samchain/econo-pairs-v1 huggingface dataset:
So, while we absolutely have to be alert to distortions, we are not crazy to infer, from yield curves, expectations about the path of policy rates or of inflation. But for financial stability, which of course affects macroeconomic conditions, I have always encouraged the team to do a Gestalt flip to thinking of markets as inefficient, riddled with preferred habitats, imperfect arbitrage, regulatory arbitrage, herding, and inhabited by agents with less than idealised rationality. That’s how during the early 2000s the team came to write about CDOs, ABCP, monolines and, eventually, vehicular finance etc. 2  Caballero R J (2009), “The “Other” Imbalances and the Financial Crisis”, MIT Department of Economics Working Paper No. 09–32. 3  See page 12 of Tucker P M W (2006), “Uncertainty, the Implementation of Monetary Policy and the Management of Risk”, a speech to the Association of Corporate Treasurers. 4  The potential risks associated with CPDOs (and other AAA-rated products) were discussed in the Bank of England’s April 2007 Financial Stability Report. 2  BIS central bankers’ speeches  Shleifer’s paper strikes me, therefore, as one example of exactly what the academic end of the economics profession needs to do in order to speak to policymakers framing and implementing reform. It engages with what I have previously described as “risk illusion”, in motivating a macroprudential prudential approach to policy.5 In other words, it carries policy implications.

Thankfully, all this is now also being worked on internationally in the Financial Stability Board. A second and obvious policy inference that one could draw from Shleifer’s paper, and one I want to spend a little more time on this evening, is that it is absolutely vital that (regulatory) capital requirements for banks more or less truly capture their risks. Two thoughts on that, of rather different kinds. First, it was very obviously a false step when, in Basel 2, the international-standard setters tried to follow the techniques and calibrations of private sector risk managers rather than engaging with the externalities that warrant State intervention in this area in the first place. Second, more particularly and more concretely, this underlines the vital importance of the current Basel work to review fundamentally the capital requirements for banks’ trading books. In short, Basel has recognised that the amount of capital a bank should hold against a liquid trading position often has good reason to be smaller than needed for a hold-to-maturity portfolio, ie where the bank can shed its exposure. But it failed utterly to recognise that since such books are marked-to-market (or model) and since the boundary conditions for solvency derive partly from accounting measures of asset values, it is vital that banks hold capital against the risk of violent swings in liquidity premia. Yet that is exactly what torpedoed a fair fraction of the largest banks and dealers in the world through their (levered) holdings of leveraged loans and super senior tranches of CDOs.
Today I will elaborate only on two of them, which I consider important from my own experience. They are: a) rent-seeking behavior, and b) lack of broad political support for reforms (which I partly discussed before). a)  Rent-seeking  If private returns on predation are larger than private returns on production, this will send “wrong” incentives to people and society will not develop in the desired direction. Therefore we have to make every effort to “get the incentives right”. This is not an easy exercise. Socialism and, sometimes even more, early transition, have created vested interests and it is understandable that every socio-economic 4  In no way am I trying to imply that the main cause of the banking crisis is inadequate supervision and regulation. But, they can certainly deepen banking problems. BIS Review 43/2000  6  group will fight either to preserve their status quo or try to “grab” even more. The problem is especially exacerbated if the prevailing mentality in a society as a whole is the “take it” and not “make it” philosophy. Every change is a redistribution, redistribution of power and relative wealth. Transition by definition is a change. People on average resist change. I have called this the Newtonian Law of Transition, namely: “Every action creates a reaction.” (Škreb, 1998). This resistance to reform (changes) is probably “time-dependent” and positively correlated with the time spent in transition. In the early stages reforms are more general (macroeconomic stabilization) and there is much more support for them.

