samchain/econo-pairs-v1 huggingface dataset:
Yet, at the same time, we know that many small and medium-sized companies (SMEs) – with good results and prospects, and current in their payments to their banks – have difficulty financing even their working capital, or can do so only at a very high cost. There is a further factor affecting credit flows, both on the supply and the demand sides. Our banking map has changed considerably in recent years, with the disappearance or transformation of many savings banks which, in different regions, traditionally lent to many SMEs. That has led to adjustments in bank balance sheets and to new working relationships between credit institutions and their customers, which may, at least temporarily, be influencing credit flows. The need for deleveraging has not only been a consideration for credit institutions, but also for non-financial corporations and households; as earlier stated, both households and firms incurred very high and in many cases unsustainable debt levels in 2008–2010. Indeed, a good number of analysts agree that, in order to expand again, our productive sector is more in need of capital than of credit, given that the correction of excessive debt has not been concluded, without ruling out the fact that, evidently, the pick-up in economic growth may assist this correction. In any event, there can be no economic recovery without a pick-up in credit flows. But the latter cannot ensue from administrative rules that ignore economic rationality or that lead to mistaken decisions from the standpoint of the solvency of banks, including public-sector institutions.

You may not like low rates; indeed the markets anticipate, reasonably in my view, that short-term rates are close to bottoming out. But there can be no doubt about two very real facts that unite us on the Governing Council. Our decisions are guided solely by our mandate of price stability, in the face of inflation that is currently too low at less than 1%. Given the recent slowdown in economic activity – starting with Germany – these low short-term rates must and will remain in place: it would undeniably be a mistake to raise ECB rates now. We are all realists here, so we should focus on two issues: -  The first is clarifying the definition of the ECB’s inflation target, and above all sharing it better with economic agents – businesses and households. This is crucial to allow them to better adjust their inflation expectations; that is precisely the aim of the strategic focus we are going to launch with Christine Lagarde. -  The second issue is limiting the negative effects of low rates on financial stability, and in particular on banks and insurers. We do not lack the tools to do this – you with your strategic adaptation, and us with our “macroprudential” policies. But this brings me to my second part. II. Meeting three major challenges to strengthen euro area banks. I would like to share with you a strong belief: Europe needs strong banks.
The MPC’s remit is to keep inflation at its 2% target, so the key issue for us is how far the financial crisis will affect the wider economy. That will depend on the answer to three broad questions. First, in the short term, how far will the severe liquidity squeeze that has already happened turn in to a full scale credit crunch – by which I mean a sharp tightening in the price and availability of credit to households and firms. Second, how well placed are households and firms to weather any such change in credit conditions? And third, in the longer term, will there be a significant lasting impact on credit conditions, for any given level of Bank Rate? It is too early to answer these questions with any great confidence, especially the last. But we do have some early evidence. There are signs that credit conditions facing firms have already tightened. The terms on corporate bank borrowing are often directly linked to the rates that banks charge each other. These rates have risen and remained high. Our latest intelligence suggests that the main lenders have tightened the terms on which they are willing to lend to businesses, and they plan to tighten them further. UK firms’ financial position is currently pretty healthy, on average, and large corporate borrowers in particular may have good alternatives to bank borrowing. But smaller and more highly geared firms may be more adversely affected.

