samchain/econo-pairs-v1 huggingface dataset:
The last two months have brought important changes to the world economy. Growth perspectives in advanced economies have significantly worsened, markets are increasingly volatile, and confidence indices have fallen. The continued downward revision of US growth performance has certainly played a role. But, most significantly, two almost simultaneous shocks have occurred: in the US, reaching an agreement to raise the debt ceiling has met with considerable difficulties; and, in Europe, it has been recognized that Greece, a euro and OECD country, would not be able to fully honor its signature, unless there is voluntary private sector involvement in its refinancing. In the eyes of the market, this has had significant implications for other peripheral European sovereigns. Overall, doubts have been cast on the ability of major advanced countries to pay back their sovereign debt. In different ways, to differing degrees and with opposite consequences, the same question is now being asked on both sides of the Atlantic: what kind of risk is attached to sovereign debt? We used to think of public debt in major countries as a riskless asset. Not anymore, not to the same extent. In that sense, a true regime change has occurred, with deep and long-lasting consequences, upon which I will try and reflect today. Much what I will say, of course, relates to Europe. But I will also adopt a more global perspective. Over the last 70 years, financial markets have developed on a strong, albeit implicit, assumption. Public debt in advanced economies was considered risk free.

In these turbulent times, Europe has a special role and a special responsibility. We are at the epicenter of the crisis and very much aware of the necessity to take and implement the appropriate decisions. Like in 2009, however, the crisis itself is more global in nature. A new uncertainty has been created and the interaction between markets and governments has become more complex and more dangerous. We live in democracies and have to accept that political decisions follow their own process and obey their own constraints. In all our countries, rising public debt and the unstable state of public finances is creating enormous anxiety, which, in turn, makes it more difficult to reach the necessary decisions. There are, however, good reasons for optimism. On the supply side, our economies are robust and dynamic. Corporate balance sheets are very strong. Emerging economies are well placed to enjoy strong and sustainable growth in the years to come. Above all, the community of nations seems ready to face the extraordinary challenges we are confronted with. Coming back from the IMF-World Bank Annual Meetings, I am struck by the spirit of cohesion and the willingness to cooperate that has been displayed by all participants. As you well know, central banks themselves are constantly cooperating in monitoring the situation and acting when necessary, as they have done recently to provide dollar funding to international banks. This spirit of cohesion is our best asset in the current environment.
Figure 6 Job creation by category  Wages (*)  (annual change, percent)  (annual change, percent)  15 8  8  Self-employment 7 10 6  Nominal 7  5  5  4  4  9 6  Wage  3  5  0  0  -3  -5  6  3  3  Real  2  2  1  1  -10 0  -6 11  12  13  14  15  16  17  0 11  12  13  14  15  16  17  (*) Both the nominal and the real correspond to the average of the annual variation of IREM and CMO. Source: National Statistics Institute (INE). 11. Domestic financial conditions remain favorable, particularly in terms of interest rates. Notwithstanding, credit volumes have decelerated with respect to previous years, as a result of overall subdued demand. Despite some increase in recent data, NPL ratios remain low, a clear sign that slower growth has not affected the financial health of companies and households. 12. The evolution of the local stock market has caught some attention lately, since the IPSA has increased about 17% this year and more than 30% since December 2015. Although these numbers might ring some bells, the performance of the Chilean index does not differ significantly from other regional stock markets and its recent behavior might just be a catch up from very low levels.

Figure 3 CPI Inflation (*)  Core inflation (*)  (annual change, percent)  (annual change, percent)  6  6  6  6  5  5  5  5  4  4  4  4  3  3  3  3  2  2  2  2  1  1  1  1  0  0  0 11 12 13 14 15 16 17 18 19  0 11 12 13 14 15 16 17 18 19 Dec. 2016 Report  Mar. 2017 Report  (*) The grey area, starting from the first quarter of 2017, corresponds to the forecast. Sources: Central Bank of Chile and National Statistics Institute. 6. Activity has been somewhat weaker than expected. According to recent data the output gap is currently larger than we anticipated in December. GDP grew by 1.6% in 2016, in line with what was anticipated. However, revised national account data suggests the economy was somewhat stronger towards the beginning of 2016 and weaker towards the end of the year, leaving a low starting point for 2017 and a higher base of comparison for the beginning of the year. The new data also point to weakness in investment-related areas and in sectors that tend to be more persistent, such as business services (Figure 4).
Some advocate that the Riksbank should be clearer than it is now with regard to what is considered a desirable path for the real economy over the coming years. I wish to point out here that the discussion on real economy considerations taken in monetary policy does not mean that we should supplement our price stability target with a growth target. This may be a semantic issue for some people; what is the difference between consideration and a target. To speak in general terms of a target for the real economy would send the wrong signals. The Riksbank has a statutory objective for monetary policy and that is to maintain price stability. In addition, we attempt to set the interest rate in such a way that monetary policy – given the price stability target – contributes to subduing short-term fluctuations in the real economy. There is no reason to change this. It is a precarious task to try to quantify what level can be considered normal for capacity utilisation. Estimates of the output gap - that is, the difference between actual output and equilibrium output – can vary considerably depending on what method is used. This means, for instance, that attempts to estimate the amount of spare resources on the basis of an analysis of the labour market can provide an entirely different picture than when only GDP data are used to calculate the output gap.

