samchain/econo-pairs-v1 huggingface dataset:
GDP growth in the BRIC countries Annual percentage change  2009 -0.2 -7.9 5.7 9.1  Brazil Russia India China  2010 7.1 4.3 9.4 10.5  2011 4.2 4.1 8.4 9.6  Note. 2010 and 2011: IM F forecasts from July.

Second, we have seen a steady decrease in dependency ratios, which has stimulated excess savings and therefore lowered the equilibrium rate. This trend, too, will reverse soon, as the increase in the share of the elderly population will outpace all other population groups. Dependency ratios around the world will rise, which will buoy the equilibrium rate. Third, inequality has risen in past decades, again adding to the increase in the mean savings rate. But note that we are now observing a decrease in (at least) wage inequality in many countries, including the Czech Republic. Inequality, broadly defined, has decreased in most countries around the world since the crisis (World Bank, 2016). I believe that the discussion on inequality tends to be overly pessimistic. Fourth, more and more developing countries have been getting fully integrated into the world economy, releasing their supply of savings into global markets and giving rise to the notion of a “savings glut”. I see no reversal here, which means that this factor will continue to depress the equilibrium real rate of interest. Fifth, the relative price of capital goods has been decreasing. In consequence, capital has become cheaper relative to labor. This is reducing the total demand for capital (when counted in nominal terms) and thus lowering the equilibrium rate. Again, this trend is likely to continue. Sixth, we have witnessed a preference shift away from infrastructure projects, which is again reducing the demand for capital. In many countries, environmental regulations have made it difficult to invest in infrastructure.
An important issue is, of course, the size of the forecasting errors it is reasonable to expect. Some colleagues at the Riksbank studied this about a year ago by evaluating 52,000 forecasts which 250 institutions around the world had presented over a period of almost a decade. They concluded that the errors in forecasting inflation were somewhere between a half and one percentage point, depending slightly on the country in question. The historical errors in the Riksbank’s forecasts have been of approximately this magnitude except in three periods. The first was 1996–97, when large interest rate cuts, for example, lowered CPI inflation via house mortgage expenditure. The second was in the late 1990s, when the deregulation of electricity and telecom markets, for example, led to a relatively large one-off downward shift in the price level and temporarily lowered inflation. The third is the past year, when the greater part of the increase in inflation has had to do with various supply shocks, for instance on prices for electricity, meat, fruit and vegetables last spring. The background to these price disturbances is a poor water supply for hydroelectric power on account of low precipitation, livestock diseases and poor harvests on  BIS Review 24/2002  7  account of unusually cold weather in Europe. As I mentioned, shocks of this type are liable to raise the price level and lead to a transitory increase in the rate of inflation.

Conclusion I began by considering whether the problems associated with making forecasts for the Riksbank’s current policy of targeting inflation could be avoided by changing to a different strategy. What I have said hopefully shows that this does not seem to be the case, at least with the knowledge that is available today. A less forward-looking policy, based for example on outcome data or forecasts that only illuminate the near future, would be liable to have destabilising effects on the real economy. Even a policy based on the money supply is dependent on forecasts of resource utilisation; it, too, can have destabilising consequences if the correlation between the intermediate variable and the ultimate objective breaks down. Neither would it be realistic or even appropriate to have a strategy whereby monetary policy is determined by automatic and mechanical rules; in the worst case, the simplicity of such a strategy can lead to unduly large fluctuations in both inflation and GDP. I therefore conclude that the problems connected with forecasting inflation cannot be avoided by choosing a different monetary strategy, at least with the present state of knowledge. As I see it, the problems with forecasts are manageable and relatively slight compared with the regime’s advantages in other respects. As the discussion has also shown, most monetary strategies have drawbacks as well as advantages. Most people will no doubt agree when I say that on the whole, Sweden’s experience of targeting inflation is favourable but of course that does not mean that we can rest content or smug.
Jean-Claude Trichet: Key lessons from the crisis Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the “Annual conference 2009”, organised by the Asociación de Mercados Financieros, Madrid, 23 November 2009. *  *  *  Ladies and Gentlemen, First of all let me thank the Asociación de Mercados Financieros for inviting me to its Annual conference. It is a special honour for me to speak directly to so many active participants in Spain’s financial sector and beyond. Your association provides an important platform for market participants to reflect and address the challenges and opportunities for the sector in a rapidly changing environment. The financial industry is a key part of the service sector, the infrastructure that makes businesses efficient and a source of value for the economy. We all have been witnessing the formidable change and progress of the Spanish economy since its accession to the European Community in 1986. Today, and despite the crisis, the Spanish economy is close to the highest standard of economic and social progress available worldwide. The 1990s and the early years of this century have inspired perceptions that a renewed siglo de oro had started. But the crisis has not spared this country. Spain’s unemployment rate is once again edging above euro area averages, with impacts on private consumption and capacity utilisation. Looking forward, Spain’s convergence to a balanced growth pattern will require a more balanced progression of income components.

