samchain/econo-pairs-v1 huggingface dataset:
BIS Review 161/2010  7

This exercise proved to be both very useful and reassuring: thanks to the improvement of banks’ capital position with the implementation of Basel 3, and despite the high level of uncertainty triggered by the ongoing pandemic, it shows that the European banking system is resilient to a very severe adverse shock. 2.3 Stress testing should also prove helpful for banks to assess and manage their exposure to climate change related risks The forward-looking perspective of stress tests should prove particularly helpful for banks and their supervisors to handle emerging risks such as climate change. Building on the work carried out by the Network of central banks and supervisors for the Greening of the Financial System (NGFS): we, at the ACPR and Banque de France, have recently conducted such an exercise, with French Banks and Insurers. Beyond helping us identify at an early stage their shortcomings and limitations that we will need to overcome, such stress test have provided us with initial 2/3  BIS central bankers' speeches  assessment of climate change-related risks, exposures of French financial institutions, which appears actually to be moderate. But may be more importantly, it has proved helpful to us in incentivizing financial institutions to give the proper level of priority and resources to the monitoring and management of climate-related risks.
10  In economics the impact on the exchange rate of variations in tradable versus non-tradable productivity is known as the “Balassa-Samuelson” effect (Samuelson (1964); for a survey of the evidence see Egert et al (2006)). 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  I want to ask why this is. Why do forecasters think the more negative effects of sterling’s fall will predominate – what impediment might there be to its more positive effects? To do so it’s worth taking a closer look at how depreciations actually work. The view one often hears is that they make UK output cheaper in foreign currency terms, encouraging extra demand from overseas. I’m not sure that’s quite right. I said earlier that economists often make the approximation that prices of tradable goods and services are the same in all countries (measured in some common currency). This makes intuitive sense when you think of an area like commodities. For example, you would not expect sterling’s fall to reduce the dollar price of North Sea oil or the euro price of UK-produced wheat. Those are determined largely in global markets. What happens instead is that their prices go up in sterling terms. And if there is a response of net export volumes it comes about largely because the rise in prices directly boosts the profitability of UK-based production. Whether we’re talking about firms that export or those that compete with imports, it encourages such businesses to expand.

That’s true of the most recent period as well: prices of non-oil goods exports rose 12% through the course of last year, in line with those of imports. Admittedly, the behaviour of the sterling price of services exports is rather different. They’re more stable in the face of exchange-rate movements (Chart 8), implying that depreciations do indeed reduce them in foreign currency terms. I think this is understandable. Services are less homogenous than goods and there’s more room for non-price competition. The UK has a larger presence in this area, accounting for 7% of global services trade in total, 12% for business and financial services specifically. Those wholesale services are relatively specialised. Chart 8: Sterling price of services exports more stable  Equally, and for many of the same reasons, the evidence suggests that service export volumes are much less sensitive to any cross-country variations in prices than in goods markets. Indeed it’s only because of this relative insensitivity that such variations can persist for any length of time. At any rate, my main point here is that the positive effects of a currency depreciation depend at least as much on the response of domestic firms as on that of foreign buyers.
A concern from a financial stability standpoint is that heavy asset sales necessary in times of stress to meet investor redemptions could disrupt systemically important asset markets, particularly where a fund (or funds) has a concentrated market position. There have, so far, been few historical examples of financial instability caused by funds experiencing distress. But we should be careful about drawing too much comfort from this. The scale of funds and the market environment are different now. For example, funds’ investments in emerging market assets and high-yield bonds have quadrupled over the past five years. It is unclear what volume of redemptions could be met quickly without causing disorder in these markets. A year ago, the so called “taper tantrum” was a pointer to what could happen. And such risks may have become greater due to changes in the market. Concerns have been raised by some in the industry that reforms to bank capital and liquidity regulation could, taken together, have potentially serious consequences for market liquidity. The regulatory community takes such concerns seriously and is looking closely at them. But we should not set as an objective a return to pre-crisis liquidity conditions. Liquidity risk premia were likely too low before the crisis because liquidity risk was under-priced. And market-makers were permitted to fund their inventory with dangerously high levels of leverage, funded at very short maturities and, needless to say, the risk-weights attached to this sort of activity were very low.

