samchain/econo-pairs-v1 huggingface dataset:
There is however more to the story than that. In the period between the early 1990s and the onset of the crisis, there was a remarkable and unprecedented evolution of the financial system which involved a major expansion of activity. Banks moved from a traditional model of taking deposits and lending them out, to a model that involved far more the origination and distribution of loans – often known often as securitisation, in which these loans were substantially distributed to shadow banks. These shadow banks thereby took on more of the traditional core bank functions of credit assessment and maturity transformation (the practice  1  The Financial Stability Board has defined ‘shadow banking’, as credit creation occurring partly or wholly outside the banking system. In this lecture, I use the term ‘shadow banks’ in the looser sense of those entities in the non-bank financial system that might pose systemic risks in any form, collectively or individually. BIS central bankers’ speeches  1  of borrowing at shorter maturities than the maturities of the assets they held). And, they did so, like the banks, with weak levels of capital. But, it would be a mistake to portray shadow banks as bad. There is good evidence that in the twenty years before the crisis they emerged as a stabilising force (most notably in the US) because they were able to expand their provision of credit at times when traditional bank lending underwent cyclical contractions (Meeks et al 2014).

This conclusion has been reinforced in the recent publication of the Senior Supervisors Group (SSG) in which the PRA participates (Senior Supervisors Group (2015)). The SSG has concluded that “key supervisory concerns centre on whether the risks associated with algorithmic trading have outpaced control improvements. The extent to which algorithmic trading activity, including HFT, is adequately captured in banks’ risk management frameworks, and whether standard risk management tools are effective for monitoring the risks associated with this activity, are areas of inquiry that all supervisors need to explore”. As supervisors of almost all of the world’s major trading banks – through their operations in London – we can provide some helpful assessment of these events. We have observed that the balance between aggregate buy and sell orders submitted to banks’ electronic trading systems can shift instantaneously, and sometimes violently, upon this type of occurrence. 4  BIS central bankers’ speeches  The impact is often exacerbated by the simultaneous reduction in order book depth on organised multilateral electronic trading venues. The electronic trading contribution was more evident on 15 January, as a foreign currency market event than the 15 October (a bond market event), reflecting the different patterns of trading in these markets. On the 15 January, the ability of banks’ e-trading systems to hedge positions consistently through automatic risk management broke down as the necessary reference prices became discontinuous and unreliable.
I would like to stress just two ideas which may help us understand the exceptional situation we face and justify the urgency of the measures Spain needs. The first is that there is a feedback loop between the vicious circles in which the economy is caught and the contractionary forces at play. And if prompt action is not taken, these may inhibit the operation of the factors that should underpin a turnaround towards recovery. The second is that, once the worst of the crisis is behind us, i.e. when international financial markets regain stability and the world economy begins to pick up, the Spanish economy will not be able to resume growth at rates similar to those in the recent past if substantial structural changes are not addressed. This is because we will no longer be able, as previously, to resort to growing debt to stimulate domestic demand. The fiscal drive to date had been notable. This is evident in the rapid deterioration in public finances in recent months. Accordingly, in order to infuse economic agents with confidence, a strategy should be designed immediately to allow a return to budgetary stability, which was of such benefit to Spain. The current priority, therefore, is to focus on applying forthwith structural measures to promote a growth pattern with a greater emphasis on productivity, in contrast to that followed in the past 15 years. Specifically, among the aspects requiring the adoption of immediate measures are those relating to the workings of the labour market.

