samchain/econo-pairs-v1 huggingface dataset:
We tested a variety of specifications of Equation (1) to see which fit best, using different set of factors and different functional specifications for the utility function. Some of these specifications are shown in Table 1. Our preferred specification is shown in Column 5. Its key features are:   Both current income and wealth (permanent income) affect household well-being, as we would expect in a standard utility function, in a statistically significant way.   Our preferred specification includes a variety of separate measures of gross wealth and gross debt. The different components of wealth have a different likelihood of being spent and hence have a different impact on well-being. For example, the coefficient on deposit wealth is eight times larger  32 33  See, for example, Layard, Nickell, Mayraz (2008). The results are not sensitive to using subsets of the answers. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  than the coefficient on pension wealth, consistent with the former being more accessible than the latter and, therefore, more likely to be spent. Debt is bad for household well-being, as others have found.   34  The functional specification which best fits the happiness regression is a logarithmic one. This implies that there is diminishing marginal utility of income, as we would expect and as other studies have found. It also implies that changes in happiness that arise as a result of changes in income 35  and wealth are appropriately captured in percentage, rather than in money, terms.

A woman rose from the audience and, with finger pointed, uttered the memorable line: “That’s your bloody GDP, not ours!” There was no right of reply. Issues of inequality have loomed large in many public debates, not just Brexit, over the past decade or so. Recent books on the rising tide of inequality by Thomas Piketty, Tony Atkinson, Joe Stiglitz and Branko 2  Milanovic have, somewhat surprisingly, become best-sellers. So too have books by Martin Ford and Eric Brynjolfsson and Andrew McAfee discussing how the rise of the robots may further worsen these 3  inequality problems. 1 2 3  See, for example, Carney (2016) and World Bank Group (2016). Piketty (2014), Atkinson (2015), Stiglitz (2013), Milanovic (2016). Ford (2016), Brynjolfsson and McAfee (2016). 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  At around the same time, monetary policy in a number of countries became more expansionary than at any time in recent history. Interest rates in a number of advanced economies fell to their lowest-ever levels during the financial crisis. In some countries, additional stimulus was provided through asset purchases – so-called Quantitative Easing or QE. Those asset purchases are currently running at around a cumulative 15% of annual global GDP.
The conundrum for consumers is a simple one: if consumer spending growth is to exceed 2 percent annualized on a sustained basis at a time when real disposable income growth is below 2 percent then this would require the household saving rate to decline persistently. But there is little reason to expect such a decline given that the current saving rate is at a level consistent with current level of household wealth relative to income. We have a chicken-egg problem. If the saving rate remains stable, then stronger consumption growth will require a pickup in income growth. But for income to rise, demand must increase. This suggests that there may need to be an impetus to growth from other sectors of the economy to generate a boost in consumer spending growth. One possible source is the housing sector. As noted earlier, housing starts are still quite low relative to what the country’s demographics should support in the long run. But there are two difficulties here. First, the strength of the housing recovery may be blunted by the recent rise in mortgage rates. For example, before last week’s partial reversal, the 30-year fixed mortgage rate had risen by about 120 basis points since May to more than 4½ percent.

First, such a facility should enable the Federal Reserve to improve its control over the level of money market rates. By offering a new, essentially risk-free investment, one would expect that anyone with access to such a facility would generally be unwilling to lend instead to someone else at a rate below that posted for the facility. This should help to establish a floor on the level of overnight rates. Right now, most short-term rates trade between 0 and 25 basis points, but occasionally T-bill and repo rates go negative, for example at quarter-end or when financial stresses increase the demand for very safe assets. The full allotment element of the reverse repo facility would increase the availability of a risk-free asset, satisfying the demand when the appetite for safe assets increases. This should help tighten the relationship between these and other money market rates. These reverse repos would be available to an expanded set of counterparties that includes many of the money market lenders who are ineligible to earn the interest on excess reserves (IOER), such as GSEs and a number of money market funds. Depending on the facility rate, these lenders who cannot earn the IOER rate might get a better rate by investing in the overnight RRPs compared to lending to banks or to broker dealers. This competitive effect could, in and of itself, put a stronger floor on money market rates. Second, this new facility is also likely to reduce the volatility of short-term interest rates.
While this development has somewhat lessened our concern for immediate liquidity and capital, the performance of the financial system is yet to be tested during an economic downturn. In essence, we do not know how the strategic partners of Estonian banks would react if the GDP growth will slow, loan losses amount and bank profitability starts to decline. We must be vigilant to grasp the changes as soon as possible. The key to vulnerability analysis is a successful implementation of ideally several analytical tools, including early warning systems and macroprudential analysis. As we know, the early warning systems typically try to estimate the impact of external factors on domestic financial systems, i.e., how vulnerable the banking sector is to decline in exports or to worsening market sentiment. Macroprudential analysis undertakes to broaden that approach to a variety of economic indicators, using the stress testing models. Several organizations are focussing on these developments, including the BIS, ECB and IMF. The topic gains even more prominence for us as the European Commission, acting on the request from the ECOFIN Council, is starting to prepare the so-called Macro Financial Stability Assessments later this year that would evaluate the resilience of the financial systems of prospective new member states. Several prerequisites are necessary for the development of reliable and robust early warning systems and even more so for the meaningful macroprudential approach. Reliable data and reasonably long time series is a necessity as well as is the profound intertemporal analysis.

