samchain/econo-pairs-v1 huggingface dataset:
In the US, EA and UK house prices have broadly grown at or below the growth rate of the economy, and real house prices have actually fallen relative to their pre- global financial crisis levels. Since the crisis, there has also been a marked reduction in financial sector debt as a share of GDP, which suggests that reforms have reduced leverage and risk markedly within the financial sector (Chart 3). This is not to be complacent. 25 The magnitude of interest rate cycles across the UK, US and EA have varied. Over both loosening and tightening  cycles between 1994 and 2007, the average cumulative change in interest rates in the UK has been around 150bps in the UK, compared to around 250bps in the EA and around 275bps in the US. 12  All speeches are available online at www.bankofengland.co.uk/news/speeches  12  Aggregates can hide significant problems. In some advanced economies, particularly the US, corporate debt has, as I have noted, been growing at a very fast rate accompanied by a loosening of underwriting standards. And to the extent that financial asset prices are being driven either by unrealistic expectations either of interest rates or of economic growth, there could be a sharp correction. Chart 2. Total debt stock in  Chart 3.

The fact that it has failed, triggering heavy costs to the society, leads to deep public anger and resentment. “While anger and resentment may be useful spurs to action” – to quote Andrew Crockett (2011) yet again – “they are much less helpful in shaping a balanced response to the crisis that both safeguards society against financial fragility and preserves the contribution that the financial sector makes to high quality sustainable growth”. Indeed, the crisis response so far has perhaps focused too much on preventing future financial crises and neglected the fact that robust economic growth is simply not possible without the contribution of the financial system. III.1. Why did the markets not deliver? Nowadays the financial sector tends to be associated with its negative externalities, while ignoring the essential function it performs in the economy. These negative externalities refer to both the direct cost of bailing out financial institutions and the indirect cost of the ensuing economic recession. Overemphasizing negative externalities may lead however to regulations that excessively limit risk-taking, which is unavoidable if the financial sector is to stimulate private saving, enhance allocative efficiency and help smooth out economic fluctuations due to non-financial causes. In theory, in the banking sector, stakeholders’ interest should ensure that credit standards, risk management and controls, and capital cushion remain adequate, as fund providers would penalize managers who run excessive risks. In securities markets, long-term reputational concerns should have overcome incentives to exploit short-term information asymmetries.
‘Hard law’ and ‘Soft Law’ We cannot expect misconduct to never occur in financial markets – history has taught us that there will always be individuals prepared to do the wrong thing if there is a reward. But we can reduce the frequency and severity of misconduct and we can increase the likelihood that it will be detected and punished. Given how quickly financial markets evolve and the practicalities of regulation, this can best be achieved by a combination of ‘hard law’ (legislation and regulation by the official sector), ‘soft law’ (codes and standards defined collectively by market participants), and culture (norms and practices created by firms’ Boards and management). The authorities obviously have a role to play. Regulators must introduce rules and regulations to enforce minimum standards of conduct, hold individuals to account for their actions, and put in place incentives to promote good conduct. But hard law is not enough. Even in jurisdictions with a preference for ‘hard law’ solutions, issues of interpretation and norms arise. Regulators cannot police every market practice, especially in fast moving markets, nor can they dictate a firm’s culture. However, authorities can use their convening power to bring together market participants to solve collective action problems, set expectations on behalf of broader society about expected behaviours and provide incentives to encourage adherence to voluntary market standards. This is where industry leadership is vital.

