samchain/econo-pairs-v1 huggingface dataset:
The majority of buy to let investors in the UK are small landlords; 78% of landlords have only one rental property and the majority of buy-to-let landlords are lower rate taxpayers. It is not in my view at all impossible that sharp movements in prices and a loss of confidence in future capital appreciation, in combination with interest rate increases, could cause a substantial number of buy to let landlords to seek to exit the market. This could put material downward pressure on house prices. Though buy to let investors are very different to owner occupiers, there is in the end only one housing stock and housing market in the UK. So the risk is that they could amplify an adverse shock to the housing market. Rapid growth in any type of debt financed activity should always lead a macroprudential regulator to have a closer look. At present there does not appear to have been a general fall in lending standards. Indeed, a number of lenders have tightened their interest coverage ratio criteria over the last 12 months. But we should in my view at the least be monitoring activity and underwriting standards in this market closely and carefully. Corporate credit In contrast to household lending and the housing market, lending to corporates remains more subdued though it is recovering. Bond issuance has accounted for most of the recent increase in debt.

Tightening of monetary policy is on the agenda for most central banks around the world, and, as you know, for the Riksbank as well (see Figure 4). There is also a consensus among central banks that policy rate increases are the most appropriate tool for dealing with unexpectedly high inflation. However, it is far from clear how assets are to be managed. In the international discussion about the holdings of securities, there are a lot of concepts that may appear mysterious and which I would therefore like to try to explain and put into context before I begin to discuss how we at the Riksbank have thought about the management of our assets in the future. From “QE” to “tapering”, reinvestments and “QT” Figure 5 shows a simple outline of how central banks' monetary policy has looked in recent years. As I mentioned earlier, the crisis has affected many countries in the same way. And, as you are probably aware, many central banks are currently struggling with inflation far above the targets. In this way, the illustration can be said to be quite general. We can imagine that the figure starts at the outbreak of the coronavirus pandemic. At that time, many central banks bought assets so that their holdings grew – this is usually referred to as quantitative easing or QE. Purchases were made at a predetermined pace, usually with the aim of achieving a certain level of holding.
The increase (measured at an annual rate) in May was 3.1 per cent. At the same time as the economic climate gradually weakened, there were indications that inflation was beginning to rise. The price increases could to some extent be attributed to non-recurring factors - such as higher food prices caused by BSE (“mad cow disease”) and crop failure -but some of the price increase was more difficult to explain. When the exchange rate also weakened substantially in June, there was justified unease that this could have an impact in the form of rising inflation expectations. Given these developments, a majority of the Executive Board of the Riksbank decided on 5 July to raise the repo rate by 0.25 percentage points to 4.25 per cent. There was still considerable uncertainty as to how rapidly the US economy could recover. Nor was there any other economy elsewhere in the  2  BIS Review 79/2001  world that could take over the USA’s role as growth engine. Quite the reverse, the economies in the euro area and Japan were weakening. The Asian economies that had been strongly IT-dependent in their exports were also unable to act as pacemaker. When the Executive Board had to make a decision regarding the repo rate this time, the situation was unusually complicated and uncertain. This was also reflected in the fact that we Board members differed in our judgements but hardly at all in our fundamental analysis.

I would therefore like to share with you after a brief description of what preceded the economic slowdown we have now entered – my view of what are the core issues for assessing growth and inflation prospects for the near future, both in the USA and in Sweden. The driving forces behind the economic upturn in the USA The very optimistic expectations regarding long-term growth comprised an important driving force behind the sustained rise in the US economy. It was the rapid developments in information technology and the telecom sector in particular that were assumed to have such spread effects to the rest of the economy that production was expected to continue increasing at a more rapid rate than before, even in the long term. Investments therefore rose strongly, particularly in the IT sector. There were also many people who claimed that future fluctuations in the business sector would be less pronounced than before. Efficient stock management and trimmed production processes were assumed to be factors that would reduce the risk of major fluctuations in growth. The USA had taken the step into a “new economy”. And developments on the stock market reflected the belief that “this time it’s really different”. At the same time, the fact that demand could increase so strongly and over such a long period of time without inflation accelerating in the USA was regarded by many as the revenue from breaking earlier economic ties.
During the first half of 2006, foreign investors accounted for more than 40 per cent of the investment in commercial property. From a stability perspective, there are both advantages and disadvantages to foreign investors being active in the Swedish property market. The advantages include the fact that a larger number of investors means that the risks are spread better and the property market becomes more liquid. However, one disadvantage with foreign ownership is that the contagion risk from other countries to the Swedish property market increases. For instance, an international investor may sell Swedish property to cover losses made in another part of the world. In this way, commercial property prices in Sweden may change without any actual change in the domestic economy. Prices for office premises have risen in all of the metropolitan regions since 2005 (Figure 2). However, cyclically-related factors such as rents and vacancy ratios have not altered to a corresponding degree. Ever since the property crisis at the beginning of the 1990s, prices and rents have almost gone hand in hand, but this trend now appears to have been broken. Real prices increased during the third quarter by 36 per cent on an annual rate in Stockholm, 32 per cent in Göteborg and 11 per cent in Malmö. During the same period, rents rose by between 1 and 1.5 per cent in these three cities and the vacancy ratio remained in principle unchanged.

