samchain/econo-pairs-v1 huggingface dataset:
If we delayed the start of the key rate increase, inflation could have sped up in an even worse fashion and more persistently. We could have faced a so-called inflationary spiral when inflation continues to rise increasingly faster. In such circumstances, only radical measures might alter the situation. Therefore, we are taking proactive decisive steps, thus preventing a situation in the future which could force us to change the key rate drastically. We believe that our policy will bring inflation back closer to its 4% target in the second half of the next year. The increased key rate does not impact inflation instantaneously, but rather has a time-lagged effect on the economy. This is why economic processes are currently developing in this way. However, inflation as it stands will already affect savings to a lesser extent as banks will raise their deposit rates following the increase in the key rate. We can already see the start of this trend now. Of course, this will influence not only savings, but also the purchasing power of households’ incomes as people will not have to spend increasingly more money to cover their everyday needs. At the same time, the increase in the key rate will not hinder mortgage lending expansion. Mortgage loans are long-term loans issued for 10, 15 or even 30 years, and interest rates in this segment depend on inflation much more than on the key rate. I would like to emphasise this factor.

The example of Japan in the 1980s suggests that consumer price stability may not be a sufficient condition for precluding bubbles in asset prices and financial instability. With trend inflation averaging two per cent a year, the situation in Japan in the 1980s was very close to what we now commonly mean by price stability. Yet the Japanese economy still moved towards a period of grave financial instability. Thus, the question practitioners have to consider is how to deal with a situation where asset price effects are taken into account with reference to consumer price inflation but where there may still be a risk of asset price bubbles that may lead to financial instability, a destabilisation of the real economy and a severe downward effect on consumer price inflation later on. One could argue that the effects of a large rise in asset prices on aggregate demand may be smaller than the effects of a large fall if such a fall increases general uncertainty and leads to more cautious spending behaviour. If the collapse of a bubble in asset prices has a much stronger effect than the preceding boom, it may be optimal to increase interest rates to raise the probability of bursting a bubble even though such a policy action may temporarily lead to lower consumer price inflation in the short term than otherwise would have been desired.
A pre-programmed allocation of losses would be akin to the old “Down To The Last Drop” rule that used to be employed by a Chicago clearing house, under which surviving clearing members ultimately had collectively to absorb all losses: mutualisation. (It was dropped because, as banks became futures-exchange clearing members, bank supervisors didn’t like the unlimited exposure of CMs who were banks. An example of unjoined-up thinking.) That’s the option around propping up the clearing house to keep it going. The other option is some kind of wind down of the Clearing House’s book. That involves a combination of closing out part of the book in the market, and doing something with any residue that can’t be dealt in the market. One obvious thing to do with the residue is to put it back, pro rata, to the surviving (and fit) clearing members. But that is also a variant of the DTTLD rule, but “in kind” rather than cash. BIS central bankers’ speeches  3  Maybe I’ve got this wrong but, in summary, it seems to me that questions about orderly resolution of a failed CCP have to involve clarity around the extent to which surviving clearing members pick up the pieces. Summary The design, management and oversight of CCPs is something that we are going to come back to again and again in the years ahead.

