samchain/econo-pairs-v1 huggingface dataset:
We have jointly undertaken a series of “constrained” bottom-up stress tests across a number of banks and last year we participated in the EU-wide stress test stress test. This year the Bank is assisting the MFSA in the stress test exercise being conducted by the newly established European Banking Authority. Together, the Bank and the MFSA now need to build upon this positive track record. The recent changes in the nature and size of the domestic financial system and in the external environment with which it increasingly interacts, in fact, suggest that the time has come for the existing model of cooperation to be further refined and strengthened. The need to increase the effectiveness of the institutional arrangements for the preservation of financial stability is also related to Malta’s aspirations to consolidate its position as a successful financial centre. The financial services industry has grown considerably, particularly since EU membership in 2004. Today there are 25 licenced credit institutions, 14 of which with a majority shareholding from other EU countries. But the fastest growing sector has been the funds industry, with more than 400 funds registered, many having redomiciled from other jurisdictions. There has been a similar growth in the insurance business with 50 operators here today. In the process, Malta has become a very important centre for captive insurance in the EU. This increased visibility brings with it the responsibility to ensure that our financial system does not serve as a channel through which risks are transmitted to other countries.

A monetary policy that succeeds in maintaining stable prices promotes financial stability by encouraging investment and economic growth. Conversely, a stable financial system helps monetary policy achieve its primary objective by, for example, ensuring the smooth propagation of the central bank’s interest rate signals throughout the economy. At this point it is useful to dwell briefly on the meaning of the concept of financial stability. In Malta we define it as “a condition where the financial system – comprising institutions, markets and infrastructure is able to: allocate savings to investment opportunities efficiently; ensure the rapid settlement of payments; effectively manage potential risks that may harm its performance; and absorb shocks without impairing its operations.” If there was ever any doubt as to the importance of ensuring the realization of such conditions, it can surely no longer be the case after the experience of the past three years. The financial crisis has clearly underlined the vital role of central banks in safeguarding financial stability and the importance of adopting a macro-prudential approach to regulation and supervision. This thinking lies behind the many initiatives taken recently to strengthen the institutional framework for financial stability, most notably in the EU and on which Mr Fell will be elaborating later on. It is not surprising that in this new emphasis on macro-prudential supervision of the financial system, central banks are expected to play a key role.
Developing Countries excluding China and India: Brazil, Chile, Colombia, Czechia, Hungary, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Romania, Russia, S Africa, Thailand, Turkey, Ukraine. Source: Bloomberg, CBRT. However, the growth has posted a marked slowdown in the third quarter of 2016, following the failed coup attempt. GDP has contracted year-on-year terms for the first time since the global financial crisis. The weakness in economic activity was driven by a sharp fall in domestic demand and the sizeable drop in tourism revenues (Figure 2). 2  Figure 2. Annual GDP Growth and Contributions (Percentage Points) Net Exports  15  Final Domestic Demand  13  Other*  11  GDP  9 7 5 3 1 -1 -3 09.16  06.16  03.16  12.15  09.15  06.15  03.15  12.14  09.14  06.14  03.14  12.13  09.13  06.13  03.13  12.12  09.12  06.12  03.12  12.11  09.11  -5  *Contains stock movements and residual item. Source: TURKSTAT. One important question was whether the third quarter would stay as a temporary slump or more slowdown was on the way. Recent indicators suggest that the contraction in economic activity was short-lived. We observed a rebound in the final quarter of the year as depicted by the rapid recovery in the industrial production (Figure 3). Some of the recovery can be attributed to corrections due to technical factors such as shifting holidays and associated changes in the number of working days.

