samchain/econo-pairs-v1 huggingface dataset:
The second cost is due to the fact that deflation, if it is unexpected, results in a redistribution of wealth from borrowers to lenders. The third cost stems from the real interest rate becoming too high in relation to demand. The IMF’s report on deflation last year pointed out these costs and emphasised that monetary policy must be preventive, vigorous and forward-looking with the aim of avoiding deflation. If deflation should nevertheless arise, what tools do we have to deal with the situation? If the scope for interest rate cuts has been exhausted, central banks must resort to other measures. These include, for instance, trying to influence interest rates on securities with a long time to maturity and creating confidence in a higher inflation rate in future. In addition, fiscal policy can be more expansionary. A boxed article in the October 2003 Inflation Report described the Riksbank’s views on the deflation problem. The risk of deflation was portrayed as slight, given the targeted monetary policy and improved economic activity. However, there are analysts, such as the American economist Paul Krugman, who see parallels between the situation in Japan ten years ago and the American situation now, for instance with regard to the low level of resource utilisation and the aftermath of large share price bubbles.

Cera, K. (2022), “Measuring market-based and non-bank financing of non-financial corporations in the euro area”, Financial Integration and Structure in the Euro Area, ECB, April, Box 2. 5. Giuzio, M. and Lenoci, F. (2023), “Corporate loans vs market-based finance: substitutes or complements?”, Financial Stability Review, ECB, May (forthcoming). 6. Grjebine, T., Szczerbowicz, U. and Tripier, F. (2018), “Corporate debt structure and economic recoveries”, European Economic Review, Vol. 101, January, pp. 77-100. 7. Grimm, N., Laeven, L. and Popov, A. (2021), “Quantitative easing and corporate innovation”, Working Paper Series, No 2615, ECB, November. 8. Dekker, L., Molestina Vivar, L., Wedow, M. and Weistroffer, C. (2022), “Liquidity mismatch in open-ended funds: trends, gaps and policy implications”, Financial Stability Review, ECB, November, Box 6. 9. Molestina Vivar, L., Wedow, M. and Weistroffer, C. (2023), “Burned by leverage? Flows and fragility in bond mutual funds”, Journal of Empirical Finance, Vol. 72, June, pp. 354-380. 10. Grill, M., Molestina Vivar, L., Mücke, C., O’Donnell, C., O’Sullivan, S., Wedow, M., Weis, M. and Weistroffer, C. (2022), “Mind the liquidity gap: a discussion of money market fund reform proposals”, Macroprudential Bulletin, Issue 16, ECB, January. Copyright 2023, European Central Bank
When a shock hits and the correlation breaks down, the hedge breaks down too, with a double whammy to VaR and so, for regulated firms, to regulatory capital requirements: through higher volatility, and a higher measured exposure. To be clear, this is not the fancy of the ivory tower. As discussed in the Bank’s latest Financial Stability Report, it was one of the factors contributing to the recent volatility in the market for US sub-prime mortgage securitisations. Indeed, this hazard may conceivably have increased during a period when markets have not been especially volatile. If investment banking entails warehousing optionality and complex forms of basis risk, it puts a premium on stress testing. Speaking as a policy maker, I would want so-called macro stress tests to be complemented by more fine-grained stress tests in which management explore the exposure to complex risks given their qualitative understanding of their business, and taking into account the possibility of impaired market liquidity. In other words, risk managers need to do “market intelligence”  7  The Bank of England took some steps in this direction as part of the fundamental reforms to its Sterling Monetary Framework market operations in summer 2006. The role of central banks in accommodating sharp (velocity) shocks to the demand for their money was discussed in Tucker P M W (2004), “Managing the central bank’s balance sheet: where monetary policy meets financial stability”, Lecture to mark the fifteenth anniversary of Lombard Street Research, London, June 2004, Bank of England Quarterly Bulletin, Autumn 2004, pp 359-382.

