samchain/econo-pairs-v1 huggingface dataset:
This has not been helped by erroneous suggestions in some prominent newspapers that the replacement of the Liquidity Adjustment Facility with a Discount Window, as one of the seven technical measures introduced last September, has effectively ended the HKMA’s role as lender of last resort. The issue has been further clouded by the equally erroneous academic argument that the role as lender of last resort should not be mixed with the HKMA’s role as operator of a Currency Board system. The Consultants offer a number of other reasons why there should continue to be such uncertainty: the strongest, perhaps, is the fact that, since our establishment in 1993, the HKMA has never had to exercise its function as lender of last resort. I think we would all hope that this will long continue to be the case. And so, in the absence of an actual demonstration of the lender of last resort policy in action, we have to continue to rely on explanations of the principles behind the policy. With this in mind, I shall shortly be sending copies of a detailed policy statement on the HKMA’s role as lender of last resort to the chief executives of all authorised institutions in Hong Kong, and we shall be giving extensive publicity to the policy statement. I shall give here both a summary of, and an elaboration on, that policy statement.

At over 400 USD/ounce, the gold price was at a seven-year high at the beginning of December. Because of the weak dollar, the gold price increase in francs was more modest. However, its peak of approximately 17,000 CHF/kg was still the highest for several years. The main reason for this rise was persistently modest hedging activity by gold producers. 2  BIS Review 58/2003  Equity markets International equity markets exhibited a positive course overall, steadily making up lost ground after their mid-March low (see graph 3). As the equity environment began to present a perceptibly brighter picture, turnover also picked up. This, together with the more confident investor sentiment, reduced volatility. The ambitious profit expectations now reflected in share prices suggest that market players are optimistic about the economic situation and the corporate environment. To sum up, the financial markets are currently influenced by a complex interplay of factors: a globally synchronised economic recovery is taking place against a backdrop of external imbalances. An autonomous economic recovery outside of the US - underpinned, not least of all, by supply-side reforms - would help substantially to redress these imbalances. Key features of the SNB’s future investment and risk control process The SNB’s investment activity is subordinated to monetary policy and is determined by the criteria of liquidity, risk and returns. The new National Bank Law will extend the SNB’s investment opportunities. The current National Bank Law (NBL) limits eligible investments to gold and fixed-interest securities, and eligible borrowers to states, international organisations and banks.
But the upshot is that the efficient organisation of production at the global level is a public good that needs to be preserved. The role of multilateralism after the COVID crisis Trade aside, the present juncture is, in fact, a particularly suitable one for giving fresh impetus to multilateralism. Healthwise, the crisis will clearly not be resolved until immunity against the virus has been achieved in all countries. On the economic front, divergences in the rate of recovery may be particularly harmful for economies that are in a more vulnerable situation. Concerted global action is fundamental both for accelerating vaccine production and for making distribution affordable and fair for everybody. In the economic arena, we need some coordination of crisis exit strategies and, in parallel, support for the most vulnerable countries. Here, international institutions have a crucial role to play, in coordination with regional institutions and mechanisms. The aim is not only to entrench the global economic recovery. We must also combat the backsliding in inequality and poverty as a result of the pandemic, and jointly address the common structural challenges arising, for example, from digitalisation and the fight against climate change. And, more generally, as former ECB President and now Italian Prime Minister – Mario Draghi – put it: “one of the main reasons why multilateral institutions exist is to create regulatory convergence, and therefore to increase trust between countries”.2 A role for multilateral institutions that goes way beyond their pure economic mandate.

