samchain/econo-pairs-v1 huggingface dataset:
Diagram 3:  United States: real profits (S&P 500) 1 00  Trend 1.5% per year  10  1 1 87 0 18 80 18 90 1 90 0 1 91 0 1 9 2 0 1 9 30 1 9 4 0 1 95 0 1 96 0 19 70 19 80 1 99 0 2 00 0 Source: Shiller. The profits of listed companies can, of course, rise comparatively rapidly in the short run. If the profit share moves up from, say, 30 to 35 per cent, this implies a temporary increase in profits of 15 to 20 per cent, spread over the years when the profit share is elevated. Such a temporary increase in the profit share has not been uncommon in connection with technological breakthroughs. It occurred in Sweden in the 1990s and also early in the twentieth century in the era of electrification. 4  BIS Review 90/2001  The profit share followed a rising path up to the end of the 1910s and this was accompanied by higher GDP growth (Diagram 4). It is perhaps hardly surprising that this led many shareholders to believe that profit growth would continue to exceed the historical trend in the longer run. That did not happen. An elevated profit share tends to fall back sooner or later and corporate profits then return to their longterm path.

That is why I am also fundamentally optimistic about what computer and telecom technology can achieve in time for our country’s economic growth and prosperity. Technological breakthroughs, corporate profits and share prices Now let me consider the other question, namely the part that technological breakthroughs play for corporate profits and thereby for share prices. In the latter part of 1999 and early in 2000 shares were a feverish topic in Sweden — everyone talked about them and how much you could make by speculating in the stock market. The media were full of articles about “How to find the winners” and “How to become a day-trader”. Advisors at banks and stockbrokers waxed lyrical about share investment’s possibilities. Many people who had never owned a share or never even dreamed they would do so were tempted to speculate. Perhaps they needed a little extra money for the summer holiday, a new car or simply more cash for everyday things — why not make a little money easily and quickly, everyone was doing it, to judge from what people were telling each other at work and elsewhere. As though to confirm all this, share prices on the Stockholm bourse rose continuously to new all-time highs, as they did on many stock markets around the world. Shares did best for companies that were  BIS Review 90/2001  3  running at a loss and even needed to issue new shares to cover current operations.
The instrument was monetary policy; the target was price stability. So the Bank was given a statutory objective of maintaining price stability by hitting an inflation target. It was given new machinery, the Monetary Policy Committee (MPC), with the power to set interest rates to achieve the target. Over the MPC’s first ten years, the UK economy enjoyed a remarkable period of macroeconomic stability. There was only one month – March 2007 – where inflation was more than 1 percentage point away from the Bank’s target. The annual rate of economic growth ran on average at around 3%, with fluctuations little more than 1.5pp either side of that. There was not a single quarter where economic activity contracted. BIS central bankers’ speeches  1  But though the macroeconomic environment was stable, huge risks were building up in the financial system. There was an explosion in risk taking in the global financial system, much of which had an impact on the UK because of our internationally active banks and our position as international financial centre. Over the ten years to 2007, the balance sheet of the UK banking sector nearly doubled relative to the size of the economy. By the time the crisis broke, the balance sheet of the UK resident banking sector approached 6.5 times annual GDP. But though much of the risk came from abroad, there was also a substantial rise in domestic lending and domestic debt.

You have to know that when the parts come together and act upon each other, the system as a whole is resilient. One part of the system may well think it has a good plan for offloading some of its risk in a period of stress. But the impact of that on other parts of the system may turn a stress into a crisis. And, given the cost when things go badly wrong, it is not only important to ensure the financial system can manage the known, likely risks it faces – the ones you can see and the ones that you think may well materialize. The system needs to be resilient to the risks of events that are improbable but possible. And, life being what it is, it must also have resilience to risks that simply cannot be foreseen – the “unknown unknowns”. To use a familiar but imperfect metaphor, the Monetary Policy Committee is like a driver steering a car down a winding road. It can dimly see the road behind but can only forecast what the road ahead looks like. The instruments usually give unclear or contradictory readings. For all that, the MPC tries to keep the car at the highest speed that can be achieved without risking having to jam on the brakes at the next bend or having to floor the accelerator to prevent stopping.
Bank of England  Page 1  The Challenges and Opportunities Ahead for the Mutual Sector − speech by David Bailey Given at The Building Societies Association Conference 04 May 2023  Bank of England  Page 2  Speech Introduction Good morning everyone and I’d like to thank Robin, Mark, Rob and their colleagues at the Building Societies Association for inviting me to speak today. I’m delighted to be able to join the BSA conference in person for the first time and meet members face to face. It’s an added bonus that we are meeting in Liverpool where there is a building sense of excitement and anticipation, not just about this conference but also about the Eurovision song contest next week. In recognition of Eurovision, I did think about peppering my speech with references to famous songs from over the years, but my team told me to “Refrain1” as they said ’David, you’ll have trouble “Making your mind up2”’ so I reluctantly agreed to take a “Better the Devil you know3” approach and stuck with a more traditional format instead. This year's Eurovision theme is "united by music". Whilst the audience today is possibly dressed ‘slightly’ differently to next week’s, it does bring together a wide range of building societies and credit unions who are united by their mutual ownership model and the provision of financial services to a diverse set of members and customers right across the UK. At the PRA we recognise the vital role mutuals play in the UK financial sector.

