samchain/econo-pairs-v1 huggingface dataset:
Resale home turnover is still high, but it is taking longer to sell a dwelling compared with the same time last year. BIS Review 100/2007  5  Financial market innovations have also contributed to strong lending growth. In recent years loan products have been introduced that facilitate mortgage equity withdrawal – credit lines secured on dwellings. These loans are normally extended to borrowers with good collateral and debt-servicing capacity. They therefore present very little risk in a financial stability context. Credit lines secured on dwellings have rapidly increased in volume and now account for over 12 per cent of mortgages in banks and mortgage credit institutions. Foreign-owned banks were among the first to offer credit lines secured on dwellings and a far higher share of their mortgages are classified as this kind of loan. Other aspects of household behaviour in the housing market are increasing their vulnerability and giving greater cause for concern. First, the number of interest-only mortgages has risen. The possibility of interest-only periods is a buffer for households with debt-servicing problems. For many households, this buffer has already been used. Kredittilsynet’s 2006 mortgage survey, which includes loans secured on dwellings excluding credit lines, showed that around one in six mortgages in the survey had included an introductory interest-only period. This share was somewhat higher than in 2005. Another aspect that increases vulnerability is that a number of borrowers have a high loan to value ratio, particularly those below the age of 35.

In this scenario, commodity prices are envisaged to go below the assumptions presented in the baseline scenario; credit conditions are projected to remain tight for a while and recovery in foreign demand would be a prolonged and slower process due to the late recovery in the global economy. Meanwhile, crude oil prices are projected to drop to USD 45 per barrel and remain at this level throughout the forecast horizon. This projection is above the one presented in the January Inflation Report, as OPEC announced that it would not allow sharp falls in oil prices. Meanwhile, it is foreseen that food prices inflation would remain below the baseline scenario and therefore will become 5.5 percent by the end of 2009 and 5 percent afterwards. Against this background, assuming that measured policy rate cuts continue throughout 2009, it is projected that with 70 percent probability, inflation will be between 3.9 and 6.5 percent with a mid-point of 5.2 percent at the end of 2009, and between 2.7 and 6.3 percent with a mid-point of 4.5 percent at the end of 2010. Furthermore, inflation is expected to go down to 4.2 percent by the end of 2011. To sum up, these forecasts indicate that in the case of a longer-than-expected slowdown in global economic activity, inflation would remain below the medium-term forecasts even if the measured policy rate cuts continue throughout 2009 (Graph 28).
The modal forecast presented in the text, tables and charts of this speech, together with the mean forecast where we introduced a skew, remains the best collective judgement of the MPC and a useful framing device. But speaking for myself it remains further away than it was a year ago from determining my thinking on the economy and therefore my policy response. At different times and particularly since the pandemic struck in March 2020, the MPC has made increasing use of scenarios, as a way of illustrating alternative possible futures on the basis of different assumptions or judgements, assuming other things equal. Over the last year I have increasingly thought of the forecast as more of the baseline scenario out of a range of possible scenarios representing the future. But given the high degree of uncertainty, at present, the assumption of all else equal, is harder to maintain, particularly the further one gets into the future. To give an example, over the next two or three quarters my assessment is that unemployment is likely to stay close to its current level and perhaps move up to 4%, as demand and GDP in the economy remains weak. But I am materially less confident that after that unemployment will pick up quite markedly to end 2023 at close to 5% as in the MPR forecasts, which are consistent with the past relationship between GDP and unemployment.

