samchain/econo-pairs-v1 huggingface dataset:
Some mortgages have interest costs tied directly to Bank Rate but most are now fixed for at least two years. And these longer-term rates depend in their turn on expectations of how the short-term interest rate evolves over the future. So they matter. Equally, however, these expectations should – and generally do – respond to the news about the economy of their own accord, without the need for any explicit prompting by the central bank. The private sector forms its own views about how the economy might evolve over the future, views that are continually adjusted as new information comes in. As long as people also understand the objectives of the central bank, and therefore the appropriate response of policy, they should then be able to work out for themselves what that news means for the likely path of interest rates. Sometimes, when economic conditions are relatively stable, there isn’t that much to work out, as one can observe the central bank’s “reaction function” – how it responds to incoming data – pretty much directly. In the years prior to the financial crisis, official interest rates in the UK  were very tightly correlated with economic activity (and exhibited very little dependence on anything else). Chart 1 is one way of representing that relationship: it plots the change in the average interest-rate vote on the MPC, in basis points, against a survey-based measure of economic growth[1]. At least until 2008 the correspondence was extremely tight.

Despite weak growth, the fiscal balance improved significantly in 2004 and again this year. This has not escaped the attention of international observers. The recent assessment of the Maltese economy by the IMF, for example, commends the progress achieved in strengthening macroeconomic management, including the substantial reduction in the fiscal deficit. Looking ahead, I am pleased to note that the Budget for 2006 bears the hallmark of continuity. Operating within the constraints represented by the natural upward creep in spending on health, pensions and welfare programmes, on the one hand, and the need to avoid increasing the burden of taxation on a slow moving economy, on the other, the Government has charted a course which envisages a continuation of the process of fiscal consolidation, leading to a further reduction in the deficit to GDP ratio to below 3 per cent. This is an ambitious target whose attainment will depend crucially on a rigorous implementation of all the Budget measures, together with an intensification of efforts aimed at cutting costs and collecting taxes. On the monetary front, the financial markets have so far considered the level of domestic interest rates as appropriate and inflation remains moderate. Monetary stability is also being promoted by participation in ERM II, which is proceeding smoothly. Allow me at this point, Mr. President, to reiterate the reasons behind the Bank’s advice to the Government to maintain the value of the Maltese lira constant against the euro within ERM II at the rate prevailing prior to entry in the Mechanism.
The international outlook continues to be highly uncertain. A further escalation of the European sovereign debt crisis cannot be ruled out. This would have grave consequences for the international financial system. Moreover, given our country’s close relations with the euro area, Switzerland’s economic prospects are highly dependent on how the crisis develops. Compared to the previous quarter, the SNB’s conditional inflation forecast has once again been adjusted downwards. In the short term, inflation will dip into negative territory sooner, owing to the effects of the earlier currency appreciation, which have been stronger than expected. In the longer term, the worsening of the growth outlook for the euro area is dampening inflation. The forecast for 2011 shows an inflation rate of 0.2%. For 2012, the SNB is expecting inflation of –0.3% and for 2013, of 0.4%. These forecasts are based on the assumption of a three-month Libor of 0% and a depreciating Swiss franc. In the foreseeable future, there is no risk of inflation in Switzerland. If foreign demand were to fall off more sharply than expected, downside risks to price stability would emerge. Global economic outlook Following a very weak second quarter, the global economy picked up again slightly in the third quarter, benefiting from the resumption of production following the earthquake disaster in Japan. The decline in commodity prices during the third quarter also had a positive effect. In Japan, the US and China in particular, aggregate economic activity strengthened slightly. In the euro area, on the other hand, economic growth was weak.

