samchain/econo-pairs-v1 huggingface dataset:
A large part of the improvement of banks’ risk-weighted capital ratios over the last few years has taken place as a result of banks using internal models to a greater degree to calculate lending risks, and not by building up more capital. The use of these internal models has meant that the risk weights on banks’ lending have fallen, which has contributed to a rise in equity in relation to risk-weighted assets. Our analysis shows that without this transition to internal models, the major banks’ core tier one capital ratios would only have increased by a few percentage points over the period 2006 to 2013. The banks’ equity as a proportion of total assets, or the leverage ratio, has been largely unchanged over the last few years (see Figure 10). 15 Figure 10 The major Swedish banks’ core tier one capital ratio and leverage ratio Per cent  Note. The blue line indicates CET 1 in relation to total assets and thus differs from the Basel Committee’s definition of leverage ratio. Sources: Banks’ annual reports and the Riksbank. Even though measures have been taken to reinforce banks’ capital levels, more is needed. One important measure for which the Riksbank has argued for a long time is the introduction of a leverage ratio requirement. But we have also argued in favour of raising the countercyclical capital buffer to 2.5 per cent along with raising the risk-weight floor for mortgages to 35 per cent.

As loans in the stock are typically amortised very slowly – by a few per cent each year – the development of the debt stock will principally be determined by the previous debt stock in the short term. Limiting the amount of new loans therefore has a relatively slow impact on the debt stock. A reduction in tax relief on mortgage interest can affect all borrowers – and could have potentially major effects on indebtedness To influence the development of household debt we should also consider fiscal policy measures, which in this context means changes to various housing-related taxes. One example is changes to tax relief on mortgage interest. The advantage of this kind of measures is that it has the potential to influence the entire debt stock. The incentive to take out new loans decreases, and the costs linked to existing loans are also affected. In terms of the simple debt equation above, the amortisation rate could therefore rise on existing loans (the incentive to amortise increases if future borrowing costs rise) while new borrowing would be subdued. The debt-to-income limit is an effective complement to the loan-to-value limit There are many indications that the distribution of debt is also significant in terms of risks. As I mentioned earlier, several international studies show that highly-indebted households reduce their consumption more than households with lower debts when there is a fall in housing prices, for example.
Due to the fact that the change in the general interest rate situation was both large and protracted, the CPI was affected for an appreciably longer time than one to two years. As the low CPI inflation was largely a result of the Riksbank's rate cuts and therefore was judged to be transitory, the Bank did not see reason to counter it through a further easing of monetary policy. During this period, however, the Riksbank was often asked why the repo rate was not lowered in spite of below-target inflation, which indicated the need for a more explicit explanation of policy. To this end we highlighted a new index as an important inflation measure, namely UND1X, which, among other things, excludes mortgage interest costs. The June Inflation Report in 1999, for instance, illustrates how UND1X was used to clarify the formulation of monetary policy. When the repo rate was left unchanged on this occasion UND1X inflation was forecast to be close to 2 per cent towards the end of the forecast period while CPI inflation was expected to be considerably below target.

