samchain/econo-pairs-v1 huggingface dataset:
5  See Financial Integration in Europe, European Central Bank, April 2008. 6  For a detailed exposition of this argument see Rajan, R. and L. Zingales (2002), “Banks and markets: the changing character of European finance”, in V. Gaspar (ed. ), The Transformation of the European Financial System, October 2002. 7  See for example Havik et al (2008), “The EU-US total factor productivity gap: An industry perspective”, DG ECFIN Economic Papers 339, September 2008. BIS central bankers’ speeches  3  or at least not markedly worse than others. For example, the European Commission’s EMU@10 Report stated that “three of the four cohesion countries (Spain, Ireland and Greece) have shown a satisfactory development overall, while only the fourth (Portugal) has disappointed.”8 This leads me to my second question: if this convergence was in fact cyclical rather than structural, why was it not identified earlier? My tentative answer would be that observers’ assessments were influenced by the financial cycle, a theme that has echoed in Hyman Minsky’s work.9 In retrospect, it seems now that the early years of the euro were the peak of a much longer financial upswing. This led observers to overestimate the sustainability of consumption and investment, and to underestimate the risks of rising private debt levels – and this was true on both sides of the Atlantic.

The majority of countries with relatively strong GDP growth rates prior to the crisis also experienced a relatively strong downward adjustment, in some cases undoing much of the welfare gains that were achieved since the launch of the euro. Some might see this as evidence that the assumptions of the neoclassical growth model need to be qualified – that absent credit-driven growth, there is no reason to believe that euro area economies should converge towards similar levels of productivity, or even rates of productivity growth.12 Indeed, endogenous growth models allow for persistent divergences as some forms of capital exhibit non-diminishing returns. Yet, I think it is too early to draw such a conclusion. The neo-classical assumptions have not yet been properly tested, simply because capital did not flow where the marginal return would have been highest. What the euro area needs, in my view, is to “re-run” the convergence process, but with the appropriate conditions in place to ensure efficient allocation of resources, and the right framework to make convergence sustainable. Let me explain in more detail what that might entail. To begin with, catching-up economies have to address the immediate after-effects of the previous misallocation of capital. The pre-crisis inflows into the non-tradable/services sector were associated with real exchange rate appreciation, rising unit labour costs (ULC) and increasing dependence on external financing. When the financial cycle turned, however, capital flows quickly reversed.
While actions taken by governments and financial authorities have helped to stem the sharp deterioration, the road to full economic recovery is likely to be bumpy. While the crisis is painful, there are several silver linings. This Summit, with its theme of “The Future of Islamic Financial Services” provides a timely opportunity for us to reflect on the shortcomings in economic and financial models, and in our supervisory approaches. By drawing the right lessons, we can build the foundation for a better future. Allow me to share some reflections on the future shape of economic linkages and financial services, as well as the supervisory approach. Economic linkages First, the crisis shows that while the idea of the “de-coupling” of Asian economies from the rest of the world was premature, the structural trend of a dynamic Asia remains. I should clarify that in this speech, my reference to Asia includes the Middle East. Even for 2009, while the World Bank has trimmed its growth forecasts for Asia, 1 this remains the faster growing region in the world. 2 When global growth resumes, developed economies will remain important markets. But the significant deleveraging and the repair of balance sheets are likely to dampen growth prospects for some time. Asia has entered this crisis with less baggage. But this crisis will  1  World Bank East Asia and Pacific Update, “Battling the Forces of Global Recession”, April 2009.

