samchain/econo-pairs-v1 huggingface dataset:
Beyond experimentation, such exploration may also require testing of use cases in the market to assess their technical functionality and commercial viability in a production environment. To this end, regulatory sandboxes have come in useful over the past few years. Tailored relaxation of regulatory requirements within well-defined parameters has allowed opportunities afforded by new technologies to be explored, while maintaining the overall soundness of the financial system. But central banks’ role in innovation goes further than this. . Moving on to my second point; beyond embracing and facilitating innovation; central banks can play an important role in leading innovation, by being at the centre of experimentation. 7  The private sector is good at leading innovation, subject to the return on investment providing a clear incentive. When this is the case, they do an excellent job. They drive applied research, apply technology in an agile fashion, and deploy solutions to markets quickly. However, private sector firms are less incentivised to innovate in cases where the return on investment is unclear and the benefits may not accrue primarily to them. 2/5  BIS central bankers' speeches  Hence, when there is a need for innovation to develop essential industry infrastructures that benefit the entire financial system, central banks can step in to provide these public goods. We are able to leverage our unique position in the ecosystem to drive collaboration within the local financial sector community, and act as bridges to facilitate collaboration across borders.

Additionally, coastal erosion will directly impact tourism in places such as Kota Kinabalu and manufacturing in industrial zones such as Kota Bharu, Kuala Terengganu and Mersing. If this trend continues, our mangroves would completely sink by 2040 and industrial zones will be affected by 2060. Our ports, the lifeblood of international trade linkages, will also struggle to cope with rising sea levels. A recent study estimates that pre-emptively adapting Port Klang and Tanjung Pelepas for climatic conditions expected in 2070 will cost nearly RM3 billion. Naturally, this cost would be far greater if not planned for in advance. The effects of climate change are real. They are already upon us; and make no mistake, they will intensify. For this reason, financial institutions can no longer be passive about climate change and its effects. There is a clear economic case for building resilience to climate change: it directly affects our balance sheets, and can pose a broader risk to financial stability from significant and prolonged climate-related events. So far, I have explained the direct, physical risk posed by climate change to the economy and financial industry. However, it is not only the climate that is changing. The changing behaviours of economic agents also give rise to significant transitioning risks. As the world becomes increasingly concerned with reducing the global carbon footprint, governments, businesses and consumers are pushing for a transition to a more sustainable, greener economy.
Agents attend the monthly briefing in Threadneedle Street ahead of each policy meeting, so information from their contacts is fed directly into the heart of the policy process. I know I speak for all of my colleagues on the MPC when I say that we really do find this a crucial barometer of current events, so I hope you will feel that a short while with our Agents once or twice a year is time well spent! Financial stability and Enron I now turn to my final subject tonight - that of the Bank's role in ensuring financial stability. Responsibility for the day-to-day supervision of banks passed from the Bank of England to the Financial Services Authority in 1997. But as the central bank we still have a key role in overseeing the stability of the system as a whole. In this guise we meet on a monthly basis with HM Treasury and the FSA in the so-called tripartite Standing Committee, to review the risks facing the UK financial system and take stock of any actions which may be required to address them. Keeping close to the FSA is particularly important. To this end, I sit on the FSA Board, and Howard Davies is a member of the Bank's Court. Of course, as I have no need to remind you here, with the border of the euro area just a few miles down the road, we cannot look at the UK system in isolation from the wider international financial markets.

At the same time, I intend that we will bring forward proposals under our Pillar 2 regime which should also reduce the risk that our capital standards are overly prudent for smaller firms using the standardised approach to credit risk to calculate their requirements – essentially by looking at capital requirements in the round rather than assuming that a simple “sum of the parts” approach will necessarily deliver the right answer. In the same vein, we will deliver what we promised in our Annual Competition Report this summer, improving the process by which small firms can transition to internal models. All this demonstrates how we can address unintended consequences while remaining true to the revolution’s goals. Too early to say  In 1972, Chinese Premier Zhou Enlai was asked about the impact of the French Revolution. His answer: “too early to say”. While it emerged forty years later that Zhou was probably not referring to the 1789 storming of the Bastille – 5  but instead thinking of the 1968 student riots in Paris – his remark is apt at the current juncture . It is too early to say how business models will shape up in the future. 5  Zhou’s cryptic caution lost in translation: By Richard McGregor, Financial Times, June 2011, available here: https://www.ft.com/content/74916db6-938d-11e0-922e-00144feab49a 8  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  8  For insurers, the low rate environment and persistent soft conditions in many segments of general insurance are creating real pressures.
But monetary policy needs to be forward looking, so that does not add up to a compelling case for a change in monetary policy. The question is how has the growth and inflation outlook changed as a result. In my experience, recoveries have momentum. While growth might not be totally steady and even across sectors, as recovery progresses, various mechanisms begin to operate which can give it added momentum. Pressure on existing capacity grows, causing companies to dust off their investment plans. Supply chains tighten and firms start to re-stock. Memories of the uncertainty created by the shocks that generated the recession fades and confidence recovers. The labour market stabilises and unemployment should eventually start to fall, improving job prospects. These things happen over a period of time, so from month to month not much change may be perceptible. But looking back over a longer period, improvement is clear. In my view, this is the process that has been underway for the last year, and this process of gradual healing and recovery is likely to continue in the absence of big negative shocks which could derail growth. Given our experience over the last few years, we should certainly worry about future major shocks from the international economy. But the big downside worries resulting from the financial crisis which were present a year ago have receded, in my assessment. And the response of monetary policy has played a part in that process – though it has not been the only factor at work.

