samchain/econo-pairs-v1 huggingface dataset:
A number of commentators have suggested that if policy rates stay much closer to the zero lower bound than in the past, monetary policymakers will have insufficient conventional ammunition to stimulate demand in future downturns. All else equal, this would argue for erring on the side of speed and perhaps higher rates to create future room for manoeuvre. One cannot help acknowledging this concern. If, as seems likely, we are and will continue to be in a lower natural interest rate environment, policy rates will not approach levels seen before the financial crisis. The average level of Bank rate was around 5% for the 20 years preceding the crisis. The current yield curve sees bank rate rising slowly over 3 years and levelling off at under 2% for the next 30 years. The average policy loosening cycle in the UK was around 2% over the pre-crisis period. If that remained the case, we would clearly have less room for manoeuvre in the face of a sharp downturn, particularly if that happened in the near future. However, raising rates faster, and perhaps to a higher level, than warranted to meet the inflation target in order to have the room to cut them in a downturn, assumes that the impact of policy on activity is asymmetric and that monetary policy will have less impact on the economy when it is tightened than when it is loosened.

Since the economic expansion began in 1992, annual output growth has averaged just less than 3% while the rate of inflation has averaged just under 2 ½%. The number of people in employment last year(on the LFS measure) continued to rise fairly steadily to an all-time high; the number of unemployed people fell to below one million (on the claimant count measure) for the first time since December 1975, and the rate of unemployment fell to its lowest in more than 25 years in the United Kingdom as a whole, and to its lowest for more than 20 years in every individual region. But, my Lord Mayor, even if – as I at least continue to believe – we are living on an island, that does not make us immune from developments abroad. In particular, we are bound to be affected by current developments in the United States, both directly, and indirectly, through the knock-on effects on third countries, with those effects on the Eurozone particularly important for us. By this time last year it had become clear that, even on the most optimistic view of improving underlying productivity – as the application of new information and communications technologies spread through the American economy – the rate of growth in the US, of over 5%, was unsustainable in the light of increasing domestic and external imbalances. The pace of US domestic demand growth needed to slow – as of course it has.
I am certainly not going to argue against more transparency (except in the very special case of the market operations of central banks). More openness from SWFs may help to alleviate concerns in recipient countries – and thus reduce protectionist pressures. And it may improve the dissemination of information to market participants and to their own citizens. I know many SWFs are working with the IMF to produce a voluntary code of conduct that is based on best practices for the governance and transparency of sovereign wealth funds. For example, it would be helpful if all sovereign wealth funds were transparent about their overall strategies, objectives and broad investment guidelines. Norway’s Government Pension Fund is a good example in this respect. But there should be a level playing field applied to all investors. The case for greater transparency applies to other investors too. SWFs may take some comfort that they are not being singled out and that there are equally powerful pressures for transparency on hedge funds and private equity investors. In this respect, two recent initiatives are particularly welcome. First, a report under the chairmanship of Sir Andrew Large – my predecessor as Deputy Governor for Financial Stability at the Bank – on voluntary standards, including on disclosure, for hedge funds. And, second, a report by Sir David Walker – a former Executive Director of the Bank – on guidelines for disclosure and transparency by private equity funds. 10 And transparency should not be one sided among countries.

