samchain/econo-pairs-v1 huggingface dataset:
14  BIS central bankers’ speeches  Appendix Chart 1 – GDP wealth and employment GDP  Chart 2 – GDP in different recessions Real GDP (Peak = 100) 1929 Crash 120 1970 Recession 1980 Recession 115 1990 Recession 2008 Recession 110  Index, 2007 = 100 150  Employment Wealth*  140 130  105  120  100  110  95  100 2007  2009  2011  2013  2015  90  90 0 1 2 3 4 5 6 7 8 Number of years following onset of recession  Sources: ONS and Bank calculations. * Total net wealth; the property component of wealth is estimated for 2015 using by growing the 2014 figure by the rate of increase in house prices. Sources: ONS and Bank calculations. Chart 3 – GDP and disposable income per head  Chart 4 – Measures of disposable income per head  GDP per head  Indices, 2007 = 100  Indices, 2007 = 100  105  Real Net National Disposable Income (RNNDI) per head  100 100  95 Real Household Disposable Income (RHDI) per head Real median household disposable income (equivilised)*  95  2005  2007  2009  2011  Sources: ONS and Bank calculations. BIS central bankers’ speeches  2013  105  90 2015  2000  2003  2006  2009  2012  90 85  80 2015  Sources: ONS. * Data show income per households with these equivilised in size to make them comparable.

A major reason for this is the debt brake, which is extremely important for monetary policy and contributes to safeguarding an independent monetary policy. By pursuing a monetary and fiscal policy oriented towards stability, the negative impact of the crisis on the Swiss economy could be mitigated. As the events of the last two years have brought into focus, the monetary policy of a small open economy must also be able to rely on healthy fiscal policies in other countries. The debt crisis and the way the markets perceived it have considerably impaired the conduct of monetary policy in Switzerland. To fulfil its mandate, the Swiss National Bank has had to take far-reaching measures, such as setting a minimum exchange rate against the euro. BIS central bankers’ speeches  1
This is in sharp contrast to the first half of the year, when the payroll tax cut expired, tax rates on higher income households were raised, a series of taxes associated with the Affordable Care Act took effect, and spending was reduced due to the sequester and the gradual winding down of foreign military operations. Moreover, the sustained contraction in spending and employment by state and local governments appears to be nearing an end. I wish that I could report that the improved pace of growth of economic activity led to a corresponding increase in the rate of improvement in labor market conditions. But such was not the case. As I noted earlier, the average monthly change of nonfarm payroll employment over the second half of the year, at 184,000 per month, was somewhat below the 204,000 average monthly increase of the first half. In addition, growth of aggregate hours worked by private sector employees was somewhat slower in the second half than in the first. The source of this apparent anomaly is the fact that labor productivity, or output per hour worked, rose rapidly over the second half of the year after being essentially unchanged over the first half. This is a perfect example of the double-edged sword of productivity growth. In the longrun, sustained strong productivity growth is what boosts real living standards. However, in the short-run it can depress job creation.

While this is good from the point of view of fiscal management, it was not conducive to debt market development, in the sense that we did not have a representative yield curve for the Hong Kong dollar. As we all know, a liquid and deep debt market is an important component of a financial centre. The HKMA therefore decided to develop a local debt market through a two-pronged approach, namely to develop a market of high quality Exchange Fund paper, and to build an efficient financial infrastructure. A market for exchange fund paper In order to facilitate the development of a Hong Kong dollar debt market, the HKMA rolled out the Exchange Fund Bills and Notes programme in 1990. This initiative has been very successful in creating a yield curve for Hong Kong dollar. As of today, the yield curve has been extended up to 10 years and serves as a benchmark for debt instruments issued by other entities in the local market. In order to maintain a liquid market for the Exchange Fund paper, the HKMA has also put in place a market-making system under which market makers are obliged to quote two-way prices. Currently, 26 banks in Hong Kong have been appointed as market makers, and tenders of Exchange Fund Bills and Notes of maturities between 3 months and 10 years are held regularly. These arrangements have been effective to help promote the liquidity of the Exchange Fund paper and enhance the credibility of the Hong Kong dollar yield curve.
One of our colleagues did not meet these high standards recently. Our newly appointed Deputy Governor for Markets and Banking, Charlotte Hogg had previously not disclosed a relevant family relationship, as was required under our staff Code of Conduct. For those who have questioned whether we “get it”, we do. We know this honest mistake was also a serious mistake – one that was compounded by the fact that Charlotte Hogg had overseen the development of our new Code. We were clear upfront that there must be consequences for both her and the Bank. Our minimum response would obviously be what we would expect to see in the firms that we supervise. Let’s be absolutely clear about this baseline. In analogous situations in the private sector, we expect:   Evidence that the firm is taking the matter seriously;    Proportionate consequences for the individual, including some form of disciplinary warning and possibly some impact on remuneration; and    A wider review of lessons learned if there was any evidence that there was a systemic problem. 9  See page 16, Financial Reporting Council (FRC), “Corporate Culture and the Role of Boards: Report of observations”, July 2016. See Footnote 7 for details. With appropriate modifications to reflect the fact that it has a very different range of functions to a commercial bank and is accountable to a different range of stakeholders, including Parliament.

