samchain/econo-pairs-v1 huggingface dataset:
Consequently bank lending booms may portend more mixed economic outcomes. Other studies in this vein suggest some of the mechanisms that might be behind the greater future volatility. First, banks have procyclical leverage: lending booms by banks are financed by debt, not equity. Consequently, the increased leverage of banks can result in a deterioration of the quality of bank lending through a type of moral hazard that can occur if debt becomes too easy for the banks to raise or if volatility in financial markets is suppressed. Another finding by Adrian and his coauthors is that banks’ incentives and ability to lend becomes highly sensitive to financial market volatility. When the economy is in the upside of the cycle, volatility and other measures of risk may be low precisely because of the abundance of debt financing, masking the level of underlying risk in the economy, which may lead to excessive, and eventually unsustainable, growth in bank lending. The procyclical leverage of banks is associated with other features of the financial economy and its dynamics. For example, the leverage of financial intermediaries influences the pricing of assets: once again, this feature can impart procyclicality to asset pricing. When risk measures are low during a growth and boom phase of the cycle, asset prices tend to be supported, but during the contractionary phase, asset prices can drop, with risk premia rising, which, in turn, can lead to further contractions in credit by lenders, resulting in a negative feedback loop that can amplify the initial shock to asset prices.

When the economy is vulnerable to a financial crisis – that is when the levels of debt are high and the macroeconomy is at or past a peak, and in some cases, a housing boom is ending – then financial intermediary leverage and the issuance of money-like debt instruments can become excessive. Such excess can lead to a rapid scramble to deleverage – that is, to reduce levels of debt, causing fire sales and failures of financial intermediaries, which, in turn, confers further distress on the financial economy and the working of the  12  Prior to October 3, 2009 the FDIC limit on deposit insurance was $ but was raised on that day to $ for a temporary period. The Dodd-Frank Act made the expansion in the insurance limit permanent. BIS central bankers’ speeches  7  macroeconomy generally, as important sources of credit are blocked from reaching households and firms. In essence, I’ve argued that there are two views of the mechanisms that could lead to a crisis: one is about excessive leverage or the scarcity of loss-bearing capacity that builds up in an expanding economy and the other is about the excessive provision of liquidity in the private sector, or excess private money creation. Of course, liquidity and leverage go hand in hand: Private money creation enables firms that issue it to take on high leverage, both in the financial and the nonfinancial sectors.
Common for all of the Riksbank's tools is that they in one way or another affect the  36 See P. Gustafsson and T. von Brömsen (2021). 37  See also Committee on the Global Financial System (2019). 38 See also the European Central Bank (2020) and the International Monetary Fund (2020). 17 [35]  balance sheet. In brief, no balance sheet, no central bank, and rate-setting is just empty talk if one is not willing to use the balance sheet. However, changes in the policy rate don’t always have a major impact on the balance sheet, but this is because the financial market participants know that the Riksbank can use its balance sheet if needed, and that the Riksbank does so from time to time. Extensive asset purchases and direct liquidity support more or less always cause the balance sheet to grow substantially. 39 Since the inflation target was formally introduced in 1995, the Riksbank has mainly used these tools on three occasions. The first occasion was during the global financial crisis 2008-2009, when we offered the banks liquidity support, for instance, in the form of loans in SEK at longer maturities, and loans in USD, and also approved a larger number of securities as eligible collateral. These measures secured the liquidity of the financial system, and this facilitated credit granting and reduced various risk premiums that limited the impact of monetary policy.

