samchain/econo-pairs-v1 huggingface dataset:
In the United States it is common that the bonds issued by institutions are tied to different parts of the credit portfolio, which have different risks. These types of instrument have been an attractive investment for many investors in recent years, as the return on more traditional investment instruments, such as government bonds, has been considered too low. The high demand for the higher risk parts of the portfolio, which includes subprime, have meant that the banks’ financing costs for the higher risk loans have declined in recent years. This may have encouraged the rapid growth in the subprime market in the United States. The US method of securitisation is very rare in the Swedish mortgage market. In Sweden, mortgages are traditionally financed through the institutions and banks  4  BIS Review 56/2007  issuing bonds with the total assets as collateral. If a Swedish bank were to have a larger percentage of loans with poorer credit ratings, it would mean that the total financing cost would rise. Although the market for subprime in Sweden is currently small, it is conceivable that it could grow with time. Essentially, this is a positive development as it enables more households to enter the housing market. More types of mortgage do not necessarily mean that credit management in mortgage institutions will deteriorate.

Lower real interest rates mean that it becomes cheaper for households to take out loans when buying housing. The low interest rates are therefore an important driving force behind the price increases. Secondly, developments in the real economy have been favourable after the crisis. Although unemployment has periodically been high measured by Swedish standards, households’ disposable incomes have increased substantially. Higher incomes have meant that households can afford to pay more for their housing. Thirdly, prices have also been affected by the fact that construction declined considerably directly after the crisis. When the demand for housing accelerated, it took some time before this could be met by a growing number of new houses on the market. Quite simply, it takes time to build houses. It was not until around 2000, when house prices had become higher and made new production of housing more attractive, that construction really accelerated. Moreover, there have been some significant changes in the mortgage market, which have also contributed to house prices rising so sharply. I will return to these changes shortly. The development of these factors largely explains why house prices have risen as much as they have in recent years. It does not appear to be a question of general over-optimism among households and lenders. I therefore do not see any serious risks to financial stability from developments in house prices at present. Household indebtedness has also risen substantially Household indebtedness has kept pace with property prices and has thus risen substantially.
It requires a belief that we as central bank economists have a solid understanding of all important aspects of the monetary transmission mechanism. In my opinion – which is neither very original nor controversial – we are not quite there yet. One such area in which our understanding can be improved concerns the credit markets. A fundamental problem is that we presently lack the analytical tools that accurately capture the role played by credit and house prices in the economy. The research of Chairman Bernanke and others regarding the importance of collateral constraints and the financial accelerator effects on firms’ investment have paved the way for an increased understanding of these complex issues. Their research has been extended by others to the household sector – the idea being that as house prices increase, credit-constrained households are able to engage in so-called mortgage equity withdrawals and raise their consumption. In time, insights from these models will help us to better analyze house prices and household debt in integrated, general equilibrium setups. In fact, this is an area into which the Riksbank is putting some modelling efforts, trying to understand how credit markets can be integrated with our general equilibrium approach to fluctuations in growth and inflation. 4  BIS Review 96/2007  In the future we will hopefully be better able to analyze how developments in asset prices influence the future course of inflation and output, and how the monetary transmission mechanism is affected by changing asset prices.

