samchain/econo-pairs-v1 huggingface dataset:
For example, if the one-year interest rate was 2 percentage points higher in Sweden than in the United States, this would be compatible with a 2-per cent weakening of the Swedish krona against the US dollar during the year. The logic behind this is that “risk-free” investments in different currencies ought to have largely the same expected return. According to uncovered interest rate parity, a higher interest rate in Sweden than abroad should thus be linked with an expected future weakening of the krona. So how is this connected to my claim that the krona would become stronger as a consequence of an increased interest rate differential in relation to other countries? The answer lies in expectations and in what has already been priced on the market. This can be explained by a simplified example. Assume that the interest rate is originally as high in Sweden as in the rest of the world. In that case, uncovered interest rate parity says that the anticipated future exchange rate will be the same as the current exchange rate. If this expectation of the future exchange rate is taken for granted, an unexpected interest rate increase in Sweden would lead to an inflow of capital and an appreciation of the krona. The krona would now be expected to weaken in the period ahead, as the present rate is stronger than the anticipated future rate. Note that, on average, the krona will be stronger during the period in question due to the rise in interest rates in this example.

The economy has experienced a soft landing after the long period of high cost inflation in Norway and sluggish external activity. •  Output has returned to trend and is now showing a marked rise. •  Employment has returned to trend and is rising. •  Unemployment is at the 1996-level, and is at the average for the 1990s. •  Wage growth is broadly in line with a level that is consistent with the inflation target given nomal productivity growth. •  Overall credit growth is balanced. Credit is expanding broadly in line with trend growth in nominal GDP. •  Labour costs in Norway relative to our trading partners are now broadly in line with a long-term average. •  The nominal krone exchange rate is in line with the average for the 1990s. •  The interest rate level is near the level prevailing among our trading partners. •  Inflation expectations are approximately consistent with the target. In that respect, there is equilibrium in the Norwegian economy. But the current inflation rate is low, and external and domestic interest rates are low. Lagged effects of the strong krone in 2002 are exerting downward pressure on inflation. At the same time, a change in trade patterns and external economic conditions are pushing down import prices, even when measured in terms of what Norwegian importers pay in foreign currency. In Norway, intensified competition appears to be resulting in high productivity growth, which is probably contributing to low inflation.
The first set of examples above highlighted the need to critically evaluate contingent exposures: without true stress correlations, tail events will not be captured properly. We believe more emphasis should be put on this by investors, analysts and regulators alike. Inevitably that means severe stress tests involving “jump to default” risk and the need to consider counterparty and market liquidity risks, not just issuer risks in these circumstances. Some banks have told us that they think they should not be required to hold capital and liquidity to deal with such extreme tail events – leaving the public sector to be the capital provider of last resort. But that leads directly to moral hazard and excessive risk-taking. Tail events seem to happen far more often than people assume15 and if the risks were properly acknowledged at the outset, many structures would be avoided or risks re-structured so as to limit losses in the event of tail risks. That has obvious implications for financial stability. A crucial component of this analysis is the proper design of stress tests. Obviously, scenarios have to be rather draconian in order to serve the purpose of challenging the “unthinkable”, but at the same time there are difficult decisions to be made, for example, in deciding how much bank capital (contingent or not) banks should hold – and what the probability is of it being wiped out.

Anita Angelovska-Bezoska: Macedonia’s current macroeconomic landscape and main challenges ahead Speech by Ms Anita Angelovska-Bezoska, Vice-Governor of the National Bank of the Republic of Macedonia, at the economic and financial dialogue on the Economic Reforms Programs on Western Balkan and Turkey, Brussels, 12 May 2015. *  *  *  Dear Ministers, Dear representatives of the European Commission, European Central Bank and Eurostat, At the beginning, let me express our gratitude to the European Central Bank, European Commission and Eurostat for their assessment of our Economic Reforms Program for the period 2015–2017. Let me mention that we appreciate very much this dialogue with the EU institutions and the overall feedback on our policies that we have received during the process and we believe that it is highly beneficial regarding our preparedness for joining the EU. At this point, I would like to address several important issues related to the current macroeconomic landscape of the Macedonian economy, as well as the main challenges ahead. The growth momentum was kept in 2014, with the real GDP growth accelerating to 3.8% p.a. As the external environment is not sufficiently “growth-conducive”, the strong performance of the domestic economy is explained by country-specific factors. Firstly, it is a reflection of the positive fundamental shifts, with growing foreign investments, mainly in the tradable sector.
If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further. Our forward guidance was clear that, although we would not reduce the stimulus until the recovery is secure, we would if necessary provide more. Crossing the threshold to a healthy banking system Confidence that interest rates will stay low is a necessary step to securing the recovery, but it is not sufficient. The UK also needs a fit and healthy financial sector. It plays a vital role in generating services output in the UK, creating jobs and in exporting to the rest of the world. To serve the needs of the wider economy by extending credit to where it is needed, banks must command the confidence of their customers and investors. That is why a second element of the Bank of England’s strategy is to ensure that banks reach a clear threshold of good health. Some argue that the repair of banks’ balance sheets holds back economic recovery because it causes banks to cut back their lending. The reality is the opposite: where capital has been rebuilt and balance sheets repaired, banking systems and economies have prospered. US banks have added more to their capital base since the crisis and, as a result, have been able to provide more credit to their economy than UK banks have to ours. In the past two years, UK banks have reduced their lending to the real economy by 1%.

