samchain/econo-pairs-v1 huggingface dataset:
However, they also reflect supply and demand factors. On the whole, developments in credit appear to have been, up to now, in line with historical regularities, according to which loans to firms typically lag the economic cycle by a couple of quarters. In fact, credit flows remained positive, even during the period of the most severe contraction in economic activity, presumably as a result of the growing use of credit lines and revolving credit facilities. 23 Therefore, lending to firms can be expected to remain subdued even in the early stages of economic recovery, but it cannot be ruled out that supply factors will continue to restrict credit for some months. 24 The flow of loans to households began to grow again at the end of last year. The quarterly survey on bank lending indicates that the degree of tightening adopted by banks for the granting of credit to firms declined over the last few months of 2009, but remain positive (see Figure 1). It is interesting to note that among the factors that affect banks’ restrictive intentions, neither the one concerning the liquidity position of the banks themselves nor the one concerning access to financial markets seems significant any longer. Both factors now contribute in a positive way to the intentions of banks to grant credit. Considerations relating to the prospects for economic growth and those linked to specific sectors of the economy remain restrictive, but the degree of restriction is declining sharply.

Moreover, the originate-to-distribute model was adopted not only by large institutions but also by others, such as Northern Rock, which were not equipped to deal with funding sources considerably more volatile than traditional sources, such as deposits. Recourse to wholesale markets contributed to exacerbating credit pro-cyclicality, with more abundant credit in periods favourable to markets but also greater vulnerability in the case of  GDP ratio, the variations in the long-term interest rate and the house price/equity price gaps can signal asset price busts that are likely to occur in the next two years. 4  Syndicated loans extended to finance LBOs in the euro area reached an annual sum of almost € billion around mid-2007, and in the 2005-07 period loans to finance LBOs constituted around 13% of the total syndicated loan market compared with around 6% both before and after the boom years, based on data from Dealogic. 5  The Tier 1 ratio fluctuated around 8% and the total capital ratio around 11%. See the ECB’s Financial Stability Review, December 2007. 6  See also the box entitled “Developments in MFI loans to non-financial corporations by industry” in the December 2009 issue of the Monthly Bulletin. tighter markets conditions. This problem is not new. The crisis affecting savings and loan undertakings in the United States also originated in the differing maturities of bank assets and liabilities, which gave rise to risky activities in the junk bond and derivatives markets.
Even surveys of small businesses – most recently, the U.S. Chamber of Commerce’s survey of companies with less than $ million in sales and fewer than 500 employees – indicate that fewer than 10 percent of small enterprises (which employ half of the private sector’s workers) are having problems accessing credit.3 The National Federation of Independent Business specifically noted just yesterday that “91 percent [of those surveyed in June] reported that all their credit needs were met or that they were not interested in borrowing.”4 U.S. banks and businesses are awash in liquidity. Adding more is not the answer to our problems. With monetary policy having reached the limits of accommodation, and the federal government at sixes and sevens, what then is the foreseeable economic outlook? Are we going to grow through the rest of the year and on into the next, or are we going to dip back into recession? Forecasting economic growth is not a precise business. Economics is an art form, not a science; it is very judgmental and subjective. The FOMC is composed of 17 thoughtful, introspective and deliberate men and women. Five of the members serve full time in Washington as Governors of the Federal Reserve Board, appointed by presidents of the United States with the approval of Congress.

Except for a few interludes, they have partied along for decades using the people’s money as though life were an endless summer, storing nothing to draw upon for the blustery fall and the bleak winter that inevitably follow. Now a fiscal reckoning is upon us. The gig is up. Congress can no longer carry on as before, oblivious to the deleterious effect of spending our, and the successor generations’, money with unfunded abandon. Tongue firmly in cheek, Carol Reed might have reminded us that there are alternative versions of this fable. In 1924, Somerset Maugham wrote a version about two brothers: one an ant-like hard worker and the other a grasshopper wastrel. In the end, the grasshopper marries a rich widow who dies and leaves him a fortune.2 Case closed! In Things Change, a film released by Columbia Pictures in 1988, the character played by Don Ameche recites a version in which the grasshopper, fed up with all this moralizing about the virtues of hard work and saving for a rainy day, just up and eats the ant. I think we can safely assume that neither of these scenarios will occur. No one is going to bail out the government at the last minute. The ants that are the hard-working taxpayers are, if anything, poised to chew up and spit out improvident politicians should they fail to put an end to fiscal profligacy.
Finally, I must in all fairness add that in addition to the shift in stabilisation policy regime there have also been a number of significant changes in other areas that ought to have contributed to the favourable developments over the past decade. I mentioned productivity growth earlier – the strength of this has surprised most economic analysts and forecasters in Sweden. It can probably be attributed to a combination of several factors. For example, a rapid development in both the production and use of information technology has probably contributed to improved productivity. Other factors may include deregulation of various markets and increased competition – the latter stimulated by EU membership and the increasingly interlaced world economy. The Riksbank’s monetary policy framework and strategy Let me now, with this as background, move on to describe our monetary policy strategy in slightly more detail 2 . The inflation target The statutory objective of the Riksbank is to maintain price stability. We shall also promote a safe and efficient payment system. In connection with the introduction of this wording on the Riksbank’s tasks into the Sveriges Riksbank Act of 1999, the Riksbank was also given greater independence, as I mentioned earlier. Monetary policy is now formally the task of the Riksbank and the six members of the Executive Board are expressly forbidden to, as it says in the act, seek or take instructions when fulfilling their monetary policy duties. The Riksbank has chosen to specify an explicit target for inflation.

