samchain/econo-pairs-v1 huggingface dataset:
In welfare terms, the biggest gainers from the MPC’s monetary loosening have been the young, though every age cohort benefits overall. The same is true looking along the income distribution, where every cohort gains in welfare terms, even though the same was not true of purely financial gains. Policy Implications  Where does this leave us? Let me summarise the key empirical conclusions before turning to policy lessons. I take the key empirical conclusions to be:   The material loosening of UK monetary policy after 2007 has had a significantly positive effect on employment, income and wealth, without which average living standards in the UK would be materially lower.   These gains have been shared right across the distribution of income and wealth, age and region, though the precise scale and nature of these benefits does differ across cohorts. Very few households across the UK are likely to have been net losers in financial terms from the MPC’s monetary loosening, once all of its effects are take into account.   This conclusion is reinforced if we consider the impact of monetary loosening on people’s well-being. In addition to the financial gains from higher income and wealth, many people have benefitted significantly from greater job security and reduced financial anxiety. In welfare terms, these benefits may have been as large as the financial gains. The number of households who have lost out in welfare terms from looser monetary policy is only 12%.

The passage of this Act is a win-win for small businesses as well as banks. The Bank of Thailand regulations on loan classification, provisioning requirement, and valuation guidelines have been issued to help banks adopt this new collateral regime. 4/5  BIS Central Banker's Speeches  Ultimately however, we would like to see Thailand moving from collateral-based lending towards cash-flow-based lending especially for small businesses with few or no eligible collaterals but otherwise viable prospects. In order to do so, we need to have sufficient data for credit risk enhancement and monitoring. In light of this objective, we are developing an industry-wide SME database from pooled bank data for banks to use for their planning and risk management. In addition, we are working with relevant parties to amend the Credit Bureau Act to expand its membership to players like Peer-to-Peer (P2P) lenders. These efforts would get along well with the government policy to expand the roles and coverage of Thai Credit Guarantee Corporation (TCG) to provide credit access for SMEs lacking collateral security. Ladies and Gentlemen. If we look beyond our domestic market, increasing regional integration brings numerous exciting business opportunities. Thailand’s strategic location at the heart of Mainland ASEAN along with close economic relations with our neighbors make us a natural candidate to become a regional connector of trade and financial services. We have offered many fronts to enhance such connectivity.
On data due diligence, it seems obvious to say that insurers should not enter into bulk purchase transactions without understanding in some depth the nature of the annuity liabilities they are taking on. But this is an area where we see firms taking different approaches and willing to price with different levels of risks. One particular aspect is whether insurers have a full picture of their potential obligations to pensioner spouses and dependents. Insurers need to be clear about their appetite in relation to data risks. Most of the longevity risk on new transactions is currently being reinsured, often outside of the UK. 2  Estimates of BPA market from LCP and Towers Watson market reports 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  One reason is to mitigate the impact of the risk margin. As Sam Woods and I have said before, we recognise that the risk margin on long-dated insurance risks such as longevity is too sensitive to the level of interest rates and therefore too high currently. We are actively looking at further steps available to us within the constraints of Solvency II to address this issue. We expect that a more appropriate level of risk margin – similar to that envisaged when Solvency II was negotiated – would lead to a better balance between longevity risk being retained and reinsured by UK insurers on new business. While significant reinsurance continues, insurers should be paying close attention to counterparty and operational risks.

