samchain/econo-pairs-v1 huggingface dataset:
As an economist who should know the importance of comparative advantage, I will spend the balance of my time focusing on what central banks can do to support inclusive capitalism. The Bank of England’s mission “to promote the good of the people of the UK by maintaining monetary and financial stability” suggests that central banks have an important role to play in supporting social welfare. Central banks can contribute in two areas. First, our core macroeconomic objectives promote social welfare. Second, we can help to create an environment in which financial market participants are encouraged to think of their roles as part of a broader system. By building a sense of responsibility for the system, individuals will act in ways that reinforce the bonds of social capital and inclusive capitalism. Some of this is straightforward. Inflation hurts the poor the most and the real costs of financial instability – unemployment and the seizure of credit – are likely to be felt most  11  Padoa-Schioppa (2010). 12  Sandel (2012). 13  See Martin (2012), also Lewis (2014). BIS central bankers’ speeches  3  acutely by the poor. 14 Conversely monetary and financial stability are cornerstones of strong, sustainable and balanced growth and therefore directly affect distributive justice. Some is more nuanced. While to not have acted would have been catastrophic for all, the distributional consequences of the response to the financial crisis have been significant.

Therefore, as I’ll explain later, forward-looking comprehensive supervision of the financial system is a key element in attempting to distinguish a healthy expansion of credit from a more dangerous and fragile buildup of debt. Recipes In what follows, I’ll outline recent findings on some of the possible mechanisms that can generate a modern financial crisis, one that is not characterized, like the U.S. banking crisis in 1931–33 by depositors demanding currency from their banks. In particular, I’ll focus on two strands of research that identify mechanisms that can amplify small initial disturbances in the economy to produce significant financial distress. My review is selective, as I don’t aim to cover all the possible factors that researchers have suggested can contribute to financial crises, but instead to focus on two topics that reveal some of the main mechanisms at play. The first mechanism is the procyclicality of financial intermediary leverage; banks and other financial intermediaries, notably broker-dealers, increased their leverage during the growth years of the 2000s, issuing increasing amounts of debt, but little equity. But as financial volatility increased in 2007, they began to deleverage, a process that produced stresses for many institutions and people throughout the economy, much like the distress caused by classic bank runs. The second mechanism I’ll review is the role played by the private sector in creating moneylike assets, such as repos, commercial paper, and other short-term and ostensibly safe assets.
Some of us may still remember being able to buy a 2-öre or 5-öre toffee at the sweetshop. There were also 25-öre comics and the 25-öre coin was very real. But times change. The proposal for the new banknote and coin series is that we should introduce a new 200-krona banknote and reintroduce the 2-kronor coin. Whether the 20-kronor banknote should be retained or be converted into a coin is also a matter that is being discussed. The final decision on the new banknote and coin series has not yet been made. New means of payment So far, I have mainly spoken about cards and cash. But technology is also developing rapidly as regards other means of payment. In Stockholm and a number of other Swedish cities, the SMS function of a mobile phone can be used, for example, to pay for bus tickets. This is an interesting example of the manner in which technology can also create new means of payment. We are, as you know, not alone in using mobile payments, these are already available in highly-developed countries like Japan and in less-developed countries like Kenya. In Kenya, mobile payments have already taken over large parts of the payment market. Sweden is a highly-developed country with a lot of expertise regarding the Internet and mobile telephony. We should be able to be at the cutting edge of the development of mobile payments.