Pre-crisis, monetary policy in the advanced economies was essentially defined by inflation targets and a key instrument, the interest rate. In parallel, the goal of financial stability was chiefly addressed with microprudential regulation and supervision. This framework was broadly consistent with the goal of economic growth, given that the control of inflation was 3/7  estimated to be the best means for ensuring the economy drew closer to its potential growth. The crisis showed that this framework was no longer valid. The control of inflation, though it remains a necessary condition, is not sufficient to ensure growth; and microprudential regulation was no longer effective, in or of itself, for guaranteeing financial stability. As a result, central banks have adapted their policies, which are now more complex in terms of objectives and instruments. Monetary policy has had to face up to the problem of what is known as the “zero bound” on interest rates. Basically, this is the situation that Keynes coined the “liquidity trap”: interest rates close to zero cease to be an effective monetary policy instrument. This has led to the development of new instruments, so-called “unconventional monetary policy”, which mainly includes quantitative easing, private and public-sector financial asset purchases, and the explanation and signalling of the monetary policy to be applied in the future, namely “forward guidance”. The outcome has been a large increase – four- or fivefold – in the balance sheet of the main economies’ central banks.
We have made significant progress, particularly during the latest Basel Committee meeting last month on 4 and 5 October, but we are not there yet, even though I hope that an agreement will be reached as quickly as possible. If we are to reach an agreement, two conditions must be met. First, the agreement must be fair – it must be applied by all jurisdictions, in all its components, including by the Americans in the measurement of market risks, i.e. the “fundamental review of the trading book” (FRTB). Second, the agreement must be reasonable, in terms of the increased capital requirements that will apply to French and European banks – including through the introduction of the so-called “output floor” on capital requirements for banks that use internal models. On the one hand, these capital requirements would have to be met over time through “normal” allocations of profits to reserves, without any bank having to resort to a dedicated capital increase. On the other hand, these new rules must be fully compatible with the smooth financing of the French and European economy and sound credit growth. In particular, our mortgage lending model, based on guaranteed loans, and our 4/7  BIS central bankers' speeches  financing of SMEs cannot be called into question. In my view, these are the principles that will determine whether any future agreement can be accepted. 2) The second challenge is to finalise measures that target non-banks.

The increase in expenditures produced by this change then would lead to increased employment and income growth, higher assets values and a virtuous, reinforcing circle. However, with short-term interest rates close to zero already and problems in the housing market, this standard rebalancing channel is not working as well as we would like. This discussion, I hope, has underscored two important truths. First, while deleveraging had to take place following the excesses of the boom period, both the extent of deleveraging on the part of those with high debts, and the degree of precautionary savings by those with low  1  4  Defined here as credit market debt to net worth. BIS central bankers’ speeches  debts, depend on many factors, some of which can be influenced by the policy choices we make. Second, the amount of deleveraging and precautionary savings depends on the availability of credit and the health of the financial system and upon the degree to which income is sustained during this deleveraging process. Note that if income growth is sufficiently weak, households may struggle to achieve desired increases in savings and reductions in leverage, which appears to have been the situation of late. Policy responses in this environment So what should be done? What should economic policy do to secure the recovery and provide a sustainable environment for long-term growth? Clearly, monetary policy will continue to have an important role. But other, complementary, policy initiatives will also be important.
Lorenzo Bini Smaghi: Towards the G8 – strategies for emerging from the crisis Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the Università LUISS Guido Carli, Rome, 27 May 2009. *  *  *  I would like to start by thanking the organisers of this conference for the invitation to reflect together on the topics related to the next G8 summit. There is no doubt that the economic and financial crisis, the most serious of the post-war period, will take centre stage at the upcoming international meetings. Today’s conference is entitled “Strategies for emerging from the crisis”. It is right to speak of strategies, because intervention is required at a number of different levels. These concern financial regulation, the governance of institutions and companies, the ethical behaviour of economic agents and legislators, and economic policies. Looking at the composition of the panel for this conference, it seems to me that my comparative advantages chiefly relate to this last area, that of economic policies. There is no doubt that the economic policies of recent years have played a role in creating the conditions which have led us to this crisis. They were not the only factor, perhaps not even the main one, but they were important, because they tended to heighten, rather than to counter, the procyclical behaviour of agents.

