samchain/econo-pairs-v1 huggingface dataset:
Chart 2: Return on equity for UK banks  Source: Capie and Webber (1985), Billings and Capie (2011), British Bankers’ Association, Megabank and Bank calculations. 12  BIS central bankers’ speeches  Chart 3: Global banks’ CEO compensation  Source: Published accounts and Bank calculations. BIS central bankers’ speeches  13  Chart 4: Order cancellation ratios  Source: Angel et al (2010), Nanex and Bank calculations. Notes: Data before 2010 are for the Nasdaq exchange only and refer to the ratio of cancellations to transactions. Data for 2010 onwards refer to all US exchanges and are the ratios of quotes to transactions. 14  BIS central bankers’ speeches  Chart 5: Flash crash dynamics Price dif f erence $  Index  0.40  11,000 10,800  0.30  Dow Jones (RHS) 10,600  0.20  10,400 10,200 Dif f erence in max and min price of GE shares (LHS)  0.10  0.00 14:20  14:30  14:40  14:50 Time  15:00  10,000  9,800 15:10  Source: Bloomberg, NANEX and Bank calculations. BIS central bankers’ speeches  15  Chart 6: Composition of European banks’ term debt issuance  Source: Dealogic and Bank calculations. Chart 7: Euro-area banks’ refinancing challenge, 2012  Source: Dealogic, CPWare, Crane, SNL Financial, National Central Banks and Bank calculations. (a) Senior unsecured funding issued in public markets with a maturity greater than 18 months. (b) Covered bond issuance and net take up of central bank repo funding as part of the two ECB 3-year LTRO operations.

We have plenty of tools to provide liquidity support to the financial system if needed and to preserve the smooth transmission of monetary policy. In my remarks today, I will discuss our policy path so far and what lies ahead. And I will explain the reaction function that will govern our future rate decisions. The path so far Last year, inflation in the euro area surged strongly, and spread deeply, because it was driven by two types of shocks which hit the economy at the same time. First, we underwent an unprecedented series of negative supply shocks caused by pandemic-induced supply chain disruptions, Russia’s invasion of Ukraine and the ensuing energy crisis. This significantly increased input costs for all sectors of the economy. Second, we faced a positive demand shock caused by the reopening of the economy after the pandemic. That favourable demand environment allowed firms to pass rising input costs through to prices much faster and more strongly than in the past. [1] Our policy stance was starting from highly accommodative levels, having been tailored to the very-low inflation environment of the past decade and the initial deflationary risks of the pandemic. So, we had to adjust, as quickly as possible, a stance that had become inadequate. This initially placed important emphasis on signalling, i.e. demonstrating, through actions and commitments, that monetary policy would cover the necessary ground decisively. That is why we put a great weight on the pace of our actions, hiking rates in large increments.
But while it is important to look at aggregates, it is also worth recalling that a very sharp correction in a relatively small asset class can have major repercussions: the stock of US subprime mortgage was only $ trillion in 2006, or 13% of the total stock of US mortgages. There are of course many differences between leveraged loans and associated CDOs and subprime.17 But, as the Financial Stability Board announced last week, it is now a priority for the international regulatory community to understand better how this market might behave under stress and who is holding the risk.18  The other striking development that I would note in the evolution of debt over the past 10 years has been in emerging markets, primarily China, rather than advanced economy debt. Emerging market debt now accounts for over a quarter of the global total compared to an eighth before the crisis. Within this, there has been a persistent buildup of private debt to record levels in China: excluding the financial sector, private debt has risen from 115% in 2008 to 203% of GDP. The majority of this increase occurred in the years after the financial crisis but Chinese private debt has continued to grow, by 30 percentage points of GDP, over the past 5 years, much of it intermediated through the less regulated shadow banking sector.19  The largest increases have been in the corporate sector, mainly in state owned enterprises, but more recently household debt has begun to grow quickly.