The literature on growth has been expanding lately, but most work on transition agrees that macroeconomic stability linked with structural reforms is essential to growth (Wyplosz, 1999; Fischer and Sahay, 2000). And it is equally true that most transition economies have responded positively to the combination of the two and after a sharp decline in GDP today have positive growth. We have learned as well that the growth process is much more complex than was anticipated at one time. We know that the future success of reforms depends very much on elements like: institution building, contract enforcement, rule of law, etc. To explain the complexity of growth in transition a little bit I will use two concepts: a) human capital and b) social capital. a)  Human capital  Let me immediately start by quoting Lucas (1993) on what causes growth: “The main engine of growth is the accumulation of human capital - of knowledge - and the main source of difference in living standards among nations is difference in human capital” (p.270). So, if we want sustained growth we must promote the accumulation of human capital in transition economies. The next question is: How does the accumulation of human capital happen? Obviously, there are many ways in which human capital is accumulated but, to mention just a few: it happens in schools, in other forms of training, particularly on-the-job, in research institutes, etc.
The analysis of the Banco de España suggests that the higher possibilities for firms, in the presence of adverse shocks, to adjust wages and, in particular, hours worked, which were introduced through the 2012 labour market reform, led to a significant slowdown in job destruction flows, despite the adverse economic situation in 2012 and 2013. Apparently, however, the reform has not been able to change either the structure of the collective bargaining system or the acute segmentation of the working population. These two features of the Spanish labour market have been at the core of the high volatility of employment and the high level of unemployment and, therefore, should be at the core of the reform agenda in this area. Raising medium-term growth prospects The third session will be devoted to the general question of how to improve medium-term growth prospects. Spain’s potential output growth is estimated to be somewhat below 1.5% over the following decade, a level much lower than that of 3% before the crisis. Among the most important structural factors limiting Spanish growth prospects are ageing of the population, a lower contribution of the participation rate now that many women have already been incorporated into the labour force, and a lower contribution of the stock of capital following the high growth recorded in the previous upturn. These factors are common to most developed countries. Hence, the growth of the Spanish economy will essentially rely on its capacity to raise low productivity growth.

It is aiming at preserving and improving the situation of employees and of all our fellow citizens in the euro area. Such a responsible policy directly benefits those who are unemployed by significantly improving their employment possibilities. It benefits all our fellow citizens by supporting the purchasing power of their income, thus preserving the well-being of euro area households. And it contributes to meeting one necessary condition for sustainable long-term growth and active job creation in the euro area, which is price stability. Naturally there are also a number of other factors that are contributing to sustainable growth and job creation, in particular sound public finances and, as I already said, structural reforms that enhance competition, increase productivity and foster economic flexibility in order to elevate the growth potential of our vast euro area economy. Augmenting the growth potential of Europe is a major goal for all of us. Background information Table 1: Compensation per employee growth (whole economy) across euro area countries  2  BIS Review 52/2007  Table 2: Unit labour costs growth (whole economy) across euro area countries  Table 3. Labour productivity growth in the euro area countries  BIS Review 52/2007  3  Table 4. Employment growth in the euro area countries  Table 5. Unemployment rates across euro area countries  4  BIS Review 52/2007
Lord Mayor, over the past year you have brought the global economy to Mansion House, you have opened its doors to many who would not otherwise have thought of entering, especially from the Asian community, and you have gone out of your way to meet young people from our financial firms. You have raised money for disabled children and you have promoted Cornwall - next Tuesday is “Cornwall Day in the City” with, I hope, free pasties for everyone. And tonight all of us here would like to pay tribute to your work since you became Lord Mayor, and to thank both the Lady Mayoress and you for the splendid hospitality - Cornish produce in fact - which you have extended to us all this evening. So I invite you all to rise and join me in the traditional toast of good health and prosperity to “The Lord Mayor and the Lady Mayoress”, David and Tessa Brewer. BIS Review 61/2006  3

4  David Marquand, “The End of the West – The Once and Future Europe”, Princeton University Press, 2011. BIS central bankers’ speeches  5
Of course one way firms can get larger is through mergers and acquisitions, for which PRA approval of the ‘change in control’ is required. A natural question to ask is how our secondary competition objective plays into these situations. The law is actually very clear on this point: when considering whether to approve the change in control, we are required to disregard the competitive impact and to limit ourselves to a consideration of the appropriateness of the new controller. Assessing the impact on competition falls instead to the CMA. Third, there is a tension for us arising from the efforts we make to encourage new and smaller players. My involvement in this line of work really began with the collapse of the largest, and apparently well-diversified, bank in the world right here in the UK. And I have been involved in and observed numerous other episodes of big banks getting into trouble. So I will never believe that there is something inherently safer about larger banks. But nor do I believe the opposite, and there are plenty of examples of smaller banks getting into 3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  trouble, in some of which I’ve been heavily involved. So it is perfectly natural that with our safety and soundness objective in mind we should take a close interest in small firms as well as large, particularly when they are fast-growing, heavy users of central bank funding schemes, concentrated in higher-risk niches and/or untested in a downturn.

