samchain/econo-pairs-v1 huggingface dataset:
Unemployment has steadily fallen since then and the inflation rate has returned towards 2%, which is the Federal Reserve’s inflation target. Only then could the FOMC stop increasing its balance sheet, raise the Federal Funds rate from its floor and so initiate an exit strategy. Obviously we, in the Eurozone, are not at the same point of the business cycle but we are travelling along the same road for monetary policy. Some consider these unconventional policies in the euro area are counterproductive because ultra-low interest rates hurt savers and banks. However, we have monitored closely banks’ profitability and – taking into account ALL elements of monetary policy  BIS central bankers’ speeches  3  – there is in 2015 no evidence that this is doing harm overall. Moreover, the global longterm real rate of interest has been falling for around 30 years reflecting an imbalance between a strong desire to save and a relative scarcity of those willing to borrow to invest. As we all know, this imbalance is extremely acute in Germany where this surplus is in the order of 8 % of German GDP. Above all, we cannot base our decisions on their outcomes for particular groups but on the common good. Economic activity does not depend only on savers but also on entrepreneurs, workers, homebuyers and borrowers who benefit from low interest rates. Eventually, these policies will lead to levels of inflation more consistent with our mandate and will call for higher interest rates both in nominal and in real terms.

We closely monitor this process and get ready to respond adequately in order to protect the Macedonian economy against severe impacts. Therefore, the cooperation between the National Bank and the commercial banks will be even more important. Thank you for your attention. BIS central bankers’ speeches  3
The answer is that while the rise in real house prices over that period would have been less than half as large, the impact on overall real credit growth would have been pretty modest, reducing it by only a tenth – hardly enough to have a major bearing on the magnitude of the subsequent bust. Moreover, output would have been some 3 per cent lower. Monetary policy on its own therefore does not seem especially well suited to preventing credit/asset-price booms. So the crisis exposed not only the inadequacy of our understanding of the true nature of the risks that had built up in the financial sector, but also the need for suitable instruments to deal with them. One of the key reforms in the United Kingdom following the crisis has been to establish a body – the Financial Policy Committee (FPC) – with the responsibility for overseeing the stability of the financial system, together with specific powers to achieve that. The FPC will exist on a statutory basis once the Financial Services Act has passed into law, but has been operating on an interim basis since June 2011. The FPC has two objectives. First and foremost, it is charged with identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. But that is accompanied by a secondary goal: subject to protecting resilience, it should support the economic policy of the government, including its objectives for growth and employment.

Chart 2: Capital and leverage ratios of major global banks(a) Chart 2a: Risk-based capital ratios, end-2006 Per cent  Chart 2b: Leverage ratios, end-2006(b) Per cent  16 Surviving banks Failed banks  14  16 Surviving banks  14  Failed banks  12  12  10  10  8  8  6  6  4  4  2  2  0  0  Sources: Capital IQ, SNL, published accounts, Laeven and Valencia (2010) and Bank calculations. (a) The classification of bank distress is based on Laeven & Valencia (2010), updated to reflect failure or government intervention since August 2009. (b) Total assets have been adjusted on a best-efforts basis to achieve comparability between institutions reporting under US GAAP and IFRS. BIS central bankers’ speeches  9  Chart 3: Output losses relative to trend after financial crises(a) Per cent 20 Interquartile range-past episodes Total range - past episodes  10  Mean 0  -10  -20  -30 0  1  2  3  4 5 Years from start of crisis  6  7  8  Sources: IMF and OECD. (a) The episodes examined are taken from IMF (2009).
The protection of existing or the creation of additional market failures, although inefficient on the whole, can be a profitable activity for an individual or for a single group of participants in a financial system. Therefore market imperfections once identified and addressed with appropriate measures are likely to permanently change their form and place and to challenge even the best of existing institutional arrangements time and again. A third imperfection that may affect a financial system is an unsatisfactory level of competition. When saying this I do not refer to perfect competition as described in textbooks but rather have in mind market contestability. Contestability excludes undue pricing power by market participants, the existence of collusion among market participants and barriers to entry. You will certainly agree with me when I say that there is no guaranty or a kind of “natural law” that leads markets to organise themselves according to the requirements of contestability. The free play of market forces is the exception rather than the rule. Economic agents individually benefit from rule bending. In addition, and this is of particular relevance in clearing and settlement, the presence of high fixed costs constitute relevant barriers to entry. From experience we know that these barriers reduce competition or eliminate it all together. In extreme cases we speak of a “natural monopoly” which call for regulation by public authorities. Market imperfections such as asymmetric information, negative externalities or limited competition have shaped the evolution of financial systems everywhere.