Measures of underlying inflation that exclude the effects on CPI of our own interest-rate changes have been closer to the target of 2 per cent, as have inflation expectations (see Figure 1). BIS Review 96/2007  1  Figure 1: Inflation Expectations in Sweden Money market agent expectations, annual percentage change 5  5 Inflation expectations CPI  4  4  3  3  2  2  1  1  0  0  -1  -1  -2 1994  -2 1996  1998  2000  2002  2004  2006  2008  2010  2012  Sources: Prospera Research AB and Statistics Sweden  Figure 2: Real estate prices Index 1996 4th quarter = 100 350  350  Australia UK United States Sweden  300  300  250  250  200  200  150  150  100  100  50  50  0  0 97  98  99  00  01  02  03  04  05  06  07  Sources: Australian Bureau of Statistics, Nationwide, OFHEO and Statistics S eden  Since my remarks are to be on the role that house prices have played in Swedish monetary policy in recent years the following should be noted too. Since 1996 nominal house prices in Sweden have more than doubled (the increase is around 140 per cent, see Figure 2) and the average price for a coop condominium has risen even more.
We are also seeking to develop a renewed service that will be message network agnostic: capable of sending and receiving payment messages from multiple sources and interfacing with multiple messaging networks without compromising on levels of security or proof. And we will continue to support the resilience of the renewed RTGS by diversifying operations across two sites with a third stand-by settlement platform which is geographically remote. As I stressed at the start, the Bank needs to reflect the diversity of the people it serves and so increasing the diversity of the Bank’s workforce is at the top of our agenda. We have set ourselves stretching but 12  https://www.bankofengland.co.uk/-/media/boe/files/payments/rtgs-renewal-proof-of-concept.pdf 6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  achievable targets in respect of increasing the representation of women and BAME colleagues at all levels of the business.13 And we have implemented a wide range of initiatives designed to improve diversity in our recruitment, development and retention of talent across a range of protected characteristics. As a member of the Bank’s senior leadership team, I have personal accountability for delivering a step change in the Bank’s diversity. This is crucial in my own Directorate but also for the Bank as a whole.

Developments in technology, both to enhance resilience of existing payments and to innovate in new forms of payments, are important to support the Bank in advancing its objectives. This is equally true for physical and electronic payments. In my previous role as Chief Cashier, I led our work to issue banknotes printed on polymer. We harnessed innovative technology both in the security features selected, and in introducing a tactile feature on the new £ polymer banknote to help blind and vision impaired people identify our notes. This meant we exploited technology to produce banknotes which are not only secure, but inclusive. And now we are assessing how we can embrace diverse technologies through RTGS Renewal. Although the Bank has concluded that Distributed Ledger Technology (DLT) is not yet sufficiently mature to provide the core for the next generation of RTGS, we still place a high priority on ensuring the new service is capable of interfacing with DLT. In summer 2018 we ran a Proof of Concept12 with four firms to develop payment arrangements using innovative technologies. Importantly, the results demonstrated that participants using such technologies could connect to and settle in RTGS. This has informed our thinking on how RTGS could support settlement in a more diverse range of systems, and provided broader insight into the range of functionality the Bank might need to offer to support this sector.
My colleagues and I introduced the concept of cultural capital for financial firms in a white paper in late 2017 as a type of intangible asset that impacts how a firm operates and ultimately performs.1 Cultural capital is an input into a firm’s production process that determines its ability to deliver the products and services that it offers. It is analogous to physical capital like the equipment, buildings and property a firm uses; to human capital, which is the accumulated knowledge and skills of its workers; and to reputational capital, which includes the franchise value or brand recognition of a firm. More broadly, culture can be defined as the shared set of norms within a group that influences decision-making and is evidenced through behavior. 2 Cultural capital is a conceptual way to link a firm’s culture, including its values, assumptions and behavioral norms, to its business outcomes. For financial firms, it is not loss-absorbing in a financial sense like equity capital, but it can be loss-preventing by influencing decisions, behaviors, and outcomes over time. As an intangible asset, we generally see the impact rather than the thing itself. But, its impact can be measured, assessed, and ultimately influenced. In an organization with a low level of cultural capital, for example, behavioral risk is high.

Having started with Mark Twain I want to finish with another quote this time from Santayana: “A man’s memory may …become the art of continually varying and misrepresenting his past, according to his interests in the present.” 1 One lesson from recent events is the need for rigour, balance and transparency in policy making and risk assessment. I hope that the Bank can play a part in that in future as it has in the past. 1  “Reasons and places”, George Santayana. BIS Review 132/2008  5  Chart 1: Financial market liquidity  Chart 2: Household consumption growth: what happened to the boom? Liquidity index 1.0  Percentage changes on a year earlier 10 1973 Q3 1980 Q1 1990 Q3 2008 Q3  0.5 + 0.0  8 6 4  0.5 2  1.0  0  1.5  -2  2.0  -4 -6  2.5 92  94  96  98  00  02  04  06  08  -16  -12  -8  -4  0  4  8  12  16  Quarters  Sources: Bank of England.
That would help to provide some protection, beyond the DGS, for users of the monetary services that banks provide via overnight and short-term deposits; it could provide a small degree of protection against runs; and there could be an element of social justice in insulating, say, small firms and charities from the first line of loss. But, I say ‘some’ uninsured deposits because I am doubtful whether very large, wholesale deposits placed at term maturities (eg billions of pounds for six months or more) should be preferred. They are not monetary deposits, in the sense of being transaction balances; and they are not placed by households or small firms or charities. Moreover, if they were to be preferred, it would be likely that a chunk of bonded finance would over time morph into borrowing-instruments that had the legal form of ‘deposits’. That would increase the cost of any residual bond issuance. 9  See Tucker, P. M. W. (2009), The crisis management menu, “Too little attention was paid to core liquidity holdings: a treasury portfolio comprising the [Floating Rate Notes] issued by other banks does not leave a distressed bank with many options in the face of system-wide stress.”  10  Of course, if the DGS is bankrupt and a country’s government is bankrupt, the DGS may not be able to pay out. That is very serious, but it cannot be solved by the design of bank resolution regime.