The high debt incurred by Spanish households and firms, encouraged by overly accommodative financial conditions but also by optimistic expectations about future income, is now acting as a drag on their consumption and investment decisions. And further exacerbating this is the dizzying deterioration in confidence which, fuelled by the global climate of uncertainty, is pushing households and firms to postpone their spending plans and to strengthen their saving. Pinpointing which specific mechanisms lie behind a certain type of behaviour of economic agents' confidence is always a complex task. But in the current circumstances, and especially in Spain, it would not be hazardous to link much of the behaviour of confidence to that of employment. The intensity with which employment is shrinking is the most distinctive feature of the recession in Spain. In this respect, it repeats traditional patterns of behaviour and shows the persistent weaknesses in the institutional structure of our labour markets that must be corrected. The best way to restore confidence in these circumstances involves a calm and realistic analysis of the problems, reasoned discussion of potential solutions and the rapid implementation of measures deemed appropriate. When faced with a severe recession, neither an alarmist overstatement of the difficulties nor well-meaning calls for confidence in a prompt recovery that will come about spontaneously, with no need for relevant measures, are of any use.
Conversely, the owner should require a higher return on investments with higher risk. The absence of this excess return will reflect social losses. It is important to bear in mind that the government can choose the composition, the required return and the risk profile with regard to its financial investments without taking into account the funding requirements of Norwegian companies. By the same token, Norwegian companies can choose their debt and equity structure independent of the government’s financial investments. The capital market serves as an intermediary between the government as investor and enterprises seeking capital. This market makes it possible to separate the government’s choices from companies’ choices. The distribution of the government’s financial investments and the choice of corporate funding structure should not be based on the notion that we are living in a barter economy. The Norwegian capital market is part of a Nordic market, which is being increasingly integrated into an international capital market. Capital markets are a very efficient tool for channelling funds from savers to investors. Direct strategic ownership could nevertheless be the best solution if it generates a high return and the government has a solid basis for exercising its role as owner. There is some room for doubt concerning both points. The government has often neglected its demanding role as owner. A number of shortcomings stand out with regard to the way government ownership is managed.

Offerings include round-the-clock real-time fund transfers with shorter settlement times and no intermediaries. Contour, a global trade finance network of banks, corporates and trade partners, has established its Future of Finance Lab in Singapore. It will conduct research to develop novel, digitally native trade finance solutions. Nansen is a Singapore-based company that analyses more than 100 million blockchain wallet addresses across the world. It provides insights on blockchain network activities and visibility on transacting parties, thereby helping to improve transparency in the digital asset ecosystem globally. Digital asset activities involving payment services must be licensed under the Payment Services Act. We recognise there is some frustration about MAS’ licensing process. Some industry players have described it as “a slow and tedious ordeal”; others as a “bugbear for the fast-moving space”. Given how new the digital asset industry is, it has not been easy for industry players or for MAS. On MAS’ side, we closely scrutinise licence applicants’ business models and technologies, so that we can better understand the risks. On the part of applicants, many are not familiar with managing the risks of facilitating illicit finance. MAS engages the applicants closely to assess their understanding of our rules and their ability to meet our standards. This takes a considerable amount of time – but it is necessary. MAS cannot compromise its due diligence process just to make it easy for digital asset players to get a licence.
This has influenced the integration pattern on the various segments of the financial market. European Union has modified the way in which financial institutions organise their daily business in the euro area: It is true that financial integration in Europe started before January 1999, as banks and non-financial companies included, in their strategies, the setting up of the Single European Market, which occurred ten years ago. The expansion of their operations abroad has been notably the driving force. To illustrate that point, we can look at the stock of foreign assets held by companies. In the case of France, this stock has more than tripled between 1992 and 2000, from EUR bios 131 to EUR bios 465. As a result, non-financial companies gradually introduced more competition into the banking system, as they funded their expansion through non-domestic bond or commercial paper issues, or by centralizing their financing. As an example 40% of the external financial resources borrowed by French medium and large companies are being redistributed to their own subsidiaries, and 10 to 15% 1 consists of commercial paper and bond issuance (figure as at end 2001) . 1  Source : Banque de France – Central balance sheet data -  BIS Review 71/2002  1  1.2  These changes, and on top of them the introduction of the euro, have influenced the integration pattern on the money market, on the bond markets, on the derivatives markets and on the equity markets. Integration is certainly –and naturally– most developed on the money market.

