samchain/econo-pairs-v1 huggingface dataset:
This may also be working alongside the level of uncertainty to encourage firms to meet output growth using labour rather than undertaking capital expenditure projects. At the margin, the idea that workers are responding to Brexit by showing increased flexibility could mean that there is more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term (Slide 8). Certainly, it would help explain why, despite unemployment being at its lowest level in 42 years, measures of domestically generated inflationary pressure generally remain below levels that would be consistent with inflation being at target in the medium term. That includes a wide range of measures, including unit wage costs, those derived from the Consumer Price Index, and those based on national accounts measures of value added. In turn, the subdued nature of domestically generated inflation is evidence that the current elevated level of headline inflation is attributable to pressure arising from the pass through of the depreciation of sterling. In 2  See Broadbent (2017) for a full discussion of these issues Private sector real wage growth, calculated by deflating nominal wage growth by output prices, was 1.8pp weaker in the year to 2017Q2 than expected at the time of the May 2016 forecast, while growth in productivity per head was 0.7pp weaker.

I also have a direct set of prescribed responsibilities under the Bank’s application to itself of the Senior Managers Regime – a framework developed to improve accountability at the top of financial services firms. As a key part of that accountability, over the coming years I look forward to giving many talks and speeches such as this one to set out the thinking behind decisions and their delivery across the full range of my and the Bank’s responsibilities. The Bank has quite rightly placed emphasis on the role of communication as a policy tool in its Vision 2020 strategy; describing our work to as diverse a range of people as possible. Of course I start this new role at an interesting point in time. It is nearly 17 months since the UK voted to leave the EU, and just over 16 months until that decision takes effect in March 2019. In the period since the referendum we have learned that while Brexit was at one level a binary decision, there are many potential outcomes, and paths to those outcomes. Perhaps reflecting this multidimensionality, uncertainty about Brexit seems to be increasing rather than diminishing over time (Slide 1). In the Bank’s Decision Maker Panel Survey (which is run jointly with Nottingham University), the share of firms who placed Brexit among the top sources of uncertainty rose from 35% in a survey taken in September 2016 to 40% in August this year.
SPEECH  The European Climate Law and the European Central Bank Keynote speech by Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, Lustrum Symposium organised by Dutch Financial Law Association Amsterdam, 1 December 2022 I am honoured to speak at this 20th anniversary dinner, with so many distinguished lawyers around me. In this setting, I feel quite comfortable dwelling on legal issues for a while. A topic close to my heart – apart from the law – is the ongoing climate and environmental crises. I am glad that we have long since moved on from the time when only scientists and activists were concerned with this topic. It is now high on policymakers’ agendas, as we saw at the recent United Nations Conference of Parties (COP27) at Sharm el-Sheikh, at which – along with world leaders and a wide range of policymakers and interest groups – the ECB was also represented. I was struck by one story in particular. [1] The tiny Pacific nation of Vanuatu is badly exposed to cyclones and rising sea levels. To the inhabitants of Vanuatu, climate change is a human rights issue. And, as Vanuatu’s president, Nikenike Vurobaravu, stated, “we are measuring climate change not in degrees of Celsius or tonnes of carbon, but in human lives.” Vanuatu now plans to ask the UN General Assembly to seek an opinion from the International Court of Justice on the human rights implications of the climate crisis.