In particular, interest rates on safe assets fell since the build up in foreign assets were invested mainly in government bonds. 14 That both discouraged saving and boosted asset prices. In order to maintain their traditional returns, the private sector sought higher yielding strategies and were too ready to  11  IMF (2007) ‘Exchange rates and the adjustment of external imbalances’ IMF WEO April, Chapter 3. 12  Bernanke, B (2007) "Global Imbalances: Recent Developments and Prospects", speech delivered for the Bundesbank Lecture, Berlin, and Bernanke, B (2005) "The Global Savings Glut and the U.S. Current Account Deficit", speech delivered for the Sandridge Lecture at the Virginia Association of Economists. 13  A fall in desired investment (investment ‘strike’) in some countries also contributed to the decline in global real interest rates. For example, investment-GDP ratios fell sharply in the Newly Industrialised Countries in the wake of the east Asian crisis a decade ago. 14  For example FE Warnock and VC Warnock (2006) (‘International Capital Flows and US interest rates’, NBER Working Paper, 12560) estimate that foreign official flows reduced US 10-year Treasury nominal yields by about 100 basis points lower than otherwise in the year to June 2005. BIS Review 31/2008  5  believe that these could be attained through new products without running bigger risks. We are now dealing with the consequences of that mistake.
But it certainly has helped us to achieve a significantly better macro-economic performance over the past few years, and that in itself has helped in addressing at least some of our social problems. Over the eight years or so since the last recession in the early 1990s retail price inflation - on the Government’s target measure - has averaged some 2¾%. That’s a lower rate for longer than anyone can remember. This much greater degree of price stability is a “good thing” in itself - economically because it contributes to more rational, longer-term, decision making, but also socially, because it is typically the poorer, less financially sophisticated, sectors of society - for example those living on low fixed incomes - that suffer most from inflation. But low inflation is not simply an end in itself. The real benefit is that alongside sustained stability we have experienced the longest period of quarter-by-quarter growth since quarterly records began. Over the whole period annual output growth has averaged a little over 2¾% which is significantly higher than the earlier trend rate of around 2¼%. But more even than that, employment has increased steadily by nearly 2½m people over the same period, so that the number in work is today the highest on record. And unemployment has progressively fallen almost month by month on a claimant count basis (though with a slight setback last month) and the rate of unemployment is just about the lowest rate we’ve seen for about 25 years in the UK as a whole.

Mohammed Laksaci: Financial system developments in Algeria – resilience and risks in the face of the international financial crisis and its spillover effects Speech by Dr Mohammed Laksaci, Governor of the Bank of Algeria, at a Meeting with the Algerian Bankers Association, Algiers, 22 January 2009. *  *  *  Algeria’s strong macroeconomic performance over the past nine years and the gradual strengthening of the banking sector’s stability have contributed to establishing a relative resilience to external shocks. Key achievements include: •  sound management of international reserves (no investments in risky assets), paying due attention to the strategic objective of safeguarding asset portfolios against any loss of capital;  •  significantly reducing external debt, in 2005 and 2006, after strictly limiting external borrowing since early 2000. By end 2008, total medium and long term debt stood at only $ billion (less than 3% of GDP). Furthermore, banks’ external liabilities represent less than 1% of their total liabilities, and banks are required to deposit their end-of-day foreign exchange balances at the central bank which manages the country’s overall exchange position;  •  saving part of the fiscal revenue windfalls, with an annual budget saving averaging 23% of GDP during the period 2005-2008.
Last year we saw a sharp increase in bank deposits when the banks targeted these people with very attractive interest rates on short-term deposits to take them over the end of the year to save them the trouble of having to exchange cash. What we know is that we have not reached the same level of currency issued that we had before. There is a caveat here as the currency is shared with 14 other countries. Do you believe that the international financial crisis is prompting more people to become reluctant about depositing their money into banks? There is no evidence. Across the Eurosystem, in September, after the Lehman Brothers collapse there was an increased demand for currency notes in some countries, especially those whose banks were exposed to emerging economies. It seems to have largely subsided since then. BIS Review 152/2008  5

-  The second area concerns the improvement of cross-border payments, which international bodies have rightly made a priority. Last year, we demonstrated the advantages of CBDM to optimise the payment chain by reducing the number of intermediaries and improving the security of settlements. 5  Alongside these discussions on interbank CBDM, the issuance of retail MNBC is being examined. The launch of a possible digital euro by the Eurosystem would meet several objectives: 1- reaffirm the anchoring role of central bank money in the digital world, much like the role that banknotes play today in the physical world. 2- contribute to strengthening Europe's strategic autonomy in the field of payments, in a publicprivate partnership approach. We are aware of the impact that a digital euro could have on financial intermediation and monetary and financial stability. This means that these issues must be addressed at the design stage of a digital euro, for example by introducing holding limits or by developing a model in which intermediaries will play a central role in the distribution of the digital euro and in the management of relations with users. This is why we are now initiating a dialogue with stakeholders, which should be stepped up in the coming weeks and months. But there should be no doubt that, besides regulators and central banks, the private sector also has a key role to play in digital innovation.
The infrastructure to support credit default swaps, the building blocks of many of these new products, is developing rapidly thanks to the initiative of the FSA and the New York Fed but there is still some way to go. Competition between financial firms to establish positions in these new and fast growing markets is also rising. The business risk not just of losing profits this year but of being left behind in the longer term by competitors looms large at the moment. And compensation structures that strongly reward financial performance are also influencing risk-taking. 4 There is a tendency for rewards from generating “excess returns” to far outstrip the penalties for poor performance. This intensifies the need to stay ahead of, or keep up with, the pack and stretches risk management systems in the process. The more aggressively management pursues short term shareholder value in the form of rates of return on equity, the greater the motivation to build leverage to meet its targets. Balance sheets have been growing strongly (Chart 5). In markets where a 20% return on capital is seen as disappointing, we are seeing efforts to emulate the business models of others and take on more risk through both proprietary trading (in fairly liquid markets) and principal position taking (in illiquid investments). The history of financial crises is replete with injudicious attempts to “keep up with the Joneses”.

