samchain/econo-pairs-v1 huggingface dataset:
The MPC is conscious that the continuing high level of inflation poses the risk that inflation expectations may move up. And it may be some while before inflation returns to target. But at present, there is also a risk – at least as large – that once the temporary upward influences on inflation dissipate, the influence of spare capacity in the economy will push inflation below the target. Consistent with that possibility, a range of other indicators – growth in broad money, pay, and the pressure of demand on supply, that together are likely to be a more reliable guide to inflationary pressure looking ahead – all remain extremely subdued. So not only can monetary policy play a role in smoothing the rebalancing process, it needs to do so if the outlook for inflation is to remain in line with the 2% target in the medium term. Because there are risks on both sides of the outlook, reasonable people can disagree about the monetary policy judgement. In recent speeches, different MPC members have emphasised upside and downside risks to inflation. After the event, no doubt whichever risk has crystallised will be described by the critics as inevitable. Unfortunately, we do not have a crystal ball. So in setting policy today the only coherent approach is to balance those two risks. The next decade will not be nice. History suggests that after a financial crisis the hangover lasts for a while.

In the coming years, we will have to save more, even though the immediate concern is to ensure a recovery in demand. So the case for rebalancing is even stronger in the wake of the financial crisis and recession that followed the nice decade. To achieve a rebalancing we need to sell more to, and buy less from, economies overseas. To close the gap between exports and imports, more than half a million jobs will probably need to be created in businesses producing to sell overseas – compensating for fewer employment opportunities serving UK consumers or the public sector. Such an adjustment is unlikely to be smooth. Unless the fall in domestic spending coincides with the necessary increase in net exports, the path for the economy will be bumpy. As a result, it is dangerous to become fixated by the precise profile of quarterly growth rates. The sensible approach is to focus on the big picture. And the big picture is that total output is roughly 10% below where it would have been had the crisis not occurred. The conditions are in place to support a rebalancing at home: in particular the past depreciation of sterling will make UK-produced goods more competitive at home and abroad. But domestic spending has already fallen before a pickup in net exports. This highlights a key role for monetary policy: smoothing the adjustment process by providing temporary stimulus to demand while the rebalancing takes place, so reducing the risk of inflation falling below the target in the medium term.
Measured in terms of relative labour costs in a common currency, competitiveness can be estimated to be close to 8 per cent weaker than the average for the past 30 years. Over the past 30 years, manufacturing industry has been scaled back in waves. Ahead of these periods, the manufacturing sector’s competitiveness deteriorated. The last wave came after the turn of the millennium. The decline has now come to a halt, or at least taken a break, in spite of the strong real exchange rate. High export prices, solid demand for many Norwegian export goods and buoyant growth in oil-related industries are making a contribution. According to Statistics Norway’s business sentiment survey of industrial leaders, growth in production and employment is expected to continue in the period ahead. According to Norges Bank’s regional network, capacity utilisation is high in manufacturing, particularly among suppliers to the oil industry. Norges Bank’s regional network is an important part of the information basis for our analyses of the Norwegian economy. Information about the state of the Norwegian economy is available earlier than information provided by official statistics, and it is edifying to have closer contact with the labour market and business and industry throughout the country. The main impression from the latest round of interviews is that demand and output are rising in all sectors. Growth is expected to remain high over the next six months. The industry structure in North and South Trøndelag does not differ substantially in most sectors from the country as a whole.

