samchain/econo-pairs-v1 huggingface dataset:
And there is, of course – a limited liability company is basically a means of protecting its owners from the private consequences of the company becoming bankrupt. Being able to fund a business operation through borrowing is, of course, necessary and, in most cases, effective. In efficient markets, lenders’ risks are handled by means of interest rates and contract clauses. The limited liability company is thus a historically wealth-generating social institution. Nevertheless, the example illustrates that the higher cost of funding through equity is more a matter of private than social costs. Another factor that separates the costs for own and borrowed funds is the tax system. Companies may deduct interest on loans, but pay corporate tax for profits on equity. But this is just a private economic difference – from the social perspective, the only difference is the subsidisation of debt-financing in preference to equity. This specifically applies to banks that may be systemically important – it would be socially costly to allow them to file for bankruptcy. So the market often expects that the state will save a bank that is on the ropes, one way or another. These so-called implied guarantees create even greater differences between social and private costs, and risk leading the banks to take even greater risks. Banks are vulnerable, contagious and sometimes systemically important. There are great differences between private and social cost-benefit calculations. Economic theory and empirical experience gives us good reason to regulate banks.

As the banks largely obtain funding from loans from each other and other financial  1  Modigliani, F & Miller, M H (1958): “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review  BIS central bankers’ speeches  3  institutions, the lack of confidence led to a drying-up of liquidity within both the financial and real economies. The crisis was met in a somewhat similar way by the United States, Europe and Sweden On the whole, the financial crisis was met in a similar way by all OECD countries. The automatic stabilisers were put to work in fiscal policy, and many countries launched targeted fiscal policy stimulation measures to break the fall. The central banks reduced interest rates to very low levels. Almost all economies also took measures to prevent even deeper problems in the financial sector. In the United States, where the crisis originated, the Federal Reserve and other authorities provided emergency liquidity assistance to the banks and other parts of the financial system. The Department of the Treasury’s TARP (Troubled Assets Relief Program) purchased problem assets from banks and other financial institutions. The guarantee programme for the banks’ deposits was expanded. In addition, in 2009, a stress test was carried out of the 19 largest US banks as of the spring of 2009. Ten of these banks were deemed to need new capital, which they also succeeded in raising. It seems likely that this test helped restore confidence in the equity/assets ratios of the US banking system.
In the wording of the Treaty, the ECB is requested to contribute to the smooth conduct of policies pursued by the competent authorities with respect to the prudential supervision of credit institutions and the stability of the financial system. Furthermore, the ECB’s financial stability function is also related to its responsibility for overseeing financial market infrastructures. The legal framework under which the ECB collects statistical data has in fact recently been extended to expressly recognise its powers to collect data for this purpose. BIS central bankers’ speeches  1  In 2011 the EU institutional framework was revised to explicitly address both macro and micro-prudential supervision. This led to the establishment of the European System of Financial Supervision, the three new European Supervisory Authorities (ESAs) and the European Systemic Risk Board (ESRB). The ECB is in charge of providing analytical and statistical support to the ESRB, notably by collecting and processing information that feeds into discussions within the ESRB. 1 3. What has been achieved so far? In recognition of an increasingly interconnected financial system, considerable progress is being made in the enhancement and development of new statistics at the euro area, EU and global level. At the euro area level, improvements in ECB statistics are notable with regard to, in particular, the development of enhanced statistics relating to monetary financial institutions (MFIs) and to shadow banking (e.g. securitisation vehicles).

