samchain/econo-pairs-v1 huggingface dataset:
As regards the economic effects, the recent crisis concerning Ukraine and the consequent imposition of sanctions on and by Russia has so far had limited spillover effects on the euro area economy, either via trade or financial links. However, the Baltic states and Finland are more likely to feel any negative effects than other euro area economies owing to the strong trade ties they have with their eastern neighbours. But on the economic risks, I would like to add that the European “family” provides safety nets to partly offset the negative effects of geopolitical tensions related to Russia and Ukraine. For instance, the European Commission announced support measures to protect food producers affected by Russia’s food embargo. The euro area is a large market that can help Lithuanian producers to make up for losses from the Russian market. Finally, euro area countries can use the emergency liquidity lines provided in euro by their national central banks, which in turn would receive euro liquidity from the Eurosystem, in the event of significant turbulences in the financial sector. Why is lending to the real economy in the euro area sluggish? What else needs to be done in addition to the mix of different measures that the ECB is applying, such as low interest rates (or negative interest rates for bank deposits at the ECB) and the planned asset-backed securities programme? It is true that credit dynamics remain weak. At the same time, recent trends show some positive changes.

There are clear risks in sight: in particular, heightened geopolitical tensions could dampen business and consumer confidence. Furthermore, the risk of insufficient structural reforms could weigh on the business environment. How can this uncomfortable cocktail of high unemployment (11.5% this July) and ultra-low inflation in the euro area (0.3% in August, i.e. far below the ECB’s target of below, but close to, 2%) be overcome? How, if at all, can Europe avoid a stagnation scenario such as that faced by the Japanese economy for decades? We do not see Japanese-style deflation in the euro area, as a number of factors differ distinctly from Japan in the 1990s. Firstly, we, the ECB, took decisive action at a very early stage in the crisis, and have continued to do so. Most recently, against the backdrop of a persistently weak inflation outlook, slowing growth momentum and subdued monetary and credit dynamics, we decided in early September to adopt a number of additional monetary policy initiatives which will complete and complement the measures already announced in June. On the basis of our current information, we expect inflation to remain at low levels, before gradually increasing during 2015 and 2016. Furthermore, while inflation expectations have declined, particularly at shorter maturities, our measures will underpin the firm anchoring of inflation expectations in line with our aim of maintaining inflation rates below, but close to, 2%.
We must not forget, either, that financial crises of the magnitude of the one in Iceland cast long shadows, and many have faced hardship for a long time afterwards. This underscores the necessity of safeguarding financial stability. The Central Bank’s contribution to this successful outcome is threefold: formulation and implementation of monetary policy; participation in the resurrection of the financial system and the formulation and implementation of financial stability policy; and participation in the development of the capital account liberalisation strategy and the execution of the strategy. I will now turn to these three factors and, as I do so, move to the present day. Inflation subsided in 2009 and 2010 as the inflationary impact of the steep drop in the exchange rate in 2008 tapered off and the exchange rate stabilised in H2/2009 and then began to rise in 2010. Inflation declined steadily until it fell to target in late 2010. As inflation eased, Central Bank interest rates were cut, reaching a low of 3½% early in 2011. Inflation expectations remained above the target, however. In H2/2011 and 2012, inflation rose again following the depreciation of the króna and large contractual wage increases. We know now that monetary policy achieved good results in its response to this situation. The response consisted of interest rate hikes and signalling of further ones to come, but also of more active use of other policy instruments such as foreign exchange market intervention and, later, the special reserve requirement on capital inflows into the bond market and high-yielding deposits.

