samchain/econo-pairs-v1 huggingface dataset:
All of the agents stand back and assume that someone else will do the work, which means that many of them use the same sources of information for strategies and investments. The theory that market prices are based on all available information is thus overthrown. Prices are based more on recommendations from rating agencies and other external analysts who thereby assume great responsibility. To some extent, it must be the case that for each individual agent to research the information would be too costly and time-consuming. However, it is important to make use of the market that is there, with different analysts. A large number of agents closely linked to one another can lead to the liquidity in the market becoming more important - in short, that there is someone there when you want to sell at a reasonable price. There are greater risks that liquidity problems will arise when there are more links in the chain and if all of the market agents risk running in the same direction. Then there may be several agents trying to sell the same asset at the same time. Although many market agents have become much better at managing risk, many models are based on historical data which provides little information on risks in new, untried products. If one of these very improbable events were to occur, it could lead to increased uncertainty and willingness to rapidly change holdings, which would perhaps be difficult if everyone else had become more cautious.

In addition, we must of course maintain preparedness for managing crises, something which has become more complicated as integration has increased and which now requires greater efforts by central banks and financial supervisory authorities. Agents in the financial markets must also take responsibility. The risk management models in the financial institutions must be tested to a greater extent with regard to how they will function if market conditions change rapidly. VaR models need to be supplemented with stress tests that capture external events. Extensive price fluctuations and changes in pricing dynamics may mean that historical relationships no longer apply. 4/5  This is the financial system as we usually refer to it. However, perhaps the greatest difference that has occurred in the financial markets is that households have become a significant agent, even in Sweden. This applies first and foremost to households investing in mutual funds and pension companies. However, it applies to an increasing number of households, particularly through the new public pension system. Households as a group therefore bear more direct financial risk now. This also raises important questions. Are they prepared for this? What role do schools play in providing the necessary competence? Should other agents become involved? There is also a larger question in the background. How far should this development be pursued? Or, expressed another way: what can be done to help households wishing to minimise their financial risks, for instance, as they approach retirement age? These are large, but important, question that are raised by current developments.
This is a lesson we learned from the Swedish banking crisis of the early 1990s 11 – and a lesson that proved useful during the crisis of 2008–09. 12 How we communicate is, however, something that we need to work on and develop constantly. At present, we are trying to improve our communication concerning our assessments of the risks in the financial system. Not least, we want to be even clearer about how we want the banks and other financial agents to respond to these assessments. We are therefore currently developing ways and means of presenting our recommendations to the participants in the financial sector. From this it follows that we also need to review ways and means of following up the recommendations we have made. The recently-formed macroprudential council also means that we will be able to coordinate our communication with that of Finansinspektionen to a greater extent than before. Macroprudential policy needs clear mandates and effective tools The cooperation between the Riksbank and Finansinspektionen will probably lend greater weight to the communication of risks and countermeasures, which is good. But the new macroprudential council does not make any decisions on its own. The council will not alter the independence, responsibility and decision-making powers of the Riksbank and Finansinspektionen. Consultating and “communicating” risks are all very well, but in the long term we probably need something more than an advanced forum for discussion. This is why I believe that the macroprudential council is only a temporary solution.

A council for cooperation on macroprudential policy How Sweden should best organise macroprudential policy for the financial system is one of the – very difficult – questions currently being addressed by the Financial Crisis Commission. While awaiting the report of the Commission and a future parliamentary decision on a longterm solution for a macroprudential policy framework we will have to try to make the most of the existing arrangements. It makes sense that a small country like Sweden should utilise the expertise and know-how that already exist at the Riksbank and Finansinspektionen. In January 2012, these two organisations set up a joint council for cooperation on macroprudential policy. The idea behind this council is that the authorities should consult and exchange information concerning their assessments of risks to the financial system as a whole, and discuss appropriate measures to prevent these risks. Another task will be to discuss the development of tools and methods in the area of macroprudential policy. The first meeting of the council was held on 24 February and the aim is that the council should meet at least twice a year. The minutes of the meeting are available on the websites of the Riksbank and Finansinspektionen. The intention is to publish the minutes of all the meetings. Great need for clear communication The publication of these minutes is an expression of the ambition to be open and transparent – an ambition that has become something of a trademark of the exercise of public authority in Sweden.
The cost of this political shift is more evident so far in new trade expanding opportunities forgone, more than in a broad and major increase in the level of protection or barriers against imports of foreign goods and services. 2  BIS Review 4/2005  This is a difficult political challenge. Success depends in part on how creative we are in equipping our citizens with the skills that offer higher returns in the future. It depends in part on what you might call our commitment to the quality of equality of opportunity in America, for people are likely to be more accepting of change if they are confident of the opportunity for mobility and advancement. And it depends in part on confidence people have in the transitional safety net that is available to bridge the transition to future employment. The last challenge I want to emphasize involves education. The education imperative has always been compelling. It is more so today for several reasons. First, we are seeing a significant erosion in the traditional premium accorded higher education in the United States and in some dimensions of the relative level of educational achievement in America. This cannot be good for the cause of improving the odds of sustaining this productivity surge. Second, U.S. citizens now face the prospect of bearing a much larger share of the risk of paying for health care and preparing for retirement.

