samchain/econo-pairs-v1 huggingface dataset:
All the more so when each layer has its own, distinctive characteristics: some drivers of inflation being more secular in nature, others more cyclical; some consistent with the ‘divine coincidence’ of efforts to stabilise demand and price developments, others implying management of difficult trade-offs between activity and inflation. But the challenges for monetary policy are greater when the factors not only cumulate, but also interact with one another in possibly divisive and often unhelpful ways as regards the pursuit of price stability. In other words, when the various underlying drivers of policy decisions are not only additive as regards their implications for inflation, but also potentially multiplicative. To give the most straightforward but also immediately relevant example: the scope for energy price rises to trigger the infamous second round effects in price, wage and cost dynamics – the dynamics that threaten to create persistence in inflation even after the original external stimulus abates – is greater when the corporate sector enjoys pricing power, and the labour market is tight. Beyond the implications of the individual risks themselves, the combination of and interaction among those risks can create additional challenges for monetary policy. This is something to which I will return in discussing the outlook for UK monetary policy. Factors underlying monetary policy decisions But let me start by reviewing the three underlying drivers of policy decisions that I just listed.

This would probably also prove counterproductive, as many studies show that the exemption for labour would not reduce, for instance, cross-border black market crafts and services – what a special transition period creates are barriers to mobility for qualified, professional workers for which there is often a large demand. At the same time, there are no signs, in the studies made by the European Commission, and others, that free mobility for labour would lead to mass immigration from the east. Although the comparison is slightly lame as we now have the Schengen Treaty, there was no mass immigration to Germany from Portugal and Greece when they became members of the EU. If there is an opportunity for improvements in their home country, most people prefer to stay there. There is also a risk that we are exaggerating the costs of allowing the new countries to be part of the EU's agricultural and regional policy. The high costs and peculiar incentives of the EU's agricultural policy are a problem in themselves, which require a new way of thinking, but in my opinion it is not the actual enlargement eastwards that is the major stumbling block. According to the Commission's most recent calculations (based on a gradual increase in the support to the new member states), the total budget cost of the enlargement would be equivalent to only around 0.15 per cent of the EU's total 1  The Centre for Economic Policy Research presented the first major study in 1997 by R. Baldwin, J.F.
Despite the fact that risk attitudes, as such, are positive, demand for safe investments and thus for the Swiss franc has remained particularly strong. Consequently, recent movements in the Swiss franc have been influenced not only by the divergence between the dollar and euro regions, but also by persistent safe haven flows. The discontinuation of the minimum exchange rate led to a very substantial but short-lived appreciation in the Swiss franc. The extent of this appreciation is shown in chart 3. The extreme movements in the exchange rate were accompanied by a sharp increase in volatility on the Swiss franc foreign exchange market. Since then, Swiss franc volatility has declined, although it remains high in a long-term comparison with the period prior to the financial crisis. BIS central bankers’ speeches  1  At the same time, bid-ask spreads, i.e. differences between the best purchasing and selling offers, widened substantially following the end of the minimum exchange rate. These, too, have declined in the past few months, although the bid-ask spreads remain relatively large. In trade-weighted terms, the Swiss franc is no longer at the extreme levels that prevailed immediately after the discontinuation of the minimum exchange rate. However, it is still some 12% above the level at the beginning of the year. Thus, the Swiss franc is still substantially overvalued.

Implementation and impact of negative interest Exactly six months ago, on 18 December 2014, the Swiss National Bank (SNB) decided to impose negative interest on sight deposit account balances at the SNB for the first time, setting the rate at –0.25%. When it discontinued the minimum exchange rate, it lowered the rate once again by 0.5 percentage points, to –0.75%. By imposing negative interest on sight deposits, the SNB intends to move the three-month Libor into negative territory and significantly reduce interest rates in the money and capital markets. The lower interest rate makes it much less attractive to hold Swiss francs compared to other currencies. This should lead to a weakening in the Swiss franc over time. How the negative interest rate is applied I would like to take a moment to remind you how our negative interest rate is applied. It is imposed on all sight deposit account balances of banks and other financial market participants held at the SNB exceeding a given exemption threshold. For domestic banks, the exemption threshold is 20 times the statutory minimum reserve requirement. For nonbanks and foreign-domiciled banks (which are not subject to the minimum reserve requirement), a fixed exemption threshold of at least CHF 10 million has been set. The cumulative exemption thresholds come to about CHF 300 billion. This means that, with current sight deposits amounting to some CHF 455 billion, approximately CHF 155 billion are subject to negative interest. To date, the interest due on this amount has totalled around CHF 100 million per month.
