samchain/econo-pairs-v1 huggingface dataset:
The stock of British foreign investments in Albania shows low rates, whereas the impact of emigration and remittances indicators is somewhat higher, but still a non-determinant factor. On the other hand, indirect effects would depend on Brexit’s impact on the European economy and banking system. Brexit may also translate into institutional developments that will affect the rules of European economic and financial market development, as well as European integration processes. In other words, implications for Albania and the region potentially exist, but still remain difficult to identify. I would rather not dwell very long on this topic; however, I do believe that today’s discussions will help us understand these processes and assess in advance the potential political and economic implications and consequences for our countries. I would like to stress that all of us in the Western Balkans remain hopeful that Brexit will not generate centrifugal forces, which harm our European integration processes, initiate setting barriers to free trade and movement of people, and encourage further fragmentation of the European financial system. 3. Monetary policy and financial stability in the post-Brexit period The coordination of the monetary policy with the necessary measures for safeguarding financial stability remains a challenging issue for policy makers even in better days. The challenges to this coordination may only strengthen, if Brexit implications assume the negative dimensions listed above.

The economies in the region seem to be set on the growth path, and are now based on a better understanding of the determining factors for the long-term development, and a more comprehensive framework of endorsing policies. The experience gained and the lessons learnt are undoubtedly elements that will help us steer safely, as we navigate our way into the future. As a typical Western Balkan country, Albania is in a similar development stage to its peers. Our analyses and forecasts confirm that the Albanian economy is on a positive track. Economic growth is expected to improve progressively over the next three years. Such growth continues to be fuelled by the recovery of the domestic private demand. The accommodative monetary policy of the Bank of Albania, the improved financing conditions and strengthening of private agents’ confidence are considered as the main elements underlying the recovery. The gradual return of the economy to equilibrium will help improve economic indicators across the board, more specifically: increase in employment; return of inflation to target; reduction of public debt; and  2/4  BIS central bankers' speeches  further strengthening of private sector balance sheets. The acceleration of economic growth in Albania attests the private sector dynamism. This is an encouraging development given that the fiscal policy implemented over this period focused on showing prudence and rendering public finance healthy, while the macroprudential policy and measures of the Bank of Albania have sought to further strengthen financial stability.
A passive fiscal policy means that the fiscal authority must be ready and willing to adjust its policy stance (revenues and primary spending) in such a way as to stabilise its debt at any level of the interest rate that the central bank may choose. Or, to put it another way, borrowing from Woodford’s terminology, 8 fiscal policy needs to be “Ricardian”. 9 Although the Treaty shows an awareness of the need for consistency between monetary and fiscal policy, in the sense described above, to ensure lasting stability, it did not foresee that fiscal policy could go off track to an extent that requires dedicated institutions and policies able to provide financial assistance, against conditionality, in order to restore sustainability and preserve financial stability in the euro area. The creation of the EFSF/ESM in charge of providing support to euro area Member States in difficulties and enforcing appropriate conditionality has filled this gap. It provides the euro area with a means to restore “Ricardianess”, thereby minimising the risk of “fiscal dominance”. Against this background, it is easy to understand the ECB’s decision on 6 September to undertake Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area, and to understand the specific framework within which they will be implemented. The aim of OMTs is to preserve the singleness of monetary policy and to ensure the proper transmission of the monetary policy stance to the real economy throughout the euro area.

Benoît Cœuré: Challenges to the single monetary policy and the European Central Bank’s response Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the Institut d’études politiques, Paris, 20 September 2012. *  *  *  Ladies and gentlemen, 1 It is a great pleasure for me to speak here today at Sciences Po Paris. 9 August this year was the fifth anniversary of the start of the financial crisis. The past few years have been times of hardship, financial turbulence and risks. At the same time, the crisis has exposed weaknesses in the framework of the economic and monetary union and provided an impetus to strengthen its foundations and to begin the process of bringing all euro area countries back to a more sustainable fiscal and macroeconomic path. The crisis has also brought challenges and opportunities for monetary policy, which is going to be the focus of my remarks today. Let me elaborate on two of them. The first challenge I will describe is that after Lehman’s collapse central banks had to combat exceptional threats to price stability arising from financial instability and recessionary forces. At that time their standard tool of monetary policy – changes to the short-term interest rate – was losing traction due to the dislocation in the financial system.
The largest firms must be prepared for a rapid and orderly resolution under the US Bankruptcy Code.6 Among other things, these firms must now also ensure that critical activities or services provided to the market will not be disrupted in the event they find themselves in recovery or resolution. Moreover, if an institution fails, there must be sufficient tools to manage its failure in a way that reduces the chance that its failure will cascade systemically through the financial system. In other words, if one institution gets a cold—or worse—it should not become an epidemic. The Fed’s use of Section 13(3) during the crisis was not uncontroversial. Concerns were expressed about moral hazard—that the Fed was somehow “bailing out” troubled institutions and that this would only lead to excessive risk taking in the future.7 As a result of this concern and others, Congress amended Section 13(3) to prevent the Fed from engaging in the kind of institution-specific lending that was directed at Bear Stearns and AIG. Going forward, the Fed may only lend under Section 13(3) as a part of a broad-based program directed at providing liquidity to the financial system and not to aid an individual failing firm.

