samchain/econo-pairs-v1 huggingface dataset:
Similarly, in 2001, 42 percent of new subprime mortgages had debt-toincome ratios that exceeded 34 percent (which is considered a high ratio meaning borrowers may face some payment stress), while by 2006 this had increased to 62 percent. 8 The continued increase in house prices eventually came to a stop when lending standards could not be eased any further to offset the effects of the higher prices. The turndown in house prices quickly led to a significant increase in subprime mortgage defaults. This happened for two reasons. First, most subprime mortgages were designed in a way that created rollover risk. The typical subprime mortgage was a hybrid adjustable rate mortgage with the initial “teaser” interest rate fixed for two or three years, and then adjusting every six months thereafter. The first rate adjustment could be quite substantial and provided a strong incentive for the borrower to refinance the mortgage at that point in time. So long as house prices were rising, borrowers were able to refinance and roll over the loan. However, when house prices began to decline, lenders were unwilling to refinance, and as a consequence, borrowers were often unable to pay the higher interest rates, which prompted defaults. Second, as the housing boom continued, an increasing share of new purchases were by investors (declared or undeclared) rather than by borrowers who intended to live in the house. The default decisions by investors are much more sensitive to declining house prices than those by owner-occupied borrowers.

However, when copper prices began to fall, there was a wave of loan defaults leading to a run on the trusts that could not be stopped by the clearinghouse system. The resulting credit contraction sent the economy into recession, transmitting the problems to the banking sector. In the end, more than 240 banks failed even though the problem started outside of the banking sector. The basic mechanics of a bank run have remained the same over time. Due to the maturity mismatch involved in credit intermediation, banks in particular and financial institutions in general must rely on trust by their “depositors” that the institution’s assets will provide the ability to pay back the depositors. The fundamental connection between liquidity and trust was well described by Walter Bagehot in 1873: “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” 2 There are two problems that depositors face. The first is that they typically know very little about a particular bank’s investments. This reflects both the lack of transparency in how banks are investing their funds, and a lack of incentive by individual borrowers to expend effort to try and learn this information – what economists call a public goods problem. The second problem is that a depositor does not know what other depositors think about the solvency of the bank.
If firms in the tradable sector have plenty of spare capacity you’d expect net export volumes to rise significantly; once capacity constraints start to bind you’d expect greater Source: ONS and Thomson Reuters Datastream  investment; in general, given that the degree of spare capacity is bound to vary across firms, you’d expect to see both. I think this is what you have seen in the past – in both directions. The data are limited. Detailed sectoral numbers on profits and investment exist only from the early 1990s and until 2014. But that period does at least cover two significant moves in the currency, even before the financial crisis: the big drop when sterling fell out of the European Exchange Rate System (ERM) in 1992, after which the exchange rate remained relatively low for a few years; and the equally large re-appreciation in 1997 and 1998. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  As it happens, I think these swings can be traced back to the demand-side influences I discussed in the last section. Subdued domestic consumption, public as well as private, supressed the exchange rate in the years after sterling exited the ERM; much stronger growth, associated in part with the revival in the housing market, helped to push it back up later that decade (you can see these broad movements back in Chart 3).

