samchain/econo-pairs-v1 huggingface dataset:
What I want to use the rest of this speech to talk about is how I think about stability and resilience in light of those three lessons now that I’m at the Bank of England, and how that has influenced my approach to monetary and financial policy setting in the face of recent and future shocks. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  2 A broader assessment of resilience  My first lesson from the financial crisis was that the past is not necessarily a good guide to the future. For the MPC this is most obviously true when it comes to thinking about supply growth – that is, the economy’s underlying growth potential. The experience of the crisis showed us that it wasn’t enough to think about business cycles relative to a fixed supply trend: that might have worked for the decades before the crisis, when supply growth averaged around 2½ %; these days we have to think about supply as much as we do about demand. That’s because once the economy is on trend the growth of supply sets the “speed limit” for how fast demand can grow without generating above-target inflation. Reflecting that, for instance, the word “productivity” – a concept which is integral to our assessment of the speed limit – now appears almost three times as frequently in our Inflation Report as it did before the financial crisis (Chart 5).

The geographical extension of territory coverage by the banking business, the strengthening of competitiveness, the introduction of new products without mentioning other recent developments, constitute an additional argument in the vital role the banking system has and will have to play in the future. The country’s map covering the banking business expanded further, including new regions ever covered before. At the end of August, the total number of branches reached 109 or 21 branches more than the end of the previous year. I seize the opportunity of this event to express that positive assessments about the banking system have been given also in the report prepared by both the World Bank and International Monetary Fund, after conclusion of the assessment they formulated on the financial system in Albania (FSAP). Of course, this is good news. The conclusions of FSAP, of this important international passport, are an indication of our earlier conclusions that the Albanian financial system is characterized by a supervised and effective banking system and by the other segments that are still in the initial development stages where the core issue remains their regulation and supervision. Despite the positive developments there is still much to do. The degree of financial intermediation continues to be relatively low (about 11 per cent of GDP). Some economy sectors, like agriculture, still continue to be less or not at all credited.
That’s true of the most recent period as well: prices of non-oil goods exports rose 12% through the course of last year, in line with those of imports. Admittedly, the behaviour of the sterling price of services exports is rather different. They’re more stable in the face of exchange-rate movements (Chart 8), implying that depreciations do indeed reduce them in foreign currency terms. I think this is understandable. Services are less homogenous than goods and there’s more room for non-price competition. The UK has a larger presence in this area, accounting for 7% of global services trade in total, 12% for business and financial services specifically. Those wholesale services are relatively specialised. Chart 8: Sterling price of services exports more stable  Equally, and for many of the same reasons, the evidence suggests that service export volumes are much less sensitive to any cross-country variations in prices than in goods markets. Indeed it’s only because of this relative insensitivity that such variations can persist for any length of time. At any rate, my main point here is that the positive effects of a currency depreciation depend at least as much on the response of domestic firms as on that of foreign buyers.

