samchain/econo-pairs-v1 huggingface dataset:
Over the same period, the stock of household, corporate and government debt outstanding rose by $ trillion, more than three times as much. But it is possible that the global imbalances may have played into the credit boom through another route. Bernanke’s “savings glut” hypothesis was advanced primarily as an explanation for the decline in long-term real interest rates seen during this decade; see Fig. 8. And that low level of real returns on government bonds may in turn have encouraged financial institutions to shift into other, riskier, assets that offered a higher return, such as the burgeoning class of asset-backed securities – what came to be known as the “search for yield”. There is not a lot of research yet that sheds light one way or the other on the role of the global imbalances in the credit/asset-price boom. There is quite a strong correlation across countries between house price inflation and current account deficits (Fig. 9), but this says nothing about causality, which plausibly could also run from house prices, via demand, to the current account. In fact, Granger-causality tests point to bi-directional causality, running from both current accounts to house prices and vice versa 5 .

In particular, access to a cheap source of manufactured goods as result of the rapid development of China and other emerging market economies created a terms of trade gain for the advanced countries and a beneficial “tailwind”, which only mutated into a “headwind” towards the end of the period as rapid global growth put upward pressure on oil and other commodity prices. Second, changes in the structure of the economy could have meant that similar sized shocks had smaller macroeconomic effects. Candidate structural changes included the shift from manufacturing to services, tighter control of inventories leading to an attenuation of the inventory cycle, increased competition in product and labour markets, and innovation in financial markets that facilitated the greater spreading of risk and an enhanced ability to smooth spending in the face of shocks to income or wealth. A final possibility is that better macroeconomic policies, including improved policy frameworks, had moved economies closer to the eponymous Taylor frontier which traces out the lowest achievable inflation volatility for a given volatility of the output gap. In particular, earlier periods were bedevilled by monetary policies that had failed to anchor inflation expectations. But the pursuit of inflation targets and similar stability-oriented monetary policies by independent central banks seemed to have been more successful in anchoring inflation expectations. Now if the Great Moderation was down to “good luck”, then improved macroeconomic performance was more likely to be ephemeral. But if it was down to structural changes or better policy, there was more chance of it proving permanent.
  First, there is information asymmetry between issuers/intermediaries and investors, and investors may be unable to make informed judgments about financial products. BIS central bankers’ speeches  1    Second, there is a principal-agent problem, and intermediaries may not act in the best interests of their clients, be they investors or issuers.   Third, investors are sometimes prone to herding behavior, exaggerating price movements and thereby precipitating market instability.   Fourth, if issuers and intermediaries take on too much risk or liability that they cannot manage, there will be loss of confidence and market instability.   Fifth, critical infrastructure may fail, again leading to market instability. The purpose of regulating capital markets is to safeguard the interests of investors, ensure that risks are kept to an acceptable level, promote efficient price discovery, and maintain confidence in the market. In Singapore, the regulatory framework for capital markets is underpinned by the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA). Consumers who invest in products or deal with entities that are regulated under this framework will enjoy the safeguards provided under these laws. Together, the SFA and FAA cover each of the four components in the capital markets ecosystem. Issuers – dissemination of material information Let me begin with issuers. A key tenet of capital market regulation is that relevant information is transmitted efficiently for price formation and discovery. Like most reputable regulators, MAS imposes stringent rules requiring issuers of securities to disclose and disseminate all material information.

If all stakeholders do their part well, not only will we have fair and efficient capital markets that everyone has confidence in, but we will also make Singapore a competitive and vibrant financial hub in Asia. Thank you for your attention. BIS central bankers’ speeches  9
The deficit countries – predominately the US, UK, Australia and countries in the euro-area periphery – were borrowing almost $ dollars more each year by 2006 than they had been in 1998. This created unsustainable paths for domestic demand, net debt and long-term real interest rates. Whether households or policymakers truly understood how unsustainable these paths were is hard to know. But the extent of the resulting financial fragility became all too apparent in late 2008. Credit supply in many of the advanced economies froze, confidence collapsed around the world and private demand fell sharply. Output was cushioned only through an unprecedented policy response around the world. That did bring an end to the sharp falls in output, and allowed confidence to recover somewhat. And in many countries, particularly those that did not suffer directly from banking crises, output has bounced back. Yet this extraordinary policy response has simply postponed much of the required adjustment in spending patterns around the world. And long-term real interest rates are unsustainably low. The challenges of sustainability are most evident in vulnerable euro-area periphery countries. Unable to sustain domestic spending through further borrowing they are now struggling to substitute external demand for domestic spending. They face a major challenge to raise output by enough to allow them to service existing debt and to bring unemployment down. This is particularly difficult within a currency union because, without a flexible exchange rate, it is not easy for them to lower domestic prices relative to those overseas.

