samchain/econo-pairs-v1 huggingface dataset:
In that sense, the innovation that led to the exponential growth of new structured credit markets in recent years was not just a product of new technology and more aggressive risk taking in Western financial markets; it was also a flawed response to these wider imbalances in the global economy. Sources of procyclicality But weaknesses in modern credit markets, and the “originate to distribute” model of banking, have certainly been a good part of the problem. The development of new markets and credit instruments has tended to amplify the financial cycle – they have been pro-cyclical in the jargon – and has introduced or strengthened the misalignment of incentives and flawed measures of risk. Of course financial markets have always tended to develop a strong cycle. There is a natural feedback between asset prices and credit availability. When credit supply increases, households and companies who were previously credit constrained find it easier to borrow. Their increased ability to buy assets bids up prices. And these higher-priced assets can be used as collateral to secure loans. So as asset prices rise, so does collateral, thereby increasing the willingness of banks to supply credit. But in recent years this has been reinforced by some structural and regulatory changes. The growth of credit risk transfer through securitisation has tended to increase the proportion of banks’ balance sheets that come under mark-to-market accounting. Even gradual changes in the values of the underlying loans have tended to appear as abrupt changes in banks’ trading and treasury books.

2  BIS Review 94/2008  In addition, regulation can also encourage procyclical risk taking. Basel I, for example, encouraged the growth of securitisation and the “originate to distribute” model of banking because holding the low risk elements of a loan portfolio in the banking book were relatively heavily capital-weighted. Basel II contains more carefully calibrated capital risk-weights and is a considerable improvement over Basel I. But the risk measures are drawn from the market and share some procyclical features. Weights increase as credit risk rises so riskweighted assets will seem relatively low during tranquil economic times and relatively high during periods of stress. While there may be scope within Pillar II to address this, it is too early to know whether that can be used effectively. The combination of these market and regulatory effects have amplified risk taking during the boom and is now constraining risk appetite as financial conditions have deteriorated. Policy responses Since the crisis broke last summer, regulators, governments and central banks have come together in the Financial Stability Forum (FSF) to analyse what has gone wrong and agree an international response.
In such circumstances either the Bank would need to relax the tolerances around banks’ reserves targets to accommodate the  4  BIS central bankers’ speeches  extra cash in the system, or drain the excess cash, which it can do by one of several means. In either case, the Bank would not compromise its capacity to set Bank Rate or purchase assets. Since the start of the Bank’s asset purchase programme in March 2009, this interaction has not been binding. Because quantitative easing directly injected more cash into the economy, forcing the commercial banks to hold more reserves than they would otherwise have chosen to, the reserves averaging system was suspended and all central bank reserves have since been remunerated at Bank Rate. But when reserves averaging is re-introduced in due course, we will need to be conscious of the potential interaction between liquidity support and monetary policy operations. The framework is designed so that both policy objectives can be achieved at the same time. 9 Recent policy initiatives/issues a)  Pre-positioning  Since the DWF was put on a permanent and transparent footing in late 2008, the Bank has been working on a number of initiatives to develop the facility further. One important expansion has been the Bank of England’s capacity to assess and lend against portfolios of loans (e.g. mortgages) as well as securities. 10 There are a number of benefits to having this capacity.

