samchain/econo-pairs-v1 huggingface dataset:
A problem that began with subprime mortgage loan delinquency has spread to the whole real-estate market (figure 4). In analyzing the problem of housing prices, the first thing we should recognize is that in a first approach, housing price fluctuations should not result in significant fluctuations in consumption. A rise in the price of the home increases the household’s asset value, but also increases the cost of living in it, so the net result should not be any material change in consumptions of goods different from housing. 3 Therefore, a first effect of a real-estate crisis should be a drop in the construction sector, not a drastic fall in consumption. Nevertheless, there are a number of factors that help explain the increased sensitivity of consumption and output to housing prices, and top of the list is transmission via the financial system. When the higher value of the homes is not capitalized by the owners but is mortgaged in a fast, fragile credit expansion, the ensuing contraction can be extremely severe, as we can see now. Despite the severity of the present crisis, so far its effects have been reined in by strong policy decisions oriented at warding off a financial implosion. The immediate policy reaction when the crisis was unleashed was the provision of liquidity and an aggressive cut to the fed funds interest rate in the US (figure 5). New credit facilities were designed and huge amounts of liquidity were injected, but tensions in monetary markets persist. (figure 6).

First I will review the harmful effects that the ongoing crisis will have on the future development of financial markets. Next I will discuss financial bubbles and booms in monetary policymaking, and the nature of the present crisis and possible consequences, to wrap up with the implications of the world growth scenario on the Chilean monetary policy. In the present turmoil, authorities have acted as lenders of last resort providing liquidity to ensure proper market functioning. Nonetheless, regarding financial bailouts two costs have to be balanced: averting a financial collapse with catastrophic consequences on the one hand, and the negative signals that come from said bailouts, on the other. Not only have the too-big-to-fail institutions been rescued, but also entities whose connections with the system are such that if they fail the whole financial system may be shaken. Troubled companies’ shareholders should not be bailed out, because it is important that risk evaluation is done more diligently in the future. Care must be taken in rescuing debtors of defaulted firms, because it may relax borrowing and repayment discipline, and punish good creditors by comparison. The tradeoff between these two objectives is clearly illustrated with the developments of the past week. Allowing the demise of Lehman Brothers was a sign that bailouts would not be up for grabs and even the downfall of a large investment bank would be accepted, but this may have accelerated the devastating chain of events that followed.
Chart 1 in Figure I depicts the evolution of the current account deficit prior to the end of the episode of sizeable capital inflows (“0” on the horizontal axis). This depiction reflects the identity typical of the balance of payments, namely that the current account deteriorates during the episode of massive capital inflows. At the same time, the end of the episode of heavy capital inflows overlaps the initiation of current account adjustment towards levels seen in the run-up to the reversal. The V-shaped pattern of current account developments is sharper in low- and middle-income countries (Reinhart and Reinhart, 2008). In line with expectations, real GDP growth is relatively high during a capital flow bonanza and is followed by a sudden drop in the year when the episode ends and a relatively fast recovery thereafter. In other words, subsequent to the end of the cycle of heavy capital inflows, the GDP trajectory is V-shaped, as illustrated in Chart 2, Figure I. The attempt at identifying a pattern on how inflation fared was the most difficult, because the data presented in the literature vary to a great extent, which could be an indication of the major role played by monetary policy both before and after the large capital inflows.

Therefore, the measures set forth in the said arrangements secured the financing of Romania’s economy. This financing had a favourable impact in several areas: relatively larger investment compared to the case such arrangements would not have been concluded; slower depreciation and stabilisation of the leu against the euro and other currencies; the signing of the Vienna agreement based on which banks committed themselves to roll over the credit lines and to maintain capital adequacy ratios at safety levels. As for the future developments in the real effective exchange rate of the domestic currency, it is desirable that it stabilise around a level consistent with a current account deficit that may be safely covered via foreign direct investment. BIS Review 5/2010  15  Lower depreciation pressures on the leu and, implicitly, lower inflationary pressures ceteris paribus that emerge via the exchange rate channel, along with the fiscal consolidation efforts allowed the central bank to adopt a cautious easing of the monetary policy stance, which will make the descending slope of the GDP less sharp, without fuelling further inflationary pressures. The expected developments in GDP, inflation and the current account deficit presented in Figure III are similar to the profiles of the trajectories illustrated in Figure I. Figure III 1. Current account deficit* (% of GDP) 0  2.
BIS central bankers’ speeches  23  Table 1: Approximate number of estimated parameters for a typical large international bank(a)(b) Probability of default  Loss given default  Number of models  Range of parameters  Retail mortgages  10–15  10–15  40  400–600  Credit cards  10–15  3  15  100–140  SME retail  10–15  3  6  40–50  Wholesale  5–15  5–15  100  500–1500  SME corporate  5–15  5–15  2  10–30  (a) Number of parameters required to determine credit risk capital charges under the internal ratings-based approach. (b) The number of parameters used to estimate PD and LGD, as well as the number of models used for each portfolio, have been estimated based on a large representative UK bank, so they are a broad approximation only. To calculate the range of total parameters we have assumed that half the models are used to estimate PD and the other half are used to estimate LGD. Table 2: Risk-based capital versus leverage for major global banks Variable  Model 1  Leverage ratio  –0.37 *** (0.13)  Risk-based capital ratio  Model 2  Model 3  –0.16 (0.11)  –0.35*** (0.13) –0.07 (0.11)  Notes: For all models, the dependent variable is “failure”. Standard errors are shown in brackets.