The 5yr5yr inflation swap, which was previously the reference measure, currently does not provide a good signal for inflation expectations as it incorporates both RPI and CPIH components. Bank of England  Page 9  while this latest trend is encouraging it remains well above its long run average, and further above its average than the equivalent measure for the Euro area (Chart 6). Sources: Bloomberg Finance L.P. and Bank calculations. Notes: Five-year inflation, five years ahead and two-year inflation, five years ahead, derived from swaps. The instruments are linked to the UK RPI, US CPI and euro-area HICP measures of inflation respectively. UK RPI is due to be aligned with CPIH from February 2030, which will affect the pricing of the UK five-year, five-year measure. Since 2000, annual CPIH inflation has averaged 90 basis points lower than RPI inflation. In a higher inflation environment, some research has found that the distribution of inflation expectations can also matter. Views differ about the salience of this kind of historical research for the UK’s current situation but it does suggest that during periods of high inflation, such as those experienced in the US in the 1970s, the change in the standard deviation and skew of expectations in survey results might signal risks to a de-anchoring of inflation expectations, even if the median doesn’t change9.
The work on financial stability is undertaken in three main ways. One concerns the rules and regulations that set the bounds for the operations of financial companies. Another is the continuous surveillance of the system that is performed by Finansinspektionen (Sweden’s Financial Supervisory Authority) as well as by the Riksbank. Thirdly, the state needs to be able to manage any crises that nevertheless occur. The work on stability calls for highly developed cooperation between the Finance Ministry, Finansinspektionen and the Riksbank. The laws governing financial operations are enacted by the Riksdag, with the finance ministry as an important agent. More detailed regulations are issued by Finansinspektionen, which also monitors their observance. The Riksbank’s contribution to the work on rules and regulations consists in the first place of submitting opinions; in addition, the Bank participates in international efforts to develop the regulatory framework. The role of the Riksbank in surveillance work is central and focuses on the functioning of the financial system as a whole and the risks that may arise. The identification of risks in the system as a whole means, moreover, that the individual institutions and the financial infrastructure have to be scrutinised. It is primarily Finansinspektionen but to some extent also the Riksbank that need to keep a continuous eye on the individual banks. Due to the central functions of the banks, a crisis in the banking system might swiftly have serious consequences for the payment system as well as for the supply of credit.

The coal and iron deposits found here were critical to the Industrial Revolution, and it was the output of nails and bolts, screws and fasteners produced from those ceaseless blast furnaces that made the Black Country synonymous with manufacturing prowess around the world. But that is not the whole story. Just as important were the innate qualities of doing it yourself and perseverance which characterise the Black Country. There is no finer example than the Iron Bridge – the world’s first – at Coalbrookedale, built in 1779. As one commentary noted, it stood as “indisputable proof of the abilities of our mechanics and workmen”. It reflected not just the local availability of coal and iron, but also the skills of those who built it. And it is those same skills that we celebrate tonight. Local business success, recognised by these ‘Best of the Black Country Awards’, is the story of the Black Country being born again. The products of the 21st century may not be the nails and bolts, screws and fasteners of the past, but they will require the use of manufacturing know-how and business ingenuity to service the needs of consumers. I have been struck, as I travel to a different part of the country each month, by how many firms are producing imaginative and innovative products for which there is a real demand around the world. By this I do not mean that all successful firms are making high tech products.
The exact timing and scale of the peak rate of retail energy price inflation will obviously depend (amongst others) on the nature and duration of government support. But in the absence of further (and equally steep) rises in wholesale gas prices, and even without any such support, inflation in retail energy bills is likely to be materially lower a couple of years from now than it is today. Inflation in the areas most affected by the pandemic seems already to have peaked. However, it’s also because we are relatively unfamiliar with the second-round effects of these things. They very clearly existed in the past, before inflation targeting was put in place in 1992. Economists long recognised that, in the presence of “real income resistance”, negative shocks – from, say, higher import prices or higher taxes – could generate inflation in wages and domestic prices. Estimates of these effects using the historical data, from before the 1990s, were reasonably sizeable. But they then began to decline, a phenomenon many attributed to greater flexibility in the labour market. So although there were occasions after 1992 when real incomes were squeezed – the big rise in import prices immediately after the financial crisis was one obvious case, so too perhaps the period of weak productivity growth that followed – there was very little sign of any second-round response of domestic inflation. Absence of evidence is not the same as evidence of absence.

Bank of England  Page 16  Chart 9: “Excess deposits” have fallen only slightly but households’ overall financial wealth is down sharply  125 120  Household financial wealth relative to disposable income 410 Household M4 (LHS) 390  115  370  110 350 105 100  330  Net financial wealth (RHS)  95  310  90 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022  290  2022 Q3 data points are estimated. Sources: Bank of England, ONS and Bank calculations. But to varying degrees these cushions have since been eroded. The saving rate has fallen sharply and is now around a percentage point below its long-term, pre-Covid average. Most of the excess deposits remain, it seems. But one might ask why they do – why, at a time of significant reported pressure on household finances (when consumer confidence has been setting new record lows), more of them haven’t been spent – and therefore whether it’s realistic to think that they will be in the near future. As many have pointed out, these deposits are probably skewed towards the upper end of the income distribution (and therefore away from those for whom rises in energy prices are the most burdensome). It’s also worth recognising that other household assets have been weakening sharply this year. Despite higher deposits, households’ overall net financial wealth is quite a bit lower than before the pandemic.
The MPC intends not to raise Bank Rate or reduce the stock of asset purchases at least until the unemployment rate reaches a threshold of 7%, subject to three knockouts designed to guard against risks to price and financial stability. But abstracting from the details of these thresholds and knockouts, our message to you – the businessmen and women driving this recovery – is clear. You can plan for the future in the knowledge that the MPC intends to keep interest rates low until we have seen a prolonged period of strong growth, unemployment is significantly lower, real incomes are higher. Based on some of the reporting, you might be forgiven for thinking that forward guidance is far more complicated than this. To take just one example, let me read to you the opening sentence of an article last month reporting on the MPC’s November Inflation Report. Under the headline “Forward guidance fails”, the article began: “The Bank of England now expects the economy to grow strongly next year, highlighting the fact that its policy of forward guidance has effectively failed.” Strong growth, falling unemployment: if that’s failure, I wish I’d failed long before now! The aim of the Committee’s guidance isn’t to provide a commitment that interest rates won’t rise until some particular date in the future. Monetary policy has to respond to the changing state of the economy. We can no more commit to keeping our prices and quantities unchanged irrespective of economic circumstances than you can.