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. Whether this confidence is justified and whether the U.S. economy does as well in the future as it did over the past decade or so, will depend critically on how successful we are in meeting these challenges in the areas of fiscal sustainability, and over the longer terms in trade policy and education. BIS Review 4/2005  3
Remarkably, employment growth in the euro area showed resilience to the economic slowdown at the beginning of this decade, with employment growing on average by 1.1% over the period 2000-2005, compared to 0.9% in the US. However, the employment rate in the euro area remains low by international standards: for example, the employment rate was 71.2% in the US in 2004 3 and the unemployment rate clearly too high compared with, for example, the unemployment rate of about 5.0% in the US in 2005 4 . Furthermore, since the launch in 2000 of the Lisbon strategy, the annual growth rate for the euro area has averaged 1.8% per year (compared to 2.8% in the US), thus remaining behind its main competitor. When comparing the euro area’s economic performance to the US, there is evidence of increasing disparities in growth. Since the beginning of the 1990s, the gap in per capita income growth between the US and the euro area has continuously widened - by 0.8% on average per year during the 1990s, increasing to 1.3% per year from 2002 onward. The main explanatory factor behind these developments is the diverging trend in hourly labour productivity growth between the euro area and the US. During the 1980s, hourly labour productivity in the euro area grew on average by 2.4% compared to 1.3% in the US. In the 1990s, hourly labour productivity in the euro area increased on average by 1.8%, decelerating to 1.2% in 2000-2004.

Additionally, better education and training help to reduce mismatches in the labour market and allow for a smoother reallocation of workers between sectors and firms. 15 The last decades have already brought about an enormous increase in the level of educational attainment, the so-called “catch-up effect in education”. In the euro area, according to OECD data for 2003, an average of 73% of those aged 25-34 had attained at least upper secondary education, compared to only 46% of persons aged 55-64. 16 Nevertheless, meeting the challenges of technological progress  11  See also ECB (2006), ibid. 12  See the World Bank web site www.doingbusiness.org. 13  See the World Bank web site www.doingbusiness.org. 14  European Commission (2004) “A 3% R&D effort in Europe in 2010: an analysis of the consequences”, study prepared by the Research Directorate General of the European Commission. 15  See G. Schwerdt and J. Turunen (2005): “Growth in euro area labour quality”, ECB Working Paper Series, No 575, January 2006. 16  OECD (2005) “Education at a glance”. 4  BIS Review 44/2006  and ensuring the labour force’s employability and flexibility, requires that human capital is continuously adjusted to labour market needs through improved education and training as well as lifelong learning. In 2005, the US annual expenditure on higher education institutions per student was 22,234 USD, while in the euro area the equivalent of only about 9,200 USD was spent. Furthermore, we need more high quality scientists and researchers.
At that point, their balance sheet was almost 11 times GDP, with the foreign currency part constituting ⅔, or almost 7½ times GDP. And as is always the case in banking, there was a significant maturity mismatch between the asset and liability sides. Compare these numbers to the reserves of the Central Bank of Iceland, which were 21% of GDP at the time; a swap agreement with the Nordic countries amounting to € bn, or around 12% of GDP; and committed credit lines of around 2% of GDP, or a total of around 35%. This is dwarfed by the foreign currency liabilities of the banks, even if some of them were, of course, longer-term. These defences could only buy limited breathing space in the face of a full-scale run on cross-border operations of banks this size. Further research is needed before we can assess to what degree such breathing space would have facilitated a more orderly and less costly episode than the complete collapse that took place. At any rate, it is clear that this limited ability was one of the factors behind the decision not to grant Glitnir a loan of last resort amounting to € m, which it requested on 25 September in order to cover a loan repayment in mid-October.

