samchain/econo-pairs-v1 huggingface dataset:
Interest rates remain low among several of our trading partners, even though they have been raised so far this year in a number of countries as a result of rising energy prices and higher consumer price inflation. In the US, there are now expectations that the interest rate has peaked, and that it will be lowered in the course of summer 2007. A rise in key rates is expected over the next year in the euro area, Sweden, the UK, Australia, Japan and Switzerland. One risk factor is that inflation in the US and the euro area may be higher than expected. In the event, interest rates internationally are likely to rise more than the current outlook would imply and curb growth among our trading partners. In the past two years, oil prices have doubled, measured in USD. With little spare production capacity, even minor disruptions in supply or demand can have a relatively strong impact on prices. It is likely that global growth will remain buoyant. This may contribute to keeping oil prices at a high level. Recently, oil prices have been around USD 70 per barrel. Brent Blend futures prices have also climbed and indicate that oil prices will remain high for several years to come. Prices for a number of other commodities – including natural gas and some metals – have also risen sharply in recent years. So far, high oil prices have not led to slower growth in the world economy.

The first one is poverty, which has long been one of the most important issues policy makers in developing countries strive to overcome. When there is insufficient wealth to nourish basic needs, indebtedness could become inevitable and it is difficult to get out of the vicious cycle of debt. The second factor is the growing trend in consumerism which largely overshadows consumers’ self-restraint and eventually entices them to spend recklessly. In this wellconnected era, consumerism has rapidly intensified and spread widely through various perceptive channels especially the mass media. Let me give you one example of this consumerism we have experienced. Not long ago, the Bank of Thailand invited the bank’s  BIS central bankers’ speeches  1  CEOs to a meeting and we showed them their own television advertisement. The campaigns were trying to induce people to apply for loans with streamlined process. This could lead people to believe that applying for a loan was as simple as daily shopping at a supermarket. An average ordinary individual could easily get the cash and spend on vacations, buying some fashionable outfits, or paying for a wedding ceremony. Worse, one advertisement related the number of loan application to the chance of success in a lucky draw, the more you borrow, the higher chance of success to win gold necklaces. After watching those commercials, the CEOs were surprised to learn how far their marketing campaigns had gone and agreed to promptly revise the concepts of their marketing messages to minimize further imprudent behavior.
(a) UK Banks are: Barclays, HSBC, LBG, Nationwide, RBS and Santander UK. Table 2 Drivers of UK banks’ lower ROE Total reduction in post-tax return on equity, 2006-H1 2015(a)  -11  Due to reduction in leverage  -4  Due to fall in return on assets  -7  of which:  Net interest income  -4  Trading income and fees  -6  Misconduct costs  -3  Other income and expenses  -4  Impairments  3  Operating expenses  7  Increases due to  Sources: Published accounts, bank data submissions and Bank calculations. (a) UK banks are Barclays, Cooperative Bank, HSBC, Lloyds Banking Group, Nationwide, RBS and Santander UK. More fundamentally, banks are out of favour because of a new-found exasperation with their returns rather than due to old concerns about their resilience. UK banks, for example, have seen a sharp decline in profitability since the crisis, with average group-level post-tax returns on equity falling from 17% in 2006 to 6% in the first half of 2015 (Chart 6). Of course, with hindsight, a substantial proportion of the pre-crisis return  6  BIS central bankers’ speeches  was ephemeral, reliant on short-term funding, capital-light balance sheets and massive synthetic leverage.