There is a risk that young households now making their debut in the housing market have lost touch with history and become used to annual percentage increases in house prices of around ten per cent or more. Naturally, households cannot base their private financial calculations on property prices continuing to rise sharply. A person who bought their housing 10 years ago has probably made a good deal, but seen in the longer term, housing has not been a spectacular form of investment. Another change in the mortgage market that might have consequences for the real economy in particular, is that an increasing percentage of lending to households is at a variable interest rate. This, combined with the high indebtedness, has meant that changes in general interest rates have had a greater impact on households’ private finances. Households’ increased appetite for variable loans has so far coincided with low interest rates, which has meant that many households have seen their interest costs fall. If interest rates rise, these costs will increase just as quickly, and households with very substantial loans and a large share of these at a variable interest rate, will face significant cost increases Given that house prices have risen so rapidly in recent years, it is natural to wonder how long this development can continue. In recent months there have been indications that the housing market may be entering a calmer phase.
Jon Cunliffe: Remarks at the Alastair Ross Goobey Memorial Lecture Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the Alastair Ross Goobey Memorial Lecture, London, 26 April 2016. *  *  *  I was very pleased to be asked to give this memorial lecture today. I worked with Alastair when I was at the Treasury. Long before the “age of the asset manager” he was a colossal figure who had a major impact, not just on his own industry, but on the corporate world as a whole. Ideas and practices that we now think of as standard corporate governance would, I suspect, never have been adopted without his advocacy and without his willingness to press the interests of those millions of people whose assets he managed. And he knew about booms and busts. His dissection, in his book Bricks and Mortals, of the anatomy of the UK property boom and bust of the late 80s and early 90s is a lesson to those who are today concerned with financial stability in the UK. Alastair died in early 2008, after Northern Rock but before the global financial crisis really got underway. The ending of Bricks and Mortals is prophetic.

In this context, it is encouraging to see that the industry itself is taking forward a set of recommendations, set out in the cross-industry report on the “Vision for Real Estate Finance in the UK”, for reducing risks to financial stability from the CRE market. The  5  For evidence on the link between household indebtedness and the severity of recessions, see Cunliffe (2016) and references therein. 6  Mortgage approvals for house purchase may have been inflated by some borrowers bringing forward purchases ahead of changes to Stamp Duty Land Tax levied on additional properties, which took effect from 1 April 2016. 7  See Benford and Burrows (2013). Other countries also experienced CRE booms in the 1980s, most notably Japan. The case of the Mitsui Real Estate Company gives a sense of the euphoria that surrounds such booms. It paid $ million for the Exxon Building in New York even though the initial asking price had been $ million; Mitsui wanted to get in the Guinness Book of World Records for paying the highest price ever for an office building (Kindleberger and Aliber (2005)). 8  See Bahaj, Foulis and Pinter (forthcoming). 4  BIS central bankers’ speeches  report included, among others, recommendations to build a database of each UK CRE loan and its collateral, as well as using long-term valuation measures for risk management purposes. The Bank is very supportive of these initiatives – and is working with industry to take them forward.
That is the background to the common estimate that over a longer period the Swedish economy can now sustain an average annual growth rate of between 2% and 2.5%. There are certainly some encouraging signs in Sweden in the form of many new companies and young entrepreneurs in the new information technology. And people in Sweden rank high as Internet users. But this has not shown up in the macroeconomic statistics to such an extent that there would be grounds for supposing that the potential growth rate has moved up towards the US level. A good indicator of whether conditions are in place for stronger productivity growth in the future is the existence of a sufficiently high rate of economic transformation, for instance in the form of increased investment and a rapidly growing capital stock. There are few signs of this in the Swedish economy, at least if one compares the 1990s with the 1980s. BIS Review 6/2000  2  Neither do other countries in Europe yet show any widespread signs of what is called the new economy. One reason may be that Europe is still in an earlier cyclical phase than the United States, so that investment in new directions has not yet taken off. Given this optimistic interpretation, it should be just a matter of time before the positive effects also materialise in Europe.

