samchain/econo-pairs-v1 huggingface dataset:
During exceptional circumstances such as Brexit, the MPC has been required by its remit since 2013 to balance such trade-offs.16 Consistent with that requirement, in August 2016, the MPC judged that it was appropriate to set policy after the referendum so that inflation returned to its target over a longer period than the conventional horizon of 18-24 months in order to support jobs and activity at a time when uncertainty was elevated and the economy was slowing. Chart 10 illustrates the MPC’s framework for setting policy to manage this trade-off. The red lines represent the potential trade-offs that the Committee could strike: mapping the size of the inflation overshoot that it could be prepared to tolerate for a given amount of spare capacity, and vice versa. The flatter the line, the less weight the Committee places on output stabilisation and the more it is willing to tolerate large output gaps in order to eliminate small overshoots in inflation. To be clear, the precise trade-off that the MPC pursues is not determined by the preferences of its members. Rather, it is grounded in society’s choice of the desired end, as captured by the statutory objectives and the remit the Committee is given by government.

17  All speeches are available online at www.bankofengland.co.uk/news/speeches  17  Chart 11: Pay growth strengthened as slack absorbed Four-quarter wage growth (per cent) 4.0 UK  3.5  Darkest values are 2019  3.0 2.5  US  2.0  Euro area  1.5 1.0 0.5  Lightest values are 2013  0.0 3.0  4.0  5.0  6.0  7.0 8.0 9.0 Unemployment rate (per cent)  10.0  11.0  12.0  Sources: ONS, Eurostat, Bureau of Labor Statistics, and Bank Calculations Notes: The UK wage measure is Average Weekly Earnings (AWE) regular pay, the US wage measure is Employment Cost Index (ECI) wages & salaries, and the EA wage measure is compensation per employee. Data frequency is quarterly. **************************** Over the past year, the broad economic trends in the period following the EU referendum have deteriorated (Charts 12a and 12b). The global economy moved from a broad-based expansion to a widespread slowdown. Uncertainties and growing concerns over the fracturing of the global trading system have been weighing on global activity, likely pushing down the global equilibrium interest rate, and exacerbating concerns about limited monetary policy space. The pace of growth in the UK has slowed below potential, owing to the weaker external backdrop and a persistent drag from entrenched Brexit uncertainties.
As such, I hope you appreciate that, when it comes to policy, there is risk in change as well as in inertia. This is the fundamental challenge we face. Since the challenge going forward requires significant ability for emerging economies to adjust flexibly, what has brought us here may not deliver us safely to prosperity. Beyond getting the fundamentals right and strengthening them, the solution package we seek must help reduce the distortions perpetuated on our economies. These distortions impose real costs and hinder our chances to become more resilient going forward. This solution package must by default and by design be broad-based. Allowing the competitive pressure and incentive to operate is undoubtedly the best way to foster investment in physical and human capital, as well as innovation and risk-taking, all of which are crucial to long-term productivity growth. They are also crucial for a flexible and resilient economy. But policy and regulations still have a role to play. The imperative here is to improve on policy and regulation design that can help deal with market excesses. On an appropriate degree of financial openness through time, there is little consensus today, even among leading academic economists. The key here is prioritizing liberalization and reforms. But the right pacing and sequencing of capital account liberalization in one country may not be solution for the next.

