samchain/econo-pairs-v1 huggingface dataset:
This will require a close dialogue and meaningful cooperation between the public authorities and the banks. The framework should also prevent destabilizing effects of a failure on the rest of the financial sector – for example by building and improving on financial market infrastructures that reduce counterparty credit risk. Ultimately, however, it must not exclude the possibility that a large and complex cross-border financial institution can be – and should be – subject to insolvency proceedings where reorganization is not possible. Of course, we must accept the reality that different national resolution regimes will continue to coexist. To make it perfectly clear: I am not proposing to create a global resolution regime to replace national regimes. Such an endeavor strikes me as the equivalent of a journey not to the moon, but to outer space. But that should be no excuse for not improving the framework for cooperation across the relevant countries. Concluding remarks The worst of the crisis is behind us, and there are intensive efforts under way to increase the resilience of the financial system. Banks are again generating profits and, in some cases, very substantial profits, not least because of the costly public support measures, many of which remain in place. As the situation improves, complacency can easily become the rule of the game. We forget the severity of the crisis and fall prey to renewed lobbying of a powerful and recovering industry. We must not let this happen.

With the support of the G20 leaders, the Financial Stability Board (FSB) has initiated an impressive number of reform projects. 3 Good progress has been made on many measures. In some important areas, however, decisions have yet to be taken. In line with proposals by the FSB, I believe we need to pursue a dual-track approach to reforming the global financial system, combining preventive measures with measures facilitating the orderly resolution of large international banks in the event of a future crisis. An ounce of prevention We have all been told that an ounce of prevention is worth a pound of cure. Considering the enormous costs associated with the cure of the current crisis, this holds especially true when it comes to financial stability. Most importantly, we need to strengthen the shock absorbers of the financial system. In the context of banks this means that they have to hold more capital and more liquidity. Strengthened shock absorbers in the form of higher capital and liquidity buffers have several beneficial effects. Bigger buffers enable banks to absorb larger negative shocks without triggering an idiosyncratic, let alone a systemic crisis. Furthermore, bigger buffers ensure that banks themselves bear a larger share of their downside risks. Not only does this reduce the potential burden for taxpayers, but it also creates stronger incentives for the banks themselves to operate prudently.
And public spending, which has supported demand in the recession will be significantly restricted, particularly from next financial year onwards. That makes it all the more important that the private sector can act as a strong engine of growth – both in terms of spending and other supply side indicators – such as employment, innovation and enterprise. In this respect, I very much welcome the emphasis in George Osborne’s Emergency Budget on reducing the business tax burden – by keeping down employers’ national insurance and cutting the corporation tax rate. These and other measures should be helpful in sustaining private sector confidence and growth as the public sector undertakes a long process of structural adjustment. Unemployment and spare capacity A third area where the evidence has turned out somewhat differently from expectations a year ago is in terms of measures of spare capacity in the economy. Unemployment has been pushed up by the recession, but by less than in earlier downturns. The UK unemployment rate is currently around 8% of the labour force, whereas it peaked at much higher levels  6  BIS Review 99/2010  following the last two recessions – at nearly 12% in the mid-1980s and between 10 and 11% in the early 1990s. At the equivalent stage of the cycle following the previous two recessions, unemployment was already over 10% of the labour force.