2  The World Bank projected Developing East Asia (including China) to grow by 5.3% in 2009; South Asia by 3.7% and Middle East and North Africa by 3.0%. BIS Review 57/2009  1  force an acceleration of structural economic change in Asia. The drive towards greater domestic consumption, as well as greater Asia intra-regional trade, investment and consumption, will take on greater urgency. The growth of intra-Asia trade and investments will be driven by both bottom-up initiatives as businesses expand their ties, as well as top-down policy measures as governments enter into agreements on free trade and economic cooperation. A recent survey by the ADB Institute found that a higher than expected 22% of responding firms use preferences accorded by free trade agreement (FTA) and more are planning to do so. 3 China, Japan and Korea have implemented their FTAs with ASEAN. The ASEAN-Australia-New Zealand FTA was signed in February 2009. Singapore has signed FTAs with the GCC and Jordan, and we can expect more of such pacts within Asia in the future. Cross-border capital flows between the GCC and East Asia will grow significantly in the coming years. With this forced pace of global re-balancing, the relative economic weight of Asia will rise. This would be a positive development for the global economy, as more engines of growth provide greater resilience. Financial services and Islamic finance However, it is crucial that our optimism does not turn into hubris. Economies in our region face many important challenges.
Now, inflation seems set to rise sharply in the near term. And our latest central projection is for output to grow at below trend rates over the next two years – even on the conventional assumption that Bank rate follows the market yield curve and falls to 4.5% during the course of this year. There is still relatively little in the headline macro data to support such a marked change in view. CPI inflation, at 2.2%, remains close to target. And, on the output side, growth weakened a touch in the fourth quarter last year, but was still around the post war average. Indicators for the first quarter are mixed, but do not suggest that growth has stalled. In other words, the change in our Inflation Report projections is a forecast. It is the judgments underlying that forecast – and the attendant risks and uncertainties – which will be the main focus of my remarks today. So why have we changed our view? Our latest forecasts reflect judgements about the possible future impact on the UK of two key developments. First, the continuing financial crisis in advanced financial markets which has been triggered by the slump in the US housing market; and second, the renewed build up in global inflationary pressures, associated with soaring energy and food prices.

On inflation expectations, we pay close attention to a wide range of information drawn from surveys, and financial market prices, recognising that they are all, in different ways, tricky to interpret. We also need to be mindful of the risk that any further increases in the prices of everyday items like food and energy will heighten public perceptions of inflation, and raise expectations about the future overall rate of CPI inflation. Conclusion The outlook for the economy looks very different now from a year ago. We are seeing some powerful global forces playing out, in financial markets, in commodity markets, and in the world’s largest economies. Their impact on the UK is highly uncertain, partly because they  BIS Review 22/2008  5  are hard to understand and to predict, and partly because much will depend on the way policymakers around the world respond. The MPC will need to respond continuously and flexibly to its assessment of the changing balance of two key risks. On the one hand, there is a risk that demand will slow too sharply, but on the other there is a risk that a temporary shock to inflation will prove persistent. A temporary pick-up in inflation – by itself – does not mean that the Committee needs to tolerate a significant weakening in demand. But if inflation expectations appear to be persistently elevated, then the Committee will need to tolerate more slack to keep inflation on target.
Furthermore, the Chancellor writes regular letters to both the FPC and the Prudential Regulation Committee, setting out the Government’s economic policy and making recommendations on how they should discharge their functions. Importantly, the PRA takes into account the FPC’s views on financial stability when setting microprudential policy. To give an example of how this works in practice – in 2015 the FPC set out the optimal overall level of UK capital requirements, balancing financial stability against economic growth. The PRC then took into account this judgement when setting individual bank capital requirements. And at the end of last year, the Financial Policy Committee (FPC) raised the structural level of the UK countercyclical capital buffer (CCyB) rate - that is the rate it expects to set in a standard risk environment - from in the region of 1% to in the region of 2%. Then, last month, the PRA consulted on proposals to reduce variable microprudential minimum requirements (so-called variable Pillar 2A capital requirements) to take account of the additional resilience associated with higher macroprudential buffers in a standard risk environment.7  In addition to setting out a clear mandate in primary legislation, there are also a number of accountability mechanisms in place for Parliament to scrutinise the work of the FPC and PRA against that mandate. For example, PRA senior representatives are expected to appear before the Treasury Select Committee (and other Parliamentary Committees), when requested. And the PRA Annual Report is laid before Parliament.

