samchain/econo-pairs-v1 huggingface dataset:
In my view, portfolio flows in the opposite direction – i.e. portfolio outflows from Mainland China – will also present huge  BIS central bankers’ speeches  1  opportunities to the asset management industry, especially given the fact that the Mainland economy is the single largest provider of savings in the world. Currently, outward portfolio investment (OPI) from the Mainland is only around 5% of its GDP, still far below 57% for East Asia, 42% for the US and over 100% for the UK. Our inhouse research findings show that an economy’s portfolio investment outflows as a percentage of GDP tend to grow along with the level of economic development measured by per capita GDP. So, given the huge potential outward portfolio investments from Mainland China, how will they be allocated across different financial markets? Our researchers have studied this particular subject in depth and found that the home bias is still very much there, i.e. the closer the potential investment destination to Mainland China, the more OPIs it will receive from Mainland China. As such, Hong Kong is likely to be one of the key destinations of Mainland’s OPIs and the amount of those OPIs Hong Kong will receive will increase as China’s GDP grows. Apart from being the final destination for these investments, Hong Kong can also act as an ideal launch platform for these investment flows to reach other major global markets.

Lower interest rates have encouraged risk-taking and higher leverage as investors have wanted to secure high rates of return. A case in point is insurance companies, which have to service guaranteed rates of return, and pension funds that have agreed to specific benefits. As the return on risk free bonds has declined, investors have been increasingly led to search for yield and increase the share of risky assets, including credit derivatives, in their portfolios. This contributes to the compression of risk premia. This can continue as long as long-term interest rates stay low. But there is some circularity in the situation. On the one hand, institutional investors are “victims” of low long-term interest rates. On the other hand, they help to maintain this situation as they continue to look for even longer-dated bonds. Therefore, if the pricing of long-term government bonds, which is the reference for the pricing of many other assets, remains distorted, credit risk premia may be based on shaky foundations. Second, risk transfer mechanisms contribute to a certain opacity in the distribution of risks. Most transactions are conducted on OTC markets and are not recorded in a centralised manner: there is therefore a “knowledge gap” in the financial system as regards CRT exposures. More fundamentally, risks are usually transferred by banks, which are regulated and transparent, to entities that are unregulated and are not required to disclose their positions. It is therefore impossible for market participants and regulators to identity the situation of the ultimate risk holders.
Jon Cunliffe: Momentum in the housing market – affordability, indebtedness and risks Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the Worshipful Company of International Bankers dinner, London, 1 May 2014. *  *  *  In 2007, the average house in the West Midlands cost around £ 1 Transactions in that region were running at 10,000 a month. By 2009, the average price had fallen by around 15% to around £ and transactions to around 5,000 a month. And, while prices and transactions bounced back in 2010, prices were subsequently pretty flat in the West Midlands until spring last year. Over the 12-months to March, prices grew by a little under 10% in the West Midlands. The average house in the region now costs around £ – 7% off the peak. Transactions in the region look to have averaged around 7,000 a month in 2013. I mention the West Midlands because the level and growth rate of house prices in that region broadly matches the median for the country as a whole. The point is the rapid growth in the UK housing market is not just a London story. For the country as a whole, prices at the end of March were also up around 10% on their level a year ago, back to where they were in late 2006. For 10 out of the 12 regions of the UK prices grew by more than 5% in the year to 2014Q1.

So it is particularly important at present to ensure that the current low levels of interest rates do not mask the likely cost of mortgages and so create more headroom for prices to rise. It is possible that affordability constraints, reinforced by lenders’ underwriting standards, will increasingly act as a brake on the speed at which house prices are growing and as a brake on mortgage debt. In that case, having recovered much of their fall following the crisis, we will see house price growth slow to match the pace of earnings growth – a soft landing. This is not without precedent. In 2004, having risen at an average rate of almost 20% over the previous 2 years, house price growth began to slow with the annual growth rate falling to just 2% by the middle of 2005. The 125bps increase in Bank Rate in the 13 months to September 2004 was no doubt part of the story. It proved, however, to be short lived episode. Amid a period of easing credit conditions, the pace of house price growth began to rise again through 2006, reaching double-digit rates by 2007. But it is probably an example of how affordability can brake the market. However, there is another way the story can play out – a major overshoot in prices and build up in debt followed by a sharp correction with negative equity and an overhang of debt for many households.
Those who legislate, regulate and oversee the markets will not be able to prevent this. So what can we do? To begin with, of course, we need to obtain the best possible overview and knowledge of events. We at the Riksbank consider the work in the Bank of International Settlements within the G10 to be invaluable in this context. There is also other work, for instance under the auspices of the International Monetary Fund, from which we can learn. One consequence of this development is that we must take international conditions into account to a greater extent in our own work on stability analysis. We must also oversee developments in the financial markets more than we have done and not only concentrate on the major banks. We must try to be aware of when prices depart from reasonable levels and become a risk. With regard to risk management in individual institutions, it is becoming increasingly difficult to gain insight into what is happening. It is therefore necessary to spend more time on evaluating the systems and person involved. This is the view that has coloured the new oversight system for the banks, what is known as Basel II, which is about to be implemented. It is also our task to equip the systems and infrastructure so well that the effects of any future crises will be minimised.