Once people have gotten used to live digitally – remote working, e-commerce, telemedicine – the economy and society are going to change in a variety of ways. The financial sector is well-plugged into digitalisation. Those financial institutions that adopt deeper end-to-end digitalisation, who are able to use digital platforms for their business operations that today are conducted in person or on paper, are going to have a strong competitive advantage. New opportunities in particular areas of financial services are harder to tell. Impact investing may become a stronger growth opportunity. We have already seen some financial institutions launching impact funds to seek higher returns by investing in companies which are focused on combating the pandemic or providing solutions to deal with the associated health risks. Healthcare and supply chain resilience have taken on added importance, and there seems to be interest among asset managers to invest in these areas. Pandemic risk insurance is another area that might see good growth. There is now a much heightened awareness of pandemic risks. Although pandemic risk insurance has been around for some time, it never really took off. I think you are going to find demand for risk management and insurance solutions to address some of these pandemic-related areas of risk. The financial sector is fundamentally in the business of risk management. Covid-19 represents the materialisation of an extreme kind of risk.
Obviously, the euro area aggregate figures mask the large heterogeneity among Member States, where gross debt ranges from 10% of GDP in Estonia to 157% in Greece. This notwithstanding, it goes without saying that general debt levels in European countries need to decline, also in view of long-term demographic challenges. Turning to private sector debt, Japan faced severe adjustment needs in the corporate sector, with debt of non-financial corporations declining from 130% to 80% of GDP in the 15 years that followed the peak in economic activity. In the euro area, the debt level of the aggregate non-financial sector never reached the peaks seen in Japan and aggregate household indebtedness is also comparatively lower in the euro area. However, in those euro area countries which experienced housing bubbles, the household sectors have been facing much stronger adjustment problems. Here, again, euro area averages mask significant heterogeneity across Member States. In fact, some euro area countries have seen strong capital inflows and unsustainable debtfinanced economic expansion. This has not only brought the risk of reversal, as seen after 2008 when private capital inflows dried up and domestic demand collapsed, it has also led to economic divergence within the euro area. Some countries have lost heavily in terms of competitiveness relative to their peer euro area countries. Regaining this competitiveness will indeed be a more gradual and tedious process.3 The credit-financed housing boom in countries like Ireland and Spain led to residential property prices more than doubling in the seven years leading up to their peak.

2  See also “Comparing the recent financial crisis in the United States and the euro area with the experience of Japan in the 1990s”, Monthly Bulletin, ECB, May 2012. BIS central bankers’ speeches  1  Both episodes clearly share elements of a “balance sheet recession”, where strong credit expansion ends with a sharp correction in asset prices, thereby triggering the need for significant balance sheet adjustment. Yet, the scope of the required adjustment in the euro area when viewed at the aggregate level differs markedly from that in Japan, even if some euro area countries struggle with excessive leverage. In Japan, the sharp fall in equity prices from the peak of 1989 led to losses of almost 80% in the two decades that followed. Real estate prices also precipitated, with urban land prices declining by about 40%. By comparison, at the euro area aggregate level, equity prices fell by about 50% and have already rebounded from their post-Lehman trough, while residential property prices have fallen by a mere 3% since their peak in 2008. Moreover, the levels of indebtedness across sectors clearly differ. As for fiscal imbalances, the fiscal response in Japan meant an increase in public debt from 67% of GDP at the start of the 1990s to about 240% in 2012. For the euro area as a whole, the increase was much smaller, with aggregate debt increasing from below 70% in 2008 to 92% in 2012.
Against this background, some further work needs to be done on the harmonisation of the oversight framework for securities clearing and settlement in the European Union. The continuous absence of such a harmonised oversight framework generates a number of undesirable effects. However, after the recent ECOFIN decision, I am very optimistic that we will soon see the finalisation and adoption of the ESCB-CESR recommendations for securities clearing and settlement. •  The relevance of collateral for liquidity issues has been clearly recognised by central banks. During the past ten years, central banks have – especially in the context of the Committee on Payment and Settlement Systems and other Basel committees – focused jointly their attention on the use of collateral in financial transactions,  6  BIS Review 130/2007  including the cross-border use of collateral. 4 Cooperation in this respect is very useful and, especially for emergency situations, I would think that central banks –by enabling the cross-border use of collateral – could make a positive contribution to financial stability. Ladies and gentlemen, let me now close my introductory remarks by once again welcoming you all and by thanking all of those who have been involved in preparing this conference, in particular Daniela Russo and Mark Manning. 4  CPSS report on “Cross-Border Collateral Arrangements”, Bank for International Settlements, Basel, January 2006. BIS Review 130/2007  7