To put it somewhat differently, but with the essence more or less the same, the rule means that monetary policy should normally be aimed at meeting the inflation target of 2 per cent CPI inflation one to two years ahead. BIS Review 26/2004  1  The fact that we use primarily the inflation forecast one to two years ahead as a kind of intermediate goal for the real target of 2 per cent actual inflation means that temporary shocks that only have an impact on inflation in the coming year do not generally affect our rate setting. It is conceivable that drastic changes in interest rates could bring inflation back to the target faster than over one to two years. But such a policy would probably result in sharp, undesired fluctuations in both the real and financial economy. Against this backdrop it could be said that we normally deliberately tolerate the target deviations that result from temporary shocks to inflation and that arise and diminish over the next year. However, sometimes temporary effects on inflation arise that do not subside during the subsequent year. These effects then show up in the inflation forecast, measured in terms of the CPI, one to two years ahead. But if the effects are expected to disappear quite soon afterwards, there may be cause not to counter them through repo rate adjustments.
As a result, in the long term, two different uses of the CBDC could exist side by side: one for payments between financial sector players (a socalled “wholesale” currency) that uses blockchain technology and all its possibilities, notably smart contracts; and another for the general public (a so-called “retail” currency) that is simpler and better suited to retail transactions. In this respect, financial institutions are much more digitally mature than private individuals as they already access central bank currency digitally via the bank accounts they hold with the central bank. In addition, following on from the questions raised by the Governor of the Bank of England, Mark Carney, on the idea of creating an international digital currency in response to the dominance of the US dollar, I think there would be some advantage in moving rapidly to issue at least a wholesale CBDC, as we would be the first such issuer in the world and would thus reap the benefits of having a benchmark CBDC. 2/ The issuance of a CBDC can generate significantpositive externalities by increasing the productivity of the financial sector and by extension the economy, and by shoring up confidence in the currency and in the financial system. But, in parallel, it is vital that we examine the potentially negative externalities that a CBDC could generate for liquidity, profitability and bank intermediation. In particular, we need to look very closely at the risks linked to large-scale and/or sudden conversions of bank deposits into central bank money.

You can take a look at our first example of this – the November Inflation Report –online, at www.inflationreport.co.uk. This afternoon’s event will showcase a selection of the materials we are planning to run alongside these changes in our communications to help explain to people about the Bank’s work. To bring that to life, the first session will kick off with three of my colleagues – Ben, Sam and Jon –explaining to you what the Bank is doing on some topical issues, things that are influencing the Bank’s policies and the role we play in the economy right now. The questions they will answer are:   Why did the Bank change interest rates earlier this month?   What we are doing to keep banks safe? ; and    What are we doing in response to the vote to leave the EU to ensure the Brexit process is as smooth as possible? Through our dialogue with you today, we will enrich our understanding of how we can meet our objective more effectively, and we hope you will gain a better understanding of what the Bank does and how it is going about it. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Before handing back to Ranvir, I’d like to thank Speakers for Schools, We Are Futures, Economy.org and Rethinking Economics – the key stakeholders that have helped us with this morning’s events and who have been working with us to develop our educational resources.
Sources: The OECD and the World Bank WDI  Figure 6 Unemployment and labour force in Sweden and the USA Percentage of labour force and percentage of population 16  74  14  72  12  70  10  68  8  66  6  64  4  62 United States, Unemployment (left scale) Sweden, Unemployment (left scale) United States, Labour Force (right scale) Sweden, Labour Force (right scale)  2 0 06  07  08  09  10  60 58 11  12  13  14  Note. Refers to 15–74 age group. Seasonally-adjusted data. Sources: Eurostat and the OECD  16  BIS central bankers’ speeches  Figure 7 Forecasts 2011–2012 for export increase 2012 Annual percentage change, annual average 8  Exports, actual outcome 2012  8  Other analysts The Riksbank  6  6  4  4  2  2  0  0  -2 jan-11  -2 jul-11  jan-12  jul-12  Sources: Respective forecasters (6 of them), Statistics Sweden and the Riksbank  Figure 8 CPIF and trend in unit labour costs Annual percentage change 4  4 Unit labour cost, trend CPIF  3  3  2  2  1  1  0  0 00  02  04  06  08  10  12  14  Note. The trend is calculated using an HP-filter (=1600) on a series extended with the Riksbank’s forecast.

