samchain/econo-pairs-v1 huggingface dataset:
In fact, many observers argue that an important factor behind the current financial crisis was that interest rates were being kept too low for too long. Hence, the approach of “wait and see” and “clean up the mess afterwards” is increasingly being called into question, not least because “the mess afterwards” might be quite severe if the central banks have been passive during the build-up phase. This holds especially true if the price bubble has been associated with an expansion of credit. In most cases it is credit – not asset prices as such – that is the main worry Having said that, I want to emphasise that monetary policy is perhaps not the most efficient instrument for preventing crises from happening. Even though a too loose monetary policy may contribute to the build-up of a bubble, it is less clear to what extent monetary policy can prevent such a build-up. It is quite likely that substantial interest rate increases, that central banks would find it hard to implement, would be required to achieve this. More moderate rate increases may of course still have an effect at the margin, not least as a signal from the central bank that there are certain concerns linked to prevailing developments. But a more capable line of defence to prevent financial crises is to have proper rules and effective supervision in place. …and regulation and supervision However, both the present and previous crises tell us stories about ineffective and misdirected regulation, as well as insufficient supervision.

Even if many central banks prior to the crisis pointed at single factors as potential threats to financial system stability, no one really managed to anticipate the situation now at hand. But does this really mean that all work on analysing financial stability and systemic risks is in vain? Obviously, my answer to that question is no. I would rather say that the work in this area is more important than ever. However, as we gain new insights from the current crisis, we have to consider how the analysis could be developed. The obvious conclusion is that the analysis has to be broadened in order to cover all the relevant parts of the financial system  BIS Review 134/2008  5  and how they interact. I will try to give you some of my thoughts on how this can be achieved. First, and perhaps most important, one lesson from the current crisis is that the traditional approach to analysing institutions, markets and infrastructure separately is no longer sufficient. Recent experience shows that in the new global financial landscape the importance of markets for system stability has increased dramatically. The financial contagion we have seen is largely a result of certain markets deteriorating and subsequently affecting institutions and markets far from where the problems first emerged. To analyse and understand the interplay between institutions, markets and infrastructure and the potential contagion channels between them is a key factor for successful systemic risk analyses.
Online shopping has surged during the pandemic, accelerating a pre-existing trend. The latest retail sales figures indicate that it accounts for 35% of total sales, up from 20% in February last year. Online retailing has the potential to be more productive than through physical stores, and there is some evidence from the last decade of this already happening. Higher productivity growth in retailing has not been fully matched by higher wage growth, and this lower unit cost growth may have contributed to the relative weakness of domestic consumer prices in recent years (Tenreyro, 2020). Covid has also caused changes in consumer spending patterns. Much of this has been of necessity, but if some changes to consumer spending habits persist – for instance if tastes change – the pattern of production in the economy is also likely to change. The question is how will such a process of more structural change in the economy happen, and what will be the impact? What are the implications of the changes we are seeing in the economy? This is a very big question, so what follows is necessarily quite high level. The answer to the question is surrounded by a great deal of uncertainty, given the scale and speed of the shock that has caused the changes. Let me start with employment and the labour market. In normal UK economic cycles, falls in output are accompanied initially by relatively small falls in hours worked and then later by larger falls in employment.

