samchain/econo-pairs-v1 huggingface dataset:
It is therefore important that practitioners and academics alike better understand how this channel propagates policy stimulus through financial markets, within and across economies. The zero lower bound, forward guidance and exchange rates Let me start by briefly recalling the two main propositions I made in my earlier remarks in July. One was that there is compelling empirical evidence that central bank asset purchase programmes are often associated with substantial cross-border capital flows. My first slide illustrates this point quite clearly for the euro area. 1 / 11  BIS central bankers' speeches  The second proposition was that asset purchases affect the exchange rate in broadly the same way as conventional monetary policy – that is, through expectations of interest rate differentials. To date, there is very little evidence to suggest that currency movements are a direct consequence of the impact on the supply of and demand for currency when investors rebalance their portfolios across borders. It is this second proposition that I would like to examine today in greater detail. In doing so, it is helpful to start by recalling the basic relationship between exchange rates and interest rate movements. I do this on the second slide. On the left-hand side you can see that, in the past, there has often been an intimate relationship between short-term interest rate differentials – measured here using bonds with a maturity of two years – and movements in the exchange rate, at least for the euro and US dollar pair.

Its members, individually and collectively, are publicly accountable for the way in which that responsibility is exercised. The supply-side agenda, under successive governments has inevitably been more diverse. It has included a strong commitment to free markets and competition as the motive forces for productive efficiency, and as the essential means of allocating financial and real resources. It includes an equally strong parallel commitment - both regionally within the European Union but also more broadly - to international free trade in goods and services and to the global free flow of capital. The supply-side agenda has included an extensive program of “privatisation”, bringing market disciplines to bear on commercial activities previously undertaken within the public sector, but often involving new forms of regulation in areas of activity that might otherwise be dominated by natural monopolies. It has included extensive deregulation - for example in relation to financial services, including banks and building societies, though this has been accompanied by improvements in the financial infrastructure and by enhanced prudential supervision. It has included measures of labour market deregulation and Trade Union reform. And it has included increased emphasis on education and training; measures to encourage business enterprise - especially among smaller businesses; and reforms to the welfare system to improve incentives to work. The list could go on.
7 It now appears that capacity utilisation in the Norwegian economy may return to a normal level in one and a half to two years – and with a somewhat lower unemployment rate than today. A different path can be met with an interest rate response. Our understanding of the fiscal rule is that the government budget for 2012 or at the latest for 2013 should be planned with a view to bringing down petroleum revenue spending to 4 per cent of the size of the wealth fund. This does not seem demanding compared with the situation in the years between 1994 and 1996. The tightening at that time started directly after the economy had turned and while unemployment was still high. Should policy now be tightened to the same extent that history in retrospect indicates was the case at that time, 4 per cent would be reached in the course of one year. 7  See for example the National Budget for 2010, box 3.1, p. 53. BIS Review 15/2010  15  It must, however, be added that in real time the tightening was not planned to be that strong. After the tax reform, government revenues from the corporate sector were higher than expected. 8 But even measures on a par with those planned at that time would now rapidly bring down petroleum revenue spending.

Petroleum revenue spending over the central government budget had increased, but employment in traditional industries was still high. Despite Norway’s high cost level, merchandise exports and supplies of goods and services to the oil industry held up due to high demand. Instead of a gradual slowdown, economic growth came to an abrupt halt in autumn 2008 when the global financial crisis came to a head. Demand for Norway’s export goods fell markedly. Norwegian banks proved to be highly vulnerable to the credit freeze in global money markets and stopped providing new loans. 2 However, Norwegian banks were not as exposed to loan losses – at home and abroad – as banks in other countries. The downturn proved to be milder in Norway, but the banking industry may also have performed its craft fairly well. Government and central bank liquidity provision measures were effective. The liquidity crisis passed quickly and did not turn into a solvency crisis in Norway’s banking system. The rapid rebound in oil prices and a weaker krone provided a boost to the economy. The interest rate was lowered and public spending markedly increased. The downturn turned out to be milder than we had expected when the interest rate was reduced to a low level – partly because oil prices proved to be higher than expected and partly because the measures implemented were more effective than we had dared to assume. We therefore now expect to be able to raise the interest rate again at a gradual pace to more normal levels.
Some countries, such as France and Spain, which have remained more buoyant in this period, have also posted slowdowns – to 0.3% and 0.5%, respectively – in the second quarter of the year. 5 In contrast, the most favourable factor since the onset of the economic recovery in the euro area has been the improvement in the labour market. This has been at the root of household income growth. During the current upturn, employment has responded forcefully to GDP growth. The unemployment rate currently stands at 7.5% of the labour force, very close to the historical low seen in the pre-crisis years. Strong job creation has contributed to reducing labour market slack. This has begun to be mirrored in wage growth and in an increase in labour income, which has enabled consumption to play a key role in euro area growth. That said, labour continues to be underutilised in some economies in the area. Yet in the euro area as a whole, the rise in wages and in unit labour costs has not fed through to prices, which has prompted a contraction in business mark-ups. In fact, the globally prevalent moderate inflation and growing competitive pressures, along with the increased uncertainty over future euro area exports, would account for firms’ heightened caution when passing through labour cost increases to the prices of their products. The upshot is that, excepting the oscillations associated with more volatile items such as energy or certain services (e.g.