Thus, is there an increased concentration of risk among other agents, such as pension fund companies and hedge funds, where this could create a problem? In general, the risks come to those who can manage them and therefore bear the risks. The question if whether we who oversee the system and those who operate in the markets know when risks arise? How do these developments affect our stability work? The reason I have chosen to talk to you about these issues today is partly that developments in the financial markets affect one of the Riksbank’s main objectives – to promote a safe and efficient payment system. The work on achieving this objective entails identifying potential risks in the financial system and assessing resilience to possible shocks. Our analysis is concentrated on the major banks, as they play a central role in the system. We are now – even in Sweden – more dependent on the financial markets. Although many of the tendencies I have mentioned are not as tangible here, we can still be affected by events in other countries, as in the case of autumn 1998. There is scarcely any doubt that the changes that have occurred have contributed to making the markets more efficient. This is good for the economy as a whole, very good even. The markets have probably also become more robust, with the risks better spread over the economy. Events in recent years would indicate this is so. However, financial crises can never be entirely avoided. They will recur.
A country normally seeks to achieve balanced public sector budgets over the business cycle. Norway is in a special situation, however, because of its petroleum activities. Revenues fluctuate sharply in pace with the oil price and domestic business cycles. Oil and gas production will peak a few years into the next century. It is therefore important to achieve a substantial surplus now, and accumulate financial wealth that can be used to finance the welfare system when oil revenues taper off. Otherwise, welfare schemes may have to be scaled back considerably when these revenues fall. The Petroleum Fund consists of the accumulated surpluses of government finances. Capital was first allocated to the Fund in 1995. At the end of 1998 the market value of the Fund’s capital was approximately NOK 170 billion. National insurance scheme expenditure will increase in the future. In 1999 expenditure on retirement and disability pensions is expected to amount to NOK 91 billion. This corresponds to about 8% of Norway’s GDP. The percentage will probably double over the next 30 years, and this will happen after Norwegian oil production has peaked. The challenge to the real economy is that the working population will decline sharply, while the proportion receiving income from the public sector will rise. Projections for government oil revenues have been based on an oil price in the order of NOK 100 to NOK 120 per barrel. This will generate substantial government surpluses in the years ahead, and a seemingly steady accumulation of capital in the Petroleum Fund.

However, we must take into account that in the long run the krone exchange rate cannot deviate substantially from the level implied by economic fundamentals. We must therefore to some extent expect a change in the krone exchange rate in response to major changes in our terms of trade. 11  BIS Review 20/1999  Norges Bank’s mandate has been formulated in the light of the experience of a fixed exchange rate policy earlier in the 1990s. This experience does not imply that the central bank is to conduct a traditional fixed exchange rate regime, with established fluctuation margins and the obligation to intervene, as reflected in the mandate. Norges Bank will orient monetary policy ‘towards maintaining a stable krone exchange rate against European currencies’. However, it is taken into account that the krone exchange rate will vary. The Exchange Rate Regulation therefore states that ‘in the event of significant changes in the exchange rate, monetary policy instruments shall be oriented with a view to returning the exchange rate over time to its initial range’. We must learn from the situation that arose in the autumn of 1996 and winter of 1997 when strong appreciation pressures prompted Norges Bank to reduce its key rates. Norges Bank’s first response to such appreciation pressures is to provide advice concerning changes in the budget. Norges Bank will orient its instruments towards maintaining a stable krone exchange rate. We must not allow ourselves to be blinded by daily exchange rate quotations.
Figure 8 a) Employment (moving quarter/moving quarter change, thousands)  b) Compensation index (IR) (percent, annualized quarterly velocity, moving  150  12  100 50 0  Real IR  Nominal IR  160  8  140  6  120  4  100  60 40  -2  20  -4 21  22  Source: Central Bank of Chile based on INE data. IALI  80  0  -100  Sence (*)  180  10  2  -50  c) Labor demand (index, January 2021 = 100, moving 3-month average  0 02  07  12  17  Source: Central Bank of Chile based on INE data. 13  22  20  21  22  (*) Information from System of Employment Board Analysis and Sence Labor Observatory. The indexes were built with information downloaded from trabajando.com and laborum.cl with nationwide coverage. The number of ads corresponds to ads uploaded by firms. Latest data available is from 31 October. Sources: System of Employment Agency analysis, Sence Labor Observatory, and Central Bank of Chile.

