samchain/econo-pairs-v1 huggingface dataset:
As you can see in blue in Chart 8, long-term sickness has driven much of the persistent rise in inactivity amongst 16 to 64 year olds since the start of the pandemic. That is a striking fact. As their number has increased, the inactive population appears more detached from the labour market. More of the inactive people now say that they would not like a job than before the pandemic, and fewer now expect to return to work. How should monetary policy respond to such a reduction in labour force participation? Bank of England  Page 13  The first thing to note is that this does not seem to be a case in which participation has fallen in response to weaker economic conditions and a weaker labour market. This is not a fall in participation driven by a shock to demand. So, we should not expect there to be a margin of spare capacity outside the workforce that exerts downward pressure on inflation in a way that would call for a lower level of interest rates to stimulate demand. Instead, the rise in economic inactivity is a change to the supply of labour, independent of demand, in particular by older workers. If those workers have accumulated enough savings to sustain a desired level of consumption much like the one they had before their early retirement, at least for a while, aggregate demand will not have fallen by as much as aggregate supply.

I am afraid that monetary policy cannot make the shocks to our national real income go away. But what monetary policy can – and must – do is to make sure that the inflation that has come to us from abroad does not become lasting inflation generated at home. Our most important tool to bring inflation down is Bank Rate. This is the interest paid on reserves held by commercial banks at the Bank of England. Because commercial banks are at the centre of a system of intricately linked financial markets, Bank Rate affects interest rates and yields more widely. And because those interest rates and yields determine the returns on savings and the cost of credit – including the rates people pay on their mortgages, and the rates businesses pay on loans to finance their investments – monetary policy exerts a powerful influence on spending by households and businesses. Monetary policy, in other words, works through the management of aggregate demand in the economy. Simply put, when inflation is too high, we increase Bank Rate to dampen demand; when inflation is too low, we reduce Bank Rate to boost demand. In reality, things are of course more complicated. For a start, monetary policy operates with a lag. It takes time for changes in Bank Rate to work through the financial system to loan and mortgages rates, and for those changes to affect consumption and investment decisions by households and businesses.
Jean-Pierre Roth: Switzerland - a financial centre in the heart of the euro area Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Belgian Financial Forum, Brussels, 16 February 2004. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  Switzerland is not a fortress. In relation to the rest of Europe in particular, it is an economy that is very much open to mutual exchanges - notably with regard to trade and finance. It is not by chance that Switzerland has become a major financial centre. This can be ascribed to a number of positive factors, including specialist knowledge, a long-established banking tradition, the quality of the financial infrastructure, and customers’ confidence in the soundness of the country’s financial institutions. Switzerland’s political stability, its high level of savings and the international standing of the Swiss franc have also enhanced the appeal of its financial system. Increasingly, however, Switzerland is not alone in offering such advantages. Moreover, the Swiss financial centre - like all the others - has to face the challenges of globalisation and the fight against financial crime. As banking secrecy does not afford any protection to funds of dubious origin, the Swiss authorities are able to combat money-laundering with a reasonable degree of efficacy. In this area, Switzerland has implemented measures that have received international recognition.

Fernando Restoy: European reform – challenges for the Spanish banking sector Presentation by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, of Issue no 137 of Papeles de Economía Española “Constructing a Banking Union”, Fundación de las Cajas de Ahorros (FUNCAS), Madrid, 11 November 2013. *  *  *  Good evening. Thank you, José María, for your introduction. I am delighted to be here on the occasion of the publication of Issue no. 137 of Papeles de Economía Española, under the title “Constructing a banking union”. I understand it contains articles of great quality and interest, which is no surprise considering the calibre of the contributing authors. During the seminar this evening, I imagine you will have dealt in depth with the main elements of the Banking Union project. Allow me to add my own thoughts on the significance of this process and its consequences for the banking industry. I believe the history of European integration categorically illustrates how this process has been subject to diverse and complex forces that reiteratedly test its ability to move forward. These destabilising forces usually arise from the interaction between exogenous shocks and internal structural deficiencies. During the most recent bout of instability, this has again been the case: the international financial crisis has revealed substantial structural flaws within the monetary union, allowing marked imbalances to emerge in national economies and making their correction difficult without upsetting the stability of the common monetary area.
From a European employment perspective, the good news is that Europe is catching up in line with the goals of the Lisbon agenda. From 1995 to 2003, the respective growth rates of overall labour input are still 0.9% for the U.S. against a now positive growth rate of 0.7% per annum for the EU-13. Thus, while the relative growth of labour input and measurement differences can explain the GDP growth difference up to 1995, this is no longer true since. The data indicates that instead, GDP growth divergence since 1995 has been influenced much more by changes in productivity growth. Productivity growth as change in GDP per work hour is crucial as it determines wages and – together with labour input growth - the potential growth rate. Productivity growth differential EU – U.S. As you can see from Graph 3, labour productivity growth rates since 1995 have been markedly less in the European Union than in the United States. Previously, the reverse was true for several decades. Graph 4 shows that between 1995 and 2000, Europe lagged behind the United States. Labour productivity grew on average 0.6 percentage points per annum less in the EU-11 than in the United States. After 2000, the situation worsened. Between 2001 and 2003, EU-11 lagged the United States by an average of 1.7 percentage points of labour productivity growth per year.

