samchain/econo-pairs-v1 huggingface dataset:
At the global level, the incorporation of emerging markets into the world economy weighed down on price developments (especially of manufactured goods). In response to the resulting benign inflation developments, the prevailing inflation targeting orthodoxy led to the adoption of an accommodative monetary policy stance. In retrospect, such accommodation was probably inappropriate, at least to the extent that it supported the financial imbalances and asset price bubbles that underlay the recent financial crisis. Failure to take into account financial factors and channels of transmission led to a mis-calibration of the monetary policy response to the impact of globalisation. A simplistic account of the financial sector may have had other, adverse implications for the conduct of monetary policy in recent years. Within the canonical New Keynesian model, financial markets are “perfect”. On the basis of arbitrage considerations, long-term interest rates and other yields and asset returns all derive from the expected path of short-term interest rates determined by the central bank. Such a construct suggests that monetary policy-makers can steer long-term rates closely by simply making pre-commitments about the future path of short rates. No doubt there is an  16  See: E. Fahri and J. Tirole (2009), “Leverage and the central banker’s put”, American Economic Review 99(2), pp. 589–93. 17  See: D.W. Diamond and R.G. Rajan (2009), “Illiquidity and interest rate policy”, NBER working paper no. 15197. 18  See: T. Adrian and H.S. Shin (2009), “Financial intermediaries and monetary economics”, Handbook of Monetary Economics, forthcoming; R.G.

The reaction to the crisis has however shown that central banks learn fast and can take decisive action to protect the economy. Their response is in stark contrast to how they reacted to the Great Depression. On that occasion, monetary policy-makers were largely responsible for causing the crisis, for deepening it and for preventing a quick recovery. We can be more optimistic this time around. 12  BIS Review 45/2010
Conversely, the second worry is that broadening central banks’ responsibilities could undermine their core monetary policy function. In the pursuit of its financial stability mandate, a central bank could be drawn into politically contentious areas such as housing policy and income inequality. Greater coordination with fiscal policy could also cause the central bank to be pressured into monetary financing or even fiscal dominance. On a general level, combining monetary policy and financial stability may bring back the time inconsistency problem, which is exactly why central banks were granted independence in the first place. The post-GFC situation of central banks can be summed up as follows. The fiscal consolidation and only partial structural reforms undertaken by many governments made central banks more or less the only game in town. And as economies weren’t running satisfactorily, this game wasn’t cast in a good light. The long period of exceptionally low nominal and real interest rates spurred an intensive examination of the possible consequences. These include growing indebtedness, overvalued asset prices, underestimated risks, misallocated loans and resources, and lower productivity. However, it will take a long time to properly assess the impacts of other unconventional instruments. To quote Charles Goodhart: “Central bank independence was nice while it lasted, but it owed a great deal to the supporting conditions that enabled it to achieve such great success in its early years. Rest in peace.”  The rebirth of the fiscal-monetary mix?

Had we done that, inflation would have been closer to the target last year and we’d have had a little more room to ease the interest rate component of the monetary conditions. The second reason is rather more complex and technical and relates to our gradually evolving perception of the relationship between the supply and demand-side factors of inflation. At the start of the coronavirus crisis we felt that the potential output level would not fall significantly and that the sharp drop in demand would cause the output gap to widen and have a disinflationary effect. However, core inflation did not fall very far in the months that followed. So, we gradually reappraised this picture, lowering the potential output level and proportionately reducing the size of the output gap. Not only was the persistently high inflation consistent with a relatively small output gap, but the decline in potential output matched our growing conviction that the coronavirus crisis was primarily a supply shock. This is apparent from a closer inspection of the supply side, where remarkable changes were and still are going on. The coronavirus crisis saw unprecedented interactions between the supply and demand side.
Those who wish to go into this subject in more depth can read our most recent Financial Stability Report. As we know, the property sector consists of two parts: the housing market and the commercial property market. The Riksbank studies the property sector for two main reasons. One reason is that property companies comprise the largest individual borrowers from the banking groups approximately 15 per cent of the banks’ lending is to property companies. Properties are also the dominant form of collateral for loans. Loans with property as collateral comprise almost 50 per cent of the bank’s lending against collateral. The health of the companies in the property sector therefore has repercussions for financial stability. The growth rate for credit has remained at an average level of just over 6 per cent a year for the past four years, which exceeds annual GDP growth by a few percentage points. It could be considered cause for concern to have a higher growth in credit than in fundamentals, i.e. GDP, and it is easy to recall developments at the beginning of the 1990s, but since then there has been a change in the focus of monetary policy and fiscal policy towards macroeconomic stability. At the same time, the effects of earlier as well as new structural reforms, such as the tax reform, the pension reform and deregulation, have also contributed to the Swedish economy becoming less sensitive to disturbances now than it was in the 1980s.