Question 2: Inflation, policy, and the economic recovery A second key question involves the concerns about Fed actions stoking inflation. This question is not a distinct and separate issue from the one we just discussed – the strength of the recovery. In fact they are crucially related. If housing-related growth is not going to boost the recovery this time around, we may need policy – particularly monetary policy – to continue playing a stimulative role. But it is important to look at possible costs of stimulative policy, as well as benefits. If inflation were to become a problem that would certainly fall in the costs column. But if analysis  2  Figures 8 and 9 are based on data from McDash Analytics LLC, a subsidiary of Lender Processing Services, Inc. The McDash data contain loan-level data from mortgage servicers, and cover more than half of all outstanding mortgages in the United States. The number of servicers contributing to the McDash dataset is growing over time, so the decline in purchase loans depicted in Figure 8 probably understates the true decline in lending to a small extent. The 2010 distributions reflect data through November 2010. 3  The share of subprime loans in the McDash data is generally smaller than the true subprime share of U.S. mortgages. To create Figure 9, subprime loans in the McDash data were "upweighted," so that the adjusted 12 subprime share matches the true subprime share in a benchmark year (2006).
To begin with, households are more negatively affected by an expansionary monetary policy that increases inflation if they have a relatively large share of assets that have poor or little protection against inflation. Cash is of course the most obvious example, even if it may in this context be of less significance for the wealth distribution, given how the use of cash has declined in Sweden. The real value of all assets and liabilities is of course affected by how high inflation is and I have earlier mentioned the redistribution between borrowers and lenders as an effect of an unexpectedly high or low inflation rate. An unexpected increase in inflation, for instance, that monetary policy has become more e xpansionary than expected, reduces the real value of assets and liabilities. This can, for instance, benefit households with relatively large debts on houses and  8 [14]  apartments, but disadvantage low income households who rent their homes. Households with large financial assets are also disadvantaged, but they are perhaps more used to, and better able to, adapting their assets to avoid the inflation risk. Hence, to study the distributional effects linked to increased capital income, it would be interesting to see how assets and liabilities are distributed between households. When it comes to liabilities, there are relatively good statistics available, but with regard to the distribution of various assets, we are unfortunately fumbling in the dark to some extent.

But how can this be done in an environment where interest rates are already very low to start with? It is important to remember that there has long been a trend with falling interest rates around the world – a trend that has nothing to do with monetary policy, but rather concerns ageing populations and other structural factors that have pushed up savings in relation to willingness to invest. In the midst of this the central banks have also had to manage the effects of the financial crisis and a protracted economic slump. Many of them, including the large central banks like the ECB and the Federal Reserve in the United States, have conducted an expansionary monetary policy to support the recovery and bring up inflation, both via very low policy rates and via more unconventional measures such as various asset purchase programmes. Monetary policy in Sweden has also needed to take this into account. So to safeguard the upturn in economic activity and inflation in Sweden and to turn around the negative trend in inflation expectations, we have cut the repo rate down to a negative level, and with effect from the beginning of 2015 we have implemented an asset purchase programme to make our monetary policy even more expansionary. Our assessment is that this monetary policy has by and larger been successful. Market rates have followed our cuts in the repo rate and become negative. And the bond purchases seem to have pushed down interest rates more or less in the way we expected.
The fall in output during this recession was larger than that in either the 1980s or 1990s recession. One year of growth does not make a recovery. We need to see a sustained period of robust growth for the economy to function normally again. So what are the prospects for demand and output, and how likely are we to achieve this sustained period of growth? The strength of the recovery over the next few years will depend on the balance of the substantial headwinds and tailwinds buffeting our economy. Economic forecasting at the best of times feels like a triumph of hope over experience. That is especially so in the current environment in which the economy is subject to gale force winds blowing in both directions. But it is at least possible to identify some of the key factors that will determine the future pace of growth. Headwinds and tailwinds Consider first the main headwinds hampering growth. Most obvious is the fiscal consolidation now underway in the UK. Public sector spending, as a share of nominal GDP, is projected to fall by around 8 percentage points over the next 5 years. My central view is that the direct impact of this reduced spending, via the impact of lower government procurement and smaller transfer payments, is unlikely to derail the recovery. The spending cuts will certainly dampen growth. And some households and companies directly affected by the cuts could suffer significant hardships.

