samchain/econo-pairs-v1 huggingface dataset:
If the probability of this event concentrates over the short horizon, then the cumulative default probability for longer horizons (bounded overall by 100%) cannot rise much further, and inversion of the spread curve necessarily follows. Redenomination premia share some similarities with exchange rate premia that were driven out of control in the early 1990s by speculative attacks against the legacy currencies. The early symptoms – inverted sovereign yield curves, at least for some contries – were the same. And the potential of such attacks is known to generate self-fulfilling prophecies. In early summer 2012 this situation had two main implications. One was for fiscal policy: it needs to deliver sound fundamentals as the only way to lastingly overcome the crisis; but, at the same time, there can be no viable fiscal adjustment that can ensure sustainability if the interest rate faced by the fiscal authority keeps rising and there are severe distortions in government bond markets. The second implication was for monetary policy: the central bank cannot fulfil its mandate to maintain price stability if its policy intentions are not transmitted correctly to the real economy through the chain which forms the basis for monetary policy transmission; but, at the same time, the central bank cannot fulfil its mandate to maintain price stability if the fiscal authority does not fully honour its obligation to pay back its liabilities under all circumstances.

5  To remove the influence of market expectations about future policy rates, it is useful to focus on the term structure in terms of spreads between sovereign bond yields of a given euro area country and benchmark yields – which can be represented by the OIS curve or the term structure of German Bunds. BIS central bankers’ speeches  5  How to make these apparently conflicting instances compatible? And how to overcome the deadlock? The ECB policy response: Outright Monetary Transactions Guidance to answer these questions can be derived from the Maastricht Treaty and the conceptual apparatus developed in the context of the economic literature on monetary vs. fiscal dominance. These insights have made clear that, from an institutional design perspective, central bank independence and a clear focus on price stability 6 are necessary but not sufficient to ensure that the central bank can provide a regime of low and stable inflation under all circumstances – in the economic jargon, ensuring “monetary dominance”. Maintaining price stability also requires appropriate fiscal policy. To borrow from Leeper’s terminology, 7 this means that an “active” monetary policy – namely a monetary policy that actively engages in the setting of its policy interest rate instrument independently and in the exclusive pursuit of its objective of price stability – must be accompanied by “passive” fiscal policy.
The aim is to establish a chain of instruments that can be used in the work on responsible investing. So far, our nation has earned a solid return on its financial assets. The cumulative return on the GPFG since its inception amounts to over NOK 2 000 billion. This is equivalent to about a third of total GPFG capital at the end of 2014. Our return measure includes both capital gains and direct cash flows, which comprise dividend and interest income. Equity prices are volatile. Dividend and interest income is more reliable. Given the large size of the GPFG, this cash flow has become substantial and is higher than the revenues from major exports such as fish and metals (see Chart 11). Over a third of the GPFG is invested in bonds. The real interest rate on high-grade government bonds is the starting point for calculating the rate of return. In recent years, those yields have been close to zero (see Chart 12). Low bond yields reflect global economic conditions: Governments, businesses and households are seeking to save more, while demand for safe investments has increased. Central banks’ substantial asset purchases are pushing in the same direction. Low yields may also reflect modest expectations of economic growth further ahead. There is no return without risk. The GPFG features a very long investment horizon and a sizeable capacity to bear short-term risk. This is why the chosen allocation to equities is relatively high. It is also the reason why the GPFG has moved into real estate.