That opinion could determine the rights of countries most exposed to climate change. It could also touch on the obligations of those most responsible for driving the climate crisis. Let’s now focus on Europe and the possible implications of these developments in international law for my own institution, the ECB. Under the Paris Agreement adopted at COP21 in 2015, many countries committed to the long-term goal of holding the increase in the global average temperature to well below 2°C above pre-industrial levels. [2] To fulfil its commitment as one of parties to the Paris Agreement, the EU last year adopted the European Climate Law. [3] The implications of the Climate Law are significant. Before going into why, let me first explain what the Climate Law does. The Climate Law has three key elements. The first is its objective that the EU reduce its greenhouse gas emissions by at least 55% by 2030, with a new reduction target to be set for 2040. The EU should achieve climate neutrality by 2050 and aim to achieve negative emissions thereafter. The second important element is to ensure that we move towards that objective. The European Commission has established a framework for assessing concrete progress and checking whether national and Union measures are consistent with the objective. It will issue regular reports on the conclusions of these assessments. The third and last element is to ensure that we use the most effective instruments to achieve the objective.
These developments may also affect the rate of technological progress in the long run if, for example, they lessen the incentive to engage in innovative activities. And we cannot forget the risk of the observed increase in unemployment translating into a parallel increase in structural unemployment, an issue I will deal with later in my speech. Therefore, structural reforms appear to be the only available tool to avert the risk of the crisis exerting more permanent effects on both the level of output and the growth rate of the economy. Second, structural reforms cannot be seen in isolation from the other measures that are needed, in particular those stemming from the exit strategies, but rather as a necessary complement to them. As an example, the dramatic increase in fiscal deficits and government debt levels during the crisis, exacerbating fiscal sustainability concerns for a number of economies, would worsen if output losses were permanent and constrained government revenues and expenditures in the future. By the same token, growth-enhancing structural reforms may smooth acceptance of the fiscal adjustment or even reduce its magnitude if they prove to be effective. Past experience shows that structural reforms are often adopted in times of economic crisis or prolonged episodes of slow or negative growth. This contrasts with the generalised view that it is easier to cope with these reforms, since their costs are generally less painful, and distributional effects less visible, when the economy is strong and income is growing rapidly.

In the same vein, the UK unemployment rate increased by only 2.5% although output fell close to 6% and Germany underwent a decline in output of about 7%, but its unemployment rate actually decreased. This suggests that labour market mechanisms for adjustment in the face of adverse shocks are not working correctly in Spain, as employment is bearing the brunt of the adjustment and this entails a high cost, in terms of long-term economic growth and social well-being. These differences are not only seen in periods of recession, but also in economic upturns, in the form of diverse levels of unemployment, and of productivity and real wage developments. And we know that there are major differences among countries as regards labour market institutions, thus suggesting that such different unemployment or productivity outcomes may, at least partly, be driven by regulatory differences. This is why it is important to look at the experiences of other countries in order to share experiences and to try to draw some conclusions on the pros and cons of the different institutional settings. The medium-term effects of the crisis I mentioned before are also particularly dependent on the functioning of the labour market. First, the crisis may imply the need for a substantial reallocation of labour across sectors, something that may take time and increase mediumterm frictional unemployment. Labour market institutions may, of course, play a key role in galvanising or impeding this process.
And there is still an urgent need for more structural reforms – 4/7  BIS central bankers' speeches  because third phase of the crisis has been, above all, structural. The third phase: the re-emergence of structural challenges This third phase – which we are still in today – has been characterised by two main challenges: low inflation and low growth. Just as in the initial phase of the crisis, these are common challenges for advanced economy central banks. But what has become increasingly clear is that the challenges today have a much stronger structural element. Low global inflation is partly a cyclical phenomenon – linked to falling energy prices and the slowdown in major emerging market economies – but it is also a result of structural changes brought about by globalisation. And the secular slowdown of global growth has brought with it declining long-term interest rates across the advanced world. To be sure, the intensity of these challenges has varied across jurisdictions. The euro area, still recovering from its double dip recession, has faced a more prolonged period of low core and headline inflation, which the ECB has reacted to by launching three new unconventional tools: a set of targeted long-term refinancing operations with in-built incentives for banks to lend, a negative interest rate policy, and an asset purchase programme encompassing public and private sector securities. These measures aim both to smooth transmission and to expand the policy stance to combat excessive disinflationary pressures.

