samchain/econo-pairs-v1 huggingface dataset:
In addition to the practical issues I have mentioned, behind dynamic provisioning there lied a conviction, resulting from many years of supervisory experience and, more recently, also from empirical evidence, that credit risk appears in bank balance sheets at the time lending is granted. Risk is an ex ante concept, and default is no more than the ex post manifestation of this credit risk. As I just mentioned, banks commit lending policy errors in upturns, when there is excessive optimism and it is believed that the business cycle has disappeared and that recessions are a relic of the past that will not return, and when bankers, caught up in this wave of exuberance, relax their credit granting standards. By contrast, and as we are all experiencing at the moment, a reaction in the opposite direction occurs in recessionary phases. Banks, pressured by high default rates, which impact their income statement and their level of capital, contract credit significantly, granting financing only to those borrowers whose solvency is beyond all doubt. The end result is as follows: an overly expansionary credit cycle during the upswing and, by contrast, overly contractionary credit growth during the downswing. In addition, there may be a perverse effect on institutions’ income statements and levels of capital. During upswings, the failure to recognise risk through loan loss provisions results in very high profits.

However, the moderate growth in the M3 monetary aggregate indicates that this situation has not changed since the last monetary policy assessment. Thus, the monetary analysis shows that we can continue pursuing our expansionary monetary policy for the time being, without incurring additional risks. Since the first quarter of 2003, the year-on-year growth rate for mortgage loans has exceeded 5%. Mortgage loans to households slowed slightly at the end of 2004, but since then their rate of growth has accelerated to a level higher than that recorded in recent years. Mortgage loans to companies, which had declined over the past five years, have also risen again since the beginning of the year. Prices continue to increase in the real estate market, a development to which, in our view, the low mortgage rates have contributed. Well aware that our monetary policy is still expansionary, we are keeping a close eye on developments in the real estate sector. In view of the above-mentioned developments, we have decided to leave the target range for the three-month Libor rate unchanged at 0.25-1.25%. What were the most important factors that led to this decision? There were three of them. First of all, we needed to downgrade our expectations with respect to the development of the economy. However, there are no signs of any cyclical downturn and the economy continues to recover, even if this recovery is somewhat delayed and muted. Second, the lacklustre economic activity is being accompanied by an improvement in the medium-term outlook for inflation.
Stronger competition stimulates a more efficient use and allocation of resources thereby increasing allocative efficiency, exerting downward pressure on costs and triggering price reductions. The extension and deepening of the EU internal market is among the policies that are needed to further improve the functioning of product markets. With service-related activities representing around 70% of value added and employment in the euro area (against almost 80% in the US), more competition in EU service markets is required. The gap between the euro area and the United States in labour productivity has widened considerably since the 1990s and some services sector, such as retail and wholesale trade, account indeed for a large part of this gap: labour productivity growth per person employed was 0.7% in the euro area in 1996-2002 compared to 5.5% in the US in 1996-2001. The euro area should step up measures to boost services market competition in order to increase economic efficiency and economies of scale. This would support a higher level and growth rate of labour productivity in the services sector and promote a more dynamic economy. Moreover, measures aimed at increasing services market competition may have a dampening impact on relative price  7  See Blanchard, O. (2004): “The economic future of Europe”, The Journal of Economic Perspectives, vol. 18, pp. 3-26; and also Gordon, R. J. (2004): “Two centuries of economic growth: Europe chasing the American frontier”, CEPR Discussion Paper, No. 4415.

In more rigid economies interest-rate changes are transmitted to prices after a longer delay and structural impediments can prevent the economic efficiency gains sought through the stability-oriented objective of monetary policy from being fully realised. To conclude, the European Union is undergoing an important process of reforms of its socioeconomic model so as to adapt it to future challenges. The economic strategy is on the right track, there is a consensus on the appropriate objectives and agreement on the right institutional setting to be set in place. The next decisive step is now to accelerate the putting into practice of these plans. The earlier this happens, the earlier economic activity, employment and innovation in Europe can be lifted to a higher level and standard. I trust that this acceleration of reforms will not only be in the  17  OECD (2005) “Education at a glance”. 18  See A. Annenkov and C. Madaschi (2005), “Labour productivity in the Nordic EU countries. A comparative overview and explanatory factors 1980-2004”, ECB Occasional Paper No. 39, October. 19  See the article entitled “The Lisbon strategy – Five years on” in the July 2005 issue of the ECB Monthly Bulletin. 20  See the Box entitled “The 2005-2008 Lisbon National Reform Programmes of the euro area countries “in the January 2006 issue of the ECB Monthly Bulletin.
Taking into account the current stance of monetary policy, I anticipate that inflation will decline to slightly below our 2 percent long-run objective over the next few years. So what does this all imply for monetary policy? I currently anticipate that the Federal Reserve’s federal funds rate target will remain exceptionally low – that is at the current level – at least through late 2014. Given our forecast of stable prices and a still slow path back to full employment, there is an argument for easing further. But, unfortunately, our tools have costs associated with them as well as benefits. Thus, we must weigh these costs against the benefits of further action. As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs. But if the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing. Under such circumstances, further balance sheet action might be called for. We could choose between further extension of the duration of the Federal Reserve’s existing Treasury portfolio and another large-scale asset purchase program of Treasuries or agency mortgage-backed securities.

