samchain/econo-pairs-v1 huggingface dataset:
First there were the first-generation fiscal and currency crises, which gave way to second-generation crises such as the one endured by the European monetary system in the early 1990s, and finally to third-generation ones occurring in Asia. All of them featured a variety of origins and transmission mechanisms. Now we are facing an international financial episode that many concur in labeling as the worst since the Great Depression, which originated in the developed economies, particularly the United States. Its initial symptoms are known: rapid financial innovation, credit expansion and asset price bubble. Its progression and repercussions, however, are unprecedented. On the other hand, our better understanding of the distortions that bad macroeconomic and financial policies can trigger, has made emerging economies in general, and Chile in particular, build a strong position to deal with a very weak international scenario. There is no better moment than this to get together and exchange our visions and opinions, and draw the first lessons from the events unfolding in the world economy. I want to begin with some comments on the present crisis. This episode has several unprecedented aspects stemming mainly from the complexity and sophistication of financial institutions and instruments, in a context of high financial and trade globalization. Of course, some elements have been observed before, such as the loss of confidence in key financial institutions by investors and the general public, and the uncertainty regarding its duration.

But since 1995, the gap has started to widen again as ICT investment has boosted productivity growth in the United States. The empirical evidence suggests that one of the most successful ways to speed up convergence in productivity is to promote international trade and investment, and openness more generally. Within manufacturing, the rate at which the productivity gap between Britain and the US closed during the 1980s and early 1990s was greater in the more open than the less open sectors. Against that background, let me suggest three areas for questions: First, why is the gap in the level of productivity between the US and the UK so persistent? And what are the obstacles that prevent the gap from narrowing - are they in the fields of trade, technology transfer, or flows of investment? What are the respective roles of business and government in removing them? Second, can the UK benefit as much as the US from the IT revolution? Is it a question of the speed with which business adapts? Or is it the need to fund our research-based universities on the scale of the best elsewhere in order to exploit our comparative advantage in the English language and regain Britain’s place at the frontiers of knowledge? Or is it a matter of raising standards of education in schools to enable the workforce as a whole to use the new technology?
The credit easing package and expanded APP has been effective too in reducing wholesale funding costs for banks, allowing banks to pass on better funding conditions to their customers. Since summer last year the average cost of borrowing for euro area non-financial corporations has fallen by around 70 bps, and by 90 bps and 110 bps for NFCs in Spain and Italy, respectively. The latest evidence from the July Bank Lending Survey confirms the improvement in credit conditions. During the second quarter of 2015 credit standards continued to ease for firms, and even more so for households. Reflecting the endogenous relationship between credit supply and demand, credit demand also increased among both groups driven mostly by the low level of interest rates. The impact of the expanded APP on bank funding costs has been partially reversed by the recent market repricing. Here, however, the credit easing package and our broader asset purchases could act as complements, in particular the Targeted Long-Term Refinancing Operations. For the APP, the ECB defines the volume of liquidity it would like to inject, but cannot determine the price; for TLTROs, we define the price of the liquidity, but banks determine the volume. One tool can therefore act as an automatic stabiliser for the other. Indeed, as wholesale funding costs for banks have risen, so has the attractiveness of the TLTRO. This substitution effect accounts in particular for the higher participation in the fourth operation by banks in less vulnerable countries.