And if the foreign exchange market had anticipated a higher cost of finance for sterling borrowers after Brexit you’d probably have seen the same expectation in other financial markets – a steeper yield curve, perhaps, or higher premia in UK banks’ funding markets. That hasn’t really happened. Chart 4: Weaker productivity in tradable sector depresses the exchange rate  Chart 5: Supported by cross-country evidence  PNT /PT SNT /ST  DNT /DT YNT /YT  Source: Penn World Table  A more likely channel, to my mind, involves expected supply. Go back to that relationship in [1] and imagine now that something happens to push up the cost of producing or selling tradable goods. Perhaps productivity 8  in that sector grows less rapidly (relative to that in our trading partners) . Or perhaps tariff and/or non-tariff barriers are imposed on international trade. Either way, if the relative cost of producing or selling tradable 9  output goes up then so must its relative price (Chart 4 ). In effect, the currency falls to help absorb these costs. In doing so it spreads them throughout the economy: even those in the non-traded sector have to work longer to buy the same quantum of imports. 7  Sometimes this point is expressed in terms of the “sustainable” current account deficit but it amounts to the same thing. Cost is inversely related to productivity. 9 Note that a contraction in tradable productivity, which is the denominator in the SNT/ST curve, shifts it to the right.
Chart 5: Projection of the level of GDP based on market interest rate expectations and £ asset purchases  Chart 6: CPI inflation projection based on market interest rate projections and £ asset purchases  BIS Review 21/2010  11  Chart 7: Household saving ratio(a)  Chart 8: Survey measures of capacity utilisation  (a) Percentage of household post-tax income. Sources: Bank of England, BCC, CBI, CBI/PwC and ONS. (a) Three measures are produced by weighting together surveys from the Bank’s regional Agents (manufacturing and services), the BCC (manufacturing and services) and the CBI (manufacturing, financial services, business/consumer services, distributive trades) using shares in nominal value added. The BCC data are non seasonally adjusted. Chart 9: Credit and finance as a constraint on output(a)  Chart 10: CPI and households’ inflation expectations for the year ahead, scaled to match CPI inflation(a)(b)  Sources: CBI and ONS. Sources: Bank of England, Barclays Capital, Citigroup, GfK NOP, research carried out by GfK NOP on behalf of the European Commission, ONS and YouGov. (a) This measure is produced by weighting together balances for the manufacturing sector and the consumer/business service sector using shares in nominal value added. Manufacturing companies are asked: ‘What factors are likely to limit output over the next three months?’. Service sector companies are asked: ‘What factors are likely to limit your ability to increase the level of business over the next twelve months?’.

The exhibition was previously on display to the public in Bratislava to mark the cash changeover in Slovakia. It was also shown in Barcelona until last week. Other locations on its journey throughout Europe will follow. BIS Review 44/2009  1  The primary objective of the Euro Exhibition is to give the public at large the opportunity to gain a thorough overview of the euro banknotes and coins and to raise its awareness of their security features. It features, inter alia, modules on the history of money, the design elements of euro banknotes and coins and the functioning of banknote security features. It also includes a range of interactive elements to raise the visitors’ attention via touch screen applications such as games, films or security feature showcases displaying counterfeit banknotes. You are cordially invited to make use of all the elements which will contribute to make your visit a learning, interesting and amusing experience at the same time. You will certainly notice that the Euro Exhibition features a common design: the “Ages and styles of Europe”. As you know, there are windows and doorways depicted on the front of each euro banknote and bridges on the back. These architectural elements symbolise communication and connection between the people of Europe and between Europe and the rest of the world. Furthermore, bridges are regarded as a means to connect the past with the future, symbolising thus the way to a common European future. A children’s corner has been established to meet children’s special expectations.
The Central Bank of Turkey has played a leading role in the modernization of payment services in Turkey. It has developed secure, reliable and efficient inter bank payment and settlement systems. According to a recent IMF report, payment systems in Turkey have a sound legal basis and the country is “in observance of the great majority of the provisions of the Committee on Payment and Settlement Systems and Core Principles for Systemically Important Payments Systems”. The Middle Eastern countries have made significant progress in this area. For example, Saudi Arabia is a member of the Committee on Payment and Settlement Systems like Turkey and tries to improve its payment systems infrastructure by establishing new payment systems with respect to the needs of its financial markets. Egypt has a project of establishing a real-time gross settlement system. There are also some other low value – large value payment systems in other countries. As you already know the regulation on International Bank Account Number (IBAN) has been implementing in Turkey and the use of IBAN is effectively overseen by the CBRT since 2008. The use of IBAN in region countries like Lebanon and Saudi Arabia contributes to the effective and safe money transfers between Turkey and these countries. A sceptic might say: “What counts is the profit one makes and the economic gains one gets. It does not matter whether we like each or not.” In our case this approach is wrong.

