samchain/econo-pairs-v1 huggingface dataset:
Before the 11th of September the chances were that the US economy - which is of course key to the whole global outlook - was close to the bottom of its cyclical slowdown, and that we would see a gradual pick up into next year. The Eurozone, which is a particularly important trading partner for the UK, was also expected to recover lost momentum. That prospect may well have been set back by the terrorist attacks. These clearly had a direct impact on some sectors, including for example, air travel and the aerospace industry. And they had an effect on consumer and business confidence more generally. But the degree and duration of the set-back is very far from clear. We need to be careful not to exaggerate the likely consequences. The effects on confidence, particularly consumer confidence, are already showing signs of abating; and global equity markets, although they remain volatile, quite quickly recovered much of their initial losses. Nor should we underestimate the swift and strong policy response both in the US and elsewhere. Looking further ahead it is difficult to see that the supply side of our economies has been materially affected: in particular the potential for modern technology to spread across different sectors, with the promise of improving productivity, remains intact, even if this is delayed by earlier excesses and by the more recent damage to business confidence.

The question is how well the last 20–30 years of history reflect the risks we may face in the future. History warns us of low resilience in the financial sector Even before the last crisis, we in Sweden had already seen warnings of insufficient capital levels. The credit deregulation of the mid-1980s coincided with the highest leverage ratios in Swedish banking history. As some of us remember, lending increased almost explosively during the second half of the 1980s. The low solvency of the 1980s created strong financial leverage that facilitated the excessively rapid growth of credit. As most of us remember, this ended in disaster. The low level of solvency also made the banks far too vulnerable when growth slowed down. The crash at the start of the 1990s led to a banking crisis with three years of negative growth and steeply rising unemployment and public debt. As we all know, leverage can work both ways. Resilience is needed in uncertain times Only a few years ago, we came close to seeing history repeat itself. In late 2008 and early 2009, Sweden stood on the brink of a new banking crisis. The low level of confidence on the financial market and great uncertainty over developments in the Baltic countries made it difficult or impossible for Swedish banks to obtain funding on the market. The measures adopted by the Riksbank, the Ministry of Finance, Finansinspektionen and the Swedish National Debt Office were decisive for saving the situation.
During the 1980s inflation averaged 7% a year, and it is only since the inflation target regime was adopted in late 1992 that inflation has returned to both low and stable levels. Britain tried most types of monetary regime: targeting monetary aggregates both narrow and broad; shadowing an exchange rate target, and an explicit exchange rate target through membership of the Exchange Rate Mechanism. None was pursued for long, and none carried real credibility. It was following our exit from the Exchange Rate Mechanism in 1992 that the opportunity arose to put in place a new monetary framework based on an explicit target for inflation and a floating exchange rate. The aim of the MPC is to keep both inflation and inflation expectations at the target level of 2½%. It is no small part of a central bank’s role to create confidence and credibility in the belief that it will respond to any change in economic circumstances in order to maintain a broad degree of economic stability. In the economists’ jargon, the public must believe that the central banks “policy reaction function” is consistent with stability, and if it is predictable, then announcements on interest rates should not come as news. The economic data will have led to expectations about the likely course of interest rates which, in most instances will prove a reasonable guide to the course of policy. A clear sign of the success of the MPC will be when we are no longer news.

As a famous economist once said, monetary policy seems to operate with “long and variable” lags. More significantly, the MPC isn’t concerned solely with inflation. It is also asked to avoid “undesirable volatility in output”. And occasionally – in particular following shocks to costs or supply – there are trade-offs between the two. These can lengthen the optimal time over which to bring inflation back to target. I think this had real relevance at the time I joined the MPC, in mid-2011. At that time, the economy looked a bit like the starting point of these simulations. After a tepid recovery there was still plenty of spare capacity in the economy. Companies said they were operating well below capacity; unemployment was still high. But thanks to a series of cost shocks, including the big depreciation of sterling’s exchange rate 2-3 years earlier, inflation was nonetheless well above target. BIS central bankers’ speeches  3  In response, the MPC might have behaved like Committee A, ramming up interest rates to get inflation back to 2% as quickly as possible. But that would almost certainly have pushed the economy back into recession. Instead it took a more balanced approach. As I tried to explain in a speech I gave later that year, the MPC had arguably tolerated the (then) high rate of inflation for longer than it might have done because the real side of the economy was so weak. It signalled this choice more explicitly in early 2013.
Zeti Akhtar Aziz: Policy and regulation of financial inclusion Welcoming remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the UNAG Asia Regional Forum on Policy and Regulation of Financial Inclusion, Kuala Lumpur, 6 May 2009. *  *  *  Introduction It is my pleasure to welcome you to the United Nations Advisers Group Asia Regional Forum on Policy and Regulation of Financial Inclusion. This conference takes place at a time when the world is confronted with addressing many issues that have emerged from the current global financial and economic crisis. Whilst significant attention and efforts are being channelled to resolving the financial crisis and creating an enabling environment for the resumption of growth and job creation, we must not lose sight of the financial inclusion agenda. Financial inclusion is vital for creating balanced sustainable economic growth. It provides the opportunity for all members of society to benefit from economic progress. It allows for a shared prosperity, an aspiration that is encapsulated in the United Nations Millennium Development Goals. The Central Bank of Malaysia is most honoured to be given the opportunity to host this forum which is being held in Asia for the first time. We are most honoured to have Governor Nout Wellink, President, of the Central Bank of Netherlands. We are also pleased to have present Mr. Jacques Toureille, UNAG Advisor, who will be delivering the keynote address by Her Royal Highness Princess Maxima on her behalf.

