samchain/econo-pairs-v1 huggingface dataset:
The fact that interest rates have fallen, and are now at historically low levels, means that the level where the central banks’ policy rates are “neutral”— that is, neither expansionary nor contractionary – has also developed in a similar manner. The relationship between the neutral interest rate and monetary policy can be illustrated with the aid of Figure 4. The neutral interest rate is represented by the broken line. When central banks conduct monetary policy via the policy rate, they change it in the way described in the solid line. An interest rate that is lower than the neutral one stimulates demand and inflation, while an interest rate that is higher than the neutral one has the opposite effect. Central banks cannot set interest rates independently of the neutral interest rate, but must take it into account. As the neutral interest rate is currently at a historically low level, the central bank's policy rate needs to be very low to have an expansionary effect. This has meant that policy rates in many countries today are at or close to the lower bound, and would have been even lower if this had been considered possible. In other words, monetary policy is currently being squeezed from two sides — the pandemic and fall in demand that is subduing inflation on the one hand, and the conditions that make it difficult to cut the rate to counteract this on the other. 2 Skingsley (2016).

In my speech in 2016 I also didn’t address how monetary policy and communication of monetary policy should be formulated more explicitly in a situation where inflation is not expected to reach the target during the forecast period, and there is a risk that the long-term inflation expectations will fall and become entrenched at a low level. We had not come that far then, but as many countries now find themselves in a situation where this risk is a reality, it is a problem that the world's central banks and governments need to deal with. Continued expansionary policy with possible modifications So, if I return to the Riksbank, how do I think we should act more specifically – what should be the plan from now onwards? With regard to communication of  6 [15]  the principal plan, we should, as I mentioned earlier, both be completely clear that monetary policy is still aimed at the inflation target, and also continue emphasising why it is important that the inflation target is some way above zero – with the aid, for instance, of the three questions I mentioned earlier. Explaining why a respectful distance to zero inflation and deflation is so important is not a new element in our communication, but as it is more important than ever before that there is a broad understanding of it in society, we need to increase our efforts. Of course the actual policy should in accordance with this remain expansionary, with the tools that are at our disposal.
The price of copper rose to US  BIS Review 72/2006  1  $ per metric tons in December 2005 from US $ per metric tons in December 2004. The price of copper has since increased sharply and by May 2006 it had risen to over US $ per metric ton; 2. Increased non-traditional export earnings, from US $ million in 2003 to US $ million in 2005;  3. Improved economic confidence following the attainment of the enhanced Highly Indebted Poor Countries(HIPC) Initiative Completion Point in April 2005, which resulted in reduced external debt service and obligations; and  4. Increased foreign direct and portfolio investments, reflecting increased market confidence in the economy, occasioned by the greatly improved prospects for the copper sector, the cancellation of the bulk of Zambia’s external debt, and anticipated continued commitment to implementation of prudent fiscal and monetary policies. Mr. Chairman, from this, it is clear that the current strengthening of the Kwacha has been caused mostly by changes in economic fundamentals. I recognise the concerns by some of our exporters of non-traditional commodities that they are losing external competitiveness. I wish to point out that not all has been lost as a result of the appreciation of the Kwacha. Some non-traditional exporters have benefited through, among other things, the reduction in the cost of capital goods and imported raw materials. In addition, may I mention the fact that the exchange rate alone does not determine external competitiveness of exports.

