samchain/econo-pairs-v1 huggingface dataset:
The macroeconomic adjustment and rebalancing was unavoidable and was facilitated over time by the real depreciation of the currency. The shocks disproportionally affected overblown sectors (banking and construction), whereas most of the export base remained intact. Much of the impact of the banking collapse hit countries other than Iceland. Another important reason was the policy responses that mitigated the recession and promoted recovery. Let me now turn to those. The policy responses took two main forms: crisis management during the collapse of the banks and the economic programme developed by the Icelandic authorities in co-operation with the IMF. From at least early 2008, the Icelandic authorities were aware of potential foreign currency liquidity problems at the banks and took action by trying to negotiate swap lines and tap foreign capital markets – in both cases, with limited success. Given the lack of international cooperation, the Icelandic authorities were forced to consider radical solutions when the banks failed. Although they were not necessarily articulated in full at the time, these solutions entailed several goals: to preserve a functioning domestic payment system, ring-fence the state in the case of bank failures, limit the socialisation of private sector losses, and create the conditions for rebuilding a domestic banking system. The adopted solution was embedded in the so-called Emergency Act, which was passed by Parliament on 6 October 2008. The Emergency Act saved the domestic operations of the banking system by creating new banks, which involved carving domestic assets and liabilities out of the old, failing banks.

These currently total 14½% of GDP, after having been more than halved through auctions, bilateral deals and nominal GDP growth since capital controls were introduced. 4  BIS central bankers’ speeches  Therefore, potential capital outflows amounting to almost 40% of GDP might have sought a speedy exit if capital controls had been lifted overnight. This would have had serious consequences for economic and financial stability in Iceland. This was not going to be allowed to happen and, as a matter of fact, the population has been promised solutions entailing no negative effect on the exchange rate. A co-operative solution vis-à-vis the failed bank’s estates that allows them to go into composition and pay out to creditors by fulfilling so-called stability criteria has been decided and is being implemented. Had that not been forthcoming, we would have had to impose a one-off stability tax of around 31% to deal with the externality, as we could no longer hold the Icelandic nation hostage to the situation. The stability criteria are these: the estates pay stability contributions by transferring a significant part of their króna assets to the government, lengthen the maturity of current FX financing of domestic banks, repay government and central bank support and debt. Taken together, these measures fully mitigate the potential negative balance of payments effect from unwinding the estates.
Floating exchange rates allow a country to pursue its own, independent monetary policy; however, the disadvantage of such an approach is that it can result in major (nominal and  2  BIS central bankers’ speeches  real) exchange rate fluctuations. A country’s currency may thus be substantially under or overvalued – sometimes for considerable periods of time. The problems associated with both fixed and floating exchange rates mean that, time and again, central banks have been on the lookout for compromises. Since the end of the Bretton Woods system, the SNB has twice introduced a temporary exchange rate floor in order to cap Swiss franc appreciation: first in October 1978 against the German mark, and latterly in September 2011 as a minimum exchange rate against the euro. The minimum exchange rate as a monetary policy instrument When a central bank announces a minimum exchange rate, it commits to enforcing a floor, if necessary by means of foreign currency purchases. Such a policy is designed to cap a currency’s appreciation. The minimum exchange rate is not conceived as an instrument for fine-tuning the exchange rate. Rather, it is intended to give guidance to the markets in a period of extreme uncertainty and to reduce excessive appreciation. However, a minimum exchange rate is not a long-term instrument. This is especially true in a country like Switzerland which has lower long-term average inflation rates than most countries and a currency that has appreciated consistently over the decades – both in real and nominal terms.