16  All speeches are available online at www.bankofengland.co.uk/news/speeches  16  Charts Chart 1: The social loss associated with different monetary policy rules under different calibrations of lambda  Source: Bank calculations  Chart 2: The relative performance of level-based and difference-based rules under different relative importance of persistent vs temporary shocks  Source: Bank calculations 17  All speeches are available online at www.bankofengland.co.uk/news/speeches  17  Chart 3: Impact of a persistent risk premium shock that is misjudged to be temporary  Source: Bank calculation  Chart 4: Impact of simultaneous persistent and temporary risk premium shocks (relative weight 2.3 times)  Source: Bank calculations 18  All speeches are available online at www.bankofengland.co.uk/news/speeches  18  Annex: Model specification This model is based on a variant of a model developed by Harrison, Seneca and Waldron. It consists of 5 basic equations. IS curve: 𝑦̃𝑡 = 𝐴𝑦̃𝑡−1 + 𝐵𝔼𝑡 𝑦̃𝑡+1 − 𝐶(𝑖𝑡 − 𝔼𝑡 𝜋𝑡+1 − 𝑟𝑡∗ ) Phillips curve: ∗ 𝜋𝑡 = 𝐷𝜋𝑡−1 + 𝐹𝔼𝑡 𝜋𝑡+1 + 𝐺[𝐻(𝑦̃𝑡 + 𝑦𝑡∗ ) + 𝐽(𝑦̃𝑡−1 + 𝑦𝑡−1 ) − 𝐾𝑧𝑡 ] + 𝑢𝑡  Potential output 𝑦𝑡∗ : ∗ 𝑦𝑡∗ = 𝐿𝑧𝑡 + 𝑀𝑦𝑡−1  Natural rate 𝑟𝑡∗ : ∗ ∗ 𝑟𝑡∗ = 𝑁𝑦𝑡−1 + 𝑄𝑦𝑡∗ + 𝑆𝔼𝑡 𝑦𝑡+1 − 𝜈𝑡  where all capital letters denote functions of underlying parameters, 𝑦̃𝑡 is the output gap, and the risk premium 𝜈𝑡 , the cost-push disturbance 𝑢𝑡 and productivity 𝑧𝑡 follow exogenous autoregressive processes.
Therefore, it should be clear that I regard it as crucial for governments to make further structural improvements to their fiscal positions, as this would allow them to regain sufficient flexibility in their budgets and, most importantly, could effectively contribute to supporting stability and growth in the euro area. In this regard, I should like to note that only moderate fiscal consolidation is currently envisaged for the medium term. A number of national stability programmes only aim to attain the necessary flexibility at a relatively late date. It is important that we see a commitment from policymakers either to ensuring the swift achievement of this aim or to going beyond the aims envisaged in these programmes once economic growth has picked up. BIS Review 50/1999  2  Let me turn now to the contribution that stability-oriented structural reforms, particularly of euro area labour markets, can play in reducing unemployment and in supporting the stability of the euro. The high level of European unemployment is quite rightly a source of deep concern and should be addressed at a fundamental level. Clearly, the approaches that are most likely to have a lasting effect are those that address the root causes of the problem, not just the symptoms. The root causes of high unemployment in the European Union are structural rigidities in the labour market as well as tax and public transfer policies. This view is supported by a wide body of academic literature and was also a key finding of the OECD Jobs Study.

The most important contribution that the Eurosystem’s monetary policy can make to maximising the benefits of EMU is to fulfil its primary objective of maintaining price stability, as laid down in the socalled Maastricht Treaty; the Treaty on European Union. As has long been argued by central bankers and is increasingly accepted by academic economists, inflation and deflation are economically and socially costly. EMU is a tool with which to consolidate the progress made towards price stability in recent years and to firmly anchor expectations in line with price stability, thereby establishing the framework necessary to fully exploit the opportunities of Monetary Union. The Eurosystem enjoys full independence in determining the appropriate level of interest rates so as to satisfy its primary objective of price stability. Moreover, the members of the Governing Council of the ECB have long terms of office and may only be dismissed on grounds of serious misconduct or inability to perform their duties. These provisions imply that the concept of monetary stability benefits from explicit legal protection. 1  BIS Review 50/1999  A further important benefit of EMU is that it has removed the risk of serious real exchange rate misalignments within the euro area. This contributes to economic growth and helps to avoid any misallocation of resources. In fact, it enables the European Single Market to function smoothly and thereby makes it possible to reap all the rewards, to the benefit of producers and consumers.