And they must do so in a manner that avoids engaging in a race to the bottom, but rather, puts us back on the path to ever higher achievement of prosperity. The sooner they get on it, the better. Uncertainty is corrosive; it is hurting job creation and capital expansion when we need it most. As Margaret Thatcher would say: “Don’t dawdle. And don’t go wobbly on us, Congress.” Monetary policy cannot substitute for what you must get on with doing. Get on with your job. The ugly truth I think I have made it pretty clear today that I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington. We elect our national leaders to safeguard our country. An integral part of that consists of safeguarding the nation’s fiscal probity. Pointing fingers at the Fed only diminishes credibility – the ugly truth is that the problem lies not with monetary policy but in the need to construct a modern, appropriate set of fiscal and regulatory levers and pulleys to better incentivize the private sector to channel money into productive use in expanding our economy and enriching our people. Only Congress, working together with the president, has the power to write the rules and provide the incentives to correct the course of the great ship we know and love as America. I hope you, as the voters who put them in office, will demand no less of them. Thank you.
10  All speeches are available online at www.bankofengland.co.uk/speeches  10  The reason for the UK’s specialisation in financial services generally and market-based finance in particular are worthy of further investigation. The provision of services for non-UK related capital flows, EU and more importantly non-EU, is clearly a major part of the story. But the UK’s large scale and highly developed domestic pension and insurance industries have almost certainly also played a major role in the accumulation of expertise and capacity that has led to the current agglomeration of financial services. The UK’s general openness both to inward investment and to the export of its savings abroad has been important as well. The UK’s gross stocks of external assets and of external liabilities are high among large advanced economies. Certainly, for asset management, as the numbers above suggest, the management in the UK of assets domiciled in the EU is not the dominant part of the EU or UK story. There may be good regulatory reasons to look, as the EU is currently engaged in doing, at how asset management is organised and regulated both within the EU and between the EU and non-EU countries. But Brexit itself is not going to lead to some huge scale, new regulatory risks for the EU. 90% of the management of non-UK EU-domiciled fund assets happens outside the UK. 20% of it currently happens outside of the EU entirely.

