samchain/econo-pairs-v1 huggingface dataset:
The recent change in the SGP concerns a relaxation of the rules. The definition of a severe recession, being a valid reason for exemption from the EDP, has now been relaxed. Also, a longer time frame for taking effective action is allowed, now three years instead of the earlier two, from when the deficit occurred. The SGP has received its fair share of criticism, both before and after the changes made in 2005. Although it undoubtedly has it shortcomings, it is important to view it both in a longer perspective and from a more theoretical point of view. Too many euro area members have had lax fiscal policies in the past, resulting in deficits around 3 per cent of GDP or more. Combined with current low fiscal ambitions, this clearly constitutes a problem. However, with several EU countries in recent history having experienced deficits several times the size of that stipulated by the SGP, the main goal of a framework does not necessarily have to be to strive for a perfect world, but rather to avoid very large deficits. Somewhat unfairly, the SGP is sometimes evaluated as if it was the framework of an optimal policy. Trying to optimise everyone’s well-being, one would have to take everything into account. However, in my view, the SGP has more in common with a simple instrument rule. Although not optimal, simple rules have the advantage that they increase the chance of avoiding large policy mistakes –a measure by which the SGP so far has succeeded.

Lastly, it must be borne in mind that the short and medium-term challenges posed by the recent period of extraordinary crises do not make tackling the banking sector’s structural challenges – such as those linked to the management of climate-related risks, digitalisation and growing competition from technology firms – any less urgent. Thank you. 10
As you know, a number of policy initiatives have been launched at the global level since the summer, for instance by Financial Stability Forum 5 or by the Porto informal ECOFIN 6 and it is still difficult to anticipate precisely the legal aspects which will be examined more particularly by the various international and European fora and bodies involved in this discussion. However, these initiatives provide an indication of possible legal considerations which might emerge, in particular in the European context. Legal certainty should go hand in hand with transparency. The focus on the transparency of complex financial instruments, of institutions and vehicles and on the appropriate disclosure of information on securitised debt and other structured financial products indicates that there is a need for regulatory and supervisory authorities to have a closer look on the legal frameworks applicable to securitisation transactions and market standards and how special purpose vehicles are currently regulated and supervised in the various EU Member States and at also at the international level. The report of the European Financial Markets Lawyers Group (EFMLG) of May 2007 on legal obstacles to cross-border securitisations in the EU 7 contains recommendations for further convergence of securitisation laws in the EU and invites the Commission to consider the adoption of a EU directive on specific legal aspects of securitisations which would enable Member States to adopt a certain number of principles common to all jurisdictions to ensure a high level of transparency, efficiency and legal certainty with regard to securitisation transactions.

It would be unconceivable to think of a financial system and indeed of any financial instrument without a legal system to support it. The keyword for economists in this context is “asymmetric information”: the lender, in particular, does not know if the borrower is trustworthy or not, or whether the investment project the latter is undertaking is worthwhile. A financial asset is ultimately a claim in the form of piece of paper or even, and increasingly so, an account entry. In any credit relationship – and this includes almost any economic transaction beyond simple barter – the possibility of default is always looming and this inherent complication cannot be solved without a precise system of norms that protects both the creditors and the debtors. For the creditor to consider entering in a financial relationship, the legal system must not make it too easy for the debtor to walk away from his obligations. At the same time, the legal system cannot be too taxing for the debtor, as Shakespeare’s Merchant of Venice reminds us. The legal system has thus to develop along a fine line between protecting the rights of the borrowers as well as those of the lenders. No wonder that developing a sound legal system to support financial markets is a very complicated matter and we hope to learn something from today’s conference. 2.
Given that the livelihoods of millions of pensioners depend on getting this right, we think we need to recognise this uncertainty – by deducting a bit more from what can be counted as capital up-front to allow for it. I should be clear that this isn’t just the view of a prudential regulator – any sensible financial market participant will demand some buffer of safety (or ‘credit risk premium’) when potential losses are uncertain, and it is odd that the EU’s MA construct does not explicitly address this. [5] Second: wrong asset, wrong risk. Under the rules we have inherited from the EU, the amount of future losses firms are required to expect on their assets is based on the historical performance of corporate and government bonds. At the time the rules were negotiated these assets accounted  Page 6  for the very large bulk of insurers’ investments, so this made sense – but as insurers invest more in other sorts of assets, there is an obvious risk that those assets’ future performance will diverge from the benchmarks used in the rules. For example, it is reasonable to question whether the losses which might arise from investments in a commercial real estate loan today will be the same as those experienced on corporate bonds in the past – even if they have the same credit rating.