The dominant role of the household sector in the early stages of the recovery is not particularly surprising: businesses are likely to need a sustained pickup in demand before they have either the need or the confidence to increase capacity. But the durability of the recovery will depend on the baton of growth being handed over to the corporate sector, whose spending and investment will help to foster stronger growth in productivity and real incomes. And here the reduction in uncertainty may continue to play an important role. It’s perhaps easy to see how reduced uncertainty may help to prompt a one-off increase in business spending, as companies move away from defensive, wait-and-see strategies and blow the cobwebs off plans for deferred investment projects. But the impact of diminished uncertainty may stretch beyond simply a short-run boost. In part that reflects the possibility that the combination of reduced uncertainty and increased spending by households and companies may become self-reinforcing: reduced uncertainty helps to spur additional spending and investment, which in turn further reduces uncertainty about future demand and so on.7 Movements in uncertainty can amplify the recovery just as they amplified the downturn. This virtuous circle may be enhanced by the benefits reduced uncertainty can have for the supply-side of our economy. Increased investment will add to our productive capacity. A strengthening labour market may give employees confidence to move jobs, so better aligning available skills with vacancies.
Regional manufacturing sector  Background The manufacturing sector is important to our region because it provides a substantial number of high-wage jobs and, in some parts of the region, is a key driver of business cycles and longer-term trends. To understand manufacturing in our region, it is important to note that different parts of the region specialize in different products. For example, New York City’s largest manufacturing industry is apparel; motor-vehicle parts is a large industry in western New York, as are computers and electronics in Syracuse, Binghamton and the Hudson Valley. The pharmaceuticals industry is dominant in Northern New Jersey and Puerto Rico. Over the past several decades, manufacturing wages have risen, while the number of workers it employs has fallen, These long-term trends stem from fundamental structural changes in trade, technology and consumption patterns. Some manufacturing has moved to other parts of the United States or overseas. The advent of information technology and computerization has also profoundly altered many manufacturing processes. And, the mix of products demanded by consumers has evolved over time. All of these factors have combined to reduce the number of factory jobs across the nation, with the New York/New Jersey region hit particularly hard. What is less well known is that despite this employment decline, manufacturing output has actually continued to grow moderately in much of the New York/New Jersey region. This means that the sector has experienced substantial gains in productivity.

But the crisis has left an important legacy: •  Money and financial markets remain excessively segmented. The monetary transmission mechanism is severely impaired and credit conditions are still very different across countries and sectors. •  Deleveraging in the banking sector still acts as an impediment to recovery and growth. Bank credit remains flat in the euro area as a whole, and SMEs’ financing is a major concern, especially in stressed countries, where the percentage of financially constrained but viable borrowers is estimated at 25% vs 1% in “core” countries. We are very aware that balance sheet repair is a prerequisite for credit to resume and for monetary policy to be efficient. So, we are addressing the problem as a priority. 1. We are building a safer and more robust system of financial intermediation. A major step has been the creation of a banking union that, as you all know, will delink bank and sovereign risks and ensure a harmonised and tough financial supervision. It is easy to underestimate this achievement. The idea was adopted less than two years ago. The Single Supervisory Mechanism is now up and running. There is no example in contemporary European history when so much has been achieved in so little time. 2. We have launched a tough and comprehensive AQR and subsequent stress tests that should be completed by the end of this year.
Yet growth in new investment has been falling, and in the past year or so has turned negative. To me this suggests that even the rise in the profitability we’ve seen has not been enough to compensate for the increase in the risk premium that’s been occurring in the background. And if you take seriously the crude estimates we’ve just been through, you might expect that to have had a significant effect on productivity growth. A brief summary Let me try and sum up. Business investment fell in every quarter last year and surveys suggest the underlying trend is still negative. This is remarkable at a time when profits are high, when the economy’s not been in recession and when employment has been growing strongly. A plausible explanation is that rising uncertainty has acted like an extra hurdle on the required rate of return for new capital projects, deterring expansion in productive capacity and encouraging firms to meet new demand with labour instead. The economics tells us that, because such spending is costly to reverse, perceived downside risks to future profits can act as a powerful disincentive to  12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12  new investment projects. If something’s easier to get into than out of, you naturally worry about what might subsequently go wrong. Those perceptions may have been worsening for some time. The evidence suggests that we’ve been living with a high risk premium on new investment for several years.

