samchain/econo-pairs-v1 huggingface dataset:
Chart 3 looks at a set of four complexity proxies for each of the designated SIFIs in 2006, the year before the financial crisis broke: total balance sheet size; the notional value of their derivatives portfolio; the number of legal entities in the group; and their trading assets. They are shown by their country of incorporation. In 2006, the average SIFI had a balance sheet of $ trillion – roughly the same as the annual GDP of a small G7 country. The largest SIFI had a balance sheet totalling $ trillion. This is many multiplies of the largest non-financial firm. It also only covers onbalance sheet positions. Turning to off balance sheet positions, the derivatives portfolio of an average SIFI totalled $ trillion in notional terms in 2006. 8 For the largest SIFI, it was $ trillion. This, too, is many multiples of the largest non-financial firm’s position. These massive SIFI balance sheets were, in turn, spread across a very large array of distinct legal entities within each group. In 2006, the average SIFI had around 328 legal entities within the group. The largest had almost 900 distinct legal entities. Most of the largest global SIFIs had numbers of legal entities running to four figures. By comparison, the world’s largest non-financial firms had less than half this number of legal affiliates (Carmassi and Herring (2014)). A final complexity metric is the proportion of so-called trading assets.

Some progress has also been made in using these models to help design and calibrate postcrisis regulatory policy. As one example, epidemiological models have been used to understand and calibrate regulatory capital standards for the largest, most interconnected banks – the so-called “super-spreaders” (Craig et al (2014)). They have also been used to understand the impact of central clearing of derivatives contracts, instabilities in payments systems and policies which set minimum collateral haircuts on securities financing transactions (Haldane (2009)). Rather less attention so far, however, has been placed on using complexity theory to understand the overall architecture of public policy – how the various pieces of the policy jigsaw fit together as a whole. This is a potentially promising avenue. The financial crisis has led to a fundamental reshaping of the macro-financial policy architecture. In some areas, regulatory foundations have been fortified – for example, in the micro-prudential regulation of individual financial firms. In others, a whole new layer of policy has been added – for example, in macro-prudential regulation to safeguard the financial system as a whole (Hanson, Kashyap and Stein (2010)). This new policy architecture is largely untried, untested and unmodelled. This has spawned a whole raft of new, largely untouched, public policy questions. Why do we need both the micro- and macro-prudential policy layers? How do these regulatory layers interact with each other and with monetary policy? And how do these policies interact at a global level? Answering these questions is a research agenda in its own right.
But even if we can – and the financial markets’ response to the latest developments in Brazil, as well as the beginnings of a recovery in capital flows to some countries in Asia, are reasonably encouraging in this respect – we are now having to cope with the economic aftereffects of these earlier financial disturbances. The IMF has cut its most recent forecasts for world growth to close to 2%. And the risks almost certainly remain on the downside. That’s still not global slump or recession. But large parts of the world economy are in fact in recession and the prospect for the world as a whole turns very much on what happens in the major industrial countries. In essence, what we have seen is a brutally sharp cutback in capital flows to much of the emerging world and to some of the transition economies, creating a corresponding need for  5  BIS Review 19/1999  urgent improvement in their current accounts. This has caused massive currency depreciations and forced the emerging countries to make equally sharp cutbacks in domestic demand. The counterpart is a sharp decline in net external demand in the industrial countries, which, if it were not to be offset by action to stimulate domestic demand in those countries, could indeed lead to weakening global activity and price deflation.