Some observers have therefore posed the following question: has the functioning of the economy changed so that higher demand does not necessarily translate into higher inflation, but instead results in growing financial imbalances? If so, a conflict may arise between achieving the inflation target in the short term and financial stability. There are several reasons why financial bubbles can develop in periods of low inflation. First, a highly credible monetary policy results in low inflation expectations. Explicit or implicit long-term price and wage contracts will become more common. It will take longer for higher demand to translate into higher inflation. Cyclical changes will have less impact on inflation. Moreover, periods of higher productivity growth may lay the basis for high corporate earnings, heightened optimism and reduced risk awareness. At the same time, with strong productivity growth, inflation remains low. Banks that record low losses and solid results can increase lending without eroding their capital adequacy level. Debt-financed investments may lead to a faster rise in house and property prices. A third factor is that strong international competition may contribute to curbing inflation during a period of strong economic expansion. China, because of its access to an abundance of cheap labour and its substantial production capacity, has contributed to a fall in prices for many manufactured goods. In Norway, we have not experienced situations where there has been a conflict between the objectives of financial stability and price stability.
Anyhow, the real exchange rate is currently at levels believed to be consistent with its long-term fundamentals (figure 9). Accordingly, in a context of high uncertainty about the evolution of global exchange rates, the CBC will continue monitoring the impact of the exchange rate path on expected inflation in its monetary policy decisions. In this scenario, annual inflation will be in negative territory for some months, to gradually converge to 3% toward 2011, while the economy will grow between 4.5% and 5.5% in 2010 (table 2). This scenario is consistent with a gradual closing of output gaps, a necessary condition for inflation to return to 3%. If we consider that trend GDP growth will be in the 4%4.5% range in 2010, a figure estimated by the CBC and consistent with the opinions of the committee of experts that perform the estimation for the design of the budget, such a range seems not excessive but rather moderate to close the output gap. If growth falls short, the economy will not close the gaps and, therefore, inflation will continue dropping or will adjust at a much slower pace, which obviously would require a stronger monetary impulse. 4  BIS Review 145/2009  Final remarks We have suffered the worst financial-economic crisis in many years. The strength of the Chilean economy, rigorously built over a long time period, has allowed us to mitigate the costs of a crisis that in the past would have impacted us much harder.

José De Gregorio: What happened and where are we headed? Speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the meeting Visión Económica y Empresarial 2009-2010, organized by SOFOFA and Universidad del Desarrollo, Santiago, 23 October 2009. *  *  *  I thank the federation of Chilean industry SOFOFA and Universidad del Desarrollo for inviting me once again to take part in this important annual event. When I was preparing this presentation, I realized I had two choices: one was to analyze the current situation in light of our latest Monetary Policy Report, which I already did in another public seminar and that may overlap other presentations you will hear today. The other was to take a longer perspective and examine how we came to where we stand today, how we sailed through the troubled waters of the world economy and where we are headed. I think this is the perfect audience to take this second option. To begin with, it is important to bear in mind that the Central Bank of Chile (CBC) complies with its mandate of safeguarding price stability via a monetary policy based on a flexible inflation targeting regime. The objective is to keep annual inflation around 3% most of the time. When deviations occur, monetary policy focuses on correcting them over a period of two years. In practice, in our discussions we estimate a path for the interest rate that is consistent with the inflation forecast 24 months ahead converging to the target.
6  Jan in’t Veld, Fiscal consolidations and spillovers in the Euro area periphery and core, European Commission Economic Paper 506, October 2013. 7  Dawn Holland and Jonathan Portes, Self Defeating Austerity, National Institute Economic Review No. 222 October 2012. 4  BIS central bankers’ speeches  I could elaborate on the financial dimension of EMU. The Banking Union, when completed, has the potential to move up to the highest level of institutional integration. Similarly, the Juncker Plan is a useful integrated instrument, although too weak and slow at present. I have stressed elsewhere the need for and the benefits of moving ahead with a much stronger “Financing and Investment Union”, incorporating these steps forward and going well beyond the proposed Capital Markets Union. Yet, today I prefer to focus on the fiscal and structural policy dimensions of EMU. In practice, our fiscal framework has been implemented as a fairly weak monitoring framework. Likewise, on the structural front, the MIP (Macroeconomic Imbalance Procedure) is clearly lacking teeth. An institution is clearly missing to develop a mandatory and, hence, full coordination of national policies in the fiscal and structural areas, an idea I will elaborate upon in a few moments. The highly political nature of the debate should not hide the strong economic rationale for such a reform. 15 years ago Peter Kenen 8 argued that a fiscal integration could make currency areas thrive, even though they did not meet all the features of an optimal currency area.

