samchain/econo-pairs-v1 huggingface dataset:
According to simulations on the impact of such an approach for the Euro-area countries, aggregate riskadjusted FISIM would stand at about 60% of current aggregate FISIM for the Euro-area countries over the period 2003–7 (Mink (2008)). (ii)  Measuring risk  Adjusting FISIM for risk would better capture the contribution of the financial sector to the economy. The fundamental problem is, however, that risk itself is unobservable ex-ante. The methodology described above measures risk in a relative way; it effectively assumes that if  3  Wang et al (2004), Wang (2003), Mink (2008), Colangelo and Inklaar (2010). BIS Review 95/2010  5  banks deviate from prevailing market rates, this is to compensate for the services they provide to borrowers and depositors. But at no point is there an assessment of the ability of the financial system to price risk correctly in an absolute sense. This might not be the objective of statisticians when measuring output. But it is essential when gauging the contribution of finance to economic well-being. To see this more clearly, consider an alternative example (Table 3). A bank lends £ to a corporate borrower. But the bank incorrectly assesses the credit risk of the corporate to be A-rated, when the true credit risk is BB-rated. Assume for simplicity that the corporate, knowing that its credit risk is greater than A, is prepared to pay a spread higher than that on an A-rated credit risk (say 2%). The market spreads for A-rated and BB-rated credits are 1% and 2% respectively.

During much of this period, banks internationally were engaged in a highly competitive ROE race. Therein lies part of the explanation for these high returns to labour and capital in banking. 4. Explaining aggregate returns in banking – excess returns and risk illusion How do we explain these high, but temporary, excess returns to finance which appear to have driven the growing contribution of the financial sector to aggregate economic activity? In this section we discuss potential balance sheet strategies which may have contributed to these rents. Essentially, high returns to finance may have been driven by banks assuming higher risk. Banks’ profits, like their contribution to GDP, may have been flattered by the mis-measurement of risk. The crisis has subsequently exposed the extent of this increased risk-taking by banks. In particular, three (often related) balance sheet strategies for boosting risks and returns to banking were dominant in the run-up to crisis:   increased leverage, on and off-balance sheet;    increased share of assets held at fair value; and    writing deep out-of-the-money options. What each of these strategies had in common was that they generated a rise in balance sheet risk, as well as return. As importantly, this increase in risk was to some extent hidden by the opacity of accounting disclosures or the complexity of the products involved. This resulted in a divergence between reported and risk-adjusted returns. In other words, while reported ROEs rose, risk-adjusted ROEs did not (Haldane (2009)).
This should be coupled with easier access to credit for productive enterprises - especially micro, small and medium-sized enterprises (MSMEs) – and reforms to foster technological change and productive diversification in line with the changing structure of the global economy. In the above recognition and its continued quest to contribute to unleashing the potential of local MSMEs, the Bank of Zambia hosted a strategic forum on the role of finance in this area, in June this year. As a follow-up, the Government is working closely with stakeholders and the cooperating partners in improving availability of financial resources to MSMEs. Further, some provision has been included in the 2013 Budget. Distinguished participants MSMEs could play an important role in creating employment and spurring growth. However, their competitiveness is undermined by inadequate infrastructure, limited access to financial and business services. Stakeholders can help small firms to integrate in, and reap more benefits from local and international value chains, by facilitating the provision of business services, among which continuous skills development is paramount. An important policy question is how to address the constraints which affect the capacity to grow and generate earnings of MSMEs, very often informal that operate in traditional sectors and account for the bulk of jobs in our country. This feat, ladies and gentlemen, can only be achieved gradually, as the drivers of informality are usually multiple and deeply rooted in long-standing development gaps and weaknesses.