Specifically, we announced that we do not intend to raise Bank Rate at least until the unemployment rate falls to 7%, provided there are no material threats to either price or financial stability.1 All nine MPC members agreed to set monetary policy in future according to this framework of forward guidance. That does not mean Bank Rate will automatically rise when unemployment falls to 7%. Nor is 7% a target for the unemployment rate – it should ultimately fall well below that level. Before the Great Recession, the UK’s unemployment rate stood at just over 5%. The 7% threshold is instead a staging post along the road to recovery. When unemployment reaches 7% the MPC will reassess the state of the economy and the appropriate stance of monetary policy. Our forward guidance provides you with certainty that interest rates will not rise too soon. Exactly how long they stay low will depend on the progress of the recovery and in particular how quickly unemployment comes down. What matters is that rates won’t go up until jobs and incomes are really growing. The knowledge that interest rates will stay low until the recovery is well established should give greater confidence to households to spend responsibly and businesses to invest wisely. It may seem that unemployment doesn’t have far to fall, from the current 7.8% to the 7% threshold. The MPC’s central view, though, is that this could take some time – for three reasons.
Control Committees of the National Council and the Council of States (2010), The Swiss authorities under the pressure of the financial crisis and the disclosure of UBS customer data to the USA, report. Haldane, Andrew G. (2017), Rethinking financial stability, speech given at the ‘Rethinking Macroeconomic Policy IV’ conference, Washington, D.C., 12 October. Horton, Mark, Manmohan Kumar und Paolo Mauro (2009), The state of public finances: cross-country fiscal monitor November 2009, International Monetary Fund, IMF Staff Position Note, 09/25. International Monetary Fund (2014), Global Financial Stability Report: Moving from liquidity- to growth-driven markets, April 2014. Junge, Georg and Peter Kugler (2013), Quantifying the impact of higher capital requirements on the Swiss economy, Swiss Journal of Economics and Statistics, 149 (3), pp. 313–356. Page 13/14  Junge, Georg and Peter Kugler (2017), Optimal equity capital requirements for Swiss G-SIBs, University of Basel, Faculty of Business and Economics Working Paper, 2017 (11). Moosa, Imad (2010), The myth of too big to fail, Journal of Banking Regulation, 11 (4), pp. 319–333. Swiss Federal Council (2011). Dispatch on the amendment to the Banking Act (Strengthening the stability of the financial sector; too big to fail). Swiss Federal Council (2015), Federal Council’s ‘Too big to fail’ report. Swiss National Bank (2003) Financial Stability Report. Swiss National Bank (2016) Financial Stability Report. Swiss National Bank (2008), Measures to strengthen the Swiss financial system, press release. Stern, Gary H. and Ron J. Feldman (2004), Too big to fail – the hazards of bank bailouts, Washington, D.C.: Brookings Institution Press.