The response to Brexit should be the economic and financial strengthening of the euro area: if we remained mired in technical nit-picking with self-satisfaction from some, disparagement from others, and distrust on all sides, we would not only have missed an opportunity, we would, collectively, have failed in our duty. ** I would like to conclude on that note. The unity demonstrated by the EU27 in their Brexit position, behind their negotiator, Michel Barnier, who has done a remarkable job, has been impressive. And everyone now better appreciates – at least in the sense of what they would miss – all the advantages offered by our Europe and our common market. This political desire to “protect” must now unfold into an ambition to “construct”, to build a more effective Europe. Thank you for your attention. 1 European Central Bank press conference, 25 October 2018. 2 Four-quarter cumulative flows. 3/3  BIS central bankers' speeches
Admittedly, prior to the presentation of the State Budget, Parliament and the Senate have approved the budget targets, both for overall general government and for each of its sub-sectors, on the proposal of the Government and following a report by the Fiscal and Financial Policy Council and the Local Government National Board. Yet clearly the budgets of each regional government and each municipality are approved separately, there being no document containing information on all of them, together with that on the State and Social Security Budget. Hence, although we do have ex-post information that enables the public spending outcomes and outturn for the four major spending groups – central, regional and local government, and the Social Security system – to be analysed, we do not have an ex-ante or prior document that provides a detailed analysis of budgetary projections for overall general government and its compatibility with the objectives set. It should be recalled, however, that the new Budgetary Stability Law introduced substantial improvements in this respect. Specifically, it stipulates that, before 1 October each year, regional and local government shall submit information on the essential items contained in their forthcoming budgets to the Ministry of Finance and General Government. Then, before 15 October, the Ministry of Finance and General Government will release a report on the alignment of this budgetary information with the stability objectives, in such a way that the Ministry may make recommendations should it perceive slippage.

Looking at all these events, there is a recurrent pattern: innovation in the real or financial economy and deregulation measures are followed by accelerated growth, which is accompanied by a very expansive lending policy on the part of banks. Sooner or later, the boom comes to an end and price corrections take place that often end in a recession. As a rule, the stronger the boom is at the start of the cycle, the larger is the subsequent harm to the economy and to society. BIS central bankers’ speeches  1  This pattern is often complemented by another factor. Particularly, but not exclusively, in the financial sector – a sector with fierce competition between regulated and non-regulated financial market participants – regulatory loopholes are actively exploited in order to gain competitive or other advantages. This is particularly well illustrated by the example of assetbacked securities (ABSs). From the middle of the 1990s, the originate-to-distribute model, i.e. the securitisation and resale of loans, was seen by many as the financing model of the future, not just in the United States, but also in Europe and Germany. Many saw it as a solution to economic and socio-political problems and took measures in favour of ABS financing in terms of regulatory requirements. Accordingly, banks were able, for example, to finance their ABS-based special-purpose vehicles solely through short-term credit lines, credit lines that are in place “until further notice”.
8  BIS Review 149/2007  It cannot be ruled out that, for a while, the M4L growth rate may deceive as to the underlying pace of credit expansion in the economy. That is important because, in a nutshell, the turmoil in financial markets is not just a “City” event. How potent it will be macroeconomically will depend on how long current conditions persist, and the feedback loop between the financial economy and the real economy. As to its persistence, necessary conditions for an alleviation of the current strains in credit markets are probably at least twofold. First, that the US housing and household debt markets stabilise. Second, that banks and other financial intermediaries recognise impairments to asset values, so that uncertainties about counterparty credit risks begin to reduce. On the financial-real economy interaction, we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other. A variety of policy responses are possible. The announcement yesterday by central banks of co-ordinated action via term auctions to alleviate pressure in financing markets is directed at that. Second, regulatory authorities around the world are monitoring banks’ liquidity and capital positions, including in the context of Basel II. And, thirdly, monetary policy also can in principle play a role, through what is effectively a “financial accelerator” working through bank balance sheets, where that is consistent with maintaining stable inflation in the medium term.