The second review of the economic programme with the IMF, and the disbursement of the second tranche of the loan facility, was delayed because of the Icesave dispute. The capital controls had sequestered an overhang of offshore krónur amounting to some 40% of GDP, and it was not yet known how big a balance of payments problem lurked in the failed banks’ estates, as the split between the new and old banks had not been completed. The new banks had not yet been capitalised sufficiently, and non-performing loans represented a major problem. As a result, it was highly uncertain how the new banks would fare. Would efforts to put public sector finances on a sustainable footing be successful? In short, all three of the key objectives of the IMF programme were still up in the air: exchange rate stability, fiscal sustainability, and financial system reconstruction. We know now that the turnaround was just around the corner. The economic contraction, of course, was a consequence of the financial crisis, but it also stemmed from the inevitable adjustment of unsustainable economic imbalances and from the contraction of bloated sectors such as construction and financial services. The adjustment showed most clearly in the current account balance, which flipped from a double-digit deficit before the crisis to a sizeable surplus as early as 2009. Such a swift and sizeable turnaround is a rarity in international context and has drawn considerable attention.
I should note that the Review uses data that was available up to 5 May 2006. In my presentation (some of the slides), I will refer to developments since this cut-off date. In presenting the main findings of the analysis, I will broadly follow the structure of the Review (as outlined on slide 2). 2. Overview of the main risks and vulnerabilities  I would like to begin with an overview of some pertinent developments in the euro area financial system and of the main sources of risk and vulnerabilities for euro area financial stability, in comparison to the assessment in the December 2005 Review. Overall, the developments since last December lend support to the view that the euro area financial system is robust and well-capable of withstanding shocks. First, the pace of global economic activity has strengthened and it has become more evenly distributed. Second, the balance sheets of euro area banks and insurance companies have continued to strengthen. At the same time, these positive developments are clouded by the fact that the risks and vulnerabilities we identified in the December 2005 Review remain and some of them have increased. Global imbalances have continued to grow. Moreover, it cannot be excluded that tightening liquidity conditions in the G3 economies could yet expose vulnerabilities in the pricing of assets following a protracted period of hunt for yield in a low interest rate environment. Particularly at risk are leveraged investors, especially hedge funds, and this could accentuate the risks of disorderly market corrections.

Such confidence is, in its turn, of fundamental importance in ensuring that the occupational pension system can perform its key economic role. This consists of giving people the certainty that the assets they have saved in their pension scheme during their working lives will actually be available to them in their old age. A good pension system makes it possible for people to reliably plan their future material needs, and fosters security for individuals and stability for society. It is therefore a key precondition for the prosperity and development of a modern economy. A healthy pension system is central to ensuring social cohesion and is one of the cornerstones of Switzerland’s success. With its three pillars – AHV, occupational pension schemes and private pension provision – Switzerland has for several decades operated a comprehensive and well-functioning pension system. Our pension arrangements have been envied abroad, which is also reflected in the relevant rankings. In recent years, however, our country has lost considerable ground in this discipline (cf. chart 1). Have we become worse, or have the others improved? Whatever one might think about such comparisons, it is in Switzerland’s own interest to do everything it can to ensure that the pension funds – as key players in the whole system of pension provision – are able to manage the numerous challenges facing them as effectively as possible. In what follows, therefore, I will look at two important and specific challenges: the ongoing low interest rate environment and the rise in life expectancy.
To the extent that they cannot meet target returns, it will be harder for them to accrete capital to build resilience. Although the NIM effect has been present for some years now, we have not yet seen a broadly based move by banks in advanced economies to push up returns by taking on greater risk. Post crisis regulation has almost certainly played a role in constraining aggressive search for yield behaviour, as perhaps have banks’ memories of the crisis. 8 For example, using the data for banks from 47 countries from 2005 to 2013, Claessens et al (2018) find that a 1 pp fall  in interest rates implies an 8 bps lower NIM – compared to 20bps at low rates. 9 In the euro area, NIMs are very low at around 130bps and retail-focused German savings banks in particular have seen their NIMs fall by 40bps since the ECB introduced negative rates in 2014. In the United Kingdom, NIMs are higher at around 230bps and have remained relatively stable over the past few years, supported by higher policy rates and the more international focus of major UK banks. 10 Low current and expected profitability appears to be the main driver of banks’ equity prices. There is little evidence that investors are concerned about asset quality: the proportion of banks’ loans that are non-performing and credit default swap premia remain low. 6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  But more recently we started seeing some evidence of search for yield behaviour.

