samchain/econo-pairs-v1 huggingface dataset:
If a shock is sufficiently large, the financial network may consequently act as a conduit for transmitting rather than absorbing risk. So the flip side of greater integration is that it may have lowered the frequency but increased the magnitude of potential financial crises. 1 3 Improving the toolkit for financial stability analysis is consequently a very high priority for public authorities and for major financial institutions. Enhancing the capability to model the financial system under stress is the key challenge. 4 In recent years, many central banks and supervisory agencies, charged with the public policy goal of supporting the maintenance of financial stability, have sought to develop a socalled “top down” or “macro” stress-testing capability. Utilising information on balance sheet exposures, the authorities draw on macroeconomic and financial models to try to assess the impact of adverse shocks on the financial system. Several inter-related high level objectives can perhaps be set for an “ideal” stress test: •  To assess the vulnerability of the financial system to extreme but plausible shocks  •  To improve the understanding of the transmission of shocks through the financial system (and, in a worst case, the potential propagation of financial crises)  •  To identify “weak spots” in the financial system, to guide risk reduction priorities and crisis management planning  1  Systemic risk in modern financial systems: analytics and policy design by Prasanna Gai, Nigel Jenkinson and Sujit Kapadia, Journal of Risk Finance Vol8, No2, 2007.

I should stress that, when undertaking this transformation, banks have most significant starting strengths. Despite all the reputation problems, people continue to trust their bank, much more than any other service-providing company. Personal relationships with customers continue to be very important, particularly in certain segments and age groups. According to the latest Funcas financial innovation barometer, in January this year, customer ties to their main financial institution remained very strong. Close to 90% of banking activity is conducted with the main institution. Also notable is the fact that customers’ perception of quality of innovation and their degree of satisfaction with their institution is high; higher, indeed, that what the managers of institutions themselves think. 12/15  While the proportion is growing, still less than half of Spanish bank customers (4 out of 10) would be prepared to use exclusively digital channels to take out traditional financial products. Assuming a change in institution, traditional banks remain the first option (71%) for moving an account from one institution to another. Fully digital banks would be chosen by 24%, while FinTech are an option for only 3%. Lastly, only the 2% remaining would change their bank for a technological or telecommunications company that offered these services. This starting position, which is a relatively good one from a “defensive” standpoint, should not have us forget that the tendency towards the use of alternative channels is on the rise.
The IMF’s projection is just over four percent for real global GDP growth. The consensus of private forecasters sees growth in Europe and Japan close to estimates of potential, or in the neighborhood of two percent. Growth in the major emerging markets looks impressive, reflecting not only the benefits of a positive external environment, but also the impact of better economic leadership and policies more supportive of macroeconomic stability and reduced external vulnerability. In China, officials now seem more confident that they have induced the desired moderation in growth to a more sustainable, but still high pace of growth. The global economy has weathered the oil price shock quite well. If the long term futures prices are right, we need to be prepared to live with the possibility of a sustained period of higher oil prices, and perhaps more volatility in oil prices, and the world seems to be getting itself more prepared for that prospect. In the financial markets, this broadly positive outlook has been accompanied by a dramatic reduction in risk premia, leaving the price of insurance unusually low against a less favorable or more volatile environment. These developments imply a view among market participants that future macroeconomic shocks will be more moderate than in the past and more likely to be absorbed without broader damage to economic performance or the financial system. They reflect a general increase in confidence that monetary authorities here and in other countries can keep inflation stable at appropriately moderate levels.

