samchain/econo-pairs-v1 huggingface dataset:
As in many places around the region, employers in Rochester are having difficulty finding workers to fill a number of middle-skill jobs, like nurses, automotive technicians and computer-controlled machine operators. Out of this partnership, we launched a pilot project challenging college students to create a short video profiling middle-skill jobs that are available in the area in order to drum up interest in opportunities many people may not even know exist. Access to credit for small businesses is another important issue we’ve focused on in recent years. Our outreach group conducts a bi-annual poll of small businesses in our region to better understand their credit needs and access to credit. The results consistently show that gaining access to credit is one of the top growth challenges for small businesses. In my visits across the District, I have heard small business owners voice similar concerns. In response, we’ve helped bring small businesses together with lenders to help smooth access to credit. Over the past year we have conducted ten access-to-credit events— workshops, clinics and conferences—for companies interested in learning about traditional and alternative sources of financing. We partnered with local and national government agencies, small business development centers and local nonprofit organizations to hold these events throughout the District. One such workshop was held recently in Queens. The Queens Economic Development Corporation and the Queens Chamber of Commerce, with support from the New York Fed’s Asian Professional Network Alliance, co-sponsored a resource clinic for small businesses.

The Dodd-Frank Act left intact the decentralized structure of the original federated Federal Reserve System – the twelve Reserve Banks and the Board of Governors in Washington. Each Reserve Bank continues to operate as a separately capitalized corporation with its own Board of Directors. 14 But, to limit the role of bankers on the Federal Reserve Bank boards, the Dodd-Frank Act prohibited the bankers on each board from participating in the selection of its Reserve Bank president. 15 Even prior to the Dodd-Frank Act, it is important to emphasize that the directors played no significant role in setting policy. 16 Instead, their role has been to advise the Reserve Bank  12  Several other conditions had to be satisfied as well. 13  Although considerable progress has been made in ending TBTF, I think it is premature to declare victory. Some banks still have work to do to make their resolution plans credible, and there needs to be more work on cross-border issues to ensure that such a resolution would proceed smoothly. 14  Each Board is made up of nine members divided evenly into Class A, B, and C directors. The Class A directors represent the banks of the District that are Federal Reserve member banks, the Class B and C directors represent the broader public interest. Only eligible Class B and Class C directors can participate in the process for selecting Reserve Bank presidents.
As in other advanced economies, the expansion in global labour supply has forced a painful period of adjustment for the most 47  The share of UK intermediate exports to the EU for which the final product remains in the EU has fallen by 6% since 1995. Both these findings are reported in Miroudot, S, Lanz, R and Ragoussis, A (2009), ‘Trade in intermediate goods and services’, OECD Trade Policy Papers, No. 93. 48  18  All speeches are available online at www.bankofengland.co.uk/speeches  18  exposed workers in the UK (who are not always the lowest skilled) (Chart 14). 49  This reduces inflationary  pressures in the economy as a whole. Chart 14: Relative wages of workers exposed to global labour markets squeezed  Notes: The chart shows the estimated loss in earnings since 1991 for a worker at a company in the manufacturing sector with a high exposure to rising competition relative to a worker with a low exposure, expressed as a share of their annual earnings in 1991. Source: Professor David Autor, ‘Economic and political consequences of China’s rise for the United States: lessons from the China Shock’, IFS Annual Lecture 2017, 22 June 2017. Higher levels of migration in the UK have not, however, been associated with significant reductions in overall wage growth and therefore inflation. 50  Bank research suggests a 0.5% increase in labour supply (equivalent  to a rise of around 330,000 in net migration) typically reduces inflation by only around 0.1 percentage points.