This can mean that utility value rents do not cover total production costs in growth regions where land and construction costs are relatively high. It is evident that the total regulatory framework does not contribute sufficiently to ensuring that supply follows demand. The low level of construction and the high level of immigration to metropolitan regions contribute to prices in the market for apartment blocks being relatively little affected by the current lower level of economic activity. Property companies’ earning capacity should thus be relatively stable, which is positive from the point of view of both the company owners and creditors. However, the weak level of residential construction has led to sluggishness in the housing market. The fact that it is possible to move between residential areas and between regions stimulates mobility among the labour force and flexibility in the functioning of the labour market, which affects economic developments. A clear example of this is the Stockholm region, which has a housing shortage. This has probably led to a lower growth for the Stockholm region than would have otherwise been the case. As 25 per cent of Sweden’s economy lies in Stockholm, this affects the entire country’s growth potential. A housing sector that does not function properly will thus affect the country’s potential growth, as it will become more difficult for labour to move to where the jobs are.
To sum up, it is conceivable that banks could profit from the low interest rate environment in commission and trading business. However, earnings on interest business are expected to come under pressure, especially if interest rates are below zero. Therefore, the extent to which the current interest rate situation weighs on profitability depends not least on the degree to which a bank or banking system is geared towards interest business. In practical terms, what does this mean for the Swiss banks? For the Swiss banking sector as a whole, interest and commission business are of roughly equal importance as sources of revenue, with both contributing around 35% to net earnings in recent years (slide 6).In comparison, as this table shows, banks in the euro area generate more than half of their earnings from interest business. The banking system in Switzerland is thus generally less dependent on interest business than elsewhere. This is a consequence of the comparatively greater importance of commission and trading business at the big international banks and the asset management-focused private banks. Then there are the domestically focused banks – essentially the regional, cantonal and Raiffeisen banks. As is clear from their income statements, these institutions are principally active in interest business. Net interest income – i.e. the difference between interest income and interest expenses – accounts for almost 70% of their earnings.

None of these changes is obvious, to say the least, but none should be taboo. II. Supervision: lessons from an active euro area model Fair enough about implementing Basel III; but then comes the next suspicion: Credit Suisse failed despite being Basel III compliant. The answer is clear: good regulation is necessary; it's never sufficient. The risks generated by specific business models such as the asset-liability mismatch at SVB or the weak profitability and weak internal controls that dogged Credit Suisse should typically have led to higher supervisory requirements. Supervision should not be seen as a static business; it must be active and tailored to banks characteristics. This is precisely the spirit of the "Pillar 2" in the Basel framework, with the annual Supervisory Review Process. I sometimes hear doubts about supervision, which some believe should be treated as a legal dialogue, cautious in its form, and slow in its effects. No: supervision can and must be intrusive – including on-site –, exercised by highly skilled practitioners, quick in its reaction, strong in its powers. This is not wishful thinking: it has been our experience for decades in the French ACPR, and now for years in the European SSM. Active supervision is indeed one of the great successes of our European Banking Union. In light of the recent reality test, I believe there are two lessons to be learnt from our model.
In this way inflation expectations were adjusted in advance to an anticipated pattern of economic policy reactions, whereby high price and wage increases were accepted or accommodated by devaluing the krona. As a result, strong inflationary mechanisms were built into the economy. As we have seen in recent years, once such mechanisms have been established, they are difficult to change. 3. Monetary policy’s rule system Experience has shown that more is needed than proud declarations from political decision-makers that they will safeguard a stable value of money and are not prepared to adapt policy to excessively high wage increases. We heard plenty of that in the 1980s. One way of enhancing credibility that has been found to work well and is supported by economic theory is for the democratically elected body to delegate monetary policy to a central bank with a clear, specified obligation to safeguard the value of money. The central bank is given full control over the instruments, principally the short interest rate, for fulfilling the stipulated objective. This arrangement limits both the room for short-run attempts to boost employment and the risk of inflationary mechanisms taking root in the economy. That also lessens the risk of a repetition of what happened in the early 1990s when the inflation bubble burst and unemployment rose. Credibility provides greater manoeuvrability It may be worth underscoring that a system where price stability is credibly delegated to the central bank can confer greater freedom of action in economic policy.