This includes the banks’ deposits in the Riksbank overnight through the Riksbank's deposit facility and fine-tuning transactions in RIX, shown in the chart as MP debt (debt related to monetary policy transactions, see the Riksbank's Annual Report 2015). During the day, the banks have pledged assets and received liquidity in RIX. The average value of the collateral provided was SEK 112 billion during the second four months (see RIX four-month report 2, 2016). These are reported as funds in accounts in the chart. 4 If we look at the value of the payments between households, companies and a uthorities, it amounts to a total of SEK 14,000-15,000 billion a year, of which perhaps SEK 200 billion is in cash. In shops, almost one in seven payments is made in cash. More than half of the adult population has the Swish payment app. 4 [10]  the chart (Figure 1) and it shows clearly how cash in relation to GDP has declined substantially since 1950, when it comprised almost 10% of GDP, compared with around 1.5 per cent today. The blue line is the nominal demand for cash outside of the banking sector, that is, the cash held by companies, households and authorities. Demand from the general public has fallen from SEK 97 billion in 2007 to around SEK 61 billion today. This is a marked decline in just a few years. Similarly, the withdrawals from ATMs give some indication.
A set of principles has been outlined for the cross-border application of the New Accord to promote closer practical co-operation and information exchange among supervisors. These implementation issues are very important to promote consistency and to reduce the burden on internationally active banks. There are, however, other areas that we can already identify as part of our future work plan to advance risk management, to promote greater transparency, and to strengthen the stability of the financial sector. Given that I have mentioned in this presentation the benefits of utilising the diversification effects of different approaches in the search for an efficient frontier, I’d like to conclude with just one of the potential items on our agenda for future work once the New Accord is implemented. This item would be to consider the benefits of full credit risk models in the calculation of minimum capital requirements. In theory, a bank’s capital requirements would then reflect to the greatest degree the economic benefits of diversification in its balance sheet. In fact, the Committee did at one point evaluate whether advanced banks should be permitted to estimate the degree to which their assets might behave similarly or default together in the New Basel Accord. As you know, we decided that we are not quite there yet. We know that some banks are making commendable progress in thinking about ways to estimate the value of diversification. Nonetheless, we remain concerned about the degree of confidence one might have in those estimates, given the relative lack of data available.

For example, in 2001 - the most recent date for which comparative global information is available - the most prevalent disclosures covered accounting and presentation policies, on a bank’s capital structure and its measures of capital adequacy, and, for those that had them, on the kind of market risk models the bank used. Few banks disclosed much about their credit risk models, the types of credit risk mitigation techniques that they employed, or even the external or internal ratings assigned to their credit exposures. The relative paucity of data available publicly on a typical bank’s credit risk profile appears inconsistent with the fact that, for most banks, credit risk remains the single most important source of potential losses. At present, market participants seem to know only little about the extent of most banks’ exposure to credit risk. One could conclude that it seems unrealistic today to assume that they have enough knowledge of a bank’s position to exercise properly a benign influence on its handling of credit risk. Disclosure practices do not seem to have kept pace with the very rapid evolution in the ways that banks take on, measure, and ultimately manage their risk positions. BIS Review 47/2003  3  Incorporating Market Discipline into the New Basel Accord To improve the ability of markets to contribute to greater stability in the banking sector, the New Accord will contain a series of disclosure requirements.
For a given path of nominal demand, that would tend to reduce the pressure of demand on global commodity prices, as many of the largest EME economies are, basically, commodity importers themselves. But persistent elevated inflation in the EMEs would also increase the nominal price of some of our imports, unless an adjustment in nominal exchange rates were permitted. In fact, over recent months there have been some steps towards taking domestic monetary action across a number of emerging market economies. But there is a risk that higher EME inflation will persist if, left unchecked, it becomes embedded in inflation expectations. With inflation also elevated across the major industrialised economies, this underlines the risk to global inflation from imbalances in global supply and demand. Individual countries can suffer exogenous shocks to inflation from commodity prices, but that is essentially a relative price shift, to which the world economy has to adjust. By contrast, a persistent rise in inflationary pressures cannot be exogenous for all countries collectively. In that respect, the international monetary regime, and the global imbalances it has sustained, continues to pose risks to the outlook for our economy. Indeed, in terms of where we find ourselves, we must take care not to put the cost shock and the credit shock in completely separate boxes. They both owe something to global imbalances.

Third, wage increases of the past three quarters affect current wages with a summed coefficient of less than 0.5, implying that lagged impulses fade within a few quarters. Fourth, the effect of price pressures on wage increases is empirically weak; wages respond less than proportionately to prices during the year. Combined, these estimates suggest that the pass through from costs to domestic prices is subject to relatively contained momentum and feedback effects. But the entire course of the pass-through process is still characterised by a degree of persistence. Accordingly, in the absence of further major global price shocks, domestic inflation should not accelerate further in Q4, but could remain elevated relative to the historical average. A key upside risk factor influencing the ongoing pass-through to consumer prices is the behaviour of cost mark-up by businesses. Profit margins might have been impaired in the earlier period when global costs shocks were intensifying, and businesses might be inclined to restore them at least partially in the period ahead. Monetary policy stance has progressively tightened Singapore’s short-term AS curve is gradually shifting to the right as global costs subside and non-resident worker inflows pick up. Wages in the first half of the year traced out a temporarily steeper portion of the Phillips Curve but are expected to revert to their historical configuration in the period ahead. The external components of the IS curve could moderate in the quarters ahead. These represent pro-equilibrating movements, but we are alert to unexpected developments and fresh shocks.
The projects show a total loss of NOK 20 billion. There seems to be few road projects that are economically profitable. A rare example is the Finnfast tunnel project that connects the mainland to the beautiful island group in Ryfylke. The Bjørvika tunnel project is not profitable according to these criteria. Since the existing traffic interchange “Bispelokket” is so efficient, drivers will not save time when they take the tunnel between the east and west side of Oslo in the future. The economic return, as calculated here, cannot be the only criterion for selecting projects. The Bjørvika tunnel will make Oslo a better city in which to live and work for one million people and create values that are not easy to quantify. The same also applies to other government investments that provide benefits and satisfaction beyond an easily measured rate of return. On the other hand, when the projects cannot be expected to increase the future revenue base in society, it is important the investments are financed within a long-term and sustainable framework or financed by user fees. Infrastructure or research reports for that matter can provide benefits and satisfaction over time, but they are not liquid and do not generate cash returns that can be use for spending. If the investments are made at the expense of the savings plan for the sovereign wealth fund, future generations will have to bear the cost. Conclusion Allow me to conclude. This is my twelfth address entitled “Economic Perspectives”.

