samchain/econo-pairs-v1 huggingface dataset:
This is only slightly below the all-time peak of 82 percent in 2009, and significantly above the 57 percent correlation that prevailed from 1995 through 2007. Correlations across asset classes have also been increasing. For example, consider the set of assets comprised of the 10-year U.S. Treasury, U.S. equities, international equities, oil, the VIX, a trade-weighted dollar index and the BAA credit spread. We can construct a variable – called a common factor – to capture as much of the overall movement and co-movements for the series in this set. The more closely the series’ movements are tied together, the greater the explanatory content of the common factor. Currently, the derived common factor accounts for 50 percent of the variation in these financial variables, up from 30 percent in early 2014. Oil, in particular, has become more correlated with other assets. Prior to 2008, oil was virtually uncorrelated with equities and Treasuries. Whereas, in 2016, its correlation with these two asset classes has been more than 45 percent. These effects are transmitted via many linkages, not just through trade and financial markets. Consider, the many different channels of potential Brexit influence – not only the impact on international trade and global interest rates and currencies, but also on bank equity prices and on political uncertainty. Given this interdependency, what should we do about it? Interdependency and linkages do not mean that U.S. monetary policy should subordinate its domestic goals for international ones.

SNB stress tests continue to suggest that most of these banks have a sound capital base, enabling them to cover any losses they might incur under adverse scenarios. The proposed measures should help to ensure that the level of risks incurred in the mortgage market remains bearable in the future. For its part, the SNB will continue to monitor developments on the mortgage and real estate markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer. Page 3/3
Our central view is that the margin of slack is presently around 1–1½% of GDP, though I should stress the considerable degree of uncertainty around that estimate. I should also stress that this is a short-run concept, relevant to inflationary pressures a year or so ahead, and does not incorporate any endogenous improvement in productivity that may materialise in the wake of faster growth over a rather longer horizon. We have said that we are aiming to  2  BIS central bankers’ speeches  close this gap over the next two or three years, while keeping inflation at around our 2% target. We have also said that when Bank Rate does rise, it is likely to do so only gradually and to a level that is likely to remain materially below its pre-crisis average of 5% for some while. That reflects: the continuing headwinds from public and private de-leveraging and continued weak growth in the euro area; continued downward pressure on global interest rates from high Chinese net savings; and the undue compression of risk premia during the run-up to the crisis. Let me now turn to asset purchases, our preferred tool for adding stimulus when Bank Rate reached its effective lower bound. Under this programme, the Bank acquired £ billion of longer-term UK government debt – equivalent to around 25% of annual GDP – comprising £ billion purchased between March 2009 and February 2010 and another £ billion acquired between October 2011 and November 2012.

Charles Bean: The future of monetary policy Speech by Mr Charles Bean, Deputy Governor for Monetary Policy of the Bank of England, at the London School of Economics, London, 20 May 2014. *  *  *  I left the London School of Economics to become the Bank of England’s Chief Economist and a member of its fledgling Monetary Policy Committee (MPC) almost 14 years ago. The Bank had not long been given the responsibility for determining interest rates but had at the same time relinquished the responsibility for banking supervision. As I approach the end of my tenure, the Bank looks rather different: banking supervision has returned; and a new policy committee – the Financial Policy Committee – has been charged with preserving the stability of the financial system. As I look back, I think it is fair to say that it has been a pretty extraordinary – indeed unique – period to be involved in economic policy. My first seven years were years of plenty: growth was steady; unemployment was low; and inflation never strayed far from target (Chart 1). From time to time, the MPC nudged Bank Rate up or down a quarter point, and the economy obediently stayed on course. To economists, this period of unusual macroeconomic tranquillity is known as the Great Moderation. But the second seven years were years of famine, as the Great Moderation turned into a Great Tribulation: the worst financial crisis for a century; the most prolonged downturn on record; and inflation rising above 5%.
20 This compares to the 40% of US mortgages that were issued without full documentation of borrowers’ income in 2006. 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  incentives between originators and holders. It is regrettable that this requirement has been rolled back in the US, where 85% of Collateralised Loan Obligations (CLOs) are originated.21 Most fundamentally, the main holders of leveraged loans can generally bear the risks. There is no analogue to the thinly capitalised Structured Investment Vehicles (SIVs) who issued short-term commercial paper to hold long-term illiquid sub-prime debt in the run up to the crisis. For CLOs, the riskiest tranches are concentrated in hedge funds, open-ended funds, structured credit funds and CLO managers (Chart 9). US banks and insurers own around one third of CLOs (usually the less risky tranches) compared to only 6% for European firms and 2% for UK firms. Chart 9: Estimated holdings of CLOs by global investors  Sources: BarclayHedge, Bloomberg Finance L.P., FCA Alternative Investment Fund Managers Directive (AIFMD), Firm public disclosures, LCD, an offering of S&P Global Market Intelligence, Morningstar, National Association of Insurance Commissioners, Securities Industry and Financial Markets Association, Solvency II submissions, and Bank calculations. Notes: Indicative estimated holdings of CLOs by global investors. 1 square = 1% of $ billion global CLO market. For further detail, see footnotes to Chart F. 8 in the November 2018 Financial Stability Report.