The central banks have also cut policy rates rapidly and forcefully, sometimes in coordinated actions, to alleviate the repercussions of the financial crisis on production and employment. Governments have offered guarantees and capital injections to reduce the risk of further bankruptcies in the banking sector. Several countries have also decided on large fiscal policy stimulation packages. 2  BIS Review 25/2009  The measures taken by central banks and governments around the world so far have contributed to reducing the pressure on the interbank markets. Without these measures the financial markets would probably have ceased functioning entirely. One sign that the crisis is no longer as acute is that the TED spreads have fallen in Sweden, as well as the United States and the euro area. The spreads are now back at around the same levels that prevailed immediately prior to the worsening of the crisis in 2008. But the financial markets are still functioning much less efficiently than normal. It is also still difficult for companies to finance themselves in the capital market. The Riksbank has also implemented a large number of unconventional measures to safeguard financial stability and mitigate the negative effects of the financial crisis. During the second half of 2008 the Riksbank increased its lending to the banks by more than SEK 450 billion. Almost SEK 200 billion of this was comprised of loans in US dollars. We have largely financed this through a swap agreement with the Fed.
BIS Review 144/2009  5  Resolution of bank failures If recovery plans prove wanting, then distressed banks need to be “resolved” – laid to rest, but without undermining crucial economic services. Sometimes the best course will be a straightforward, whole-bank liquidation, with retail depositors receiving a payout from the insurance fund. But, alternatively, resolution can involve selling the deposit book – and so the vital payments services – to another bank. Good assets might go with the deposits, or be transferred elsewhere. Bad (or at least unsaleable) assets go into run off. Choosing the best course is central to effective resolution planning. To split up and transfer the different parts of a bank, the authorities obviously need specific and extensive powers. The broad model is provided by the Deposit Insurance Corporations of the USA and Canada. The UK has recently introduced such powers, having learnt the hard way that we needed them. A number of other countries in the EU adapt their normal corporate insolvency regime for the special structure of banks, but do not all have the option to break up and transfer different parts of the business. This is the subject of the recent consultation paper published by the European Commission. 5 In the UK, the Bank of England has become the Special Resolution Authority. We have been helped by the hands-on operational expertise necessary for our market operations and for running the wholesale payments system. This new responsibility has given us an interesting vantage point on the preconditions for effective resolution.

To achieve its goal, the SNB strives to provide the most appropriate monetary conditions, not to achieve an exchange rate target. The primary indicator of the success of interventions is the inflation chart. Conversely, the more significant gauge of the potential cost of interventions is not found in the central bank’s balance sheet. Our foreign exchange interventions will be revealed to have been costly if they result in serious inflationary pressures two to three years from now. As the subsequent speaker, Dewet Moser, will explain in further detail, since June 2010 the SNB has been setting up and using instruments that allow us to adapt the conduct of monetary policy to the new excess liquidity situation. We are convinced that these instruments, reverse repos and SNB Bills of various maturities, which are now fully operational, constitute an efficient toolset for the times to come. They place the SNB in a sound position to steer the Libor rate at the level required to maintain price stability. 11  The Swiss Confederation also had public surpluses both in 2009 and 2010 (+0.5% and +0.4% relative to GDP, respectively) and a debt level of around 20% relative to GDP. 12  See, for example, Hildebrand, Philipp (2010) “Monetary policy challenges: Swiss exports in a globalised world”, Brussels, November 2010.
The fact that the reason for many virtual currencies is to skirt the formal financial system adds further to the reservations of many. On this front, the Financial Action Task Force (FATF) has published a number of reports on risks and guidance for risk-based approach in mitigating money laundering risks associated with technology such as virtual assets and internet-based payment services. Understanding, monitoring and supervising virtual assets would require development of new techniques and methods. Last but not least, in watching out for new and emerging risks, we must not forget that old risks may rear its head in new ways. There are two issues in relation to this: Firstly, while the number of terrorist attacks have declined over the past few years, the nature of terrorism and terrorism financing have evolved. New modus operandi such as lone-wolf attacks and remote terrorist cells, as well as availability of new products in the financial sector, such as prepaid cards and mobile banking, has given rise to new patterns and methods of financing terrorism that are different from a decade ago. We must not forget that dealing with these financial crimes should remain a high priority due to the direct and immediate human costs involved. Secondly, we must also not forget that even with the emergence of the technologies described earlier, we are still very much reliant on cash. Demand for cash worldwide continues to rise. For Malaysia, currency in circulation has increased by around 150% over the past decade.