We will continue to monitor and assess the impact of the low interest rate on the search for yield and long-term saving behavior. We are also vigilant on other pockets of risks which may have destabilizing effects on the economy, such as those in the real estate sector. Let me now turn to the Bank of Thailand’s plan to handle an increased volatility of foreign exchange, which is the second element of our policy navigation. As a matter of fact, a certain degree of foreign exchange flexibility is desirable for the economy as it allows foreign exchange to act as a shock absorber and facilitates real economic adjustments. With weaker outlook of growth across Emerging Market economies, and the expected Fed’s policy rate hike, many Emerging Market currencies, including the Thai Baht, have depreciated. In case of Thailand, with relatively strong external financial position and well-managed foreign exchange risk exposure by public and private sectors alike, the risks from substantial foreign exchange debt exposure are currently contained. In addition, as part of the Capital Account Liberalization Master Plan, the Bank of Thailand announced earlier this year the relaxation of capital flows measures in a bid to promote more balanced fund flows, and greater flexibility in the foreign exchange markets. As the global financial markets will continue to be volatile in the near term, the Bank of Thailand thus remains focused on mitigating short-term excessive exchange rate volatility to cushion any impact it would have on the domestic financial conditions, and consequently the real economy.
Instead, outcomes are drawn from a Power Law  distribution, which has fatter tails and a much greater probability of extreme outcomes.18  Chart 14 plots the distribution of health, wealth and happiness across the UK. The straight line shows where outcomes would lie if they were Normally-distributed. Deviations from that line, at its extremities, signify fat-tails. For health and income there is strong evidence of fat tails and Power law distributions.19  Chart 14: Power Law tests  GVA per head  18 19  Well-being  Haldane (2012) discusses Power Law distributions as they apply to economic and financial variables. Haldane (2012). 19  All speeches are available online at www.bankofengland.co.uk/speeches  19  Wages  Health (life expectancy)  Sources and notes: as per violin plots in Charts 9-12. Fat-tails and Power Law distributions are associated with systems that are complex and adaptive. The best definition of complexity is, for me, the one provided by Herbert Simon back in 1962: “one made up of a large number of parts that interact in a non-simple way”.20 That description fits our maps rather well. They are certainly made up of a large number of distinct parts, even within geographically-concentrated areas. If the economic system is complex, in the sense of Simon, this carries important implications for understanding and modelling these systems. As with the body, to understand the dynamics of a complex system it is crucial you study the micro-level moving parts. It is equally important to understand interactions among these parts.

Speeches  Published Date: 20 September 2022  "Critical Economic Uncertainties" - Keynote Speech by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at the SuperReturn Asia Conference on 20 September 2022 Ladies and gentlemen, good morning. I am happy to join you at the SuperReturn Asia Conference — the first time the conference is being held fully in person since the start of COVID-19, and the first time here in Singapore. Uncertainty has become the dominant theme in investment today. Let me touch on four key uncertainties around the global economy: first, how severe will the economic downturn be next year? second, where is inflation headed in the medium term? third, how will geopolitical tensions impact the global economy? fourth, how might climate risks affect investor portfolios? HOW SEVERE WILL THE ECONOMIC DOWNTURN BE NEXT YEAR? The global economy is facing a severe bout of inflation with two positive stimuli to demand coming up against two negative supply shocks. On the demand side, the lagged effects of the massive fiscal and monetary stimulus in response to the pandemic coupled with the unleashing of pent-up demand following the re-opening of economies have substantially added to general inflationary pressures. Supply disruptions stemming from the lingering effects of the pandemic and the Russia-Ukraine war have sharply driven up global food, energy, and commodity prices. The surge in inflation has necessitated monetary policy tightening by central banks, at a pace not seen in the last four decades.
The City of London will of course remain a major global financial centre but will no longer be in the position to serve as the European financial hub. Against that backdrop, further integration of capital markets in the EU is all the more needed. Succeeding in that endeavour requires an integrated approach combining and coordinating the Juncker Investment Plan, the Banking Union and the Capital Markets Union to achieve a true “Financing Union for Investment and Innovation”. This Financing Union will be built on the EUR 390 billion in annual surplus savings in the euro area. Another consequence of Brexit is that a number of financial activities will be relocated within the EU 27. The competitive landscape between financial centres will therefore change even though we do not expect the emergence of a continental “City of London” but a more multipolar and specialised competitive structure. It is our collective responsibility to foster a competitive and fair ecosystem for international players; as we have a single rule book, this competition will exclude any regulatory or supervisory “race to the bottom”. Against this backdrop, the Paris financial centre has many assets. Paris hosts one of the most developed capital markets in continental Europe, the first asset management industry, a leading bond market, the largest commercial paper market with NEU-CP and the largest private equity investor in continental Europe. Moreover, Paris offers an attractive pool of highly skilled staff in financial services.