TL and EM Currencies Against USD (01.01.2016=1) Emerging Markets Average Turkish Lira  1,45 1,40  Coup Attempt  Moody’s Downgrade  US Election  CBRT Policy Response  1,45 1,40  02.17  01.17  12.16  11.16  0,90 10.16  0,95  0,90 09.16  1,00  0,95 08.16  1,05  1,00  07.16  1,10  1,05  06.16  1,15  1,10  05.16  1,20  1,15  04.16  1,25  1,20  03.16  1,30  1,25  02.16  1,35  1,30  01.16  1,35  Emerging markets include Brazil, Chile, Colombia, Hungary, Indonesia, Malaysia, Mexico, Philippines, Poland, Romania, S. Africa. Source: Bloomberg. The policy we adopted has been also effective on the volatility indicators. The last figure I would like to show you pertains to the volatility in the FX market (Figure 16). As you can see, the implied volatility of Turkish lira has moved up sharply in earlyJanuary, but eased significantly after the implementation of the recent CBRT measures. 10  Figure 16. Options Implied TL Volatility (1-Month, Percent) 30  US Election  Coup Attempt  CBRT Policy Response  25  20  15  10  5  02.17  01.17  12.16  11.16  10.16  09.16  08.16  07.16  06.16  05.16  04.16  03.16  02.16  01.16  0  Source: Bloomberg. Dear Participants, Let me wrap up my speech by highlighting the value of close policy coordination.
But I have to confess that they will not be exciting to those who advocate quick fixes - and in particular to the small minority who believe that something more spectacular, such as depegging or repegging the Hong Kong dollar, is the panacea for all our problems. In the last part of this talk I shall devote some time to this question, which has received some attention in the past few weeks, with the aim of explaining why, in my view, tinkering with the Link is not a solution. Unstable times Let me first, however, offer some comments on the environment that we now find ourselves in. Internationally, prior to the tragic events of September 11th, there were already signs that a global slowdown was either imminent or already in progress, although it was not clear quite how long or how severe the slowdown would be. September 11th, and its aftermath, has not made the answers to these questions any clearer, but it has left no doubt that the deterioration will be sharper, or that the subsequent recovery will take longer. A number of factors in connection with September 11th are at play. Some have immediate effects that are to a certain extent quantifiable: the physical damage caused by the atrocity; the cost - in additional security and insurance, lost revenue, lost jobs - to the airline and tourist industries; the blow to markets worldwide.

With a deepening process of financial globalisation that we are now seeing, supervisors and central banks are faced with increased challenges to analyse and manage risks, especially in the context of more complex interlinks between financial institutions and financial markets, as well as between domestic and the global economies. In such an environment, the risk management ability of financial firms and supervisors is important and rests crucially on the ability to assess quantitatively and in a forward-looking manner, the possible impact of each risk scenario on the economy and its financial sector. In this light, a sound and practical approach to integrate the quantitative assessment into financial stability and into risk-based supervision is most crucial, as it will allow the potential key risk affecting the financial sector to be identified, to be assessed, and to be ranked in order of importance. Through this, the approach will help focus policy dialogue and facilitate communication between all the key stakeholders, namely – the supervised financial institutions, the home and host supervisors, other related supervisory agencies especially in the case of complex financial conglomerates, and between the monetary authority and the Finance Ministry. In moving forward, it is important to recognize that, while these quantitative techniques are valuable tools, they are no substitute for a thorough understanding of the overall risk dynamic of financial institutions, the related systemic implications, as well as the behaviour of institutions and markets.
Many of the models we currently have available are not only mathematically sophisticated, but their results are obtained by computer-based calibrations whose essential mechanisms lack transparency when it comes to revealing how they arrive at their results. Hence, it is difficult to assess their consistency. We have often come across complicated models where an apparently innocuous condition ends up being the determinant of the results. Complexity also jeopardizes the capacity to move from scientific research to economic policy proposals. For academic ideas to be useful in economic policy, they must be persuasive. Perhaps that was the virtue of the IS-LM model that was used for many years in macroeconomic policy discussions, or of Solow’s growth model that to this day remains the cornerstone of economic growth research. Fortunately, this is not a time where prescriptions are taken by policy makers without scrutiny – and are later labeled as orthodox – and therefore, the capacity to intuitively explain a result is essential. The bulk of theoretical research will continue to proceed in areas where its results have a good chance of being published, often at the expense of realism. It may not be very profitable from the academic point of view to incorporate elements of irrational behavior, confidence crises or other anomalies into general equilibrium models that are used in policy design.