Philipp Hildebrand: Financial stability Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Institut des Hautes Etudes Commerciales de Lausanne, Lausanne, 16 September 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  During the period of financial market turbulence, central banks have gone far with their interventions to stabilize the financial system, taking into account the high costs that can be imposed by a banking crisis onto the real economy. Central banks by themselves, however, cannot guarantee financial stability in the long term. In particular, we cannot exclude that their interventions create incentives for banks to be less cautious in the future. The first line of defence therefore consists of banks having sound risk management practices and holding appropriate levels of capital and liquidity. The Financial Stability Forum has made a series of recommendations in this respect. Given the size of the big Swiss banks in relation to our national economy, we should be especially prudent. For this reason, the Swiss National Bank supports the project undertaken by the Swiss Federal Banking Commission (SFBC) to strengthen capital adequacy requirements and to revise the liquidity requirements for the big banks. As the SFBC has pointed out on several occasions, these measures have to be implemented gradually – to ensure that banks have sufficient time to adapt. These measures will contribute to the solidity and credibility of the Swiss financial centre.
Luis M Linde: International financial integration and fragmentation. Drivers and policy responses Opening remarks by Mr Luis M Linde, Governor of the Bank of Spain, at the Conference on “International financial integration and fragmentation. Drivers and policy responses”, organized by the Reinventing Bretton Woods Committee and the Bank of Spain, Madrid, 12 March 2013. *  *  *  Good morning to all. Buenos dias a todos y bienvenidos a Madrid: It is for me a pleasure to welcome you to Banco de España and to this Seminar on international financial integration. I would like to start by thanking Marc Uzan and the Reinventing Bretton Woods Committee for their fruitful cooperation in organizing an agenda that is indeed very promising. More than five years into the crisis, it is still hard to grasp the real magnitude of the changes that our financial systems are undergoing. In fact, we are still trying to restore the financial channels to support the growth of internal and external demand. While we perform such, so to say, “fire-fighter task”, it is not easy to take a step back and look at how the contours of our economic and financial landscape are evolving. But we can already distinguish some of the characteristics of the new scenario that is taking shape, and that will be our habitat as central bankers, regulators, financial intermediaries or analysts in the years to come.

It seems that one trend is towards disintermediation and a more important role of capital markets, gaining ground to banks, in a global financial system that will probably end up being smaller and more attuned to the size of the global economy. Another trend points to a reduction of financial linkages between national financial systems, as BIS banking statistics, for example, are starting to show. Here, the role of Central Banks’ policies and operations, as well as regulators is crucial, as they must walk a fine line in promoting domestic financial stability without falling into the nets of protectionism, something that would be indeed damaging for growth and prosperity. As we all know, the risk of fragmentation and re-nationalisation of the financial system has materialized at the European level, in the unique institutional context of European Monetary Union; and the solutions to overcome this situation are changing the foundations of the euro. Each of the three sessions which make up the programme will focus on a particular perspective on how the new trends are shaping the global financial system. The crisis and the policy response – in the areas of financial regulation and monetary policy – are generating new patterns of funding, new players and changes in capital flows across global markets. Those issues will be reviewed in the initial session. As I mentioned before, the euro area has to deal with a severe crisis which has led to the fragmentation of the European financial system.
For example, if inflation in 2011 were a 0.5 percentage point below the Fed’s inflation objective, the Fed might aim to offset this miss by an additional 0.5 percentage point rise in the price level in future years. In the current environment, such an approach would have some advantages as well as some disadvantages. When there is a large amount of slack in the economy, the Federal Reserve might not easily be able to hit an inflation objective soon. But, the central bank could plausibly promise to make up the difference later on. Indeed, the further the Fed fell behind its inflation objective in the near term, the more inflation would need to increase in order to  BIS Review 127/2010  5  push the actual path of prices up to the path consistent with price stability over the long run. To the extent this policy was more credible, it might do a better job keeping inflation expectations from falling. This might make monetary policy more stimulative and, thus, might help the FOMC achieve its objectives more quickly. However, such an approach would only work well if people understood how it would operate and formed their expectations of future inflation accordingly. And there could also be significant costs. For example, if people mistakenly concluded that the Fed was tinkering with its long-run inflation objective, this could lead to greater uncertainty about future inflation.