14  Figure 11 Structural decomposition of 10-year zero rate (*) (basis points, accumulated since 1 July 2019)  5 4  Growth Risk premium Total  Monetary Policy External  3 2 1 0 -1 -2 Jul.19  Jan.20  Jul.20  Jan.21  Jul.21  Jan.22  Jul.22  (*) Historical decomposition of the long rate from a BVAR based on the identification strategy proposed by Eterovic and Eterovic (2022), incorporating an external bloc. The exogenous bloc encompasses all U.S. shocks (monetary policy, growth, risk aversion and pure risk), which have been aggregated for simplicity. Source: Central Bank of Chile based on RiskAmerica data. 15  Figure 12 Trend growth trajectory (percent)  5 4 3 2 1 0 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Source: Central Bank of Chile. Figure 13 Inflation forecast (1) CPI inflation (annual change, percent)  14  Core inflation (2) (annual change, percent)  CPI  12  MP Report Sep.22 MP Report Dic.22  10  8  14  Core CPI  12  MP Report Sep.22 MP Report Dec.22  10  8  6  6  4  4  2  2  0  0 19  20  21  22  23  24  19  (1) Gray area, as from fourth quarter of 2022, shows forecast. (2) CPI without volatiles Sources: Central Bank of Chile and National Statistics Institute (INE).
The effects of the currency collapse and the associated outburst of inflation, which rose from below 4% in late 2007 to 18% in early 2009, were magnified, as it hit one of the most indebted private sectors among advanced economies, with a high share of foreigndenominated or exchange rate-linked debt (20% for households, 70% for businesses, and 40% for municipalities). In addition, households’ CPI-indexed debt amounted to 75% of their total debt and the pass-through of exchange rate depreciation to inflation was speedy due to the magnitude of the depreciation and the lack of credibility of monetary policy at the time. Having set the scene, I shall now turn to the policy responses. The framework for these was set by the two-year Stand-By Arrangement agreed with the IMF in November 2008. The total financing associated with the programme amounts to around USD 5 bn, with just over USD 2 bn coming from IMF resources and USD 3 bn provided by bilateral loans from the Nordic countries, Poland, and others. The original Stand-By Arrangement provided for quarterly reviews; however, the first review was delayed, partly because of the deposit insurance dispute between Iceland and the Netherlands and UK, relating to online foreign overseas branches of the failed Landsbanki. The first review was completed in October 2009, the second in April 2010, and the third on 29 September 2010.