Even country workouts in the early 1980s had that broad shape, albeit with the IMF holding the ring. One might wonder how on earth it would work today, in a world of traded debt, synthetic risk transfer, and vehicular finance. Much thinking remains to be done on this, but a policymaker has to form a preliminary view, just in case the music stops tomorrow. My provisional view is that some investors in credit risk would find themselves without the skill set to participate in a workout. In a “covenant-lite” world, they might also find themselves with fewer protections as conditions deteriorated than they would like ex post. Unless markets seized up, however, they might be able to crystallise their losses by selling out to funds and bank desks who trade in “distressed credit”; and they in turn might be able to sell on to funds and banks with specialist workout skills and risk appetites. By such transfers, the end-game co-ordination problems might be reduced. On the way, some hard bargains would be struck, and some participants would no doubt be surprised by their losses. But this relatively benign scenario is not guaranteed. It depends on markets continuing to function; on the infrastructure holding up through volume surges and stress; on the shadow of the insolvency regimes in various jurisdictions establishing productive incentives; and on lack of uncertainty in the terms and conditions of market contracts. That last point needs underlining.
Update on the microfinance regulations •  The draft microfinance regulations, which are aimed at providing a legal framework for regulation and supervision of microfinance institutions, are currently being reviewed by the BoZ and are scheduled to be submitted to the Minister of Finance and National Planning during the second quarter of 2004. Polymer notes •  As most of you must have heard, through the media, there are public concerns about some features fading on the polymer banknotes of K500 and K1,000. While we have also noticed a number of them, we wish to inform you that fading is a definite and expected feature of these notes as they approach the end of their useful life. However, we also feel that being a new concept, the notes could still be subjected to undue stress testing due to public curiosity. However, we are also not ruling out premature wearing of the notes. We are therefore doing everything possible to ensure that subsequent consignments do not suffer similar setbacks. In the meantime, we wish to make an earnest appeal to all the banks to assist the Bank of Zambia in ensuring that faded notes are quickly taken out of circulation, in the same way as soiled banknotes have been handled in the past. The Bank of Zambia is also going to set up mechanisms for enhancing the process and pace of siphoning faded notes from circulation.

4  BIS Review 27/2004  ESAF/SADC Bank Supervision Application project •  The implementation of the BSA project has reached an advanced stage. It is expected that the implementation will be completed by end of April. The consultants are finalising the returns that will be used for submission of data. The finalised returns, in the form of a workbook will be circulated to all the banks. In the meantime, the BoZ would like to thank the five banks (Barclays Bank, Stanbic Bank, Cavmont Capital Bank, Investrust Bank and African Banking Corporation) that submitted test data for finalising the returns. The BoZ will be calling on the banks to take part in the testing of the electronic submission of data. Non-bank financial institutions sector •  The performance of the non-bank financial institutions sector was generally satisfactory although some institutions were still faced with financial distress. The Bank of Zambia is addressing the problems of distressed financial institutions within the framework of the Financial Sector Development Plan. 3. Announcements and areas of concern  Update on the Financial Sector Development Plan (FSDP) •  The BoZ is seeking comments from the public and other stakeholders on the FSDP which was placed on the BoZ website on 6 February 2004. The last day for submission of comments is 31 March 2004. A National Forum to discuss the FSDP is scheduled for April 2004. Further details on the Forum will be advised in due course.
On other occasions there may be an obstacle in the form of a disruption, such as the Asian crisis the other year. In both cases, monetary policy must be adjusted to the economic laws but also to the conditions that apply for the current phase of the journey. What I mean is that interest rate hikes and cuts are a natural ingredient of a monetary policy for price stability - a policy that ultimately aims for a stable development of production and employment. The favourable economic trend in Sweden in recent years is in fact a good illustration of price stability’s affinity with a stable expansion of output and jobs. Since the upturn after the crisis in the early-1990s, the annual GDP growth rate has averaged around 3%, the number in employment has risen by almost 150,000 persons and the rate of inflation has been more or less around the target. This has called for repo rate increases on some occasions and cuts on others. 1  BIS Review 6/2000  Rapid GDP growth during 1999 So at what speed is the Swedish economy currently travelling? What are the speed limits? And what repo rate is appropriate for a safe journey? According to the latest national accounts, published just before Christmas, the GDP growth rate for the first three quarters of 1999 was over 3.5%. It is still difficult to tell just what happened in the fourth quarter but demand growth seems, if anything, to have accelerated.