Sweden’s price stability norm in the 1930s lasted only a few years and was followed by a return to a fixed exchange rate regime. During those years, however, it performed the central function of stabilising expectations as well as prices. This was important not least because to some extent it helped shield Sweden from the global economy’s depressive impulses and thereby contributed to the recovery being speedier than in most other countries. Here I should perhaps add that although this Swedish price stability “experiment” attracted a good deal of attention at the time, it certainly did not leave any deep or lasting mark on the modern approach to inflation targeting. In the aftermath of the depression and the second world war, Keynesianism gained ground. The introduction of inflation targeting in Sweden in the 1930s was therefore not as pioneering as when this kind of regime was introduced in the early 1990s, first by New Zealand and later by others. 1  BIS Review 50/2000  A great advantage with a regime that explicitly targets inflation, is that the central bank adjusts the interest rate continuously in the light of inflation prospects. Compared with a fixed exchange rate regime, imbalances can then be prevented from building up to the same extent. A slight upward adjustment of the interest rate at an early stage, to reduce the risk of inflation picking up, is something quite different from having to hike the short-term interest rate in order to defend a fixed exchange rate.
As a consequence, the proportion of CHAPS payments made by direct members on their own account is set to increase from around 40% in 2007 to approaching 70%, substantively addressing the tiering risks that had previously existed in the wholesale sterling markets. In relation to the retail systems, we have also sought to address latent contagion risks by reforming the arrangements covering member default in two of our largest retail payment schemes (Bacs and Faster Payments). As currently structured, these default arrangements contain a heavy “survivors pay” element, where the other members of the payment scheme assume a portion of a failing member’s payment obligations (either temporarily, a liquidity risk, or permanently, a credit risk). This creates a clear contagion risk. Recently, the schemes have agreed to move to a full “defaulter pays” model, where all obligations are fully collateralised in advance, in cash, segregated in each bank’s account with us. The move from survivors to defaulter pays will take place in the next year or so. Separately, but driven by the same philosophy, we have sought to reduce the operational risks that we ourselves run as the core infrastructure provider within the sterling system. The Bank of England currently runs the UK’s RTGS infrastructure from twin operational sites so we can continue to provide RTGS settlement in the event of a problem at either. While this is a highly resilient arrangement, it would be vulnerable to a catastrophic failure which took out both sites simultaneously.

For Bacs, FPS and LINK, this supplier is VocaLink, a specialist infrastructure provider split out from Bacs in 2003, which remains owned by the banks. The Bank oversees Bacs and FPS, but not Visa Europe or LINK. The sterling payment schemes which settle across RTGS have limited membership, each having somewhere between ten and thirty direct member banks. To put things into context, the gross value transferred by these systems each day is around £ bn of CHAPS payments, £ bn of payment obligations arising from securities settlement in CREST, and in the order of £ bn for the retail systems. Although there are similarities between the UK’s structure and those seen in other countries, it has unique aspects. This reflects the high-degree of path dependency in the way different  BIS central bankers’ speeches  1  countries’ payments systems evolve. So while internationally we have harmonised oversight standards through the work of organisations like the Committee on Payment and Settlement Systems (CPSS), the structure of payment systems across countries is diverse. As a consequence we all face slightly different challenges when considering structural change within our payments landscape: what is pressing in the UK may or may not resonate in Canada and vice versa. With that caveat in mind, let me start by reviewing the focus of recent activities in relation to the core payment systems, before pulling out some of the key elements of our forward work programme.
At some point when the economy has clearly overcome the remaining impediments from the largest economic and financial downturn since the Great Depression, the odds of inflation rising noticeably above target could become palpable. But such a breakout is just not at all very likely today. Indeed, many Fed critics have been voicing this concern since 2009, and it hasn’t even come close to happening. What if inflation just ran moderately above target for some time? Well, I see the costs of this outcome as clearly being much smaller than the costs of falling back into the ZLB. First, I believe the U.S. economy could weather the modest increases in interest rates that would be needed to keep inflation in check. Such rate increases would be manageable for the real economy; this is particularly true if industry and labor markets have already made the most difficult reallocations of jobs and overcome other factors so that productive resources are more efficiently and fully employed. Second, as I’ve noted many times in the past, a symmetric inflation target means we should be averaging 2 percent inflation over time. We’ve averaged well under that 2 percent mark for the past six and a half years. With a symmetric inflation target, one could imagine moderately-above-target inflation for a limited period of time as simply the flip side of our recent inflation experience – and hardly an event that would impose great costs on the economy. The murky state of inflation expectations is another factor that enters my risk management considerations.

