samchain/econo-pairs-v1 huggingface dataset:
Not only is this outcome unacceptable from an equity or fairness perspective, but it is also undesirable because it can increase the incentives for firms to become even bigger and more complex. Over time, this may lead to a greater number of systemically important firms and expose the financial system to greater systemic risk. This suggests that we need to maintain our focus on two goals: (1) Making the financial system more stable by reducing the degree of disruption when failures occur – that is, shrinking the size of the externalities – and by lowering the risk of failure in the first place, and (2) eliminating the artificial advantages that large, complex firms might have that create incentives for them to become bigger and more complex. One more point deserves emphasis. Only eliminating the competitive advantage of large, complex firms from the too big to fail subsidy will not necessarily make the financial system more stable. For example, consider a regime in which interventions to prevent the failure of large, systemically important firms were impossible. In that case, the funding advantage that comes from being perceived as too big to fail would be eliminated because such firms could fail putting the firm’s equity and debt holders at risk. But, this would not be a good outcome from a financial stability perspective because the failure of such firms could still be  2  BIS central bankers’ speeches  catastrophic for the financial system and the economy.

If we look at those who have mortgages (which constitute approximately fourfifths of indebted households) the debt ratio reaches 313 per cent (see Chart 2). This comparison clearly shows that debt ratios vary depending on which households we choose to look at, and it also makes clear the extent to which the aggregate debt ratio underestimates the actual burden of debt for indebted individuals. 7  According to Statistics Sweden, loans from MFIs to households amounted to SEK 2,826 billion in July 2013, with 81 per cent of these being mortgages. 8  From July 2010 to July 2013. 9  According to Statistics Sweden, 7.7 million people aged over 17 were resident in Sweden in 2013. 4  BIS central bankers’ speeches  Chart 2. Debt ratios for different groups Per cent 400 350 300 250 200 150 100 50 0 All, including non-indebted  Only indebted  Only mortgage borrowers  New mortgage borrowers  Note. The debt ratio for the group designated “All, including non-indebted” corresponds to the aggregate debt ratio shown in Chart 1. It is calculated as the household sector’s total debts in relation to the sector’s total disposable incomes. The debt ratios for the other three groups are calculated as averages of the individual households’ debt ratios. Sources: Statistics Sweden, the Riksbank and Finansinspektionen  Not only new borrowers have high debt ratios Another claim is that high debt ratios are mostly to be found among new mortgage borrowers.
But I believe there are tools better suited to make the financial system more robust and I want to consider one of them – capital requirements – and how they might in future interact with monetary policy. More immediately, problems and fragilities in the banking sector remain and pose risks that the recovery in demand and activity we have seen across Europe – including in the UK – falters. But in the UK we have also seen CPI inflation rise to a level that is significantly above the inflation target. In recent months CPI inflation has begun to fall, but remains well above the 2% target level and that makes setting monetary policy difficult. We continue to face the problem of balancing risks: risks that inflation of 1.0pp–1.5pp above target lasts long enough to become ingrained in expectations and affect behaviour so that it is hard to bring down, versus risks that the recovery in output becomes weaker and then disappears, leaving inflation pressures lower than is consistent with the target further ahead. Since the financial crisis towards the end of 2008 economic policy has been unusually hard to manage. Both monetary and fiscal policy have been exceptionally expansionary. There has been an extremely large fiscal deficit. Fiscal policy is now being tightened. I look forward to the day when it will be appropriate to tighten monetary policy since a return to more normal levels of interest rates would be a welcome sign that economic conditions were also more normal.

