samchain/econo-pairs-v1 huggingface dataset:
But calming global financial markets – and in the case of Switzerland, countering the heavy wave of safe-haven flows into Swiss francs – has been only one facet of the SNB’s policy response. The unique nature of the COVID-19 pandemic has also caused an unprecedented shock to the real economy. To mitigate this shock, central banks – in cooperation with the fiscal authorities – have created new instruments. The SNB during the COVID-19 crisis: same role, new tools Given the nature of the crisis, an important part of the policy response was to address the strains on the corporate sector, particularly among small and medium-sized enterprises (SMEs). In Switzerland, 99 percent of all firms are SMEs and they employ some 67 percent of the labour force. The lockdown measures resulted in a sudden stop for many businesses. There was real concern that economically viable SMEs, in particular, could be 1  The US dollar swap basis is an indicator of US dollar funding costs in foreign exchange markets. A large negative basis reflects a scarcity of US dollar funding. Page 3/10  forced into bankruptcy through no fault of their own. To address the problem, the Swiss Federal Council adopted a range of important measures, including the COVID-19 loan programme for companies. To be effective, financial support had to be fast and well targeted.

In some advanced economies, such as Spain (shown in light green in Chart 1) and the United Kingdom (in purple), output plummeted more than 20% within weeks of the first lockdown. The sharp increase in uncertainty caused substantial turmoil in the financial markets. In March last year, major equity markets, such as the S&P 500 (shown in blue in Chart 2) and the Stoxx Europe 600 (in yellow), dropped 30% and more in a matter of weeks. At one point, investors were forced to sell even their safest and most liquid assets, such as government bonds, in order to rebalance portfolios and raise cash. As you can see in Chart 3, due to this ‘dash for cash’, at the height of the panic in March 2020, yields on government bonds, which Page 2/10  typically serve as safe havens, spiked in spite of the very negative risk sentiment. In the foreign exchange markets, however, traditional safe-haven currencies like the US dollar and the Swiss franc appreciated, as expected. In response to these safe-haven flows, the SNB had to step up its efforts to prevent a sudden and detrimental appreciation of the Swiss franc. The red line on Chart 4 shows the nominal trade-weighted index of the franc since the start of 2020. With the outbreak of the global COVID-19 pandemic, the Swiss franc came under increasing pressure. To stem an excessive appreciation of the franc, the SNB bought foreign currency worth 90 billion Swiss francs in the first half of 2020 alone.
But in the recently published Financial Stability Report we are nevertheless assuming, even in the main scenario, that the Swedish banks will face fairly substantial loan losses in 2009 and 2010. A large share of the losses, approximately 40 per cent, is expected to arise from operations in the Baltic countries and the rest of eastern Europe. But in the Report we also note that all of the major Swedish banks have sufficient capital to cope with the losses that will arise if the Riksbank's forecasts are correct. We also observe that the Swedish banks are well-capitalised in an international perspective. One cannot disregard the fact that there is great uncertainty over future developments in economic activity. When one has the task of safeguarding financial stability, it is natural preparing for situations where things go very badly. And when assessing the resilience of the financial system it is also of greater interest to study a more negative development than the one forecast. We have therefore investigated in our Financial Stability Report how the banks would cope with a scenario of a much weaker development than that considered most likely today. There we assume, for instance, that GDP in Sweden will fall twice as much as predicted in our main scenario forecasts for 2009 and 2010 in the Monetary Policy Update published in April.