It has become a gold standard for institutional and retail investors – so much so that it has been adopted by jurisdictions outside the EU. But for all the progress, market as opposed to bank-based financing is still very undeveloped in the EU compared to the US. We should of course be a little careful about the comparison; the EU is not a federal country but a single market of member states with different histories, cultures and languages. It may not be possible to attain the level of cross-border investment across EU members as exists across US states. But the relative size of market-based financing in the US compared to the EU illustrates graphically the scope in the EU to go much further. Looked at from the savers perspective, as a percentage of GDP, savings held in EU mutual funds are around 50% of the US level. For pension funds, it’s 35%. Looked at from the borrower end, in the EU equity markets are only 60% of their US counterparts, corporate  4  BIS central bankers’ speeches  bond markets 35% and securitisation 20%. As a result, bank loans account for just over 10% of non-financial company borrowing in the US against 30% in the EU. Banking system assets are over 300% of GDP in the EU, against around 70% in the US. Europe is not short of savings. Far from it. Europe saves € trillion a year – 20% of EU GDP.
(iv) providing the operational structure with sufficient flexibility against unexpected developments in the markets. Another important factor that determines the general framework of the Central Bank’s liquidity management is the level of liquidity in the market. The main factors that directly affect the liquidity in the market are as follows: (i) Changes in monetary base, (ii) The Central Bank’s foreign currency purchase/sales transactions, (iii) Interests paid/collected by the Central Bank for open market operations and interests paid by the Central Bank for TRY reserve requirements, (iv) The Treasury’s primary surplus, (v) The spread between the Treasury’s redemption and issue of net TRY government bonds, excluding the Central Bank, (vi) Privatization and SDIF-related TRY transfers to the Treasury. In addition, as Treasury determines the TRY-denominated borrowing requirement, the Treasury’s net FX-denominated collections or payments including domestic and external  10  BIS Review 3/2009  borrowing, the Treasury’s redemption to the CBRT and CBRT profit transfers can all indirectly affect TRY liquidity in the market. Excess liquidity conditions, which were created by government bonds bought by the Central Bank in 2001 from public banks and banks within the SDIF, and later by large amounts of FX purchase, prevailed in the market until May 2008. The liquidity shortage that emerged in the market in May 2008 continued for the rest of the year.

In this context since 2007, when  2  BIS Review 3/2009  supply shocks became more apparent, the Central Bank has highlighted core inflation indicators excluding energy and food prices and has frequently referred to them. It was emphasized in this period that, despite the upward trend of inflation, there was no pressure on core inflation indicators and that prices, which were not directly affected by supply shocks, did not display high increases. Under the assumption that the hike in energy and food prices is temporary, and thus inflation shall resume its downward trend, the aim was to direct the focus of economic agents to the medium-term in order to avoid undesired fluctuations in economic activity. At first, this approach was successful in containing inflation expectations. However, the fact that shocks were more persistent than expected caused the rise in food and energy prices to influence prices in general and an increase was observed in core inflation indicators. In early 2008, when turbulence in the global markets that started in summer 2007 was combined with domestic political uncertainties, significant depreciation was observed in the Turkish Lira and it became considerably difficult to push inflation expectations down to levels consistent with the previously set inflation target of 4 percent. Although not attaining inflation targets stems from factors beyond the domain of monetary policy, overshooting of inflation target for two consecutive years and also the expectation of overshooting 2008 target have undermined the role of inflation targets as an anchor for inflation expectations.