Thus far, this disinflationary effect has mostly affected the 9  prices of goods (Chart 5), as trade in goods has been liberalised to a much greater extent than services. 10  Monetary policy makers in advanced economies have responded by accommodating relatively higher services price inflation in order to meet their inflation objectives. For example, in the UK core goods prices fell an average of 0.3% over the past two decades, services prices rose by an average of 3.4% and total CPI inflation was on average at target. 11  7  The slowing of trade growth since the financial crisis largely reflects the rotation of global growth to countries with less import intensive demand, notably the US and EMEs, as well as the declining import intensity of final domestic demand in China as the composition of growth there rotates towards consumption and services. 8 This positive supply shock comes about because the availability of cheap imports improves advanced economies’ terms of trade – the price of exports relative to that of imports. For more detail on this channel, see ‘Globalisation and Inflation’, speech given by Charles Bean at the LSE, 24 October 2006. 9 Abdih, Y, Balakrishnan, R and Shang, B (2016) ‘What is keeping US core inflation low?’, IMF Working Paper No. 16/124. 10 For example, barriers to services trade are estimated currently to be up to three times higher than those for goods trade. See ‘A fine balance’, speech by Mark Carney at the Mansion House, 20 June 2017.
As Chart 9 shows, once an allowance is made for the implicit subsidy, the picture changes dramatically. There is no longer evidence of economies of scale at bank sizes above $ billion. If anything, there is now evidence of diseconomies which rise with bank size, consistent with big banks becoming “too big to manage”. This evidence reconciles Coase’s Theorem with the too-big-to-fail phenomenon. In line with Coase, banks have chosen the size which maximises their private value. But implicit subsidies may have artificially boosted the privately-optimal bank size. Subtracting this subsidy, removing the state crutch, would suggest a dramatically lower socially-optimal banking scale. Like King Kong and Godzilla, these giants would arguably then be physiological impossibilities. What about economies of scope? A recent study by Boyd and Heitz (2011) conducts a simple, but compelling, thought-experiment. They compare the lowest-available estimate of the social cost of the crisis with the highest-available estimate of the private benefit of scale and scope economies in banking. The social costs of too-big-to-fail exceed the private benefits of scale economies by an order of magnitude. Conclusion In his 1928 article, J B S Haldane observed that when “you drop a mouse down a thousandyard mine shaft it walks away, a rat is killed, a man is broken, a horse splashes”. When big banks disappeared down the mineshaft in 2008, their splashes generated a tsunami. To prevent that, their physiology needs to change. Existing change initiatives are right in direction, but may be insufficient in degree.

Were every large bank instead to face the maximum capital surcharge of 2.5%, then expected system-wide losses would fall by around 60% relative to their base level. And to remove 90% of the systemic externality – expected losses of around $ billion – a surcharge of over 7% would be needed. A more plausible experiment would be to assume a non-zero correlation among bank defaults. For example, the failure of a large bank which caused it to fire-sale assets could impose externalities on other large banks holding these same assets (Wagner (2009)). To place an upper bound on expected losses in the face of these fire-sale externalities, assume instead a correlation coefficient of one. Chart 5 illustrates the impact on expected system-wide losses of a high degree of default correlation among the big banks. The expected system-wide loss increases to around $ billion per year – similar in size to the implicit subsidy at its peak. A 2.5% surcharge now only reduces expected system-wide losses to around $ billion per year. To lower expected system-wide losses to be around $ billion per year would require a surcharge of around 15% – six times its current upper limit. If anything, these thought-experiments probably produce conservative estimates of systemwide losses and the necessary systemic surcharge. For example, bank asset returns are in practice much fatter-tailed than the log-normal distribution. And in practice, banks are likely to default well before their capital is fully exhausted.
Measures to ensure the markets function efficiently But the markets have not functioned as efficiently as usual. For instance, interest rates in the interbank market have risen as a result of the increased uncertainty. There has also been a surge in the demand for treasury bills. The Swedish National Debt Office and the Riksbank have maintained a regular dialogue regarding the money and bond markets and the need to counteract the effects of the US financial crisis. Last week the Debt Office decided in consultation with the Riksbank to issue treasury bills at a number of additional auctions to meet the large increase in demand. The funds from the auctions will be invested in what is known as covered mortgage bonds. This improves the way the market functions right now. To ensure that the financial system functions as well as possible, the Riksbank has also implemented some other measures for preventive purposes. On Monday we decided, to put it simply, to increase the access to credit for participants in the RIX payment system. One can say that we are oiling the wheels of the system by making it easier for participants to make their payments to one another during the course of the day. They can now to a greater extent use their own covered bonds, or those issued by an institution with close links, as collateral in the system. A covered bond has collateral in the form of, for instance, a mortgage, which is provided by the credit institution that has issued the bond.