BIS Review 71/2002  7  Nevertheless, there is also general agreement on the fact that the gap, in terms of average GDP per capita, between the accession countries and the euro area, although diminishing, remains still quite significant. The size of the gap, combined recently with a rather limited growth differential between the two groups of countries, suggests that the process of real convergence will be very gradual and will have to continue much beyond the tentative dates for EU accession. Although differences in income levels are not incompatible with EU and even EMU membership, it is extremely important for accession countries to increase real convergence. Indeed, real convergence is essential to create economic cohesion within EMU and promote integration between Members States, thereby helping to minimize the risk and the effects of asymmetric shocks, in the best interest of accession countries themselves. Let me stress seven points of particular relevance for the Eurosystem, and for accession countries themselves on the road towards achieving catching-up and convergence with the EU. •  Firstly, we should never forget that nominal convergence must be sustainable and therefore not only constitutes an objective that must be met at a given point of time but rather a goal that must be achieved continuously. Strict compliance with the Maastricht criteria will be key for joining the euro area.
17 Inferring policy preferences from the MPC’s published forecasts in this way is not necessarily straightforward, however, because the MPC’s forecasts are conditioned on the market-implied path for interest rates. Implicitly, then, the assumption would be that the MPC’s forecasts and reaction function are, on average, well understood by the market. 18 This assumes a Phillips Curve slope, 𝜅, of ½. The lines of best fit in Charts 1 and 2 have slopes of around minus 0.3 for the period as a whole and minus 0.55 over the post-crisis period. With a value of 𝜅 = 0.5, this suggests 𝜆 of between 0.1 and 0.2 for the whole period and 𝜆 of around ¼ for the crisis period alone. 10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches  10  To put this into some context, consider the stated and revealed preferences of the FOMC. Chair Yellen has referred to a “balanced approach” to trade-off management, implying equal weights on inflation deviations and the unemployment gap. 19  Econometric studies for the US provide a range of estimates for lambda,  centred around ½ albeit with significant estimation uncertainty, with some studies finding evidence that the FOMC’s implied lambda has also varied over time. 20  4. Why there isn’t a simple rule to achieve society’s inflation objective? This exercise illustrates how the MPC has sought to do what society has asked.

In the simplest New Keynesian model, these are, first, the “IS” curve, which traces a negative relation between output and the (ex-ante) real interest rate (𝑖𝑡 − 𝐸𝑡 𝜋𝑡+1 ): 1 𝑦𝑡 = 𝐸𝑡 𝑦𝑡+1 − (𝑖𝑡 − 𝐸𝑡 𝜋𝑡+1 ) 𝜎 This equation comes from the optimisation problem of households who choose consumption to maximise their lifetime utility. 𝐸𝑡 denotes the mathematical expectations operator. The term in expected output, 𝐸𝑡 𝑦𝑡+1 , appears on account of households’ desire to smooth consumption. The real interest rate enters this condition because ultimately households care about their real consumption levels and it is the real interest rate that is relevant for transferring these consumption levels, via saving, across time. The parameter 𝜎, the intertemporal elasticity of substitution, controls the size of this effect. 31  In the simplest monetary models, the natural level of output (or “trend output”, if you like), is exogenous (e.g. is determined by TFP alone).
At its recent meeting, the FOMC decided to continue its accommodative policy stance. It reaffirmed its expectation that the current low range for the federal funds rate target will be appropriate at least as long as the unemployment rate remains above 6.5 percent, so long as inflation and inflation expectations remain well-behaved. It is important to remember that these conditions are thresholds, not triggers. The FOMC also maintained its purchases of $ billion per month in agency MBS and $ billion per month in Treasury securities, with a stated goal of promoting a substantial improvement in the labor market outlook in a context of price stability. BIS central bankers’ speeches  3  In its statement, the FOMC said that it may vary the pace of purchases as economic conditions evolve. As Chairman Bernanke stated in his press conference following the FOMC meeting, if the economic data over the next year turn out to be broadly consistent with the outlooks that the FOMC sees as most likely, which are roughly similar to the outlook I have already laid out, the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014.

From a medium-term perspective, and even when conditions are established that will free up the flow of credit from the banking sector to the  4  BIS Review 52/2009  real economy, it cannot be expected that rates of expansion will rise again to the heights of recent years. The de-leveraging process underway in the banking sector, and in the economy in general, is not a passing fad, but rather a means of achieving lower and more sustainable debt positions. One way of making up for the lower rates of credit expansion, and thus countering the foreseeable narrowing of net interest margins, would be to diversify banking activity into new business segments. In principle, diversification is a positive thing, but it must be undertaken with caution. Experience shows that both in Spain and internationally, only on limited occasions can an institution's sound knowledge of its core business be directly transferred to activities that lie further afield. Accordingly, those in charge of institutions should show prudence and avoid what can be termed contrived diversification processes and carefully assess their entry into unfamiliar market segments in which they lack experience. Second, in the short term bad debts will keep rising and so the pressure on loan loss provisions will continue to be high. It is true that the reduction in interest rates will bring relief for households and firms and help to limit the impact of the rise in bad debts, but the contractionary phase of the cycle will foreseeably last some quarters.
The activation of the macroprudential tools in order to create a buffer to be used in bad times incorporates a new dimension into the interactions with monetary policy. That is an issue which, in my view, should be analysed further. At a minimum, in these cases, monetary policy and macroprudential policy should take into account their respective decisions when calibrating the use of their instruments. As for fiscal policy, it is also important to emphasise that the creation of shockabsorption capacity through macroprudential decisions should not be used as an argument for relaxing fiscal policy. In other words, fiscal policy should also 7/11  create buffers in good times to be used in bad times, through automatic stabilisers or discretionary action, in particular in countries belonging to a monetary union. Another key issue related to this discussion is that the capital buffer built up in good times is expected to be released when the phase of the cycle changes. Significantly, this decision can be even more complex than those made in the activation phase. In this respect, and given the empirical evidence we have, there is a clear issue of timing. If it is released too early, it may even accentuate the expansion of the financial cycle. If it is released too late, it may entail a significant cost to the real economy. It is also necessary to assess whether the release has to be once-and-for-all or gradual. The release of the buffers may induce negative market reactions or generate conflicts with the microprudential supervisor.