In particular, five such strategies were clearly in evidence: •  Higher leverage: The simplest way of exploiting the asymmetry of payoffs arising from limited liability is to increase leverage. For example, if the capital ratio of the hypothetical bank were to halve from 10% to 5%, the beta of the bank’s equity would double (Figure 2). In that event, the imbalance between privatised gains (above the zero axis) and socialised losses (below the zero axis) would increase. Private investors would harvest more of the upside and export more of the downside. There is clear evidence of this strategy being pursued over long sweeps of history (Chart 2). Chart 7 looks at the behaviour of UK banks over the past decade; it plots their leverage against the riskiness of their assets. UK banks migrated North-West over the past ten years, with balance sheet expansion financed by higher leverage. Because UK and European banks were not subject to any regulatory restriction on simple leverage, there was no effective brake on this leverage-fuelled expansion. Higher leverage fully accounts for the rise in UK banks’ returns on equity up until 2007. It also fully accounts for the subsequent collapse in these returns. The highleverage strategy pursued by UK and European banks rather effectively privatised gains and socialised losses. •  Higher trading assets: An alternative means of replicating the effects of higher leverage is to increase the proportion of assets held in banks’ trading books.

Chart 6: Number of deposit insurance schemes and crises 100 90  Number of adopters  80 70 60 50 40 30 20 10  1934 – Great Depression (US) 1977 – Banking crisis (Spain) 1982 – Banking crisis (Kuwait) 1985 – Banking crisis (Kenya) 1994 – Banking crises (Czech Republic, Uganda)  2008  2004  2000  1996  1992  1988  1984  1980  1976  1972  1968  1964  1960  1956  1952  1948  1944  1940  1936  1932  0  1995 – Banking crises (Brazil, Bulgaria) 1996 – Banking crises (Belarus, Lithuania) 1996-1998 – Asian crisis (Indonesia, Korea, Malaysia, Thailand) 1998 – Banking crisis (Ukraine) 1999 – Banking crises (Ecuador, El Salvador)  Source: Demirgüç-Kunt, A., Kane, E., and Laeven, L (2008); Laeven, L. and Valencia, F (2008). 16  BIS Review 139/2009  Chart 7: Leverage and risk-taking in UK banks Total Asse ts/Tier 1 Capital 80  2005-2008  70  2001-2004 1997-2000  60 50 40 30 T ier 1 ratio of 4%  20 10  T ier 1 ratio of 8%  0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 Risk We ighte d Asse ts/Total Assets Source: Published accounts and Bank calculations.
10 8  6 4 2 0 -2  Source: NBR  Debt instruments (intercompany lending)  2017p  2016  2015  2014  2013  2012  2011  Reinvested profit  2018H1p  Equity investments  2010  2009  2008  2007  2006  2005  -4  Figure 17. Inflation will stay in the target band in 2018 and 2019 CPI inflation  Source: NIS, NBR  CORE 2 adjusted inflation  Figure 18. Exchange rate evolution 107  250  1 January 2018 =100  106 200  105 104  150 103 102 100 101 100  50  99 98 1-Jan-18  0 1-Feb-18  1-Mar-18  EURRON Source: Reuters  1-Apr-18  EURPLN  1-May-18  EURCZK  1-Jun-18  EURHUF  1-Jul-18  EURTRY (rhs)  1-Aug-18  EURARS (rhs)  Figure 19. 5 year yield of FX government bond 11  9  7  5  3  1  -1 29-Dec-17  29-Jan-18  PL_5Y(eur) Source: Bloomberg  28-Feb-18  31-Mar-18  CZ_4Y(eur)  30-Apr-18  RO_5Y(eur)  31-May-18  30-Jun-18  TR_5Y(usd, rhs)  31-Jul-18  AG_8y(usd. rhs)  31-Aug-18  Figure 20. 10 year yield of FX government bond  10  8  6  4  2  0 2-Jan-18  2-Feb-18  PL_10Y Source: Bloomberg  2-Mar-18  CZ_18Y  2-Apr-18  RO_10Y  2-May-18  2-Jun-18  TR_10Y(usd, rhs)  2-Jul-18  2-Aug-18  AG_10Y(usd, rhs)  Figure 21.

