samchain/econo-pairs-v1 huggingface dataset:
This means that they are dependent on the path of economic fundamentals; in the case of government bonds, for example, the relevant factors include the budget balance, monetary policy and inflation expectations. Financial asset prices are highly susceptible both to expectations of how the market ought to move, given the underlying conditions, and to how it will move, given the expectations of how other players will act. This can result in wide fluctuations. Prices may deviate for a considerable time from what could be regarded as their long-term equilibrium. Markedly inflated prices can result in ‘bubbles’, out  3  BIS Review 52/1999  of touch with the level that seems to be fundamentally justified. Examples of this are the developments in some Asian countries in the mid 1990s, as well as price movements in the Swedish property market around the turn of the 1980s. To some extent, such phenomena can be explained in terms of how economic policy is conducted. But the causes of large price movements are also to be found in the construction of financial markets. If a market is to function properly, all the relevant information should be available simultaneously to every player. In practice, that is evidently not the case. Moreover, financial players can act in the knowledge that what they do will influence the market. The fact that performance is assessed in the short run, in many cases in comparisons with other players, makes herd behaviour common.

This is clear from the Asian crisis. The alternative is floating exchange rates. They have the advantage of permitting interest rate adjustments to the needs of the domestic economy. But they also entail exchange rate fluctuations and their drawbacks. The problem of exchange rate regimes is being discussed internationally but a consensus has not been reached. Financial market deregulation, moreover, must be adapted to the financial system of the country in question and supported by a consistent economic policy. To some extent, the developments in Asia probably had to do with an inappropriate sequence of deregulations; that was the case in Sweden in the 1980s and it resulted in problems. Short-term foreign currency loans made the countries vulnerable and subsequently resulted in currency outflows. The forms for deregulation have therefore been considered in the international discussions. The International Monetary Fund will be taking these aspects into account in future evaluations of individual countries. It is important, for example, that deregulations are accompanied by a reinforcement of the supervision of financial institutions and markets, so that any ‘bubbles’ are detected in good time. 2. Strengthening systems A sounder macroeconomic policy improves the conditions for making systems more robust. This is necessary but not always sufficient. A reinforcement of the financial system’s infrastructure is also needed. Such efforts are required both in the emerging markets and in the industrialised countries, as well as at the global level. The emerging markets must build up better systems for oversight and supervision.
Something that no doubt helped to question the explanatory power of the efficient-market hypothesis was the stock market crash in 1987, when the Dow Jones index plummeted 22.6 per cent - the largest-ever one-day fall in the United States. This dramatic event demonstrated that share prices can fall even though nothing more fundamental appears to have happened; a thorough search failed to detect any specific or unexpected development that might account for the crash. It also seems to be the case more generally that many price movements are not occasioned by new information; a study of the fifty largest one-day share 2 price movements in the United States in the post-war period confirms this. Moreover, a number of studies have shown that price movements have occurred solely because the company in question has been included in or excluded from Standard & Poor’s 500 index, without any new information about fundamentals. Various explanations for such overreactions have been found. For instance, research has shown that risk management systems and the use of strategies such as stop-loss limits and VaR limits, theoretically could cause financial markets to overreact. Other research has shown that different forms of psychological factors can also cause those developments. Experimental psychology has found that people often perceive a wider pattern in the light of just a few observations that are actually entirely random.

