samchain/econo-pairs-v1 huggingface dataset:
Fiscal policy directly affects total demand in the economy. Fiscal policy can be very effective when the economy is characterised by high unemployment and very low interest rates alone cannot provide sufficient stimulus. The side effects of fiscal policy via asset prices are also less severe. There are good reasons why monetary policy is the first line of defence in managing the business cycle in normal times. The policy rate can react rapidly, both when the economy is exposed to shocks and when the monetary policy impulse needs to be reversed. Fiscal stimulus 7/9  BIS central bankers' speeches  measures take longer to implement and can be more challenging to reverse. A related issue is the ambition level we should set for our inflation targeting. Our statutory responsibility is to deliver low and stable inflation. According to the Regulation on Monetary Policy, our target is annual consumer price inflation of close to 2 percent over time. But monetary policy is also expected to contribute to high and stable output and employment and to counteracting the build-up of financial imbalances. Inflation targeting should be forward-looking and flexible. In some situations, a longer horizon than usual is appropriate for returning inflation to the target after a deviation. This may lead to a better overall result. In the wake of the fall in oil prices in 2014, the policy rate was lowered, but we stopped at 0.5 percent. The objective of financial stability was given weight.

Owing to the characteristics specific to the Norwegian credit market, policy rate cuts quickly result in lower borrowing costs for households and enterprises. One characteristic is that most households prefer floating-rate loans. We need look no further than to Sweden to find a considerably lower share of floating-rate loans than in Norway. In the UK and Germany, only a small minority show the same preference as Norwegian households. Chart: Share of floating-rate loans – new mortgages Another characteristic of the Norwegian credit market is that a large share of corporate financing is obtained via banks and often at floating rates. Changes in the policy rate will pass through to banks’ funding costs through short-term money market rates. The high share of Norwegian loans issued at floating rates has its counterpart in banks’ preference for floating-rate funding. Fixed-rate payments on bank bonds are typically swapped for floating-rate payments in the derivatives market. In addition, most retail deposits pay interest at a floating rate. Under normal conditions, changes in funding conditions will in the next round be passed on to banks’ retail borrowers. Thus, the structure of the Norwegian credit market makes changing the policy rate an effective tool. But how far can the policy rate be lowered before monetary policy loses its effect? In Norway, the policy rate has never been lower than half a percent. In other countries, policy rates have been as low as minus 0.75 percent. Negative policy rates in other countries have on the whole passed through to money market rates.
Actually, in the last year, local uncertainty indicators have consistently outweighed those of economies such as the United States or the United Kingdom, as the decline to their pre-pandemic levels has taken longer. This trajectory clearly differs from what used to be the case before the social outbreak, when the level of uncertainty was not only much lower, but also more in line with other countries (Figure 7). The Chilean financial market has reacted to the overall local developments by decoupling itself from global trends. Thus, long-term interest rates have increased by 30 basis points since mid-April to date (BCP10), while their external benchmarks have not changed much. This has been accompanied by a stock market drop of just over 10 percent, a 2 percent depreciation of the Peso and an increase in the sovereign premium (CDS) of 15 basis points, all despite the significant rise in the copper price. This has coincided with a period of heightened political tensions surrounding the third pension savings withdrawal and a wide range of legislative initiatives on fiscal and regulatory matters (Figure 8). On the external front, world growth has been consolidating the positive outlook for this year and next, which has been internalized by the global financial markets. The evolution of the external scenario is closely linked to the progress of vaccinations and business reopening in developed countries, which has resulted in a rebound and strengthening of consumer and business confidence and activity in the lagging sectors (Figure 9).