So let me describe first the mandate and the shared strategy, then the tasks of a euro area Finance minister, and last the way to anchor its legitimacy and capacity. A. Which mandate and what strategy? The Commission has already introduced a two-stage European semester, so that the discussion of the outlook for the euro area precedes country-by-country analysis. We must take this further: the mandate of this decision-making institution must be to achieve the strongest, sustainable and balanced growth. To fulfil the mandate, this institution – in particular the euro area Finance Minister at the head would be tasked to outline the collective strategy. It would be essential for the Euro Area, informed by independent advisory bodies, to collectively agree on overall economic policy objectives, and on the division of tasks through the setting of individual performance targets for Member States. Such an agreement could be reached by a process following more or less the European Semester calendar: •  A preparation phase would provide the macro framework and take on board individual country contributions, as well as the expertise from the Fiscal and Competitiveness Councils. This phase would require assessing: first, potential growth, with a quantified ambition to raise it; second, the euro area output gap, and employment, taking into account limited cross-border labour mobility; third, the sustainable fiscal and external positions for the euro area as a whole, as well as the sustainable distribution of these positions across countries.
Three decisions of the Central Bank of Chile to intervene the foreign exchange market during this decade can be interpreted as decisions under extreme circumstances. They were associated to severe stress in foreign exchange markets or to the need to strengthen the international liquidity position. To avoid conflicts with price stability, the intervention that was begun in April has been implemented mechanically and transparently in order to orient monetary policy in consistency with the required convergence of inflation to the target. It is hard to find a financial crisis as severe as this one since the Great Depression. Still, its real consequences are still much milder than those of other episodes, including of course the Great Depression and even the Great Inflation of the 1970s. We have learned two lessons from these occurrences and which are clearly present in the acts and statements from central bankers around the world. One is that central banks are the lenders of last resort and must supply the necessary liquidity so that financial markets can operate, even in critical times. The other is that inflation must be fought with determination and letting it settle down and stay in the economy is very costly. Different perceptions and assessments can alter the short-term course of monetary policy, so flexibility and realism are necessary to timely correct the route, and this has been happening around the world and in Chile in particular.