In addition, as part of the Bank’s desire to ensure that commercial banks are adequately incentivised to seek their own liquidity insurance, the cost of borrowing increases with the size of the draw. The resulting matrix of fees is summarised in Table 1. Table 1 Fee table for DWF drawings of gilts Fees (bps) % of sterling eligible liabilities  0-10%  Collateral Type Level A  Level B  Level C  Level D  (e.g. high quality  (e.g. liquid and  (e.g. illiquid  (e.g. own-name  sovereign debt)  high quality  transferable  securitisations  mortgage and  securitised loans  and covered  corporate bonds)  and mortgages)  bonds, and loans)  50  75  125  200  75  125  200  300  100  175  275  400  10-20% 20-30% >30%  At the Bank’s discretion  There is one further important point to make regarding the policy decisions underpinning the design of the DWF. It relates to the challenges associated with providing liquidity support while not compromising the Bank of England’s ability to conduct monetary policy. To implement interest rate decisions, the Bank must, through its market operations, adjust the supply of central bank money in response to changes in the demand for banknotes and reserves, given the MPC’s policy rate (Bank Rate).
And US wage growth has  5  This result is also found when wages are adjusted for inflation expectations as discussed in Broadbent (2014). 6  BIS central bankers’ speeches  also been puzzlingly weak over the past few years.6 Despite unemployment falling around 2 percentage points, wage growth has remained around 2%. Chart 13: The US wage Phillips curve  Chart 12: The UK wage Phillips curve 1971-1997 2013-2014 Fitted 1998-2014  1971-1982 2012-2014 Fitted 1983-2011  1998-2012 Wage Fitted 1971-1997 inflation 40 35 30 25 20 15 10 5 0  0  5 10 Unemployment rate  Sources: ONS and Bank calculations  These Phillips curve surprises can be clearly seen in the Bank’s own forecast errors for wage growth and unemployment over the past few years (Chart 14). Since 2011, unemployment has come in consistently below the Bank’s expectations. Yet despite this unexpected strength in the labour market, wage growth has come in consistently and significantly lower than the Bank’s forecasts. In part, that reflects weak productivity, which has also been significantly lower than the Bank’s forecasts. But wage growth has been surprisingly weak even allowing for that. In response to this wage weakness, the MPC has dynamically adjusted its estimates of slack. For example, last year the MPC revised upwards its estimate of the so-called “participation gap” – the wedge between actual and equilibrium levels of participation in the labour force. By increasing the assumed drag from slack, that revision explained away part of the wage puzzle.

According to an assessment by the IMF Mission that visited Samoa earlier this month, about a quarter of the tourism sector’s capacity was destroyed by the tsunami. Beyond tourism, the IMF Mission noted that the widespread damage to physical infrastructure implies that other sectors such as commerce, transport, and communication have also been directly affected. In the seven months to end January 2010, tourist arrivals increased. On the surface, any increase is good news. However, a significant number of the visitors were volunteers and overseas personnel who came to assist with the tsunami emergency and recovery efforts. Many of these people stayed in makeshift camps in the tsunami affected areas, resulting in a reduction in paid hotel accommodation. This, combined with a general decline in the other categories of tourist expenditures, saw total tourism earnings in the period under review fall 5 percent to $ million. Private remittances, which is one of the major sources of income for our people, was also affected by the recession and tsunami. In the early months of the current financial year, private remittances were well on their way down, due to the global recession. However, the huge inflows following the tsunami outweighed the earlier reductions resulting in an overall increase to $ million, in the first 7 months to end January. 2  BIS Review 49/2010  Exports rose slightly in the period under review, reflecting increases in exports of fish, coconut oil, copra meal, nonu fruit and bottled water.
Or as we usually say, the interest rate path is a forecast, not a promise. The uncertainty was also illustrated with some alternative scenarios, where we among other things examined how the forecast for the repo rate would be affected by a more rapid increase in wages. For the first time, we wrote in detail about these problems of monetary policy considerations in our report and to mark this the Inflation Report changed its name to the Monetary Policy Report. During the spring new information was received, which to some extent made us revise our assessments. The labour market situation looked to be tighter than expected, partly because the supply of labour was not increasing as much as we had expected. The new wage agreements signed in the labour market were slightly higher than both we and many other analysts had anticipated. At our monetary policy meeting in May, we Executive Board members were unanimous that the repo rate needed to be raised in total more than we had previously thought. But we did not yet have a complete picture of the central wage negotiations and I personally did not consider the change to be so large that there was reason to move more quickly and raise the interest rate already in May. An own repo rate forecasts allows us to discuss in a natural way the timing of future interest rate changes. But in May we did not publish any new interest rate forecast and our communication was limited to a qualitative assessment.