However, new vulnerabilities have emerged, especially a broadbased deterioration in the fiscal positions in a number of non-euro area EU countries, a number of which are currently under excessive deficit procedures. As Chart 8 on slide 13 illustrates, it needs to be kept in mind that the stock of outstanding foreign currency loans in these countries, while no longer increasing, remains sizeable, which makes the quality of exposed banks’ assets vulnerable to exchange rate risks. Given that the exposures to the CEE region are rather concentrated among some euro area countries’ banking sectors, the risks remain material in these cases. The third risk that has been identified within the euro area financial system is that of heightened financial market volatility if macroeconomic outcomes fail to live up to expectations. Until the increase in volatility experienced this month, the stock markets in the euro area had broadly stabilised after a strong recovery in 2009, which mainly reflected the impact of improving macroeconomic news and better corporate earnings prospects. Chart 9 on slide 14 shows that most conventional valuation measures, such as the long-term price-earnings ratio do not suggest that valuations are particularly high by historical standards. But there is a risk of heightened financial market volatility, if expectations of macroeconomic outcomes are disappointed. I would also like to briefly comment on the current state of the euro area securitisation markets. The securitisation markets were rendered dysfunctional by the financial crisis for a variety of micro and macroeconomic reasons.
Its advocates say that one of the advantages of a target for nominal GDP is that it forces the central banks to give consideration to developments in the real economy and not just to inflation. In general terms, a nominal GDP target would appear a fairly unnecessary complication in this context, particularly if one already conducts a policy that means there is scope, or even an obligation, to give consideration to the real economy – through a flexible inflation-targeting policy, such as the one conducted by the Riksbank and the Bank of England, or that conducted by the Federal Reserve, with a dual mandate to strive for both price stability and a good development in employment.15 A counterargument of a more practical nature is that inflation targeting can be based on better data. While the CPI and other relevant price measures are published every month, GDP and the GDP deflator are only published quarterly, and with a relatively long time lag. Moreover, the CPI is only revised in exceptional cases, while GDP data are revised almost routinely, and sometimes substantially. One argument that I think also weighs heavily, from a practician’s point of view, is the difficulties I foresee with regard to communicating a nominal GDP target. The inflation target is now fairly well accepted and the general public appears to understand it. It would probably be a different matter with a nominal GDP target.

Over the past few months, the staff of our institutions have been in very close contact, preparing together the terms of the contract and finding appropriate solutions to a rather diverse set of challenges. I would like to ask you, Mr Chairman, to extend our warmest thanks to the staff of the Bank of Russia for their efforts to address all pertinent issues. The new three-year cooperation programme will start on 1 April and will focus on banking supervision and internal audit. In the area of banking supervision, the Eurosystem will support the Bank of Russia in its gradual implementation of the internationally accepted principles of the Basel Committee on Banking Supervision that are commonly known as the Basel II framework. The financial market turmoil that emanated from the US subprime mortgage crisis has highlighted, among other things, the importance of transparency and of sophisticated and effective risk management standards and practices in banks. The Basel II framework provides an advanced approach to capital measurement and capital standards. It represents the regulatory response to the increasingly complex and globally integrated financial markets, where credit risks are often passed from the originators of bank loans to a wide range of investors, instead of remaining on the books of the originating banks. Indeed, the Basel II framework was conceived to support banks in the implementation of advanced risk management standards with the overall aim of improving the stability and soundness of the financial system in all the economies around the world.
In particular, we should set in place mechanisms for the monitoring of and individualised guidance for the unemployed, based on statistical profiling techniques targeting the unemployed and available vacancies. Possible changes in the sectoral structure of employment also advise reinforcing lifelong learning. It would also be desirable to retain the possibility of training contracts, with the greatest possible flexibility, for youths and firms. Finally, the current arrangements on hiring rebates should be reviewed and priority given to those aimed at the elderly and lesserskilled, with ongoing monitoring of their effectiveness. 4.3. Addressing the challenge of population ageing Population ageing is one of the biggest challenges the Spanish economy faces. Illustrating this is the foreseeable course of the dependency ratio, which currently stands at 29.5% and will increase by more than 25 pp in the next 25 years. The determinants include most notably one of the highest rates of life expectancy in the world and a very low fertility rate. This suggests it would be worth introducing measures promoting life-work balance, increasing support for families and offering more opportunities in the labour market, especially for young women with children. The latter are frequently economically affected to  7  a greater extent by the decision to become mothers. Further, migratory policy should be adapted to bring it better into line with labour market needs. Population ageing effects weigh down particularly on public finances.