During 2001, growth was mainly in sectors with a relatively low growth in productivity, such as the private services sector and public authorities. At the same time, absence due to illness has increased considerably, which may also have contributed to a poor growth in productivity and rising costs for both companies and the public sector. BIS Review 25/2002  7  The rate of wage increase has risen, particularly within the services sectors, which appears to have contributed to pushing up the rate of price increase in the Swedish economy. This is an important reason why the Riksbank raised its repo rate by 0.25 percentage points, to 4.0 per cent, in connection with the publication of the Inflation Report just over one month ago. We also signalled on that occasion that if the trends regarding economic activity and inflation propensity in the Swedish economy remained the same, there may be cause for further increases in the interest rate. Growth in demand now appears to be on the right path both in Sweden and abroad. Swedish fiscal policy is currently conducted in a very expansionary direction, which made it natural for the Riksbank to wish to ease up on the accelerator to ensure the inflation target is achieved. Some people might think that this target means that the Riksbank is forced to give less priority to employment and production in a situation where a recovery is still in its infancy.
House prices have, as I mentioned in the introduction, increased by 140 per cent since 1996; annual changes are now in the vicinity of 8 per cent, down from around 13 per cent a year ago. As in many other countries, these developments have been the subject of much attention in the media, and calls have been made for the Riksbank “to do something about it”. Here some pedagogical challenges arise. We must explain that we do not target house prices but that we do not ignore risks associated with them. This is far from having a target for house prices. House prices vary in response to changing economic conditions, one of them being the stance of monetary policy. In Sweden, as in many other countries, house prices have increased in an environment characterized by strong macroeconomic conditions, rising disposable incomes and increasingly sophisticated financial markets. In this environment it is impossible to pin-point an appropriate rate of change in house prices. But policy makers always have to take decisions under a high degree of uncertainty. BIS Review 96/2007  5  Concluding remarks In conclusion, let me say that we have tried to be open and honest about the uncertainties surrounding the effects of house price developments on the rest of the economy and the appropriate monetary policy response. We have, in fact, been open about our own uncertainties and the differences in opinion, albeit small, that have arisen at times. This may have given rise to “confusion about the confusion”.

Doing so may enable the central bank to take into consideration the longer-run  BIS Review 96/2007  3  consequences on inflation and production of potentially large movements in asset prices and levels of indebtedness that have been built up over long periods of time. From a theoretical perspective, central banks should always look at inflation and growth over the indefinite future, and thus this seems a reasonable proposal. At the same time one must remember that in practice it is difficult to construct forecasts for longer horizons that actually contain more information than that which is contained in the forecast for the coming two to three years. Also, the horizon may in fact have to be very long to illustrate the issues at hand. The Riksbank view The monetary policy strategy followed by the Riksbank is that of flexible inflation targeting. When setting interest rates we consider not only the outlook for inflation but also the development of the real economy. In most situations, monetary policy is focused on bringing inflation back to target within a two-year horizon, which is deemed as providing enough time to allow consideration to be given to developments in the real economy. In certain circumstances, if inflation has deviated substantially from the target, it is reasonable to let inflation return to target at a slower pace, provided this does not undermine the credibility of the inflation target.
As mentioned, the transmission channels at play in the recent QE experiences are indeed different from the traditional quantitative view. Chart 2  The ECB monetary policy in the European crisis. As the financial crisis led to the Great Recession and then evolved into the European sovereign debt crisis, the ECB started providing liquidity in fixed-rate full allotment mode, progressively and considerably extended the maturity of its loans to commercial banks, widened the set of eligible collateral, made medium-scale purchases of financial assets and announced the Outright Monetary Transactions programme. As a result of these extraordinary measures, at the end of 2012 calm started returning in financial markets, leading to lower financial spreads and a reduction in volatility. The initial  2  Quoted by Michael Woodford in his 2012 Jackson Hole paper “Methods of policy accommodation at the interest rate lower bound”. 4  BIS central bankers’ speeches  signs of economic recovery started appearing. Preliminary formal analyses indicate that nonstandard measures were instrumental in supporting financial intermediation and economic activity in the euro area.3 Despite these recent, encouraging developments on the financial side, real economy recovery has been weak and inflation outcomes have been surprisingly low. The new challenge we face in the euro area today is to avert the risk of a prolonged period of excessively low inflation. Euro area annual HICP inflation was 0.5% in May 2014, after averaging 0.7% in the first four months of the year.

