samchain/econo-pairs-v1 huggingface dataset:
Trade liberalisation, political changes, technological advances, and a sharp reduction in transaction costs have fuelled a globalisation process that seems to have accelerated over the last 15-20 years. As a result, cross-border flows of goods, services and capital are growing at a markedly faster pace than world production. Few countries are benefiting as much as Norway – and losing as little – in the current environment of freer trade and increased cross-border labour mobility. Prices for goods we import are falling in relation to prices for goods we export. Norway’s terms-of-trade are improving. The Norwegian economy has experienced a strong positive income shock. Real national disposable income will increase by 25-30 per cent in the period from 2003 to 2006. The impact of the rise in oil and gas prices is particularly strong, but the terms-of-trade gains for the mainland economy have also been high. The situation in Norway differs from that of our Nordic neighbour countries. Sales of Swedish and Finnish high-tech products are growing strongly in volume terms, but prices are falling. Denmark has a diversified business sector, which is overall moving on a steady path. The terms-of-trade gains partly stem from a sharp rise in prices for oil, gas and other commodities. Strong global economic expansion in combination with rapid production growth in China, India and other newly integrated economies has led to a substantial rise in demand.

See also Levin, Andrew T., Fabio M. Natalucci and Jeremy M. Piger (2004), “The Macroeconomic Effects of Inflation Targeting,” Federal Reserve Bank of St. Louis Review, Vol. 86, pp. 51-80. 8  See, for example, Stock, J.H. and M.W. Watson (2003), “Has the business cycle changed? Evidence and explanations”, in Monetary policy and uncertainty: Adapting to a change in economy, Federal Reserve Bank of Kansas City. 6  BIS Review 43/2005  Globalisation, increased trade and at times strong growth in productivity may have made the trade-offs easier. It is possible that the costs of holding inflation at bay have been reduced.9 It appears that the short-term trade-off between inflation and unemployment has changed in Norway as well.10 Whereas a given rise in unemployment resulted in a relatively small reduction in inflation in the 1970s and 1980s, the gain in the form of lower inflation was far greater in the 1990s. This may be due to a more successful monetary policy and supply-side conditions in the economy, including wage determination. Inflation targeting has proved to be a sound system and may be particularly well suited for small and medium-sized open economies. A topic currently being discussed by academia and central banks is whether and how monetary policy should contribute to stability in the financial system. Price stability and financial stability often require the same medicine. For example, periods of strong growth in demand for goods and services will usually result in both higher inflation and increased asset prices. Both considerations may imply a tighter monetary policy.
This is usually a very effective risk management technique during periods when CDS markets function normally. But it is worth emphasizing that the embedded “jump to default” risks in credit products, coupled with liquidity issues during times of extreme stress, can make it very difficult to execute a dynamic hedging strategy in stressed conditions. In addition, and as already noted, CVA hedging is likely to be undertaken by buying CDS from another bank or a hedge fund. In this example we have tail-risk correlation not just with corporate and counterparty risk but with CDS market liquidity. If proper consideration to the correlation structure is not applied, the danger is clearly that the realized outcome in extreme scenarios would look very different from what was expected by senior management, regulators, etc., based on local analysis. A fourth example from the recent crisis was the “super senior” credit exposure from pools of US mortgage loans reinsured with monoline insurance companies (MBIA, FGIC, AMBAC, etc) or other insurers such as AIG. Banks and other originators of leveraged credit risk (either in cash form of CDOs or CLOs, or in its synthetic forms) needed to warehouse excess “super senior” tranches, which were considered virtually risk free, to support the origination business. After the volatility experienced in 2005, banks started to worry about controlling the mark-to-market volatility, even though the fundamental risk initially continued to be considered negligible. The idea came to lay off a significant portion of this negligible economic risk to reduce the short and medium term price volatility.

