samchain/econo-pairs-v1 huggingface dataset:
The bank therefore contributes to ensuring that the mediation of capital in the economy functions efficiently; it is sufficient that borrowers can convince the bank of their creditworthiness, they do not need to convince each individual saver. Similarly, savers do not have to assess the creditworthiness of every borrower; it is enough to be satisfied of the bank's solvency. The banks can also supply payment services for households and companies by using the existing financial infrastructure, such as accounts and various routines for transferring funds between financial institutions. As these functions are central to an efficient economy, it is evident that major problems can arise if financial stability is upset. This is aptly illustrated by, for instance, the crises in South East Asia at the  BIS Review 52/2006  3  end of the 1990s and by the bank crisis that Sweden and other countries suffered at the beginning of that same decade. While the target of maintaining price stability is relatively straightforward and intuitive, it is more difficult to specify the task of promoting financial stability. This task has also been formulated in slightly different ways in different central banks’ regulations. For instance, the Bank of England’s charter says that it is ”responsible for the overall stability of the financial system as a whole”, while the corresponding task in the regulations for Sweden’s Riksbank has been expressed in a more indirect manner: ”to promote the efficiency and safety of the payment system”.

But what some of you may know is that he has had a very long involvement in, and influence on, monetary issues here in Hong Kong. This began almost exactly twenty years ago when Hong Kong, suffering from a crisis of confidence in its political future, and without any effective form of monetary control, was on the brink of a financial meltdown. The exchange rate was depreciating sharply and Charles was brought in from the Bank of England to advise us on how Hong Kong could be rescued. He gave valuable advice on a proposal to return to a fixed exchange rate system through the currency board arrangement of linking the Hong Kong dollar to the US dollar. As you all know, that exchange rate link was subsequently established, in October 1983, and it is still in operation now. It commands a high degree of confidence and credibility. It has served Hong Kong extremely well in the past twenty years. In his advice, Charles also covered other strategic issues of central banking for Hong Kong. As the only remaining person in the public sector continuously involved in this area of work from then until now, I can say with some authority that the views of Charles have exerted much influence on the development of the monetary system of Hong Kong. I do not know whether you remember, Charles, your piece of advice to the then Financial Secretary, the late Sir John Bremridge, written on 6 October 1983.
I take with me beautiful memories of all these years, which, I assure you, I will never forget. Thank you. 4  BIS Review 149/2007

Fourthly, is reinforcing buffers to withstand future shocks. This is a key area of the international reform package that aims to significantly raise the resilience of the international financial system and to promote sound risk-taking activities. The standards will see financial institutions holding larger amounts of capital, including buffers which can be drawn down as losses occur. At the same time, the standards will also require banking institutions to significantly strengthen their liquidity and funding positions. Collectively, these standards aim to strengthen the banking institutions’ ability to continue to support orderly credit intermediation, particularly during periods of instability. While carrying more equity entails greater costs of capital for banks especially in the short-term, this investment will support a more stable financial system and overall global economy as well as build the confidence of consumers and investors, particularly during periods of stress. In view of these imperatives, this is a timely juncture for the industry to reflect and take charge of the efforts to rebuild and strengthen the foundations for more sustainable finance. Critical to this is the realisation that the creation of long-term shareholder value is consistent with, and not at odds with prudent risk taking and responsible business practices. Indeed, financial institutions with a regional footprint in ASEAN have the potential to contribute to the development of the financial systems in countries where they operate. There will be tremendous payoffs to be reaped from pursuing such sustainable strategies.
Such fluctuations can also expose bank portfolios to a higher risk of losses, inducing banks to compensate for these risks by restricting credit. Let me stress that, although a price stability oriented monetary policy is conducive to financial stability over the long term, episodes of financial instability have been known to take place during periods of low inflation. Price stability must be therefore regarded as a necessary but not sufficient condition. Other parameters influence financial stability, among which financial integration is of particular interest from the point of view of a central bank in the Euro area. 2.2  The relationship between financial integration and financial stability is twofold:  •  First, the liquidity redistribution function has taken on a new dimension as participants in the market are dealing with a wider range of counterparties, and actually trade larger unit amounts. Some bank treasurers in Paris mention that the average face value in euro of single transaction today is equivalent to the face value of a transaction in French franc in 1998, that is, more than six times higher. •  Second, financial market integration is related to the trend towards the greater share of markets in the allocation of assets. At the end of 2000 financial assets in the euro area were  Dow Jones is 70% over the period January 1999- October 2002 (70% when the measure is based on SP500), and 100% between CAC and Eurostoxx50 (97% between DAX and Eurostoxx 50).

