samchain/econo-pairs-v1 huggingface dataset:
We need to improve our ability to identify catalysts for potential crises, whether those catalysts manifest themselves in the form of asset price bubbles or reside elsewhere. Perhaps most critical among the challenges facing policymakers and lawmakers is how to ensure that we have a more effective regulatory structure going forward. This is a complex subject that I do not have time to do justice here tonight. However, I believe it is important to explain why the Federal Reserve’s monetary policy, lender of last resort and supervisory functions should remain in place. These functions are interrelated so that the execution of one of these responsibilities helps the Federal Reserve in its conduct of the others. For example, consider the Fed’s lender of last resort function. For the Fed to perform this role effectively, it is important that it have first-hand knowledge about banks, the capital markets, and payment and settlement systems. To perform this role safely, it must know its borrowers, which is why a supervisory role is essential. Put simply, if supervisory and other financial oversight responsibilities were taken from the Fed, it would make it more difficult for us to perform our lender of last resort function. To do that well and safely, it is important that we understand banks, the financial system and all its interconnections. One instructive example in this context is the Northern Rock experience in the United Kingdom, where banking supervision and the lender of last resort functions were separated.

So, for example, the holding companies of Goldman Sachs, Morgan Stanley and Merrill Lynch, which is now a subsidiary  2  See, for example, Senior Supervisors Group, “Risk Management Lessons from the Global Banking Crisis of 2008,” October 21, 2009, and “Observations on Risk Management Practices during the Recent Market Turbulence,” March 6, 2008. BIS Review 161/2009  3  of Bank of America, are now under our direct supervision. We are making sure that they have appropriate liquidity buffers and capital. Second, the Federal Reserve is working with a broad range of private sector participants, including dealers, clearing banks, and tri-party repo investors to dramatically reduce the structural instability of the financial system utilities, such as the tri party repo system. Third, the Basel Committee is working on establishing international standards for liquidity requirements. There are two parts to this. The first is a requirement for a short-term liquidity buffer of sufficient size so that an institution that was shut out of the market for several weeks would still have sufficient liquidity to continue its operations unimpaired. The second is a liquidity standard that limits the degree of permissible maturity transformation – that is, the amount of short-term borrowing allowed to be used in the funding of long-term illiquid assets. Under these standards, a firm’s holdings of illiquid long-term assets would need to be funded mainly by equity or long-term debt.
9  A recent paper, by Charlie Bean, Matthias Paustian, Adrian Penalver and Tim Taylor, “Monetary policy after the fall”, Federal Reserve Bank of Kansas City Annual Conference, August 2010, shows that the monetary policy instrument and macroprudential instrument (a lump-sum levy/subsidy on the banking sector) are not perfect substitutes in a sticky-price New Keynesian macroeconomic model with a banking sector. 10  Charlie Bean et al, ibid. BIS central bankers’ speeches  9  The overlap between macroprudential and monetary policy is one rationale for giving the central bank a prominent role in the setting of macroprudential policy. In addition, many central banks already have some of the analytical skills that will be needed for conducting the policy. However, greater analytical capacity will need to be built up. Analytical tools must be developed to guide policy While we know that there is an overlap between macroprudential policy and monetary policy, we lack models that describe the relationship in much detail. It is a difficult task for a number of reasons: (a) in the models currently used by central banks, financial sectors are poorly modelled, so it is difficult to introduce financial instabilities; (b) developments in financial markets are sometimes driven by psychology, which is difficult to replicate in models with rational agents; (c) the risk of a crisis cannot be modelled in the usual way, as it is more like an extra channel in the transmission mechanism; and (d) policymakers want models that can give them guidance on when to act, which is extremely challenging.