Stephen Cecchetti sums it up as follows: “Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. But, when it is used imprudently and in excess, the result can be disaster” (cf. slide 27). 27 I myself have compared lending not with a double-edged sword, but with food. A balanced diet is essential for survival. Excessive and unhealthy eating, however, can become a problem. Judicious borrowing and lending is an essential foundation of a flourishing economy. Excesses on the credit market, by contrast, can lead to crises and, as a result, cause extensive damage to the economy as a whole. It is therefore important that banks, households and companies always exercise sufficient caution and restraint at the ‘credit buffet’. Equally, it is just as important that the SNB carefully analyses developments on the credit market and makes optimal use of the tools at its disposal in order to mitigate any risks to financial stability as far as possible. 26  The overall subdued economic growth in Switzerland over the last two years and lower net immigration are also explanations for the recent restrained momentum on the credit and real estate markets. 27 Cecchetti et al. (2011). The International Monetary Fund (IMF) came to a similar conclusion regarding household debt in its latest financial stability report: Household borrowing promotes growth in the short term. In the medium term, however, too high a level of household debt reduces economic growth (IMF, 2017).

For some years before the turmoil erupted, we have been puzzled by how low risk was priced in most credit markets. Again, with slight exaggeration, the case can be made that mispricing of risk occurred because extreme events – i.e. tail risks – were systematically ignored. At a general level, complexity and opacity in the originate and distribute model made it difficult to understand the "true " nature of risk i.e. the probability distribution attached to specific instruments. More subtly, I wonder whether the slicing and tranching process – which gave rise to structured products – has, intentionally or not, both created additional tail risk and contributed to conceal it. Most managers, for instance, have been caught by surprise by the fast downgrading of AAA CDO tranches, which triggered massive write downs. With hindsight, we know that those tranches had lower average probability of default than the underlying loans – which provided the rationale for the AAA rating – but also possessed a much higher exposure to tail risk. That latest characteristic was not apparent from the rating. As a consequence, tail risk was clearly not priced in, which made those securities both very attractive and absolutely lethal. Tail risk was not only deeply concealed in the complex structure of the instrument. It was also, to some extent, "created" by the instrument itself. As a result of the tranching process, an underlying portfolio with normal risk distribution was transformed into a different set of instruments. Some (equity tranches) had a with very high average default probability.
José De Gregorio: Lessons and challenges on financial regulation Introductory remarks by Mr José De Gregorio, Governor of the Central Bank of Chile, at the conference “Financial Regulation: Lessons from the Recent Global Crisis”, Santiago, 17 August 2009. I am very grateful to Luis Opazo for his contribution to this presentation. *  *  *  What went wrong? This question has been at the center of recent discussions in academic, practitioner and political circles, and will probably stay with us for several years. This conference is a step forward towards finding answers to this question. Specifically, the main purpose of the conference is to discuss those aspects of regulation that may have triggered or amplified the current crisis, and those aspects of regulation that in some countries have contributed to financial resilience. The Chilean financial system, as well as those of many other developing countries, has shown to be very resilient. Nevertheless, we also need to be involved in the discussions on building a safer financial system. Our countries have a lot to say on balancing financial innovation and financial soundness. The global economy shows some signs of recovery, but it is not evident that the crisis and its effects have fully unfolded. More likely, they will continue to evolve for some time. However, it is not too early to discuss these topics. Hence, we hope that the presentations and discussions of this morning will shed light on the directions for regulatory change in the upcoming years.