Although it is certain that the, at that time actual, forecast did not match the data perfectly, with no doubt it identified the break point and by that served very well its purpose. Naturally, the forecast accuracy, i.e. the ability to identify breaking points reasonably well, has not come out of the blue sky. The actual way in which forecasts are produced and used in central banks has changed substantially over the past two decades. These changes have reflected developments both in the economic (and econometric) theory and in monetary policy regimes. Bearing in mind the failure of large-scale models in 1970s, the profession has started to prefer smaller-scale models with a sounder microeconomic background, built in recent decades usually along the lines of New Keynesian Economics. Well, maybe we are still not able to match all the statistical numbers perfectly, but I hope that we are more skilled in recognising important breaks in the development of our economies than we were 10 years ago. Indeed, the use of general equilibrium models forces us to think about the economy in a consistent way and the use of multivariate filters has improved our  BIS Review 17/2010  1  knowledge about the current position of the economy in the business cycle. You probably all remember that inflation targeting was in our case introduced in a challenging situation, after a period of currency turmoil in May 1997, which ended the fixed exchange rate period and resulted in higher inflation and rising inflation expectations.
We believe that our approach has proved its worth and do not see any need for radical change. It is clear, though, that the separation of responsibilities and powers can only function on a basis of close cooperation and trust. I should like to touch upon two areas in which fundamental changes are needed. First, the financial systems have obviously been becoming more complex with regard to the roles played by their major participants. The traditional approach of focusing supervisory activities on the banks thus seems less and less appropriate. A more comprehensive supervisory system, covering the financial markets as a whole, would be preferable, with particular attention being paid to the transparency of market activities. Moreover, bank supervision should take account of the increasingly international nature of the financial markets. There would appear to be good reason to call for a globalisation of the supervisory system. But globalisation is one of those “in” words that has to be treated with caution. As a matter of fact, individual financial markets are still embedded in a national economic and social environment. What we need is for cooperation between the national supervisory bodies to be gradually intensified - which is in fact happening. True supranational supervision is still a long way off, as the necessary economic and social framework is lacking. For this reason, I should now like to focus on the role that an individual central bank has to play in helping to safeguard the stability of the financial system.

The last BIS Review 26/1998  -2of these factors - the general welfare of the population - is dependent precisely on the creation of the appropriate economic framework I mentioned earlier. I should add that this task can only be accomplished if a sufficient number of citizens actively help in shaping developments. This is especially the case in the sphere of fiscal policy. In the wake of extremely dynamic growth, public budgets have grown considerably in all developed countries over the past few decades. While the original purpose of this spending was to meet a pressing and legitimate need such as in the area of social security - there has been a growing disparity between the claims made on the public purse and the willingness to generate the necessary resources. Today, we have reached a point where this trend needs to be reversed. However, neither rules and regulations nor government ordinances can achieve this alone. Instead, we have to take small but persistent steps to rectify the situation both from the spending and the revenues side, and - not least of all - to improve productivity. Because such ongoing measures need the backing of the community, the chances of success tend to be greater in smaller communities than in larger ones. Our experience suggests that a federally structured society based on direct democracy is well suited to achieving the interaction between economic and political stability I have just outlined.
To a degree, this residential segregation has been perpetuated by our system of school financing that relies heavily on local property tax funding. Local financing of public schools leads to a bundling of two distinct choices – residential choice and school choice – and increases the degree of socioeconomic segregation across school districts. We can promote greater income mobility by unbundling the residential and school choices. This can be done in one of two ways. The first is to work to equalize school quality across location, while the second is to allow parents more choice of schools from a given location. Along the lines of the first approach, New York Fed research has shown that school finance reforms that seek to equalize funding across school districts by reducing the role of local property taxes can go a long way in decreasing residential segregation and equalizing quality of education.6 The key mechanism is that such reforms make underperforming neighborhoods more attractive, thus reducing socioeconomic segregation and leading to consequent gains in peer quality in previously-challenged enclaves. This in turn reduces disparities in school quality stemming from reduced socioeconomic segregation. On the second approach, there exists research indicating that school vouchers that enable students to move to private schools or better-quality public schools can lead to improvements in public school quality and student performance by increasing competition among schools.7 It is important to note, though, that not all voucher programs are created equally, and the design of the program matters in how vouchers impact school quality.

