samchain/econo-pairs-v1 huggingface dataset:
The crisis has clearly shown that in Europe a receding tide lowers all the boats, not just the ones which are in trouble. 1  B. Sørensen and O. Yosha (1996), “Channels of interstate risk sharing: United States (1963–1990)”, The Quarterly Journal of Economics, November, pp. 1081–1111. 2  Y. Demyanyk, C. Ostergaard and B. Sørensen (2008), “Risk sharing and portfolio allocation in EMU”, DG Ecfin Economic Papers 334. 4  BIS central bankers’ speeches  My second remark is that the banking union – whilst critical for the ins – is also desirable for the outs. The so-called financial trilemma.3 – in other words the impossible trinity of financial integration, financial stability, and national responsibility for crisis prevention and management – holds for the entire region, and not just for the euro area. For example, the Swedish and Danish banking system are not only large in proportion to your GDP, but they are also very closely integrated with the rest of Europe. Let me focus on the case of the Danish banking sector. Danish banks’ consolidated assets are almost four times Denmark’s GDP. The biggest banks have considerable cross-border activities. For these reasons, it would make perfect sense for Denmark to join a Banking Union that is composed not only of a single supervision mechanism, but also a single resolution mechanism with a resolution fund that can serve as an insurance scheme in relation to systemic banks. Whilst participating in the banking union therefore appears desirable, the terms of that participation should also be right.

Imagine that the state of California would have had to come up with the TARP money for Wells Fargo instead of the US Treasury. Imagine that the state of New York would have had to provide the guarantees to Citigroup. Think about how the markets, how would the rating agencies have treated these states? And how they would have treated these banks? The lesson for the euro area is clear: federal institutions can prevent local crises from becoming systemic. In Europe, we do not yet have these federal institutions that can act as shock absorbers. So far, responsibility for dealing with bank problems lies exclusively with the individual EU countries. The result is that – to quote an FT editorial – “national taxpayers subsidise banks implicitly in good times, explicitly in bad times, and suicidally in a sovereign debt crisis”. Indeed, the crisis in Ireland has shown that problems in domestic banks can overwhelm the fiscal capacity of national sovereigns. The causality can also be the other way around, as the case of Greece has shown, where fiscal problems have dragged down the banking system. These countries got caught in a vicious fiscal-financial feedback loop, which in the end also drags down the economy, breaks up the internal market, and impairs our monetary policy conduct. Removing this vicious feedback loop is what Banking Union is all about. Creating a banking union will be good for the euro, good for the internal market, and good for the recovery.
In addition, trading income recovered strongly as financial markets rebounded after the first quarter of 2009. Finally, revenues from fees and commissions held up remarkably well throughout the financial turmoil. At the same time, a number of significant risks remain and some may have even increased. First, the slowdown in the growth of assets held by euro area banks limits their future earning capacity in terms of interest and investment income. Second, a deterioration in the credit quality of borrowers may put a drag on banks’ future earning capacity. In fact, while large and complex banking groups seem to be gradually absorbing the losses they suffered on their securities holdings, driven in part by the reclassification of assets, they have reported sharply higher provisions for loan losses. Let me now turn to capital ratios. The recovery in the earnings of large and complex banking groups in the euro area, together with a slowdown in the growth rate of both risk-weighted and total assets and an increase in capital, from both public and private sources, has meant that the capital ratio of the average banking institution has typically been relatively stable. There is, however, considerable divergence between groups. A somewhat reassuring finding is that the institutions which reported the largest increases in loan loss provisions also seem to have the highest capital buffers. This may mitigate the solvency risks originating from deteriorating asset quality in the future.

