samchain/econo-pairs-v1 huggingface dataset:
BIS Review 130/2007  1  While lending and deposit-taking remain the mainstay of commercial banking, the profile of credit markets has changed significantly. Today, conventional credit products are being offered alongside the growing significance of asset securitisation and credit derivative activities. This has had a profound impact on the nature of banking. The rapid development of these synthetic credit markets, coupled with an extended period of ample liquidity in the global financial system, has expanded the avenues for banks to engage in more aggressive lending practices that are funded by borrowing from the wholesale money markets, and by repackaging and selling loans to other investors in the form of asset-backed securities. This represents a significant shift from the more traditional banking models where loans are predominantly funded by deposits. The increasing complexity in the way that debt is created and distributed in the financial system raises important implications for financial stability. The “originate and distribute” strategy that has been adopted by some institutions warrants addressing more comprehensively the full range of risks to which the banks are exposed. This includes the liquidity, foreign exchange and moral hazard risks in banking institutions. Credit risk exposures have also taken on more complicated forms, including counterparty risks on derivatives and foreign exchange transactions. The valuation of such financial transactions and instruments are also often difficult to measure particularly under distressed market conditions. In addition, the correlations between credit and market risk, both within and across national borders, have become more complex.

As a consequence, the bank capital framework de facto becomes a partial substitute means of achieving more forwardlooking provisioning, through the internal models regime for credit risk which requires the deduction from capital of expected losses in excess of provisions. A forward-looking approach to provisioning based on expected losses would help move to a more appropriate position where the accounting standard requires a prudent valuation of banking book assets and the capital regime can focus on unexpected loss. I hope that implementation of the new accounting standard for provisioning, IFRS 9, is a step in this direction. I now want to turn to the issues around risk-weighted assets in the capital framework. Basel I was a simple framework, as I described earlier. In my view, that was its strength and weakness. The strength was that it was quite easy (certainly by today’s standards) to see the balance sheets even of the largest banks laid out and broken down by broad risk weights. The weaknesses were two-fold. First, it provided little insight into how firms measured and managed risk. As a supervisor in the late 1980s and early 1990s, I remember well meetings with firms which would start by the firm reminding that while they had filled in the risk weighted assets form faithfully, it bore no resemblance to how they assessed and managed risk in the business – what is often called “economic” as opposed to “regulatory” capital.
If the higher starting level of GDP were maintained, the cumulative loss of GDP would more than halve to around 8%.12 “The Third Quarter” Looking to the second half of the year, what might we expect? In the May MPR, the MPC’s scenario foresaw a sharp pick-up in activity, with quarterly growth rates of 12-13% in each of Q3 and Q4. These increases were driven, in large measure, by the assumption of a phased relaxation of lockdown measures, and accompanying policy support, between July and September. To my mind, two paths are possible in the second half of the year. One involves a negative feedback loop from higher unemployment to lower spending, the other a positive feedback loop from higher spending to lower unemployment. The first poses a downside risk to the outlook, the second an upside risk. As things stand, it is unclear which of these scenarios, or feedback loops, will prove the more potent. The negative loop has its roots in the labour market. So far, levels of employment appear to have fallen less rapidly than output. Against that, the number of furloughed workers has exceeded expectations, perhaps by in excess of a million people. This is good news for household incomes in the short run, as the income loss from furlough is far lower than from unemployment. Indeed, this might help explain some of the greater than expected strength in demand in Q2.

Data has been weighted to the known offline population proportions for age, gender, government office region, working status and social grade. Respondents were asked, “as a result of the coronavirus pandemic, would you say that your household savings have increased, decreased, or stayed the same?”  Chart 13: Sterling deposits held by households and PNFCs (monthly flows into M4ex) Households  £ billion  PNFCs  60 50 40 30 20 10 0 -10  Jan - 19  Apr - 19  Jul - 19  Oct - 19  Jan - 20  Apr - 20  Sources: Bank of England and Bank calculations. Note: Chart does not include flows into non-intermediate OFCs’ M4. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  Which of these two paths will play out in practice? Back in May, the MPC observed that the balance of risks to the outlook was skewed to the downside. Subsequent positive news on demand has, in my opinion, more than counterbalanced the rise in downside risks to employment. To my mind, this leaves risks to the outlook slightly more evenly balanced than in May, if still with a downside skew. “The Fourth Quarter”  Looking beyond 2020, there is plainly a high degree of uncertainty about the economy. That in part reflects uncertainty about the virus and the policy responses to it. But it also reflects uncertainties about the path of the economy itself.
Among the industrial countries, Japan made stronger efforts to bring its long recession to an end – through macro-economic stimulus and by strengthening its domestic banking system – and there are now signs that those efforts are beginning to be rewarded. Meanwhile the world economy has been effectively underpinned by continuing abnormally strong domestic demand growth in the United States. But despite these developments we still have a long way to go. If the immediate danger of global financial instability has receded, we are still stuck with slow growth in the world economy, currently at around 2½%, which is not much more than half the estimated trend growth rate. And we are stuck, too, with massive international imbalances, both between the emerging and industrial countries, on the one hand, and among the major industrial countries, on the other. Without a stronger resumption of capital inflows to the emerging markets, the industrial countries will need to accommodate an export-led recovery in those markets. That implies stronger domestic demand, and hence import, growth in the G7 countries, if the world economy as a whole is to get back on trend in the reasonably near term. And the immediate challenge in this situation is to try to ensure that, as domestic demand growth in the United States slows – as it probably must, by one means or another – demand picks up sufficiently elsewhere, especially in Europe and Japan, to take up the running.