Cross-border liquidity risk management in the Islamic financial system still remains a significant challenge, with the lack of short-term Shariah compliant instruments in international currencies. The global efforts to strengthen the liquidity arrangements for the international Islamic financial system will be an important breakthrough in facilitating more efficient cross-border liquidity management by Islamic financial institutions, thereby meeting the challenges of the trend of greater internationalisation. Conclusion Let me now conclude. The growing role of the emerging economies as an anchor to global growth in particular, in Asia, represents a major shift in the global economic landscape. In this environment, Islamic finance is well-positioned to assume a much larger role as a competitive form of financial intermediation for supporting economic activity, and as a channel for enhancing greater global connectivity. Efforts to strengthen the foundations for Islamic finance to ensure its continued resilience amid the more challenging environment must remain a priority going forward into the future. Indeed, our commitment to act guided by this foresight will strengthen the prospect for Islamic finance to realize its potential in the region and beyond. 4  BIS central bankers’ speeches
These flows are particularly flighty (Chart 13), reflecting the fact that more than $ trillion of global assets are held in investment funds that promise daily liquidity to investors despite investing in potentially illiquid underlying assets, such as EME debt.17 We have recently seen analogous situations in the UK within some niche managers and smaller markets, such as open-ended property funds investing in commercial real estate.18 The complications would be much greater if a major asset class like EME debt were to freeze up. This structural mismatch means that these funds can behave particularly pro-cyclically. Bank of England work finds that redemptions by EME bond funds (those with larger structural mismatches) in response to price falls are five times those for EME equity funds (those with less structural mismatch). In turn, EME equity funds are twice as responsive as AE equity funds. While the shift to market-based finance has increased global capital flows to EMEs, it also amplifies spikes in Capital Flows-at-Risk. Moreover, market-based finance flows are particularly sensitive to push shocks, especially in extreme scenarios (Chart 13). The recent global growth in assets under management has not yet been fully tested in an extreme scenario, such as a global downturn. Chart 13: The sensitivity of Capital Flow-at-Risk to push factors, by source of capital flow  FDI  Banking  Market-based finance  of which: investment funds 0 -1 -2 -3 -4  Median  5th percentile  -5 Capital Flows-at-Risk as a % of GDP  Sources: IMF, EPFR, Bank calculations.

The significant improvements in the institutional frameworks of EMEs are being offset by the deepening fundamental asymmetry in the international monetary financial system, the continued shrinking of the GFSN, and the rapid rise of market-based finance. Now there can be innocent bystanders: but there should be no disinterested observers. We are all responsible for addressing the fault lines in the global financial system and its safety net. The IIF with its diverse and global membership can make a major contribution. In doing so we will reduce the volatility of capital flows, increase the sustainability of cross-border investment, and meet the great challenges of our age. 31  Since 1980 a maximum of 30% of EMs have concurrently been in an IMF programme, and since 1970 a maximum of 38% of EMs have experienced a crisis concurrently. 32 This is based on projections of emerging market economies’ external balance sheets – see footnote 21. 33 To date three countries, Colombia, Mexico, and Poland, have used the IMFs Flexible Credit Line. While none of the three countries have so far drawn down on these lines, the FCL has provided a valuable backstop for these countries and helped boost market confidence during the period of heightened risks. 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  Annex: Capital flows-at-risk The Bank’s capital flows-at-risk (KF@R) framework is based on the use of quantile regression methodology.
Given these evaluations, I would like to remind that in its first monthly meeting of 2013, the Committee highlighted the faster-than-expected credit growth and signaled that macroprudential measures might be continued should this trend persist. Chart 14. Financial Conditions Index  * For further details on financial conditions index, see CBRT Economic Notes No. 12/31 and Report 2012-IV, Box 5.2. Source: CBRT. 2. Macroeconomic developments and assumptions  Now, I will talk about the macroeconomic outlook and our assumptions which constitute the basis for our forecasts. First, I will summarize the recent inflation developments, and then compare the short term forecasts in the October Inflation Report with the actual year-end inflation data in 2012. Then, I will continue with the domestic and foreign demand outlook. Consumer inflation undershot the forecasts in the last quarter of 2012 and stood within the uncertainty band (3–7 percent) with 6.2 percent at the year-end (Chart 15). This lower-thanenvisaged inflation rate was mainly driven by the developments in unprocessed food prices, which were stated to pose downside risk on inflation in the October Inflation Report. Meanwhile, core inflation indicators were broadly consistent with expectations. Chart 15. October 2012 Inflation Forecasts and Realizations (Percent)  * Shaded region indicates the 70 percent confidence interval for the forecast. Source: TurkStat, CBRT. BIS central bankers’ speeches  5  Cumulative effects of the previous year’s exchange rate and import price movements gradually waned.