The uncertainties are well illustrated by the sudden jump in the RPIX inflation rate in January to 2.6% announced a month ago, only to fall back to 2.2% in February - published this morning. And, given these uncertainties, the overall results over the past decade since the recession of the early 1990's have been encouraging. Whether that's a result of good luck or good judgement I leave to others to decide - I'm more interested in the outcome. Since the Summer of 1992, inflation, on the target measure has averaged just 2.6% - and has been more stable than at any time in our history. And it has been consistently remarkably close to target over the past 5 years. But the even better news is that stable, low, inflation has been accompanied by steadily increasing overall output and employment, and by a progressive fall, until very recently at least, in the rate of unemployment. Over the same period, to the fourth quarter of last year, GDP growth averaged just under 3% a year which is well above most estimates of our trend rate of 2¼%-2½%. GDP has in fact grown for 38 successive quarters which is the longest period of sustained quarter-by-quarter growth we have enjoyed since quarterly records began in the UK in 1955 - though I have to admit it was a close run thing in the fourth quarter of last year!
Jerome Powell, the chairman of the Federal Reserve, referring to the assessment of risks in emerging economies, said that three elements are important:2 first, the vulnerabilities in the EMEs themselves; second, the evolution of advanced-economies monetary policies; and, third, how markets might respond to that evolution. Emerging economies are takers in the global markets; we cannot do much about the last two elements mentioned above, which are exogenous. Our job, our duty, is to prevent the accumulation of domestic vulnerabilities, because deterioration in a country’s economic conditions makes it more vulnerable to adverse external shocks. 1/5  BIS central bankers' speeches  High growth in emerging economies is good as long as it is sustainable. I would recall here a famous answer from Henry Ford, the father of the car industry, when he was asked about his preferred color for the new T-model: “Any color, as long as it’s black”. Any growth is good, as long as it is sustainable and, I would add, fairly distributed. True, emerging economies need higher growth rates to catch-up with the more advanced economies. True, potential GDP is a non-observable variable, like many others such as inflation expectations, non-accelerating inflation rate of unemployment, or the one to which it is directly linked – the structural deficit. New Member States have probably higher potential growth rates than the ones we are now estimating, and this estimation is subject to constant change, based on new information in the data series, but also on improved endowment with and efficiency of labor and capital.

As well as its own actual mandate of keeping prices stable, some people seem to be under the impression that it should be used to strengthen growth, lower unemployment, safeguard the financial system and guarantee citizens adequate interest rates”3. Yet, monetary policy can only buy time for structural reforms in the short run, while tensions are accumulating in the background. One major source of tensions refers to the wage policy. Chapter 2 of REO discusses in much detail the “European wage dynamics and labour market integration”. The main messages of this 2/5  BIS central bankers' speeches  part can be summarized as follows: a) in EU 15 wages are subdued because they respond very slowly to changes in unemployment and are closely related to inflation and inflation expectations, which are unusually low; b) in NMS wage growth responds very quickly to changes in unemployment, and inflation expectations play a lesser role; c.) average wage increases in NMS were much higher since 2012 than in EU-15; d.) about one quarter of wage growth in Europe can be explained by EU-wide and group-level factors; e.) there was a decrease in unemployment, but also an increase in involuntary part-time employment; f) migration plays a role in the faster increase in wages in the countries of origin. One hot debate topic in Europe these days –reflected in the report- is the flattening of the Philips curve.
4  BIS Review 3/2004  On the part of India, since Singapore is already nearly completely tariff free, major gains will be in investment and services. India’s economic reform and liberalisation has brought in foreign investments and benefited India for over a decade. Similarly, a CECA that opens up more opportunities to investors from Singapore, improves the business environment and strengthens the protection that their investments enjoy, will encourage more high-value investments to flow from Singapore into India. With India’s growing strengths in services, a comprehensive agreement in services will open up new opportunities for Indian companies in Singapore and the region. Strategically, a CECA will anchor India’s position in Southeast Asia. It will ensure that India joins in the opportunities that Southeast Asia offers, just as companies from the US, Japan, and China are already doing. It will also spur other ASEAN countries to expand their ties with India. This is exactly what happened with the US-Singapore FTA, and with the Japan-Singapore Economic Cooperation Agreement. After Singapore made these two agreements, other ASEAN countries started to pursue similar arrangements with the US and Japan. Singapore is happy at this, as we will benefit when our neighbours too are promoting freer trade and investment flows. I hope our CECA negotiators will complete their work soon, and deliver a comprehensive and substantive agreement that both countries can be proud of.

