samchain/econo-pairs-v1 huggingface dataset:
From a policymaking perspective, data collection, processing and statistical methods are a way to produce evidence for better decision making. A central bank that operates in a forward-looking environment, dealing with a large number of unobservable concepts, has an ultimate responsibility to use all the relevant information at hand. Monetary policy making is not a bureaucratic procedure, but an intense exercise of judgment. Of course, we must be able to share such information and judgment with the public to make our decisions easier to understand. As for judgment, a major challenge for central banks is to connect incoming information with medium-term prospects. While central bank boards generally meet at regular intervals, they need to assess when accumulated information is sufficient to indicate a change in the medium-term scenario, possibly demanding a change in the trajectory of monetary policy. In the case of emerging countries, FX pass-through poses a major challenge, as currency parities may exert substantial pressure on inflation in the short run, gaining a lot of public attention, but they may not prevail in longer spells. The source of currency volatility and the exposure of economic agents to FX risk are key factors that, in our experience, may help assess the medium-term impact of exchange rate movements and condition the need for a monetary policy response. A similar challenge to the exercise of judgment by central banks is to distinguish between “normal” times and stressed scenarios.

True, some of them had to do with political change and policy uncertainty to the heart of the developed world, but on top of that, major empirical and theoretical puzzles are challenging central tenets of monetary policy. In particular, inflation appears not to be responding to monetary policy as expected in advanced economies. Despite record- low interest rates over many years and massive liquidity injections by central banks through asset purchase programs, inflation has not picked up as expected. Explaining the apparent unresponsiveness of inflation has become a theoretical and empirical challenge that has drawn great attention from academia and policymakers in the last couple of years. Inflation dynamics and the way they interact with other economic variables are, of course, crucially important to central banks that have price stability as their core mandate. Most of them currently deliver on this mandate under a forward inflation targeting framework, whereby the stance of monetary policy seeks to achieve convergence of forecasted inflation to the target over a medium-term horizon. This prevents central banks from having to respond to short-term price volatility, but if inflation does not respond to monetary impulses as predicted by models, policymaking may become a much more complex game. If price responses get delayed in a highly accommodative environment, financial imbalances may build up, fiscal discipline may be eroded and inflation risks may get underpriced by markets, exposing themselves to reversals with data surprises in the future.
I spoke on this subject last week, and the text is available on the Bank of England website, so I am not going to labour the point today. But the general principle is that resolution is a very information hungry activity. To give an example, the FDIC in the US has recently adopted a rule requiring deposit takers to provide detailed information on their derivatives positions within a 60-day period after being notified by the Authorities to do so. The rule was only introduced earlier this year but it will be worth considering a similar approach in the UK. Finally, there is a large missing piece to what I have said about the resolution regime, namely how it would deal with banks that operate with branches or subsidiaries in other countries, and likewise how foreign banks operating in the UK would be sorted out. There is now a great deal of attention on this issue, in the G20, in the EU and via the FSB working group on cross-border crisis management chaired by Paul Tucker, and rightly so. I think it is fair to say that the regimes in the US, Canada, Japan and the UK come closest at present to meeting a kite-mark standard, but more needs to be done in continental Europe. I therefore support the recent European Commission consultation calling for EU countries to adopt resolution regimes.