BIS central bankers’ speeches  Together these dynamics have raised desired savings and lowered desired investment. With more savings chasing fewer investment opportunities, equilibrium safe returns have fallen sharply towards zero (Chart 8 – see also Annex). Colleagues at the Bank of England estimate that these factors can explain around 400 of the 450 basis points fall in global longterm equilibrium rates since the 1980s. 4 The persistence of many of these trends suggests that the global neutral real rate could settle around 1% over the medium to long term. Chart 8 Secular drivers pushing down on rates  Why does that matter? Central banks must set their policy rates with regard to equilibrium interest rates in order to maintain demand growth in line with supply growth and to stabilise inflation. Setting real interest rates substantially above the equilibrium rate would, in time, generate rising unemployment and falling prices. The opposite is true of setting rates substantially below the equilibrium rate. The substantial variance of the equilibrium rate over time means that a 4% policy rate would have been highly stimulative in 1980 but would be highly contractionary today. At the onset of the crisis, as households and firms sought to de-lever, the equilibrium rate fell sharply, calling for reductions of conventional policy rates to unprecedented levels. The necessary easing, however, went well beyond what central banks could deliver with short rates alone.
However, at the same time, this decline in the unemployment rate overstates the degree of improvement. Other metrics of labor market conditions, such as the hiring, job-openings, job-finding rate, quits rate and the vacancy-to-unemployment ratio, collectively indicate a much more modest improvement in labor market conditions compared to that suggested by the decline in the unemployment rate. In particular, it is still hard for those who are unemployed to find jobs. Currently, there are three unemployed workers per job opening, as opposed to an average of two during the period from 2003 to 2007. With respect to the second metric – confidence that the economic recovery is strong enough to generate sustained labor market improvement – I don’t think we have yet passed that test. The economy has not picked up forward momentum and a 2 percent growth rate – even if sustained – might not be sufficient to generate further improvement in labor market conditions. Moreover, as I noted earlier, fiscal uncertainties loom very large right now as Congress considers the issues of funding the government and raising the debt limit ceiling. Assuming no change in my assessment of the efficacy and costs associated with the purchase program, I’d like to see economic news that makes me more confident that we will see continued improvement in the labor market. Then I would feel comfortable that the time had come to cut the pace of asset purchases.4 Regional economic conditions Let me now turn to economic conditions in the region.

This should also be one of the aspects of Pillar 2, which I have mentioned several times and which I will come back to a bit later, given its importance. Regarding market risk, it is important:  –  to ensure that banks only book their transactions in the trading book if they are carried out on sufficiently liquid markets;  –  and to better capture all of the risks within the trading book, especially default risk the weight of which has increased over the past few years, notably due to growing trade in structured credit products and products including stakes in hedge funds. The publication by the Basel Committee on 12 October of guidelines for computing the capital charge for incremental default risk in the trading book constitutes an important step forward in this regard. Regarding liquidity risk, the recent financial turmoil has highlighted the need  –  for banks, to reassess the way in which refinancing risk can materialise and analyse its impact on other risks such as credit risk and concentration risk, in the event of liquidity facilities extended to securitisation vehicles being drawn on;  –  for supervisors, to ensure that banks have set in place, within the framework of their business continuity and “back-to-normal” plans, robust mechanisms and procedures for liquidity management, taking account both of their own refinancing risk, the risk of markets drying up and the potential interaction between these two risks.
In Sweden, the Financial Crisis Commission proposed, in its first interim report, that the Riksbank and Finansinspektionen together bear responsibility for macroprudential policy in Sweden.8 This is to occur through the formation of a macroprudential council, in which both authorities work together with independent experts, entailing in principle that the existing Council for  7  See IMF (2013) Sweden—2013 Article IV Consultation: Concluding Statement of the Mission, Stock-holm: 31 May 2013 and European Commission (2013) Recommendation for a COUNCIL RECOMMENDATION on Sweden’s 2013 national reform programme and delivering a Council opinion on Sweden’s convergence programme for 2012-2016, Brussels: 29 May 2013. 8  SOU 2013:6 Att förebygga och hantera finansiella kriser, Delbetänkande av Finanskriskommittén, Stockholm: 2013. 10  BIS central bankers’ speeches  Cooperation between the Riksbank and Finansinspektionen is confirmed in law. The Council is to seek to promote greater knowledge about systemic risks and the development of macroprudential tools, and discuss appropriate measures. In our consultation response, we gave our view on the commission report and also added our own proposals.9 We believe that the Financial Crisis Commission’s proposal for shared responsibility between two authorities risks giving rise to ambiguity about who should act. This ambiguity could result in indecisive action. In order to ensure decisive action, responsibility for macroprudential policy should be placed on one body.