Value-at-risk calculations have become a crucial element of the standard approach used by market participants to evaluate the risk inherent in their market activities and to set up exposure limits. Of course, central banks and financial institutions should continue to encourage the use of these instruments. But, in times of financial turmoil, the growing use of sophisticated risk management techniques by financial intermediaries might have the paradoxical effect of amplifying the initial shock, exhausting liquidity and contributing to contagion phenomena. Regardless of the intrinsic qualities of these risk management tools, we see that their growing use in the same fashion by all market participants may have produced pernicious effects. When market players rely on converging risk evaluations, they tend to take the same decisions at the same time, thus amplifying initial shock to prices and trading volumes. Financial techniques can also reinforce the links between the various market segments. A striking feature of recent developments on financial markets is the quick spreading of disryptions from one market segment to another, especially between equity and credit markets. For example, the short selling of equities is sometimes used to hedge credit risk. The underlying reasoning is that if there is a credit default, the value of the equity will decrease symmetrically, and an equity gain will compensate the lender for the credit loss. As a result, the fall in the equity value, which is triggered by the credit default, is amplified by the short selling operation.
John Gieve: The impact of the financial market disruption on the UK economy Speech by Sir John Gieve, Deputy Governor of the Bank of England, to the London Chamber of Commerce and Industry, London, 17 January 2008. *  *  *  Introduction These are testing times for the MPC. The latest official figures for growth confirm the strength of the economy in Q3 with above trend growth in domestic demand and a growing current account deficit. But the evidence from surveys and other timely indicators is that growth is slowing quite sharply now, in part because of the rises in interest rates last year. That in itself might justify a progressive shift in policy – from restrictive to a more neutral stance. And the case for easing has been greatly strengthened by the disruption in global credit markets and in our own banking system which brings a risk of a deeper downturn. However we have also seen a big rise in the world prices of oil and food. That is being amplified in the UK by a fall in sterling and is now coming through in our food, petrol, gas and electricity prices. These are likely to raise our inflation rate well above target in the coming months at a time when short term inflation expectations remain uncomfortably high. This combination of upside and downside risks complicates our task of keeping inflation on track to meet the 2% target.

BIS Review 7/2008  7  Chart 5: Mortgage arrears and possessions rates  Chart 6: Household secured and corporate credit availability Net percentage balances(a) Easier credit 30 Corporate 20  Percentage greater than 3 months in arrears  Percent  Household Secured  7  0.9 0.8  6  10  0.7 5  0.6  0  4  0.5 0.4  -10 -20  3  Possessions (LHS)  -30  0.3  2  0.2  Arrears (RHS)  1  0.1 0 1990  -40 -50 -60  0 1993  1995  1998  2001  2004  2006  Source: CML Back cast data before 1994  Tighter credit  Q2  Q3  Q4  Q1  Q2  Q3  Q4  Q1  Reported change, past three months Expected change, next three months Source: Bank of England Credit Conditions Survey  Chart 7: Quoted mortgage spreads  Chart 8: Mortgage product availability (a)  Thousands  Basis point spread to funding rate 250 SVR  Credit impaired Prime  200 150  Bank Rate Tracker 100  5 yr fixed  50 0 2 yr fixed -50 2001  2002  2003  2004  2005  2006  2007  Source: Bank of England. (a) SVR mortgages spread over one month lag of Bank Rate; Tracker mortgages spread over Bank Rate; 2 yr, and 5 yr fixed rate mortgages spread over one month lag of 2 and 5 year swap rates.
Therefore, as you celebrate this great milestone, we join you in anticipating further progress and effectiveness in the execution of your mandate. Mr. Chairman, the central theme of my address today is the important role that information plays in economics in general and in financial markets in particular. In 1970, some 39 years ago, or 4 years before the establishment of the Central Bank of Swaziland, an economist called George Akerlof published a paper called “The Market for Lemons.” By lemons he was referring to used cars in the United States of America. Akerlof, who would later win the Nobel Prize in Economics for his work, demonstrated how information asymmetries between two contracting parties, a used car seller and a used car buyer, could lead to an inability of the car dealer to sell cars. More broadly, the moral of his story was that information asymmetries that allowed for no credible assessment of value of a given transaction, could lead to market collapse – in this instance the market for used cars. Mr. Chairman, if we fast forward to the year 2008, and to the current financial crisis, we note that asymmetries in information between financial institutions, this time relating to the extent of exposure to and value of complex derivative products, led to a freezing up of credit markets, the eventual collapse of some important financial institutions, and the near meltdown of the entire financial system. In these events we can see the insights of Akerlof in his 1970 paper.