Michael Gondwe: Skills development as a catalyst for youth employment promotion, income growth, and micro, small and medium enterprises Keynote address by Dr Michael Gondwe, Governor of the Bank of Zambia, at the stakeholder consultative workshop, organised by the Technical Education, Vocational and Entrepreneurship Training Authority (TEVETA) of the Republic of Zambia, Lusaka, 18 October 2012. *  *  *  Chairperson Ladies and gentlemen It is indeed an honour and privilege to make this keynote address on skills development as a catalyst for youth employment promotion, income growth, and micro, small and medium enterprises (MSMEs) development. Mr Chairman Over the recent past, macro-economic stability and appreciable economic growth has been achieved in Zambia as reflected in: i. Positive real GDP growth averaging 6.5% per annum in the last 5 years coupled with rising per capita incomes;  ii. Falling inflation, relatively stable exchange rate and downward trend in lending rates;  iii. Favourable external sector performance; and  iv. Stability and growth in the financial sector;  The main challenge that still remains is that of meeting the basic needs of the majority of Zambians, in particular our youth and women, who suffer the brunt of high unemployment. It is for this reason that action is urgently needed to boost skills development in order to enhance productive capacities, investment and decent jobs to sustain the incomes of working families, the poor and the vulnerable.
1  See ECB, “Progress with structural reforms across the euro area and their possible impacts”, Economic Bulletin, Issue 2 / 2015. BIS central bankers’ speeches  1  However, since 2013, very low financing costs for sovereigns and rising share prices have eased the pressure to implement more difficult policies 2. By definition, for structural policies to be most effective, a long-term commitment, continuous implementation and strong reform ownership are needed. This is the only way to permanently change expectations and growth prospects. This leads me to our second, more concrete, question: Which structural reforms are still needed to support stronger and sustainable growth? To start with, let me stress that all euro area countries, albeit to different degrees, still need to implement structural reforms. There are a number of credible reforms that are able to increase permanently total factor productivity; to affect confidence; and to help reduce uncertainty and increase investment and sustainable demand. In particular, for the euro area I see the need to forcefully work on: 1.  reducing red tape – by easing licensing procedures and facilitating access to credit by viable firms;  2.  improving the judicial systems – including the effectiveness of insolvency regimes;  3.  increasing the efficiency of the public administration and tax systems;  4.  reducing entry barriers in sectors sheltered from competition; and  5.  reducing hiring costs and skill mismatch. These reforms would unlock immediately “hidden” demand, increase economic resilience and facilitate the working of monetary policy.

The ability of British manufacturing industry to provide strong impetus to private sector growth will be an important offset to the drag to domestic demand from the rebalancing of public finances over the next few years. There is also evidence that strong growth in the global economy is benefiting parts of the services sector. Earlier this week, the airport operator BAA reported a 7.6% annual rise in traffic volumes at Heathrow Airport in September – driven by strong business travel growth to Asia and other emerging markets. From the position a year ago – when demand had fallen sharply at home and abroad in the wake of the financial crisis – this turnaround is impressive. So my verdict on the recovery would be “so far, so good”. But we have to recognise that we are still at an early phase of the upswing. It is not surprising, therefore, that growth is uneven across sectors and from quarter to quarter, and that confidence is still somewhat fragile. The state of confidence is not helped by the negative tone of much of the economic commentary at present – which seems to reflect a high degree of nervousness about the  3  Data is latest available: for manufacturing it relates to the three months to August and for services to the three months to July. BIS Review 134/2010  3  progress of the recovery. But this raises the obvious question: if things are so good, why do they feel so bad – to some people at least?
All of these reasons are legitimate in themselves. But, taken together, they considerably restrict supply even though – as foreign examples have shown – demand is potentially sizeable. These restrictions also encourage the substitution of labour by capital and therefore result in growth that is both constrained and has an insufficient employment content. They are sometimes based on a notion of working rhythms that is out of step with the functioning of a modern society and technological progress. They are very costly for the economy. And, lastly, they do a disservice to those they set out to protect. The main victims are those for whom access to employment requires flexibility, adaptation, and freedom to choose working hours, i.e. primarily young people and women. A complete overhaul of all the legal and regulatory conditions governing a wide range of commercial and services activities therefore appears to be an urgent priority. Lastly, in order to increase France’s productivity, a shift towards technology- and sciencebased activities is essential. To do so, research and development (R&D) efforts must be encouraged. In this respect, while the share of public R&D expenditure is comparable or even greater than that of the country’s main trading partners, private sector R&D investment remains well below that in Germany, the United States or Japan. The creation of poles of competitiveness in 2005 and the Industrial Innovation Agency in 2006 contribute to achieving this strategic objective.

Such a transfer would be especially paradoxical since sustainable development has become a key priority and the quality of the environment passed on to future generations has never before to such an extent inspired and guided public action. * The French economy must now be allowed to fulfil its potential. While globalisation offers opportunities, it also creates numerous insecurities. The accumulation of such sentiment may result in slowing down or preventing the necessary reforms. But because the world economy  6  BIS Review 92/2007  is changing rapidly, the refusal to adapt would lead, inevitably, to weaker growth for France and greater insecurity for all French citizens, especially those that are least protected. This dilemma is not peculiar to France. All the other European countries are experiencing this friction between the natural desire for greater security and the unavoidable need to adapt. It is important for each country, according to its traditions and culture, to find the means of taking up this challenge. However, France boasts numerous and decisive advantages: Europe’s most dynamic demography; a high level of energy independence, which is an inestimable advantage in these times of economic and geopolitical uncertainty with regard to supplies; active and dynamic companies, which have been able to take ample advantage of the opportunities afforded by globalisation; and lastly a highly-skilled workforce which, to some extent, accounts for France’s high hourly productivity levels. These advantages must therefore enable France to achieve strong growth that creates jobs in a stable monetary environment. This opportunity must be seized.
This is also an issue that we are pursuing in our constituency. Until financial stability is covered by the articles, the members will have no obligation to discuss financial stability issues with the IMF and even less of an obligation to explain their choices in cases where they do not follow the Fund’s recommendations. Summary and concluding remarks As I said earlier, it is important to clarify the IMF’s role in the surveillance of the global financial system. My view is that the IMF is an institution that is well equipped to perform an independent and stringent analysis of the international financial system. An important aspect to discuss in this context is how to make the best use of the Fund’s risk analyses, advice and recommendations. First, it is important for the IMF to present clear and focused recommendations on global financial stability that are not too general. The IMF’s consolidated surveillance report has this aim. The report is wide ranging and may easily become toothless, but it has the potential to play a greater role in this context. Second, the IMF’s advice and recommendations will be ineffectual if the member countries do not comply with them. The follow-up of these recommendations must therefore be improved. The IMF has now said that the follow-up of advice and recommendations will become a permanent feature of the annual country reviews. Sweden welcomes this initiative and looks forward to its full implementation.