Lastly, when participating in non-sovereign markets for the first time, a central bank might need to learn more about the asset class and build or refine the internal systems needed to operate in that market.11 In all these cases, a central bank might choose to diversify across different asset classes to achieve its policy objective. With these considerations in mind, I now want to turn to a discussion of the large-scale asset purchase programs pursued by the Federal Reserve. My focus will be on the Fed’s agency MBS purchases—which provide the central bank with an additional policy transmission tool and significant additional capacity to provide policy accommodation. Although the purchase of U.S. Treasuries is not central to my remarks, it is important to note that the Federal Reserve is fortunate in having a sovereign debt market that is the deepest and most liquid in the world and is sufficiently large that there are no close capacity limits. The experience with the three LSAP programs and the Maturity Extension Program showed that the Federal Reserve was able to purchase Treasuries at a fast pace without affecting market functioning. Before continuing to the main part of my discussion, I would also note that my intention is to consider the practical and operational issues surrounding the implementation of LSAPs, rather than to debate the merits of LSAPs relative to other potential monetary policy tools. There are a number of important issues linked to the potential costs of LSAPs but unrelated to these implementation issues.
Second stage: As mentioned earlier, to get the GMM moment conditions, we need to purge 𝜔𝑖𝑡 from its component observable to the firm. We assume 𝜔𝑖𝑡 follows an AR(1) process so that 𝜔𝑖𝑡 = 𝜌𝜔𝑖,𝑡−1 + 𝜉𝑖𝑡  (𝐴5)  where 𝜉𝑖𝑡 is an idiosyncratic, unobservable (to both the firm and econometrician) shock to technology. This is the part of 𝜔𝑖𝑡 that is assumed to be uncorrelated with optimal input choices and thus forms the basis for the GMM conditions. We know that our 𝑦̂𝑖𝑗𝑡 estimate subsumes both the inputs 𝑣𝑖𝑡 , 𝑘𝑖𝑡 directly and indirectly through 𝜔𝑖𝑡 = ℎ(𝑣𝑖𝑡 , 𝑘𝑖𝑡 ). But since it is consistent, we can express unobserved technology 𝜔𝑖𝑡 as a function of to-be-estimated 𝜷𝑗 : 41  All speeches are available online at www.bankofengland.co.uk/speeches  41  𝜔𝑖𝑡 (𝜷𝑗 ) = 𝑦̂𝑖𝑗𝑡 − 𝑓(𝑣𝑖𝑡 , 𝑘𝑖𝑡 ; 𝜷𝑗 )  (𝐴6)  So, given a 𝜷𝑗 , we can estimate equation (A5) to back out 𝜉𝑖𝑡 (𝜷𝑗 ). In the Cobb-Douglas case, we then have the GMM moment conditions 𝑘 𝐸 (𝜉𝑖𝑡 (𝜷𝑗 ) ( 𝑖𝑡 )) = 0 𝑣𝑖,𝑡−1  (𝐴7)  Note that capital is assumed to be decided one period ahead and therefore should not be correlated with the innovation in productivity. We rely on lagged COGS to identify the coefficients on COGS since current COGS is expected to react to shocks to productivity and hence 𝐸(𝑣𝑖𝑡 𝜉𝑖𝑡 ) is expected to be non-zero.

2  2  All speeches are available online at www.bankofengland.co.uk/speeches  2  To explore these issues, we start by discussing briefly recent empirical evidence on market power and its potential macro-economic explanations and implications. We then explore its effects on monetary policy, using counter-factual policy simulations and adaptations of a simple New Keynesian model. Taken together, this evidence suggests that an increase in market power and mark-ups could have potentially important consequences for the economy and policy. These are summarised, in stylised terms, in Figure 1. To the extent a secular rise in mark-ups reflects a set of trade-off inducing shocks, that would shift outwards the output/inflation variability (policy possibility) frontier (from A to B). It may steepen the Phillips curve, causing the policy possibility frontier to rotate clockwise (B to C). And it may also potentially alter the optimal weights placed on output and inflation stabilisation by the policymaker, shifting the point of tangency between the policy possibility frontier and policymakers’ loss function (C to D). Taken together, the net effect of increased market power could be a potentially significant rise in inflation (but less so output) variability, relative to the counterfactual case of stable and static mark-ups (A to D). As for monetary policy, the fact that these are trade-off inducing shock places limits on its stabilisation capacity. The (level and variability) of the optimal interest rate path is, as a result, less affected by increased market power, despite significant shifts in policy possibility frontiers and policymaker preferences.
It is marked by very frequent settlements (three settlement sessions a day at the National Bank of Poland), which ensures a brief settlement cycle and a closure thereof within a single working day. The exchange of payment orders between banks is effected only electronically. In addition to the ELIXIR system, KIR S.A. has recently launched the EuroELIXIR system (in January 2006, 34 banks including the National Bank of Poland and nine out of ten largest Polish banks participated in the system), designed to settle euro-denominated transactions, both domestic (with no amount-related limitations) and cross-border ones (up to 12,500 euro and, as of January 1, 2006, up to 50,000 euro). In the case of cross-border transactions, this can be achieved due to the National Bank of Poland’s participation in the STEP 2 and EURO 1 systems. Despite a relatively high level of development of the Polish payment infrastructure, it is hardly used by individual consumers. Poland has witnessed a significant progress in the development of e-banking over the past few years; however, compared to other EU Member States and the neighbouring countries, our position is still weak, taking into account the number of customer bank accounts and the number of non-cash payments by payment cards. For instance, in terms of the number of transactions at POS terminals per one card issued in Poland, we rank extremely low vis-à-vis other EU Member States. In 2004 in Poland, approx.