Many countries, especially in advanced economies have spent substantial amount of public funds to boost aggregate demand and to revitalize the financial system. Most of these countries have no fiscal resources left to put forward a similar stimulus package, if the world economy experiences another setback. Therefore it is of utmost importance to keep the recovery intact, which is already too fragile. Debt sustainability and fiscal imbalances stand out as the main challenges for many years to come. As the recent developments in the financial markets revealed, deterioration of sovereign creditworthiness can hamper macroeconomic and financial stability. Therefore, ongoing problems especially in some advanced economies, particularly in Europe should be resolved in a quick, effective and credible manner. However, we should also keep in mind that supporting global demand is a global responsibility. It is questionable whether emerging market economies would be able to fulfill the gap in global demand, while advanced countries stay on the sideline to clean up their balance sheets. Neither their share on global economy nor their economic and financial structure would be adequate to play that role. Especially emerging economies that are in deficit, still being in convergence stage, need to raise their production capacity to pay off their external debt accumulated during their catch-up. Therefore, I strongly believe that a holistic approach is a must. While developing any kind of policies, including fiscal tightening or restructuring, one should pay great attention to negative externalities these policies may cause on other economies. In particular, we should avoid beggar-thy-neighbor type of policies.
It is the system that provides payment services, converts savings into financial resources for investment and consumption, and contributes facilities for managing risk. In other words, the financial system performs a number of important social functions. If any of these functions were to be disrupted, the social costs could be very high. The damage inflicted by a disruption would probably be particularly great if it involved a vital component of the payment system. This is readily understood when one considers the enormous flow of payments. In Sweden, for instance, the payment system has a daily turnover of around SEK 500 billion, which means that the equivalent of our annual gross domestic product has to be handled in less than a week. Studies show, moreover, that in the past fifteen years there have been more than a dozen crises which cost the countries concerned at least 10 per cent of their GDP. So there are good reasons for state supervision of the financial system. The Riksbank has a function here in that the Riksdag (Sweden’s parliament) has made us accountable for promoting a safe and efficient payment system. A major ground for making us responsible for efficiency and stability is that, along with the banks, the Riksbank is a central player in the payment system and provides means of payments. The banks distribute notes and coins, keep transaction accounts linked to giro systems and operate credit card systems. The Riksbank in turn provides accounts in the payment system, RIX, that is available for large-value interbank payments.

It discusses the principles that determine the situations in which the Riksbank can consider providing support for distressed banks and the terms for the support. Many other countries are reluctant to talk about these matters openly for fear that banks will be tempted to take greater risks. The Riksbank, on the other hand, sees openness as a means of deterring greater risk-taking. Clear game rules mean that the banks know more about what to expect. Future stability work Much has been done with the Riksbank’s work on stability in the past seven years but it is not hard to pick out fields where there is room for improvement. The analysis of borrowers abroad will be enhanced. The Riksbank needs to acquire a better understanding of how the banks manage their liquidity, select sources of funding and the effects of this on their durability. The analysis of stability also needs to be supplemented with methods for stress tests, that is, ways of analysing the sensitivity of bank durability. To obtain further inspiration for the work of improving the analysis, the Riksbank has commissioned an external evaluation of the work on financial stability. This evaluation is in the hands of a trio representing the international research frontier, the central bank world and the Swedish bank sector. They will be bringing their individual perspectives to bear in a joint effort to evaluate the quality and focus of the work we have built up.
The reason for decisions resting on forward-looking assessments of inflation is that monetary policy has an effect with some time lag. The major part of the effect of an interest rate change is expected to occur after one to two years although monetary policy is assumed to have some effect before and after this time horizon. The channels that allow monetary policy to have an effect on inflation are assumed to a large extent to operate through the output gap which means that a change in interest rates will first affect resource use which will then only have a tangible effect on inflation later. Normally, inflation assessment puts most weight on the next one to two years in the conduct of monetary policy. However, the perspective that monetary policy aims at also depends on the expected economic situation. If inflation diverges considerably from the objective in the coming period, this may weigh more heavily than a small deviation later on. Likewise, an anticipated higher or lower inflation after the one-to-two year perspective can be weighed in. Since the impact of a change in interest rates on inflation in the first year can be assumed to be small, large changes in interest rates are required to have an effect on inflation already in the first year. Attempts to affect inflation already within a year would in the view of the Riksbank lead to major fluctuations in employment and production.