The first was the currency crisis in early 2008, when the currency collapsed as capital inflows experienced sudden stops and the banks were no longer able to refinance their foreign currency liabilities. The currency depreciation had strong negative effects on the balance sheets of households and those corporations with foreign currency debt and no foreign currency income, which in turn contributed to a further drop in domestic demand. The second was the collapse of the banking system in October 2008, in the wake of the failure of Lehman Brothers, when cross-border banks in many countries around the world  1  Gudmundsson, Már (2010). “The faults in cross-border banking.” Speech at the FIBE meeting in Bergen on 7 January. Online source: http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=7592 (access date: 18 May 2010). 2  Gudmundsson, Már and Thorsteinn Thorgeirsson (2010). “The fault lines in cross-border banking: lessons from the Icelandic case”, forthcoming in SUERF Studies. BIS Review 139/2010  1  faced a run on their foreign currency liabilities. The Icelandic banks were particularly vulnerable in this regard, as the foreign-denominated part of their balance sheets amounted to 7½ times Iceland’s GDP. By comparison, the reserves of the Central Bank of Iceland, a swap agreement with the Nordic countries, and committed credit lines amounted to just over one-third of GDP. This major vulnerability came on top of other malignant diseases that plagued the banks and have been revealed in the report compiled by the Parliamentary Special Investigation Commission.
Between the beginning of 2004 and their peak in August of this year, world oil prices rose from $ to $ a barrel. There have been comparable increases in the prices of metals and other raw materials over the same period. Economists have also speculated that globalisation may be changing wage- and price-setting behaviour in developed countries, by adding to the competitive pressures facing domestic producers and wage earners. This is not just a reflection of increased competition from cheap manufactured imports, and the greater availability of migrant labour to ease domestic labour shortages. A Welsh audience will need no reminding of the many ways in which both inward and outward foreign direct investment can affect domestic employment opportunities. Hard as it is to quantify, the net effect of these trends may have been to reduce the sensitivity of domestic inflation to changes in the margin of spare capacity in the economy. But while these effects go some way towards explaining why the global inflationary climate may have been relatively benign over much of the past decade, I think they fall short of providing a complete explanation for the strength and resilience of global output growth. For this we might look to the more elusive influence of financial integration, and the added impetus to global growth provided by the increasing weight of fast-emerging market economies, particularly in Asia. It is just worth pausing on the remarkable ease with which the world economy has apparently absorbed the impact of sharply higher oil prices.

This is particularly pertinent to the Distributed Ledger Technology 2/3  BIS central bankers' speeches  platform for trade finance that we are building with the industry. This is why we have earlier announced a collaborative initiative with Singapore in this area. And I am also very pleased to note that HM Treasury and the HKMA have just started a dialogue to explore further cooperation under this project. Green Finance If I am asked to predict what will be an emerging theme for the financial services sector in 2018, green finance looks like a safe bet. Green finance is growing rapidly and Mainland China has become one of the major markets for green bonds. Hong Kong is also keen on tapping into the green finance opportunities. The Hong Kong Government plans to issue a green bond for the first time next year. There is much we can learn from and collaborate with London, which has been a forerunner in this segment of the market. One of the burning issues is the divergence in various green bonds standards and assessments currently in the market. I hope today’s Seminar could shed some light on this and also the way forward for green finance development. Conclusion The future is not all rosy though. Challenges and uncertainties abound and this calls for stronger cross-border collaboration. The success of this Forum in the past six years shows that London and Hong Kong can be an all-weather friend. And I wish all of you a very fruitful discussion today. Thank you.
But we are also concerned with illiquidity in particular markets when it threatens the stability of the system as a whole. It is this concern that motivates the choice of assets we lend against in both normal and stressed conditions. A loss of liquidity in markets on which the banking system as a whole relies can magnify the mismatch between the maturity of assets and liabilities on banks’ balance sheets. A banking system in which large volumes of funding need to be renewed very frequently is a fragile one, vulnerable each day to a shock stemming from rumours and loss of confidence. And it is in those circumstances that a backstop is needed. The reason for it is not to support individual institutions. It is to avoid an unnecessary loss of confidence in the system as a whole. That backstop is central bank funding when private markets important to the stability of the system have temporarily closed. But central banks are not there to support liquidity in all markets at all times. They are not there to create a liquid market in all financial instruments that traders or some rocket scientist have dreamt up. Nor are they there to maintain indefinitely a market when changes in information or risk appetites make it more difficult to sustain a private market, as in some asset-backed security markets recently.

Since the onset of the crisis last summer, the way in which the tripartite arrangements work in practice has evolved considerably. The concept of a golden age in the relationship between the Bank and the banks is also far from the truth. Our relationship was described by David Kynaston, in his magisterial history of the City, as “surprisingly prickly”. In the 1920s the Chairman of the Midland Bank, Reginald McKenna, derided the Governor, Montagu Norman, as “an intellectual without an intellect”, and in turn Norman said about McKenna, “some people cannot avoid the limelight”. Since the crisis broke last August we too have had our differences, although more recently the close cooperation between the Bank of England and six of the largest banks in working through the details of our Special Liquidity Scheme was a model of effective collaboration. But perhaps we should not be surprised that sometimes our relationship is “prickly” because our interests do not always coincide. Banks are, entirely legitimately, concerned primarily with their commercial interest. The Bank of England is concerned with the interests of the UK economy as a whole. The two sets of interests are not always the same. BIS Review 75/2008  1  Where they may clash is over the use of our balance sheet. Companies which have misjudged risks or their business model should generally be allowed to fail to encourage prudent behaviour by others.