My impression is that the fundamental causes of the current crisis were the same market failures that have played key roles in many previous financial or banking crises, which we all know well from our previous experience in emerging markets. The first of these are the distortions in financial intermediaries’ behavior introduced by implicit or explicit bailout expectations. The second are the intrinsic vulnerabilities of financial intermediaries that finance long term (or illiquid) assets with short term debt. BIS Review 97/2009  1  What differs in the current crisis is the way in which these components showed up. As for excessive risk taking, the mechanism to deal with it was the securitization of high risk loans, which allowed banks to sidestep capital regulations by either creating off-balance-sheet agents or by bringing back loans packaged into highly rated assets, with low capital requirements. As for short term funding of long term (or illiquid) assets in the current crisis, this was prevalent in investment banks, SIVs and conduits. Hence, the lessons to be learned from the current crisis fall into two categories. The first are broad reforms that seek to align incentives and reduce the vulnerabilities of financial intermediaries. Higher capital requirements, a broader regulatory scope, and reforms to management incentive schemes are all in this category. These are all important aspects. However, the devil is on the details, and the exact way they should be implemented is yet to be defined.
The Swiss export industry is understandably especially keen to see that the franc is not exposed to any further revaluations against the euro. Sudden and precipitous adjustments to the exchange rates are also undesirable from a monetary policy perspective. The unrelenting rise in oil prices surprised many market analysts. Since the beginning of 2004, the dollar price of West Texas Intermediate crude oil has climbed by more than 50%. In real terms, however, the ascent was not nearly as sharp as in earlier oil price shocks. In Europe, the hike was further cushioned by the erosion of the dollar. The reasons behind the bullish oil prices are manifold. The main trigger, however, is likely to have been the structural increase in demand coming from the emerging economies, particularly from China and India. In addition, supply flexibility is currently quite weak, as investment spending in the drilling, transportation and storage of oil was somewhat neglected in the years when oil prices were low. Potential geopolitical risks also push up the prices. Last but not least, raw materials - such as gold traditionally - are playing an ever greater role in international investors’ asset allocation, which also tends to generate an increase in demand. That notwithstanding, the influence of financial players on the price of oil should not be overestimated. The development of the long-term futures prices of crude oil indicates that the price spike was primarily triggered by a sustained increase in consumer demand.

The weakening of the US currency resulted in a further decrease in the dollar’s share of foreign currency reserves. Recently, in an effort to prevent the dollar’s share from dropping too low and with a view to rebalancing, we bought dollars again on a number of occasions. Furthermore, as part of the 2004 strategy, the proportion of government bonds was also reduced in favour of other borrowers’ bonds. The required minimum rating for bond investments was lowered from A2 to BBB, thus covering the entire “investment grade” range. Corporate bonds have now also been added to the National Bank’s investment universe, albeit only those of foreign companies. Currently, roughly 4% of both foreign currency reserves and free assets are invested in corporate bonds. The credit quality of all our investments is still very high. Borrowers with the top rating AAA account for over 70% of the investments. Close to 20% bear the AA rating. The remaining investments have an A or a BBB. The average residual maturity (duration) of all bonds held by the National Bank was kept at 4-5 years. The first investments in equities issued exclusively by foreign companies will be made at the beginning of 2005. The addition of equities and corporate bonds is likely to improve the degree of diversification of the investments and will contribute to the achievement of slightly higher returns in the medium term. The main difference between the investment structures of foreign currency reserves and free assets is their currency profile.