Since December 2009, the yuan has appreciated almost four percent, while this figure is much closer to ten percent for most EMEs. The comparison is even more dramatic when looking at a longer period of time. This has been achieved through massive reserve accumulation and limited financial integration. However, for measures in the foreign exchange market to have real effects – that is, on the real exchange rate, which is the relevant variable from the point of view of competitiveness – these measures need to have some support from the real side of the economy. In the case of China, this is a very high savings rate. China saves about half of its GDP and the resulting current account surplus sustains a depreciated real exchange rate. Otherwise, attempts to maintain a depreciated nominal exchange rate sooner or later lead to inflation, which is the way to achieve relative price adjustment when the nominal exchange rate is not allowed to adjust. The U.S., in turn, is undertaking an extraordinary monetary expansion. Beyond having reached the zero lower bound for the federal funds rate, unconventional measures are adding additional monetary stimulus. In particular, the massive purchase of securities implemented in the so-called QE2 program. This explains why the dollar has reached its lowest level in several decades (Figure 3), but this is not only the result of expansionary monetary policy, but also of the lack of domestic demand and of the external imbalances.
Clearly, we also have to upgrade our own skills and methods in our role as banking regulator to try to ensure that we can keep up with developments in the market. This is most obviously the case with the new technology that requires us to devise new policies on innovations like virtual banking and internet security. This means that we need to find and train staff who understand the technicalities and are capable of assessing through onsite examination the adequacy of the banks’ controls over the new technology. As you will know yourselves, people with this expertise are in short supply. This emphasis on technology is however only part of the process of trying to make our supervision more risk-based. This is the same approach that is being adopted by the FSA in Japan. It aims to focus on the “self-responsibility” of the banks themselves in ensuring that they have adequate systems to 3  BIS Review 65/2000  identify, measure, monitor and control the whole range of risks with which they are faced. The role of the supervisor is then to assess the quality of the banks’ own systems in relation to the quantity of the risks they are running, and to require improvements if these are necessary. We have been developing this new approach for the last year with the help of the consultant seconded from the US Federal Reserve. So far the main focus has been on the local banks, but we hope to roll it out to the foreign banks next year.

On that note, I look forward to a fruitful and constructive dialogue. Thank you. BIS Review 3/2010  3
However, the same Central Bank analysis indicates that reallocating resources beyond the shorter term, recovering the historical investment/GDP ratios and resuming the increase of participation rates of women in the labor force could allow the country to attain trend growth of about 3.5% per year. This suggests that the Chilean economy still has considerably headroom to grow. The challenges 24. Speeding up growth with price stability in Chile still faces some important challenges. First and foremost, closing the current output gap would require recovering productive investment that has remained particularly weak over the last four years. Part of this is due to a substantial drop in investment in the mining sector, but gross capital formation in sectors other than mining has also faltered. While recent data points towards an increase in machinery imports, a more substantial change would require an improvement in business expectations that have remained in negative territory for some time. 25. The possibility of raising potential growth beyond the figures quoted above relies mainly on: (1) increasing human capital accumulation through increased labor participation, raising working skills above the already projected levels or the migration of workers with the competences required by the Chilean system; and (2) making productivity improvements via enhancing companies’ efficiency, lowering production and trading costs, and changing output composition toward more competitive and productive sectors, while advancing in terms of innovation and technological development. 26.

Figure 4 GDP  Non-natural resources GDP  (annual change, percent)  (annual change, percent)  8  8  8  Construction  6  6  6  Wholesale and retail trade  4  4  4  2  2  2  0  0  0  4  Rest  2  Personal services  8 6  Total 0  Manufacturing  -2 -2  -2 -4 14  15  Natural Resources 16  -2  Business services -4 -4  -4  14  15  16  Source: Central Bank of Chile. 3  7. On the expenditure side, domestic demand—excluding changes in inventories—also tended to decelerate throughout last year. Weakness was most evident in investment in construction and other works, which contracted by 4.9% in annual terms during the fourth quarter (average growth of 0.5% between the first and third quarters). 8. Private consumption, in line with its behavior in previous years, provided support to the economy, growing by more than 2% annually throughout 2016, on the basis of wage growth and a low unemployment. However, it should be noted that while consumption of nondurables and services has remained relatively stable, durable goods have recovered, partly due to the appreciation of the peso during the last year and the necessary replenishment of inventories following several years of weak growth and even contraction. Something similar is observed with gross fixed capital formation in machinery and equipment.