Can this persist in the long term? The ECB’s monetary policy will remain very accommodative until inflation is firmly on a path towards 2%. What other reasons are there, beyond the ECB’s decisions, for interest rates being so low? It is because growth is still weak. It is because our economies are less able than in the past to create growth. The ECB must take account of this environment and, to provide effective support to the recovery, we must set our key interest rates at very low or even negative levels. If the European economy regains the ability to sustainably create growth, interest rates will return to levels more favourable to savings. How do you account for the fact that economic growth has remained low in France in 2016? The pace of economic growth is accelerating throughout the euro area and the unemployment rate is falling, including in France, but at a slightly slower pace. The ECB’s monetary policy has made a strong contribution and the reforms implemented in each country have played a role. The countries that were severely affected by the financial crisis have had to undertake reforms. The reforms that they have implemented, particularly in the labour market, have been hard but are now bearing fruit. In Spain, for example, growth is set to be above 3% in 2016 and the unemployment rate is falling rapidly. France, which weathered the crisis better, faced less pressure to undertake reforms. Today growth in France is weaker and unemployment is higher.
Another particularly relevant case at the present juncture is Brexit, which may have very significant effects on the UK and EU economies. Depending on the future framework for relations between the EU and the United Kingdom, and whether or not the departure from the EU takes place in an orderly manner, the latest estimates, published by the Bank of England just a few days ago, range from long-term GDP losses for the United Kingdom of around 2% of GDP in the case of an orderly exit and favourable future agreement, to declines of around 10% of GDP if there is no agreement and the exit is disruptive and disorderly. The costs for the EU would be lower, although in the event of a hard Brexit the impact could be significant for those countries with closer trade and financial ties with the United Kingdom, such as Ireland, Belgium and the Netherlands. At the same time, the evidence suggests that greater protectionism raises the vulnerability of economies to domestic adverse shocks. This is because international trade allows producers to diversify their business and cope with cyclical fluctuations in domestic demand. This diversification mechanism is even more important in crisis periods, as seen in Spain, where businesses facing severe contractions in domestic demand during the most recessionary phases of the last crisis found an escape valve in the form of exports that enabled them to maintain their activity and limit job losses.

[31] The crypto industry is seeking to grow by parasitising the financial system: it touts itself as an alternative to the financial sector, yet it seeks shelter within that very sector to address its inherent risks, all in the absence of adequate regulatory safeguards. The public response: backing, regulating or innovating? The public sector response can be encapsulated in three main suggestions. Not giving in to the temptation to offer public backing to cryptos First, the temptation to offer public backing to cryptos must be resisted. The idea of permitting stablecoin issuers as non-bank financial institutions to hold their reserves at central banks might seem appealing, but could lead to serious adverse consequences. By granting stablecoins access to the central bank’s balance sheet, we would effectively outsource the provision of central bank money. If the stablecoin issuer were able to invest its reserve assets[32] in the form of risk-free deposits at the central bank, this would eliminate the investment risks that ultimately fall on the shoulders of stablecoin holders. And the stablecoin issuer could offer the stablecoin holders a means of payment that would be a close substitute for central bank money. [33] This would compromise monetary sovereignty, financial stability and the smooth operation of the payment system. For example, a stablecoin could displace sovereign money by using the large customer network of a big tech, with far-reaching implications. [34] Therefore, central banks should exercise prudence and retain control over their balance sheet and the money supply.
For these assessments, we consult our researchers and add critical information that we learn from listening to our boards of directors, regional advisory councils, community leaders and other key stakeholders, such as you and others I’ll meet on this visit. For example, last month members of our small business advisory council told us that for the first time in several years, employees were leaving for other jobs and that they would need to replace those who left for better opportunities elsewhere. The fact that some people with jobs felt confident enough to seek and take other job opportunities was another signal to us that the job market may be improving – although, to be sure, we read such signals cautiously. BIS central bankers’ speeches  1  To help me gather more information about the region, I will be meeting this morning with PathStone, a community development and human service organization serving farmers and low-income families and communities, then meeting with students and faculty at the Maxwell School at Syracuse University, and then having lunch with faculty of the Maxwell School and the university officials who manage the tech transfer process. This afternoon, I will drive to Skaneateles Falls to tour Welch Allyn, a manufacturer of diagnostic equipment, and meet with the president and CEO, Dr. Julie Shimer. Dr. Shimer also recently became the chair of the Empire State Development Corporation and I am looking forward to our discussion about the challenges and opportunities for economic development in Upstate New York.