We know from experience that the inflation outlook can change rapidly. During the late spring and summer of last year we were concerned over inflation being too high, even though this was mainly due to rising oil and food prices. Rising unit labour costs were also taken into consideration. Fears that high inflation expectations would become entrenched also formed part of the picture. We then raised the interest rate despite beginning to see signs of weaker economic activity in the future. The assessment was that this was necessary to attain the inflation target a couple of years ahead. When developments turned out differently, we had to quickly change our course. We are of course always prepared for situations like that. We are ready to act as quickly and as forcefully as is necessary, both to attain the inflation target and to carry out our financial stability responsibilities. Unconventional measures There have been many discussions on what the Riksbank could be expected to do if developments turn out weaker than we are now assuming. And our toolbox is not empty because the repo rate is so close to its lower limit. Put simply, the way the repo rate tool works is that the banks either borrow or buy Riksbank Certificates with a maturity of one week from the Riksbank at the price of the repo rate. In addition, there are what is known as daily fine-tuning operations between the Riksbank and the banks at an interest rate very close to the repo rate.
Put simply, notwithstanding the gloom of global recession, the future of Hong Kong is bright. Bond market development Let me turn quickly now to bond market development. There are a few points that I would like to make immediately. The first point is a basic and obvious one, so obvious that it is often overlooked. This is that the bond market is a channel of financial intermediation for the purpose of mobilising savings into productive investment that promotes economic growth and development. There is a need for those involved in the bond market those responsible for its development and those making a profit or a living from it to be frequently reminded of this basic purpose. This is particularly so when considering the introduction of sophisticated products derivatives and the like. I have nothing against sophisticated financial engineering, or against the engineers being well remunerated, provided that the regulators and the market participants, both at the wholesale and retail levels, are capable of appreciating and coping with the associated risks. This may not often be the case. It is possible that, while these products theoretically make the market more efficient, in terms of spreading and managing risks, in practice the risks may be magnified, to the extent of creating systemic instability and disrupting the crucial flow of funds through that basic and important channel of financial intermediation.

Between the low risk-return bank deposits and the high risk-return equity market, there should be a risk-return profile that fits that of debt instruments. The trick is how this latent demand, involuntarily trapped at the two ends of the spectrum, can be brought out and satisfied. Investor education and the creation of a retail network to market debt will help. But the costs of the latter can be quite substantial and possibly prohibitive, particularly in a low interest environment, if the retail banking system cannot be relied upon to support this wholeheartedly (which I am glad to add is not the case in Hong Kong). Furthermore, when government debt is used by the banking system as assets for acquiring liquidity support, the demand from the banks may easily crowd out the retail demand. Nevertheless, the institutionalisation of savings, if this could be organised, through for example the introduction of professionally managed provident fund schemes, should be quite effective in harnessing this demand. This would, at the same time, enable the retail demand to be transformed into a level of sophistication that, with the appropriate supply response, will greatly enhance the efficiency and robustness of the debt market as a channel of financial intermediation. The seventh point I wish to make concerns the supply side. For an economy with a continuing need to finance budget deficits there is of course a natural supply of debt instruments, unless, like Hong Kong, it has surpluses to spend. But the story does not end there.
More work will have to be done on this as a case study but, at face value, the fact that US Treasury yields could move by over 100bps just on speculation of a small reduction in the rate of purchases, confirms that asset purchases in the US must have been having a very sizable effect on market prices, at least as large as the quantitative estimates that have previously been made.4 And the degree of reaction in UK gilt yields makes it clear that there have been large international spillovers – a point which some previous research has also noted.5 The degree of correlation since May has been striking and for shorter-term rates, it is possible that it has been exacerbated by poor liquidity in money markets and hence over-done. Given how the recoveries have differed in scale and nature – the US economy has grown much more than the UK since the recession, and has not suffered the same collapse in productivity – one would surely expect the prospects for monetary policy to be quite different in the two jurisdictions. A final issue I want to raise is whether market behaviour has been affected by regulatory changes. Over the past year or so many of the reforms being introduced internationally have been implemented or anticipated. In particular the future rules on capital and liquidity have become clearer, and proprietary trading has largely relocated away from the traditional intermediaries as a result of the “Volcker Rule”.

Paul Fisher: Financial markets, monetary policy and credit supply Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, Member of the Monetary Policy Committee, to Richmond University, London, 2 October 2013. *  *  *  Thank you for having me back at Richmond University. In this lecture today, I aim to review the behaviour and development of financial markets over the past year, including the period of heightened volatility since May and the introduction by the Monetary Policy Committee of explicit forward-looking monetary policy guidance in August. I will also assess the working and impact of the Funding for Lending Scheme over its first year of operation. Developments in financial markets When I spoke to you a year ago, financial markets were still scarred by the crisis years and there remained a number of significant downside tail risks to the global economy. Contacts were citing: the risks of a breakup of the euro-area; the possibility of a “fiscal cliff” in the US; a slowing in China, alongside already weak growth in the advanced economies; and tensions in the Middle East – especially around the Straits of Hormuz. But those tail risks were seen to be offset in large part by the commitment of central banks to respond. The ECB had announced its Outright Monetary Transactions programme and had been interpreted as publicly committing to do whatever it takes to keep the euro-area together.
Negative repo rate and bond purchases – to safeguard the credibility of the inflation target The fact that we now have introduced a negative interest rate and begun purchasing government bonds in Sweden is basically because we want to safeguard the role of the inflation target as nominal anchor. I mentioned earlier that monetary policy should give consideration to financial stability. But this is because financial stability is a necessary condition for attaining stable inflation in the long run. Conditions for being able to give  23  For further information, see “Low global interest rates”, article in the Monetary Policy Report, October 2014, Sveriges Riksbank. See also Hamilton, D., Harris, E. S., Hatzius, J. and West, K.D., “The Equilibrium Real Funds Rate: Past, Present, and Future”, University of California at San Diego Working Paper, 2015. BIS central bankers’ speeches  9  consideration to financial stability in monetary policy decisions are that inflation expectations are firmly anchored around the target and that inflation is fairly close to the target. With hindsight, we can see that inflation has been lower than the Riksbank and most other forecasters had expected. And this doesn’t only apply to Sweden; inflation is very low in most developed countries. What happened in Sweden last year, when inflation continued to be lower than expected at the same time as inflation expectations continued to fall, has thus rather dramatically changed the conditions for monetary policy.

