samchain/econo-pairs-v1 huggingface dataset:
In the Kingdom, the conservative policies and prudential measures taken by SAMA, to ensure the strength and stability of the national financial system, have had a great role in protecting the financial system from being affected by shocks that it may face due to domestic or international developments. The value of such measures may not be felt or appreciated unless the need arises. May Allah guide your steps to greater success. 2  BIS Review 124/2008

Yves Mersch: Opening of the New Face of the Euro Exhibition Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Opening of the New Face of the Euro Exhibition, Deutsche Bundesbank, Saarbrücken, 15 January 2014. *  *  *  Ladies and Gentlemen, Thank you all for coming here today to the opening of the ECB’s “New Face of the Euro” exhibition. And a special “thank you” to the Deutsche Bundesbank for hosting this event with the participation of the Banque de France. It feels very appropriate to be in a border city like Saarbrücken, at the heart of Europe, to open an exhibition like this, dedicated to our single currency. The people of this city, with its long and eventful history, must be among those who best understand the ambitious vision to bring the nations of Europe closer together. Indeed, it was through the creation of a common market for coal and steel between six European countries that the first real step was taken towards the establishment of the European Union as we know it today and that led to the creation of the euro 15 years ago. Today, the euro helps to unite 334 million people in 18 different countries. Allow me to say a brief word about the exhibition you have come to see. “The New Face of the Euro” is a travelling exhibition which has already been to a number of cities in the euro area.
We are therefore faced with a situation where the traditional triangle of the trilemma is shrinking and sometimes seems to collapsing into the straight line of a dilemma. I still think it is a trilemma, but the trade-offs facing SOFIEs can be severe. In principle, there are three ways to mitigate the problem. The first is to adjust macroeconomic policy frameworks and improve execution and policy co-ordination. The second is to use prudential regulation and supervision aimed at reducing potential vulnerabilities and increasing resilience in the face of volatile capital flows. The third is to introduce targeted tools aimed directly at the financial integration part in order to regain greater monetary independence and shift the effects of monetary policy more to the interest rate channel and towards the non-traded goods sector. In Iceland, this issue is very much on the agenda as the country prepares to lift the comprehensive controls on capital outflows that were introduced at the peak of its financial crisis. We have been working through all of the avenues that I have just mentioned. Very recently, we introduced a CFM tool in the form of a special reserve requirement on portfolio inflows excluding equity. It is constructed in such a way that the bite is biggest for short-term flows.

Although it has already been activated due to the special situation we find ourselves in regarding the process of lifting capital controls, for the longer term we see it very much as a third line of defence after macroeconomic policies, and micro and more usual macropru. It is no panacea and comes with distortions. All of this remains a work in progress, and history will tell whether it will be sufficient to preserve monetary and financial stability in the rougher seas of freer capital movements that we intend to embark upon. 2/2  BIS central bankers' speeches
Chart 16 illustrates this for one technology - computing. It shows the percentage of employees in a company using a computer on three dates (2002, 2008, 2015). The good news is that it shows a clear trend towards increased employee computer use over time. 35  European Commission (2018). 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  The distribution of computer use is, however, clearly twin-peaked. There is an upper tail of companies where more than 90% of staff use computers. By 2015, this had increased to a little under half of all companies. But there is also a large, if diminishing, tail of companies where employee use of computers is much more modest. For example, even by 2015 around 40% of companies had fewer than half of their employees using computers. And there were still 20% of companies where fewer than one in five employees used computers. This picture is patchier still for more advanced technologies. Chart 17 looks at the distribution of the proportion of employees in UK companies with access to a portable device with internet access on two dates (2011 and 2015). It, too, is twin-peaked. But the upper peak is now a very modest one, containing only around 10% of firms. And the lower peak, by contrast, is Himalayan. The fraction of companies where 50% or less of employees use portable devices is around 80%. Patterns of technological adoption and penetration among UK companies, then, tell a broadly consistent story.

