samchain/econo-pairs-v1 huggingface dataset:
The size of the equity allocation has an impact on the  5  Recent research shows that the theory of purchasing power parity holds true to a greater extent than suggested by previous results. Cf. : Lucio Sarno (2011): Purchasing Parity in Tradable Goods, Working Paper for the Ministry of Finance  6  Report No. 15 (2010–2011) to the Storting: The management of the Government Pension Fund Global in 2010  6  BIS central bankers’ speeches  Fund’s return and risk and has increased from zero in 1996, to 40 per cent in 1998 and to the current 60 per cent allocation adopted by the Storting in 2007. The equity allocation was increased from 40 to 60 per cent in the period from June 2007 to June 2009. Norges Bank purchased NOK 1 trillion in equities for the Fund through the financial crisis, more than doubling the Fund’s total equity holdings. The owner’s adherence to the strategy through the period of decline in equity prices will undoubtedly prove profitable over time. A maximum of 40 per cent of the Fund is now invested in bonds and other fixed income instruments, which are usually associated with lower risk but also lower expected return than equities. Earlier this year, Norges Bank advised the Ministry of Finance on the design of the benchmark index for fixed income investment. The strategic benchmark index should reflect the role fixed income investment is expected to play in the Fund’s portfolio.

The recent launch of the FAA Learning Standards and the Finance Qualification Structure will facilitate the harmonisation and wider recognition of accredited professional learning programmes which will also be important for this industry to promote consistent standards in the professional development and mobility of its workforce. We have started to engage FAA, the industry and education providers on this initiative and are working towards the accreditation of mandatory core financial advisory training and examination modules in 2015, and continuing professional development programs progressively thereafter. To improve the alignment between the interests of consumers and financial advisers, we will be requiring all life insurers and family takaful operators to implement a balanced scorecard  2  BIS central bankers’ speeches  framework for the remuneration of agents and advisers, beginning with investment-linked products in the initial phase. We believe it is also important that such a framework is cascaded through to how financial advisory firms are rewarding their representatives. Incentives for individual representatives should be structured to promote impartial product advice, and investments in building enduring relationships with clients by providing the highest standards of professional service. The AFA will be expected to play an important role in driving this initiative through its guidance to firms on the operationalisation of the framework in the context of financial advisers. In the medium term, the Bank will examine the issue of the balance between fee-based and commission-based compensation for financial advisers more closely.
In part, it is due to various types of non-bank investor in credit finding themselves facing actual or incipient liquidity pressures. Both as cause and effect, liquidity in the capital markets is impaired. This is apparent in the opening up of a so-called “negative basis” between the spreads on corporate bond and on equivalent credit-default swaps, which unbundle the transfer of credit risk from the provision of funds and so are less affected by liquidity hoarding (Chart 12). A twin-engine financial system? At various times over the past decade or so, it had been argued 5 that the macroeconomy as a whole should be more resilient to shocks to a financial system with “twin engines” – combining capital markets with banking system intermediation of savings and credit. The argument is that when the capital markets are impaired, banking can take more of the burden, and vice versa. I have a good deal of sympathy for this view – but not for all circumstances. It rather overstates the independence of capital markets and banking, as recent developments graphically demonstrate. First, whether through financing the purchase of credit assets by leveraged funds or warehousing portfolios prior to sale or providing “liquidity lines” to conduits and other investment vehicles, the banking system puts its capital and liquidity behind the distribution of credit risk to the wider asset-manager universe. As the official sector stressed over recent years, it is important to be clear about the circumstances in which risk can flow back to the banking system.