As a result of the substantial expansion of liquidity to combat the strength of the Swiss franc in August, some short-term interest rates turned negative. They have been close to zero since the previous monetary policy assessment. Long-term interest rates also declined further. The yield on ten-year Confederation bonds reached a new low. The expansionary effects of monetary policy are also evident in the growth of the money supply and in real interest rates, which have remained at a low level. Since the introduction of the minimum exchange rate on 6 September 2011, the Swiss franc exchange rate to the euro has been above CHF 1.20. Compared to August, the Swiss franc has even depreciated more against the US dollar than against the euro. Nevertheless, even at the current exchange rate, the Swiss franc is still high. In August, the SNB had substantially expanded Swiss franc liquidity, in order to weaken the heavily overvalued Swiss franc. Since then, banks’ sight deposits with the SNB have been at historically high levels. The SNB will continue to maintain liquidity at exceptionally high  2  BIS central bankers’ speeches  levels, but has decided not to set a specific target level for sight deposits at present. My colleague Jean-Pierre Danthine will discuss the SNB’s liquidity measures and their effects in more detail. Both domestic mortgages and corporate lending in the real economy have continued to see robust growth. In the third quarter of 2011, lending standards and conditions for mortgages remained largely unchanged.
Interestingly, these forms of housing debt have been paid down even more aggressively than first mortgages. So, the fluctuation in the level of mortgage rates also does not explain the change in household behavior. A final factor that may be reducing the demand for home equity extraction is a change in the distribution of housing equity in the population. Even though aggregate home equity is back to pre-crisis levels, the data indicate that the growth in equity since 2012 has gone disproportionately to older, wealthier households. Presumably, these households have less demand for credit to fund their consumption plans. In contrast, those who would like to convert housing wealth into retail purchases have not yet seen their housing equity restored to its earlier levels—reflecting, in part, slower rates of mortgage balance paydown. In addition, younger and less credit-worthy households also experienced higher relative declines in homeownership rates. While some of these demand-side factors seem to be playing a role in reducing home equity extraction, there is undoubtedly a strong supply-side effect in operation as well. Our consumer credit data indicate that lenders’ adoption of minimum credit scores for mortgage lending and their considerably more rigorous underwriting standards for HELOCs have played a very important role in limiting consumers’ ability to convert home equity into new consumption.

Today’s conference touches on a range of interesting questions concerning both regions: •  Are there policy strategies that can ensure that the global economy will escape from this very long period of very low inflation and very low real interest rates? •  Is there scope for fiscal policy to take on some of the burden of ending this period of persistently low inflation and low interest rates? •  Are we now in a period of secular stagnation or are we in the midst of a deleveraging process that will gradually dissipate? •  Why has investment spending failed to respond to the low level of interest rates? •  What do we believe are the factors underlying the recent slowdown in productivity growth globally? •  Is a banking union with a common deposit guarantee scheme achievable in Europe? •  Are there opportunities for further regulatory and supervisory convergence between the United States and Europe? I would like to thank the participants for addressing these and other questions during today’s three panels, and I look forward to insightful discussion over the course of the day. It is now my pleasure to introduce the European Union Ambassador to the United States, His Excellency David O’Sullivan. The ambassador is extraordinarily well-versed to speak on the issues of interdependence and the policy challenges we face. Welcome, Ambassador O’Sullivan. 2  BIS central bankers’ speeches
The third pillar of the Spanish action plan is the restructuring of the financial sector and its adaptation to an economy less dependent on credit and leverage for growth. Restructuring turns on two essential aspects: the downsizing of the banking sector as a whole, and maintaining a sufficiently large backstop as to ensure the capital that is required, but using only that necessary so as not to overburden public debt, no matter how small the Spanish public debt is. The hard times that characterise a protracted process of economic and financial adjustment are familiar to many Latin American countries, which have experienced sovereign and banking crises over the past decades. But they have avoided it this time. Indeed, Latin America has proved outstandingly resilient at a time of global hardship, as too have many emerging economies – perhaps with the exception of some Eastern European countries. Before the crisis, most Latin American countries had dramatically reduced their vulnerabilities, precisely as a result of the lessons learnt in the previous crisis. Accordingly, there were no severe problems of overborrowing or external imbalances of the sort experienced by industrial countries, and the current adjustment, while significant in size, has been swift. Recovery in Asia and Latin America is proving strong and driven increasingly by domestic demand. All in all, improved fundamentals relative to industrial countries have placed emerging market economies in a much better position to resume high levels of growth.