But much more importantly, our dual mandate does not state that we should do what is necessary to promote full employment and price stability only at times when we are virtually certain that in doing so we will make a profit. It directs us to promote full employment and price stability at all times. Profits and losses in any given year are much less important than getting the U.S. economy back to the highest level of employment consistent with price stability. BIS Review 127/2010  7  In making our assessments about next steps, we need to be a bit humble about our capacity to forecast how market participants would respond to our actions. We do not control their behavior nor have much historical experience that we can draw on to easily assess how they are likely to behave. Even viewpoints that turned out to be incorrect could persist for a long time and generate adverse consequences. It is not enough for us to be right in theory. We also have to be convincing in practice and in explaining why concerns we think are misplaced are indeed unwarranted. As Chairman Bernanke indicated at Jackson Hole, the FOMC’s decision with respect to providing additional accommodation will be made by weighing the costs against the benefits. This is a dynamic process, which depends on the evolution of the economic outlook and our own ability to learn how to become more effective in improving the cost/benefit trade-offs.
Since 1995 Swedish house prices have risen by more than 150 per cent; the corresponding figure in the United States is around 115 per cent. At the same as house prices have soared, inflation in Sweden has been moderate and consumer prices have only risen by 14 per cent since 1995 (see figure 2). There are several factors behind the upturn in Swedish house prices; Swedish households’ real incomes have grown, their financial wealth has increased and in addition real interest rates have been low. Although more housing has been built, it has not been enough to meet the demand. The percentage of Swedish municipalities reporting a shortage of housing doubled to 42 per cent between 2002 and 2007 according to statistics from the National Board of Housing, Building and Planning. More than half, or 60 per cent, of the population now live in municipalities with housing shortages. Households’ debt ratio, that is their debts in relation to their disposable income, has risen rapidly in recent years and is now around 150 per cent. It is difficult to compare the current debt ratio with earlier periods, as these have been marked by the conditions prevailing at the time. For example, the debt ratio that preceded the credit boom at the end of the 1980s was marked by the regulated credit market and did not reflect either households' willingness or ability to bear debt. The period after this was affected by the economic crisis and institutional changes with an ensuing rapid credit crunch.

Importantly in this connection, the Spanish economy has sufficient depth of stability to enable it to weather the impact on household spending of an appreciable house price correction, in the unlikely event that it should occur. The soundness of Spanish credit institutions, underpinned by high solvency levels and comfortable bad debt coverage ratios (a matter to which I will return later in the more general framework of the situation of the financial system), minimises the possibility that downward adjustments in house prices, should they occur, would significantly impair banks’ ability to continue to efficiently finance the spending decisions of firms and households. Moreover, unlike in other countries, Spanish households have not started significantly to borrow against their increased housing wealth to directly finance current consumption plans. In any event, the losses in competitiveness, household debt levels and house prices evidently entail a risk of the expansion being interrupted. The economic policies under national sovereignty thus have the important mission of preventing these risks from materialising and providing a solid foundation for growth. In particular, since monetary and financial conditions will most likely continue to be relatively generous for the needs of the Spanish economy in the foreseeable future, it will continue to be the responsibility of fiscal policy to help establish an overall macroeconomic stance that will contribute to mitigating spending pressure.
The first is that the real interest rate can be quite responsive to cyclical shocks, sometimes moving by a percentage point or more in a matter of months. Indeed, in the past few months we have seen a relatively sharp and sizable increase. Whether such movements persist depends on the underlying shocks driving real interest rates. For example, we saw a similar rise in the ten-year real interest rate after the global financial crisis and that did not persist when inflation returned to target. The second observation is that, beneath the month-to-month volatility, there appears to have been a fairly steady downward trend since the mid-1980s. As shown in Chart 2 other economies have experienced a similar trend in real interest rates. [5]  Page 5  Chart 1: The UK ten-year real interest rate has fallen over recent decades  Note: Ten-year zero coupon yield (spot interest rate) computed from UK index-linked government debt. See yield curves. Source: Bloomberg Finance L.P, Tradeweb and Bank calculations. Chart 2: There has been a trend decline in real interest rates in most countries  Note: High-income countries include Finland, France, Italy, Japan, Netherlands, Spain, the United Kingdom and the United States. See Appendix A.2 to Bailey et al. (2022) for data definitions. Source: Authors’ calculations using EU KLEMS, the Penn World Table 10.0 and the Jordà et al. (2017) Macrohistory Database. See Appendix A.1 to Bailey et al. (2022) for more details.

