samchain/econo-pairs-v1 huggingface dataset:
Otherwise monetary policy may bear too much of the burden during a future recession, which would be dangerous – monetary policy should not be the only game in town. In the euro area, we therefore need better economic policy coordination. Countries will continue to be responsible for their economic policies, but we can aim for a better collective economic strategy with more reforms in countries where they are needed and with more fiscal or wage support in countries with room for manoeuvre. This collective strategy could be supplemented by enhancing the European Stability Mechanism to transform it into a European Monetary Fund; this would require that the scope of its actions be expanded to include a genuine crisis prevention role and that its governance be amended. Otherwise, it would be a simple change of window dressing. ** To conclude, I would like to mention another reason why 2018 must be Europe’s year: our international environment, with the prospect of Brexit and the presidency of Mr. Trump in the United States. Confronted with the challenges of globalisation, Europe’s twofold message is essential. First, our common social model – die Soziale Marktwirtschaft – combines a high level of public service, relatively low levels of inequality and a strong intensity of social dialogue; it is the ideal response to the debate on inequality, which is returning to the forefront. Second, our commitment to multilateralism is vital to confronting the temptations of protectionism. We must resolutely defend, alongside Canada and certain Asian partners, the commonly respected rules and multilateral institutions.

I say this in my capacity as a totally independent central banker: the new government in France is taking reforms very seriously and is acting with impressive speed. France is now a reliable economic partner of Europe and Germany. Second, it would be ridiculous to reduce the debate to the old caricature that contrasts "German rules” with “French expenditure". To my mind, it is out of the question to implement a “transfer union”, which would only benefit certain countries, or to introduce Eurobonds, which would amount to collectivising debts. Need I remind that France too is a net contributor to the European budget, or to financing for Greece? But I am convinced that risk sharing between 1/3  BIS central bankers' speeches  countries can – and should – go hand-in-hand with risk reduction mechanisms. It is wrong to draw a distinction between solidarity and responsibility: in reality, they are complementary. For crisis prevention to be credible, it must also have the instruments needed to cushion the effects of substantial shocks that may arise regardless. As for the third cliché, let’s stop pitting the "French vision” against “German pragmatism". In order to reform the euro area, we must be practical and take real needs, and particularly those of businesses and entrepreneurs, as our starting point – as I aim to do in the second part of my speech.
These balance sheets are scaled relative to GDP at two dates, 1978 and 2011. The changes over time in the scale and pattern of intermediation are striking. In 1978, the UK banking system was dominated by foreign banks. Banks’ assets summed to a little over 100% of GDP. Non-bank intermediaries, meanwhile, accounted for little more than 50% of GDP and were dominated by traditional real-money investors, such as pension funds and insurance companies. The Bank of England’s balance sheet was a mere 6% of GDP. Fast forwarding to 2011, this flow of funds picture has been transformed. The balance sheets of ultimate asset-owners/liability-holders has risen from around 200% of GDP to around 600% of GDP – a threefold rise. The scale and pattern of intermediation between these sectors has also been transformed. The banking sector has also risen substantially over this period. UK universal banks now dominate the landscape, accounting for 80% of total banking assets. They are the new “super-spreaders” of the UK financial sector. Non-bank intermediation has also seen a dramatic scaling-up of its balance sheets, rising sixfold to 300% of GDP. Within this, growth has been particularly strong within the nontraditional sectors (such as hedge funds and unauthorised funds) and among new types of vehicle (such as ETFs and private equity funds). These are a new strain of potential “superspreader”. The Bank of England’s balance sheet has also grown rapidly, rising to over 25% of GDP, largely courtesy of QE.