Against this background, we judge that the level of nominal wages can move up at an annual rate of just over 4%. This is marginally less than foreseen in the December Report. In the longer run, however, wages cannot go on rising at this rate because they would then exceed the room that now looks like being provided by the probable trend for productivity growth. One illustration of this is that in the coming one to two years, underlying domestic inflation will be somewhat above 2%, though this is countered by downward effects from import prices. In our main scenario we judge that overall inflation prospects are in line with the target one to two years ahead but that UND1X inflation will be marginally above the target at the end of the period. With an unchanged repo rate, UND1X inflation is expected to be 1.6% one year ahead and 2.1% after two years. Diagram 3. UND1X forecast with uncertainty intervals  3. UND1X with uncertainty intervals Percentage 12-month change  5  5  4  4  3  3  2  2  1  1  0  0 95  96  97  98  99  00  01  02  Sources: Statistics Sweden and the Riksbank  The transitory factors that the Riksbank should disregard in the formation of monetary policy are judged to be small in the coming one to two years. Moreover, the Riksbank considers that the risk spectrum for inflation is balanced.
The private sector of the economy should continue to heal, while the amount of fiscal drag should subside. I also expect that, despite the near-term concerns, growth prospects among our major trading partners will improve next year. And this combination of events is likely to create an environment in which business investment spending will strengthen. However, the notion that the economy will grow more swiftly remains a forecast rather than a reality at this point. Turning to the inflation outlook, total inflation, as measured by the personal consumption expenditures (PCE) deflator, has fluctuated recently with short-term movements in energy prices, but it continues to run below the FOMC’s expressed goal of 2 percent. Core inflation, that is, excluding food and energy, slowed in late 2012 and early 2013 to well below 2 percent, although it has shown signs of stabilizing in the last couple of months. A decomposition of core inflation reveals that the most recent slowing of inflation has been largely confined to core goods, whereas the rate of increase of core services has been relatively steady. Such was not the case in 2010 – the previous instance of a significant slowing of inflation. In addition, inflation expectations so far have remained relatively stable at levels somewhat above the current inflation rate. This should help prevent an undesirable further drop in inflation relative to our 2 percent objective. Thus, I anticipate that inflation will firm further in the months ahead and move toward the FOMC’s longer-run objective.

The statement notes that the Committee “decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6–1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longerterm inflation expectations continue to be well anchored.”3  2  Federal Open Market Committee statement, September 18, 2013. 3  Federal Open Market Committee statement, September 18, 2013. BIS central bankers’ speeches  3  One noteworthy question that emerged following the meeting was why the Committee did not begin to reduce the pace of asset purchases. Although I can’t speak for the Committee, I can provide some reasons for my own decision. To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success. With respect to the first metric, we have seen labor market improvement since the program began last September. Over this time period, the unemployment rate has declined to 7.3 percent from 8.1 percent.
Strong demand, particularly from China has clearly been one major factor. But there have been supply side issues too. And the strength of some commodity prices also reflects their status as an investment class at a time of low global interest rates. Over the past year alone, oil prices have risen by around 60% in dollar terms and agricultural food prices by around 50%. Imported cost pressures in the UK will also reflect the fall in the effective exchange rate, down by 9% since the beginning of August last year – the largest such decline since sterling left the ERM in 1992. There are few reasons to expect this to be rapidly reversed. As a result of these developments, producer input and output prices are now increasing faster than at any time since 1990, and import prices have picked up sharply. These cost pressures have not yet fed through fully into consumer prices, but from next month CPI inflation is likely to rise more sharply, in particular reflecting the impact of higher utility bills. There is essentially nothing the MPC can do about this immediate impact on the inflation rate. But its implication for policy depends on whether people recognise the temporary nature of the pick-up in inflation. The MPC’s remit in setting interest rates is clear – to keep inflation at 2%. But we have discretion to decide how fast to return inflation to target, if it is thrown off course by a sharp shock, such as the current surge in world energy prices.

This brings me to the other big uncertainty: how far will tighter credit conditions affect the wider economy – in the UK and the rest of Europe as well as in North America? It seems highly likely that growth was supported by easier credit over last few years. But to what extent? When it comes to quantifying the effect of changes in credit conditions, our workhorse economic models still cannot help us very much. As far as the UK economic outlook goes, our central judgement is that financial stress will act as a significant drag on demand over the next two years. But there is a high level of uncertainty about this; and, as we now see it, the risks, as they affect output, are tilted to the downside. These are two fold: first, that the financial crisis will persist and possibly intensify; and second, that over time tighter credit conditions and asset price weakness will combine, and in the worst case feed off each other, to sap the strength of overall demand, and put downward pressure on inflation in the medium term. Higher costs Let me come now to the other major area of risk: the upward pressure on inflation from higher external costs. The most recent build up of global cost pressures is just the latest episode in a remarkable period of soaring commodity prices. Oil prices have more than trebled since the start of 2004, and metals and food prices have more than doubled.
As we stimulate our economies to bounce back from the Covid-19 crisis, there is a good opportunity for Shanghai and Singapore to collaborate on promoting green finance in the region. There is strong demand in Asia for green investment. According to a study by the United Nations Environment Programme (UNEP) and DBS Bank, $ billion in green investment is required 2/3  BIS central bankers' speeches  annually until 2030, to support the greening of Asian economies. We already see Chinese and Singapore banks partnering to finance green and sustainable projects. In April last year, ICBC Singapore worked with DBS and other global banks to jointly issue its first Belt and Road green bond, sized at $ billion, and more recently issued its first green loan in Singapore, through a partnership with DBS and OCBC. In September last year, the Singapore branch of the Agricultural Bank of China collaborated with UOB and BNP Paribas to originate a $ million green loan in Singapore. There is scope for our financial centres to deepen our partnership in green finance. One, we could create together frameworks for green and sustainability-linked loans customised for Chinese and Singaporean small and medium-sized enterprises (SMEs). Such frameworks can help promote cross-border syndications in green loans. They can also help to reduce the borrowing costs of SMEs, which will not need to incur expenses for external reviews certifying their activities are green.

