samchain/econo-pairs-v1 huggingface dataset:
If European policy-makers decided to follow their American counterparts, neglecting the different structure and shocks, this would result in destabilising economic policies, which would bring us to the high inflation and profligate fiscal policies of the 1970s. This judgement is backed by a lot of analysis, which – perhaps unconsciously – has been understood by European citizens and their governments. Those who lived the times of economic instability should have understood that offloading the weight of the macroeconomic adjustment onto future generations is elusive and counterproductive. With a longer life expectancy, the mistakes of a given generation are paid in large part by the same generation. It is best therefore not to commit those mistakes altogether, and let economic policies follow tested rules of good behaviour. Thank you for your attention. Figure 1. Official interest rates in the euro area and in the United States (percentage points)  Sources: ECB and Federal Reserve Council. NB: most recent observation dated 30 October 2008. Euro area interest reference rate is rate on main refinancing operations to June 2000, and minimum bid rate thereafter. Official US interest rate is federal fund rate. 12  BIS Review 135/2008  Table 1. Measuring long-term inflation expectations in the euro area and in the United States  Figure 2. Government budget balance in the euro area and in the United States  NB: Total budget balance shows degree of budget policy’s expansion or contraction.

Thus the degree of monetary policy activism can be different; this, however, is not on account of a different decision-making strategy, but on account of the different nature of the shocks impacting on the two areas. Comparative analyses show that the macroeconomic shocks on both sides of the Atlantic, 2 while of similar magnitude, appear to be partially different in their nature. Over the past ten  2  See, for instance, Smets, F. and R. Wouters (2005), “Comparing Shocks and Frictions in US and Euro Area Business Cycles: a Bayesian DSGE Approach”, in Journal of Applied Econometrics, Vol. 20, No 2, pp. 161-  2  BIS Review 135/2008  years the euro area has been worse hit by “supply shocks” than the United States. A supply shock tends to have an effect on growth with the opposite sign to that of inflation. One example is the decline in total factor productivity (TFP) in the early part of this decade which brought upward pressure to bear on inflation at a time when economic activity was slowing down, as occurred following the bursting of the dot.com bubble. Indeed, available evidence seems to suggest that the exacerbation of negative supply shocks is a recurring feature of economic slowdown phases in the euro area. As a result of that phenomenon, inflation in the euro area tends to react to an economic slowdown less rapidly than it does in the United States.
In parallel with the role of ERTEs, it is important to ensure the proper functioning of the different labour flexibility mechanisms available to firms, whose function is particularly useful in these circumstances for efficiently accomplishing the adjustments arising from the crisis. Active labour market and training policies for the unemployed and workers affected by ERTEs also take on considerable importance. Once suitably re-designed, these policies should be geared to boosting employability and smoothing the relocation of the workers most affected by the crisis to sectors or firms with greater growth potential. The criteria whereby support instruments are maintained, but after being appropriately designed so as not to distort the necessary adjustments in the economy, are also important. And particularly so those expressly intended to sustain the income of the most vulnerable households. The necessary implementation of an ambitious structural reform agenda Let us look beyond the policies needed in this phase of incipient economic recovery. Taking a broader view, the extraordinarily complex setting envisaged by the Banco de España’s latest economic projections - and those of the vast majority of analysts - for the coming years also means we should define a reform agenda aimed at tackling the structural challenges our economy faces, and which this crisis has made more pressing. In this setting, an ambitious reform strategy would be an essential lever for positioning the Spanish economy on a sustainable path of growth, job creation and well-being. One of the key structural challenges is that relating to the need to increase our economy’s growth potential.

