samchain/econo-pairs-v1 huggingface dataset:
This type of crude stress test is quite helpful for a sense of how solid the system’s capital buffer might be, but it doesn’t allow you to take into account second and third round effects. If NPLs have risen to 20 percent of total assets, then there are likely to be a lot of other things happening in the economy at the same time, all of which could have additional implications for banks’ financial soundness. As a result, stress testing is moving increasingly in the direction of scenario analysis. This involves economists constructing scenarios for the outlook on GDP, interest rates etc. and tracing through these changes in terms of their impact on the key measures of banking system soundness including profitability and capital adequacy. This approach involves some quite advanced economic modelling techniques and is still in its early days. However, the recent revamp of the Bank of England’s financial stability report that I mentioned earlier was designed to give a larger role to this type of analysis. A final issue that I’d like to discuss is that macro prudential analysis cannot stop with the banking system or at the borders of a particular jurisdiction. In the past it might have been reasonable to think that systemic risk was something that began and ended with the banking system.

Page 9  Chart 6: Indicators of pay growth are elevated  Sources: HMRC, ONS and Bank calculations  A tight labour market is accompanied by resilience in business confidence. In line with evidence from the Bank’s Decision Maker Panel survey, this may reflect business-to-business pricing power within supply chains still suffering from supply disruptions. After all, within a single supply chain, one firm’s sourcing problem is another firm’s resilient demand. Supporting this view, the Banks’ Agents report that a further strengthening of margins is likely, especially in firms that are not directly facing consumer demand. Page 10  Chart 7: PMIs suggest business confidence is resilient(a)  Sources: S&P Global/CIPS. (a) A reading of above 50 indicates positive change on the previous month while a reading below 50 indicates negative change. Data for April 2022 are flash estimates. Chart 8: Banks’ Agents report further strengthening in margins is likely  (a) Question: ‘To what extent have you already passed through higher costs to prices?’  The influence of monetary policy On the back of this assessment, the current momentum in UK headline inflation developments is  Page 11  substantial. But, given lags in the transmission of monetary policy to price developments, high inflation today does not, of itself, justify tighter policy today. Rather monetary policy has to be forward looking, calibrating the policy stance to be appropriate at a horizon of 18 months to two years, once the transmission lags unwind. And that is where the MPC’s May forecast gets more complicated.
Using this transformation, the policy problem can be re-stated as: min(𝜋𝑡 − 𝜋 ∗ )2 + 𝜆𝑥𝑡2 𝑥𝑡  𝑠. 𝑡. 𝜋𝑡 − 𝜋 = 𝛽𝐸𝑡 (𝜋𝑡+1 − 𝜋 ∗ ) + 𝜅𝑥𝑡 + 𝜀𝑡𝜋 ∗  Because the policymaker cannot commit to future policy actions, she takes expectations as given (i.e. does not internalise the possibility that, by committing to future policy actions, expectations can be manipulated having an effect on outcomes today). The first-order condition in this case is: 2(𝜋𝑡 − 𝜋 ∗ ) Using  𝜕𝜋𝑡 𝜕𝑥𝑡  𝜕𝜋𝑡 + 2𝜆𝑥𝑡 = 0 𝜕𝑥𝑡  = 𝜅, this simplifies to: 𝜆 𝜋𝑡 − 𝜋 ∗ = − 𝑥𝑡 𝜅  giving equation (1) after using 𝑥𝑡 ≡ 𝑦𝑡 − 𝑦𝑡∗ . This optimality condition has three intuitive features. First, positive inflation gaps should be matched by negative output gaps, and vice versa. Given a quadratic loss function, it makes sense to “spread the cost” associated with shocks across both target variables, rather than loading all the cost on to one alone. Optimal policy therefore returns inflation and output back to their target  (1−𝛽𝜃)(1−𝜃)  In particular, if firms re-set their prices with probability 1 − 𝜃 each quarter, then one can show that 𝜅 ≡ , such that as 𝜃 rises 𝜃 (i.e. as prices become more sticky), the slope of the Phillips curve falls. The average duration of a price is (1 − 𝜃)−1 .

