samchain/econo-pairs-v1 huggingface dataset:
For these reasons, central banks need to be - and they are - very cautious in identifying and pointing to the existence of a bubble. However, a number of indicators may help us to form an assessment about whether an asset price misalignment or a bubble is under way. A widely used indicator to gauge major stock price misalignments - which I am sure many of you employ in your professional activities - is to compare price-earnings ratios with historical averages. In the housing market, one method is to look at trends in the price-rent ratio relative to the historical averages, or at affordability (price-income) measures. All these indicators can be informative in judging the sustainability of asset price valuations. In addition, a number of researchers have stressed that important complementary information for assessing the sustainability of asset price movements can be derived from monetary and credit developments. In particular, it has been shown that periods of high money and credit growth often give rise to boom-bust cycles in stock and property prices, which then causes high costs in terms of macroeconomic stability. Overall, we have several tools which could help us to detect bubble phenomena. While individual tools are subject to caveats, applying a broad range of methodologies should help limiting the risk of making mistakes in the assessment of asset prices. 4  BIS Review 66/2004  What can central banks do about bubbles?

As history bears witness, such strategies are as good, but only as good, as the assumptions that are programmed in, be they about economic forecasts, covariances between various events, or whatever. But even if we felt that these particular strategies were foolproof, there are a myriad of other financial transactions which can only really be consummated by a conscious human decision. The home buyer faced with a choice between taking a mortgage from bank A or bank B is unlikely to have a sophisticated and reliable mathematical model with which to compare the offers and determine conclusively his choice. But the culture nowadays, bred at least in part by the technological feasibilities of the IT era, is one which is likely to place the home buyer under much greater pressure to reach a quick decision than his parents would have been a generation ago, or even his brother five years ago, for fear of losing the best offer - if only he could assess which was the best. There is less time to reflect; less time to seek out disinterested advice. There are of course some areas of finance which appear relatively untouched as yet by this revolution. In the realm of corporate finance, in every jurisdiction so far as I am aware, the documents seeking shareholder support for a merger, for example, are still required to be sent by post, and with a reasonable minimum notice period for response.
This is a difficult question that requires more detailed analysis, but it is unlikely that it will be easy to reach a general policy conclusion. I am convinced, on the other hand, that many central banks will review their macroeconomic models and more precisely define the role of asset prices in the transmission mechanism. I do not believe, however, that we should exaggerate the ability of monetary policy to prevent crises from arising. Even if excessively expansionary monetary policy can contribute to the build-up of a bubble, it is less clear to what extent monetary policy can entirely prevent this from happening. It is probable that it would require fairly substantial interest rate increases, something that may not be received sympathetically when the reasons for the increases are not crystal clear. But more moderate interest rate increases could, of course, contribute somewhat. If nothing else, it  14  BIS Review 41/2009  would provide a signal from the central bank that it envisages certain development problems. I also believe that risk scenarios with a longer forecast horizon may be an option for clarifying what the risks may be in the longer term. It is conceivable that the price of housing or some other asset may be driven by factors that are difficult to explain or which may be assumed to give rise to inefficient risk allocation and large fluctuations in economic activity and inflation.