Three types of factors lie behind this increase in expenditure. The first is demographic. An increase in the retired population as a proportion of the working age population — which is known as the dependency ratio – automatically generates an increase in spending on pensions relative to GDP. So, in the 2007-2015 period, the dependency ratio rose by 3.8 pp to 31% of the working age population at the end of 2015. The second factor is related to labour market developments: the lower the rate of employment in the economy, the higher the pension spending as a proportion of GDP, and vice versa. The economic crisis led to a most significant rise in unemployment which has only been reversed, in part, in the past three years: over the 2007-2015 period as a whole, the employment rate declined by 8.9 pp. Finally, the third factor pertains to the ratio of the average pension to the average wage in the economy, which is known as the replacement rate. This rate increased by 4.8 pp from 2007 to 2015, as average pensions outpaced wages, as a result of which, in 2015, the average pension was equivalent to almost 44% of the average wage. Behind this result are aspects such as pension indexation decisions or the so-called substitution effect which arises from the fact that new entrants into the system have pensions which, on average, are higher than the pensions of those leaving the system.
What is needed here is a system where macroprudential policy fulfils an important role and can, in an interplay with fiscal and monetary policy, counteract the emergence of financial imbalances. The Riksbank’s assessment is that an amortisation requirement corresponding to at least Finansinspektionen’s proposal needs to be introduced as soon as possible. However, further measures in addition to this are needed to reduce households’ willingness to take on debt. Feasible measures include a reduction in the tax deduction allowed on interest payments, the introduction of a debt-to-value limit and stricter requirements for the banks’ credit assessments of individual households. More structural measures are also needed to increase the supply of housing and lead to a more efficiently-functioning housing market as I have already mentioned. But such reforms can only be introduced gradually and it will therefore take time before they can have any significant effect on household indebtedness. Next monetary policy decision presented on 3 September To summarise, I consider it is of the utmost importance that the mandate for macroprudential policy is clarified and that the application of the different tools does not come to a standstill. There is currently widespread awareness that a long-term sustainable solution requires a holistic approach that involves several policy areas. Nevertheless, there is a risk that more comprehensive measures and reforms are perceived as so unwieldy and difficult to manage that politicians would rather wait and hope for the best.

Obviously, a non-negligible part of the future environment for central banks hinges upon these developments. As time goes by, they will provide us with guidance as to which of the two corner solutions for exchange rate policy will prove the most popular – a freely floating currency or membership of a monetary union. However, although important, these developments are admittedly slow and differences in the end-result should not be exaggerated. I merely intend to suggest that the transition in stabilisation policy that comes with joining a monetary union perhaps is not as large as it first seems. Central banking has a long history and although it has been confronted with many changes in the past, it has far from lost its importance, if anything rather the contrary. Basic functions,  7  For a recent study of business cycle synchronisation, see Kose, Otrok and Whiteman (2005). BIS Review 73/2006  7  such as aiding financial intermediation through large value payment systems and acting as a lender of last resort, will remain important in the future as well. Needless to say, it will be very interesting to follow the transformation of EAC in general and the role of the Bank of Uganda in particular. References Annett, A., (2006), “Enforcement and the Stability and Growth Pact: How Fiscal Policy Did and Did Not Change Under Europe’s Fiscal Framework”, IMF Working Paper, No 06/116. Baldwin, R., (2006), “In or Out: Does it Matter?
The risk margin reflects the price at which a third-party insurer would be willing to accept the risk in an arm’s length transaction. 2. Mortality risk is the cost that arises from individuals living less than expected while longevity risk is the cost of individuals living longer than expected. 3. i.e. as an alternative to capital from equity and debt markets, or bank lending. 4. DP2/22 – Potential Reforms to Risk Margin and Matching Adjustment within Solvency II 5. A recapture event can arise when the reinsurer defaults (no longer has adequate resources to fulfil a contract) or as a result of triggering recapture clauses in the reinsurance contract (downgrade, breach of solvency requirements, other regulatory or tax triggers). 6. Pension scheme have themselves reinsured in excess of £ of longevity since 2009 according to Hymans Robertson’s Risk Transfer Report 2021. 7. The insurer retains some of the smaller risks including inflation (which is often hedged separately), operational, and expense risk. It may also retain some of the credit risk. 8. This contrasts with a pure longevity swap where the insurer only exchanges fixed reinsurance fees for receivables that are based on deviations in the longevity experience from that assumed, hence there is no upfront capital transfer and hence no collateral requirements. 9.