The assessment of capital adequacy needs to look beyond the computed capital ratio. The new Basel Accord therefore comprises three pillars. The first pillar provides a minimum capital measurement framework for credit and operational risks. In essence, the regulatory capital requirement is aligned more closely with the actual degree of underlying risk that the banking institution faces. It provides the capital measurement that has three options with different levels of complexities for both credit and operational risks to better reflect actual risk. The second pillar focuses on strengthening the supervisory process, particularly in assessing the quality of risk management in the banking institutions. The supervisory process aims to provide the mechanism to ensure that other risks such as concentration risks and market risks in the banking books being managed. Under such an environment, prudent lending such as that characterized by a high degree of portfolio diversification, could justify lower capital requirements. The third pillar specifies minimum disclosure requirements on capital adequacy to enhance market discipline. Despite its relatively more complex architecture, the implementation of the new framework provides a number of options and flexibility to banking institutions. This is to ensure that the approach adopted reflects and is commensurate with the nature of risk-taking activities and the level of sophistication of individual institutions. In adopting the standardized approach for credit risks, the credit exposures are weighted based on recognized external credit ratings.
The B40 and vulnerable groups are the ones who will be the most affected if we let inflation get out of hand, and we will not be able to preserve sustainable growth over the longer term. Let us also not forget that keeping rates too low for too long can have damaging effects on the economy. The devastation of the Global Financial Crisis more than a decade ago, which was rooted in the US housing market and caused a synchronised global recession, should continue to serve as a sober reminder of this. Let me briefly now turn to the second thing on everyone's mind when they think about the economy - the ringgit. When it comes to the ringgit, BNM's role is to make sure that its value does not swing too fast or too much either way, and to allow an orderly price discovery. Under a flexible exchange rate, it is reasonable for the ringgit to fluctuate from time to time. These adjustments allow the domestic economy to adjust to global economic and financial shocks. We saw this during the Federal Reserve's rapid and large interest rate adjustments last year, which caused huge shocks to the global economy. At one point, the ringgit declined as much as 11.5% between end-March to early November, before appreciating by 7.8% towards the year end. Yet the real economy grew by 8.7% during the year, thanks in no small part to the ringgit's role as a shock absorber.

Timely implementation of consistent and coordinated policies in a coherent manner is also essential to ensure the realisation of the expected outcome of such policies. In this context, this Road Map intends to set the basis for strong policies and credible frameworks to achieve macroeconomic stability with the support of the government and private sector stakeholders. The outline of the Road Map 2019 is as follows: Section 2: The Central Bank’s monetary policy strategy and policies for 2019 and beyond Section 3: The Central Bank’s policies related to the financial sector performance and stability in 2019 and beyond Section 4: Policies Related to Ancillary and Agency Functions Now, let me elaborate further on these aspects. 11  2. Monetary Policy Strategy and Policies for 2019 and Beyond The Central Bank conducts monetary policy in an increasingly forward looking manner with the aim of maintaining inflation at low and stable levels in the medium term thereby supporting the economy to reach its potential. In 2018, the Central Bank conducted its monetary policy in a challenging environment with rapidly evolving adverse global conditions as well as several upside and downside risks on the domestic front. New developments in the global economy in the wake of rate hikes in the United States and the economic normalisation in most advanced economies have demanded monetary authorities around the world to adjust their monetary policies accordingly.
However, innovations constantly introduce additional layers of sophistication and complexity 13 . In this regard, the system of incentives by which professional asset managers operate should be closely and permanently aligned with the interests of investors. •  One specific type of financial innovation is the emergence of new unregulated players whose default might have implications for systemic risk. One such type of investor are hedge funds. Hedge funds’ activities could clearly be the source of systemic risk since they are now major – often dominant – actors in several market segments accounting for 40% of the turnover of major stock exchanges and 25% of the turnover of credit derivatives markets. They are also the main providers of liquidity in some markets that would dry up very quickly should they withdraw. They often leverage themselves with very high multiples either directly through borrowing or indirectly by intensive use of derivatives. •  The importance of hedge funds and more generally of the already mentioned OFIs illustrates that there may be circumstances in which injecting liquidity into the banking system – a traditional tool of crisis management used by central banks – may not be sufficient to prevent major instability. Three main avenues for mitigating the risks of contagion from hedge fund defaults either through potential losses to their bank creditors or through adverse market dynamics have been proposed 14 .