14 Customer-oriented attitude has induced the public sector to open itself to the public and private partnership solutions. One of its manifestations in Singapore is the ability to apply for a passport at the photo-shop, immediately after the passport picture is taken. Another significant factor, which stimulates the growth of both e-administration and e-economy, is the penetration of innovation and search for new applications for technologies in use between the private and public sectors. For instance, the abovementioned RFID technology was initially used to mark goods in transport and storage, as a technique more advanced than the bar code. China, which has implemented the RFID standard as a result of the efforts of Wal-Mart, the world-largest retailer, is currently considering its use in blood banks to track the location of blood batches. Another use of the RFID technology — also in the health care sector — is currently tested at the orthopaedic ward of the Singapore General Hospital. For the duration of hospitalization, the patient receives a band that facilitates tracing the patient’s location, whereas a built-in thermosensor measures the temperature without bothering the patient. Portable devices provide the nurses and physicians with an ongoing access to information on the patients. Moreover, there is a possibility to integrate the system with 15 monitoring of the heart action and blood pressure . A completely different, although slightly controversial, use of RFID has been found at the prosecutor’s office in Mexico, whereby a chip is implanted under skin of employees that have access to secret documents.
This has been confirmed in an ECB assessment of Malta’s monetary and exchange rate policy in connection with the Pre-Accession Economic Programme Report for 2002, where it is noted that the current regime has served Malta well in promoting real and nominal convergence. In view of these considerations, and given the importance which exchange rate stability has for trade and investment, the current regime remains the preferred arrangement for Malta. Taken together, therefore, the institutional arrangements governing ERM II and the successful experience with the current fixed exchange rate regime suggest that the way forward will consist of a gradual reduction in the weight of the US dollar and sterling in the currency basket, such that by the time Malta will be ready to join ERM II the euro will be the sole reference currency. If the United Kingdom were to join EMU in the meantime, this would automatically raise the proportion of the euro in the currency basket, making the approach to ERM II that much easier. Consistently with this objective, the weight of the euro in the basket was increased from 56.8% to 70% last August. BIS Review 70/2002  3  Given that Malta’s optimal exchange rate strategy in the run-up to ERM II has been identified, the next question concerns the choice of the central exchange rate and the fluctuation bands. The choice of the central exchange rate and fluctuation bands Some might argue that the choice of the central rate is not vitally important.

In this respect, a regulatory and supervisory framework based on high international standards is already in place. Maltese legislation in this area in fact incorporates almost all the features of the corresponding EU directives, and the legislative  4  BIS Review 70/2002  amendments I have just referred to have brought about almost total harmonisation. Institutional responsibilities are divided between the Malta Financial Services Authority, which is responsible for the regulation and supervision of banking, insurance and investment services; and the Central Bank, which is charged with ensuring the stability of the system as a whole. The Bank is also responsible for the domestic payments system, which is being upgraded in line with developments in the euro area. According to a recent background paper prepared by the ECB , Malta already has a financial intermediation mechanism that broadly mirrors the composition of different market segments in the euro area member states. Despite the growth of non-bank financial intermediaries and the development of money and capital markets, the banks remain the key financial institutions. Total bank assets amount to more than double GDP, whereas the ratio of domestic credit to GDP is broadly in line with the EU average. More importantly, the banking system is generally healthy, enjoying ample liquidity and a broad capital base, with the ratio between own funds and risk-weighted assets standing close to 14%. Some institutional aspects of EMU preparations I shall conclude with some remarks on preparations of a more operational nature for eventual integration within the ESCB.