samchain/econo-pairs-v1 huggingface dataset:
27  All speeches are available online at www.bankofengland.co.uk/speeches  27  Chart 3: Literacy rates in Western Europe  Sources: OurWorldInData.org, based on Buringh and Van Zanden (2009) and Broadberry and O’Rourke (2010). Chart 4: Long-run UK GDP growth  Sources: Broadberry and Wallis (2017) and Bank calculations. 28  All speeches are available online at www.bankofengland.co.uk/speeches  28  Chart 5: Expanding and contracting periods in UK GDP growth  Sources: Broadberry and Wallis (2017) and Bank calculations.

(2015), suggest that the average cost of a financial crisis has been 73% of GDP, which translates to a cost of roughly £ 20,000 per capita if a financial crisis had taken place in 2016. 2 For example, Bunn and Rostom (2015) find that, during the financial crisis, highly indebted UK households, with loans four times larger than their income, reduced their consumption relative to income around three times more than UK households with loans between one or two times their income. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  So today I want to consider one of these next frontiers for macroprudential policy: market-based finance of companies. The nature of corporate finance has shifted decisively in the past decade. Since the crisis, nearly all net finance raised by private companies in the United Kingdom has been through the issuance of equity and bonds. Market-based finance has been the spare tyre to what was, after the crisis, a punctured banking system, unable to lend. The scale of businesses borrowing through issuing bonds is now on a par with their borrowing from UK banks. The shift in the balance of corporate finance should be a positive for stability. A more diverse system can be a safer system. The challenge for macroprudential policy is to ensure this source of finance develops sustainably and safely, so that its users can have confidence in the service they get from it, and the wider economy need not fear it. That challenge is not a distant one.
Over the past year and a half as a whole, so including that initial drop, headline and core CPI have both risen at an average (annualised) rate of 1½-1¾%, a little weaker than pre-pandemic rates. We know too that quite a bit of the drop in output has been matched, on the supply side, by the significant numbers on the furlough scheme. The CJRS has successfully protected millions of jobs. But, because those on furlough aren’t available for others, it’s had the effect of matching part of the decline in labour demand with a decline in labour supply. During the second quarter of this year it’s likely that an average of over 2½ million people were furloughed – more than 7% of the workforce. Some of those employees were actually working, at least on a part-time basis, and furloughed jobs tend to be less well paid than the average. But, taking account of these things, the scheme was still holding back effective supply in the economy by an estimated 2%-3% in Q2 (Chart 1). 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  Finally, we also know that the share of the population either in or actively looking for work – the so-called participation rate – has also fallen (the red line in Chart 2 is the year-on-year change). This too will have reduced the supply of labour.

Averaged over that period average inflation has been only a fraction lower than it was before the pandemic, despite a cumulative decline of around 4% in the level of output. If that amounts to a simple matter of “overheating” – if the economy really can’t cope with aggregate demand growth any stronger than minus 2½-3% a year – then one can only conclude that the UK economy’s supply performance has been chilly at best. The reality is more nuanced. I’ve highlighted three contributing factors. By protecting individual jobs the furlough scheme has had the effect of matching lower labour demand with lower supply. In the second quarter of this year this was worth around 2-3% in terms of aggregate output. Prices of many tradable goods have risen sharply. In some cases this reflects specific supply-side problems. Also important has been the general shift in demand, away from services and towards goods, caused by the pandemic. Within the UK, those shifts – regional as well as sectoral – have caused a degree of “mismatch” in the labour market. At least during the early part of the recovery, available jobs haven’t perfectly matched available workers (including those on furlough). There’s a good case that all three of these things will prove temporary. We know the furlough scheme is being wound down, restoring a significant degree of supply to the labour market. As far as tradable goods are concerned, it’s unlikely the pandemic-related shifts in demand will continue if the threat of the illness itself recedes.
Following the monetary policy meeting on 21 September, the Executive Board stated that developments in output, demand and underlying inflation had been consistent with the projections in the June Inflation Report. The Executive Board also stated that its monetary policy strategy and assessments indicate that the interest rate should be gradually increased in the period ahead. One option was to increase the interest rate at this meeting, but the Executive Board found it appropriate to leave the interest rate unchanged. Household credit growth Monetary policy easing through 2003 and into 2004 has resulted in low real interest rates. Short-term real interest rates may now be considerably lower than the level that implies long-term balance in the economy – the neutral real interest rate. A low real interest rate, and expectations of a continued low real interest rate, will contribute to stimulating activity even after the effects of the interest rate fall unwind. Although the projections are based on rising real interest rates, the real interest rate will be lower than the neutral rate during the entire period. The monetary policy stance is therefore expansionary. So far, the effects do not appear to be stronger than expected, but we have little experience of such low interest rates. How quickly prices and wages will react when growth in output and employment picks up is uncertain. There is also a risk that an interest rate that is kept low for a longer period may lead to expectations of a persistently low interest rate.

