samchain/econo-pairs-v1 huggingface dataset:
This applies even if a devaluation, in isolation, has a favourable short-term impact on the real economy. The disadvantage is that devaluations tend to fuel expectations of further devaluations, which makes it difficult to break with this form of policy. As a result, inflation will be higher than in other countries while neither employment nor economic growth will be systematically higher. On the contrary, higher inflation will most likely have considerable negative effects on the real economy, partly because this will amplify the adverse effects of the tax regime. However, there may be considerable real economic costs associated with the transition to a consistent fixed exchange rate regime. It may take time for devaluation expectations to fade and for wage, price and interest rate developments to adapt fully to the exchange rate regime. The less credible a fixed exchange rate policy is at the outset, the longer it takes for devaluation expectations to fade, and the greater the transitional costs will be in connection with a regime change to a consistent fixed exchange rate policy.” This analysis shows that at the time there was a realistic understanding of the transitional costs associated with bringing down inflation. Inflation fell gradually, down to 2-3 per cent in 1991-1992. If inflation targeting had been an available option in 1986, we might indeed have chosen to aim for just such a gradual fall in inflation. Economic policy had to be anchored more firmly after 15 years of short-term fine-tuning.

But even this combination, which can only be temporary, cannot in the long run prevent a sharp rise in prices if the gap between demand and supply is too wide - as demonstrated by the rise in prices after 1980.” In Norway, the efforts to develop an economy under strong centralised coordination and control culminated in the 1973 proposal to establish an incomes policy council.5 According to the proposal, the social partners would undertake a commitment through the council to keep negotiated wage increases within specific limits. It was also stipulated that demand management policy should be included as part of incomes policy. The proposal to establish an incomes policy council did not receive support. There was ultimately too much control and coordination. Now, only 30 years later, virtually nothing of this system remains. The structure was not solid enough. We know from experience that fiscal policy alone cannot ensure a high level of employment. The structure of the labour market and wage formation are probably of greater importance. The direct regulation of credit, interest rates and capital movements collapsed and was phased out in the 1980s. The krone is floating. Price regulation no longer plays a role as a macroeconomic instrument. The scope of business policy has become more general. State ownership in the Norwegian business sector remains extensive, but ownership management has been reorganised following the negative experience of companies in Kongsberg, Mo i Rana and Syd-Varanger. The economic policy of the 1970s and 1980s contributed to wide fluctuations in the Norwegian economy.
Neither liquidity from central banks nor the availability of deposit insurance was enough to sustain confidence in ailing banks or to contain the economic costs of failure. Many banks proved to have fundamental problems of solvency or viability. But a number of countries, including most painfully the UK, were exposed as lacking regimes for absorbing the failure of even middle-sized banks. And no country was in a position to cope with the failure of its largest and most complex banks and dealers. BIS central bankers’ speeches  1  The profits from maturity transformation and leverage had been enjoyed, but the authorities’ framework-regulation, supervision and crisis-management – had been found wanting. Partly because banking has evolved beyond the simpler structures contemplated when the existing regulatory framework was conceived. It is timely, therefore, to review progress in redrawing the banking Social Contract. In particular, I shall describe the work underway to return banking supervision to its historic mission of systemic stability, and of the new Financial Policy Committee role in that. Liquidity insurance and shadow banking On central banks’ provision of liquidity insurance, the Bank of England launched new permanent facilities in a series of steps from October 2008 onwards. Through our Discount Window, we stand ready to lend against a very wide range of collateral, including portfolios of raw loans meeting published criteria. Publication of use of the Window is delayed and is confined to aggregate, average use over a quarter, so I trust there is no need for use to be stigmatised.