All in all, we can say that the renationalisation of the credit supply, coupled with funding pressures on both banks and sovereigns in certain countries, has weakened the impact of monetary policy, as partly unjustified domestic spreads keep rates applied to households and non-financial corporations higher than what would be consistent with monetary policy rates. Why does financial integration matter so much for monetary policy? In order to clarify why financial integration is crucial for monetary policy, let me use a metaphor drawn from agriculture: ever since ancient times farmers have watered their fields through a complex network of canals fed by wells or rivers. Whenever a canal was blocked, the farmer had to act quickly to unblock it in order to save his crop. The practice of irrigation was in fact first described in the Epic of Gilgamesh in the second millennium BC. Credit is the water of the economy, and for the economy to run smoothly it needs to reach all its parts in the same way. Central bank money is the well, banks are the canals and we are the farmers. Whenever a canal of this kind is obstructed, we must find a way of restoring a smooth supply and we must act rapidly, as without adequate credit the dynamism of an economy quickly fades. And I should add that the Epic of Gilgamesh also describes the damage caused by a flood, a reminder that liquidity can become destructive if it gets out of control.
He exclaimed: “People here in the rural communities are shocked and astonished to hear that the Norwegian people were within a hair’s breadth of losing their currency, after the enormous sacrifices they had made, and being given a new one instead with all the terrible disadvantages and problems that would inevitably have accompanied it …” 3 The cantor’s joy was to be short-lived. Norway joined the Scandinavian Monetary Union only a year later. The speciedaler was abandoned and the krone took over. The advantages of being able to use Norwegian money as legal tender in Denmark and Sweden trumped the symbolic value of the speciedaler. Looking back, Norway’s participation in a monetary union reflected a nation that had become self-assured and that viewed itself as its Scandinavian relatives’ equal. In the 1800s, Norway’s economy and monetary system underwent extensive changes. Increased trade and economic progress required a more advanced monetary system. A banking system developed, initially in the form of savings banks that extended credit based on their members’ deposits, followed by the emergence of commercial banks. By the end of the 1800s, Norges Bank’s role had changed: from being Norway’s only bank, it was now the bankers’ bank. 2  Henrik Wergeland (1834): Speech at Eidsvoll, “Til forfædrenes minde” [In memory of our ancestors], Samlede skrifter [Collected Works], Vol. 2: 1834–37. 3  Kolbjørn Skaare (1995): Norges mynthistorie [A numismatic history of Norway] (p. 171), Vol 1. Oslo: Universitetsforlaget. 2  BIS central bankers’ speeches  A new Norges Bank Act was adopted in 1892.

Confidence in the speciedaler would be based on a stock of silver in Norges Bank’s vault. The promise to ensure that banknotes could be exchanged for the equivalent of their face value in silver was to be honoured. But the stock of silver had to be procured first. Appeals to raise sufficient funds through share subscription on a voluntary basis were not successful and the government had to resort to coercive measures. Anyone with the means to do so had to contribute to finance the newly established bank. For many Norwegians, the silver tax – as it came to be known – was a  1  In 1814, Norway entered into a personal union with Sweden under the Swedish king, who reigned from Stockholm. BIS central bankers’ speeches  1  heavy burden. Years of war and crop failures had set the economy back. 1816 is known as the year without a summer. In many cases, families were forced to relinquish their life savings or beautiful silver ornaments in order to pay the tax. Farmers from the Hallingdal and Valdres valleys marched on Christiania in protest. The finance minister, Count Herman Wedel Jarlsberg, chopped up the family silver himself and threw it onto the scales, with the heirlooms still wet from the tears shed by his wife, Karen, Prime Minister Anker’s daughter, so the story goes. Many years later, the poet Henrik Wergeland put words to the struggle – and the reward – brought by the silver tax.
18.05.2020  Pablo Hernández de Cos Appearance before the Parliamentary Economic Affairs and Digital Transformation Committee Governor  Ladies and gentlemen, I appear before you today in particularly difficult circumstances. Our country, like many others, is experiencing an enormously complex situation. My initial words are for all Spanish citizens, whose behaviour is proving exemplary. And most particularly they are for all those professionals who, putting their own health at risk, are working so resolutely to preserve the health of others and keep essential services operating. Naturally, these initial words are also to convey condolences to all those who have lost loved ones in this pandemic. We are facing an unprecedented situation. From the standpoint of its economic impact, it has three characteristics I wish to highlight, given that they condition the optimal economic policy response. First, the scale of the shock is immense. Unfortunately, we have seen how, in just a few days, the pandemic stretched our health system to the limit, cutting short thousands of human lives and leaving a deep scar on their families and on Spanish society as a whole. The situation has led our authorities, like so many other governments worldwide, to adopt drastic social distancing measures that severely limit people’s movements and a practical complete shutdown of activity in some productive processes. The economic impact of these measures is most acute because of the reduction in the supply and demand of goods and services.