This is a feature which is now missing in all of the Fund’s current lending facilities, and Third, since the remaining drawdown of the swaps is linked to a formal package of assistance that requires exceptional financing, Governments in the region, in a way, have pre-committed substantial amount of fund to be made available to support crisis resolution. In this regard, the IMF will only stand to benefit because part of the financing requirement will have already been shouldered by Governments in the region, thereby equipping the Fund with greater financial leverage to deal with other issues elsewhere. Let me now turn to other aspects of self-protection against future crises. On self protection through reserves accumulation, I think it is only proper that differentiation is made of the reasons for reserve buildup on a country-by-country basis. This is to say that one needs to assess whether the buildup is excessive with respect to that country’s overall level of exposure to the global financial markets, to its structure of exports and imports, and to the country’s overall level of external liabilities. On self-protection through the use of capital account measures, I welcome the fact that the Fund’s thinking on this subject has become more liberal. On occasions, it is appropriate to use capital account measures for crisis prevention.
The technology itself does not yet meet the requirements expected of the RTGS systems in terms of scalability, data security and reliability. Modern RTGS systems such as SIC are already demonstrably efficient and crisis-resilient. In this area, a payment system not only has to prove its efficiency; the reliability of the RTGS systems is also absolutely crucial for the stability of the financial system. New technologies therefore have to meet very high standards in this respect. However, it is quite possible that DLT may take hold in other areas. If DLT were to become established in the securities business, for example, these systems would be linked to the reliable foundation in some manner or other. It is hard to envisage DLT-based system environments developing in isolation. So the next question is what form the coexistence of new DLT solutions and conventional RTGS systems might take. There are different scenarios. One possibility would be a simple technical interface between the DLT system and the existing RTGS system, as illustrated on the slide 6. Payment instructions would be exchanged via this interface, in much the same way as the current solution between SECOM and SIC. However, direct delivery-versuspayment settlement would require certain adjustments, for example to the opening times and participant structure of both systems. A second and more far-reaching possibility would be to integrate the cash leg into the DLTbased infrastructure.