For the HKMC, MBS provide an important source of funding and an effective tool for managing the risks of its fast-expanding mortgage portfolio. In a short span of six years, the Corporation’s mortgage pool has increased to over $ billion, which is funded by debts of a similar amount. Momentum is expected to pick up further with the planned acquisition of between $ billion and $ billion of mortgage portfolios before the end of 2004. The proceeds from issuance of MBS help relieve the funding pressure of the mortgage purchase programme. The securitisation process also enables the Corporation to reduce the Prime-HIBOR basis risk and the refinancing risk of its mortgage portfolio. There are in fact two MBS programmes that have been developed by the HKMC. We made a modest start in October 1999 with the launch of the Guaranteed Mortgage-Backed Pass-Through Securitisation Programme. There were a total of eight series of MBS issued under that Programme, with an aggregate amount of about $ billion. The back-to-back structure of the MBS issued allows the participating banks to keep a substantial portion of the cash flow from the mortgage pools, while reducing the credit risk and capital cost through the HKMC’s guarantee of the securities. It also provides them with the option at any time to off-load part or all of an issue to suit their liquidity or trading objectives.
The survey suggests that while there has been underinvestment and while financial constraints appear to have played a role, other financial and non-financial constraints like crowding out, uncertainty and risk aversion have probably been equally important. Unfortunately there seems to be no silver bullet. The survey suggests that any policy initiative to address underinvestment would need to address a wider agenda than just constraints on external financing. Rates of return  I have concentrated so far on the firms who believe they had invested too little and the reasons they gave for this underinvestment. The survey however also shed light on the approach used by all firms to decide whether to take an investment opportunity. The results reinforce other evidence that suggests that investment projects may now face a stiffer test than pre-crisis because firms are implicitly applying a higher risk premium in their decision making. The survey asked firms about the average rates of return on the investments they had made over the past five years and how they assessed investment opportunities. The responses indicate that the rate of return on past investments has averaged 12%. This is squarely in line with the top down ONS estimate of the annual net return on capital in the private non-financial corporate sector as a whole – an estimate that has been remarkably stable at around 12% since the turn of the century.

There are probably several reasons why they have not. As noted earlier, inertia has probably played a role – the survey results suggest that firms adjust their investment targets infrequently and change them slowly. So it is possible that the sharp decline in real interest rates since the global financial crisis may not yet be reflected in company hurdle rates. Uncertainty and risk aversion may also have played a role. In the survey, these were the predominant nonfinancial obstacles to investment (Chart 5). Of the third of firms who said they had invested too little over the 7  past five years, over 80% cited uncertainty as an obstacle. Other studies have also found that increased uncertainty can lead to weak investment. 8  Chart 5: Obstacles to investment over the past five years  (a)  % of businesses 90  Moderate Obstacle Major Obstacle  80 70 60 50 40 30 20 10 0 Internal funds  External funds  Uncertainty  Risk aversion  Cost of finance  Shorttermism  Skill Shortage  Low/slow returns Source: Bank of  England Finance and Investment Decisions survey. (a) Question 8: ‘If your business invested ‘too little’ over the past five years, what were the main obstacles to investing?’. (b) ‘Short-termism’ arises when companies value short-term returns above investment that typically yields returns once a long-term horizon.
In this section I assess EMEs’ resilience to external shocks by discussing the ways and extents of external shocks are transmitted to domestic economies of emerging markets. The first transmission way of external shocks is the trade channel. In recent decades EMEs have increased their share of global exports and recorded strong growth in inter-regional and intraregional trade among emerging markets. As a result, EMEs currently make up around one-fifth of the world’s total trade. In addition, they have diversified their production and exports. Although increased trade openness of EMEs magnifies the potential impact of external shocks on these economies, there are also positive developments such as strengthened product and regional diversity providing a degree of mitigation. Similar arguments can be made for the second transmission channel, namely funding channel: increased external liabilities but well diversified sources together with significantly lengthened maturities. But there is a negative development worth mentioning is that capital flows are mostly by driven by the unconventional  7  Hausmann, Ricardo and Ugo Panizza (2013), On the determinants of Original Sin: An empirical investigation, Journal of International Money and Finance, Volume 22(7), Pages 957–990. Hausmann, Ricardo and Ugo Panizza (2011), Redemption or Abstinence? Original Sin, Currency Mismatches and Counter Cyclical Policies in the New Millennium, Journal of Globalization & Development, Volume 2(1), Pages 1–35. 4  BIS central bankers’ speeches  policies of major central banks drive capital flows and they have become highly volatile since the GFC.