In addition, there are about 130 Islamic unit trusts issued in Malaysia. Thirdly, there are two Shariah-compliant real estate investment trust (REIT) listed on the stock exchange – a hospital REIT and an oil palm  2  BIS Review 57/2008  plantation REIT. Finally, Asia's first Islamic exchange traded fund (ETF) was issued in January 2008 valued at the equivalent of USD262.5 million. A second foreign currency tranche is expected to be launched later in the year which is open for participation of international investors. In relation to this, Malaysia maintains a liberal foreign exchange administration regime where investors are freely able to obtain ringgit and foreign currencies to fund their investments. There continues to be free mobility of inward and outward movement of funds relating to both foreign direct investment and portfolio investments. Having developed a comprehensive Islamic financial system that is supported by the legal, Shariah and regulatory infrastructure, the Islamic financial landscape has been liberalised with the entry of new international players. In addition, the foreign equity ceiling in Islamic financial institutions has also been raised to a maximum of 49 percent as part of the effort to promote strategic alliances. New licences are also being offered for International Islamic Banks and International Takaful Operators to conduct the full range of Islamic banking business or takaful and retakaful business in international currencies. These institutions may be established as a branch or subsidiary and are accorded a tax holiday until 2016.
The Central Bank is doing its utmost and intends to boost its efforts and the quality of these efforts by providing top quality and highly reliable public domain quantitative and qualitative information. Our research capability is one of our top priorities. This enhancement of our capability to produce reliable knowledge will benefit all discerning stakeholders including the policy maker (who we are statutorily committed to advise) and the potential investor (who abhors any vacuum of knowledge concerning the target location). Promoting a healthy business environment also requires action to reduce excessive bureaucracy, to increase the efficiency of our judicial system and to ensure that our legal and regulatory frameworks remain appropriately flexible. At the Central Bank of Malta we have taken initiatives to help the business environment by launching the Credit Register and by promoting the setting up of the Development Bank to give better access to credit for SME’s and to infrastructure investments on the Public Private Partnership (PPP) model. We are also piloting changes to pre-insolvency procedures in an effort to curb unnecessary liquidations and save businesses that deserve a second chance through financial restructuring. We are also leading efforts to amend legislation to achieve more efficient contract enforcement procedures to address the long duration of NPL’s on bank balance sheets. These initiatives will help us climb the admittedly steep ladder of international rankings measuring business efficiency.

Asset quality continued to improve, as non-performing loans, especially to the non-financial corporate sector declined by almost 12%, mostly reflecting improved creditworthiness and an increased commitment by borrowers to honour their loan commitments. As a result the Non-performing Loan ratio declined to 6.5% by mid-year and is expected to decline further to below 6% later on this year. While banks have continued to adopt a prudent stance by increasing provisions, and while such loans are generally covered to a significant extent by collateral, nevertheless they need to build further coverage and exercise restraint in dividend distribution to shareholders to preserve further the soundness of the banking system. In this regard, the authorities, namely the Central Bank and the Malta Financial Services Authority through the Joint Financial Stability Board, have taken policy measures to ensure that by preserving its soundness, the overall banking system remains supportive of economic growth. During 2016, the authorities introduced the Other Systemically Important Institutions capital buffer, to preserve capital in those banks that are the most systemically important for the domestic economy. We have also launched the Countercyclical Capital Buffer, although this has been currently set at 0% as credit growth has not been excessive relative to economic growth or contributing to asset price inflation. Page 4 of 8  Other decisions to maintain the soundness of the banking system relate to addressing the stock of NPLs, which is incidentally also high on the agenda of the Single Supervisory Mechanism.
This makes approaching reform both complex and sensitive at the industry level, and for the various and varied individual players. But reform is necessary, to put in place a regime for the UK that provides the right level of resilience and investment incentives into the long-term. This regime will build on the experience and unexpected shocks we have seen in recent years, and create the capacity to deal with whatever else the future might bring. Returning to my suitcase analogy, who would have thought in 2019, never mind 1990, that those carefully packed clothes for a 2020 holiday in the Caribbean would need to instead serve a staycation in the UK. Things change and the ability of MA portfolios to adapt to this is key. On the Solvency II review, we have been open with the possible reform options we’ve been developing in the pre-consultation phase of the review. This has had the benefit of generating a lot of feedback, particularly in the months since our quantitative and qualitative information requests. As mentioned, we recently published a Discussion Paper[6] alongside HM Treasury’s Consultation Document. We are now arranging further meetings to hear reactions to that Discussion Paper and will engage with all material provided to us. We will be asking many of you for more information in the next few weeks and months, because we need to explore further the areas that are important to us and the areas that you’ve said are important to you.