25 The supply of credit increases, at the same time as interest rates are  24  For an overview of how complementary monetary policy functions, see De Graeve, F. and Lindé, J., “Effects of unconventional monetary policy: theory and evidence”, Economic Review 2015:1, Sveriges Riksbank or the article “The Riksbank’s complementary monetary policy measures”, Monetary Policy Report, February 2015, Sveriges Riksbank. 25  Some studies of the effects of complementary monetary policy in other countries include, for instance, Weale, M. and Wieladek, T. “What are the macroeconomic effects of asset Purchases”, External MPC Unit Discussion Paper No. 42, 2014, Bank of England, Gertler, M. and Karadi, P. “QE 1 vs. 2 vs. 3. . . : A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool”, International Journal of Central Banking,  10  BIS central bankers’ speeches  pushed down and the exchange rate weakens – aggregate demand in the economy increases. When the economy is stimulated, inflation gradually rises, as companies can charge higher prices and the lower unemployment pushes up wages. A weaker exchange rate also leads directly to higher inflation, as prices of imported consumer goods rise faster. Let me give an example of how the increase in the Riksbank’s balance sheet in the form of government bond purchases can spread throughout the economy. When we buy government bonds, those who sell them receive liquid funds in the form of their bank account balance instead of the bonds they previously held.
[6] The underpinning arguments resulted in the principle of central bank independence being enshrined in primary legislation, thereby establishing a link between monetary policy and the citizens of the European Union. Let me finally add that there is a euro area specific argument in support of central bank independence which makes the euro area special within the group of advanced economies. The euro area is not a nation state. Its institutional framework is shaped by the fact that a single European monetary policy co-exists with national or shared sovereignty in various policy domains. Fiscal and labour market policies are particularly relevant in this regard. This raises complex political economy questions, not foreseen in the earlier literature, about how the interests of supranational policies and non-harmonised national policies can be aligned. In such an environment, it is important to have an independent institution which provides the various national decision-makers within the monetary union with a stable nominal anchor enshrined in Union primary law. [7] From a legal perspective, the Treaty on the Functioning of the European Union established the European System of Central Banks (ESCB), consisting of the ECB and the national central banks (NCBs) of all EU Member States, and assigned to the ESCB the primary objective of maintaining price stability.

However, independence does not mean isolation, which is why it is important for a dialogue between the central bank and the democratically elected institutions, as well as directly with the public at large, to be maintained. There is a third insight, which is related to the second. For independence to contribute to achieving a desired inflation target, it needs to be accompanied by a limited and clearly http://www.ecb.europa.eu/press/key/date/2017/html/sp170330.en.html[03.04.2017 15:53:14]  Central bank independence revisited  defined mandate for the central bank. As I will explain in a greater detail when talking about accountability, a clear and limited mandate is necessary for the parliament and the public to be able to monitor and evaluate the performance of the central bank. But, apart from that, a clear and limited mandate also reflects the insight, dating back to Tinbergen[5] , that institutions must not be overburdened with multiple goals without having the appropriate instruments to achieve them. These economic insights contributed to the rationale for providing the ECB with a high level of independence, in view of the primary objective assigned to the ECB of maintaining price stability. This rationale has also been recognised by the CJEU, according to which this independence is not an end in itself but serves to shield the decision-making process of the ECB from short-term political pressures in order to enable it effectively to pursue the aim of price stability.
The sharp increase in the value of dwellings is one of the main factors behind growth in household debt. House prices have risen by an annual average of around 9 per cent over the past 10 years. High and persistent house price inflation might contribute to holding up credit growth even after prices have levelled off. Since only a portion of the housing stock is sold each year, there will for a long period be some dwellings that are sold at a higher price than when they were last sold. This contributes to sustaining high credit growth. As a result of low interest rates, the household interest burden will remain fairly low in spite of high debt growth. It may prove to be particularly challenging for borrowers to assess their debt-servicing capacity over time in a period when the interest rate is abnormally low. Such a low interest rate also places greater demands on banks in assessing the creditworthiness of borrowers. According to money market expectations, the interest rate will eventually stabilise around 5½ per cent. This is consistent with an inflation target of 2½ per cent and a long-term real interest rate on a par with the level abroad. This interest rate, with an addition for banks’ margins, provides a more realistic indication of the interest rate level that will apply over the loan’s life than the floating interest rates prevailing today. The interest rate can be used to reduce credit demand.

