samchain/econo-pairs-v1 huggingface dataset:
This development could also be a source of concern for those wishing to safeguard financial stability. If households have taken on more debts than they can manage to pay, it could lead to loan losses for the banks. Debts have also grown much more quickly than incomes in recent years. Today household indebtedness is even higher than it was prior to the crisis breaking out. Households’ total debts in relation to their annual disposable incomes amounted at the end of 2006 to just over 140 per cent. Despite this high percentage, I do not feel any great concern. This is because even if debts are now at higher levels than they were prior to the crisis, today the costs of bearing these debts are not as great. The low real interest rates have meant that households' interest expenditure in relation to their incomes is at a historically low level. In addition, the households with the most debts are also those with the highest incomes and largest assets. The Riksbank’s analyses of individual households’ finances show that these in general have good margins for managing rising interest costs 3 . Households’ loan-to-value ratios therefore do not appear likely at present to cause the banks such large loan losses that they would be a threat to the stability of the banking system. But even if the household sector as a whole has good margins for paying its loans, there is of course always a risk that certain individual households have borrowed too much.

On bank capital adequacy, some countries (such as the UK and Switzerland) have indicated that the standards they apply will be tighter than the minimum set out in Basel III. This represents a cross-border challenge to regulators because banks from relatively lightlyregulated countries will have a competitive advantage. It was this sort of problem that led to a “race to the bottom” in regulatory standards in the pre-crisis years, and we must strive to avoid this happening again. Regulatory arbitrage is a serious threat. For financial institutions, which are systemically important to the world economy (and that therefore are practically “too big to fail”), there needs to be additional rules. The FSB will report to the G20 Summit in November on which banks and insurance companies qualify, and what additional capital requirements they need to have. Some banks are resisting this strongly. They argue that tighter regulations will drive financial transactions into the world of “shadow banking” where the activities will be regulated lightly. In my view, international banks need to accept tighter regulation, which will mean lower returns on capital in good years due to lower leverage. In return, this approach should help them avoid the frequent  BIS central bankers’ speeches  3  crises and losses of bank capital which have been seen in the last two decades or so. Hence, in the long-term, bank shareholders should be no worse off as a result.
For a start we cannot directly observe or measure what is happening in an underlying sense on the supply side with any great precision. We may become aware of short-run shocks relatively promptly, and we are able to draw inferences from partial information over time. But we can't be confident we know just where the "target" is, and we will often need to approach it somewhat tentatively. And there are equally uncertainties on the demand side as to just what is happening currently, or even more as to what is likely to happen in the period ahead. Nor can we know at all exactly just what the size of the impact of monetary policy action will be, or the timescale over which it will have its full effect, in the particular circumstances of any given situation. It has often been said that monetary policy is more of an art than a precise science even though we all bring to bear as much economic science as we can muster. There are particular difficulties in interpreting movements in asset prices, including exchange rates, let alone seeking to manage them through monetary policy. And even if we have a view about the asset prices we might like to see in the broader context of our monetary policy objectives, it is often very hard to predict even the direction in which they might move, over even relatively long periods, in response to changes in interest rates.

And, to the extent conflicts occur, they are likely to best be resolved within a single institution through shared analysis and mutual understanding of reaction functions.15 Our strategy will be to conduct supervision as an integrated part of the central bank and not as a standalone supervisory agency that happens to be attached to a central bank. The benefits that close cooperation can bring were demonstrated in 2013 as the PRA and the FPC worked closely together to bring clarity both to banks’ existing capital positions, and the standards expected of them. The FPC mandated the exercise with a view to establishing a system-wide, transparent standard of resilience that would boost confidence and allow the banking system to contribute to economic recovery. The PRA – under Andrew Bailey’s leadership – delivered the recommendation for each of the major institutions. The resulting increase in capital ensured the core of the financial system was on a sound footing and made an important contribution to securing economic recovery. There were clearly lessons to learn from that exercise, most notably the importance of clarity of early communication by the Bank to financial institutions about the standards to which they would be held. Those lessons are being applied now in the first of the Bank’s annual stresstesting exercises, which will bring together the microprudential standards for banks with a macroprudential assessment of the risks to which they must be resilient. As with monetary policy, expectations matter and the system will be more resilient if the Bank’s moves can be anticipated.
In addition, the large Swedish exporting companies learnt how to evade the restrictions on capital movements which gave them a competitive advantage over smaller competitors also in the domestic market. The increasing deficits in the fiscal budget and in the current account made the restrictive system nonoperative. The government finally decided to abolish them, although in a careful and gradual fashion to minimise disturbances to the markets and the economy. During a period spanning the late 1970s and the early 1980s the domestic regulations and the restrictions on capital movements were gradually scrapped. The credit market restrictions were finally rescinded in 1985 and the capital movements’ restrictions in 1989. This was very late compared to most other European countries. However, domestic policies were not adjusted to an environment of free capital flows and a free credit market. The fiscal policy and the tax system induced borrowing and monetary policy could not act as a brake since it was geared to the fixed exchange rate regime. Consequently, a few years after the completion of the deregulation, a financial crisis broke out. In today’s presentation, I will not go into detail about the manifold reasons leading to the crisis but instead focus on the aspects relevant to the financial sector.