The OLF is not prefunded, and the FDIC’s capacity to borrow to fund the OLF is capped at 90 percent of the fair value of the assets of the institution that are available for repayment. The provision of OLF liquidity does not fall ultimately on the American taxpayer. Shareholders may not recover until the OLF is repaid. The FDIC is authorized to assess financial sector participants if necessary to repay the funds advanced by the Treasury to fund the OLF. Reevaluate, but don’t forget the disorder of the crisis The breadth of changes that have been made to the regulatory landscape since the onset of the financial crisis is huge. Given the scale of the changes, it is entirely appropriate to take stock of these changes and reevaluate their effectiveness. It is not surprising to think that some recalibration might be necessary. It is also worth considering what additional reforms are needed to make the financial system more resilient and resistant to future, unanticipated shocks. Sometimes I get asked the question of whether the financial sector is where it needs to be in terms of resilience. My answer is usually that things are better, but they can get even better still. And I suspect that, in even the best case scenario, that will always be my answer. Because threats and risks evolve. Financial institutions, and regulators for that matter, must recognize changing risks and ensure that their approaches evolve in kind.
As markets repriced the future path of short-term interest rates and uncertainty increased, the two-year Bund-overnight index swap (OIS) spread fell to record lows, while segments of the euro area repo market  came under significant strain. At times, around half of the repo volume backed by German collateral was trading more than 40 basis points below the general collateral rate (Slide 5). Such asset scarcity can delay, or even impair, the transmission of monetary policy. A persistent negative Bund-OIS spread, for example, implies that sovereign yields in the euro area’s largest economy remain more accommodative than intended by our policy stance. Similarly, it took more than a week for the policy decisions taken in September and October of last year to be fully reflected in many segments of the repo market (Slide 6, left-hand side). The dispersion across repo market rates was particularly large in the week after the September Governing Council meeting when the DFR turned positive (Slide 6, right-hand side). At that point, uncertainty about the remuneration of some of the Eurosystem’s non-monetary policy deposits exacerbated investors’ concerns about collateral scarcity. [10] The Eurosystem responded by temporarily removing the 0% interest rate ceiling for government deposits and announcing a further adjustment as of 1 May 2023, providing incentives for a gradual and orderly reduction of such deposits in order to minimise the risk of adverse effects on market functioning and ensuring the smooth transmission of monetary policy.

(2020), “Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity”, IMF Working Paper, No 267. 29. See also Vayanos, D. and Vila, J-L. (2009), “A Preferred-Habitat Model of the Term Structure of Interest Rates”, Econometrica, Vol. 89, No 1, pp. 77-112; Adrian, T. and Shin, H. (2014), “Procyclical Leverage and Value-at-Risk,” Review of Financial Studies, Vol. 27, No 2; and Gertler, M. and Karadi, P. (2011), “A Model of Unconventional Monetary Policy,” Journal of Monetary Economics, Vol. 58, No 1, pp. 17-34. 30. See also ECB (2022), “Financial Stability Review”, November. 31. See, e.g. Albertazzi, U. et al., op. cit. ; and Krishnamurthy and Vissing-Jorgensen, A. (2011, op. cit.). There is also evidence that the share of sovereign bonds on a bank’s balance sheet can explain changes in the bank’s stock price after QE announcements, leading to a “stealth recapitalisation” that is akin to a capital injection for leverage-constrained institutions. See Andrade, S. C. et al. (2016, op.cit. ); Lamers, M. et al. (2019), “The Tradeoff between Monetary Policy and Bank Stability”, International Journal of Central Banking, Vol. 15, No 2; and Brunnermeier, M. and Sannikov, Y. (2013), “The I-Theory of Money”, Meeting Papers, No 620, Society for Economic Dynamics. Copyright 2023, European Central Bank
That’s because it’s the job of policy to respond to things that are unpredictable, in order to offset their effects, as best we can. So even if it’s the MPC that sets interest rates, in some narrow sense, it’s ultimately the economy that determines them. And our forecasts are intended not as some reliable guide of a particular policy path, but to help people understand how we see the nature and distribution of economic risks over the future. 1  Broadbent (2014). BIS central bankers’ speeches  5  Chart 3 Policy decisions better correlated with economic growth  Chart 4 Controlling for growth, IR forecasts uninformative about policy  Source: ONS, CBI, Markit Economics, Bank calculations. Source: ONS, CBI, Markit Economics, Bank calculations. The “excess” volatility of bond yields One way to think about the unpredictability of the future is to look at financial markets. Prices of financial assets are in many ways the embodiment of forecasts: they depend critically on how people think the future will evolve. So every time the price of an asset changes, someone’s forecast has gone wrong, or at least has had to be revised 2. And as you know, asset prices change a lot! In fact, if anything, as the economist Robert Shiller observed many years ago 3, they appear to move too much.