Were these proposals to become mired in detail, they risk sinking, like the Tower of Basel, into the swamp. This is not because these proposals go too far but because they may not go far enough. These reform efforts have too many commas, semi-colons and sub-clauses. They would benefit from a few more full stops. That logic suggests cleaner solutions than are currently being implemented, if not than are currently being contemplated. Strict size limits and forced separation of commercial and investment banking are two frequently cited such radical options (Haldane (2010), Fisher (2011), Johnson and Kwak (2010)). The debate on them has waxed and waned on both sides of the Atlantic. A stalemate has been reached. Having risen to a peak of almost three in 1928, the largest US banks’ price-to-book ratios had by 1931 plummeted to below one. They remained close to these levels for several years afterwards (Chart 20). This discount implied that investors in the bank could improve their wealth by selling-off the banks’ assets separately. Investor pressures to separate began to mount. In response, a number of banks began selling off their equity brokerage affiliates, including the two largest banks, Chase National Bank and National City Bank in 1933. A number of banks delisted their shares. This response, led by the market, paved the way for the passage of Glass-Steagall in 1933. As Fuller (2009) puts it: “Divorce made a virtue of necessity and cursed and condemned bankers jumped at the opportunity to demonstrate their virtue”.
This can increase competition and reduce the companies’ mark-ups when costs increase.18 Thirdly, the consumer price index (CPIF) is directly affected by lower costs for information and communication technology. 17  See Monetary Policy Report, February 2015. 18 Apel et al (2014). 7 [12]  Productivity and the labour market Let's begin with companies’ production capacity and the consequences for the labour market. In the manufacturing industry digitalisation appears to have to increased productivity, but this is not the case in the service industries. The development in employment appears to have been poorer in professions where digitalisation has been stronger. The labour market appears to have become more polarized as a larger number are either employed in high salary or low salary professions.19 Companies responding to our own Business Survey often confirm that digitalisation leads to a competence shift in the labour force. They see a substantial need to recruit specialists with, for instance, digital competence and they have less need to recruit general staff.20 In consumer-related sectors companies believe to a greater extent that digitalisation will lead to fewer employees within a few years, while the responses from manufacturing companies are more neutral. The explanation is often that the manufacturing industry has already made major changeovers and that digital technology is already a complement to large groups of employees. In the retail trade there are larger groups of cashiers, stocks workers and shop assistants who can be replaced by automated solutions. Consumer behaviour Digitalisation also affects us as consumers.