It means that it is not reasonable to evaluate monetary policy in the basis of the opinion that inflation must always be on target. One should rather assume that inflation will rarely be exactly on target. In addition, the Riksbank deliberately allows inflation to deviate from target during shorter periods. This has been the case, for instance, when there have been temporary changes in inflation that we have not considered to warrant being counteracted by monetary policy. For example, we assumed that inflation would be below target at the beginning of 2004 due to energy prices having temporarily pushed up price in early 2003. However, inflation turned out to be even lower in 2004 than we had expected. But what I would like to say here is that one must expect inflation to deviate from target sometimes and that there are good reasons for this. I therefore consider that it is wrong to claim that monetary policy contributes to higher unemployment just because inflation is below target during a particular period. Another thing one can expect from the Riksbank is that we should make the best forecasts we possibly can. It is also important that our forecasts are evaluated. Last year our monetary policy was evaluated by two external professors, Giavazzi and Mishkin. They considered that the Riksbank’s forecasts for inflation compare favourably with those of other forecasters. However, for both 2004 and 2005 both we and other analysts overestimated inflation. This leads me on to some other questions I intend to take up.
The European Parliament should shortly approve the legislation that creates the single supervisory mechanism, in which the European Central Bank is to play a central role. The single supervisor will become operational twelve months after this approval, but first the ECB must analyse the solvency of all the institutions it is to supervise, an exercise that will have to be incorporated into the new stress tests to be performed by the European Banking Authority next year. The Directive establishing the harmonised resolution regime – currently under debate at the European Council and the European Parliament – and the legislation to create a European authority and a common resolution fund are still pending approval. In the latter case, a proposal must be submitted, on a date yet to be specified, by the European Commission. Conclusions Ladies and Gentlemen, the theme of my speech has been the difficult adjustment that the Spanish economy is currently going through, which needs to be seen in the context of the largely unprecedented international and European setting. BIS central bankers’ speeches  7  The advanced economies, the United States, the European Union, the United Kingdom and Japan are operating under extremely loose monetary conditions, with exceptionally abundant liquidity and very low interest rates. Emerging from this situation without any impact on growth and without creating fresh financial turmoil will not be easy and considerable risks will be encountered along that path.

That has been possible thanks to the recapitalisation operations performed by directly tapping the markets; to the capital injection financed through the Financial Assistance Programme agreed with the European authorities, for a final amount of € billion; to the conversion of hybrid instruments into capital instruments; and to the funds provided by the FROB and the Deposit Guarantee Fund. Currently, all Spanish banks meet the regulatory capital ratios required. As at the close of the first quarter this year, the solvency ratio of our banking system was 11.6%, compared with the current minimum of 8% required under the Basel Accord. It is worth stressing – as certain comments made seek to omit this or completely misinterpret it – that the fundamental intention and effect of the capital injections with public funds (whether from the European Stability Mechanism or from the Spanish Treasury) has been to prevent the winding-up of banks, thereby preserving customer deposits. BIS central bankers’ speeches  5  It would be remiss not to mention here the problem of the hybrid capital and subordinated debt instruments sold to retail customers by credit institutions which, following the detection of capital shortfalls in the stress tests completed last September, were unable to cover their capital needs with their own resources and received State aid.
The integration processes called for a voluntary agreement between the parties. In the midst of the crisis, these agreements were not easy and they required, moreover, the approval of the related regional government authorities. But in 2011 nobody, or practically nobody foresaw the double-dip recession and less still how violently it would affect the Spanish economy. In April 2011 most agencies, including the IMF, the OECD, the European Commission and the Banco de España, were forecasting growth for our economy of around 0.8%, which at the end of the year turned out to be a decline in GDP of 1.0%, the biggest forecasting error on record in recent times for these institutions. The European Central Bank was acting in response to what it saw as a recovery scenario for the euro area, as testified by the fact that it raised its benchmark interest rate by 25 bp on two occasions, in April and in July 2011, only to reverse these rises from November, in light of the worsening sovereign debt crisis. The forecasting error was also most significant in 2012: in their 2012 spring projections, most institutions estimated a decline in GDP of around 1.6%, and ultimately it was 2.9%. Overview As is addressed in the final chapter of the Report, I should now like to take an overall view of the crisis.

In 2013 a joint venture for production of banknotes was set up by the BNB Printing Works and one of the world’s leading banknote printers François-Charles Oberthur Group, France, and thus Bulgaria became an important player in the banknote industry. It is interesting to note that over its 137-year history the BNB has organised the production, issue and circulation of more than 500 types of coins, including commemorative coins and medals produced by the Bulgarian Mint in Sofia. You know that a few months ago, on 7 December, the new 2 leva coin came into circulation. The design of that coin enjoys enormous public approval. But let’s come back to our exhibition. Along with the coins struck after Bulgaria’s liberation until now, the visitors will be able to catch a glimpse of the history of money on the Bulgarian lands going back centuries. I am convinced that the displayed items can tell a lot about the  BIS central bankers’ speeches  1  long history and background of the economic and political life on the territory of today’s Bulgaria. I wish much success to this exhibition. I hope many citizens and guests of Burgas will come to see it, to learn more about the money used on the Bulgarian lands, and to feel, as we do today, deep respect for the history and accomplishments of our ancestors. 2  BIS central bankers’ speeches
Credit to small business will enhance the ability of poor households to increase incomes, build assets and reduce their vulnerability in times of economic stress. With better access to micro credit services on a continuing basis, the poor, particularly women, become more active partners and more importantly, pro-active partners, in the development process. Madam Chair, though micro credit has been used in various forms in the recent past to address the needs of the most vulnerable in post-conflict Sierra Leone, the providers of the micro credit have had an uncoordinated framework with each implementing its own scheme. This sometimes created an unnecessary duplication and waste in the use of scarce resources. Thus, in October 2003, Sierra Leone adopted a national micro finance policy which provides the fundamental framework and direction for stakeholders operating in the microfinance industry. Recognizing the importance of micro finance in reducing poverty, and in anticipation of the growing demand for micro credit products, ProCredit Bank (SL) Limited decided to increase its outreach depth to a greater number of small businesses in and around Freetown. Only five months after the commencement of operations at its head office, the bank requested and was given permission to open a branch in Kissy on 14th December, 2007. And we are delighted to note that another branch will soon be opened in Lumley – the West end of Freetown. The challenge after Lumley is for ProCredit to extend its activities in other areas of the country, which may be more deserving for their services.