They all kick off with the same unwelcome economic conditions, presumably caused by some prior, off-stage shock to costs: inflation is 2% points above the target, output’s 1% point below potential and official interest rates are at (what is assumed to be) their “neutral” rate, which is assumed not to change. All three simulations also have inflation back at target two years later. But each involves a very different means of getting there. In the first, the policymaker – call it Committee A – hikes Bank rate immediately and aggressively, by 2% points. This rapidly pushes the economy into recession, making the output gap even larger. But it does at least succeed in bringing inflation back to target pretty promptly, well within the two-year point. Indeed, inflation then falls somewhat below target thereafter, and interest rates fall back sharply, to a level below where they started. Perhaps “A” stands for “austere”, or (hyper) “activist”. Committee B – “balanced”, maybe? – is a little gentler in its approach. Recognising that a significant existing output gap will do some of the work in reducing inflation it raises rates only a touch. Inflation therefore takes longer to come back to target. But it just about gets there by the two-year point and, in the interim, the real side of the economy suffers less and interest rates are less volatile. Finally, just for effect, I’ve added a Comedy MPC (Committee C).
Dear bank managers, Let me now focus on a number of issues of concern to the banking industry and the Bank of Albania, which we believe should be addressed carefully during the next year. I would like to start with lending as the activity that has the main impact on the banks’ financial result. We find that lending growth rates decreased and credit quality continued to deteriorate, particularly for foreign-currency denominated loans. This performance is due to the fall of demand for loans; however, it also reflects a persistent reluctance of banks to lend. BIS central bankers’ speeches  1  This trend needs to be reversed by addressing problems related to the pace of lending and non-performing loans. The stable growth of deposits as well as the significant increase in non-residential investments show that banks have sufficient financial resources to lend at higher growth rates. These resources should be used to lend mainly to the private sector in Albania, acting in accordance with the established regulatory framework and your policies for investment diversification. On the other hand, efforts to address the non-performing loans should multiply, in terms of both prevention and addressing them properly. Your focus should be placed on the cautious process of loan restructuring, especially before such loans are transformed into non-performing loans. Further, you should act discreetly, but consistently, for the execution of collateral. We are all aware of the problems that exist in this area.