2  BIS Review 111/2006  First, the earlier strict regulations on lending meant that banks did not really acquire the skills to evaluate the creditworthiness of customers and loan projects – only those with very high creditworthiness had had access to the limited amounts available for bank lending to non-prioritised purposes. The restrictions on lending to other purposes led to a large unsatisfied demand from potential borrowers. After deregulation, bank lending increased extremely rapidly without banks’ credit managers really having much experience on how to evaluate borrowers’ creditworthiness. A similar weakness applied to the supervisory authority – they had supervisors with good skills to check the banks’ formal compliance with laws and regulations but not to evaluate credit decisions. At the outset, the central bank took the erroneous view that the loan expansion in the banks could to a large degree be explained by old loans moving out of the former “grey sector” and into the banks. Since this had different implications than an extension of new loans, the central bank found that there was no need for the authorities to worry. Second, a large share of bank lending went into the real estate and commercial property business. There was a building boom in Sweden during the 1980s and prices rose rapidly – paving the way for additional lending. When real estate prices collapsed in the early 1990s the value of the collateral for many bank loans fell sharply and banks suffered huge credit losses from non-payments.
Stable inflation expectations can thus lead to inflation not varying continuously with the output gap which paradoxically can make the conduct of monetary policy more difficult. In recent years, it has been difficult to find clear and reasonable correlations between the demand situation and inflation for Swedish data. The monetary policy decisions are based on forward-looking assessments of inflation and here the assessment of the relationship between the expected output gap and inflation is an important determining factor. A lower correlation could depend on inflation expectations having stabilised in recent years. Individual companies can, for instance, hold back price increases even if resource use has increased, if they believe that their competitors are not intending to raise their prices. As long as inflation expectations are not affected, prices will not be changed. If the forward-looking inflation assessments that serve as the basis for monetary policy decisions, assume, for instance, that the correlation between growth and inflation will continue to be as low as has been observed, this can result in changes in the output gap not leading to any immediate monetary policy response. The risk is that inflation expectations will then accelerate and that inflation will increase. In the same way, prices may be slow to respond in the case of falling resource use. In other words - if monetary policy does not act as expected on fluctuations in resource use, the correlation between growth and inflation can again increase.

4  BIS Review 40/2001  The correlation between interest rate changes, GDP and inflation is, however, not so unambiguous and clear. There may be considerable uncertainty on the time lag and the strength of the effect of monetary policy on inflation. It is probably the case that the strength of the effects and the time lag will vary. As I previously discussed, it is also uncertain what role inflation expectations play in the transmission mechanism. Should monetary policy take asset prices into consideration? A discussion that has become pertinent due to the great increase in the price of IT and technology shares in particular that preceded the economic downturn in the United States as well as in Sweden – is the extent to which it is reasonable and possible to counteract the building-up of financial imbalances by monetary policy. If monetary policy is exclusively focused on an inflation target, asset prices are taken into account to the extent that they affect inflation by wealth effects and stimulation of investments and consumption. Appreciation of the currency, temporary productivity gains and loan financing of financial assets can, however, lead to the accumulation of major financial imbalances without this being fully visible as inflationary pressure. This was the case in Japan in the 1980s, Thailand in the 1990s and in the United States today. Unmotivated increases in asset prices will sooner or later lead to corrections, however. The strong boom in growth will then be replaced by a deep and prolonged downturn.
The projected tax revenue for 2013 is subject to downside risks because it is based on the assumption that the revenue targets for 2012 will be achieved. However, on the information currently available, it cannot be ruled out that revenue performs worse than expected in 2012. If this risk materialises and is not countered by appropriate action in the remainder of the year, that would make it difficult to achieve the targets set for 2013, compounding the possible effects of a bigger decline in GDP than that assumed in the budgetary programming. Expenditure On the expenditure side, the weight of three items should first be underlined: Social Security system contributory pensions, unemployment benefits and the interest on government debt. In 2012, these three items are equivalent to 20% of GDP and will account for approximately 36% of total public spending. In 2013, these percentages will foreseeably increase significantly. 6  BIS central bankers’ speeches  Noteworthy among the measures considered on the expenditure side are: the freezing of civil servants’ and public-sector employees’ salaries, although they will recover their December extra payroll, which, together with not filling vacancies, will result in a very low increase in personnel costs in relation to serving employees of around 0.1%. Real investments are reduced by 46%, whereas the interest burden increases by more than € billion. In the Social Security system, spending on contributory pensions, sickness and other benefits will grow by slightly more than 5%, factoring in the raising of pensions by 1%.