The means: independence We are all aware of the strong academic and empirical evidence in favour of independence of Central banks since the Great inflation of the 1970s.4 Nevertheless, independence is still contested in our democracies. On both sides of the Atlantic, the governments that are currently most critical of independence are the very same that most demonstrate its necessity: their unsustainable fiscal policies, without the anchor of a credible central bank, would pose a threat to price stability. Independence is not for the protection of central bankers; it is for the protection of the citizens, and their collective confidence in the currency. But independence only has real value if there is a clear mandate – price stability – and accordingly a robust performance-based accountability to the country’s citizens and their representatives: every year the President of the ECB testifies four times a year at the European Parliament and gives eight lengthy press conferences (compared with four press conferences for the Fed up to 2018). At the same time, the ECB must increasingly take heed of economic and social players. Independence is not only secured in legislation, but also by the people [its grandes homens] that have embodied it for the past 20 years: Wim Duisenberg, Jean-Claude Trichet, and today, Mario Draghi.
That is to say, gradually reducing the sizeable volume of public debt that will arise because of this crisis is feasible, provided we have an appropriate consolidation programme. This programme should include a clear definition of the budgetary objectives and their timeframe, along with details of the measures needed to attain them. It should also be based on a prudent forecast of macroeconomic developments and include a suitable response to possible slippage. It is in the political sphere that the details of this programme must be decided, incorporating social preferences about the level and composition of public spending and revenue. In any event, it should be compatible with an improvement in the quality of public finances. 10  In this connection, it would be a priority to subject the various items on the expenditure side to an exhaustive review, in order to identify those areas with room for more efficiency. It is important that the recommendations stemming from the AIReF’s assessments be taken into account forthwith. A comprehensive review of the tax system is also in order, to improve its revenue-raising capacity and its efficiency. Comparison with the other European countries can offer guidelines here. And, once again, the findings of AIReF’s ongoing review of tax benefits will provide a significant contribution. Finally, in a country as decentralised as Spain, it is vital to be able to count on the collaboration of the regional and local governments in the design and implementation of the consolidation programme.

The ECB is no fortune teller or oracle, but no doubt you already know what 2017 will look like? As we see it, 2017 will be a year when activity accelerates. We are very confident about the recovery in Europe. But aren’t there risks? There are political risks just about everywhere, both within the euro area and outside it. But it isn’t the ECB’s task to manage political risks. That’s for politicians to deal with. It’s up to us to draw the economic conclusions. The euro area will still require some sort of financial protection to navigate what will be a risk-filled 2017. But when you talk about political risks, that means you see people going to the polls in the Netherlands, France, Germany and, probably, Italy, as a risk. That’s not a risk, that’s democracy. So more precisely, what would you describe as a risk? For us, the risk is that Europe comes under increasing strain and pressure from nationalists, protectionists and sovereignists, who... So you are worried about the rise of extremism and nationalism in Europe, and in all countries, maybe even including France. It’s a concern for us in all countries, because it reduces our ability act jointly. Europe is strong when its countries can act jointly.
On the government level, borrowings would really be handy when it wants to keep up public expenditure and to enhance welfare payments, healthcare and the military. This would not only improve the standard of living and employment, but also help boost national power and speed up economic growth. The list of wonders that borrowed money can bring goes on, but we almost forget there is a catch, that is, debts must be repaid somehow some day; and the higher the interest rates, the more we will have to pay back over time. For individual borrowers, except for those with a handsome pay rise, they can only hope to pay off earlier debts by reducing consumption in the days ahead. Well-run enterprises should have no problem servicing their debt if their business expansion financed by loans does indeed enhance their productivity and competitiveness. Likewise, heavily indebted governments will be able to service their debts only when they have sustained economic growth and rising tax revenues. In other words, the ability to repay debt hinges on increased productivity and improved income, or otherwise, reduced future spending and increased savings. But despite the substantial GDP growth in major industrialised countries in the past 30 years, debts in these countries have piled up concurrently at an even more alarming rate. Advanced economies from across Europe and the US to Japan have all sought to boost economic prosperity, standard of living and employment with ever more borrowings and increased consumption and public spending.

This interest we are witnessing in the financial sector is due to the favourable economic environment that has been created in the last seven years. During this period, the economy has performed relatively well as reflected in the overall macroeconomic stability, which has been underpinned by sustained positive growth rates in the real Gross Domestic Product averaging over 5% in the last five years. I do hope that Access Bank Zambia, will play a special role in taking this growth to an even higher level. In the financial sector, stability has continued to characterize the financial system with all banks being adequately capitalised and non-bank financial institutions performance being satisfactory. I am convinced that this stability, among other factors, will continue to contribute to the attraction of international investors such as Access Bank to invest in Zambia. It is my hope that with new entrants in the banking sector, the provision of financial services to the public will become more competitive both in terms of the variety of services offered, efficiency and pricing. The need for provision of affordable banking services to the majority of our people can not be ever emphasised. Such services will greatly benefit our people and contribute positively to poverty reduction in the country. As Access Bank ventures into full fledged business, I urge the bank’s management to devise strategies that will contribute to Government’s efforts of reducing the cost of borrowing and increasing the level of inclusiveness in the country.
Monetary policy can reduce inflation, but only at the cost of reducing output and increasing unemployment. If inflation is above target and output is below potential (or vice versa), there is a fundamental trade-off between achieving the two objectives. Since 2013 the MPC’s remit has required us to manage significant trade-offs when exceptional circumstances cause them to arise. And that has been the basis for the Committee’s assessment of the UK situation since the referendum. 12  To explain how our position on this has evolved, let me turn to the second unusual aspect of the economy that I want to focus on this afternoon: the UK labour market. 11  For more details see Box 5, “How has the economy evolved relative to the February 2017 Report”, in the Prospects for Inflation section of the May 2018 Inflation Report. 12 For a detailed explanation see: Carney, M (2017), “Lambda”, speech at the London School of Economics, 16 January 2017. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  The labour market I said at the start of this speech that wage growth has been surprisingly weak. That wasn’t a figure of speech. This chart (Chart 8) shows the MPC’s wage growth forecasts from the past few years against the actual data. As you can see, the MPC have been consistently surprised by the continued weakness of wage growth.