The objectives, transmission mechanisms and effects are still being established, and this is an area where the ESRB’s systemic macro-prudential oversight is playing an integral role. Conferences such as today’s can provide crucial input here. 4  BIS central bankers’ speeches  Overall, I am optimistic that macro-prudential policies, if properly coordinated at the European level, will strengthen our defences against future financial instability in the euro area, while also addressing some of the side effects that come from a single monetary policy. Conclusion Let me conclude. With the three challenges of: (i) ensuring price stability in the face of a prolonged period of low inflation, (ii) setting up the SSM and rebooting the banking system to support credit and growth, and (iii) establishing an effective macro-prudential policy framework to increase resilience in the face of future financial turbulence, the ECB will have its hands full in the coming year. We are committed to doing our job, but do not expect us to do the job of others. It is more important than ever that, in parallel, governments continue to pursue their structural reform agenda. The return of confidence in the euro area is evidence that the reform efforts will eventually pay off. This is visible from the return of market confidence. But, more importantly, it is visible from the return of political confidence – as expressed, for example, in Prime Minister Helle Thorning-Schmidt’s assessment that joining the euro would be in Denmark’s best interest.
If the dot chart creates confusion, one option would be to dispense with the exercise altogether. Having evoked Dr. Seuss earlier, I can imagine his bidding the dots farewell with some ditty like this:  2  “Standard Deviation of the Dots in the Dot Chart,” by Torsten Slok, Deutsche Bank Research, April 23, 2014. BIS central bankers’ speeches  7  Yet expressing the FOMC participants’ perceptions of, and possible reactions to, an assortment of future scenarios – however often the committee’s composition may change – does strike me as having some merit, if only to give markets insight into how the central bank might react under different circumstances. In the parlance of the trade, this is called “state-based” guidance. Yet here, too, we have struggled. For example, until two meetings ago, we used an unemployment figure of 6½ percent as a point sometime after which we would begin to consider pulling back on monetary accommodation, then decided this wasn’t quite the ticket. This may be a little more inside baseball than you expected to hear today, but here’s the point: Expect the Fed to continue refining its communications. We are getting better at it. But to invoke the immortal words from the chain gang captain portrayed by Strother Martin in the 1967 movie Cool Hand Luke: “What we’ve got here is failure to communicate.” We are working on it so that you and other bankers, market operators, businesses and consumers will develop the best possible insight into how your monetary authority will behave.

Some critics have maintained that, in the May 2008 issue of Financial Stability, the Central Bank contradicted its own knowledge of the state of the banks – or even that it did not know any better. This is untrue. The report examined in a transparent manner the financial system’s weaknesses, as well as its strengths. The developments in the global arena since the spring of 2008 rendered the risks mentioned in Financial Stability far more serious than was foreseen. In its monetary policy statement in July 2008, the Board of Governors said inter alia that “Iceland’s commercial banks play an important role in maintaining confidence in the financial system. Under the current global financial market conditions, they must protect their liquidity and capital position, seek all possible ways to reduce their need for foreign credit, and adapt the scope of their operations to dramatically changed circumstances.” Throughout 2008, the Central Bank of Iceland focused increasing attention on the developments and operational outlook at the nation’s financial institutions – particularly its large banks. Among other things, it monitored their liquidity much more closely and frequently than is stipulated in the Bank’s rules on liquidity requirements, and considerably more than had been customary. The Central Bank met with leaders from the large commercial banks and reviewed various aspects of their operations, requesting information on and explanations of the developments in certain areas, such as liquidity, funding, changes in lending and deposits, asset sales, etc.
Even the rescue operations undertaken in the US in order to protect systemic stability have been accompanied by some form of penalty for the managers as well as the shareholders who had not paid enough attention to their behaviour. It is also important to minimise regulatory changes that could induce investors to cover up their losses, especially during an adjustment of market prices, as this could weigh on transparency and market confidence. It is surely desirable to support long-term as opposed to speculative investment, and protect long-term investment from the perverse effects of market volatility, but this should be accompanied by supervisory measures that would certify that the investment in question is really a long-term one and is not subject to liquidity risks. 2  See, for example, D. Irwin (1998): “The Smoot-Hawley Tariff: A Quantitative Assessment”, Review of Economics and Statistics, 80, 2, pp. 326-334. 4  BIS Review 61/2008  Let me now turn to the things that should be done. Also in this case I would like to highlight four of them. Three of them involve actions at European level, as either the competence has been transferred to that level or the international partners are of such large size that it would be futile for individual European countries to address them separately. A first important step has already been taken: it is the euro.