Yet they did not spend much time working out how to handle a firm’s failure in the event of prophylactic supervision proving insufficient. That was a major problem in the very conception of prudential regulation and supervision, going back decades. In future in the UK, a core role of supervisors will be to work backwards from what would happen at the point of failure. A bank’s resolvability and the likely consequences for the system if it failed will be incorporated into the Prudential Regulation Authority’s planned risk-assessment framework, which will replace ARROW as Hector Sants has explained. Recovery and Resolution Plans – or “living wills” – will be required to ensure that failure does not lead to avoidable disorder. In pursuing this, the supervisors will need to work closely with the team in the Bank who operate the UK’s Special Resolution Regime. That should be helped enormously by the planned new Proactive Intervention Framework or PIF, a major reform involving each firm being “Staged” for internal purposes by the prudential supervisors. My personal expectation is that it would be an odd world if there weren’t quite a few firms at Stage 2 even in a more benign economic and financial environment. And as a bank’s PIF ranking rises, the Resolution team will progressively become more engaged with it. The details of this need to be worked on by Hector and me with our teams, but it will be a big change from the past.
While a small step for mankind, this is a giant one for bank regulators. It is also, inevitably, something of a step into the unknown. What will be the impact of changes to the CCB on credit and growth? Will the two arms of policy (monetary and macroprudential) be better than one? And, if so, what institutional arrangements best deliver those benefits? Policy experience from the recent past and the present can shed light on these questions. The US dotcom bubble As a first case study, consider the behaviour of the US economy after the bursting of the dotcom bubble in 2001. Chart 2 plots US official interest rates in the period just before and after this event. Interest rates fell sharply, from 6.5% at the beginning of 2001 to 1% by the middle of 2003, to cushion the effects of the financial headwinds created by the dotcom bubble popping. Consider now what interest rate path would have been predicted had policy been responding mechanically to deviations of inflation from target and output from potential – in other words, following a standard “Taylor rule” [Taylor, 1993]. As Chart 2 shows, this would have implied a less dramatic fall in interest rates in the US. After the dotcom crash, a gap opened up between actual and Taylor-rule implied US interest rates. This was both sizable (on average, one or two percentage points) and persistent (lasting from early 2001 right up until summer 2008).

Relative to money spending, central bank money supply is at its highest levels in the 15-year history of the European Central Bank, the 100-year history of the US Federal Reserve, the 131-year history of the Bank of Japan and the 319-year history of the Bank of England. Accompanying these monetary policy changes has been a marked shift in regulatory philosophy. Since the crisis, financial regulation has become explicitly macro-prudential [Morris and Shin, 2008; Bank of England, 2011; Hanson et al, 2011]. This is an expression much-used, but generally little-understood. In a nutshell, it means that policymakers have begun using prudential means to meet macro-economic ends. Those macro-economic ends include tempering swings in credit and leverage – the classic credit cycle. The credit cycle is a long-established feature of the financial landscape [Aikman et al, 2014]. Chart 1 shows its pattern in the UK over the past 130 years or so. The credit cycle is every bit as regular as the business cycle. But it differs from the business cycle in two critical respects: its amplitude is at least twice as large and its duration at least twice as long. Both are important for the design of macro-prudential policy regimes. The larger amplitude of the credit cycle is one reason why credit booms have, more often than not historically, resulted in banking crises (Table 1). Because financial crises cause large and long-lived disruption to the economy, this suggests a strong empirical link between credit cycles and macroeconomic destabilisation.
Limitations in practice The problem is that it is difficult to apply this model for rules and regulations fully when there are many different national peculiarities which are hard to do away with. This has therefore provided some scope for the authorities also in the host countries to apply supplementary provisions, which have in practice impeded cross-border competition. Such provisions are often attributed to some form of general good, which can be hard to define - and for which it is even harder to disclose a hidden protectionist background. Another problem with the legislative work within the EU is that it has been so difficult to continuously modernise the rules and regulations and adapt them to new market conditions. The legislators have in several cases been one step behind the market, which has meant on the one hand that new products and operations may not have been encompassed by the new freedom of movement on the single  market, and on the other hand that the protection the legislation aims to provide has been undermined. This problem came under particular focus last year, with regard to the securities markets within the EU, and a Committee of Wise Men headed by former EMI head Alexandre Lamfalussy proposed a simplified procedure for the entire legislation process. As you know, directives are adopted by the Council of Ministers and the European Parliament in a co-decision procedure, which is in itself a complex process and even more so when the directives include detailed provisions on what is to be regulated.

It is important to maintain a high level of confidence that institutions and markets will function in the way that the customers expect them to function. It is quite possible to combine a good general consumer protection with flexibility in the range of products which could make production more efficient. On the other hand, a far-reaching harmonisation of detailed conduct of business rules would probably involve greater costs for consumers than what they would stand to gain from completely harmonised services. The principles that form the basis of the EU’s regulatory framework for the financial sector are to a great extent based on this general orientation. The directives generally establish criteria of minimum harmonisation in order to enable financial operators to be active throughout the entire union. On this basis, authorisation and supervision should in principle be performed by the authorities within one member state, normally the home country of the institution in question. This “licence” to conduct financial operations should thus be recognised by the authorities in the other member states and financial institutions should be able to operate there from their establishments in their respective home country. In the same way, the EC directives on securities markets have led to some minimum harmonisation of the conditions for trade in financial instruments, e.g. what the issue prospectuses should contain and how insider trading could be limited.
During the same period, the ratio of population between the ages of 15 to 60 years is expected to increase albeit at a slower rate until 2020, and then decline to form about 63% of the population in 2040. The increase in life expectancy, or longevity, is very much attributable to advances in medical science and technology, as well to improved access to such facilities, resulting in a steady rise in the average age of the population throughout the world. This trend, and the falling of fertility rates, perhaps due to urbanization and higher number of working women, has long been experienced by the developed countries and is rapidly emerging in the developing economies. This demographic change has also brought with it an observable change in the social values of societies. The World Bank estimated that currently, about 74% of the elderly in Asia is being supported by, and live with their children or grandchildren. This finding is also  BIS Review 137/2007  1  consistent with a recent survey conducted in Malaysia which revealed that 67% of retirees' main source of income originated from their children. This “extended family” factor has often been quoted as the reason why retirement planning may not really be necessary in Asia . However, findings from the UN suggested that, as countries mature and develop, an increasing number of elderly are left to fend for themselves without their children's or family's support.