31  16  All speeches are available online at www.bankofengland.co.uk/news/speeches  16  But real returns on the Navy Fives and similar fixed rate securities continued to be highly volatile reflecting the very large swings in inflation for much of period – a period that was punctuated by frequent financial crises. That perhaps illustrates that there is a great deal more to stability - both financial and monetary - than nominal interest rates. 17  All speeches are available online at www.bankofengland.co.uk/news/speeches  17  References Anadu, K., M. Kruttli, P. McCabe, E. Osambela and C.H. Shin (2018), The shift from active to passive investing: Potential risks to financial stability?, Working Paper PRA 18-04, Federal Reserve Bank of Boston. Andersen, A., C. Duus, and T. Jensen (2016), Household debt and spending during the financial crisis: Evidence from Danish micro data, European Economic Review, 89, pp. 96-115. Avery Jones, J. (2019), Jane Austen’s income: insights from the Bank of England archives, Bank Underground Blog, 2 August 2019 Bank of England (2019), Financial Stability Report, Issue No. 45, July 2019.Bank of England (2018), Inflation Report, August 2018. Bank of England (2017a), Stress testing the UK banking system: key elements of the 2017 stress test, March 2017. Bank of England (2017b), Financial Stability Report, Issue No 42, November 2017. Borio, C. (2017), Secular stagnation or financial cycle drag?, Keynote speech, National Association for Business Economics, 33rd Economic Policy Conference.
Even as regional economic integration increases in Asia and other parts of the world, these economies seem a long way from the point where economic, or political conditions, will make a compelling case for monetary integration. In Europe, of course, the political case for monetary integration to a large extent preceded the economic case. And the architects of the European Union integration worked consciously to induce a level of economic integration in Europe that would induce conditions that more closely met the economist's test for an optimal currency area. For most of the emerging markets today, in contrast, the challenge is to establish the conditions that will enable them to live more comfortably in a world where their exchange rates will adjust more freely in response to changing fundamentals. As these economies become more open to capital flows, they will necessarily find it more difficult to occupy the tenuous middle ground with an exchange rate regime that is neither fully fixed nor flexible, but managed in a way that closely tracks the value of the dollar or carefully constrains fluctuations against the dollar. This does not mean that these countries can be indifferent to exchange rate movements or that the exchange rate is irrelevant to the conduct of monetary policy. For many small open emerging economies, price stability and exchange rate stability are obviously intertwined, and a monetary rule that responds effectively to inflation pressure cannot afford to overlook the signals coming from the foreign exchange market.

David Carse: The way forward for banking sector reform Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the American Chamber of Commerce Financial Services Committee luncheon meeting, Hong Kong, 9 April 2001. *  *  *  Ladies and gentlemen, The Hong Kong banking system is going through a period of unprecedented change. This is being driven by shifts in the competitive environment and by changes in the regulatory structure. I would stress that Hong Kong is not alone in this – what we are witnessing here is similar to the trends in other major banking systems around the world. Perhaps the changes have hit Hong Kong rather later than elsewhere. But the changes are now here and they are here to stay. This poses new challenges for the banks and, I would add, for the regulators. The purpose of this speech is to outline the current trends and how the HKMA is reacting to these through the introduction of a number of reforms of the banking sector. The underlying aim of these reforms is two-fold. First, we want to try to promote efficiency and innovation in the banking sector through removing barriers to competition. Second, we want to ensure that the safety and soundness of the banking system is maintained in an environment of increased competition and that there is adequate protection for depositors. Current banking trends These are long-term strategic objectives.
Of course, a true Bayesian would assume that people would be able to construct subjective probabilities, and their behaviour would be governed by those beliefs. But Keynes (1936) made much of the pervasive nature of uncertainty in his explanation of business cycles because of the instability of those subjective probabilities. Occasional sharp changes in expectations could, and did, result. That is exactly what happened in the Autumn of 2008, with the sudden and synchronous collapse in business confidence around the world. So the behaviour of economies depends in part upon the beliefs about future events held by the various players: consumers, businesses and governments. Outcomes are endogenous to beliefs about the likelihoods of the outcomes. And in some contexts there may be selffulfilling equilibria. Sudden shifts in beliefs are particularly relevant when many decision-makers interact. The behaviour of a bank’s depositors has many equilibria, each of which depends upon beliefs about whether other depositors are likely to run on the bank. Changes in perceptions of uncertainty may be transmitted rapidly, and amplified, with the potential to affect behaviour in a coordinated way. 4 A restaurant may be much busier than an identical competitor if the first customers of the evening dine there and the next customers suspect the first may know something they don’t, and so follow, with others subsequently joining the herd. The reverse may occur on the following evening. Disentangling the incremental role of shifts in beliefs is often difficult.

