samchain/econo-pairs-v1 huggingface dataset:
Given the current aggregate household debt, interest expenditure would increase by SEK 30 billion.22 Households’ disposable incomes, which are expressed in a simplified manner as the result of salaries after tax plus capital incomes minus interest expenditure, are currently around SEK 1,900 billion. If we assume that incomes will remain unchanged, abolishing the tax relief would thus reduce households’ disposable incomes by around 1.6 per cent.23 A simple calculation shows that household consumption would then decline by 1.3 per cent. If one only uses consumption’s share of GDP, this corresponds to a 0.5 per cent lower GDP.24  21  Monetary Policy Report, July 2013. 22  At present, the average mortgage rate households pay is around 3.1 per cent, so that households pay interest of around 2.2 per cent after the tax relief of 30 per cent. If the tax relief were abolished, in other words, households’ interest expenditure would rise by around 0.9 percentage points. As households aggregate debt is around SEK 3,300 billion, this corresponds to an increase in interest expenditure of SEK 30 billion. 23  The ratio between the increase in interest expenditure and the aggregate disposable incomes, that is 30/1900. The effect on disposable income is here less than for our standard households as it is calculated on aggregate debt data for the entire population. 24  To estimate the effect on household consumption, one can use a so-called consumption equation, which relates changes in consumption to changes in wealth and disposable income.

Exactly how the problems will take shape can vary, but it is almost always a question of some sector having become “over-leveraged”, which sooner or later leads to problems. Here I will assume that it is household indebtedness that is the main problem. At some stage, it becomes evident that the credit boom and the increased indebtedness have been based on too optimistic expectations and calculations. A lot more people will want to sell rather than buy the asset that formed the basis for the credit expansion and its price therefore falls. Let us assume that, as with the most recent crisis, it mainly concerns housing. The banks become cautious and reduce their lending, as the value of the collateral declines. Households’ assets have now fallen in value substantially, but the size of the loans remains unchanged. To attain a better balance between assets and debts, households reduce their consumption and begin to save. In addition to the fact that the credit supply declines as a result of the banks becoming more cautious, the demand for loans also declines. This adjustment in households’ balance sheets gives a fall in demand, which in practice has often proved fairly prolonged.3 This process often leads to a substantial weakening in public finances, too, partly because of the rapid decline in economic activity and partly because the banking system may in a worst case scenario require support. This development means that the business cycle and the financial cycle take a simultaneous downturn, as in Figure 1.
In my view, in markets where banks are dominating the financial sector and where the integration with securities and insurance markets are less pronounced, keeping the supervision separate and within the central bank makes good sense. Having said this, I acknowledge that the present tendencies are for banks to merge with other financial institutions, and for financial instruments to look increasingly alike whether they are created in banks or in other institutions. These tendencies would indicate a corresponding need for supervision of different financial sectors to cooperate closer and closer and, perhaps, finally to merge. The trend is clearly seen in Europe, reinforced by the common currency, but is gradually developing also in other countries. As mentioned above, this is the way we have organised supervision in Sweden. But I do not see a need to consolidate the supervisory authorities in a specific country until the structure of its financial markets so requires. As an intermediate step, cooperation agreements between the supervisory authorities should be encouraged. A strong rationale for locating bank supervision in a central bank is that bank stability is of crucial importance for the conduct of monetary policy. In addition, a central bank has the powers to provide liquidity - under normal as well as exceptional circumstances - to banks, for instance as a lender of last resort. To do this, it is obvious that the central bank must have full knowledge about the financial situation of a bank. However, there are also good arguments for keeping supervision separate from the central bank.