Mervyn King: Banking and the Bank of England Speech by Mr Mervyn King, Governor of the Bank of England, to the British Bankers Association, London, Tuesday 10 June 2008. *  *  *  After a decade or more of economic stability, we are now facing a period of rising inflation and falling economic growth. Part of the reason for this change of economic weather is that we are passing through the most prolonged period of financial turmoil that most of us can remember. Whether, as the IMF has argued, it is the worst period of financial stress since the 1930s is too early to judge. After all, the crisis is not yet over. Since last August there has been a great deal of soul-searching about what we all might have done differently, both before and after 9 August when the crisis hit. And in circumstances where livelihoods are at risk it was inevitable that the “blame game” was played. Unfortunately, although such a game helped to fill newspaper columns, it generated more heat than light. So today I want to step back. Financial crises have been a regular, and disturbing, feature of our and other developed economies for as long any one can remember. They are as frequent now as in the nineteenth century, when Henry Thornton and Walter Bagehot were developing their ideas about how central banks could prevent instability in the banking system.
However, property markets in many other countries had experienced substantial price increases over a number of years, followed by a dramatic fall in connection with the crisis. Obvious examples of this are the United Kingdom, Ireland and Spain. It is probably therefore more correct to talk about a North Atlantic property bubble. 1  1  The concept of “the North Atlantic real estate bubble” was introduced, as I understand it, by Paul Krugman and Robin Wells in “The Slump Goes On: Why?” in the New York Review of Books, September 2010. BIS Review 149/2010  1  Developments in the United States may have been the trigger, but problems had already built up in many other countries, too, and not only in the property markets. …as a result of a long period of macroeconomic stability? What was the driving force behind this process? Macroeconomic factors probably played an important role. The global macroeconomic environment in the years prior to the crisis was characterised by low interest rates, low and relatively stable inflation and high and relatively stable growth. In brief, there was an awful lot that looked awfully good – so good that this period was given its own name: “The Great Moderation”. It is perhaps not so surprising that in this environment of low interest rates and an apparently new era of macroeconomic stability households and financial institutions became over-optimistic and took on too much risk. Households were happy to borrow and financial institutions were happy to lend.

But there are a number of circumstances that almost certainly contributed, although there is still debate on their relative significance. Poorly adjusted regulations and insufficient oversight One fact that definitely did play a role is that the regulations and supervision did not function satisfactorily. One of the problems was that there was too much focus on the situation of individual agents and too little focus on the financial system as a whole – too much micro and too little macro, if you like. Moreover, the supervision lacked the necessary international oversight as it was largely conducted on a domestic basis by each individual country. There were also loopholes in the regulations that, for instance, meant that some institutions and markets were not covered and could expand without the authorities having any real oversight. Things were not made easier by the fact that there was also great ingenuity in the financial markets that resulted in new financial instruments, where no one properly understood the risks. So all in all, one can say that the deficiencies in regulation and supervision meant that the brakes did not catch when events got out of control and the risks became too great. A North Atlantic property bubble… One of the main reasons behind the financial crisis is sometimes said to be that a property bubble arose in the United States, which then burst and spread extensively. This is largely true, although a simplification.
Overall, East Asian economies have become more resilient. The managed float exchange rate and Inflation Targeting monetary policy frameworks that a number of regional economies have adopted after the Asian crisis have proven to be effective tools in maintaining economic stability and have had a role in helping spur economic growth. They have also had a role in helping dent financial imbalances especially excessive external borrowings and their maturity mismatches. The latest numbers of external debt to GDP in East Asia (except for the case of South Korea) stood below 30 percent in 2007, declining from the range of 62 to 168 percent from the peak during 1998 whereas the ratio of foreign reserves to short-term debt in most regional economies jumped from approximately 1-3 times in 1998 to 4-8 times in 2007. Nevertheless, as mentioned earlier, the direct role of monetary policy in curbing financial imbalances apart from price stability will need to be revisited. It may be very well be the case that some tightening monetary policy is needed along side prudential measures in curbing financial imbalances. On the financial sector side, reforms that have been put in place to foster transparency and governance as well as to strengthen regulation and supervision have also resulted in significantly healthier financial institutions across the region in terms of solvency, liquidity, and profitability.

