samchain/econo-pairs-v1 huggingface dataset:
The broad prospect now for the UK economy as a whole over the next couple of years, which is the extent of our forecasting horizon, is one of continuing relatively strong growth, with continuing relatively high employment and continuing relatively low inflation. The monetary policy debate is a narrow one: it is about just how strong the growth, just how high the employment and just how low the rate of inflation. It is as good a prospect for the economy as a whole as we have known for some time. And much the same is true of the overall economy here in Northern Ireland. You know better than I do. But from the data, you, too, have enjoyed a sustained period of relatively steady growth - in fact you largely avoided the recession that hit the rest of the UK at the beginning of the 1990s. The number of people in employment here too is at its all-time high. And unemployment is at a 25-year low. As far as I can tell - from the Northern Ireland Economic Research Centre forecast of last autumn and from  BIS Review 7/2000  2  the regional CBI’s recent business confidence survey - that progress looks set to continue; indeed you may well out-perform the UK economy as a whole. That is an encouraging macro-economic background to the challenges facing Northern Ireland’s new Executive and Assembly.

We have in fact for some years now been working with the banks and small business representative organisations at the national level, seeking to restore the relationships between the small business sector and its main finance providers - which came under severe strain during the recession in the early 1990s. I believe that we have made substantial progress in that - though we continue to monitor the position - and I hope that Nigel will play a role in this process here at the local level. We are now turning our attention to the provision of finance in more specific areas - to ethnic minority businesses, for example, and to businesses that have hitherto been financially excluded. It is in this latter area that the Bank has been strongly supportive of the Prince’s Trust - and particularly of the Prince’s Youth Business Trust, with its aim of “helping young people who would not otherwise have the opportunity to develop self-confidence, fulfil their ambitions and contribute to the community through the medium of self-employment”. I am delighted that the Prince’s Trust have joined with the Chamber in organising today’s lunch. We all - as I say - have a part to play and the Prince’s Youth Business Trust fills an important gap. Mr President, as I said at the outset, a great deal has happened in a very short time since I was last here - in the world economy, in the UK economy, and here in Northern Ireland, both economically and politically.
However, I am willing to answer questions on both during the Q&A session. While these two stories are different, they interact in important ways. The unsustainable boom that Iceland experienced during the years 2005–2007 was fuelled by a combination of favourable external conditions, macroeconomic mismanagement, and aggressive domestic bank lending. It may well be that the banks’ international activities and the easy access to foreign credit that came with those activities fuelled stronger growth in domestic bank lending than would have occurred in a more traditional small-country banking system. But we cannot be sure about the magnitude of this effect, as we know that unsustainable domestic credit booms fuelled by capital inflows can very well take place in countries that are not home countries to international banks. As so often occurs in great tragedies, the two stories converged in a grand finale in early October 2008, when nearly nine-tenths of Iceland’s banking system collapsed when its three large cross-border banks – Glitnir, Landsbanki, and Kaupthing – were taken into special resolution regimes on the basis of the emergency legislation that had just been passed by Iceland’s Parliament. By that time, however, the Icelandic economy was already on its way into a recession as a result of the inevitable adjustment of the economy after its serious overheating in 2005–2007 and the currency crisis earlier in 2008. As a matter of fact, Iceland was struck by three negative shocks in 2008.