As such, “Policy dilemma” in Emerging Market Economies is likely to become more pronounced, especially as policy rate hikes from external front are imminent. Along the way, clear and timely policy communications from Advanced Economies will be useful to prepare for any adverse side-effects going forward. Part III: Key policy takeaway and the importance of policy collaborations Ladies and Gentlemen, In preparation for upcoming challenges, policymakers wish to do better than passively “catching up” with the crisis, but to be actively “ahead of the crisis” in order to prevent, or at least, mitigate the impact should one occur. Against this backdrop, lines of policy defenses for each economy have to be strengthened. 2  BIS central bankers’ speeches  If we think of the economy as our own house, then keeping the house in order is always an effective first line of defense. Strong economic fundamentals and macroeconomic policy credibility would play a crucial role in ensuring confidence and the sustainable economic activities. Nonetheless, increasing interconnectedness has made housekeeping more difficult as it creates spillovers. To better deal with the shocks, broader set of policy tools are called for. In a nutshell, sound macroeconomic policy and flexible macro-prudential measures to target vulnerabilities have been employed to minimize unprecedented impact in an appropriate and timely manner. Nonetheless, these policies are reaching their limits, not only in terms of policy space but also effectiveness. For a better solution, reforms in both the financial and real sectors are essential.
If firms in the tradable sector have plenty of spare capacity you’d expect net export volumes to rise significantly; once capacity constraints start to bind you’d expect greater Source: ONS and Thomson Reuters Datastream  investment; in general, given that the degree of spare capacity is bound to vary across firms, you’d expect to see both. I think this is what you have seen in the past – in both directions. The data are limited. Detailed sectoral numbers on profits and investment exist only from the early 1990s and until 2014. But that period does at least cover two significant moves in the currency, even before the financial crisis: the big drop when sterling fell out of the European Exchange Rate System (ERM) in 1992, after which the exchange rate remained relatively low for a few years; and the equally large re-appreciation in 1997 and 1998. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  As it happens, I think these swings can be traced back to the demand-side influences I discussed in the last section. Subdued domestic consumption, public as well as private, supressed the exchange rate in the years after sterling exited the ERM; much stronger growth, associated in part with the revival in the housing market, helped to push it back up later that decade (you can see these broad movements back in Chart 3).

Over the past five years, Switzerland has  BIS central bankers’ speeches  5  been the sixth largest FDI investor and eight largest job provider through foreign investment in the U.S.13 Conclusion: the current account and SNB monetary policy Let me return to the question of Swiss monetary policy and the current account posed at the beginning of my speech. I have argued that the key components driving Switzerland’s current account surplus – notably financial services, merchanting, and direct investment income – are not closely linked with either the exchange rate or the domestic economic situation. I have also argued that, historically, an appreciation of the Swiss franc has not led to a reduction in Switzerland’s current account. Yet this disconnect between the exchange rate and the current account balance does not diminish the exchange rate’s importance for the Swiss economy. Given the high degree of openness of our economy, the exchange rate – next to the interest rate – is the key definer of monetary conditions and thus has a strong impact on both prices and production. The Swiss economy has shown in the past that it can handle volatility and appreciation in the real exchange rate when these are based on fundamentals. However, excessive and abrupt appreciations driven by financial market turmoil have a disruptive impact on prices and production, resulting in deflation and recession. What, in practical terms, does this mean for the SNB’s monetary policy? It means that we do not gear our monetary policy to the current account.
Norges Bank exercises its ownership rights by voting at general meetings and through direct contact with companies. Moreover, priority is given to combating child labour and we look critically at how companies influence the authorities in environmental issues. The combination of accountability and transparency has contributed to building trust in the Pension Fund, both domestically and internationally. Domestically, a high level of confidence is vital in maintaining motivation among Norwegians for saving rather than spending the petroleum wealth. Furthermore, the transparency of the Fund is also viewed in a favourable light by those countries in which we invest, and it obviously exerts a certain disciplinary pressure on the management that improves its quality. Thank you for your attention! BIS Review 37/2008  17

“Recent developments in the Chilean Financial System and Challenges ahead” Rosanna Costa, Governor of Central Bank of Chile Chile Day – December 12 and 13, 2022 – London, United Kingdom Good morning distinguishes authorities and dear friends. I am going to talk about the recent developments in the financial system in Chile and the view of the Central Bank of the challenges ahead. Introduction In December of last year, the former Governor of the Central Bank of Chile (and nowadays the Minister of Finance) presented in this very same forum in London about the developments and prospects of the Chilean economy. By then, our country was going through a process of strong recovery from major shocks that affected our economy: first the social unrest of 2019 and then the pandemic of Covid-19. Therefore, the discussion last year focused on the aftermath of the pandemic and the different measures that were adopted by the Central Bank and the government to mitigate its effects on the real economy. Since July 2021, the Central Bank has been hiking the monetary policy interest rate, due precisely to strong pickup of household consumption driven by governmental aids and pension funds withdrawals. A year ago, the Central Bank also raised a note of caution for 2022 and 2023 due to the weakening of the capital markets, identifying several factors including the reduction of long-term savings due to pension withdrawals and its impacts on access to long-term financing for companies and individuals, risk of fiscal deterioration and persistent uncertainty, among others.
Their assessment horizon may also be shorter than the social optimum. And, crucially, coordination failures may be a factor: users of a particular infrastructure, many of whom may compete in underlying markets, need to coordinate their actions if they are to influence decisions on the future strategy of the infrastructure provider. Investment in the reduction of operational risk will be one such decision. Difficulties in organising effective bargaining among users may leave them unable to coordinate, particularly in the face of differences in their information, expectations or preferences. Potential welfare-increasing actions may, therefore, not be carried out. These market failures may justify intervention by the public authorities: either via a continuous oversight or regulatory regime; via targeted intervention; or maybe even via public ownership, as is often the case in respect of large-value payment systems and sometimes with securities settlement systems. An alternative strategy when faced with a monopoly provider might be to promote (or even set up) alternative, competing suppliers, to improve market contestability while ensuring adequate interoperability and substitutability across systems. Of course, given the existence of network externalities and increasing returns to scale, the cost of this form of risk mitigation may well be higher than the cost of regulating a natural monopoly on an ongoing basis.