In the field of securities clearing and settlement systems the production of services is based on processes with high fixed costs. There is thus a risk that the free play of market forces is limited and that actual market developments might lead to monopolies that greatly damage efficiency. Regulatory and oversight authorities must therefore also make it their goal to prevent potential abuses of market power. Against this background, I strongly believe that trust-based co-operation between the providers of market utilities and regulatory and oversight authorities remains the key to the continued successful  BIS Review 28/2003  5  development of an efficient and secure financial system that can handle fast-changing needs in the future. Ladies and Gentlemen, thank you for your attention. 6  BIS Review 28/2003
The US central bank, the Federal Reserve (the Fed), and the European Central Bank (ECB) took action in this situation by lending large volumes of money to the banks when they could not borrow from one another. The degree of financial unease then varied during the course of a whole year. The TED spreads peaked when the banks wanted to secure their liquidity ahead of the turn of the year 2007-2008. A further peak was reached in March 2008 when US investment bank Bear Sterns suffered acute liquidity problems and suspended payments, but things calmed down again after the Fed mediated the takeover of the bank by JP Morgan. BIS Review 25/2009  1  In mid-September 2008, when the US investment bank Lehman Brothers filed for bankruptcy, the financial turmoil became an acute financial crisis. The TED spreads were driven up to very high levels. Many banks, institutions and funds were highly exposed to Lehman Brothers. Few had expected such an important financial agent to be allowed to fall. There was a great deal of concern that more players would end up in a similar situation. The remaining large investment banks as such quickly disappeared. The financial crisis also spread to other countries and developed into a global financial crisis. Access to credit declined on the financial markets around the world and some markets more or less ceased functioning.

I shall now begin with developments in the financial markets. The financial turmoil worsened in the autumn and has developed into a global financial crisis The financial turmoil worsened in September 2008. It has now turned into a global financial crisis. Developments during the financial crisis can be illustrated in several different ways, for instance, through TED spreads. These show the difference between the interest rate the banks pay on loans between one another on the interbank market and the interest rate on risk-free government securities. It is thus a measure of how the banks price credit risk. At the beginning of 2007 and also prior to this, the spread was often between 10 and 20 basis points in Sweden, the United States and the euro area. In August 2007 the TED spreads increased substantially. The large French bank BNP Paribas stopped withdrawals from three of its investment funds, which were exposed to the US subprime market, that is, mortgage loans aimed at households with a poor ability to pay. The reason for this was that it was impossible to calculate what the assets in the funds were worth, as trade in them had largely ceased. At the same time, several other large market participants warned of losses linked to the US mortgage market. The banks began to be unwilling to lend money to one another and interest rates in the interbank market rose substantially.
In fact, things are even worse than this because lenders typically expect borrowers to fund a larger fraction of an investment themselves in such circumstances, reinforcing the downward spiral. And Adrian and Shin (2008) indeed find that the leverage ratio of the five US large investment banks, which held a substantial quantity of the securitised loans, was indeed strongly correlated with the size of their balance sheets. Now I noted earlier that once counterparty risk becomes a material concern, it is not only the state of an intermediary’s immediate counterparties’ balance sheets that matter, but also the state of those counterparties’ counterparties balance sheets, and so on. In practice, what used to be a very simple process of intermediating funds between savers and borrowers has evolved into a highly complex network, which is both difficult to comprehend and a major source of uncertainty. This complexity of the financial network is illustrated in Figs. 16 and 17, in which the size of the nodes is proportional to the size of the balance sheet and the thickness of the external lines measures the sum of the bilateral exposures. Fig. 16 shows the network for the major players in the UK financial system, while Fig. 17 shows a corresponding map for the international financial system. In the first instance, any losses that arise will be scored against an institution’s capital. But when it reaches the point of default, the losses cascade through the network until they reach intermediaries with enough capital to absorb them.