It is harder and less rewarding for an academic to formulate distortions – of which the real world has plenty – than to use tidy competitive models to explain important stylized facts with a minimum of new ingredients. Scientific advances and models help us think about and interpret the world; they provide us a way to think about specific problems, but their scope is limited. We must avoid the temptation of thinking that a theoretical simplification is a full description of reality. But we must also avoid the other extreme, which totally dismisses what theory teaches because “reality is much more complex”. This is true, but it does not imply that all we have learned is just a theoretical exercise without practical use in reality. Models must be taken realistically, recognizing that they capture at most a small portion of reality. As for the future, the current crisis will certainly provide material for many research studies that will try to figure out what failed and how to avoid making the same mistakes again. Still, I think it will be difficult to develop simple, manageable models that can make substantive progress in having a complete description of reality. Some interesting efforts will most likely be made, but it will not be easy for them to become part of the heart of macroeconomics, since they will be necessarily complex.
And my main conclusion for monetary policy is that flexible inflation targeting – applied in the right way and in particular using all the information about financial conditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis. A related conclusion is that neither price stability nor interest-rate policy is sufficient to achieve financial stability. A separate financial-stability policy is needed. In particular, monetary policy and financial-stability policy need to be conceptually distinguished, since they have different objectives and different appropriate instruments, even when central banks have responsibility for both 1. So today, I will first briefly summaries my view of the causes of the crisis, and then discuss what the possible lessons are for future monetary policy, and finally I shall emphasise the distinction between monetary policy and financial-stability policy. The financial crisis had little to do with monetary policy As I see it, the financial crisis was caused by factors that had very little to do with monetary policy. The factors were the macro conditions; distorted incentives in financial markets; regulatory and supervisory failures; information problems; and some very specific circumstances, such as the US housing policy to support home ownership for low-income households 2.

Figure 9 Nominal exchange rate (*)  Chile: Real exchange rate  (indexes 2 January 2008=100)  (index 1986=100)  160  160  140  140  120  120  100  100  80  80  Jan.08  Jul.08  Brazil Australia New Zealand  Feb.09  Sep.09  Mexico Canada Chile  120  120  110  110  100  100  90  90  80  80  70  70 88  91  94  97  00  03  06  09  1989-2008 average 1994-2008 average  (*) Parity with the US dollar. Sources: Central Bank of Chile and Bloomberg.
A similar point can be made about debt issued under the Government’s Credit Guarantee Scheme – the Government provides a guarantee but it is still the market which buys the bonds and provides the cash. As these schemes come to an end, the challenge for the banks is not so much the sourcing of an additional quantity of funding. It is to roll over that existing market funding into different funding instruments. More generally, a central bank should not allow its liquidity operations to become, or even to be perceived as a source of sustained funding for banks or for any other form of mediumterm lending. The only medium-term source of commercial bank funding, and hence for their lending, is private sector savings, whether channelled through retail or wholesale markets. A central bank does not have access to those private sector savings. The grey area is that short-term liquidity support, in size and continually rolled over, looks and acts a lot like funding. That is why the Special Liquidity Scheme was designed to lend against legacy assets only and one of the reasons why the Bank has been so determined that it will end as scheduled. Suppose the scheme were to be rolled on indefinitely. What was intended and designed as system-wide central bank liquidity support would become instead a fiscal operation. We would be using government debt – and hence public money – to subsidise a group of private sector firms, with the public purse being at risk.

In consequence, other banks struggled to get the liquidity they needed via market mechanisms, particularly term borrowing, even when there was more than sufficient cash in the system as a whole and even if the firms had good quality collateral. The amounts being rolled in overnight markets became a risk in itself. The Bank responded by massively increasing its lending at three months maturity from £ before the crisis to a peak of around £ in early 2009. Essentially we chose to lend so that any bank which needed to could bid for and obtain liquidity at three months. The significant increase in term liquidity that ensued meant that there would have been downwards pressure on short-term interest rates. So in order to keep market interest rates close to Bank Rate, the Bank drained the excess liquidity via issuing Bank of England bills. At its peak, the Bank issued around £ of one-week bills. 6  Currently, the deposit rate is zero and the borrowing rate 75bps. In more normal conditions, these spreads can be expected to be symmetric around Bank Rate. 7  The Bank can choose to lend in variable rate repos. This happened for a brief period in mid-2009. 8  Again, variable rate bills could be used. This happened during the first few months of the asset purchase programme.
Although monetary policy is aimed at an inflation target, developments in the real economy and the labour market have considerable significance for the shaping of monetary policy. For one thing, total demand is one of the most important determining factors behind the inflation rate, and for another thing, taking the real economy into account can in certain cases mean that exceptions are made to the 1 fundamental monetary policy rule. This applies in particular in the case of supply shocks: Firstly, inflation can be allowed to be higher or lower one to two years ahead, when due to factors that are not considered to have a lasting effect on inflation, and secondly, the real economic costs of a rapid return to the target level are considered to be excessively high. For example, we had particular reason to observe certain temporary changes at the time of our most recent repo rate decision. The Riksbank believes that energy prices will fall back from their present high levels without the rise spreading to other prices. Another circumstance that affected our forecast was the crisis in Iraq, which has now become a war. The geopolitical situation overshadows the more normal inflationary risks that we usually observe. I shall return in a moment to the economic situation and give you my views of developments. Potential growth affects the Riksbank’s assessment When the Riksbank makes its assessment of inflation in the coming one to two years, we look first and foremost at resource utilisation in the economy.