This specific point highlights the more general progress that has been made improving the resilience of the core of the financial sector. Banks in most regions are now more likely to be stabilisers rather than amplifiers of shocks. Regulation has made banks less complex and more focused. They lend more to the real economy and less to each other. Trading assets have been cut in half, and interbank lending is down by one-third. And their resilience in most jurisdictions has been transformed. For example, UK banks have CET1 ratios of about 15%, more than three times their pre-crisis level. Their aggregate MREL is 26%. They hold £ trillion  21  Based on all widely traded CLOs in the US and Europe. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  of high quality liquid assets, a four-fold increase over the past decade. And their short-term wholesale funding has fallen from 15% to 4% of balance sheets. There is also greater supervisory scrutiny, not least through stringent stress tests. Indeed, in the past few years, major UK banks have been tested against all the major risks I will cover today (from China to inflation scares plus a few others for good measure). The Story Thus Far While there are pockets of risk and global growth is still decelerating, the combination of the policy response and the state of the current imbalances in advanced economies suggest that global growth is more likely than not to stabilise eventually around its new, modest trend.
So there is a limit to the scope of the Bank’s activities in this area. The success of the policy is not to be judged by the increase in bank lending. Its aim is to increase the money supply. There are already tentative signs that the programme is beginning to have beneficial effects with the growth rate of broad money picking up. So there are certainly grounds for believing that the rapid falls in activity are coming to an end. But there are some equally solid reasons for believing that the path to full recovery could be protracted. The most obvious is that the supply of bank lending to companies and  BIS Review 76/2009  1  households remains constrained. The stock of bank lending to non-financial companies has been falling in recent months, and household lending has been flat. Part of this undoubtedly reflects weak demand in the face of the recession. But the evidence from prospective borrowers, and the terms on which lenders are willing to extend credit, suggest that banks’ ability to finance a sustained recovery remains impaired by low levels of equity capital. Stress tests designed to assess the viability of banks are very different from tests of the capacity of the banking system to finance a recovery. Investors continue to demand high returns to finance banks. Put bluntly, market data on credit spreads imply that some banks are viewed as a worse credit risk than some of their customers.

When appropriate the MPC will raise Bank Rate and gradually run down its portfolio of assets in a manner consistent with maintaining orderly markets. Just as no one should plan on the present degree of monetary stimulus persisting indefinitely, so too no bank should expect that the current extraordinary liquidity support will continue for ever. In due course, a strategy will be needed to exit from that temporary support, and from the extensive bank guarantees, to the permanent regime for liquidity insurance that the Bank announced last year. The Bank of England will talk with the banks about how to manage the transition. As we emerge from recession, fiscal policy too will have to change. In taking the extraordinary measures to stabilise banks and the wider economy, some of the past build-up of debt has been transferred from the private to the public sector. And it was right to use a temporary fiscal stimulus to counter the depth of the downturn experienced last year. But five years from now national debt, as a proportion of national income, is expected to be more than double its level before the crisis. So it is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament, so returning to a gradually declining path for the ratio of national debt to national income. We must learn lessons from the events of the past two years. They cannot be final conclusions because the present crisis has some way to run.
During the current ZLB episode, the FOMC has again explicitly indicated that it expects monetary policy to warrant exceptionally low levels of the Federal Funds rate “for an extended period”. The Bank of Canada and the Riksbank have also made statements that imply they expect policy rates to remain low for a period, though given the nature and relatively short time horizon of those statements, it is a moot point whether these are best thought of as exercises in commitment or exercises in transparency. The second option at the ZLB involves the outright purchases of longer-dated assets, particularly government bonds, financed by the issuance of extra central bank reserves. Such purchases aim to raise the prices of the purchased assets, together with those of a whole range of assets that are imperfect substitutes as the sellers subsequently re-balance their portfolios. This imperfect asset substitutability may be both time-varying – in particular, the scope for asset substitution may be rather greater in the long run than in the short run – and state-contingent, as traders may be less able to arbitrage between assets in times of economic and financial distress. But as long as there is some period of imperfect asset  4  Taylor (2008) advocates the use of a “spread-adjusted” Taylor Rule to set the policy rate in such circumstances. Cúrdia and Woodford (2009) develop a simple model in which credit frictions generate a spread on the interest rate between savers and borrowers.