Loose monetary policy, in turn, may reinforce the economic momentum that is already under way, further feed optimism and thus favour the build-up of financial imbalances. Empirical evidence indeed suggests that stock market booms usually coincide with atypically low inflation. The run-up to the dotcom bubble in the late 1990s provides one particularly vivid example of this pattern.6  3/5  BIS central bankers' speeches  There are two responses to these sorts of monetary policy pitfalls. First, an appropriate calibration of the monetary policy horizon. Modulating the horizon over which the central bank aims to achieve its price stability objective depending on the shocks hitting the economy is a principle of prudent monetary policy. A demand shock calls for a shorter policy horizon; a costpush shock calls for a longer one. Importantly, this principle holds only if inflation expectations remain firmly anchored. Second, the central bank can minimise the risk of mis-calibrating monetary policy if it broadens the scope of its analysis to an encompassing set of observables, including monetary and financial variables. This also allows policymakers to monitor signs of the emergence of financial imbalances and to calibrate a “leaning against the wind” approach to monetary policy. The effects of the ECB’s monetary policy on the economy and the financial system The monetary policy response to the crisis has been central in restoring the bank lending channel and ensuring very accommodative financing conditions, which has paved the way for the euro area’s recovery and continued expansion.
Gradually, the economic policy met distrust and high premiums for uncertainty. The effects of changes in monetary policy instruments became increasingly uncertain. Nevertheless, a desire for predictability must not precede the demand for an interest rate setting that the central bank deems to be correct. The expectations of other economic agents must not control the setting of interest rates. There are a number of examples from countries with "transparent" monetary policies where interest rate changes have come as a surprise. This may be partly due to the fact that the central bank had a 6  Wadhwani, S.B: "Some Reflections on the MPC". Speech to the National Association for Business Economics.Washington 21 May 2001  7  Blinder, A., C. Goodhart, P. Hildebrand, D. Lipton, C. Wyplosz: "How Do Central Banks Talk?" Report to be presented at the Third Geneva Conference on the World Economy on May 4, 2001  6  BIS Review 51/2001  different view of the outlook for economic developments. The inflation outlook may also change rapidly and prompt rapid and possibly pronounced interest-rate adjustments. Transparency may be discussed in relation to ·  objective function  ·  reaction function  ·  analyses  ·  views on how interest rates affect price inflation  ·  assessment of the inflation outlook and the balance of risks  Norges Bank has sought to contribute to transparency by presenting its interpretation of the mandate and by explaining the implementation of monetary policy.

In addition to the robust currency board mechanism, the linked exchange rate system is underpinned by some of the strongest fundamentals in Asia, if not the world:  •  Growth is strong, at 5.5%. •  Fiscal position has been consistently strong, with an average fiscal surplus averaging 2% of GDP for the past decade. Fiscal surplus in 1997 so far is 4.4% of GDP and is expected to exceed 5% of GDP. •  The government has no external debt. •  Exchange Fund and Land Fund together have more than $ billion in assets. •  Corporate debt ratios are amongst the lowest in Asia. •  The external account is broadly in balance. 32. The free markets and strong fundamentals mean that the nature of the shock is absorbable. Hong Kong does have a strong competitive edge, since we are a service economy with 83% in the services sector. As a major investor and integrator of production in the region, with manufacturing concerns in China and Southeast Asia, Hong Kong companies could adjust production to areas which have the greatest export competitiveness. In addition, the mainland Chinese economy is still growing at 8-9% per annum, with low inflation, a balanced external account and strong BIS Review 109/1997  commitment to reforms in the enterprise and financial sectors. All these auger well for Hong Kong as the main gateway to the Chinese market. 33. The current higher interest rates reflect somewhat a slightly higher risk premium in Asia due to the currency turmoil.