We aim to achieve a return on the Fund which exceeds market returns by 25 basis points every year. Since inception, the excess return has been 31 basis points, a satisfactory result in our view. The chart shows our major investments in Spain. We more than doubled our holdings of Spanish public debt during 2010. The reason was partly increasing returns, which made these investments more attractive. By the end of 2010, the Fund owned stocks in 80 companies listed on Bolsa de Madrid. The total value of these investments was EUR 5.6 billion. That is on a par with the benchmark portfolio. That makes our Fund one of the largest financial investors in Spain. The fact that the Fund represents another country’s government makes it important for us to be transparent, regarding both our targets and aims and our modus operandi. The central point is the division between the government and the central bank. The government provides the rules, the central bank makes the concrete investment decision. Another is our mission to be a financial investor. We seek no strategic stakes. We do not sit on the executive boards. Thank you.
Both the financial crisis and the recession which followed it were global economic events. No major economy in the world was unaffected by the financial turbulence and the dramatic downturn in world economic activity in late 2008 and early 2009. And on the inflation front, we have seen major global forces operating too, with the inflation rate in the UK and other countries being significantly affected by large price swings in global energy and commodity markets. The global economy is now much more integrated and interdependent than at any time in the history of the world. Four main forces have come together in the past two decades to create the “New Global Economy” of the 21st Century. First, new technologies have had a major impact, notably the development of global information technology, media and communications networks. Second, barriers to trade have been reduced, with most of the world’s nations now participating in a liberal and open trading system. The World Trade Organisation now has 153 members, covering 97% of the world’s population. Third, political change has extended the global market economy to large parts of the world which were previously closed to international trade and investment – including China, India and the former Soviet Union economies. And fourth, there has been a tide of deregulation of markets – including financial markets – in many countries, and as markets have been deregulated, they have also been opened up to international competition.

8  As I have pointed out in an earlier speech (Sentance, 2011), UK inflation has persistently run ahead of the euro area, Sweden and Switzerland since the financial crisis,  BIS central bankers’ speeches  11  Chart 11 – UK goods and services inflation Annual percentage change in consumer prices 7  Goods inflation  6  Services inflation  5 4 3 2 1 0 -1 -2 -3 2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  Source: ONS For these reasons, I have been arguing for the past year that the MPC should embark on a policy of gradual interest rate rises and that delaying this process exposes us to greater inflationary risks in the future – which would not be good for economic growth in the medium term. Continuing to accommodate inflation makes it more likely that a future sharp policy correction will be needed, particularly if persistent high inflation becomes embedded in wage and price-setting. That not only poses a threat to the recovery further down the track, but it could erode the hard-earned credibility of the UK monetary policy framework – which would be very damaging for economic growth over the longer-term. Here in Jersey you are in a monetary union with the UK. So you too have a strong interest in the MPC getting its policy judgements broadly correct.
Solvency II review, internal models and the solvency capital requirements calculation Having mentioned the Solvency II review, I do not propose to try and cover the many topics that it encompasses. I do want to talk about one aspect which risks being overshadowed by the familiar headline topics of risk margin, regulatory reporting, and matching adjustment. That is, the overall approach to setting capital requirements, and the potential role of sector-wide stress testing in that. Under the existing implementation of Solvency II, there are many firms for which the standard formula is not appropriate, and internal models are the near-exclusive determinant of capital requirements for all or part of the business. And those models either have to be approved or, if not, rejected in their entirety, using a bottom up approach of assessing compliance with a large number of technical tests and standards. The philosophy is, in effect, that everything can be modelled, and that determining capital adequacy is essentially a technical exercise. This denies the reality: first that some risks are simply not conducive to modelling; and second that even for those that are, there will always be a chance that the model is wrong. It hinders supervisors in responding flexibly to risks not well captured by a specific model, or by modelling in general. And it has led to huge expenditure of effort by both firms and supervisors in the approval of models and model changes.