Because its remit requires it to support strong yet sustainable and balanced growth, in exceptional circumstances, and in consultation with the FPC, the MPC could have to optimise – subject as always to society’s risk preferences – over a longer time horizon in order to avoid inter-temporal disequilibrium, with the 26  E.g. Mian, A and Sufi, A (2014), House of debt, Chicago. See for example, Aikman, D, Haldane, A and Nelson, B, (2015) “Curbing the credit cycle”, Economic Journal, 125(585), June. Though not the only one. Others included the absence of a credible resolution regime for failing institutions, inadequate capital and liquidity standards, excessive complexity and opacity in the financial system, and cultural failings alongside other perverse incentives for excessive risk taking. 29 The full FPC remit can be found here: http://www.bankofengland.co.uk/financialstability/Documents/fpc/letters/chancellorletter160316.pdf 27 28  14  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches  14  result that inflation could deviate below target temporarily in order to achieve a more sustainable return to the target and more stable growth beyond the conventional policy horizon. 6. The Current Trade-off How do these factors relate to the recent conduct of monetary policy? In May, the MPC said that the effects of a vote to leave the EU on inflation would depend on the balance of its effects on demand, supply and the exchange rate.
In contrast, if the economy lacked forward momentum and the risks of a return to the zero lower bound were judged to be considerably higher, I would want to continue reinvestment until the federal funds rate was higher. Consistent with the general principles I mentioned before, the evolution of the overall monetary policy stance – both interest rate decisions and balance sheet developments – should be data dependent. In my view, good monetary policy-making requires ongoing assessment and judgment, not the adherence to mechanical rules. I know market participants desire certainty, but in the uncertain world in which we live, that desire is not consistent with the policy that would best achieve our objectives. We will strive to communicate as clearly as we can so you can think along with us and alter your expectations just as we do in response to incoming information. Thank you for kind attention. I would be happy to take a few questions. BIS central bankers’ speeches  7

Moral development is equally important as technical development Laws can promote good governance but they cannot ensure its adoption in organisations. The experience of many regulators is that, on many occasions, organisations vociferously announce of governance principles, but in practice, totally disregard them. In other words, with respect to governance, there is a wide gap between what is on paper and what is actually practised. In the case of microfinance institutions, this gap has to be eliminated totally. A sure way to do it is to develop microfinance practitioners both morally and technically. To attain a high  BIS Review 82/2009  3  performance level, technical developments are necessary; but, without moral development, its sustainability cannot be guaranteed. Hence, the moral development of microfinance practitioners must receive the highest priority in any microfinance training programme. In simple terms, they should cultivate truthfulness, honesty, respectfulness and exemplar in them. A mere technical knowledge without these quality traits in-built into their personality would be meaningless as far as the future of microfinance industry is concerned. 4  BIS Review 82/2009
Mr Latter gives an overview from Hong Kong of eight Asian economies Keynote address by Mr Tony Latter, a Deputy Chief Executive of the Hong Kong Monetary Authority, at the Asian Financial Markets Conference held in Hong Kong on 26-27 April 1999. Thank you for inviting me to address your conference today. It is encouraging to see such a wide and distinguished representation here from the financial and commercial communities. Indeed, when I looked down the advance attendance list, I quickly realised that there would be very little which I could tell you about market developments in Hong Kong that you didn’t know already. So, if you will allow me, I should like to spend some of my time standing back a little from specific market topics and looking instead of some of the macroeconomic forces which shape their development. I shall focus my analysis on eight Asian economies [see table]. You will note that the list does not include Japan, Hong Kong or Singapore. That is because they can already be regarded as having relatively mature financial infrastructures and they are largely free of capital controls. Thus, for reasons which will become apparent as I proceed, they do not fit into the story. The table shows the level of physical capital investment within each economy (specifically, gross domestic fixed capital formation as a percentage of gross domestic product) for the ten years to 1997.