The recent price increases of agricultural products should make it easier for the EU to make some concessions on the Common Agricultural Policy, in order to eliminate the subsidies which tend to distort international prices. This would be an advantage for European producers and consumers alike. Regarding currencies, it is important to continue talking with those countries which still peg their currencies to the US dollar, although their economies show a higher growth rate and a strongly positive balance of payments. Pegging to the US dollar slows down the adjustment of global imbalances. A speeding-up of the appreciation of the exchange rate of the yuan visà-vis the US dollar as well as the euro would be in the interest not only of the international community, but of China itself. In the past 12 months, the exchange rate of the Chinese  BIS Review 61/2008  5  currency has gained approximately 9% vis-à-vis the US dollar, while losing about 3% vis-àvis the euro. Only in the past months have markets experienced the inverse process, with the yuan gaining also against the euro. The appreciation of the yuan would allow China to effectively counteract internal inflationary pressures and to reduce the balance of payments surplus, which fuels the accumulation of global imbalances. The increase in food prices should ease fears that an appreciation of the yuan could penalise the income of rural areas, which are still quite sizeable.
We forecast also a return to productivity growth – a real casualty of the recession – that would drive higher pay and hence provide a more sustainable base for consumer spending. And, as a corollary of higher productivity we thought the growth in output would be accompanied by a slower fall in unemployment. So overall, our expectation at the time I joined was that the recovery would broaden out in 2014. But over the year the boost from pent up demand would fade and as a result growth would begin to fall back from very strong rates to a pace around its historic averages. Three other MPC judgments from my first meeting and Inflation Report are also worth recalling. BIS central bankers’ speeches  1  First, we did not think the UK economy would get much help from the rest of the world. A combination of relatively weak growth in the parts of the word that mattered most for UK exports, particularly the Euro area, and the disappointing performance of UK exports in recent years led us to believe that the UK’s net trade would not provide a material contribution to growth. Second, while we expected productivity growth to pick up in 2014 we did not forecast that the UK would recover any of the very substantial amount of productivity growth, 14% relative to the pre-crisis trend, that had been “lost” in the five years since the crisis.

Even adjusting for that effect though, unit labour costs look broadly flat – much below the 2% rate of increase we need to meet the inflation target in the medium term. The big surprise, therefore, for the MPC – and it is a positive, if puzzling, development – has been the extent to which employment has been able to grow without generating clear inflationary pressure. Understanding why that has happened and how long it will persist is, in my view, now key to deciding policy. One possible explanation is simply a longer-than-usual lag between falls in unemployment and pay pressure emerging. Once you take into account productivity, the unexplained weakness in wages only really materialised over the last three quarters, a period over which unemployment was falling very rapidly. Some survey measures suggest the pay of newly hired employees is growing at a much faster rate, of between 2% and 6%, rather than the 1% rate seen across employees as a whole in the official data. On this view, a rapid pick up in average pay levels is in prospect, once more and more workers start to shift jobs and as pay of existing employees is adjusted in annual pay rounds. The parable of the rock pulled by the elastic band is a very relevant one in economic policy making: the rock may not move for a long time, but eventually it will. And the longer it takes to move the faster the move is likely to be.
The impact of these investments are becoming increasingly visible – banking without branches, investing without brokers, paying without paper. Technological advancements are also redefining the landscape of finance in ways that we are only beginning to understand. Distributed ledger technology offers the potential to transform longstanding practices in areas such as correspondent banking, trade finance and remittances. Big data analytics continues to uncover new ways to understand and access untapped markets. Innovations in mobile technology are also challenging the status quo, particularly in the area of payments. Alipay and Tenpay quickly come to mind as examples of companies that took a single 1/5  BIS central bankers' speeches  mobile app and went on to build an international ecosystem from scratch. These trends are now increasingly commonplace across the globe, driven by a multitude of factors – from the drive to improve efficiencies, deliver a superior customer experience, break into new markets, or combat fraud. In the face of these tectonic shifts, most of us are finding ourselves in unchartered waters. Within the central bank, we are doing work across a range of issues that we believe will be important to inform our thinking on digital developments, both in the financial sector and the broader economy. Within your own institutions, I trust this is also the case. In that sense, we share a common interest – to keep our sights fixed on the future so that we can step forward confidently.

