samchain/econo-pairs-v1 huggingface dataset:
The focus on price stability, as well as considerable efforts to develop norms and regulations within the field of supervision have undoubtedly reduced the risk of imbalances being able to accumulate over a long period. The question, however, is whether a monetary policy that is normally governed by forecasts of inflation in the short or medium term will be able to prevent the kind of imbalances that I have discussed from building up? If not - is there then any other way to improve the operationalisation of the target for a monetary policy aimed at achieving price stability without abandoning the goal that the decisions be rule-based and transparent? In countries that have experienced long periods of high, fluctuating inflation, discretionary stabilisation policy has been greatly discredited. First, we must point out that even if it is possible with hindsight to say that equity prices, debt levels and investment have been fuelled by over-optimistic expectations of future growth, the central bank cannot possess perfect knowledge of the future. Rising asset prices and a sharp expansion in private credit could be a sign of increased confidence in the economic policy aim of achieving price stability, as well as of reduced risks in the future. Lower public debt, which has been part of this policy, could in that case be reflected in higher private debt and in rising asset prices. Technological advances can also contribute to increasing expectations of future profits and income, and is mirrored in rising asset prices and high debt levels.

Economists from the so-called Austrian School maintained that if the central bank attempted to stimulate the economy with an interest rate that was below a long-term equilibrium level, it would in itself give rise to sharp fluctuations in the real economy. They also claimed that periods of overinvestment, strong credit expansion and rising asset prices could not be avoided in a world characterised by major technological advances. Rather, it was a precondition for the dynamics that spurred growth. Should expectations of future profits prove to have been overly optimistic, the imbalances in the shape of high debt and unprofitable investment should be allowed to quickly unwind without any attempt through economic policy to soften the resultant fall in output. Discretionary stabilisation policy discredited After the Second World War, the dominant view instead was that economic policy should play an active part to stabilise the economy. Fiscal policy was therefore given a more prominent role, while monetary policy and the long-term aim of price stability were pushed into the background. During the first two decades stabilisation policy worked well in many countries. Unemployment fell, growth was robust and inflation was low. The US currency, which in turn was pegged to gold, served during the period as an anchor for inflation and exchange rates in mainly western Europe, where the majority of countries had joined the Bretton Woods system.
Then, when the economy reopened, we saw strong pent-up demand for services. Since the start of the pandemic, the volatility of durable goods consumption has been almost ten times higher than during the preceding two decades, and almost 30 times higher for services. This has led to inflation broadening into both industrial goods and services. Today, around threequarters of the items in the core inflation basket have inflation rates above 2%. The second shock has been Russia’s unjustifiable invasion of Ukraine. Even before the invasion, OPEC+ production cuts and capital constraints on US shale producers were restricting energy supply. This resulted in a spike in energy prices which was a major factor in our underestimation of inflation. [2] But the invasion has hugely aggravated the supply squeeze and sent energy prices to extraordinary levels, making it all the more challenging to forecast inflation. European gas and electricity prices are up 105% and 75%, respectively, since the months before the invasion[3], and around 650% and 450%, respectively, since the first half of 2021. This surge in energy prices has directly contributed around 30% to the headline inflation rate since the start of this year and, indirectly, has added to the broadening of price pressures across the economy. In fact, the models used by the national central banks indicate that the indirect effects of higher energy costs are currently contributing around one-third to core inflation. The persistence of inflation Collectively, these shocks have pushed inflation a long way from our target.

