samchain/econo-pairs-v1 huggingface dataset:
Their efforts are in danger of falling short, however, because their domestic savings rates are still too low to finance the volume of investments needed to boost their rate of growth from approximately 5 percent to over 7 percent, which is not an unrealistic objective; it could be attained and sustained for a long time if local savings were supplemented by an appropriate mix of public and private foreign support and if a few key conditions were met, notably: • •  continued modernization of the framework for private investment; and improvement in public governance through the total commitment of new governing teams. Together with the World Bank and bilateral donors, we can make a difference. But a strong political impulsion by the world’s leaders and the example of their countries’ cooperation to development will be of the essence. May their communiqué demonstrate their vision and leadership in this domain also. The stability of the international monetary system has been on the agenda for more than 20 years of annual summits. The Asian crisis has highlighted how disruptive developments in exchange markets can help trigger a crisis. It is in this domain that efforts to strengthen multilateral surveillance over the international monetary system could be particularly fruitful. Moreover, the development of the euro into a key international currency could make a major contribution to stability of the overall architecture, provided that close cooperation is established among the monetary authorities of the tripolar system that might take shape.

Obeying this same imperative of serving together peace and development, I would also suggest that the G-7/G-8 warmly endorse Mr. Koffi Annan’s recommendation to the African governments to reduce purchases of arms and munitions to 1½ percent of GDP and maintain zero growth on defense budgets for the next decade. Industrial countries must play their full part in these efforts, and, here, I must share with you my anxiety. Today’s silence on the crisis in official development assistance is profound and distressing. It means that Africa, in particular, must rely chiefly for its economic progress on humanitarian compassion or the benefits of trade. This cannot suffice if human development is to be intensified and accelerated. Yet, at the present juncture, the macroeconomic and structural successes of recent years, precisely in the context of IMF-World Bank supported programs, are creating an opportunity that is too good to miss. Africa has found a way to advance from two decades of negative per capita growth to positive growth in more than forty of its countries. In 3  I hope I am not revealing a state secret in telling you that she inscribed this on her Christmas card! BIS Review 43/1998  -7-  many African countries, a new generation of leaders is seriously concerned about the need for democratization, protection of human rights, promotion of “good governance”, and human development.
The shocks that we are seeing are restricting supply in the economy relative to the recovery of demand. This is important because monetary policy will not increase the supply of semi-conductor chips, it will not increase the amount of wind (no, really), and nor will it produce more HGV drivers. Moreover, tightening monetary policy could make things worse in this situation by putting more downward pressure on a weakening recovery of the economy. But what is crucial here is whether and how expectations of future inflation respond to these supply shocks, and thereby embed rising inflation. The most commonly talked about mechanism goes from higher inflation expectations, to companies feeling able to raise prices and employees asking for higher wages, to wage pressure and more persistent inflation. In this way, what start out as relative changes in price levels for some goods and services can  The hard yards ‐ speech by Andrew Bailey | Bank of England  Page 4  become generalised and turn into persistent inflation. I take this risk very seriously, it has form so to speak. That’s a world where people expect further price rises and thus seek to hold lower money balances relative to income than they otherwise would. But, in a world where people expect the price rises to be temporary and reversed, they will delay spending, and hold higher money balances relative to income than they otherwise would, and the growth of demand will be weaker. As a pertinent example, will second hand car prices stay elevated?