6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The PRA is a founding member of the Sustainable Insurance Forum, a network of around twenty insurance regulators from around the world who are sharing knowledge and best practice on how to consider climate risk in insurance supervision. The Bank, as many of you know, has also co-chaired since 2016 the G20 Green Finance Study Group on behalf of the United Kingdom, with our colleagues at People’s Bank of China. We continue to do so under Argentina’s Presidency, the group now being the G20’s Sustainable Finance Study Group. And most recently, the Bank has become a founding member of the Central Bank 7  and Supervisors Network for Greening the Financial System . Conclusion  We are part way through a transition in thinking where climate change is moving from being a social responsibility issue to being a core financial risk at the heart of how companies manage their business. It is these financial risks that create the link from climate change to the Bank of England’s mandate - given our core responsibilities to ensure the safety and soundness of banks and insurers and our responsibility to support a stable financial system. It’s clear to me that many different actors - companies, investors, financiers, climate scientists, governments, financial policy makers - have a part to play, given their mandates and specialisms, to support this transition in thinking.
It has given developing countries increased borrowing facilities to mitigate acute effects of other economic shocks, be they crop failures or lower prices for major export products. The process has also led to increased investment in developing countries. At the same time, investors in industrialised countries have had new opportunities of diversifying risk and obtaining the higher return that may come from projects in developing countries. This should have tended to improve the utilisation of capital in individual countries as well as in the world as a whole. Some observers argue, for example, that the efficient capital markets in the United States were a major factor behind the favourable economic trend there in the 1990s, a trend that also benefited developing countries. But this has not been a straight-forward matter. When the process was initiated, the effects that capital liberalisation in recent decades has had on the stability of both national and global capital markets  BIS Review 2/2002  3  were clearly underestimated. There has now been a change in the international discussion. Much has been written about the ways in which deregulations were implemented, both in countries like Sweden and in developing countries. The process was sometimes too rapid, sometimes wrongly designed and often lacked a thorough assessment of the consequences. These lessons are now being taken into account in advice to countries that have not yet opened their markets.

Or were high interest rates on the contrary needed to prevent the flight of necessary capital, a weakening of the exchange rate and the failure of companies with foreign-currency debt? Or was it perhaps the case that the high interest rates led investors to expect additional business failures and social unrest, so that they withdrew their capital for precisely this reason? As we do not know what a different direction of policy would have led to, even today we cannot tell what would have been most appropriate. But we do know that the tight nature of many of the programmes was eased as time went by, partly as the crisis became less acute and the shortage of foreign currency less troublesome. Another question concerns the structural changes and reforms that were required in connection with some programmes. Such conditions may be justified as regards the banking sector or bankruptcy proceedings, for example, as these are often clearly a part of the problems. They are more questionable, however, when they concern components of the economy that are not self-evidently connected with the current stabilisation problems. There were elements of this in, for example, the programme for Korea, which stipulated measures for the liberalisation of imports. Such matters are  BIS Review 2/2002  5  liable to discredit the IMF, besides leading to the IMF’s proposals encountering more opposition than otherwise in the borrower countries.
While I have presented to you some of the major risks as separate and discrete, we recently have discovered that they are, in fact, inter-related. For instance, we have seen that market risk frequently drives credit risk. In the second half of last year, we saw turbulence in fixedincome markets produce severe liquidity and solvency risks for hedge fund market participants. Also, we have learned that credit risk may derive from operational risks, embedded in complex systems for managing collateral or intra-day funding, both of which require rigorous internal control environments. Regardless of the nature or form of risk, the best way for all banks to protect themselves is to identify risk correctly, accurately measure and price it, appropriately control it and maintain high levels of reserves and capital, in both good times and bad. However, many banks are not finding it easy to develop a holistic approach to assessing and managing the many interrelated risks they face. A particular challenge is to relate such risk assessments to appropriate capital levels, especially given the dynamic nature of their businesses. BIS Review 32/1999  2  Before I discuss how some banks are tackling this issue, let me first consider the role of capital more generally and how it relates to risk and strategy. Fundamentally, the role of capital is to act as a buffer against unidentified, even relatively remote losses that a bank may incur in the future.