For example, they suggest that viewing risk through the lens of a single layer is likely to provide a significantly distorted picture of the true risk distribution,  3  Which are based on one million replications of the data generating process. 4  Technically, this is done using the so-called Gaussian copula. 5  With zero correlation between the two distributions, Chart 1a would be a set of concentric circles. 6  The t-distribution has fatter tails than the normal. In the simulations, we assume 5 degrees of freedom. 4  BIS central bankers’ speeches  with the probability of tail events materially under-estimated. As an example of that, Chart 1f looks at the unconditional and conditional distributions of one of the sub-systems in Chart 1c. The conditional distribution is conditioned on outcomes in the second layer lying in the lower half of the distribution. A risk manager looking at the unconditional distribution (a single layer perspective) would significantly under-estimate the true tail risk they were facing. This has direct parallels with the pre-crisis situation, when the actions of individual risk managers at banks, and individual supervisors of those banks, ignored the role of systemic risk when gauging individual firm risk. This led to a material under-estimation of individual firm risk. The micro-prudential microscope was wrongly focussed. Ignoring a layer, or sub-system, is likely to be equally distorting. That can be seen by comparing the risk distributions in Chart 1d (two layers) and 1e (three layers).
Stable deposits are assumed to be a constant share of total deposits. 44  All speeches are available online at www.bankofengland.co.uk/speeches  44  Chart 9: CDS spreads for G-SIBs Basis points  250  200  150  100  50  0 2001  2003  2005  2007  2009  2011  2013  2015  Sources: Bloomberg; Bank calculations Notes: Weighted average of 22 banks designated as G-SIBs as of 2016  Chart 10: G-SIB and D-SIB price-to-book ratio 4 3.5 3 2.5 2 1.5 1 0.5 0 1994  1998  2002 All  2006 Average  2010 GSIB  2014 DSIB  Sources: Bloomberg; Bank calculations Notes: Sample of 103 G-SIBs and D-SIBs designated as G-SIBs/D-SIBs as of 2016  45  All speeches are available online at www.bankofengland.co.uk/speeches  45  Chart 11: Capital ratio using market value of equity Per cent  25 20 15 10 5 0  2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GSIBs  All  DSIBs  Sources: S&P Capital IQ, Bloomberg, and Bank calculations. Notes: Weighted average based on a sample of 189 banks which are systematically important as of 2016. Yearly is defined as the fiscal year of reporting of the individual banks.

Inside the nudge unit: How small changes can make a big difference. Random House. Hanson, S. G., Kashyap, A. K., & Stein, J. C. (2011). A macroprudential approach to financial regulation. The Journal of Economic Perspectives, 25(1), 3-28. Harris, Q., Mercieca, A., Soane, E. & Tanaka, M. (forthcoming). How do bonus cap and clawback affect risk and effort choice? Insight from a lab experiment. Bank of England Staff Working Paper. He, D. (2013). Hong Kong’s approach to financial stability. International Journal of Central Banking, 9(1), 299-313. Herring, R. (1998). Banking Disasters: Causes and Preventative Measures, Lessons Derived from the U.S. Experience. In Preventing Bank Crises – Lessons from Recent Global Bank Failures, edited by G. Jr. Caprio, W. C. Hunter, G. G. Kaufman, and D. M. Leipziger, Proceedings of a conference cosponsored by the Federal Reserve Bank of Chicago and the Economic Development Institute of the World Bank, The World Bank, Washington D.C., September, pp. 209-236. Heil, M. (2017). Finance and Productivity: A Literature Review. OECD Economics Department Working Paper No. 1374. Hoggarth, G., Reis, R., & Saporta, V. (2001). Costs of banking system instability: some empirical evidence. Bank of England working paper. Homar, T., & van Wijnbergen, S. J. (2016). Bank recapitalization and economic recovery after financial crises. Journal of Financial Intermediation. Huang, R. & Ratnovski, L. (2009). Why Are Canadian Banks More Resilient? IMF Working Paper No. 09/152 IMF (2014). Global Financial Stability Report. Risk Taking, Liquidity, and Shadow Banking: Curbing Excess While Promoting Growth. October 2014. Independent Commission on Banking (2011).
The Basel  BIS Review 3/2007  5  Committee has now decided to pay greater attention to give a standard definition for capital, hopefully before the implementation begins in 2008.  International Comparison Many countries have not tackled all these issues associated with Basel II, but there is notable progress; some slowly, some moderately and some at a faster phase. For example, the Development Bank of Singapore (DBS), the largest bank in Singapore and the 5th largest group in Hong Kong with universal banking, providing full range of products and services for consumer, small and medium enterprises, corporate banking, investment banking, fund management, trade finance, cash management, securities and treasuries has taken a keen interest over the last 2-3 years in meeting the Basel capital adequacy requirements and to implement the same in 2008. At present, it has a Tier I capital ratio of 10.1% and a total capital ratio of 14.1%. The main philosophy behind the DBS’s approach is a balanced and enlightened one based on the management of capital. The approach is led by the DBS’s board and senior management and it is embedded within business of a whole group. It is constantly reviewed by supervisors and communicated to the markets. The DBS group has implemented a large-scale Basel II governance structure at several levels which is a success factor.