For what concerns the ECB and the entire Eurosystem team, with Banco de España as a very active member of the team, our 330 million fellow citizens in the euro area ask that we continue to deliver price stability over the medium term, in line with our definition – less than 2% but close to 2%. Our determination to anchor solidly inflation expectations has served us well since the introduction of the euro, including in the recent period of crisis, by helping to avoid the materialisation of the risk of deflation. 6  BIS Review 150/2009  The euro area can count on us to continue to be a solid anchor of stability and confidence in these challenging times. Thank you for your attention. BIS Review 150/2009  7
Finally, I must mention that the New York Fed’s district could be the most diverse in the System: ranging from the urban density of New York City to the forested sparseness of the northern Adirondacks, to the Caribbean islands of Puerto Rico and the Virgin Islands. All in all, there is a lot to keep my colleagues and me quite busy – even in normal times. U.S. economic outlook Now, what is the outlook for economic activity, employment and inflation? In particular, what are the areas of vulnerability that we should be most concerned about? I am pleased to say that the economic outlook has improved considerably in the past six months. Despite this, we are still very far away from achieving our dual mandate of maximum sustainable employment and price stability. Faster progress toward these objectives would be very welcome. On the activity side, a wide range of indicators show a broadening and strengthening of demand by households and production by firms. For example, on the demand side, families boosted their real consumption at a 4.1 percent annual rate during the fourth quarter. This compares with only a 2.2 percent annual rate during the first three quarters of 2010. Not surprisingly, businesses’ orders and production are following suit. And this revival in activity, in turn, has been accompanied by improving consumer and business confidence. These contributed to a 2.8 percent growth rate in our most comprehensive measure of national output (real gross domestic product or GDP) in the fourth quarter of 2010.

I actually suspect that this number may understate the economy’s forward momentum. That is because real GDP growth in the quarter was held back by a sharp slowing in the pace of inventory accumulation. In my view, the revival in demand, production and confidence  2  BIS central bankers’ speeches  strongly suggests that we may be much closer to establishing a virtuous circle that will support stronger growth. What I have in mind is a cycle in which rising household and business demand generate more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. The only major missing piece of the puzzle is the absence of strong payroll job growth. We will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established. With respect to the labor market, last Friday’s report helps resolve some conflicting signals. On one hand, the unemployment rate has fallen sharply over the past three months, dropping to 8.9 percent from 9.8 percent two months earlier. On the other hand, payroll employment gains had been very modest and were not consistent with a sustained drop in the unemployment rate. Last Friday we learned that the economy added 192,000 jobs in February, and estimates of previous job growth were adjusted upward modestly. Particularly encouraging is the growth of manufacturing jobs. Over the past year we have added factory jobs at the fastest pace since the 1990s.
The bounce back from the world economic slowdown in 1998/1999 was such that in the year just ended world economic activity grew at a rate of some 4½% which equals the fastest rate for 16 years – and compares with an average rate of some 3¼% over the last 10 or 20 years. In large part this recovery was underpinned by unusually strong growth in the US, averaging some 4½% over the past 4 years and surging to a peak of some 5½% at an annual rate in the first half of last year – compared with an average rate of 2¾% over the preceding decade. This remarkable strength of the US economy was possible, without overheating, against the background of unusually rapid productivity growth as investment in IT spread through the US economy improving its supply-side capacity. These developments together implied higher corporate earnings growth in the US pushing up the stock market and at the same time attracting massive direct and portfolio capital inflows into the US – substantially from the Eurozone – which comfortably over-financed a burgeoning US current account deficit and underpinned the strong dollar. However helpful all this was in supporting the world economy it clearly could not continue for ever or without limit.