Should we take heart from the relatively muted impact of previous increases in oil prices? Or does the fact that workers had already absorbed the impact of a doubling in oil prices since 2004, even before the latest surge, make it more not less likely that they will hold out for higher pay? A key point for the MPC is that its own actions will help to determine how far oil prices have a lasting impact on inflation. There are always risks in signalling that policy will be eased, at a  4  BIS Review 136/2007  time of rising energy prices. This is all the more so after a year when inflation has been above target and on some measures remains uncomfortably high. On the other hand, we need to be very alert to the risk that the economy may be slowing too abruptly. At current interest rate levels, monetary policy may be on the restrictive side. And the duration and impact of financial turbulence is very hard to call. There must be a risk that at some stage it will spill over into asset and property markets more generally, and trigger a damaging loss of confidence. Conclusions The MPC faces a tricky period as we try to weigh the risk of an unduly sharp downturn, against the threat to inflation posed by a sharp surge in global energy prices.
Tourism is feeling the effects of competition from nearby destinations offering packages similar to those of Spain at very competitive prices. The negative contribution of external demand to GDP growth thus continued to expand over the course of 2004, without any signs of a turnaround in 2005. On the contrary, according to National Accounts data for Q1, the contractionary effect of net external demand has stepped up significantly, against a backdrop of stronger domestic demand pressures driven by high consumption and vigorous construction spending combined with a clearer take-off in investment in capital goods. Among the factors influencing this negative behaviour of net external demand, the causes and repercussions of which I shall return to later, are the persistence of inflation differentials. Indeed, the inflation differential with the euro area widened during 2004, reflecting a relatively sharper impact of dearer oil on Spanish prices. Moreover, although the growth rate of labour costs eased, it remained relatively high. As a result, the 12-month increase in consumer prices rose from 3.2% in December to 3.5% in April. It is expected to moderate in the coming months, however. Indeed, the initial estimate of the HICP for May (3.1%) suggests it already has done. At the onset of 2005 the Spanish economy was highly buoyant. This robustness continues to be based on the momentum of domestic expenditure and on high job creation.

These weaknesses make it necessary to design specific policies to address this objective and to adapt the institutional and regulatory framework so that the smooth functioning of the markets will drive the innovation and development of new activities that will focus the productive structure on sectors in which demand and value added are greater. As a result of the launch of the new Plan to achieve a dynamic economy and to foster productivity, certain measures were adopted to promote competitiveness (of a sectoral nature), which will unquestionably play a part in improving productivity. The Banco de España particularly welcomes those measures addressing the financial system. However, what is most important is that this Plan should clearly steer reform policy priorities in the right direction and maintain the momentum of reform. The commitments announced must be implemented ambitiously and complement other actions aimed at fostering improvements in human and technological capital and in the workings of markets and institutions. This is not the appropriate setting for a detailed and exhaustive review of the range of measures and reforms required by the Spanish economy. I have referred only to some of the most necessary ones, but this list would be incomplete if I did not mention steps to mitigate the potential effects of household indebtedness and of house price rises on the sustainability of growth.
In the latter regard, the priorities range from ending too big to fail to improving the resilience of financial market infrastructure. The Bank of England has now been tasked by Parliament with operating these prudential tools. Our broad range of responsibilities now include: supervision and regulation of financial market infrastructures; acting as lender and market maker of last resort; the design and operation of macroprudential tools; recommendations on core elements of financial reform; and the resolution of failing financial institutions. A return to a broad role is welcome. The best answer to the question of what the Bank of England is for is given by the original 1694 founding charter: promoting the good of the people of the United Kingdom. That mission is timeless. The understanding of what we should do to achieve it has evolved. In 1694 promoting the good of the people meant financing a war with France. During the Great Moderation, it meant price stability. Today, reflecting the lessons of the ensuing financial crisis, it means maintaining both monetary and financial stability. We don’t intend to fail. Going back 320 years to refresh our purpose is part of building on the best of our history, but we are not seeking to reconstruct the central bank of the past. Instead through our strategic plan we are building the 21st Century central bank. Here’s how. One Bank: complementarities, synergies and economies of scope The broad range of responsibilities we have been given creates the potential to exploit the complementarities and synergies between them.