There may be a conflict between the role as supervisor and the role of being a lender of last resort. If a bank would fail, being supervised by the central bank, the central bank may feel more inclined to provide liquidity support than is economically defendable. Bankers may know this and the case for moral hazard may therefore be stronger than with a separate supervisor. Rules for public administration of troubled banks outside the central bank may give some help in this respect. There may also be a conflict of interest relating to monetary policy. If a bank fails while being supervised by the central bank, this may affect the central bank’s reputation and credibility. In my view, these are important arguments, because credibility of the central bank is basic not only to systemic stability but also to the conduct of monetary policy. What is the role of the central bank in relation to financial stability when there is an independent supervisory authority? There are still remaining the increasingly important questions concerning the macroeconomic “oversight” or macro prudential supervision of the financial system. As a matter of fact, these questions often tend to be neglected when the ordinary supervision remains within the central bank, because they are in many ways different in character from the day to day supervision. To effectuate its responsibilities of conducting monetary policy and ensuring a stable payment system, a central bank must monitor the risks in the financial sector.
In parallel, the weak aggregate demand does not allow for the increase in businesses profit margins. In the medium term, the expected improvement in economic growth will bring the economy back to equilibrium and will increase demand-side inflationary pressures. From the supply side, the decline in food and commodity prices in global markets and the increase of domestic agricultural production are expected to exercise downward pressures on inflation during 2015. However, their negative impact on inflation is expected to phase out in the coming years. BIS central bankers’ speeches  1  Inflation expectations will have a similar direction of their impact. In the short term, economic agents expect low inflation rates. This projection does not encourage the growth of consumption and of investments. Moreover, it tends to be factorised in low prices in future contracts between economic agents. Inflation expectations will shift upward, as inflation rises. Considering the above arguments, the Bank of Albania estimates that – with a high probability of occurrence – inflation will range 1.8–4.4% four quarters ahead. The balance of risks to the inflation projections remains on the down side. Downward risk factors to the inflation projections are slower economic growth, stronger decline of global prices and materialisation of second-round effects from lower oil prices at home. On the other hand, a factor that may contribute to a faster increase in inflation in the future is the increase in prices of agricultural products as a result of damages to agricultural land from recent floods.

As it is actually typical for most central banks in the world, through the work of its museum, the National Bank has gradually established itself as an important cultural treasury of the numismatic cultural legacy of civilizations that existed in this region, thus giving its contribution to the enrichment of the Macedonian society with permanent and irreplaceable values; those without which common knowledge is doomed to poverty, without which we would not be able to recognize and understand the universal values of civilization that have been mounting for centuries in the long civilization pace of human existence. The National Bank of the Republic of Macedonia, together with the National Institution Stobi, have decided to approach the Macedonian public exactly on May 18th – the International Museum Day, jointly organizing this important exhibition, where for the first time an extremely valuable cultural heritage is presented to the public. It includes 19 unique fresco-fragments from the inner walls of the Old Episcopal basilica in Stobi, dating from the 4th century BC, which the history of art considers an exclusivity of paramount importance, given that this kind of artistic creation is not present in the wider range of the European mainland. Within the exhibition, the curators from the National Institution Stobi enabled us to closely look at the details of the mosaic floors that decorated this building. In addition, part of the exhibition are also the unique fresco-details that adorned the baptistery, which is located next to the Basilica.
These include the slope of the Phillips Curve, central bank’s policy responses together with the constraints imposed by elevated public debt levels, and importantly, agents’ expectations. Expectations in Macroeconomics 12. This brings me to my second set of comments. One of the truly revolutionary developments in macroeconomic analysis has been the recognition that expectations are central to the behaviour of agents. Most of us would probably reach back to at least Keynes’ General Theory, as marking its formal induction into general equilibrium macroeconomics. The theory and practice of macroeconomic expectations has evolved quite rapidly since then. In particular, Robert Shiller and George Akerlof were key figures in formalising the idea that changes in expectations may manifest as exogenous shocks rather than factor in endogenously as posited by the theory of rational expectations, thus giving analytical form to Keynes' “animal spirits” in macroeconomic research. [3] 13. More recently, Shiller and Akerlof have also led a revival in the interest of expectations in economics [4] . Placing a modern contextualisation to “animal spirits”, they describe it as “a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.” I think we can quite easily relate to such descriptions. We have seen the importance of expectations in determining aggregate outcomes during crisis, as well as in specific markets and cycles.