Obviously both the banking sector and the Spanish economy have to digest the excesses of the real estate cycle, which has proved to be unsustainable. However, in assessing the position of the banking sector, the exposure to a sector and the complexities associated with the crisis in that sector should not be confused with potential losses for banks. For an exposure to become a loss involves there being a default and, insofar as the exposures to this sector are secured by collateral, the ineffectiveness of that collateral in compensating for the default and the non-recovery of the loans in question. Furthermore, unlike what generally happens in other countries where the loss estimates used to calculate provisions are made by auditors, here the Banco de España has established an objective system for calculating provisions which reduces downside discretionality. Also, the Banco de España has obliged banks to adopt pre-emptive measures in the form of a larger pool of provisions. These can be used to cope with possible impairment of their real estate assets by, for example, raising the provisions to be made from 10% to 20% of the value of the properties held on their balance sheet when these assets remain in their ownership for more than 12 months, as a precaution against sale at a lower-than-expected value. In any event, we face an extremely complex scenario and it is essential that all Spanish credit institutions, particularly those that have taken most risk, prepare themselves and adopt the measures needed to ensure their profitability.
Neither the Riksbank nor any other analyst perceived the monetary policy conducted to be leaning against the wind to any large extent, and the general impression was definitely not that the repo rate should have been left at the level to which it was cut during the financial crisis, that is, 0.25 per cent. 4  In the minutes, Lars Svensson presents estimates where the dotted yellow repo-rate path is assumed to give an inflation rate of 2 per cent from the beginning of 2013 and onwards and an unemployment rate that would reach what he assumed to be an equilibrium level of 5.5 per cent at the beginning of 2014. It may also be worth noting that at the ensuing meeting, in September 2011, all of the Executive Board members thought that 2 per cent was a suitable level for the repo rate, given the economic situation in Sweden. 5  National Institute of Economic Research (2011). 6  OECD (2011), pp. 191–192. 7  IMF (2011), p. 25 and Table 9. BIS central bankers’ speeches  3  A strange assumption Given this, it is very strange to claim that an evaluation of the Riksbank’s policy should rely on the assumption that the alternative of not leaning against the wind would be to hold the repo rate at 0.25 until today. If no one perceived it as such at the time, it appears very strange to paint this picture retrospectively.

The differences in this respect in relation to the United States, for instance, are fairly striking. The United States has had a more favourable development in unemployment, but quite a lot of this can be explained by the fact that labour force participation in the States has actually declined (see Figure 6). Of course, the relatively good development is not solely due to the monetary policy conducted by the Riksbank. Economic policy in general plays a large role, as does the fact that Sweden was not hit so hard by the crisis, for reasons not necessarily related to the policy conducted. It is also possible to have different views regarding exactly how good one thinks developments have been. But at a very minimum, it should be clear that it is difficult to find support in actual figures for an overly tight, “aggressive” monetary policy having sent the economy into a state of deflation, driven by poor development in the real economy. If one looks ahead, then? Could it not be the case that the Swedish economy has managed fairly well so far, but that things will go badly in the future, as a result of the policy conducted? Of course, one cannot make any guarantees with regard to the future, but one can in any case note that the National Institute of Economic Research, the Ministry of Finance and the Riksbank are all currently forecasting growth of around 2 per cent this year and around 3 per cent in 2015–2016.
Banks will rationally respond by increasing interest rates to cover the rise in expected losses. FISIM will score this increased compensation for expected losses on lending as a rise in output. In other words, at times when risk is rising, the contribution of the financial sector to the real economy may be overestimated. This goes some way towards explaining the 2008Q4 National Accounts paradox of a rapidly rising financial sector contribution to nominal GDP. Of course, the financial sector does bear the risk of other agents in the economy. Banks take on maturity mismatch or liquidity risk on behalf of households and companies. And banks also make risky loans funded by debt, which exposes them to default or solvency risk. But it is not clear that bearing risk is, in itself, a productive activity. Any household or corporate investing in a risky debt security also bears credit and liquidity risk. The act of investing capital in a risky asset is a fundamental feature of capital markets and is not specific to the activities of banks. Conceptually, therefore, it is not clear that risk-based income flows should represent bank output. The productive activity provided by an effectively functioning banking system might be better thought of as measuring and pricing credit and liquidity risk. For example, banks screen borrowers’ creditworthiness when extending loans, thereby acting as delegated monitor. And they manage liquidity risk through their treasury operations, thereby acting as delegated treasurer. These risk-pricing services are remunerated implicitly through the interest rates banks charge to their customers.