I will return to the monetary policy implications of this growth outlook in a while. The missing instrument problem But before doing so, I want to report on the progress that has been made in strengthening the macroeconomic policy framework in the UK in response to some of the fault lines exposed by the financial crisis. Much analysis and soul searching has been conducted in the aftermath of the crisis, and the lessons and implications for different aspects of economic, financial and other areas of public policy are wide ranging. In terms of the lessons to be learnt for monetary policy, many commentators and policymakers – myself included – told a variant of what could be termed the missing instrument problem. 3 This analysis argues that the case for an inflation targeting framework remains sound: the focus on a clear numerical target for monetary policy has served our  3  4  Dale (2009). BIS Review 161/2010  economy well, and low and stable inflation remains a cornerstone of our long-term prosperity. However, it acknowledges that control of short-term interest rates – the main tool of monetary policy – is a relatively blunt instrument best deployed maintaining a broad balance between nominal demand and supply. In particular, movements in short-term interest rates are not well suited to managing risks from credit cycles and other imbalances within the financial sector.
This is a time where I believe it is important to encourage more care and conservatism in the discipline of risk management. There are three areas at the top of our hierarchy of concerns. First, it is very important that the major dealers make the investments necessary to improve the operational infrastructure that underpins the credit derivatives and broader over-the-counter (OTC) derivatives market. Operational risk and infrastructure failures have played a prominent role in past financial crises, and the infrastructure weaknesses that have characterized the credit derivatives markets since their inception are another credible source of concern. The major market participants, both the dealers and the traditional and nontraditional investors, are in the process of improving the infrastructure that supports these markets. The changes underway to clean up the backlog of unconfirmed trades, to automate the entire post-trade-processing environment, and to improve the settlement process in events of default will help reduce operational risk in the derivatives market and reduce some sources of uncertainty that could exacerbate a market shock. We are encouraged by the progress made to date and will continue to encourage further improvements. Second, we believe that the major dealers, as well as the large commercial and investment banks, should take a cold, hard look at financing conditions and margin practice, particularly with respect to hedge fund counterparties and in OTC derivatives.

These investments were, of course, driven by a series of important changes in law and regulation, but they also reflect a rational response by the institutions themselves to the financial and reputational damage associated with some of the earlier weaknesses. The progress achieved in internal control regimes has of course come with some costs. Many of these costs can be measured in dollars, but others, such as management attention and the uncertainty induced by greater vulnerability to enforcement action and litigation, are more difficult to measure. Despite the difficulty of adding up all these costs, it is hard to challenge the widespread view that they have been quite substantial. But the relevant metric is not merely their magnitude, but how they compare to the magnitude of the resulting gains. There is no straightforward way to make this assessment, but today I want to offer some perspectives on our continued efforts to balance critical financial stability objectives with the need to foster and encourage the innovation and dynamism that is such a central part of the U.S. financial system. I’ll begin with the observation that profitability measures suggest that the business of financial intermediation is reasonably healthy, despite the costs induced by changes in the regulatory environment. Part of this reflects the reduction in credit costs and increased macroeconomic stability of the past several years. The financial performance of the well-run U.S. financial institutions seems to compare favorably to that of their peers in other markets.
Such was the adrenalin flow that at one rehearsal a row broke out about how a decision would be reached if the Committee split three-ways in equal numbers. Needless to say, such an eventuality has not occurred.1 But all was resolved and the show opened on Wednesday 4 June. At that first meeting the MPC raised interest rates by 25 basis points, as it did at its two subsequent meetings. A decade is a long time for any show to run. How has it fared? On the face of it UK macroeconomic performance has improved with the creation of the new monetary framework. The MPC arrived on the scene midway through what I have described as the nice (non-inflationary consistently expansionary) decade, and continued into the not-so-bad decade.2 Since the MPC was set up economic growth has averaged 2.8% a year – a little above the post-war average rate – and there has not been a single quarter of negative growth. The average deviation of inflation from target has been just minus 0.08 percentage points. Let me stress that the Committee does not dwell on the past. But an important question for all of us is whether our new found stability will persist. That is not a new question. On the tenth anniversary of the MPC we should remember that this is also the fiftieth anniversary of Harold Macmillan’s famous claim that we had “never had it so good”. But let me remind you too of the full text of his remarks.