Systemic stress-testing As financial markets evolve and new vulnerabilities are exposed, it becomes increasingly important that both market participants and the public authorities improve their understanding and assessment of threats to financial stability, and take steps, where appropriate, to contain and lower them. The Bank of England has been active in the development of models to identify and assess potential sources of major vulnerability to the UK financial system 2 and is, with the Financial Services Authority, engaged in a dialogue with practitioners, both to understand better current approaches to measuring risks under stressed conditions and to encourage improvements and the sharing of best practice in stress testing techniques. Recent distress in the US sub-prime lending market, and the collapse of the hedge fund, Amaranth, have exposed weaknesses in risk management, including in the management of contingent, or offbalance sheet, exposures. Although developments in the sub-prime market of course continue to unfold, the impact on conditions in broader financial markets has to date been relatively contained. But, in a more severe stress scenario, perhaps in a more significant market such as corporate credit, or one in which several areas of vulnerability were exposed in combination, the impact could have more serious consequences for the financial system. This highlights the potential value of a more rigorous assessment of tail-end risks. In particular, stresstests by financial institutions should attempt to incorporate the behavioural responses of other firms which may have a substantial impact on market conditions.
In this framework, the expected short-term interest rate path is calculated via the yield curve, expectations survey and other sources and inflation forecasts are published under the assumption that this path will materialize. (iii)  Countries in which central banks assume that interest rate will remain fixed over the forecast horizon: England, Brazil, Peru, and Australia. 2  In recent years, both academic literature and current central banking implementations increasingly support the approach adopted by the first group, including Turkey for sharing the own expectations of the central banks about future monetary policy with the public corresponds to the transparency and  1  In the survey, the farthest period of time given for inflation expectations is 2 years. 2  Some central banks follow more than one method while producing forecasts about interest rates. For instance, Bank of England is in both the second group (expectations for market interest rates) and third group (fixed interest rate). BIS Review 1/2007  3  predictability principles of inflation targeting. In this context, it is observed that more countries from second and third groups join the first group each year. Monetary policy and interest rate risk As mentioned above, the Central Bank shares its forecasts about monetary policy verbally with the public. When evaluating the inflation and monetary policy outlook, a particular question to be answered is raised: How should the policy perspective that will keep inflation close to the target in the medium-term (in a period of one and a half years to two years) be?

Therefore, the Central Bank targeting a variable such as FX rate, growth or current account deficit is out of the question. The Central Bank shares with the public the general framework of the current exchange rate policy and FX buying auctions in the press releases it has issued each year since the start of 2002. As also stated in these press releases; (i)  In the current floating exchange rate regime, exchange rates are determined by supply and demand conditions in the market and the Central Bank does not have any exchange rate target. (ii)  Since there is no exchange rate level to maintain in countries with floating exchange rate regimes, the level of foreign currency reserves is much less significant compared to countries with fixed or flexible exchange rate regimes. However, especially in emerging economies such as Turkey, a strong FX reserves position is significant in removing the unfavorable effects of potential internal and external shocks and boosting confidence in the country’s economy. In addition, taking into account the foreign debt payments of the Treasury and the need to gradually reduce the number of high-cost remittance accounts in the long-term, which are peculiar to Turkey and make up a significant part of the liabilities side of the Central Bank’s balance sheet, the Central Bank holds foreign exchange buying auctions to build up reserves at times where foreign exchange supply constantly increases compared to foreign exchange demand.
The main characteristics proposed by the European Commission are: - Taxonomy alignment: meaning that the funds raised by the bond should be allocated to projects that are aligned with the EU taxonomy. - Transparency as to how bond proceeds are allocated, through detailed reporting requirements. - External review: all European green bonds must be checked by an external reviewer to ensure compliance with regulations and taxonomy alignment of the funded projects, and,  2  See ECB (2023). Towards climate-related statistical indicators. Statistics Committee of the European System of Central Banks. January. 3  - Supervision by the European Securities Markets Authority (ESMA) of the reviewers. This means that external reviewers providing services to issuers of European green bonds must be registered with and supervised by ESMA. The European Council and the European Parliament have this year reached a provisional agreement on the creation of this European Green Bonds Standard. Pending the final text, a very important element of the proposal is that the standard will be voluntary. The European Central Bank issued an opinion in 2021 on the proposal for a regulation on European green bonds,3 which it welcomed. Regarding its voluntary nature, the ECB considered that, in the short term, a strictly mandatory standard might lead to divestment from non-taxonomy-aligned green bonds and a sudden drop in Union-based green bond issuance.

