samchain/econo-pairs-v1 huggingface dataset:
Some argue that we should surprise market participants in order to manufacture greater uncertainty and generate more market volatility. The notion is that if the Fed were more unpredictable, market participants would be less complacent. And, if markets were perceived as riskier, this might hinder the development of financial asset bubbles. I am not supportive of such a strategy for several reasons. First, I don’t think it is necessary to be unpredictable to keep financial market participants “on their toes.” There are plenty of potential surprises from the economic environment without the Fed seeking to deliberately generate its own. Changes in the economic outlook affect financial asset prices and market participants’ expectations for future monetary policy actions. I don’t see a significant benefit to artificially adding “noise” to this process. Developments in early 2016 provide a good example. As the economic environment changed and financial conditions tightened, we responded by raising short-term interest rates much more slowly than had been anticipated. Second, deliberately degrading the signal of how we are likely to react to changes in economic circumstances would likely lead to higher risk premia. This would represent a real cost that would have to be borne by households and businesses. Third, a less reliable Fed would also 3/6  BIS central bankers' speeches  presumably loosen the linkage between the stance of monetary policy and financial conditions.

However, the condition for these welfare gains is that there has been considerable confidence in the Swedish state, Swedish banks and the Swedish housing and mortgage markets. Today a large percentage of the market agents investing in Swedish bonds are outside of Sweden. This means that the Swedish financial system is also dependent on how other countries assess the Swedish mortgage and housing markets. It is important that these markets function well so that we can continue to enjoy a high level of confidence on the financial markets. We therefore have a major responsibility to ensure that the vulnerabilities are limited and that confidence remains strong. This is particularly important given the weaknesses that have emerged as a result of the structure of the financial system. The good access to capital and the large increase in mortgages has also meant that the Swedish banking system has grown, and become one of the largest banking systems in Europe. Moreover, the Swedish banking system consists of a few large banks that are closely interlinked. This means that problems at one bank can easily spread to other banks. All this means that the costs to society could be substantial if we were to suffer a financial crisis. 7  See T, Jansson (2014), Households’ amortisation decisions, The analysis group’s memorandums on household indebtedness, No. 4, Sveriges Riksbank. www.riksbank.se. 6  BIS central bankers’ speeches  How do we attain a better balance?
First, globally it is not normal for prudential regulators to have an actual competitiveness objective – to my knowledge there is only one example amongst 3/5  BIS central bankers' speeches  the main prudential regulators. I worry therefore that having such an objective might be seen by others as an intention to weaken regulation in the UK, and thus undercut our authority in international bodies. I also think it’s a bit of a red herring. A robust prudential regime focussed on objectives of safety and soundness and policyholder protection is part of the national infrastructure that underpins the attractiveness of UK firms as counterparties. Second, it is wise not to give regulators too many objectives and have regards. Loading something up with ever more objects is an excellent way to decorate your Christmas tree but it’s not the best way to create an effective regulator. Solvency II Review So much for theory. What about practice? In particular the main event of this year: you may think it is defeating Covid, but of course it is in fact the review of Solvency II. I don’t want to bore this audience (any more than I have already) with a discussion of detailed measures. But I have a few brief points to make about the review itself. Perhaps most importantly, the review will stay true to the basic principles of Solvency II.