So, a drop in house prices probably would lead to a gradual cutback in spending, giving the Fed time to respond by lowering short-term interest rates and keeping the economy steady. Now let’s complicate things. Suppose house prices started falling because bond and mortgage interest rates started rising as the conundrum was resolved, say, because the risk premium in bonds rose due to concerns about federal budget deficits or other factors. Then we’d have the cutback in spending because of the wealth effect, plus there’d likely be further spending cutbacks, as borrowing costs for households rose. Furthermore, a rise in long-term rates would have effects beyond just households—it also would dampen business investment in capital goods through a higher cost of capital. How manageable would this scenario be? Like the wealth effect, these added interest-rate effects operate with a lag, so, again, there probably would be time for monetary policy to respond by lowering short-term interest rates. This obviously would not be a “slam dunk,” but in many circumstances it would seem manageable. A matter of more concern is whether this scenario would lead to financial disruptions that could cause spending to slow sharply and quickly. One issue that receives a lot of attention is the increasing use of potentially riskier types of loans, like variable rate and interest-only loans that may make borrowers and lenders vulnerable to a fall in house prices or increase in interest rates.
As soon as the bubble associated with massive capital inflows unavoidably bursts, the fiscal surplus will help the government make up for the squeeze in private demand by allowing the public budget to slip into deficit. At the same time, potential risks associated with large capital inflows may be addressed via micro- and macroprudential measures. Two processes aimed at safeguarding the stability of financial institutions were initiated as early as the seventies, along with the liberalization of capital flows. One of these processes, set at microeconomic level, marked the establishment of a system of capital requirements. This led to Basel I back in 1986, followed by enhanced versions, including Basel III, which is a response to the ongoing crisis. The other process consisted in creating a closer link between prudential regulations and macroeconomic issues. In this vein, the Cooke Committee coined the term “macroprudential” in 1978. The concept was refined later on. Lamfalussy pointed out that the risk perception could be inadequate since it focused narrowly on the past performance of individual sovereign loans. The Cross Report (ECSC, 1986) warned against the risks that financial innovation (in particular derivatives and securitization) posed to the financial system as a whole. Finally, Crockett (2000, 2001) referred to the impact of regulation on the procyclicality of the financial system and the implications of the failure of systemically-significant institutions. Today we know that micro- and macroprudential measures are effective in addressing risks associated with capital inflows.

But as well as being able to withstand stress, we also need to be confident that the banking system is forward looking – that banks understand and plan, in the way best suited to them individually, to meet future challenges to their core business model. For that reason, last year, in addition to our regular annual stress test, we set the major banks a longer term ‘exploratory scenario’ exercise. This examined their strategic responses and preparedness to, among other things, increasing competitive pressures enabled by the changes I have described. In this ‘exploratory scenario’, customers move their money much more frequently and swiftly than they do at present between banks and different products. As customers become increasingly willing to move their accounts, the brand power of major banks diminishes, and savings not only switch between banks but also migrate more readily to non-banks. By the end of the scenario, there is much greater competition for retail deposits and the aggregate amount of deposits in the system falls. In the scenario, one consequence of this competition for retail deposits is an increase in pricing – banks have to pay more to attract scarce deposits. At the same time, strong competition in lending markets – mortgages, loans, credit cards, etc – means that banks are not able to simply pass on the higher cost of deposits to borrowers. As a result, in the scenario there is a marked squeeze in banks’ net interest margins and hence on banks’ revenues.
This serves to provide a safe and efficient clearing and settlement platform that supports trade and investment flows in renminbi. A nationwide awareness program by the banking institutions and the business chambers is also creating greater awareness on renminbi for trade settlement and investment. The Bank has also participated in the Chinese interbank bond market. In 2011 alone, the size of renminbi trade settlement in Malaysia expanded by four times from the level a year ago, reflecting a growing interest in renminbi as a settlement currency. The expansion in renminbi usage has also been underpinned by a diffusion of corporate players, both in size and across the sectors. Not only has the number of corporate players increased, but there has been a shift in relative significance in the use of renminbi as a trade settlement currency from the smaller to the larger corporations. There has also been more widespread corporate participation from a larger cross-segment of economic activities, namely the commodity based industries, manufacturing and services sectors that also includes tourism and education. There has also been an increase in the number of financial institutions participating in renminbi trade settlements. There are now 19 financial institutions that facilitated such trade settlements, double the number in 2009. More recently, there has been an increase in the use of the renminbi as an investment and funding currency. In the first seven months of this year, renminbi deposits in the banking system had tripled.

The Administration may feel that there is a need for the existing arrangements to be replaced by a separate Ordinance establishing an institution called the HKMA, having its own board and clearly defined functions. This appears sensible and is at least consistent with arrangements in other jurisdictions. But it is my strong view that, should this be considered desirable for whatever reasons, the opportunity should be taken to achieve greater and not less autonomy for the HKMA. There should be more, and not fewer, safeguards against political interference in the work of the HKMA. The Administration has indicated that it will take the matter forward in due course and no doubt the Legislature will be consulted when the Administration has formulated more concrete proposals. My advice, for what it is worth, is to proceed cautiously and in quieter times when market conditions are less unsettled. 31. Thank you very much again for giving me the honour of delivering the Susan Yuen Memorial Lecture. BIS Review 87/1998