One might say that it is a question of giving the right information at the right time and about expressing oneself clearly. This is an important aspect that ties in with a survey of central banks recently made by JP Morgan. There the Riksbank was ranked as the most open central bank. But the main message of the study was that a central bank, once it had passed a particular degree of openness, perhaps did not become much more predictable by providing even more information. And I believe there is some truth in this. At least if the central bank is already very open, the quality of the communication may be more important than the quantity. And we are consciously working all the time to become even better with regard to clarity and efficiency in our communication. As recently as a couple of weeks ago, we Executive Board members decided to take a few further steps in this direction. To begin with, the public minutes of the monetary policy meetings will now state which of the Board members has said what in the general discussion. This means that we have both a correct decisionmaking procedure and everyone will be able to follow the reasoning of the individual Executive Board members with regard to each interest rate decision. Stating the names in the minutes will make us even more open and clear. It will provide better opportunities for evaluation and accountability.
Even though the liberalization policies were adopted independent of the EU perspective, they helped to facilitate Turkey’s attempt to apply for full membership, by providing a solid basis for lasting progress. On the other hand, member countries of the EU have tried to make some adaptations in their banking regulations to integrate financial systems. Competition among them has increased. A universal banking system is accepted. Banks either have increased their assets or have merged with other banks in order to be strong in a market where competition is intensified. New financial products are created every day. Technology is used intensively in order to reduce costs and serve customers better. In parallel to these developments many reforms have been made in order to develop the Turkish banking system. Some amendments were made to the Banking Law to harmonize it with European standards, and now we are in the process of preparing a new Banking Law. These changes will require some banks to strengthen their financial situation and bring their credit risk and equity participation ratios closer to the EU norms. Within the process of becoming more deeply integrated with the European financial markets, the Turkish banking system will now face new competition. The CU agreement has naturally affected Turkish banks and changed the dimensions of competition. But Turkish banks seem ready in many ways for this new and larger competitive environment. Today banks in Turkey are made more dynamic by a high-technology electronic infrastructure, high-quality services and well-trained manpower.

Starting from 1994, the Treasury’s annual use of short-term advances is to be reduced gradually over five years from 15 to 3 percent of each year’s incremental budget appropriations. By 1998, the Treasury will be entitled to short-term advances totalling not more than 3 percent of that year’s incremental budget appropriations over the previous year. In addition to that, the Treasury and the Central Bank have signed a seven-point protocol to cooperate in fighting inflation. The official aim of this accord is also to give the Central Bank more independence. So, an important development towards the full independence of the Central Bank has been initiated, as required in the Maastricht Treaty. However, we have been in the process of preparing a new Central Bank law in parallel with the same institutions in the EU. The work has already been done and we are ready to submit it to the government if and when the political environment is appropriate. On the other hand, in addition to the already installed electronic payments clearing system, the CB has signed a contract to develop and install a modern national securities settlement system. The new system will allow the Bank to increase the efficiency with which government securities can be traded on the capital markets and ensure that the payments system will match the standards of those in the EU and other western nations. The new system will also be capable of being connected to the BIS Review 105/1997  -3TARGET network.
This is important because residential mortgage lending terms tightened significantly during the crisis, and have not eased subsequently.12 Indeed, over 50 percent of all new loans – and 70 percent of new prime conforming loans – go to borrowers with FICO scores of 760 or above, compared with about 30 percent before the crisis. Borrowers with credit scores of 720 or less now make up less than 30 percent of new originations, although they represent 52 percent of the population with credit scores. Steps should be taken to improve households’ access to credit. Currently, lenders are discouraged from making new prime conforming loans due to excessively stringent put-back rules on these mortgages. Such rules give Fannie Mae and Freddie Mac broad scope to force the originator to repurchase at par loans that go delinquent if there are any errors in the mortgage loan paperwork – even if the error has no direct link to the delinquency. It is essential that lenders are accountable for the representations they make and are appropriately penalized for any misrepresentations. However, doing this via a blanket  10  “The National and Regional Economic Outlook,” October 24, 2011, and “Securing the Recovery” November 17, 2011. 11  Board of Governors of the Federal Reserve System. 2012. White Paper, “The U.S. Housing Market: Current Conditions and Policy Considerations,” January 4. 12  According to the Senior Loan Officer Opinion Survey.

Domestically, financial liberalisation and deregulation have relaxed investment restrictions. More flexible exchange rate policies, liberalisation of capital accounts, the opening of domestic stock markets to foreign investors as well as “investor-friendly” policies help to attract foreign investors. Global factors have also played a role, with the abundant global liquidity environment as well as the decrease in home bias. By way of example, non-residents currently hold 46% of French market capitalisation and slightly more than 50% of French government bonds. BIS Review 140/2007  1  A third driver is the emergence of global financial players, such as large banks, hedge funds, private equity funds and more recently sovereign wealth funds. They all share common characteristics: -  They play an important role in fostering market efficiency, and provide liquidity to capital markets;  -  They use sophisticated investment strategies;  -  They implement advanced risk management practices, and help to spread them across markets and countries. However, because of their sheer size and potential impact on market equilibria, they raise some concerns of transparency as well as questions about their role in fostering, or not, financial stability. Those issues warrant being debated. What are the consequences of the financial globalisation currently underway for global capital markets? They are well known, so I will just highlight two of them. First, globalisation increases the efficiency of financial markets. Thanks to financial globalisation and technological progress, informational efficiency of capital markets has increased over the past few decades.
These include the announced merger of Deutsche Börse and NYSE, the sale of SIX Group’s Eurex-stake to Deutsche Börse and a move of trading volumes away from “national” quasimonopolies towards multilateral trading venues such as multilateral trading facilities (MTF). Some estimates indicate that as much as 25% of equity trading volumes are now handled by these new players. Because of such developments, in the Swiss Blue-Chip segment, SIX Swiss Exchange’s average market share declined from over 80% in 2009 to around 70% in 11 2010. Post-trade infrastructure is also under pressure to evolve. Notably, the Financial Stability Board recommends a wider adoption of Central Counterparties (CCPs) in the over-thecounter (OTC) derivatives markets. By mitigating counterparty risk, increasing transparency and limiting the likelihood of contagion in these complex markets, CCPs reduce systemic risk. Regulators in both the European Union and the United States are thus promoting increased use of CCPs. A second example, upon which I would like to dwell, is the European Central Bank’s (ECB) “TARGET2-Securities (T2S)” project, which has attracted much attention in the industry. For those of you who are unfamiliar with the initiative, it aims to establish a single venue where securities may be settled against the euro and possibly against other currencies, partially replacing the existing national settlement infrastructures.