And let me invite all your guests now to rise and to join me in wishing you well over the next 125 years. Ladies and Gentlemen, please join me in a toast to the continuing achievements of the Chartered Institute of Bankers in Scotland. BIS Review 1/2001  3
The question of when it would have been right to intervene – and how – is extremely difficult to answer, however. No one has perfect foresight. Many lessons will doubtless be learned from the experience of the past few years, including lessons about capital and liquidity requirements, concentration of financial company ownership, financial links between owners and financial companies, and financial companies’ ownership of other businesses, to name a few. But those lessons are outside the scope of my talk today. Conditions in the global financial system are at their worst since the Great Depression, particularly after the collapse of Lehman Brothers. It is virtually an unprecedented crisis. Perhaps it is possible to say after the fact that the fall of Lehman sealed the fate of Iceland’s banks. Once Lehman had failed, nothing could have saved them. Assets had become almost impossible to sell due to the crisis of confidence and the global credit squeeze the Icelandic banks faced a much harsher operating environment and could expect that strict limitations would be placed on their foreign deposit business – if it were not stopped entirely. Government authorities in other countries consulted with one another more and more frequently on these issues. Early in October, the Icelandic Parliament passed emergency legislation authorising the Financial Supervisory Authority to take over the banks’ operations. The authorities had no choice but to act on that authorisation immediately, take over the three large banks, and divide their operations into two parts, the old banks and the new.

They took advantage of a liberal regulatory environment, good credit ratings, and the unusually advantageous conditions on the global markets and expanded their operations at a rapid pace. The European regulatory framework made this possible. In many ways their activities resembled those of banks in other countries. Under normal market conditions, this posed no immediate problem. The banks could have funded their operations even under sub-optimal market conditions. Many were of the opinion that the Central Bank should build up very large foreign exchange reserves, even up to a multiple of GDP, in order to back up the financial system. Given the current account deficit on the balance of payments, this would only have been possible with massive foreign borrowing. It would never have transpired, for the simple reason that the Icelandic government would have been unable to borrow such a large amount. Its credit ratings would not have tolerated it, and lenders would have been difficult to find. As I have touched on, the banks responded to mounting difficulties in various ways. Kaupthing, for example, abandoned its plans to acquire the Dutch bank NIBC. All of the  6  BIS Review 22/2009  banks sold assets and discontinued various non-core operations; however, as the IMF mentioned in the previously cited Staff Report, it was not a seller’s market. In addition, the banks all reduced their lending and laid off staff.
Henrique Meirelles: Bretton Woods II – on its way out? Speech by Mr Henrique Meirelles, Governor of the Central Bank of Brazil, at the 18th Frankfurt European Banking Congress, Frankfurt am Main, 21 November 2008. *  *  *  In the last few weeks, much was talked about “Bretton Woods II” and even about “Bretton Woods III”, as we heard here this morning. To many, “Bretton Woods II” represents a new era of cooperation between economic and financial authorities worldwide, aimed at fighting the current global crisis, enhancing cross-border regulation and possibly reform the financial system at some extent. To many others, it is a full redesign of the global financial architecture and of the role of the multilateral institutions. To a few, it implies a sort of arrangement to stabilize major exchange rates – or at least to reduce their fluctuation, not to say a new global exchange rate system, maybe as the one established in the aftermath of the Second World War. Yet, five quarters after the beginning of the financial turmoil in the US, few people would envisage that we would go that far in terms of international cooperation and proposals, as indicated by the communiqué of the summit of head of states of the G20, held in Washington on Nov 15. The communiqué put forward not only a series of ambitious recommendations, but also a plan of action for the near future that may reshape the global regulatory framework.