For all the noise about QE, the key thing for me is that it has thereby contributed to keeping stable the cost of finance for companies during the Covid period, and that has been very important both for monetary and financial stability. QE has also provided insurance against the sort of market volatility and dysfunction that we saw at the outset of Covid. It has therefore helped to prevent any liquidity-driven rise in yields, should such an event have occurred and in particular ensuring that the corporate sector was supported through this crisis. That said, the current programme of asset purchases is currently scheduled to end in December. It follows that the monetary policy response, if we need to make one, to the inflation pressure should involve Bank Rate not QE. There is no reason to beat about the bush on this point. Let me turn to that response. The MPC’s task is to set monetary policy to meet the inflation target, and in a way that helps to sustain growth and employment. The remit makes clear that it is appropriate to focus on inflation in the medium term, which is appropriate given the lags between changes in monetary policy and the impact on inflation. In our view, there are good reasons why the current above target inflation will be temporary, as I described earlier. In considering how to use monetary policy, it is also important to understand the nature of the shocks that are causing higher inflation.
The Bank has excellent access to both:  -  Many years ago, we set up our own survey of households in the UK – the NMG survey – to ask the questions that are most important to us. Every six months, a sample of six thousand households is asked questions about their financial position and outlook that help inform decisions by the FPC (and other Bank policy committees).19  -  The Bank does receive comprehensive data about the flow of new mortgages.20 And Bank staff have developed a model to use this – and information about how incomes are changing in the UK – to project the distribution of indebtedness relative to incomes in the stock of mortgages. A working paper on that modelling is being released today.21  We can use the surveys and models to estimate the distribution of current loan to income characteristics of the households with mortgages and compare that to the distribution in 2014. Surveys and model outputs involve uncertainty, for different reasons. But it is reassuring that in this exercise they give us broadly consistent results. 19  The survey is weighted to be representative of the age, gender, region, housing tenure and employment status distributions of Great Britain. 20 The Bank does also receive a snapshot of the stock but some variables crucial for risk assessment are not captured in this. 21 Levina et al (2019).

It is possible, however, that the risk comes mainly from the borrowers’ balance sheets, that they may continue to repay lenders but reduce other spending in the economy making the downturn and the eventual losses in the financial system worse. In that case, action to reinforce lender resilience will not address the risk or only do so ineffectively and inefficiently. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Borrower-based tools Against that background, let me say a little more about the FPC’s housing tools and how they have operated in practice. The FPC’s housing tools  In the five years after the financial crisis, housing market activity and house price growth was very subdued. But by 2013 both price growth and mortgage transactions began to pick up rapidly. In 2014 in the UK, house prices grew by 9% in the year to Q1 – twice as fast as incomes.5 Mortgage approvals had risen from around 50,000 per month in June 2012 to over 70,000 in January 2014. And, very importantly, the share of those mortgages at high loan-to-income (LTI) ratios was rising. The aggregate debt to income ratio for UK households had fallen from its crisis peak but remained high relative to historical averages and international comparators. To be sure, we had not reached the rate of increases in house prices relative to earnings and in mortgage debt that we had seen before the crisis and in other episodes in the UK.
Just as the short-term productivity cost of an abrupt shift to home-working might be overstated, so too might the short-term happiness benefits. In particular, let me discuss two longer-term consequences of the shift to home-working whose effects may not yet be fully visible but which could, over time, detract from both our productivity and our happiness at work. The Effects on Creativity and Relationships These two factors are working relationships (or what economists sometimes call social capital) and workplace creativity (or what economists call intellectual capital). Modern economic theory, and a growing body of empirical evidence, gives both factors a prominent role in explaining why individuals thrive, economies grow and societies succeed.20 It is well-established that creativity fosters innovation and that in turn fuels economic growth. That was the story of the Industrial Revolution. What is new is our understanding of how the work environment plays a crucial role in nurturing creativity.21 For example, the absence of distraction and noise is one important factor fostering creativity. Being in “flow” requires a degree of cognitive tunnelling.22 For many people, homeworking provides that quieter, less distracting environment where tunnelling is easier and creativity fostered. 19  Gajendran and Harrison (2007). Haldane (2018a, 2020). Haldane (2018b). 22 Newport (2014) terms this ‘tunnelling’ as deep work and provides a comprehensive overview of the concepts and research. 20 21  7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  But lack of distraction and noise is not always and everywhere a good thing, including the creativity.

