 2003 – 2007, the bubble in equity and real estate markets would not have developed and we would not be where we are today. It is not that the policy reaction to asset prices was not discussed among the central bankers during those years, but there is one crucial constraint on our side and that is that the reaction is in reality dramatically difficult. Donald Kohn, Vice Chairman of the Federal Reserve pointed out recently that in order to be successful in this respect three tough conditions must be met. First, policymakers must be able to identify bubbles in a timely fashion with reasonable confidence. Second, a somewhat tighter monetary policy must have a high probability that it will help to check at least some of the speculative activity. And third, the expected improvement in future economic performance that would result from the curtailment of the bubble must be sufficiently great.

Economies of scale and scope may have been changing in different areas of banking and even taking different directions. For example, the rapid development of information technology has made the collection and processing of information considerably cheaper, but at the same time technological investments are taking a larger share of banks’ resources. Therefore, economies of scale in some aspects of the collection of information may have been reduced, but at the same the time investments in more sophisticated technology have increased economies of scale and scope in some areas of banking. While I do not wish to go into detail on this matter, the general picture that emerges is that the banking industry has to be in a position to adjust to a new situation and take these factors into consideration. Indeed, in the course of the last few months, a number of bank mergers in the euro area, including mergers between relatively large institutions, have been announced or are being contemplated. Such “high-profile” mergers are likely to contribute to an acceleration of the pace of both the consolidation and integration of the banking systems of the euro area. However, it should be remembered that the recent pattern of consolidation represents part of a longer-term trend in the European banking industry, as is highlighted by the large decline in the number of credit institutions in the euro area countries over the past decade or so. In the mid1980s there were more than 11,000 credit institutions in the euro area countries; today they number around 8,000.
Paul Tucker: Resolution and future of finance Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at the INSOL International World Congress, The Hague, 20 May 2013. * * * Thank you very much for inviting me here today. The Bank of England has a long-standing interest in insolvency arrangements, including collaboration with INSOL. Drawing on techniques that the Bank had used in the 1930s and then again in the 1970s and '80s, around twenty years ago we articulated the ‘London Approach’ to creditors collaborating on restructuring firms that are financially distressed but could have a viable future. That was the background to our previous Governor, Eddie George, putting the Bank's name to the INSOL Lenders Principles on global corporate workouts.1 Those principles focus on large international non-financial corporations. Today I want to update you on progress with the bigger and even more important challenge of ensuring that large global financial groups can be resolved in an orderly way without taxpayer solvency support. Why resolution is so very important I want to begin with why the work on bank resolution is so very very important. First, we are not going to solve the deep problem of Too Big to Fail (TBTF) without effective, credible resolution regimes. To date the international community is addressing TBTF via a combination of capital surcharges for the largest and most complex global firms, and an overhaul of resolution regimes.

In parallel to assessing future economic prospects, the European Central Bank’s governing council looks independently at the dynamics of money and credit aggregates. This has proved very useful in the past to detect long-term risks to price stability, in both directions. The message today is clear: both money and credit are growing very slowly in the euro area as a whole. The M3 money-supply aggregate grew by 2.1% in September. These trends do not signal deflation, but warrant monitoring and vigilance when facing an uncertain future. Obviously, intentions may not always suffice and must be backed, when necessary, by appropriate and timely actions. Recent decisions by the governing council regarding both policy rates and liquidity provision show that we are ready to make the necessary decisions. Many instruments remain available should further risks materialize. There should be no doubt that the Eurosystem will ensure that price stability, as currently defined, will be maintained in the euro area. 2  BIS central bankers’ speeches
On the other hand, hovering above past averages, the manufacturing industry capacity utilization rates indicate that the strong trend in investments will continue by encouraging companies to opt for capacity expansion. In this context, capacity increases are more pronounced in sectors that are composed of companies with high investment appetite. Survey data also show that as of July, investment expenditures of companies will rise further in the coming periods. This trend grew stronger with a spillover into all sectors, chiefly to those sectors producing investment goods as well as exporting ones. Given the January-May average, increases in the import quantity of investment goods accompanied by the rise in industrial production, with capital goods in the lead, confirm that the demand for fixed capital goods remains strong. The stable course of sustainable components such as investment and exports had a positive effect also in employment. While employment participation rates increase further, the trend of decline in the number of unemployed also continues. Thus, as of May, the total number of people employed reached a historical high with 30.8 million people. In addition, the relatively stationary course of the unemployment rate with 10.9% indicates that the employment gap is still high and the employment capacity will increase further in the upcoming period. 2/5  BIS - Central bankers' speeches  Employment developments in the Turkish economy are very promising.