We only need to think of robotics, artificial intelligence, blockchains, and smart phones with 5G Wi-Fi to realize the extent of the changes that lie ahead for financial services. New technologies also bring opportunities. The Austrian economist, Finance Minister, and banker Joseph Schumpeter demonstrated in the 1920s that successive waves of technological change raise productivity, income, and living standards. However, we know from long experience that technological change often results in costs involving new risks that must be addressed in order to optimise the net benefit. So while FinTech  will broaden consumers’ range of choices in financial intermediation, it also brings new risks, both to the security of transactions and to privacy. To maintain financial stability and real economic activity, we need payment and settlement systems that are secure. As a result, cybersecurity has moved from being a technical issue to a central bank issue. That is why the Nordic central banks have set up this forum for discussion and cooperation so as to foster closer cooperation on cyber resilience and cybersecurity. Today the focus is on financial market infrastructure. One of the questions being asked in this section of the conference is, “What challenges are likely to emerge with new operating models and new actors in the financial sector?” As I said before, the FinTech snowstorm is already here. The newest challenge with respect to cybersecurity is the emergence of new players offering financial services, some of whom have not provided financial services before. The question therefore becomes: What technology are they using?
Were that to happen, the breakdown in cooperation between sovereign states could all too easily give encouragement to those around the world who would like to use protectionist measures to shield their countries from the winds of global trade. If the international monetary and financial system relies, as it has since at least the collapse of Bretton Woods forty odd years ago, on the private banking system to supply the cross-border liquidity needed to underpin expansion of world trade, then we must ensure that the international banking system is safe and sound. That cannot rest solely on prophylactic prudential supervision. It must include effective arrangements for cross-border resolution. That has been an architectural faultline in the IMFS for decades.3 Third, across the world the operational independence of prudential supervisors4 from shortterm politics depends on credible and effective resolution regimes. Unless we can handle the failure of banks and other financial firms in an orderly way, it is hard for governments to tie themselves to the mast of eschewing the temptations of ‘bailout’ using taxpayer’s money. That would give them an interest in the day-to-day operation of prudential supervision which, as experience in some countries shows, all too easily morphs into attempts to promote and protect ‘national’ champions; and to operate supervisory policy for short-term gain rather than in the interests of medium-term stability. In any countries where that persists, we should expect higher government bond yields than otherwise, reflecting the state’s contingent liability for the banking sector.

Before 1960, the Beatles was still a struggling high school band. However, through some strange connections, Beatles got invited to play at some night clubs in Hamburg in 1960–1962. Within a year and a half’s time, the Beatles played in these Hamburg clubs for 270 nights. These Hamburg clubs were not the kind of music halls in which proper concerts are conducted. They were more like drinking clubs where lots of people came in and went out constantly as live entertainment on stage was performed. The Beatles had to perform 4, 6 or even 8 hours each night. Because of so many live performances of very long hours, the Beatles had greatly improved their stamina and team work. Moreover, they had to try out different varieties of music and songs in order to satisfy the customers. So, by the time the Beatles made their celebrated US tour in February 1964, they had already done an amazing 1,200 live performances. This is an astonishing and unusual number. In those days and even now, very few rock and roll bands are able to do that many live performances in their entire careers. Again the question that I have is: Would the Beatles be just as good and as talented without Hamburg? There was an enlightening study conducted by Ericsson in the 1990s.
36 Chart 12 plots dividend payout behaviour among US firms during this period. Dividend reductions occurred just less than 50% of the time, as might be expected. Similar behaviour has been found among UK quoted firms during the 19th century. 37 Now fast forward a century. As Chart 13 illustrates, dividend behaviour has altered dramatically. Between 1980 and 2010, the world’s largest 200 companies reduced dividends only 8% of the time. This was despite dividends being greater than earnings in over 10% of cases – and, indeed, dividends being positive despite negative earnings in 5% of cases. Chart 14 plots the standard deviation of earnings and dividends across a panel of international firms. Over recent years, earnings have been more than six times more volatile than dividends. Berkshire Hathaway has again bucked the trend. Since 1967, it has paid dividends only once. And that may have been once too often for Buffett: “I must have been in the bathroom when the dividend was declared”. Patience and discounting A more direct test of short-termism would involve estimating directly the discount rate people assign to future outcomes. Conducting your own test is fairly simple. Ask your friends how they would feel if the price of their favourite luxury good were to rise by 10%. Then ask them how they would feel if the price of their house were to rise by 10%. The first is likely to meet with a frown, the second a smile. In general, people dislike goods price inflation, but like asset price inflation.