Entities that integrate through “institutional protection systems” should have the attendant banks set up before the end of the year, with their boards of directors appointed and their managerial line perfectly defined. Achieving this, and the fact that, from January, the new institutions arising from integration processes will be operational, rolling over wholesale funding and negotiating on the markets on behalf and on account of the newly created groups, will lend consistency and reliability to the reform. Thereafter, a more technical and silent phase will begin, involving IT and operational adaptation, the elimination of redundant structures and staff adjustments which, as in all mergers, will take months. I am convinced that banks will tackle this process as professionally as they are completing the current phase. –  Fourth and finally, cost structures must be speedily and thoroughly revised. In a Monetary Union, a country must compete in real terms abroad, as must financial intermediaries with one another, as a devaluation entailing an exogenous competitiveness shock is not an option. To overcome the crisis, reduce unemployment and improve the future outlook for the profitability of banking assets, there is no mechanism available other than to raise productivity and efficiency, to reduce labour and structural costs, and, consequently, to lower margins and prices so that all sectors, including banking, may offer better services within the country and sell more abroad. In the coming quarters, banks’ and savings banks’ profit and loss accounts will be subject to different factors of pressure.

The second external challenge facing Russia is the changed growth model and the slowing economic growth in China, which also affect the Russian economy due to the downward pressure on commodity prices. According to our estimates, 1 percentage point of China’s slowing GDP may cause a loss of almost 0.5 percentage points in annual rates of economic growth in Russia in the medium term. It should be noted that this is true if the current structure of our relationship and the current structure of trade turnover persist. The Chinese economy now ranks second in the world and the role played by that country in the global economy and financial markets has increased considerably. The challenge for Russia is to reorient to the fast growing sectors of the Chinese economy related to consumption and post-industrial economy (the so-called tertiary sector). Low growth rates of the world economy intensify the need to carry out structural and institutional reforms in many countries to remove the obstacles to a faster economic growth. Insufficient attention was paid to such transformations over the past decade. It seemed that nothing should be changed and the global economy showed a confident growth. Structural reforms are a formidable challenge. They are often painful, infringe on somebody’s interests, and face counteraction. Each country should judge for itself what structural reforms are the most important ones and which of them may be implemented with due account of political, cultural and other factors.
This is mainly because it is sometimes claimed in the general debate that the Riksbank and other inflationtargeting countries have bound themselves too tightly to a particular model and that a more “pragmatic” policy system would give better results. My conclusion is that our method of working is  BIS Review 11/2005  7  sufficiently flexible to manage the necessary balance. As I see it, there are major advantages to a system like ours, with a clear target, publication of the background data, a policy rule, etc. It provides our activities with stability, both at the staff level and in the Executive Board’s discussions and communications. We are also forced to systematically examine all new ideas and issues that arise against the framework we apply, which has proved an intellectually fruitful exercise. However, what I have tried to show here is that the methods we now use can sometimes enable us to produce more interesting data for monetary policy and to describe our considerations in a more pedagogical manner. They can make it easier to demonstrate the flexibility of the inflation-targeting regime we work with. Whether this will then have an impact on the monetary policy debate in Sweden, and ultimately on the policy conducted, is a very difficult question that only the future can answer.

During property market and economic downturns, the chance of default for this group of borrowers can be significantly higher than those with only one property under mortgage. In view of this, the HKMA considers it necessary to require banks to further tighten the underwriting criteria for mortgage loans to borrowers with multiple property mortgages to reduce the risk of banks. BIS central bankers’ speeches  1  6. Besides, the HKMA notices a recent trend of lengthening average tenor of new mortgage loans. The average tenor for new mortgage loans now is 25 years, which is three years longer than that of 22 years in 2009. Some banks have extended the maximum tenor to even 40 years. Prolonged loan tenors will not only increase credit risk of banks, but may also weaken the ability of borrowers to withstand interest rate risk. In particular, when mortgage rates return to more normal levels, borrowers with a loan that already stretches to 30 or even 40 years simply cannot seek to reduce their monthly instalment payment burden by extending the tenor, and may therefore face financial difficulty. Therefore the HKMA has now required banks to set the ceiling for the maximum loan tenor for all new mortgage loans to not more than 30 years. 7. The above measures take effect immediately. However, loan applications in respect of property transactions with provisional sale and purchase agreements signed today or earlier will not be affected. 8. Mr Arthur Yuen, our Deputy Chief Executive, will explain the details of these measures later.