Changes in relative term premia are far more difficult to interpret than changes in the expected path of future short-term interest rates. The latter can be clearly associated with changes in monetary policy expectations. 8 / 11  BIS central bankers' speeches  Changes in term premia, by contrast, often reflect a combination of shocks, including monetary policy shocks as well as shocks to demand, risk aversion and other variables, which will drive term premia in the same or in opposite directions. The most recent disconnect between the euro and US dollar exchange rate and the expected future short-term interest rate differential is a case in point. On the left-hand side of slide 7 you can see that a significant gap between the two series re-emerged in the spring of this year, and continues to persist. It is tempting to link recent developments once more to portfolio rebalancing considerations. After all, the Federal Reserve is now actively reducing its balance sheet, while the ECB last week decided to extend its asset purchase programme by nine months, or more, if needed, while reducing the monthly pace to € billion. This might have caused some investors to expect a gradual rebalancing of portfolios away from US dollar-denominated assets and towards eurodenominated assets, which would support the euro. But many other factors may drive interest and exchange rates, with likely different implications for the real economy.19 Indeed, geopolitical and policy uncertainties may also contribute to swings in bond term premia. So it is difficult to establish unequivocal links.
The fact that it has failed, triggering heavy costs to the society, leads to deep public anger and resentment. “While anger and resentment may be useful spurs to action” – to quote Andrew Crockett (2011) yet again – “they are much less helpful in shaping a balanced response to the crisis that both safeguards society against financial fragility and preserves the contribution that the financial sector makes to high quality sustainable growth”. Indeed, the crisis response so far has perhaps focused too much on preventing future financial crises and neglected the fact that robust economic growth is simply not possible without the contribution of the financial system. III.1. Why did the markets not deliver? Nowadays the financial sector tends to be associated with its negative externalities, while ignoring the essential function it performs in the economy. These negative externalities refer to both the direct cost of bailing out financial institutions and the indirect cost of the ensuing economic recession. Overemphasizing negative externalities may lead however to regulations that excessively limit risk-taking, which is unavoidable if the financial sector is to stimulate private saving, enhance allocative efficiency and help smooth out economic fluctuations due to non-financial causes. In theory, in the banking sector, stakeholders’ interest should ensure that credit standards, risk management and controls, and capital cushion remain adequate, as fund providers would penalize managers who run excessive risks. In securities markets, long-term reputational concerns should have overcome incentives to exploit short-term information asymmetries.

Yet, it is being penalized by markets because its politicians try to solve the problems along the lines of nation-states. IV.1. The need for a banking union  From this perspective, the EMU is visibly incomplete. On the one hand, in the absence of a fiscal union, sovereign spreads vary according to market perception. On the other hand, in the absence of a banking union, banks are perceived as contingent liabilities of individual sovereigns. The EU is presently dealing with the negative feedback loop between banks and sovereigns. The imperative need to break this vicious circle gave birth to a wide consensus that the banking union is a less controversial and more feasible solution than a fiscal union. It is viewed as a way to place the banking sector on a more sound footing and restore confidence in the euro. It is also viewed as a step towards a fiscal union. A banking union is also a good answer from the perspective of the so-called “impossible trinity”, which points out that financial stability and financial integration are not compatible with preserving supervision at national level (Schoenmaker, 2011). BIS central bankers’ speeches  5  IV.2. The project  Now let us turn to what the projected banking union would imply. The current design envisages the banking union as functional for the euro area with an opt-in clause applicable to non-euro area Member States. At this stage, the proposal consists of four complementary pillars. First, there should be a single rulebook.
And they are well protected against shocks thanks to the ample capital and liquidity buffers. 20. In the last couple of months, I have talked to many dozens of people representing banks, asset owners, asset managers, professional services firms. Many are in the audience today. They all recognise the exceptional opportunities offered by Hong Kong, and see through the current challenges we are facing, because they know Hong Kong has proven time and again we will ride through difficult times and become even stronger than ever. 21. Thank you very much and I wish you an enjoyable and fruitful conference. 4/4  BIS central bankers' speeches

These challenges deserve further research – although it is naïve to believe that there are easy solutions to such formidable analytical problems. And – in particular, from today’s perspective – we should recognise that persistent deviations of inflation from target, even if stemming from what are fundamentally a series of transitory inflation shocks, might prompt changes in behaviour that generate more long lasting inflationary dynamics. For example, we might see a shift in long-term inflation expectations or the emergence of ‘second round effects’ in price setting behaviour that threaten to create momentum in inflation even after the original impulse has receded. [11] This naturally leads to what I label intrinsic persistence in headline inflation. Rather than being driven by a series of external shocks, greater intrinsic inflation persistence emerges when the economy’s response to the same fundamental inflationary shock changes in a way that implies headline inflation takes longer to return to target. In taking monetary policy decisions, the MPC needs to form a judgement about whether and, if so, how intrinsic inflation persistence is evolving. In other words, it unavoidably needs to assess  Page 6  whether economic behaviour has changed in a way that either makes the response of headline inflation to a specific shock last longer and/or whether it diminishes the impact of monetary policy measures in containing inflation. On my reading, at least in principle, greater intrinsic persistence of inflation would justify a stronger tightening of monetary policy.
As shown in (Figure 6), which shows these two components over time, the business balance is currently unusually high; that is, businesses have very high cash flows relative to their investment outlays. This suggests that some of the required adjustment could occur by fostering greater investment spending as a share of GDP. For this to occur, it will be important that economic policies promote long-term growth and financial stability, and ensure that the United States is a competitive place to base production, with a well-functioning infrastructure, a skilled workforce and a reasonable tax and regulatory system. In addition, it seems desireable that some of the adjustment should take place in the trade sector. Although a current account deficit of 3 percent of GDP by itself would be sustainable over time, for the household balance to remain close to current levels and the public balance to sharply narrow, then the current account may need to move further toward balance. For this to occur, there needs to be two offsetting adjustments. On one hand, the U.S. economy must be reoriented toward global demand and stronger net exports. On the other hand, there will have to be offsetting adjustments elsewhere in the world. After all, on a global basis, the current account balance–properly measured–must sum to zero. This means  2  See "Securing the Recovery and Building for the Future." Remarks by William Dudley at United States Military Academy at West Point, New York, November 17, 2011, for a more detailed discussion of this issue.