And for both the IMF and the World Bank, a critical question today is legitimacy. And the way emerging market economies are playing a more important role in the global economy – not only they are representing a larger share of world output as compared to before, but also represent at this point a solution for the crisis – it is imperative that these countries have a proportional weight in the governance structure of the two Bretton Woods institutions. Another fundamental development these days is the increasing role played by the G20, for the very same reason of the growing participation of emerging markets economies in global output. It is clear today that the G7 alone or even the G10 are not able to address all relevant issues that affect the world economy, which are better dealt by a larger group as the G20. Evidently there is always a trade-off, the larger the group, the more difficult its effectiveness. But that is a challenge that we have to face. The first meeting of heads of states of the G20 was an essential step towards making the G20 a more effective decision-making forum. The next topic is a global supervisory authority. The G20 suggested the creation of a college of supervisors, following a Financial Stability Forum recommendation. President Köhler raised here the idea of having the IMF playing this role.
Increased reserves, enhanced stability, progress in the implementation of the plan to achieve a fiscal surplus in coming years, and buybacks of Treasury foreign debt in the secondary market have silenced the voices that prognosticated sovereign default. These factors contribute to the assessment that it is now considered safe to start removing capital controls on outflows and that the conditions have improved markedly for Treasury foreign borrowing, which could pave the way for other domestic entities. The Icesave referendum taking place this coming weekend could, of course, affect these prospects. If the “yes” vote carries the day, plans for capital account liberalisation and Treasury borrowing will proceed as currently planned. If the Icesave agreement is rejected, however, there are indications that two major credit rating agencies will decide to downgrade  BIS central bankers’ speeches  1  Iceland’s sovereign debt to sub-investment grade. This would impede foreign borrowing and delay capital account liberalisation, although it is not clear how strong or persistent these effects would be. The financial system is at a crossroads as well. The first phase of financial system reconstruction is largely complete. Iceland’s banks have defined balance sheets, private sector debt restructuring is underway, and changes have been made in order to address the most obvious flaws in the regulatory framework governing domestic financial institutions. A number of tasks remain unfinished, however, as regards establishing a stable, effective financial system.

The effect, on that view, was initially to drive down credit risk premia relative to equity risk premia, and to spur the issue of synthetic securitisations to fill the gap in supply.2 If that story drives expansion of ABS/CDO issuance, Shleifer’s model helps motivate a lot of those securities being fundamentally mispriced. During the good times, everyone feels that they are achieving a nice balance of risk and return. They are getting, they think, safety, liquidity and return! But something eventually happens to cause them to wake up, and to see the risks they have neglected. Investors can then react in a dramatic way. They stop buying, sell; prices collapse etc. But an exogenous shock is not needed to generate that unravelling. If the overpriced securities have led to credit conditions being too loose, then somebody – households, firms, sovereigns, or everyone – will have accumulated too much debt, and so eventually fundamentals assert themselves: defaults rise, and realisation sets in. As a younger colleague said to me, “the model’s key features are all way outside what I was taught in the ‘90s”. But doesn’t it sound ever so slightly like the real world? For me, one of the strengths of Shleifer’s paper is that he cites good examples, not only from the recent crisis but earlier ones too.
In the case of systemicallyimportant banks there is also an extra capital requirement over and above the minimum requirements. How large this supplement is depends on how systemically important the bank is. For global systemically-important banks the extra requirement will begin to apply from next year. For the last 12 months there has also been an agreement in the Basel Committee on the short-term liquidity measure, the LCR. In brief, the LCR means that the banks must have a large enough buffer of high liquid assets to be able to cover their cash outflows during a 30-day long stressed scenario. The aim is to strengthen the banks’ resilience to short-term liquidity stress. The LCR will come into force no later than 1 January 2015, but some countries are already applying it. In Sweden, a stricter version of the LCR has been applied since 2013. Leverage ratio complements the risk-based capital requirement As I mentioned earlier, the Basel Committee has made a lot of progress on the leverage ratio this year. In January the Committee agreed on a common method for calculating the ratio. The leverage ratio can be described as measure of how much of a bank’s assets the bank funds using its own capital. Like the risk-based capital measure, the leverage ratio aims to increase the ability of the banks to cover losses. However, unlike the risk-based capital measure, the leverage ratio does not take differences in risk between a bank’s different assets into account.

Indeed, due in part to capital conservation measures – and the extension of transitionals to recognise, for capital purposes, the new accounting framework for provisions – many banks’ capital ratios improved during 2020.3 The stress created by the pandemic is far from over and it is important that we only reflect on its full impact at that stage. There are various projects underway to distil the lessons that emerge from it. The Basel Committee (BCBS) has started to assess the impact of the ongoing pandemic on the banking system and published a report on  1 For example the exceptional levels of market volatility in Q1 and Q2 2020 led to an elevated level of so-called Value-at-  Risk (VAR) back-testing exceptions across the industry. In order to mitigate the possibility of excessively pro-cyclical market risk capital requirements through the automatic application of a higher VAR multiplier, the PRA allowed firms – on a temporary basis – to offset increases due to new exceptions through a commensurate reduction in risks-not-in-VAR (RNIV) capital requirements. 2 Broken down into direct budget support of $ trillion; and additional public sector loans and equity injections, guarantees, and other quasi-fiscal operations of $ trillion. 3 The aggregate CET1 capital ratio for major UK banks increased from 14.8% at end-2019 to 15.8% at end-September 2020.