Importance of scenario analyses and stress tests A second challenge arises from the lack of satisfactory analytical tools to measure the impact of climate change on traditional financial risks and on the resilience of banks and the financial sector as a whole. Scenario analysis exercises and stress tests are particularly appropriate: their forwardlooking nature and the ease with which numerous assumptions can be included make them especially suited to measuring these risks. 14  Proposal for a Corporate Sustainability Reporting Directive (CSRD), European Commission, April 2021. 15  Basel Committee on Banking Supervision press release, BCBS, November 2021. 5  These instruments are not new. Indeed, they have been used by supervisors for prudential purposes since the last global financial crisis. However, some significant adaptations are needed to capture the complexity and uniqueness of climate risks. In this respect, the BCBS published a report in 2021 analysing the main problems that arise when measuring these risks.16 Essentially, three difficulties stand out: the complexity associated with the design of different physical and transition climate-risk scenarios, the need to incorporate different time horizons into the assessments and the operational problems involved in carrying out these exercises, in terms of the data and resources required. As regards the scenarios, the NGFS has developed a set of scenarios intended mainly for central banks and supervisors, which may also be useful for stress tests for financial institutions.
Spelling out the benefits in personalised terms can potentially increase understanding and awareness of central banks’ actions. There is already a precedent for this in another arm of UK policymaking – tax policy. Taxpayers in the UK receive a personal scorecard, telling them how their tax payments have funded spending on various public goods at the macro-economic level. This personalisation has been found to have improved the public’s understanding and acceptance of tax policies. (b)  50  Public Education  A second way of improving public understanding is through improved public education. Many central banks have made efforts in this direction over a number of years, including through school visits, schools competitions and schools materials, including at the Bank of England and Bank of Estonia. That does not yet appear to have satiated demand from pupils and their parents, almost 80% of who say they think 51  economics should form part of the curriculum. In part in response, earlier this year the Bank of England launched a new education strategy. There are a number of elements. One is a new set of schools competitions, aimed at reaching a broader range of students. A second is a schools ambassador programme, with Bank officials giving 200 talks in schools across the UK this year. We are on schedule to hit our target. The most ambitious part of our education strategy has been to develop classroom materials on the economy and financial system for use in schools as part of the curriculum for pupils aged 11-16.

16 Haldane (2017b). 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Golden Age of central banks, speculating on whether “peak central bank” had been reached. Some asked openly whether central bank independence was appropriate, at least on financial stability matters. I am not as pessimistic or as fatalistic as that. But I do think some of those concerns about understanding, trust and legitimacy are real. In response to them, new efforts may be needed to close the understanding and trust deficits and bridge the transparency and accountability gaps. Doing so would, I believe, leave central banks even better-informed and better-placed to deliver their core mandates in future. Here is why. Correcting the Deficits  My answer comes in two, inter-related, parts. Let me take these in turn. First, building understanding among the general public in the economy, financial system and central banks. Most people would think an improved understanding of the economy among the general public is desirable. It makes for improved decision-making by people on important everyday decisions on spending, saving, borrowing and working. The better those individual decisions (the micro), the more stable the economy and financial system are likely to be (the macro). Improved public understanding of the economy is in that sense win-win, benefitting policymakers and the public alike. But it is possible the benefits of improved public understanding in stabilising the economy and financial system have been underestimated. “Popular narratives” among the public might be more important in driving macro-economic behaviour than in the past.
Now, imagine a highly credible and transparent central bank with an inflation target of 2%. If the credibility of this particular central bank is such that, no matter what it does in the short run, market participants believe that inflation in the long run will remain solidly anchored at 2%, then the 10-year inflation-  7  See, for example, Freedman (1996) and Freedman (2002). BIS Review 30/2006  5  indexed bond will always reflect an expected inflation rate of 2% in ten years time. If the central bank takes excessive comfort from the fact that market expectations reflect stable inflation expectations, it may over time deviate from the optimal policy path. At some point, markets will detect the policy error. In such an admittedly extreme scenario, the likely reaction of the market place would be a sudden adjustment of inflation expectations with a corresponding costly loss of credibility for the central bank. 8 This example illustrates what Alan Blinder (1998) calls the "dog chasing its tail" problem: Financial markets look for guidance from the central bank, the central bank looks for guidance from financial markets, and both parties temporarily lose sight of the underlying factors determining inflation, namely the output gap in the short to medium-run, and money growth in the long-run. To avoid this trap, central banks should exercise due caution when making use of financial market expectations. Financial markets provide useful information for a central bank in search of the optimal monetary policy path.