The scorecard incorporates non-sales performance indicators, such as providing suitable product recommendations and making proper disclosures of material information to customers. 3/5  BIS central bankers' speeches  In all of this, the tone from the top is critical. Senior management and supervisors at all levels must make clear to their staff that meeting revenue targets must never be at the expense of treating their customers with fairness and honesty. This will go a long way in strengthening public trust in finance. Third, and more fundamentally, we must foster a culture of good conduct underpinned by strong standards of ethics. Regulations and controls can only go so far in shaping behaviour. Be it being alert to money laundering risks or dealing fairly with customers, mere compliance with regulatory requirements or internal rules is not enough. Ultimately, how professionals in the financial industry conduct themselves is shaped by the shared values, attitudes and norms in their organisations – in short, the culture. Rules can only tell us what we cannot do, it is values that tell us what we should not do. Those who work in financial institutions must look beyond the question: “Is this legal?” to “Is this right?” “Have I checked the box?” to “Have I checked the risk?” This is why some regulators, including MAS, have intensified their supervisory emphasis on the culture and conduct within financial institutions.
Indeed, the growth rate of real nonfinancial corporate bonds outstanding during this expansion has been roughly similar to that of previous expansions (Figure 7). A similar pattern is evident in the commercial paper market (Figure 8). Notwithstanding the robust performance of debt markets during this expansion, the sharper decline in outstanding bank loans to businesses that I mentioned earlier was likely a contributing factor to the slower economic recovery we have observed this time around. These developments appear to have had adverse consequences on the cost and availability of credit for bank-dependent borrowers. Also, in the early years of this recovery, bankdependent firms appear to have deleveraged more and invested less than firms with access to capital markets. So, the impairment of banks’ ability to extend credit still has the potential to hinder investment and adversely affect the overall economy. We see similar correlations when it comes to lending to households. The expansion in auto lending that commenced in 2010 coincided with a recovery in auto sales, which have now essentially regained the ground they lost during the recession. Until recent quarters, overall consumption growth has been slow, consistent with a pattern of slow growth in credit card balances. The most obvious case is mortgages where – after a massive tightening from 2007 to early 2010 – underwriting standards remain very tight. This tightness, especially for nonprime borrowers, has likely been a factor behind a persistently sluggish housing market that has held back this recovery relative to earlier ones.