Supervisory Statement 1/20 Solvency II: Prudent Person Principle, section 2.3 (SS1/20 Solvency II: Prudent Person Principle (bankofengland.co.uk)  )  3. PRA calculations using annual returns data for year-end 2014 and Matching Adjustment (MA) Asset & Liability Data submissions by firms as at year-end 2020. 4. This refers only to assets in Component A of firms’ MA portfolios. See paragraph 4.5 of Supervisory Statement 7/18 for a definition of Component A. (Supervisory Statement 7/18 'Solvency II: Matching adjustment' (bankofengland.co.uk)  Page 15 ) 5. Solvency II Review: Matching Adjustment and reforms to the Fundamental Spread 6. PRA Discussion Paper 2/22 (DP2/22 – Potential Reforms to Risk Margin and Matching Adjustment within Solvency II | Bank of England)
More broadly, the FPC has judged the UK banking system to be resilient and “well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates.” And so while there are clearly lessons to be learned from this episode, I  Page 8  think experience in the UK shows the benefits, including to corporates, of our post-GFC banking reforms. Banks are not the only providers of finance to the real economy. UK corporates, particularly large ones, have become increasingly dependent on financial markets as a source of lending. Indeed, market-based finance as a share of aggregate corporate debt has increased from 40% in 2009 to over 50% in 2022, accounting for nearly all of the increase in net lending since 2007. In theory, the availability of market-based finance helps mitigate credit supply disruptions, as the existence of a strong market channel avoids over-reliance on bank funding. In addition, some market-based investors have long-term investment horizons and may be well placed to look through short-term dynamics. [3] But increased dependence on market-based finance leaves UK corporates exposed to new shocks, especially in riskier market segments, like high-yield bond, leveraged lending, or private credit markets. Globally, these markets have almost doubled in size over the past decade. A sudden or disproportionate reduction in investor appetite for these assets, in combination with forced sales and sharp falls in asset prices, could impact UK firms’ ability to access funding, potentially forcing some companies to delever or even default.

The group has produced recommendations and guides to support defined contribution (DC) pension schemes safely investing in less liquid assets. This is in itself a great investment – DC scheme assets  more than doubled over the last ten years, and are projected  to be around £ trillion by 2035. So the benefits to pension scheme members of long-term investment gains, and to businesses of accessing this pool of capital, will only grow over time. We also need the right structures to facilitate long-term investment, which links back to our focus  Page 11  on financial stability. Like the CFOs looking to fund long-term projects with long-term investment, we worry when non-bank financial institutions pair illiquid assets – things you can’t sell or exit in a hurry – with short-term liabilities. If investors pull out, the financier needs either to sell assets at a discount, or stop withdrawals – as we saw with commercial property funds in Brexit and Covid. And because once you suspect others of withdrawing it is rational to do so yourself, ‘run dynamics’ can escalate quickly. That’s why the FPC has been supportive of work by the Productive Finance Working Group, the FCA and others on the long-term asset fund (LTAF) – a new type of UK fund structure specifically designed for investment in long-term, less liquid assets. From an FPC perspective it ticks the boxes for both our primary and secondary objectives. And just last month the FCA authorised the first LTAFs – hopefully the first of many.
Thus, the price stability policy has in general been successful. In many countries this is due not only to monetary policy, but also to fiscal policy. A common fiscal framework within the EU, and in Sweden’s case supplemented by a clearer national fiscal framework, have contributed to more orderly public finances. In Sweden this has led to a gradual decline in the central government debt as a percentage of GDP. We can look back on a decade of GDP growth where the annual average has been a half a percentage point higher than during the 1970s and 1980s. Inflation has been close to target, which can be compared with an average annual inflation rate of around 8 per cent during the two decades 1975-1995. …but asset prices are fluctuating considerably However, at the same time as inflation has been low and stable around the world since the mid-1990s, there have been substantial fluctuations in asset prices. The fact that debts and asset prices appear to vary more now than they did 10-15 years ago should, at least in part, be due to the deregulation and evolution of the financial markets. In efficient markets, it is the price system that provides guidance to ensure that resources are steered to where they will provide the greatest benefit. For instance, equity prices in industries with considerable growth potential should rise as a result of profits being expected to increase there.

The stock market upturn was probably pushed up initially by fundamentally motivated expectations of future profits and growth in the IT and telecom sector, but also by the fact that technology was generally considered to create the conditions for higher growth over a long period of time. However, there soon appears to have arisen a general over-optimism regarding the durability and strength of the expected future increases in income. Low interest rates as a result of low inflationary pressures contributed at the same time to an increase in companies’ and households’ indebtedness in many countries. Investment growth was high in many sectors. When the share bubble burst, it was followed by an economic downswing, where high indebtedness created a requirement for consolidation in the corporate sector. This led to demand for goods and services being subdued, together with an increase in precautionary saving in many households. To avoid a deep economic recession and a further decline in inflation, the central banks cut their policy rates from the already low levels. However, growth in investment and employment was a long time coming, as instead of new recruitment and expansion, companies chose to rationalise their production and achieve scope to reduce their debt ratios through lower costs and to meet the increased competition from low-cost countries. The low interest rates thus did not seem to have any immediate effect on consumption and investment, but gave further stimulation to household sector demand for housing and loans in many countries.