First, appropriate intervention by supervisors vis-à-vis prime brokers to make sure that they ask for and get broad information from hedge funds and that they put in  12  Angeloni, Kashyap and Mojon, 2003  13  Noyer, 2006a  14  Noyer, 2007  4  BIS Review 42/2007  place comprehensive risk management of all hedge funds-related exposures is essential. Second, there may be scope for policy-makers to encourage appropriate organisation of infrastructure in order to improve the information available on the markets in which hedge funds operate. Third, a specific information system to be triggered in the event of a crisis could be established ex ante in order to ensure that relevant information on exposures and positions could be quickly gathered if necessary. -  At the macroeconomic level •  Increased financial asset holding resulting from financial innovation is likely to result in higher sensitivity of households to asset price booms and busts 15 . On the liabilities side of non-financial agents’ balance sheets, by facilitating the management of risk and easing liquidity constraints, financial innovation stimulates both the supply of and demand for credit, which may lead to higher leveraging and financial fragility. Note that both effects run counter to the result I mentioned at the start, i.e. that financial innovation tends to reduce growth volatility. Although this result may still hold true in normal circumstances, it may thus be reversed in specific ones, especially in stress situations.
Do you have the impression that the Heads of Government have understood what is at stake? I believe they are conscious of their extraordinary responsibility. They all have to make decisions in the context of democracies which, in the advanced economies, are very inwardlooking, which is a real problem at the time of the worst global crisis for the last 66 years. What will happen if the European Heads of Government do not get the crisis under control? My working assumption is that the Heads of State and Government will overcome the crisis. Europe must realign its fiscal policy, as other large developed economies must also do. This year, at 10%, the deficits in the United States and Japan will be around twice as high as in the euro area on a consolidated basis. In spite of this, Europe is the epicentre of the government debt crisis. The reason for this is the mutual dependence of the 17 euro area countries. This is why it is so important that every euro area country plays by the rules. A few days ago in the European Parliament, I quoted what I told the Members of the Parliament in my first hearings, eight years ago, four years before the crisis, concerning the absolute necessity to stick to the Stability and Growth Pact. At your Governing Council meeting last week you reactivated all the crisis instruments. Is the euro in serious danger? The euro as a currency is evidently not in danger.

And we are totally devoted to our primary Treaty mandate of price stability. We have delivered price stability over 13 years with an annual inflation rate of 2.0% for the euro area as a whole and 1.55% for Germany. This is better than any time over the previous 50 years. For the last four years we have been experiencing the worst global crisis since World War II, and not surprisingly it is hampering our monetary policy transmission. That is why we have had to take some non-standard measures but with caution and prudence. With our decisions since the outbreak of the crisis, we have reacted appropriately to the market failures in the financial markets. We have lived up to our responsibilities. The two German members of the ECB’s Governing Council, Axel Weber and Jürgen Stark, both resigned because they could no longer support the buying up of government bonds. Jürgen is a very good European and a very close friend. Over the last 18 years he has been closely involved in the European construction and European unity. He has been an outstanding ECB Chief Economist. He is one of the greatest champions of the European Union that I know. When, after serving the euro for many years, such a person, who has been totally loyal to the institution, announces his resignation for personal reasons, one has to fully respect his decision. According to opinion polls, a majority of Germans now want the Deutsche Mark back.
For this reason, while we must continue to work on the principle that “no single model fits all”, there is much that we can learn from each other, and this process of fruitful exchange will, I am sure, continue long into the future. I congratulate all of you on the excellent discussions you have had, and the BIS for organising such a productive meeting. And I wish you all a very pleasant time in your well-earned relaxation this afternoon. 2  BIS Review 71/2004

Also, the lessons of Friedman and Schwartz (1963) on monetary policy and the role of central banks as lenders of last resort, of Keynes (1935) on the role of expansionary policies, and of Bernanke (1983) on the role of the financial channel for the transmission of policy actions, have been essential in policy decisions adopted since the onset of the current crisis. Many subsequent studies have shed additional light on the characteristics of good policies and have provided the base for the aggressive monetary and fiscal policies that have been applied around the world, and should also illustrate the way in which the stimulus must be withdrawn. Finally, the use of the gold standard accounted largely for the depth of the Great Depression (Bernanke and James, 1991; Eichengreen, 1992). Moreover, in the midst of the crisis in 1931, the U.S. raised the interest rate to defend the dollar parity, aggravating the crisis and causing deflationary pressures. In Latin America, thanks to lessons learned from mistakes of the past, it has been understood that macroeconomic stability, in both monetary and fiscal terms, foreign exchange flexibility, and a well regulated financial system are crucial to mitigate the effects of external scenarios as adverse as this one. This reflects major progress in economic policy, which has benefited from important practical lessons and advances in research following the debt crisis. Final remarks There will be plenty of time to continue analyzing where was the profession such that it did not warn of the magnitude of the crisis.
The above applies provided the increase in asset prices is maintained. Since share prices turned upwards in the autumn of 1992, the increase on the Stockholm Exchange has been one of the largest since the early 1920s, which is as far back as the statistics go. The overall valuation of corporate profits is also historically high. The present level of share prices calls for a further rapid increase in profits for several years to come. Minor changes in this picture of the future could affect current share prices. Another element of uncertainty concerns the economy’s supply side. We cannot be sure of just how much the economy can produce without an increase in inflation. Moreover, it is not only the total reserve of resources that may affect inflation. The rate at which resource utilisation rises may also be important. A rapid activation of the unutilised resources could generate stronger inflationary impulses even if surplus capacity still exists at total level. CPI inflation has moved up sharply during 1997. The 12-month change was down around 0 per cent for a couple of months last spring but after that it moved up fairly quickly to 1.9 per cent for September. In September alone the CPI rose 0.9 per cent, which was more than most observers had expected. The figure also aroused some uncertainty among savers and investors. The question is whether the increase in inflation represents a new and unforeseen tendency. The main features of this development are not unexpected.