This is why the Banco de España opted, in its publication on 20 April, to prepare several alternative scenarios using different analytical tools.2 In any of the scenarios considered, confinement would translate into a very severe contraction in Spanish GDP in 2020, all the greater the longer the period during which it is necessary to retain the restrictions on economic activity, and with greater risks that the 2  See Banco de España (2020), “Reference macroeconomic scenarios for the Spanish economy after Covid-19”, Analytical Articles, Economic Bulletin, 2/2020. 11  liquidity problems many economic agents are currently facing will lead to situations of insolvency. Looking ahead to next year, these scenarios outline a recovery in activity and employment which, nonetheless, would be insufficient for GDP to attain its pre-COVID-19 trend level. Specifically, in the two scenarios recently published by the Banco de España that seem most realistic at present, having ruled out the third which projected a shorter and more moderate recession, GDP is expected to fall by 9.5% and 12.4%, respectively, in 2020 (and post subsequent increases of 6.1% and 8.5% in 2021).3 The figures in the first of these scenarios do not differ significantly from those reported by other national and supranational institutions, public and private alike. Thus, for example, the Spanish Government, the International Monetary Fund (IMF) and the European Commission have recently projected declines in our economy of 9.2%, 8% and 9.4% for 2020, respectively.
Tougher minimum requirements and institution-specific add-ons will be the responsibility of microprudential supervision. The system-wide counter-cyclical buffer will be the responsibility of macroprudential policy. BIS central bankers’ speeches  5  Those objectives are themselves generally mutually reinforcing. While ensuring the safety and soundness of individual institutions is not sufficient for systemic stability, it surely helps.13 Meanwhile macroprudential policy seeks to reduce systemic risks and in doing so is likely to improve the resilience of individual firms.14 At times there may be a conflict. This is most likely to arise at a turning point in the cycle when macroprudential policy – perhaps in pursuit of its secondary objective to support growth and employment – may mandate a loosening of capital requirements in order to support credit supply and broader economic conditions. A microprudential supervisor at the same time may understandably be more concerned to maintain large capital buffers. The question best answered in a single institution is which dominates – risks from a paradox of thrift or those from weakened institutions? The obvious overlaps in tools and objectives mean that combining the two arms of prudential policy in one organisation makes sense. That will also help to share knowledge and expertise, and to help avoid conflicting messages to firms.

Market operations and prudential policy The synergies I have identified so far explain why it makes sense for monetary policy and prudential policies to be operated by a single institution, but there are also complementarities between prudential policy and the way a central bank uses its balance sheet and controls the supply of high-powered money. 13  In a concentrated banking system such as the UK’s the resilience of a subset of large institutions has a disproportionate effect on the resilience of the system. One might think that microprudential regulation is then enough to guarantee systemic stability. But that is not so when there are systemic externalities or financial accelerator effects. The latter operate through feedbacks in the macroeconomy, and would depend (among other things) in the short run on the response of monetary policy. A macroprudential authority – with a macroeconomic viewpoint – therefore complements microprudential supervision even in a concentrated banking system. 14  See Bank of England (2009) for a discussion. 15  Blinder (2010) makes this argument in the context of potential conflicts between safety and soundness considerations and monetary policy. 6  BIS central bankers’ speeches  The design and operation of our liquidity facilities have important synergies with prudential policy. The terms on which we supply liquidity in times of stress affects the level of selfinsurance banks choose. If we are too strict, banks have to over-insure at significant cost by holding an excess of low-yielding liquid assets rather than loans, and markets will freeze too quickly in crises.
This raises a concern about the impact the regulatory “overhaul” may be having on credit and growth. At the same time, however, we are engaging in the discussion of a possible “structural reform” of the banking sector which might come on top of all the regulatory changes. It is argued that the measures adopted so far do not deal with the risky trading activities of banks profiting from financing with favorable conditions on the basis of the implicit subsidy associated to deposit insurance. These concerns have led to different responses worldwide, such as the Volcker rule in the United States, the proposals of Sir John Vickers in the United Kingdom and, more recently, the draft banking reforms in France and in Germany. At the European Union level, a high-level group chaired by my colleague Erkki Liikanen has prepared a report on the convenience of implementing structural reforms in Europe. The most relevant proposal of the Liikanen report is to separate into a distinct legal entity risky trading activities of banks where such activities are significant. However, the two entities – the retail bank and the trading bank – may form part of the same banking group, hence preserving the universal banking model. I believe that this proposal is well oriented, as it addresses an issue that is not tackled by the current regulation, although its effectiveness will depend on the details of its implementation. There might be scope for improving or further specifying some technical aspects of the proposal.