Indeed, the revisions to estimates of potential growth have mostly occurred after the crisis, whereas it is most likely that the slowdown in productivity had already startedbefore the crisis but was masked by the credit-fuelled boom. For example, in 2007 the euro area’s output gap was estimated by international institutions such as the IMF, the OECD and the European Commission to be negative – somewhere between –0.2% and –0.6%. The most recent estimates put the output gap in the region of positive2.7% to 3.4%, a significant downward revision to views of potential. At the same time as potential growth has been declining, the share of global factors driving inflation seems also to have been increasing. In large part, the common global trend can be explained by the decline in price of energy and other commodity prices. But low global inflation goes beyond weakness in domestic demand and falling energy and commodity prices. In recent years there has been a growing understanding of the role of global demand factors on domestic inflation.6 For example, it has been observed that changes in the degree of slack in OECD economies are having a smaller impact on inflationary pressures than it has in the past.7 In part this changing 5/7  BIS central bankers' speeches  correlation is a result of the success of monetary policy in anchoring inflation expectations.
After all, it is in their best interest to act early and get themselves ready for the transition given the scale of their business. Smaller banks should not wait and see 9. The flip side of this argument is that smaller banks or non-banks would likely look to the global banks to act first. But I would caution against waiting until the last minute. Although there may still be uncertainties for the transition, all banks and corporations should keep updated of the latest development and understand what aspects of their business would be affected – this is a fundamental first step. Undertaking detailed risk assessment and formulating an action plan would be next. For now, some banks may hesitate to trade in products using the new alternative reference rates, as they want to see better market liquidity before they start. But this is a ‘chicken and egg’ scenario – if everyone plays a waiting game, the market will never be developed. More importantly, going into the market in a manageable scale would enable your people to learn the rope early before these trades become more main stream. Client education is also important 10. While banks are gearing up their own preparation, the wide-spectrum of IBOR users is adding further complexity to the transition process. Switching to alternative reference rates is not something that can be done unilaterally. Banks need to work closely with their counterparties to develop the necessary fall-back arrangements. 11.

It may be true that HIBOR will last for some more time. But the transition to SOFR in the USD space could gradually lead to changes in market practices and conventions that may eventually shift market preference for interest rate benchmarks. Therefore, if more HONIA-based products can be introduced in the market going forward, it would help reduce any market impact in 3/4  BIS central bankers' speeches  case HIBOR has to discontinue one day owing to changes in market circumstances. Closing 21. Ladies and gentlemen, as we have learned from speakers earlier this morning, interest rate benchmark reform is complex, but it is something too important for any market participant to ignore. When LIBOR ceases to exist, there will certainly be an impact on global financial markets. Some people may say end-2021 seems a long way off. But it’s not, given the tremendous amount of preparatory work required to ensure a smooth transition. No one in the market can afford to play a waiting game. Let’s all devote resources now, and work closely together on this important task. 22. Thank you. 4/4  BIS central bankers' speeches
In the Bank’s own quarterly Decision Makers’ Panel, around 40% of firms consistently identify Brexit as a major source of uncertainty, with less than 20% viewing it as unimportant (Chart 5). Bank staff analysis of the results points to a drag of between 8  3 and 4% on nominal investment growth since the referendum as a result of this uncertainty . 5  For more detail on these mechanisms, see the Box on “Factors affecting the prospects for long-term supply following the EU referendum” on pages 29-30 of the August Inflation Report. 6 It is also possible that actual or anticipated changes in institutional arrangements due to Brexit might affect the outlook for net migration and therefore population growth. 7 Specifically, it has been at the top of the list for two years, falling back for the first time to second place in Q1, with its place at the top taken by weak UK demand. 8 For more information on the Decision Maker Panel, see Bloom, N. et al (2017), “Tracking the views of British businesses: evidence from the Decision Maker Panel”, Bank of England Quarterly Bulletin, 2017Q2. The Bank’s 2018Q1 Agents’ Summary of Business Conditions includes the latest published results from the survey.

5 This reduces the return potential of investments and hence also the demand for capital to finance investments. The real rate of interest had to fall in order to balance supply and demand on the capital market. Negative interest – still essential from a monetary policy perspective The decline in long-term interest rates also has implications for monetary policy and thus for short-term rates. What is known as the ‘neutral rate of interest’, i.e. the rate at which monetary policy neither holds back nor stimulates the economy under conditions of price stability, is also lower than it used to be. To achieve the same degree of monetary policy expansion in these circumstances, short-term interest rates must therefore also be lower now. This is one of the reasons why many central banks lowered their policy rates to zero or even into negative territory in the financial and debt crisis. It was because of this that the SNB, too, introduced a negative rate of interest on the sight deposits that banks hold with it. We are aware that the negative interest rate is an unconventional instrument, and one that has side effects. That is why we subject the benefits of this instrument for monetary policy, as well as any resulting costs, to particular scrutiny. We will only maintain the negative interest rate for as long as the benefits outweigh the costs. We undertook the most recent evaluation during our September monetary policy assessment.
The repo rate according to the NIER’s forecasts in 2002-2003 and the actual repo rate Per cent 5.0  5.0  4.5  4.5  4.0  4.0  3.5  3.5  3.0  3.0  2.5 2.0 1.5 1.0 Jan-02  2.5  M arch 2002 August 2002 M arch 2003 August 2003 NIER's repo rate Repo rate  2.0 1.5 1.0  Jul-02  Jan-03  Jul-03  Jan-04  Jul-04  Sources: NIER and the Riksbank  8  BIS Review 18/2005  5. UND1X and CPI Annual percentage change 6  6 UND1X  5  5  CPI  4  4  3  3  2  2  1  1  0  0  -1  -1  -2  -2 93  94  95  96  97  98  99  00  01  02  03  04  05  Sources: Statistics Sweden and the Riksbank  6. GDP for the United States and euro area Annual percentage change 6  6  5  5  4  4  3  3  2  2  1  1 0  0 GDP, United States  -1  -1  Forecast United States  -2  -2  GDP, euro area  -3  Forecast euro area  99  00  01  02  03  04  05  -3 06  07  Sources.