Moreover, most of these banks’ capital is of the highest quality, and thus loss-absorbing. However, in the current environment, the resilience of these banks, as measured by the regulatory capital indicators, is overestimated.   First, certain risks are not captured by the regulatory requirements. This applies, in particular, to interest rate risk in the banking book, which covers traditional deposit and lending activities. In the current situation, with historically high interest rate risk exposures, this is a significant shortcoming.   Second, the current capital requirements have a procyclical effect. Thus rising real estate prices, by causing loan-to-value ratios to fall, can lead to lower capital requirements. Given the growing imbalances on the real estate market, banks’ resilience, as measured by the regulatory capital indicators, is overestimated.   Third, the low level of diversification of most domestically focused commercial banks is not taken into account in capital requirements. The main focus of these banks’ business activities, and their risk exposures, relate to mortgage lending. This concentration of activities is compounded by a geographical concentration at the cantonal or regional level. In the light of these factors, the SNB considers that action is needed on two fronts: First, the capacity of some banks to bear the risks incurred must be reviewed, and strengthened if necessary. This applies particularly to banks which have cumulative risks, such as high interest rate risk and high exposure to the mortgage and real estate markets. FINMA’s microprudential measures will play a key role in this regard.
Data on the unsecured market segment are published every six to eight weeks. With this project the ECB took an important step towards the future, becoming a collector of “big data”. But, of course, we didn’t do this on our own. A tale of cooperation Cooperation is often mentioned at conferences like this one. But in the field of statistics, it is simply a reality that you won’t get very far if you don’t cooperate with others. Projects such as the MMSR would never have come into being without good cooperation. In fact, the genesis of the MMSR involved the central banks of four countries – Germany, France, Italy and Spain – and the ECB. And of course, these institutions needed to cooperate with reporting banks. And cooperation happens not only between institutions, but also within institutions: the constant feedback loop between departments using the data and those preparing them leads to highquality results. But smooth cooperation has helped us from the start. It allowed the Eurosystem to achieve its objectives from day one, 20 years ago. Thanks to a joint effort by the entire Eurosystem, we had a set of harmonised euro area statistics from the very beginning of the ECB’s existence. And some 16 years later, when European banking supervision came into being, the Directorate General Statistics was able to provide the supervisory data we needed right from the start – thanks to another joint effort. Indeed, as the ECB’s functions have expanded, statistics have had to follow.

But we must also admit that there is not just scope, but also a need, to apply judgement when producing good data and statistics. And trust plays a key role here. People can trust the ECB and the national central banks to apply expert judgement when it is needed. In my speech today, I will focus on key ingredients that have been crucial in building up the ECB’s good reputation over the past 20 years. The first is to have good data and to use them well when taking decisions. The second is to ensure good cooperation. The third is to keep pace with changing times. Good data for good decisions 1/4  BIS central bankers' speeches  I am aware that the need for good data may seem self-explanatory, especially for an audience of statisticians. But that doesn’t make it less important, particularly in the case of the ECB. The stakes are extremely high: whether for monetary policy or banking supervision, our decisions impact the lives of over 340 million people. This gives the data we use, and the analysis we carry out, enormous importance. Our data need to be reliable and our statistics sound. Only then will they be able to form the basis for good decisions. But not all data are created equal. Even well-collected data may fall short of answering the burning questions of our experts. With the 2008 crisis, for example, we learned the hard way why better and more granular data are necessary.
The growth of 0.3 pp in euro area GDP in the second quarter of 2013 has, naturally, been a positive surprise and plots a favourable course for the Spanish economy. But its duration and intensity are by no means assured. Indeed, recently revised medium-term forecasts for the euro area as a whole continue to augur very moderate GDP growth rates and overly high unemployment levels. In the financial domain, the degree of market fragmentation is lessening considerably, but is still not fully compatible with the normal functioning of a monetary union and with efficient monetary policy transmission. The cost at which households, credit institutions and the different levels of government can currently finance themselves in the countries subject to most tension is still above what the ECB monetary policy stance would warrant. BIS central bankers’ speeches  1  The ECB has in fact continued to reinforce its expansionary monetary policy stance throughout the year, both through conventional conduct and through non-conventional or extraordinary measures. In May there was a fresh cut in official interest rates which, along with the maintenance of the unlimited liquidity provision policy, is serving to set money market interest rates at extremely low levels. In July the ECB Governing Council decided to take a further step in its strategy of reinforcing its expansionary monetary policy stance with the use of a new instrument, known in the parlance as “forward guidance”.