It is worth returning to this theory and considering in particular the exceptions. We will consider six such exceptions. The first occurs, as illustrated a few years ago by Paul Samuelson, when emerging economies record an elevated rate of increase in productivity in high value added sectors, forcing advanced economies to re-specialise in low value added production, with a resulting loss in income for the latter. 12 The second exception concerns the adjustment costs which have to be absorbed by advanced economies in order to face the new competition. 13 The faster and more enduring the transition is, the greater are such costs. In particular, if one considers the point from  10  L. Bini Smaghi (2006), "Democratic Representation and Economic Policy Rules in an Ageing Society", Eumoniamaster – Institutional and Political Higher Education, 28 September 2006. 11  A. Orphanides (2003), “The quest for prosperity without inflation”, Journal of Monetary Economics, 50, 3, pp. 633-663. 12  See, for example, P. Samuelson (2004), “Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization”, Journal of Economic Perspectives, 18, 3, pp. 135-146. 13  See Chapter 5 of the World Economic Outlook of the International Monetary Fund, April 2007. BIS Review 66/2009  5  which emerging economies start, and their size, in terms of population, the adjustment resulting from their current process of growth could take a very long time and could be of considerable magnitude.
Looking at Europe’s regional economies, it is striking that relativities between them have remained so stubbornly large for so long, even within individual member states. Indeed only in the UK have there been some recent signs that relative unemployment rates, from prosperous to less prosperous regions, have begun to converge. That appears to be related in changes in relative wages which have come about as a result of the dismantling of centralised pay bargaining, and of other labour market restrictions, in the 1980s. Elsewhere in Europe those changes have not been made; without them we would have to enter a reserve on the preparedness of some European economies for the rigours of a single currency. That is another point which, I am sure, any British government will wish to take into account in making its final decision. And we would feel more comfortable about the likely success of EMU as a whole - and I emphasise that the success of EMU is strongly in the British national interest, whether we are in or out were we to see faster progress towards greater labour market flexibility elsewhere in Europe. It may be argued that EMU itself will act as a stimulus to reforms needed in fiscal policy, and in labour markets; indeed that the prospect of EMU is already doing so. We cautious, pragmatic, non-visionary people that we are - would like to see the needed reforms implemented first.

I am thinking particularly of the injunction to smile and whistle through all difficulties. Certainly I am sometimes tempted, when asked to explain the state of opinion in London, to take refuge in a cheery smile, and to begin to whistle a mournful tune (not easy to do at the same time, you will find). Fortunately, it is not my responsibility to discuss the politics of EMU in the United Kingdom. Another good reason for me not to do so is that I would like to keep my job. As a humble central banker, a mere technician, it is more appropriate for me to focus on the economic dimension of EMU and to say something, also, about the financial market implications which concern us, particularly given the Bank of England’s position at the heart of the City of London. In both these areas - economic and financial - the Boy Scout motto is particularly apposite today. Let me explain why. At the Bank of England we have always held the view that Economic and Monetary Union is a momentous enterprise, with huge consequences for European economies. The act of irrevocably fixing exchange rates, between economies which have in many cases been managed separately for centuries, is not a step to be undertaken lightly. It is an exciting venture, almost too exciting for some, perhaps.
However, there was no safety net of the type that we have in a national setting to back it up. This turned out to be the fatal flaw in the whole setup, although we now know that these banks were also undercapitalised, which might have done them in at a later stage. But so were also several European banks that were considered solid at the time! In the panic that gripped global financial markets after the collapse of Lehman Brothers, Iceland’s big banks were faced with a wholesale run on their foreign currency liabilities and were therefore heading towards a default on those liabilities in the absence of LOLR assistance in foreign currency. However, given their size, it was impossible for the Icelandic authorities to provide such assistance on their own. Liquidity risk was generally underestimated in the build-up to the crisis, both by the financial industry and by supervisors. This applied even more to FX liquidity risk, which can be more lethal due the lack of backstops and safety nets. For example, before the crisis, European banks had built up huge USD-denominated balance sheets that were balanced to a large extent – except, of course, in terms of maturity. This became a major problem when there was a run on such dollar-denominated bank liabilities post-Lehman, and many big European banking names might not be with us today had it not been for the USD swap lines granted to the European Central Bank, the Bank of England, and the Swiss National Bank.

