samchain/econo-pairs-v1 huggingface dataset:
And if strong worldwide demand and impaired global supply chains raise the price of a good we buy on global markets, as we’ve seen over the past year, there’s no avoiding the consequences of that for real incomes either. One way or the other, either via lower nominal pay or higher prices, real incomes will be lower than they otherwise would have been. Indeed, because suppressing nominal wages itself involves a real cost – unemployment would need to rise – real incomes would be that much lower in the first case than in the second (i.e. in the simulation depicted in Charts 5a and 5b than they actually have been this year). What policy can do – assuming these shocks are foreseeable, or persist for long enough – is to make a choice between these outcomes. Again supposing all this had been predictable in advance, in the spring of 2020, the policy maker in this simulations might have chosen not to tighten policy quite so aggressively, and to tolerate a degree of above-target inflation at the end of this year, in order to avoid such a steep rise in unemployment. But this obviously involves a trade-off. In the face of big increases in import prices of this sort, either you stick rigidly to the primary inflation objective, and suffer the greater hit to real incomes and domestic output; or you accommodate somewhat higher inflation and pay some attention to the secondary goal of stabilising the domestic economy.

The concept Dutch disease stems from the negative effects on the Dutch economy of the spending of revenues from the substantial gas resources of the Groningen field. From the end of the 1960s, these revenues financed strong growth in public expenditure, which led to higher costs and a decline in manufacturing. The situation went too far, resulting in large balance of trade and government deficits which required tightening measures. This in turn led to a sharp rise in unemployment in the first half of the 1980s. But the Netherlands is not the first example of a nation that failed in this respect, and far from it 2. A very clear example is provided by Spain as early as in the 17th century when the colonisation of South and Central America provided the country with access to vast natural resources and gold. The historian David Landes describes the effects on Spanish society in his book “The Wealth and Poverty of Nations” where he cites a happy Spaniard who proclaimed the following in 1675: “Let London manufacture those fabrics of hers to her heart’s content; Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocades: Italy and Flanders their linen, so long as our capital can enjoy them. The only thing it proves is that all nations train journeymen for Madrid and that Madrid is the queen of Parliaments, for the world serves her and she serves nobody.”  1  See Report no.
I regard the policymaking process as a systematic effort to investigate what policy setting would deliver the best achievable set of economic outcomes,3 taking into consideration all available information, including risks not fully summarized in the base case point forecasts. Our approach is not greatly different from those of central banks that operate inflation  1  But, of course, predictability is not an end in itself. A policy could be completely predictable, but also incompatible with the central bank’s goals. 2  The policy response to the extreme shock of the financial crisis was predictably vigorous, even if its detail was hard to specify in advance, and the knowledge that the Federal Reserve would act “as needed” to promote the dual mandate anchored inflation expectations and helped to avoid a deflation outcome. 3  In formal terms, this approach would be described as a target-rule or forecast-targeting rule. BIS central bankers’ speeches  1  targeting regimes, but in our case we explicitly seek to promote both aspects of our dual mandate.4 The basic question is how the FOMC should implement monetary policy to best push the economy back to its dual objectives. Prescriptions from simple policy rules such as Taylor Rules, named after Stanford economist John Taylor, have a legitimate role to play in this evaluation as do more complex simulations such as optimal control rules.