Against this background, each bank's capital needs were identified on the basis of a rigorous stress test and, in accordance with the European authorities, restructuring or orderly resolution plans were drawn up and approved for those banks requiring them. In 2012, backed by public financial assistance, the institutions classified under “group 1” of the Memorandum of Understanding were recapitalised, and their problem construction and real estate development-related assets were transferred to SAREB (the asset management company for assets arising from bank restructuring). Into 2013, the “group 2” institutions subject to the exercise have been recapitalised, their troubled assets have been transferred to SAREB and the hybrid instrument management (burden-sharing) exercises have been conducted at all banks requiring them, except at one, where they began recently and will be concluded in the coming days. The public financial assistance to financial institutions in various forms of capital, since May 2009, has risen to € billion, € billion of which were under the Financial Assistance Programme agreed with the European authorities. Verification by the international authorities of the fulfilment of the conditions agreed in the July 2012 Memorandum of Understanding, the last round of which concluded only a few days ago, confirms that the Memorandum and its deadlines have been strictly adhered to and that the main objective, the restructuring and recapitalisation of our banking system, has progressed satisfactorily. As earlier stated, the Council of the European Union will shortly approve the Regulation governing the SSM, which will commence operating after a transitory period of one year.
For example, quoted bid-ask spreads, after widening sharply during the financial crisis, subsequently narrowed and have remained stable at pre-crisis levels since 2010. (Exhibit 1) Other measures paint a more mixed picture. While order book depth is appreciably lower now than in 2012 and 2013, it is much higher than during the financial crisis, and does not appear to be unusually low by historical standards. (Exhibit 2) Similarly, the price impact of trades appears to have risen a bit since the October 15 flash rally indicating some deterioration of liquidity, but is still not high relative to its longer-run experience. (Exhibit 3) Average trade sizes have followed a similar pattern to the order book depth and have recently declined somewhat. (Exhibit 4) Another way to assess liquidity conditions is through the potential impact on Treasury yields. If liquidity had deteriorated markedly, then we would expect to see larger deviations of actual yields compared to the yields predicted by an empirically fitted yield curve. If liquidity were more costly, the deviations of actual yields from fitted yields would increase because the costs of arbitrage to eliminate those divergences would be higher. During the financial crisis, for example, there was a sharp deterioration in liquidity, which was associated with a sharp rise in some measures of yield curve fitting errors to a peak of about 20 basis points. This compares to less than 2 basis points prior to the crisis. In contrast, yield curve fitting errors have been low and stable recently and not outside historical norms.