Mario Draghi: Generation € Students' Award 2018 event Introductory remarks by Mr Mario Draghi, President of the European Central Bank, Frankfurt, 11 April 2018  Introduction Ladies and gentlemen, and especially dear students, First of all, let me express congratulations to all the students here for reaching this stage of the Generation € Students’ Award competition. It’s an incredible achievement and you should all be proud of yourselves. Bravo! This gathering is an important opportunity for us to continue our dialogue with you. You are the winners of our euro area-wide competition on monetary policy, which is now in its seventh year. The ECB also organises other initiatives to engage with young people. We have the ECB Youth Dialogues and competitions such as the Euro Video Challenge and the young economists’ session at the Sintra conference. Sintra is a conference that we do annually on a variety of themes around monetary policy and macroeconomics. So far, my impression is that it has been a success, but of course I am biased. I am also aware that my colleagues from the national banks organise events and dialogues with students and schools at national level. All this basically tells you one thing: you are very important because you are our future. You are Europe’s future and that’s why the ECB and the national central banks really give you a lot of attention and get a lot from you.
Extraordinary growth in practices such as securitisation and in the use of sophisticated derivative products allowed banks to transfer credit risk in ways that the 1988 Accord does not capture. In addition, some banks began to manage their exposures to operational risk separately and as a comprehensive practice comparable to the management of credit or market risk. By the late 1990s, it became increasingly clear to leading banks and their supervisors that the original Accord no longer provided meaningful measures of risk for the most sophisticated banking organisations. As a result, the Basel Committee and others began to discuss ways to revise the existing capital rules to account for these advances. Supervisors sought more than a simple revision of the existing framework. We wanted to align our capital requirements more closely with the best measures of economic risks that banks actually face. We sought furthermore to fortify the stability of the banking sector so that banks could continue to serve as a source of credit through good years and bad. In our view, promoting financial stability will benefit not just banks, but also other businesses and consumers as well. To incorporate the latest advances in risk management, and to develop a more forward-looking approach to supervision, the Committee embraced a “three-pillar” approach to capital requirements. Rather than simply setting out a static minimum requirement for capital levels, the new capital framework will rely on three mutually reinforcing policy approaches.

On the downside, the speed of the recovery in the world economy may be held back by a number of factors, including the large outstanding debt position of corporate and household sectors; investment in the UK might remain subdued; or the weakness in pricing pressures we have seen over the past year or so may persist. But on the upside, the US might bounce back more rapidly than anticipated; consumption growth might remain robust; or the sterling exchange rate might begin to adjust downwards. Against this background of risks, it is quite possible we may see rates at current levels for some time until the way ahead is clearer. But, as you know, economic events have a habit of developing quite rapidly, so even short term predictions are never easy. For our part, we will continue to assess the case for interest rate changes on a month-by-month basis. In carrying out our task, the MPC relies heavily on having the very best information at our disposal, and in that we are enormously assisted by our network of regional Agencies. Each month, our Agents drive thousands of miles, eat hundreds of rushed sandwich lunches and, on occasion, no doubt push your goodwill to the limit as they seek out the latest news on developments in your businesses. Nigel Falls, our local Agent, is here with me tonight, and for those of you who have not already met him I really do encourage you to do so after the dinner.
This concrete type of approach will give our experts a vision of the diversity of cases and thus the maturity necessary to provide the market with relevant and operational guidance. Obviously, all this work shall be considered as a contribution to the evolution of a more global framework – at European and international level. The European level is of course the most relevant one to promote innovation for financial services in the single European market. The success of the two payment services directives (PSD1 and PSD2) clearly illustrates how European legislation can identify new trends, trigger innovation and create a true momentum in the Fintech ecosystem. More recently, the GDPR provided the European Union with a clear framework for data protection and circulation: this regulation is now a reference for many third countries, which identify the risk that unregulated data exploitation can pose to consumers’ confidence. However, the European market cannot be considered in isolation and this will remain the case in the post-Brexit era. Innovation – and growth – benefit from open ecosystems. Risks in a digitalised world do not recognize borders. Ensuring a better coherence of national (or regional) regulatory frameworks in the world is therefore a key element for their effectiveness. Crosssector and cross border cooperation is necessary. Our initiative for a G7 cyber-attack simulation exercise or our contribution to the G7 working group on global stable coins are two recent examples of our commitment to this necessary worldwide cooperation. 2/4  BIS central bankers' speeches  2.