François Villeroy de Galhau: Monetary policy in the face of the Covid crisis Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, to the Société d’économie politique, Paris, 25 May 2020. * * *  Ladies and gentlemen, I am very happy to join you today for this discussion, which although virtual, will be very real in terms of the strength of the ideas put forward. And I would like to extend my warm thanks to your Chairman Denis Ferrand for his kind invitation. The crisis we are living through is without precedent, in terms both of its brutality and its scale. In the face of this unparalleled storm and the uncertainty it is creating, central banks have responded and innovated, and they need to remain alert. These actions are sparking debate, and raising profound questions about monetary policy. In these troubled times, I think I should start with a reminder of the two anchors that moor our decision-making. I shall then turn to our current strategy, in order to clarify the order of priority for our objectives, and therefore for our tools. I. Two vital and permanent anchors: the mandate and independence In these turbulent times, the ECB is held fast by two crucial and permanent anchors: its price stability mandate and its independence.
35 See also the article “The coronavirus is highlighting the need for flexibility in the new Sveriges Riksbank Act” in Sveriges Riksbank (2020b). 16 [35]  With hindsight, we can say that the measures together contributed to being able to avoid a credit crunch and to maintaining the stability of the financial system. 36 Other contributing factors were measures taken by other central banks and other Swedish authorities. At the same time, we avoided a larger and more lasting downturn in the economy, which was positive for inflation prospects, for instance. In other words, there was no conflict of interests between on the one hand maintaining financial stability, and on the other hand supporting the real economy, as well as maintaining price stability. The pandemic showed, as I see it, that the Riksbank needs in certain situation to use a combination of several tools – not just the policy rate – to obtain the desired effect. The tools need to be fit-for-purpose under different conditions and in situations that can be difficult to specify in advance. It must also be possible to use them with a large degree of flexibility. This is particularly important when a combination of measures is needed. 37 The Government has in its proposal for a new Sveriges Riksbank Act proposed several restrictions to practical monetary policy. These include narrowing the definition of what is regarded as monetary policy, compared with the present one, and also restricting the Riksbank's power to use different monetary policy tools.

The longer inflation is deliberately allowed to deviate from 2 per cent, the greater the risk that one begins to question what target the bank really has. We have seen elements of this in the recent debate on monetary policy in Sweden. This could also have significance for how the central banks’ principals perceive the way monetary policy is conducted, which can ultimately affect the banks’ mandate and position. The Riksbank has a mandate to work independently to maintain price stability and, without prejudice to this, to support the goals of general economic policy. On the one hand, this means that it is up to the Riksbank to determine which risks are relevant for its decisions. But on the other hand, the Riksbank is accountable to the Riksdag, which determines the Riksbank’s mandate. The Riksbank therefore needs to be able to show in a convincing manner that the trade-offs it makes are anchored in its mandate. And given the current mandate, it may be a problem if one accepts deviations from the inflation target over a long period of time. If the trade-offs in monetary policy are not clear and concrete, it will be difficult to assess whether it has been conducted in a reasonable manner and within the mandate. The costs are clear, but what have we gained?
As was the case in the early 1990s, a crisis can arise mainly from an inappropriate domestic policy; it can also result from an external shock that hits Sweden more strongly than the average euro country; a third possibility is the failure of one or more Swedish companies of vital importance for our economy. There are other ways in which the conditions for economic policy can be affected. As a euro participant, a country has somewhat more room for manoeuvre in fiscal policy. This is really only the other side of the arguments behind the Stability and Growth Pact. Financial markets would have less reason to follow developments in Sweden, with the attendant risk that fiscal and budget policies become less sustainable. Another question concerns the effect on wage agreements. Views differ on this. Some count on a more disciplined approach if Sweden adopts the euro; otherwise a failure could then be very costly, with years of unduly weak competitiveness and growth. Others argue that as things are, the connection between wage outcomes and the interest rate in Sweden is more direct. They sometimes refer, for example, to the outcomes of the latest round of wage negotiations and the effect on them of interest rate policy in autumn 1997. This undoubtedly warrants a closer look at what the framework for stabilisation policy should consist of. A major problem in this context is clearly that, for a number of familiar reasons, it is more difficult to use fiscal than monetary policy for active economic stabilisation.

This also means that the equilibrium exchange rate of the króna has probably fallen in the recent past, which in turn may partially explain the recent depreciation of the króna. The deterioration in external conditions is not good news, of course, but we must place it in the context of the substantial improvement that has taken place in recent years. On the whole, however, this turning point is positive in a number of ways. The growth rate of the past few years was unsustainable, and it tested the capacity limits of the domestic economy. According to the Central Bank forecast published yesterday, the landing will be a soft one. GDP growth will measure 2.6% over the next three years, close to the average level that will allow the economy to grow without importing labour. The positive output gap will narrow gradually and close by the end of the forecast horizon, which is in 2021. There will be virtually full employment for the entire period, and purchasing power will continue to rise. Inflation will rise above the target in 2019 but then remain close to the target for the rest of the forecast horizon, partly because the forecast assumes that interest rates will rise when inflation does. Some observers might say that this is too good to be true. It could turn out that way, of course, but that would be because known or unknown risks not included in the forecast had materialised. There are so many things that could happen in this regard.