If you have debt approaching 100% of GDP, you have to reduce it to be less vulnerable. Are you worried by the political uncertainty? Political uncertainty is an important factor because we always need stable governments capable of taking action. And this is of course quite obvious: we don’t have the political stability necessary to put into place the necessary measures and policies, including a budget. What do they think here in Frankfurt about the fact that the budget has been deferred since the time when you were still a minister? Spain has continued to reduce its public debt. It could have been reduced more, but it could also have been reduced less. In any case there is one fundamental factor: the growth differential. In the Spanish economy, this now comes from a financial sector that doesn’t have the same doubts hanging over it as it did five to seven years ago. And it is competitive. The most important thing, in contrast to the previous and other growth cycles, is that it is growing without an increase in loans and without a real estate bubble. With lending growth that is below nominal GDP and a current account surplus in the balance of payments. As long as these two things continue, the Spanish economy will keep growing faster than the rest. The recommendation, which is also valid for Portugal, Greece and Ireland, and even for Italy, is this: stabilise the banking sector and the credit markets. And maintain competitiveness. Then you will do better than average.
Among them: the setting-up of an European Monetary Fund, which would take over the current functions of the European Stabilization Mechanism, eventually adding the role of common backstop for the Single Resolution Fund; the establishment of an European Minister of Finance, who would also be Vice-President of the European Commission and Chairman of the Eurogroup; and the creation of a common stabilisation tool for investment, which should not preclude the future development of a genuine European budgetary capacity for economic stabilisation purposes. Those are proposals that deserve careful consideration. Moreover, the crisis has made it clear that the European budgetary framework is very complex, which highlights the need to simplify it. Recent proposals, which seek to reduce the current excessive number of rules, by focusing on the public debt to GDP ratio, as a medium-term anchor, and to the expenditure rule, as an operational tool, seem promising. In any event, reinforcing the oversight and control of fiscal rules is necessary to ensure their fulfilment. The aim should be that the budgetary governance framework is able to encourage countries to generate room for manoeuvre during expansionary phases, so that the stabilising capacity of fiscal policy may increase in the euro area, as a whole, at times of crisis. 8/9  Summing up: much work remains to be done in the coming months and years. We should make good use of the current benign environment to progress in our European integration agenda.

In the last five years, the unemployment rate decreased to 16.5% at the end of 2017, more than 10 pp below its peak at the beginning of 2013. Despite these positive developments, unemployment is still at unacceptably high levels, in fact, the second highest in the euro area after Greece. The high incidence of long-term unemployment, which now stands above 50%, is signalling the risks of hysteresis in the labour market, which would make the reduction of the unemployment rate to pre-crisis levels more difficult. From a longer perspective, the Spanish economy also faces three important challenges. First, even at the height of the last expansion in 2006, Spain had an unemployment rate of 8.2% which was far off the best performers at that time. Second, during recent decades, 5/9  the segmentation of the Spanish labour market has been very marked, with a temporary rate exceeding 25%, 10 pp above euro area averages, which contributes to exacerbating the volatility of employment and reducing productivity growth. Third, the Spanish economy should be ready to accommodate the worldwide process of automation of certain tasks, especially in a context in which the incidence of low-skills unemployment is high and the labour market is not flexible enough.
However, on a positive note, I am encouraged by progress in numerous countries to promote disclosure and transparency, for instance with regard to non-performing loans. The Basle Committee on Banking Supervision, the Committee on the Global Financial System, the International Accounting Standards Committee and other organizations have put forth initiatives to enhance the relevance, reliability and comparability of information disclosed by the financial sector. The most important initiatives will be those of national governments to apply these accounting and transparency frameworks, as well as the voluntary disclosures of financial institutions. Now that I have discussed the changing risk environment and how banks are responding to that challenge, let me turn to what this means for the current regulatory capital regime. Today, a major challenge for regulators is to develop capital standards that address more comprehensively the full range of risks to which banking institutions are exposed. These standards must also improve the differentiation among high-risk and low-risk exposures and between weak and strong institutions. Additionally, they must be flexible enough to accommodate the risks of newer and emerging activities, some that I have mentioned today. As you know, the primary tool of capital regulation currently is the set of minimum capital ratios that were devised in 1988 by the Basle Committee on Banking Supervision. They were set forth in an agreement known as the Basle Accord, and were adopted, among other reasons, to address the slide in international capital levels that was occurring over a decade ago.