Their numbers of company collaborations, at around 600 each year, is more limited, especially to smaller companies. The Catapult Centres have created a new innovation engine for the UK. This is great news. The less good news is that this engine has fewer cylinders than its Germany counterpart. Indeed, it serves more as an innovation than a diffusion engine, leaving largely untouched the long tail of UK companies. Nor does the UK have the equivalent of the Steinbeis system for recycling technical expertise and know-how between companies, which could help de-segment the skills-stratified UK labour market. The financial infrastructure supporting companies is also different in the UK. 48  New, upper tail UK  companies do brilliantly at attracting venture capital finance. And the UK has a large and liquid corporate bond market, totalling around £ billion for investment grade securities, which allows larger and betterestablished companies to raise money at long maturities in capital markets. 49  Where the UK financial system looks weaker is when serving smaller and less well-established companies, the type of which are more likely to occupy the lower tail. Most are not of sufficient scale or standing to attract capital market financing. For them, banks are a more natural source of financing. But options for bank financing appear to be more limited, certainly than in Germany with its three-tier structure. Lending to the corporate sector by UK banks, at 6% of their assets, is around one third of the equivalent by German banks (Table 6).
Specific measures include the institution of Public Expenditure Tracking Surveys (PETS); Medium Term Expenditure Framework (MTEF); Strengthening the Internal Audit Function; Improved Parliamentary Oversight of Budgetary Processes; and Procurement Reform. Within the sphere of transparency, accountability and democracy, the anti-corruption agenda is emphasised, as well as strengthening the capacity of the National Electoral Commission. The decentralisation process should be pursued through the formulation and implementation of a devolution plan. A comprehensive civil service reform programme should also be formulated and implemented. There are also requirements for anti-money-laundering measures, as well as adoption and adherence to the Kimberley process for diamond marketing, and the Extractive Industries Transparency Initiative (EITI). Similar requirements are built into the PRGF. Three points should be noted at this stage. (1)  The governance aspects built into the basic programmes of assistance from the World Bank and IMF are extensive and comprehensive;  (2)  These requirements are conditionalities for release of funds and other assistance;  (3)  In some cases they are triggers for other lines of action. BIS Review 109/2007  5  The following statement reflects the importance attached to governance issues in Sierra Leone’s assistance programme by the donor community: “To underline the importance of the quality of governance, government and its four budget support donors (ADB, DFID, EC and the World Bank) issued a joint communiqué in July 2006 referred to as the “Improved Governance and Accountability Pact”.

“The Credit Rating Crisis”, NBER Working Paper, 15045. Freixas X., Parigi B. and J. Rochet (2000). “Systemic Risk, Inter-Bank Realtions and Liquidity Provision by the Central Bank”, Journal of Money and Credit Banking, 32(2). BIS Review 97/2009  3  Morgan D. (2002). “Rating Banks: Risk and Uncertainty in an opaque Industry”, American Economic Review, 92(4). Rochet J. (2008). “Liquidity Regulation and the Lender of Last Resort”, Financial Stability Review, Banque de France, February. 4  BIS Review 97/2009
Second, history suggests that, at least in the latest crisis, they would have given far timelier signals of impending stress, and so a better guide to prompt corrective action, ahead of the crisis cliff-edge being reached. To illustrate that, Charts 6–8 look at the three market-based measures of solvency for the 33-bank panel, again broken down between “crisis” and “no crisis” banks. There is now clear blue water between the solvency ratios of the crisis and non-crisis banks, with the second materially weaker. In the two years prior to the Lehman Brothers crisis, the average marketbased capital ratio was around 5 percentage points lower for crisis than for no crisis banks. Second, market-based measures of capital offered clear advance signals of impending distress. For example, the market-based capital ratio of crisis banks began to fall in April 2007, well over a year ahead of the Lehmans crisis. To formalise that visual impression, Table 1 shows Type I and II errors for the three market-based capital measures. These now  8  Cannata and Quagliariello (2005), Gunther et al (2001), Krainer and Lopez (2004). 9  Berger et al (2000). 10  Calomiris and Herring (2011) prefer a variant of the first measure. 11  Largely, because even marked-based measures of solvency will rely on disclosures by banks, which will themselves be model-dependent to some degree. BIS central bankers’ speeches  5  comfortably outperform a coin toss. Replacing the book value of capital with its market value lowers errors by a half, often much more.