As a regular attendee of TSC hearings I can assure you that we are already held very robustly to account for our activities – but I can see the point that some in Parliament have been making that if we do more rule-making, and with European Parliamentary scrutiny of rule-making no longer present, then we might be expected to do more to support Parliament in probing technical regulatory issues. Whatever Parliament decides on this, we look forward to engaging fully. International standards are another important safeguard. The UK has always been at the forefront of their development: with the Federal Reserve, the Bank of England was the driving force behind establishment of the Basel Committee on Banking Supervision and supplied its first chair. We remain fully committed to the development and implementation of international standards, and this applies as much in insurance as it does in banking. Actions speak louder than words – Dr Vicky Saporta, who runs prudential policy for the PRA, is also a very energetic and successful Chair of the International Association of Insurance Supervisors. There is also an increasingly lively debate around our objectives and ‘have regards’. As with accountability arrangements, it may well be sensible for these to evolve as our role changes. And we need to be wary of the natural tendency of regulators to become strongly attached to the objectives Parliament has currently set for them. But I would offer two notes of caution.
6  See Dong Choi, Michael R. Holcomb, and Donald P. Morgan, Bank Leverage Limits and Regulatory Arbitrage: New Evidence on a Recurring Question, Federal Reserve Bank of New York Staff Report #856 for evidence of risks-shifting in response to the imposition of the supplementary leverage ratio in the U.S.  7 See Andrew G. Haldane, “Multi-Polar Regulation,” International Journal of Central Banking, June 2015, 11(3),  385–401; “Strengthening and Streamlining Bank Capital Regulation,” Robin Greenwood, Sam Hanson, Jeremy Stein, and Adi Sunderam, Brookings Papers on Economic Activity, 479–565, Fall 2017; “Bank Capital Allocation under Multiple Constraints,” Tirupam Goel, Ulf Lewrick, and Nikola Tarashev, October 2017, BIS Working Paper #666. 8 A counterargument is that economies of scale and network effects from technology platforms could lead to  greater specialization, e.g., payments or mortgage lending. 9 See “CoVaR,” Tobias Adrian and Marcus Brunnermeier, American Economic Review, Vol. 106(7), 1705–41 and  “The Fundamental Principles of Financial Regulation,” Markus Brunnermeier, Andrew Crockett, Charles Goodhart, Avinash D. Persaud, and Hyun Shin, in Geneva Reports on the World Economy, 2009 for a broad discussion and Empirical Evidence on ‘Systemic as a Herd’: The Case of Japanese Regional Banks, Naohisa Hirakata, Yosuke Kido, and Jie Liang Thum, January 2017, for an empirical example. The literature typically focused on small firms acting in the same way, but the same principle likely applies to large firms that behave similarly to amplify systemic risk. 5/5  BIS central bankers' speeches

In December last year, the People’s Bank of China and the Bank of Thailand concluded the bilateral local currency swap arrangements during the visit of Vice President Xi Jinping to Thailand. The Agreement provides for the exchange of respective local currency upto 70 billion yuan or 320 billion baht, to facilitate bilateral trade and investment. I believe this is a crucial role that the public sector can provide to give assurance to the private sector on the availability of their access to the yuan and the baht for their trade and investment needs. In addition, the Bank of Thailand received approval from the People’s Bank of China and China Securities Regulatory Commission to participate in the interbank bond market and securities market here in China. Our investment would allow our asset allocation and diversification to better reflect the increasingly important role of the yuan in international monetary system. Last but not least, I hope that the inauguration of our Beijing representative office will be more than just another success story. I truly hope that the spirit and friendship behind this long-standing relations and successes, nurtured earnestly over centuries, will continue to serve as solid foundations that will lead to even greater and closer future cooperation between our two nations. Let me end by thanking everyone for being an important part of this success. And, with Your Royal Highness’ permission, may I propose a toast to future success and cooperation as well as to your Royal Highness’s good health and prosperity. Thank you.
Bank of England  Page 11  There is a lot to be said about both. But let me focus on one of the most noticeable aspects of labour supply. As Covid hit, labour supply growth came to an abrupt halt. The size of the workforce – that is, the share of the population taking active part in the labour market – declined by 132,000 people, or 0.4%, from the three months to December 2019 to the three months to January this year. That stands in stark contrast to a steady growth rate of around ¾% per year during the preceding decades. These may sound like small numbers, but even small changes in these small percentages of the whole workforce of nearly 33 million add up to a lot of people. Chart 7: Labour market inactivity has risen Change in inactivity since 2019 Q4 by age (a)  (a) Changes from the three months to December 2019, based on those aged 16+. Sources: ONS and Bank Calculation. The primary cause of this reduction in labour supply is an increase in the proportion of the population that does not take part in the workforce either by working or looking actively for a job. As you can see in Chart 7 (white line), such economic inactivity rose noticeably during the pandemic. Unlike moves in employment and unemployment, this rise has not unwound as the economy has recovered. There are two important factors that account for this increase in economic inactivity.