However, at the global scale, between systems of different areas, it is more complex, in particular when several currencies are involved. Central banks through their operational role could look for ways to contribute to the emergence of a solution to promote faster, more reliable and less costly payment solutions. Conclusion To conclude, let me underline that technological innovations create opportunities and risks, and therefore challenges, not only for financial intermediares but also for public authorities. Central Bankers and Supervisors can and should contribute to meet those challenges. To that end, we  should have an open-minded approach and develop an in-depth understanding of innovations currently spreading through the financial sector. This is critical for our capacity to help delivering a sound, adapted and updated regulatory framework supporting innovation, mitigating adequately their inherent risks. This is also critical for our capacity to adapt the performance of the different roles we play to fulfil our financial stability mandate. This is the reason why we are, at the Banque de France and the ACPR, determined and ready to further engage with innovators, be they financial sector incumbents or new comers, observe the ecosystem, test and learn. Thank you for your attention. 4/4  BIS central bankers' speeches
Credibility The first is the need for a highly credible central bank. If the public believes that the central bank will not deliver on its promise to keep inflation low and stable, price stability is difficult to preserve. In this case, joining a monetary union whose policymakers are seen as more credible may be the easiest way to anchor inflation expectations. Luckily, the SNB enjoys high credibility at home and abroad. Average inflation over the last 20 years amounted to 1.8%, and the Bank proved on many occasions that it was ready to act in order to defend price stability even in difficult situations. Moreover, the SNB was granted formal independence in 2000 through a constitutional amendment. Such independence is commonly seen as a means of enhancing the credibility of a central bank, since it limits the influence of the government, which may have an interest in keeping interest rates low, and thus stoking inflation. In my view, however, the formal independence we got in 2000 is unlikely to have changed the public's perception of the SNB much, as the Bank enjoyed de facto independence already before that date. Of course, our credibility rests on a commitment to price stability that is not just our own, but one that is also shared by the government and the population at large. An important determinant of a central bank's credibility is its operational independence. Successful monetary policy is based on thorough economic analysis and professional implementation.

Today, the euro is providing market stability, which is also beneficial to third currencies like the Swiss franc. In monetary affairs, size does not really matter, but the rules of the game are more challenging for small countries than for large economies. Small countries have no choice but to respect market realities. They have to accept exchange rate flexibility even if, in the short run, some exchange rate development might interfere with the interests of their export sector. If they were to complement inflation targets with specific exchange rate objectives, they would create market confusion and destabilise expectations. The implementation of a clear and coherent monetary strategy is of the essence. In my view, smallness in combination with monetary independence and flexible exchange rates is a strength rather than a weakness. For us, being able to set our own monetary policy has meant that we could react to country-specific shocks. Had we joined the euro area, we would not have had this flexibility. Furthermore, monetary independence is attractive for small open economies, because policymakers can concentrate on national data when setting interest rates. In a monetary union, data from different countries have to be combined. Also, the decision process in the union is more complicated, since there are diverging interests to be reconciled. As a consequence, monetary policy is more inertial than in a small open economy with a currency of its own.
I was speaking recently with a colleague with years of experience as a criminal prosecutor. She observed that the first step on the path to criminal ruin often begins with one seemingly small, often rushed choice. My own experience from years of seeing mistakes in the financial services industry leads me to agree. People—especially junior employees—too often decide sooner than they must, without taking the time to raise their hand and ask for help. So do not confuse thinking quickly and creatively with choosing rapidly in every instance. When considering what structures in your organization can help people make good decisions, consider ways to build in adequate time to decide. Incentives In any discussion of choices, it is critical to consider incentives. Compensation is a powerful form of incentive. We need to think creatively about how to structure compensation in ways that promote conduct aligned with the values and long-term financial interests of the firm. Bill Dudley, the President of the New York Fed, has proposed one possible improvement. Pay material risk takers and senior managers in the form of deferred debt, which vests in line with the mediumand long-term risks for which they are accountable.6 The idea is to create a performance bond for bankers akin to the security deposit that a tenant provides to a landlord. But, believe it or not, money is not the only way to motivate people. One lesson of the LIBOR scandal is that employees are motivated by more than pecuniary gain.