Interestingly, the main reason cited is improved staff well-being. Among workers the picture is much the same, with surveys suggesting more than a quarter expect to spend more time home-working after the pandemic has abated. My own experience since March has mirrored trends in the wider economy. I am one of the lucky ones who has been able to work from home, as have virtually all other Bank of England staff. I have been back into the office only twice in the past six months. Full-time home-working has, for me, been a radical shift. For the past 30, my working week has been 5-0, office versus home. Nonetheless, like many others, if you asked me how my future working week might look, I think it unlikely I will revert back to the 5-0 model. 2  APSCo (2020). ONS (2020a). 4 Milasi et al (2020), Mongey et al (2020). 3  3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  The Effects on Productivity and Output Given these shifts, some of which seem likely to prove durable, what impact might they have had on workers’ and businesses’ economic contribution – that is to say, their productivity (the amount done per hour worked) and their overall output (productivity multiplied by working hours)? In short, how has this shift in working practices affected working capacity of the economy?
Conclusion The Swiss economy has enjoyed a high degree of monetary stability for some years now, and this advantageous situation should last for a number of years to come. While the international environment in which we operate has improved, it remains unstable. We cannot rule out fresh setbacks. However, we can count on the significant adaptability of our companies and look to the future with confidence. Nevertheless, our high standard of living in international terms should not lull us into complacency. In recent decades, we have seen our position among the leaders of the most highly developed countries eroded. Corrective measures are necessary. Let’s be clear: the main threat to our prosperity does not come from abroad, where the “made in Switzerland” label is still a success when it is associated with quality. The threat comes from within Switzerland. Take, for instance, our excessive predilection for regulations - often an invisible barrier to the free play of competitive forces - and our hesitation to fully accept an international environment that is more competitive and innovative than it was 20 years ago. The guiding principle for our structural reforms should be: more competition and fewer regulations. We have to have the courage to take this path in order to durably enhance our economic growth. This is essential to the balanced development of our economy and to the confidence that each of us feels in the future. It is with this wish that I conclude my remarks.

While it can contribute to the development of the economy by providing a stable, transparent and efficient monetary framework, we must not expect that it will be able to increase its long-term potential, or that it will succeed in energizing the economic machinery and forcing it to perform beyond its technical capacity. The new legislation now requires us to give an account of the management of our mandate to Parliament and the Federal Council. This obligation towards Parliament is new. It is the logical counterweight of our independence, an independence which has been guaranteed by the federal Constitution since 2000. We are free to choose - within the limits of the law - the means necessary to carry out our mandate; on the other hand, though, the country is entitled to expect us to be able to justify our actions. Lastly, the new Act grants us greater freedom in the choice of instruments to manage our monetary reserves. As you know, the National Bank has considerable monetary reserves. These reserves, which are a national asset, are essential for pursuing an independent monetary policy by reinforcing confidence in our currency. They are thus instrumental in ensuring its stability. It is crucial, however, that these reserves be managed effectively and with due regard to liquidity and security requirements. Over the next few weeks, we will define to what extent we wish to take advantage of the investment possibilities offered by the new Act. We will present our plans on this matter at our press conference on June 17.
Thanks to our unwavering mobilisation and that of our European partners, we have already avoided a bad agreement as it stood out last summer. To move things up a gear, it would now be necessary, in the weeks or months to come, to conclude a good agreement. International cooperation in the field of financial regulation must remain a collective asset on both sides of the Atlantic. Complete the banking union, based on the reform package presented by the European Commission last November – especially on the resolution side. These proposals are generally good ones. The banking union must now lead to more cross-border consolidations within the euro area: larger European banks will be able to better steer savings across national borders towards investment needs. Better steer French savings towards companies and innovation. For the past year, we have reformed regulated savings in order to avoid excessive benefits and to adjust them to the low rates: with the reduction in the housing savings plan (PEL) rate, the end of the overindexation of the A passbook (Livret A), and calls to moderate life insurance yields. In addition, it is desirable today that the professionals that you are, together with the public authorities, imagine new long-term products: at the price of less liquidity, they would combine capital protection and higher yields of shares. Their success also implies a form of tax neutrality. Successfully complete the digital transformation.

The interactivity between the  2  BIS Review 132/2008  players and the combination of their respective responsibilities should constitute a virtuous basis for a “sound financing of a sustainable economy”. “Sound financing of a sustainable economy” and “financial stability” are mutually reinforcing concepts. I would like to thank you for giving me the opportunity of presenting these considerations, before handing the floor to Ms Kosciusko-Morizet. Minister, please allow me to stress the formidable efforts you have made, both at the national and European level together with President Sarkozy and Mr Borloo, to provide sustainable solutions to the current challenges. You take a long-term view by calling for “a common battle” – these are your own words– in favour of the economy and the environment. This is clearly an “awareness” that we have to share collectively today! BIS Review 132/2008  3
One of the main reasons for reduced demand pressures in the economy is that GDP growth has subsided after peaking in 2016 and is now approaching its longterm trend rate. The slowdown in GDP growth reflects weaker export growth, as the tourism boom cannot be expected to continue at the pace seen in the recent past. Furthermore, the improvement in terms of trade has slowed down considerably. This means that the effects of the positive shocks that enabled us to grow rapidly and simultaneously keep inflation low are tapering off. The appreciation of the króna played a major role in the economy’s adjustment to these shocks. However, the Bank intervened in the foreign exchange market and imposed a special reserve requirement (SRR) on capital inflows to prevent the  Thórarinn G. Pétursson (2018), „Disinflation and improved anchoring of long-term inflation expectations: The Icelandic experience“, Central Bank of Iceland Working Paper no. 77. This improved performance of monetary policy is also discussed in detail in Central Bank Special Publication no. 11, entitled “Monetary policy based on inflation targeting: experience since 2001 and post-crisis changes”. See: www.sedlabanki.is 1  1  króna from overshooting. Now, however, a significant additional rise in the real exchange rate would be risky. Interest rates in Iceland are currently low in historical context, particularly in view of the business cycle position. With one short-lived exception, indexed Treasury bond rates have never been lower, and indexed mortgage lending rates are also at a historical low.