Prospects for weaker growth and lower inflation imply a lower interest rate than presented in the interest rate projection from our previous forecast in December. There is also a risk that the global downturn will be deeper and more prolonged than expected. If this proves to be the case, growth in the Norwegian economy will not pick up as quickly and inflation will fall more sharply than we currently assume. The objective of avoiding a pronounced downturn indicates in isolation that the interest rate should be rapidly reduced to a low level. On the other hand, we have already made substantial reductions in the key policy rate. With a low interest rate, households may save less and the turnaround may occur more rapidly than we assume. This indicates in isolation that changes in the interest rate should be gradual or that further interest rate cuts should be put on hold. Overall, the outlook and balance of risks suggest that the key policy rate should be gradually reduced further to a level of around 1 per cent in the second half of 2009. This is about 1 percentage point lower than in Norges Bank’s forecast from 17 December last year. With the low interest rate added to government fiscal measures, our analysis indicates that growth in the economy will be positive from the second half of this year. Growth will be driven by a rise in private consumption as a result of a low key policy rate, growth in real wages and higher government transfers.
The crisis-like developments in East Asia, Russia and Latin America may have their characteristic features in individual cases. However, they also give rise to a number of comments of a more general nature. Imbalances in economic development, weak financial systems and insufficient supervision of financial markets are merely symptoms of deeper-lying causes. In any case, most recent experiences tend to confirm the opinion that a sustained economic development is only possible on the basis of social coherence. Individual countries themselves bear the responsibility for creating this stability. In the long run, outside help can only be meaningful if it is granted as help towards self-help. These remarks are equally relevant for assessing the activity of the International Monetary Fund. The chief task of this important institution in the area of international monetary policy is advising its 3  BIS Review 106/1999  members in the conduct of economic policy. This is designed to create favourable preconditions for a positive development of international monetary relations and, of course, also the world economy. The second task is to provide credit facilities in order to support the necessary processes of adjustment. Since its inception, the International Monetary Fund has thus held an intermediate position between emphasising the self-responsibility of a country and granting adjustment aid. Its task is not made any easier by the fact that it has no possibility of enforcing recommendations. Whenever difficulties arise in shaping international monetary relations, a call is made for introducing fundamental reforms.

The advantages arising from coordination between both policies would suggest assigning the central bank with a pivotal role in the pursuit of macro-prudential policies. This has been the path followed to date in most cases. Thus, for instance, in the United Kingdom a sister committee has been set up within the Bank of England and alongside the Monetary Policy Committee, namely the Financial Policy Committee. Italy, Belgium and Ireland have followed similar arrangements. In other countries such as France and Germany, committees have been set up with the participation of other economic authorities, but the central bank plays a very important role in them, and actually wields veto powers over the decisions of the macroprudential body relating to or affecting the field of competence of the national central bank or of the Eurosystem. Nonetheless, concentrating different and occasionally conflicting economic policy objectives within a single institution no doubt makes accountability more complicated and may make the institution’s mandate more ambiguous. This is indeed one of the reasons why in other instances, such as the United States, the option chosen was to create institutions in which  2  BIS central bankers’ speeches  responsibilities are distributed more symmetrically between the central bank and the other economic authorities. This is no doubt a complex debate with unquestionable political connotations.
6  region has a notably high number of small and informal firms), lower rates of investment and the loss of sectors with higher than average rates of productivity growth. In such a complex setting, Latin American economies could benefit considerably from the design and implementation of a broad reform agenda to drive the region’s competitiveness and productivity, seizing the opportunity to transform productive structures. Government infrastructure spending can play a significant role,12 against a background of low private investment demand, which should come alongside reflection on the composition of government expenditure. On the education front, the challenge is more qualitative than quantitative for countries such as Argentina, Brazil and Mexico, which continue to lag behind in terms of educational quality despite spending no less on education as a share of GDP than OECD member countries.13 Authorities could pass legislation to improve general institutional quality. More specifically, they could also facilitate entrepreneurial initiatives by easing burdensome regulations and working to reduce the informal sector, which would also drive up the revenue-raising capacity of tax systems. Likewise, the region would benefit from greater trade integration, both internal and external. For example, the 2019 ratification of the trade agreement between the European Union (EU) and MERCOSUR should, on the estimates available,14 have significant positive effects on trade flows and on GDP in both areas, particularly in the MERCOSUR region. Within the EU, where the impact is likely to be more modest, Spain is among the countries whose economies will benefit most from the agreement.