I have no doubt that the quality of the discussions we have today will allow us to deepen our understanding of these challenges and, hopefully, allow us to draw some useful conclusion in terms of economic policy. I leave the floor now to Mr. Isidro González, Deputy Secretary General of the Union for the Mediterranean, thanking him as well as you all for your presence here today, and thanking Mr. Senén Florensa, President of the Executive Committee of IEMed, for the cooperation in the organisation of this event. Now, Isidro, the floor is yours. 3/3
Second principle: The criteria governing the management of foreign exchange reserves are primarily the security of investments and their liquidity. Return is also a factor. Secure and liquid assets are key, because the SNB must always be able to implement its monetary policy, and hence must have rapid access to its foreign exchange reserves, should the need arise. The need for secure assets means that a large proportion of our investments are in government bonds; the need for liquidity means that we invest in the world’s most liquid assets and currencies. Finally, the third principle is this: The SNB takes care to ensure that its investments do not disrupt the markets. We are aware that the huge amounts we have under management could impact significantly on market prices. To prevent this kind of problem, we control the volumes we place on the markets, so as to avoid having any perceptible market impact. Thus, with such a large volume to invest, there is a fairly long period of transition before the desired allocation is achieved. We are sometimes obliged to hold liquidity on our accounts at other central banks for a while, until it can be invested in line with our investment strategy. A number of players are involved in implementing the investment strategy. I am not planning to go into too much detail about the investment process today. Briefly, the Governing Board decides on the main investment principles, as well as the strategy.

As I am sure you are all aware, these provisions will allow banking groups to make one application for approval in relation to the group as a whole, and will require the relevant supervisors to co-operate in trying to reach a common agreement on the application. Should it prove not possible to reach agreement within six months, the consolidated supervisor will have the power and responsibility to take the decision. This is a significant development in the regulatory framework, giving the consolidated supervisor the possibility to take decisions with an impact that reaches outside the national jurisdiction. I am aware that the European Banking Federation believes that full consolidated supervision should be determined now as the ultimate objective for the EU regulatory and supervisory framework, but I believe that we have to approach this carefully, and see how the new provisions work in practice in this more restricted area. I also think that it is important to recognise and respect the legitimate concerns of host supervisors. As I have already mentioned, the banking systems of some of the new EU member states are predominantly made up of incoming institutions. We should ensure that host supervisors are able to access sufficient information on the institutions operating locally and, where necessary, in relation to  BIS Review 84/2005  3  the wider group. The capital requirements directive also includes provisions in this respect and notes the need to take account of the significance of the institution in local markets.
But the balance of evidence so far seems to me to suggest that MPC’s May forecast of the growth path remains broadly intact. And, crucially, that the domestic economy is likely to generate the relatively gentle inflation pressure necessary to meet the target over the next two years, as the current external inflationary pressures from sterling’s depreciation wane. The May forecast was of course conditioned on a market yield curve that implied a limited and gradual tightening of 75 basis points over the forecast period. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  So has the need for a stodgier approach now gone? It seems to me that while diminished, there remains considerable uncertainty about the supply side. Domestic inflation pressures, while strengthening a little are not yet established at levels consistent with inflation at target (Chart 8). Pay growth has established itself in the 2.5-3% range. But the latest readings do not signal strongly that pay growth will make the next step to establish itself firmly in 3% territory in line with the May forecast. 12  We may still be underestimating supply in the labour market. 13  In short we are still learning about the relationships between key economic variables in the post crisis economy and are still a long way off the old rules of thumb. This for me still implies an approach with a little more resistance in our reaction to developments. Such an approach is not, however, a stopped approach.