There seems to be a consensus among European authorities and market participants that simple, standard and transparent securitisations should have a beneficial regulatory treatment. Speed is now warranted, also given the recent ECB announcement of an ABS purchase programme, so as to decisively eradicate regulatory uncertainty. This recent ECB announcement on the launch of an ABS purchase programme, although decided taking into account monetary policy considerations, is also a game changer in the reactivation of the ABS market. It reduces the stigma carried from the aftermath of the financial crisis and it contributes decisively to put securitisation in the policy agenda. The inclusion of mezzanine tranches in the programme can effectively result in capital relief for originators. Also, the existence of a European guarantee scheme (possibly using European funds and with involvement of a supranational institution like the EIB/EIF group) to help originators achieve a significant risk transfer at an affordable price can be justified under the current adverse market conditions. It is also important to stress that the focus on ABS based on SME loans may be counterproductive. ABS based on residential mortgages represent the bulk of ABS issuance while capital relief associated with sales of these ABS has also the potential to generate new SME loans. The above steps depend on us as policy-makers. But one should not forget what depends less on us but can have a great impact on the securitisation market. I am talking about rating agencies.
Equally, the ECB did not shy away from bold measures to curtail tail risks and to restore the monetary policy transmission. Over the last year euro area financial fragmentation has fallen significantly, capital flows have reverted to stressed countries and financing costs for corporates have converged somewhat across countries. These measures had the overarching purpose of ensuring price stability over the medium term. For the euro area, this is not merely lip service to the primary objective stated in the EU Treaty. It is, instead, the yardstick against which to measure the success of the ECB policies and to build credibility. In fact, inflation expectations remained firmly anchored throughout the crisis. By contrast, policy interest rates in Japan in the early 1990s remained at higher levels for longer, which, together with a lack of reforms in other areas, contributed to protracted economic weakness and falling prices. Eventually, inflation expectations became unanchored and made stabilisation more difficult for monetary policy once it was at the zero lower bound. Some commentators would go further and argue that central banks should loosen the belt in the deleveraging process to actively stoke high inflation.11 I disagree with this line of reasoning. Although surprise inflation would reduce the real debt burden in the short run, it would sow doubts about the central banks’ ability and willingness to control inflation in the longer run. Ultimately, it would undermine efforts to implement structural changes and prudent policies.

As regards public finances, euro area fiscal deficits exceeded 6% at the peak of the crisis in 2009 and 2010, but are expected to fall below 3% this year, while primary budgets are even expected to post a surplus of 0.2%.4 This adjustment strategy has brought with it painful cuts in our social models and has not been without controversy. In fact, some commentators and academics suggest that governments should continue increasing deficits to support aggregate demand while the private sector is deleveraging. They argue that parts of the private sector are debt-constraint and need to reduce their leverage, while parts that are unconstrained are not increasing their leverage sufficiently.5 In such an environment the role for government spending is to expand demand for funds, and especially so when the nominal interest rate is constrained by the zero lower bound.6 I would agree to this approach if the fiscal budget allowed for room for manoeuvre. But the recent sovereign debt crisis has shown that fiscal space is very limited for many European countries. In Japan, the strategy of fiscal expansion has led to a situation in which gross government debt levels now exceed 200% of GDP. The continued favourable financing conditions appear to also be owed to the fact that more than 90% of Japanese government bonds are held domestically. This situation can be seen as a special privilege for the government.
The Riksbank therefore assessed it was necessary to conduct a very expansionary policy to safeguard confidence in the inflation target. Good reasons to preserve confidence in the inflation target There are good reasons for safeguarding this confidence. When economic agents have a collective picture of how prices will develop in the future, it becomes easier to plan for the long term. The inflation target contributes to coordinating expectations in the economy and thereby lays the foundations for smoothly-functioning price-setting and wage formation. As I see it, the good wage formation system that we have today is perhaps the greatest achievement of inflation targeting. During the 1970s and 1980s, wage formation was a constant source of disruption in the Swedish economy. It caused considerable uncertainty for many companies. One was forced to manage the cost problem and poorer competitiveness through recurring devaluations of the krona. The situation was generally untenable and eventually led to an extensive economic crisis at the beginning of the 1990s. An important insight here is that a credible inflation target can give rise to a beneficial self-reinforcing cycle. If expectations are in line with the inflation target, and if pricesetting and wage formation adapt to these expectations, actual price developments will then also become consistent with the inflation target. On the other hand, if expectations were to become stuck at a level that is too low, one instead has a negative self-reinforcing effect, which means that the central bank has to struggle much harder to attain the inflation target.

At the Swedish Economics Associations’ proceedings in February 1996 he called for each debater to answer the following questions explicitly or implicitly: (i) Do you apply the same inflation target as the Riksbank, or another inflation target, or any other target? (ii) Do you make the same forecast as the Riksbank or do you make a different assessment? (iii) Do you know of a better way of attaining the target?13 These questions appear as relevant today as they were twenty years ago. Secondly, I have discussed how one should view a situation where it takes longer for inflation to attain the target, despite the Riksbank doing everything it can to avoid this happening. This is not a situation we expect to find ourselves in, but there is nevertheless reason to seriously consider and examine it. If such a situation were to arise, it would very important to clearly communicate that the inflation target has not been abandoned, to prevent long-term inflation expectations from falling excessively. As the central bank determines inflation in the long run – inflation is a monetary phenomenon – there are also good reasons for expectations of long-term inflation to remain in line with the target. This is important to maintain a smoothly-functioning price-setting and wage formation, but also for monetary policy to be able to counteract future economic downturns. Communicating this is a difficult but hopefully not impossible task.