The costs of higher capital adequacy requirements are limited and largely private, as opposed to the true economic costs. The advantages in the form of a safer banking system are considerable. A reduced risk of financial crises is good for the real economy, good for taxpayers and also good for the banks’ shareholders. The Riksbank will soon present a report that clearly shows that the benefits of higher capital adequacy requirements exceed the costs. An increased capital adequacy requirement may also need to be matched by a tighter leverage ratio requirement. The European Systemic Risk Board (ESRB) has recently submitted recommendations covering lending in foreign currency. We could see the risks of this type of lending to households at close quarters in the Baltic countries a few years ago. A few of the ESRB’s recommendations are (i) better consumer information and credit reviews of borrowers, (ii) taking exchange rate risk into consideration in the national capital adequacy requirements, and (iii) supervision of the risks in liquidity management. Swedish banks need to limit these risks better in the future. The Swedish banks’ liquidity measures need to take into account that it can be difficult to obtain certain currencies in stressed situations. Basel III’s short-term liquidity requirements also need to be met on a per-currency basis. Furthermore, we are examining whether the Riksbank’s reserve requirement can play a part in this regard. The low Swedish risk weights are a cause for concern.
Admittedly, since the publication of our latest projections more details have become known on the use that could be made of the NGEU programme in Spain in the short term (many of which are included in the Draft Budget we are addressing here today). But notable uncertainty persists over the ultimate level of actual execution of this programme in Spain, and over the capacity of the potential projects finally selected and implemented to increase the Spanish economy’s growth potential. I shall refer again to this matter when discussing the macroeconomic forecasts of the Draft Budget. But first, allow me to mention one final factor which, undoubtedly, has critically influenced recent Spanish and global dynamics. It is a factor that will continue to play a key role in the coming quarters and years in managing and overcoming this crisis. I refer here to the economic policy response. To date, the measures taken by economic policymakers (in the fiscal, monetary, labour market and financial areas) in response to the outbreak of the pandemic have most significantly mitigated its impact. They have eased the downturn in real activity and in economic agents’ income and liquidity, and they have headed off the materialisation of systemic risks to the functioning of the financial markets and banks’ financial stability. From the outset of the health crisis, fiscal policy, both in Spain and in most developed countries, has reacted resolutely.

On the health front, combating the virus obviously continues to be a priority objective until an effective medical solution has been developed. This may require continuing to adapt the capacity of the health system to ease the effects of the second wave on public health and to manage potential and subsequent fresh outbreaks. At some point further ahead, the objective must be to purchase the necessary doses of the treatment or vaccine, for distribution to the population at large. Beyond the health sphere, the short-term priority must be to continue to support households and firms until a sound and sustained recovery is in place. This is something we will very likely not see until a medical solution is available that will render restrictions on people’s movements and on certain sectors of economic activity unnecessary. Until this is the case, budgetary support for private economic agents is crucial to minimise the risk that the present health and economic crisis may trigger a financial crisis, which would entail much higher and longer lasting costs in terms of production and employment. However, these support measures must now be more selective, concentrated on the population groups and businesses most affected by the crisis, to maximise their effectiveness in a setting in which public funds are necessarily limited. This was the backdrop for the extension of the furlough schemes up to January 2021 agreed between the Government and the social agents.
This builds up a knowledge profile of the area, and enables underwriting and pricing of risks. Insurers and governments are also able to detect droughts and floods, and their potential impact on harvests early, enabling a quicker response. And in the event of a disaster, the before and after images allow insurers to perform loss assessment and support quicker release of claims to the affected farmers. No need to send loss surveyors to inspect damages in-person, which can be costly and time consuming. Big data analytics is at the core of Singapore’s own Natural Catastrophe Data Analytics Exchange (Nat Cat DAX). Nat Cat DAX is led by ICRM, in partnership with MAS and the industry. It will aggregate a variety of data sources including economic loss and exposure data as well as drone and satellite data to create a comprehensive database of Asia Pacific natural catastrophe risk. The consortium has commenced industry data collection efforts in Taiwan and Jakarta, and is also using satellite imagery to extract information on building features. I understand a more detailed update of its preliminary findings will be shared later in this conference. Product innovation Second, product innovation. We are seeing new forms of insurance products and solutions, such as index-based and parametric insurance. Unlike traditional insurance which indemnifies actual losses, parametric insurance solutions make pay-outs based on catastrophe events hitting certain pre-defined parameters such as hurricane wind speed or earthquake magnitude. This removes the need for loss adjusters to survey the extent of losses.