They have also made some progress in improving their international competitiveness, though there remains an opportunity for further structural reforms in labor and product markets – and not just in the periphery – to increase productivity and strengthen long term growth prospects. The European Central Bank’s (ECB) introduction of the outright monetary transactions (OMT) program has reduced financial market tensions considerably in the peripheral countries, so that sovereign debt funding costs in those countries are at more reasonable levels. The risk that interest rates in the periphery could spiral upward has been significantly diminished. Also, the commitment to European integration remains strong, a factor that U.S.based analysts and investors do not always sufficiently appreciate. Over the past few years, when the situation has been the most bleak, the choice in favor of the Union with the euro at its core has always won out. The bad news is that the eurozone is still in a recession and the political support for further rounds of budget-tightening has clearly lessened. The eurozone financial system is being fragmented and the partial easing of pressure on peripheral sovereign debt markets has not translated into a corresponding easing in private-sector borrowing costs in these nations. If growth does not resume relatively soon, then the political support for continued fiscal and structural adjustment could further erode. In Europe, a key challenge is to strengthen the economic foundations of monetary union at the system level.
We deem that financial sector development should be balanced in all its segments, and this requires the successful completion of the privatisation process and the harmonization of the regulatory and supervisory legislation, in accordance with the best practices of the developed countries. These issues require a continuous attention and cooperative contribution. On this opportunity, I deem appropriate to highlight that Bank of Albania shall be a prompt and open partner, assuming the responsibilities belonging to it, and collaborating with all the actors interested in the economic and financial development of the country. Inflation and monetary policy developments The primary objective of the Bank of Albania, provided in the Law “On the Bank of Albania” is maintaining the price stability. This objective is expressed in the achieving of a low and stable inflation rate, measured as an annual change of Consumer Price Index. For year 2004 inflation rate, according to the Monetary Policy Document, was fixed to be within the two-to-four percent targeted range. According to the actual developments, Bank of Albania has achieved its objective on the inflation control within the two-to-four percent targeted range. The annual inflation rate resulted 2.2 percent by the end of 2004, while the average annual inflation rate was 2.9 percent. Inflation rate remained about 3 percent during the first half of the year and, later on, marked a downward trend during the second half, approximating to the lower limit of the targeted band.

Some indicators of the economy over the years  Real growth of GDP (in %)1 PBB (with current prices, in millions of Lek2) PBB (with current prices, in millions of USD) PBB (in USD per capita)3 Number of the employed (in thousands) Unemployment rate (in %)  1  1999  2000  2001  2002  2003  2004  8.9  7.7  6.5  4.7  6.0  6.0  488611  530900  588700  630000  695100  780100  3548.4  3694.5  4102.4  4496.8  5702.2  7,581  1052.0  1086.3  1329.0  1460.0  1833.5  2,434  1081.0  1068.0  1065.0  921.0  928.0  917.0  18.0  16.9  14.6  15.8  15.0  14.6  Data on GDP and its real growth for the period 1999-2000 are originated from INSTAT. For the rest data are estimates from Ministry of Finance, IMF and also data from Bank of Albania. 2  The table is being constructed based on the reviewed nominal GDP. 3  Nominal GDP converted at the average rate of the period.
Yet, it picked up more strongly in the last two quarters of 2016, standing at 1.8% in the last quarter of 2016. 7 See Ciccarelli, M. and C. Osbat (2017), “Low inflation in the euro area: Causes and consequences”, ECB  Occasional Paper No 181. 8 See Blanchard, O., E. Cerutti and L. Summers (2015), “Inflation and activity – Two Explorations and their  Monetary Policy Implications”, IMF Working Paper No 230. 9 Staiger, D., J. Stock and M. Watson (1997), “The NAIRU, Unemployment and Monetary Policy”, Journal of  Economic Perspectives, 11(1): 33-49. 10 See the recent Economic Bulletin box entitled “Assessing labour market slack”, Economic Bulletin, Issue 3,  ECB, 2017. The figure is computed by expressing the numbers of unemployed and underemployed, together with estimates of those available for work but not seeking it, and those seeking work but not available for it (the “potential additional labour force”), as a percentage of the extended labour force (i.e., the employed and the unemployed, who comprise the active labour force, plus the potential additional labour force). 11 See Blanchard, O., G. Lorenzoni and J.-P. L'Huillier (2017), “Short-Run Effects of Lower Productivity Growth: A  Twist on the Secular Stagnation Hypothesis”, NBER Working Paper No 23160, February 2017. 12 See Bell, D. and D. Blanchflower (2011), "Young people and the Great Recession", Oxford Review of Economic  Policy, 27, pp. 241–267.