Based on data from the Financial Accounts of the United States (Flow of Funds), real credit (that is, credit after taking into account the effects of inflation) to both corporations and households in prior recoveries generally started to grow fairly quickly after the end of the recession. By contrast, in the most recent recovery the real credit outstanding of businesses (corporations and non-corporations) declined for about two years after the end of the recession. And only recently – more than five years after the end of the recession – has it attained pre-recession levels (Figure 1). More dramatically, real credit to households continued to decline for about four years and, while it has finally begun to expand, is still well below its pre-recession levels (Figure 2). These different patterns of credit growth partly reflect the weak state of the banking sector following the financial crisis. The U.S. banking sector experienced record losses in the Great BIS central bankers’ speeches  1  Recession that impaired a significant portion of banks’ capital and triggered many failures. These losses would have been even higher had it not been for the liquidity and solvency support from the official sector – including the U.S. Treasury, the FDIC and the Federal Reserve. Sorting banks by the losses incurred during a recession relative to equity capital at the beginning of the recession, it is clear that the U.S. banking industry across this spectrum was much more adversely affected in the latest recession than in the two prior recessions (Figure 3).
EMBARGO: not for release before 19:30 on Wednesday 4 October 2017 Geofinance Speech given by Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority  Mansion House City Banquet, London 4 October 2017  I am grateful to Alex Holmes for his assistance in preparing this speech and to other colleagues for comments and contributions. 1  All speeches are available online at www.bankofengland.co.uk/speeches  EMBARGO: not for release before 19:30 on Wednesday 4 October 2017  Lord Mayor, Ladies and Gentlemen  The Prudential Regulation Authority had a bracing return from the summer break. There was no time for supervisors to compare sun-tans, which was just as well given the deathly pallor I acquired from a summer spent in London and Ireland. The only person with an even worse sun-tan than mine was a colleague who, in what I’m assured was not a political statement, took his summer holiday in Brussels. In fact, I was so desperate to boost my Vitamin D levels in September that (like a few others in this room) I headed south to Frankfurt, where I regret to inform you all that it was very sunny indeed. Yes, even the weather – a traditional safe harbour topic for financial regulators – seems to have acquired a Brexit-y tinge this autumn. It was therefore a relief to get stuck into some domestic topics when we returned from the summer.

First up, how the new accounting standard interacts with the bank capital framework here in the UK – a most enjoyable discussion, because you can never have too much of accounting standards. Next on the menu: consumer credit, of which you definitely can have too much. Some of the most difficult issues greeting our return, however, were not so domestic in nature. Would cross-border reinsurance contracts function properly in the wake of Hurricane Irma? How might a bad outcome on the Korean peninsula affect British banks and financial markets? Supervisors of the world's leading international financial centre have always had to juggle domestic and global risks. In between them, however, is a dynamic which is fundamental to retail and wholesale finance in the modern economy. It is a dynamic at play in the cliff-edge risks from Brexit and the differences of view between countries over Basel 3 finalisation. I am thinking of the impact of borders, location and distance on the shape of banks, insurers and financial regulation. Put simply: the impact of geography on the geometry of finance, a dynamic we might call 1  geofinance . With the revolution in regulation following the financial crisis coming to its end, and with changes to the geopolitical landscape looming large, I think that geofinance is likely to be the defining challenge of the next few years. The domestication of retail banking  Soon after the crisis I worked with the Independent Commission on Banking (ICB).
Investment has begun to rise, albeit at a slightly later stage than we had assumed. However, it is unlikely that the problem of a low investment rate now is connected to interest rates being too high. Given the low interest rates we see now and the good access to credit in the financial system, financing costs can hardly be regarded as a factor holding back investment. With regard to households, it is possible that even lower interest rates could make them increase their debt burden and borrow in order to increase consumption, but to me this is not an obvious conclusion. In addition, there are risks here. This brings me onto the question of how households have reacted to the low inflation and low interest rates, and this issue deserves more detailed discussion. Households’ growing debt burden and rising house prices In recent years, households’ debt burden has increased gradually and now amounts on average to 125 per cent of their annual disposable income, which is almost as high as immediately prior to the property crisis in 1992. However, interest payments are now less than half what they were then, approximately 4 per cent of disposable income. The fact that households are loaning at an increasing rate, both in Sweden and many other countries, can be regarded partly as an adjustment to lower inflation, which is also expected to be permanent.