Moreover, decisions based on an arbitrary value of money cannot be sound, which is why stable and low inflation is a precondition for solid growth in the economy. The profitability of an investment project can only be calculated correctly when inflation is in line with expectations. Accounts tend to be misleading and equity prices uncertain if the purchasing power of money is not stable. The tax system, with its rates and thresholds in krone terms, impairs the distribution of resources to a greater extent when inflation is high and variable. The value of money and inflation have now been stable for almost 20 years. In earlier times, the value of money was more variable, and periods of high inflation tended to be followed by a fall in prices. The value of money fell sharply and permanently around the time of the two World Wars and earlier wars. In the 1970s and 1980s, the value of money also fell rapidly, but as a result of economic policy. The interest rate was kept at a low level and public spending was high in an attempt to achieve very low unemployment. 12  BIS Review 15/2010  Not only in Norway, but worldwide, there was a crisis in the monetary system in the 1970s. After the Second World War, the US dollar was pegged to gold while other countries held a fixed but adjustable exchange rate against the dollar.
In Sweden, however, inflation has significantly undershot the target of 2 per over the last 15 years. In other countries that have had a fixed inflation target for the same length of time as Sweden, the average inflation rate has instead been on target. At the same time, inflation expectations in Sweden have been anchored to the target. According to established economic analysis, anchored inflation expectations lead to a negative relationship between average inflation and average unemployment. Then the long-run Phillips curve is no longer vertical, but down-ward sloping, which is confirmed by data. That the average inflation rate has undershot the target in Sweden has thus probably led to substantial costs to the real economy in the form of higher average unemployment. This makes it important to ensure that average inflation is henceforth on target for an extended period of time. The too high average unemployment rate also means that the long-run sustainable rate of unemployment may have been overestimated. The Riksbank’s mandate for monetary policy Price stability and the highest sustainable rate of employment My view is thus that the Riksbank’s mandate for monetary policy means that monetary policy should stabilise inflation around the inflation target and unemployment around a long-run sustainable rate. I consider that this follows from the Sveriges Riksbank Act and the government bill containing the proposal for the current Act. The Sveriges Riksbank Act states that the objective of the Riksbank’s monetary policy shall be to maintain price stability.

The World Economic Forum Banking Strength index shows that the Chilean banking sector is very strong, as it ranks in the 11th place in the world. Let me finish by pointing out the relevance that the exchange rate derivatives market has had in favoring both financial stability and the conduct of the flexible inflation targeting scheme in Chile. This market is not as deep as it is in developed countries, but it has experienced significant growth of more than 10-fold since 1998, fueled in part, as I already mentioned, by the floating exchange rate regime. The role of pension funds has been significant as well, as they maintain a large positive foreign financial position, and keep hedging against exchange rate risk even above the regulatory requirements, especially in the aftermath of the last crisis. Thanks to these factors and a favorable regulation, Chile shows a high level of penetration of financial derivatives compared to other emerging economies and countries in the region. All this has contributed to a limited exchange rate mismatch of corporations. Today the share of firms with a mismatch over 10 percent of their assets is below 10 percent, down from around 20 percent before the Crisis. Hence monetary policy can be conducted in a countercyclical manner, without the need to manage the exchange rate. However, as the recent experience in developed countries has revealed, the rapid development of derivatives 5  markets also poses challenges to regulators due to their complexity and potential concentration of risks in a few entities.
Jon Nicolaisen: Responsible investment and active ownership Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at Norges Bank, Oslo, 19 November 2019. * * * The graphs can be found on the Norges Bank’s website. Introduction In 1990, visionary politicians decided to establish the Government Petroleum Fund, later renamed the Government Pension Fund Global (GPFG). On Tuesday of this week, the value of the fund passed NOK 11 000 billion – or over 3½ times Norwegian mainland GDP. The fund is now among the largest shareholders in many of the world’s listed companies. Chart: From natural resources to financial wealth What started as oil wealth in the ground has been transformed into savings and financial wealth abroad. Under the fiscal rule, we should only spend the expected real return on the fund. As long as we only spend the return, we ensure that the fund will benefit future generations. In 2020, withdrawals from the fund accounted for more than one krone in five in the central government budget. This means that the fund indirectly finances tens of thousands of public sector employees and ensures that taxes are lower than they would otherwise be. We might say that Norway has moved from being an oil nation to being an investment fund nation. The assets in the fund belong to the Norwegian people. The most important decisions, such the choice of the fund’s equity share, are anchored in the Storting (Norwegian parliament).