BIS Review 5/2004  Chart 6: The Saddam/Swiss Dinar exchange rate, Jan 2002-Dec 2003 Saddam/Swiss Dinar 350 300 250 200  Announcement of currency reform, 7 July  150 100 End of war, 1 May 50 Invasion of Iraq, 20 Mar 0 Jan-02  May-02  Sep-02  Jan-03  May-03  Sep-03  Source: United Nations, Central Bank of Iraq  But it is above the average rate that prevailed over the past six years, and above the rate that would equalise the purchasing power of the two currencies. For example, around the time when the new conversion rate was being determined, it was estimated that 128 Saddam dinars to the Swiss would equalise the wages of an engineer in the two parts of Iraq, 100 would equate the price of the shoes he wore to work, and 133 the price of his suit.16 From Chart 6, it is clear that the exchange rate hovered above 150 after the parity was announced on 7 July. There are two reasons for this. First, the 10,000 Saddam dinar note was heavily counterfeited, easy to do given the primitive local technology used to print them. The exchange rate of this note against the dollar is consistently less than the 250 dinar note which, as a smaller denomination note, was less heavily counterfeited. The Swiss notes, printed using more sophisticated technology, are virtually free of counterfeits.
Although output is estimated to have contracted in the third quarter of this year, there is a range of evidence from business surveys, from the Bank’s regional Agents, and from recent indicators that the economy has begun to stabilise and that we are likely to be moving into a period of renewed expansion. Whenever an economy is in recession, especially a recession as deep as this one, it can be hard to see where growth will eventually come from. However, as I have discussed, the easing in monetary and fiscal policy is providing considerable support to the emerging recovery. That stimulus is reinforced by the substantial depreciation of sterling. Sterling is around a quarter below its mid-2007 level and – as many of you here today will know from your own experiences – this has helped to improve the ability of UK companies to compete in both overseas and domestic markets. Output will also receive a further fillip as the adjustment of inventories by companies runs it course. However, the on-going structural adjustments that I mentioned are likely to give rise to a number of economic headwinds that may impede the recovery. Credit conditions are likely to remain tight for some time as banks repair their balance sheets. And the need for public and household finances to adjust to the changed economic environment will weigh on spending. Balancing these factors, my view of the outlook for GDP growth is in line with the projections contained in the Bank’s Inflation Report published last month.

A similar effect has operated for households: borrowers with floating rate mortgages in particular have seen their monthly repayments fall sharply. More generally, by reducing the returns on saving, the fall in interest rates has encouraged households and businesses to spend. The MPC’s programme of asset purchases has further stimulated demand by injecting additional money directly into the economy. The Bank’s purchases of government bonds encourage investors to diversify into alternative assets, such as corporate bonds and equities. The Bank is also operating directly in commercial paper and corporate bond markets to improve the functioning of those markets. Both actions have helped to boost the prices of corporate assets, reducing yields and lowering the cost to companies of raising funds in capital markets. This in turn should help to stimulate increased spending. The dramatic easing in monetary policy occurred alongside a range of Government policies. Most importantly, the Government’s actions to provide both capital and liquidity were  1  2  See Eichengreen and O’Rourke (2009). Romer (2009) makes a similar point. BIS Review 159/2009  instrumental in stabilising the banking system. The temporary reduction in VAT and the car scrappage scheme have boosted household spending and provided short-term support to retailers and the car industry. And the Government’s Business Payment Support Service has reportedly enabled almost a quarter of a million small and medium-sized firms to delay tax payments.
Spain had an oversized banking system, excessively concentrated on lending to the residential property sector and highly dependent on international wholesale financing. In 2008, the consolidated assets of the banking system amounted to 304% of GDP, bank lending to the property sector (in the broad sense of the term) reached 99% of GDP and bank debt held by non-residents accounted for 24% of GDP. Moreover a significant number of deposit-taking institutions suffered from institutional and governance shortcomings. Over the last decade many of these vulnerabilities have been resolved; in particular, those relating to the high level of non-financial private sector debt, which is now at levels similar to those in the rest of the euro area (having fallen by almost 70 percentage points of GDP from its peak in 2010). The weight of lending to property and construction activities has decreased by 47 percentage points of GDP. This reduction in non-financial private sector debt has been reflected in a decrease in the size of the financial sector and, in particular, in bank balance sheets in Spain, since business abroad has proved to be one of the main determinants of the resilience of some institutions. Thus, over the last ten years, the total assets of business in Spain have contracted by 20% (a fall of 72 percentage points of GDP) and employment in the sector has fallen by 32%.