Salience can be achieved by prompting about moral codes—through language that emphasizes words like “moral,” “ethical,” and “good.” Discussions by leaders and key culture carriers—that is, esteemed colleagues regardless of rank in a hierarchy—can also help if they address ethical dilemmas that arise in the course of business decisions. Finally, salience occurs through proximity of decision-makers to those affected by decisions.12 So, look for ways to make the human consequences of choices more apparent. In my view, a habit or culture of considering what is right, and not merely what is permissible, will help any organization attract, retain, and develop high-quality employees. It will promote individual wellbeing and will contribute, over time, to an industry that makes fewer errors of judgment. Do not rest Above all, remember that this is a marathon, not a sprint. So your organization now has three lines of defense—great! But your work is not over. You still have to question whether your organization can be better controlled vis-à-vis its risks. The challenges and opportunities facing your firm do not stop changing. You need to adjust accordingly. I encourage you to ask questions about the three lines of defense model and how it is applied in your organizations. Here is one of the questions on my mind: How do the three lines of defense take account of advances in technology? Technological solutions in financial services are becoming cheaper, faster, more easily available—almost off-the-shelf—and help make your business more efficient and profitable. But do you know how these solutions work?
Households and businesses didn’t have a great deal of choice and opportunity when it came to finance. But look at what’s happened in the past ten years. As banks have been made safer and mechanisms put in place to deal with them if they fail, the too-big-to-fail public subsidy for banks has fallen by 90%.17 It’s therefore no accident that our banking system is now more diverse. In the past year, for example, banks other than the big six have accounted for more than half of new lending to households and all of the net lending by banks to UK businesses. And it’s no accident that our financial system is more diverse. On net, all of the growth of credit to businesses since the crisis has been centred in non-bank forms of debt finance. The lesson: reforms that promote stability can unlock opportunity for the system to serve the economy by levelling the financial playing field. That lesson applies now to our work on climate risks. Our primary aim is to ensure the system is resilient. But by forcing the system to measure, disclose and confront future risks, we could unlock the opportunity for finance to help the economy in its transition to carbon neutrality. See speech by Mark Carney (April 2017): ‘What a Difference a Decade Makes‘.

For example, around 10% of the value of mortgage lending in England is on properties in flood risk zones.11 Some UK banks also have large direct exposures to regions that are particularly vulnerable to the physical risks from climate change such as South and South-East Asia. At the same time, the system will need to manage the risks associated with the economic transition that will be associated with reducing carbon emissions. Over 190 countries have committed to limit the global temperature rise to well below 2°C. The UK government is targeting a 100% reduction in net emissions by 2050.12  The transition to a carbon neutral economy will see material structural changes in the UK and world economies. Some assets may become stranded: if global warming is to be limited to well below 2°C, close to 80% of remaining coal reserves and half of remaining oil reserves would become un-burnable.13 Many other sectors, which ultimately rely on carbon emissions, will see their profitability and businesses challenged. We cannot allow the financial system to be an obstacle to making the transition because it can’t deal with it. See Chart 1 in speech by Mark Carney (April 2018): ‘A Transition in Thinking and Action’. Sources: Munich Reinsurance Company, Geo Risks Research, NatCatSERVICE. 10 Intergovernmental Panel on Climate Change (2018), ‘Global Warming of 1.5°C ’.
Of  course, because output and pricing decisions are taken simultaneously, both the IS and the Phillips curve are equally relevant and should therefore ideally be analysed in a general equilibrium model, such as in Smets and Wouters (2007). 12 See e.g. Fuhrer and Rudebusch (2004), Stracca (2017) and references therein. 13 See also Al-Eyd and Pelin Berkmen (2013) and Blattner and Swarbrick (2017). 14 The real bank rate gap has fallen by around 1.6 percentage point since the second quarter of 2014. The output  gap has fallen by around 2.1 percentage point over the same period. 15 See, e.g., Draghi (2015). 16 In empirical open economy extensions of the New Keynesian model, the exchange rate appears as an  additional variable in the IS curve (see e.g. Ball, 1998, and Svensson, 2000). 17 Fuhrer and Moore (1995) show that the correlation between short-term rates and output reflected the fact that the  statistical properties of the short rate were similar to that of the long rate, which should ultimately matter for aggregate demand. 18 See Praet (2017). 19 This is similar in spirit to the findings of Meltzer (1999) and Goodhart and Hofmann (2005) that changes in the  real monetary base exert separate effects on aggregate demand and that the addition of other asset prices can explain the real interest rate puzzle. 14 / 14  BIS central bankers' speeches

Small and medium-sized enterprises are mainly affected since they are often young firms and have hardly diversified activities and a modest capital base. Enterprises, however, can mitigate this disadvantage to a certain extent by improving information. Bank balance sheets likewise have an influence on the extension of credit. This applies mainly to small and medium-sized enterprises, whose sole source of external funding are frequently bank loans. Bank regulation should seek to prevent provisions from unnecessarily reinforcing the procyclicality of credit extension. In order to help achieve this, the new Basel Capital Accord (Basel II) provides for some flexibility. BIS Review 6/2004  1