Among the major global banks in the world, levels of leverage were on average more than 50 times equity at the peak of the boom (Chart 25). For a given return on assets (RoA), higher leverage mechanically boosts a banks’ ROE. The decision by many banks to increase leverage appears to have been driven, at least in part, by a desire to maintain ROE relative to competitors, even as RoA fell. For example, as Chart 26 illustrates, virtually all of the increase in the ROE of the major UK banks during this century appears to have been the result of higher leverage. Banks’ return on assets – a more precise measure of their productivity – was flat or even falling over this period. Between 1997 and 2008, as UK banks increased leverage, they managed to maintain broadly constant capital ratios by, on average, seeking out assets with lower risk weights (Chart 27). A similar pattern was evident among a number of the Continental European major global banks (Chart 28).
Your skepticism is understandable. After all, much work has gone into trying to address this problem for at least 30 years, arguably with little concrete success. The many technical and legal problems have impeded any meaningful progress. Despite this unfortunate track record, I would argue that the real problem has not simply been a lack of technical answers to admittedly very difficult problems. After all, where there’s a will, there’s a way. What we urgently need now is the political will to address the technical difficulties and to cooperate internationally in pursuit of a solution. In 1961, President  4  BIS Review 115/2009  Kennedy announced to the world that the United States would go to the moon before the end of the decade. At that point, the NASA engineers clearly hadn’t solved all technical problems associated with landing a man on the moon. It seems to me that the key to solving these problems was a clearly stated political objective. Much like John F. Kennedy’s commitment nearly 50 years ago, we now need a bold and international political commitment to put in place a framework for the orderly resolution of cross border financial institutions. Provided we have such an unequivocal commitment, solutions will eventually emerge. A new framework needs to ensure that a failing bank can continue to fulfill the functions that are critical for the functioning of the economy. It needs to provide regulatory tools that will help reduce the size and complexity of systemic institutions.

This positive economic growth has been broad-based, extending beyond the recovery of the mining sector and has withstood adverse shocks, such as, droughts and increases in oil prices. For example in 2006, real GDP growth was largely driven by the mining, construction, and transport sectors. Other sectors that registered positive growth were agriculture, tourism, manufacturing, wholesale and retail trade and the services sectors. Ladies and Gentlemen, bringing inflation down to single digits has been Government’s goal for a long time. Therefore, it is pleasing to note that last year inflation fell to its lowest level in 30 years. At end December 2006, the annual rate of inflation had fallen to 8.2 % compared to the annual target of 10% and the 15.9% outturn in 2005. In January 2007, it remained in single digit level of 9.8%. These unprecedented developments in inflation have been due to continued implementation of prudent monetary and fiscal policies, coupled with increased food supply. In line with lower inflation and yields on Government securities, the average commercial banks’ lending rate declined further to around 28 % in December 2006 from about 34 % in December 2005. In January 2007, it slightly declined to about 27 %. Mr Chairman, clearly, there is a need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia.
In the next Report our main path for inflation was flanked by uncertainty intervals. The probabilities of inflation following various alternative paths are weighed into the overall picture on which monetary policy decisions are based. How, then, are the uncertainty intervals calculated? In practice, our forecasters construct assessments of a range of variables, taking into account both their current uncertainty and how this compares with their normal uncertainty. This information is then incorporated in a fairly simple macro model that is used to estimate future inflation. The probability distributions we obtain in this way are, of course, highly subjective but they do give a consistent picture of how the Riksbank evaluates different risks. BIS Review 81/1998  -2While we are on the subject of the inflation assessments, it is particularly important to bear in mind that they are predicated on the repo rate being unchanged throughout the forecast period. A forecast path for inflation that deviates from the target - or the large deviations that the uncertainty intervals represent as conceivable paths - constitutes a diagnosis that may indicate treatment. When called for, repo rate adjustments are used to bring inflation into line with the target. In reality, therefore, the uncertainty about future inflation is not as great as the uncertainty intervals might suggest. Another consequence is that our inflation forecasts become out of date as soon as the Riksbank alters the repo rate. Assessments in the past year Much has happened in the past year as regards economic developments and the conditions for monetary policy.

In addition, there was judged to be a large risk of inflation being below the path in the main scenario. Under these circumstances the repo rate was lowered 0.25 percentage points. Notwithstanding these revisions, the economic outlook for the near future has not changed much in the past year, with expectations of good growth during 1998, to an increasing extent on account of rising domestic demand. These predictions have been fulfilled. During the year, however, the uncertainty about growth prospects further ahead has risen, above all in the late summer and autumn. Transitory effects and lower import prices Another matter to note is that although the cyclical picture has proved fairly accurate, the path of inflation during 1998 has been markedly lower, mainly on account of large changes in transitory effects and import prices. At the beginning of the year it was foreseen that the transitory effects would largely cancel out, with no impact at all on the course of inflation during 1998. With the spring decisions to cut tobacco taxes and property tax, however, it was assumed that the transitory effects would act as a strong curb on inflation. In the June Report it was foreseen that the transitory effects would have a downward impact on inflation during 1998 of as much as 1.2 percentage points; in the September Report this figure was adjusted upwards to 1.3 percentage points. For 1999 and 2000 the transitory effects on inflation were assumed to be marginal. Import prices have also been more subdued than expected.