Chart 1 Price-based and quantity-based composite indicators of financial integration (Quarterly data; price-based indicator: first quarter of 1995 to fourth quarter of 2020; quantity-based indicator: first quarter of 1999 to third quarter of 2020)  Sources: ECB and ECB calculations Notes: The price-based composite indicator aggregates ten indicators for money, bond, equity and retail banking markets, while the quantity-based composite indicator aggregates five indicators for the same market segments except retail banking. The indicators are bounded between zero (full fragmentation) and one (full integration). Increases in the indicators signal greater financial integration. From January 2018 onwards the behaviour of the pricebased indicator may have changed due to the transition in the money market component from EONIA to the € OMT stands for Outright Monetary Transactions.. For a detailed description of the indicators and their input data, see Hoffmann, P., Kremer, M. and Zaharia, S. (2019), “Financial integration in Europe through the lens of composite indicators”, Working Paper Series, No 2319, ECB, September. The challenges of climate change This higher vulnerability occurs at a time when the financial system faces emerging risks related to climate change – a common shock faced by us all, albeit one with potentially asymmetric impacts on different sectors and regions of the euro area. [5] On aggregate, euro area bank exposures to the most carbon-intensive sectors, such as mining, are relatively contained. However, the concentration of carbon-intensive industries and activities can differ across countries.
Moreover the development of bond markets allows for a better financing of public deficits while providing instruments that enable international investors to diversify their portfolios. It provides a reference for the market and may thus pave the way for the issuance of private bonds. On the other hand, an efficient and developed financial sector offers better protection for the economy against the risks of a capital account crisis. Most of the EMEs’ crises of the 1990s were triggered or accompanied by banking crises. To improve resilience to external shocks, it is essential that financial players be able to manage interest and exchange rate risks in a more flexible environment, both for themselves and their customers. Now, how to achieve this in a smooth way? There is a kind of paradox in the interaction between internal and external liberalisation: the former may be a pre-requisite for the latter but external openness may help stimulate and enhance domestic financial reforms. Actually, in the absence of the challenge created by foreign competition, domestic financial reforms may not be broad and fast enough. Moreover, in terms of best practices dissemination, the presence of foreigners in the capital of domestic banks may ensure a faster adoption of international standards and codes, especially concerning the monitoring, control and management of financial and operational risks. This is crucial for the resilience and the stability of the financial system.

He should start his inquiry with an open mind and be ready to reject even the long held views if empirical studies do not support them. But to do so, a researcher should display a fair degree of maturity and necessarily cultivate within himself self-discipline, wisdom, objectivity and equanimity. In this sense, a perfect researcher is like the Buddha who is not guided by biased or prejudiced emotions. Hence, the most important requirement of a researcher is that he should be honest to himself. BIS Review 161/2008  5
These scenarios include those that seem highly implausible but might prove very damaging, as well as those that seem more plausible but might alter the outlook less. To complement this, we look at the implications for monetary policy of alternative scenarios for the outlook—what should we do if the world moves in a different direction. And we also look at the impact on the outlook for growth and inflation of different paths for the fed funds rate. These approaches help illustrate the size and sources of uncertainty we live with at any moment. They do not give us the capacity to attach precise probabilities to alternative scenarios or to quantify with precision the implications, but they help frame a discussion of the material risks to the outlook and the potential consequences of different types of policy mistakes. And they can help inform choices about how central banks should affect expectations about future interest rates. Along with these analytical tools, many central banks have adopted a decisionmaking structure that is designed to bring a diversity of independent perspectives to the table. Although the FOMC's discussions begin with the presentation of a forecast prepared by the staff of the Federal Reserve Board, the committee members bring to the discussion substantial information based on independent efforts to understand the underlying dynamics of demand and inflation and their implications for monetary policy. This can provide a stronger foundation for decisions, particularly where uncertainty is inherently great.

It was once widely held that monetary policy could achieve somewhat lower rates of unemployment by allowing somewhat higher rates of inflation, and that it could do this without risking a  BIS Review 54/2006  1  substantial acceleration of inflation. This view proved to be mistaken because it did not correctly account for the role inflation expectations played in inflation dynamics. Economic concepts that are critical to our understanding of the economy may be difficult or impossible to capture in practice. One such concept is the neutral or equilibrium interest rate, which is the rate that, if sustained over some period of time, is likely to be consistent with an economy growing at potential with low inflation. Plausible estimates for the prevailing level of this rate have a range of at least 100 basis points, and the center of the estimates tends to move around quite a bit. Another concept that is difficult to estimate precisely is the economy's potential, or sustainable, growth rate. The acceleration in productivity growth in the United States in the late 1990s, for example, led us to revise our estimates of how fast the economy was likely to be able to grow at that time without undermining price stability. We also face considerable ignorance about the precise channels through which policy actions ultimately affect the economy, as well as how long those effects will take to show up and how large they will be when they do show up.
On the latest available data for May, the official number of registered unemployed fell by almost 112,000, placing the year-on-year rate of change at –6.5%, 0.8 pp better than in April. Social Security registrations increased this same month by 198,000, or at a year-on-year rate of 1.6%, 0.4 pp above the growth recorded in the previous month, marking four consecutive months of growth. This change in the Spanish economy has arisen from a combination of external and domestic factors. Let me take the former first. The external boost to recovery in the Spanish economy First, the rise in activity and global trade in the second half of 2013 and the resumption of economic growth in the euro area shaped a favourable environment for our exports. Second, a favourable impact has also been exerted by the measures adopted by euro area Member State governments in terms of fiscal consolidation and the approval of structural reforms, particularly visible in those economies that were subject to financial tensions. The support programmes for Greece, Ireland, Portugal and Cyprus also unfolded favourably. Indeed, Ireland and Portugal have already exited their respective financial assistance programmes without resorting to any additional precautionary mechanism. Greece, for its part, posted a primary fiscal surplus in 2013, indicating that its public finances have been redressed. But the challenges ahead remain significant, as highlighted by the European Commission in the annual revision of the exercise on macroeconomic imbalances within the area. Measures by the ECB are contributing to shaping a setting favourable to recovery.