Residential construction of apartments in apartment blocks in relation to the population increase has been lowest in Stockholm county, followed by Skåne county and Västra Götaland county. One ray of hope is that the number of building permits granted for apartment blocks is continuing to increase, which indicated a continued increase in new production of apartment blocks. Factors such as regulated rents for rental properties, i.e. the utility value system, a lack of land with planning permission in growth regions, the construction of the municipal tax equalisation system, the imbalance between traffic situations and housing in growth regions and long planning processes probably all contribute to the relatively low level of residential construction, even in areas where demand is high. A further restriction is the lack of competition in the construction sector. This is demonstrated in the developments in prices and wages in the sector. Construction workers’ wages have increased more than those of industrial workers in recent years. Another example is that the costs of construction  2  BIS Review 2/2002  materials, which constitute approximately one-third of total construction costs, have shown price increases over and above other industrial products for some time now, with price rises even during periods of low demand. One important explanation for this is the fact that the construction trade is concentrated to a small number of large companies. In some markets, for instance, those for cement, reinforcement steel and plasterboard, one company accounts for more than 50 per cent of total sales.
Many Asian central banks have brought dollars that are invested in US government bonds in order to prevent their own currencies appreciating against the dollar, which would reduce their competitiveness. China, in particular, has been strongly dependent on exports to maintain a stable increase in employment and thereby to avoid even higher unemployment. This has meant that the foreign exchange reserves in Asia have increased dramatically in recent years. The consequences of the saving have been that household consumption has been kept down and the increase in welfare has not been as large as it could otherwise have been. 10  OECD, Economic Outlook, No. 78, December 2005. BIS Review 35/2006  5  In my opinion, all of these factors depend on one another and altogether they provide an explanation of the US deficits and the global imbalances. Are the imbalances sustainable in the long term? Although opinions are divided as to the seriousness of the US current account deficit and the main explanations behind it, most analysts agree that there must be a correction sooner or later. Some claim that the sustainability of the US current account deficit is greater than many have earlier believed. They point out that there has been no correction so far, despite the fact that the deficits have remained high over a long period of time and that the dollar has even appreciated over the past year.

Another important issue to be discussed is how the effects of commodity prices on inflation, economic activity and exchange rates differ with respect to different monetary policy regimes. Another important issue is the interaction among different economic policies vis-a-vis the commodity price fluctuations. Distinguished guests, Studies included in the program will substantially contribute to the understanding of the commodity price dynamics and the policy responses against the macroeconomic effects of these dynamics. In this context, I would like to thank the organization committee for their efforts for this conference program which gathers very interesting and enlightening studies. I also believe that the conference will provide a platform which will be highly beneficial for the exchange of views among participants. Thank you very much in advance to all participants for their contribution. Now, I would like to give the floor to Pierre-Olivier Gourinchas, professor of economics at California University-Berkeley and the chief editor of the IMF Economic Review journal to open the first session. 2  BIS central bankers’ speeches
The downturn in the economy will affect not just monetary policy but fiscal policy too. That subject is for another occasion, but there is one point I do want to make tonight. The cost of supporting the banking system will inevitably raise the level of national debt. Managed properly, however, such a rise in national debt need not prove inflationary. Indeed, within a reasonable period it should be possible for the Government to reduce its stake in the banking system, for example by selling units in a Bank Reconstruction Fund, and repay the additional debt that had been issued. That is one difference between past increases in national debt in times of war and the increase now to pay for recapitalisation of the banking system which involves the acquisition of an asset. Let me take you back again to 1958. In the very first television interview given by a Governor of the Bank of England, Cameron Cobbold explained national debt to Robin Day on “Tell the People”, the highlight of ITN’s Sunday evening schedule fifty years ago. Here is the exchange: Cobbold:  The National Debt represents the sums of money which the Government have over the years borrowed from the public, mainly in this country and, to some extent, abroad. That is really the amount of expenditure which they have failed over the period to cover by revenue. Day:  Have we paid for World War II? Cobbold:  No. Day:  Have we paid for World War I? Cobbold:  No.

during the current year and 19 b.kr. next year, over and above the amounts assumed when the Central Bank’s latest macro economic forecast was published last month. On the basis of these new assumptions, preliminary studies suggest that economic growth could easily end up in the range 2-2½% this year and well over 3% next year. The annual growth rate is as much as 1% above what was previously forecast. The employment outlook has also improved considerably. Given that the negative output gap was never very wide, and that seasonally adjusted unemployment measured 3.2% in February and has changed little since September, it is clear that inflationary pressures are likely to develop much sooner than was previously thought. Inflation this year is likely to be close to the Central Bank’s 2½% target, but other things being equal it could rise next year. While it is foreseeable that these major construction projects could coincide to some extent in 2004 and 2005, most of the weight will be felt in 2005 and 2006. Thus economic policy implementation will face a greater challenge than was thought when only the Reydarfjördur aluminium smelter and related hydropower development were foreseen. The new outlook calls for economic policy responses on both the monetary and fiscal side. While the scale of the response will be determined by exchange rate developments, it is clear that preventing overheating and inflation will be a major challenge in the period ahead.