And we believe that growth will remain resilient, despite all the uncertainties. But trade disputes and, more generally, declining support for the multilateral order make strengthening Europe an urgent task. And strengthening Europe includes strengthening the euro area. So do we need a eurozone budget, for example, as Merkel and Macron have suggested? Germany and France have put forward interesting ideas in this respect. If properly designed (that is, if it complements sound national fiscal policies), a common euro area budget could help to dampen the impact of large economic downturns and make the economy less dependent on the ECB’s monetary policy. But it cannot and should not be the only way to make the euro area stronger. What needs to happen first? First of all, we need responsible fiscal policies and economic reform in all Member States. Many euro area countries still don’t have the fiscal space to support their economies in the event of a crisis, and their economies are not well prepared to long term challenges. So in my view, reform at the national level is the first line of defence. Second, we need to complete the banking union and the capital market union to strengthen our single market and better fund innovation and growth. A common fiscal capacity is a useful complement, but it only comes third. What is still missing from banking union is a shared deposit insurance scheme. But this is a controversial topic in Germany.
Jean-Pierre Roth: International monetary policy 2005 Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the 19. Internationales Zins-Forum - Zinsen 2005, Frankfurt am Main, 6 December 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The major central banks reacted to the lacklustre global economy in 2002 by relaxing the monetary policy. The low money market rates in 2002 and 2003 were appropriate for a recession. They are not, however, indicated for a sustained and global upswing. This is why several central banks began to steer their monetary policy back to a normal course in 2003 and 2004. The tempo of monetary policy normalisation obviously depends on the progress of economic recovery, which leads to different reactions in each country. In this rather favourable climate, oil prices began to soar in 2003. However, there is no reason to fear a repeat of the dire consequences witnessed during past oil crises. On the one hand, the rise in oil prices comes at a time when the economic environment is much more stable than it was back then. On the other hand, strong global economic growth drives up oil prices. In order to ensure price stability, a normalisation of economic activity must be accompanied by a normalisation in the interest rate policy. The latest oil price hike has no bearing on this basic premise.

And by the end of this year, we will have assessed and approved more than 50 applications for senior management positions within these groups, and considered the suitability of their proposed prudential sub-groups, containing hundreds of entities between them. Ring-fencing also resulted in the Bank helping ring-fenced banks undertake around 20 on-boarding operations to payment systems settling across the books of the Bank, and admitting six banks to the Sterling Monetary Framework. Most of the banks have also needed to undertake a complex legal process – called a ring-fencing transfer scheme – to transfer assets and liabilities between legal entities in their group.4 Each transfer required Court approval. Independent ‘skilled persons’ were required to review the banks’ plans, the PRA and FCA were called to provide their opinions, and objections from the public were invited before the judges could make their decisions. In each case, the Courts were able to approve the transfers going ahead. These transfers took place between April and August this year. Over £ billion of assets were moved between legal entities over a series of implementation weekends. Operational changes, in particular involving IT systems, can be complex, and the impacts when things go wrong can be wide-ranging and difficult to remedy. But in each case the ring-fencing transfer took place smoothly. A knock-on impact of these transfers was that the sort codes of over 1.3 million retail and corporate account holders needed to be changed.
Moreover, the low interest rate environment, which has been particularly pronounced for some years now, is part of the fallout from the global financial and economic crisis. Driven by supply and demand, high savings and weak global investment activity put additional downward pressure on interest rates. Moreover, monetary policy measures – taken by central banks to combat the financial crisis and the low inflation level – have themselves contributed to the decline in interest rates, and continue to do so. This is also true of the measures taken by the SNB. After all, we cannot remain untouched by international developments. Interest rates in Switzerland have traditionally been lower than abroad. This is due to Switzerland’s status as a safe haven: investors are willing to accept comparatively low yield in return for more security. During the financial crisis, the decline in interest rates abroad was generally more marked than in Switzerland. The interest rate differential to other countries narrowed and the Swiss franc became even more attractive. Negative interest helps to restore the interest rate differential between Switzerland and other countries, by making investments in Swiss francs less attractive and thereby reducing the pressure on the Swiss franc exchange rate. We are aware that the costs associated with negative interest are not inconsiderable. Yet without negative interest, the Swiss franc would be even stronger, which would weigh even more heavily on the economy. The SNB is thus faced with difficult trade-offs when making its monetary policy decisions.

