samchain/econo-pairs-v1 huggingface dataset:
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.

The long run containment in inflation necessarily relies on containment of monetary expansion and increase in production in the country, particularly by improving productivity. As the Central Bank, what we can do? Obviously we cannot produce goods or services for the consumption of the economy, but certainly we can create the right conducive environment enabling the country’s economic performance. Why should the Central Bank be interested in productivity? Our role is to maintain economic and price stability and financial system stability. We also provide necessary payments and settlement infrastructure. We advise the government in economic affairs and policy making, and we provide important agency services such as exchange control, public debt management, provident fund management and regional development activity. In all these functions, our Mission is to “contribute to Sri Lanka’s prosperity”. At the same time, the Central Bank widely pronounces the theme of “success through productivity”. 4  BIS Review 116/2008  But, obviously this cannot be done by ourselves… The success through productivity needs a consolidated national effort. That is why we all have to push ourselves to a greater productivity level. We have to, •  work smarter,  •  combine better,  •  deliver results,  •  get it right. It should be noted that the private sector has continued to make commendable efforts in order to improve productivity in the country. What can the ICC Sri Lanka do? ICC Sri Lanka too can play a prominent and essential role.
This is not about the societal question of the level of pay, but about the prudential question of its structure. To properly align risk and reward, the Prudential Regulation Authority will be prescribing deferral of variable remuneration, the ability to reduce deferred bonuses when subsequent performance reveals them to be undeserved, and the ability to claw back bonuses after payment. But as the Chancellor stressed tonight, we must do more. Recent events have shown the necessity of measures to ensure the fairness and effectiveness of core markets. That is why I welcome wholeheartedly the Fair and Effective Markets Review announced tonight by the Chancellor, and to be led by the Bank’s new Deputy Governor, Minouche Shafik. Through that Review, we will build true markets: –  Markets that are open and transparent;  –  Markets where access extends beyond a privileged few;  –  Markets where all who wish to trade have common information and commonly accessible prices; and  –  Markets where the informational integrity of key benchmarks is beyond question. Some of this will require changes to the way markets work, including changes to how benchmarks are calculated and the implementation of reforms currently underway to create greater pre- and post-trade transparency of standardised derivatives. Some can be delivered, as the Chancellor announced, by bringing more activities within the scope of regulation. And some may require new codes of conduct.

If the financial sector ceases to mediate payments efficiently, it could have very serious consequences for economic development. One of the Riksbank's tasks as established by law is to promote a safe and efficient payments system. It is not as easy to see the direct usefulness of the modern financial system as it is to realise the importance of energy and transport. However, the functions of the financial markets - financing, risk management and mediation of payments - are as necessary in an advanced industrial and services society as the supply of energy and a functioning transport system. In advanced societies, savings are at least partly separate from investment activities. The financial sector has the important task of balancing savers' need of security and liquidity against investors' need of long-term financing. It often takes a long time from investment until production results come onto the market. Households that save money could suddenly find themselves in need of access to their money, which is made possible by selling their savings in the form of, e.g. shares and bonds on secondary markets for these securities. A company like Stora Enso wants long-term financing for a new paper machine, which it might not be possible to sell in a couple of years' time should the company be forced out of the investment. The company's issues of shares and/or bonds provide this long-term investment, partly because the securities can be sold on a market without having to be redeemed by the company issuing them.
As chairman of the Global Economy Meeting which takes place every two months in Basel, under the auspices of the BIS, I mentioned regularly in 2006 as well as in the first months of 2007 that my colleagues and I were judging that there was a significant underpricing of risks in global finance. This situation was substantiated by a very low level of spreads, a very low level of risk premia, an abnormally low level of volatility in a large number of markets. We had explicitly and publicly called for institutions and markets to prepare themselves for a correction that was both unavoidable and necessary to pave the way for more sustainable path of global finance. Such analysis and diagnosis were reflected pretty well in most Financial Stability Reviews published by central banks, not the least in the ECB publication a long time before the market correction. The BIS publications were themselves equally clear in this respect. Second, a good analysis and a pertinent diagnosis are a necessary condition for future necessary market corrections to be as smooth and as orderly as possible. But it is not a  8  See European Commission (2006), Financial services: Commission proposes self-regulatory improvements to deposit guarantee schemes, Brussels, 28 November. 6  BIS Review 17/2008  sufficient condition per se as is clearly demonstrated in the present episode of turbulence and as was regularly observed in the previous periods of sharp and abrupt market corrections.