Despite current low rates, I still often hear people say that higher inflation is just around the corner. I confess that I am somewhat exasperated by these repeated warnings given our current environment of very low inflation. Many times, the strongest concerns are expressed by folks who said the same thing back in 2009 and then in 2010 and, well, you get the picture. OK, five years later we still need to carefully assess this very serious question. Let me offer five reasons why I still see the economic environment as pointing to below-target inflation for several years. First, many commentators see rising commodity prices as a harbinger of rising inflation pressures. Certainly, back in 2008 and 2010 there were instances when energy and commodity prices rose to high levels. This put pressure on inflation and also reduced aggregate demand. There is a lot of evidence that these types of relative price increases result in only transitory increases in consumer price levels. 6 At the moment, even these transitory upward pressures are absent, and the current weak state of global demand contributes to downward pressures. Until something unexpected, and frankly positive, happens with the world economy, commodity prices seem like an even more unlikely propellant for strongly rising inflation than they usually would be. Second, some say a classic warning sign of inflation is the enormous size of the Fed’s balance sheet and the greater than $ trillion of excess reserves sitting on commercial banks’ books.
Charalampidis and Guillochon (2020) and Guerrieri et al (2020) also consider Covid in multi-sector models. See Cantore et al (2020) for a brief introduction to the epimacro literature. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  that incomes have been relatively stable may not be as unrealistic as it might have been. It’s in any case useful, I think, to try to separate the direct effects of the pandemic on spending from its second-round impact, via incomes and economic risk. It’s these direct effects that these simulations  Chart 5a: Two stylised paths for the pandemic, one  attempt to represent. Chart 5(a) plots two  more persistent than the other  stylised paths for infection risk, one of which lasts a lot longer than the other (blue versus red). Our hypothetical consumer understands these dynamics and reacts accordingly in Chart 5(b). Consumption of the risky good, which at the start is assumed to account for around a quarter of the total, follows (inversely) the path of the infection. Spending on non-risky things moves in the opposite direction – there’s a degree of expenditure switching in both cases – but it’s more significant, and the initial and corresponding fall in aggregate spending less marked, in the blue case, when the virus is expected to persist for longer. Thus the response of consumer spending in aggregate is either drawn out but relatively limited (blue) or sizeable but shorter-lived (red).

However, going out to eat still costs far more than it did, relative to other stuff. So you’ll probably be inclined to go less often. But what do you do with the money you would’ve spent? Do you simply switch it to other things, leaving your aggregate consumption unchanged? Or do you reduce your total spending as well, and instead save a little more? At least for the idealised consumer of simple economic theory, two things turn out to matter for this decision. One is the extent to which there are other, close substitutes for the taxed activity. If you liked cooking at home, or indeed anything else, almost as much as going to a restaurant you’d be more inclined to switch your spending immediately to these other things. Your total consumption wouldn’t change much. In general, a hike in a particular sales tax will have smaller effects on aggregate spending, and result instead in more expenditure-switching, if it’s levied on something for which there are similar (and untaxed) alternatives. The other important factor is how long you expect the policy to last. If he thinks the tax hike is permanent, our idealised consumer of economic theory would substitute his spending straightaway towards other goods or services, regardless of whether they’re close substitutes. If not – if he expects the government to come to its senses at some point, and reverse the policy – he’ll be more inclined to wait until that happens.
Growth in the euro zone has been relatively weak, but last year there were signs that economic activity was beginning to improve there, too. At the same time as growth in demand in the world economy has been strong, price pressures have been held back. Although oil and other commodities have become significantly more expensive for consumers, the general price increases have been relatively small on the whole. This can probably be partly explained by increasing international competition. The upswing in global economic activity has also characterised developments in the Swedish economy, which has grown strongly in recent years, with the exception of a slowdown at the end of 2004/beginning of 2005. Despite the good growth in demand, inflation has been low in Sweden. This is largely attributable to import prices excluding oil  BIS Review 44/2006  1  developing weakly and to cost pressures being held back, partly by the strong productivity growth and low capacity utilisation. The development we envisaged in the February Inflation Report was that international growth would continue to be good. There were some question marks regarding developments in the United States and in the euro area, where preliminary statistics for the fourth quarter of 2005 were surprisingly weak. Our assessment was that this could largely be explained by transient factors and that the upswing could nevertheless continue, although possibly at a slightly slower rate. Our assessment for the Swedish economy was that domestic demand would be strong over the coming years, with GDP growth peaking in 2006.

In the euro zone, developments during the fourth quarter were roughly as expected, but the indicators published since then point towards slightly more favourable developments there than was expected in February. At the same time, the oil price has risen much more than expected and forward prices for oil have also risen. We can therefore assume that oil and petrol prices will remain at a high level for some time to come. This of course comprises an uncertainty factor for the economic assessment and it is difficult to ascertain what consequences it will have. The experiences so far indicate that the international economic upswing has been resistant to the increasing oil prices. At home, a considerable amount of new statistics have been published since February, including the national accounts for the final quarter of 2005. GDP growth during the fourth quarter was slightly lower than expected, but for the year 2005 as a whole growth was nevertheless in line with our forecast because the outcomes for earlier periods had been revised upwards. The figures show that exports increased more than anticipated last year, which with hindsight is not surprising, given the strong international growth. On the other hand, both household consumption and investment were weaker during the fourth quarter than in our earlier forecast. Judging by the recent economic indicators, developments so far this year have been better than at the end of 2005.