samchain/econo-pairs-v1 huggingface dataset:
Economic policy arena: fiscal policy and the employment markets The success of Monetary Union and the future of Europe will also depend on fiscal and structural policies in the Member States significantly improving the structural conditions for further economic development and, in particular, employment developments. As is evident from the waning  BIS Review 99/1999  4  consolidation efforts following the beginning of Monetary Union and the continuing high level of unemployment, in general, the initial experiences in this area were rather disappointing. Most Member States are currently still very far from meeting the medium-term requirement for a balanced budget laid down in the Stability and Growth Pact. The measures currently planned are, for the most part, insufficient to achieve a sustained reduction in the long-term structural deficits. This problem is becoming particularly obvious given the current low interest rates in the euro area, which have, in themselves, tended to increase the scope for fiscal consolidation. In view of the relatively positive economic outlook for the euro area, fiscal policy should be taking advantage of this opportunity to make cuts in expenditure in order to achieve a more sound fiscal policy in the medium term. The high level of unemployment in Europe is primarily of a structural nature, which is evident when a comparison is made with the United States.

Another big myth about Bulgaria was the imminent “collapse” of our banking system (because of the “avalanche” of bad loans and the “dependence” on foreign banks which would have run away in panic and withdrawn their capital from Bulgaria). None of all these apocalyptic prophecies has happened. Our banking system kept sizable buffers and demonstrated impressive for the whole EU ratios of capital adequacy and liquidity. Given the high level of domestic depositors’ trust (only in one year, until March, total deposits increased by over BGN 5 billion), the dependence on foreign sources of funding diminished considerably – at end-March less than 13% of total attracted resources comes from parent banks abroad, as opposed to nearly 1/4 at end-2008. Ultimately, unlike some of the more advanced economies, no bank in Bulgaria needed to be rescued. And the very frequent headlines about “bad” loans do not reveal the true picture in Bulgaria as compared with the other economies in the EU. The reason is that the legal framework, financial reporting standards and regulatory practices in the various countries are rarely the same, and this seriously hampers any comparisons across countries (as an example, some countries directly write off and keep off-balance sheet a large part of their non-performing loans).
Work, Wages and Monetary Policy Speech given by Andrew G Haldane Chief Economist, Bank of England  National Science and Media Museum, Bradford 20 June 2017  The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Will Abel, Shiv Chowla, Brad Speigner and Arthur Turrell for their help in preparing this text. I would like to thank Alina Barnett, Nick Bate, Tom Belsham, Stuart Berry, Melissa Davey, Kristin Forbes, Rich Harrison, Will Holman, David Latto, Clare Macallan, Gareth Ramsay and Michael Saunders for comments. 1  All speeches are available online at www.bankofengland.co.uk/speeches  It is wonderful to be here in Bradford, just a few miles away from where I grew up. The City has of course a rich commercial history dating from the Industrial Revolution. Back then, it was a thriving hub for textiles and other manufacturing industries. The City’s architecture bears witness to the rich civic investment that took place around this time, with the public and private sector often working in partnership. The decline of the UK textiles industry from the mid-20th century was mirrored in Bradford’s own fortunes. Like many industrial cities, Bradford went through a wrenching transition and still bears some of the scars. But that retreating tide now seems, decisively, to have turned. I am delighted to see civic and commercial investment beginning to return to Bradford over the past few years. Those scars are starting to heal.