The importance of fisheries as a generator of foreign exchange revenue has diminished in relative terms - to less than a half of the total - while the importance of other sectors has risen, such as manufacturing industry, information technology and tourism. In these developments, Iceland is among other things drawing benefits from globalisation to strengthen the foundations of the economy. Foreign direct investment regulations are liberal with the exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industry, such as the production of aluminium, which is based on Iceland’s abundance of untapped renewable energy resources. Recent changes in corporate taxation in Iceland, lowering corporate taxes to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. 2  BIS Review 51/2002  Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends.
It seems that one trend is towards disintermediation and a more important role of capital markets, gaining ground to banks, in a global financial system that will probably end up being smaller and more attuned to the size of the global economy. Another trend points to a reduction of financial linkages between national financial systems, as BIS banking statistics, for example, are starting to show. Here, the role of Central Banks’ policies and operations, as well as regulators is crucial, as they must walk a fine line in promoting domestic financial stability without falling into the nets of protectionism, something that would be indeed damaging for growth and prosperity. As we all know, the risk of fragmentation and re-nationalisation of the financial system has materialized at the European level, in the unique institutional context of European Monetary Union; and the solutions to overcome this situation are changing the foundations of the euro. Each of the three sessions which make up the programme will focus on a particular perspective on how the new trends are shaping the global financial system. The crisis and the policy response – in the areas of financial regulation and monetary policy – are generating new patterns of funding, new players and changes in capital flows across global markets. Those issues will be reviewed in the initial session. As I mentioned before, the euro area has to deal with a severe crisis which has led to the fragmentation of the European financial system.

It is not yet possible to tell to what extent the U.S. economy will experience a lengthy, more difficult process of adjustment. That is probably the background to how the Federal Reserve has acted in recent years. A series of interest rate hikes during 1999 and 2000 were presumably intended to restrain the euphoria and excessive expansion. When a downturn then became evident, it seemed  2  BIS Review 26/2001  desirable to try to limit the mood swing by means of the marked interest rate cuts we have seen this year. It is precisely the Federal Reserve’s vigorous action that underlies certain analysts’ view that the current economic slowdown will be fairly mild and brief. If international activity were to move into a recovery, most things suggest that demand in the Swedish economy would start rising rapidly again. The earlier capacity restrictions would then return to the agenda, with the attendant risk of an accelerating rate of inflation. So the situation is difficult to assess and I grant that the judgements our Executive Board has had to make in connection with the present Inflation Report have been more difficult than usual. While the difficulty in predicting the future is admittedly a truism, the present international economic situation is perhaps the trickiest for a decade. Growth with a balanced picture of inflation The main scenario we have adopted in the Inflation Report envisages weaker real economic activity in the rest of the world, with the slowdown in the United States in the foreground.
Thus in 2004 Spanish credit institutions again achieved very high levels of profitability, whether measured as growth on the previous year or as ROE, which was more than 14% higher than the average reported by their international competitors. The high business volumes, which more than offset the negative effects of low interest rates on net interest income, and the tight control over operating expenses, which enabled the efficiency ratio to be further improved, are the two basic factors behind this favourable performance. Moreover, business activity has been stepped up precisely through instruments that provide institutions with collateralised assets, specifically mortgage loans, which are characterised by lower default rates. Finally, this favourable earnings performance is also a result of the diversification of income sources, with significant growth of those associated with the provision of collection, payment and non-banking product services. Solvency remains at levels comfortably above the minimum regulatory requirements, although the strong growth of business, and therefore of capital requirements, meant that the bank solvency ratio decreased slightly in 2004 with respect to 2003. In the case of Spain, this solvency was strengthened by a rigorous bad debt provisioning policy. That said, the more optimistic and favourable the central scenario, the greater the need to pay careful attention to potential fragilities.