14  All speeches are available online at www.bankofengland.co.uk/speeches  14  References  Bloom N., Bond S. and J. Reenen, 2007, ‘Uncertainty and investment dynamics’ The Review of Economic Studies, 74 (2), pages 391-415 Dixit A. and R. Pindyck, 1994, ‘Investment under Uncertainty’, Princeton University Press Egert B., Halpern L. and R MacDonald, 2006, ‘Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues’, Journal of Economic Surveys Goldberg L., 2007, ‘Exchnage rates and Foreign Direct Investment’, Princeton Encyclopaedia of the World Economy, Princeton University Press Handly K. and N. Limao, 2013, ‘Policy uncertainty, trade and welfare: theory and evidence for China and the U.S.’, NBER working paper No. 19376 Obstfeld M. and K. Rogoff, 2000, ‘Perspectives on OECD economic integration : implications for U.S. current account adjustment,’ Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 169-208 Obstfeld M. and K. Rogoff, 2007, ‘The unsustainable US current account position revisited’, published in G7 Current Account Imbalances, National Bureau of Economic Research Samuelson Paul A., 1964, ‘Theoretical notes on trade problems’, Review of Economics and Statistics, Vol. 46, pp. 145-54. 15  All speeches are available online at www.bankofengland.co.uk/speeches  15
Inflation rates of countries whose currencies are pegged to the Euro rose to 10.2 percent from 4.4 percent. In this period, countries that avoid the nominal appreciation of their currencies have only exacerbated the inflationary effects of supply shocks. The necessary adjustments in real exchange rates have taken place through the rise general price level. 2  BIS Review 82/2008  Until recently, the common view among central banks of developed countries was to give priority to problems in financial markets in absence of inflationary pressures. However, they have slowly acknowledged the fact that the increase in inflation has reached critical levels. Accordingly, with uncertainties in financial markets diminishing, the FED and the ECB have hinted that they may resort to monetary tightening in the near future in the face of rising inflation. What should be the best reaction of monetary policy under these circumstances? Although the factors causing higher inflation are presumed to be exogenous and beyond the control of central banks, there is a lot of controversy on this issue. But before going into detail, let me question the validity of this debate first, because to what extent the increase in commodity prices is supply-driven is questionable in the first place. Certainly, there are structural reasons behind the recent run-up in food and energy prices. However, it is also undeniable that there are significant demand-driven pressures over commodities. Loose monetary policies adopted in early 2000s certainly played a key role, together with excess liquidity in the financial system.

The surge in inflation rates has become a major challenge that threatens price stability in many countries. I would like to give you a few examples. Between 2006 and 2008, eighteen developing countries have implemented inflation-targeting regime. In 2006, the end-year inflation was within the target band in twelve of these countries. In 2007, this number dropped to five. By May 2008 only one of these 18 countries (Brazil) has succeeded to keep inflation within the target band. In the remaining 17 countries, including Turkey, inflation is outside the target band. Developed countries are also experiencing a similar problem. By May 2008, only in one of the eight developed countries the inflation rate is still within the band – and that country is Canada, by the way. Average inflation throughout the world has increased one-fold to seven percent over the last 12 months. Inflation in developed countries has reached its highest level of the last eighteen years. For the first time in many years, inflation figures of the developing countries are in two digit levels. In this period central banks have adopted different approaches for fighting inflation. One reason of this divergence is the difference between the objectives of central banks. For example, the Federal Reserve Bank of the United States, with ultimate goals of price stability, financial stability and full employment, lowered interest rates by 325 basis points between September 2007 and June 2008 due to severe problems in the financial system.
In fact, the ECB's projected inflation path is strongly affected by the fiscal measures the authorities have adopted to compensate households for the rise in energy prices and inflation. These measures will temper inflation during 2023, but will increase it when they are withdrawn, potentially making the inflationary episode more persistent. Moreover, this fiscal policy action should be compatible with the start of a fiscal consolidation process as early as 2023 in the most indebted countries or those with a high structural budget deficit, such as Spain, to reduce current fiscal vulnerabilities and increase future headroom. Reducing fiscal imbalances is particularly important amid the monetary policy normalisation described above, which has already led to a significant tightening of general government financing conditions. It should also be borne in mind that initiating this process may be compatible with maintaining a positive fiscal policy impact on economic growth if European funds from the Next Generation EU (NGEU) programme are used properly. All these considerations regarding fiscal policy in the euro area are, in my opinion, essential to ensure consistency with monetary policy. Insufficient consistency would require a more forceful monetary policy response to ensure price stability, and would thus increase costs in terms of welfare. Supply-side policies and NGEU Leaving demand-side policies to one side, offsetting the adverse effects of the current supply-side shock calls for ambitious policies to boost the economy's productivity and potential GDP growth rates.

All this combined with a strengthening  7/8  BIS - Central bankers' speeches  of the European project that improves the smooth functioning of the single market, reinforces risk-sharing channels within the euro area and makes it possible to guarantee the sustainability of public finances. Thank you very much. 8/8  BIS - Central bankers' speeches
The role of the physical forms of money, of the transaction systems, and of the legal and institutional frameworks is to make the social technology function as safely and efficiently as possible to serve societies’ needs. By the same token, if they are abused or deteriorate, as happened to the coinage in Newton’s day or the banking system in the US, in the great depression, the underlying social technology of money is harmed – it gets out of order and the damage can be very great. The money of the UK, Sterling, is implemented and supported by a range of technologies. Only about 3% of the money we use is directly issued by the state. That comprises the £ in notes and coins – effectively claims on the Bank of England (banknotes) and the Crown (coins). 7  There is another  £ of state issued money, but it is not in general circulation; it comprises the deposits that private banks hold in their (electronic) accounts at the Bank of England – the claims on the Bank of England that banks exchange to settle transactions with each other. 6  For instance, before the arrival of the Spanish colonist, the Incan economy functioned without a formal form of money. Instead, Incans were required to work a number of days per year on public projects and in return the state provided them with all they required in terms of food and materials, leading to little to no trade within the domestic economy.

Ancient Mesopotamia did not have a circulating currency as its means of payment - coinage only appeared around 2000 years later. Instead these civilisations had a system of ledgerbased accounts of mutual debits and credits, typically denominated in terms of agricultural commodities. 7 Only the Bank of England issues banknotes in England and Wales, but seven commercial banks in Scotland and Northern Ireland can also issue banknotes, the total value of these notes in circulation is £ The seven banks must, by law, set aside assets that are worth at least the value of all of the banknotes they have in circulation. This ensures that people with genuine banknotes issued by the seven banks receive a level of protection similar to people who have genuine Bank of England banknotes. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  The remaining 97% of the money held and used by the public takes the form not of notes and coin but of claims on the private banks in which we all store our money in payment accounts. When we use a plastic card, a cheque, a bank transfer – as we do for over 95% of the £ of transactions by value every year in the economy – we are exchanging our claims on our banks. This is sometimes called ‘private’ money as opposed to ‘public’ or state issued money. That is in my view a rather misleading description, for two reasons.
BIS Review 31/2003  1  As mentioned before, forecasts generally point to a firming of the recovery in the second half of 2003 and an additional improvement in 2004. Despite the rapid conclusion of the war in Iraq and the improvement in financial markets sentiment in recent weeks, the economic data and indicators do not yet show an unambiguous improvement, partly because some of them are still contaminated by geopolitical uncertainties, and partly because other imbalances and factors of uncertainty still persist. The fifth element I would like to stress today is the resilience of the global banking system in most developed countries. This capacity of the banking system to withstand diverse shocks was pivotal in maintaining a certain degree of dynamism in the world economy. One of the lessons of the past few years is the importance of financial markets in the functioning of the world economy, and the complexity of the channels of interaction between such markets and the real economy. This simple idea has fostered quite a number of initiatives, at the national and international level, to reinforce the resilience and efficiency of financial markets. Topics that used to be too technical and tedious, such as accounting and corporate governance, have become exciting and the centrepiece of many reform agendas. Let me mention just three issues in this regard: First: Financial market integration I believe that one factor which can and should prove fundamental to strengthening the world economy is the integration of international financial markets.

In banking, one of the most important challenges for accounting standard setters is to achieve consistency with sound risk-management practices. Incentives built in to the accounting rules should be compatible with and encourage good risk management. In this connection, the areas of financial instrument accounting and transparency rules require special attention. This idea of market friendly incentive-oriented rules leads me to my last remark on the role of prudential regulation. Third: Efficient risk management One key question that we prudential regulators should ask ourselves is whether regulations provide the right incentives to assess and to manage risks properly. This question is directed at the very essence of financial regulation, whose basic aim is to ensure the stability of the financial system without being too intrusive or undermining its efficiency. Providing market friendly incentives for efficient risk management is probably the best contribution we can make to foster financial resilience. As you know this is one of the key objectives of the new Basel Capital Accord, the so-called Basel II. Let me just mention that in designing the new standards we have been and will continue to be sensitive to the possible implications for financial markets in terms of liquidity and potential development. This is especially so in areas such us securitisation and collateralised transactions. The implementation of Basel II will contribute to enhanced risk management by banking institutions.
“Paul, it is very simple. The Fed is printing too many dollars and they flow out of the country into foreign central banks who demand gold” Exter is reported to have said. But, Paul Samuelson did not accept it and wanted to explain the malady in terms of productivity differences between USA and other countries, namely, Europe and Japan. Samuelson’s thesis was that the latter category of countries had a higher productivity than USA and therefore the dollar was becoming weaker. Exter says that he countered Samuelson saying that Japan was in more trouble than USA, because “the Bank of Japan was running its printing press even faster than the rest of the central banks around the world” Exter had decided then and there that the irresponsible government expenditure by the Kennedy administration could not keep the dollar stable in the long run and one day, gold would become the preferred asset by the world’s nations. Hence, he says that he converted all his savings into gold based assets and waited patiently. He was amply compensated in 1971 when the US government was forced to sever dollar’s link with gold under the gold exchange standard and allow the gold prices to be determined in the free market. Overnight, gold prices doubled from $ per ounce to $ per ounce. So did the gold based assets portfolio held by Exter. This wisdom which Exter demonstrated in his practical life could be discerned throughout the Exter Report and his later writings.

In order to minimize the ill effects of using a central bank’s profits for government expenditure, Exter has made special provisions in the Monetary Law regarding the application of profits of the Central Bank. Accordingly, out of the surpluses of the Central Bank, the first charges should be to build the reserves of the Bank to support the currency it issues. Any remaining balance should be utilized to retire the government’s borrowings from the Central Bank or paid into the government as a normal profit transfer. However, it has to be done collaboratively by the Minister of Finance and the Monetary Board, having taken into account the inflationary impact of each such measure. As such, the government does not have the first claim on the profits of the Central Bank, though it is owned by the government. The profit criteria that are applicable to other governmental institutions are, therefore, not applicable to the Central Bank. A general concern which has often been raised at numerous public fora has been the existence or the absence of the independence of the Central Bank. Many have found fault with Exter for making the Secretary to the Ministry of Finance a member of the Monetary Board. They have argued that this official member with his own self interest in funding the government expenditure programs would use the opportunity to dictate terms to the Monetary Board, thereby permitting the fiscal policy to override monetary policy.
3/4  BIS - Central bankers' speeches  Before concluding, I would like to thank the Swiss Government and the State Secretariat for Economic Affairs (SECO) for their continuous support of research activity at the Bank of Albania. We have been cooperating together for 10 years to build and improve research activity to the best international standards and make it practical and useful in the context of the central bank. Our models and a significant part of research projects have been developed in cooperation or under the technical assistance of the State Secretariat for Economic Affairs as part of the Bilateral Assistance and Capacity Building Program for Central Banks. This project led, reviewed and commented research projects undertaken by our staff, and made substantial contribution to the credibility, reputation and prestige of our Research Workshop. Our cooperation has been truly productive and very useful not only for the development of research activity and state of the art forecast and policy analysis modes but most importantly, for their implementation in the mainstream policy of the Bank of Albania in the areas of monetary policy, financial stability, and the analysis of demographic and climate change issues. Beyond and above these, our successful collaboration with the State secretariat for Economic Affairs extends to the areas of payment systems and financial education. Your Excellency Ambassador Huber, we are grateful for your support and look forward to the successful implementation of our current projects. I hope we will have many other opportunities to continue our fruitful cooperation in the future.

In fact, it represents a classic tail event: a loss of this kind is highly unlikely, yet would have dire consequences, particularly for the stability of the entire Swiss banking sector. In view of the aforementioned uncertainties in connection with risk assessment, would it not be justified to aim to create a somewhat more “well-padded” cushion of security, even if equity capital – like airbags – comes at a price? Finally, I would like to point out that central banks do not know better than banks or the market as to if and when and in what form a major crisis could hit the financial markets. In principle, we believe that the likelihood of severe disruptions in the financial system has actually declined as a result of innovations in the financial markets. At the same time, the repercussions of a crisis – should one occur  1  2  Risk Disclosures of Banks and Securities Firms, Moody’s Investors Services, May 2006. BIS Review 67/2007  after all – could be particularly severe given the current situation. With this in mind, I feel it is important that market participants – including the Swiss banks – should increasingly take tail events into consideration in their assessments. Stress tests are especially suitable in this regard. In our Financial Stability Report, we also underline the importance of stress testing.