Such an acceptance comes naturally when consumers trust that the goods or services being offered by the company are of the quality that is worth their price, that they are being treated fairly and with respect; and that they do not have ill feelings towards the company. In Western society where there is great awareness for consumer protection, such ideas have therefore not been incorporated in the prescribed governance of the corporation. In the Oriental world, however, the idea of consumer protection has not been well embedded in our culture. Hence there is a need to broaden the principle of governance to include consumer protection. In short, this means that the Board of Directors needs to oversee that the firms provide not only quality goods and services, but that they also treat their customers fairly and with respect. Indeed, the absence of a strong consumer protection standard does not give the corporations the liberty to act in their interests alone at the expense of the interests of consumers. Producers and service providers that start by caring about the interests of customers as part of the principle of non-exploitation and mutual co-existence, will find that they can maintain long standing relation and consumer loyalty. Within the universe of businesses, the domain of financial services, particularly commercial banks, stand out as one of the most prone to abuse. As capitalist organizations, commercial banks are in a convenient position to profit directly from the general public.
And so, when the downturn came along, it was turned into disaster as the financial system collapsed. A taxpayer bailout and a million more people unemployed up and down the country. Financial instability is something for which everyone, and especially the most vulnerable, pays the price. An independent committee to take the long view  Against that backdrop, few would disagree with an intention to build a stable, resilient, financial system. But the road to disaster is paved with good intentions. There will always be pressure to live for the moment. A little loosening of standards can bring many years of small gains before the big price is paid. So in the aftermath of the crisis, Parliament did not just declare its intention to build a stable financial system. It chose also to commit to sticking to that intention. And there was, of course, a model for how to commit not to live for the moment in economic policy. In 1997, the Monetary Policy Committee of the Bank of England was established to deliver the clear intent of sustained low inflation. Successive governments had lived for the moment by pushing the economy to expand beyond its potential. Each time, that worked in the short term. But ultimately it brought no benefit and only a price: inflation and recession to get inflation back down again. Recognising that the pressure to live for the moment had resulted in serious costs, government and Parliament sought to entrench the long view in economic management. The results have been impressive.

Wage costs have great significance As total wage costs comprise almost 70 per cent of the total value added in the economy, developments in wage costs have decisive significance for the development of costs and prices. Making an assessment of future developments in wage costs is therefore a natural and central element in the Riksbank's analysis of inflation prospects. If there is an overly rapid increase in wage costs, companies may be forced to raise their prices significantly and this would result in inflation exceeding the target level. This would require tightening monetary policy, i.e. raising the repo rate. Although this would bring inflation back to the target level, it would be at the cost of an increase in unemployment. In the long term, however, developments in unemployment are essentially dependent on how well the labour market and wage formation function. Monetary policy has affected the wage formation process; the uncertainty over future price developments has declined thanks to inflation targeting. Wage-earners no longer need worry that their pay rises will be eaten up by overly rapid price increases. At the same time, employers find it easier to determine the size of the scope for wage increases. It also appears as though what is usually termed "monetary illusion" may have disappeared. The labour market organisations appear today to focus to a greater extent on real wage cost increases. The strong confidence in the inflation target has meant that these organisations' inflation expectations have been at a level of around 2 per cent since 1996.
Lastly, I would like to emphasize that the most effective and lasting way to ensure a more stable and prosperous future, with lower interest rates for both private investment and public sector financing, is a clear commitment to fiscal and monetary responsibility and progress in micro and macroeconomic reforms. The attainment of stability is a permanent and complex challenge, but it will be accomplished, as long as there is consistency in economic policies over time. In Brazil, we have experienced periods of high inflation, periods of high interest rates, and both, with deleterious consequences for society. An important factor in this scenario has been the low quality of the public sector accounts and credit. We must create conditions to keep both low inflation and interest rates, at the same time. But this is not a matter of Central Bank's desire. The Central Bank's role is to set the necessary and sufficient interest rate so that the inflation target is achieved. This is what we will do. A fiscal surplus, which unmistakably guarantees the stability of the public debt, associated with the social security reform, as a first step, and of tax reform, in a second round, together with the Monetary Responsibility Law, are the most direct way to reduce country risk and interest rates. Minister Palloci's speech in this auditorium clarifies this matter.