During 2011, seminars and round-tables were organised, aiming at training and sharing scientific novelties among economists at local and international level, thus making the Bank of Albania a point of reference for researchers of economics and finance. The main focus of Bank of Albania’s research papers was on issues pertaining to: financial stability, monetary policy, fiscal policy, regional integration and trade relations, study of uncertainties arising from estimation of econometric models, etc. At the same time, with the assistance of foreign experts, we worked for constructing and improving macroeconomic and statistical models, on the basis of which the Bank of Albania builds its projections for macroeconomic and financial indicators.   Improving communication with the public  Establishment of transparent and productive relations with the public is an integral part of Bank of Albania’s development strategy. The conduct of activities for financial education of the public was a priority of the communication strategy in 2011. In order to achieve Bank of Albania’s objectives in this area, we carried out a number of educational activities in 2011. Among them, we would highlight the project for integrating the financial education into high-school curricula in Albania. A working group with Bank of Albania’s experts, assisted by experts of curricula from the Institute for Educational Development, worked for compiling the curricula and preparing the text in the form of a free-choice module, which was incorporated into the high-school curricula for the first time in the 2011/2012 academic year.
No wonder some central banks find it difficult to clearly express their approach regarding output stabilisation. A promising example in this respect is the Norgesbank, which is explicit about its flexible approach. Norwegians state openly that they “operate a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment” 11 . Also the monetary policy objectives of the Fed are formulated in this vein 12 . It is worth stressing however that the degree of appropriate flexibility in a particular country may depend on the duration of low inflation 13 . Thus the Norwegian case may not be applicable to countries during disinflation or shortly thereafter. Another important question regards the choice of the targeted price index. Should it be headline inflation which is more familiar to the public or core inflation which is less vulnerable to short-term deviations? And what about asset prices? Should they be included in the index? The question of including asset prices into the targeted price index is related to a wider policy debate, namely on the  5  “Although macroeconomic performance improved in most non-industrial countries over the past decade, countries adopting inflation targeting have, on average, outperformed countries with other monetary policy frameworks.” - IMF, “Inflation Targeting and the IMF”, March 2006. Empirical evidence show also that inflation targeters achieve better sustainability records in terms of disinflation, though the findings are statistically not robust – Hofstetter M. “Why have so many disinflations succeded?”, Documento Cede 2005-65, November 2005.