It is also vital for sustaining public support for open and global financial markets. The FMSB is not self-regulation. The laws and regulations governing conduct apply and will continue to be enforced. But the official sector has an important role to play in supporting such market-led initiatives, helping to solve coordination problems and enabling the private sector to come together to raise standards and share best practice. An excellent example of this approach is the development of a single global foreign exchange code being written through a partnership between 16 central banks and market participants in both advanced and 13  Further information on the FMSB, its membership and draft guidance can be found at: http://www.fmsb.com/ 6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  emerging economies. 14  This will be the first time that the approximately $ trillion per day foreign exchange  market will be governed by a single code of conduct. Sections of the global foreign exchange code covering ethics, information sharing, execution, confirmation and settlement, including an update on how adherence to the code will be promoted, was released in May 2016. The full text of the code, including additional sections on governance, risk management and compliance, is on track for publication in May 2017. The nature of conduct risks will of course evolve over time and the official sector needs to stay on the front foot.
BIS Review 84/2000  4  But interest rate increases by the Riksbank may also be needed to assist demand’s adjustment to long-term growth. With the past and present upheavals in the Swedish economy, however, it is particularly difficult to be clear about the exact timing. The Riksbank should naturally not raise interest rates too early but not too late either. In my opinion, the time for another increase is coming closer, at least as long as demand growth remains strong. But today I find it hard to envisage a main scenario that unequivocally threatens price stability in the period of one to two years ahead that is our main concern. The Executive Board’s monetary policy discussions this autumn will clearly deal with conceivable threats to continued price stability. The risk spectrum has consequences for the formulation of monetary policy. It may include the future development of labour shortages and how wage trends are affected in alternative scenarios. Although wage development has been stable to date, we must of course bear in mind that the labour market has not been tested in earnest. New wage negotiations will begin during the autumn. As always, the Riksbank will be following them closely to divine whether the labour market situation in general constitutes a threat to price and wage stability. Our discussion may also dwell on any risks to inflation in Sweden in connection with the rising dollar. Will the dollar remain high against the euro, as well as against the Swedish krona?

To achieve a reasonable return on capital, firms are obliged instead to make production more efficient and that tends to result in better productivity. Many factors have accordingly contributed to our economy’s good performance in recent years. A number of favourable circumstances have coincided, making it possible to combine high growth with price stability. Demand must be adjusted to growth sooner or later Looking ahead, most things suggest that the rapid growth can continue for a time. But in the end - though it is not clear when - demand for goods, services and labour will have to slacken and move more in line with what the long-term growth trend can sustain. Letting demand be too high for too long raises the prospect of accelerating inflation and ultimately a recession, with falling output and rising unemployment. The Riksbank must therefore do its utmost to avoid marked fluctuations in economic activity and endeavour to create conditions for sustainable growth. Demand can come into line with long-term growth as a result of a spontaneous economic slowdown, for instance in connection with a slackening of growth in the rest of the world. It can also result from a fall-off in household demand for durables after the high procurements in recent years. A further possibility is that the positive supply shocks fade, which would admittedly involve some increase in inflation but also a downward effect on demand.
In many respects, the United States and Europe face similar challenges and have similar goals. Today I want to focus on some of the challenges. On the regulatory side, there is considerable good news. In particular, substantial progress has been made in strengthening the global banking system. Capital and liquidity standards for internationally active banks have been raised significantly. This should reduce the risk of failure for these banks. Also, the financial system is being made more resilient and robust. For example, the global set of principles for financial market infrastructures has been updated and strengthened. Moreover, some steps have been taken to better deal with the failure of systemically important financial firms on a cross-border basis. Key attributes for resolution regimes have been promulgated by the Financial Stability Board. Efforts are underway to improve how we can work together in a coordinated way on a global basis. But more needs to be done. The impediments to an orderly cross-border resolution still need to be fully identified and dismantled. This is necessary to solve the so-called “too big to fail” problem. Also, cross-border regulatory cooperation needs to be further enhanced. This includes greater exchange of confidential supervisory information so that national regulators can be fully informed about the conditions of the banks that operate within their borders. It also requires efforts to ensure a level playing field across jurisdictions so that the focus is on promoting safety and soundness rather than on trying to protect, favor, or shield national champions.

Studies made by the OECD indicate that powerful budget consolidation processes have only been carried out in connection with serious crises, and the 1990s began with the most serious recession in Sweden since the Depression of the 1930s. GDP fell three years in a row, 1991-1993, and employment fell by more than 500,000 persons during these three years. At the same time, letting the krona float free in 1992 had led to a depreciation of the krona of around 20-25 per cent and a large increase in exports. There was thus a strong growth in demand from abroad that made it easier to constrict domestic demand. The budget consolidation succeeded beyond expectation. Public finances were improved from a deficit of around 11 per cent of GDP in 1993 to a surplus of around 2 per cent of GDP in 1998. The target had been aimed at achieving a balance in public finances in 1998. The major part of the budget consolidation was achieved by reducing the public expenditure as a percentage of GDP. There are considerable similarities between the problems at the beginning of the 1980s and the 1990s. In both cases, Sweden’s international competitiveness had deteriorated and we had large deficits in both the current account and public finances. However, the major difference between developments in the 1980s and developments in the 1990s was that fiscal policy was much stricter in the 1990s and inflation was brought down to a level comparable with other countries.
In the financial arena, for example, most of the most successful technology companies are headquartered in the United States or in Asian countries. The increase in public investment should focus on improving transport and communication infrastructures to maintain connectivity with business centres and to promote the development of European value chains and, thereby, regional cohesion. Moreover, we should not forget the impact that all the latest technological developments may have on income distribution, and nor that of education on employability. The Banking Union should be completed as soon as possible and a single capital market created17 Turning to European governance, in addition to the review of the fiscal framework and the creation of supranational macroeconomic stabilisation instruments, we should progress swiftly towards creating a single capital market and completing the Banking Union. These two initiatives are key both to the funding of investment and of business innovation, and to achieving a more robust and resilient monetary union in the face of adverse shocks. Capital markets in Europe are not only less developed than in other advanced economies (few companies tap the capital markets for funding); they are moreover fragmented as a result of differences in regulations (e.g. on insolvency proceedings) and in the tax treatment of debt versus equity. This has negative consequences for business financing, and for European countries’ capacity to diversify risks and withstand adverse shocks.