The surprise is that after 50 years, we still feel that there are missing elements in our economic and institutional constructions, which should be knowledge-based. Instead of having more and more educated and informed people in society, we see a widening knowledge and information gap. Partially this comes from economic inequalities, another increasing challenge, but partially from ignorance. The Nobel Prize this year was recently awarded to professors William Nordhaus and Paul Romer for achievements in the economics of climate change, but also for the role of technology in economic progress. For both distinctions, the Nobel Committee mentioned that research informed government policies and international cooperation are decisive for sustainable economic growth. What we see in this year’s Nobel Prize award, is the supreme recognition of the fact that knowledge and research are essential inputs for policies. On the other hand, we notice that in many cases, in everyday practice, policies ignore the findings of research and academia, not to mention that sometimes they even ignore the basic laws of economics. At the other end of the transmission mechanism, the citizens grow increasingly dissatisfied with policy-making and become detached from their leaders’ actions. The gap is then filled by extremism and populism, two evolving diseases of societies today. Moreover, despite an immense stock of knowledge that is accessible to an unprecedented number of people, we notice a lack of appetite for this knowledge, most surprisingly among younger generations.
In any case, this investment slowdown is expected to continue, but not as intensely as in the first quarter (figure 1). As I was saying, there has also been important news on the external front, notably a major increase in the volatility of the world financial markets in the last month. These tensions originate in two forces. First, the consolidation of the recovery of output and employment in the United States and the Federal Reserve has indicated that, if the recovery continues,  BIS central bankers’ speeches  1  during the second half of the year it will begin to gradually withdraw the extraordinary monetary stimuli now in effect. As there is no comparable precedent regarding these policies, these signals have shaken international financial markets in recent weeks, because of the implications that such withdrawal could have. Second, the Chinese economy has slowed down beyond expectations and apparently the Chinese authorities would be more than willing to accept lower growth rates in an effort to safeguard the stability of its financial system and achieve a better balanced growth structure. This situation creates volatility because of China’s major contribution to world growth and its enormous weight in the commodity markets. The deceleration of emerging economies has been widespread, some of them affected by slower growth in China and others by the maturation of its expansion cycle, after several years of rapid economic growth.

Some of the adjustments are already taking place. The nominal exchange rate has depreciated more than 6 percent since the closing of the March Monetary Policy Report, while the real exchange rate has done so by 5.5 percent and domestic demand has begun to slow. These movements go in the direction of reducing the trend current account deficit, which excludes the fluctuations in the terms of trade, which is a worrying factor as we have said throughout the last year. 2  BIS central bankers’ speeches  Let me now turn to our baseline scenario for the Chilean economy and the main risks we have identified in our two Reports. Macroeconomic scenario In Chile, in the first quarter of 2013 the q-o-q seasonally-adjusted annual rate of GDP dropped to 2.1 percent from 7.7 percent in the last quarter of 2012. This slowdown was particularly visible in the sectors linked to domestic demand, which was partly offset by a better performance of natural resources. As I noted a moment ago, spending was primarily driven by investment. Partial second-quarter indicators suggest that the deceleration will continue, but with less intensity than in the first. Imports of capital goods remained at their lowest level of the first quarter. Existing home sales have moderated their growth rates, but other sectoral indicators are less conclusive. In this context of economic deceleration, banks’ commercial loans have reduced their annual variation rate significantly. This reflects slower growth in investment, but also a process of substitution of corporate financing sources.
Today I intend to begin by describing the current monetary policy situation and then looking back at developments in recent years. The latter discussion shows, not surprisingly, that it is not always so easy in practice to determine what is appropriate monetary policy, despite a clear target with apparently simple principles behind it. Current monetary policy Higher energy prices behind rising inflation Inflation is at present above the target level. Over the past twelve months UND1X inflation has risen by 3.3 per cent. Does this mean that monetary policy has been too expansionary, or that the interest rate should be raised now? No, it does not. At least we do not believe so. The fact that inflation has risen recently is due to large price rises on a few components of UND1X, primarily electricity and oil. Excluding energy prices, UND1X inflation has risen by 1.9 per cent over the past year, i.e. very close to the inflation target. It is well known and accepted that monetary policy does not have any great immediate effect on inflation, which is one reason why the interest rate is set in relation to changes in the forecast inflation rate rather than the actual rate. Attempts to constantly keep inflation close to the target level could  BIS Review 15/2003  1  lead to large fluctuations in interest rates, with negative consequences for the economy as a whole. This applies in particular when the economy suffers supply shocks, which at the same time lead to higher prices and lower production.