We, as the Central Bank, will continue to stand by you with our industry-friendly targeted policies aiming to create the financial conditions that will support continuity of supply as well as our current account surplus capacity. I will be pleased to answer your questions. 5/5  BIS - Central bankers' speeches
Thus far, much of the money we have pushed out into the economy has been stored away rather than expended to the desired degree. For example, we have seen a huge buildup in the reserves of the depository institutions of the United States. Less than a fifth of commercial credit in the highly developed U.S. capital markets is extended through depository institutions. Yet depository institutions alone have accumulated a total of $ trillion in excess reserves – money that is sitting on the sidelines rather than being loaned out into the economy. That’s up from a norm of around $ billion before the crisis. The Fed’s large-scale asset purchases dramatically and more broadly impacted credit markets. The U.S. credit markets are awash in liquidity. BIS central bankers’ speeches  1  As of March 14, our par holdings of fixed-rate MBS exceeded 30 percent of the outstanding stock of those securities. Through these purchases, we have driven down mortgage rates and helped rekindle the U.S. housing market. We now own just shy of 24 percent of the stock of Treasury coupon securities. Having concentrated our purchases of Treasuries further out on the yield curve, and done so in size, we have driven nominal interest rates across the credit spectrum to lows not seen in over a half century.

Chart 5: Guidance has reduced the correlation between economic uncertainty and interest rate volatility 10  Economic uncertainty and option-implied volatility of 3 month rates 1 year ahead 3m rate standard deviation 180 160  2000-August 2013  140 120 100 80 60 40 August 2013 EU referendum  20  EU referendum - latest  0 -2  -1  0 1 2 3 Economic uncertainty (deviations from average)  4  5  Sources: Bloomberg Finance L.P., ICE, Bank calculations and Haddow et al, ibid. 10  The indicator of economic uncertainty is based on the principal component from seven measures of uncertainty: FTSE and sterling option-implied volatility, dispersion of company earnings forecasts and among forecasters’ growth projections, proportion of companies reporting that uncertainty is limiting investment, households’ unemployment expectations, and number of press articles citing ‘economic uncertainty’. See Haddow, A, Hare, C, Hooley, J and Shakir, T (2013) “Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?”, Bank of England Quarterly Bulletin, 2013 Q2. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  The MPC is now in the process of reviewing the possible range for the equilibrium real interest rate in the medium term. This analysis reflects the importance of global equilibrium rates for the UK, and the possibilities that the global equilibrium real rate may rise as the global recovery proceeds and that domestic cyclical factors such as the pace of public and private balance sheet repair may shift.
As we have seen in the last few years, the deterioration of the perceived solvency of financial institutions located in specific countries within the monetary union can have spillover effects across the financial sector as a whole, can contribute to a disorderly functioning of wholesale markets and can put great stress on the public finances of the countries affected. Consequently, the soundness of financial institutions is of systemic importance within the monetary union and should therefore be preserved through the appropriate integrated crisis prevention and resolution mechanism. Against this background, a consensus has emerged of unprecedented strength on the need to take steps to create a banking union. The first step would be the adoption of a single supervisory mechanism. A regulatory proposal for such a mechanism has been released this week by the European Commission. The proposal has three main features. First, the assignment to the ECB of supervisory responsibilities for all banks in the euro area, and possibly also for banks in countries outside the euro zone willing to enter into cooperation arrangements with the ECB. Second, the adoption of mechanisms to ensure that the ECB’s supervisory tasks are strictly separated from the conduct of its monetary policy. Third, the involvement of national supervisors in the preparation and implementation of decisions. The proposal is in my view well founded. In particular, it makes sense to subject all financial institutions in the euro area to a single supervisory mechanism.

It is still difficult to judge on many of these issues, but we are here to identify the strengths and weaknesses, to express the pros and cons, to present our estimates and results that will certainly extend our mutual knowledge and wisdom for better guidance through the recovery process and beyond. Changes in the global environment Many changes in the regulatory framework, policy implementation, even in the way of reasoning and perceiving the actual developments, have taken place in the last seven years. The developed economies, besides zero bound lowered rates, also needed additional monetary policy accommodation through the quantitative easing. They also turned into using a kind of forward guidance framework as a tool for announcing monetary policy stance in a longer horizon than the usual one. Central banks around the globe, depending on the circumstances, were using a range of non-standard measures designed in a way to tackle specific drawbacks of the crisis. Exceptional conditions called upon exceptional measures, including “whatever it takes” approach in the euro zone in the peak of the debt crisis, which in total, mostly gave a positive feedback towards economic recovery. Considering the fact that this crisis originated from the financial system, a comprehensive reform of the financial regulatory framework has been launched during the crisis through Basel III – new capital and liquidity requirements are waiting to be implemented in practice.