Adopting this culture of assessment in economic policy design should be one of its pillars. Allow me now to give you a brief overview of the impact of the pandemic on economic activity. Subsequently, I shall briefly address the content of the economic policy strategy I have just outlined. Details of this content are, in any event, in a document I forwarded to the Chair of this Committee to be distributed among its members. 2. The economic crisis caused by the coronavirus pandemic The pandemic has had an extraordinarily acute impact. In Q1, China saw the biggest decline in its GDP in history. In the United States, the unemployment rate rose to record highs. And euro area GDP fell by 3.6% in the same period. In Spain, despite the fact the lockdown measures only affected the last fortnight of Q1, GDP slumped by 5.2%, also the biggest quarter-on-quarter decline in our recent history. The fact that virtually all of the restrictions linked to the state of alert have been in force for more than half of Q2 will necessarily mean a significantly sharper decline in activity in this 2  period. On Banco de España estimates, this contraction in GDP might stand at between 16% and 22% relative to its Q1 level. The severity of the crisis has been particularly visible in employment. The adjustment from mid-March to end-May affected more than 26% of total employment. In parallel, the number of firms registered in Social Security records has undergone the biggest fall in its history.
While European labor markets are not – and will never be – as integrated as in the United States, goods, services, and capital markets are now fully unified, in many regards to a greater extent than in any other countries. Our studies show that business cycles tend to be more and more synchronized with time, an evolution which allows for greater efficiency and sustainability for a common monetary policy. This shows that monetary union is a self sustaining process: convergence can be a result, as much as a condition of economic integration. This has been termed the "endogeneity of optimum currency area" effects. Enlargement of the euro area As I said before, in contrast with some gloomy predictions made ten years ago, the euro is a success story. Far from being a closed Club, the Euro area is open and has a true calling for covering all the EU members, in so far as they fulfil the convergence criteria. Indeed, adopting the Euro can be seen as a legal obligation for all EU members once they have fulfilled the Maastricht convergence criteria. Monetary union is an on-going process. Starting in 1999 with 11 members, the Euro area has regularly expended. On 1 January 2001, Greece joined the Euro area. More recently, on 1 January 2007, Slovenia was the first of the 10 New Members  2  BIS Review 43/2007  States entered into the EU in 2004 to adopt the Euro; this brought the current number of members of the Euro area to 13.

In such circumstances, it would be extremely penalizing to give up the possibility of real exchange rate adjustments. This shows that there is no single model of monetary cooperation which could be duplicated around the world. It is up to each group of countries to find their own sustainable path to economic integration. Will monetary union evolve towards closer political union? As you well know, these are difficult times for European political integration. The Treaty creating a Constitution for Europe was not ratified by two founding members of the European Community. As a consequence, the future of political integration is fraught with uncertainties. These raise several important questions for the future. Has the process of political integration stalled or just paused? What is the appropriate institutional framework for an enlarged Europe? These are questions best left for the historians and political scientists to answer. But one question is essential: can monetary union progress and survive without a full fledged political union? Can we – to quote, Otmar Issing, my former colleague in the ECB's Executive Board – have "a currency without a state"? For me, like for Otmar Issing, the answer is clear: yes, we can. From the start, the European project has ventured into unchartered territory. We have created an institutional framework without any historical precedent and model. This is especially true for monetary policy,  BIS Review 43/2007  3  where we have transferred the decision making powers to a supra national entity.