It will better equip us to contribute to price stability while financial stability and a stable economic development are secured. At the same time, it should be emphasised that macroprudential policy does not resolve all the problems associated with the financial sector. Also, we do not know how efficient the new macroprudential tools will be; we will need to analyse and evaluate them afterwards. 12  BIS central bankers’ speeches
Bruno Gehrig: Review of the Swiss economy Introductory remarks by Prof Bruno Gehrig, Vice-Chairman of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Geneva, 14 June 2002. *  *  *  Developments in the financial markets From a Swiss vantage point, the situation on the financial markets in the first half of 2002 was predominantly influenced by the exchange rate development of the Swiss franc. The appreciation against the euro, which set in after 11 September 2001, has been arrested but has failed to bring about a sustained correction of the exchange rate. Moreover, the US dollar, too, has declined since April. At the beginning of June, it had fallen to its lowest level against the Swiss franc in two-and-a-half years. There are several reasons for the decline of the US dollar – by approximately 7% against the euro and the Swiss franc since the end of March, by approximately 6% vis-à-vis the yen – : imponderables of global political significance, growing doubts concerning a sustained upswing in the United States and – exacerbated by the collapse of Enron – the scepticism of investors with respect to the future development of yields. The record US current account deficit is increasingly being financed by means of short-term capital flows from abroad, which, by their very nature, are volatile. Against this background, high-risk investments generally showed a weaker trend. Equity markets and the US dollar lost in value while the gold price, bonds and the Swiss franc moved up.

Paul Tucker: Financial crisis and G20 financial regulatory reform – an overview Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at the Financial Stability Board (FSB) and Korean G20 Presidential Committee Conference, Seoul, 3 September 2010. *  *  *  Being a Western financial official, one comes to Asia with some humility in truth. This has been a financial crisis born and bred in the Western world, but inflicted throughout the world. That makes it all the more important that Korea and the other countries in Asia and elsewhere in the emerging market world are involved in the reform efforts. The reforms are not simply going to be cooked up in the West where the problems were bred. In Korea, you have to play a really important leadership role, especially in steering us through the next couple of months. Much of the work towards the Leaders summit is being handled in the Financial Stability Board. And here is a very brief overview of what is going on in the FSB contribution to the G20 effort, under the following headings: 1) surveillance; 2) bank capital and liquidity; 3) too big to fail; 4) capital markets; 5) incentives; and finally the regulatory perimeter. 1. Surveillance of the system  Very obviously this was a crisis that was not spotted – in the most important sense of being prevented – ahead of time. People did issue warnings about developing leverage in the system and accumulating macroeconomic imbalances.
This development was due to the fact that the global real equilibrium interest rate had fallen for a couple of decades to a historically low level. This interest rate cannot be influenced by the central banks, but neither can it be ignored when setting policy rates – this is so as it is the distance between the policy rate and this normal interest rate that determines how expansionary or restrictive monetary policy is. As the real interest rate has fallen, the policy rate has had to be cut to ever-lower levels for each business cycle. When the policy rate has hit the lower bound, there are limited possibilities to use monetary policy to influence demand and inflation, and my point was that fiscal policy therefore needs to take on a more active role. The situation now is different, at least for the moment. Inflation is high and the lower bound for the policy rate is no longer a restriction on monetary policy. However, there may be other complications where fiscal policy can contribute to a better economic outcome. I shall return to this. It is also important to point out here that it is doubtful whether the global economic playing field has been substantially altered in the longer run by what has happened over the past year. In particular, it is difficult to see that the global real  3 [15]  equilibrium rate would have been significantly affected.

BILD: But it is precisely this policy of cheap money that is not working… Draghi: Wrong – our policy is working, but we must be patient; investor confidence has not yet been fully restored. For two years, the economy in the euro area has been growing month by month, banks are lending and unemployment is steadily falling. Meanwhile, euro area countries are now able to buy more German exports again, which, for German companies, is partly making up for the decline in trade with China. But it is a slow process because the crisis was more severe than anything we’d had since the Second World War. BILD: And when will interest rates rise again? Draghi: It’s quite simple: when the economy is growing more strongly again and inflation rises closer to our objective. Low interest rates today will lead to higher rates tomorrow. BILD: Does the ECB’s policy of cheap money not make it far too easy for euro area countries like Italy and France, for example, to shirk necessary but unpopular reforms? Draghi: No. The majority of governments are acting, albeit too slowly for my personal taste. All of them would be well advised to do more. But that is not primarily dependent on the ECB and its policies. Most countries started to implement reforms when the level of interest rates was already very low. Furthermore, reforms of judicial systems, electoral laws or labour laws, for example, don’t have much to do with interest rates.
Among these fees, the relative increase in those linked to the marketing of products such as investment funds stands out, in a setting in which demand for these products has risen, boosted by households’ search for more profitable investments, given the low level of return on deposits. This has meant that gross income, which includes fees and net interest income, has declined by less than the net interest margin. Likewise, as I indicated earlier, banks have tended to increase the share of business in their portfolios that provides higher net interest income (such as consumer lending), albeit at the expense of increasing the risk profile of their credit portfolios. Third, banks have also made great efforts to cut their operating expenses through branch closures and staff reductions. Specifically, the number of branches has decreased by more than 40% (by some 20,000), while staffing levels have been cut by more than 30% (some 90,000 fewer employees). 16/29  Nevertheless, to date these cuts in expenses have been more moderate than the decline in gross income, as reflected in a constant increase, up to 2017, in the ratio between the two (the efficiency ratio), which reveals the deterioration in efficiency in this period. Overall, in business in Spain there has been a significant increase (deterioration) in the efficiency ratio at the individual level, of around 9 pp since 2014, which took it to 56.2% in June 2019. In terms of assets, operating expenses in 2018 were similar to their pre-crisis levels.