In our downside scenario, which captures – among other shocks – the impact of a complete cut-off of Russian gas, we project that the economy will contract next year before picking up in 2024. But inflation is expected to be higher at the end of the projection horizon than in the baseline scenario. [14] A third factor will be the actions of governments. Monetary policy will do whatever is needed to return inflation to our target. But a truly European approach where monetary and fiscal policy complement each other can improve the inflation outlook. In particular, how fiscal policies support firms and households through the difficult winter ahead will play an important role in inflation dynamics. Targeted, temporary and tailored measures are needed to protect the incomes of the most vulnerable, while also preventing a significant loss of capacity owing to production cuts and bankruptcies. But beyond that, it will make a difference whether fiscal policy focuses mainly on public consumption and transfers – which may add to inflationary pressures – or on public investment and debt sustainability. As many of the sources of inflation today are on the supply side, government policies that lift supply and redirect investment to where it is needed are necessary to support sustainable growth. The pace of rate increases The second consideration in responding to current inflation is the pace of rate increases.
I will start off briefly with the past journey of Asian development, and then focus on how to prepare our bank centric financial system for challenges and opportunities that lie ahead in this rapidly evolving economic environment and financial landscape. Having a smooth-functioning financial system is of course a necessary condition for growth as finance is often referred to as the life blood of the economy. On the other hand, if the blood is infected, it could lead to severe malfunctions of the body and serious adverse consequences. Thus, going forward, in pursuit of the prosperity of Asia, I propose that the role of finance and banking must focus on three key words: “productivity, immunity, and inclusion”. I will come back to these three key words later in my talk. Ladies and Gentlemen, Let’s begin by looking back over the past fifty years. Undoubtedly, it has been an incredible journey of Asia’s achievements. From a primarily agrarian and poor region in the 1960s, Asia has transformed itself into today’s key engine of the global economy. According to the latest IMF’s World Economic Outlook, emerging and developing Asia is expected to 1  grow at 6.4 percent in 2017, making it the fastest growing region and contributing almost half of the world’s output growth. To get to where we stand today, Asia has gone through various rounds of boom and bust cycles.

Products that we should see more of are, for example, basic savings account with no minimum balance to cater for the low-income group, low-fee payment and transfer services, micro insurance for farmers, and increased information-based lending to small businesses complementing to collateral-based lending. 5  Despite the high level of access to finance in Thailand relative to other emerging Asian countries, the Bank of Thailand regards financial inclusion as one of our top priorities. In collaboration with both banks and non-banks, we have continually put our efforts to promote financial access in many areas. They include, for instance, SMEs’ credit guarantee scheme, free-of-charge fund transfer through our new faster payment system for any amount up to 5,000 Thai Baht (approximately equivalent to 145 US dollar), no-fee bank savings account, nano finance to accommodate small borrowers, as well as the new Business Securities Act to widen the scope of eligible collateral for secured lending. In addition, we will soon launch an unsecured debt restructuring scheme for individual borrowers with multi-creditors to address the household debt overhang. To ensure a “good quality” financial inclusion, financial literacy and financial technology literacy are crucial life skills for both households and small businesses. Effective financial literacy would help increased consumers’ financial discipline and understandings of financial products and their risks. Thus, deepening such basic knowledge and turning concepts into changing behaviour would be particularly helpful to shelter vulnerable businesses and households from getting themselves into over indebtedness or stuck with unsuitable financial contracts.
Rather, it may be dangerously procyclical. So in the immediate aftermath of the referendum, we invited – indeed encouraged – firms to apply for transitional measures to smooth the impact of the risk margin during a time of market turbulence, and I also very much welcome the European Commission’s request for EIOPA to review the risk margin’s role more broadly. Take the leverage ratio as another post-referendum example of steps we are taking to put a smoother finish on the reforms. The framework was originally introduced to mitigate the risk to financial stability of excessive leverage. In August we decided to exclude central bank reserves from the exposure measure. They do not expose a firm to additional risks: as the ultimate settlement asset, central bank reserves are a unique asset class. Leaving reserves in scope would have obstructed the effective implementation of monetary policy. But neither did we want to take them out only to see a reduction in the nominal amount of capital required to meet the UK leverage ratio standard. So in making the change, we made clear that we will recalibrate the standard to offset this impact. The policy intent of our framework is preserved, while the unintended consequence is addressed. In a similar vein, let me say a quick word on the reforms currently being discussed in Basel – specifically the review of the use of firms’ own internal models for calculating risk-weighted assets and therefore their capital  7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  requirements.

By remaining true to the revolution – while not wasting our time and energy in refighting it – we can all turn our attention to the challenges of the future. In this way we will reinforce the stability of the financial system, for the good of the people of the United Kingdom. The revolution is over. Long live the revolution! 6  Have big banks gotten safer? By Natasha Sarin and Lawrence H. Summers, September 2016, available here: https://www.brookings.edu/bpea-articles/have-big-banks-gotten-safer/ 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9
In short, to be effective, markets must also be fair. And we need to invest in social capital just as we invest in economic capital. That is why the Bank, Treasury and Financial Conduct Authority are undertaking a major review to secure true markets. Markets:  3  4  Adam Smith (1789), The Theory of Moral Sentiments. BIS central bankers’ speeches  •  that are open and transparent;  •  where access extends beyond a privileged few;  •  where all who wish to trade have common information and commonly accessible prices; and  •  where the informational integrity of key benchmarks is beyond question. Some of this will require changes to the way markets work. Some can be delivered by bringing more activities within the scope of regulation. And some may require new codes of conduct. We need a simple approach that recognises that the actions of a few to manipulate, game or profit from unfair access weakens the effectiveness of markets for all. Such actions hold back prosperity. They should therefore have clear consequences. Our approach should deliver true markets which are the greatest source of dynamism, prosperity and progress. Completing this agenda will reinforce the G20’s efforts to rebuild an open and resilient financial system, and in doing so it will support underpin global trade and investment to the benefit of all. Conclusion The UK, the Commonwealth and the world have always drawn inspiration from great Scots.

