samchain/econo-pairs-v1 huggingface dataset:
Debt as a share of household income has increased by 12 percentage points since Norges Bank last raised the key policy rate. Measured as a share of household income, debt is approaching double its level in 2000. Bank deposits have risen considerably less than loan debt. The negative effect of an interest rate increase on household income thereby carries relatively greater weight than previously. Chart: Greater impact of interest rate increase on disposable income In other words, an interest rate increase will curtail household purchasing power more than previously. In 2000, a one percentage point rise in the key policy rate would have resulted in an increase in net interest expenses equivalent to less than ½ percent of household disposable income. In 2017, this share increased to one percent of disposable income. An interest rate increase therefore probably has a stronger effect on private consumption than previously. How much stronger the impact of the interest rate is depends on how debt is distributed across household groups. Changes in the distribution of debt can thereby have consequences for the effect of monetary policy. Analyses based on microdata for the household sector can provide useful insight. International studies have shown that households with limited financial buffers tend to allow temporary income changes, for example as a result of changes in interest expenses, to impact fully on consumption. This is supported by a study recently conducted on Norwegian data (Fagereng et al (2018)).

One important channel is the exchange rate channel. Changes in the krone exchange rate affect economic activity in some business sectors and prices for imported goods and services. The krone exchange rate has acted as a shock absorber, as it did in 2014. A sharp depreciation of the krone dampened the negative effects of the fall in oil prices on the real economy. A low key policy rate contributed to underpinning a weak krone. At the same time, the responsible actions of the social partners restrained domestic cost inflation. The exchange rate and the interest rate differential will continue to be important factors ahead. The key policy rate also has a direct impact on household and corporate demand. The rate reduction in 2014 stimulated consumption and investment. Now that growth has gained a foothold, we can take our foot off the pedal a little. Gradually higher interest rates will reduce the pressure that would otherwise have been generated by higher activity, higher employment and higher wage growth. A third channel is often referred to as the expectations channel. For monetary policy to be effective, changes in the key policy rate must pass through to market rates. Monetary policy effectiveness increases if changes in the key policy rate influence expectations of future interest rate levels. An investment is made to provide a profit over a number of years, and mortgage payments have to be met throughout the term of the loan. So today’s interest rate level is not the only important factor.
Against this background, the step we are taking today, which is designed to intensify the exchange of views between the authorities and the financial services industry and to deepen the examination of common concerns, assumes even greater importance. Participation in the work of the Forum for Financial Stability should, therefore, prove to be of mutual benefit. From the point of view of the Central Bank of Malta, it should also enable us to refine our analytical work, whose conclusions have since 2009 been published in our annual Financial Stability Report and the mid-year Update. The Report contains insights into the main vulnerabilities of the domestic financial system and into any latent risks, whether in the system itself or in the external environment. It also assesses the robustness of the financial  2  BIS central bankers’ speeches  system and its resilience to particular stress events. By publishing its findings, the Bank aims to foster a constructive dialogue among all stakeholders with the ultimate objective of strengthening the financial system. The quality of the Bank’s assessments, however, depends on access to timely and reliable market intelligence. For, while the statutory data submitted regularly by reporting institutions is thoroughly analysed, this is insufficient to provide a holistic assessment of emerging risks. Financial stability is a forward looking concept. Risks, moreover, may materialise suddenly or with little warning. This is where market intelligence plays an important role.

Although the way in which they steer their individual money markets differs, ultimately they provide just the amount of liquidity that is necessary to maintain the key monetary policy rate at the targeted level. The SNB reacted rapidly, and was the very first central bank to provide additional liquidity, which it did on 9 August, by means of fine-tuning measures. In the course of the following days, we continued to provide the banking system with generous supplies of funds as part of our regular auction procedure. In this way, we succeeded in rapidly defusing tensions on the call money market. Since then, we have carrying out fine-tuning measures on a consistent basis, in order to dampen sharp fluctuations in the call money rate in either direction. This has allowed us to stabilise the very short-term Swiss franc money market. However, we were unable to prevent risk premiums in interbank business from rising, since this is largely independent of our measures. As can be seen in graph 2, the three-month Swiss franc Libor had risen to 2.90% by mid-September 2007, which was substantially above the level targeted by us. By international standards, however, the increase in Libor was minimal. Our monetary policy decision of 13 September was aimed at further calming the Swiss franc money market, by bringing the three-month Libor back down to around 2.75%. With this in mind, we made funds available to banks for a term of three months. We did this from the day of the monetary policy assessment onwards.
We also need to encourage equity financing rather than debt funding. 5/ Improve European economic governance The second idea I would like to share with you relates to economic governance in Europe. I believe we need to make progress towards a more economically integrated euro area. This is essential, regardless of whether or not the United Kingdom remains in the European Union. Naturally, I would like it to stay in. My point is not purely institutional. It is not about “more Brussels”, it is about more growth and employment. Indeed, economists estimate that the current lack of coordination between national economic policies has cost Europeans between two and five percentage points of GDP growth since 2011. Contrary to the case of monetary policy, the aim is not to fully integrate all of our economic policies at the European level, but to achieve a “full coordination” of fiscal and structural policies. For this, we need to have shared economic goals, and a true “collective strategy” for the euro area, in which each country has a role to play to improve everyone’s situation. This requires trust based on a clear pact: national reforms and, not or, European coordination. This full coordination also rests on the setting up of a strong and legitimate European institution: a euro area Finance Minister backed by a European Treasury system and subject to greater democratic accountability. This Finance Minister would be in charge of defining the collective strategy, supervising its decentralised implementation by Member States and handling crisis management tools.