They are also well above the levels generally seen in neighbouring countries. For example, European banks of a size similar to Iceland’s banks have capital ratios of just over 18% and gearing ratios of about 8%. Elsewhere in the world, capital ratios are higher than those in Europe in some cases. Furthermore, many observers consider the actual capital in the European banking system is too limited and that Europe is therefore not the best reference for Icelandic banks. Nonetheless, there is some scope to lower the banks’ capital ratios — and gearing ratios in particular — with dividend payments and changes in the composition of capital. On the other hand, the banks are being cautious in maintaining a so-called “management premium” over and above the Financial Supervisory Authority’s minimum requirement, as it could erode confidence in the banks if their capital ratios fall below the minimum were they to face only mild headwinds. Moreover, the banks must bear in mind that the countercyclical capital buffer is currently 1.25%, but the Financial Stability Council has signalled that it could increase it in stages to 2.5% as the financial cycle gets more wind in its sails. In assessing a desirable level for the banks’ capital, it is important to remain aware of the costs and benefits. At times, international discussion of this topic has been somewhat misleading and, to some extent, affected by bank executives’ interest in maximising their own remuneration through risk-taking, knowing that a portion of possible losses would be absorbed by taxpayers.
•  In the longer run, ageing and slower innovation may push up saving rates and bring down the return on capital. Therefore, the ultimate response to the risk of secular stagnation is to improve the return on investment, thus pushing the natural interest rate back into positive territory. Again, this is not only a European problem. But we do have difficulties in this regard. Structural reforms are not easy. Many, however, are currently being implemented. Italy is abolishing its provinces, generating savings that will allow for a reduction in taxes and liberalising its labour market. France is on the same track and has reduced taxes on its labour costs as well as improving labour market flexibility. III/- short-term policy challenges and responses The main challenge, of course, is low and declining inflation, with inflation expectations in the euro area drifting downward at short to medium-term horizons. This prevents adjustments in relative prices, – an important mechanism to eliminate gaps in competitiveness – and increases the risk of outright deflation, should a negative shock occur in the future. Strangely, in the euro area, growth and inflation are moving in opposite directions. As growth accelerates, inflation keeps going down. This “disconnect” in the Philips curve is puzzling. We must look, then, at the broader picture. Euro area economies have attracted strong capital inflows over the recent months, with two opposite effects on financial conditions: first, easing through lower long-term interest rates. And, second, an appreciation of the euro exchange rate.

But the crisis has left an important legacy: •  Money and financial markets remain excessively segmented. The monetary transmission mechanism is severely impaired and credit conditions are still very different across countries and sectors. •  Deleveraging in the banking sector still acts as an impediment to recovery and growth. Bank credit remains flat in the euro area as a whole, and SMEs’ financing is a major concern, especially in stressed countries, where the percentage of financially constrained but viable borrowers is estimated at 25% vs 1% in “core” countries. We are very aware that balance sheet repair is a prerequisite for credit to resume and for monetary policy to be efficient. So, we are addressing the problem as a priority. 1. We are building a safer and more robust system of financial intermediation. A major step has been the creation of a banking union that, as you all know, will delink bank and sovereign risks and ensure a harmonised and tough financial supervision. It is easy to underestimate this achievement. The idea was adopted less than two years ago. The Single Supervisory Mechanism is now up and running. There is no example in contemporary European history when so much has been achieved in so little time. 2. We have launched a tough and comprehensive AQR and subsequent stress tests that should be completed by the end of this year.