We do not have zero appetite for failure of individual firms, provided that they do so in an orderly way that does not impose large costs or disruption on policyholders – neither in the form of direct losses nor of disruption – does not have knock on effects elsewhere in the financial system, and there is sufficient capacity elsewhere to substitute for the loss of the failing firm. We cannot leave this all to the market. Intervention in the form of prudential regulation is necessary because of the inverted production cycle in insurance – policies pay out after, in many cases long after, they are taken out – because of the limited or non-existent ability of many policyholders to monitor or react to increases in risk taking by their insurer during the life of their policy, and because of the incentive for managers and limited liability shareholders to increase risk if their capital stake drops too low – so called gambling for resurrection. These market failures are addressed not just by capital requirements, but by the interplay between capital and the other two pillars of the regime. Goldilocks and the three pillars: how much capital is just right? ‐ speech by Anna Sweeney | Bank of England  Page 3  Pillar 3: market discipline Pillar 3 is disclosure of information about a firm’s balance sheet risks. Market discipline is not wholly absent from the insurance sector either at the inception of or during the course of policies.
Therefore, striking the right balance in terms of the interest rate differential is of the essence – after the substantial tightening undertaken so far, translating into money market rates increases by almost 200 bps (a normal development given the size of the inflation differential), it is probably wise to proceed more cautiously from now on. As such, the future action of the NBR is likely to depend on how the process of monetary policy normalisation will be unfolding in Europe. Policy normalisation is a question of “when”, not “if”. It will eventually gain momentum and the impact of major central banks’ policy reversals on emerging economies should not be underestimated. When the tide eventually hits, the extent of the damage depends on how vulnerable emerging economies are to external financing. A contained current account deficit, a long average maturity on public and private foreign currency debt and a proper policy mix will help limit the negative externalities. Summing up, keeping internal and external imbalances in check is the only way our economies will be able to cope with the strong volatility headwinds ahead of us. Indeed, it would be a shame if the necessary reforms were not undertaken now, while there is a window of opportunity. 14 May 2018, Bodrum, Turkey  3/3  BIS central bankers' speeches

Implementation of the investment policy  Our investment policy has not fundamentally changed with the new Act. The monetary reserves continue to constitute core assets for monetary policy. They allow the National Bank to exert an influence on the Swiss franc exchange rate in exceptional situations and are available as an internationally accepted means of payment in a crisis situation. This presupposes a minimum degree of liquidity of these assets. Moreover, monetary reserves enhance the credibility of monetary policy and foster confidence in the Swiss franc. The security of these investments and growth of the monetary reserves in step with the development of the Swiss economy is an important consideration in this context. This is why monetary reserves ought to provide an adequate return, while taking into account the monetary policy restrictions. It is the aim of our investment policy to strike an optimal balance between the criteria of liquidity, security, and return. We assess and regularly review the National Bank’s liquidity requirements - i.e. its need for easily realisable and hence easily accessible assets - on the basis of our experience and taking due account of the current situation. Given the Bank’s large portfolio holdings in US dollar and euro government bonds, the liquidity requirements are currently more than met. This creates a certain amount of leeway for investing in instruments that are less liquid but generate a higher return. The investment criterion “security” must be seen in the context of the monetary reserves as a whole.
Focusing only on direct channels, the effects that one would expect to ripple back to the United States from problems in one or two EMEs typically look quite small. But, when all of the indirect channels of feedback are aggregated properly – which admittedly is difficult to do – the effects may be considerably larger. My point is that we tend to underestimate these feedback effects. For most of us, the market volatility of this past spring and summer still remains fresh in our minds. EME financial markets were hit hardest, with declines in equity prices, a widening in sovereign debt spreads, and a sharp increase in foreign exchange rate volatility. In the U.S., we saw a spike in Treasury yields, with 10-year rates rising by roughly 100 basis points from early May to early July, and rising by roughly another 30 basis points before peaking in early September. Most commentary has focused on the shift in expectations with respect to U.S. monetary policy – and, in particular, to uncertainty about the timing and implications of Fed tapering – as the catalyst for these moves. This focus seems generally right, although other factors also played a role. Market participants also had to evaluate the possibility that growth in China and other EMEs might be slowing even as growth in the U.S. and other advanced economies  BIS central bankers’ speeches  1  was picking up.

Deposit insurance makes clear where depositors stand: depositors know exactly how much of their money will be protected if a bank fails. Government statements that it will not bail out depositors beyond the insured amounts become more credible. However, deposit insurance is not without its downside. If its coverage is too broad, or it insures too large a proportion of deposits, it can cause the same problems as a government guarantee. A poorly designed deposit insurance scheme may make the banking system less rather than more stable. These problems can be mitigated if the deposit insurance scheme only insures small deposits, or sets premiums in line with the relative riskiness of banks, or discriminates between banks and subsidiaries that are incorporated here from those that are not. These are complex issues that need careful study, which MAS has begun. Conclusion This liberalisation package will provide further impetus for upgrading and progress in the local banks and Singapore's financial sector development. We will review the progress made in another 2-3 years, before deciding on further moves. Consolidation and continued liberalisation are important in building strong banks. But they are not in themselves sufficient. Banks must press on to upgrade their capabilities. They must keep abreast of international best practices, new products, technological developments and new ways of doing things, while retaining the support and confidence of consumers. ABS can play a part to help the banks do this. The government will do its best to maintain a sound regulatory framework, conducive to competition and innovation.