The new series of targeted refinancing operations (dubbed “TLTRO 2”) should improve medium-term funding conditions for banks and foster bank lending to companies and households. 1  INSEE: Indicateur de climat des affaires et de retournement conjoncturel. BIS central bankers’ speeches  1  3/ Structural policies Moreover, monetary policy is not the only game in town. It is supported by structural reforms that increase potential growth, particularly in countries with a high unemployment rate. History has shown that ambitious reforms can contribute durably to growth. Sweden in the 1990s and Germany a decade later have demonstrated that structural reforms enhance employment rates, potential growth and resilience. They also reduce labour market duality, and provide more opportunities to new entrants in the labour market, particularly young people. In the wake of a severe crisis, Sweden and Germany rebuilt their economic models and, as a result, have been better able to weather the latest downturn. Indeed, a number of European countries are conducting major reforms to bring high and sustainable growth back. Those reforms are particularly challenging when it comes to the labour market, but they are needed. We need to improve labour flexibility and reduce the duality in the labour market between permanent and temporary contracts, which generates both high structural unemployment and inequality. The most emblematic example is Spanish reforms. Their results are impressive, especially when we consider the very difficult economic situation in the country during their implementation.
We need to assess these systems against some benchmarks or international norms which would help to increase efficiency, safety and the integrity at national and regional level. In doing so, it may also be useful to look at the benchmarks set by the regional initiatives such as CEMLA, SADEC, CIS, API or other advanced payment systems. Third, the framework need not aim to introduce or formalize too extravagant payment mechanisms for the SAARC countries at this stage, but it should focus on the need to elevate the national payment systems of member countries to a level capable of facilitating present and future trade and investment flows and mitigating risks in cross border transactions. This task can be facilitated by setting up National Payment Councils (NPCs) in their own countries and complying with common standards, harmonization policies and international best practice. Fourth, the framework should broadly include the following: • •  • •  A time targeted vision acceptable to all members. A clear mission accompanied by a statement of the roles and commitment and responsibilities of all members. Policy objectives necessary to facilitate the present and future trade and investment flows within the region. Funding sources, budgetary allocations and an appropriate subscription formula. Guiding principles for mitigating risks and reaping benefits. 7. Road map and way forward  •  If SAARC central bank representatives consent to establish a SAARC regional payment initiative, it will be necessary to appoint an apex body which is capable of taking the reforms forward.

The operators of these systems are supervised as banks by the Swiss Federal Banking Commission (SFBC). Cooperation between the SFBC and the SNB is facilitated as the provisions in the Banking Act and the requirements stipulated by the National Bank Ordinance are partly similar, and both authorities wish to minimise the regulatory burden. This is also in the interest of the systems that are subject to oversight. I should add that not only the SFBC, but all of the evaluated systems have the opportunity to comment on our classification. The classification will be finalised at the beginning of next year. Basel II: a never-ending story? The National Bank is involved in the implementation of the recommendations on the international convergence of capital measurement and capital standards, known as Basel II. The National Bank does not only provide a member to serve on the Basel Committee on Banking Supervision. As an authority committed to system stability, it also shares the responsibility of adequately implementing the Committee’s recommendations. The SFBC’s fundamental hypotheses are undisputed, namely that the current provisions are in need of reform and that the recommendations of the Basel Committee are to be implemented with  1/2  moderation, while at the same time any dilution of the capital adequacy requirements aimed at reducing the insolvency risks has to be avoided. We are confident that the parties directly involved, ie the SFBC and the banks, will again succeed in agreeing, within the given time frame, on pragmatic and acceptable solutions.
Luis M Linde: A review of the Spanish economic situation; Spain’s Budget for 2015 Testimony by Mr Luis M Linde, Governor of the Bank of Spain, before the Senate Budgetary Committee in connection with the Draft State Budget for 2015, Madrid, 19 November 2014. *  *  *  Ladies and gentlemen, In my appearance today before this Chamber as part of the discussion of the State Budget for 2015, I will focus, as usual, on analysing the developments in, the outlook for and the challenges facing the Spanish economy. On this occasion, I am speaking just two weeks after the start-up of the Single Supervisory Mechanism, so I will also refer to the progress of the Banking Union. The euro area economy The Spanish economy is currently in a less favourable external environment than had been anticipated a year ago. In recent months, growth forecasts for the global economy for 2014 and 2015 have been revised downwards, and the loss of momentum of the recovery is more marked in the European countries which, as we all know, are our main trading and financial partners. Euro area GDP flatlined in the second quarter of this year and the information received since has led international organisations and private analysts to revise their medium-term growth forecasts downwards. At present, the scenario considered most likely is one of weak GDP growth rates, which will be uneven from one country to another and prone to possible downscaling.