With the new Executive Board, it is also a matter of combining six individuals’ personal perceptions of this picture and of policy’s formulation into a joint picture and a joint interest rate decision. There is no reason for me to anticipate matters. The result of our deliberations and joint assessment will be present on Friday next week. 5  BIS Review 6/2000
But the Riksbank also wants the overnight rate to be stable and close to the repo rate, which is in the middle of the interest rate corridor. In other words, we want the overnight rate to be predictable and not to fluctuate within the corridor. The reason why the overnight rate can vary is that the bank system as a whole may have a need to borrow or invest. This means that one or more banks may have a minus or plus in their accounts in RIX at the end of the day, even after adjustments on the overnight market. Without any other alternative, this would mean that banks with a deficit would have to borrow from the Riksbank at the lending rate, and banks with a surplus would have to invest at the deposit rate. The effect would be an overnight rate that varies within the corridor. To prevent this, the Riksbank accomodates the bank system’s total borrowing or investment requirement every week at the repo rate. We thus make sure that the bank system as a whole firstly borrows or deposits at the repo rate, and thus minimise the banks’ need to use the standing facilities. At the same time, we signal the level at which the Executive Board wants the overnight rate to lie in the coming week. In recent years the bank system as a whole has needed to borrow from the Riksbank.

That explains why we are always ready to welcome overseas financial institutions to London, why we rigorously avoid discrimination on grounds of nationality in our financial market dealings, and why we have greatly welcomed the decisions by German, French and Swiss banks in particular to concentrate many of their wholesale market activities in London in recent years. Europe needs a broad and deep market like London to rival those in Tokyo and New York. I would not wish, today, to talk at length about the preparations being made in the City for EMU. Partly because this afternoon, in London, we shall be releasing our latest quarterly report on Practical Issues Arising from the Introduction of the Euro, which sets out in some detail the progress that has been made over the last three months, and how we propose to take things forward. In short, we are confident that London will be as well prepared for EMU as BIS Review 1/1997  -5-  any market, when the time comes. As we say in that paper, we are fully involved in preparing the wholesale financial sector of the economy for the euro and, of course, in the extensive work being undertaken at the European Monetary Institute. For the most part that work is proceeding successfully and we are happy with the decisions made. Some are, inevitably, compromises. But that is what building Europe is all about, and we are always ready to seek compromise solutions.
Jean-Claude Trichet: ECB press conference – introductory statement Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 9 June 2011. *  *  *  Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting, which was also attended by Commissioner Rehn. Based on its regular economic and monetary analyses, the Governing Council decided to keep the key ECB interest rates unchanged. The information that has become available since our meeting on 5 May 2011 confirms continued upward pressure on overall inflation, mainly owing to energy and commodity prices. The underlying pace of monetary expansion is gradually recovering. Monetary liquidity remains ample, with the potential to accommodate price pressures in the euro area. Furthermore, the most recent data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Overall, our monetary policy stance remains accommodative, lending support to economic activity. On balance, risks to the outlook for price stability are on the upside. Accordingly, strong vigilance is warranted. On the basis of our assessment, we will act in a firm and timely manner. We will do all that is needed to prevent recent price developments giving rise to broad-based inflationary pressures.