Most notably, as the SVC integrates several processes, it is fast, efficient and safe. In equity trading, “straight-through processing” has technically reduced “time to settlement” to as little as four seconds, though in market practice the settlement cycle for equities is three days. Domestically, the system is inexpensive and the price of trading has decreased significantly in recent years. “Straight-through processing” has also been applied to and strengthened the Swiss repo market, where not a single “fail”, i.e. a settlement that is one or more days late, has occurred in the interbank repo transactions since May 2009. In terms of automation, the integrated Swiss approach compares favourably to other systems of its kind. Despite the omnipresence of electronic systems worldwide, only one third of all repo transactions in Europe are in fact handled by automatic trading systems such as BrokerTec, Eurex Repo or MTS. In several national markets, most steps are still performed manually.8 As the Swiss value chain was built in the mid-1990s, it was a frontrunner in the move towards straight-through processing. It is still a “state-of-the-art” set-up, but this is no time to be complacent in view of the ever-increasing strengths of competing systems. Given its high level of performance, it is interesting to observe that the Swiss value chain is the result of a typically Swiss form of collaboration, known as “Gemeinschaftswerk”. The principle of “Gemeinschaftswerk” has been vital in shaping and maintaining Switzerland’s FMI.
A sustained rise in medium-term inflation expectations would represent a threat to our price stability mandate and would not be tolerated. Nevertheless, we always need to be careful about inflation – even in an environment of ample spare capacity. Let me focus on one issue, commodity prices, for a moment. Surely some of the businesses in the audience have faced the challenge of sharply rising oil, food or metal prices in recent months. For example, the spot GSCI – a broad measure of commodity prices – has risen more than 35 percent over the past year. This was in train before the upheavals in the Middle East and Africa raised market concerns about potential disruption to oil supplies, pushing energy prices – though not other commodity prices – still higher. Commodity price pressures are pushing measures of headline inflation above measures of core inflation, which, as I mentioned, exclude food and energy prices. You may have concerns that the rise in commodity prices will turn out to be persistent and, if so, how this might impact the inflation outlook. 4  BIS central bankers’ speeches  From a policymaking standpoint, there are important factors that suggest that it would be unwise for the Federal Reserve to over-react to recent commodity price pressures by raising interest rates soon. Why? First, despite the general uptrend, some of the recent commodity price pressures are likely to be temporary – due to poor weather or geopolitical uncertainties. This is certainly what is anticipated by market participants.

Second, even if commodity price pressures were to prove persistent, they have a smaller impact in the United States than they do in many other countries. Relative to most other major economies, the U.S. inflation rate is lower, the amount of slack much greater and commodities represent a relatively small share of our consumption basket. This small share helps to explain why the “pass-through” of commodity prices into core measures of inflation has been very low in the United States for several decades. Third, the Federal Reserve’s success in anchoring inflation expectations has also been important in limiting pass-through. Since 1984, for example, when the Federal Reserve began to achieve success in driving down and then subsequently anchoring long-term inflation expectations, there has been very little evidence of commodity price pass-through into core inflation. In contrast, prior to 1984, when inflation expectations were much less wellanchored, pass-through did occur and, at times, played an important role in pushing underlying inflation higher. Thus, while rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate. We will have to ensure, however, that these pressures do not cause inflation expectations to become unanchored.