Ravi Menon: opportunities  Global  outlook,  Asian  promise,  alternative  Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the DBS Institutional Investor Symposium 2017, Singapore, 22 June 2017. * * * Mr Piyush Gupta, CEO, DBS Bank Ladies and gentlemen, good afternoon. I am happy to join you today, and I thank DBS Bank for the invitation. The American author John Maxwell once said, “The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.” As investors, you too seek to adjust the sails, to avoid being knocked over by market turbulence and to find new harbours of opportunity. So, what are the winds facing us like? Let me offer some thoughts in three areas: First, the global economy and financial markets – where are we today, what are the risks? Second, Asia’s medium-term prospects and the promise it offers to investors. Third, opportunities in alternative assets as investors look to unlock new sources of value. Global economy and financial markets The global outlook seems rather straightforward at this point. Growth is on a positive momentum and is increasingly broad-based, across both advanced and emerging economies. Global trade has picked up, manufacturing has recovered, and commodity prices have bottomed. Most measures of confidence are looking up. But the factors that underpin sustained growth – capital investment and productivity – remain weak in most parts of the world.
Greater responsibility for stabilising inflation and output fell to monetary policy. 2  The expression “Dutch disease” originates from the Netherlands, where the government rapidly spent large revenues from the extraction of gas in the 1960s. 3  Q. Farooq Akram (2005): “Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues”. Norges Bank, Working Paper 2005/1. 4  Aftenposten Morgen 11 September 1986. BIS Review 50/2006  3  Economic policy was revised in spring 2001. The most important policy change was the plan for phasing in petroleum revenues – the so-called fiscal rule. An inflation target for monetary policy was introduced at the same time. The fiscal rule and the inflation target can also be seen as an answer to the problems raised by Finn Kydland and Edward Prescott. The insights from their influential work was that economic policy can achieve better results if the authorities can commit themselves to a pre-established set of credible policy rules. The need for rules in the spirit of Kydland and Prescott is perhaps greater in Norway than in most other countries. Other countries often find themselves in situations where they have to limit and stabilise their fiscal deficits and government debt levels. Balanced budgets serve as a long-term guide for fiscal policy. For us, balanced budgets will not work as a guideline. Macroeconomic framework Norway’s stabilisation policy now rests on four pillars. Under the petroleum fund mechanism, increased government petroleum revenues are invested abroad.

And that expectation is factored into their own behaviour, whether it is negotiating wages, setting prices, or deciding how much to borrow and consume. All of that goes a long way towards ensuring that inflation is well anchored to the target. Of course, from month to month, inflation will still vary somewhat around 2½%. In recent months, RPIX has been a little below target, and there has even been some interest in whether it might reach 1.5%, the point at which the Governor would have to write a formal letter to the Chancellor explaining what was going on. The pick up of inflation to 2.6% in January has silenced this discussion, at least for the time being. We pore over the reasons for such developments in enormous detail at the Bank. But in the bigger scheme of things these month-to-month movements are quite small, and are I hope likely to play very little - if any - role in the key decisions of your businesses, or those you represent. People often ask if our relative success at targeting inflation has come at a cost in terms of lost output or employment. It is increasingly accepted, I think, that there is no such trade-off in the long run. And, looking at recent data, it is hard to see a trade-off even in the short run. Unemployment remains close to its lowest level for a quarter of a century - a trend seen in Northern Ireland just as much as in the UK as a whole.
To this end, liquidity and capital regulation need to be reformed. The final ingredient in the cure is trust. This ingredient stresses the importance of trust between national authorities to the efficient management of cross-border crises. Regaining confidence in the short run: go get the lemons! Banks create confidence by telling good and credible stories about the future, stories about why you will get your money back. Money may make the world go around, but it is good confidence-building storytelling that spins the money around. When these stories fail to create confidence, the markets will dry up. This is basically an example of the well-known lemon problem. The current problems first surfaced in the US subprime market. The repackaging and sale of assets backed by subprime loans meant that the crisis, at its outset, had already started to  BIS Review 118/2009  1  grab hold of banks internationally. Bankers exposed to subprime assets began to find it increasingly difficult to tell convincing stories. Banks and market agents became less willing to trade and to lend to each other. In March 2007, Bear Stearns received emergency lending, followed by a forced sale. Rating downgrades and more bad news kept arriving and the crisis started to spread geographically and to affect more markets. Banks experienced serious funding problems. The ECB and the Fed responded by injecting liquidity on August 9, 2007. On September 13, Northern Rock received emergency liquidity support from the Bank of England.