These trends show that the propensity to save and retain the funds in the banking system remains high. Household savings are growing dynamically, within the historical trends. However, the unique character of the crisis has implications on its structure. Given the unpredictability, the propensity for long-term savings is decreasing, while the share of these deposits in the total household deposits from April last year until now reduced by five percentage points. On the other hand, in the corporate sector, the growth rates are significantly above the historical average, with restraint from investment activity and growth of assets. The past crisis episodes were characterized by a reduction in corporate deposits, which shows that the corona-crisis prompts different behavior. The pandemic increases the propensity to hold liquidity and save, in conditions of pronounced and prolonged unpredictability. Besides the growth of savings in banks, in conditions of a pandemic, there is an increasing propensity of households to invest in real estate. Actually, in conditions of low interest rates, relatively stable disposable income, reduced possibilities and needs for consumption, change in the models of work, globally there is an increase in the demand for real estate and in the real estate prices. Unlike most economic indicators, which collapsed during the pandemic, real estate prices are increasing. In the EU countries, in the first half of this year, real estate prices registered an average growth of nearly 7%, compared with the growth of around 4% in the past few years.
John C Williams: Preparing for the unknown Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 2021 US Treasury Market Conference, 17 November 2021. * * * As prepared for delivery  Introduction Good morning, and welcome to the seventh annual U.S. Treasury Market Conference. This is our second time gathering virtually. Although I miss seeing all of you in person here at the New York Fed, I am pleased that so many of you could join us today. This conference is a great opportunity for market participants, as well as members of five publicsector bodies—the Treasury, the Board of Governors, the SEC, the CFTC, and the New York Fed—to come together and take stock of the U.S. Treasury market. The events of the past 20 months have further underscored this market’s significance in the global economy—and the important role our five entities perform in ensuring that it functions as it should. In fact, the Inter-Agency Working Group for Treasury Market Surveillance (IAW G) came together to examine recent, notable disruptions to the Treasury market, and it issued a report ahead of this conference that identifies steps to strengthen its functioning and resilience.1 I won’t have time to go over the report in detail, but I strongly encourage everyone to read it. Severe disruptions to critical financial markets like we saw last spring should be rare.

First was the so-called flash rally of October 2014; then, the repo market distress in September 2019; and third, the extraordinary dislocations at the onset of the COVID-19 pandemic in March of 2020. General George Patton once said, “Prepare for the unknown by studying how others in the past have coped with the unforeseeable and unpredictable.” It’s a good piece of advice—and one that 1/4  BIS central bankers' speeches  should guide our work on Treasury market reform. The IAWG report I mentioned earlier reviews these events, so I won’t repeat them here. However, two lessons are clear. First, the unforeseeable and unpredictable will happen, and can result in significant stresses in the Treasury and related markets that may spread to broader financial conditions. Second, when disruptions have been sufficiently severe and persistent, the market has not been able to quickly self-correct without official-sector intervention. The severe disruptions to the Treasury and funding markets in March of last year illustrate these points. The incipient breakdown in market functioning quickly spread to other segments of the U.S. and global financial markets, risking a broad-based pullback in the availability of credit that is essential for our economy. The speed and extent of the market disruption necessitated immediate and dramatic action, the scale of which was truly unprecedented. At the New York Fed, we are used to talking in very large sums, but even for us, the figures were staggering.