The more prolific the reporting, the more robust the risk assessment and the more widespread the return optimisation, the more rapidly this transition will happen, breaking the Tragedy of the Horizon. 12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12
These costs would have had to be included in order to provide a complete overview of society’s total costs related to the payment system. Users’ participation in the production of payment services does not necessarily have a positive impact on society’s overall efficiency in the production of payment services. Increased use of e-invoicing will, however, increase the efficiency of electronic bill payment. The survey does not cover the payees’ costs related to invoicing. BIS Review 66/2002  5  8. Price developments 1993 - 2002 Paper-based services  Electronic services  2001 NOK  4 2001 NOK  40  3.5  35 Giro cash  30  3  Giro at the counter  25  Telephone giro  2.5  20  2  15  1.5  Cheque  10  EFTPOS  PC/Internet giro Direct debits  1 Mail giro  5  0.5  0  '02  20 00  98  96  94  '02  98  20 00  96  94  0  Both developments in the use of payment services and research show that prices affect customers' use of different payment services. Despite the price increase for most paper-based services, the weighted average price per transaction, at constant prices, has fallen since 1994. 9.

Here we are fortunate to have among the presenters Dimitri Vayanos, Gautti Eggerston, and Eric Swanson, all accomplished scholars who have dedicated an important part of their research in recent years to delve deeper into the quantitative effects of such policies. The second session deals with the financial stability considerations of these measures. After all, to date several unconventional policy efforts have begun in Japan, the US, Europe and elsewhere, but none has so far ended –in short, we are not out of the woods yet, and claiming success might still be a bit preliminary. The concern is that while an ambitious program of asset purchases might be welcome by different investor classes as asset prices are pushed upwards, it might prove much more difficult to orchestrate an orderly retreat which inevitably relies on increasing discount rates at which future income streams are priced. This is particular true if some projects were only funded to begin with due to the exceptionally low interest rate environment, and/or if such investments were intermediated by fund managers who care not only about income streams, but also (and mostly) about short-term price fluctuations. Here we will have an interesting discussion including papers by Stephen Morris, Michael Woodford, and Gustavo Suarez, which will enlighten us about the theoretical aspects to keep in mind when evaluating the broader consequences of asset purchase programs, as well as the empirical evidence regarding the effects of the risk-taking channel on the quality of loans originated.
It is striking that, in the last five years, global standard setting bodies such as the Basel Committee on Banking Supervision have moved to address risk culture, risk appetite setting and risk governance more explicitly in regulatory standards. This was not the case prior to the crisis, when emphasis was predominantly placed on risk management processes and systems, believing that this ought to be sufficient. Organisations largely failed to take into account behavioural biases that play such an important role in senior management decisions which ultimately affect the risks that a company will be willing to take or tolerate. These decisions include how performance targets are set for staff, how incentive structures are designed, and the stature and resources that are provided to risk management functions within the organisation – all of which can create a constant uphill struggle for risk managers to have any meaningful impact on risk outcomes. To illustrate the point, a report published by  BIS central bankers’ speeches  1  the Office of Financial Research in the United States observed that much of the advancements in risk management over the last decade have resulted in a highly analyticalfocused discipline, while largely ignoring the fundamental drivers of risk-taking that are rooted in more subtle behavioural characteristics. Within the financial industry, financial institutions in Malaysia are required to establish a wellresourced independent risk management function that reports directly to a board risk committee, and take active measures to promote a prudent risk culture in the organisation.

Few companies have robust risk management frameworks that incorporate measures of how their products and services affect the well-being of consumers or if consumers are being treated fairly, as long as legal exposures are contained. And efforts to adopt triple bottom line approaches to reporting firm performance are only beginning to gain traction. Within Asia, fewer than 10 banking institutions today subscribe to the Equator Principles for assessing and managing the environmental and social risks for projects. Clearly the gap between the existing risk management practices and a whole-of-business approach which fully embraces broader aspects of risks remains large. Regulation and greater shareholder activism will remain important drivers of change, and in my view, so will a new breed of risk managers who effectively integrate traditional and emerging risk perspectives, and who can speak to these perspectives in a compelling and cohesive way to an organisation’s key stakeholders. A third observation that I want to make today relates to the increasing importance of viewing risks over a longer-term horizon, and imagining the unthinkable. I mention these together for a reason. When one is focused on looking both backward and forward over a reasonably long horizon, the universe of what is unthinkable becomes smaller and our vision is less likely to be blinkered by limited experiences of only the most recent past. We are also likely to become more open to broader possibilities of new and emerging risks on the horizon.