I would be happy to take a few questions. BIS central bankers’ speeches  5
Persistent low inflation could signal that the equilibrium interest rate – the rate consistent with inflation at target and the economy operating at full capacity – is lower than currently assessed, and therefore the stance of monetary policy is tighter than intended. Here again, trade tensions and wider economic policy uncertainties are relevant as both could reduce the equilibrium interest rate. 11 If so, that monetary policy space could be more limited in some jurisdictions, increasing the desirability that fiscal policy supplement it if a downturn materialises. Chart 10: Market measures of long-term inflation expectations drifting down in US and euro area Per cent 3.0  Per cent 4.0 UK adjusted (lhs)  3.8  UK (lhs)  3.6  2.8 2.6  3.4  2.4  3.2  2.2  3.0 Euro area (rhs)  2.8  US (rhs)  2.0 1.8  2.6  1.6  2.4  1.4  2.2  1.2  2.0 Jul. 16  1.0 Jan. 17  Jul. 17  Jan. 18  Jul. 18  Jan. 19  Sources: Bloomberg Finance L.P., and Bank calculations. Notes: The chart shows 5-year inflation 5 years ahead. The UK series has been adjusted higher to account for the fall in inflation swap rates that took place on 17 January following publication of the House of Lords Economic Affairs Committee Inquiry into the use of RPI. See ‘Real interest rates and risk’, speech by Gertjan Vlieghe at the Society of Business Economists’ Annual conference, 15 September 2017.

19 18  All speeches are available online at www.bankofengland.co.uk/news/speeches  18
Let me discuss these scenarios in turn. The Phillips curve provides a useful framework for assessing the impact of growing economic slack and inflation expectations on price developments. In its most basic form, this theory posits that the inflation rate depends positively on the expected rate of inflation and negatively on the degree of slack in the economy, as measured, for example, by the difference between the supply potential of the economy and aggregate output, in other words the output gap. With euro area GDP falling at an annual rate of 4.8% in the first quarter of 2009 and unemployment rising to 9.2% in April, there is little doubt that spare capacity is high. This should exert downward pressure on prices. But how strong is this downward pressure, and can it determine deflationary risks for the euro area? Precise estimates of the Phillips curve for the euro area are subject to controversy. They vary depending on the specification, the precise measures of the output gap and expectations used, and the time frame considered. However, the general indication from the existing studies is that, on average, relatively large and persistent changes in the output gap are needed to affect euro area inflation. 5 In comparative terms, these changes are much larger than, for example, in the US and the UK. A simple plot (slide 9) of the evolution of various measures of the output gap against that of inflation for the euro area confirms that  5  See, for example, Musso, Stracca and van Dijkx (2007).

Finally, I shall elaborate on the new National Bank Law. Economic activity In Switzerland, a turnaround in economic development emerged in the third quarter of 2003. Real GDP exceeded the previous quarter’s level for the first time since the third quarter 2002. Nevertheless, it still fell short of its year-earlier level. The Swiss economy recovered largely in line with our expectations as communicated in our September assessment of the situation. The recovery is attributable to the pickup in global economic activity, low interest rates and generally more favourable exchange rate conditions. This benefited primarily exports, which rose markedly in the third quarter. Equipment investment, too, picked up slightly following a long phase of decline. Private and government consumption continued to have a stabilising effect. The economic situation in Switzerland should improve further in the next few months. We are expecting exports to continue developing favourably, coupled with a robust increase in equipment investment. In this way, the economic upswing in Switzerland will become increasingly broad-based and strengthened. In the course of 2004, unemployment should also fall, leading to a pickup in private consumption. On average, a moderate decline in economic activity will be recorded in the current year, while for 2004, as already stated, we expect the economy to grow by slightly over 1.5%. This will, however, not yet suffice to close the production gap. Production capacities will therefore still not be fully utilised in the coming year. Even though the overall prospects have clearly improved, the situation in a number of industries remains difficult.
Jean-Philippe Thierry, Vice-Chairman of the ACP, will continue this overview by talking more specifically about the insurance and mutual insurance segment. I)  My first point: the French financial sector has demonstrated its robustness in a context of severe crisis. Whereas the 2008 crisis was above all a global crisis triggered by the rapid deflation of the US real estate bubble and its associated financing, the crisis that began to spread as of mid-2011 is focused on the euro area: a crisis of sovereign debt and financial institutions in the euro area. Because the French banks have the broadest geographic coverage in Europe and because they have the most internationally open scope of activities, they have been particularly affected by the crisis. In just several weeks last summer, French banks lost nearly 250 billion dollars in US money market financing, their share prices fell to half or a third of their value and their capacity to pursue a sustained activity of financing the economy looked seriously compromised, especially as these events coincided with the tightening of regulatory constraints that put even more pressure on them. However, this was not the case. Of course, what we call the “cost of risk” increased considerably in 2011 with the need to provision the risk associated with Greek debt. But the distribution of credit remained buoyant and the net banking income of French banks remained stable (–1.5% for the five main banking groups).