Most of all, being open in spirit and mindset, staying open to diversity, being comfortable working in multi-cultural settings, thriving in a globalised world. We must also remain a resilient society. Able to ride the ups and downs of business cycles and structural changes. Able to adapt, learn new skills, continually improve. We must become a more innovative society to be dynamic. Willing to experiment and accepting failure as a halfway house to success. Investing in R&D, leveraging on technology. Most of all, having an enterprising spirit – always seeking new and better ways to do things. In the end, we must be an inclusive society. It is probably not a coincidence that IPS has chosen to make the theme of this conference ‘Together’. The two forces that offer the most promise for sustained economic dynamism are globalisation and technology. But how far we can reap the benefits of globalisation and technology will depend on how well we bring all our people together. The path of dynamism is also the path of continuous disruption, even dislocation. To sustain the momentum and consensus in favour of globalisation and technology, we must help those adversely affected by them and equip Singaporeans to succeed. And to maintain cohesion in the face of population ageing and growing healthcare burdens, those who have benefitted from our growth and dynamism must contribute to the larger society – through taxation, philanthropy, community service. We then become not just a dynamic people but also a compassionate one.
I believe that it can also lead to better understanding of our various tasks and assessments. Hopefully, this could ultimately lead to well-founded decisions on the measures needed to safeguard financial stability. The discussions in the Financial Stability Council during the spring have concerned both the risks in the financial system and the need for further measures. With regard to the risks, the Riksbank and Finansinspektionen make similar assessments. The assessment is that we have a large and closely interlinked banking system that is heavily dependent on market confidence, as the banks to a large degree finance themselves on the markets. And that household indebtedness comprises an important risk to macroeconomic and financial stability. The minutes indicate that we have different views on some issues. For instance, the need for measures to manage household indebtedness. Further macroprudential policy measures aimed at households’ demand for loans are needed If we take a step back and regard the capital adequacy requirements announced in the spring in a broader perspective, they are clearly a step in the right direction. The capital adequacy requirements made of the major Swedish banks will increase in relation to the requirements that applied prior to the financial crisis. This is very welcome, as it increases the resilience in the Swedish banking system. This reduces the risk that household debt will ultimately lead to problems for the Swedish banks, which could threaten both macroeconomic and financial stability.

But the avoidance of default during the crisis does not come without the willingness to use the means available to avoid that outcome, even in very adverse situations, and the ability to endure the temporary hardship that comes with it. In addition, Iceland – like Ireland, probably – was helped by a relatively good fiscal position prior to the crisis. The fiscal consolidation that began in 2010 and has already resulted in a significant primary surplus was subsequently an important factor in restoring external confidence, which fell to what, in retrospect, seems an unjustifiably low level. In Iceland’s case, the overall effort was made easier by the outside assistance of the IMF, the Nordic countries, and Poland. The same consideration applies to the hardest-hit EU countries and should be kept in mind when assessing their probability of default. Finally, let me say a few words about credit ratings and market perceptions in the Icelandic saga, which broadly conforms to more general patterns. Both the sovereign and the private Icelandic banks were assigned triple-A ratings by Moody’s for a period prior to the crisis (the sovereign from October 2002 to May 2008 and Kaupthing Bank from February 2007 to April 2007). In the case of the banks, the stated argument was that the Government would stand behind them in times of difficulty. We now know that this was nonsense, given the size of the banks and the scale of their international activities. In case of the sovereign, this rating was not so bad after all!
3 See article 127 of the TFEU: “Without prejudice to the objective of price stability, the ESCB shall support the  general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union”. These objectives include “the sustainable development of Europe“ and “a high level of protection and improvement of the quality of the environment”. 4 Princess Mononoke film (1997). 3/3  BIS central bankers' speeches

In summary, the authorities are going to need to establish minimum standards for the amount of bonded debt – or gone-concern LAC – SIFIs have in issue, with a requirement that they are capable of being bailed-in by the RA of the jurisdiction in which the issuing entity is domiciled. Containing contagion (1): holders of bank bonds The purpose of resolution regimes is to contain disorderly disruption of the financial system. Equally, in order to avoid taxpayers providing solvency support, losses must fall to creditors. It is therefore important to ensure that the imposition of losses on creditors does not itself cause systemic distress through contagion. That will depend heavily on who within the financial system holds bank bonds. It would be impractical to identify individual holders of bonds on the eve of resolution, applying case-by-case discretion. This needs to be addressed through regulatory policy. Most obviously, regulators need to ensure that banks do not hold each other’s bonds, except for example in small amounts as part of market-making. Secondly, regulators are going to need to ensure that some investors, for example lifeinsurance companies, do not have concentrated exposures to bonds issued by single banks or to banking sectors. 7  For groups with a pure holding company, senior debt issued from holdco is structurally subordinated to claims on the group’s operating banks and dealers.
CCP recovery and resolution therefore poses some specific issues, some of which I will touch on today. However, at base there are principles that are common to the resolution of any systemically important institution. Perhaps the most obvious similarity between the resolution of banks and CCPs is in the common objective: resolution should deliver continuity of critical economic functions without reliance on solvency support from taxpayers to achieve it. For that continuity to be achieved it is not enough that the financial losses of the institution are fully absorbed; the going-concern resources of the institution, or of any successor institution, must be restored to a sufficient level to command market confidence prior to any post-resolution restructuring or wind-down. In the case of banks, this means that when a bank suffers losses eroding its going concern capital to the point where triggers for resolution are met, (i) it enters into resolution; (ii) its creditors are bailed in to recapitalise the firm; and (iii) this bail-in replicates what would have happened in a court-based commercial restructuring or insolvency. In other words, losses are allocated according to the creditor hierarchy but without the value destruction created by the hard stop of insolvency. This ensures that the resolution provides continuity and meets the safeguard that creditors are not worse off than in insolvency. While these are the essential elements of a resolution, they are likely to play out differently in the context of a CCP.