MAS will set up a new Shanghai Representative Office in August this year. The Shanghai Representative Office will be MAS’ second office in China, in addition to its Beijing Representative Office. This year will also see the launch of the Singapore-Shanghai Comprehensive Cooperation Council Financial Working Group, which will facilitate financial institutions in our two cities to participate in various areas such as cross-border RMB business and product innovation. Let me suggest one important area where Shanghai and Singapore can work together for the greater good – and that is to harness the power of finance to promote a greener, more sustainable economy. Using Finance to Green the Economy The world needs to take urgent actions to reduce the risk of catastrophic climate change. Finance can be a powerful tool to promote a more sustainable economy and society. Both China and Singapore are committed to meeting their sustainability goals under the Paris Agreement. Both countries have embarked on ambitious green finance agendas. China issued a Green Industry Guiding Catalogue last year to harmonise differing standards for green activities, and is in the process of updating its taxonomy on green bonds to align with international practices. Chinese companies led the world with $ billion of green bond issuance last year. Singapore launched a Green Finance Action Plan last year, built on three core pillars: building the financial industry’s resilience against environmental risks; developing green financial products and solutions; and leveraging technology to support the development of green finance.
If the money you hold is losing its value, you have every incentive to get rid of it as quickly as possible. If, on the other hand, it is gaining value fast, you want to hoard it and store it. In any case, swift changes in purchasing power are the mortal enemy of any good currency. Some bitcoin enthusiasts put forward that this problem will moderate over time as more and more bitcoins are mined and the “velocity” of bitcoin money demand increases with more 1/3  BIS central bankers' speeches  universal acceptance of the cryptocurrency. I don’t think so, since there is no guarantee of purchasing power stability for any commodity-based money. Its key principle is exogenous “money supply”, which in my eyes invites inherent volatility in value. From this perspective, bitcoin is the antithesis of our elastic money system, which is based on the notion that to keep the value of money and purchasing power relatively constant and predictable, the amount of money has to change flexibly over time. This is the lesson of the late 19th and 20th century in monetary policy: price stability matters. People take this as such a self-evident statement that typically they do not even think about it and take it for granted. But this observation does nothing less than confirm the most beneficial feature of our money and the monetary policy behind it – people use the currency and don’t have to think about why, in fact, they trust it.

This deceleration will clearly have some dampening effects on euro area net exports. The euro area is a large economy where exports of goods and services amount to around 17% of GDP only. Economic activity in the euro area is therefore determined mainly by domestic factors. Overall, the fundamentals of the euro area remain broadly favourable. While, as recently published data show, real GDP growth slowed somewhat in the second half of last year, the level of business and household confidence has remained high, supported by, inter alia, high degrees of capacity utilisation and ongoing unemployment declines. Moreover, real income in the private sector will benefit from lower oil prices and from the reductions in direct taxes in 2001. Hence, while downside risks to real GDP growth exist, growth is very likely to continue at a reasonably robust pace. Developments in the euro area bond markets are in line with this outlook for economic activity. Moreover, inflationary expectations implied by bond yields confirm that the financial markets expect current levels of consumer price inflation to be temporary, and price stability to be maintained in the medium term. This assessment may also have been reinforced by the recent moderation in oil prices and the movement of the euro exchange rate in the period since the end of October 2000. BIS Review 8/2001  1  Lower oil prices and the appreciation of the euro have already produced some effects on price developments.