More recently, the Swiss franc exchange rate to the euro was about 10% above what it had been shortly before the discontinuation of the minimum exchange rate. Our willingness to intervene in the foreign exchange market as necessary was – and remains – an important element in countering the excessive strength of the Swiss franc and the associated negative impact on both the economy and price stability in Switzerland. How are our foreign currency purchases and the Swiss franc exchange rate related to the expansion of the SNB balance sheet? I will explain this using the financial account and current account. The current account covers, first and foremost, goods and services trade with other countries and cross-border income flows. For half a century, the Swiss current account has regularly shown a surplus. 1 There are two main reasons for this structural surplus. First, Switzerland is a net exporter; it produces more goods and services than are demanded in the domestic market. Second, the Swiss hold substantial assets abroad, upon which they earn interest and dividend income. Earnings from foreign trade as well as interest and dividend income from foreign assets are generated abroad and are usually reinvested abroad. These investments are recorded under capital exports by the private sector in the financial account and are shown as red bars in slide 2. Until 2007, private sector capital exports made up almost the entire financial account. 1  2  Jordan, Thomas. 2013.
Sam Woods: Adapting to Solvency Speech by Mr Sam Woods, Executive Director of Insurance Supervision of the Bank of England, to the Association of British Insurers, London, 9 July 2015. *  *  *  It is a great pleasure to speak to you today. I plan to give another speech in a few months’ time, focussed on the history of insurance regulation and supervision here in the UK. But today I will talk about my immediate priority, which is getting Solvency II over the line for go-live on 1 January 2016. The industry has made a tremendous effort to make the transition a successful one. The circumstances have been difficult, with a delay to political agreement on important aspects of the new regime compressing the time that the industry has had to prepare. The delay has also added to the costs of implementation. However, the time has not been wasted and firms have used it to make important improvements to their Own Risk and Solvency Assessments, as well as their internal model applications. Today I want to make sure that investors and insurance firms understand the approach the Bank of England will take to capital under Solvency II.

For the UK in particular, the move to a going concern regime represents a fundamental departure from the current set-up, in which a firm is required to calculate financial requirements under the assumption that, following a stress, it writes no new business and instead “runs off” its existing business over time. Solvency II looks at the insurance industry through a different lens and views insurers as “going concerns”, such that it is assumed that insurers will continue to operate after a stress. To achieve this, Solvency II introduces the concept of the “risk margin” which is intended to capture the cost of transferring a set of liabilities from one insurer to another. The risk margin is a fundamentally new component of our regulatory framework and we will ensure that firms meet it. 1. This is a source of some tension at the moment, because the construction of the risk margin is such that, in particular for life business, it becomes much larger when risk-free rates fall. So the current environment of low rates means that the risk margin is large – and when and if rates rise, it will become smaller. Reasonable people can debate whether or not it is sensible for this element of provisions to be so sensitive to risk-free rates, and it may be that once we are into a Solvency II world some firms will choose to hedge this exposure.
The challenge is to recognise continuous reinvention that is needed – to acquire new knowledge, new skills, new experience so as to be able to have the new capabilities to deal with the new challenges. For a woman who is a mother, wife and daughter, the sacrifice involved is great. The challenge will be to achieve a balance so that work performance is not being adhered at all cost. Support systems at the work place and at home is vital. Equally important is time management, stress management and people management. Finally, more so in the public sector – as the pressures come from several fronts given the far reaching and wide spread implications of the actions taken, leadership positions require a high level of courage and endurance. Having strategic focus and energies aligned to achieving the results reinforces the ability to cope under such pressures. Conclusion Let me conclude my remarks. The demands that leadership in the public sector entails is immense. Such leadership is about delivering results and making a difference in the lives of others. To achieve this, there needs to be a conscious need to reinvent ourselves to be able to rise to the imperatives of duty to the nation. This reinvention involves leadership, institutional and organisational capabilities to respond to the changes in the environment. It is with these transformations that we are set to successfully lead. While women are a growing force in the talent pool, the real power will be a shared power.