Despite the rise in oil prices, the Norwegian krone has been fairly weak since 2014. A weak krone has a positive influence on exporting companies. At the same time, prices for imported goods and services increase. A weaker krone therefore leads to higher inflation. Measured by the import-weighted exchange rate index (I-44), the krone appreciated somewhat in the period to autumn 2018, but depreciated again towards year-end. The depreciation coincided with a fall in oil prices and heightened uncertainty in global financial markets. Chart: Growth mainland Norway Growth in the Norwegian economy has been solid since autumn 2016. At the same time, labour market conditions have improved considerably. The number of employed has increased by more than 100 000, and unemployment has declined. Solid global growth, higher oil prices and low interest rates have contributed to lifting growth. The enterprises in Norges Bank’s Regional Network reported rising output growth through 2018, particularly for oil service providers thanks to the rebound in petroleum investment on the Norwegian shelf following several years of decline. There was also a pick-up in exports from oil service companies. Chart: Employment as a share of the population After some years of solid growth, spare capacity has gradually diminished. At the end of 2018, capacity utilisation appeared to be close to what we regard as a normal level. Employment also appears to have returned to a more normal level.
Through stress testing of major banks, it has boosted the resilience of the banking system. It has used those tests to deal with specific threats from pockets of credit growth in consumer credit and leveraged loans to companies. It has introduced measures to cap high loan-to-income mortgage lending. It has, through new tests, built greater resilience in the financial system to cyber attacks. And it has examined risks in the growing non-bank financial system so that they can be addressed if they become material, if necessary by changing the scope of regulation. 3  The post-crisis regulatory infrastructure also included a new Prudential Regulator for banks, insurance companies and designated investment companies (the Prudential Regulatory Authority of the Bank of England) and a resolution regime for failing banks, overseen by the Bank of England. For a full description of these functions, see the Bank of England’s Financial Stability Strategy. 4 The committee comprises the Bank’s Governor, 4 deputy Governors, the Executive Director for Financial Stability, the Chief Executive of the FCA, 5 external members appointed by the Chancellor and a representative of HM Treasury. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Legitimacy & accountability  It will be important that those in Parliament continue to recall the misery that prompted their predecessors to grant us our powers and the independence to use them. To abandon their predecessors’ good intent could inflict the same misery on some future generation.

But of course, the handing of such powers to an unelected group of people raises serious issues and challenges. How can such a group be trusted to implement what our society wants when it cannot be sent packing through the ballot box? How can it be legitimate that unelected technocrats take decisions that affect people’s lives? These are understandable, real concerns. And they must be addressed. Those of us to whom a degree of independence has been granted must remember that we have no natural right to it. We are citizens in service, not people in power. Two important features of the way power has been delegated to us make that so. First, Parliament delegates to us a clear mandate. We cannot pursue whatever our own preferences may be. That’s why we have, as it’s known in the trade, instrument independence, but not goal independence. We do not have the independence to decide what the instruments are used to achieve. 5 Second, our performance against Parliament’s mandate must be able to be assessed. This means we can be held to account for delivering what we’ve been told to deliver. These two features were central to the creation of the Monetary Policy Committee in 1997. It has a clear remit from Parliament: a target of 2% consumer price inflation. There is no danger of the committee being able to impose any other standard. 5  Guy Debelle and Stanley Fischer. "How independent should a central bank be?". Federal Reserve Bank of Boston, 1994.
The current economic situation Before the war, the world economy was on a path of gradual recovery, following the most acute phase of the pandemic, although the recovery was already flagging from the second half of 2021 owing to global bottlenecks and the increase in inflationary pressures. The gradual path of recovery in activity prior to the Russian invasion of Ukraine was, in any case, highly uneven across geographical areas and sectors of activity. Thus, while some economies had already regained or even surpassed their pre-crisis levels of activity, others had not. Spain, despite having one of the highest levels of vaccination in the world, was among the latter. At the end of 2021, Spain’s output was still 3.8 percentage points (pp) below its pre-pandemic levels, while in the euro area as a whole this gap had already closed. One factor that would explain the difference in progress is the sectoral composition of activity. In particular, the recovery tends to be more delayed in those countries, like Spain, in which services that are highly dependent on personal interaction, such as those linked to tourism, account for a large share of the economy. Economic developments in Spain, and in the rest of the world, have been affected by upward inflation surprises since the second half of 2021, driven in particular by energy and food, although there has also been a slight rise in underlying inflation. Between December 2020 and March 2022, the annual increase in consumer prices rose from -0.6% to 9.8%.