These go by the name econoME. As the name suggests, and like our recent public communications efforts, these materials describe the economy and finance in terms which are personal and relatable to young people’s lives. Why does the economy and finance matter to me? And how do my decisions in turn affect the economy? We set ourselves a target of reaching 400 state schools with econoME during the course of this year. So far since launch in April, over 1,000 schools have downloaded the materials, conceivably covering around 90,000 pupils. 52  This demonstrates the potential pent-up demand for school materials on economic and  financial issues. The Bank’s aim is to reach close to 1,500 schools by mid-2020. We are currently considering where next to take our education initiatives. A promising avenue would be a younger age range, say 7-11 year olds. This will require different materials and possibly a different approach. A more challenging market still would be adults, perhaps linked to existing initiatives to boost  50 51 52  Haldane (2018a) and Barnes et al (2017). ING-Economics Network Survey of the Public’s Understanding of Economics (2017). Assuming 30 students per class and 3 classes per school. 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  economic and financial literacy in the public at large. The scale of the public understanding deficit means central bank efforts can only be part of the solution but, as public institutions, an important part.
The focus is often on individual pension savings, but households’ total pension wealth also contains savings in collective funds, for instance, in systems for occupational pension schemes and premium pensions. The fact is that this form of saving currently comprises around half of total financial assets (see Figure 3). Moreover, we all have pension assets linked to the general income-based pension, which are not in funds but are linked to the pension rights we earn until we retire. Whether or not one has a job does play a major role for the size of the collective saving and the general income-based pension. It determines whether or not one receives an occupational pension and is also important for one’s income profile during the working life. Lower unemployment and higher employment should therefore have a levelling distributional effect for this reason, too. 8 The employment perspective on the income distribution in Sweden is described by, for instance, Bengtsson,  Edin and Holmlund (2014) and SNS (2017). 9 See, for instance, Government Bill 2011/12:100. 10 [14]  Figure 3.

There are also relatively large variations between households with regard to the distribution of capital income from capital gains, yield and interest on different types of asset and liability. The effect of an expansionary monetary policy on income and wealth distribution can thus vary for this reason, too. Households’ capital incomes may, for instance, differ in their sensitivity to changes in interest rates. All else being equal, low interest rates benefit household with relatively large debts as interest payments become lower. Households with bank savings are correspondingly disadvantaged and households with relatively large interest-bearing assets thus have a lower yield. Here the maturity of the different assets and liabilities also plays a role. If, for instance, mortgages are mainly at fixed interest rates, the effect of interest-rate cuts will be less than if the loans are primarily at variable rates. A comparison between different income groups shows that liabilities as a percentage of disposable income are more than 250 per cent in all groups in Sweden (see Figure 2). With the exception of the group with the lowest income, however, there is generally little difference in the debt-to-income ratio between the groups. 5 A related question is how income from these two sources develop in relation to one another over time. See, for  instance, Karabarbounis and Neiman (2014) who find that the share of labour income has fallen in many countries and many sectors. 7 [14]  Figure 2.
Paradigm is a word too often used by those who would like to have a new idea but cannot think of one. Optimism about growth rates has been greatest in the United States, which is hardly surprising given the recent performance of the US economy. But wiser heads counsel caution. Alan Greenspan has argued that, although there is evidence of a structural shift in the level of productivity, the laws of supply and demand have not been repealed. Eventually the old relationships will return. If the UK economy moves in mysterious ways, it does not always perform wonders. A comparison between the US and UK is instructive. In both countries earnings growth has been lower, given the level of unemployment, than would have been predicted on the basis of past relationships. Inflation has not picked up despite a tight labour market. In the US one explanation for this benign outcome is that costs have been held down by an increase in productivity growth. Over the past three years labour productivity (output per person hour) in the US has grown at an average annual rate of around 22%, well above the average rate of 1–12% over the past thirty years; and over the past year productivity growth rose to an annualised rate of 3% or more. Over the same three years productivity growth in the UK has been 12% a year, well below the thirtyyear average of 2–22% a year.

It is extremely difficult, if not impossible, to know how large that windfall might have been. But even a windfall of 0.1 percentage points of GDP is a sizeable amount. Of course, somebody might very well point out that we could have reaped this same “windfall” by allowing inflation to rise to match the higher inflation expectations. But that would be inconsistent with aiming to hit the inflation target, and might well have led to a further ratcheting-up of inflation expectations. It would have lost us all the benefits that low and stable inflation brings. What has the MPC learnt in the past two years? The first two years of the MPC have been a learning process for all concerned, both the members of the MPC and those outside who observe and comment on its actions. We have learnt from experience and made changes where necessary. For example, the minutes of MPC meetings are now published after two rather than six weeks. The additional delay created unnecessary speculation about the issues on the minds of MPC members, and made it difficult for us to explain our actions – for example, to the Treasury Select Committee – when our decisions had moved on from those described in the most recent minutes. So we decided to accelerate publication. I would like to focus on two main lessons from the first two years. The first is the crucial importance of a symmetric inflation target.
Valuations lead lending by around a year, with a correlation coefficient of around 0.75. 2  BIS central bankers’ speeches  One way of slowing that pro-cyclical spiral would be to base lending decisions not on spot, but on medium-term or sustainable valuations. Any ramping-up of property prices above their sustainable value would not then automatically give the appearance of safety and thereby encourage looser credit conditions. That, in a nutshell, is the aim of the recommendation in the “Vision” document. Needless to say, there is further work to be done by the industry to make these proposals operational. The very first minutes of the Forum highlighted property statistics and valuations as two areas where greatest improvement was needed. Twenty years on, that remains the case today. A continued effort will be needed by the industry to complete the job. Next, regulators. For much of the period prior to the financial crisis, credit and asset price cycles were only of interest to policymakers to the extent they posed a direct risk to inflation targets or to the solvency of individual firms. Were a bubble to blow, then the most likely response was a combination of benign neglect on the upswing and lower interest rates in the downswing. The role of policy was to “mop” after the flood. That orthodoxy has been sunk by the crisis. After perhaps the largest credit boom in human history, central banks globally are still frantically mopping with unprecedented degrees of monetary stimulus.