Perhaps it should come as no surprise, then, that there are also signs of polarity when it comes to the prospective fortunes of our economies, globally and nationally. Certainly, downside risks to the global and UK economy have increased through this year. At the global level, a key current source of risk is trade. For a 60-year period after the Second World War, barriers to trade were significantly and systematically dismantled, courtesy of multilateral trade liberalisation initiatives. Almost 300 global trade agreements were reached between 1950 and 2018 (Chart 24). As a result, global tariffs have fallen by two-thirds since the early 1990s (Chart 25).22 The dismantling of trade barriers ushered in a halcyon period of rising trade peace and prosperity. Global goods trade volumes grew, on average, by 10% per year between 1950 and 2008. Global supply chains lengthened and deepened.23 A post-War consensus forged global cooperation in trade, finance and security, embedded and embodied in the Bretton Woods institutions which this year celebrate their 75th birthday. Chart 24: Cumulative WTO-notified regional trade agreements in force 350 300 250 200 150 100 50 0 1948  1958  1968  1978  1988  1998  2008  2018  Source: WTO Regional Trade Agreement Database. 22  Some of the observed decline in tariffs is also attributable to the General System of Preferences (GSP) and other unilateral preferential treatment schemes. 23 Baldwin (2016).
In line with this strategy, Norges Bank’s Executive Board decided to raise the sight deposit rate by 0.25 percentage point to 3.00 per cent at its meeting on 16 August. As a basis for the decision, it was pointed out that capacity constraints and a shortage of skilled labour are posing a mounting challenge to a number of industries. At the same time, corporate earnings are very high. Local government tax revenues have increased substantially. Household and corporate borrowing remains high. Property prices are rising markedly, and the level of building activity is high. Growth among our trading partners is solid, and a number of countries have raised their policy rates. These factors point to a higher interest rate. At the same time, underlying consumer price inflation remains low. Clothing and footwear prices fell to a surprising extent in July. Different indicators of underlying inflation range from just under 1 per cent to close to 1¾ per cent, and energy prices are rising sharply. The krone exchange rate has depreciated somewhat recently, but is still fairly strong. The Executive Board pointed out that the objective of bringing inflation back towards the target and anchoring inflation expectations implies a continued expansionary monetary policy. It is likely that continued high growth in output and employment will result in a gradual pick-up in inflation. The interest rate will therefore be set so that monetary policy gradually becomes less expansionary.

It will also expand the options for investors and borrowers and thus, contribute to more efficient allocation of financial resources across borders. In addition, the development of the capital markets in the Asia region will have the important role in channelling part of the sizable savings of Asia back into productive investments in the region. With greater liberalisation of the financial sector and the capital account, and the increased linkages of the national payments systems in Asia, and the greater presence of regional institutions in the individual domestic financial systems, the trend for increased financial flow within the region will continue. Given Asia’s favourable economic prospects and more developed financial market, Asia is already attracting volatile capital flows. The route that Asia is taking to forge greater financial integration will however be different from that of Europe. Unlike in the European Union, Asia has not ventured to have centralised institutions to coordinate financial integration. Rather, it has leveraged on existing regional groupings and existing networks to forge greater collaboration in areas of common interest. Secondly, a common currency is not on Asia’s medium term agenda. To minimise exchange rate risks and facilitate intra-regional trade and investment, countries have ventured into arrangements to use domestic currencies for trade settlements. Let me touch on policy and strategies adopted in Asia. Asia has tended to not adhere to rigid ideologies but rather focus on institutional building and financial market development, strengthening of the payment systems and the regulatory and supervisory framework.