Like the privatisation of the distribution system, the facility at Arlanda is a part of the Riksbank’s efforts to streamline cash handling. The 19 Riksbank offices that conducted these operations 10 years ago will have been reduced to one by 2013. In the same period, the number of personnel will have been reduced from around 300 to approximately 10 people. 7  Payment Security Report Sweden 2008, VISA Europe. 8  I am talking about the Observatory for Payment Card Security (Observatoire de la sécurité des cartes de paiement) which since 2004 produces an annual report that gives an objective account of the state of the card industry in France. BIS Review 7/2010  5  The Riksbank also recently evaluated the use of cash in Sweden and concluded that the current Swedish banknote and coin series is becoming outdated. There is a need to further develop the security details. It may also be sensible to make the relatively heavy Swedish coins lighter. Another problem is that the level of coin circulation is low. A few years ago, every Swedish household had an average of SEK 850 in coins stored in a bowl, jar or money box. It is hardly likely that this figure is lower today. Partly on the basis of this evaluation, the Riksbank has decided that the 50-öre coin is no longer needed. It will therefore be withdrawn during the autumn and öre will thereafter only exist as a virtual arithmetical unit. I think it feels rather strange to imagine this virtual öre.
This small share helps to explain why the pass-through of commodity prices into core measures of inflation has been very low in the United States for several decades. Third, the Federal Reserve’s success in anchoring inflation expectations has also been important in limiting pass-through. Since 1984, for example, when the Federal Reserve began to achieve success in driving down and then subsequently anchoring long-term inflation expectations, there has been very little evidence of commodity price pass-through into core inflation. In contrast, prior to 1984, when inflation expectations were much less wellanchored, pass-through did occur and, at times, played an important role in pushing underlying inflation higher. This leads to our final issue – the importance of inflation expectations in shaping the inflation outlook. Rising inflation expectations tends to push up inflation in a number of ways – by reducing the expected cost of borrowing at a given level of interest rates, by pulling forward buying decisions to beat future expected price increases, and by encouraging more aggressive price and wage setting behavior. In a world of unanchored inflation expectations, commodity price pressures would more easily be passed through into core inflation. Fortunately, inflation expectations remain well-anchored. This can be seen in all three major measures of inflation expectations. First, market-based measures of inflation expectations are generally well-behaved.

So what does this all imply for monetary policy? First, barring a sustained period of economic growth so strong that the economy’s substantial excess slack is quickly exhausted or a noteworthy rise in inflation expectations, the outlook implies that short-term interest rates are likely to remain unusually low for “an extended period.” The economy can be allowed to grow rapidly for quite some time before there is a real risk that shrinking slack will result in a rise in underlying inflation. We will learn more as we go, and, as always, should be prepared to adjust course in a timely manner if incoming information suggests a different strategy would better promote our objectives. Second, the Federal Reserve needs to continue to communicate effectively about its objectives, the efficacy of the tools it has at its disposal to achieve those objectives, and the willingness to use these tools as necessary. This is important in order to keep inflation expectations well-anchored. If inflation expectations were to become unanchored because Federal Reserve policymakers failed to communicate clearly, this would be a self-inflicted wound that would make our pursuit of the dual mandate of full employment and price stability more difficult. If we consistently and effectively communicate our objectives and our strategies, we can avoid this outcome. Thank you for your kind attention. I would be happy to take a few questions. 4  As a byproduct of actions taken to combat the crisis, the Fed generated record net income in 2009 and 2010, and remitted $ billion to Treasury.
David Carse: The state of the banking industry in Hong Kong Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, to the Hong Kong Foreign Bank Representatives Association, Hong Kong, 6 May 2003. *  *  *  Ladies and gentlemen, Thank you for the opportunity to speak again to the Hong Kong Foreign Bank Representatives Association. I want to use this opportunity to take stock of the state of the banking industry at what is a more than usually uncertain period for Hong Kong as it battles with the impact of atypical pneumonia. In Hong Kong you need to be prepared for the unexpected. At the beginning of the year, we were all worried about the looming war in Iraq and the damage that it might cause to the global economy and to Hong Kong. Little did we know that the main threat to the people and the economy of Hong Kong would come from the SARS virus. The recent performance of the banking industry The outbreak of the disease is one of a number of shocks that the banks in Hong Kong have had to cope with over the last five years. I will not dwell on the list, which will be familiar to you, but it includes two recessions, five consecutive years of consumer price deflation, a collapse in property prices of 65% from the peak in October 1997 and a surge in personal bankruptcies.