I therefore wish to thank, from the outset, Celpay for organising this timely conference and to welcome most warmly our foreign participants who I’m sure will bring a rare insight to this conference with their own experiences. It is widely acknowledged that expanding access to financial services for Zambia’s unbanked population remains one of the biggest challenges confronting the financial sector in this country. Findings from the last FinScope Zambia Survey which was conducted in 2009 showed that 62.7% of Zambian adults still remained financially excluded compared to 66.3% reported in 2005. This slight increase in access to financial services, however, fails to match the significant increase in the number of banking and non-banking institutions which over the same period increased from 14 to the current 19 banks and to over 90 in the case of the nonbank sector. The mismatch in growth between the supply side and the demand tells us a story that the physical increase in the number of the traditional financial service providers does not necessarily translate into a corresponding increase in access to financial services among the population. I believe it is this mismatch that calls for the need to examine the role that the non traditional platforms, such the mobile phones, can play in enhancing greater access to financial services.
This indicates that the Thai economy is likely to be much more resilient to the possibility of a taper tantrum than other countries. The second factor that indicates our resiliency is our banking sector. Our banking sector remains sound. Capital ratios are high with the BIS ratio at 20 percent, overall liquidity remains high, and provisioning levels are also high relative to NPLs. Thus, the banking sector remains highly liquid and very strong by most measures. The banking sector has also continued to function throughout the crisis by extending credits and we have seen credit growth in most areas with one notable exception which I will discuss later. This indicates that the banking sector is acting as a shock absorber and not a shock amplifier. The third area of resiliency is on public finance. Our public finances remain sound even though the public debt to GDP ratio has increased in line with other countries during the crisis. However, for Thailand, the public debt to GDP ratio remains reasonable, standing in the high 50s percent as a share of GDP. This indicates that the government has room available to engage in additional fiscal stimulus if it deems necessary. Furthermore, the ability of the country and the government to engage in more fiscal firepower includes the fact that 10-year borrowing rate on government debt remains relatively low. The government is able to borrow at less than 1.7 percent, a much lower borrowing cost than other countries in the region.

Her sacrifice is a real sacrifice, because she could have enjoyed that time for her own pleasure. In contrast, the government’s real sacrifice is just 5 units of money, the value of real resources it spent on producing the note. So the government enriches itself at the expense of the teacher who now has been given a note with real sacrifice of 5 units for getting eight hours of real services. This type of an unfair transaction is known in economics as an unequal exchange. Why should the teacher agree to this unequal exchange? That is because she is promised that she could acquire a real basket of goods and services worth of 1000 units of money with that paper. For instance, if a kilogram of rice is 1000 units, she is promised one kilo of rice in exchange for eight hours of her time. If this promise is kept, then, there is no problem. But, if such currency is excessively produced, too much money would chase after too little rice and the price of rice would go up in the market. As a result, when the teacher goes to the market, if the price of rice has risen to 2000 units of money, she could now buy only a half of a kilogram of rice. In other words, she has been forced to give up eight hours of her time for half a kilo of rice.
The bounce back from the world economic slowdown in 1998/1999 was such that in the year just ended world economic activity grew at a rate of some 4½% which equals the fastest rate for 16 years – and compares with an average rate of some 3¼% over the last 10 or 20 years. In large part this recovery was underpinned by unusually strong growth in the US, averaging some 4½% over the past 4 years and surging to a peak of some 5½% at an annual rate in the first half of last year – compared with an average rate of 2¾% over the preceding decade. This remarkable strength of the US economy was possible, without overheating, against the background of unusually rapid productivity growth as investment in IT spread through the US economy improving its supply-side capacity. These developments together implied higher corporate earnings growth in the US pushing up the stock market and at the same time attracting massive direct and portfolio capital inflows into the US – substantially from the Eurozone – which comfortably over-financed a burgeoning US current account deficit and underpinned the strong dollar. However helpful all this was in supporting the world economy it clearly could not continue for ever or without limit.

Many of these instruments, such as providing liquidity, are inherent or traditional while others, such as regulating and watching over payment systems, have developed in recent decades. The experience of the last few years has suggested a need to review or update the available instruments and to generate the operational conditions in which they can be used without delay when needed. During this latest crisis, for example, many central banks were not operationally prepared to receive collateral that was not in habitual use. It has also been suggested that there is a need to incorporate new instruments, principally with a macroprudential approach. However, in the case of some of these instruments – specifically, the use of regulation for countercyclical purposes – evidence is scarce and debate as yet inconclusive. However, beyond the contribution that a central bank can make, financial stability requires a comprehensive framework of financial institutions, policies and practices. The solidity of this framework and its consistency are crucial. Regulation and supervision, whether or not in the hands of the central bank, are critical, but so too are monetary and fiscal policy. The recent sovereign debt crisis in Europe, for example, has demonstrated the importance of fiscal conditions for financial stability. Market discipline and institutions’ management, although discredited by the crisis, are factors that can, with an appropriate regulatory framework and incentives, contribute to stability. The efficiency of regulation and supervision should, in the end, be reflected in good behavior by institutions and the proper functioning of markets.