Examining the background and reasons why households borrow more today than before is important in my view, as it enables us to understand how household indebtedness is linked to financial stability. One can say that the period with a regulated market was one extreme, which was then replaced by another extreme, namely a free market with in principle unlimited access to global capital. The credit market was strictly regulated until 1985 and there was relatively little degree of freedom for the institutions offering mortgages. Deregulation was in many respects necessary and desirable. However, the development we have seen since 1985 has created vulnerabilities in the financial system against which we must be vigilant. The funding of housing purchases has in principle moved entirely into the banking system, while the banks are to an increasing degree funding these mortgages short-term on the financial markets.2 Swedish banks’ market funding amounts to around SEK 3,500 billion, of which SEK 2,100 billion, or 60 per cent, is in foreign currencies. This means that the banking system is now more sensitive to shocks than during the period with regulation. A necessary condition for the banks to be able to finance Swedish housing is that market participants, investors and credit rating agencies have fundamental confidence in Sweden, in Swedish banks and in the Swedish housing market. If this confidence were to fail because investors considered the risks linked to household indebtedness had increased, the banks could find it difficult to obtain funding, or their funding would cost more.
For households, there have been mixed signals from recent surveys, although in most cases their level had also remained elevated relative to historical averages. For instance, the Citi/YouGov indicator of household expectations of inflation in five to ten-years’ time has risen, but the Bank’s Inflation Attitudes Survey for expectations of inflation in five years has fallen back from earlier on in the year. For businesses, data from the Bank’s Decision Maker Panel survey for September was published yesterday and it showed that firms’ expectations for inflation three years ahead had risen further to 4.8 per cent, from 4.2 per cent in August[8]. A market-based measure of longer term inflation expectations I have put particular emphasis on is the two-year swap rate for inflation, five years ahead. This was because it was on a sustained upwards trend through 2021 and peaked at 4.7% in March 2022. I took some encouragement from its subsequent fall back into the early summer but it picked up again  through August. It has been caught up in the wider market turbulence and in the often illiquid markets of the last fortnight it has been very volatile from day to day. This makes it impossible to get a clean read of the recent trend, but in level terms it still remains well above its longer term average, more so than is the case for the Euro area, whereas the equivalent measure for the US remains around its longer term average (Chart 8).

For me questions include: is there any evidence that the tight labour market is easing; what is the revised outlook for demand in view of the Government’s fiscal announcements; are domestically generated inflation pressures consistent with returning inflation to the 2 per cent target; and what do financial market developments tell us. The MPC was clear in its language in September that should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee would respond forcefully as necessary. In the context of the developments I’ve set out for you, today I think the central question for all nine of us on the MPC is how forceful do we need to be, to ensure inflation does return sustainably to the 2% target in the medium term. These are very challenging times for the UK economy and millions of households and businesses are experiencing real hardship as a result of the cost of living crisis. On the MPC we are acutely conscious that for many our monetary policy actions are adding to the difficulties caused by the current situation. We know from past periods in our history the damage to households and businesses that would result if high inflation persisted. Unlike earlier inflationary episodes, where we saw more persistence in inflation caused by ineffective policy and policy frameworks, this time we have a monetary policy framework which empowers us to take action.
The FOMC consists of the Board of Governors plus the presidents of each of the 12 district Banks, and it meets in Washington, D.C., eight times per year to deliberate and vote on monetary policy. As the current New York Fed president, I am vice chairman at these meetings and have a permanent vote. At these meetings, the committee members and I each present our current outlook for the economy. For these assessments, we augment input from our research departments with critical information about local economic conditions supplied by our boards of directors, regional advisory councils and conversations with local stakeholders. My visit to Queens today is a part of these regional activities. One thing that makes my job even more interesting is that New York has some roles unique within the Fed. For example, the New York Fed is the Reserve Bank charged with implementing monetary policy. At the direction of the FOMC, we buy and sell Treasury securities. We are also the eyes and ears of the Fed on Wall Street, and we supervise many of the largest financial institutions in the country. We operate Fedwire® – the conduit for large money transfers between banks. And, we provide banking services to the U.S. Treasury, and central banks and governments from around the world.

This will help local bank managements to concentrate on their core business of banking and finance, and limit the risk of contagion from non-financial businesses to the banks’ business. Market discipline and caveat emptor Our efforts to promote market discipline and a caveat emptor regime have focussed on enhancing the amount, quality and timeliness of information disclosed by institutions. We have shifted from a meritbased supervisory approach to a disclosure-based approach that emphasises market discipline to incentivise financial institutions to conduct their business in a sound, efficient, and professional manner. The local banks in particular have significantly improved their disclosure practices. We must continue to update our disclosure standards in line with industry developments and international best practice. Furthermore, the mindset change is not yet complete. The public still expects to be protected from downside risks, for example when playing the stock market, but more so when depositing their money in banks. Hence one major motivation for introducing deposit insurance is to change this mindset, and get people to understand that only a limited first tranche of their deposits with a bank is protected should the bank run into trouble. But disclosure by itself is not enough. It must be accompanied by investor education. Investors have to understand and use the information provided to them. They must learn to make sense of this information and use it to look after their own interests.
We also carry out stress tests on the banks to measure their resilience to negative events that would cause large losses. These tests are a very important part of our work, and we are also working on developing them further. When we publish the second Financial Stability Report of the year next week, you will see examples of this. BIS Review 159/2010  9