Some concerns that I have about the outlook, however, are the possibility of continued sluggishness in private demand, and the possibility that supply-side constraints – both in the labor market and the production sector – could hold back the future potential of investment and exports. Through this turbulent time, the Bank of Thailand has been steering its monetary and financial policies with prudence. The flexible inflation-targeting framework succeeds in anchoring inflation expectation, thus fostering continued growth and stability. The managedfloat regime accommodates baht movements that are in alignment with fundamentals, with policy instruments ready to curb excessive speculation and overshooting if needed. The strong international reserves position, at the same time, helps cushion against sharp flow reversals. Efforts have also been expended on financial liberalization and regulatory reforms under the Financial Sector Master Plan. And for the banking sector, banks’ capital bases have been strengthened well above international standard, while granting new subsidiary licenses for foreign banks will ensure that the future banking system stays competitive and vibrant. C.  Lifting barriers to sustainable growth  Distinguished audience, Sound macroeconomic and financial practices have been instrumental in safeguarding economic stability and helping the country weather through numerous shocks that have come its way. Sufficient policy spaces in monetary and fiscal policies provided buffers amid intense headwinds and supports in the times of need – notably in the aftermath of the global financial crisis and the flood devastation in late 2011.
Consequently the pressure for austerity is greater in the periphery, than it is to boost demand in the core. So, while the euro-area authorities have been making substantial progress in constructing the economic architecture to support the monetary union, the adjustment process taking place in the periphery is nevertheless likely to continue to weigh on euro-area demand prospects for some time. And that will also act as a headwind to the recovery here in the United Kingdom. Let me turn finally to the global picture. During the build-up to the financial crisis, significant international payments imbalances emerged (Chart 9). On one side were the advanced economies, most especially the United States, running large and persistent current account deficits. On the other side were the emerging economies – most notably in Asia – and latterly the oil exporters, showing large current account surpluses. In the decade prior to the financial crisis, for example, the US current account deficit widened from under 2% of GDP to 5%, while the surplus in China rose from 4% of GDP to 10%. That constellation of international payments flows, with emerging economies exporting capital to advanced economies, was the opposite of what conventional economic models would predict. Normally one would expect countries in the catch-up phase of economic development with temporarily high investment levels to import the necessary savings from overseas. But a combination of limited household safety nets and under-developed domestic financial markets generated unusually high private savings rates.