Global economic growth has slowed as European activity has stagnated and this is capping the demand for U.S. exports. On the brighter side, some of these headwinds appear to be subsiding. Employment growth has picked up somewhat (Figure 3), which should eventually lead to faster household formation and more demand for housing. U.S. banks are healthier so that credit conditions, while still tight, are gradually easing. And, households appear quite far along in the deleveraging process by a number of important measures. For example, the ratio of household debt service relative to income is back to levels last seen in early 1990s (Figure 4). For these reasons, I expect that growth will gradually strengthen over the next few years. Nevertheless, significant downside risks remain, especially those related to the challenges in Europe and how the potential “fiscal cliff” in the United States will be resolved after the fall elections. Even if these risks do not materialize, I anticipate only slow progress toward full employment. On the inflation side, in recent years our forecasts have been noticeably more accurate than on the growth side, and we have succeeded in delivering inflation very close to our 2 percent price stability objective. Through March, as measured by the personal consumption expenditures deflator, overall consumer prices have risen 2.1 percent over the past 12 months, and prices excluding food and energy have risen 2.0 percent (Figure 5). But price trends have been a bit stickier than one might have anticipated given the large amount of slack in the economy.
But if the regulatory core tier 1 capital fell below the threshold then the contingent capital would automatically be converted to common equity. When bank failures impose costs on the rest of the economy, it is reasonable to insist that banks themselves purchase a sufficient degree of insurance in the form of a large capital cushion available automatically before insolvency. Such contingent capital instruments are very different from instruments, such as subordinated debt, which banks have been permitted to count as capital under the Basel regime, but which do not provide a reliable capital buffer until too late – after the bank has failed. So at present the taxpayer is providing capital that is exposed to future losses rather than investors in debt-like capital instruments of a troubled bank. Whether investors would be willing to provide contingent capital on the required scale would depend upon the price, but at least the cost would fall where it belongs – on the banks. 2  BIS Review 129/2009  So the first approach to the “too important to fail” problem might be made to work with a requirement for contingent capital. It is worth a try. But it has three drawbacks. First, banks still have an incentive to take really big risks because the government would provide some back-stop catastrophe insurance.

Mervyn King: Monetary policy developments Speech by Mr Mervyn King, Governor of the Bank of England, to Scottish business organisations, Edinburgh, 20 October 2009. *  *  *  Two years ago Scotland was home to two of the largest and most respected international banks. Both are now largely state-owned. Sir Walter Scott would have been mortified by these events. Writing in 1826, under the pseudonym of Malachi Malagrowther, he observed that: “Not only did the Banks dispersed throughout Scotland afford the means of bringing the country to an unexpected and almost marvellous degree of prosperity, but in no considerable instance, save one [the Ayr Bank], have their own over-speculating undertakings been the means of interrupting that prosperity”. Banking has not been good for the wealth of the Scottish – and, it should be said, almost any other – nation recently. Over the past year, almost six million jobs have been lost in the United States, over 2½ million in the euro area, and over half a million in the United Kingdom. Our national debt is rising rapidly, not least as the consequence of support to the banking system. We shall all be paying for the impact of this crisis on the public finances for a generation. The United Kingdom faces two fundamental long-run challenges. First, to rebalance the economy, with more resources allocated to business investment and net exports and fewer to consumption.
Doing nothing is not an option. BIS Review 167/2009  3

Before I turn to our most recent assessment of the stability of the Norwegian financial system, let me give a brief outline of the structure of the financial system. The Norwegian financial system is dominated by banks, with a market share of more than 56 per cent, calculated as the banks’ share of total assets in financial institutions and mutual funds. The banking system is relatively concentrated. The largest bank had a market share of 37 per cent in terms of total assets in the banking sector at the end of 2005, while the largest five had a market share of 61 per cent. Savings banks account for a substantial part of the banking sector. However, most of the savings banks are quite small. To partly compensate for that, some cooperate on a range of products which provides economies of scale while maintaining their independence. During the past decade, activities of foreign-owned banks in Norway have expanded considerably both through take-overs and organic growth. At the end of 2005, they had a market share of over 30 per cent, in terms of total assets. Their lending growth has been higher than for Norwegian-owned banks for several years. The development towards larger cross-border banks makes supervision and crisis management more complicated. In the event of a crisis, central banks, supervisory authorities, political authorities as well as deposit guarantee funds in several countries will have to be involved.
However, the large array of unconventional measures employed successfully by various central banks around the world to engineer further policy easing has dispelled the fear that the zero bound is like hitting a wall, rendering monetary policy helpless. The management of a central bank’s balance sheet has been understood as an important policy tool. We have also learned, in some cases while forced to innovate on the way, about operational aspects  1  I would like to note that the views I express are my own and do not necessarily reflect views of my colleagues on the Governing Council of the European Central Bank. 2  See also the instructive analysis by John C. Williams, the newly appointed President of the Federal Reserve Bank of San Francisco, who has examined the role of well-anchored inflation expectations for containing deflation risks in the US (Williams, 2009). BIS central bankers’ speeches  1  that matter for policy. Examples include the collateral framework and the list of counterparties. In revised editions of central banking textbooks, I expect to find discussions of these things that were absent from the pre-crisis editions. *** There have also been lessons about the strategy of monetary policy. In my view, the crisis has reaffirmed the danger associated with the temptation to fine tune the real economy, in addition to maintaining price stability. One way to pose this debate is by contrasting two views.