The expertise we have gained through these experiments will be shared with the Eurosystem, which launched in July an investigative work on a retail digital Euro (the decision to enter in a realization phase will be made in 2023). CBDCs are indeed an area where international cooperation is a must, for cross-border efficiency as well as financial stability and monetary sovereignty reasons. In particular, interoperability between CBDCs is an objective of critical importance. Banque de France has explored those international aspects empirically in its experiments, by implementing various configurations for multi-CBDC arrangements. In particular with the Monetary Authority of Singapore, where we simulated cross-border transactions involving multiple CBDCs on a common network between Singapore and France. We have also been working with the Swiss National Bank, the BIS Innovation Hub or the Banque Centrale de Tunisie. 2/3  BIS central bankers' speeches  A lot of work is still necessary in this very promising field, and I am looking forward to strengthening our cooperation in that area with our partners worldwide. In particular, Banque de France will be keen to follow closely the very stimulating work conducted by the BIS Innovation Hub with MAS and our fellow central banks from Malaysia, Australia and South Africa on developing prototype-shared platforms for cross-border transactions using multiple CBDCs (“project Dunbar”). So we have much work to achieve together. I wish you an excellent Fintech Festival and I look forward to our common realizations. Thank you for your attention. 3/3  BIS central bankers' speeches
Such tools would allow participants to fine-tune the amount they want every day in response to changes in supply-and-demand conditions in the market and their cash management needs. In either the fixed-rate or fixed-quantity case, tools offering the ability to transact directly with either bank or non-bank counterparties would enhance the Desk’s operational capacity and strengthen the transmission of monetary policy in the face of some of the rates wedges currently seen in markets. I should note that the operations described above are all temporary liability management tools that don’t reduce the size of the Fed’s balance sheet; they shift one liability item – reserve balances – into another – a reverse repo with the New York Fed, for example.11 In recent years, the Federal Reserve has developed and tested several tools, including term and overnight reverse repos with an expanded set of counterparties and the Term Deposit Facility, or TDF, available to nearly all depository institutions, that together with IOER represent most of this broad toolkit.12 IOER and the TDF represent unsecured overnight and term tools, respectively, in which only depository institutions are eligible. I’ve already discussed IOER. The TDF is a program through which Federal Reserve Banks offer interest-bearing term deposits to eligible banks through an auction subscription that could be either fixed in quantity or fixed in rate with full allotment. An increase in term deposits outstanding temporarily reduces reserve balances because funds to pay for them are immobilized away from reserve accounts of participating institutions for the life of the term deposit.

Our understanding of the dynamics of the markets in which we operate – including the motivation and behavior of different market participants, linkages among financial institutions, and the microstructure of financial instruments – is therefore vital to our ability to structure and execute operations to achieve the objectives of policymakers.3 By monitoring markets and maintaining deep expertise in them, we remain vigilant to changes in the financial market landscape that might alter our assessment of our operational toolkit. On that note, I’ll now turn to significant changes in U.S. money markets in recent years and their implications for the Desk’s implementation of monetary policy. The changing landscape of U.S. money markets Prior to the financial crisis, the Desk met the FOMC’s interest rate directives primarily by controlling the supply of reserves in the banking system.4 The Desk conducted open market operations to manage a supply of reserves at a level that was expected to match the estimated quantity of reserves demanded at the FOMC’s overnight fed funds rate target. The rate prevailing in the market each day is the effective fed funds rate. In the aggregate, the system at that time was operated with a “structural deficiency”, meaning that permanent additions to the supply of reserve balances fell somewhat short of the total need, so the Desk conducted additional daily operations to add balances temporarily to get to the desired level.
Here we see that the share of new mortgage borrowing by applicants of all credit scores below the highest quartile declined, while that of the highest quartile increased from about 40 percent to 70 percent. This suggests that lenders were far more selective in their underwriting standards for mortgages than they had been in the period between 2000 and 2006. Many of these powerful forces of demand and supply that together led to the decline in household borrowing, and hence to the fall-off in resources available for consumption, have either diminished or slowly reversed as the economic recovery that began in 2009 has continued. First, equity values, which dropped 51% between October 2007 and March 2009, as measured by the S&P 500 index, have recovered significantly, rising by almost 140% percent through the end of 2013 Chart 8 (Stock Market Wealth also Fell Sharply, 2nd half). In addition, as seen in Chart 9 (House Prices Peaked and Fell Precipitously, 2nd half) house prices have finally begun to recover, and have been doing so on a broad geographical basis. House prices are up 21 percent since their nadir in 2011. This has helped restore owners’ equity in their homes Chart 10 (Result was a huge decline in Owners’ Equity in HH RE, 2nd half). In sum, as seen in Chart 11 (Household Net Worth), aggregate household wealth has recovered substantially as a percent of disposable income, albeit with a lesser contribution from housing and a greater contribution from corporate equities.