It is primarily for this reason that we expect to see a sharp fall in inflation during the course of this year, starting probably in a couple of months or so from now. Bank of England  Page 15  Growth in the economy has suffered too, as a consequence of the sheer scale of the hit to the terms of trade. There has been a very large impact on national real income, from which I am afraid there is no hiding. But there is better news on that front, the economy has been more resilient of late, helped by the sharp fall in energy prices. The same is true for the world economy more broadly. What does this mean for monetary policy looking forwards? The remit is clear. The adjustment and response to the shocks we have experienced must return CPI inflation to the 2% target sustainably. We must avoid these very large shocks leading to persistent inflation, and that is why we have raised the official interest rate eleven times, to 4.25%. Recently, the evidence has pointed to more resilient activity in the economy, and likewise employment; signs that nominal wage growth has been rather weaker than expected; and two months in which there was first some downside news on inflation relative to our expectation and then a bit more upside news. This reminds us that the path of inflation will not be entirely smooth and cost and price pressures remain elevated.
All this shows that there is enormous potential for the expansion of bilateral economic relations between our two countries. BIS Review 45/2005  1  Many politicians in Europe seem to forget that China, like all the other emerging economies in Asia and South America, has become one of the dynamic poles in the global economy in recent years. By contrast, Europe has trailed behind in terms of growth. This is precisely why globalisation makes sense for an economy open to international markets such as ours. For both historical and geographical reasons, our country is exposed to a considerable commercial risk in Europe: 60% of our exports are destined for European countries; accounting for 25%, Germany ranks first among our export markets. These European markets are no longer the most dynamic today, nor will they be in the future. It is essential that we step up the diversification process so as to ensure the expansion of our export sector. It is therefore in our own best interests to strengthen economic relations with Asia, in particular with China. Business relations between industrialised countries and China currently take centre stage in political discussions. In particular, harsh criticism has been levelled at China because of its exchange rate policy of pegging its currency to the US dollar despite the fact that it has made considerable progress in terms of efficiency.

Fixed gross capital formation, outcomes and Riksbank forecasts Percentage 12-month change 12  12  10  10  Outcome RB Oct 02 (IR02:3) RB June 03 (IR03:2)  8  8  6  6  4  4  2  2  0  0  -2  -2  -4 1997  -4 1998  1999  2000  2001  2002  2003  2004  Sources: Statistics Sweden and the Riksbank. Chart 4. Index for electricity in HICP Percentage 12-month change 30  30  25  Sweden  25  20  Euro area  20  15  15  10  10  5  5  0  0  -5  -5  -10 1996  -10 1997  1998  1999  2000  2001  2002  2003  Source: Eurostat. 6  BIS Review 42/2003  Chart 5. Population growth 16-64 years, actual and forecast 2003-2050 1.0  1.0  0.8  0.8  0.6  0.6  0.4  0.4  0.2  0.2  0.0  0.0  -0.2  -0.2 -0.4  -0.4 1990  1995  2000  2005  2010  2015  2020  2025  2030  Source: Statistics Sweden. BIS Review 42/2003  7
Chart 4: Real consumption of high and low debt households(a) Cumulative percentage change in real consumption since 2005 10 5 0 -5 High income/high debt High income/low debt Low income/high debt Low income/low debt Average 2005  2006  2007  -10 -15  2008  2009  -20 2010  Source: Living Costs and Food Survey. (a) ‘High income’ households are those in the top 50% of the income distribution. ‘High debt’ households are those with a debt-to-income ratio at or above three. 10  BIS central bankers’ speeches  Chart 5: UK banks’ indicative long-term funding spreads Percentage points 4  Senior unsecured spread(a) 3 Five-year CDS premia(b) 2  1  0 2007  2008  2009  2010  2011  2012  Sources: Bloomberg, Markit Group Limited, Bank of England and Bank calculations. (a) Unweighted average of the spread between euro-denominated senior unsecured bonds and equivalent maturity swap rates for bonds issued by the major UK lenders, which have a residual maturity of between two and six years. (b) Unweighted average of the 5-year CDS premia for the major UK lenders: an indicator of the spread on long-term wholesale bonds. Chart 6: Central bank balance sheets(a) Indices: Jan uary 2007 = 100 600 Federal Reserve 500  Eurosystem Bank of England  400  300  200  100  0 2007  2008  2009  2010  2011  2012  Source: Bloomberg. (a) In local currency.