This is the case in the securities business, which comprises a network of many different participants trading, settling and managing securities. Examples of these market participants – brokers, banks, settlement service providers and custodians – are shown on the slide 3. With every transaction, a wide array of booking information has to be reconciled bilaterally between the parties involved (slide 4). For example, banks have to reconcile and monitor their securities holdings at custodians against their own internal accounts. The coordination requires considerable effort, which in turn leads to high operating costs. DLT could help in this regard by ensuring that all of the involved parties have the same information at the same time. The slide 5 illustrates this step. Thanks to the synchronised distribution of information, the aforementioned, highly complex reconciliation would no longer be necessary. The potential for efficiency gains is indeed considerable, which is why extensive research is now being conducted in this area. And innovations that enhance the efficiency of the financial system or the economy as a whole are certainly worthy of closer inspection. The Australian Securities Exchange ASX, for example, has recently announced that it is to use DLT in redeveloping its core system for clearing and settling of equity transactions and recording shareholdings. In addition to the securities business, potential uses of DLT are also being envisaged in the field of cross-border payments. The latter are slow, costly and lacking in transparency compared with domestic payment transactions, and so the potential for efficiency gains is particularly high.
And rather than solve a complex inter-temporal trade-off, monetary policy in practice seems to mimic simple rules of thumb (Taylor (2016)). Some would interpret these simple decision rules as irrational, in the sense of being inconsistent with the Euler condition from standard macro-models. But even the concept of rationally needs careful reconsideration in an environment of radical uncertainty. Rationality can only be defined in relation to the environment in which decisions are made – what some have called ecological rationality (Gigerenzer (2014)). Heuristics can be the ecologically-rational response to radical uncertainty. In ABMs, the behaviour of agents is characterised, not by Euler conditions, but by behavioural rules of thumb. These systems also exhibit radical uncertainty. That means there is a degree of model-consistency in ABMs – heuristics and uncertainty are mutually consistent. In that sense, the behavioural rules embedded in ABMs are neither as irrational, nor as prone to the Lucas critique, as some critics might imply. (c) Non-Normal Behaviour  In many standard models, the equilibrium of the system is both singular and stationary. There is a natural and unique state of rest towards which the model converges following a disturbance. Wicksell’s rocking horse is not a perpetual motion machine and nor does it turn somersaults. While many models of multiple equilibria exist in economics and finance, they tend to occupy the suburbs rather than the city-centre of the profession. In ABMs, the equilibria which emerge are often non-stationary or multiple, sometimes both.

Notes: What happens after a shock to the expected loss rate; a sudden change in firms' expected loss rate on bonds causes both short-term fluctuations in yield, and a new, higher long-term yield. Results presented are the median of 100 individual simulations runs, individual model runs exhibit a range of outcomes. Source: Braun-Munzinger et al (2016). The outcomes for median yield over 100 trading days after a 0.36% loss rate shock. Percentiles indicate the distribution of results taken from 250 simulation runs. How can this model help in understanding the dynamics of real-world financial markets and the appropriate setting of policy in these markets? Chart 13 compares the actual distribution of corporate bond prices changes with the distribution which emerges from ABM simulations. There is a reasonable correspondence between the two, with fatter than normal tails. The model can be used counter-factually – for example, to assess the impact of a rise in the number of passive or momentum traders relative to value investors. This makes for larger and longer-lived oscillations. So too does a reduction in the market-making capacity – for example, lower market-maker inventories – as this amplifies the impact on prices of any shock to fund demand. One topical policy issue is whether constraints might be imposed on some funds to forestall investor redemptions in the face of falling prices and performance. For example, US money market mutual funds experienced such redemption runs during the course of the financial crisis.
Caleb M Fundanga: The central bank, the media and the legislature – can they work together? Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 35th anniversary of the Central Bank of Swaziland, Mbabame, 21 May 2009. *  *  *  Governor M.G. Dlamini, Fellow Central Bank Governors, Your Excellencies the Members of the Diplomatic Corps, Distinguished Guests, Ladies and gentlemen, And May I simply Say All Protocol Observed, Mr. Chairman, it is indeed a great pleasure for me to be with you today as we commemorate the 35th Anniversary of the Central Bank of Swaziland. I consider it a great honour and privilege, on behalf of the Bank of Zambia and indeed on my own behalf, to have been invited to give a keynote speech at this historic event. Mr. Chairman, allow me to first of all congratulate the Central Bank of Swaziland, the Government and all other stakeholders for having come a long way in promoting the effective conduct of monetary policy in this great country over the last 35 years. We at the Bank of Zambia have noted the important role that the Central Bank of Swaziland has played not only in the development of the Swazi economy, but in enriching the knowledge of central bankers throughout the region, through its participation in the regional groupings such as the Committee of Central Bank Governor’s in SADC.

Media coverage of monetary policy actions is a central channel of a central bank’s communication with the wider public, and thus an important factor for its credibility and policy effectiveness. The evidence suggests that communication can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. Unlike the media, the legislature’s oversight over the operations of the central bank is normally enforced by statutory provisions. However, it is equally important for the central bank to proactively engage the two stakeholders in a way that maximises the transmission of accurate information to the market as well as promotes the transparency, accountability and credibility of the central bank. Finally, I thank you all for your attention and would like to reiterate my gratitude, Mr. Chairman, for inviting me to share in your celebrations. I thank you. 4  BIS Review 95/2009