Unfortunately I do not think that it makes much sense to try to show specific statistics for such outflows, since in this field data are notoriously unreliable - the more so in instances where controls exist which encourage outflows through what are euphemistically called informal channels. But in general terms the existence of such outflows is strongly implied, if not actually identified, in the overall balance of payments figures. Regarding capital outflows, allow me, for purposes of exposition, to make the following exaggerated distinction. In respect of advanced economies, outflows of direct investment tend to reflect the global workings of comparative advantage, as businesses seek to exploit particular strengths or niches; and portfolio outflows tend to reflect the search by each investor for a balanced international portfolio, within the total of which, however, domestic investments will typically tend to predominate. By contrast, in the less advanced economies there will be less wealth to provide the springboard for a large amount of direct overseas investment, and a large part of the leakage of funds from the country will be through what I have referred to as informal channels - which others may describe as capital flight. The position of any particular country in the spectrum between these two extreme characterisations will depend on, among other things, the stage of economic development that the country has reached, and on the degree of confidence that the population has in the government’s policies and in the financial institutions.
Whereas it was once natural to put money into a normal savings account, this is no longer the case. Today, an increasingly large share of savings is being invested in various securities and the rapid expansion in the mutual fund market is an important part of this development. One only needs to look at the Swedish Mutual Fund Association's own report on mutual fund investment in Sweden to realise this. The statistics show that new mutual fund investment has increased gradually during the 1990s. In 1994 net investment in mutual funds totalled SEK 7.5 billion. Last year the corresponding figure was SEK 99.1 billion. This is an entirely natural development, as it has been possible to obtain a significantly higher yield from savings invested in various types of securities than from savings paid into a traditional savings account. Swedish investors have not only realised this, they have also understood how to use the financial market to spread their risk by investing money both in fixed income funds and in shares in different types of companies within different sectors and countries. Many people, including me, see this development as a positive thing; others are critical and express concern over what they call an insensitive fund capital, shovelling money around the world and quickly withdrawing from countries that show the slightest sign of problems. This criticism cannot be completely dismissed, but I do feel that it often does not fully take account of the importance of the financial sector for economic development.

You can see that reflected in the IMF’s forecasts for world growth. In every one of the last five years the world economy has underperformed the forecast.3 Indeed it has pretty much become an annual event that the world economic growth forecast is downgraded as stresses emerge somewhere in the world economy or there are serial disappointments on pay and productivity. This is not to denigrate the IMF’s forecasters. You see the same effect in the Bank’s own forecasts and in private sector forecasting. For example, the Bank’s growth forecasts made in 2010 were derailed by the euro-area crisis. These outcomes are a combination of not understanding at the outset how slow the healing process from the 2008 crisis would be and subsequent unforeseeable and unfortunate events. Secular stagnation story There is another rather different story however, one more reminiscent of our friend the mythical boiled or frozen frog. In this other world, we are not on a slow healing path, subject to a series of unfortunate events. Rather, there are deep secular and structural forces pushing down on our economies. These began to have an impact before the financial crisis. But their effect was masked somewhat by stimulative effects of the financial sector bubble as it inflated and was only exposed in the post-crisis world. In this story there is recovery from the crisis, of course, but it is recovery to economies with both considerably weaker growth potential and considerably greater vulnerability to shocks.
While $ billion was authorized for the program, only approximately $ billion in total was lent. Moreover, because loans were paid back as private credit markets improved, the maximum amount of credit extended under the program was about $ billion. Today, there is about $ billion of TALF credit outstanding. It is worth considering why the program was able to achieve such significant market improvements with a limited amount of balance sheet. The success of the TALF may reflect that it targeted a market under severe stress, one characterized by extreme liquidity premiums that had caused asset prices to become detached from the underlying credit quality of the securities. Under those conditions, our involvement was able to have a substantial effect, in part by pushing those markets back toward more normal functioning and pricing. To be sure, improvements in funding markets broadly and in the macroeconomic outlook during the course of the program clearly influenced the recovery of securitized credit markets. That said, the TALF lending mechanism has been widely credited with helping to jumpstart those markets. As markets have improved and the liquidity premium on securitized credit has shrunk, the TALF has become a less appealing source of funding. Indeed, borrowers have been prepaying their loans as spreads have narrowed below the TALF lending rate. At this point, those asset-backed securities markets that were supported by TALF appear to be standing on their own.