Structural reforms are incomplete and a possible roadmap for euro-accession or just for further convergence cannot be done without a detailed program of these reforms which should cover governance issues (both in the public and private sectors), investment prioritization, better tax collection, broader reporting, centralized procurement, addressing the issue of companies with negative capital, and much more. In the financial sector, the recent Financial Sector Assessment Program undertaken by the IMF and WB has issued a number of recommendations for structural reforms, including a series of macroprudential policies which the National Bank has already started to implement. Agustin Carstens, General Manager of the Bank for International Settlement, said at the presentation of the 2018 Annual Report in Basel: “We must seize the day. Addressing vulnerabilities is key to keeping the growth momentum on track. The stronger performance gives us a window to pursue necessary reforms and recalibrate policies. Let’s not miss this opportunity”. On this note, let me conclude here and wish you all not to miss the opportunities. 7  Figure 1. Real and potential GDP* 1060 1055 1050 1045 1040 1035  GDP  Potential GDP  Source: NBR Note: *logarithmic scale = computed as 100*log(GDP at constant prices)  2018Q1  2017Q3  2017Q1  2016Q3  2016Q1  2015Q3  2015Q1  2014Q3  2014Q1  2013Q3  2013Q1  2012Q3  2012Q1  2011Q3  2011Q1  2010Q3  2010Q1  2009Q3  2009Q1  2008Q3  2008Q1  1030  Figure 2.
So the recent political agreement on an implementation period is welcome. There was always going to be an interlude between political agreement and legal certainty. So authorities here have done what our mandate to keep the system capable to serving the economy implies. Regulatory underpinning has been given to the political agreement. European firms can assume they’ll be able to operate in – and serve clients in – the UK, much as they do now, until the end of 2020. 5  5  See update on the regulatory approach to preparations for EU withdrawal, 28 March 2018, at https://www.bankofengland.co.uk/news/2018/march/update-on-the-regulatory-approach-to-preparations-for-eu-withdrawal 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  And that commitment is backstopped. The UK government has committed to legislate, if necessary, to allow European firms to operate and serve end users in the UK temporarily after Brexit. The economy of the UK, at least, can be confident that – whatever happens – it can access financial services as it does now. But still more action is needed because existing contracts could be disrupted. Uncleared over-the-counter derivative contracts, with a notional value of £ trillion, could be affected. That’s around a quarter of derivative contracts entered into by parties in both the UK and EU. Novation of contracts on that scale risks disruption, particularly if it were to take place in a short time frame. As with the flow of new services, a backstop would have benefit. It would need two parts.