(b) Timely conversion is defined as a bank’s ratio falling below the trigger level no less than one month and no more than one year before a “crisis”. The number in this column is the proportion of “crisis” banks for which timely conversion does not occur (i,e, there is a Type II error) at this trigger level. (c) For each metric, the threshold for a signal of impending distress is as given in Charts 5 to 8. 18  BIS central bankers’ speeches
The survey consisted of an electronic questionnaire sent to 354 members of the SBE. 141 replies were received, a response rate of 40%.12 Over 85% of respondents said that forming a view of interest rate prospects was important to them. For those of us who have continually argued that the news on interest rates stems from developments in the economy rather than meetings of the MPC, it is heartening that, collectively, you place more weight on economic data than on MPC communications in forming a view of interest rate prospects. Respondents were asked to allocate a total of 100 points across the categories of information in terms of how useful they were in forming such a view. Twice as many points were given to economic data as to MPC communications, especially at the longer horizons – see chart 9. And the weight on data was divided roughly equally between financial data, official data on real activity, official figures for costs and  12  6  The full survey is to be published in the next issue of the SBE’s journal, the Business Economist. BIS Review 43/2007  prices, and business and consumer surveys. So the argument that the MPC responds to developments in the economy has been largely understood. This is welcome news for those of us who wish to be boring. So far I have talked only about the past – the performance of the UK economy and the behaviour of the MPC since 1997. What of the future? 3.

And it is why we place importance on the minutes of our monthly meetings and the quarterly Inflation Report to convey a full explanation of our thinking. Explaining our analysis at some length is a richer source of information for markets than code words or statements about the future path of interest rates. Less weight should be placed on the short  15  See my discussion of money and risk premia in King (2002b). BIS Review 43/2007  9  statements that are published with the announcements of our decisions because such statements, as we have seen elsewhere, run the risk of becoming monetary policy by code word. They do not help markets understand how we are likely to react to future data. A number of academics have suggested that the MPC publish forecasts for the path of Bank Rate. Several central banks now do so, noticeably the Reserve Bank of New Zealand, the Norges Bank and the Riksbank. Although there is some superficial attraction in such a move, there are four points that suggest the need for caution. First, what markets need more than anything is not an unconditional forecast of where interest rates might go, but an idea of our contingent response to data as they evolve. That is not easily communicated by a path – even when shown as a fan chart – for future interest rates. It requires a careful reading of the Inflation Report, the minutes of our monthly meetings and speeches by members of the MPC.
These foreign inflows were sufficient to cover the current account deficit and provided the premises for a stable exchange rate. During 2013, the gross foreign currency reserve hiked by about EUR 42.5 million, settling at EUR 2,015 million, sufficient to cover 4.6 months of imports and  BIS central bankers’ speeches  1  170% of the short-term foreign debt. In spite of improvements, the balance of the external sector remains fragile. I would like to reiterate our appeal for taking the measures to boost the competitiveness of Albanian products and create a favourable climate to attract foreign investments. During 2013, the Government pursued an expansionary fiscal policy, providing a positive impulse to economic activity. In annual terms, budget expenditure increased 4.7%, whereas revenues fell 0.5%, from a year earlier. Government’s fiscal behaviour increased the budget deficit to ALL 65.4 billion, standing 42.7% higher than a year earlier. Last year’s fiscal expansion increased the public debt and public finance’s fragility, adding thus concerns over fiscal sustainability in the medium and long run. Considering the public debt as one of the biggest structural weaknesses of the Albanian economy, we have called for measures to be taken for ensuring the long-term soundness of public finances, and eventually welcomed such measures. In this context, we think that there is still much to be done, especially with regard to adopting a transparent and efficient fiscal rule. Financial markets were characterised by good liquidity conditions and low inflation risk premia.