We will have a better internal base for making decisions. In addition, if we manage to succeed in communicating how we see the driving forces behind economic developments and also the objective and effects of monetary policy, it will also be easier for others to assess how new information will affect the future development of the repo rate. If it becomes clearer to the general public and financial market agents how we view future interest rate developments, this will give us better tools for influencing expectations of the future repo rate. By affecting expectations of short-term interest rates, we as the central bank can also indirectly affect interest rates with a slightly longer duration, which in turn increases the effect of monetary policy. As I said, monetary policy largely works by influencing expectations of future repo rates. When we based our forecasts on market expectations of the repo rate we could only indirectly express our view of the interest rate path by commenting on market pricing. For several reasons this was not very clear. One reason is that there is no clear-cut method for measuring expectations of the repo rate on the basis of market pricing. Different securities differ from one another with regard to duration, credit risk and liquidity, which makes the calculations complicated. Different calculations give different results without any of them being clearly better than the others. Another reason for the lack of clarity was that market expectations could change quickly.
Karolina Ekholm: Role model or warning example? Swedish experiences of taking indebtedness into account in monetary policy decisions Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, to a meeting at the Confederation of Swedish Enterprise, Stockholm, 14 March 2014. *  *  *  The views expressed in this speech are my own and are not necessarily shared by the other members of the Executive Board of the Riksbank. I would like to thank Carl-Johan Belfrage for his help in writing this speech, along with Mikael Apel, Marianne Sterner, Ulf Söderström and David Vestin for their views on earlier versions. Today I shall talk about what has been the actual source of dissension among the Executive Board of the Riksbank for several years, namely to what extent household indebtedness should be taken into account in the monetary policy decisions. It may appear unnecessarily retrospective to focus on the earlier dissension when the Executive Board has actually been unanimous on the monetary policy assessments made since December last year. But I believe that there are important lessons to be learnt both by us in Sweden and those abroad, with regard to how the policy conducted may have brought us to where we are now. Swedish monetary policy has recently been one of the clearest examples of a policy that has tried to counteract the build-up of debt with reference to high indebtedness being a threat to financial stability.

Import prices  Services prices  Annual percentage change  Annual percentage change  15  15  10  10  5  5  0  0  5  Australia USA United Kingdom Norway Canada Sweden  4  3  -5  Australia USA United Kingdom Norway Canada Sweden  -10 -15 10  11  12  13  5  4  3  2  2  1  1  -5 -10 -15  14  0  0 10  11  12  13  14  Note. In Figure 2b, the data for Australia is quarterly, while the data for other countries is monthly. For Sweden, Norway, the euro area and the United Kingdom, the data refers to services prices in the HICP and for others in the CPI. Sources: National sources and Statistics Sweden  9  The KIX index for policy rates only includes the euro area, Norway, the United Kingdom and the United States. Its composition has been governed by the relevance of the respective country’s policy rate for pricing on the foreign exchange and financial markets. For a more detailed explanation, see Sveriges Riksbank (2012). BIS central bankers’ speeches  5  Slower domestic demand and low inflation expectations also contribute The impact of monetary policy via the exchange rate can be primarily observed in prices of internationally-traded goods. However, a monetary policy that leans against the wind also has effects on inflation in that it dampens domestic demand.
Bruno Gehrig: Moving among currency giants – a Swiss perspective Speech by Prof Bruno Gehrig, Vice Chairman of the Governing Board of the Swiss National Bank, at the Swiss-American Chamber of Commerce, Zurich, 16 January 2001. *  *  *  First of all, I should like to thank you for the pleasure and delight of being invited to speak to you today. At the same time, I should like to emphasise how much I appreciate the exemplary and highly successful activity of the Swiss American Chamber of Commerce. Your organisation plays an invaluable part in the economic, political and - most important of all - in the personal relations between US and Swiss citizens. In my speech entitled "Moving among currency giants" I should like to outline a few ideas under four different headings. I shall start out with a few remarks on the system of floating exchange rates, which we have more or less learned to live with since 1973, the time of the breakdown of Bretton Woods. This will be followed by some considerations on the always topical subject of short- and medium-term currency movements. After this bird's eye view of general developments, the frog perspective will be highlighted. I will deal with the special features of our small currency, and end by drawing a few conclusions for the SNB's monetary policy.