We must continue to do so if we want to win our economic marathon. Paterson showed us the need for a central bank. Its modern variant is a leading macroprudential institution, well equipped to face the challenges of promoting a balanced expansion. Hume demonstrated the virtues of free trade. The UK, already one of the most open economies, can help lead the development of new EU trade deals as our businesses diversify their markets. Smith showed us the importance of social capital. With a financial system that is a global good and a national asset, the UK is leading financial reforms to build a resilient global financial system with fair and effective markets at its core. And finally Wells and McColgan showed us the enormous pay-offs for hard work, dedication and perseverance. Winning the economic marathon will take similar determination. But the prize of a durable expansion is great and, if inspired by some of Scotland’s many heroes, we should not fail. BIS central bankers’ speeches  5  Chart 1: Average GDP growth (2008–2013) of UK export destinations(a)(b) %  11%  23%  4.5 4.0 3.5 3.0 2.5 2.0 1.5  2012 share of UK exports =66%  1.0 0.5  US, EU, Switzerland, Japan  (a) (b)  6  Commonwealth  Other emerging markets  0.0  Bars show the mean calendar-year GDP growth rate between 2008 and 2013 for all countries included in the groupings. UK export share data is not available for all countries.
•  The first characteristic, which has set us apart from other supervisors, has been our strong role in accounting rule-making for the banking sector in Spain. This has meant that the accounting rules for the banking sector take into account supervisory sensitivities, whilst being also consistent with IFRS. One example of this is the socalled “dynamic provision”, which we introduced in 2000. This allowed Spanish banks to build up a significant provisioning buffer in a transparent manner, to be used in bad times, when problem loans increase. In 2005, the Bank of Spain reformed the dynamic provision when adopting International Financial Reporting Standards. Despite the reform, banks kept the strong provisioning level set by the former rules, and today they face the current situation with a sound buffer of loan loss provisions (1.3% of total assets at the end of 2007, and this despite bad loans being at historically low levels). •  The second characteristic that has proved useful is the Bank of Spain’s prudent approach to bank regulation. One example has been our stance on off-balance sheet investment vehicles. We have not prohibited the development of investment vehicles, but we told banks that if they set up Special Investment Vehicles, these should be consolidated with the group, and therefore be subject to capital requirements and provisions. Under these conditions, no such vehicles were set up. As a consequence, the Spanish banking system has not been so seriously hit by the de-leveraging process as other systems that have a freer attitude towards these vehicles.

Furthermore, securitisation in Spain has mainly been used as a financing tool, to raise resources on the wholesale financing markets in order to meet the demand for loans from households and businesses. Since the element of credit risk transfer was limited, Spanish banks have had little incentive to issue overly complex financial instruments. Furthermore, we have always required capital to be held against liquidity enhancements to securitizations, which we consider may have significant credit risk. Let me take this opportunity to make a brief observation on the securitisation sector, which some have described as being in “dire straits”. I am sure that this sector will ultimately recover. But to do so, it must distinguish between traditional products that are sound,  2  BIS Review 70/2008  transparent, standard and easy-to-value, and “multi-layer” securitisations and complex structured products which are difficult to understand and assess. The good news is that the market is starting to differentiate between products. An example of this is the recent placement of several Spanish banks’ issues of simple covered bonds. In short, our recent experience shows that to be successful supervisors we need to combine an open attitude to financial innovation whilst keeping at the same time some good old fashioned supervisory suspicion towards it, especially when it entails overwhelming complexity or elements of regulatory arbitrage. The Spanish banking system has faced the recent turmoil from a well-capitalized, profitable and efficient position. However, there is no room for complacency.
BIS Review 81/2005  1  Chart 1: Fan chart, current GDP projection based on market interest rate expectations  Source: Bank of England, November 2005 Inflation Report  Four significant issues In contributing to the forecast rounds and when voting I have considered the likely course and impact of a whole range of important developments and trends. Today I would like to make a few observations on four such areas, which for me have been particularly fascinating. For each I will comment on the key monetary policy issues that seem most relevant. The first is oil – a continuing interest for me having started my career in that industry - and clearly of immense significance today. The second is debt – and in particular the rise of household debt, perhaps because I have studied debt as a practitioner in my banking life, and have observed its impact on borrowers and lenders. The third is the labour market – in part because the subject encompasses broad issues affecting all of us such as globalisation and the entry into the modern world economy of Asian countries. And fourth, something both highly topical today and of fundamental relevance for all our futures, is the area of longevity and pensions. I shall keep my remarks to the key issues which each of these raise for me in relation to monetary policy. Consequently, I will try not to trespass on political or social issues, or on your lunch break.