And the balance that assesses households’ views about “whether it is a good time to make a major purchase” has also fallen back substantially since the start of the year – although that is likely, to some extent, to reflect the impact of the rise in VAT. Chart 8 Measures of consumer confidence Optimism over the next year(a) Good time to make a major purchase? Balance 40 30 20 10 0 -10 -20 -30 -40 -50  1985  1990  1995  2000  2005  2010  Source: Research carried out by GfK NOP on behalf of the European Commission. (a) Average of the questions on households’ current financial situation, and the general economic situation, over the next 12 months. Other factors, such as the ongoing restrictions on the availability of credit and households’ concerns about their levels of debt, may also contribute to the likely weakness of household spending going forward, by encouraging households to save more and spend less, for a given level of income. Overall, given the continuing squeeze in household real incomes and the renewed fall in consumer confidence, I wouldn’t be surprised if there was only slow growth in consumer spending over the next year or so. The risks around that are probably skewed to the downside. Even if we do get the anticipated boost to net exports, overall growth in output is unlikely to be much above its historical average rate.
TRICHET: The growth potential of Europe and the euro area could be significantly higher if all European countries had implemented the structural reforms of the so-called Lisbon Agenda. Now the Europeans are again committed to bold structural reforms. Two avenues seem particularly decisive amongst many others. I would insist on the full opening of a real single market in services. When we created the single market we were an industrialized economy and services were not particularly dominant. Now we are an advanced economy and services are playing a dominant part, and we still have resistance to a real single market in services. This could give a boost to European growth potential. The second point is labor market reform where we need significantly more flexibility in a number of economies. WSJ: This is your last year as ECB president. How important is it that the choosing of your successor by governments be a smooth process? TRICHET: I have very hard work until the end of October and I expect to exert, with all my colleagues, my impressive, inspiring and profound responsibilities until the last day. As regards my succession I have full confidence in the heads of state and government. It is their responsibility. WSJ: What has surprised you, both good and bad, over the last 12 years of the euro? What do you think the euro zone will look like in 2015?

Another important issue to be discussed is how the effects of commodity prices on inflation, economic activity and exchange rates differ with respect to different monetary policy regimes. Another important issue is the interaction among different economic policies vis-a-vis the commodity price fluctuations. Distinguished guests, Studies included in the program will substantially contribute to the understanding of the commodity price dynamics and the policy responses against the macroeconomic effects of these dynamics. In this context, I would like to thank the organization committee for their efforts for this conference program which gathers very interesting and enlightening studies. I also believe that the conference will provide a platform which will be highly beneficial for the exchange of views among participants. Thank you very much in advance to all participants for their contribution. Now, I would like to give the floor to Pierre-Olivier Gourinchas, professor of economics at California University-Berkeley and the chief editor of the IMF Economic Review journal to open the first session. 2  BIS central bankers’ speeches
However, it is interesting to note that emerging market economies also enjoyed a Great Moderation, but it came in the second half of the 1990s, much later than in developed economies, which coincides also with the time in which inflation was conquered, supporting the hypothesis that it was good policies rather than good luck (De Gregorio, 2008). It is easy to discredit the Great Moderation in the current juncture. However, the resilience of emerging market economies to the global crisis was impressive. Indeed, emerging markets had a recession, but much milder than in the past and with a remarkable recovery. And this was, of course, the consequence of much better macroeconomic management. The case of Chile illustrates this point. We did suffer a recession, but the size of the initial impact and the speed of the recovery were quite different from previous episodes. In the second half of 1998, affected by the Asian Crisis, Chilean GDP fell by 4.3% quarter to quarter. Returning to the initial GDP level took us one year. But, comparatively, the unemployment rate more than doubled between the beginning of 1998 and mid-1999, reaching almost 12% and staying high, around 9.5%, until 2005. The effects of the 2008–2009 crisis were very different. Economic activity fell, but less than in the previous episode, by 3% between the end of 2008 and mid-2009. The recovery was much faster and only two quarters after the downturn, by the end of 2009, GDP was comparable to the precrisis level.

Some central banks tried to target monetary aggregates, others to peg nominal exchange rates, and others to use an eclectic mix of indicators. Two decades ago, some central banks started conducting monetary policy targeting a specific value or range for the rate of inflation. This trend started with New Zealand in 1990, and was followed by Canada, the United Kingdom, Australia and Sweden in the early 1990s. This is a case in which policy development led academic advances. Progress in the academic front provided further impetus to the adoption of inflation targets as new models were developed to provide the theoretical underpinnings of inflation targets and the basis to conduct empirical work (Galí and Gertler, 2007). BIS central bankers’ speeches  1  This view was further justified by the success of monetary policy around the world in providing stability, not only in the inflation front, but also in activity and employment. The evidence that output volatility declined significantly in the US since the mid eighties was first reported by Kim and Nelson (1999), and later called the Great Moderation by Stock and Watson (2003).1 Several factors could be behind this fact, such as technical progress, better policies, deeper financial markets, and sheer good luck. Although there is no final verdict, there is evidence that points to the role of better macro policies (Galí and Gambetti, 2009).
1980  1985  1990  1995  2000  2005(a)  1,065  1,315  1,984  3,807  5,522  6,347  Textile and Garments  110  293  628  1,853  2,982  2,895  Tea  373  442  495  481  701  810  All Other Exports  582  581  862  1,474  1,839  2,642  Export Earnings (Services)  279  329  531  821  953  1,540  Worker Remittances  152  292  401  790  1,160  1968  Foreign Direct Investment  43  24  34  28  175  272  Foreign Loans and Grants  307  517  526  847  422  972  Inflows  9  14  13  21  15  19  Trade balance  15  40  57  53  65  76  Loans and grants  50  56  76  93  275  197  Total imports  7  14  15  15  16  22  GDP  4  5  5  6  7  8  Export Earnings (Goods)  Worker Remittances, as a % of Total current account  (a) Provisional  As shown in the table above, in 2005, remittances increased to $ 1,968 mn, indicating a 22.6% growth compared to 2004.