So you’ve turned the world upside down topsy-turvy and today we are seeing India along with other big emerging markets who are effectively lending money to the United States of America by buying their Treasuries and funding their development. So these three stands I think have to be taken into account because they are really new elements of the international financial architecture which have a bearing on how the global economy is going to perform. So what do we see today in the global economy that is different apart from what I just mentioned. First of all you have a liquidity trap. Keynes’s classic liquidity trap is alive and kicking around us. Whatever you do with interest rates it doesn’t care at all for production or for consumption because we have too much liquidity, the 8 trillion that I talked about. In that context how do governments stimulate their economies given that monetary policy has done the heavy lifting, it created this excess liquidity but now going forward there is a need for a new element, the Xfactor, which has to then propel the growth forward. You have very influential commentators like Larry Summers of United States who is calling for another round of quantitative easing in the US because he feels that the long term growth path of the United States economy is still not well embedded and the reason for that is partly due to the demographics.
Bank lending was directed in some cases from the authorities or the government to favour specific interests. Factual information, from private as well as public sources, was unsatisfactory in many instances. As a result, appraisals of the countries’ economic fundamentals were based on faulty information and sometimes even on expectations that the close links between the political sphere and, for example, the banks and corporate sector were a guarantee of government support should problems arise. Can the functioning of financial markets be improved? The crises have made it obvious that the financial system needs to be strengthened, both in individual countries and globally. Can this be done without losing the advantages I mentioned earlier? These matters are being discussed intensively in various fora where the Riksbank is represented, such as the IMF, BIS, OECD, G-10 and even in the European Union. The need to reconcile the desire for national sovereignty in these questions with free capital movements, as well as international surveillance and control, is a major political challenge. It is also a challenge with several dimensions: many different technical changes are needed to strengthen the financial system at the same time as forms for cooperation are developed and the question of who decides is tackled. Let me devote the rest of my time to these matters, arranged under four headings. 1. Properly functioning economies The primary condition for creating a more stable financial system is perhaps that the economies function properly.

The incident may also raise some questions about how effectively market forces are acting to restrain those taking outsized risk positions, something that I will return to in a moment. Taken together, these developments provide a strong baseline for financial stability. But the risks that we pointed to in July are still there. In particular, we pointed to the risk that financial firms concerned about losing market share in rapidly expanding markets might pay less attention than they should to their resilience to unexpected shocks. [Chart 1] gives our assessment of developments since July. It shows that a number of the vulnerabilities have edged up a little as leveraged buy-out (LBO) activity and commercial property lending have grown and as the number of personal insolvencies has increased. On the other hand, the slowdown in the US economy and the beginning of a narrowing in its trade balance may have reduced the risks on that side, although we didn’t judge this material enough to change our overall assessment. BIS Review 124/2006  1  We know how easy and how fruitless it can be to draw up long lists of things that could go wrong without paying attention to their likelihood. So we try to take a balanced view that recognises not just what could go wrong but also recognises changes that we think have a positive impact on financial stability.
In the minutes of the monetary policy meeting in April, several of my colleagues put forward the development of credit and house prices as reasons for not pursuing a more expansionary monetary policy. My view is that if this development represents a threat to financial stability then the situation should be handled using instruments that impose restrictions regarding leverage, amortisation and so on. The repo rate is a blunt and inappropriate instrument. 7 However, the analyses performed by the Riksbank and Finansinspektionen indicate that this development does not pose any threat to financial stability at present. 8 Credit volumes and house prices are not targets for monetary policy. From the monetary policy point of view they are indicators and should only affect monetary policy to the extent that they affect the forecasts for inflation and resource utilisation. There are no signs, and as far as I know no analyses, that show credit volumes and house prices are now affecting the forecasts for future inflation and resource utilisation one way or another. Indicators should only affect monetary policy if they contain information that is relevant to future inflation and resource utilisation. Two speeches by Donald L. Kohn of the Federal Reserve specify three conditions that should be fulfilled before central banks implement “extraordinary measures” to handle  7  Svensson (2010a, b). 8  Finansinspektionen (2010).