23.07.2020  Challenges for the Spanish economy in the face of the impact of the pandemic Webinar Economy, work and society in Spain. The impact of COVID-19. Spanish Economic and Social Council (CES) Pablo Hernández de Cos Governor  Honourable Minister for Labour and Social Economy, Chair of the Spanish Economic and Social Council, ladies and gentlemen, Good morning. It is a pleasure to be able to participate today in this presentation of the Annual Report of the Economic and Social Council (CES). As earlier highlighted, its content goes beyond the 2019 timeframe of events and delves into the challenges that the COVID19 pandemic entails for the economy, for social cohesion and for the labour market in Spain. In this respect, the CES and the Banco de España have concurred in recent weeks that our respective studies and annual reports should strive to be useful instruments that help society face these challenging times. An incipient, incomplete, uncertain and uneven recovery The COVID-19 pandemic has exacted a very high price in terms of human lives as well as deep-seated disruption to society and the economy. As a result, the dynamics marking the global and Spanish economic environment in late 2019 and early 2020 have been abruptly altered. Specifically, the pandemic and the lockdown measures to combat it have affected all economies most adversely.
Balance sheet management Within the scope of its mandate, the SNB is also committed to sustainable development in the management of its balance sheet. The SNB differs from other asset managers in several respects. First, we manage foreign exchange reserves. 10 As these reserves perform a monetary policy function, they must remain subordinate to monetary policy goals at all times. These considerations determine the framework of our investment policy. As chart 2 shows, our foreign exchange reserves (represented by the area in blue) have increased substantially since the 2008 global financial crisis. This increase is mainly due to the SNB’s interventions in the foreign exchange market to counter excessive appreciation of the franc and stabilise price developments. The expansion of foreign exchange reserves has also caused an increase – on the liabilities side of the balance sheet – in the volume of sight deposits that banks hold with the SNB (area in red). 9 Cf. the SNB’s Environmental report, which is now called the Sustainability Report. 10 For more information on the specific characteristics of a portfolio composed of foreign exchange reserves (‘policy portfolio’) compared to other portfolios, cf. NGFS (2019), ‘A sustainable and responsible investment guide for central banks’ portfolio management’, October, pp. 7–10. On this subject, cf. also remarks by Matsen, E. (2019), ‘US Senate Democrats’ Special Committee on Climate Crisis’, 17 October, pp. 2–3. Page 7/12  Our reserves could decrease in the future, however.

This means that we replicate a combination of representative market indices to determine the size of each holding of securities in our portfolio. Index-linked management ensures that the SNB acts as neutrally as possible in the markets without engaging in ‘stock picking’. It also prevents some sectors and companies  12  For more details on the characteristics of the SNB’s investment policy, cf. Maechler, A.M. (2017), ‘The SNB’s investment policy and its distinctive features’, ‘Money Market Event’, 23 March. Page 9/12  from being over or under-represented. Besides these advantages, the choice of the passive management approach is based on political considerations. A more active management of our equity investments would be tantamount to indirectly pursuing a structural policy. The SNB could quickly acquire significant stakes in select companies – and these could be construed as strategic participations. Clearly, it is not part of the SNB’s mandate to promote or disadvantage certain companies or sectors. The aim is to avoid such conflicts of interest at all costs, not least in order to preserve the SNB’s independence and credibility. The SNB only departs from the principle of neutrality in certain, very specific cases. This is illustrated in chart 5. On the one hand, the SNB refrains from investing in shares of systemically important banks and medium and large-cap banks in the advanced economies in order to avoid any real or perceived conflict of interest. For the same reason, it does not hold shares in Swiss companies.
The European Systemic Risk Board (ESRB), which is an EU-level body established with a mandate to oversee the macro-prudential oversight of the financial system, recommended the setting up of an authority or body to make recommendations on macro-prudential aspects of the financial system. The Central Bank in its capacity as the macro-prudential authority has agreed with the MFSA, to set up a Joint Financial Stability Board which will be formally constituted in a few weeks. The objective is to enhance the cooperation between the two bodies for the assurance of the stability of the financial system. The intention is to strengthen the resilience of the financial system and to mitigate the build-up of systemic risks. To these ends, the Board’s mandate includes the development of mechanisms that would identify risks to financial stability, and the establishment of the necessary macro-prudential policy tools. The Joint Financial Stability Board will also be able to make recommendations to the CBM or MFSA boards on macro or micro prudential issues, as the case may be. The board is also responsible to follow-up on recommendations made by the ESRB. Second, in the current situation, it must be ensured that fiscal consolidation is not compromised and the commitments under the Fiscal Pact are achieved. The room for fiscal manoeuvre is very limited at this present juncture of contraction in the euro area economy and the current debt-to GDP levels in the Maltese economy. Third, higher productivity allows sustainably higher wages and living standards.