This means that we believe that there are now, and will be in future, less available resources that can be used without price and wage increases accelerating. Inflation above the target level Looking at inflation, it is primarily the underlying rate that has been surprisingly high. The largest rise has been in prices of services. Here, the relatively high resource utilisation in the services sector has contributed to rising labour costs. In addition, prices of input goods, such as electricity and foodstuffs, have risen. Given the developments in prices and wages over the past year, the Riksbank has gradually altered its view of the inflation propensity in the Swedish economy in a broader sense. A higher resource utilisation, together with rapid wage increases and a weak exchange rate, have led to slightly higher inflationary pressure than in previous assessments. It is this gradual shift that has sometimes been referred to as a total U-turn. Recent events Since the most recent Executive Board meeting, new statistics have been received that largely confirm the picture of the Swedish economy painted by the Riksbank. In my opinion, there is no reason, all in all, to alter significantly the assessment of economic prospects made in the latest Inflation Report, with regard to either the international picture or the Swedish picture.
The unemployment rate is modestly lower and private non-farm payroll growth a bit higher than earlier in 2012, which is certainly welcome. However, other important indicators including the employment-to-population ratio and job-finding rates are essentially unchanged (Exhibit 10). This suggests that the labor market is far from healthy. Moreover, our policy is based on the outlook for the labor market, not the level of employment or unemployment today. In this context I note that the recent improvement in payroll employment growth, which gets much of the attention, is out-sized relative to the growth rate of economic activity that supports it. We have seen this movie before. When this happened in 2011 and 2012, employment growth subsequently slowed (see Exhibit 11). 8  It avoids the ambiguity of what a change in the forward rate guidance would signal. Is the date being moved out, for example, because the FOMC wants to provide additional accommodation or is the move just due to deterioration in the economic forecast? 9  I draw a distinction here between efficacy and benefit. In my view, the benefit of additional accommodation would diminish as we get closer to our dual mandate objectives and become more confident in the forecast of a strengthening recovery, even if the assessment of the efficacy and cost of the tool were unchanged. 10  Of course, this expectation assumes no new information on efficacy and costs emerges that fundamentally changes my assessment of the merits of the program.

11  Assuming that the improvement in the outlook is not endogenous to the chosen policy setting to the extent that it would disappear if purchases were slowed. 4  BIS central bankers’ speeches  Because growth this year will be constrained by fiscal consolidation, there is a risk that this could happen again. As a result, it is premature to conclude that we will soon see a substantial improvement in the labor market outlook. Efficacy of the asset purchase program exceeds the costs Our asset purchases are also conditional on our ongoing evaluation that the efficacy of the program exceeds the costs. That clearly has been the case to date – affirmed by our policy decisions. Since we put the outcome-based approach in place in September, my assessment is that efficacy has been as high or higher than I expected at the onset of the program, and costs the same or lower. Efficacy has two components: the effect of the purchases on financial conditions and the effect of financial conditions on the economy. Our latest purchase program has been associated with a substantial easing in financial conditions, higher equity prices, and narrower credit spreads. The resumption of additional agency MBS purchases in September pushed down MBS yields. With some lag, much of the drop in yields has been passed through to primary mortgage rates. Meanwhile, the impact of the improvement in financial conditions on the real economy has been somewhat stronger than I had expected.
Projections for imported price inflation may therefore be said to be characterised more by Knight uncertainty for a period ahead. Monetary policy under uncertainty was one of the many topics discussed in the report Norges Bank Watch 2003, where our policy response pattern and communication were evaluated in the light of the theory of monetary policy under uncertainty. This was useful input and constructive criticism which we will keep in mind in our future work. Norges Bank Watch 2003 points out, for example, that we should make a clearer distinction between additive uncertainty and multiplicative uncertainty. This distinction is most clearly reflected in our economic models. The uncertainty associated with the exogenous variables is called additive uncertainty. Examples of additive uncertainty are add factors in our economic models and other exogenous factors such as fiscal policy and the oil price. Uncertainty about the actual functioning of the economy may, however, lead to multiplicative uncertainty. Multiplicative uncertainty often involves uncertainty about the structural parameters in the model, such as the effect of the interest rate on demand and the exchange rate and the slope of the short-term Phillips curve.