Although the main determinants – such as the behaviour of employment – will not be favourable, the high level of the household saving rate makes it conceivable that, if the factors of uncertainty were to progressively dispel, consumption might recover significantly. The main factor underpinning activity in 2010 should therefore be the external sector. The fact that the recovery in the Spanish economy lags that in the other European countries somewhat may provide for more expansionary behaviour of exports, whose trajectory has been reasonably positive. Foreseeably, then, a gradual growth phase based on recovery in the external sector and on the progressive extension of its impulses to business investment and employment will begin over the course of next year, laying the bases for a demand-led expansion. However, as a result of the spillover effect of the negative 2009 rates, average growth in 2010 might post a moderate decline. This trajectory of slow recovery in activity broadly matches the government’s macroeconomic projection that acts as a basis for the State Budget for 2010. Yet as I said, there is a risk that business investment may perform somewhat worse than foreseen in this scenario. But in my view, what is most important at present is not the exact date on which activity will begin to post a positive rate or whether its rate of increase will be greater or less than forecast in 2010; rather, it is the scale of the medium-term challenges involved in exiting the most complicated situation the Spanish economy has faced in recent decades.
Chart 12: Measures of domestically generated inflation 3.0  Per cent  2017 Q3 2017 Q4  2.5 2.0 1.5 1.0 0.5 0.0 Services CPI  Services PPI  Unit labour Private sector costs ULCs  Unit wage costs  GVA deflator GDP deflator excluding government  This is an important thing to bear in mind when looking at the current wage data. Before the financial crisis we were invariably in a “two plus two is four” world, with two per cent productivity growth and two per cent 15  All speeches are available online at www.bankofengland.co.uk/speeches  15  inflation yielding four per cent wage growth at least. Today we seem to be in more of a “one plus two is three” world: given one per cent productivity growth, wage growth only needs to reach three per cent, not four, to be consistent with the two per cent target. In our central forecast wage growth achieves that. And so although imported inflation falls back as the upward pressure from sterling’s depreciation comes to an end, domestic cost pressures keep inflation close to target in the medium term. Relative to this central forecast I can see risks in both directions. I have already mentioned the possibility that consumption growth might take a further leg down as households continue to adjust to lower real incomes. In that case GDP growth would be lower, spare capacity could open up and inflation could drop below target. But there are also risks from the supply side.

The idea that there was more slack than headline measures of unemployment were suggesting was one that I put particular weight on when I started on the MPC last autumn – in other words that there was more room for the economy to grow without generating inflation above target in the medium term. That was one reason why I voted (in the minority) for no change at the November policy meeting. 14  During the MPC’s annual  supply stocktake in February we made a judgement to revise our estimate of the economy’s equilibrium unemployment rate from 4½% to 4¼%: in other words, a judgement that there was indeed some more slack in the labour market. That left me more comfortable with the balance of risks around the MPC’s central assumptions than I had been previously. At the same time, by the February Inflation Report, annual wage growth in the data had picked up materially relative to what we had been expecting at the November meeting. In November the most recent observation for whole economy regular pay had been of just 2.1% growth (in August). And we were forecasting it to only pick up very slightly over the next six months. But by the February Report it had picked up to 2.4% growth (in November) and we were forecasting a further pick-up to 2.8% over the next few months.
The priority for the Committee now is to build on these achievements in monitoring regulatory compliance with Basel standards and to continue to enhance the rigour of all aspects of the implementation monitoring and assessment process. There is a very full agenda planned for 2013 and beyond which will deliver quite a number of new monitoring requirements (such as rules relating to liquidity, the leverage ratio and G-SIBs), as well as country and thematic assessment reports. It is a credit to member jurisdictions, and evidence of their commitment to the process, that this work can be undertaken: first, it requires the willingness of each member to be subject to review by their peers, and then a continuing strong commitment, including substantial resourcing of expert staff, from all involved. Nevertheless, the effort will be well worth it if we achieve our objective of consistent implementation of the Basel standards. 4  BIS central bankers’ speeches  Assessing the impact of, and industry response to, the implementation of the regulatory reforms The major reforms that have been developed by the Committee, coupled with those being introduced at the domestic level, are designed to fundamentally reshape banking. The reforms are intended to generate a more resilient financial system, in which higher levels of capital and liquidity are held, and in which risk is appropriately managed and priced. This will obviously have consequences for the costs of financial intermediation, although studies undertaken suggest that this cost is both relatively small, and considerably outweighed by the benefits of increased financial stability.