The PPP is powerful as it puts the duty on insurers to really understand the risks they face and their resilience to them – it acts as a guardrail for how firms must invest their assets. For instance, the current Pillar 1 regime within the Solvency II[15] framework focuses heavily on reinsurers’ current credit ratings, solvency positions and probability of default. Whereas the PPP would also consider the reinsurer’s resilience over the whole duration of the exposures, as well as the potential impact from a mass recapture event where large concentrations to a small number of counterparties exist. And the PPP is flexible in that it can accommodate a range of investment strategies, risk management practices, business models and types of risk concentration. In 2019, when I last spoke at this conference, we had found that firms had not been implementing the PPP consistently, so we had just begun our consultation on Supervisory Statement (SS1/20)[16] aimed to address this deficiency. SS1/20 sets out PRA expectations of firms regarding their investment strategy and risk management framework, as well as their exposures to non-traded assets, intragroup loans and participations, and valuation uncertainty. It also reminds firms that the PPP applies to all assets including reinsurance arrangements. Since the publication of SS1/20 we have worked with firms to apply the PPP to address risk concentrations of concern to us.
And there is evidence that experiencing natural disasters can affect financial risk taking – one study found that CEOs who experienced the extreme downside of natural disasters behaved more conservatively across various corporate policies. Another found that the purchase of earthquake insurance rose after a quake despite the probability of a subsequent large quake falling because stress on the fault line has been relieved. 10  One plausible hypothesis, therefore, is that the current high level of hurdle rates relative to the risk-free rate and lower costs of financing reflect, in part at least, both greater uncertainty – i.e. greater perceived risk – and greater aversion to risk. This higher hurdle rate risk premium is in addition to the higher debt and equity risk premia embodied in the cost of external financing of investment. It may have led to underinvestment more generally, even among those firms that reported that they had invested appropriately. Investment and economic outlook  If this is right, and there is currently an elevated hurdle rate premium driven by uncertainty and greater risk aversion, how persistent will it be? Will it fade over time as memories of the crisis recede? Or if and when risk-free rates begin to rise will hurdle rates move up to reflect the higher premium? This will have important consequences for the rate of investment in the future. In the near term, in the Bank's latest economic forecasts published last week, business investment is expected to remain very weak before picking up.

Both monetary and fiscal policy are inherently counter-cyclical, and arguably never more so than when we face a shock of the scale of a global pandemic. But at the core of the argument for central bank independence is the evidence from the past that without an independent institution operating monetary policy the overall effects of economic policy were dangerously pro-cyclical at times, leading to bad outcomes. In the face of what may be the deepest recession since 1709, with a collapse of economic activity alongside very low inflation, the question we ask ourselves is what should an inflation targeting central bank do in this situation? The lessons of history don’t change. The answer is to respect our remit and our target, no good will come of ignoring that. The logic of counter-cyclical policy is that all the tools should be applied to raise activity and support employment and the welfare of the public, all of which is consistent with an inflation targeting monetary policy. In practice, doing so has meant using tools to keep financial conditions sufficiently accommodative to offset as best we can such a large shock. This has been essential to support the flow of credit to businesses, which has been very substantial, and has called on both the monetary policy and financial stability tools of the Bank of England. This has also helped to lessen any longer term economic damage from the pandemic, resulting from longer term unemployment and business failures.
The four are: (i)  the provision of official finance should be linked to the involvement of other creditors, including the private sector, in the resolution of crises. This can be achieved by the IMF setting a floor for the minimum level of foreign exchange reserves a country is required to maintain;  (ii)  the aim of resolution is to find a cooperative solution negotiated between a debtor and its creditors. No particular class of creditor should be in a privileged position, unless the instrument in question explicitly gives it preferred creditor status;  (iii)  the use of temporary standstills – possibly sanctioned by the international community – would allow time for a country to negotiate with its creditors. In the absence of a formal mechanism to achieve this, the IMF can indicate its endorsement of a standstill by being prepared to provide new money to a country which has temporarily suspended payments to its creditors (often referred to as IMF lending into arrears). By making standstills part of the furniture – or one of the bricks – they would be seen not as an ad hoc response, which might lead to contagion in other emerging markets, but part of an approved process;  (iv)  measures, including perhaps strictly temporary capital controls, to prevent capital flight by domestic residents in exceptional circumstances. It would be odd to sanction a standstill of payments to foreign creditors while allowing domestic residents to move assets overseas without restriction.