It would be bound to fail due to our poor understanding of the process of short-term exchange rate determination. Given this state of ignorance, ongoing Forex dicussions inevitably suffer from a lack of analytical and systematic rigour. Reasons given for exchange rate movements remind us of a self-service shop offering all kinds of goodies that always fit the need of the moment: ice cream when the sun burns and hot coffee when it gets cold. The shopping list includes: -  trade imbalances  -  cyclical leads and lags  -  asset price bubbles  -  events and announcements in politics  -  a broad range of differentials, preferably in interest rates, productivity and inflation  and all this both effective and expected. One chooses the story that best fits a specific situation in the hope that something is better than nothing. This opportunistic selection, reinforced by communicative herding, gives the Forex discussion the character of a sequence of scenes with different key subjects that influence expectations to a varying extent, thus also possibly causing exchange rate distortions. Exchange rate developments between the USD and the euro in the past two years once again are a good example in this respect. I am not cynical, but humble. Day-to-day or month-to-month exchange rate movements seem to be a marvellously complex process, a highly unstable interaction of facts and expectations. The globalisation of capital markets has, if anything, added to this complexity by amplifying the impact of expectations.
Supporting the economy by offering financing under the best possible conditions  The last point I would like to make is also crucial for economic recovery: it concerns lending to the economy. The downward trend that has been observed for some time is primarily due to a fall in demand. But we must of course ensure that the offer of financing remains sufficiently broad so that SMEs and MTEs, who rarely have access to market financing, can weather the current difficult economic period without encountering additional difficulties. In particular cash facilities must remain sufficiently available and the conditions under which they are offered should not be systematically tightened. In fact, our quarterly survey of several thousand SMEs show a regular contraction of the rate at which SMEs’ requests for cash facilities are fully granted. In the last quarter of 2012, this rate was only slightly higher than 50%. The same is true, although to a lesser extent, for mid-tier enterprises (MTEs). I therefore enjoin you, in general terms, to avoid reducing lending to the economy, which would aggravate the situation of companies and make the necessary economic recovery more difficult. * * * Ladies and gentlemen, I have no doubt that you are ready to meet these challenges – particularly as you are already substantially prepared for them.

For instance, Norges Bank (2012) writes: “At the same time, interest rate setting should be robust and counter the buildup of financial imbalances in the economy.” The Reserve Bank of New Zealand (2012) has the following wording: “In addition, the PTA’s [Policy Targets Agreement] stronger focus on financial stability makes it clearer that it may be appropriate to use monetary policy to lean against the build-up of financial imbalances, if the Reserve Bank believes this could prevent a sharper economic cycle in the future.” The Bank of Canada (2012) makes it clear that these deliberations can imply that it takes longer for inflation to attain the target: “[A] tighter monetary policy that keeps inflation below target longer than usual could help to prevent excessive borrowing and a broader buildup of financial imbalances.”25 In countries where the housing market collapsed in connection with the financial crisis, and where housing prices have already fallen heavily, the deliberations have of course been somewhat different. There, the monetary policy discussion has mainly concerned ways to stimulate the economy and get out of the deep recession.
Tomorrow, I will address the Buffalo-Niagara Partnership at their Movers & Shakers Breakfast, speak with staff of the Empire Justice Center, meet with Lt. Governor Bob Duffy, convene a meeting of our Upstate Advisory Board, whose members are major leaders in the upstate economy, and visit the Roswell Park Cancer Institute to learn about their role in economic development in western New York and in the broader world arena. My colleagues and I at the New York Fed continually track conditions in our District, and we have created a number of tools for that purpose. For example, my staff produces monthly indexes of economic activity for New York City, the state of New York and New Jersey. These indexes are essentially measures of local output – similar to gross domestic product, or GDP, at the national level. The measures provide a more complete gauge of activity than the employment report, which is another important metric at the state and regional levels. We have also constructed a consumer credit panel to track local household credit conditions at the county and even the zip code level, including the amount and type of personal debt and whether payments are being made in a timely way. In addition, we conduct a periodic poll about the credit needs of small businesses in the region, which are an important source of new jobs. We are just launching our latest poll that also includes questions about the skill needs of small businesses and whether the right kinds of skilled labor are available.

During the past year the situation in the Swedish labour market has improved appreciably. Since the beginning of 1999 the number in employment has risen by almost 100,000. A continued improvement can be expected, but more employers are reporting difficulties in recruiting qualified labour even though unemployment in Sweden is still historically high. There is still a need for measures of a structural nature to improve the workings of the labour market and thereby the long-term conditions for economic growth. Consumption The demand side of the Swedish economy, above all private sector demand, has picked up properly in recent years. In 1997 private consumption rose 1.6% from the previous year, followed by 2.4% in 1998 and a preliminary rate of 3.4% between the first halves of 1998 and 1999. Major factors behind the growth of private consumption are the better labour market situation, rising disposable income and increments to household wealth. The consumption trend is particularly dependent on future household income. Expectations of an improvement will lead to increased spending on consumption at the expense of current saving. At present, households’ optimism about their own economy seems to have stabilised at a level that is historically high. The Riksbank envisages that household expenditure on consumption will be stimulated in the future by, for example, rising real wages, low interest costs and tax relief. Moreover, international economic prospects have stabilised and employment in Sweden has risen. These developments suggest that the consumption trend will remain favourable.