Five years of macro-prudential: Regulating the Square Mile for all 94,000 square miles Speech given by Alex Brazier, Executive Director for Financial Stability Strategy and Risk, Bank of England  Future of Finance Conference, Imperial College Business School Thursday 19 April 2018  I am grateful to Hugh Burns, Maighread McCloskey, Emma Moriarty, Joe Noss, Varun Paul, Will Saunt and David Seaward for their assistance in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  It is now five years since the birth of the UK’s post-crisis reforms to financial regulation. Reforms that brought the ‘twin peaks’ of a conduct supervisor and, for banks and insurance companies (and the largest investment firms), a dedicated prudential supervisor. But the novel addition, atop those twin peaks, was a new macro prudential look-out – the Financial Policy Committee of the Bank of England – that would have real duties and powers. Its duty: to look up and out, from the rules for finance – the Square Mile – to the outcome they deliver for the end users in all 94,000 square miles of the UK. The outcome it seeks: a financial system that serves households and businesses in bad times, as well as good; a system that doesn’t disrupt the economy but still delivers for it. Its power: where the rules don’t do that, change them. 1  2  The addition of the look out to the twin peaks was a recognition of the obvious.
In other words, the value of a natural resource is converted into a financial asset. The name of the Fund was chosen to reflect this. However, one weakness that may be associated with the Petroleum Fund is that the objective of saving is not sufficiently highlighted. The future use of revenues could have been made clearer either by choosing another name or by earmarking the capital for specific future uses, even though this would imply a constraint on the government’s scope for manoeuvre. The study that is being planned may analyse fundamental and practical aspects of establishing a link between the pension system in Norway and the assets in the Government Petroleum Fund. The National Insurance Fund’s investments are mainly confined to Norway. As a result, changes in the value of the Fund’s equity portfolio primarily reflect developments in Norwegian business and industry. The Fund has larger ownership interests in individual companies than the Petroleum Fund, and wider fluctuations in value. State ownership NOK bn  Financial investor  Strategic owner  15 0  High  10 0  Ris  50  k  Low  0 0 -1  1 -5  5-10  10-15  1 5 -4 0 4 0 - 4 9  5 0 -7 4 7 5 - 9 9  100  Ownership interests per enterprise  Petroleum Fund's equities  National Insurance Fund's equities  Direct ownership  As indicated in the chart, the government has substantial holdings in individual companies.

Gent Sejko: The importance of studying technological and demographic developments disrupting labour, finance and markets Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 13th SEE Economic Research Workshop, Tirana, 5 December 2019. * * * Dear Ambassador Maître, Dear guests and speakers from academia, central banks and research institutions, Dear participants, It is a great pleasure for me to open the proceedings of the 13th SEE Economic Research Workshop, in which we present and open for discussion research projects undertaken by the Bank of Albania in the current year, and have the opportunity to get feedback from colleagues from academia, central banks and research institutions worldwide. This is a very important event for the Bank of Albania, since all the projects that will be discussed during the two days of the workshop are designed to help the analysis, decision making and implementation in the areas of monetary policy and financial stability as well as other central bank aspects. Based on this careful formal analysis, our policies have been successful in preserving monetary, macroeconomic and financial stability. Despite hardships, our economy has registered positive growth rates, and our banking system’s performance has been stable. The banking sector is well capitalized and profitable, non-performing loans have decreased and banks continue to support economic activity with credit, while managing potential shocks originated from the external sector of the economy. The agenda is rich and covers the most important areas of research related to traditional central bank activity.
Motivation behind the Committee’s proposals Beyond the advanced methods proposed for the treatment of credit risk, the inclusion of a capital approach for operational risk represents one the New Accord’s most notable innovations, to which I’ll now turn. In recent years, banks and supervisors have begun to recognise the need to evaluate and seek ways to reduce losses arising from failures in processes, systems, people, or external events. Increasingly, supervisors, like many leading institutions, consider the management of operational risk to be a comprehensive practice comparable to that of credit or market risk. While operational risk is not as readily quantified as these other exposures, the Basel Committee has noted genuine progress among leading institutions in measuring and controlling it. “Unbundling” operational risk from other risks and then including an explicit capital charge for it was intended to support these private sector efforts and to reward firms that develop better measures. With that motivation, the Committee sought approaches to operational risk that mirror the New Accord’s three pillars of more risk-sensitive minimum requirements, coordinated supervisory review, and enhanced market discipline through greater transparency. Together, the three pillars support the development of sophisticated measures of operational risk and offer incentives for banks to enhance their relevant controls. The Committee recognises that the art of operational risk management is still in its nascence and that risk managers are experimenting with a wide range of methodologies.