Even though users do not cover costs directly, the costs involved in using these schemes are high, making these solutions an expensive alternative for banks. Eventually, banks’ customers foot the bill one way or another. Cheaper alternatives are on their way. The new solutions could also result in faster payments. National payment card schemes, such as BankAxept in Norway, might provide an alternative to the international card schemes, including access to the new services. New regulations have been introduced to lower the costs related to international cards. A new EU regulation also provides for direct bank-to-bank payments, bypassing the card schemes entirely. Technological innovation has given us not only new methods of payment, but also new forms of money – so-called e-money. E-money is electronic money issued by non-bank entities, but in existing currencies. Paypal customers can make payments through their Paypal account. Facebook has recently applied for a Europe-wide e-money licence. If large providers offer an attractive, user-friendly solution, this method of payment could become widespread. A key issue related to e-money is the question of consumer trust. E-money is a claim on the issuing company. E-money is not backed by a deposit insurance scheme or any authority. Other companies are offering new forms of money – often in the form of a new currency – on closed platforms such as social networks and online games. Examples of such platform currencies are Amazon Coins, the virtual currency used in the online game World of Warcraft and Chinese Q Coins.
My point is rather that it is not surprising that central bank asset purchases may break with some of the regularities we have become used to. The reason is that asset purchases are monetary policy actions that can be anticipated by market participants, just like changes in key policy rates. Unlike conventional monetary policy, however, they have direct implications for the expected supply of and demand for internationally traded bonds and, hence, for the level of the exchange rate that, all other things being equal, clears the resulting capital flows. This may, at times, break the link between future expected rates and the exchange rate. This is clearly visible when we look at slide 6. The chart is based on the same methodology as the spillover chart on slide 4, but it illustrates how much, on average, of the variance in long-term bond yields in one country can be explained by the other country’s term premium and expected short-term rates respectively. 7 / 11  BIS central bankers' speeches  You can see that the moment short-term yields hit the zero lower bound, spillovers in bond markets by and large reflected term premia movements – in both directions. These spillovers may pull the exchange rate away from the path implied by expectations about the future shortterm rate. The extent of the decoupling, in turn, will depend on the expected direction, persistence and degree of international spillovers – something that is inherently difficult to project and price.

Mugur Isărescu: Corporate liquidity and solvency in the Covid-19 pandemic - the role of policies Introductory remarks by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Virtual Conference of the National Bank of Romania and the International Monetary Fund, 12 February 2021. * * * As prepared for delivery Good morning Director Kammer and to everyone in Washington and good afternoon to our guests and speakers in Europe. Whether you are joining us from Bulgaria, Poland, Croatia or Romania, we are very happy to welcome you to this virtual discussion. The fact that you can be with us from different parts of the world is one of the very few benefits compensating the many challenges this pandemic has forced us to face. Throughout the years, back in the normal days, we had the honor to host, here, at the National Bank of Romania, various presentations of the IMF’s flagship reports that fostered lively discussions among participants. The IMF high-quality research has always provided a strong conceptual and empirical basis for policy-making in our region. This time, we will have the opportunity to discuss the role of policies in corporate liquidity and solvency during the Covid-19 pandemic – one of the most important topics of the Regional Economic Outlook (REO) for Europe published last autumn. The analysis in this edition is aimed at quantifying the potential impact of the COVID-19 crisis on corporate liquidity and solvency risks and assessing the extent to which policy support could help mitigate these risks.
Broken lines refer to the Riksbank’s forecasts. 10  07  08  09  10  11  12  Sources: Statistics Sweden and the Riksbank  BIS Review 111/2009  7.High unemployment throughout the forecast period Unemployment, per cent of labour force, seasonally-adjusted data 14  14  12  12  10  10  8  8  6  6 Unemployment 16-64 years Unemployment 15-74 years September July  4 2  4 2 0  0 80  85  90  95  00  Note. Broken lines represent the Riksbank’s forecast, 15-74 age group. 05  10  Sources: Statistics Sweden and the Riksbank  8. CPI and CPIF Annual percentage change 5  5 CPI  4  4  CPIF  3  3  2  2  1  1  0  0  -1  -1 -2  -2 00  01  02  03  04  05  06  Note. Broken lines represent the Riksbank’s forecast. BIS Review 111/2009  07  08  09  10  11  12  Sources: Statistics Sweden and the Riksbank  11