Invest wisely As we build up our savings, some of us may wish to invest part of it to obtain higher returns. Investments in bonds, equities, mutual funds (or unit trusts) and other financial products typically yield higher returns than bank deposit rates over the medium to long term. But they also carry higher risks.   For the majority of financial investments, neither the returns nor the principal amount invested are guaranteed. This means we could potentially get less than what we have put in. MAS has set stringent disclosure requirements for financial products. We also require that information be provided in a clear and concise manner, through the use of Product Highlight Sheets, for example. But the responsibility ultimately lies with the investor. Every month, MAS receives, on average, about 10 complaints from the public involving the sale of investment products. To be sure, some of them involve mis-selling or poor disclosure, for which the financial adviser or institution is responsible. But there many others – sad stories of people who have lost their money because they did not exercise basic due diligence:   people who were attracted by the lure of high returns and purchased investment products without realising their risks;    people who listened to tips about “sure-to-win” investments and invested large sums of money in them without reading the product documentation;    people who signed blank sheets understanding what they were buying.
The value-at-risk approach is an attempt in that direction. It recognises that there is a crucial role for judgement in supervision, and that one size really will not fit all. It does not prescribe the key qualitative factors in legalistic detail. But it does set out the parameters so as to ensure that there is a framework in place which will deliver broad consistency and also some degree of prudence. Some have argued that regulators should go further than the value-at-risk approach: rather than defining the key parameters and endorsing particular model types, why not leave it to the banks, and give them an incentive to improve their internal models as much as possible? Under this pre-commitment approach a bank would specify the maximum portfolio loss on its trading activities and this would become the institution’s market risk capital requirement. Banks exceeding their pre-committed maximum loss (that is breaching their capital commitment) would be penalised in one way or another. Such penalties could be financial, or could entail corrective supervisory action. In some ways pre-commitment can be seen as an extension of the model-approval approach we already adopt. The aim, which we endorse, is to ensure that supervisors work with the grain of the business, and monitor ratios which are seen as meaningful by those who run banks themselves. To that extent, we support it. But there are potential drawbacks.

Clearly, this trend reflects, at the same time, the lack of managerial knowledge and capacities in the Albanian economy, and the banks’ behaviour in terms of crediting. This has produced two negative consequences: it has failed to promote the growth of productivity and the improvement of the long-term growth pace of the domestic economy; and, it has restrained the diversification of the production base in the economy, limiting its resilience to various shocks. Second, a part of the credit portfolio, not quite insignificant, has been granted to borrowers who have been exposed to and unhedged against exchange rate volatility. These borrowers have often had limited and deficient knowledge on the exchange rate risk and have suffered the consequences. 3/5  BIS central bankers' speeches  Beyond macroeconomic aspects, the structural deficiencies of crediting are, in part, responsible for the rapid growth of non-performing loans in the post-financial crisis period. In this context, the Bank of Albania deems that the banking sector should: Expand the range of credit products, especially with regard to funding projects, so as to ensure a better coverage of the sectors of the Albanian economy and of the needs of borrowing households; Increase its attention to sectors that offer a high potential for returns, given the low usage of financial leverage, such as agriculture and innovative business start-ups in information technology; Supplement the range of financial products with derivative instruments for hedging against the exchange rate, especially for borrowers exposed to it. 3.
In the same manner, interest rates will normally need to be raised in situations in which future inflation tends to get excessive as a consequence of a too high resource utilization. Consequently, when an inflation forecast shows that future inflation does not appear to be in line with the target, policy must be altered. In these situations there is a balancing problem. The question is how forceful the interest rate change should be. If it is dramatic, the adjustment in the rate of inflation to the established target may be faster, but the repercussions in the short term in the form of fluctuations in production and employment will probably be bigger also. Figure 1  P r ice Sta b ilizatio n : Alte r n a tive Pa th s  πt  2%  t+4  t+8  t  The reasoning can be made clear with a simple diagram (Figure 1). By choosing interest rate path 2 rather than path 1, the adjustment to the inflation target will be somewhat slower; however, the development in the economy will also be less spasmodic. BIS Review 56/1997  -3-  The fact that the Riksbank--when the price stability objective was introduced in 1993--chose to postpone its application for about 2 years (the decision that evaluation would only be made when the direct effects of the krona’s weakening had died away in 1995) can be said to have been a way of taking into consideration the above reasoning.