It has also generated export growth that has help support the economy. More recently, there are signs that Brexit uncertainty is holding back investment. These impacts are incorporated into the MPC’s assessment of policy and forecast of the economy. But it is much harder, and in my view it would be mistaken, to set policy in anticipation of any particular Brexit outcome. There is a very wide range of possible outcomes and paths to those outcomes. And it is not at all clear how the evolution of demand, supply and the exchange rate would respond in different circumstances – which could mean very different implications for monetary policy. Over time, Brexit is likely to affect the supply side of the economy which has evolved and specialised over the last 45 years in the context of our EU membership. If the Brexit outcome generates the types of uncertainty about the economic model that I have been discussing, that will need to be factored into the policy approach. But for the present, my view is that the best course for the MPC on Brexit is to react to the economy as we 18  now see it conditioning our forecasts on neutral assumptions about Brexit outcomes. At the same time, we  should stand ready to respond, quickly and vigorously to any sharp impacts on supply, demand and the exchange rate that might emerge – as the Committee did immediately following the referendum.
Risk management in banking beyond the credit crisis. Mackay C (1841), Extraordinary Popular Delusions & the Madness of Crowds, Wordsworth editions. 10  BIS Review 18/2009  Morris, S, and Shin, H.S (2008), “Financial Regulation in a System Context”, Brookings Papers on Economic Activity, mimeo. NYU Stern School of Business (2008), Repairing the US Financial Architecture: An Independent View.

Annex:  Chart 1: Probability density estimates  Chart 2: Probability density estimates  for UK GDP Growth  for UK RPI Whole sample (1857-2007) Golden Decade' (1998-2007)  Density 0.60  Whole sample (1857-2007) Golden Decade' (1998-2007)  Density 0.60  0.50  0.50  0.40  0.40  0.30  0.30  0.20  0.20  0.10  0.10  0.00 -15  -10  -5  0 5 10 Annual GDP Growth (%)  15  0.00 -40  -20  0 20 Annual RPI (%)  40  Chart 3: Probability density estimates  Chart 4: Probability density estimates  for UK Unemployment  for Annual Earnings Growth  Whole sample (1857-2007) Golden Decade' (1998-2007)  Whole sample (1857-2007) Golden Decade' (1998-2007)  Density 0.80  Density 0.80  0.70  0.70  0.60  0.60  0.50  0.50  0.40  0.40  0.30  0.30  0.20  0.20  0.10  0.10 0.00  0.00 -5  0  BIS Review 18/2009  5 10 15 Unemployment (%)  20  -40  -20  0  20  40  -0.10  Annual Earnings Growth (%)  11  Chart 5: Probability density estimates  Chart 6: Probability density estimates  for UK Base rate  for UK House Price Inflation  Whole sample (1857-2007) Golden Decade' (1998-2007)  Whole sample (1954-1997) Golden Decade' (1998-2007)  Density 0.40  Density 0.08  0.35  0.07  0.30  0.06  0.25  0.05  0.20  0.04  0.15  0.03  0.10  0.02  0.05  0.01  0.00 -5  0  5 10 Base rate (%)  15  20  0.00 -20  0 20 40 House Price Inflation (%)  60  -0.01  Chart 7: Probability density estimate for  Chart 8: Probability density estimate for  FTSE All-Share Index  UK 2.5% coupon consol yield Density  Whole sample (Jul 1700 - Nov 2008)  Whole sample (Jan 1693 - Nov 2008)  'Golden Decade' (Jun 97 - Jun 07)  0.24  'Golden Decade' (Jun 97 - Jun 07)  Density 0.10 0.09 0.08  0.20  0.07 0.16  0.06 0.05  0.12  (a) (b) (c) (d)  (c)(d) 0.08 (a)  (b)  0.04 0.03  (e)  0.02  0.04  0.01 0.00 -80  -60  -40  -20 0 20 40 Price return (%)  60  80  Sources: Global Financial Data and Bank calculations.
The current system has worked reasonably well so far for these banks, and is expected to do so in the future. At least as long as their cross-border activities are relatively limited in relation to their overall size. However, on top of this, there is also a category of banking group in Europe with significant crossborder activities for which the current system may not be so well adapted. Some banking groups, for example, have extensive activities in several countries. The Italian Unicredit Group will, following the merger with the German HypoVereinsbank (HVB), be a significant banking group – not least – here in Poland, but also in, for example, Austria, the Czech Republic, Germany, Hungary, and Italy. Moreover, the British group Barclays has extensive operations in Spain, while the Spanish Grupo Santander has substantial activities in the United Kingdom. Fortis and Dexia are similarly important in the Benelux region. And then there are banking groups that have a systemic significance in their host countries. For example in countries such as the Czech Republic, Finland, Hungary, Lithuania, Poland and Slovakia foreign banking groups have a dominant position in the domestic bank markets. Generally speaking, foreign penetration of the banking market is substantial in the New Member States (NMS). According to an ECB report, about 70% of the NMS banking sector is foreign-controlled, mostly by other EEAcountries. Speaking from a Nordic-Baltic perspective, more than 90 percent of lending in Estonia is granted by Swedish and Finnish banking groups.