The first test that must be applied is to assess whether the public interest objectives could be met by implementing a rapid payout of insured deposits, or any other definition of deposits which the authorities wish to protect via a top-up extension of the deposit insurance scheme. The remainder of the bank would then be put through something known as the bank insolvency procedure. The test of whether this procedure could be used depends in large part on how long depositors would face without access to their funds. At the moment I think few banks could meet an acceptable timetable for payout. Moreover, for bigger banks this would always be too disruptive as an approach. Work is underway to facilitate rapid payout of depositors under the Financial Services Compensation Scheme and I hope that in the next year, banks will be able to meet the objective that they have been given by the FSA to be able to make payouts to depositors within seven days. This is not a trivial task as I readily recognise, and achieving it would not mean that this approach would always be chosen in a resolution. That depends on the situation at the time. If the failure of a bank is determined to have wider systemic consequences that could undermine financial stability, confidence in the banking system or depositor protection, then the SRR provides a range of other tools to be used.
In the UK, the FSA has recently issued a consultation paper on RRPs, and an important initial pilot exercise will involve reviewing the contingency plans and procedures of the major firms as they draw them up over the coming months. The timetable for this work is ambitious with the plans being drawn up in the first quarter of next year, but that is necessarily so. The FSA and the Bank of England, working together, will review and challenge the submissions to assess their credibility. RRPs need to be owned by financial institutions at Board level. They should be of such importance that Boards need to understand that they are responsible for them. At the heart of the role of these plans is taking a forward-looking view of the threats that should be tackled. This is a clear change of approach. It builds from the work already done to embed stress testing into the toolkit. Stress tests are useful but limited tools. They provide a forecast of what we think is most likely to happen in the future conditional on a set of assumptions on what the future will bring. There are three obvious limitations to stress tests used on their own. First, typically they are a single point forecast of what could happen rather than a distribution of outcomes conditional on a range of stresses.

Had there been one, the Northern Rock recovery plan should have challenged the management and the Board on how its business model could adapt to and survive the closure of its key funding markets, given the sheer scale of its dependence on securitisation. Likewise, how could it have handled a serious stress when it had pursued a business model of aggressively taking market share by squeezing its net interest margin and accepting more borrower default risk? And then moving further into the guts of the bank, how would it deal with stress to a funding model where the bank was excessively dependent on cash deposits from the securitisation master trust but with a hard rating agency trigger linking that funding to the position of the bank, thus creating a severe amplification of any stress? Finally on Northern Rock, how would the bank deal with a funding stress when it was having to encumber such a high proportion of its good quality assets in order to over-collateralise its securitisation master trust? A very good example of the need for resolution plans is the case of Lehmans in Europe. Two questions are relevant here: what should the resolution plan have contained; and what changes to its organisation and operations might have made the massive task of dealing with Lehmans more straightforward? You will, I hope, appreciate that I can only scratch the surface of the Lehmans case in the time available so I apologise for the laundry list approach.
On an average day, over $ billion in Treasury securities changes hands, about seven times the value of stocks traded daily on the New York Stock Exchange. All of this trading activity serves the very important function of price discovery. More than any other securities market in the United States, the Treasury market responds forcefully to new information about macroeconomic fundamentals. The days when the most intense trading activity takes place are also the days when major reports are released on such indicators of U.S. economic performance as the employment report, the consumer price index or the producer price index. These releases allow market participants to digest important new information and to review their expectations about where the economy is going. The interest rates on Treasury securities of varying maturities are the market’s most important signals about the U.S. economy’s prospects for growth and risks of inflation. In the rest of the fixed-income market, trading in corporate bonds, mortgage-backed securities and sovereign debt also serves the price discovery process. This trading activity acts to differentiate, for example, a triple-A risk against a triple-B risk, the prepayment risk of mortgages against the prepayment risk of credit card receivables, and OECD country risk against emerging market risk.

At the end of the day, the flow of credit from securities markets has the same impact on our respective societies as that from banks. Therefore, central bankers have an obligation to understand the nature of these flows and the risks that they raise. Crucial to our obligations to our citizens is the need to be certain that these credit markets work smoothly and that credit flows efficiently from those most willing and able to bear the risks to those most able to put the funds to good use. This is as true for the United States as it is for any other country, developed or developing. Does this mean that central banks believe that capital markets should be supervised in the same ways banks are overseen? Clearly the answer to this question is no. This is not our role. In my view, central banks broadly have two main responsibilities with respect to the global debt markets. The first is to enhance the price discovery process by promoting transparency in their own actions. The second is to ensure that the banks, as providers of liquidity, perform their proper role in supporting the trading process by making sound credit decisions. In the United States, the Federal Open Market Committee or FOMC has a pronounced effect on the fixed-income market, both through its policy decisions and in the way the Federal Reserve conducts monetary policy. Indeed, an important part of the price discovery process is the anticipation of the Federal Reserve’s future actions.
This gave a very clear 14  BIS central bankers’ speeches  idea of how many households and banks might be affected by such an intervention and by how much. This was a macro-prudential policy calibrated from micro-prudential constituents. Although a first step, there is clearly further to go in using micro-level data to calibrate the impact of macro-prudential tools on lender and borrower behaviour. Turning to the global economic and financial system, it is here where the existing policy architecture may at present be most deficient. Some have gone further and argued that there is nothing at present that much resembles a global financial architecture at all (de Larosiere (2014), Haldane (2014)). Despite the crisis being the first truly global one, reform of the global financial architecture has been slow. There are many dimensions to reform of the global financial architecture. These include the appropriate role and resourcing of the IMF, the reserve currency role of the dollar and the appropriate role of so-called for capital flow management policies to modulate fluctuations in the global flow of funds (IMF (2012)). Each of these has been widely discussed and debated over many decades. On some issues, there has been progress. For example, the IMF now endorses the use of capital flow management policies in some situations, in contrast to its position a few years ago. But there is one area where progress in strengthening the international financial architecture has been much slower.