Svensson, L (2002), “The Inflation Forecast and the Loss Function”, CEPR Discussion Paper 3365. Svensson, L and Williams, N (2005), “Monetary Policy with Model Uncertainty: Distribution Forecast Targeting”, NBER Working Paper No. 11733. Weale, M (2014), “Slack and the labour market”, speech at the Thames Valley Chamber of Commerce, 20 March 2014, available at http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech716.pdf. Weale, M (2015), “Inflation: finely balanced risks”, speech at City and Islington Sixth Form College, 11 March 2015, available at http://www.bankofengland.co.uk/publications/Documents/speeches/2015/speech805.pdf. Yellen, J (2014), “Labor Market Dynamics and Monetary Policy”, speech given at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole. 20  BIS central bankers’ speeches
and which are available in TARGET 2, become available either as a participant or as an eligible party (ie through another payment service provider that is a participant) and in the Instant Payment Service (TIPS) in TARGET 2. The service provides the possibility of settlement in other currencies and is expected to make immediate payments in Swedish kroons in 2022 in TIPS. Part of the package of documents related to digital financial services published by the European Commission is a proposal for a Regulation on the operational sustainability of digital technologies, which contains requirements for risk management related to information and communication technologies in the financial sector, a proposal for a Regulation on cryptocurrency markets; and a proposal for a Regulation on a Pilot Regulation of Market Infrastructures Based on Distributed Registry Technology (DLT). The future development of regulations in the field of payment services is undoubtedly interesting and dynamic, but no less interesting and dynamic is the development in the current use of payment services in Bulgaria. The data for 2019 published by the ECB in September 2020, according to Regulation (EU) № 1409/2013 of the ECB on payment statistics, based on the information collected by the BNB for another year report a significant growth of payment services in Bulgaria. In this regard, some indicators can be highlighted, such as an increase in the number of electronically initiated credit transfers by 17%, an increase in the number of card payments made by 25% and others.

The scope of the directive may also include hitherto unregulated technical service providers supporting payment services. Next, the future architecture of payment services in the European Union will be built on immediate payments. In this regard, the Commission plans to assess the need for a statutory obligation to participate in the SEPA scheme of the European Payments Committee for immediate credit transfer in euros (SCT Inst.). To encourage the use of immediate payments, consideration is being given to requiring that immediate payment fees be no higher than ordinary credit transfer fees. In Bulgaria, Borika AD, in close cooperation with the BNB as an operator of the real-time gross settlement payment system (RINGS), is in an advanced stage of development of a project for immediate payments in BGN, based on the requirements of the SEPA scheme for immediate credit translations (SCT Inst.). The ambition of the company is in 2021 for the payment service 1/2  BIS central bankers' speeches  providers in the country to be able to provide their customers with immediate credit transfers in BGN. Interconnection and interoperability between the various payment systems providing clearing and settlement is required to ensure cross-border reachability in the execution of immediate credit transfers in euro. In July 2020, the ECB announced its decision to introduce measures to ensure a trans-European scope of immediate payments in euro by the end of 2021. As a result, all payment service providers that have joined the SCT Inst scheme will be required.
But the political scene on climate has already been changing dramatically and it will continue to change - hopefully for the better. ** Looking back at how far we have come in developing green finance over the last six years, one may wonder: “Is it useful?” – certainly yes; “Is it enough?” –certainly not. Let me remind everyone of one simple – and dreadful number: according to the IPCC, we have less than six years of greenhouse gases budget left if we want to have 83% chance to stay below 1.5°C. Let’s not fool ourselves: we have been making very significant progress to make sure that the financial system is fit to the challenge of the transition. But there is still much work to do on our side, starting with mandatory and harmonised disclosures, and a close monitoring of transition paths. Still more fundamentally, what we are doing only makes sense if this is part of a wider collective endeavour. Finance, and still more Central banks, cannot be the only green game in town. A few days ahead of Glasgow, it is the right time to listen to the Pink Floyd again and the Dark Side of the Moon: “And then one day you find ten years have got behind you; no one told you when to run, you missed the starting gun”4. It is not too late yet, but let us hear the starting guns. I thank you for your attention.