And finally, I do worry about diluting overly the focus of the prudential regulator, which was I’m sure one element of what led to the financial crisis. The same logic applies to a competitiveness objective, which surprisingly often gets confused with our competition mandate. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  Seventh, five years on, I am slightly worried about a looming political economy problem. We have I think taken quite an expansive view of our secondary competition objective, by which I mean that we have been vigorously prowling all parts of the PRA’s terrain actively looking for things we can do to advance the objective. But our terrain is not limitless, so the flow of new initiatives will I think slow, and we will have to spend more time tangling with more difficult questions of the sort I have discussed today. I am worried that people may infer from a lower volume of announcements a reduced commitment to our secondary competition objective. There is no such reduction in commitment – we are simply implementing our commitments thoroughly. Those taking an interest should hold us to account for that, and press us on what we can do in the next five years about the more awkward questions which now confront us. So to sum up: in my view the competition objective has had quite a profound impact on the PRA’s activities and approach over the last five years.
As summarised in Table 1: The purpose of the intervention was grounded in the risk to UK financial stability from dysfunction in the gilt market. The Bank’s Financial Policy Committee (FPC) identified this risk and recommended that the Bank take action to safeguard against it; The operation was strictly time limited. The purchase window was open for 13 business days, the minimum period judged necessary (through contact with market participants) for pension and LDI funds to improve their resilience. This hard deadline, though criticised in some quarters at the time, proved critical in driving timely recapitalisation, and also gave policy makers and markets confidence that the time profile would be very different from QE. Similarly, the commitment to unwind the gilt holdings in a timely but orderly way gave confidence that there would be no lasting impact on the Bank’s stock of gilt holdings – the variable voted on by the MPC during QE. [16] Unwind was completed using an innovative demand-sensitive approach over a period of four working weeks – broadly the same time it took to run up the holdings. [17] The operation was targeted only at those assets involved in the LDI adjustment – long-dated conventional and (in the latter phases of the operation) index-linked gilts, whereas QE operations took place across the (conventional) curve; and  Page 10  The operations were subject to a system of backstop reserve pricing, aimed at ensuring we purchased only as many assets as required to resolve the financial stability issue and recatalyse the market.

There were also distorted  3  The idea that inflation targeting implies that the inflation forecast can be seen as an intermediate target was introduced in King (1994). The term “inflation-forecast targeting” was introduced in Svensson (1997), and the term “forecast targeting” in Svensson (2005). See Woodford (2007a, b) for more discussion and analysis of forecast targeting. 4  Several central banks that do not call themselves inflation targeters effectively do conduct flexible inflation targeting, although they may not be quite as transparent about their inflation target, the role of stability of the real economy, etc. 5  See, for instance, Taylor (2007). 6  See Bean (2009) for an extensive and excellent discussion of the crisis, including the credit expansion and housing boom, the macroeconomic antecedents, the distorted incentives, the information problems, the amplification and propagation of the crisis into the real economy, the policy responses and the lessons for monetary policy and economics generally. The Bank for International Settlements (2009) provides a more detailed account of the possible macro- and microeconomic causes of the crisis. BIS Review 16/2010  5  incentives to exercise less due diligence in loan origination because of securitisation and to conduct regulatory arbitrage by setting up off-balance-sheet entities, which for various specific reasons ended up still effectively remaining on the balance sheet. There were also distorted incentives for traders and fund managers to take excessive risks because of myopic and asymmetric remuneration contracts.
I will point out two particular areas for such cooperation. 2  BIS Review 141/2008  First, Hong Kong can be used as a platform for pilot schemes for further expansion of crossborder fund flows. The use of Hong Kong as a financing platform has played an important role in Mainland's economic development and a continued and expanded use should be made going forward. In addition to the well developed platform for Mainland enterprises to list on the Hong Kong's stock exchange, consideration could be given to facilitate SMEs to raise funds through bond issuance with credit enhancement in Hong Kong. At the same time, Hong Kong can serve as a platform for more investment outflows from the Mainland, which would improve investment choices for Mainland investors. For instance, financial instruments issued in Hong Kong could be allowed to be listed on the Mainland, or Mainland investors could be allowed to use their own foreign currency deposits to invest overseas through Hong Kong. Second, Hong Kong can be a testing ground for the international use of the renminbi, a process closely related to Mainland's capital account liberalisation. The renminbi business scheme in Hong Kong, which is supported by a clearing arrangement provided by the People's Bank of China, has developed steadily since its launch in early 2004. It has now extended from personal banking to bonds issuance by Mainland financial institutions. Renminbi deposits in the Hong Kong banking system have also risen significantly over the last few years.