The euro countries are marked by the debt crisis and growth prospects have deteriorated somewhat compared to the end of last year due to new consolidation measures and a tighter credit situation. There are, however, a number of bright spots in the US economy, where the labour market is improving and the housing market is showing early signs of a positive turnaround. With regard to the global economy as a whole, the Riksbank’s forecast is that growth will continue to increase at a relatively good rate in the years ahead, after having declined somewhat in 2012. This is shown in Figure 1. BIS central bankers’ speeches  1  Figure 1. GDP in various regions and countries Quarterly changes in per cent calculated as an annual rate, seasonally adjusted data 6  6  4  4  2  2  0  0  -2  -2 The world  -4  -4  USA Euro area  -6  -6 00  01  02  03  04  05  06  07  08  09  10  11  12  13  14  Sources: Bureau of Economic Analysis, Eurostat, the IMF and the Riksbank  For some time now, an important assumption in the Riksbank’s international forecast has been that the euro countries, by implementing various measures, will succeed in reducing the most acute anxiety about the debt problems in the euro area during the course of 2012.
In the case of the Eurosystem, this is an even more arduous task than usual, as the single monetary policy must cope with a new environment and be explained to a public from different cultural backgrounds on the basis of new indicators and data. Our choice is to base this communication on transparency. This means that our external presentation of monetary policy must fully reflect the internal analysis and discussions which take place within the Governing Council. I can personally assure you that this is the case. Our internal discussions are organised in such a way as to ensure a full and thorough assessment of the two pillars I have just described. Our external communications fully reflect this. In addition to a well-defined and informed strategy, the monetary policy of the Eurosystem must rely on an efficient operational framework, that is, on a set of instruments and procedures necessary for the implementation of monetary policy. Thus far, this framework has proved successful in clearly signalling the stance of monetary policy, in steering short-term market interest rates and in providing liquidity to the banking system in an efficient manner. At the heart of the framework are the weekly refinancing operations which were conducted at interest rates broadly in the middle of the interest rate corridor, which is set by the rates on the two standing facilities. A minimum reserve system ensures the existence of a liquidity deficit in the banking system, which is necessary for the conduct of these weekly open market operations.

I personally think that acceptance of the euro in daily life and financial transactions will come faster in Turkey than in other countries, for three reasons: the large numbers of Turkish citizens living in Europe, the large volume of trade and tourism transactions with Europe, and the consistent stability of the deutsche mark for 20 years and more. The introduction of the euro has reduced transaction costs and removed the risks connected with more volatile currencies, increasing the incentives for European capital markets to rely more on direct financing. A deep, liquid, and efficient euro bond market will be welcomed by Turkish sovereign and private bond issuers. Moreover, the volume of transactions in the euro bond market is expected to be much larger than today. 1  BIS Review 109/2000  Increased acceptance of euros in Turkish trade and financial transactions, of course combined with an environment of low inflation, will make direct investments in Turkey more attractive to European firms. Turkey’s presently very small total of direct foreign investments from European investors would surely be encouraged to grow by the disappearance of foreign exchange risks. Under such circumstances, both Turkish and European banks could be expected to increase their merger and acquisition activities. For the short term, the most important goal is to promote the euro as an international currency. Success will crucially depend on the new currency’s acceptance by the people of the EMU countries and other countries as well.
An additional advantage of basing the forecast on the assumption that the repo rate will develop in accordance with market expectations is that it will be easier to compare the Riksbank’s forecasts with those of other forecasters, which are not normally based on an assumption of an unchanged repo rate. In connection with our changing the interest rate assumption, we also extended the forecast horizon. A longer time horizon will, for instance, make it easier to show that certain types of disturbances only affect inflation temporarily and why it is not desirable to counteract them by monetary policy measures. This also justifies our moving from an assumption of a constant repo rate: the longer the forecast horizon is, the more improbable it will be that a constant repo rate is a reasonable description of future interest rates. This is, roughly, the background to why we have chosen, with effect from the third Inflation Report last year, to base the inflation forecasts in the main scenario on an assumption of the repo rate developing in line with market expectations, as reflected in implied forward rates. The main reasons are thus to improve the basis for monetary policy decisions and also the opportunities for evaluations. This new procedure does not, however, entail any change in the basic monetary policy strategy in the sense that monetary policy will normally continue to be focused on keeping inflation on target within a twoyear period.