As we saw in Chart 1, the pre-crisis period saw a considerable increase in leverage in the financial sector, leaving banks and similar institutions highly exposed when optimism evaporated. Bank funding costs and credit default swap spreads then rose substantially, symptomatic of investors’ doubts as to whether they would get their money back (Chart 5). Funding costs have recently fallen back in the wake of policy initiatives, such as our Funding for Lending Scheme, though doubts still linger. So, quite independently of any tightening of regulatory requirements, there has been market pressure on banks to make  BIS central bankers’ speeches  5  balance sheets safer. That, in turn, has encouraged them to direct their supply of loans to just the more credit worthy borrowers. Moreover, elevated funding costs have also put upward pressure on the loan rates charged to borrowers, offsetting the impact of lower policy rates. The drag from these factors – heightened uncertainty and de-leveraging – has been augmented by two further factors. First, higher prices for oil and other commodities, on the back of firm growth in the emerging economies and adverse supply developments, implied a deterioration in our terms of trade, imparting a further drag to the growth in real incomes. Second, as MPC members noted frequently in the years before the crisis, the composition of UK demand needed to re-balance away from domestic demand towards net exports in order to shift the current account into balance.
1/5  BIS central bankers' speeches  In recent decades, however, the prime position of the dollar has been unchallenged. Its surpassing of the sterling occurred in the 1920s, although many historians would ascribe the preeminence of the dollar as coming to the fore with the Bretton Woods agreement in 1944. Since then, the “dollar dominance” continued unabated despite the US experiencing various challenges, including the breakdown of the Bretton Woods system in the 1970s and the recession in 1981. Closer to present times, the dominance of the dollar continues to hold even after the Global Financial Crisis, the most damaging crisis since the Great Depression. Although the privileged position of the dollar was not in question, the magnitude of its influence certainly varied across time. It was not linear, consistent nor smooth-sailing. In fact, over the past few years, it was a favorite past time of market commentators to call time on the ‘reign’ of the dollar as the world’s reserve currency. A few candidates were cited to supplant the role of the dollar in the past, including the yen, the euro and recently, the renminbi. Necessity for Economic Rebalancing In 1971, the US Treasury Secretary John Connally, famously said to the European finance ministers that the “dollar is our currency, but your problem”. This statement had validity then, as it does now. For emerging markets in Asia, this braggadocio or arrogance rings true.

Furthermore, developments in the global economy are likely to remain uncertain. In this environment, the minimum exchange rate continues to be essential in ensuring appropriate monetary conditions in Switzerland. The guiding principle for our decisions is the SNB’s mandate to ensure price stability while taking due account of the development of the economy. The financial crisis also showed us, however, that price stability alone is not sufficient to ensure that the financial sector remains stable. In this connection, the situation on mortgage and real estate markets – which are showing considerable momentum – has been cause for concern for quite some time now. Also, mortgage lending is still growing faster than GDP, with the result that aggregate debt is increasing further. The countercyclical capital buffer is a new tool with which the resilience of banks can be strengthened and imbalances on mortgage and real estate markets can be addressed. My colleague, Jean-Pierre Danthine, will now give you our assessment of the risks for financial stability. Ladies and gentlemen, thank you for your attention. BIS central bankers’ speeches  3
The economic environment in which we operate today is a direct consequence of the demographic and productivity shifts taking place. Low neutral interest rates are very real, and they’re here to stay. Conclusion The facts have changed, and so it is time to change our minds also. It is often said that change is hard. But, experience teaches us that it is better to prepare for the future than wait too long. Ultimately, failure to prepare often means preparation for failure. 1 United Nations, World Populations Prospects: Key Findings and Advance Tables, 2015 Revision. 2 Antonin Bergeaud, Gilbert Cette, and Rémy Lecat, Productivity Trends in Advanced Countries between 1890 and  2012, Review of Income and Wealth, Volume 62, Issue 3, pp. 420–44, September 2016. 3 Shigeaki Fujiwara, Yuto Iwasaki, Ichiro Muto, Kenji Nishizaki, and Nao Sudo Fujiwara, Developments in the  Natural Rate of Interest in Japan, Bank of Japan Review, October 2016; Kathryn Holston, Thomas Laubach, and John C. Williams, Measuring the Natural Rate of Interest: International Trends and Determinants, Journal of International Economics, Volume 108, Supp. 1, pp. S59-S75, May 2017. 4 Thomas M. Mertens and John C. Williams, Tying Down the Anchor: Monetary Policy Rules and the Lower Bound  on Interest Rates, Federal Reserve Bank of San Francisco, Working Paper Series, May 2019.

It’s the rate expected to prevail when interest rates are neither giving the economy a boost, nor slowing it down. That’s why it’s called the “neutral” rate. The evidence of a sizable decline in r-star across economies is compelling. The weighted average of estimates for five major economic areas—Canada, the euro area, Japan, the United Kingdom, and the United States—has declined to half a percent.3 That’s about 2 percentage points below the average natural rate that prevailed in the two decades before the financial crisis. A striking aspect of these estimates is that they show no signs of moving back to previously normal levels, even though many advanced economies have fully recovered from the crisis. This poses significant challenges for monetary policy. When interest rates are low, central banks don’t have much room to maneuver to deal with a crisis. They will only be able to cut interest rates by a small amount before they hit zero—or as economists call it, the “zero lower bound.” Of course, central banks can, and have, used negative rates to stimulate growth, but they bring with them a separate set of challenges. The result is that future recoveries will be slow, and slow growth is usually characterized by low inflation. Persistently low inflation creates a vicious circle, where expectations of low inflation drag down current inflation.