Some MoUs focus primarily on supervision, whereas others involve crisis management as well. Notably, they are not legally binding and give the national authorities considerable scope for discretion. Although the emergence of these MoUs is very positive, they are no guarantee for efficient crisis management. Probably, these MoUs will work well under normal conditions. And they will also be most helpful in facilitating coordination in some financial crises. However, in a more wide-spread crisis involving a large cross-border bank, MoUs alone will probably be insufficient. Take, for example, the issue of assessments. We have in Europe in principle agreed to share each other’s views and assessments in the event of a distress scenario. However, to be able to act decisively in a crisis situation involving a large cross-border bank, you would preferably need a joint assessment between the countries involved. I don’t think it would be too speculative to think that each country in an acute situation would be prone to present an assessment that supports its national interests as part of a negotiation strategy. Arriving at a joint assessment may therefore prove difficult, and above all take valuable time away from crisis management. To be able to act efficiently in a crisis situation, it is instrumental that conflicts of interests, as far as possible, are taken care of in advance. For that you need something more than the MoUs we have seen so far.
The International Centre for Leadership in Finance is now in its 3 rd year of operations and more recently the International Centre for Education in Islamic Finance was established to meet the increased demands of Islamic finance professionals, both in the domestic and international markets. The programmes carried out by the Institut Bank-bank Malaysia and Malaysian Insurance Institute has also been reviewed to meet the demands of the financial sector. Ladies and Gentlemen, While Malaysia has approached liberalisation in a gradual manner, our track record has shown that the process is accelerated when it brings benefits to the country. Financial liberalisation has on several occasions been brought forward. In particular, liberalisation has been focused on the new areas of growth that is, in the insurance sector, in Islamic finance and in investment banking. New licences in Islamic banking to foreign financial institutions and larger foreign equity participation in both Islamic banking subsidiaries and takaful operators, and in investment banking of up to 49% is aimed at achieving a more internationally integrated financial system. While liberalisation in the traditional sector will continue, its already highly liberalised status and its higher level of capacity relative to the economy does not introduce urgency to the liberalisation compared to the new growth areas. These traditional sectors may lead to overcrowding. The focus of a more rapid liberalisation is where significant market development are likely to take place. Emphasis would be towards attracting foreign players who are recognised as specialist in a specific segment.

But do not expect a zero risk environment - and do not demand it. Fear of failure is the antidote for instability. It will go a long way to underpin the long term health of the financial system. 5  Governor Lars Heikensten “The Riksbank’s Work on Financial Stability”: Speech at Göteborgs University, 25 November 2003. BIS Review 5/2004  9
To date, under their strategic frameworks, most central banks have followed variants of what is known as inflation targeting, which entails targeting an inflation rate that is close to a specific number (for example, 2%) over a medium-term horizon. 15  Yet alternative monetary policy strategies exist under which central banks attempt to make up for past deviations of inflation from its target. These are the so-called make-up strategies,12 one of which is known as price-level targeting. In this case, the central bank announces a target growth rate for the price level (for example 2%). Unlike under inflation targeting, should inflation temporarily fall below 2% for any reason, the central bank will have to ensure that it rises above 2% in the future so that the price level returns to its target path. This strategy requires the central bank to correct in the future any past inflation deviation from the value consistent with its price-level target. A strategy that is less radical, albeit similar in spirit, is known as average inflation targeting. In this case, the central bank attempts to keep average inflation at its target level over a given period. Unlike traditional inflation targeting, it includes a component to make up for past deviations from the target set, but only over a specific period of time. This contrasts with price-level targeting, where all past deviations must be made up for, regardless of how long ago they occurred.

However, in the face of deflationary shocks driving inflation below its target and leading the central bank to cut its interest rates, these may ultimately “collide” with their lower bound. This asymmetry makes monetary policy potentially more effective in combating inflation than in combating deflation or, even, persistently low inflation. A dangerous vicious circle may be created as a result. In a setting in which central banks’ hands are expected to be frequently tied by the lower bound on interest rates, economic agents will with good reason expect any inflation overshooting to be corrected swiftly, but no so for undershootings. Therefore, average expected inflation over a long period will tend to run below target. Given that in the long run the nominal interest rate is the real equilibrium interest rate plus expected inflation, a fall in the latter implies lower average nominal rates, causing these to collide with their lower bound more often. This entails less headroom to provide stimulus in recessions with low inflation, further lowering inflation expectations, and so it continues. In this setting of historically low natural rates, a loss of interest rate policy scope and risk of a deanchoring of inflation expectations, the major central banks have deemed it necessary to rethink their monetary policy strategy, i.e. how they express their monetary policy targets and how they pursue them with the tools available.