They reflect diminished uncertainty about the expected path of monetary policy in the United States. And they imply that the imbalances in the global economy will be diffused smoothly. Of course, not much is certain in economics and finance. One cannot know with confidence whether future economic policies and outcomes will justify the confidence in the benign outlook now reflected in risk premia. What are the broader challenges and forces that will dominate the policy agenda and affect economic outcomes? I want to touch on four, though this is a selective list. First, all of the major economies face difficult fiscal sustainability issues, and these will be exacerbated by the approaching demographic cliff. Fiscal policy in most of the major economies is on a path that will lead to increasing, rather than stable or falling debt-to-GDP ratios. In virtually all the major economies, the cost of committed benefits substantially exceeds the stream of tax resources available under current policies. If one were to produce a ten year forecast of the U.S. fiscal position using the  fan charts to illustrate uncertainty that are a feature of the inflation reports of many central banks, the size of the fan would be very wide, indicating a substantial probability of deficits significantly worse than the already troubling central path for the deficit predicted given current policies.
SPEECH DATE:  13/11/2019  SPEAKER:  Deputy Governor Martin Flodén  VENUE:  Örebro University and Kommuninvest, Örebro  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  Monetary policy in a changing world* Over the past year it has become increasingly clear that economic growth is slowing down, both in Sweden and abroad. It is not surprising that growth is slightly lower than during the strong years 2014-2018. But there have recently been increasing signs that the slowdown will be larger and occur faster than we at the Riksbank have been expecting. To determine how monetary policy should react to this, we need to understand why growth is falling. Is it due to weaker cyclical economic activity, or to deeper, structural changes in the economy? Today I intend to first briefly discuss some structural changes that may have had significance for economic developments in recent years. These are changes that may have entailed lower underlying interest rates and growth and lower inflationary pressures, and which may affect the conditions for the Riksbank's work going forward. After that, I will say a few words about the possibilities open to monetary policy if economic developments become weaker than we have forecast. In conclusion, I would like to say a few words about climate change, one of the structural changes that affects the way the economy functions.

Some of the changes are unavoidable, for instance because of technological advances. Other changes are due to political choices and priorities. 1  See Sveriges Riksbank (2019). 2 In the United Kingdom, yields on 10-year real government bonds have fallen from 3.5 per cent on average in  1985-1999 to -0.9 per cent in 2010-2019. The development has been similar in other countries, including the United States and Sweden. 3 In Sweden, annual productivity growth has fallen from an average of 2.6 per cent a year in 1998–2007 to 1.0 per cent in 2010–2018. 2 [7]  But the structural changes affect the conditions for monetary policy. The low real interest rates have reduced the scope for monetary policy to manage economic fluctuations. Policy rates in many countries cannot be cut much from the current levels. The possibilities to push down interest rates with further quantitative easing are limited. If policy cannot be made more expansionary in other ways, the structural changes, combined with a normal economic downturn may lead to the economies getting stuck in a situation with unnecessarily low growth. 4  Fiscal policy will play a larger role in stabilisation policy In the debate, and especially internationally, many suggestions have been put forward on how to make monetary policy more expansionary with other means. There is talk of coordinating fiscal and monetary policy, “helicopter money”, “modern monetary theory” and the purchase of specific private assets.
In 1999 Professor Nancy Cartwright, a philosopher of science, published a book with the title The Dappled World: A Study of the Boundaries of Science (Cartwright (1999)). This quote captures its essence: “Science as we know it is apportioned into disciplines, apparently arbitrarily grown up; governing different sets of properties at different levels of abstraction; pockets of great precision; large parcels of qualitative maxims resisting precise formulation; erratic overlaps; here and there, once in a while, corners line up but mostly ragged edges; and always the cover of law just loosely attracted to the jumbled world of material things.”  Cartwright was describing the natural sciences. She describes them as a patchwork of theory and evidence, some of it precisely cut, most of it haphazardly shaped and pieced together irregularly. And there is, she argues, no shame in that. To the contrary, it may be the best science can do, given limited knowledge and limited time, in trying to make sense of an often-jumbled world. Here is another way of putting Cartwright’s point. Sometimes the popular perception of the natural sciences, and physics in particular, is that it too is a methodological monoculture. The defining characteristics of this monoculture are great laws and unifying theories. For example, it is perhaps no accident that the world’s 2  most famous equation is this one: E= MC . Not only is this uniquely famous equation drawn from theoretical physics; it defines a great law, a unifying theory.