A bank must hold enough capital to cushion both depositors and senior lenders against losses, while leaving the bank able to meet the needs of its customers. Banks must maintain capital commensurate with the amount of risks that they take and hold enough to weather financial storms, which can at times be severe and of considerable duration. Banks with low equity capital ratios and a high variability of operating earnings have proven particularly vulnerable to financial distress. However, banks do not just hold capital to overcome distress, but also because it provides them with financial flexibility. Banks that are strongly capitalized can take advantage of growth opportunities. Also, strongly capitalized banks are better able to promote innovation, whether in the form of new products, new services or new distribution channels. This is not just a capital resource issue, but a human resource issue. Bank managers who are able to focus on the business of banking, strategy and competition, rather than on financial difficulties, can create and innovate and, therefore, add value for shareholders. Banks also hold capital as a sign of strength to their customers. Clearly we know this to be true with depositors on the retail side, but it is equally true on the wholesale side. When an institution or corporation enters into letter of credit guarantees or swap contracts, it needs to be confident that its bank will be around in three or five years, at the maturity of the contract.
All of this is discussed at a macro forecasting meeting in the Monetary Policy Department. When the overall macroeconomic picture has been established, the economists chisel out the different points of the forecast in more detail. For instance, they make a complete forecast of the components in the balance of resources and in the labour market. Finally they check the overall picture to ensure that the different parts of the forecast hold together and have been added up correctly. In total, the economists forecast around fifty variables. All of these are then compiled into an internal document that summarises the Department’s view of how inflation and economic activity will develop in the future. Another document is also created, explaining how the forecasts are affected by model results and assessments. None of the Executive Board members takes part in this stage. The idea is that the product then reported to us will as far as possible be a civil servants’ product. It should not be influenced by the ideas of the different Executive Board members. The civil servants thus hold a relatively strong position in the process. The Executive Board’s main contribution is not to get involved in all of the details of the forecasts – instead we shall highlight different perspectives and broaden the analysis. The fact that the civil servants produce their own draft forecasts also contributes to strengthening and maintaining the internal competence.

Our monetary policy is oriented at controlling inflation. The exchange rate floats to absorb international shocks without causing major disruptions in domestic activity. The fiscal policy is based on a rule that implies saving transitory incomes and today enjoys the benefits of prudence. Fiscal savings, combined with the Central Bank’s international liquidity position, provide a reserve of resources that permits us to accommodate external financing shocks even worse than those we are seeing now. Our financial system has been prudent and has the necessary levels of capitalization to play its credit intermediating role properly. Prudence, both of the private sector and of the macroeconomic policies, can now yield their fruits in the worst financial episode the world has had to suffer in many decades. Thank you. References Berger, H. and E. Stavrev (2008). “The Information Content of Money in Forecasting Euro Area Inflation”. IMF Working Paper WP/08/166. Bernanke, B. and M. Gertler (2001). “Should Central Banks Respond to Movements in Asset Prices?” The American Economic Review, Papers and Proceedings of the Hundred Thirteenth Annual Meeting of the American Economic Association, 91(2): 253-257. Blinder, A. and R. Reis (2005). “Understanding the Greenspan Standard.” In The Greenspan Era: Lessons for the Future, Proceedings of the Jackson Hole Symposium 2005, Federal Reserve Bank of Kansas City, pp. 11-96. Borio, C. (2008). “The Financial Turmoil of 2007-?”: A Preliminary Assessment and Some Policy Considerations.” BIS Working Paper No. 251. Christiano, L., R. Motto, and M. Rostagno (2007). “Two Reasons Why Money and Credit May Be Useful in Monetary Policy”.
When all-important arguments made internally have to be explained externally, the quality of the internal work rises. By being more transparent, we are now open to criticism that is both sharper and more specific, and this has helped us to improve our analysis. This particular effect of transparency is not discussed to a great extent in economic literature but is of great practical importance. Concentration on core activities One problem for many public institutions is that they lack focus. Research and practical experience show that a concentration on core activities is a prerequisite for good performance. Central banks are involved in many different activities. The extent of this in-volvement should be a point for discussion, however. Some central bank tasks may have arisen by historical accident and then remained in the central bank domain without ever being questioned. This raises the issue of whether some services could be provided more efficiently by private entities. For instance, the Riksbank owned a paper mill and a note-printing works in the town of Tumba, as well as a mint in the city of Eskilstuna, for three hundred years. These are largely manufacturing operations that differ greatly from the work involved in monetary policy and financial stability. Since our job is to concentrate primarily on monetary policy and the difficult systemic questions in the financial world, we decided to sell both the operations in Tumba and the mint in Eskilstuna.