Non-performing assets Private-sector non-performing assets continued to rise in 2013. This increase and the aforementioned decrease in credit explain the growth in the non-performing assets ratio. Also playing a role in this increase was the reclassification of refinanced loan portfolios required by the Banco de España in 2012. In any event, banks’ non-performing loans have a clearly cyclical component. In this respect, in line with the onset of the recovery of the economy, the latest data, which relate to early 2014, show a slight fall in non-performing assets in month-on-month terms. This trend can be expected to firm as the recovery of economic activity gathers steam. Results The banking sector in 2013 reported consolidated profit of € billion in 2013, following heavy losses in 2012, basically due to the sizeable provisions made by banks. Although provisions continued to eat up a considerable portion of profit, their relative significance in 2013 was appreciably less than in 2012. Margins and efficiency The more moderate provisions noted above helped to offset the lower margins in the 2013 income statement compared with 2012. Thus, against the background of a smaller volume of  4  BIS central bankers’ speeches  activity and of lower interest rates, net interest income (the difference between accrued interest revenue and costs) dropped by nearly 10% year-on-year in 2013.
Jon Cunliffe: Financial stability, the single market and Capital Markets Union Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the City of London Corporation and Open Europe conference, London, 20 January 2015. *  *  *  The Treaty of Rome, signed in 1957, established the basic four freedoms of what has now become the European Union – freedom of goods, services, people and capital. I want to talk a little today about the last of these and about the development of the single market in financial services – its history, how it has dealt with the twin objectives of stability and openness and its future development, particularly the capital markets union. The freedom of capital movement agreed in 1957 was for many years only an aspiration. In that post war world, free movement of capital must have seemed a dream. To many, with not so distant memories of the inter war years, of the collapse of an earlier period of financial globalisation and with continuous strain on the balance of payments, it might have seemed a bad dream. The risks to economic and financial stability may well have seemed too great to allow open capital markets. Open capital markets have, through history tossed and turned between being seen as an opportunity for additional trade and growth, and a potentially destabilising force. The path to open capital markets in Europe was slow – as it was in the rest of the world.

A more integrated capital market would provide deeper, more liquid equity markets in which a wide range of corporates could issue equity and risks could be shared more widely. More broadly, areas where reforms could improve borrowers access to market-based financing could include: public platforms, such as, “mini-bond” markets for SMEs, which have enjoyed some success in Italy in particular; pan-European private placement markets which channel funds directly from non-bank investors, such as, insurers and pension funds to mainly medium-sized companies (currently only Germany and France have private placement markets of any notable size) and encouraging the emergence of simple, transparent and robust securitisation markets. 1 Increasing the scale of cross border capital flows across Europe brings benefits. But it is not without risks. One does not have to go back to where I started today – in the late 1950s – to find examples of the power of cross border flows to amplify crises when it all goes wrong. That is why they have to be built on the foundation of sustainable economic policies, good regulation and robust institutional structures. The nature of capital flows matters too. Europe was not short of cross border flows before the crisis. But they were concentrated in interbank lending and in debt often held by highly leveraged investors. Inter-bank lending can of course be a very dangerous way to share risks between economies, particularly if the banking system is highly leveraged.
Even when looking at flows of workers, most regions are self-contained and local. 21  All speeches are available online at www.bankofengland.co.uk/speeches  21  Table 1: Commuting flows between UK regions (percentage of workers resident in each region)  Sources: Nomis and Bank calculations. Notes: Percentage of each region’s workers commuting from each residential region. These flow data provide a useful lens on local economic eco-systems. As an example, Chart 16 plots the time to get to work (in minutes) against the distance to work (in km) across the UK’s regions. Most regions outside London and the South-East are tightly clustered, with an average commute time of 27 minutes and distance of 16 km. Consistent with other evidence, this suggests most regions are local economically. 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  Chart 16: Distance vs. time to work  Sources: ONS Labour Force Survey, 2011 Census and Bank calculations. Notes: Average distance travelled (km) and usual time (minutes) from home to work by NUTS 1 region in England and Wales. The situation is somewhat different in London. The average commute distance is materially shorter (11km) but the average travel time almost doubles at (40 minutes). A cartogram of commute times makes this point strikingly (Chart 17). Contrary to popular belief, London is life in the slow lane.