Turning to fiscal policy, the baseline scenario assumes that the trajectory of public spending is consistent with the fiscal rule and with the Administration’s announcements that it will  BIS central bankers’ speeches  3  follow a path of fiscal consolidation, which has resulted in an adjustment of expenditures planned for 2016. This is consistent with a lower trend price for copper than was assumed in the formulation of this year’s budget. Risk balance One of the main external risks comes from the international financial markets. New volatility episodes may be repeated like the ones we saw in the early months of this year, because many of the underlying elements are still present. In particular, doubts around the situation in China, and doubts concerning the Fed’s decision on the policy rate. This, because of both its difference with what can be inferred from market prices and the divergences with other developed countries’ monetary policies. Nor can we rule out that the increased appetite for riskier assets observed in the past few weeks could persist. Any outcome will have effects, among others, on external financial conditions and emerging economies’ currencies and, it will thereby have an impact on local output and inflation. Another risk scenario has to do with the outlook for world activity. On the downside, there are doubts about the growth capacity of China, which couples with doubts surrounding the solidity of the US recovery.
This is what we have assumed in our latest Inflation Report forecast, where conditional on a smooth Brexit investment growth resumes in 2020 and 2021 (Chart 9). But we are unlikely to achieve full certainty until the final outcome of negotiations is known, and there is a risk that more persistent uncertainty could push out the pick-up in investment and continue to drag on growth. The weakness of investment also casts further doubt on how durable the resilience of the labour market has been. Usually business investment and employment rise and fall together – in aggregate, businesses either increase hiring and investment at the same time, or they cut them both. For businesses to be increasing employment at the same time that they are reducing investment suggests something unusual is going on. One explanation would be if they are substituting labour for capital, perhaps on the grounds that hiring would be easier to reverse in the event of a shock than capital expenditure. Another would be if demand is shifting away from capital-intensive, export-oriented businesses and into labour-intensive, domestically-focused ones. Either way, this shift away from capital and towards labour matters for the economy. Bank staff calculations suggest it has left the economy around 1½% less capital-intensive than we were forecasting ahead of the Brexit referendum. By itself that reduction in capital intensivity accounts for a ½% reduction in labour productivity, even before allowing for the additional impacts of foregone innovation and process improvement.

Our financial systems regulatory frameworks should be enhanced to ensure that what has happened else where does not visit us in the near future. Thank you and I wish you successful deliberations. BIS Review 44/2009  3
If we were to dispense with it, Swiss interest rates would increase compared to those of other countries, Swiss franc investments would be markedly more attractive, and we would  Page 3/6  Berne, 12 December 2019 Thomas Jordan  News conference  have to expect a marked and rapid appreciation in our currency. Inflation would thus fall significantly into negative territory, and the economy would be slowed. But why are interest rates so low in the first place? This is in some part due to the expansionary monetary policy. However, the main reason is that for some time saving has been increasing worldwide, with comparatively little investment being made. The high saving rate is largely attributable to demographics. The dearth of investment is due, among other things, to low productivity gains. Both these factors have been heightened by the prevailing uncertainty since the onset of the financial crisis. If there is more saving and less investment, the interest rate at which the economy is in equilibrium falls. Switzerland cannot distance itself from this global development. Central banks set their policy rates relative to this equilibrium interest rate. To have an expansionary effect, a policy rate must be lower than the equilibrium interest rate. And if the latter is very low, it can be that the policy rate has to be lowered below zero.

A summary of the results has for some time now been published in our quarterly Business Cycle Signals report. The enclosed study explains the objectives and the methods underlying these company talks. You will also find the latest issue of the Business Cycle Signals in your press kits. Both of these sources of information are, of course, also available on our website. Page 5/6  Berne, 12 December 2019 Thomas Jordan  News conference  Ladies and gentlemen, thank you for your attention. It is now my pleasure to give the floor to Fritz Zurbrügg. Page 6/6
9  6  Similar arguments are made by Marvin Goodfriend Mervyn King in their Review of the Riksbank’s Monetary Policy 2010–2015, (Stockholm: 2015). 7  Claudio Borio, Magdalena Erdem, Andrew Filardo and Boris Hofmann, “The costs of deflations: a historical perspective,” BIS Quarterly Review, March 2015, pp. 31–54. 8  See the box entitled “A tale of two crises: recent developments in euro area and US employment,” in the December 2015 issue of the ECB Economic Bulletin, and, for a longer term analysis, the article entitled, “Productivity developments and monetary policy,” in the January 2008 issue of the ECB Monthly Bulletin. 9  Lawrence Summers, “Reflections on the Productivity Slowdown,” Keynote Address to the Conference: Making Sense of the Productivity Slowdown, Peterson Institute for International Economics (Washington, D.C.”: 16 November, 2015): http://www.iie.com/publications/papers/transcript-20151116keynote.pdf. BIS central bankers’ speeches  3  There may well be some truth in this. After all, it’s well-known that the national accounts often take a long time to fully count the effects of innovations in technology. For example, US national accounts did not reflect the output from automobiles for nearly 15 years after the Ford Model T was available. 10 But even if we are mis-measuring productivity, we still need to raise it: the euro area is still lagging considerably behind others. And worse still, we only seem to be able to achieve productivity growth if it’s traded-off against employment.