To sum up, supervision is something that must work based on a regime of verification, analysis and conclusion. It is important to highlight the intensity and deepness of government-owned banks supervision, which brought us the knowledge of their existing problems and the costs involved in their recovery. Significant restructuring has been carried out in federal banks, after deep and comprehensive general consolidated inspections done by the CB. The adjustments that were made aimed at making the government-owned financial institutions sounder, more efficient and more competitive, rendering them apt to meet the same requirements faced by the private financial system. The maintenance of this behavior will reveal the true costs of governmental programs and will avoid recursive expenditures, which could become skeletons (hidden liabilities) in the public accounts. The continuation of reforms is important in other areas of the CB. In the external area, the CB must aim at intensifying transparency and communication with the markets and investors, while seeking to increase flexibility and to simplify the regulations on foreign currency operations, within a process intended to increase the country’s participation in world trade and international financial markets. In the banking area, the restructuring of the Brazilian Payment System improved risk reallocation, and favored a higher efficiency of the system. This is due to the fact that the Central Bank no longer has any role in financing the institutions that did not have the necessary funds for their operations, reducing moral hazard.
I would now like to spend a little time commenting on some of these figures. The first observation we can make is that the different strategies have contributed differently to excess return. The contributions of some strategies have been negative, while the contributions of others have been positive. The second observation we can make is the relatively high contribution to excess return from our enhanced index strategies. This strategy is not passive. It requires active decisions, every single day. It is up to NBIM’s equity and fixed income traders to decide on the details of purchases. They must decide when, where and how trades are to be made. Such choices affect day-to-day asset management – also where indexes are tracked the closest. The organisation trades on over 250 exchanges and sees to settlement, valuation, custody and risk management. In 2019, we executed around 30 million equity trades, or an average of approximately 100 000 trades per day. This is more than all of Oslo Børs. Trading runs full steam around the clock, despite large operational challenges owing to the Covid-19 pandemic and considerable market volatility. Allocation divides the fund’s assets among asset classes and markets. As a part of this, a relatively substantial negative contribution to the fund’s return has come from our fixed income investments in emerging markets. Our experience is that we have not been paid enough for the risk to which some of these markets are exposed.

Much of this credit was used to buy houses and property prices began to soar. …because of overly expansionary monetary policy? There is a debate as to the role of monetary policy in creating this situation. The debate has mainly concerned claims that the US central bank had held interest rates too low for a number of years prior to the crisis. But other central banks, such as the European Central Bank, also held interest rates low during this period. It is not entirely clear what role monetary policy played – and plays in general – for the development of property prices and for risk propensity among economic agents. This is a subject that will probably continue to be discussed. However, on the basis of the information available at the time, there was no obvious reason for conducting another monetary policy than the one that was actually conducted. In the United States, for example, there was justified concern that the country might suffer the same deflation problems as Japan, and many other countries also perceived the threat of deflation as something to be taken very seriously. …as a result of a global savings glut? But there was also another and probably more important factor contributing to the low interest rates. Since the end of the 1990s the emerging economies in Asia, particularly China, and in the Middle East had experienced large current account surpluses, particularly in relation to the United States, but also to other western countries.
But it is, at least, a job that requires very little investment in training or equipment: the only “capital” a rag collector will need is a pushcart, which might sell for $ Yet, despite saying they’d very much like to own their own, nearly all these rag collectors instead rent their pushcarts, at a cost of $ a month. They therefore spend in a matter of 3-6 months what it would cost to own the thing outright. This is an enormous, and self-imposed, effective rate of interest – an annual rate of somewhere between 200 and 400 per cent.3  1  Gathergood (2013). Laibson (1997). This would cover any depreciation costs, which the owner of the cart would have to bear. But these are likely to be only a small part of the rental cost. 2 3  4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Mullainathan and Shafir document many such examples. And they go further: they claim, supported by the result of interesting experiments, that the tendency to over-weight the present, at the expense of the future, is itself increased by financial stress. The more cash-strapped people feel, the more prone they are to taking decisions that make the situation worse. Financial distress isn’t just the partial result of wanting things sooner rather than later: according to Mullainathan and Shafir it can also be the cause of it. The result can be what the authors describe as a “scarcity trap”.