The Exchange Rate In small, open economies, the exchange rate has an important influence on inflation. At the same time, it is a variable that has fluctuated considerably in recent years for reasons which have not always been easy to foresee and interpret. How changes in the exchange rate should be handled in practical policy depends above all on how lasting a change in the exchange rate is judged to be. More enduring changes that have an effect on inflation forecasts obviously have to be taken into account In order to decide on the duration and what is a reasonable reaction, one normally has to know what brought about the change. Several different cases can be discerned: A nominal change in the exchange rate can be a result of a change in the real equilibrium exchange rate. This case is in principle simple to manage since it normally does not lead to a changed picture of inflation and thereby does not occasion any specific policy measures. Changes in the real equilibrium exchange rate have not been an especially common reason for changes in the exchange rate in recent years, at any rate since the krona fell in connection with the changeover to a flexible exchange rate in 1992. A change in the nominal exchange rate may also have to do with a change in the long-term view of the steadfastness in economic policy, or what is termed credibility.
However, we have not yet been able to see any marked increase in employment since average working hours have risen. When there is an upturn in the economy existing staff are initially used more intensively, and only at a later stage do firms add to their workforces. Labour market indicators, however, are pointing to a gradual pick-up in employment. For instance, the number of redundancy notices is dropping and the number of new job vacancies is increasing. Relatively strong growth in domestic demand in the period ahead, in combination with the fact that it should become increasingly difficult for companies to boost output without also adding to their workforces, means that we foresee a rise in the demand for labour in the coming years. The Government’s recently announced labour market policy programmes for next year can be expected to entail that total employment will increase considerably more than regular employment. But there should also be a rise in the number of regular jobs, among other things in construction, the public sector and the private services sector. It is, as always, difficult to assess how total capacity pressures in the economy will develop in coming years, and thereby what inflation impulses we may expect from wage formation and companies' price-setting behaviour. Cost pressures have recently been low, which is partly due to the relatively high productivity growth. However, the reasons behind this are not entirely clear, which makes the assessment of future productivity growth more difficult.

Both increases in prices of consumer goods that are mainly imported – imported inflation – and increases in prices of domestically-produced goods – domestic inflation – have remained low for some time. There have probably been several different factors contributing to the low inflation in recent years, including rapid productivity growth, relatively low capacity pressures and a stronger krona. Imported inflation also appears to have been held down by import substation, i.e. a shift from imports from countries with relatively high prices to countries with relatively low prices. Clothing prices, for instance,  3/4  have shown unusually weak growth and over the past two years they have actually fallen. The EU’s new regulations for clothing and textile imports have contributed to keeping down the rate of increase for clothing prices. Furthermore, stiffer competition in the food industry has led to food prices falling. Inflation has recently been slightly higher than we had calculated on in the June Inflation Report. This is primarily due to the unexpectedly high price of oil. However, the domestic inflation rate was slightly lower during the summer than we assumed in our earlier assessment. As before, our assessment is that inflation will rise in the near future. Increased cost pressures and rising capacity pressures should contribute to an increase in domestic inflation. At the same time, the factors that have dampened inflation over the past year – rapid productivity growth and increased competition – will continue to hold back price rises.
Also, we cannot ignore the risks stemming from the longer-term fiscal challenges that we face in the United States. But in the near-term, the most immediate domestic problems may recede rather than become more prevalent. On the housing side, stronger employment growth should lead to increased household formation, which should provide more support to housing demand. And anxieties about the large overhang of unsold homes represented by the foreclosure pipeline may overstate the magnitude of the excess supply of housing. Families that have lost their homes through foreclosures are likely to seek new homes as their income permits, even though many may re-enter the housing market as renters rather than buyers. On the state and local side, a rising economy should boost sales and income tax revenue and help narrow near-term fiscal shortfalls. 1 Moreover, although we do need to remain ever-watchful for signs that low interest rates could foster a buildup of financial excesses or bubbles that might pose a medium-term risk to both full employment and price stability, risk premia on U.S. financial assets do not appear unduly compressed at this juncture. On the inflation side of the ledger, there are some signs that core inflation is now stabilizing. However, both headline and core inflation remain below levels consistent with our dual mandate objectives – which most members of the FOMC consider to be 2 percent or a bit less on the personal consumption expenditures (PCE) measure.

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