19 And since such goods and services typically command a price premium in the market, that would in turn lift the value of output, raise national income and secure and expand employment. 15  David Autor and David Dorn, The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market, American Economic Review, 2013, 103(5): 1553–1597. 16  See the article entitled, “What is behind the recent rebound in euro area employment?”, ECB Economic Bulletin, No. 8 (December 2015). 17  Ulf Lewrickb, Lukas Mohlera and Rolf Weder, When firms and industries matter: understanding the sources of productivity growth, BIS Working Papers No 469 (October 2014). 18  Among several other papers, see e.g. Krizan, C.J., Foster, L. and Haltiwanger, J.C. (2006), “Market selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s”, The Review of Economics and Statistics, MIT Press, Vol. 88(4), pp. 748–758, November. 19  Valerie Jarvis and S.J. Prais, “The Quality of Manufactured Products in Britain and Germany,” International Review of Applied Economics, Vol. 11:3 (1997), 421–438. BIS central bankers’ speeches  5  Indeed, even with the technological advances at our disposal, advanced economies such as the euro area cannot afford to try to out-compete the lower cost producers on price – not if we want to maintain the benefits of our welfare states and less precarious patterns of employment.
Chart: Early warning models for financial crises The chart shows estimated crisis probabilities for Norway based on various combinations of explanatory variables and trend estimation methods. A clear pattern is that crisis probabilities increased markedly in the years ahead of the banking crisis in 1988–1993 and ahead of the financial crisis in 2008–2009. Both of these periods featured rapid growth in credit and real estate prices, combined with a surge in banks’ wholesale funding ratio. The chart shows that the estimated crisis probabilities have declined since the financial crisis, although the spread between the predictions from different variants of the model is considerable. The relationship between the indicators and the probability of a crisis in the model is not linear. The greater the magnitude of the financial imbalances at the outset, the more pronounced the effect of an increase in credit growth or house price inflation will be. We have seen that financial imbalances often wind down in connection with crises. The ratio of household debt to GDP fell markedly in Norway in the wake of the 1990s banking crisis and it has fallen in countries such as Spain, the UK and the US after the financial crisis in 2008. In Norway, household debt has continued to grow faster than income, which may indicate that the vulnerabilities that built up prior to the crisis are still present. An assessment of systemic risk must include an analysis of both the probability and consequence of a crisis.

The buffer rate will be increased when financial imbalances are building up or have built up, thus bolstering resilience when we need it most. The countercyclical capital buffer can thereby have an impact on both the probability and the costs of a crisis. The buffer may thus also reduce fluctuations in the economy. We are now in a phase where banks are facing a number of new capital requirements. Banks can choose to adapt to the higher capital requirements by, for example, increasing lending margins or by tightening lending. Thus, higher capital requirements could curb economic activity in the short term. As the new requirements are phased in, the buffer will have to be adjusted to the economic situation and other requirements applying to banks. This does not mean that the countercyclical capital buffer should be changed frequently in pace with normal cyclical fluctuations. Once the buffer has been built up, the costs of maintaining capital levels will probably be low. The buffer rate should not be reduced automatically even if there are signs that financial imbalances are receding. This is in line with the international guidelines for the countercyclical buffer. The countercyclical capital buffer is only one of the elements in the new international regulatory framework for banks. The European Systemic Risk Board (ESRB) provides, among other things, for sector-specific capital requirements and limits on loan-to-income and loan-to-value ratios. 3 In New Zealand, the authorities have introduced limits on banks’ share of high LVR residential mortgage lending.