In this light, most MPC members in the last meeting viewed that current growth momentum still warranted monitoring and monetary policy should continue to be accommodative for some time. However, we are mindful that ultra accommodative monetary policy stance could lead to unintended consequences. The prolonged period of very low interest rates has a side effect that it could undermine longterm financial stability. Therefore, we have been monitoring developments of search-foryield and underpricing of risk behaviors in various sectors. Let me emphasize once again that MPC’s decisions are data dependent. Economic and financial developments, their trends, and risk factors have been and will continue to be weighted carefully by the MPC. I am certain we will be able to navigate the Thai economy towards sustained growth in this increasingly volatile global landscape. Thank you very much for your attention. 5/5
Central banks in the advanced economies increasingly began to resort to unconventional instruments. At the SNB, these included long-term repos, purchases of Swiss franc-denominated bonds issued by domestic, private-sector borrowers and interventions in the foreign exchange market. It is worth noting that the SNB had intervened only very rarely in the foreign exchange markets between the early 1980s and 2009. And on the occasions when it had, the SNB’s interventions had typically been small-scale and had been coordinated with the Group of Ten central banks. BIS central bankers’ speeches  1  This changed in March 2009, when, having reduced the short-term interest rate to near zero, the SNB began purchasing foreign exchange in an effort to counter upward pressure on the Swiss franc and prevent an undesirable tightening of monetary conditions. The first escalation in the euro area debt crisis in the spring of 2010 required the SNB to make extensive foreign currency purchases; these were provisionally halted in June 2010 once the economic recovery had gained a foothold. In the first half of 2011, the situation in the euro area took another turn for the worse. Other euro area countries were being dragged into the crisis. The global economic outlook deteriorated and uncertainty on the financial markets was compounded by the US budget dispute. Upward pressure on the Swiss franc was immense at this time. In August 2011, the real export-weighted Swiss franc exchange rate was 40% above its long-term average (cf. chart 2).

(X) “A million dollar question” has been asked at Forbes, about whether exchange rate stability can be maintained under such circumstances. The answer is: yes, given the current modalities, it can be maintained as long as we manage to repay our debts and as long as we can obtain new loans from abroad. In this respect, the current world situation is favourable, because free liquidity grows again and waits to be placed, credit supply goes up and buyers are sought for this money. A continuation of EU accession negotiations improves the political perception of Croatia as a debtor. Therefore, I have no doubts that the current search for a billion dollars, or euros or whatever, will be successful. This is a relief, but it also poses the most serious dangers to this country: the danger of inactivity, the danger of believing that we can go on functioning by following the established routine and the danger that we neither have learned, nor will learn enough from the crisis. It is often repeated that our problems are of a structural nature and that it takes time to carry out the necessary reforms. This statement is not unfounded. However, an old Chinese wisdom says: “Even the longest way starts with the first step.” The truth is that the first step is often the most difficult, and we have been putting it off for a long time. BIS Review 2/2010  3
exchange rate fluctuations between $ and major currencies. •  When $ appreciates against major currencies, there is translation loss when assets are reported in $  •  Likewise, when $ depreciates, there is translation gain  •  But these gains and losses mean little for international purchasing power of our OFR which is denominated in foreign currencies. 32. Focusing on overall profit figure therefore misses larger point about MAS’ underlying investment performance. 33. Investment gains on MAS’ foreign assets have in fact remained relatively stable for last five financial years. •  Holding $ exchange rate constant to strip out translation effects, foreign investment gains amounted to $ billion in FY2014/15, comparable to foreign investment gains of $ billion in FY 2013/14. Helping Singaporeans manage their finances 34. A key area of focus for MAS in last two years has been to help Singaporeans better manage their finances. A multi-pronged effort: •  Encourage prudent borrowing  •  Facilitate retail access to simple, low-cost investment products  •  Spur competitive pricing for life insurance products  •  Educate consumers on financial matters  Let me elaborate on each. First, MAS has put in place various measures to encourage prudent borrowing 35. Many safeguards already exist. BIS central bankers’ speeches  5  •  Amount of unsecured credit that FI can extend is limited to four times monthly income of borrower. •  Limits on both loan-to-value and loan tenure for both housing and motor vehicle loans extended by FIs.