At the same time, the scope for budget policy will be curtailed in a sense by the Stability and Growth Pact, though this need not be so much of a restriction in practice as long as the objective of medium-term balance or surplus is met. A stronger challenge is to be expected from the ongoing integration in the European Union, which BIS Review 50/1998  -5-  EMU may accentuate. This process can be rather rapid, not least in financial markets. In markets for goods, pricing in a single currency may accelerate the existing trend towards smaller differences in consumption taxes, for example. Structural and labour-market policy Finally some words about structural and labour-market policy. This policy field is much less clearly defined than the two I have already considered. It is affected by many different rule systems at both national and EU levels, besides belonging to the competence of many different ministers and commissioners. The common agricultural policy and tax harmonisation are two examples. The components of structural policy that concern the internal market - competition laws, the whole of the market for goods and services, the mobility of capital, and labour market mobility - are largely regulated at EU level. The competition laws are one example here. Another component of structural policy is the regulations and other matters that apply to the labour market. Many initiatives here have recently been taken at EU level in order to speed things up and comply with political requirements in the Union.
Uncertainty also characterises the subject I am going to focus on today – the effects of climate change on the Swedish and the global economy.2 We know that greenhouse gas emissions cause global warming, but we do not know how much and how rapidly the global temperature will increase. We know that climate change affects growth, inflation and productivity, but we don’t know how much and how quickly. We know that global warming can cause irreversible  1  Many members of staff at the Riksbank have contributed to this speech. I would especially like to thank Magnus Jonsson, Iida Häkkinen Skans, Conny Olovsson, Maria Ferlin, Marika Hegg, Anders Vredin, Jesper Hansson, Meredith Beechey, Marianne Nessén and Marianne Sterner. 2 The effects of climate change stretch well beyond effects on inflation, growth and financial stability. As the Riksbank’s task is to ensure price stability and a safe and efficient payment system, my speech will focus on this, but the intention is not in any way to detract from the human and ecological values that are affected. 1 [18]  threshold effects, but we don’t know how close we already are to such threshold effects. The Riksbank needs to respond to climate change. There are three reasons for this. First, because climate change affects the Swedish and the global economy – and may therefore threaten both price stability and financial stability.3 Second, because it is important to discuss what tools the Riksbank has to combat such threats.

Here, we need both more data and more analysis in the coming years to gain a better understanding of these mechanisms and of how monetary policy can and should react to this type of slow structural change in the economy.9 Central banks strive to stabilise resource utilisation around a long-term sustainable level. We know at the same time that climate risks and other environmental problems are mispriced, and I will come back to why this is so later in my speech. How we, as a central bank, should consider this and other market failures is far from obvious. Bearing in mind the potentially serious consequences of mispriced  7  See Cœuré (2019) for a discussion. See Brainard (2019). 9 See Debelle (2019). 8  6 [18]  climate risks, I would welcome a debate on the various benefits and drawbacks of taking this market failure into account.10  A severe economic crisis The final and third scenario is the most serious – a severe economic crisis. The transition to more sustainable development could trigger dramatic and rapid changes in financial markets, and in the worst case a financial crisis.11 What starts with financial instability tends to generate serious effects in the real economy with falling growth, rising unemployment and lower inflation. There is a certain unease in Sweden and in many other countries that central banks will have difficulty combatting a new economic crisis.