It is also important that we increase the transparency of shadow banking activities. In this respect, the entry into force of the European regulations EMIR2 and SFTR should be a considerable step forward. As I’ve been talking about macroprudential measures regarding large corporations, and our subject is financial stability, I’d like to bring you up to date on bank lending in France: lending to the private sector – to households and businesses – is growing rapidly in France, at a rate of close to 6% per year. At the next meeting of the High Council for Financial Stability (HCSF) in June, we shall look at whether we need to introduce additional measures. To sum up, we have not yet finished exploring the issue of non-bank finance and I am certain that today’s event will make a valuable contribution to the debate. I would like to pass the floor now to Aurélia End, who will host the round table, and wish you all an excellent morning. 3/3  BIS central bankers' speeches
Episodes of global financial crises are an excellent illustration of how macroprudential policy measures can be activated in a counter-cyclical manner. In the upward phase of the financial cycle, they were undertaken in a timely manner, with the aim of limiting banking system's exposure to risks and strengthening its resilience by building additional reserves. After 2008, in the downward phase of the cycle, this extra liquidity was released to provide support to the financial sector and the economy. The banking system remained highly capitalized and profitable at the aggregate level. Only a few smaller banks left the market, and there was no need for bank resolution, apart from one regionally significant bank. A different scenario from that in a number of European countries, which went on to bail out banks at a very high fiscal cost. Still, a deep recession took place during the GFC, demonstrating the need for a macro-prudential policy to work hand-in-hand with other policies. Even a very tight financial regulation may fall short of fully curtailing the buildup of macro imbalances and their eventual unwinding. Capital inflows came to a halt and borrowing costs surged as risk premia increased due to worries about growth and fiscal position. As that happened, as you would expect, asset price overvaluations unravelled. However, all systemic banks were doing fine, thanks to a massive use of macroprudential policies in the run up to the GFC. Smaller banks continued to exit either by being closed down or acquired.

The total financial packages provided around the world to various economic sectors (health and non-health) amounted to around USD 10.8 trillion, equivalent to 10.2% of the global GDP, while the amounts allocated to support liquidity injected into the economies reached USD 6.1 trillion, or 6.2% of the global GDP. Like the other countries in the world, the Kuwaiti economy encountered many challenges, as economic activities have been shut down for several months, and global shipping of merchandise goods has been severely disrupted. Proceeding from the importance of discussions and sharing of experiences to pave the way towards making the right decisions and bringing about thorough strategies that strengthen the monetary and financial stability, I would like to briefly present the efforts made by the Central Bank of Kuwait to achieve this goal during the previous period, and the measures it have taken to alleviate those challenges and develop a mechanism for follow-up thereon and a plan for safe exit.   Speech delivered by His Excellency the Governor of the Central Bank of Kuwait, Basel A. Al-Haroon, in the 46th Ordinary Session of the Council of the Governors of the Arab Central Banks and Monetary Authorities, held in Jeddah, Kingdom of Saudi Arabia on September 18, 2022. Page 1 of 4  In line with its proactive approach adopted since March 2020, the Central Bank of Kuwait has taken several measures and actions through its various monetary, supervisory and hedging instruments.