These projects are: •  a review of the standardised (credit and operational risk) approaches to capital adequacy, which need to be re-examined in light of calls for greater simplicity and comparability in the regulatory framework as well as the desire to reduce the reliance on credit rating agencies if possible; and  •  an examination of the need for a capital framework for interest rate risk in the banking book, particularly given the desire to limit arbitrage opportunities between the trading and banking books. These last two projects are still at an embryonic stage, so I cannot say too much about what they might entail at this point in time, but they will be the last pieces in what has essentially been a complete overhaul of the regulatory framework since the financial crisis. Monitoring and reinforcing implementation of Basel regulatory standards As I have already said, the establishment of the implementation monitoring programme has been a high priority for the Committee; it is critical to the successful delivery of the benefits of the agreed reforms. Starting from scratch at the beginning of 2012, a comprehensive assessment framework has been developed that is growing in its acceptance and credibility, and I am pleased to report that the Committee now has dedicated capacity in the area of implementation work. The implementation framework is being continuously strengthened through a lessonslearned process.
Unlike many other countries dealing with a banking crisis, Norway did not set up a separate asset management company - or “bad bank” - to handle problem loans. There were several reasons why we chose not to do this: •  In none of the problem banks in Norway was the ratio of non-performing loans considered to be of such magnitude that it would require so much attention from the management of the bank that it would distract them from their main goal - to bring the bank back to profitability. •  The banks themselves knew their borrowers best and had experience in working out defaulted loans. Handling such loans will always be part of a large bank’s business, and transferring employees with this expertise to a separate company might have left the banks more vulnerable when they encountered new problem loans. •  Setting up an asset management company and transferring bad loans from the banks would have required complicated accounting and legal work. In particular it would have been very difficult to find a fair price at which the loans should be transferred. •  The responsibility of handling the problem loans should remain with those who had the most to gain from a successful handling - the banks. •  Last but not the least; such an asset management company would have had to be financed by government money. Thus, more taxpayers’ money would have been put at risk.

3  Interested readers are referred to Moe, Solheim and Vale (2004), Norwegian Official Reports (1992), Wilse (1995), and Stortinget (1998). Steigum (2004) sets out the macroeconomic background and implications of the banking crisis. BIS Review 58/2003  1  During 1984 and 1985, the Norwegian banking system was deregulated. In this new environment, banks started to compete for market shares. We saw a huge increase in bank lending which, coupled with general optimism (oil!) and interest rates that were kept artificially low, created an economic boom. However, neither bank managers nor supervisors had much experience of banks operating in a competitive credit market, and did not pay sufficient attention to banks’ risk exposure. A sharp fall in prices for our main export commodities, oil and gas, and the need to consolidate the economy after the boom and bring down rampant inflation, led to a recession in the late 1980s. In short, deregulation, a lending boom, and an ensuing recession set the stage for increasing bank losses. The Norwegian banking crisis evolved in two stages: In the first stage from 1988 till 1990, several small and some medium banks failed. From 1990 - 1991, the crisis became systemic. The three largest commercial banks, accounting for half of the market for credit to the domestic non-financial sector, were in deep trouble. During the first stage of the crisis, the problems were mostly handled by the banks’ own guarantee funds.