This in a sense underscores the importance of Tinbergen’s augmented policy rule – that there should be as many policy tools as there are complex sub-systems – when managing a complex system of systems. None of the models so far considers global spill-overs, either through trade or financial channels. Generally-speaking, there is a dearth of macro-economic models which take seriously these international spillovers in an analytically-coherent fashion. Even if modelling this behaviour is over-ambitious in the short-term, there may be merit in improved monitoring of these global flows of financing over time, given their importance for the stability of economies and financial systems. Elsewhere, I have likened this to the creation of “global weather map”. This could be used to track and map the source, scale and nature of cross-border capital flows in close to real-time (Haldane (2012, 2014) and IMF (2013)). Plotting this complex, rapidly-adapting web would be a natural precursor to using it to address “what if” questions. What, for example, would be the impact of a rise in US interest rates on the international flow of funds? The IMF would be the natural guardians of this surveillance-cum-stress-testing machine. (c)  Policy design  Significant changes have been made to the macro-financial policy architecture since the crisis. In general, these frameworks have moved closer towards meeting Tinbergen’s rule of having as many distinct policy tools as there are complex layers in the macro-financial system.
Second, in coming years the implementation of the structural reforms identified in the 10th Development Plan aims to address the structural causes of inflation and hence is expected to support disinflation process. Finally, the Food Committee (the Food and Agricultural Products Markets Monitoring and Evaluation Committee) was founded in December 2014 with an objective of identifying policies to alleviate the contribution of structural and cyclical factors to elevated food inflation. Of course, the credibility of monetary policy is key to achieve price stability. Therefore, let me devote the final part of my talk to explaining our policy strategy to cope with current challenges. Like most EMEs Turkey has also been facing tightening external financial conditions since May 2013 and accordingly introduced several mutually complementary policies and announced a “road map” document back in August 2015 outlining monetary policy, foreign currency liquidity and financial stability related measures.

05.10.2018  The challenges to the Spanish banking industry Conference on banking, profitability and monetary normalisation /Universidad de Deusto, KPMG and El Correo Pablo Hernández de Cos Governor  Good morning. Let me first thank the organisers for their kind invitation to me to participate in this Deusto University event. It is a pleasure to be here with you today and to share some thoughts on the Banco España’s view of the main challenges currently facing the Spanish banking industry. As is well known, credit institutions were greatly affected by the last crisis. This was manifest in a strong rise in impaired assets, including both non-performing loans and real estate foreclosures, and in a significant fall-off in profitability, which even turned negative in 2012. To address these problems it was necessary to undertake intense recapitalisation and restructuring in the industry. As a result, there has been a notable and generalised improvement in Spanish banks’ financial position. Also contributing here have been the recent roll-out of an extensive package of regulatory measures and the favourable course since 2013 of the macroeconomic setting and financial conditions, assisted by the ECB’s monetary policy measures and by other actions at the European and domestic levels. The Spanish banking industry’s improved financial position in recent years can clearly be seen both in terms of asset quality and in its profitability and solvency levels.
For example, we have seen difficulties from banks in arranging promotion of risk culture and cascading the “tone from the top” to different levels of staff, simply because of the lack of F2F interactions. This has tremendously reduced the opportunities for staff to build rapport and foster a common culture, which is an important element in the culture promotion efforts. 5. Secondly, the pandemic disruptions have effectively put bank culture under stress test. Against the new mode of banking operation with significantly reduced F2F interactions, both amongst banking staff and between banks and their customers, there are signs of increasing hurdles in maintaining a sound bank culture. 6. On one hand, there are challenges in ensuring robust controls in a non-F2F environment. 1/4  BIS central bankers' speeches  Reduced physical oversights of staff activities by supervisors could greatly reduce the effectiveness of conventional control mechanisms and practices that worked well in the past, and thereby increased the risk of poor customer outcomes. 7. At the same time, the pandemic is driving changes in customer behavior. Customers have tried to avoid visiting bank branches in person as much as they can. If we look deeper at the statistics, the customer behavior of investment activities registered a significant change in the past two years. The proportion of online investment transactions out of all channels of retail banks has increased from 37% in the first half of 2019 to over 50% in the first half of this year.