The successful implementation of postpandemic measures, when the priority will be a return to economic and social normality as fast as possible, hinges on the extent to which macroeconomic stability is preserved. When I speak of independence I do not see the central bank secluded in an ivory tower, but working actively, and combatively, under the law, with the fiscal authority, with the government. Based on my experience, I do not think there is a better alternative to a balanced, coherent fiscal and monetary policy mix. And central bank independence implies accountability vis-à-vis the law, the mandate, the society. Or, in the words of 19th-century Romanian writer and politician Costache Negruzzi, the central bank needs to ‘stand accountant’ for what it does. By encroaching upon central bank independence, in favour of political decisions seeking shortterm electoral gains, the real costs will be borne from an economic and social perspective, in the long run, by the entire country. A recent study published by the European Central Bank, titled The Case for Central Bank Independence, shows that – while the de jure independence has largely remained intact – the de facto independence has deteriorated in almost half of the sample of central banks under review. This is a fact and, for me, it is a matter of concern. I shall not comment on it. Looking at central banking history that spans more than three centuries, I hope this is part of the long cycle of ups and downs in terms of central bank independence.
data at the level of individual firms, used in micro-prudential analysis. As mentioned before, a range of important data needed for macro-prudential analysis relate to firm-specific data on financial firms. Risk assessment tools for example, such as stress tests to assess the relevance of specific risk scenarios, are labelled macro-stress tests (as opposed to the “micro” tests run by banks individually at the request of the regulator). Nevertheless, the usefulness of these tools depends on the quality and detail of the bank-specific data. The relevance of the results for macro-prudential purposes is, of course, to be found in the aggregated figures (the impact on banking sector capital) and their subsequently interplay with the macro-financial environment, lending activities and overall growth. For stress testing tools, selected supervisory data are important for achieving reliable results. However, for other types of analytical tools and indicators, the use of publicly available information may be sufficient, or even preferable for reasons such as the comparability of  BIS central bankers’ speeches  3  data across financial firms or transparency. In official financial stability publications, for example, it is often considered important that readers and market analysts are able to replicate analyses with information in the public domain. Generally speaking, while it is essential that supervisory data are well protected, there would be merit in distinguishing between different layers of confidentiality and, thereby, to facilitate that selected supervisory information is made available for macro-prudential analysis.

2/3  BIS central bankers' speeches  Conclusion As risk professionals, it’s important to be forward-looking and to continually ask ourselves: are all risks being captured, measured, and monitored? What is missing? Are we focused on the right areas? So, here is another question: When we look back at this conference five years from now, what will we view as a major blind spot? I expect there will be issues that we will be surprised we missed, and part of the purpose of discussions like this is to lower the likelihood and impact of those inevitable blind spots. Thanks for your attention, and I’m looking forward to hearing the discussion throughout the day. 3/3  BIS central bankers' speeches
For example, persistent weakness in demand can mean that more people will remain in unemployment for some time, which makes it difficult to re-enter employment. Once those temporary factors have dissipated, the equilibrium rate will tend back towards the natural rate of unemployment – the level to which unemployment would return eventually when supply and demand for labour are in balance in the long run. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Under-measurement of labour market slack  A straightforward explanation of why pay growth is subdued at very low levels of unemployment is that we are under-measuring the amount of spare capacity – or ‘slack’ – in the labour market. Recent trends in the world of work have meant greater (voluntary and involuntary) self-employment and part-time employment. Measures incorporating under-employment as well as unemployment – i.e. how much more people who are in work would like to work – may give a better indication of the amount of spare capacity in the labour market. In such a world, low pay is simply telling the policy maker that there is more labour market slack than the unemployment indicators are registering, that the output gap is larger than thought and that the economy can grow at a faster rate without generating domestic inflation pressure. I am reasonably sure that the under-measurement of labour resource utilisation accounts for some of our failure to forecast pay growth more accurately in the early years of the recovery.

26  Given the uncertainties I have described and the serial disappointments we have had in recent years  in forecasting the impact of unemployment on pay growth, there is in my view a not immaterial risk that the trade-off is not as it currently appears and that domestic inflation pressure will undershoot the Committee’s collective expectation. In my view the low level of domestic pressure on inflation now, the absence of second round effects from the deprecation of sterling, and inflation expectations around their historical averages, make it possible to wait 24  I have quoted the shorter-term measure for regular pay, rather than total that I use elsewhere, as the inclusion of bonuses in total pay leads to more short-term volatility in that series. 3-month-on-3-month annualized growth for total pay was 2.1% in August but had been above 3% earlier in the year, and has risen well above 4% at two points in the preceding three years without signaling sustained higher wage growth. 25  Job to job flows within a quarter have been at about 2.5% - which is what they averaged over 2005-07 before falling down below 2% in 2009 – since early 2016. Similarly, the MPC’s swathe of surveys have been pointing to recruitment difficulties for some time, for example the REC survey has indicated below-average staff availability since 2013 – and significantly so since mid-2014.
Financial intermediation does add value, but not as much as the statistical convention would suggest. Moreover, a financial sector that takes on risk with the implicit support of the tax-payer can generate measured value added that reflects not genuine risk-bearing but the upside profits from the implicit subsidy. And even without an implicit subsidy the return to risk-bearing can be mismeasured. It is widely understood that an insurance company should not count as profits the receipt of premia on an insurance policy that will pay out only when a lowfrequency event occurs at some point in the future. But part of the value added of the financial sector prior to the crisis reflected temporary profits from taking risk and it was only after September 2008 that much of that so-called economic activity resulted in enormous reported losses by banks. It is possible to make a very rough estimate of the possible size of this distortion in the reported financial sector output data. If we assume that true labour and capital productivity in the financial services industry grew in line with that in the wider economy in the 10 years prior to the crisis, then, given the inputs of capital and labour over that period, the official estimate might have overstated UK financial sector value added by almost £ billion up to 2007 – around half of the growth in the official measure.