The crisis also emerged as a crisis of securitisation. Securitisation is an old and successful technique used to refinance a range of loans. What was new about it is that it got used extensively in highly unstable financial structures, which were financing short-term assets that were illiquid, complex, and whose value proved to be uncertain and contingent upon models. The instability of such structures was largely masked. Indeed, cheap money allowed easy refinancing of poor quality debt and of assets with uncertain value. Also, favourable ratings and credit enhancements artificially boosted the quality of loans underlying structured products. The rise in defaults on such loans, first on subprime mortgages, triggered a chain of reactions whose consequences are still unfolding now. Credit protections proved illusory. Liquidity dried up much more quickly than it had appeared. Rating agencies massively, suddenly and sharply downgraded products which until then were deemed of the highest quality. The demise of the “new” securitisation chain highlights two fundamental realities. The first one is that far from being spread across the whole system, credit risk was implicitly or explicitly concentrated in the hands of specific institutions, foremost among which were the major investment banks. Hence the successive waves of depreciations of structured products, imposed by the accounting rules in place, with these depreciations in turn fuelling doubts about counterparty risks and solvency, liquidity constraints and further falls in asset prices. The second reality is that recent financial innovation served mainly to increase leverage in the system. Signs of this are many.
A further interest rate increase will stabilise growth in output and employment. Capacity utilisation may in time be brought down somewhat and stabilise. This will curb the rise in inflation, so that it stabilises close to target. Developments in inflation and capacity utilisation seem to provide a reasonable balance between the various objectives of monetary policy. The interest rate is sufficiently low for inflation to approach the target of 2.5 per cent while avoiding a capacity utilisation level that is too high. Projections are uncertain. We have illustrated this uncertainty in the projections for the interest rate, the krone exchange rate, inflation and capacity utilisation using fan charts. The width of the fan is based on historical disturbances. However, there is no certainty that future disturbances will be of the same character or scale. The wider the fans, the more uncertain the forecasts are. In other words, uncertainty with regard to the interest rate reflects the monetary policy response to unexpected disturbances in inflation, output and the exchange rate. BIS Review 35/2006  5  When the interest rate, as forecast in the baseline scenario, is raised to a more normal level, Norges Bank will be able to assess the effects of interest rate changes and other new information about economic developments. According to our projections, inflation will be close to target three years ahead.

In the retail sector and household service industry, prices are expected to show  2  BIS Review 35/2006  only a moderate rise in the period ahead. In the building and construction industry, there are now more signals of rising prices. Consumer price inflation has edged up, but is still very low even 2½ years after the cyclical change. The year-on-year rise in the consumer price index (CPI) was 2.4 per cent in March. Price impulses from consumer goods that are imported to Norway have been negative in almost all the years since the mid-1990s, reflecting the liberalisation of international trade and the shift in imports towards lowcost countries. The rise in prices for domestically produced goods and services slowed somewhat towards the end of 2005 and into 2006. The 12-month rise in prices for these products is estimated at 1.6 per cent in March adjusted for the effects of lower maximum day-care rates. However, several factors point towards rising inflation. Capacity utilisation in the Norwegian economy is increasing, and tighter labour market conditions may result in higher wage growth in the coming years. The rise in oil prices is resulting in higher input costs for producers. As a rule, monetary policy shall not take account of the direct effects on consumer prices resulting from changes in the interest rate level, taxes, excise duties and extraordinary, temporary disturbances. However, there is no certain method for distinguishing extraordinary, temporary disturbances from more long-lasting price changes.
The Future of Money Speech given by Mark Carney, Governor of the Bank of England  To the inaugural Scottish Economics Conference, Edinburgh University 2 March 2018  I am grateful to Alice Carr, Wayne Chapman, Victoria Cleland, Ben Dyson, Martin Etheridge, Andrew Hauser, Cordelia Kafetz, Jack Meaning, James Southgate and Iain de Weymarn for their assistance in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  “Everyone can create money; the problem is to get it accepted” – Hyman Minsky  1  It is a great pleasure to join the inaugural Scottish Economics Conference, which brings together students from six universities with proud intellectual traditions. I would like to congratulate the students who have shown such initiative in creating this event. My only regret is that the ‘#BeastFromTheEast’ has prevented me from joining you in person, though given my topic, there is something appropriate about joining you virtually. ………………………………………..…  This £ note is significant. Figure 1: a £ banknote  Significant because it honours Adam Smith, the great moral philosopher and hero of the Scottish Enlightenment. Significant because it is a significant amount of money, enough to buy you a burger and a few pints at the Pear Tree pub this evening, or if you fancy a quieter but highly stimulating night in, copies of Smith’s Wealth of Nations and The Theory of Moral Sentiments at Blackwell’s. Significant because without money the decentralised exchange of Smith’s invisible hand could not operate.