All this has taken place against the background of various upheavals in the global economic and political environment, the war in Iraq being just one manifestation of this. The defining characteristic of Hong Kong banks during this difficult period has been their resilience. Despite the ups and downs, banks’ balance sheets have remained strong. For the locally incorporated authorized institutions, the aggregate capital ratio remains around 16%, twice the minimum international standard. Many of the smaller banks have ratios well above this. Capital strength has not been impaired by losses during this period. The banks have continued to make money and earn a reasonable return on assets from their Hong Kong operations, averaging 1 around 1.25% (before tax) over the last three years. However, this has not been easy to come by. Growth in mortgage lending, the mainstay of profits in the 1990s, has stagnated, and the spread on new mortgage loans has fallen to 2.6% below prime barely enough to earn a decent return on capital employed. Other sources of loan demand have also dried up as corporates have deleveraged since the Asian Crisis. So the banks have had to change their focus in order to generate revenue. Attention has switched to the liabilities side of the balance sheet as the banks seek to make best use of the large amounts of surplus funds that have built up. Banks have been managing down the cost of their liabilities in order to improve deposit margins.
These include the two episodes of bird flu that have affected production and exports of poultry, and the uncertainty linked to the situations in the south which has importantly affected consumer confidence and business sentiment. So, for the most part, the performance of the Thai economy this year is essentially a story of how the domestic economy has been adjusting to the risks that emerged. This includes adjustments in the domestic financial markets and the real economy, as well as the implications for economic and financial stability. Let me go through each of these points in turn. As for the domestic financial markets, the adjustment has been led by the repricing of financial assets that has been underway since the second quarter. Yields on long bonds have been rising. Equity prices have declined. There have been some outflows of short - term capital, and the Baht has weakened from last year. In all, the adjustment has been smooth and orderly, and has benefited from the flexible market mechanism that underpins the movements of the economy’s key prices. And for the real economy, the adjustment has been accompanied by a moderation in growth in the first quarter to 6.5 percent, led by the slowdown in agriculture because of drought and the bird flu. Output of manufacturing and services, however, has continued to expand robustly.

It is worth referring here to Regulation No 2560/2001 of the European Commission, which established the principle of equal charges for cross-border payments and comparable domestic payments within the EU, which in turn has created an imbalance between bank fees and costs of cross-border payments. This imbalance can only be overcome if the handling of cross-border payments is reorganised to become as efficient and inexpensive as the handling of national payments, which is the primary goal of SEPA. An aspect which deserves particular attention in the discussion on SEPA is the harmonisation of the law within the payment area. The proposed Payment Services Directive (PSD) establishes the necessary legal framework for SEPA payments and will also apply to existing national payment products. The aim of the Directive is to harmonise the market access requirements for non-bank payment service providers. This will create a level playing field with enhanced competition in national markets. The Directive will provide clarity and certainty with regard to the core rights and obligations of users and providers of payment services. It will also provide the necessary legal framework for SEPA, as it will harmonise existing, and differing, national legal requirements.
37  Monetary policy makers must also take into account how potential structural changes in the labour market and pricing dynamics that result from the Fourth Industrial Revolution might affect the evolution of inflationary pressures. These considerations can be illustrated using the Phillips Curve diagram. Until the productivity and creativity effects catch up with the displacement effect, increased automation will impart disinflationary pressures through a reduction in businesses’ demand for labour relative to supply. Even if the transition happens relatively quickly and smoothly by historic standards – taking 30 years and with a relatively quick rate of new job finding among those displaced by technology – total hours worked could be 2 per cent lower throughout, equivalent to a 2 percentage point increase in the unemployment rate or a 5 percentage point rise in the underemployment rate. 38  34  The Fourth Industrial Revolution could also affect the transmission of monetary policy through its effects on the financial sector. For example, advances in technology and data availability could lead to greater competition in the financial sector, potentially strengthening the pass-through of changes in monetary policy into the interest rates faced by households and companies. 35 If automation increases the level, but not the growth rate, of productivity, it will only raise capital relative to output temporarily. This effect will be reinforced by an increase in the capital-output ratio during the job destruction phase, as labour is displaced by automation.