There is, however, a simple explanation for the apparent looseness relative to the estimated reaction function in the United Kingdom, namely the change in the policy regime associated with the adoption of inflation targeting and the subsequent credibility gain from giving operational responsibility for monetary policy to the Bank of England. This represented a sharp change in regime after a somewhat chequered history of inflation control and probably contributed to a lower equilibrium real policy rate because of the associated reduction in the inflation risk premium. Second, those monetary policy deviations can explain only part of the excess credit growth and house price inflation in the two countries over 2002–5. In the United States, the monetary policy shocks are associated with, on average, an extra 0.6 percentage points on annual real credit growth and an extra 1.5 percentage points on annual real house price inflation. That is to be compared with average actual annual real credit growth over the period of 5.6 per cent and average annual real house price inflation of 5.8 per cent. For the United Kingdom, the corresponding figures are an average 1.3 percentage points on annual real credit growth and 6.0 percentage points on annual real house price inflation, compared with average annual real actual credit growth of 8.9 per cent and average annual real house price inflation of 13.0 per cent.
Jean-Pierre Roth: Recent economic and financial developments in Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the half yearly media news conference, Berne, 18 June 2009. *  *  *  Since the beginning of the financial crisis in August 2007, our monetary policy has passed through three distinct stages. In the first stage, as the interbank market gradually dried up, we sought to protect the Swiss economy from a deterioration in conditions on the credit market. From the start of the crisis, we countered the forces pushing the level of the three-month Libor up by undertaking appropriate reductions in the repo rate. Between September 2007 and September 2008, we were able to stabilise the Libor at 2.75%. Thus we protected our economy from a rise in interest rates resulting from the increase in risk premia on the money market. Since we were confident that the economic downturn would have a moderating effect on prices, we refrained from adopting a more restrictive monetary policy, despite the fact that soaring oil prices caused inflation to rise and risked destabilising inflation expectations. The second stage began in autumn 2008 with the emergence of the first indications of a swift downturn in the economy and the sharp deterioration in the financial crisis after the collapse of Lehman Brothers investment bank. We rapidly relaxed our monetary policy by bringing down our Libor target by 225 basis points to a level of about 0.5% within three months.

4  BIS Review 77/2009  Observed inflation June 2009 2006 Q1  Inflation  2007 Q2  Q3  Q4  Q1  2008 Q2  Q3  Q4  Q1  2009 Q2  Q3  Q4  Q1  Q2  Q3  2006  2007  2008  1.1  0.7  2.5  Q4  1.23 1.33 1.22 0.46 0.09 0.52 0.63 1.68 2.50 2.70 3.00 1.60 0.00  Inflation forecast of March 2009 with Libor at 0.25% and of June 2009 with Libor at 0.25% 2009 Q1  Forecast March 2009, Libor at 0.25% Forecast June 2009, Libor at 0.25%  BIS Review 77/2009  2010 Q2  Q3  Q4  Q1  2011 Q2  Q3  Q4  Q1  2012 Q2  Q3  Q4  Q1  0.10 -0.86 -0.98 -0.43 0.09 0.19 0.13 0.01 -0.05 -0.04 0.10 0.25  -0.74 -0.83 -0.28 0.55 0.50 0.40 0.26 0.16 0.17 0.31 0.46 0.65  Q2  Q3  2009  2010  2011  -0.5  0.1  0.1  -0.5  0.4  0.3  Q4  5
Here we can see that while sovereign debts have increased considerably in the United States and the euro area in recent years, Sweden’s sovereign debt has decreased more or less continuously over the last 15 years. 4  BIS central bankers’ speeches  This indicates that the economic-policy framework in Sweden has worked well. The framework reflects the lessons we have learned from our own problems in the past, not least during the 1970 and 1980s, and we should build on this. The framework largely addresses three areas: fiscal policy, wage formation and monetary policy. The first area, fiscal policy, had to be changed following the crisis of the 1990s as the problems with Sweden’s public finances became acute. At the same time as austerity packages were implemented, great importance was attached to not ending up in the same situation again. The introduction of surplus targets, expenditure ceilings and the stipulation that municipalities should have balanced budgets also contributed to increased stability in public finances. A number of important reforms were also implemented that significantly improved the budget process. Figure 14 clearly shows the positive effects of all this on the budget. The second area is wage formation, which has also improved considerably since the mid1990s. The Industrial Agreement and the setting up of the National Mediation Office are two important factors behind this improvement. Nominal wage increases have been significantly lower over the last 15 years than in the 1980s.