In some countries, such as Italy, productivity per employee has even stagnated in the past two decades. Low inflation is a common trait of other advanced economies and a fundamental challenge for most central banks. It therefore continues at present to be one of the central matters for discussion in the academic arena and on the monetary policy boards of the Eurosystem, the Federal Reserve and other central banks. In its latest Annual Report, the Banco de España dedicated special attention to these matters. The report highlights the considerable uncertainty over the factors that may be checking the rise in inflation at the global level. They include most notably structural phenomena, such as population ageing, globalisation, the expansion of value chains and 6  See Chapter 2, “The determinants of low inflation in the euro area and in Spain”, in the Annual Report 2018, Banco de España. 7/16  the attendant increase in competition, along with swift technological progress and the emergence of new forms of marketing and major sales platforms. Moreover, at certain times more transitory factors may have played a part, such as low oil prices and the considerable slack in some labour markets further to strong job destruction during the crisis. The monetary policy response to an extended scenario of slow growth and moderate inflation The complexity this setting poses for economic policies in Europe is most considerable. I shall refer first to monetary policy.
We did so not because we wanted to help the firms, but because allowing them to collapse in a disorderly fashion in the midst of a global crisis would have harmed households and business throughout the United States. All the Fed’s loans were collateralized and we are confident they will be repaid in full. Second, we took aggressive steps to ease monetary policy in order to support economic activity and employment. By the end of 2008 we reduced short-term interest rates to virtually zero – the lowest level in the history of the Fed. In order to provide still further support for the economy, we bought more than $ trillion of long-term assets – principally mortgage bonds guaranteed by Fannie Mae and Freddie Mac with the support of U.S. Treasury – between December 2008 and March 2010. When the Fed buys long-term assets, it pushes down long-term interest rates. This supports economic activity in a number of ways, including by making housing more affordable and boosting consumption in households that can refinance their mortgages at lower rates. In addition, low long-term rates reduce the cost of capital for businesses, thereby fostering more hiring and investment spending (on equipment, construction and machinery, for example) for any given economic outlook. National economic conditions So where are we today? Let me start my discussion of economic conditions with a few comments about national economic conditions. As I discussed in a recent speech, the Great Recession has been followed by a tepid recovery.

All in all, the evidence points to discretionary fiscal policy having a moderately positive impact on economic growth in advanced economies. Yet the effectiveness of such measures depends on the way in which they are taken and their timing, in particular with regard to delays in the recognition, decision and implementation process. Precisely because of such difficulties, a budget policy which is 16 aimed ex ante in an anti-cyclical direction tends to produce pro-cyclical effects ex post. The effectiveness of discretionary measures also depends on the temporary nature and on the possibility of withdrawing them in a timely manner once the shock has passed so as to guarantee fiscal sustainability. 3.2  Comparing the importance of automatic stabilisers and discretionary policies in the euro area and in the United States  If we compare budget policy on the two sides of the Atlantic, we see that the automatic 17 stabilisers play a more important role in the euro area. First of all, the greater the percentage of government spending over GDP, the greater the budget position’s response to fluctuations in economic activity. Automatic stabilisers are smaller in the United States, where government is smaller in relative terms (government 18 spending is worth 37% of GDP, whereas it tops the 45% mark in the euro area countries).
Still, we must be aware that accumulated trust does not suffice; in our present world such trust must be renewed every day, on the basis of the ability to respond to new demands and challenges. I will comment on some of these challenges towards the end of my presentation. On the recent evolution of the economy, the most noticeable event has been the drop in inflation. After several quarters in which the annual CPI variation was above 4%, in recent months it fell sharply to 3%, placing y-o-y CPI inflation at 2.9% in November. We had foreseen inflation declining at a slower pace. In the Monetary Policy Report we presented to the Senate last September, we projected that annual headline inflation would close this year at 3.5%. Today, private expectations—as well as our own—put it a little under 3%. In addition, in the baseline scenario I will be describing in a moment, we assume that this decline will continue, such that during most of 2017 annual CPI inflation will stand in the lower part of the tolerance range, to start converging back to the target by year’s end. Domestic activity has also shown some surprises. It grew in line with forecasts in the third quarter and even somewhat better in sectors not related with natural resources—what we call Other GDP. However, it began the fourth quarter quite poorly. The decline in mining activity weighed significantly, as has been the trend throughout the year, and so did some specific industry lines.