•  The central government budget – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. •  Wage formation, the structure of the economy and incentives determine how well and how efficiently we utilise our labour resources and other economic resources. There is also an interaction: •  In its budget resolutions, the government authorities will attach importance to the effects of the budget on the Norwegian economy and will therefore take account of interest rate effects. In this way, they avoid a situation where growth in public expenditure and the interest rate push the economy in different directions. •  With a known monetary policy response pattern, the parties to the centralised income settlements can take interest rate effects into account when wage increases are negotiated. •  Moreover, the parties to public sector negotiations can take into account that the higher pay increases are, the fewer people that can be paid over government budgets. The interaction here became clear when public sector employment fell after the expensive wage settlement in 2002. In the years following 1997, with strong growth in public expenditure, the fiscal rule pointed to a continued increase in the use of petroleum revenues.
In view of the fact that risks to financial stability could increase further over the short to medium term, the capital surpluses of domestically focused banks are of particular significance. When defining their appetite for risk and their capital plans, the banks should continue to ensure that they are also able to absorb the losses associated with highly unfavourable but possible scenarios in the future. Even under scenarios of this kind, they should be able to perform their core functions for the Swiss economy – in particular, the supply of credit. The SNB will continue to monitor the situation on the Swiss mortgage and real estate markets closely, paying particular attention to developments in the residential investment property segment as well as to banks’ risk-taking in mortgage lending. As hitherto, the SNB will regularly reassess the need to adjust the countercyclical capital buffer. New banknote series: successful launch I would like to finish my presentation today with a few words on the new 50-franc note, which was released on 12 April 2016 as the first denomination in the ninth banknote series. From the SNB’s perspective, the launch of the new banknote series was an all-round success. First, the changeover at bank counters and ATMs went as planned. According to our information, the general public also encountered no major problems when withdrawing or paying in money at cash machines. Second, reactions to the new banknote were predominantly positive among the public and experts alike.

Fritz Zurbrügg: Presentation of the Swiss National Bank’s Financial Stability Report Introductory remarks by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the media news conference of the Swiss National Bank, Berne, 16 June 2016. *  *  *  In my remarks, I will start by looking at the key points addressed in the Financial Stability Report, which was published today. I will then finish with a review of the launch of the new banknote series, which commenced in April. Big banks: Capital situation further improved – SNB welcomes regulatory reforms Let me begin with the situation of the Swiss big banks. Over the past year, they each improved their capital situation further, as regards both risk-weighted capital ratios and leverage ratios. Both big banks are already almost fully compliant with the requirements of the current Swiss ‘too big to fail’ regulations (TBTF1), which will apply in full from the beginning of 2019. The Swiss National Bank acknowledges the progress made in this area. These regulations were revised over the course of the last year. The revised regulations (TBTF2) envisage a significant increase in requirements on the loss-absorbing capacity of the big banks and will come into effect in a little over two weeks from now. With a phase-in period until end-2019, the requirements will be gradually increased to the definitive level. Both big banks are already fully compliant with the revised requirements that come into effect on 1 July.
Of course, the world has changed a great deal since the Treaty of Paris, and with it the political motives driving the integration process. Nevertheless, if one draws a parallel between the world of 50 years ago and the world of today, one cannot deny that the current enlargement process is driven, at least in part, by the desire to ensure a future of peace and stability for the whole of Europe, and not just for the 15 nations which currently comprise the European Union. Of perhaps even greater significance in today’s globalising world are the “economic” forces driving European integration. This is not to say that they were not already important in the early years of the process. Indeed, just as it became apparent 50 years ago that Europe needed to break free from the ghost of nationalism, so too it became clear that the protectionism of the inter-war period also had to be abandoned. This was an essential prerequisite for restoring economic growth and improving social conditions in post-war Europe. And so it is for the accession countries today, which no doubt see their integration into the EU as a way of ensuring that the necessary conditions are created for the sustainable, long-term growth of their economies. Of course, these political and economic forces to which I refer are very closely linked. So much so, that it is hard to imagine one without the other.