However, it was left to the Riksbank to determine the practical application of this objective. Our choice was to specify a quantitative target for the inflation rate: The annual increase in the consumer price index, CPI, should be two per cent with a tolerated deviation of +/- one percentage point. The purpose of a tolerated deviation is to make it clear both that inflation will deviate from the two per cent level from time to time and that the Riksbank's aim is to limit such deviations. The target is symmetrical, which means that it is as undesirable to have an inflation rate below the target level as above it. Many other countries also conduct monetary policy where they have formulated a price stability target in one way or another. The euro countries have chosen to maintain inflation at a level close to, but below, two per cent, in other words, a non-symmetrical target. The United States has taken a different view and chosen a vaguer wording for its target, with no figures expressed, as well as taking greater account of general economic trends. In New Zealand they have a target for inflation expressed in terms of an interval (1-3 per cent) but no exact figure. However, we have seen two clear advantages of having a clearly expressed target to aim for; firstly it provides a good foundation for inflation expectations and secondly it makes it easier to assess the policy conducted.
That would be a mistake if we want to take collective control of our destiny in this new world – a world marked by direct criticism and unilateral action on the part of the new President of the United States. What we need is not necessarily more Europe, but rather a “better” Europe: a Europe that is less caught up in the detail, more focused on a few key priorities, and more efficient. A Europe that talks less and acts more: “Little, well, until the end.” Of course, there are some non-economic areas: youth training – like Enrico Letta, I believe in the benefits of an Erasmus-pro programme for apprenticeships – climate change, defence and the protection of our borders, for example. On the economic level, we should be proud of our successes – our single currency, our single market and our shared social model. But to complete the success of our monetary union, it is vital that we make progress on our economic union. There are two concrete levers for achieving this . A “Financing Union for Investment and Innovation” The first immediate step is a “Financing Union for Investment and Innovation” (FUII). Why? In those economies that are close to the so-called technological frontier, as is the case with France and Italy, innovation is the key to economic growth, and not just for start-ups. The problem is that, today in Europe, there are companies that want to invest and innovate, but that cannot find the right financing, notably equity capital.

The Bank of Albania is very heedful to external balances of the Albanian economy, regarding their correction as one of the main priorities of the country’s macroeconomic policies. This objective assumes more importance against the backdrop of recent developments in global financial markets. In the long run, its attainment requires ongoing structural reforms, which will enhance competitiveness of the Albanian economy and will generate higher revenues from the export of goods and services. Monetary inflationary pressures remain subdued in the medium run. Monetary expansion has maintained stable annual growth rates during the year, resulting 10.4% in September. Public sector demand for funding has been downward in recent months, making the private sector’s demand provide the largest contribution to money supply growth. Private sector credit grew 14.0% in September, marking a slight acceleration compared with the first half of the year. However, as we have constantly stated, the relatively sluggish performance of private sector credit reflects mostly its weak demand. The banking sector appears liquid and well capitalized to credit the Albanian economy, but it has increased its prudence in terms of lending, thus reflecting the new reality of the Albanian economy and global financial markets. The Bank of Albania assesses that, within the parameters of prudence, there is room for a more rapid growth of credit and for supporting sound investment projects by the banking sector. On our behalf, we will continue to support the financial system with liquidity and monetary stimuli in order to boost lending.
The most fundamental requirement is that there is an effective legal system. It is not possible to close one’s eyes to  BIS Review 62/2008  9  the corruption in the legal apparatus in some countries, making it almost impossible to establish that a bank has gone bankrupt in such countries. If this is the case, the type of insolvency framework has little importance. The importance of reliable property rights and registers and the possibility to seize collateral cannot be emphasised strongly enough. Finally, it is of course also important that the financial supervisory authorities dare to take difficult decisions. The people who work with these issues should therefore have sufficient legal protection. International contagion effects and the need for a code of conduct The international dimension has become more and more important. The financial systems are interlinked and there is a considerable risk of contagion effects. Many banks are also a part of international groups with a more direct financial link between parts of the group. All of this of course creates a need to discuss how to manage banks in distress at an international level. The EU, with a single market for financial services and common regulations, has good reason to go further. Much has been done in the area of coordination, with a number of documents on how to coordinate in a crisis now in place.

Everyone is affected, and events in one country affect all other countries too. I hope that this is clear to the decision-makers. In terms of monetary policy, we will do our part to prevent fragmentation in the euro area. The border closures and all the different national arrangements we’ve seen suggest that it is more like “everyone for himself” at the moment. 2/4  BIS central bankers' speeches  The primary goal has to be to contain the spread of the virus. It may be that closing borders is an appropriate step from that point of view. That’s something that virologists are best placed to judge. But it’s clear that all protective measures come at an economic cost. And that is precisely why we need coordinated action, so that we can avoid deepening the crisis. But not every country can afford that. That’s true, and that’s precisely why we need European cooperation. What we need now is European solidarity, also in financial terms. That is in the interest of all European countries. Is it even possible now to prevent a recession as a result of the virus crisis? We are experiencing a very severe economic shock. Supply chains are being disrupted and, at the same time, demand is contracting as governments introduce protective measures: people are travelling less than before and cannot go out to restaurants and bars. Falling confidence may also dampen consumption and investment. And if people are not able to go to work, that has an impact on production, depending on the sector.