It is the direction of travel and likely destination of interest rates, rather than the precise timing of any move, that matters for their decisions and hence for the fortunes of the economy. Creating Institutional Spokes  Let me conclude by discussing briefly one or two areas where it might be possible to make progress in lifting the barriers to productivity growth. These suggestions very much go with the grain of proposals in the Government’s excellent white paper on industrial policy. Indeed, one strand of that plan involves investigating the scope for improving performance among the long tail of under-performing UK companies. These proposals complement various excellent private sector initiatives underway. These include Jurgen Maier’s Made Smarter proposals, which aim to improve digitization across UK businesses. As the earlier evidence on penetration rates of different technologies made clear, this is huge scope for improvement among UK companies here. A second initiative is Sir Charlie Mayfield and Tony Danker’s Be the Business movement. Their important and exciting initiatives are focussed on lifting the long tail. One structural solution to the long tail problem I sometimes hear mooted is simply to lop it off. This, it could be argued, solves the UK’s productivity problem at source and at a stroke. For economic historians, this could be thought of as an act of Schumpeterian creative destruction. 54  For horror film-watchers, it could be  thought of as an act of systematic zombie-slaying. I believe such an approach is probably wrong-headed.
A Scotsman founded the Bank of England, and it took another to reform it. Next year we celebrate the tercentenary of the Act of Union, an Act strongly supported by Adam Smith. And we now have a successful and prosperous union between our two countries with a common monetary institution which embodies the ideas not only of Adam Smith and his great friend David Hume, but also of the key principles that should govern institutional design. From the division of labour in the pin factory to the need for our mutual “sympathy” to be embodied in carefully designed institutions, Smith’s writing is remarkable by its comprehensive and eclectic examination of ideas and facts. So it is appropriate that tonight here in Kirkcaldy, where Adam Smith found contentment in study and reflection, I can announce that tomorrow the Bank of England will  19  There is some evidence that committees make, on average, better decisions than individuals. See King (2002), Blinder and Morgan (2000) and Lombardelli, Proudman and Talbot (2005). 6  BIS Review 102/2006  reveal its new £ note. And the figure celebrated on the new note will, of course, be Adam Smith the first economist and the first Scotsman to appear on a Bank of England note. From next spring, when visitors to our country look carefully at their new £ notes, they will be able to see an engraving showing the division of labour in pin manufacturing with the words “and the great increase in the quantity of work that results”.

Hong Kong can be regarded as being subject to this law of nature. In any event, Hong Kong’s currency board system rules out the creation of money except in exchange for foreign currency, and therefore serves as an operational safeguard against monetary financing of the budget. In order to fund its deficit, the government has a choice between running down its assets (the fiscal reserve) and borrowing, from banks or the markets,. It has chosen for the time being the former route. The monetary impact would in either case be neutral. It may be worth explaining the process. If the fiscal reserve is drawn from the Exchange Fund and the Fund consequently needs to realise foreign currency assets, the foreign exchange is sold in the market. The counterparty surrenders HK dollars. These accrue temporarily to the Exchange Fund and are then transferred to the government, which will in turn pass them to some other party, as the counterpart of the budget deficit. The net result is a change in the ownership of HK dollar money but not in the quantity outstanding. Similarly, borrowing HK dollars to fund the deficit would involve a shift in ownership of those dollars around the economy, but no net increase in quantity. The mechanics of financing the deficit ought not therefore raise any concerns in Hong Kong in the context of monetary stability. Nevertheless, in practice the markets do appear to exhibit a degree of negative reaction to the deficit. Why? A number of possible explanations come to mind.
The global imbalances that were behind the financial crisis are still present. Some countries will be struggling with large fiscal deficits for some considerable time. However, it is conceivable that the imbalances will gradually diminish. Emerging economies are facing a period of considerable investment in welfare and infrastructure development. Households and firms will be able to reduce saving as welfare schemes and national capital markets are developed. In addition, many countries with an ageing population may find that an increasing number will have to draw down their wealth, resulting in a decrease in total saving. For European countries and the US, there is no doubt: deficits must be reduced and savings increased. Energy and commodity prices Let me move on to how the changes in the world economy have influenced commodity demand and commodity prices. Chart: Real prices for metals, food and oil The price of oil is now around USD 115 per barrel. Prices for other commodities such as metals and food are also high. A weak dollar, low interest rates and an ample supply of liquidity may have contributed to the rise in prices. We have also recently seen that prices are being pushed up by political unrest in North Africa and the Middle East. Nonetheless, strong growth in emerging economies and supply-side conditions have been the dominant factors in developments since the early 2000s. From 2000 to 2009 emerging economies accounted for 100 per cent of the growth in global consumption of primary energy sources.