The criteria related to each step of the process should be implemented in a strict and effective manner, in order to provide the countries concerned with the external constraints necessary to bring their economies in line with the respective standards, while at the same time avoiding any discrimination. Of course, against a background of different starting points and varying degrees of economic transition, a plurality of approaches should be feasible without compromising equality of treatment. Indeed, we do not expect the candidate countries to join the EU or to adopt the euro in a single wave. However, irrespective of the individual time frames pursued, what is clear is that the accession process requires a significant amount of preparatory work on the part of all involved. Conclusion It is probably unnecessary for me to remind you that, whatever the Eurosystem’s involvement in the enlargement process, our primary objective is and will continue to be the maintenance of price stability in the euro area. Hence, any arrangements or other forms of cooperation with accession countries must be without prejudice to the Eurosystem’s independence and its primary objective. Nonetheless, I hope that I have conveyed the message that we at the ECB and the Eurosystem at large are also aware of how the wider economic and political environment can have implications for the fulfilment of our tasks and objectives. As central bankers we do not operate in a vacuum and this is certainly the case with regard to the Eurosystem and the prospect of EU enlargement.
These were exactly the challenges faced by the Bank in articulating the terms of its Discount Window Facility. But the challenges are even greater in this area because the exit strategy from capital injections is so much more difficult; by potentially delivering control, capital-insurance is much more closely intertwined with issues of management; and because there would have to be clarity about treatment of all parts of the capital structure. I think that articulating and sticking to policies in this area will be one of the great challenges over the coming years and decades. Macroprudential: taming the credit cycle It would all be a lot easier if we could tame the credit cycle. This is the debate about the missing “macroprudential instrument”. What would be the objective; is there in principle an instrument; would it work in practice in a world of free capital flows? Those debates are prior to questions of institutional responsibility. And they have a bearing on the parallel debate about the regulatory boundary, which is where I will begin. I start from the position that excessive leverage and maturity transformation in parts of the non-bank financial sector – funds, conduits, securities dealers, and so on – was predicated on the availability of plentiful credit on too-easy terms from the commercial banking system. Up to a point, the same goes for liquidity in asset markets.

More broadly, the underlying institutional and legal frameworks that govern financial markets must be taken into account. These include financial product regulations, deposit guarantee systems, as well as the resolution framework for troubled financial institutions. A national financial stability framework that brings together and assesses the whole spectrum of financial regulation serves this important function. The second response to the more complex monetary trade-off is greater policy coordination. The underlying rationale for coordination is that in certain situations, the collective outcome of central banks acting individually according to their mandates may be inferior because cross-country spillovers are not internalized. The current aggressive monetary easing of advanced economies are a case in point. Whether intended or simply a by-product, the outcome has the semblance of competitive devaluations. 7  As a starting point, it is important that advanced economies acknowledge the potential spillovers of their policy. The Federal Reserve, in particular, wields outsized influence given the dominance of the US dollar in global trade and finance. Emerging market countries need to coordinate in voicing their concerns and engage in dialogue. At a minimum, consultation minimizes surprises and the exchange of views helps to narrow differences in perceptions. But there is a more implicit form of coordination that I believe holds much potential. That is the coordination of monetary policy frameworks. This brings me to the third and perhaps most profound avenue for dealing with the new monetary policy trade-off. And that is the adoption of a monetary policy framework that systematically takes financial stability into account.
Third, the impact of climate change on MONETARY POLICY. The NGFS will seek to gain an understanding of how climate change and mitigation actions should be considered in the conduct of monetary policy. From a central bank perspective, climate change is the ultimate supply-side shock. The effects of climate change and mitigation actions are likely to be of a scope and intensity that will affect the economy across both cyclical and structural dimensions. This is a complex endeavour, given the considerable uncertainty surrounding these effects. The NGFS will seek to provide central banks with the requisite tools to make sense of the implications of climate change for monetary policy. We will focus on macroeconomic modelling of critical transition issues, to help central banks better analyse their impact on the economy. We will explore climate-related adjustments that central banks could implement to ensure the smooth conduct and efficacy of monetary policy operations. We will explore how monetary policy operations could potentially support the transition to a net-zero economy. Fourth, NET ZERO FOR CENTRAL BANKS. The NGFS will provide guidance on how central banks can make the transition to a net zero environment. It is important that we central banks who are part of the Network for Greening the Financial System “lead by example” and make an effort to green ourselves. This would include adopting some of the good sustainability practices central banks and supervisors have been espousing to financial institutions.