Jean-Pierre Roth: Steps to strengthen the Swiss financial system Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the news conference, Bern, 16 October 2008. *  *  *  Pursuant to art. 5 of the Swiss National Bank Act (NBA), the SNB shall contribute to the development of our economy and the proper functioning of our monetary system. This is why the SNB has decided to extend a loan not exceeding USD 54 billion to the special purpose vehicle (SPV) set up to take over illiquid assets currently held by UBS. A similar offer has also been extended to the CS Group, which has refrained from making use of such a possibility. For the SNB, this operation is highly unusual, both with regard to its scope and the reasons for it. Scope of operation As to the scope of the operation, USD 54 billion is clearly a substantial amount for the National Bank. I would like to emphasise, however, that the loan amount is entirely guaranteed by the portfolio assigned by UBS, i.e. securities valued at USD 60 billion in the UBS balance sheet. Given the fact that in the past twelve months, UBS has made aggressive write-downs on its risky positions and that its portfolio is fairly diversified (it does not only consist of toxic assets), we feel that the risk of further losses on this portfolio is limited.
A more significant slowdown in the global economy might ease inflationary pressure. Given these conditions, the SNB is maintaining its cautious stance and leaving its monetary policy strategy unchanged. In view of the medium-term inflation outlook, it can afford to do so. After all, there is enough reason to suggest that the current inflationary trend is of a transitory nature. The SNB will keep a close watch on the price of oil, movements in the Swiss franc, the economy, and developments in the financial markets, so as to assess their impact on the inflation outlook and react swiftly, in order to maintain price stability in the medium term. Global economic outlook With exports accounting for 52% of GDP, the Swiss economy has a strong global presence. This is an opportunity, but it also means that the international environment has a considerable impact on economic developments in Switzerland. The US economy – until recently the principal driver of global economic growth – has made scant headway over the last three quarters. However, the period of near-stagnation which the US economy is currently experiencing is not likely to be too prolonged. The resolutely expansionist nature of US monetary and fiscal policy, combined with a weak US dollar that favours exports, should help to reenergise the US economy.

The way forward towards faster growth lies in the first instance in striving to maintain the competitive advantage of traditional sectors – which typically rely heavily on cost advantage and where market share is being lost -, while promoting the development of new activities that exploit the potential offered by Malta’s strategic assets. These include EU membership, a modern technological  2  BIS Review 84/2005  infrastructure and a skilled and flexible labour force. The current, encouraging expansion in new activities such as financial services, software development and pharmaceuticals attests to the competitive edge which our economy indeed enjoys in these areas. This advantage must, however, also be supported by a stable operating environment that is responsive to changing market conditions. Elements of a coherent policy framework Such an environment requires a coherent policy framework on three levels: the first is the macroeconomic level, where a sound financial system and prudent fiscal and monetary policies should combine to provide favourable conditions for the restructuring of the productive base. At the microeconomic level, resources must be more efficiently allocated and managed by enterprises so as to obtain the maximum possible degree of cost-effectiveness and market penetration. The third involves what may be termed as meso-level policies, involving specific sectors. Policy at this level should primarily avoid distorting the mechanisms that facilitate economic activity. Supportive macroeconomic policies are already in place … At the macroeconomic level, the recent track record has been largely positive. Fiscal consolidation is progressing in line with the projections of the convergence programme.