In addition, solutions need to be developed to enable users to integrate easily with the payment offerings. Secondly, the product range, the range of services would need to be expanded to cater for the different payment needs of consumers and business sectors. Thirdly, the pricing framework, the formulation of a transparent and cost-effective pricing framework is important to provide the incentive structure that would spur the adoption of electronic means of payments. Fourth, is the consumer awareness. Programmes need to be implemented to inculcate the behavioral change among consumers. There needs to be trust and confidence in the electronic payment systems. The fifth area relates to the standards, the setting of common standards to address the interoperability of systems including standardising the payment messaging format is vital to the wider acceptance of electronic payment. Finally, is the need to ensure the security and integrity of the payment system which thus requires the supporting regulatory and legal framework to be in place. Among the series of initiatives that have been implemented to promote the greater use of electronic payment relates to the leadership role of the Government in the migration to electronic means of payment. As most individuals and businesses have payment transactions with the Government, the role of the Government in accepting electronic payments has provided an important catalyst for the adoption of electronic payment on a national scale. In this regard, Bank Negara Malaysia has been in active partnership with the Government to drive the electronic payment agenda.
But the implications of that shift were greatly amplified by a breakdown in the functioning of markets core to the maintenance of monetary and financial stability. Many of those longstanding vulnerabilities I mentioned a moment ago were in play. Liquidity imbalances between asset maturities and redemptions in money market and other open-ended funds exacerbated moves in asset prices. Gaps in liquidity planning meant some firms had to scramble to meet margin calls. And sharp disruptions in government and corporate bond markets raised questions about the role of leveraged investors, and the willingness and capacity of dealers to intermediate at times of stress. To avoid an even deeper economic collapse, the functioning of these markets had to be restored rapidly. And that was achieved through swift and decisive central bank action, using large-scale asset purchases and other tools capable of tackling both the economic shock and the market dysfunction. Since March of last year, G10 central bank balance sheets have risen by over $ trillion. This was an appropriate response to a truly unprecedented situation – just as powerful anti-inflammatory medicines are the right solution to a sudden and massive flare up. But such drugs are less well suited to treating long-term conditions – and there is every reason to believe that, absent further action, we will see more frequent periods of dysfunction in the very markets increasingly relied on by households and firms, if business model vulnerabilities persist and intermediation capacity remains strained.

Clarity will be required as to whether, and if so how, such activities fall within their formal remits. In some cases they may be able to use existing tools designed for monetary policy purposes, as they did in the Covid crisis. But in others, those tools may prove poorly suited to the task, and new ways will be needed to achieve those ends, whether through outright purchase and sale operations, repo facilities or other means. 11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  Second, central banks will need to decide which marketable assets should be in scope of any new tools. The most obvious candidate is government bonds, which lay at the epicentre of the dash for cash. For other, riskier, assets to qualify, a case would need to be made both that they are sufficiently core to monetary and financial stability, and that central banks can price and risk manage them effectively. It is notable that many central banks bought a range of assets beyond government bonds during the 2008-9 and Covid crises, including corporate bonds and commercial paper. Third, central banks will need to reflect on whether the use of their balance sheets to address market dysfunction should remain primarily discretionary, or whether at least aspects of that role should be formalised into standing facilities, the terms of which are known in advance.
In spite of the brisk primary and secondary market activities in a few stock exchanges in the region, capital markets, in particular the bond market, remain rather underdeveloped. There is much more to be done, therefore, to further develop the financial markets by the regional jurisdictions. The second part of the conference title - 'The New Frontier' - also contains an important message. Globalisation and the revolution in information technology have fundamentally altered the dynamics of international finance. Such changing dynamics raise concerns among many of us about the manner in which a sizable portion of gross savings in Asia finds its ways into financial obligations of the developed markets before they are recycled back to Asia. As the capital inflows into the region tend to be more volatile, the recycling process may have implications on monetary and financial stability in the region. Another aspect of the dynamics of international finance is contagion. World interest rates have until recently stayed at record lows. In search of higher yields, hedge funds and other institutional investors have scoured the world for assets generating higher returns, driving up asset prices and driving down credit spreads. As the interest rate outlook has become uncertain, fund managers may be reassessing the risks of emerging market assets, as reflected in the recent correction in world equity and commodity prices. A sudden exit of capital could leave those economies with weaker financial systems even weaker, with spillover effects on other parts of the region.

For this reason, one of the most important lessons we can take from the crisis is the importance of building a genuine banking union. The crisis narrative Indeed, the importance of banking union is related with the role of the banking sector in the development of the European economic crisis. As you know, there are many explanations for the crisis: some observers like to focus on unsound fiscal policies and excessive sovereign debt; others on competitiveness losses engineered by uncontrolled unit labour costs; and others still see the crisis more as a traditional balance of payments crisis in a “fully fixed” exchange rate regime. But there is one narrative that connects these explanations and it is oldest narrative of the crisis. It states there was essentially nothing wrong with the initial design of EMU, and the crisis resulted mostly from the fact that several peripheral countries did not respect that design – in particular the fiscal rules of the Stability and Growth Pact (SGP). In this story, the root of the crisis lays mostly with fiscal indiscipline in an over-heating economy. This led to wage and price increases, which implied a loss of competitiveness, which in turn led to the balance of payment crises. This narrative is internally coherent, but in my view it exaggerates the role of fiscal policies as an initial cause of the crisis. To begin with, it does not seem that fiscal soundness, as measured by compliance with the SGP, is particularly correlated with later developments in the crisis.