All these measures aimed to support bank funding markets and ensure that the flow and pricing of credit to the real economy was in accordance with our intended monetary policy stance. But a question often asked is why we did not resort to large-scale asset purchases at this point, as the Fed was already doing. Bear in mind that inflation developments in the euro area at the time did not suggest a tight stance. Headline inflation was rising steeply from its 2009 trough, exceeding 3% in October 2011, partly driven by an increase in underlying inflation. Inflation expectations were well anchored around our objective. Hence our diagnosis of the problem in this period focused more on monetarytransmission than on the policy stance. Our stance was not being transmitted evenly across all parts of the euro area. And so our measures in this period were specifically designed to remove those impairments in transmission. The main issue we faced was the perverse interaction between the euro area banking sector and institutional incompleteness of our monetary union, which had fundamental implications for our policy in a system of bank-based monetary transmission. While the first phase of the crisis can be interpreted as a severe recession amenable to monetary policy, this second phase was the consequence of institutional challenges that monetary policy could only aim to mitigate, but could not overcome.
One notable example of this is the growth of corporate leveraged lending in many jurisdictions. The Bank estimates that the global stock of leveraged loans has now reached an all-time high of $ 3.4 trillion, equivalent to 11% of total advanced economy credit to nonfinancial corporates. The share of corporate debt owed by highly leveraged companies is now very close to or above pre-crisis levels in major advanced economies.11  The growth of this market has been accompanied by a marked easing of underwriting standards and compensation for risk. The share of new leveraged loans with no maintenance covenants has tripled since 2007.12 Spreads have declined and remain below their 2015 levels. And there has been growing use of accounting adjustments (‘add-backs’) that could understate leverage13. There are other examples. We have also seen an increase in sales of complex products as investment banks try to boost their income in a challenging trading environment. And in some countries, retail lending conditions have loosened. For example, in the United Kingdom the proportion of mortgage lending at higher loan-to-value (LTV) ratios has been rising over the past few years and is now close to its pre-crisis peak.14 At the same time, interest rate spreads on high LTV lending have declined and are close to recent post-crisis lows.15  Search for yield behaviour may have been more pronounced in the non-bank financial sector.

It may partly reflect very low levels of current policy rates and any spillovers from that.3 It may also reflect the term premia for inflation that are currently very compressed in some countries, for example, the US and in the Euro area. And it may also be a symptom of a more entrenched pessimism – an over-pessimism in my view – about long-term economic prospects, possibly due to fears of the de-integration of the global economy or concerns about future effectiveness of monetary policy. But, more fundamentally, the very low level of market interest rates reflects an underlying structural trend – the fall in long-run real interest rates since the early 1980s4 – that has been the subject of a great deal of research. The literature has identified a large number of candidate explanations – both real and financial – for a structural decline in the long-run real interest rate. These include: demographic trends and, in particular, increased longevity; lower trend productivity growth; the liberalization of financial intermediation and an increase in the risk borne by individuals and households.5  The long-run equilibrium real interest rates determined by these factors are, of course, unobservable. There is a range of estimates for how far they have fallen.
But to realize these benefits, we require more enhancements in payment infrastructure and a change of behaviour from users of payment systems. Global trend Globally, cheque numbers are falling. Based on the World Payments Report 2013, cheque usage in the mature Asia Pacific countries3 has registered the biggest decline. Over the period from 2010 to 2012, the average annual rate of decline was 10%. In Australia, cheque usage had declined by 60% in the past decade and at the current rate of decline, it is expected to reach near zero by 2018. In some European countries, like Norway and Sweden, cheques barely exist. Even in the US, which is sometimes referred to as the “Promised Land of the Cheque,” cheque usage has been declining at an average annual rate of 7% since 2003. 1  The cost saving is achieved mainly in the transportation cost to send the physical cheques to and from the clearing centres. 2  Refers to the average cost savings per year from 2010 to 2012, calculated based on the difference between the total cheque processing costs before and after the introduction of eSPICK. 3  Japan, Singapore, Australia and South Korea. 2  BIS central bankers’ speeches  Malaysia Malaysia however, remains a high user of cheques and cash despite the progress that has been achieved in the electronic payment infrastructure and the increasing sophistication of the Malaysian economy. Malaysia’s usage of cheques per capita is 6.9 compared to 0.2 in advanced countries4.