The second half of my contribution will address in particular why an appropriately defined range for price stability and a narrow mandate are key factors in being able to conduct effective monetary policy over the longer term in an ever-changing environment. Here I will draw especially on the SNB’s experience, taking the Swiss perspective of a small open economy with an important currency. I. Aftershocks of the global financial crisis In the two decades prior to the global financial crisis, the nominal interest rate level had declined worldwide. On the one hand, central banks’ success in combatting inflation, coupled with cheap production opportunities resulting from an increasingly integrated global economy, had led to falling inflation rates. On the other hand, the real rate of interest had declined in many countries due to structural factors such as decreasing productivity growth and the ageing of the population. When the global financial crisis and the associated economic slump required a decisive easing in monetary policy, many central banks quickly reached the zero lower bound on interest rates. To continue to ensure an appropriately expansionary monetary policy in this situation, ‘unconventional’ measures then had to be introduced. Switzerland, too, was unable to escape these international developments. As a small open economy, in the wake of the financial crisis it was hit hard by the slump in global demand and the turbulence on the international financial markets. Our country’s situation was exacerbated by strong upward pressure on the Swiss franc.
Empirically, the behaviour of the economy matters more for interest rates than prior forecasts. In addition, the MPC isn’t solely concerned with inflation anyway, still less its most likely rate at a fixed point in the future. That means that the target horizon for inflation is generally longer than the earliest point at which policy can affect it – there is therefore no single, unique path of interest rates that will do the job. It also means that the horizon itself can vary. I will therefore conclude with something of an apology. For those in the audience wanting me to give a direct and unequivocal promise as to when Bank Rate will change, you will, I’m afraid, be disappointed. I can’t. But you should look on the bright side. If there is any value in listening to people like me, it is to help you with what is the best way to try and predict future interest rates - to forecast the economy yourselves (which is probably more interesting). After all, if the future were perfectly predictable we wouldn’t have to bother trying. References Broadbent Ben, 2014, “Unemployment and the conduct of monetary policy in the UK”, Speech given at the Federal Reserve Bank of Kansas City 38th Economic Symposium, Jackson Hole, Wyoming. Campbell John, 1995, “Some lessons from the yield curve”, Journal of Economic Perspective, Vol. 9, No. 3. Eguren-Martin F. and N. McLaren, 2015, “How much do UK market interest rates respond to macroeconomic data news?”, Bank of England Quarterly Bulletin.