Krzysztof Rybiński: Inflation targeting and the challenges ahead Opening remarks by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the “Inflation Targeting - Third Joint NBP & SNB Seminar on Monetary Policy”, Warsaw, 18-20 May 2006. *  *  *  Ladies and Gentlemen, I am pleased to welcome you at the third seminar on monetary policy organized jointly by the Swiss National Bank and the National Bank of Poland. Let me start by thanking staff members from the host central banks, who have not spared their efforts on preparing this seminar. For the first time in our seminar, apart from economists from the host central banks we have invited representatives of other central banks to share with us their knowledge and experience with inflation targeting. Thus I would like to warmly welcome our guests from the Czech National Bank – the first inflation targeter in Central and Eastern Europe, and from the Central Bank of Turkey – a brand new inflation targeter, which has adopted the framework only this year. The topic of this year’s seminar is inflation targeting (henceforth called IT). As the distinguished former Fed chairman Paul Volcker recently remarked 1 , inflation targeting may sound like an oxymoron since usually central banks strive to fight inflation rather than to breed it. So should we gather here to discuss ways of breeding inflation?
The credit expansion coincided with a protracted boom and a significant proportion of the borrowed money was spent on speculation, both in real estate and in financial assets, such as equity. The real estate speculation in Sweden culminated in a bubble that burst in 1990-91. Shielded by the economic upswing, there had been many misdirected and overly optimistic investments in various industrial and other projects. BIS Review 65/1998  -2-  In these aspects I find similarities between Sweden in the late 1980s and the Asian countries during the 1990s. A feature common to Sweden and Korea was, moreover, that the domestic financial market was liberalised long before the external capital outflows. This meant that overheating of the domestic economy could not be adequately balanced by capital outflows for investment abroad. But there are also some differences. Other factors that contributed to Sweden’s acute crisis were a relatively deep international downturn and high interest rates in our part of the world in the wake of German reunion. On top of this, our fiscal position was more vulnerable, entering the 1990s with a public debt-to-GDP ratio of around 40 per cent. Sweden’s external borrowing ratio was also high - some 30 per cent of GDP. Besides reflecting the public budget deficit, this had to do with an extremely low private savings ratio. In some years this ratio was actually negative. These weaknesses made Sweden highly vulnerable to shifts in confidence in our economy. The financial sector There were also underlying weaknesses in financial systems.

Among other things, restoring confidence involves being transparent about the problems and about the measures for dealing with them. It also means that measures are implemented as stated by the responsible authorities, without any deviations in timing or application. Just the suspicion that specific industries or other interest groups may be receiving unjustifiably favourable treatment would quickly erode any confidence. 2. Transparency is important. A severe crisis wipes confidence out - rightly so. We realised that it was up to Sweden to regain it. To do so, all the cards had to be on the table. The extent of the losses and the magnitude of the bad loans had to be revealed in their entirety and valuation had to be prudent. If you hide losses initially or are overly optimistic in valuations, you risk having to apply again to the international investment community or to taxpayers for additional support. This, in my view, might jeopardise confidence and legitimacy. It is also necessary to have highly transparent and fair “rules of the game” for government support to the financial sector, not least to avoid political bickering. The responsibility for transparency falls primarily on two parties: the authorities and the banks. The authorities must be transparent about the broad framework for the solution of the crisis and the banks must be transparent about their losses and other deficiencies, financial position and need for external support. 3. Someone must take the losses.
It could also include eradication of poverty, reduction in crime and environmental sustainability. In the current environment of greater transparency and enhanced communication channels, there is now greater awareness of the prevailing circumstances. This has produced high expectations. It has also reduced tolerance for inefficiency, poor performance, irregular practices and nondelivery of the results. The expectations are for a public sector that best serves its nation and that delivers the expected results in the most effective and efficient manner. Similar to the private sector, the public sector is confronted with a dynamic environment of rapid change. Approaches that have produced previous successes may now have become no longer relevant. In these situations, previous skills and capabilities will no longer be adequate. In addition, it will be the cumulative efforts of all parts of the public sector that will  BIS central bankers’ speeches  1  produce the results. It will no longer depend on a specific part of the system but on several parts of the system. Previous arrangements will therefore become no longer effective. New challenges that have become more complex will require new tools and systems to solve them. The organisation will thus need to be transformed to meet the changing requirements of the new environment. To contribute to a nation’s progress and development, therefore, demands for the ability to manage these new challenges. The role of the leadership in the public sector has thus changed significantly.

Secondly, is having the ability to articulate this vision with others in the organisation and also with those that will be affected by the actions taken by the organisation. This is to ensure that the energies of the workforce will be channelled to achieving the strategic results required. Very often, the shared vision with those that are affected by the actions of the organisation also allows for the combined efforts to be mutually reinforcing. Thirdly, and importantly is knowing and understanding the business and the key elements that drive the organisation. Knowing how the system works and how the objectives might be realised. This involves having the knowledge, the skills, the information, the methodologies and the organisational structures needed to deliver the results. This is important so that the ideas can be translated into results. Fourth, given the nature of the business of the public sector and the diverse stakeholders involved, leadership in the sector requires coordination and integration skills that is able to pull together diverse thinking and diverse information and the ability to integrate the different perspectives into a solution that produces the desired outcomes. This will also involve coordination skills required to bring together not only the different parts of the organisation but also other organisations in the public sector that can contribute to achieving the desired results. Fifth, it involves managing trade-offs. Frequently, actions that need to be taken involve different implications on different target groups. This may involve interests that are conflicting.
It should also be emphasised that the Spanish economy is in the midst of a process of macroeconomic adjustment and, as noted above, its growth prospects depend on the external sector, which tends to yield only moderate increases in tax revenue in the short and medium term, particularly if this is accompanied, as in the Spanish case, by an adjustment in the real estate sector. On the expenditure side, the draft Budget proposes highly significant reductions concentrated in capital expenditure and also in current transfers and goods and services purchases. In the case of transfers to government-owned corporations, it is important for the planned reduction to be accompanied by adjustments of similar size in the effective expenditure of these entities, so as to achieve a lasting reduction of the imbalances. Here, too, the Budget projections are generally not free from risk. First, because it is often difficult to restrain the high inertia of certain items, frequently resulting in the past in overshooting with respect to the initially budgeted figure, particularly in the case of goods and services purchases. Nor can we rule out further unfavourable changes in those items, such as unemployment or pension benefits, whose size depends on external factors, such as the unemployment rate, population or inflation. This is related to the fact that the risk of deviating from the budget is higher in social contributions.