In my view as well as in the conclusions by all the analyses that focus on this issue, Albania has huge potential, to a large extent unutilised, to support a sustainable economic growth, convergent to the economies of our trade partner countries in the euro area. Despite shortterm difficulties, originating largely from external sources, the fundamentals of Albania’s economic development remain sound. The macroeconomic stability, natural resources, structure and cost of the labour force, render the long-term investment in the Albanian economy an investment with a guaranteed return. In invite you all to be partake in this vision; engage even more intensively in supporting the Albanian economy with loans and financial services; and explore new areas and directions for the country’s economic development. I am confident that this is not only the best service you may provide to Albania, but also the best strategy to ensure sustainable and profitable development of the banking industry in Albania. In unison, we should not allow short-term problems to be transformed into weaknesses and lost opportunities in the long run. You will always find in the Bank of Albania an institution that is fully determined to comply with its objective on price and financial stability; a fair and farsighted regulator on banking supervision; an efficient administrator of liquidity and financial markets; and a profoundly professional institution and provider of useful macroeconomic analyses. Finally, I would like to make my most sincere wishes for a successful New Year 2013 in your professional career and personal life! Thank you.
But the scale of maturity transformation undertaken today produces private benefits and social costs. We have seen from the experience of first Iceland, and now Ireland, the results that can follow from allowing a banking system to become too large relative to national output without having first solved the “too important to fail” problem. 4. Finding a solution  Many remedies for reducing the riskiness of our financial system have been proposed, ranging from higher capital requirements on banks to functional separation and other more radical ideas. The guiding principle of any change should be to ensure that the costs of maturity transformation – the costs of periodic financial crises – fall on those who enjoy the benefits of maturity transformation – the reduced cost of financial intermediation. All proposals should be evaluated by this simple criterion. The first, and most obvious, response to the divergence between private benefits and social costs is the imposition of a permanent tax on the activity of maturity transformation to “internalise the externalities”. Such a tax, or levy, has been discussed by the G7, and introduced in the UK. The principle that the “polluter pays” for the costs they impose on others is an old one, going back at least to Pigou in the 1920s. The main practical problem is to calibrate the costs to maturity transformation. The loss of world output from the financial crisis is enormous, even though such a crisis might be considered a once in a generation, or even once in a century, event.

These indications show that businesses are seeing the economic and business merit of Shariah-compliant products and services and that its appeal extend beyond the traditional captive market. However, growth of the magnitude that Islamic finance experienced over the last decade would increasingly become more difficult if the industry does not continue to be nimble and agile in its approach. Innovation is therefore a key priority for Islamic finance players to keep expanding and gain market share. As indicated by the results of the retail consumer banking and insurance survey in the country report, the demand for Islamic banking by survey respondents far exceeds that for its conventional counterpart. This should be an encouragement for Islamic banks to boost its innovativeness in meeting customers’ needs. The Islamic Financial Services Act 2013 is already paving the way for the development of Islamic banking solutions that are differentiated from conventional products by allowing funds to be mobilised either through deposits or investment accounts. This classification brings greater options for the  BIS central bankers’ speeches  1  public and reflects an enhanced risk-sharing approach to Islamic banking. It also gives the industry additional options to create creative solutions for its customers. Greater engagement and collaboration between industry and academia would also ensure mutually-reinforcing efforts in driving innovation through the development and implementation of new research findings and breakthroughs.
There are some profound differences between central bank risk management and that in the private sector: in particular, the lack of a hard financial constraint, the inverted risk tolerance in times of stress and the dominant influence of policy imperatives. But there are also many areas where we have been able to gain enormously from the straightforward adoption of best-practice market techniques, including stress testing, risk tolerance and limit structures, and a wide range of risk review standards. What are the next challenges? As I alluded to before, risk managers and CROs in commercial firms are upstream from us in the chain of defences in the global financial system. This means that the more you can do to throw light on your organisations’ potential liquidity needs under stress, and the potential mitigants for that stress, not only will it help you and your supervisors, it will also help central banks to be better watchmen for tail events, and more effective firefighters if the building ever needs to be evacuated. My second main message is that, we are also members of the wider risk management community, dealing with similar concepts and sometime identical products, but with a different perspective. So we look forward to a rich and ongoing dialogue with you as you develop better and more robust ways to manage and diversify risk. 15  All speeches are available online at www.bankofengland.co.uk/speeches  15

In other words, in the absence of further disturbances to the economy or the emergence of new and unanticipated threats to price stability, this level of interest rate is considered to be consistent with the primary objective of maintaining price stability over the medium term. Our announcement helped to resolve some uncertainty at a time when the practical, technical and logistical tasks required by the changeover weekend were uppermost in our minds and in those of market participants. The first main refinancing operations of the Eurosystem were successfully settled. While paying due attention to the uncertainties related to the phasing-in of the new system, the decisions were taken on the basis of the liquidity conditions prevailing in the euro area money market as a whole. In addition to the refinancing operations, the Eurosystem offers standing facilities, which can be accessed by credit institutions via the NCBs. The deposit and marginal lending facilities constitute, in normal circumstances, the upper and lower bound for the overnight market interest rate. As a transitional measure, the Governing Council of the ECB had narrowed the corridor established by the interest rates on the Eurosystem’s standing facilities from 4 January until 21 January 1999. The intention was to facilitate the necessary adjustments to the new institutional environment resulting from the transition to Stage Three. BIS Review 9/1999  –6–  At its last meeting, the Governing Council of the ECB confirmed its earlier assessment of the outlook for price stability.