The pharmaceutical industry has gained in importance, whereas the share of exports of machinery has declined. In passing, let me just mention that the popular cliché which associates Switzerland with watches is actually true. Their share in total goods exports is sizeable (11%). Note, however, that this has nothing to do with cuckoo clocks, which were invented and are produced in Germany. A closer look at the development across industries reveals that this compositional shift is important in understanding Swiss performance during the crisis. In fact, individual export categories were affected very differently by the great international trade collapse in 2009. While shipments of machinery and metals suffered severely, dropping by roughly 30%, exports of chemicals and pharmaceuticals barely declined at all. As this sector accounted for more than one-third of total exports in 2008, it strongly dampened the negative impact of other sectors. Exports of watches also provided important support. The second structural change has occurred within industries. For instance, the machine industry today is not the machine industry of the 1990s. There has been a constant effort to innovate both products and production processes. Swiss businesses have specialised in high-value-added products. Switzerland has among the highest densities of high-tech industry in the world. The volume of research and development spending is driven by large multinational firms in globally integrated economic sectors, such as pharmaceuticals and chemicals. But small and medium-sized manufacturing firms in a broad range of market segments also play a key role in Swiss exports, and are typically also strong innovators.
With our decision to keep the three-month Libor rate on hold, we are adhering to our current monetary policy course: we are making use of our monetary policy leeway to support growth without jeopardising long-term price stability. Every forecast and every decision is fraught with uncertainty. Should unexpected events delay economic recovery or push up the Swiss franc sharply, we shall take appropriate action. For such cases, the Swiss National Bank keeps all its options open. 2/3  Observed inflation December 2004  Inflation forecast on September 2004 with Libor at 0.75% and of December 2004 with Libor at 0.75%  3/3

But the effect of monetary tightening on domestic demand is limited through the processes I have described, where long rates react weakly to the increase in the policy rate. In addition, firms and households increasingly borrow in foreign currency in order to avoid even those limited increases in domestic borrowing costs that take place. This foreign currency borrowing is intermediated by the domestic banking system, where the financing is more short-term than the lending. Thus the banking system has a growing balance sheet in FX, with a maturity mismatch but limited LOLR facilities to backstop it. In short, financial risks are accumulating, both in the financial sector and among firms and households. At the same time, the economy is increasingly in an unsustainable position, with an overvalued currency and big current account deficit. The  2  BIS central bankers’ speeches  whole thing then comes crashing down when foreign financing comes to a sudden stop, heralding a currency crisis and even a banking crisis as well. Before I go further, let me warn you, though, that this is only part of the explanation of the financial crisis in Iceland. The offshore activities of the banks and old-fashioned macroeconomic mismanagement were equally important, if not more so. On this topic, I refer you to other speeches and publications by myself and others. 2 What can and should be done about the problems I have laid out?
The Executive Board’s perceptions regarding the economy and thus monetary policy are then woven in with the other information in the Monetary Policy Reports, including alternative scenarios and updates that provide background material for the monetary policy meetings. The forecasts and the monetary policy decisions The Executive Board’s priorities and perceptions The members of the Executive Board may have different perceptions regarding many different factors, which affect the monetary policy they consider to be the most well-balanced. We can have different opinions regarding the economic situation, about the impact of our interest rate policy on the economy, and about how much importance should be attached to stabilising the real economy if this involves a greater deviation from the inflation target. We may also have differing opinions on how risks not directly captured in the forecasts should be included in our deliberations. However, there is no scope for presenting six different repo rate decisions and six different repo rate paths which exactly represent the six Executive Board members’ opinions. In this case the decision-making situation would be very difficult. It would probably also entail the chairman’s repo rate path most often being the one voted through. The chairman decides on how the different proposals should be set against one another in turn and thus has the opportunity to eliminate the alternatives in an order that increases the likelihood of his own repo rate path being in the final battle. Moreover, he has the casting vote.

Models and assessments complement one another Let me briefly describe the forecasting process at the Riksbank. 4 The Riksbank uses both models and expert assessments in its forecasting work. The picture of the forecasting process that I had before I came to the Riksbank was one where data are fed into complex models which then spit out forecasts. This is of course incorrect. The Riksbank works hard to spread the impressions we gain at the many international meetings we regularly attend. We also carry out our own company interviews to try to capture development tendencies before they become visible in the statistics. Models are necessary to put together the whole picture of the analysis and are often used to simulate what various risk scenarios might entail for inflation and monetary policy. But they do have their limitations and the analysis must also take into account information beyond what the models can handle. One model that is known outside of the Riksbank is Ramses, which is a variant of the dynamic stochastic general equilibrium models that have become popular in the central bank world. 5 Ramses is an internally consistent model of how the economy as a whole fits  3  By risk I mean here the weighing together of the probability that something will occur and the consequences of its occurrence. 4  For a more detailed description of the forecasting process, see the speech entitled “The monetary policy decision-making process” by Irma Rosenberg, June 2008.