Since then, we have motored ahead and put in place that new regime for credit unions. But we have not forgotten about banks. In fact, despite the huge pressures of the Covid crisis we have taken care to preserve one vital part of our work programme: our plans to bring in a simpler prudential regime for small banks and building societies. A new style of regulation  The reason we have kept up work on this topic is that our exit from the EU provides us with the first opportunity we have had in a long time to make real progress on it. 1  But before coming to that, let me make a few brief points about the broader regulatory scene as we exit the EU. I should say first that, despite the fears sometimes articulated by politicians in the EU, we have absolutely no intention of weakening prudential regulation in the UK. It would be mad for us to do any such thing only a decade or so on from a crisis in which the British taxpayer footed the bill for one of the biggest banking disasters in history, with a financial sector around ten times the size of our economy, and with clear evidence in front of us that the post-2008 reforms have allowed the banking system to support the economy through the Covid crisis so far. You only have to ask yourself the question “How would the financial system have fared if Covid had hit in 2007?” to appreciate this point.
As usual, the baseline scenario reflects the events that are estimated to be the most likely to occur with the information at hand at the close of the Monetary Policy Report. However, there are many risks that might significantly divert the performance of the world economy from the baseline scenario. In fact, today these risks are greater than on other occasions. The repercussions on the Chilean macroeconomic outlook of scenarios other than the one described are varied and, in some cases, difficult to calculate. This time, after assessing the likelihood of alternative scenarios, we estimate that the risk balance is biased downward for output, and unbiased for inflation. The main risks have to do with the way the Eurozone situation will unfold. The possibilities range from a deeper recession than foreseen in the baseline scenario due to a sharper contraction of fiscal expenditure and credit, to a financial or currency crisis with a severe impact on the world economy and financial markets. It is also possible that emerging economies are hurt more than foreseen, causing deeper or more lasting effects on world growth and commodity prices. And we cannot rule out a further weakening of the U.S. economy, depending on the fiscal policy trajectory. Such a scenario abroad would affect the Chilean economy. The combination of tighter external financial conditions, a drop in the terms of trade and slower growth of our trading partners could have a more negative incidence in the evolution of Chile’s GDP growth in the projection horizon.

In the past decades we have made significant advances in our economic policy framework. These advances allow us to feel at peace in the face of the present scenario, being confident that we have the necessary tools to cushion the effects of a scenario of those characteristics. On the other hand, the evolution of the global economy and the causes and consequences of the Great Recession of 2009 have left important lessons for economic policy makers. It is our responsibility now to incorporate these lessons into the design and management of our macroeconomic policy framework. A first lesson is that price stability is a necessary but not sufficient condition for financial stability. In an adverse, highly volatile external environment like we have seen in recent years, our inflation targeting regime with a flexible exchange rate has performed quite well. BIS central bankers’ speeches  5  During the global crisis, the Chilean financial system displayed great strength. However, the experience of other countries has confirmed the importance of paying special attention to financial developments and the possible creation of vulnerabilities on that front. To that end, it is critical to develop a systemic view of financial risks, aside from the soundness of individual financial institutions. The Financial Stability Report we prepare at the Bank seeks to deliver said overall view. The creation of the Financial Stability Board provides a forum to which we have committed our active participation.
Given the scale of the numbers involved, small differences in the judgment about the relative roles of cyclical and structural explanations for the recent path of productivity can have enormous implications for one’s views of the risks to inflation. Chart 9  Chart 10  Whole economy labour productivity per hour(a)  Survey measures of capacity utilisation by sector  Indices: 2006 = 100 110  Path implied by a continuation of pre-recession trend  108 106 104 102 100 98  Whole economy productivity per hour  96 94 92 90  2005  2006  2007  2008  2009  2010  (a) The pre-recession trend is calculated by projecting forward labour productivity from 2008Q2 using the average quarterly growth rate between 1996Q1 and 2008Q1. Sources: Bank of England, BCC, CBI, CBI/PwC and ONS. (a) Includes measures of services capacity utilisation from the Bank’s Agents, BCC and CBI. The CBI measure weights together financial services, business/consumer services and distributive trades surveys using shares in nominal value added. The BCC data are non seasonally adjusted. (b) Includes measures of manufacturing capacity utilisation from the Bank’s Agents and CBI, and a measure of non-services capacity utilisation from BCC. The BCC data are non seasonally adjusted. Personally, I believe that there is a significant margin of slack in the economy – you need only look to the labour market for evidence of that.