Luis M Linde: Islamic finance – growing importance and regulatory challenge Welcoming remarks by Mr Luis M Linde, Governor of the Bank of Spain, at the European Forum on Islamic Finance, organized by the Islamic Financial Services Board (Madrid), Madrid, 24 May 2016. *  *  *  Mr. Jaseem Ahmed, Secretary-General of the Islamic Financial Services Board (IFSB); Mr. Guillermo de la Dehesa, Chairman of the International Advisory Board of IE Business School; colleagues, ladies and gentlemen: It is a pleasure for me to welcome you all to the European Forum on Islamic Finance. This is the fifth European Forum since 2005, after the previous fora in Luxembourg, Germany, France and Italy. Following the tradition established by other European central banks, we are glad to support this event, organised by the IFSB. I would also like to thank the IE Business School for their hospitality in hosting the Forum in Madrid today. The purpose of this European Forum is to gain a better grasp of the specifics of Islamic Finance and its development, which has been particularly noticeable in the last decade. In this respect, I would like to stress two relevant aspects of Islamic Finance in my opening remarks: FIRST, its growing importance in international finance; and SECOND, the ongoing regulatory efforts to facilitate its insertion in international markets.
It requires instruments that impose tighter standards for individual institutions whose contribution to system-wide risk is larger, the so called Global Systemically Important Financial Institutions (G-SiFis), whose list was last updated by the Financial Stability Board (FSB) in November 2012. The second one, looks at how aggregate risk evolves over time. This requires the use of instruments that contribute to moderate the typical pro-cyclicality of the financial system. I will come to that later on, when commenting on the new Basel III capital framework. Before this, allow me to mention the Spanish experience with the so-called “dynamic” or “statistical provisions” which were introduced in 2000. This can be considered a pioneering case of a macroprudential response. The tool proved to be useful in Spain during the financial crisis in the two dimensions identified earlier: mitigating the build-up of risks – even if to a limited extent – and providing capacity of loss absorption to the banks. But the Spanish experience also showed that “dynamic provisions”, although, in my opinion, well targeted and designed, should have been complemented with other instruments. In order to develop and implement this new policy, the main developed economies have created new authorities in charge of macro-prudential supervision, such as the Financial Stability Oversight Council in the United States or the Bank of England’s Financial Policy Committee.

Conducting monetary policy was considered to be relatively straightforward: the central bank controlled the short-term interest rate with effects on the real economy, mainly through three channels: long-term interest rates, inflation expectations and asset prices. The credit channel of monetary policy was deemed weak; and the banking sector was ignored by most macroeconomic models used in Central Banks: banks were believed to work well and most market failures were attributed to product and factor markets. Financial markets were assumed to be efficient at distributing and pricing risk. Financial innovation was welcomed as it promoted gains in efficiency and welfare, leaving a reduced role for central banks on this area. One of the main implications of this consensus was that price stability was considered to be sufficient for macroeconomic stability. This led most Central Banks to limit themselves to a predominantly micro-prudential approach to regulation and supervision, focused mainly on the soundness of individual institutions. There was a certain neglect of the importance of the stability of the system as a whole. After the crisis In 2007, and especially after September 2008, the world was hit by a global financial crisis which not only produced the most severe worldwide economic contraction since the Great Depression, but also put into question our confidence on the “science of monetary policy”. It is probably still premature to identify the new model that will emerge from the crisis.