Over time, they wish to move from incomplete financial market to a better world of risk-sharing, risk absorption, and diversification. But there is tension to be managed in the short run. Under Bretton Woods II, in which much of Asia is still tightly linked to the fortune of the US dollar, and in the context of ongoing “global imbalances,” emerging markets need to strike a balance between financial stability and financial development. In particular, when our markets and institutions are still developing, the struggle between financial integration and financial stability, enterprise and prudence, requires from us a deft balancing act. Ladies and Gentlemen, From a historical perspective, today’s emerging markets are unique in their common experience. This uniqueness is twofold. On the one hand, it is quite apparent that our openness has gained us immense benefit from global economic integration, the phenomenon denied to advanced economies when they started off. At the same time, and as a result of our openness, small developing economies face risks and volatilities that accompany financial globalization, the scale of which advanced economies never had to face in their early stages. In fact, sustained increase in living standards is a relatively new economic phenomenon to emerging markets. Having experienced modern economic growth after 1950, we are late comers. And having much to benefit from being late, it took us a much shorter time to treble our per-capita income than today’s advanced economies did between 1800 and 1950.
It is of course possible to constantly register whether a crisis has occurred or not, but if a crisis has not occurred it is difficult to determine whether the measures taken have been well-designed or not. As it is a case of unpopular measures, one might think that it would be an advantage if the decisions were made by people who in practice cannot be dismissed. But this this may not be a particularly good solution from a democratic point of view. At the same time, macroprudential policy may address the issue of macroeconomic stability in such a way that it comes close to what monetary policy aims to achieve. The historicallyhigh level of household indebtedness in Sweden does not perhaps in the first instance pose a risk of financial crisis but to macroeconomic development in the longer term. A fall in housing prices in connection with an economic slowdown with increased unemployment could lead to a severe downturn if the households reacted by significantly increasing their saving to compensate for declining wealth.21 This risk relates to financial and macroeconomic  18  Similar criticism was expressed by my colleague Kerstin af Jochnick in the speech “Monetary policy and macroprudential policy”, 25 January 2013. 19  The European Systemic Risk Board (ESRB) highlights the role of the central bank in its recommendations on institutional frameworks for national macroprudential policy (see the Recommendation of the European Systemic Risk Board of 22 December 2011 on the macroprudential mandate of national authorities).

The risk that low interest rates will increase household indebtedness and that this in turn will increase the vulnerability of the households if, for example, housing prices fall for some reason has been put forward as an argument against lowering the repo rate.22 Personally, I do not believe that the latter risk is particularly serious at present as the rate of increase in lending to households has declined significantly since before the financial crisis. Nevertheless, it is a risk that is taken into account in the monetary policy decisions. All in all, therefore, economic policy has not sufficiently counteracted the effects of weak development abroad and pessimistic households and companies. How can we establish an effective policy for business cycle stabilisation in Sweden without at the same time exposing the economy to considerable risks with regard to financial stability? One important step is to establish a separate policy area with explicit responsibility for preventing financial crises. If we succeed in creating an effective framework for such a policy area, monetary policy would be better able to focus on its main tasks: stabilising inflation around the inflation target and resource utilisation around a sustainable level. The interim report of the Financial Crisis Commission, with its proposal to set up a council for macroprudential policy, is welcome in this context. However, as I have pointed out earlier, the division of responsibility is not set out very clearly in this proposal and it is unclear which authority should do what.
The aims of transparency are to allow better informed decisions in both public and private sectors, to reduce the risk of contagion by allowing markets to differentiate among borrowers and to encourage macroeconomic policy to become more predictable. Transparency is not simply a question of making available certain data. It is an approach to economic policy, almost a way of life. The G22 Report of the Working Group on Transparency and Accountability (which I was privileged to co-chair with Andrew Sheng of the Hong Kong Monetary Authority) was published in October 1998. Its recommendations were endorsed in full by the G7. It stressed the importance of transparency in three different sectors: national governments, the private sector and the international financial institutions. Good progress has been made in implementing many of its recommendations. Rather than give an exhaustive account of progress in transparency, let me give a few examples. In March of this year, the IMF’s Special Data Dissemination Standard was strengthened by the inclusion of a template covering the disclosure of net foreign exchange reserves and short-term foreign currency liabilities of central government. These data are required to be published monthly with a lag of no more than one month, and the transitional period for observing the standard runs to the end of March 2000. Agreement is very close on a Code of Monetary Policy Transparency to match the earlier Code on Fiscal Policy Transparency. BIS data on international banking statistics will be produced quarterly from next spring and the lag in publication shortened.