Nevertheless, the nature of the price shocks were such that, in my view, there was little that monetary policy should or even could have done to offset them. Rather, given that changes in Bank Rate (or asset purchases) take a long time to have their full effect on the economy, monetary policy needs to be forward looking, focusing on the medium-term outlook for inflation yet to come. Trying to respond to every short-term movement in prices would probably be futile and would certainly involve a lot of unnecessary volatility. The Remit we have from the Government allows for these circumstances: “The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output”.1 To meet our remit we should ideally try to look through one-off price level shocks, in either direction, only responding if there are risks to the rate of inflation expected to prevail in the medium term. That theory is all well and good: but the one thing we know about the future is just how little we know for sure. 1  2  The Remit for 2011 is available at http://www.bankofengland.co.uk/monetarypolicy/pdf/chancellorletter110323.pdf  BIS central bankers’ speeches  Since I joined the Committee in March 2009 – the very week we announced the “quantitative easing” programme, buying gilts in large scale – I have voted with the majority at every meeting.
They will range from 1% and possibly up to 3.5% of the CET1 ratio after the phase-in period (e.g. 2019). We have seen in the past that complex financial institutions relied too much on wholesale funding that could quickly evaporate in times of stress; the new liquidity ratios (LCR, NSFR) help to promote the short-term resilience of the liquidity risk profile of banks and a sustainable maturity structure for assets and liabilities. The recently agreed finalisation of Basel III reinforces the monitoring of internal models and capital requirements on more complex activities, including the FRTB, the CVA3 and the CTP4 on market activities. Before 2008, we lacked the tools to implement an orderly restructuring of a bank that was failing or likely to fail. The Bank Recovery and Resolution Directive now requires banks in Europe to establish resolution plans (also called “living wills” by the US regulators) to anticipate the restructuration needed in case of trouble. By defining ex ante the seniority of every creditor and by making it possible to bail-in some of these creditors (including some senior unsecured debt) in case of crises, we should have potentially limited the need for public funds to resolve private bank failures. Second, not only banking regulation but also the enforcement of its supervision have positively reduced the detrimental effects of bank complexity. The new supervisory framework is more consistent and harmonised.

The pandemic has shown how important it is for countries to keep markets open, trade flows smooth, and supply lines intact. But each country will do this only if it has an assurance that others will do the same. We must therefore make a renewed commitment to keeping supply chains open. We must coordinate our actions to minimise disruption and enhance recovery. We must agree on common protocols for re-opening our borders in a safe manner, lifting travel and trade restrictions, and restoring air and shipping routes. We cannot wait for global leadership or multilateral agreements to do this. Like-minded countries must come together, make things happen, and blaze a trail for others to come along. Singapore has been part of such efforts to keep global supply chains open. Together with Australia, Brunei Darussalam, Canada, Chile, Laos, Myanmar, Nauru, New Zealand, the United Arab Emirates, and Uruguay, Singapore issued last month a joint ministerial statement to underline our commitment to maintain open supply chains during the ongoing Covid-19 pandemic. Importantly, it contains a commitment to refrain from export controls, tariffs and nontariff barriers, and remove any trade restrictive measures on essential goods. Singapore is also in active discussion with various countries to develop bilateral arrangements for safe travel between them. We are pleased that our first ‘fast lane’ arrangement has been launched with China -to facilitate essential business and official travel between our two countries.