In a more broad-based market downturn, though, we would be concerned that a repricing of financial assets could trigger sudden and large redemptions from these funds, possibly resulting in forced asset sales, which could amplify stress in less liquid markets. This would have wider implications in the form of impaired market liquidity and possible spillovers to the real economy. While leverage in the euro area fund sector is low on average, there are also pockets of high leverage among some types of alternative funds, and these need to be monitored closely. Even if leverage of UCITS funds is not excessive, it can still add to the procyclical selling of assets if a fund tries to keep its leverage constant during periods of stress. I hope that gives you a good perspective on our current assessment of financial stability risks. I look forward to hearing your own views on these and other vulnerabilities for the euro area financial system. 2/2  BIS central bankers' speeches
Although there will still be considerable uncertainty, it will be easier for economic agents to assess interest rate developments. This makes monetary policy more effective. The prospect of a gradual normalisation of interest rates may curb credit growth and the rise in house prices. There may be objections to our producing interest rate projections. Producing an explicit interest rate projection may be stretching our knowledge quite far. It may be argued that market participants’ overview and insight are just as good as ours and that our analyses do not add much beyond the information embedded in market rates. Another objection is the risk of the interest rate path becoming a target itself and that deviating from the interest rate projection would be perceived as a drawback, even if economic developments should so imply. It is important to stress that the interest rate path is conditional on economic developments and our understanding of the functioning of the economy. This is reflected in the fan chart bands surrounding future interest rate developments. The central bank of New Zealand has experience in producing interest rate projections, and actual interest rate developments have on many occasions differed from the projections 1 . We must also expect deviations from our projections. The interest rate will deviate from the projections if economic developments are different from the assumptions applied when the interest rate projection was published or if we change our view of how the economy functions.

This means that energy prices are included but they have considerably less weight than in the CPI. Of the measures that we use for underlying inflation, the CPI-ATE has tended to be lowest. All four measures indicate that inflation has been moderate in recent years and have implied an expansionary monetary policy. The rise in prices we have recently observed could affect inflation in the period ahead through compensation for earlier inflation, the pass through of costs to selling prices and through expectations of future price inflation. By using various measures of underlying inflation, we seek to capture the portion of the rise in prices that may influence future inflation. It is always difficult in real time to determine which price movements will persist and which will only have a short-term effect on the CPI. An assessment of underlying inflationary pressures should probably be based on several different indicators and developments in these should be followed up by discussion and interpretation of the underlying causes. Allow me to conclude. Developments over the past 40 years have illustrated that the most important contribution monetary policy can make to sound economic developments in the long term is low and stable inflation. This provides the economy with a nominal anchor. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment.
Estimations showed that Romania’s deficit financing for 2009 could have ranged between EUR 7.5 billion and EUR 16 billion, dependent upon foreign investors’ sentiment and their willingness to roll over the credit lines extended to banks and private companies. This gloomy sentiment was reflected in the weakening of the leu during October 2008 – February 2009. In this context, the authorities have decided to implement policies aimed at ensuring minimum cuts in Romania’s foreign financing. As early as December 2008, the economic programme was envisaged to focus on narrowing the external deficit of both public and private sectors, containing the impact of recession, averting a currency crisis as well as on easing inflationary pressures. Attaining these objectives required the design of adjustment measures meant to bring the economy onto a sustainable path with minimal losses, including in terms of employment. Given the sudden stop of the massive capital inflow episode, the leu’s exchange rate developments posed serious challenges. While in the past foreign currency inflows generated the overappreciation of the leu well above the level indicated by exchange rate fundamentals, the reduction in external financing and the degree of uncertainty tended to result in the unwarranted depreciation of the leu. The challenges were all the more so great that, despite the heavy foreign currency purchases performed during 2005–2007, the NBR only managed to contain the unsustainable appreciation of the leu, instead of completely avoiding it.

The reserves are thus a rainy day fund, an endowment fund, and a stability fund. The imperative to hold a buffer against crisis is rooted in Singapore’s geography and history. Singapore is a city state smaller than Greater London. It has no natural resources and imports most of its food, including water. When it became independent in 1965, it had no hinterland and meagre financial reserves. It depended mostly on entrepot trade and hardly had an industrial base. It was not expected to survive, let alone succeed. An acute sense of vulnerability has been part of Singapore’s DNA since its birth. This sense of vulnerability, in turn, underpinned two convictions: first, that the only way to survive and make a living is to make ourselves relevant to the 1/7  BIS central bankers' speeches  world; and second, we must build up strong buffers so that we can withstand the shocks that come with being so small and open to the world. As Singapore grew and prospered as a business and financial centre, its vulnerabilities to the the vagaries of global trade and financial cycles also grew. The need to build up a sufficient rainy day fund to tide us through shocks and crises has remained as relevant as ever. Total trade is three times the size of the Singapore economy. Gross capital flows into and out of Singapore are 77% of GDP. The role of the reserves as a rainy day fund is not theoretical. The reserves have indeed served us well in past crises.