Øystein Olsen: A changing global economy Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Norwegian School of Economics and Business Administration (NHH) annual Spring Conference, Oslo, 31 May 2011 The text below may differ from the actual presentation. This speech does not contain assessments of the economic situation or current interest rate setting. *  *  *  Over the past decade, the pace of change in the global economy has picked up. Emerging economies1 have assumed a more prominent role. These developments have generated challenges and opportunities, not only in emerging economies but also in the advanced economies. In my speech today, I would like to focus on three key macroeconomic trends:   First, the global economy has long been characterised by substantial imbalances in international trade. Large surpluses in many emerging economies have their counterpart in large deficits in traditional industrial economies. This generates tensions.   Second, capital markets have not been able to cope with the high level of saving in emerging economies. Real interest rates have been low for a long period and new imbalances have arisen. Sovereign debt is now high in a number of countries.   Third, growth in emerging economies has resulted in higher demand for energy and commodities. While the price of money has fallen, prices for energy and commodities prices have been pushed up. This has amplified the imbalances for many countries, but has had a favourable impact on Norway.
In other words, the problem is often not so much about the “people” or the “bad apples”, but the “bad barrels” – that lead to shocking behaviour. The ethical challenge for us as leaders in the corporate and public sectors is to build this conducive culture. The need is to cultivate the situational environment and broader system that encourage genuine professionalism and integrity of the people in the system. Let us focus on these three elements of (a) system; (b) situation; and (c) people. (a) System Let us begin at the highest level, the system. This represents the values and assumed beliefs that underpin an organisation and the financial sector in general. The baseline standards of 2/5  BIS central bankers' speeches  acceptable conduct and behaviour are articulated formally through laws and regulations. In Malaysia, the legal and regulatory frameworks for the financial sector are stewarded by Bursa Malaysia, Securities Commission Malaysia, the Companies Commission Malaysia and Bank Negara Malaysia. Various efforts have been, and are, taking place on the professionalism and integrity fronts. The Bank recently issued the enhanced corporate governance standards for the financial sector – calling for a culture that reinforces ethical, prudent and professional behaviour. I understand that the Securities Commission is currently finalising a revised Malaysian Code on Corporate Governance which will be applicable to Bursa-listed firms. Just this month, a Code of Conduct for the Malaysian Wholesale Financial Markets was issued by the Bank.

I need not stress that these movements are negative for our recovery prospects and, in general, for an economy such as Spain that is increasingly integrated into the global framework and which in recent years has notably improved its competitive capacity abroad. The United Kingdom’s departure from the European Union is, in my view, a negative phenomenon, although the results in recent European elections appear to indicate a brake on or at least a re-drawing of the lines marking these trends. In any event, in the euro area – where our economy operates – it will be very important to maintain the goals of integration into the financial and banking area and to address the capital markets union project. But it is important, too, that the achievement of a true economic union may go beyond the financial realm. Along these lines, our Annual Report refers to the discussion of possible ways forward towards a fiscal policy that includes common stabilisation elements within the euro area, in a setting, such as the present, in which the high levels of public debt restrict the budgetary room for manoeuvre in a good number of countries. Progress here would contribute to equipping fiscal policies within the area with greater strength and, therefore, to minimising the potential adverse repercussions – economic and social alike – of future crises. Thank you for your attention. 8/8
In my view, it should only be possible to neglect price stability and highest sustainable employment for a limited period if there are clear signs of problems with financial stability, if there are no means of addressing these problems without setting aside price stability and highest sustainable employment and if it can be credibly demonstrated that another, for example a higher, repo-rate path would lead to better target fulfilment for inflation and unemployment in the longer run. This last condition is important. The government bill that contained the proposal for the Sveriges Riksbank Act states namely that the policy rate may only be used to prevent a financial crisis if such a crisis threatens the price stability objective. In my opinion, there are no clear signs of problems with financial stability at present, there is no lack of means to maintain financial stability and if necessary to limit growth in mortgage  1  Sveriges Riksbank Act 1983:1385 and Government Bill 1997/98:40. BIS central bankers’ speeches  1  lending, and nor is there any theoretical or empirical support for the view that a low policy rate would lead to imbalances in Sweden. If anything, a lower policy rate might instead mean that the banks have less incentive to seek short-term funding in foreign currency and thus the risks linked to this funding will decline. If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time.

Given these factors, I entered a reservation against the decision, preferring a much lower repo-rate path than the one proposed by the majority. At the next monetary policy meeting in July, there will be a new assessment, with new four-panel figures. 5  So-called mean squared gaps are also shown, although they are not needed in this case to judge which of the alternative repo-rate paths leads to the best target attainment. 4  BIS central bankers’ speeches  Objections to monetary policy focusing on inflation and unemployment The Sveriges Riksbank Act, the government bill proposing it and economic analysis thus all provide strong support, in my opinion, for monetary policy aiming to stabilise inflation around the target and unemployment around a long-run sustainable rate. At the same time, it is clear that the majority of Executive Board members have conducted a monetary policy that aims to do something other than this. As I discuss in detail in Svensson (2011), the majority of the Executive Board began to raise the repo rate in July 2010, despite the forecast for CPIF inflation being below the target and the forecast for unemployment being above any reasonable long-run sustainable rate. In recent years, according to the forecasts made at the time of each monetary policy meeting, a lower repo-rate path than the one chosen by the majority would have led to better target fulfilment for both inflation and unemployment.