Of the public comments on CP3 that touched on the operational risk proposals, it was gratifying that most sought refinement and clarifications of the proposals, and many acknowledged the value of the underlying principles. Respondents addressed a range of issues, but the AMA clearly captured the industry’s imagination. Three themes have emerged that are especially important to the Committee’s work on the AMA. One concerns the qualifying criteria banks will have to fulfil to adopt the AMA. Two others addressed the allocation of operational risk capital and consistency in the application of the AMA standards, across both banks and jurisdictions. I’d like to spend a few moments to give you a sense of the Committee’s deliberations to date on each theme. Qualifying criteria for AMA The first, and perhaps most pressing, of the themes concerns the minimum operational requirements that banks will soon need to meet in order to receive supervisory approval to use an advanced measurement approach. Many respondents felt that the Committee’s requirements spell out a tall order for the industry, especially in terms of the requirements to validate operational risk data and correlation assumptions. The Committee acknowledges that meeting the qualifying criteria will be a significant challenge for some banks. At the same time, the AMA offers banks an unprecedented degree of freedom in modelling their risk and determining their minimum capital requirements. The Committee considers it appropriate to pair this privilege with appropriately demanding standards.
8 builds and extends on work done at the BIS. 9 It shows how credit and asset prices share cyclical similarities, captured in a synthetic financial cycle index that outperforms credit-to-GDP gap measures in predicting systemic banking crises, on a horizon of up to three years. They also demonstrate how the financial cycle is different from the business cycle. Based on this research, we conclude that financial variables (credit volumes and asset prices) in EU countries have historically exhibited higher average volatility than economic variables (volume of activity in goods and labour markets, as well as consumer prices). Financial cycles have also exhibited a higher duration than business cycles on average. Lastly, asymmetries appear to exist, whereby financial cycles tend to build up slowly and correct more abruptly. Taken together, these findings have at least two policy implications. First, they establish a rationale for differentiated financial and macroeconomic policies, and are thereby fundamental to the newly established macroprudential policy area. Policies targeting financial cycles, such as countercyclical macroprudential policies, can act as a powerful complement to policies targeting the business cycle, such as monetary policy. Policy trade-offs may emerge in the short-run, as the propensity for such cyclical divergence seems to be greatest at short frequencies. Second, the results present a strong case for a differentiated national application of macroprudential policies, amid a far from complete convergence of country financial cycles.

This latter aspect is particularly compelling in a currency union with shared monetary policy, where macroprudential policies represent an additional and potentially powerful element to cushion conditions specific to member states. This underpins several principles that should guide macroprudential policy that I would like to address in the remaining of my remarks. 5  Hartmann, P., K. Hubrich, M. Kremer and R.J. Tetlow (2015) “Melting down: systemic financial instability and the macroeconomy” mimeo, February. 6  Allen, L., T.G. Bali and Y. Tang (2012) “Does systemic risk in the financial sector predict future economic development?“ The Review of Financial Studies, vol. 25, No. 10, October, pp. 3000–3036. 7  Giglio, S., B.T. Kelly and S. Pruit (2015) “Systemic risk and the macroeconomy: an empirical evaluation”, NBER Working Paper No. 20963, February. 8  Hiebert, P., I. Jaccard, T.A. Peltonen and Y. Schüler (2016) “Characterising the financial cycle: a multivariate and time-varying approach”, ECB-IMF Conference on Macroprudential Policy Frankfurt, 26–27 April 2016. 9  Borio, C., M. Drehmann and K. Tsatsaronis (2012) “Charaterising the financial cycle: don’t lose sight of the medium term!”, BIS Working Paper No. 380, June. 2  BIS central bankers’ speeches  Principles of Macroprudential Policy The ultimate objective of macroprudential policy is to prevent and mitigate systemic risk, which includes strengthening the resilience of the financial system and smoothening the financial cycle, in order to preserve the effective provision of financial services to the real economy.