- Green bond issuance saw the largest increase, comparing with the previous quarter and with the same quarter a year earlier. Financials and governments remained the largest issuers with a share of over 73 percent in 2023 Q1. Indeed, new sovereign issuance increased sharply in 2023 Q1, the European Commission issuing € billion of NextGenerationEU green bonds in its fourth syndicated transaction for 2023. 1  See IMF (2023). Climate Finance Monitor Q1 2023. May. 1  - Conversely, the issuance of most other types of bonds declined. For example, sustainability-linked instruments saw slower growth in the first quarter of the year, which, according to the IMF, “may reflect market participants’ perceptions around greenwashing and the credibility of the asset class to drive companies to meet sustainability targets”. Focusing on the euro area, according to the experimental indicators on sustainable finance developed by the Eurosystem: - The outstanding amount of sustainable debt securities issued in the euro area has more than doubled in the last two years. Securities designed to finance green and social projects, which account for the majority of the market, have seen a particularly strong increase. - Over the same period, sustainability-linked bonds recorded the highest growth rate. However, the relevance of these instruments in the overall debt securities market remains minor. Another interesting aspect highlighted by these experimental indicators is holdings. Since the beginning of 2021, euro area holdings of sustainable debt securities have grown continuously, following a similar trend to the one observed for euro area issuances.
in the best case these people were not particularly gifted or responsible bankers, and as a result they triggered the collapse of their credit institutions. Here we are faced with a question about which objectives and targets the Association can deliver 1/4  BIS central bankers' speeches  on. Should it set standards (including ethical ones) for the banking sector; should it be the voice of the banking community in dialogue with the regulator or should it stand up for ‘bad’ banks? I would like to place special emphasis on the fact that when the Bank of Russia withdraws unstable or fraudulent credit institutions from the market, it first, protects the interests of depositors and creditors, and only thereafter is interested in protecting the interests of scrupulous banks. The clearing of the banking sector is yet to be completed, therefore corporate customers will not just choose from banks offering products and services they need, but seek to mitigate the risk of losing money. In particular, it also manifests itself in the authorities’ efforts to determine specific criteria for banks, or a list of banks, which can be entrusted with budget funds and the funds of public companies. The ARB raised the point that these criteria restrict competition. Let me repeat, competition is undermined by fraudulent banks which remain on the market, while attempts to limit risk by means of registers and criteria are just a corollary.

The aggregate capital adequacy ratio sits at a comfortable level slightly above 13% (the minimum 2/4  BIS central bankers' speeches  value is 8%). We estimate that current capital stock is worth 1.8 trillion rubles, which is sufficient to boost lending. Banks’ nominal profits have recovered to the pre-crisis level of roughly one trillion rubles, though real profits are still below the pre-crisis readings. In relation to 2013 prices, profits are still 30% lower. We expect banks to use their profits to boost growth in the banking business, and to step up lending. To do so, they should convert the bulk of their profits into capital. Currently, financial statements suggest that 88% of profits will be converted into capital. I hope that the final figure, after profit allocation between shareholders has occurred, will not differ greatly. Furthermore, banks’ profits increased by 212 billion rubles in the first two months of 2017, a growth rate 2.5 times that of the same period of the previous year. Despite the fact that the current situation in the banking system is quite good, we believe that changes are brewing, which will allow the banking system to more efficiently meet citizens’ demand and economic development objectives. Both bills which we consider to be pivotal - the proportional banking regulation bill and the new resolution mechanism bill - have passed the first reading at the State Duma.