Already some host supervisors have found that local managers may be unfamiliar with the parent organisation’s plans for Basel II: this understandably tends to make host supervisors less confident about the quality of an organisation’s planning and its readiness to move to Basel II. Moreover, it increases their need to ask more questions, some of which may duplicate the questions that the home supervisor or other host supervisors are asking. If a bank has already developed sufficiently detailed and transparent plans for its application of Basel II, a substantial portion of the hard work has already been done. Sharing those plans with home and host supervisors, and with managers throughout the bank’s operations and locations, should not require too much more effort. Instead, the bank should be in an even better position to focus on running its business confidently while still implementing its plans carefully for the future. Validation One of the greatest challenges – for both banks and supervisors – of the Basel II framework is the need to validate the systems and processes used to generate the parameters that serve as inputs into the IRB approach to credit risk. Although validation is foremost the responsibility of banks, supervisors must have a thorough understanding of validation in order to ensure overall integrity of bank’s activities in this area. In recognition of the importance of validation the Committee recently published six principles on validation that will guide our future work.
This is a significant change in the parameterisation of a key macro-economic relationship for the setting of monetary policy. One way of explaining the intuition behind this steepening of the Phillips Curve is that market power reduces the degree of strategic complementarity in price-setting. In a product market closer to perfect competition, firms will be reluctant to raise prices fearful that, with other prices in the economy sticky, demand would fallaway sharply. By reducing the elasticity of demand, market power reduces this risk and thus gives rise to greater flexibility in prices – and hence a lower sacrifice ratio (for example, Ball and Romer (1990)). Let us now put this model into a stochastic setting, by assuming desired mark-ups fluctuate around a trend level according to some stationary stochastic process, log 𝜇𝑡 . These would now appear as cost-push disturbances in the Phillips curve:  𝑢𝑡 =  (1 − 𝜃)(1 − 𝛽𝜃) 1 − 𝛼 log 𝜇𝑡 𝜃 1 − 𝛼 + 𝛼𝜖  (7)  This tells us that, when mark-up shocks strike, a greater degree of market power will mean that a larger fraction of the shock will fall on prices than activity. A rise in market power, through its effect on the slope of the Phillips curve, will cause the Taylor output/inflation variability (policy possibility) frontier to rotate clockwise, with more of the burden following a shock felt by inflation than by output variability. 23  De Loecker and Eeckhout (2018).

Second stage: As mentioned earlier, to get the GMM moment conditions, we need to purge 𝜔𝑖𝑡 from its component observable to the firm. We assume 𝜔𝑖𝑡 follows an AR(1) process so that 𝜔𝑖𝑡 = 𝜌𝜔𝑖,𝑡−1 + 𝜉𝑖𝑡  (𝐴5)  where 𝜉𝑖𝑡 is an idiosyncratic, unobservable (to both the firm and econometrician) shock to technology. This is the part of 𝜔𝑖𝑡 that is assumed to be uncorrelated with optimal input choices and thus forms the basis for the GMM conditions. We know that our 𝑦̂𝑖𝑗𝑡 estimate subsumes both the inputs 𝑣𝑖𝑡 , 𝑘𝑖𝑡 directly and indirectly through 𝜔𝑖𝑡 = ℎ(𝑣𝑖𝑡 , 𝑘𝑖𝑡 ). But since it is consistent, we can express unobserved technology 𝜔𝑖𝑡 as a function of to-be-estimated 𝜷𝑗 : 41  All speeches are available online at www.bankofengland.co.uk/speeches  41  𝜔𝑖𝑡 (𝜷𝑗 ) = 𝑦̂𝑖𝑗𝑡 − 𝑓(𝑣𝑖𝑡 , 𝑘𝑖𝑡 ; 𝜷𝑗 )  (𝐴6)  So, given a 𝜷𝑗 , we can estimate equation (A5) to back out 𝜉𝑖𝑡 (𝜷𝑗 ). In the Cobb-Douglas case, we then have the GMM moment conditions 𝑘 𝐸 (𝜉𝑖𝑡 (𝜷𝑗 ) ( 𝑖𝑡 )) = 0 𝑣𝑖,𝑡−1  (𝐴7)  Note that capital is assumed to be decided one period ahead and therefore should not be correlated with the innovation in productivity. We rely on lagged COGS to identify the coefficients on COGS since current COGS is expected to react to shocks to productivity and hence 𝐸(𝑣𝑖𝑡 𝜉𝑖𝑡 ) is expected to be non-zero.