The aims of transparency are to allow better informed decisions in both public and private sectors, to reduce the risk of contagion by allowing markets to differentiate among borrowers and to encourage macroeconomic policy to become more predictable. Transparency is not simply a question of making available certain data. It is an approach to economic policy, almost a way of life. The G22 Report of the Working Group on Transparency and Accountability (which I was privileged to co-chair with Andrew Sheng of the Hong Kong Monetary Authority) was published in October 1998. Its recommendations were endorsed in full by the G7. It stressed the importance of transparency in three different sectors: national governments, the private sector and the international financial institutions. Good progress has been made in implementing many of its recommendations. Rather than give an exhaustive account of progress in transparency, let me give a few examples. In March of this year, the IMF’s Special Data Dissemination Standard was strengthened by the inclusion of a template covering the disclosure of net foreign exchange reserves and short-term foreign currency liabilities of central government. These data are required to be published monthly with a lag of no more than one month, and the transitional period for observing the standard runs to the end of March 2000. Agreement is very close on a Code of Monetary Policy Transparency to match the earlier Code on Fiscal Policy Transparency. BIS data on international banking statistics will be produced quarterly from next spring and the lag in publication shortened.
In order to meet these challenges, we have had to use unconventional instruments for the implementation of monetary policy. Our current monetary policy is based on two pillars. These are designed to dampen upward pressure on the Swiss franc. The first pillar is the negative interest rate on sight deposits at the SNB. The second pillar is our willingness to intervene on the foreign exchange market as required. The SNB monitors developments in the foreign exchange market and their potential effects on the Swiss economy very carefully. At a global level, interest rates have been on a downward trend for more than two decades (cf. chart 4). This development reflects, on the one hand, an overall decrease in inflation. On the other, quantitative easing programmes implemented by various central banks in response to the financial crisis have brought global interest rates close to zero. In an interconnected financial world, it was impossible for Swiss interest rates to diverge from this strong and persistent downward trend. Very low global nominal yields have reduced the interest rate differential between foreign and Swiss interest rates. By the end of last year, the spread between short-term interest rates on assets denominated in euros and those denominated in Swiss francs had almost vanished. As I mentioned earlier, interest rates have traditionally been lower in Switzerland than abroad. However, during the financial crisis, foreign interest rates decreased to a greater extent than their Swiss counterparts.

In the area of infrastructure development in Asia, the overall investment requirements for the next ten years are estimated to be about USD8 trillion. To support these developments, the regional financial integration process in Asia needs to be accelerated and deepened. Significant progress has already been achieved in strengthening cooperation and collaboration efforts amongst regional policymakers within the Asian region to ensure that financial stability in the region is preserved. Efforts have also been taken to develop the financial markets in Asia. In addition, after a decade of financial reforms, the financial systems in Asia have emerged resilient. While the financial systems in several of the advanced economies continue to be confronted by unresolved challenges, financial systems in the region have continued to function and perform well to support private sector economic activity. Financial institutions in Asia, have in fact, continued to expand their reach within the region during this period to support and facilitate the regional financial and economic integration. As regional financial integration accelerates moving forward, this would contribute towards sustaining the future prospects of the region as it increasingly becomes an important growth centre in the world economy. With China now becoming Malaysia’s largest trading partner, Bank Negara Malaysia and the People’s Bank of China have entered into a bilateral currency swap arrangement in 2009. This swap arrangement serves as a key platform to promote trade and investment linkages between both countries.