13  That’s one reason why the Bank of England’s Financial Policy Committee has commissioned an in-depth review of how the use of derivatives in the non-bank financial system may be shaping the dynamics of markets. 14  12  Investors who base decisions on value-at-risk (‘VaR’) and assess those risks using market measures can be guided into thinking their portfolio is safer. In some cases, this general behaviour is an explicit investment strategy: some investment funds explicitly try to keep the implied volatility of their portfolio at a fixed level. 13 See the market monitor of the Office of Financial Research for the second quarter of 2017: ‘The volatility paradox: tranquil markets may harbour hidden risks’. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  We need to keep pace. And investors should too. Accidents can be avoided if driving speeds are based on the road conditions ahead rather than the price of insurance. ii) Liquidity mismatch in corporate bond markets The second development raising questions about market resilience is actually a combination of two changes in recent years. First, market-makers (‘dealers’) have become less active in their market making. This matters because they play an important role in warehousing bonds between the time a seller wants to sell and the point at which a willing buyer can be found. Our research suggests that, in response to asset sales by bond funds, dealers are less willing to see their inventories of corporate bonds increase.
We can see everywhere that the imbalance between domestic consumption and saving, as an investment financing resource, is already posing serious problems, both to the economy as a whole and to citizens – whose true living standard is paradoxically amputated precisely as a result of the imbalance between consumption and investment. The current state-of-affairs is undoubtedly a critical one and therefore the adjustment of domestic demand cannot be delayed. It is not my intention to dramatise or to give any unjustified warning. But, as I have pointed out on other occasions as well, either we will proceed to a soft landing via wise domestic policies or we will face an adjustment triggered from outside, by the external capital market, and in this case the adjustment will be neither smooth nor reasonably sized. I have only one thing to add to my previous statements on this topic: the international context no longer leaves too much time for hesitations. I would like to end on an optimistic note. As a matter of fact, Ziarul Financiar has adopted more often than not a positive note, which I wish it can keep unaltered. With you by my side, I have confidence in our country’s future. And I wish, as much as you do, that wisdom prevail in front of impatience, and that the risk of a severe slippage fail to materialise in the forthcoming months.

Indeed, I find it hard to understand how an earnest rating agency might assess sovereign risk without even referring to that country’s level of public debt and international reserves. As a professor, I can safely assume that the “subject is not treated”, hence the conclusion is unsubstantiated. As concerns these assessments, I must say however that things are not in the least that simple. Of course, we could assert that at present our economy is in a better position than those of other countries in the region rated within the “investment grade” range. But those countries have at least adopted austerity measures at domestic level. How do things stand in our country? After two consecutive years of wage increases in a range from 20 percent to 25 percent per year – i.e. more than twice the labour productivity gains – the wage rises envisaged for 2009 ranged between 50 percent and 60 percent, whereas the agreements with the trade unions, whenever struck, do not provide for hikes lower than 35 percent. Such an approach reveals a dangerous decoupling between aspirations and reality. In the current international context and given the already dangerously high level of external deficit, we must not aim at further increases in domestic consumption above labour productivity gains, since there are no more financing sources for something like that. And unless we understand this state of affairs ourselves, rating agencies are going to warn us.
While one hopes that the situation will reverse quickly, this decline underlines the fragility of the recovery and the fact that the “attitudinal crisis” could have an unwarranted negative impact on economic developments in the months to come. According to the Central Bank’s forecast, GDP will continue to grow in the medium term. It is expected to grow by around 2% year-on-year in 2011, 2.7% in 2012, and 3% in 2013. This will suffice to reduce unemployment beginning in Q2/2011, as unemployment generally begins to decline somewhat after output growth has begun to recover. Unemployment is forecast to taper off steadily throughout the forecast horizon, falling to 3% by 2013. As I mentioned earlier, underlying inflation is already very close to target. According to the Bank’s new baseline forecast, inflation will reach the target by the end of 2010. Due to the spare capacity in the economy and the expectation of further (albeit modest) appreciation of the króna, inflation will continue to subside, falling below 2% around mid-2011. It will then rise slowly and return to target towards the end of the current forecast horizon, which extends until Q4/2013 (see Chart 3). But these are “only forecasts”, as it were, and uncertainties are more numerous and more prominent than in the average year. External factors could change the scenario, but the authorities could also have either a positive or a negative effect on matters. The new  2  BIS Review 158/2010  Monetary Bulletin lists a variety of uncertainties.

This process is indispensable to clean bank balances from investments that are burdensome and release funds that would be used for new credits. In this context, monitoring of loan quality and behaviour or difficulties that banks face in this process lays at the very centre of the supervisory activity. Second area concerns the cost of banking services for clients. On this issue, the Bank of Albania has conducted necessary analysis, which led to the conclusion that costs for a number of bank products and services, including payments and transfers, debit and credit cards, as well as some other forms of crediting, could be lower. In relation to this issue, we are focused on two aspects: First, promoting transparency in the banking sector on its relations with the clients regarding these services. For this issue, we have implemented requirements for the establishment of methodologies to determine effective crediting costs and clearly define contractual obligations vis-à-vis the clients. Banks are asked to provide all the information and explanations to the interested clients. In addition, following the same logic, we would ask from banks to establish methodologies to define their costs for bank services, mainly related to payments and transfers. 2  BIS central bankers’ speeches  Therefore, it will be easier for clients to compare between a variety of offers by banking institutions and, hence, be able to make their choice according to the most favourable alternative.