That paper £ note contains sophisticated counterfeit protections ranging from holographic images to ultraviolet features, which will be further enhanced when we switch to a polymer £ in 2020;  -  12  The foundation of the payments system, RTGS, which processes over £ billion of bank-to-bank payments per day to the highest standards of efficiency and resilience;  13  8  The data are for 2016. To note, banknotes accounted for 45% of transactions in 2015, and as such there was a 5 percentage point fall year-on-year which may be related to increased use of cards and online payments. 9 See McLeay, M., Radia, A., and Thomas, R., (2014), Money Creation in the Modern Economy, Bank of England Quarterly Bulletin 2014 Q1, which notes that the reality of how money is created often differs from that found in standard textbooks, and rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. 10 Although it does not target monetary aggregates per se, the Bank of England conducts monetary policy to ensure the amount of money creation in the economy is consistent with low and stable inflation. In normal times, the Bank of England implements monetary policy by setting the interest rate on central bank reserves. In exceptional times when interest rates cannot be lowered further, the Bank implements monetary policy by purchasing assets, which has the by-product of increasing the central bank reserve holdings of private banks.
To achieve a reasonable return on capital, firms are obliged instead to make production more efficient and that tends to result in better productivity. Many factors have accordingly contributed to our economy’s good performance in recent years. A number of favourable circumstances have coincided, making it possible to combine high growth with price stability. Demand must be adjusted to growth sooner or later Looking ahead, most things suggest that the rapid growth can continue for a time. But in the end - though it is not clear when - demand for goods, services and labour will have to slacken and move more in line with what the long-term growth trend can sustain. Letting demand be too high for too long raises the prospect of accelerating inflation and ultimately a recession, with falling output and rising unemployment. The Riksbank must therefore do its utmost to avoid marked fluctuations in economic activity and endeavour to create conditions for sustainable growth. Demand can come into line with long-term growth as a result of a spontaneous economic slowdown, for instance in connection with a slackening of growth in the rest of the world. It can also result from a fall-off in household demand for durables after the high procurements in recent years. A further possibility is that the positive supply shocks fade, which would admittedly involve some increase in inflation but also a downward effect on demand.

Stable economic policy interacts with structural changes and IT In order to see why the Swedish economy is doing better than it has been for a very long time, we need to consider how economic policy has been realigned in the past decade and a half. Credit and currency markets have been deregulated, the tax system has been reformed, components of the system of transfers have been modified and competitive pressure has increased. All this has helped to improve the workings of our economy. Moreover, price stability is now monetary policy’s statutory objective and it has been explicitly assigned to what has become even a formally independent central bank. Low inflation is admittedly not an ultimate objective for economic policy in general. It serves instead as an instrument. All those who experienced the economic situation in Sweden in the 1970s and 1980s know that inflation can never be associated with an economic development that is lastingly favourable. That is why price stability is an integral part of any economic policy’s strategy for rising prosperity and high employment. In order to provide a stable and credible framework for the new direction of economic policy, the government budget was successfully consolidated. Difficult political considerations and decisions were involved in this process and opinions may differ about particular items or aspects of the consolidation policy; but that does not detract from the main impression of a successful outcome in the sense that economic policy’s commitment to stability was rendered credible.
Growth since 1993 has averaged almost 3 per cent a year. The deep recession and good investment activity since then have meant that in this period there has been a supply of unutilised resources. As a result, inflation has remained low even though growth may have been somewhat above the level that can be regarded as sustainable. Moreover, Sweden has begun to repay external debt and government finances have recovered after the crisis in the wake of the 1980s bubble. In recent years household earned income has been able to grow strongly in real terms, partly thanks to the low inflation. Altered monetary policy process The laws that regulate the Riksbank were amended with effect from the beginning of this year. Monetary policy’s objective is now explicitly stated to be to maintain price stability. The Riksbank has a new Executive Board, consisting of six full-time members, that independently decides monetary policy issues. The new Executive Board entails some changes in the work on monetary policy. The centre of attention is the Board’s specific monetary policy meetings, which it is envisaged will be held eight to 10 times a year. Decisions about the repo rate, for example, will normally be taken at those meetings. A brief account of the Board’s decisions is to be presented in a communiqué the day after the meeting; a more detailed picture of the discussions will be available in the minutes of the meetings, which will be published with a time lag of six to eight weeks.

The private sector will drive the transition to a low carbon economy and contribute to countries meeting the commitments made in the 2015 Paris Agreement. Reducing emissions will require significant investments in new technologies and infrastructures. 7  See PRA (2018), ‘Transition in thinking: The impact of climate change on the UK banking sector,’ September 2018. See PRA (2018), ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change,’ Consultation Paper 23/18, October 2018. 8  4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  A4S’ Financing our Future report highlights the need for everyone in the investment chain to act: from individuals managing their savings, to financial intermediaries investing in the real economy, to regulators and policymakers creating the frameworks for action, to real economy firms investing in new processes, products and services. TCFD Doing so requires the right information. That’s why in 2015, in response to a call from G20 leaders, the Financial Stability Board (FSB) established the private sector Task Force on Climate-related Financial Disclosure (TCFD) under the leadership of Michael Bloomberg.