(2) How to ensure the necessary coherence of the efforts undertaken by stakeholders of different importance, submitted to different types of regulations, across the different financial centres that compose the financial system of the euro? 2. What roles for the Eurosystem  The Eurosystem has been quite active in the field of payment systems and is likely to develop further its involvement under its three roles of: (1) service provider, (2) facilitator of market and regulatory evolution, and (3) overseer. 2.1. Providing payment services  As a service provider, the Eurosystem has put priority on enhancing the efficiency and safety of its TARGET system, with the launch of the TARGET2 project. TARGET2 will provide harmonised services and prices, efficient liquidity management and settlement mechanisms, while setting a new benchmark in terms of business continuity. The Eurosystems objective is to promote the use of real-time settlement services in central bank money, given their expected social benefits in terms of risk reduction in the payment process. In the field of retail payments, the degree of the Eurosystem’s central banks’ operational involvement varies across countries. Most central banks provide payment services to public institutions. Some central banks also offer processing facilities to commercial banks by participating in private retail payment systems and/or operating an own retail payment system. The completion of the SEPA project calls for a specific effort of those central banks that are significantly involved in retail payment operations.
This amounts to 4.5 per cent of GDP for 2021, a sizeable amount of extraordinary spending indeed. Some countries have raised additional revenues to cover this by introducing windfall taxes on energy companies5. One positive side effect of higher inflation is that it reduces the ratio of government debt to GDP because nominal GDP grows fast. This good news has been offset though by the sharp rise in interest rates over the past year, and the most likely net effect is that interest payments on government debt will be higher in the years to come6. Inflation affects the fiscal balance through both revenues and spending and there are both positive and negative effects. Higher inflation may bring in more tax revenue relative to GDP if the brackets in the income tax system are left unchanged, but less revenue relative to GDP for excise taxes that are fixed in nominal terms. Spending may decline in relation to GDP if pensions and public sector wages adjust slowly, while discretionary support measures of the type we have seen applied in all the EU countries over the past year increase public spending. It is worth noting how high inflation can affect public finances in surprising and contradictory ways. During the first year of rising prices, the budget balance very often improves. The higher prices first make the tax base larger and there are higher revenues from consumption taxes, while at the same time there can be a long lag before many costs adjust.

Consequently, the current overall situation of the Swiss economy remains difficult despite the many rays of hope with regard to the economic cycle. Also, the danger of deflation does not yet seem to have been entirely averted. We have not yet reached the moment for a change of direction in monetary policy in Switzerland. After analysing the available economic data and forecasts and taking various risk considerations into account, there is no need for the SNB to take monetary policy action at present. The SNB can afford to adopt a holding stance. However, this holding stance should not be mistaken for inactivity. The SNB continues its firm implementation of an extremely expansionary monetary policy and the unconventional measures launched on 12 March 2009. The Swiss franc money market is still being provided with a generous and flexible supply of liquidity, interest rates remain low, Swiss franc bonds are still being purchased to dampen the level of risk premiums on the Swiss franc bond market as and when needed and the appreciation of the Swiss franc will continue to be prevented. BIS Review 27/2009  1