Number of central bank employees per 100 000 inhabitants  50 44.6  45 40  40  35  35 29.0  30  26.6 22.5  25 20 13.7  15  11.4  10 5  45  3.8  5.6  14.1  14.7  18.0  18.5  19.3  20.7  11.5  30 25 20 15 10  7.6  5 0  Sw UK ed en Sp D ai en n m N a rk et he F i rl. nl a A nd us t ri a Ita P o ly r Eu tug ro al G are er a m a Ire n y l B and el gi u Fr m an G ce re L u ec xe e m b. 0  Source: The Morgan Stanley Central Bank  Diagram 1 shows the number of central bank employees per 100 000 inhabitants in different countries. From this, we can see that the number of central bank employees varies greatly from country to country. This would also apply if the number of employees was related to some other measure of country size, such as GDP. Not all central bank functions have anything to do with the size of the economy, however, which is probably the main reason why Luxembourg fares worst. One probable explanation for the large differences here is that the tasks of central banks differ from country to country.
It also said that, rather than responding to economic conditions – that is the task of the “primary” instrument – the path of the APF would be “gradual and predictable”. Second, and because of this, it’s reasonable to suppose that this path is already reflected in the asset prices on which the MPC conditions its forecast. I’ve tried to argue today that the effects of QE and QT are transmitted predominantly via their impact on bond yields. The same goes for the expected path of the APF over the future: only surprises in QT decisions have an impact on these prices. So as long as there are no surprises – as long as the MPC always announces in advance its intentions, and the evolution of the balance sheet really is “predictable” – then the effects of QT will already be embodied in the yield curve. To add something else would be to double-count those effects. Summary and conclusion No monetary policymaker should ignore information that’s relevant for future inflation. That includes the monetary aggregates. But like most economic data they need interpretation. Certainly the very strongest claims – that QE inevitably leads to rapid growth of commercial bank deposits (M4), on a par with that in the central bank’s balance sheet; and that this, in turn, inevitably leads to excessive inflation – are not well supported by the evidence.

In better run firms, the rules are built on a foundation of the shared and well‐understood values of the institution. These values reflect a bank’s public function as a financial intermediary and recognize the privileges that come with a banking charter. 4 In other firms, however, compliance rules can be undermined by the values of the organization, resulting in an unhealthy dissonance. For example, if there are elaborate rules for complying with the tax laws of a particular jurisdiction, but the organizational value is to facilitate flight capital, a mixed message may be sent that tax compliance rules are just technicalities. Similarly, in the area of economic sanctions, if the sanction is perceived as something technical and implicating only a single currency, the bank might be sending an unintended message – that we comply with the sanction only because it represents a mandatory but silly rule of a single sovereign issuing a specific currency, and not because the sanction seeks to address a problem that all should find abhorrent, like financing a jurisdiction engaged in genocide. 5 What to leave out Thinking about culture like a package, there are some things that I would leave out. Again, without being exhaustive, here are three examples. First, I would leave out any depiction of the persons that an organization does business with as “counterparties.” If you went to your doctor and overheard her refer to you in conversation with office personnel as a “counterparty,” rather than as a “patient,” would you worry? I would.