It is thus not enough for the legal structure to be in place; there must also be a practical solution that quite simply does not provide any incentives to “push one’s way to the front of the queue”. I welcome these efforts to strengthen the frameworks and look forward to seeing the results. But I believe that one should have realistic expectations of the possibility to write down claims in a shaky market situation. The experiences from the Swedish banking crisis and also the Northern Rock case show us that in such situations it may be necessary to have an extensive guarantee of the banks’ obligations to stop a bank run or secure continued access to the international capital markets. …and a simpler way which has proven its worth in real crisis situations I would therefore recommend also introducing regulations that give the government the right to take over the ownership of a bank in a certain situation. If this is done in the right way, it will not only deal with the requirement that the shareholders should be held responsible, it will also minimise the risk that the government will need to bear costs that the creditors should bear. For this to work, the government should have the right to take over the shares before the capital is completely wiped out. There are at least two reasons for this. First, there is a risk that the owners will “gamble for resurrection” when the capital is low.
As a result, the intermediation was taken up instead by financial systems in the advanced economies which, as we know, led to risktaking and a major asset price bubble. In closing, I want to end my remark by making a few observations on the direction of global finance going forward. As a matter of fact, the current crisis is also a crisis of globalized finance, considering the damage that has been done to the global banks and financial markets. Lessons learnt from this crisis will definitely bring about important changes in the global financial landscape, as well as in the regulatory approach to bank regulation and supervision. On this, key trends we can expect to see in the emerging financial landscape will include, on the demand side, consumers becoming more risk averse and having preference for local institutions and for simplicity of transactions and instruments, while demanding greater accountability and transparency. On the banking side, business models of banks will become more conservative, relying less on wholesale funding and on the use of leverage, while giving greater importance to risk management and higher liquidity buffer. And on the regulatory front, more emphasis will definitely be on public surveillance and the use of macroprudential oversight, with focus on system-wide stability, closer supervision of the systemically important financial institutions including non-banks, and establishing an international procedure for an orderly unwinding of a troubled systemically important global player.

It puts all three into equilibrium, in terms of savings and investment, current and future labour employed, current and future preferred leisure, etc. If monetary policy does not in broad terms “respect” the evolution of the real interest rate, it can create imbalances one way or the other. If you go too high above the real interest rate and the actual real interest rate is above the natural one, you create recessions, unemployment, falling investment and declining asset prices. And if you go lower or substantially below the equilibrium interest rate, you create overheating, excessive debt and rapidly increasing asset prices. Even more importantly, moving the statutory interest rate has fundamental effects on the financial sector. The financial sector is a time-transforming sector – every second, it transforms the present into the future (short-term liabilities into long-term assets – typically done by banks) or vice versa (long-term liabilities into short-term assets – typically done by insurance or pension companies). Whenever you take the policy rate above the equilibrium interest rate, you create a problem out of what happened in the financial sector in the past. Whenever you go substantially below, you create problems in the future. I have chosen non-performing loans as an example that is, I believe, quite easy to understand. If you substantially increase rates now, many projects from the past become unviable and non2/5  BIS central bankers' speeches  performing. If you go substantially below, many of the currently new projects will become unviable in the future when rates return to equilibrium.