We did it because inflation is too high, but especially core inflation at 4,3%: there is for sure a significant energy and supply component in the euro area inflation; but it is also becoming broader and more domestic, and this is the field where we have to act. And second, we clearly show our determination to bring inflation back to 2% in the medium term: this is not only our target, it is our commitment towards European citizens; our will and our capacity to deliver on our mandate cannot be subject to any doubt whatsoever. That said, yesterday’s significant move sometimes raises two questions: - what about the next move? Let me be clear: we have our hands completely free. Nobody should speculate that this will be the magnitude of the next step – we did not create a new “jumbo habit” –; nor that we simply must emulate other  Page 2 sur 3 important Central banks. We obviously go in the same direction as them, but not necessarily at the same speed or with the same final level: because the nature of inflation has its differences on both sides of the Atlantic, the monetary answer has its differences too. - and this brings a second frequent question: what about the destination of the journey?
Were every large bank instead to face the maximum capital surcharge of 2.5%, then expected system-wide losses would fall by around 60% relative to their base level. And to remove 90% of the systemic externality – expected losses of around $ billion – a surcharge of over 7% would be needed. A more plausible experiment would be to assume a non-zero correlation among bank defaults. For example, the failure of a large bank which caused it to fire-sale assets could impose externalities on other large banks holding these same assets (Wagner (2009)). To place an upper bound on expected losses in the face of these fire-sale externalities, assume instead a correlation coefficient of one. Chart 5 illustrates the impact on expected system-wide losses of a high degree of default correlation among the big banks. The expected system-wide loss increases to around $ billion per year – similar in size to the implicit subsidy at its peak. A 2.5% surcharge now only reduces expected system-wide losses to around $ billion per year. To lower expected system-wide losses to be around $ billion per year would require a surcharge of around 15% – six times its current upper limit. If anything, these thought-experiments probably produce conservative estimates of systemwide losses and the necessary systemic surcharge. For example, bank asset returns are in practice much fatter-tailed than the log-normal distribution. And in practice, banks are likely to default well before their capital is fully exhausted.

This does not mean that the Riksbank’s tasks would disappear, however, as claimed time and again by one of my predecessors Lars Wohlin. The majority of the Riksbank’s tasks would remain relatively unaffected by our participation. As I just mentioned, this applies to our work on financial stability, which would essentially remain a national responsibility for the foreseeable future. The Riksbank’s operational tasks such as monetary policy transactions, the management of the Riksbank’s assets, the collection of statistics, the management of banknotes and coins and various administrative tasks would also remain. I also object to the claim that the Riksbank would become a branch office of the ECB. In actual fact, the national central banks of the Eurosystem own the ECB. If Sweden were to join the Eurosystem, we would become a member of the board and be able to influence how the system as a whole develops in the future. That is hardly an opportunity available to local offices of other organisations. In addition, the Eurosystem is a decentralised system, in which the vast majority of tasks are carried out by the  BIS Review 29/2003  7  national central banks. Many tasks are also performed at national level completely outside the framework of the Eurosystem. The main change if Sweden were to participate in monetary union would be that decisions on the interest rate level in Sweden would be taken by the ECB Governing Council instead of by the Executive Board of the Riksbank.
It became increasingly obvious that the trade-off between inflation and unemployment that had previously been taken for granted did not apply, that each new attempt to raise employment by expanding demand only resulted eventually in increasingly higher inflation (see Chart 1). It is easy to understand why. When inflation rises, it affects the wage demands in the next round of wage negotiations. Wage-earners are interested in the actual purchasing power of their wage and structure their wage demands accordingly. Inflation thus increases without any effect on employment. The conclusion is that in the long run there is no trade-off between inflation and unemployment. But even though inflation does not have any long-term impact on employment, it does affect economic growth and welfare. High inflation disrupts the mechanism by which goods’ relative values are signalled via prices, and distorts the reasons to save. This problem is perhaps especially significant for investment when the return is expected to be yielded over a long period in the future. In such cases, uncertainty over price developments can have a curbing effect. Furthermore, there is an increase in uncertainty about future developments in wages and costs, making it more difficult for agents in an economy to make economic decisions. Lenders may decide to set a higher rate of interest to compensate for any rise in inflation, and firms may decide not to invest in new machinery or to hire employees.

The fact that employment depends on a number of other factors than monetary policy decisions and cyclical variations is illustrated, among other things, by the miscalculations of the National Labour Market Board just prior to 2004. In November last year the Board estimated that Swedish economic growth would be 1.4 per cent in 2003 and 1.9 per cent this year, while unemployment was forecast to be 5.1 per cent this year. Moreover, the Board believed that the repo rate should be cut from 2.75 to 2.25-2.5 per cent. These forecasts were roughly in line with those of the Riksbank at that time, with the exception that we, as usual, based our forecasts on the assumption that the repo rate would be kept unchanged. A year later we can say that economic growth has exceeded both the National Labour Market Board’s and our expectations at the same time as the monetary stance has become looser. Nevertheless, labour market growth has been weaker. This shows both that forecasters can be surprised by unexpected developments in the economy and that unemployment at present is not chiefly due to insufficient demand for goods and services owing to low growth and tight monetary policy.