The inflation target and the MPC’s response to data are well understood. Economists in the City know that economic data are the most useful source of information when forming judgements about future interest rates. And the most useful form of communication for economists when thinking about interest rates more than one year ahead is the Inflation Report. There is little indication that respondents are looking for publication of an interest rate path – either in the form of a central projection or a fan chart. But there is room for improvement in the way we communicate. There seems to be an appetite for more information about the way policy actions are linked to economic data and for more forwardlooking analysis of risks to the outlook. In other words, we should talk more about what lies behind the fan chart and how we might change our thinking in response to developments in the data. We could,  BIS Review 43/2007  11  for example, provide more guidance on the sort of data that might influence the Committee’s thinking on whether second-round effects from higher oil prices and national insurance contributions were materialising. In thinking about its future communications strategy, the Committee is conscious that there are more or less sophisticated audiences to whom it is speaking. Inevitably, that will colour its judgements on how to communicate its thinking. But the results of the survey provide food for thought. And I am very grateful to all those who took the time and trouble to respond. 4.
If he fails, he would remain a poor forever having to depend on outside help. Greed is the killer Not many in a society would be able to correctly assess the risks faced by them. If they are unable to assess the risks, then, they cannot expect to take risk mitigating measures as well. Many reasons can be adduced to this general failure of individuals to assess risks appropriately. They may not have been taught to assess risks. Or, their risks would have been assumed by others, chiefly the government, and as a result, the moral hazard behaviour would have prompted them to take unnecessary risks. Even when they are educated and there are no opportunities for moral hazard practices, they may still take risks purely guided by their extreme greed. When the greed overtakes the rational mind, the individual may be blind to what he would get if the scheme fails. People belonging to both rich and poor categories fall into this last category. It is these people who normally fall easy prey to cunning tricksters who are planning to strip them of their wealth by making false promises. All that is necessary is to arouse, by means of a well-orchestrated marketing plan, their greed. The spurious micro-financiers use person to person contact method to outreach potential victims and lure them to leave their wealth in the hands of total strangers.

Dear colleagues, •  Before proceeding with the presentations and discussions today, let me share a few words on the experience of the BNB which provides examples, relevant for the topic of today’s conference. •  We have seen that the compatibility of monetary, micro- and macro-prudential policies is possible in reality, and not only in theory. The BNB has successfully implemented such a policy mix for many years, during all stages of the economic cycles, before and during the recent global crisis. •  We have also seen that it may take years and perhaps at least one serious financial or banking crisis, to design and then enforce central banking policies which are optimal for a country. In Bulgaria the policymakers, legislators and the public at large came to the consensus of introducing the currency board regime and the very strict banking supervision and regulations. This happened only after our own deep financial and banking crisis which took place in the mid-1990s. Our experience has convinced us that there are no universally superior or “one-size-fits-all” frameworks. Neither in the areas of monetary policy and banking supervision, nor in the design of regulatory structures or the governance of central banks. Alongside the processes of financial integration and global regulations and practices, which are inevitable, we believe that countries should be allowed to retain sufficient levels of flexibility to apply countryspecific solutions.