Second, one would also like to ascertain whether the presence of an implicit subsidy does lead to higher risk taking, and the quantitative importance of this effect. The third question has to do with regulation, i.e. : “what can be done to address this issue?” It seems that there are three main approaches: •  Some regulatory measures try to eliminate possible symptoms of the implicit subsidy. For instance, proposals on restrictions on bank market activities have been justified by the objective of limiting the implicit subsidy to non-traditional banking activities. •  Another approach is to directly target the underlying cause of the problem, for instance by making easier the resolution of problems at large banks without resorting to taxpayer money. Some progress has been achieved in the US (through the Orderly Liquidation Authority), and in Europe (through the Recovery and Resolution Directive). •  A third approach, illustrated by the G-SIBs framework, is to offset the implicit subsidy with additional capital and bailinable debt requirements the so called TLAC or other regulatory measures. Concluding remarks To conclude, I would offer two remarks which you may want to keep in mind. The first remark has to do with the comparative advantage of too-systemic-to-fail institutions, and in particular of global systemically important banks. In reaction to the crisis, many regulatory reforms have been put in place on capital and liquidity, credit exposure to counterparties, supervision, and trading activities.
We borrow today, because we are confident that the income will come tomorrow. How can debt be reduced? While the financial crisis in 2008 brought debt growth to a sudden halt in some countries, debt growth continues to outpace income growth for Norwegian households. This can hardly go on forever. If debt needs to be reduced, the question is how? Sovereign borrowers can levy taxes and thereby have a reliable source of revenue. Even so, being the creditor of a sovereign can be risky. In 1918, after the Russian Revolution, the Bolsheviks repudiated all debt issued by the previous regime. French investors, among them many small savers, held nearly half of the Russian national debt at the beginning of the First World War. They were among the first big losers of the Russian Revolution.2 In the inter-war period, these losses had consequences for French foreign policy. France became a fierce opponent of the Soviet regime. The losses on Tsarist bonds may have also contributed to France’s unwillingness to restructure German debt after the war. Germany’s debt burden contributed to the hyperinflation of the 1920s and the fall of the Weimar Republic. Now, on the evening of 9 April, 79 years after the German invasion of Norway, we can conclude that debt m have fateful consequences. After Boris Yeltsin raised the Russian flag in 1991, the French creditors returned. Old bond certificates were retrieved from drawers. A final settlement was agreed in 1996.

The global fall in interest rates reflects the emergence of a considerable savings glut, especially after the countries in Asia joined the world market in earnest after 2000. The decline in interest rates is thus an international phenomenon, driven by falling inflation, lower growth and increased global saving. Interest rates in Norway cannot diverge too far from global rates. An excessively strong krone would then lead to a fall in activity and deflation. The main task of monetary policy is to maintain the value of money by keeping inflation low and 5/7  BIS central bankers' speeches  stable. Inflation targeting is forward-looking and flexible so that it can contribute to high and stable output and employment and to counteracting the build-up of financial imbalances. Monetary policy cannot assume primary responsibility for financial stability. But as we are now in the process of raising the policy rate somewhat, this could also help curb debt growth. Will debt be reduced? It is easy to imagine that house prices will just continue to rise – as they have done for more than 25 years. Rising income and government wealth have gone hand in hand with rising house prices and higher household debt. But Norway’s experience from the years after oil was discovered, and in particular from the years following the banking crisis at the beginning of the 1990s, cannot serve as reliable guidance for what we can expect in the future.
Interestingly, these seek to strike a rather different balance between diversity and deliberation, both relative to the Athenian model and especially relative to each other. One is executive democracy. Under this model, an elected or appointed set of representatives take decisions on society’s behalf, often through a Parliament or Congress. This model underpins modern democracies in a great many countries; it has grown in popularity for much of the past 200 years. Such has been its success, many people these days would define democracy in terms of this model. For most of history, this was not the case. Aristotle was not alone in seeing an executive democratic model as an “elected oligarchy”. 42  At the time many executive democracies were being put in place, their Founding  Fathers (they were all still men) were often deeply suspicious of Athenian-style democracy. John Adams, second President of the United States, captured it thus: “Remember democracy never lasts long. It soon wastes, exhausts and murders itself”. 43  The Greek Empire lasted only 350 years before exhausting itself. 40  Hennig (2017), Van Reybrouck (2016). Gruen (2018), Fiskhin et al (2008). Politics, Aristotle. 43 From John Adams to John Taylor, 17 December 1814. 41 42  17  All speeches are available online at www.bankofengland.co.uk/speeches  17  While Adams was wrong about the durability of executive democracy, suspicions about whether it properly represents all slices of society have persisted. Indeed, these suspicions have risen recently.