Such risks, and the fact that they were not addressed, played a major role in the run-up to Iceland’s financial crisis. We have tried to learn from this. In addition, it is clear that small open economies that are financially integrated with the rest of the world face increasing difficulties in pursuing independent monetary policy without jeopardising financial stability if they adhere to conventional economic and prudential policies. To solve this problem, it is not sufficient to have a floating exchange rate. Additional tools and measures must be applied. Among them are foreign exchange market intervention, conventional macroprudential tools, and rules that limit foreign exchange mismatches in domestic balance sheets. Conditions could arise, however, where this would not suffice, and then it could prove necessary to activate capital flow management measures like the special reserve requirement that we have used in the recent past. This mainly occurs when the exchange rate is higher than is warranted by economic conditions, international reserves are ample, and the economy is on the verge of overheating. Under such conditions, it is difficult to use exchange rate flexibility, foreign exchange market intervention, or interest rates to counteract capital inflows. The next challenge is to ensure secure, efficient, and economical payment intermediation. Last year the Central Bank issued a report on retail payment intermediation from the standpoint of contingency and financial stability. It discusses important public interests.
His remedy was for the state to compete directly with these companies in the mass market in a bid to raise standards or drive them out of business 19. The insurance sector today is no doubt relieved that such a strategy is not being adopted by the PRA. And, in fact, the scheme was not very successful in the end, largely because it abandoned the collection of weekly premia by doorstop agents which ultimately increased lapse risk. The state would later dabble in annuities once more but motivated by a different set of reasons this time – the funding of war. During the early part of the 20th century, I am told the Government extended annuity provision as a way to access funding for World War. Indeed, there is evidence that states have used the provision of insurance as a way to self-fund going as far back as the 15th Century; in 1425, the city-state of Florence introduced a specialised social insurance system, the so-called ‘Dowry Fund’, which enabled fathers to make regular deposits on behalf of their daughters to accumulate a dowry that would be payable upon their marriage 20 – all for the purpose of financing the state purse. Over the course of the 20th century, regulation evolved further but the concept of supervision had not yet surfaced, at least not in the UK; the UK Board of Investment appointed its first actuary in 1917, but by this point the New York State Insurance Department was already employing 179 (supervision) staff.

Beyond the 4/5  BIS central bankers' speeches  potentially arbitrary labelling, the efficacy and desirability of a given policy should be judged solely by its outcome and its effectiveness in correcting market failures and imbalances. Only then can policies be evaluated intelligently, fairly and measurably. Today I have talked about how it has become more difficult for central bankers in open economies to conduct monetary policy. I attempted to highlight that in order to manage these difficult challenges, there needs to be sufficient pragmatism and agility by central bankers. Most importantly, policymakers have to be given sufficient space and autonomy to address rising challenges to our respective economies. I am reminded by John Baldoni’s article on “The Secret to Team Collaboration: Individuality”. The author warned about the risks of confusing between collectivism and collaboration. Collectivism leads to confined “group-think” and decisions; collaboration on the other hand breeds innovation. While collectivists do work towards a single goal, they ignore alternate paths to achieve that purpose. Collaborators, however, while similarly focused on a single purpose, arrive at their goals by incorporating different points of view and creative solutions. In short, collectivists value ideology over results. Collaborators are pragmatists that look for alternative ways to get things done. As we move forward and fight for greater policy autonomy, we might be tempted to think that integration and collaboration come at the expense of individuality and domestic autonomy. In my opinion, it is the exact opposite. Collaboration thrives with individuality and autonomy. This is not wishful thinking.