The Syariah advisory council serves as a check and balance to ensure that the management and operations of the Islamic banking institutions does not deviate from the Islamic principles in the formulation of the policies. Towards this end, Bank Negara Malaysia is currently drawing up the guidelines to strengthen further the existing Syariah advisory committees at Islamic banking institutions. Amongst others, the guidelines will outline the role and responsibilities of the Syariah advisory committee of the Islamic banking institutions with the view to ensuring that the decision-making process that require Syariah inputs have undergone the necessary thorough and rigorous process. Ladies and Gentlemen, With the establishment of the Islamic Financial Services Board (IFSB), it is envisaged that the level of transparency and quality of corporate governance of Islamic banking institutions will be further enhanced. The IFSB is expected to play a prominent role in promoting prudent, transparent and the robust development of the Islamic financial services industry through the promulgation of international prudential standards that are consistent with the Syariah principles. We are honoured that Malaysia has been chosen to be the IFSB secretariat and hope that the IFSB will achieve its noble objectives as an effective prudential standard setting body for Islamic financial institutions. Ladies and Gentlemen, While significant progress has been achieved in Islamic banking there remains much to be undertaken both by the regulators as well as the industry if the true potential is to be realised.
The IMF has shown that, in all advanced countries, including the United States and the United Kingdom, these losses accounted for around two thirds of the deterioration in fiscal positions observed during the crisis. Fiscal deterioration was compounded, in some countries, by the size of implicit blanket guarantees, which materialized as the crisis unfolded through public money injections in the financial sector. Unfortunately, these problems were not specific to the euro area. Public debt jumped by around 30% of GDP in the United Kingdom and in the United Kingdom. Structural deficits in these countries stand at similar or higher levels than those in most parts of the euro area. This is also true for Japan. Overall, the crisis has brought to light major deficiencies in the implementation of fiscal discipline and, more generally, in the economic governance of the euro area. The founders of the euro had put in place the Growth and Stability Pact. The principles were sound. The framework was adequate. The implementation has been extremely weak. Bluntly speaking, peer pressure failed to ensure consistent and rigorous compliance with the principles which had been agreed upon. It was, and remains necessary to make a “quantum leap” in economic governance. 2  BIS central bankers’ speeches  What have we done? Governments are addressing these deficiencies. Significant progress has been made over the past year. At the national level, all Member States have embarked upon credible public finance consolidation plans that are already bearing fruit.

As for the European System of Central Banks, I can assure you that we stand ready to act as forcefully as necessary to ensure price stability and preserve the integrity of the euro, which is, today, our most precious common good. BIS central bankers’ speeches  5
The main argument for central bank independence is inflationary bias, the existence of which was confirmed by the high rates of inflation seen in most advanced economies in the 1970s and 1980s. Inflationary bias is the outcome of discretionary monetary policy that leads to a higher than optimal level of inflation. Two theoretical explanations were offered for inflationary bias. The first was the time, or dynamic, inconsistency of governments, and the second was governments’ efforts to introduce an “inflation tax” to reduce public debt. Time inconsistency occurs when policymakers announce that they will pursue a particular policy in the future but then follow a different one in reality because their preferences change in the meantime. The “today’s actions = tomorrow’s regrets” problem arises because time-inconsistent decision-makers value the present more than the future. The general solution to this problem is not to allow decision-makers to make discretionary decisions, but to impose certain rules on them instead. This was the conclusion reached by Kydland and Prescott in a pioneering paper published in 1977, which later won them the Nobel prize for economics. The theory evolved in two directions. In 1985, Kenneth Rogoff developed the rules argument by introducing the concept of a conservative central banker. According to Rogoff, society can sometimes make itself better off by appointing a central banker who does not share the social objective function, but instead places a larger weight on inflation rate stabilisation relative to employment stabilisation.

This means, among things, that monetary policy is substituting for policies that are traditionally the domain of governments. All this is shifting the focus of the debate from “How deeply negative can interest rates be?” to how to make the two policies work in a particular desired harmony or mix. The former paradigm where they could be independent of each other and hence be regarded as substitutes is turning into one where they complement and reinforce one another. For example, the central bank can help the government by keeping interest rates low, which will facilitate government financing, while fiscal policy can financially support the central bank as lender of last resort, curbing growth 4/7  BIS central bankers' speeches  in its balance sheet and giving it more room for manoeuvre and greater credibility in the pursuit of monetary policy. New remits Besides changes in the central bank paradigm, some central banks have been taking on new, secondary remits in recent years. The Federal Reserve has begun to pay more attention to income inequality, while the ECB and other European central banks are starting to go green. Looking first at income inequality, I should point out again that redistributive policies used to be the sole preserve of elected politicians. Despite this, Federal Reserve Chair Jerome Powell recently announced that the Fed will closely track the shortfalls of employment from its maximum level. It is well known that low-income and low-skilled workers from ethnic minorities are the last to enter the labour market.