Untenable in the long run Although I cannot see any problems right now, I do not believe that nominal house prices can continue to increase by an average of well above 7 per cent a year as they have done since the start of the 2000s. This is not sustainable in the long term. And when we now consider when is the best time to begin raising the repo rate, my colleagues and I will be carefully examining variables such as house prices and lending. As I pointed out, for instance, in connection with the monetary policy meeting in February, I believe that during the interest rate increase phase ahead of us it might be appropriate to “lean against the wind” – to emphasise some concern by raising the repo rate slightly sooner than we might otherwise have done. But as I also said then, monetary policy is not the most effective means if one wishes to slow down, for instance, house price developments slightly. I then said I would like to see measures such as Finansinspektionen setting a limit for the loan-to-value ratio for new mortgages. Now they have presented a proposal for this and we will carefully monitor its effects. Leaning against the wind concerns, in my view, avoiding large fluctuations in inflation and the real economy – what provides the best-balanced monetary policy. It is thus about monetary policy, not financial stability.
It is scarcely surprising that a central bank in the Riksbank's situation needs to at least investigate whether the arguments that have historically been so important – that the central bank shall provide the general public with assets and means of payment free of credit risk – no longer have such great significance. Is it the case that the general public no longer wants central bank money? Or is it rather the case that it is only money made of pieces of paper (or cotton) that they no longer wish to hold in an increasingly digitalised world? If it is the latter, then it is the Riksbank's duty to investigate the scope for issuing a digital alternative – an ekrona that the general public can hold. The questions that led to the Riksbank's monopoly on issuing banknotes in 1904 arise again. But there are also other reasons for investigating a digital alternative Payment in cash presuppose a chain of action that involves issuing, transporting, storage and distribution of banknotes and coins. It requires a relatively expensive physical infrastructure to make it work. However, the actual transactions in cash do not require any further infrastructure. Once the banknotes have changed owner, the payment is complete. Payments that are based on individuals having accounts in the bank, what are now electronic payments, on the other hand require a centralised infrastructure and processes to identify counterparts, to verify account numbers and to check whether there are sufficient funds in the accounts.

The re-engineering of payments processing, aiming at notably closing identified efficiency and safety gaps between cross-border and national payment infrastructures, appeared as a pillar for ensuring a high degree of monetary and financial integration in Europe. The Eurosystem has been closely involved in lifting obstacles to the European financial integration in particular with respect to those related to payment infrastructures, in support of market initiatives, including notably those of the EBA. The rationale for such an involvement is in line with the statutory role of the Eurosystem. Indeed, pursuant to the Treaty, the responsibility of ensuring the smooth functioning of payment systems is one of the basic statutory tasks of the Eurosystem. Therefore, the Eurosystem has participated so far in the process of integration under three roles. Firstly, as a service provider for clearing and settlement of large value payments, with the operation of the TARGET system. Secondly, as a catalyst of market participants’ efforts for the creation of a SEPA for retail payments. Thirdly, as an overseer of the functioning of systems processing payments in euro. 2. The present situation display a significant discrepancy in the integration of payment infrastructures  Let me now assess the achievements of the integration process of payment infrastructures. The degree of integration depends on the segment of the payment infrastructures market. While the large value payments segment has already reached a high level of streamlining and consolidation and will further progress with the launch of the TARGET 2 system, the retail payments segment is still very fragmented.
For example, they suggest that viewing risk through the lens of a single layer is likely to provide a significantly distorted picture of the true risk distribution,  3  Which are based on one million replications of the data generating process. 4  Technically, this is done using the so-called Gaussian copula. 5  With zero correlation between the two distributions, Chart 1a would be a set of concentric circles. 6  The t-distribution has fatter tails than the normal. In the simulations, we assume 5 degrees of freedom. 4  BIS central bankers’ speeches  with the probability of tail events materially under-estimated. As an example of that, Chart 1f looks at the unconditional and conditional distributions of one of the sub-systems in Chart 1c. The conditional distribution is conditioned on outcomes in the second layer lying in the lower half of the distribution. A risk manager looking at the unconditional distribution (a single layer perspective) would significantly under-estimate the true tail risk they were facing. This has direct parallels with the pre-crisis situation, when the actions of individual risk managers at banks, and individual supervisors of those banks, ignored the role of systemic risk when gauging individual firm risk. This led to a material under-estimation of individual firm risk. The micro-prudential microscope was wrongly focussed. Ignoring a layer, or sub-system, is likely to be equally distorting. That can be seen by comparing the risk distributions in Chart 1d (two layers) and 1e (three layers).