But I will say that the speech of the President, if one reads it completely, it’s totally in line with the statement we had in Tallinn in our monetary policy meeting there; the speech that he also made at the European Parliament; and here it was along the same lines. He recalled that domestic drivers of inflation, measured by the underlying inflation, are still subdued, and that we need to be sure that when we get to inflation close to 2% it’s a durable situation and a self-sustained situation that can go on without the high degree of accommodation that we have now: so all these conditions, he reaffirmed them, and then talked precisely about the need to persist and about the need to be prudent in talking about premature withdrawal of stimulus. So in other words we are not closer to an exit, not even a baby step closer, with the forum here in Sintra? Constâncio: Well, we are not predicting what the Governing Council will do. We are not trying to do that. This is the assessment that we have been producing also as a result of monetary policy meetings of the Governing Council itself, like the more recent one we had. So it’s going along the same lines. Personally, I don’t see anything in the speech that would be different from, say, the previous two main interventions about monetary policy done by the President. Let us talk about one area of optimism, and that’s the political tailwind.
It was an exercise designed to assess the level and depth of banks strategic thinking about responses to future challenges, including the challenges to core business models from changes underway in the technologies around money. The exercise provided the Financial Stability and the Prudential Regulation Committees of the Bank of England with a number of important insights. We will be following up with banks on the results of the exploratory exercise. Conclusion  Thinking about the future in this way is a key part of our responsibility for the money of the UK. The way we use the social technology of money has a long and very varied history. Money has manifested itself in very different forms over the centuries. The confidence that lies at the heart of the technology that is money has been supported in very different ways. The technology has, on occasion, been abused and misused: to borrow Mill’s analogy, the ‘machine’ has gotten ‘out of order’ and done serious damage. The Bank of England has a very long association with the development of money. As I noted at the outset, it has been argued that the creation of the Bank, over three hundred years ago, was the institutional invention that brought public and private money together, providing the liquidity, efficiency and security in the money supply upon which the development of modern economies depended. The way we exercise our responsibility for the ‘machine’ that is the nation’s money has of course changed over time.

So the technologies that support money in the UK are central to our purpose and we need to assess how changes in those technologies – physical, legal, institutional (public and private) will affect that purpose. Against that background, I want to pick up two changes in the technologies supporting our money. I am not referring here to Bitcoin or crypto-currencies, on which so much ink (physical and virtual) has been expended recently. I want rather to talk about two related developments that are actually happening or about to happen. The first is the growing use of non-cash technologies for small value payments. And the second is the change to the way we manage and use our payment accounts at banks, the form in which most of us hold our money. As I noted, some £ 20%, of the money in the UK is issued by the public sector. A very small amount of this, by value, comprises the coins issued by the Royal Mint. The rest is Bank of England money. Bank of England money is used at the extreme ends of the payments hierarchy – for the very largest and for the very smallest transactions. At the top end, the very large payments that private banks make to settle their claims on each other must be made in ‘Bank of England’ money by transfers between the banks’ reserve accounts at the Bank of England. This happens over an electronic payment system, the Real Time Gross Settlement (RTGS) system operated by the Bank of England.
Sweden is one of the world’s best examples of the forces for growth that are generated by innovations, experimentation and creative processes. Companies like Ericsson, AGA, SKF, Atlas Copco and Electrolux are just a number of the instances of inventions that have contributed to our country’s long-term growth. The old Austrian school of economics, with its roots in the period before World War I, had an analytical focus on growth and the business cycle that is relevant for an understanding of the present situation. One insight is the crucial part innovations play for the path of long-term growth. This has been elucidated not least by Joseph Schumpeter and Erik Dahmén. However, the significance of innovations and technology for growth is not a straightforward matter. They often raise productivity and generate windfall profits. The new products that result from innovations give some firms a monopoly, while other firms that are relying on older technology are pushed to the wall. In such a process there is, of course, a large risk of making the wrong decisions. The Austrian school also regarded investment as the linchpin of the business cycle. In the event of a technological breakthrough, firms are liable to overestimate the size and duration of the resultant improvement in productivity. That is why an upward phase not infrequently culminates with excessive optimism and faulty investment. When profit expectations then fall back to more realistic levels, share prices fall and corporate investment takes time out until capital stocks have adjusted to a more reasonable view of long-term yields.

With a clear view of the important role that insurers have in serving and supporting the economy, there is every potential for this to be realised. 4  BIS central bankers’ speeches