The external financing needs, within the current scenario, are expected to be covered by further inflows of foreign direct investments and by the public borrowing for infrastructure purposes. The current forecast points to a rather stable external debt to GDP ratio. No major pressures are foreseen in the following two years on foreign reserves, and they are to be maintained at the adequate level. Risks surrounding this baseline macroeconomic scenario should not be neglected. For us, as a small an open economy, they mostly come from the external environment and our main trading and financial partners. Although with the latest monetary easing of the ECB the downside risks to the euro zone growth are less pronounced, and in general the global growth risks are more balanced, they are still present and if being materialized, could impact the economy. Additional source of risks are the sharp and sudden swings in the primary commodities prices, which for country like ours, can change the envisaged economic profile to a large extent. A new, additional source of risks is the current domestic political context, which can harm the economy, if not being tackled swiftly. Of course, the risks are challenging and are to be closely monitored. This is even more pronounced, given that the policies’ space at the current juncture is to a great extent exhausted. Hence, the continuation of the structural reforms remains paramount and a challenge, as it can further increase the resilience of the economy, mitigate the risks and reduce the policy burden.
In taking these initiatives, the Eurosystem has maintained a clear separation between monetary policy and financial stability operations. This clear separation has ensured that we kept fulfilling our primary mandate to safeguard price stability. My sense is that we have been successful. In the Euro area, at no time during the crisis have inflation expectations significantly deviated from our price stability objective. This was most crucial, when headline inflation stayed in negative territory, the output gap was strongly negative and the risks of deflation about to materialize. II. Financial stability cannot be achieved irrespective of fiscal conditions  11. Recent developments in Europe have proven that disorder in public finances could lead to disorder in financial systems. This did not come as a surprise. Central banks have  2  BIS Review 113/2010  long been concerned with fiscal positions in Euro area countries. Indeed, we, at the Banque de France, as well as many ECB members, have regularly called upon policy makers to pay due attention to debt dynamics. 12. Delay in addressing long-lasting fiscal imbalances is primarily responsible for the situation, but the financial crisis has exacerbated the problems. The first trigger was the mechanism of automatic stabilizers that resulted in rapidly declining fiscal receipts due to the synchronized recession. Secondly the imbalances have been aggravated by greater public spending via unprecedented fiscal stimuli plans and large public financial commitments, in particular via capital injection into the banking sector and debt guarantees schemes.

Public interventions have been massive to contain the scale of the turmoil but in return have implied a cost and led to a transfer of risk out of the banking sector onto the public sector balance sheet. For instance, interventions from European governments amounted to about 1800 billion EUR or 14% of the European GDP. 13. Let me also underline that – like in many previous financial crisis such as the Latin American ones – financial markets ignoring the long term risks of their investments helped accommodate unsustainable financing requirements of many countries. A major assumption underpinning our fiscal governance frameworks in Europe has been that markets would impose discipline earlier on. Experience reveals that this has not been the case: the market discipline was imposed, far too late. 14. All this emphasizes that sound fiscal frameworks are essential to sound financial regulatory frameworks. Indeed, no longer will be raised the question of the importance of the Stability and Growth Pact and the role it plays in anchoring market confidence. 15. Let me add how fiscal problems in Europe have been addressed. First, the Greek adjustment package, relying on IMF financing and conditionality plus bilateral loans has been decided. Beyond Greece, the European Financial Stabilization Facility provided the Euro area with massive resources to fight contagion risk within the area. Elsewhere in Europe, governments have embarked into sizeable fiscal consolidation efforts and in many cases have frontloaded their efforts. 16.