In the domestic context, the LOLR ensures that neither the managers nor the equity holders of the institution receiving support are allowed to benefit. Internationally, it is not easy for the IMF to penalise those responsible for management of the economy, nor to distinguish between those citizens that have been responsible for excessive risk-taking and those who will be the innocent victims of the consequences of a financial crisis. It is the ordinary taxpayers in emerging market countries who will have to bear the burden of servicing loans from the IMF.5 4  Fischer, S (1999), “On the Need for an International Lender of Last Resort”, IMF. 5  A point stressed by Calomiris (“The IMF’s Imprudent Role as Lender of Last Resort”, Cato Journal, Vol. 17 No. 3 1998) although he underestimates, in my view, the possibility of liquidity runs as seen, for example, in Korea in 1997. BIS Review 95/1999  4  Absent a world government, it is difficult to see a credible ILOLR on the horizon. The reason is the simple maxim: “it’s the politics, stupid”. The second purist solution, at the opposite end of the spectrum, is the imposition of permanent capital controls. In other words, a return to the world in which the Bretton Woods institutions were created half a century ago. The advantage of capital controls is that they prevent the liquidity runs that result from currency and maturity mismatch of the financial sector. India did not experience a financial crisis, Korea did.
(2)  Corporates: Corporates have always sought to increase profits by using loans to increase investment and expand operations. When the economy continues to boom, revving up demand, increased leveraging looks like an enterprising approach to increase profits. But once circumstances shift, companies building up a mirage of prosperity after years of reliance on loans will suddenly find themselves mired in massive debts. This is what we have witnessed across the major industrialised countries. Though the debt levels of businesses differ from country to country – with those in Spain, the UK and France among the highest, it is obvious that they all have no alternative but to reduce debt when demand has ceased to grow rapidly as before. Those that are not healthy enough financially might even have to go bankrupt. (3)  Banks: When we talk about deleveraging or cutting debt, we must also look at the role played by banks in the process. Of course, banks are not the sole provider of credit. Capital markets and the shadow banking sector are indeed among the other sources contributing to the rapid expansion of credit in the past two decades. However, the banking sector is beyond doubt the key player leading the major industrialised countries deeper and deeper into the debt abyss. When the global financial crisis finally hit in 2008, many large international banks fell into complete disarray, sending governments to their rescue with huge amounts of public funds. After this, the Group of Twenty (G20) decided to reform the banking system.

Chart 14. Revisions to Oil and Import Price Assumptions Oil Prices (USD/bbl)  Import Prices (2003=100)  Source: Bloomberg, CBRT. Source: TurkStat, CBRT. Particularly due to supply-side developments, oil and other commodity prices remained considerably above our assumptions presented in the January Inflation Report (Chart 14). Hence, we revised our assumptions for oil and other commodity prices upwards (Table 2). As illustrated on the slide, these changes in assumptions led to an upward revision of about 50 basis points for the end-2011 inflation forecast and a slightly upward revision for the 2012 inflation forecast. BIS central bankers’ speeches  7  Table 2. Revisions to 2011 Assumptions  Oil (Annual Average, USD)  Prices  Import (Annual Percent Change)  Prices  Food Price (Year-end Percent Change)  Inflation  January 2011  April 2011  95  115  10.9  16.2  7.5  7.5  Another factor affecting 2011 inflation forecasts has been the tariff hike on fabrics and apparels. Although major uncertainties exist about how this development will be reflected on prices, we assumed that this would add to year-end inflation by about 50 basis points while revising our forecasts. Despite the recent benign course of food prices, we preserved our assumption regarding food inflation for end-2011 at 7.5 percent in view of the extreme volatility in unprocessed food prices and rapid increases in agricultural commodity prices (Table 2).
A network of seminars and fora has been set up, in which practical advice and information are provided at expert level with regard to the adjustments required for EU membership in EMU-related areas of legislation, statistics and payment systems. Moreover, the Eurosystem provides technical assistance in all relevant areas of central banking. These activities are likely to be developed further and should make it easier for the accession countries to carefully prepare for the adoption of the acquis communautaire, which is indispensable for the successful enlargement of the European Union. Finally, I should like briefly to touch upon the status of preparations for the Eurosystem’s information campaign on euro banknotes and coins. As I already mentioned during our previous dialogue, this campaign is designed to allow European citizens to familiarise themselves with the new banknotes and coins at an early stage. The campaign is also directed towards people in other countries, albeit to a lesser degree. Its main focus will be on the visual appearance of the euro banknotes and coins, their security features, their denominations and the changeover modalities. Special attention will be paid to the needs of vulnerable citizens. In the meantime, the preparatory work on the information campaign has progressed further and should, according to our current planning, be finalised in April. It goes without saying that the ECB would appreciate the opportunity to present the main features of the campaign to your Committee in due course. 3  BIS Review 25/2000