Issuance virtually ground to a halt, resulting in significant funding concerns for a variety of lenders who relied on securitization. These funding strains prompted some lenders to dramatically tighten underwriting standards, thus reducing overall credit to consumers and businesses. A prolonged shutdown of the securitization market could have compounded the credit crunch and increased the risk of an even more severe contraction of the economy than we experienced. In response, the TALF was created to provide liquidity in the form of term loans to investors in the least risky part—the AAA tranches—of particular types of asset-backed securities, including those backed by consumer loans, student loans, small business loans, and commercial real estate loans. The hope was that, by providing loans directly to investors against asset-backed collateral, the TALF would help stabilize and improve the prices at which those securities could be sold, thus reducing lenders’ costs of funds. With lenders’ funding strains alleviated, the extension of credit to consumers and other borrowers could occur on more favorable terms. While the TALF is essentially similar to other programs in its basic objective of providing liquidity and encouraging the extension of credit, it is worth highlighting that the TALF has several features that are not common in other liquidity facilities. First, TALF loans are non-recourse, meaning that the borrower can put the collateral to the Federal Reserve rather than repay the loan if the collateral value falls sufficiently below the amount owed. The provision of non-recourse loans helped to encourage investor participation.
Of course, I was a little uncertain as to whether I should just be pleased about this. But I think there is reason to be; it shows namely that we have a monetary policy regime which is stable and not dependent on single individuals. Inflation targeting – some thoughts on the future As I have mentioned, the macroeconomic outcome for Sweden has been relatively good over the past decade. Of course, this does not prevent there being questions worth discussing and much that can be improved. This also applies in the field of monetary policy. An important question in this context is what one can expect from monetary policy. If the expectations are excessive, there is a risk they will lead to the wrong issues being discussed and, if the worst comes to the worst, to political discontent that will undermine the current monetary policy system. Reasonable expectations According to the Sveriges Riksbank Act, the Riksbank is to safeguard price stability. We have chosen to implement this by keeping inflation at a target level of 2 per cent. The fact that the legislator has been clear that low inflation should be the target for monetary policy and nothing else, such as high growth or low unemployment, is because inflation is the only factor the Riksbank can govern in the long term. It is therefore unwise, and perhaps even counterproductive, to give a different impression.

In this Report the forecast in the main scenario is based on the assumption that the repo rate evolves in line with implied forward interest rates. According to this assumption the repo rate will remain at 1.5 per cent up to about the second quarter next year, when it gradually begins to be raised. Overall, the Swedish economy is forecast to grow at a comparatively firm rate during the forecast period. GDP growth is estimated to be 2.3 per cent this year and 3.0 per cent next year. Thereafter, it will gradually fall towards just over 2 per cent in 2008. Compared with the assessment in the June Report, this is an upward revision and the fundamental outlook is now more positive. For this year it is mainly the revision of the outcome for the first quarter that has affected the forecast. After that it is, among other things, the more expansionary economic policy compared with our June Report – both a slightly lower repo rate and more expansionary fiscal policy – that have raised the forecast.1  Resource utilisation to increase gradually There are now signs that the situation in the labour market is improving. Among other things, the number of hours worked has begun to rise and indicators of the number of redundancy notices and new job vacancies also point to a more robust labour market.
After provoking an exceptional increase in liquidity in August, on 6 September 2011 the SNB announced that it would no longer tolerate a EUR/CHF exchange rate below CHF 1.20. This measure remains the focal point of Swiss monetary policy. In the current global context, Switzerland’s economic situation does not justify any strengthening of monetary conditions and this should remain the case for the foreseeable future. The SNB continues to enforce this minimum rate with the utmost determination and remains prepared to buy foreign currency in unlimited quantities for this purpose. From a conceptual perspective, the minimum exchange rate is not a quantitative easing measure and most of my generic comments do not strictly apply to the Swiss case. Nevertheless, the risks associated with this measure do, to a certain extent, resemble those I just described. The first of these risks is that the minimum exchange rate may superficially seem like a simple or straight-forward measure, which may in turn give the impression that monetary policy is a catch-all problem-solver, i.e. that it is almighty. This is clearly not the case. Monetary policy has neither the capacity nor the mandate to protect the Swiss economy from all the shocks to which it is subjected. The aim of the minimum exchange rate is to avert the worst possible developments in zero interest rate environment. It is not a response to each and every challenge with which the Swiss economy is faced, nor can it be implemented at any desired level, free of any risk.

One is that the ability of supervisors to make plans to co-operate across borders, and thereby to reduce the regulatory burden on an individual bank during the transition to the new framework, depends to a great degree on the clarity of a bank’s own implementation plans. Another finding is that in some cases the overseas branches and subsidiaries of the bank may know very little about its own plans to adopt Basel II. This may be true even in some institutions that plan to adopt advanced approaches. Because the bank’s local managers may lack knowledge of how Basel II will be implemented internally, supervisors in the host jurisdiction may be uncomfortable with the bank’s overall readiness for Basel II. It may simultaneously increase the host supervisor’s need to contact the bank’s head office or its home supervisor for more information - something that might duplicate requests for information. The bottom line is that for home and host supervisors to work toward a more consistent application of Basel II, each bank’s own plans for adopting the approaches in the new framework should be clear and comprehensive. Equally important, banks should communicate those plans not just to their supervisors, but also to their own overseas branches and subsidiaries. And now, if you will permit me, before concluding my remarks today I would like to put on a different hat for a moment, and speak from my perspective as a banking supervisor from a European Union country.