It is important to note that the mechanism is driven by the relative wealth levels of different cohorts within the population. It is true that, on average, retirees have low savings rates, as they run down their wealth to finance their retirement. However, the data show that in practice this effect is typically not very strong, so that the average household appears to broadly maintain their wealth during retirement. This tempers the extent to which the retirement of the baby-boom generation reverses the impact of ageing on the real interest rate. [13] These results imply that the effect of population ageing on Global R* has been large, and is expected to persist. While the paths of the underlying drivers are estimated only until 2015, the model-based simulation implies that the equilibrium real interest rate will continue to adjust until the population structure and stock of global capital reach an eventual ‘steady state’. Indeed, the simulation implies that the effects of past structural trends would continue to reduce Global R*, perhaps by another 1 percentage point, over the very long run. [14] So, importantly, what this model, and the data behind it, are telling us is that we should not expect that ageing, and the retirement of baby boomers, will lead to significant upward pressure on Global R* over coming years or decades. The substantial contribution of population ageing to the decline in Global R* in the past stems from the steady increase in longevity, and this mechanism leads to permanently lower Global R*.
Although the US may fare better than Europe, its economy is heading towards the “fiscal cliff”. Similar to Europe, it is also necessary for the US to make significant cut in expenditures in the medium to long term in order to regain fiscal balance and discipline. The situation in Japan is even more worrying. Public debt in Japan has now exceeded 200% of GDP, excluding civil service pension and other contingent liabilities. Currently, the market is not concerned about Japan’s repayment ability as it is believed that the Japanese government will continue to address the ever-increasing deficits by maintaining an exceptionally low interest rate environment. However, it is worth noting that the market was treating the European countries in the same way until recently. Once market sentiment changes, the situation can take a sharp turn and it would be very difficult to arrest a deteriorating trend. In addition to the pain brought about by deleveraging, I would also like to talk about the different forms of “quantitative easing” implemented by the various central banks. Why did these economies implement “quantitative easing”? If we agree that the root cause of the global financial crisis is excessive leveraging, then the only solution would be deleveraging. However, in reality, the process of deleveraging is just too painful.

I am not sure which of these three scenarios will happen or whether a fourth scenario will emerge, as the current situation is something we have never experienced before. However, what I am certain is that since the outlook for macro economic and financial environment is very uncertain, it is highly possible that we will continue to see large fund inflows and outflows as well as sharp fluctuations in the financial markets. Therefore, I would like to take this opportunity to ask everyone to stay alert to the risks ahead and be aware that the current environment is highly abnormal and uncertain. We should all take precautionary measures and get to the bottom of the problem, learn from others’ experiences and avoid overstretching ourselves. Otherwise, we may find ourselves being trapped in the debt abyss with no way out. Thank you. BIS central bankers’ speeches  5
These factors combined have resulted in a large increase in the different measures of inflation, bringing CPI and CPIX1 (a measure of core inflation that excludes perishable foods, energy and regulated tariffs) annual change close to 4%. By contrast, labor cost pressures and other inflation trend indicators are nearer to 3%. Similar problems (i.e., increased inflation due to sudden rises in food prices) have been recently suffered in such diverse countries as South Africa, Brazil, Colombia and China. It is interesting to note that a price measure that excludes foods and energy prices, similar to the CPI core inflation calculation applied by the US, shows annual change below 2% in July (Figure 2). 2  BIS Review 97/2007  Figure 2: CPI, CPIX1 and CPI inflation excluding food and energy (annual change, percent)  Note: In brackets participation in total CPI basket. Sources: Central Bank of Chile and National Statistics Bureau. This phenomenon is not new. Given the supply-side or specific price shocks, the 2000s have seen annual inflation drop below 2% and climb above 4% during temporary episodes. In this picture of higher CPI inflation due to various supply shocks, short-term inflation expectations have increased substantially, but remain close to 3% for medium and long term. Because monetary policy affects inflation with lags that are largely unknown, but long – usually more than a year – not much can be done to reverse a short-term inflation jump.

Doing so is normalization, lifting our foot from the accelerator pedal. In my view, we could be there before the end of the year, after another significant step in September. Only beyond R* could tightening—actively pushing the brakes—begin; we will then have to discuss and decide, based on our assessment of actual inflation and the future outlook, focusing in particular on its core part and on wage developments. The US is obviously closer to tightening due to several differences in the nature of inflation there. But have no doubt that we at the ECB would if needed raise rates further beyond normalization: bringing inflation back to 2 % is our responsibility; our will and our capacity to deliver on our mandate are unconditional. III. How to remunerate massive excess liquidity when it coexists with positive rates? Let me come to another issue that we practitioners must now confront: how to remunerate massive excess liquidity when it coexists with positive interest rates? This will be a new situation for most of us, and especially for the euro area. While excess liquidity was negligible until 2008, it currently stands at more than € trillion, as a legacy of our APP and PEPP assets purchase programs, but also, for one third, our TLTROs. Yet, our reserve remuneration system was designed at a time of negligible excess liquidity. The system already showed its limits in the past, when having to coexist with negative interest rates.