Fortunately, that work is already underway and CCP recovery and resolution forms an important part of the Financial Stability Board’s (FSB) continuing agenda to end Too Big To Fail (TBTF). In October 2014 an Annex was added to the Key Attributes of Effective Resolution Regimes to cover their application to Financial Market Infrastructures (FMIs) 4. More recently, the FSB published its 2015 CCP workplan 5. As part of this, a group on financial market infrastructure (fmi CBCM), equivalent to the Cross-Border Crisis Management Group (CBCM) that I chair for banks, has been established within the FSB to take forward international work on CCP resolution. Authorities in a number of jurisdictions are responding to the need for effective resolution arrangements for CCPs, with legislative proposals expected in the EU, Canada, Australia, Hong Kong and elsewhere to add to existing regimes, including in the US under Title II of Dodd Frank. In the UK, the Bank of England has formal responsibility for the resolution of UK-incorporated CCPs. To aid us in drawing up resolution plans for UK CCPs, we have established the first Crisis Management Group for a CCP. We hope and expect it to be the first of many. But work on CCP resolution needs to be seen in the broader context of financial reform: •  The Committee on Payment and Market Infrastructures, along with the International Organisation of Securities Commissions (CPMI-IOSCO) is continuing its work on CCP resilience and recovery.
In the euro area, inflation has been approximately in line with the objective defined by the European Central Bank. The preliminary estimate for May points towards rising inflation, particularly as a result of higher oil prices. Capacity utilisation in the euro area is low and unemployment remains high. Growth potential is weaker than in the US, although GDP growth picked up in the first quarter. As in the US, private consumption is an important factor driving growth. Increased net exports also contributed to growth in the euro area in the first quarter. Interest rate expectations in the euro area have also been revised upwards somewhat recently. The market now expects the ECB to raise interest rates at the end of 2004 or the beginning of 2005. Interest rate expectations were continuously revised downwards up to March 2004. Interest rates abroad have been unusually low for 2½ years. This has been the greatest challenge for our monetary policy. Even though a somewhat swifter rise is now expected, it appears that interest rates among our most important trading partners will remain low for a period ahead. In Norway, output growth has picked up after a growth pause. The interest rate reductions since 2002 have contributed to the turnaround and a soft landing for the economy. Private consumption is showing fairly strong growth. Household demand will probably be the most important driving force in the Norwegian economy in the period ahead.

When inflation in Norway is expected to be broadly in line with that of other countries, the exchange rate will usually also return to its normal range following periods when the krone has been particularly strong or particularly weak. The advantage of a flexible exchange rate is perhaps most evident when the economy is sluggish. If the krone were to remain at a level that is too strong, nominal wages would have to remain unchanged over a longer period or fall in order to bolster companies and jobs. This only occurs when unemployment is very high. With a flexible exchange rate, a depreciation of the krone can also boost competitiveness. A flexible exchange rate can reduce fluctuations in employment and output. 4  BIS Review 34/2004  Empirical studies2 have also suggested that economic growth in industrialised countries with floating exchange rates has been as strong as, and often stronger than, growth in countries with a stable exchange rate. A precondition is that there is an economic policy framework so that inflation does not spin out of control. The real exchange rate The chart shows developments in two measures of the real krone exchange rate, i.e. consumer prices and relative labour costs in Norway relative to trading partners, measured in a common currency. The real exchange rate measured by relative labour costs in a common currency is an expression of the cost competitiveness of Norwegian companies.