To illustrate, an estimated 80% of trades are  BIS central bankers’ speeches  3  executed in electronic platforms in developed country FX markets, whereas 85% of FX trades in Asia are still executed by voice. A reduction in transaction costs can promote greater liquidity for Asian asset classes, and broaden participation from investors including retail traders. III. Growing regional and international role of the RMB  24. Let me go on to the third theme I wanted to talk about, which is that of RMB internationalisation, and how this will shape Asia’s financial markets development. 25. The status quo will not last. Currently, only 0.6% of global payments are settled in RMB, vastly below China’s share of global trade (10%) or investment flows. There is clearly room for growth. 26. In the long run, if we envisage China with deep and liquid capital markets, and a largely liberalised capital account, the RMB market will potentially play a transformational role in Asian finance. For now, even with limited convertibility, there is considerable potential for greater use of the RMB. The economic fundamentals are driving this. Besides China’s growing share of global trade, there is a rapidly growing trade between China and the rest of the Asian region, and especially ASEAN. Further, China’s foreign direct investments are expanding strongly, especially into Asian markets. Outbound Foreign Direct Investment (FDI) from China has increased almost seven-fold in the last seven years (to $ billion in 20123), and is expected to expand further in the coming decade.
6  BIS Review 71/2008  Appropriate liquidity facilities The third lesson concerns appropriate liquidity facilities. In order to react quickly and flexibly, central banks must be capable of injecting and withdrawing large amounts of liquidity at short notice. In order to distribute liquidity to banks when the money market is impaired, central banks must also be able to conduct operations with a maximum set of counterparties and against a broad range of collateral. In order to address liquidity premia, central banks should be able to intervene in maturity ranges which are longer than the maturities at which they usually operate. Central banks may also need to enlarge the basket of eligible collateral during a crisis. Furthermore, the crisis has made it clear that the effectiveness of a standing loan facility in times of crisis may be reduced if there is stigma attached to its use. Moreover, central banks should also have alternative plans up their sleeves on how to deal with severe and persistent illiquidity in the money market. The collateral swap facilities are not traditional liquidity management operations aimed purely at injecting liquidity. They provide a temporary relief of banks' balance sheets and therefore indirectly support liquidity in the money market. However, central banks should use such drastic measures only in exceptional cases. Central banks also need exit strategies for such eventualities. Finally, the crisis has also shown that, in order to successfully address financial market turmoil, central banks need enough room to manoeuvre and a liberal legal framework.

As a central banker, I would date the outbreak of the financial market crisis to the beginning of August, when overnight interbank rates increased sharply. The first central banks to react were the ECB and the SNB on 9 August, when both banks conducted extraordinary finetuning operations. Soon afterwards, other central banks followed suit, also injecting additional liquidity. 4  For a discussion of the transmission of monetary policy to financial markets see Ph. Hildebrand (2006), “Monetary Policy and Financial Markets”, speech given to the Annual Conference of the Swiss Society for Financial Market Research, 7 April 2006, or Th. J. Jordan (2007), “Globalisierung und Finanzmärkte: Herausforderungen und Chancen”, speech given at the ETH Zurich, 13 November 2007. 5  Of course, to retain credibility, the central bank must refrain from deceiving the markets, i.e. from announcing future action without actually intending to act. 6  As measured by the Case Shiller Composite Index. BIS Review 71/2008  3  So far, there have been three waves of money market strains. After subsiding somewhat in late September, the strains increased again in November, exacerbated by year-end pressures. The third wave started in March. The worst peak of the financial market crisis so far was attained in mid-March, when Bear Stearns was taken over by JPMorgan. The takeover, which was facilitated by the Federal Reserve, resulted in a calming of markets. Since mid-March, financial markets have improved somewhat, with the exception of money markets, which are still rather tense. 4.