A second reflection is that the presence of and adherence to a legally sound, open and stable institutional framework that is respectful of creditors' and debtors' rights is the only way to generate the confidence and support of international financial markets in such a way that domestic saving shortfalls may be financed. My third reflection considers the need for clear, credible criteria beforehand as to how to distribute the costs of crises. Such criteria should strike a balance between both domestic and foreign private creditors. Coverage of the shocks experienced by the international financial system last year would be incomplete without some reference to the set of shortcomings highlighted in the so-called ENRON case, which goes beyond the particular scope of this company and reveals weaknesses of a more institutional and systemic nature. These events were significant since they showed that, even in economies with more sophisticated institutional arrangements, some types of conduct with great destabilising potential may occur. The ENRON case was important not only in quantitative terms but also, and especially, in qualitative terms, witnessing a series of legally dubious practices which go beyond the strictly financial field: conflicts of interest, serious corporate governance shortcomings,  6  BIS Review 38/2002  excessively ad-hoc accounting practices deviating from prudential principles and from what is a fair view of the real economic situation, manipulation of information, etc. And all this set against the inoperativeness of the internal and external control mechanisms of the company.
However, while the risk-weighted approach has been through wholesale reform, it still depends on mathematical models – and for the largest firms, their own models to determine  2  BIS central bankers’ speeches  riskiness. So the risk-weighted approach is itself subject to what in the trade is called “model risk”. This may sound like some arcane technical curiosity. It is not. It is a fundamental weakness of the risk based approach. Mathematical modelling is a hugely useful tool. Models are probably the best way we have of forecasting what will happen. But in the end, a model – as the Bank of England economic forecasters will tell you with a wry smile – is only a crude and simplified representation of the real world. Models have to be built and calibrated on past experience. When events occur that have no clear historical precedent – such as large falls in house prices across US states – models based on past data will struggle to accurately predict what may follow. In the early days of the crisis, an investment bank CFO is reported to have said, following hitherto unprecedented moves in market prices: “We were seeing things that were 25 standard deviation moves, several days in a row”. Well, a 25 standard deviation event would not be expected to occur more than once in the history of the universe let alone several days in a row – the lesson was that the models that the bank was using were simply wrong.

I do think the reforms already made to the capital adequacy and liquidity frameworks have improved markedly the robustness of the system. A leverage ratio, if and when it is introduced in the UK alongside the risk-weighted approach, would in my view make the capital adequacy regime for the banking sector appreciably stronger by guarding against model risk. And, as regards the non-bank financial sector, what some would classify as “shadow banking” – I also think we are starting to see some positive momentum towards the development of diversified credit channels in the UK and the EU – though there is a great way still to go. At the same time, the financial regulatory community is keeping a pretty close watch as to whether risks are migrating from the bank to non-bank sector and building up elsewhere. The FPC recently made its first analysis and assessment of risks in the UK outside the regulated banking system. That assessment was made difficult by generally incomplete data in this area, which we are starting to correct. But it concluded that, based on its current risk assessment and policy initiatives underway internationally – including through the FSB work on shadow banking that is coming to completion this year – it did not currently see a case for recommending changes to the UK regulatory framework. I am afraid, for financial stability, that is as good as it gets. The financial sector evolves at a phenomenal speed. Risks can change and build very quickly.
Such a self-reinforcing price spiral would have resulted in even more severely disrupted gilt market functioning. And that would in turn have led to an excessive and sudden tightening of financing conditions for households and businesses. In response to this threat, the Bank of England intervened on financial stability grounds. But what led to that intervention? The root cause is simple – and indeed is one we have seen in other contexts too – poorly managed leverage. So today I’ll set out how leverage outside the banking sector can create risks to financial stability, starting with that small corner of the pensions market. And then I’ll set out what needs to be done - by participants, by their regulators and by financial stability authorities - if we are to ensure those risks to financial stability are reduced. How did a small corner of the pensions industry threaten financial stability? Many UK DB pension schemes have been in deficit, meaning their liabilities – their commitments to pay out to pensioners in the future – exceed the assets they hold. DB pension schemes invest in long-term bonds to hedge the interest rate and inflation risk that arises from these long-term liabilities. But that doesn’t help them to close their deficit. To do that, they invest in ‘growth assets’, such as equities, to get extra return to grow the value of their assets. An LDI strategy delivers this, using leveraged gilt funds to allow schemes both to maintain material hedges and to invest in growth assets.

As an illustration, the Pension Protection Fund’s PPF 7800  index suggests that, between end-2021 and end-  September 2022 – a period in which interest rates rose substantially – the liabilities of UK DB schemes fell by 36% (from £ to £ whereas their assets fell by only 20% (from £ to £ leaving their net assets nearly three times higher. 2. See Thirteen days in October: how central bank balance sheets can support monetary and financial stability – speech by Andrew Hauser 3. See The impact of leveraged investors on market liquidity and financial stability – speech by Jon Cunliffe 4. See Taking our second chance to make MMFs more resilient - speech by Andrew Bailey 5. See ‘The role of non-bank financial intermediaries in the ‘dash for cash’ in sterling markets’, Bank of England Financial Stability Paper, number 47. 6. See ‘Seven Moments in Spring: Covid-19, financial markets and the Bank of England’s balance sheet operations’ – speech by Andrew Hauser 7. See ‘Sizing hedge funds' Treasury market activities and holdings’  ,  8. See ‘Hedge Funds and the Treasury Cash-Futures Disconnect’ 9. See ‘Leverage and margin spirals in fixed income markets during the Covid-19 crisis’  10.