In recent years, the MPC has increasingly focused on structural changes in the economy, including by instituting regular reviews and publishing our assessment of the most important variables, such as the equilibrium unemployment rate. Over this period, as unemployment has fallen towards its estimated equilibrium rate and companies have found it harder to recruit and retain staff, pay growth has picked up. Across the economy as a whole, growth in average wages excluding bonuses has risen from around 1¾% a year during 2010-15 to around 2½% in 2016, and wage growth is expected to have picked up a little further to around 2¾% around the middle of this year. The most recent outturns support that judgement, with whole economy total pay increasing by 2.9% in the three months to July and private sector regular pay up 3% over the same period, and domestically generated inflation at rates consistent with the 2% inflation target. 39  Cavallo, A (2018), ‘More Amazon Effects: Online Competition and Pricing Behaviors’, paper prepared for the 2018 Jackson Hole Symposium. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  This brings me to a larger point. Although current rates of pay growth in the UK are below pre-crisis averages, this largely reflects continued weakness in productivity growth. While that weakness may reflect the early consequences of the Fourth Industrial Revolution, other factors seem more likely to be at play.
Finally, labor cost pressures are still latent with tighter conditions in the labor market. The materialization of these risks would have direct implications on the inflation and growth rates estimated to be the most likely by the Board. Thus, after evaluating all the elements described, the Board believes that the risk balance is unbiased for inflation and downward biased for output. Although the recent financial turbulences have centered mainly in the peripheral countries of the Eurozone, we cannot rule out that they intensify and spread to other economies, including emerging ones. In this scenario, in addition to the slowdown in growth I just commented, there would be the risk of a sharp change in the supply of external capital that could translate into higher costs or constraints in external financing to Chilean banks and firms. Therefore, in the present context of abundant supply of external funds, it is important to  4  BIS central bankers’ speeches  safeguard the resilience that has characterized the Chilean financial system in the past several years, preventing vulnerabilities to be created as a result of asset price misalignment, exchange rate mismatches, excessive short-term borrowing or unsustainable increases in credit taken by firms and households. So far, none of that has happened. As has been the case since the exchange rate float, and despite greater external credit, firms’ mismatches are limited and leveraging is stable. In the case of households, borrowing and financial burdens have remained at 2007 levels.

It draws on two stylised approaches to resolution: a so-called “single point of entry” approach, under which resolution of a whole group is executed, primarily by the home authority and mainly at the level of the parent or holding company; and, secondly, a “multiple point of entry” approach whereby co-ordinated actions are taken by a number authorities along national, regional or functional lines. There is, of course, a spectrum between those two poles. Identifying the resolution strategy that is most likely best suited to each specific firm is very important. The strategy must be relatively easy to understand – a strategy that cannot be explained concisely to top officials in central banks and regulators is not a strategy at all. But although authorities should try to identify a preferred strategy and should be as transparent as possible, I should caution that what turns out to be the best approach in the event of distress will depend on the circumstances. The suggestion of a “Presumptive Path”, being aired by some in the market, is somewhat unrealistic, at least in its strongest form. Public authorities with statutory obligations to maintain stability cannot bind themselves to detailed strategies that in the event might not work as well as an alternative. At the planning stage, whether a single- or a multiple-point-of-entry strategy looks more feasible will depend upon a group’s organisational and financial structure. It is likely that some groups will need to adapt themselves in order to remove impediments to resolution. Much of that will be case by case.
The latter is driven by, among other things, shrinking numbers of labour migrants coming to Russia for seasonal work. What is our concern? First, the lower a person’s income, the greater the share of food in their consumer basket. That means inflation hits such consumers in the first place. If we tolerate high inflation now, the least protected groups will suffer. Second, inflation expectations are accelerated by rising prices for food products that people buy every day: I have mentioned their effect. More so, last year’s loose monetary policy drove a reduction in deposit rates, making savings unprofitable. This year, a tougher monetary policy has pushed up interest rates, and deposits have been gradually growing again. We have raised the key rate several times this year to 7.5%. We have been raising the key rate gradually as we needed to make sure that tightening policy does not hinder economic growth and that inflation growth was really not a short-term episode, but that unfortunately, inflationary pressure is increasingly persistent. On this subject, I would like to raise the question of who wins and who loses from high and low interest rates. In general, this is a key point to understand the nature of monetary policy and key rate changes. High interest rates and low inflation benefit depositors, bond holders and those whose core income is fixed wages, pensions and social benefits.

Needless to say, the complexity of the international financial crisis and the synchronised weakening of the real economy have put banks in a complex and exceptional position. In the short-term, with the economic slump and the high levels of unemployment, non-performing loans will be on the rise. And pressure on banks’ balance sheets will keep increasing. The business model will have to adapt to the new competitive reality and the international conditions. This may translate into stricter cost management and the use of new technologies. One of the most important tasks will be to embark on a profound restructuring of a number of medium-sized institutions. Restructuring processes ought to aim at tighter synergies and economies of scale. The effort that needed is formidable, but Spain has witnessed numerous processes of this type in the past, which have resulted in highly successful business models. BIS Review 150/2009  5  III. On the way to normal times  As you know, in its last meeting the Governing Council of the ECB has judged the present level of our policy rates as appropriate. As regards our non standard measures, as the situation returns to more normal times, the focus on the medium term calls for a gradual and timely phasing out of these measures. A number of measures – think of our refinancing operations – will phase out naturally by design. As of today, it is still premature to declare the financial crisis over.