This policy has been complemented by three new extraordinary tools, designed to promote the more efficient and uniform transmission of expansionary monetary impulses and to foment a greater expansion of lending in the area. First, a new long-term refinancing facility has been set in place. Last September, the first of these fund-injection operations was carried out, and they will be extended to June 2016. BIS central bankers’ speeches  1  These operations may have a maturity of up to 4 years and are carried out at a very attractive cost for banks: only 10 bp above the main refinancing operations rate, which is currently equivalent to a rate of 0.15%. So that these new long-term injections may translate into an increase in lending to the private sector, access to the funds has been tied both to the outstanding balances and to the flows of the credit extended by banks to households and firms. The ECB has also launched two new asset purchase programmes. The first, which is already under way, involves the acquisition of bonds issued by banks and backed by specific items on their balance sheets. This is the case, for example, of the various types of covered bonds traded in Spain. The second programme, which will be operational in the coming weeks, envisages the acquisition of securities derived from the securitisation of loans to households and firms.
And one significant source of demand for bank hybrid-capital instruments over the past half-decade or so, the SIVs, has been turned off due to their own funding problems. Taken together, the upshot for the banking system has been a shortening in the maturity of wholesale deposits, and an intermittent tightening of access to hybrid capital instruments (Chart 13). Coming on top of an involuntary increase in risk-weighted assets and reduced access to term liquidity, the third component of the shock, apparent since late autumn, has been some actual impairment of capital resources. Large banks especially have progressively written down the values of structured-finance assets, reflecting deterioration in the underlying position of the US household sector and in the values of a wide range of leveraged instruments. But the adjustment is drawn out, partly due to uncertainty about appropriate mark-to-market valuations given the impaired liquidity in ABS markets. To avoid this process amplifying the credit cycle, 12 some replenishment of common equity may be needed, and has already begun. 10  In a Modigliani-Miller world of perfect capital markets, a bank’s overall cost of funds is independent of its capital and funding structure. As a result the level of bank capital and the balance of wholesale and retail funding are not relevant to bank lending decisions and so do not affect the monetary transmission mechanism. 11  Bernanke, B. S. and C. S. Lown (1991), “The credit crunch”, Brookings Papers on Economic Activity, No. 2, pp. 204-39. 12  Ashcraft, A.

To illustrate the impact of this on investment choice, consider the earlier project with an annual income stream of $  BIS central bankers’ speeches  11  Chart 6 shows the present value of those income streams under three counter-factual assumptions: rational discounting; myopic discounting – lower bound (5%); and myopic discounting – upper bound (10%). The cumulative impact is fairly dramatic. Ten-year ahead cash-flows under rational discounting are valued similarly to between six-year (lower bound) and four-year (upper bound) ahead cash-flows under myopic discounting. The long is shortened. Chart 6  Chart 7  Present value of future cash-flows  Cumulative present value of future cash-flows  Notes: The chart assumes $ is paid at the end of each year. The rational discount rate used is 1.085. Notes: The cumulative NPV of $ cash-flows rises to $ in year 9 under rational discounting. With mild myopia (x=0.95) it only passes $ at year 15. With severe myopia (x=0.90) the investor calculates that payback is not achieved. Table 7 Point in future at which residual discounted cash-flow falls below (years) 10%  1%  0.1  Rational (x =1)  29  57  85  Mild myopia (x = 0.95)  18  35  52  Strong myopia (x = 0.90)  13  25  37  Notes: The number in the table refers to the first year that a $ cash-flow falls below 10%, 1% and 0.1% of its actual value in present value terms.
almost the equivalent of the current defence budget. It would therefore be irresponsible to build our future on the already outdated bet of a zero or very low cost debt. A higher deficit today clearly implies less room for manoeuvre and action tomorrow in favour of ecology, health and education. The increase in the cost of debt  II. How to set a credible debt reduction strategy? 1. Revised European fiscal rules This brings me to the debate that has kept you busy this afternoon: the debate on rules, in particular European rules. It has been put on hold since the start of 2020, due to the Covid-19 crisis, and now perhaps the war in Ukraine. But this debate will have to be wrapped up: I neither believe in traditionalists - those in Europe who simply call for a return to "business as usual" - nor in angelicists those who simply believe in the wisdom of institutional processes, or in enlightened economic debates for steering national fiscal cycles. No, experience tells us, particularly in France, that we need rules and not too much "discretion" in the sense of entirely discretionary choices. But these rules must be revised and simplified, in order to be better respected and more credible. Paolo Gentiloni and the European Commission have the onerous task of taking  Page 6 of 9 forward this discussion which is a matter for political authorities, so I will just make a few remarks.