The North-West and Sogn og Fjordane: In the North-West, there are still only a few contacts that report an increase in employment. Most companies can increase activity by 10-15 per cent without altering their workforce. Retail trade and construction are the only sectors that report an increase in employment. Construction companies  4  BIS Review 61/2004  report some signs of labour market tightness, due in part to the start-up of work on the Ormen Lange project. The use of foreign contract labour in connection with seasonal work in the fish processing industry, the hotel sector, tourism and the engineering industry is increasing. Growth in household demand, petroleum investment and increased activity in the business sector are paving the way for a rise in employment in the period ahead. On the other hand, intensified competition and continued rationalisation in the business sector may have a dampening impact on labour demand. Developments in real economic variables are mirrored in credit markets. In recent years, household income has shown solid growth, and household confidence has been high. Corporate earnings, however, have been low, and until recently companies have primarily focused on enhancing efficiency. Total credit growth is rising approximately on a par with GDP growth. The composition of credit growth in the past year, however, has given ambiguous signals to our interest-rate setting. Growth in household borrowing is high, while growth in corporate borrowing is low. Developments in corporate borrowing shadow developments in corporate investment. Household debt has increased sharply since 1994.
Fifteen private banks have opened for business since 2009, bringing the total to 45 banks offering private banking services to their clients today. For the asset management business as a whole, the combined fund management assets hit a record high of $ trillion in 2012, with 65% of the funds sourced from non-Hong Kong investors, according to a recent SFC survey. It is, however, worth noting that the survey also showed that 74% of the practitioners in the asset management field were engaged in the sales and marketing functions. While the figure has already trended downward from 81% in 2008, it does reflect the fact that Hong Kong needs to further expand the other segments of the asset management “value added” chain, e.g. in structuring, research, investment and trading. To achieve this objective, the HKMA’s outreach work in the last two to three years has taken a new focus on asset owners, such as pension funds and sovereign wealth funds. 11. Since 2010, the Market Development Team of the HKMA attended hundreds of meetings with overseas asset managers and owners. I am pleased to report that these outreaching campaigns are generating positive results, with about one-third of the institutions that we have approached indicating a commitment to devote resources to Hong Kong. Specifically, 67 institutions have expressed interest in pursuing a Hong Kong presence and 48 institutions are planning to expand their existing operations in Hong Kong. 12. There are several reasons why the HKMA is uniquely well placed to undertake effective outreach programmes.

First, the HKMA is a banking supervisor and banks are the key players in the financial markets in Hong Kong. Second, the HKMA is also itself a major asset owner and manager, with over $ billion of Exchange Fund assets under management. This makes it easier for the HKMA to make the right connections and speak the same language of the asset owners or managers overseas. Thirdly, the HKMA senior management is fortunate to have the support from a small but dedicated team of highly professional staff in the outreaching programmes. Finally, the HKMA is part of the Government and it is easier for us to refer issues or problems to the relevant government bureaux or departments for consideration or actions. In this context, I would like to thank in  BIS central bankers’ speeches  3  particular the SFC and InvestHK, which have been working very closely with us to provide the much needed advice or help when overseas financial institutions are thinking of locating or relocating their operations to Hong Kong. Concluding remarks 13. Ladies and gentlemen, I would like to end my comments by saying this: competition amongst financial centres has always been fierce and will be even more so in the future. Competition is quite like rowing a boat up a river, in which case there is a Chinese saying: “ 逆水行舟，不進則退”or in English: “excel and advance” or “stay put and be left behind”! 14.