Despite a communications revolution, public understanding of central banks remains low and public trust in central banks has fallen. Improving both calls for a second revolution, focussed on educating and learning from the general public. The Age of Innocence may be over, but the Era of Engagement has only just begun. st  This new era may mean 21 century central banks becoming more disbursed and personalised in their communications, creating new infrastructure to interact with the public and extract their folk wisdom. Thomas Jefferson said democracy is something you can only learn by doing. The same is true of central banking. For the Bank of Estonia entering its second century, and for the Bank of England in its fourth, there is much still to learn and even more to do. 24  All speeches are available online at www.bankofengland.co.uk/speeches  24  References  Akerlof, G and Shiller, R (2009), Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism, Princeton University Press. Bailey, M, Cao, R, Kuchler, T and Stroebel, J (2016), ‘Social Networks and Housing Markets’, NBER Working Paper, No. 22258. Baker, S, Bloom, N and Davis, S (2016), ‘Measuring Economic Policy Uncertainty’, Quarterly Journal of Economics, Vol. 131, No. 4, pp. 1593-1636. Bank of England (2013), ‘Monetary policy trade-offs and forward guidance’, August 2013. Barnes, L, Feller, A, Haselswerdt, J and Porter, E (2018), ‘Information, Knowledge, and Attitudes: An Evaluation of the Taxpayer Receipt’, The Journal of Politics, Vol. 80, No. 2.
Given the sizeable decline in projected losses on securities, and the large provisions that had already been made against loan losses by the end of 2009, the potential total future write-downs on securities and loans has fallen quite substantially. BIS Review 75/2010  3  Chart 6 on slide 11 shows the profile of write-downs on securities and loans over time, applying the same methodology as in previous assessments published in the FSR. This time the horizon of the estimates for future losses has been lengthened to 2011 and sizeable loan losses are still expected next year. The expected write-downs on loans will constitute a significant and lasting drag on banking sector profitability and will raise the risk that the recent recovery of profits does not prove durable. At the same time, the pressure on banks to keep leverage under tight control, the disengagement from public support of banks’ balance sheets and the vulnerability of net interest margins of some banks to the prospect of a flattening of the yield curve are likely to contribute to keeping profitability moderate. Regarding the year-by-year distribution of losses by type of exposure, write-downs on securities exposures were the main contributor to the substantial losses for, and capital drains on, euro area banks in 2008. Going forward, while the recovery in securities prices makes valuation write-backs on securities holdings more likely in 2010, write-downs on loans are expected to remain relatively high.

And indeed the European Union is fully engaged in working, together with other members, on proposals to strengthen the WTO in areas such as subsidies, e-commerce, property rights and ensuring enforceability of existing WTO commitments with a well-functioning dispute settlement system that cannot be blocked by any single country.11 At the same time, it is important that the European Union should continue to negotiate trade agreements with other partners. Although, as mentioned earlier, this is not a first best solution, it is time to recognise that regional and multilateral arrangements open to others can succeed where multilateral negotiations have failed to bring many countries into the international trading system. In the financial arena, the emergence of regional initiatives has generated a more robust and better resourced global financial safety net. However, coordination between the different layers should be strengthened, on the understanding that a regional system can complement, but not substitute, the role of the IMF. In my view, the IMF is still essential, for at least four reasons. First, it has unique expertise in crisis management. Second, the participation of the IMF in adjustment-programme design adds an objective view that regional institutions cannot provide, one that is respected both by domestic authorities and by the private sector. Third, in cases of interconnected economies, the involvement of the IMF can dissipate the potential regional concentration of risks.