Furthermore, given the complexity of formulating monetary policy and getting accurate projections, the role of the media and other financial commentators is not devoid of risk to the central bank’s credibility particularly, in challenging economic times. It is therefore, important for central banks to ensure that where projections on the future path of key macroeconomic variables are provided, these have to be set out in conditional forms and linked to incoming information with an assessment of the balance of risks. Mr. Chairman, turning to the role of the legislature, it is important to note that legislative oversight of monetary policy has a long history in many countries. In this respect, the USA provides a good case in point of a country with strong legislative oversight over the central bank’s operation. Congressional oversight of the Federal Reserve goes back to the founding of the central bank in 1913. However, the nature and purpose of oversight has changed overtime. Since 1978, the Federal Reserve has been subject to biannual oversight hearings before the Senate and House banking committees. Several other countries have similar arrangements where the central bank periodically appears before a committee of parliament. Parliament in New Zealand also has a role in monitoring the Bank's conduct of policy. By statute, each Monetary Policy Statement is referred to Parliament's Finance and Expenditure Committee. That Committee, with the assistance of its own professional adviser, can choose to extensively scrutinise the extent to which policy was, and has been, conducted consistent with the Policy Targets Agreement.
If we glance back in time, we can conclude that underlying inflation (UND1X) has on average remained close to the target since its introduction. Inflation also came down towards the target level much more quickly than most analysts had believed when we announced our target in January 1993. My opinion is that one factor contributing to this was the determined defence of the fixed exchange rate through both interest rate policy and through the political system rallying to show willingness to change fiscal policy to contribute to price stability. The fiscal policy consolidation implemented later during the 1990s also contributed significantly to enabling price stability to be maintained. As the Riksbank's monetary policy is guided by the development of inflation one to two years' ahead, the inflation rate is sometimes allowed to deviate from the target in the short term. If monetary policy were aimed at continuously minimising these deviations, it could require major adjustments in the steering interest rate, which would in turn lead to large fluctuations in production and employment. This was the reason behind the decision not to try to achieve the inflation target of 2 per cent as early as 1993 and 1994. We chose instead to allow the first effect of the increase in import prices that followed in the wake of the floating krona to have an impact on the system first and to accept a temporary and limited rise in the inflation rate. What we wanted to avoid was the second round of effects.

From an international perspective, these fluctuations have not been greater than those experienced by other countries with a floating exchange rate, but they have played a prominent role in the Swedish debate and have probably been discussed here in Finland too, bearing in mind our close trading connections. Let me say here that while the variations in the exchange rate have been larger than we anticipated, the effects of this volatility have been much less than might have been expected. Our central bank and many others with experience of managing a small, open economy with a floating exchange rate have come to the conclusion that exchange rate fluctuations have had less effect on both prices and production; while exchange rates and import prices have varied significantly, the impact in the consumer channel has been limited. What does the Riksbank have to say about a possible Swedish EMU membership? Over the past six months the political temperature has risen with regard to the EMU issue in Sweden. This is possibly a reflection of the fact that the Swedish people now see membership in a slightly more positive way. It is clear that the physical introduction of banknotes and coins has made the EMU project more tangible. The last time the Riksbank as an institution had reason to comment on the issue of whether Sweden should join the EMU or not was at the beginning of 1997 in connection with the presentation of the 1 report by the Swedish EMU commission.
14  These failures underlined the importance of experts being subject to challenge and having rigorous processes for differentiating good experts from bad ones. Historically, some of the best challenge has come from the process of scientific discovery and from other experts through peer review. Karl Popper argued that in a world of uncertainty and complexity, we cannot know the truth, we can only make increasingly better guesses by weeding out falsehoods. 15  Scientific progress occurs as evidence is accumulated through better  and better guesses – hence the importance of putting in place processes for challenge to avoid the tyranny of misguided ideologies. In academic life this process is based on principles like the need for researchers to be “disinterested” and have no material stake in the outcome, subject themselves to peer review, and (in 16  many disciplines) make their data available to enable replication of their results . The changing landscape of information, opinion and trust Today, however, experts are facing a new challenge in the form of the dilution of their monopoly over authoritative opinion. Technology has changed the amount of information people have access to, the way they get it and how they form their opinions. According to a report by the Reuters Institute for the Study of Journalism here at Oxford University, half of people with online access use social media as a news source (the number having doubled in the US since just 2013).