SPEECH  Welcome remarks Remarks by Luis de Guindos, Vice-President of the ECB, at the fourth annual ECB macroprudential policy and research conference Frankfurt am Main, 16 December 2019 I am delighted to welcome you all to the fourth annual ECB macroprudential policy and research conference. This conference is held annually to ensure that we meet regularly and advance our understanding of macroprudential policy. This year’s focus is on monetary policy and financial stability as it represents the conclusion of the ECB’s Research Task Force dedicated to this topic. In my remarks today I will cover three aspects of macroprudential policy and research. First, I will reflect on the economic and financial conditions that may represent challenges for macroprudential policy. Second, I will focus on selected achievements at the ECB in advancing the research frontier. Finally, I will address the need of rebalancing capital requirements towards releasable buffers to allow macroprudential authorities to act more effectively in a countercyclical manner especially in adverse economic conditions. Macroprudential policy in a changing environment The current environment is characterised by a weakening of the macroeconomic outlook and increasing uncertainty, even though the latest indicators point to a stabilisation of economic activity. The associated low-for-longer interest rate environment is likely to put pressure on bank profitability. Weak profitability and squeezed margins pose a risk to financial stability as they may hamper banks’ intermediation and capital generation capacity. It is thus important to assess the interaction of monetary and macroprudential policies while respecting their individual mandates.
Charles Bean: Rebalancing Speech by Mr Charles Bean, Deputy Governor for Monetary Policy of the Bank of England, at the Official Monetary and Financial Institutions Forum Golden Series Lecture, London, 29 May 2013. *  *  *  Good morning! It is almost six years since the onset of the Global Financial Crisis and almost four years on from the trough of the recession that followed the collapse of Lehman’s. Yet despite highly stimulatory monetary policies, we are still a long way short of seeing a full recovery in the advanced economies. Here, output remains some 2½% below its pre-crisis peak, while in the euro area the shortfall is even larger at 3¼%. And even in the United States, where the recovery is further advanced, output is just 3¼% above its pre-crisis peak, well below where one might have expected on the basis of past cyclical recoveries. That sluggishness in the recovery reflects the fact that, unlike a normal cycle, substantial real adjustments are also required in our economies. These include not only the repair of overextended balance sheets, especially in the banking sector, but also the need to shift the composition of demand and production towards more sustainable patterns. And these shifts require changes not only in the indebted countries, but also corresponding shifts in the pattern of demand and production in other countries. To what extent are these changes under way? Let me begin with our own rebalancing challenge, here in the United Kingdom.

But it’s one that has gained colour from the debate about derivatives. An oddly polarised debate. Overstating it somewhat: in one corner, a group contending that derivatives bring tangible benefits to civilisation. In the other, a group arguing that they have within them the seeds of severe disorder. Unsurprisingly, my take is that the truth lies somewhere in between. It is nicely illustrated by the quite extraordinary development of the credit derivatives market over the past five years or so.2  Dispersion of risk, and the price of risk Credit derivatives plainly have been used as an effective risk management tool by a number of banks and others. Contrary to some suggestions, the acid test is not especially whether banks, individually or in aggregate, have been net sellers of credit risk. Individual banks have been able to reduce concentrated loan exposures to single corporates, industries or countries. As the Telecom episode reminded everyone just a few years ago, that is really important, if elementary. Individual banks have also been able to increase their exposure to borrowers with which they do not have a lending relationship. (Indeed, some commentators suggest that it may sometimes be more effective for second-tier and smaller banks to take corporate credit exposure via the derivatives market than via participation in the lower tiers of loan syndicates.)