In time tighter credit conditions could mean weaker business investment, though so far forward indicators of investment intentions still point to fairly strong growth. And any marked increased in uncertainty about demand conditions could lead to investment plans being shelved. But it is still early days – too early to draw strong conclusions about the size of these effects. Even more uncertainty surrounds the possible impact of tighter credit conditions on household spending, which alone accounts for three fifths of total domestic demand. There is already some evidence that banks are tightening the price and non-price terms on which they lend, especially to borrowers with relatively poor credit histories. And quoted fixed rate mortgage rates have already risen relative to market expectations of Bank Rate – though since markets now expect Bank Rate to fall instead of rising, the pick up in actual mortgage rates remains quite small. Overall, households seem to be in a relatively strong position: debt has risen a lot relative to incomes, but so too have holdings of financial and real assets. Mortgage arrears and repossessions remain well below their peak levels in the early 1990s. But the share of income which needs to be devoted to interest rate payments was already set to rise sharply,  2  BIS Review 136/2007  largely as a result of rising debt levels. And there is a growing minority of households who are reporting difficulties with their debts.
These restrictions thus operate by strengthening the borrower’s solvency and, thereby, limiting the potential losses that banks would subsequently have to bear. 10  These restrictions are solely applicable to banks’ new lending business; hence, immediately, their introduction causes banks to restrict the supply of credit. And this prompts an immediate effect on households’ and firms’ consumption and investment decisions. These agents will presumably reduce their level of spending and, consequently, their demand for credit. Also, financial and real asset prices will be adversely affected by the lower level of spending and by the expectations channel, reducing the collateral available. These effects feed into each other, further reducing credit supply and demand. Selecting the specific characteristic of loans that will be subject to limits at each point in time will depend on the situation we are in; in particular, on the level of and developments in loans already granted. This is without ruling out the possibility that limits will have to be set on several characteristics simultaneously, since the evidence available shows that, when easy conditions are observed in several of these characteristics, there is usually a more than proportionate increase in the probability of default. Moreover, when only one of the characteristics is limited, it is usual for another characteristic to become looser, lessening the impact of the limit imposed [see, for example, Tzur-Ilan (2017)]. This type of tool is not harmonised at the international level or in the EU, and some countries use them mainly on mortgage loans to households.

I should say that the costs of implementing Basel II will not fall on banks alone - nor will the challenges. In most jurisdictions, regulators too will both face challenges and need to incur costs in expanding staff numbers, in training and in implementing systems. This will be important for them to handle the new approach. After all, it calls for a significantly greater level of expertise on the part of line supervisors than has the existing Basel Accord. And whilst the UK, and a few other jurisdictions, do have that expertise, we need to remember that we are looking at a global market place. And at a global level I detect a deficit of expertise which will require to be remedied. Pillar three and disclosure I would also like to say a few words on pillar three. Pillar three can, it seems to me, play two roles. First, of course, it can play a role within the Basel II context itself, by mitigating the need for complexity in pillar one. Disclosure about the way organisations actually manage their risks can indeed help a better understanding of their risk profile, compared to a study of complex numbers on their own. For example, understanding how a firm conducts its stress testing, or how valuations might be sensitive to different assumptions, could be of real value. But, second, such disclosure could be of value in the general accounting context itself.