Improved risk appetite and more effective use of the Reserve Options Mechanism (ROM) have allowed a gradual reduction in the upper bound of the interest corridor since September. Meanwhile, the liquidity provided for the market was further increased, driving overnight market rates close to lower bound of the corridor. Chart 7. Policy Rate and Liquidity Policies (Percent)  Source: ISE, CBRT. Capital inflows accelerated at the year-end upon the surge in global risk appetite coupled with a relative improvement in risk perceptions regarding Turkey. This contributed to a fasterthan-expected credit growth and appreciation pressures on the Turkish lira. I suppose you remember that we stated this as a possible risk scenario in the previous Inflation Report and listed possible measures we could take. Upon the materialization of these risks to a large extent, we launched the strategy we envisaged. In order to contain the risks on financial stability, the appropriate policy response would be to keep interest rates at low levels while sustaining macroprudential measures. In this respect, the policy rate and the corridor have recently been shifted down and a measured tightening has been implemented through reserve requirement policy. Despite the cut in short term interest rates, the CBRT maintained its cautious and flexible stance, which is worth noting. Thus, I would like to reiterate that the impact of the measures taken on credit, domestic demand and inflation expectations will be closely monitored and the amount of the Turkish lira funding will be adjusted in either direction, as needed. Chart 8. Chart 9.
By setting up the Pension Fund, we have separated the extraction of oil and gas from the actual spending of the petroleum revenues. This has probably resulted in higher production of oil and gas over the past two decades. 14  BIS Review 37/2008  The Pension Fund was formally established in 1990, but it was not until 1996 that the first allocation – NOK 2 billion – was made to the Fund. Since then, it has grown to around NOK 2 trillion (well above USD 350 billion). The Fund is fully integrated with the government budget, and the same priorities are imposed on spending from the Fund as on any other government spending. This means that the entire petroleum revenues, as well as the return, go into the Fund. Then, as part of the budget resolution, the Storting decides on an annual transfer from the Fund to cover the government budget deficit. This procedure effectively prohibits use of the capital in the Fund for purposes not considered sufficiently important to be prioritised in the regular budget process. BIS Review 37/2008  15  The fiscal rule states that the Government is to spend – as an annual average through the business cycle – the expected real return on the Fund, estimated at 4 per cent. This cyclically adjusted transfer is estimated at a good NOK 80 billion this year – that is around 10 per cent of public expenditure. It is estimated that the transfer will increase in the years ahead.

These purchases were funded primarily by increasing the stock of reserve balances in the banking system, which compelled changes in the operating framework the Fed uses to achieve interest rate control.4 With an abundant supply of reserve balances, variations in their supply— the mechanism through which the Fed implemented monetary policy before the crisis—would no longer cause meaningful changes in federal funds rates or other money market rates. Implementation of monetary policy therefore required a new operational approach. The Fed’s current policy implementation framework uses a system of rates that it directly administers to influence the level of short-term interest rates, without needing to actively adjust the supply of reserves. Specifically, the Fed uses the rate of interest paid on excess reserves (IOER) held by depository institutions as its primary tool for keeping the federal funds rate in its target range. It supplements this tool by offering overnight reverse repos (ON RRPs) at a specified offering rate to a broad set of counterparties, including eligible money market funds, government-sponsored enterprises, primary dealers, and banks.5 Together, IOER and ON RRPs set a floor on rates, beneath which bank and nonbank financial institutions with access to these facilities should be unwilling to lend funds.6 This framework has been working very well. Since December 16, 2015, when the FOMC began the process of normalizing the stance of monetary policy, it has raised its federal funds target range four times to a current range of 1 to 1¼ percent.