17  I refer here to the concept of “limited access social orders”, see North, D., J. Wallis and B. Weingast (2009). Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, Cambridge University Press. BIS central bankers’ speeches  5  At European level, we need to provide a framework that supports and incentivises the introduction of such national policies. This is the role of economic union in the euro area, the “E” of EMU. I would stress, however, that economic union does not mean defining a single economic model across all countries. On the contrary, its purpose is to create the conditions for each country to identify and develop its comparative advantage. Paradoxically, it is only by encouraging difference – comparative advantage – that the euro area can achieve convergence – that is, a more even distribution of economic outcomes. Avoiding re-nationalisation and protectionism Let me finally address the third lesson learnt from East Asia. Europe needs to avoid protectionist temptations and calls for re-nationalisation. Protectionism and beggar-thyneighbour policies would lead to further losses of welfare at both European and global level. Fortunately, there has been no significant surge in barriers to global trade in recent years – unlike during the Great Depression – thanks to global and regional policy coordination. These efforts remain important. Barriers to trade in goods and services cannot be raised within Europe thanks to our Single Market and competition rules which are enshrined in European laws, but the Single Market can be further enhanced.
These are all Over-the-Counter (OTC) markets. As such, they do not typically benefit from clearing through a Central Counterparty (CCP). CCPs effectively eliminate counterparty risk between trading participants. This crisis has been, first and foremost, a crisis of counterparty risk. So it is perhaps unsurprising that some OTC markets without a CCP have been hardest hit. Against this backdrop, the US authorities have recently proposed the extension of central clearing to all standardised OTC derivative instruments. 4 This is a bold measure and one which deserves international support. In time, it might usefully be extended beyond OTC derivatives to some cash OTC instruments, such as corporate bonds. The benefits of this shift are essentially threefold. First, central clearing encourages standardisation and simplification of the contractual terms of financial instruments. Instrument complexity has been a key fault-line exposed during the crisis, especially among bespoke structured credit products. Ahead of crisis, standardisation was seen as a pre-requisite for central clearing. CCPs should be better seen as a catalyst for such standardisation. In future, infrastructure design might usefully shape market convention, rather than vice-versa. Second, because a CCP represents a potential single point of failure, it needs to be bulletproof. Standards of resilience should be comparable with other public utilities, such as water, gas and electricity. That has implications both for CCP risk management standards and for governance arrangements. Both need importantly to weigh the public good of systemic risk containment.

The world’s financial markets have been plunged into turmoil which some say is unprecedented, or at least comparable to the levels experienced in the most severe financial crises of the last century. Notwithstanding this, our financial system has demonstrated a level of stability which to an extent has been derived from the strong capital positions that have characterised the Zambian banking industry in the past few years. However, this turbulence has already resulted in a reduction in projected global economic growth and a decline in demand for Africa’s exports. Notwithstanding this, we remain confident that the banking sector will continue to show resilience and expansion through branch networks, thereby acting as a channel through which services will be extended to the financially excluded. Ladies and Gentlemen, a recent survey established that fewer than 15% of the Zambian adult population have access to the services provided by commercial banks. The key reasons for this low level of access were cited as the distance that needs to be overcome in order to access the services and the cost of these services. It is therefore a welcome development that commercial banks have responded to these challenges by reaching out through new branches. However, banks need to be mindful of the fact that the many of our people who need these services most of all are not able to bear the heavy charges that are sometimes levied, and the goal of inclusion will stand to be compromised if this matter is not addressed.
For example, that is why we have removed unnecessary EU restrictions, limiting when firms can make distributions which would take them into their capital buffers. It is why we removed an EU requirement that international groups with significant activities would be required to operate underneath a single intermediate parent. It is why we have already delivered a 15% reduction in the reporting burden on insurers across the sector and significantly more for smaller firms with further reductions to come. And it is why we will be consulting on the removal of the bonus cap in the autumn which we did not agree with when it was first introduced. Rather we believe that the Senior Managers Regime and remuneration rules requiring deferral of bonus payments are more effective tools for ensuring bankers take proper account of risks. And we will continue to delete unnecessary rules, including onshored EU material. We have already deleted thirteen EBA and EIOPA Guidelines, five superseded Supervisory Statements and twenty-six PRA Technical Standards (with relevant parts made in rules). We will do more. Indeed, when a menu of options is available for pursuing safety and soundness, we will choose the one that facilitates competitiveness and growth. Becoming more responsive, accountable, and accessible We must also take the opportunity to strengthen our accountability to Parliament and the public, and to make our rules more accessible. Being accountable means having clear justifications for our policies and being open and responsive to challenge. The Financial Services and Markets Bill will strengthen our accountability to Parliament.

See Cassis, Y, tr. Collier, J (2006), ‘Capitals of Capital: A History of International Financial Centres 1780–2005’. See also Pogliani, P, von Goetz, P and Woolridge, P (2022), ‘The outsize role of cross-border financial centres’, BIS Quarterly Review, June 2002, pages 1–15. 13. See industry survey responses summarized in The Global Financial Centres Index 30, September 2021 14. IMF Country Report No. 22/105, April 2022 15. House of Commons Library, ‘Bank rescues of 2007-09: outcomes and cost’, October 2018 16. Institute for Fiscal Studies, ‘10 years on – have we recovered from the financial crisis?’, September 2018 17. Regulatory Initiatives Grid 18. Prudential and Resolution Policy Index