This feels rational right? Wrong. These perceptions suggest a sub-conscious myopia. Higher goods prices cut today’s disposable income. Higher asset prices cut tomorrow’s disposable income. So disliking goods price inflation and liking asset price inflation suggests a potential time-inconsistency in preferences. It is leaving as a bequest for your children the mortgage but not the house. 33  Several alternative explanations have been proposed including the signalling benefits of maintaining dividend ratios (Mann (1989)). 34  Stiglitz (1974). 35  For example, Skinner (2008). 36  Goetzmann, Ibbotson and Peng (2001). 37  Braggion and Moore (2008). BIS Review 114/2010  11  It is possible to test more formally the evolution of discount rates by extracting them from the prices of financial assets, such as equity prices, using asset pricing theory. 38 This suggests that discount rates in asset prices are higher, often much higher, than implied by rational expectations theory, consistent with short-termism. For example, in studies of UK companies it has been found that actual annual discount rates can be materially, perhaps as much as 300%, higher than their rational value. Or, put differently, cash flows four years ahead are discounted at rates more appropriate for cash flows 6 to 10 years ahead. Equivalently, studies have found that future cash flows are undervalued by investors. These effects compound over time. So if cash flows 5 months ahead are undervalued by 5% today, those occurring 5 years ahead are undervalued by 40% today. This finding is common, although not uniform, across countries.
2/4  BIS central bankers' speeches  In addition to clearing, the extended use of electronic platforms also contributes to the resilience of the European repo market. As mentioned in the last ICMA survey, the segment of the electronic repo trading (via bilateral trading) in particular has benefited from the turmoil observed during H1 2020 because of the dash for cash situation. Nonetheless, support that voice-brokers can punctually bring to clients has been also an important factor during these difficult times. 2. Some points of attention going forward The resilience of the sovereign debt markets during the crisis and their contribution to the absorption of the economic and financial shocks we had to face, should not hide however a few attention point that their development has contributed to intensify or bring back to the forefront, from a financial stability perspective. I would like to highlight two of them, margin calls and the sovereign-bank-corporate nexus. a) European sovereign debt is of course used as collateral to obtain liquidity on the repo market. Episodes of volatility in times of crisis, like during the March 2020 market turmoil, or idiosyncratic events, such as the Gamestop or Archegos ones, can result in significantly increased cash needs, in particular stemming from margin calls across centrally cleared and non-centrally cleared markets. The resilience of the repo market, meaning its liquidity and depth, is thus critical in responding to those margin calls, including for the non-bank financial sector.

BIS Review 49/2009  3  as well as to the commercial and residential property sectors. Moreover, financial markets – despite recent positive developments in equity markets worldwide – remain vulnerable to swings in investor confidence and risk aversion, which could adversely affect liquidity and asset prices in some markets. Against the background of these very difficult conditions, significant policy measures have been taken by central banks and governments in Europe to improve market liquidity and replenish capital buffers. Governments created schemes for guaranteeing new bank debt, injected capital and, more recently, provided asset relief. These measures were successful in preventing a meltdown of financial systems and they helped to bolster confidence. The Eurosystem provided important input into the design of these measures, in the form of recommendations aimed at ensuring that such measures would help to safeguard financial stability and restore the provision of credit to the private sector, while at the same time maintaining a level playing-field within the Single Market to the maximum extent possible, and also containing their impact on public finances. It is still early to accurately assess the impact of these government measures on the longerterm funding and the recapitalisation of banks as well as their effectiveness in fostering bank lending to the private sector. This is because the evidence is relatively limited, as the implementation of the measures has been gradual over the past few months.