Funds raised in the US from money market funds were round-tripped back into the US through the purchase of asset-backed securities by European banks. When US money funds withdrew their dollar funding, this chain went into reverse gear causing a dollar funding problem. Understanding those links in the cross-border financing chain is impossible without detailed sectoral data. That is now in train. Yet there remain significant data constraints on our ability to map the macro-financial system of systems in the detail necessary to capture accurately interactions within and across subsystems. Even among the world’s largest banks, data on their bilateral exposures to one another remains partial and patchy, especially for off balance sheet positions and securities holdings. That means large parts of the core of the international banking map remain, essentially, uncharted territory. 10  BIS central bankers’ speeches  These data gaps are even more acute when moving beyond the banking system. Large parts of the non-bank sector remain in the shadows from a data perspective. For example, reliable measures of the aggregate and/or individual leverage, maturity and foreign currency mismatch positions of non-bank intermediaries – some of the key vulnerability metrics – are thin on the ground. The FSB has an agenda to fill these data gaps. More broadly, flows of funds data, both within the financial sector and between it and the wider economy, domestically and internationally, is at present partial.
The crisis has highlighted not the weaknesses of monetary union, but the weaknesses of an incomplete monetary union. The ECB often sends out the message that it can create the conditions for stronger growth but that governments must, in turn, undertake structural reforms to make their economies more competitive. Do the politicians expect too much from the ECB? Yes and no. No, because everyone responsible must take action. This is not a great coordinated plan. We need a mix. A mix that includes, on the one hand, a policy of structural reforms to stimulate supply in the economy, and support for demand led by the ECB, and, on the other, fiscal  BIS central bankers’ speeches  1  policies to achieve both debt sustainability and long-term growth. Cuts affecting public infrastructure should be avoided, for example; they are not good for long-term growth. The principal challenge for governments is to regain the road to productivity, a source of prosperity. If you look back to 2000 and the outlook for growth for the following five years, an average growth rate of 2.4% was expected. In 2015 the growth prospects for the next five years are no higher than 1.3% annually. This problem also affects Japan, the United States and the emerging countries. Productivity gains are limited to certain technology sectors. They need to be rolled out to the rest of society, the health sector for example, or to tax collection. Overall, productivity gains have slowed with respect to previous decades.

Or does it represent more of an opportunity? Europe must show that it is a prosperous and secure area. In the short term migration will have an economic impact in the form of a fiscal expansion with some positive impact on growth. Germany’s fiscal situation is likely to deteriorate by around 0.3% to 0.4% of GDP in 2016 and 2017. This deterioration will be weaker in other countries. In the long term we will also have to look at the impact of the refugee crisis. This population is different, and care will have to be taken in integrating the migrants into the labour market, especially in Germany. In the medium term, from a demographic point of view, it can be a positive factor. The key issue is that of integrating migrants into the labour market in line with their profiles. All of these economic aspects are known and straightforward. From an economic perspective, this situation is not insurmountable; it is above all a political issue. The more integration we achieve at the economic level, the more it will be accepted politically. But all of this cannot be done in a day. Europe needs a young and well-trained workforce. We can create an opportunity out of a tragic situation, but it is not going to be easy. It is possible for a country to organise migration, and we have already done so in the past. The issue of security to combat the threat of terrorism will become a major challenge for governments in the months to come.
Such an exercise is essentially identical to the common practice of constructing Taylor rules for monetary policy, as in Chart 2. Chart 4 draws the macro-prudential policy-implied path of US bank capital ratios. In deference to the architect of modern theories of credit-induced instability, let us call this the “Minsky rule” [Minsky, 1986]. The path of the Minsky rule is, in many respects, the mirrorimage of the Taylor rule. It suggests that hypothetical US banks’ capital ratios would have been systemically and significantly tighter than their actual path between 2000 and 2009. In  2  BIS central bankers’ speeches  other words, a tight macro-prudential stance would have counteracted the effects of a loose monetary policy stance. Although it is impossible to know for certain, it seems plausible that having this extra degree of policy freedom would have helped stabilise the US economy and financial system. A tighter bank capital regime would have tended to slow pre-crisis credit growth, thus constraining the boom. And more capital in the US banking system would have helped protect the wider economy from the credit crunch that followed the bust. In short, the boombust cycles in US credit and GDP would have plausibly been somewhat less severe had US policy been ambidextrous. The euro-zone crisis As a second historical example, consider the behaviour of some euro-zone crisis countries. In the run-up to monetary union, monetary policy was loosened significantly in a number of the peripheral European countries whose interest rates converged on core euro-area countries.

Mario Draghi: ECB press conference - introductory statement Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 21 July 2016. *  *  *  Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis. Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of € billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. Today we discussed developments since our last monetary policy meeting in early June. Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience. The announced readiness of central banks to provide liquidity, if needed, and our accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained.