samchain/econo-pairs-v1 huggingface dataset:
There are several reasons why it is an advantage that inflation is higher than zero: •  The structure of the economy evolves over time. Demand for labour with different qualifications changes. This requires changes in relative wages. There are rigidities in nominal wage growth. Nominal wages do not readily fall. With some inflation, relative wages can change without a fall in some nominal wages. There may also be rigidities in the pricing of goods and services. Some degree of inflation will thus oil the economic machinery. •  In periods, inflation and economic growth will be low. It is then appropriate for real interest rates to be low, or even negative. Nominal interest rates cannot be set below zero. If inflation becomes entrenched at a low level or near zero, the interest rate will be less effective as an instrument. •  There are different ways of measuring inflation. The consumer price index tends to overestimate actual inflation. The most important source of measurement errors is probably the difficulty of distinguishing between changes in the quality and price of goods. In other countries, findings show that the consumer price index overestimates actual inflation to the order of ½ -1 percentage point. The inflation target represents a framework for, not an obstacle to, monetary policy’s contribution to stabilising output and employment. This objective is also expressed in the Regulation on Monetary Policy. If demand for goods and services is high and there is a shortage of labour, there will normally be prospects of higher inflation.

Debt accumulation is also affected by the business cycle and interest rate changes. Household credit demand is closely linked to developments in the housing market. Home-owners with dwellings that have risen in value can make use of the opportunity to take up new mortgage-secured loans, freeing up home equity to finance consumption and other investments. House prices in Norway have on average risen by 9 per cent annually between 1995 and 2002. House prices have also increased considerably in other countries. A sharp and sustained rise in house prices might contribute to high credit growth even after prices have levelled off. Since only a portion of the housing stock is sold each year, there will for a long period be some dwellings that are sold at a higher price than when they were last sold. This has contributed to sustaining the high level of growth in credit to households in Norway even after the rise in house prices moderated through 2002 and into 2003. It is easiest to sell dwellings in the largest cities and some specific areas are particularly attractive. Residential property is now a fairly liquid and attractive investment. A persistently high rate of increase in house prices may in isolation engender expectations of a further rise and may thus prove to be  6  BIS Review 23/2004  self-reinforcing for a period.
This is not a criticism of statistical agencies: the UK’s Office for National Statistics (ONS), down the road in Newport, do a fantastic job of tracking our economy, to say nothing of the help they have provided with this speech. It is simply that, in a dynamic economy, it is impossible to track everything with statistical precision. 1 Faced with those uncertainties, it is often useful to try to form pictures using disaggregated subsets of the jigsaw pieces – much as we do when completing a large jigsaw puzzle. As with a jigsaw, this can help in understanding the bigger picture. Second, standard measures of economic activity, such as GDP, are not perfect metrics of societal well-being. This problem has long been recognised, including by the original architects  1  2  For example, see the recent review of the UK’s statistical system (Bean (2016)). BIS central bankers’ speeches  of GDP. 2 It is one reason why statistical agencies in a number of countries, including the UK, have recently begun publishing a broader range of measures of well-being, social as well as economic, subjective as well as objective. These provide a different window on how economies and societies are performing over time and across sectors. Third, even though monetary policy cannot discriminate between regions, sectors or individuals, that does not mean its impact is exactly the same across each of these groupings. It is not. The effects of interest rates, whether higher or lower, affect savers and borrowers very differently.

* 1998 prices  BIS central bankers’ speeches  Chart 9 – Wealth by type  Chart 10 – Mean versus median wealth* £ bn  Wealth, £  120  500,000  100  400,000  800  300,000  600 400  2008  2010  2012  2014  200,000  200  Median net wealth inc. pensions  0  Mean net wealth inc. pensions  100,000  0 Private Pension Wealth 2012 2014 2008 2010 Physical Wealth* Sources: Wealth and Asset Survey, ONS, Bank calculations. Financial Wealth (net) * Property, physical and financial wealth excluding private pensions. Property Wealth (net) Total Wealth (including Private Pension Wealth  Sources: Wealth and Asset Survey, ONS, Bank calculations. *July 2006 to June 2008 estimates for physical wealth are based on half sample. Chart 11 – Regional GDP per head* North East Yorkshire and The Humber West Midlands London South West Scotland  North West East Midlands East of England South East Wales Northern Ireland  2007 = 100  110 105 100 95 90  2007  2008  2009  2010  2011  2012  2013  2014*  85 2015**  Sources: ONS, Bank calculations. * Regional GVA (income approach) deflated using the GDP deflator. 2014 is provisional ONS estimate. 2015 figure is indicative, estimated using the average annual growth rate from the preceding two years.
However, if we scale it to the country’s GDP, it was in the range between 6.1 to 6.9% over the past five years. Thus, despite the headway we have made in advancing e-payments, the persistency of cash among the public and small and medium sized businesses remains high. This opens up the economy to risks as cash is still being used by criminals to launder illegal proceeds, as we 3/5  BIS central bankers' speeches  have seen from some high-profile cases over the past year or so. Similarly, this is the preferred mode to finance terrorist activities, which will involve transacting in cash. Therefore, it is timely for us to look at ways to strengthen the controls to mitigate financial crime; namely the cash threshold reporting requirement. When we compare Malaysia with other countries, our current threshold is too high and disconnected from the size of our economy, especially relative to our purchasing power. Hence, it needs to be updated. In this regard, we would like to announce that we will be lowering the daily cash threshold report to RM25,000 effective 1 January 2019. This will bring the cash threshold report in Malaysia to be more at par with other countries. We do not anticipate any impact in terms of economic activity but an increase in effectiveness in taming the black economy that is still heavily reliant on cash transactions.

There was, moreover, no departure from the Bank’s prudent approach to reserve management and the reserves remained well above the minimum statutory level. This was the case even during periods of rising international oil prices, which inflated the import bill, and in 2007 when the public started to convert Maltese lira holdings into euro and to hold on to euro earnings in anticipation of the change to the euro. Another favourable element during the ERM II phase was the comfortable surplus position on the capital and financial account, which more than offset the current account deficit. A combination of substantial inflows of FDI and inward portfolio investment flows provided strong support to the Maltese lira. The Central Bank of Malta’s credibility - based on its track record in delivering exchange rate and price stability - as well as the small size of Malta’s financial market probably also helped to ward off any unwanted attention. The absence of volatile short-term capital flows into and out of the country during this period supports this impression. Finally, Malta’s experience points to the importance of a shared vision between the government and the central bank on policy objectives, as well as of a holistic approach to achieving them. In this regard, the continued acceptance by economic operators of the need to support the fixed exchange regime facilitated the authorities’ task in imposing the fiscal and monetary discipline necessary to meet the nominal convergence criteria.
And customers are now more appreciative of the improved quality of product and services offered by the industry players. Customers can now conduct their transactions with proper documentation and in more secure premises. The public image of the industry has certainly improved. What we have achieved so far proved that with collaborative effort, we can achieve significant milestones. Our transformation journey is not over. It is long. It is fraught with challenges and we will encounter much passive resistance along the way. But it is a journey that is abound with opportunities. BIS central bankers’ speeches  1  Expectations and scrutiny of the industry will continue to increase, particularly with the growing concerns over risks posed by money laundering and terrorism financing activities. But we shall practise proportionate regulation. The Bank will assess risks and compliance based on the individual company’s business profile. We are confident that all licensees will be able to comply with the minimum standards set by the Bank. Where necessary, additional investment in resources should be made including, recruiting suitable talent and acquisition of new systems. Immediate priorities for the industry Vision for the Future The world we are living today has changed significantly. The old rules do not work anymore. New rules are continuously being formed and constantly evolving. The advent of information technology has changed the way we live and the way we do business. We are more integrated with the outside world. The world is increasingly more interdependent.

So it is reasonable to expect that once a significant minority of firms has offered a return to pay growth that is more normal by historical standards, we can expect the majority to follow. 3. The balance of savings and investment intentions  Let me turn to the balance of savings and investment. Although many believe that the MPC sets interest rates, that is only strictly true for short term rates, and even then only the rates applicable in our monetary and liquidity insurance operations. Long term interest rates are set by the economy, and must ultimately equilibrate the desire to save and the desire to invest. Much of the decline in interest rates over the 30 years prior to the crisis represented large global forces – as evidenced by the tendency of international bond yields to co-move. 4 Demographic effects, for example, saw the proportion of the global population in prime working age increase from 50% to 58%. 5 Those in the workforce tend to save more than those outside it, particularly over a period of increasing life expectancy. The rise of inequality has also had an impact through its tendency to skew income toward those more likely to save. 6 Needless to say, the development of these trends over the coming decades will continue to play an important role in the determination of long term interest rates.
The aim here is to align managerial incentives with those of wider stakeholders, specifically creditors, so mitigating risk-shifting incentives. This is not a new idea. In their original paper on risk-shifting, Jensen and Meckling (1976) proposed structuring a CEO’s compensation such that it was aligned with the firms’ debt-toequity ratio. In practice, companies in general, and financial firms in particular, have fallen well short of that objective. Fewer than 1% of bank CEOs have been found to have remuneration packages with debt-to-equity ratios greater than their firms. 22 The new EU bonus cap rules also arguably weaken the link between performance and compensation as they shrink the proportion of variable pay and make it harder to cut back total remuneration. 23 Since the crisis, consideration has been given by both academics and policymakers to switching remuneration practices towards debt-like instruments (for example, Becht, Bolton and Roell (2011), PCBS (2013)). This appears to have had some policy impact. For example in Europe, payment in debt instruments is now permitted under the new Capital Requirements Directive IV (CRD IV). To date, however, there are only limited signs of remuneration practices having shifted significantly towards debt. UK banks provide one case study. Their structures remain heavily skewed towards equity, at around 50–75% of total pay, compared with around 5–15% in debt (Chart 10). Among non-financial firms, the balance of pay appears, if anything, to be even more heavily skewed towards equity. A second strand of the policy debate involves lengthening the horizon of remuneration contracts.

Banking produces a particular form of social pollution – financial crises. We have had many hundreds of years of experience of such crises. The global financial crisis will, however, almost certainly require a re-think of their costs. The cumulative GDP costs of the crisis so far in the US, UK and the euro-area are well in excess of 25% of GDP (Chart 8). In net present value terms, they could easily end up equating to a year’s GDP or more. This suggests, pre-crisis, the misalignment between private and social incentives in banking was larger than perhaps at any time in the recent past. In the language of Jensen and Meckling, risk had been shifted by management and shareholders onto a much wider set of societal stakeholders, with significantly adverse macro-economic implications. (b)  Moral hazard  That brings me to the final of the incentive frictions. When the social costs of an activity are high, as during financial crises, there are strong incentives to cushion the effects on wider society. The global financial crisis provides no better example of those incentives, with extraordinary levels of government support to the global banking system in the form of recapitalisation, liquidity support and guarantees. BIS central bankers’ speeches  11  While these levels of support were arguably necessary to limit the costs of the crisis, they came with their own longer-term costs.
Experience has shown that once such rates have been communicated, they guide the market to a high degree up to entry. Lower resource utilisation but large risks in both directions In the Report we count on inflation falling back again next spring. This year’s appreciably lower resource utilisation has a lot to do with that but so does the prospect of last spring’s rapid price increases coming to an end so that the earlier effects drop out. In the latter part of the forecast period inflationary pressure in the main scenario becomes somewhat stronger as the economy recovers fairly rapidly. 6  BIS Review 89/2001  Support for this picture is to be found if one goes behind the price statistics and looks at wages and unit labour costs (Diagram 6). Even with the rather substantial downward revision of productivity growth, these costs rise at a moderate rate throughout the forecast period. That should ensure that even if inflation does not fall back quite as much as calculated, its level will be low. The overall assessment is that in September next year CPI and UND1X inflation will 1.5 and 1.7 per cent, respectively, while the rates in September 2003 will be 2.1 and 2.0 per cent. 6.

Only recently, the Fed and the Bank of Japan have announced a numerical inflation goal. The second element: central banks should be independent on legal and operational grounds. Indeed, the independence of central banks is enshrined into primary law in a number of advanced and emerging countries and has been key for a stability oriented monetary policy. For crisis management, the so-called Jackson Hole consensus 2 of the 1990s and early 2000s foresaw only a limited role for central banks. Following the logic of the consensus, monetary policy should react to financial imbalances only to the extent that they affect the inflation forecast. Yet, as asset price build-ups are often accompanied by relatively contained inflation rates, 3 “ex-ante” monetary policy reactions were considered difficult. Effectively the consensus implied that central banks would only intervene “ex-post” to counter potential deflationary risks and risks to financial stability. The dot-com bubble of the beginning of the century was an illustration of such strategy. The ECB with a special emphasis on monetary developments The ECB’s standpoint differed from the Jackson Hole consensus. We have always emphasised that focusing on money and credit developments provides for a medium- to long-term perspective. It was believed that the monetary pillar would release warning signals and hedging against the building up of financial imbalances. 4 Indeed, as of 2005, on the basis of its monetary pillar, the ECB has repeatedly warned on the observed strong credit growth and the accompanied under-pricing of risk.
Perhaps it is not because there is no scope for one, because there is no niche to be exploited, but because our legislative framework, as it has evolved so far, doesn’t permit it! For the truth of the matter is that while we have laws governing banking activities and a law governing cooperatives in Malta, we do not have laws governing cooperative banks! In our current legislative framework, the latter seem to fall between two stools. Our Banking Act envisages only joint stock banks, that is banks whose customers are not their owners, while the law governing cooperative societies in Malta, though it provides for the establishment of a fund into which all registered cooperatives are obliged to deposit 5% of their annual operating surplus to help pay for research and the education and training of their members and the general development of the cooperative movement, does not provide for the establishment of cooperative banks – that is institutions that are licensed to accept deposits and make loans. Clearly, for such a bank, or banks, to be able to be established here, either our Banking Act, or the law governing Cooperative Societies, or both, will have to be amended. But this is precisely what Minister Azzopardi said he has proposed to do in his introductory speech: to amend the relevant legislation. Then, once the amendments being proposed by the Minister come into force, we will be in a better position to judge whether or not there is scope for setting up a cooperative bank in Malta.

Given the objectives of financial inclusion, it is hoped that foreign banks support this initiative given the flexibility that is being accorded to widen the outreach to segments of the economy which are currently underserved. Also embedded within the financial inclusion agenda is the responsibility that banking institutions have towards their customers, and to ensure that adequate information is provided to consumers and investors to make informed judgments. In the area of product development, both the interest of consumers and businesses will be taken into account. Financial institutions that demonstrate their ability to act responsibly can look forward to greater business flexibility to innovate. Financial institutions that uphold the necessary principles in their business strategies stand to reap long-term gains from enhanced franchise value, a strong reputation and positive association with socially responsible values that will engender public trust and confidence. The third area relates to the need for banking institutions to enlarge their sphere of influence going forward given the changing environment. Banks will increasingly be exposed to external developments and the forces of market discipline. There are several particular areas in which banking institutions can take strategic positions to influence such developments. First is to leverage on the “network economy” through strategic alliances. With global integration deepening further at the same time that competitive forces are exerting pressures on margins, the way forward would be to build on strategic alliances to increase capacity and expand reach, while containing costs.
2 We know that financial intermediation as a whole accounted for about 8.5% of UK Gross Value Added in 2005. And a recent estimate 3 of the professional services supporting financial services accounted for a further 3.6% of economic activity in 2005, giving a total of some 12%. That compares with around 14% of GDP for the UK manufacturing sector and the jobs in financial and business services taken together have increasingly outnumbered those in manufacturing. 1  “Sustaining New York’s and the US’ Global Financial Services Leadership”. Report by McKinsey & Company to Mayor Michael Bloomberg of New York and Senator Charles Schumer (pages 14 and 54). 2  Indeed the ONS has announced that it will be revising its estimates of the level and composition of GDP to incorporate changes to the measurement and treatment of value added for banks and to take better account of in-house software development. 3  International Financial Services, London. “International Financial Services in the UK”, November 2006. BIS Review 29/2007  1  And since 1999 financial services and insurance taken together have accounted for over 20% of the UK’s exports of services. So it is clear that the financial sector is an important industry for the UK. But financial intermediation covers a great deal more than the City. Retail banking and insurance, like other retail services from restaurants to hairdressing, is widely dispersed across the country. In general one would expect this part of the industry to reflect the size of the population and their wealth.

And the eurozone’s financial depth has increased at twice the pace of the US over the past 10 years. 13 If this gap continues to narrow, I expect this to favour the growth of London as the main centre for Europe’s capital markets. The development of capital markets in Asia is further behind still and I would expect to see continued rapid growth in these markets in the next decade. The rationalisation brought by the single financial market in Europe should push in the same direction. The number of central counterparty (CCPs) clearing houses by ownership has halved in Europe since 1999. And there were over 650 mergers and acquisitions in the EU banking sector between 2001 and 2005, a quarter of which were cross-border within Europe. But the process has some way to go and as the European financial sector becomes more consolidated, and financial institutions become larger and more complex, they tend to become more intensive users of capital markets. The major UK banks’ trading book assets, for example, now account for over 30% of their balance sheet assets compared with little over 15% back in 2000. What of the countervailing – centrifugal pressures? The creation of Canary Wharf, the expansion of office space in the Square Mile and the West End has helped to allow the rapid expansion of recent years. But of course London is an expensive city with high land and labour costs.