Sophistication of financial products has led to inadequate understandings of market players as well as lack of transparency in certain securities markets and intermediaries. One notable example is the unregulated and non-standardized markets for structured products where a fair evaluation of the instruments as well as of the counterparty risk has been very difficult, not only for market players but also for supervisors. Second, the current financial crisis demonstrates the amplifier role of the financial sector in a boom-bust economic cycle. In the environment of fast credit expansion, rising capital inflows, and lack of proper regulation, the inherent procyclical nature of the financial sector has contributed to one of the unprecedented build-up of financial imbalances in the US during the boom and a disorderly unwinding of these imbalances during the bust. Third, the crisis also raises a crucial question about the role of monetary policy in maintaining macroeconomic and financial stability. The important question is whether monetary policy should be employed to help deter the build-up of asset price bubbles apart from the macroeconomic stability objective. And fourth, Asian financial markets have been more susceptible to negative events in the major financial markets. Volatilities in the regional financial markets have increased, driven increasingly more by actions of international investors. We have witnessed large capital reversals during the periods of risk aversion as their investment positions were unwound both in the stock and bond markets. Ladies and Gentlemen, These four important lessons will be important inputs for us while we cautiously proceed with further integration.
[3] Moreover, studies have uncovered a significant lag in discerning the benefits of mitigation measures,[4] which makes it much harder to impose costs on society today if measurable results are available much later. By making the costs of a major, truly global crisis more tangible, the pandemic may help to remove the “tragedy” from Mark Carney’s horizon: after COVID-19, the dramatic consequences of a global climate crisis may be much easier to imagine. And given the need for fundamental structural change after this crisis, the willingness to use this chance to take precautions against the even bigger risk of a climate crisis may have increased. In order to achieve the European Union’s target of net-zero greenhouse gas emissions by 2050, our response to the growing risks of climate change has to start with the way we rebuild our economies after the pandemic. In my remarks this morning, I will argue that three complementary pillars are needed to accelerate the transition towards a low-carbon economy: an effective carbon price, a strong investment programme and a greener financial market. I will also argue that central banks have a role to play in mitigating climate-related risks, even within their traditional mandates, because global warming poses severe risks to price stability. Carbon pricing as the central tool So let me start with the first pillar, the introduction of global carbon pricing. Europe is already spearheading global efforts, which is essential at times when a global solution is not in sight.

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Within the ECB Governing Council, around Mario Draghi, we take very seriously the task entrusted to us by the European Treaties of maintaining price stability, meaning medium-term inflation of close to but below 2%. Our monetary policy has safeguarded the euro area against the threat of deflation in recent times, and is achieving tangible progress towards our inflation target: inflation rose to 0.5% in October and should exceed 1% in early 2017. It is supporting demand while narrowing the output gap, which has been reduced from -2.4% in 2014 to -1.0% in 2016 according to European Commission estimatesii. The Eurosystem has already  Page 3 sur 8 provided ample liquidity to the European economy: our holdings under the expanded asset purchase programme amounted to nearly EUR 1,400 bn in October 2016. We can take stock of this progress, while remaining alert to the latest financial developments and their mixed economic effects: the rise in the equity market but also in the long term interest rates; the appreciation of the dollar but quasi-stability of the global euro exchange rate; and the increase in inflation expectations. We should be both confident in our progress, and vigilant with respect to our environment. Until March, we will go on implementing exactly what we said we would: our clear success today in purchasing a volume of EUR 80 bn of assets per month, including corporate bonds, is the best guarantee of our credibility tomorrow.

Let me start with a brief remark about terminology. For a long time, economic thinkers used the term “political economy” to refer to the discipline that we now call “economics”. Adam Smith, David Ricardo or Léon Walras, to name but a few, were some of its exponents. Despite its 400 year-old history, the term “political economy” had in the last decades gradually lost its importance as a comprehensive way of understanding economic issues. And yet it could now be returning to the forefront, given the strong interactions between politics and economics. At the international level, we cannot yet predict what Mr. Trump’s presidency will really be like, but we can expect a deep political shift, with consequences for American economic policies. Besides, the electoral cycle will continue in Europe, starting with the Italian referendum in December. To state the obvious, the first certainty is that we are facing a lot of uncertainty. How will Europe overcome this? I sincerely hope not by “waiting and seeing”, but rather by sticking to and building further on its three shared economic and social assets: its single currency, its single market, and its unique social model. We must actively build on them, and not lazily rest on our laurels: pride should not be confused with complacency. First, with the euro, we share a solid currency which is recognised worldwide. The vast majority of euro area citizens are attached to it (68% according to the latest Eurobarometeri). Moreover, in a world of uncertainty, European monetary policy is a yardstick of stability.