The Ministry of Finance decides how the fund is to be managed and lays down guidelines in a mandate for Norges Bank. The Bank is tasked with making investment decisions and exercising the fund’s ownership rights. Norges Bank’s Executive Board sets the limits for the Bank’s asset management within the guidelines in the mandate. Operational management and investment decisions linked to individual companies are the responsibility of the Bank’s investment management organisation – Norges Bank Investment Management (NBIM). Chart: Management objectives Central to the mandate is the benchmark index. It is set by the Ministry of Finance and is constructed on the basis of sub-indexes from external index providers. The benchmark index divides the funds’ assets into global investments in equities and bonds. On the equities side, the benchmark index comprises 8 000 companies in 47 countries. The Ministry also sets risk limits for the Bank’s asset management. The objective of the management of the fund is to achieve the highest possible return net of costs within the limits set in the mandate. Chart: Enhanced indexing The fund’s investment strategy reflects the mandate’s requirement to track the benchmark index fairly closely. Since the fund is subject to an index-tracking requirement, the fund’s return largely follows the return on the benchmark index. Moreover, fluctuations in the benchmark index provide a good proxy for the risk in the fund. But this does not mean that asset management is unimportant. On the contrary. Even minor deviations from the benchmark portfolio can have a large impact over time.
As pointed out more than a century ago by the American psychologist William James, an important factor behind human behaviour is attention; as also demonstrated by later psychological studies, we tend to direct our attention at whatever is attracting the attention of others. A major role in this process is frequently played by the media. It should be born in mind, however, that media operate in a highly competitive environment that makes it difficult for them to stand apart from the conventional wisdom. But media can both accentuate and modify the prevailing consensus. A phenomenon – also studied in experimental psychology – that works against taking an independent stance is group thinking. It is not easy to stick to an opinion that differs from what a majority of the group seems to hold; “surely all the others cannot be wrong” is a common thought. People who go 11 their own way are liable to be regarded as have-beens with little influence or significance. We are also liable to succumb to wishful thinking. Supporters of a football club or a political party, for instance, 12 are not infrequently over-confident about the chances of winning. Another example with which you may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer one that has many guests – they simply rely on the judgement of others. In this way our inherent behaviour can generate both optimistic and pessimistic over-reactions. Herd behaviour pulls share prices far beyond what is fundamentally warranted.

A relatively weak stock-market trend in the 1960s and ’70s no doubt fed expectations of a favourable return in the future. Another factor was certainly that the real return on bank deposits had been negative at times in the 1970s. Moreover, the introduction of mutual funds with tax incentives in the late 1970s and their subsequent replacement by a national savings system presumably drew many people’s attention to the stock market. It is also conceivable that the rise of economic journalism in the 1970s and ’80s contributed to a greater interest in the stock market. Neither should the formation of the Shareholders Association and the Share Promotion Association in the 1960s and 1970s, respectively, be overlooked. More knowledge and information certainly contributed. However, the increased saving in shares is one item in a larger context, in Sweden as well as other western industrialised countries. I mentioned earlier that Swedish households have transferred much of their traditional saving from banks to other instruments. Thirty years ago, bank deposits and other very liquid assets with little risk made up almost 60 per cent of households’ financial wealth, as against less than 20 per cent today. The major part of this adjustment in financial portfolios has gone to shares but a good deal now takes the form of insurance saving. The trend towards forms of saving with a higher risk has been accentuated by new rules for insurance companies, permitting a high proportion of shares, although this is arranged more indirectly.