In the second case, that is if the situation is rather one of a cyclical upswing, then clearly credit growth will have to undershoot nominal GDP growth for many years in the future. In both cases the present situation with credit growth significantly exceeding nominal GDP growth is not sustainable. However, the challenge to the financial industry to adapt to a much lower growth of credit is clearly larger in the second. This holds even if a harsh backlash in the form of an outright crisis can be avoided. Unfortunately it is not possible to precisely ascertain where we stand and what the future holds in store. Nevertheless, I will try to bring some clarity to the issue by examining – first – possible explanations for an increasing credit-to-GDP ratio (section 3), then by assessing their explanatory power in the Swiss case (section 4). Section 5 will conclude. 3  Between 2006 and 2008, the ratio temporarily decreased, as a result of the strong growth of GDP in this period. 4  In this context, it is important to note that a vast majority of outstanding loans in Switzerland are granted as mortgages (mortgage volume to GDP: approx. 140%). The discussion of the Swiss situation will thus focus mainly on mortgage loans. 5  As a third scenario it is also conceivable that there is a structural shift during which credit overshoots temporarily. This would also imply a certain correction down the road.
It showed that there existed areas in which we needed to think further or maybe even revitalise old knowledge. Not least, it  6  BIS Review 68/2010  made it apparent that, while central banks had become more adept at handling normal shocks to demand and supply, there remained a great deal to be learned regarding the manner in which imbalances on the financial markets ought to be handled. So what consequences can we expect the crisis to have for central banks’ method of working in the future? Is there reason to supplement current monetary policy reasoning – and, if so, how? A large part of what I will address here today consists of matters that are currently the subject of intensive international discussion. The final result of these discussions remains to be seen. Nonetheless, let me think aloud on the manner in which central banks’ work may be affected and on the challenges we will face. Effects on potential output and growth? One challenge concerns attempting to assess the manner in which the crisis will affect the economy’s long-term production capacity or potential output. This is significant for several reasons. Firstly, the deviation between actual and potential output, the output gap, is a measure of the stability of the real economy. Secondly, the output gap can affect the manner in which inflation develops. If the production of an economy exceeds its long-term production capacity (that is to say, if the output gap is positive), this tends to exert upwards pressure on inflation.

In most areas, inflation has fallen significantly and has been more stable than previously. The real economy also seemed to be developing with more stability, which was probably partly due to the fact that the policy was being conducted in a better reasoned manner than previously. There may be those who believed that most problems had been solved, and that the improved stability of the macroeconomy was here to stay. But the Great Moderation would turn out to be a deceptive calm. But an improved monetary policy was not enough The recent period has seen frequent discussion of the financial crisis and its causes, to put it mildly. Consequently, I do not intend to go into any detailed description of the development of the crisis, but will remain on a relatively intuitive level. The origin of the financial crisis lay in a number of interacting macroeconomic and microeconomic factors. However, the core of the crisis was that the banks and other participants took on too much debt in relation to the risks they were taking. Shortcomings in the regulatory framework, combined with a lack of understanding of new complex financial instruments, contributed towards the altogether too low pricing of risk by the market. Regulatory frameworks and supervision also failed to ensure that the banks had enough high-quality capital to maintain confidence when the economy took a downward turn and inflated asset values fell.