With respect to bank capitalisation, the situation remained largely unchanged in 2014. First, the domestically focused commercial banks’ leverage ratios remained stable at high levels by historical standards. Second, these banks’ risk-weighted capital ratios increased slightly and are significantly above regulatory minimum requirements overall. Furthermore, stress test results suggest that most domestically focused banks should be able to absorb estimated losses without seeing their capitalisation fall below the regulatory minimum. Nevertheless, under the most relevant adverse scenarios for these banks, the losses would deplete a large proportion of their surplus capital. Experience in Switzerland in the 1990s, as in other countries, suggests that this would lead to a general weakening of the banking sector and significantly affect banks’ ability to lend, with negative and lasting repercussions for the real economy. The stress test results highlight the importance of banks holding significant capital surpluses relative to the regulatory minimum requirements. The activation of the countercyclical capital buffer in 2013 and its increase in 2014 has made a significant contribution in this respect. 2  BIS central bankers’ speeches  Risk of renewed increase in imbalances on mortgage and real estate markets Overall, imbalances on the mortgage and residential real estate markets have remained broadly unchanged since the last Financial Stability Report. From a financial stability perspective, this is a positive development. However, it is still too early to give the all-clear. On the one hand, imbalances remain at a high level and have not yet started to decline.
In response, the Met Office made huge efforts to improve their data capture and computing power as a basis for improving their weather forecasting. The results have been dramatic. Over the past 30 years, the Met Office’s forecasts have improved significantly. Their 4-dayahead forecasts are now as accurate as their 1-day-ahead forecasts were 30 years ago. These are improvements on a scale economic forecasters would give their left arm for (unless, like me, it was their bowling arm). It suggests improved data can pay real dividends. To that end, the Bank is investing in improving its own data architecture and analytics. Perhaps a more timely reading of the economic and financial tea leaves can be found by scraping the web or by semantic search on social media sites? Recent research has  3  Barnett et al (2014)  BIS central bankers’ speeches  3  suggested just that.4 These are the sorts of question the Bank’s rocket scientists can help us answer. Uncertainties are no less acute when it comes to modelling the economy. Unlike rocket science, economics has few, if any, physical constants or fixed laws of motion. Like cricket, economics is a game largely played in the head; nine parts psychology to one part physics. Understanding and modelling the brain has so far eluded neuroscientists, but this has not stopped them trying.5 Economists are in the same boat, just with bigger holes.

To date, this rise in house prices has not translated, on available estimates, into an overvaluation of residential real estate assets. That said, we must continue to monitor this market closely in case this risk materialises, and to analyse other facets of the conditions under which mortgages are granted that are less influenced by the collateral value. 24/29  A second relative facet is the effort that repaying the mortgage entails for agents that have incurred this debt. Once again, empirical evidence shows that loan-to-income and debt service-to-income ratios are relevant variables for determining the probability of mortgage default, although the low interest rate environment mitigates the risk. In any event, as more than half of new mortgage loans continue to be taken out at a variable rate, high loan-to-income ratios continue to be a source of possible vulnerability for households. However, in this instance too, mortgage lending standards appear to be prudent, with no evidence that they have recently eased. Third, an additional dimension that is also relevant for estimating the probability of default is the maturity of the mortgage loans granted. Longer maturities are usually related to more foreclosures. Likewise in this case, standards have become stricter following the crisis and have not eased in recent months. Empirical evidence further shows that it is the combination of some of these dimensions that may prompt disproportionate increases in the probability of loan default. These mortgages with very lax conditions in several dimensions have also become much less significant in recent years.