Finally, with somewhat stronger growth of output, I expect inflation to gradually rise toward the Federal Open Market Committee’s objective of 2 percent as measured by the PCE deflator. This forecast is based on the projected gradual increase in the levels of resource utilization, which would lessen downward pressure on firms’ marginal costs and prices, a firming in global demand, and the continued upward pull exercised by stable inflation expectations on actual inflation. Underpinning the latter assumption is the broad stability of long-term inflation expectations across different financial and survey measures, combined with ongoing moderate growth of wages and unit labor costs, all of which are consistent with well-anchored inflation expectations. As mentioned above, the key development behind the firmer tone of consumer spending over the second half of 2013 is the significant strengthening in household balance sheets. One aspect of that improvement is that from mid-2008 through mid-2013, total household liabilities declined significantly after a period of quite rapid debt growth over the preceding decade. The reduction in household debt is an extremely rare event for the U.S. economy. In fact, this has been the only period of sustained declines in nominal household indebtedness over the period since the early 1950s. The household sector In the remainder of my remarks, I’d like to focus on the finding, made public in our most recent Quarterly Report on Household Debt and Credit, that for the first time since 2008, households increased their borrowing on a year-over-year basis, at least in nominal terms.
Pillar II is based on five key principles. The first principle is to ensure a robust banking system that is resilient, committed and able to provide a strong foundation to support the Thai economy at all times. In the second principle, banks will be encouraged to reap the economy of scale by promoting voluntary consolidation to promote competitiveness. At the same time, proper competition policy will also be put in place to ensure fair consumer treatment. The third principle aims to promote competition via the liberalization of branch network and business scope and to enhance the roles of existing players, including banks and niche banks, while the fourth principle will consider new entries based on the value added to the economy. Lastly, the fifth principle will focus on enhancing the role of specialised financial institutions in providing increasing access to financial  BIS Review 133/2008  5  services for the low-income and small business groups and reducing the role of the state in commercial banking. Pillar III, on the other hand, will focus on laying down the foundation for a strong and supportive infrastructure for the medium term development of the financial system. This will be done through further enhancing the market and products which will facilitate banks, own risk management, promoting an effective information system and pushing for the amendments of necessary laws to facilitate risk management. Ladies and Gentlemen, The Thai banking system will continue to face new challenges going forward, both from external developments and domestic factors.

“Our monetary policy decisions also take into account changes in asset prices and other financial variables. At present, there is reason to give particular consideration to the credit expansion and to  1/2  house price developments. This is primarily a question of avoiding severe fluctuations further ahead. When economic activity eventually begins a downswing, this could result in an abrupt adjustment with falling house prices and weak growth in demand. The risk of this type of development increases if monetary policy is excessively expansionary for too long,” continued Mr Öberg. “There has recently been unease on the stock markets. However, it is too early to draw any more farreaching conclusions from recent events. As usual, the Riksbank will monitor developments and how these may affect inflation and other macroeconomic developments,” concluded Mr Öberg. 2/2