And second, the level of concentration of bank lending to the non-financial private sector in the construction and real estate sectors, which before the global financial crisis was over 25%, has continued to correct and now stands at 9.6%. This has been fundamental in the fall observed, as a proportion of GDP, in real estate sectorrelated lending (understood in the broadest sense, i.e. including loans for house purchase), which has gone from 101% in 2009 to 50% at present. It also partly explains the fact that the allocation of new lending has improved considerably since the international financial crisis. In particular, the empirical evidence available suggests that banks now discriminate more between firms according to their credit quality and productivity. This should help contain any increase in non-performing loans in the future. 21/29  Moreover, the economic recovery, lower borrowing costs and the intense deleveraging undertaken by firms have prompted a widespread decrease in the financial vulnerability of Spanish firms. Indeed, since 2013 the debt service-to-profit ratio has fallen very significantly, from 24% to 11% in 2017 in the 50th percentile when firms are ranked by profitability. However, this has been an uneven reduction and there are still firms that show a certain degree of vulnerability to potential shocks that reduce their capacity to generate income or raise the interest rates at which they borrow funds. Specifically, in the first three deciles, the average of this ratio is around 20%, indicative of a certain degree of fragility.
The latest retail sales figures provide some comfort with volume growth below that in the middle of last year when consumption was stimulated by windfall gains, predominantly from the conversion of building societies. (Rarely have so many, been so grateful, to so few building societies.) Highs and lows in house prices In the past, domestic demand has been sensitive to developments in the housing market. In the late 1980s house prices increased by 40% in two years, while consumption rose by over 9%. Borrowing using housing as collateral - so called equity withdrawal - amounted to almost 50% of the increase in consumption over that period. The impact of rises in house prices on consumption - which is cause and which is effect - remains hotly contested by economists. A rise in house prices leads not only to an increase in wealth but also to an increase in the cost of housing services. Or, to put it another way, if the price of your home goes up, you will not be able to spend more on other things if you wish to carry on living in your home. So it is not at all clear that changes in house prices will in fact have a significant impact on household spending. Perhaps of greater importance is the role which house prices play in signalling consumer confidence about the future. In common with other assets, such as equities, house prices can respond quickly to news about future economic prospects.

This mismatch has the potential to create large swings in household net worth which may well exacerbate fluctuations in demand and output. The upside consequence was seen in the consumption boom of the 1980s, and the opposite was evident in the bust of the early 1990s when falls in house prices meant that as many as 1½ million families had negative net equity resulting in higher precautionary saving and lower consumption. The forward-looking information contained in house prices underlines the importance the MPC attaches to measuring them accurately. The recent divergence between the rates of house price BIS Review 53/1998  -3inflation implied by the Halifax and the Nationwide indices is both puzzling and unfortunate. The rates of house price inflation recorded by the two indices began to diverge at the beginning of 1997. The most recently published data suggest that house prices, as measured by the Nationwide index, rose by 12.0% in the year to April 1998, whereas, according to the Halifax index, they rose by only 5.6%. Gross household wealth in the year to April 1998 rose by £ billion more according to the Nationwide than the Halifax index. Such differences matter in our assessment of the economy. The Bank of England, together with representatives from the Halifax and Nationwide and from the Department of Environment, Transport and the Regions (DETR), have spent a great deal of time and effort trying to understand the cause of this divergence and to assess what is really happening to house prices.