A bank must hold enough capital to cushion both depositors and senior lenders against losses, while leaving the bank able to meet the needs of its customers. Banks must maintain capital commensurate with the amount of risks that they take and hold enough to weather financial storms, which can at times be severe and of considerable duration. Banks with low equity capital ratios and a high variability of operating earnings have proven particularly vulnerable to financial distress. However, banks do not just hold capital to overcome distress, but also because it provides them with financial flexibility. Banks that are strongly capitalized can take advantage of growth opportunities. Also, strongly capitalized banks are better able to promote innovation, whether in the form of new products, new services or new distribution channels. This is not just a capital resource issue, but a human resource issue. Bank managers who are able to focus on the business of banking, strategy and competition, rather than on financial difficulties, can create and innovate and, therefore, add value for shareholders. Banks also hold capital as a sign of strength to their customers. Clearly we know this to be true with depositors on the retail side, but it is equally true on the wholesale side. When an institution or corporation enters into letter of credit guarantees or swap contracts, it needs to be confident that its bank will be around in three or five years, at the maturity of the contract.
For risks that private financial institutions cannot self-solve, the UK Government is taking forward legislation that will allow UK households and businesses to access financial services provided by EU companies. Where joint action is required, we have been working with the European Central Bank. There has been considerable progress in the UK to address these risks, but only limited progress in the EU. Timely action by EU authorities is needed to mitigate risks to financial stability, particularly those associated with derivative contracts and the transfer of personal data. Throughout the Bank’s preparations for Brexit, we have been clear that we will maintain the traditions that have underpinned the UK position as a leading international financial centre. In particular, we will maintain current levels of resilience and our commitment to openness. V. CONCLUSION 800 years of economic history teaches us that financial crises occur roughly once a decade. A frequency that reflects in part the short institutional memories in finance. Our citizens have not forgotten the last crisis. Certainly not in the UK where average real incomes are still below pre-crisis levels. Or here in the US where confidence in banks remains near historic lows. The reforms of the past decade have put in place a new financial system that could, with time, regain people’s confidence. However, the challenge for policymakers is that, when it comes to financial stability, success is an orphan. As memories fade, complacency sets in and pressure to compromise re-emerges. We all bear heavy responsibilities to safeguard recent progress and address emerging vulnerabilities.

That conclusion is underscored by a look at existing attempts to build early-warning systems for various types of crisis. Either these systems miss out on crises that actually occur or they sound the alarm for crises that do not occur. Nevertheless, given the costs and the difficulties of managing the successive crises over the past decade, we must continue to devote considerable efforts to avoiding future crises and try hard to understand the kinds of vulnerability that lie behind them. The crises during the 1990s have revealed serious flaws not only in macroeconomic management but also, just as important, in the structure and regulation of the financial system in both debtor and creditor countries. The work now being carried out in various international fora is thorough and can be summarised under three headings: •  Crisis prevention, including the development of good practice standards and transparency codes, and incentives for both borrowers and lenders to act prudently. •  Crisis containment, including the establishment of official contingent lines and possible forms of private sector finance which may reduce the severity of any crisis. •  Crisis resolution, where the emphasis is on possible ways of creating a more orderly environment for restructuring external debt, on principles to guide the restructuring of banking systems in the wake of a crisis, and on handling corporate insolvency.