Interest payments, defaults and the proportion of households spending a very significant (>40%) proportion of income on servicing debts are all at historical lows. Interest rates would have to rise a lot – certainly by a lot more than financial markets expect – for this to change significantly. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  But underneath any aggregate, there are always more concerning stories. According to the Bank/NMG survey 7% of households say they are “very concerned” about their debts, even if they are able to service them. And we know from extensive research that financial worries can be an important contributor to poor mental health. High levels of debt are, for example, associated with anxiety and depression, and studies using changes in local house prices and foreclosures have found that changes in households’ financial situation can affect health.1  One thing we also know is that people are generally prone to over-concentrate on present, urgent needs, and neglect things that are more important for us over the longer term. Economists are naturally interested in how people trade off the future against the present. In standard models that seek to describe these choices, it is assumed that people discount the future at a constant rate: the extent to which we care more about things one rather than two months from now (say) is the same as between today and a month away.
That is due in particular to the property market boom, on which the recent structural changes in the economy, including immigration, have had a bearing. Consequently, the financial position of the sector as a whole is fairly sound. The trend of indebtedness in the past ten years has been sufficiently significant as to identify it as one of the risks to consider in the essentially favourable scenario of the Spanish economy. The Banco de España should signal this fact, particularly in a setting in which credit continues to show signs of being very buoyant. But, at the same time, we cannot ignore the fact that the financial position of households and firms is healthy and provides a sound basis for adaptation to the interest rate levels in keeping with the recovery in economic growth in the euro area. The solvency of the Spanish financial system is a further guarantee for the maintenance of stability in the economy as a whole. In sum, the outlook for growth in the Spanish economy in the coming quarters is, in my view, relatively healthy. And economic policies can contribute to providing continuity to this expansion in the medium term, defusing some of the risks highlighted. In that connection, it will be essential to restrain demand impulses and improve supply-side functioning.

Their forecast for global growth for 2019 is now 3 percent, which is the lowest since 2008–09, and it’s not hard to think of scenarios in which growth slows even further.1 In the old days, central bankers used to worry about inflationary pressures being too great. Old habits die hard, and I’m always on the lookout for signs that inflation is rising too fast. But in the current climate it’s inflation that’s too low that’s of greater concern. You see, my five-dollar cup of coffee masks an inconvenient truth: inflation in the United States is below target and has been for some time. Beyond sluggish inflation, we’re starting to see signs of slower global growth playing out in the U.S. data. While consumer spending is holding up, other parts of the economy—including manufacturing, exports, and business investment—have seen growth stall or experienced outright declines. Geopolitical Tensions The third and final issue I want to discuss—the rising geopolitical tensions around the globe— further complicates an already complex picture. When it comes to the economic outlook, the word of the day—and probably the year—is “uncertainty.” Trade negotiations, civil unrest, and tensions in a number of corners of the world are driving many businesses to take a wait-and-see approach to investment, thus putting a further dampener on growth prospects.
At the beginning of the new monetary policy regime, when the fixed exchange rate was abandoned in 1992, there was a certain amount of criticism of the inflation target; many people feared that the unconditional attachment to an inflation norm would have a negative effect on growth and employment. A monetary policy aimed at price stability could lead to a prolonged period of low growth and, in extreme cases, to declining production. It may appear as though this objective forced the Riksbank to give a lower priority to the development of the real economy, i.e. production and employment. We have only one objective for monetary policy, unlike, for instance, the US central bank that also has the task of taking into consideration the effects of interest rate decisions on growth and employment. However, in actual fact, the difference is probably not so great - indirectly the assessments of the future path of the real economy also play an important role in our decisions. Moreover, we also have the task "without neglecting the price stability objective, of supporting the objectives for general economic policy with the aim of attaining sustainable growth and a high level of employment." This is expressed in the proposal for the Sveriges Riksbank Act from 1999. However, even more importantly, there is no opposition between good growth and price stability, quite the reverse.

In a more broad-based market downturn, though, we would be concerned that a repricing of financial assets could trigger sudden and large redemptions from these funds, possibly resulting in forced asset sales, which could amplify stress in less liquid markets. This would have wider implications in the form of impaired market liquidity and possible spillovers to the real economy. While leverage in the euro area fund sector is low on average, there are also pockets of high leverage among some types of alternative funds, and these need to be monitored closely. Even if leverage of UCITS funds is not excessive, it can still add to the procyclical selling of assets if a fund tries to keep its leverage constant during periods of stress. I hope that gives you a good perspective on our current assessment of financial stability risks. I look forward to hearing your own views on these and other vulnerabilities for the euro area financial system. 2/2  BIS central bankers' speeches