Forward guidance on the path is today less important than commitment on our end objective First, in the current normalization phase, there is much less need and space for detailed forward guidance: we are no longer at the effective lower bound and  Page 5 sur 8 are coming back to our more normal reaction function—all the more so in the current uncertain environment. Accordingly, in our ECB July statement President Christine Lagarde emphasized optionality dependent on economic data, and taking decisions on a meeting-by-meeting basis. More importantly still, we strongly reiterated our commitment to our end objective of bringing inflation back to 2% in the medium-term, i.e. 2024 in our present forecasts. The more open we are about the path, the more committed we must be about the destination of the journey. Don’t get me wrong: market expectations of future policy rates remain a key driver of long-term interest rates, which are what matters most for investment and spending decisions. But forward-guidance—at least in the form of a commitment to an unconditional and/or prolonged path for the policy rate—is today an unadvisable way of steering market expectations. If you go to the hospital, it is certainly unpleasant not knowing how long you will stay there. But you certainly do not want a doctor who decides to keep you 7 days regardless of how your health evolves. Without question, you would rather have a firm commitment that he will cure you of your ailment! II.B.
John Gieve: Learning from the financial crisis Speech by Sir John Gieve, Deputy Governor of the Bank of England, 2008 Europe in the World Lecture Panel Discussion, at the European Business School, London, 19 November 2008. *  *  *  The years after sterling left the ERM were the most successful and stable in my lifetime. In early 2007, for example, inflation had not moved by more than a single percentage point away from target in the previous 10 years, the output of the economy had grown in every quarter since 1992 Q3 (Chart 1), unemployment had fallen by 5 percentage points from its peak in the early 1990s and living standards had steadily increased. Interest rates had been low and stable. However as we know now, that was the end of “the Great Stability”. The summer ushered in a period of extraordinary turmoil in Western financial markets which we are still trying to calm. And this year has seen the onset of recession not just in Europe but throughout the advanced economies. Despite the dramatic policy measures of the last months, the outlook for 2009 is bleak and the prospects beyond are uncertain. That move – in the space of only 12 months – from the policy maker’s dream of steady noninflationary growth to the biggest banking crisis since the outbreak of World War I and the onset of recession sets the questions for this evening. First, how did we get into this position? Second, what are the immediate challenges for policy?

Zeti Akhtar Aziz: Policy and regulation of financial inclusion Welcoming remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the UNAG Asia Regional Forum on Policy and Regulation of Financial Inclusion, Kuala Lumpur, 6 May 2009. *  *  *  Introduction It is my pleasure to welcome you to the United Nations Advisers Group Asia Regional Forum on Policy and Regulation of Financial Inclusion. This conference takes place at a time when the world is confronted with addressing many issues that have emerged from the current global financial and economic crisis. Whilst significant attention and efforts are being channelled to resolving the financial crisis and creating an enabling environment for the resumption of growth and job creation, we must not lose sight of the financial inclusion agenda. Financial inclusion is vital for creating balanced sustainable economic growth. It provides the opportunity for all members of society to benefit from economic progress. It allows for a shared prosperity, an aspiration that is encapsulated in the United Nations Millennium Development Goals. The Central Bank of Malaysia is most honoured to be given the opportunity to host this forum which is being held in Asia for the first time. We are most honoured to have Governor Nout Wellink, President, of the Central Bank of Netherlands. We are also pleased to have present Mr. Jacques Toureille, UNAG Advisor, who will be delivering the keynote address by Her Royal Highness Princess Maxima on her behalf.