Leif Veggum, director of Norges Bank’s Cashier’s Department, is soon going to tell us about the security features that make the banknotes almost impossible to counterfeit. However, if these features are to work as intended, it is important that, as users, we should familiarise ourselves with them. If you feel that you need to brush up your knowledge, I would encourage you to visit Norge Bank’s webpage newnotes.no, Norge Bank’s Facebook page or order the banknote brochure from Norges Bank. You will still be able to use the old 50-krone and 500-krone banknotes for one year after the launch of the new banknotes, ie until 18 October 2019. So use your old banknotes when you are out shopping or take them to your bank well before the deadline to help make the withdrawal of the old banknotes as smooth and efficient as possible. Good luck with the new banknotes! 2/2  BIS central bankers' speeches
This is the consequence of two types of processes. First, the adjustment, in the form of balance-sheet recession, that the crisis represented. Second, by the structural problems created by ageing populations, globalisation, energy and environmental risks and decreasing returns of technological progress recently underlined by Robert Gordon16. In this context, the attention that will have to be given to the other form of political legitimacy referred by Scharpf gains accrued importance. This calls for greater participation by citizens in European decisions. In some ways, it may stand-out as contradictory with the search for effectiveness linked with the first form of legitimacy requiring stronger central deciding bodies. To understand the great difficulty in addressing this issue, we could establish an analogy with the political trilemma of the world economy, as recently stated by Dani Rodrik17: “we cannot simultaneously pursue democracy, national determination and economic globalization”, but I will not enter into such complications. I will recall, however, that in this context, we should never forget that Europe is unique: it is neither a nation nor a state. Political life and legitimacy continues to take place mostly at the level of nation-states. This implies that to foster legitimacy we have to act on the two levels the European and the national by giving for instance, the European Parliament a stronger euro area dimension and encouraging greater engagement of national parliaments in euro area discussions. Conclusion Let me conclude.

We must recognize and confront the fact that the logical steps towards deeper integration that I just mentioned seem to run against what seems to be the mood of many Europeans, on the eve of European Parliament elections. It is true that crises always open the door to  15  See F.W. Scharpf (http://www.mpifg.de/people/fs/publikation-art_en.html). 16  Robert Gordon (2012) “Is US growth over? Faltering innovation confronts the six headwinds” CEPR Policy Insight n. 63. Robert Gordon (2014) “The demise of US economic growth: restatement , rebuttal and reflections” NBER wp 19895, Feb 2014. 17  David Rodrik (2011) “The globalizationparadox: why global markets, States and Democracy can’t coexist” Oxford University Press. Antonio Fatás blog “The UK makes the Euro Area look good” May 8, 2014. 10  BIS central bankers’ speeches  discontent and this crisis is not over yet. Some policy-makers seem too complacent in showing a sense of relief because the situation in Europe has stabilised and turned a corner, since economic growth is resuming, even if at incipient level. This sentiment is not shared by public opinion in many countries. It should rather be recognised that adjustment costs across nations and segments of the population could have been more balanced. In this context, it is useful to retain that the legitimacy of Europe has been always much more based on outcomes of growth and prosperity than on values or input legitimacy.