We may be aided by our understanding of the common factors shared by past financial crises, and how lessons from the past have helped to shape the current policy. But always, there will be other or new challenges that will be difficult for us to anticipate or be aware of. With these in mind, let me share with you my thoughts on some of these issues. First, on the causes of financial crisis. According to a well-known study by Reinhart and Rogoff in 2008, financial crises in the past, dated back to the 1800s, shared many common causes. Chief among these are macroeconomic imbalances and the roles played by large and persistent capital flows, asset price bubbles, and credit boom. Although, compared with the Asian financial crisis, the current crisis does differ in terms of the impact, the scale, and the role played by financial innovation, but the two crises, nonetheless, do share many of the common factors mentioned above. For example, in the case of asset price and credit boom, the real house price in the U.S. increased by more than 40 percent between 2002 and 2006, while U.S. loan growth, particularly mortgage loans, accelerated during the same period. These signs were also present in East Asia before the 1997 crisis.
To sum up the impact of the four key drivers of growth, deleveraging and demographics are quite unambiguously a dampener while energy appears a benign force. The long term trend for productivity is hard to predict. But even assuming a generally optimistic prognosis for productivity, it is quite likely that global growth in the next 20 years is likely to be lower than in the last 20. This means that returns from financial investments are also likely to be lower in the next 20 than in the last 20. Safeguarding long-term returns The modest outlook for long-term economic growth presents a major challenge for government funds to close the widening gap between their financing needs and investment returns. •  On the liabilities side, population ageing in the advanced economies will increase pension claims and place a heavier burden on social services such as healthcare. •  On the assets side, slowing global economic growth will constrain investment returns. There are three ways to narrow this mismatch between trends in assets and liabilities: •  The first is to reduce financing needs by lowering social expenditures or increasing fiscal revenues. Both are politically difficult to do. •  The second is to reach for yield by taking on various combinations of higher leverage, longer duration, and greater credit and liquidity risks. But the public perception and character of government funds limit their scope for aggressive risktaking.

Ravi Menon: Seeking decent returns in an era of sub-par growth Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Sovereign Investor Institute Government Funds Roundtable, Singapore, 6 November 2014. *  *  *  Mr Scott Kalb, Executive Director, Sovereign Investor Institute Distinguished guests, ladies and gentlemen, good morning. The global conjuncture The major economies of the world are at an inflection point. In the US, the era of quantitative easing has come to an end. Next year, for the first time in eight years, we are likely to see a hike in the Fed funds rate. •  The good news is that monetary policy normalisation will occur in the context of a strengthening US economy. •  The bad news is that for financial markets conditioned by persistently easy monetary conditions over the last six years, there is considerable uncertainty over the pace and extent of interest rate normalisation. •  The Federal Reserve has done as best as it can in communicating its approach through forward guidance. But there is many a slip between cup and lip that could to lead to disorderly market adjustments. In the Eurozone, there is tension between restoring public debt to a sustainable trajectory and supporting a faltering economy. •  The ECB has committed to expand the size of its balance sheet by increasing asset purchases, while an active debate rages in Brussels on the appropriate balance between reducing fiscal deficits and supporting growth.
Reforms in the conduct of the monetary policy have granted greater flexibility to banks to determine both the volume and terms of lending and deposits. The Bank of Albania has provided all necessary conditions to ensure sustainable economic growth and stable prices; however it alone can not guarantee that the objectives will be fulfilled. All these positive developments have taken place in the presence of a well contained fiscal expansion, as element of sound fiscal policy and bold structural reforms. Banking system has become an important provider of domestic financing for the government. Commercial banks have played a major role in it, while direct financing from the Bank of Albania was limited to address issues of independence and deficit monetization. Recently Government introduced to market papers of five years maturity. In addition, with the consent of the IMF, government will shortly issue euro denominated government securities. Bank of Albania welcomes such development as a certification of cautious and responsible fiscal policy. At the same time we call for more prudence and proper addressing additional risks. It is undeniable however, that these latest developments have been achieved under the watchful eye of International Monetary Fund. IMF has been an important element of the reforms in Albania. Its presence and the memorandum of understanding signed under the framework of ESAF and current blend of PRGF and EEF Programs, enhanced credibility of our economic reforms and served as external anchors.

Eddie Yue: Hong Kong as an international financial center – the China factor Introductory remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the “Hong Kong: China’s Global Financial Centre” conference, New York, 1 March 2011. *  *  *  Ladies and gentlemen, It’s my great pleasure to be here today. No doubt I fully agree with Ms Leung and Mr Wheatley as they have rightly set out the key strengths of Hong Kong in serving as a financial hub in Asia. But I would also like to go deeper into the matter and focus on one very important factor, which may explain why more and more asset managers have been looking to set up their regional operations in Hong Kong. And this is the China factor – a unique competitive advantage of Hong Kong that is difficult for other financial centers to replicate. The China factor is growing in prominence as China continues with its path of very impressive growth: over the past three decades, Mainland China’s GDP has registered an amazing 29-fold increase, from around $ billion to more than $ trillion in 2010, with an average annual growth rate of 10%. Today, Mainland China is already the second largest economy in the world and the single biggest contributor to the world’s economic expansion, creating nearly one-fifth of the world’s newly generated economic activities. As an international financial center of China, Hong Kong stands to benefit the most from the country’s phenomenal development.