But a key challenge is to ensure that maturity transformation does not simply migrate outside of the regulated perimeter, and end up benefiting from an implicit public subsidy (Tucker, 2010b). That is difficult because it is the nature of the services – not the institutions – that is the concern. Ultimately, we need a system whereby the suppliers of funds to risky activities, whether intermediated via banks or any other entity, must understand that they will not be protected from loss by taxpayer bailouts. Creditors should know that they will bear losses in the event of failure. We certainly cannot rely on being able to expand the scope of regulation without limit to prevent the migration of maturity mismatch. Regulators will never be able to keep up with the pace and scale of financial innovation. Nor should we want to restrict innovation. But it should be undertaken by investors using their own money not by intermediaries who also provide crucial services to the economy, allowing them to reap an implicit public subsidy. It will not be possible to regulate all parts of the financial system as if they were banks. As Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, has argued, “merely expanding the scope of regulation to chase those firms that extract implicit guarantees by engaging in maturity transformation would be an interminable journey with yet more financial instability in its wake” (Lacker, 2010).
But the Swedish banks had also become involved in activities that proved to be risky. I refer to their lending in the Baltic countries. These exposures also affected confidence in Swedish banks during the crisis. As we are affected very directly by disruptions on the international financial markets, it is in our interests to have functioning global regulation. We therefore welcome the proposals made by the Basel Committee. Hopefully, the new regulations will contribute to preventing new crises in the financial system, or will at least alleviate their dramatic effects. More capital of better quality provides larger buffers I shall begin by describing the new requirements regarding the banks’ capital. Because this is what a large part of the changes agreed by the Basel Committee concern. One can say that this capital is the money at the bottom of the treasure chest that the financial supervisory authorities require the banks to always hold. The banks have long been obliged to observe special minimum levels regarding the size of their capital. There are two main reasons for this. The first is that the capital is to reduce the costs to the state if the bank fails. Even though Sweden escaped relatively lightly on this occasion, we know from experience that such costs can be very extensive. For instance, the state may be forced to take over bad assets or have to pay money to depositors under the Swedish deposit guarantee scheme.

Bank of Albania will take all necessary actions to ensure an inflation rate of 3 per cent with a tolerance band of ± 1 percent, in the short and long run. Interest rates During the recent years interest rates have dropped reflecting the ease of monetary policy. This has been a general trend for all financial assets either in Lek or foreign currency. On average banking system applies 9.7 percent for loans in domestic currency. The yield of 12 month Government securities dropped at a minimum of 5.74 percent in June 2006. However, following the last decision of the Bank of Albania and latest trends in global markets, a modest increase in interest rates has been observed during the last three months for both domestic and foreign financial instruments. We expect this trend to persist within the next 6-12 months. Banking system The Albanian banking system continues to expand. It is solid, consolidated and fully capitalized. The system consists of 17 banks, of which only 3 are entirely domestically owned. Banking network has been extended continuously including remote areas. Banking products increased in number and improved in quality. Entrance in the market of important European financial groups created a better competitive environment and further enhanced efficiency. The expansion of lending portfolio and more competitive lending rates has deepened financial intermediation. Latest data show that in June 2006, the assets of the banking sector reached 60 per cent of the Albanian Gross Domestic Product (GDP).