As the Swedish banks have grown so rapidly in recent decades, mostly by expanding overseas, it would not be out of place to ask whether they have become too large for Sweden. Is there, perhaps, a limit for how large a banking system can be in relation to the total production capacity and fiscal capacity of one country? The risks for society may, quite simply, become too high. Experiences from Iceland and Ireland during the last crisis undeniably suggest this. And the Swedish banks are certainly large. The combined balance sheet totals of the major banks are equivalent to slightly more than four times GDP (Figure 6, left-hand diagram). This multiple is among the highest in Europe, in the same order of magnitude as the United Kingdom and the Netherlands (prior to the crisis, Iceland was in ninth place). However, I think that we should perhaps be cautious in assessing the risks in a banking system merely on the basis of the size of its balance sheets. For example, imagine that Nordea moved its head office from Stockholm to Helsinki, suddenly becoming a Finnish bank. This would take Sweden below the European average (Figure 6, right-hand diagram). Would the level of risk in the Swedish banking system then have decreased considerably? I don’t think so. The risks in a large banking system have many other dimensions than just balance sheet total in relation to GDP. Large banking systems can be associated with low risks and small banking systems can be associated with high risks.
It is against that gloomy – some would say dismal – background that I want to discuss today how I view the growth and development of market-based finance in recent years. 1  Carlyle is thought to have coined the phrase having read the works of Thomas Malthus, who argued that economic stagnation and starvation would be an inevitable result of population growth, although the exact phrase first appears in Carlyle’s tract on his opposition to the emancipation of West Indian slaves. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  And, to reassure you that we do not invariably see the glass as half empty, I want to start not with the risks, but with the benefits of the development of market-based finance from a financial stability perspective. And finally, I want to look at some of the issues and the risks to market-based finance arising from Brexit. Growth and development of market-based finance. Market-based finance, measured by the assets of non-bank financial institutions, grew to $ trillion in 2015 – an increase of about 50% since 2008. It now represents nearly half of the assets of the global financial system. The asset management industry – firms like those here today – manages around $ half of which is in investment funds. The growth of market-based finance since the crisis has not been evenly distributed – either geographically or between types of activity. Geographically, the US still dominates with 35% of global non-bank financial assets.

But is there a point in stress at which some combination of fund losses and margin calls leads to forced asset sales and/or failures elsewhere in the system? For me, the jury is very much out on the scale and nature of the risks from funds use of synthetic leverage. We need, as I have noted, better metrics and better lenses through which to view funds’ use of synthetic leverage or, to put it more accurately, funds’ use of derivatives. It may well be that we determine that where derivatives are being used to hedge and reduce rather than to gear up risk, what makes sense at the level of individual funds makes sense at the level of the system. There may be no need to mitigate the risks or, indeed, no risks to mitigate. I should note that macroprudential authorities have so far taken a different view of similar issues in relation to the inter-connectedness created by insurance companies’ use of derivatives to manage the risks of their liabilities. But investment funds are very different animals. However, to return to my dismal theme, our responsibility as macroprudential authorities is to make the best assessment we can – not only of the risks with which we are familiar but also of the ones that may be developing as the financial system evolves. The IOSCO work on leverage will play a major role in helping us to understand these risks.
In itself that  2  BIS Review 128/2008  does not affect the ability of banks to fund lending, but confidence has been badly shaken after the traumatic events of the past few weeks. New sources of funding will develop only slowly, although the temporary government guarantees of new lending to banks will help. So it will take time before the recapitalisation leads to a resumption of normal levels of lending by the banking system to the real economy. And we cannot assume that there will not be problems in other parts of the financial system and in some emerging market economies to be overcome before the crisis can truly be described as over. With the plan for recapitalisation in place, the focus of attention has moved to the outlook for the UK and world economies. Over the past month, the economic news has probably been the worst in such a short period for a very considerable time. The most recent activity indicators for the second of half of the year have fallen sharply. In the UK, unemployment continues to rise and, over the past three months, has risen at the fastest rate for seventeen years, albeit from a relatively low level. House prices declined by about 5% in the third quarter and are 13% lower than a year ago. The recent weakness of the housing market is likely to continue. And if the news on the domestic front were not sufficiently discouraging, the rest of the world economy also appears to be slowing rapidly.

I hope banks will come to appreciate, just as the New Zealanders at Headingley in 1958, the Yorkshire virtues of patience and sound defence when batting on a sticky wicket. I have said many times that successful monetary policy would appear rather boring. So let me extend an invitation to the banking industry to join me in promoting the idea that a little more boredom would be no bad thing. The long march back to boredom and stability starts tonight in Leeds. BIS Review 128/2008  5