The good news is that since the crisis broke, banks in the UK and elsewhere have made significant progress in rebuilding capital. Evidence to support this is that at its last meeting in June, the Bank’s Financial Policy Committee decided to close its recommendation of March last year that the largest UK banks and building societies should meet a minimum 7% Common Equity Tier One ratio on the socalled end-point (ie full implementation) basis set out in the EU rules to implement Basel III, after taking into account adjustments for expected loss on more vulnerable loan portfolios, the impact of future conduct of business costs, and prudent use of risk weights. Since then the actions taken by a number of major UK banks and building societies have put them on course or ahead of the planned actions to meet the FPC’s test. In a few cases, there are more actions to be undertaken in their plans, but overall this is a welcome story of action taken to strengthen capital positions. I do however accept that there remains a perception in some quarters that higher capital standards are bad for lending and thus for a sustained economic recovery. I agree with those who argue that banks have a lot more to do to demonstrate that they support lending to small businesses. Interestingly, in recent weeks the messages I have seen from the Bank of  4  Bank calculations based on supervisory data.
Indeed, I will argue that in order to understand how unconventional policy affects the exchange rate at, or close to, the lower bound, it is useful to break down long-term yields into their two main components – the expectations component and the term premium. Slide 3 shows the insights that can be gained from this breakdown. Here I focus on the period 2012 to 2014. During this period, short-term rates barely moved, as you saw on the previous slide, while the long-term interest rate differential was by and large disconnected from exchange rate movements – you can see this clearly again on the left-hand side. But now consider the right-hand chart. Here I plot the exchange rate against the differential of the expectations component of ten-year interest rates as extracted from dynamic term structure models.7 Put simply, it is the same ten-year rate differential as on the left-hand chart, only corrected for the term premium estimate. The correlation during 2012 and 2013 is compelling, at around 0.75. Shortly before the crisis, in 2005 and 2006, the correlation was less than 0.4. Incidentally, the close relationship coincides with a considerable strengthening of central banks’ forward guidance on interest rates. The Federal Reserve, for example, introduced date-based forward guidance in mid-2011 and adopted state-contingent guidance in late 2012. The ECB, for its part, introduced rate forward guidance for the first time in July 2013, one year before it announced its credit easing programme.

But, if we look at the right-hand side of this slide, it is intriguing to see such a close relationship between the exchange rate and relative bond term premia differential as that observed during the course of this year. Conclusion Let me conclude. Deciphering exchange rate movements, and giving them a structural interpretation, remains a topic that requires the dedication and passion of many researchers. Much has already been learned, but much still remains to be understood. The introduction of unconventional monetary policy measures forces us to think more deeply about the channels through which such 9 / 11  BIS central bankers' speeches  measures affect the exchange rate, with regard to their impact both on the expected future path of short-term interest rates and on risk premia. An important aspect in this endeavour is to gain a better understanding of the role of portfolio rebalancing. Evidence is growing, and my remarks today are intended to add to this, that portfolio rebalancing is a major transmission channel of central bank asset purchases. At the same time, the signalling and portfolio rebalancing channels of central bank asset purchase programmes might, at times, work in opposite directions, with unclear implications for the exchange rate. Moreover, in an integrated global financial system, unconventional policy measures have been shown to often trigger large cross-border capital flows.