It is now two and a half years since the Great Recession ended and the recovery began. Yet, despite both accommodative monetary policy and fiscal stimulus, the pace of improvement has been painstakingly slow. Real gross domestic product (GDP) is only just  BIS central bankers’ speeches  1  back to where it stood at its pre-recession peak. Employment growth is barely enough to keep pace with the natural growth in the labor force and the unemployment rate remains extraordinarily high. However, recent news about the performance of the economy has been more promising. Motor vehicle sales have returned to their upward trend following supply disruptions caused by last spring’s horrible Japanese tsunami. U.S. manufacturing is expanding – boosted by the recovery in the automotive sector, as well as growing worldwide demand for materials and equipment in the energy, mining and agricultural sectors. Consumer spending outside of autos appears to be rising at a moderate rate, and employment growth, although still tepid, is showing signs of improvement. Initial unemployment insurance claims are down and layoffs have fallen, contributing to a decline in the unemployment rate of 0.5 percent over the past quarter. So, the economy is looking somewhat better than it did a few months ago. But this does not mean we are seeing a massive surge in economic activity. The data shows only modest improvement in growth to rates that are near or just somewhat above the economy’s longer-run potential. Moreover, the pace of economic activity needs to accelerate further to boost confidence.
This despite the fact that the economy was in the midst of a productivity-driven boom, the longest expansion on record, and the prevailing federal funds rate was 5.25 percent. These papers and the ensuing discussions and debates planted seeds that would germinate in research and policymaking. Central banks across the globe ultimately used variations of nearly all of the tools discussed at the conference. Indeed, the topics of interest rate policies, targeting asset prices, asset purchases, and negative interest rates are among the most prominent discussions in monetary economics today. Importantly, this research made its way straight to policymakers within a few years—a quick turnaround by central bank standards! In January 2002, Marvin, Dave, and I reprised our roles from the conference in briefings to the FOMC.10 And in June 2003, Vince Reinhart briefed the FOMC on alternative monetary policy approaches—including asset purchases and forward guidance—to mitigate the effects of the ZLB.11 This was followed by a flurry of further research by academics and central bank economists that delved deeper into these topics.12  Putting Research into Practice This research had important practical lessons for policymakers in the United States and abroad following the global financial crisis.

One lesson was that short-term rates should be cut 13 2/4  BIS central bankers' speeches  aggressively when deflation or a severe downturn threatens.13 That is, do not “keep your powder dry.” A second lesson is that short-term rates should be kept “lower for longer” as the economy recovers.14 A third is that large-scale asset purchases (LSAPs) can complement conventional policy actions by making financial conditions more favorable for growth even when short rates are constrained by the ZLB.15 Armed with these insights, policymakers were prepared and able to act quickly and decisively when the financial crisis hit. A great deal was learned about the ZLB and unconventional policy tools along the way. 16 Indeed, another conference organized by the Boston Fed was held in October 2010 to assess lessons learned, and the proceedings of that conference were published in a special issue of the JMCB in February 2012. For me, the most interesting aspect of that conference was that participants took the ZLB as a defining feature of the landscape: what was once viewed as primarily theoretical had become grounded in practice and experience. The ZLB in 2019 This brings me to today. The Federal Reserve has embarked on a review of its monetary policy strategic framework. As was the case 20 years ago, the question is how to best achieve our monetary policy goals in the context of low inflation and the ZLB. Indeed, the policy questions we are grappling with today are exactly the ones laid out in Woodstock.