It should be underlined that fiscal discipline of the past several years, by reducing the longterm risk premium, has been the key force allowing the achievement of robust output growth during a remarkable disinflation period. In that sense, I believe it is useful to emphasize once more that maintaining the prudent fiscal policy during an episode of worsening risk appetite is even more critical for preserving the resilience of the economy. Our medium term projections are based on the assumption that government expenditure targets will be met in 2008. Moreover, we assume that any extra need to readjust the primary budget balance will be implemented primarily through expenditure cuts rather than hikes in indirect taxes. Therefore the medium-term outlook that I mentioned above does not envisage major shocks arising from administered price adjustments, except the hikes in electricity and natural gas in January 2008. It should be kept in mind that any deviation from this assumption may alter the inflation and monetary outlook. The recent increase in end-user energy prices may continue to exert some temporary upward pressure on headline inflation in the coming months. However, these adjustments will also support lower inflation in the medium term as they contribute to a prudent fiscal stance and facilitate an expansion of the domestic energy production. Hence the central bank’s policy will not to react to these price adjustments, except to contain second-round effects.
Low interest rates entail risks Increasing debt levels and rising housing prices The low interest rates contribute to household debt as a percentage of disposable income continuing to increase and to housing prices continuing to rise. This creates risks that can threaten future economic developments. If there were to be an economic slowdown for any reason, this could be significantly strengthened when indebted households are forced to cut back on consumption and other expenditure, particularly if housing prices were also to fall in connection with this. It is therefore important that household debts do not continue to increase. Their debts have increased more than their disposable incomes since the middle of the 1990s and the debt ratio is now at just over 170 per cent, which is a record-high level, see Figure 13. As can be seen in Figure 14, housing prices, and especially prices of tenant-owned apartments, have risen sharply in the past ten years. Prices of tenant-owned apartments have more than doubled since 2005. We can also see that prices of tenant-owned apartments have increased substantially in relation to the consumer price index in the past ten years, but even in relation to disposable income the increase is significant. This development indicates that there are structural problems in the Swedish housing market. The fact that the rental market functions poorly is a problem. Another problem is that too little housing is being built.

Figure 15 shows that the population has increased much more than the number of completed homes over the past ten years, which is an indication that housing construction has been too low. Despite housing investment now increasing, it is important that structural problems on the housing market are discussed so that we can obtain greater efficiency on this market in the longer run. Several inquiries have put forward proposals regarding what needs to be done, most recently this was done in an annex to the Long Term Survey of the Swedish Economy. Not having an efficient housing market is not merely a problem for indebtedness, it can also comprise a threat to a healthy development of society and it can create conflicts between the generations. The Riksbank has long pointed out the risks linked to the high level of household indebtedness and has previously also weighed in them in the repo-rate decisions to some extent, by setting the rate somewhat higher than would otherwise have been the case. However, the effect these considerations have actually had on monetary policy – the amount by which the repo rate has actually been set higher – has been exaggerated substantially. There are quite simply limits as to how far the policy rate can be used for this purpose. And 6  BIS central bankers’ speeches  let me emphasise that the main focus for monetary policy has always been to bring inflation back on target and to attain a good development in the real economy.
Indeed, if that episode significantly affected the buoyancy of Spain’s international markets, the capacity of external demand to contain the negative impact of the slowdown in private spending would be diminished. The Spanish economy’s track record over the last few years shows that the behaviour of employment and its influence on household income expectations play a key role as drivers of household spending. For this reason, it is essential that resource allocation mechanisms should be sufficiently flexible to enable industrial and service activities (partly linked to exports) to play a greater role and take up the baton from construction. From the standpoint of the continued dynamism of domestic spending, attention also has to be paid to how the Spanish economy may be affected by a possible tightening of financial conditions stemming from developments in European financial markets, a process in which a fundamental role is played by the behaviour of Spanish financial institutions. Allow me, therefore, to devote special attention at this point in my address to the current situation of Spanish credit institutions, which stand at the heart of our financial system. Spanish credit institutions face this bout of turbulence from a position of strength based principally on high profitability, which is always the first line of defence against any adverse shock; comfortable solvency levels clearly above the minimum regulatory requirements; and, standing at some point between the two, the ample coverage of doubtful assets by the provisions that have been built up during the boom years.

The outlook for fortification of the foreign exchange reserves is far less uncertain than before. As a result, there is good reason to re-think the sequencing in the liberalisation strategy with an eye to changed circumstances and market developments, as the Monetary Policy Committee indicated in its August statement. One possibility might be to change the order of events and adopt measures to release pressure from owners of frozen deposits and glacier bonds before lifting controls on long-term obligations. The August 2009 strategy assumed that this particular step would not be taken until after restrictions on long-term obligations had been lifted, at least to some degree. The presence of unstable short-term capital creates a certain risk, however, when the first steps are taken. Another possibility is to hold auctions where non-residents with ISK holdings can exchange them for foreign-denominated bonds that can be traded without restrictions earlier in the timeline than was previously assumed. Still another possibility is the imposition of a gradually declining exit tax, either concurrently or later. One way of releasing frozen ISK assets is to direct them towards domestic long-term investments. Unfortunately, it is difficult at this stage to say with assurance whether, when, how, and in what order these solutions will be adopted. That will be determined in part by the results of the preparatory work currently underway. Foreign owners of frozen short-term assets are not the only parties that must be considered when the capital controls are lifted.