On bank capital adequacy, some countries (such as the UK and Switzerland) have indicated that the standards they apply will be tighter than the minimum set out in Basel III. This represents a cross-border challenge to regulators because banks from relatively lightlyregulated countries will have a competitive advantage. It was this sort of problem that led to a “race to the bottom” in regulatory standards in the pre-crisis years, and we must strive to avoid this happening again. Regulatory arbitrage is a serious threat. For financial institutions, which are systemically important to the world economy (and that therefore are practically “too big to fail”), there needs to be additional rules. The FSB will report to the G20 Summit in November on which banks and insurance companies qualify, and what additional capital requirements they need to have. Some banks are resisting this strongly. They argue that tighter regulations will drive financial transactions into the world of “shadow banking” where the activities will be regulated lightly. In my view, international banks need to accept tighter regulation, which will mean lower returns on capital in good years due to lower leverage. In return, this approach should help them avoid the frequent  BIS central bankers’ speeches  3  crises and losses of bank capital which have been seen in the last two decades or so. Hence, in the long-term, bank shareholders should be no worse off as a result.
BIS Review 49/2010  5  I asked plenty of questions that I don’t have ready answers but I hope enough to force you to ponder into thinking this issue from a multiple dimensions. The good news is we are at a stage of growth in terms of product and service in Islamic finance. That means innovation is still the driving force behind the industry progress. The questions posed today is not meant to deter nor to direct in which direction we ought to be moving – but to provoke new thoughts in moving forward. The fact of the matter is that debt based financing is generally accepted and approved by Shariah scholars and currently forms an integral part of Islamic finance and its structured was tested in our legal system. These instruments have been adopted by the IDB and many Sovereigns to finance infrastructure investments, to promote trade and to meet liquidity needs in Muslim countries. In other words, debt-based financing has been successfully deployed to bring economic benefit to fellow Muslims. There is no doubt that Equity based financing needs to be considered and its usage encouraged. At the same time we must do so with the full knowledge of its full consequence on the entire financial system stability as it currently stands.

Last but not least, the HKMA launched the Fintech Supervisory Sandbox in September in order to create a regulatory environment that is conducive to fintech development. The Sandbox enables banks to conduct pilot trials of their fintech initiatives in a controlled production environment without the need to achieve full compliance with the HKMA’s usual supervisory requirements. So far, two banks have already made use of the Sandbox to conduct pilot trials of their biometric authentication and securities trading services. A few banks are discussing with us and planning to make use of the Sandbox for conducting their project trials in the coming few months, in areas such as blockchain, artificial intelligence and many more. 10. In parallel to all these fintech projects that the FFO has launched, the HKMA has issued 13 Stored Value Facilities licences in two batches under the newly established regulatory regime. These licensees range from mobile and Internet payment service providers to prepaid card issuers. As payment and SVF operators are important stakeholders in the fintech ecosystem, we have also invited five of the SVF licensees to join today’s event and share their experience in relation to the latest e-payment developments in Hong Kong. 11. In conclusion, ladies and gentlemen, we have lined up a full day’s programme with top fintech experts and regulators as speakers. I am sure that all of you will find today’s discussions fruitful and insightful. Thank you very much. 2/2  BIS central bankers' speeches