samchain/econo-pairs-v1 huggingface dataset:
A hedging strategy for Swiss entrepreneurs would consist in using the euros that they earn for settling suppliers' bills or, in theory, even for paying wages and salaries in Switzerland. In reality wage earners are likely to offer resistance to being made to bear the exchange rate risk. So-called natural hedging is a more obvious option. In this case, Swiss exporters use the euro amounts for paying for intermediate services, i.e. their suppliers from Euroland. Naturally, the Swiss financial centre, too, will not remain immune to the euro. The integration of the European financial markets propelled by the single currency will trigger waves of innovation and, in particular, of consolidation. As virt-x in London shows, financial markets are not tied to a specific location. A strengthening of locational competition on a global level represents a considerable but desirable challenge for the Swiss financial centre. Euro cash is also a welcome innovation that makes things easier. The introduction of the euro in its physical form has primarily affected the hotel and catering industry, retail trade and banks. In this connection, some observers have raised concerns that the euro might displace the Swiss franc as a means of payment. Obviously, the euro is now circulating in Switzerland. This will not lead to a new world, however. Numerous businesses and hotels, notably in border areas and in holiday resorts, have long-standing practical experience in accepting foreign currencies. But even though they provide a foreign-exchange service to their customers, this is definitely not where their comparative advantage lies.

The benefits of a monetary union consist in a reduction of transaction costs for changing money, the elimination of internal exchange rate uncertainty, tighter competition thanks to easier price comparisons, the expansion of trade within a region, the prevention of competitive depreciation and speculative attacks on a currency, and growth in the liquidity of the financial markets. Those advantages, in particular, that are associated with an increase in competition and an expansion in the trade of goods and services need time to develop. The costs of adopting a common currency include, first, one-off expenditure in connection with the introduction of notes and coins. In the European Monetary Union, these were estimated to be around 0.5% of gross domestic product. Naturally, these costs are evident from the start and of a merely temporary nature. Potentially the most significant costs of a currency union, however, arise from the loss of the individual countries' independent monetary policies. Particularly at the early stage, these costs are a considerable factor. Depending on the further economic development of the Monetary Union, they might eventually decline over the years. So where is the problem? The loss of autonomy in monetary policy is felt all the more with the growing number of asymmetric shocks. Such shocks are disruptions that affect the economic structure, business activity and inflation of member countries in different ways. Thus, they cannot be combated with a uniform economic policy.
2 [23]  A persistent low interest rate environment also risks leading to the continued rise of indebtedness among mortgage borrowers, making them more sensitive to interest rate changes. This means that they could be affected more than others when the policy rate needs to be raised. This would be unfortunate as monetary policy probably works best when it affects the entire economy in a similar way. Furthermore, low interest rates for a long time entail increased risks to the financial system and financial stability. And, as a stable financi al system is a prerequisite for successful monetary policy and financial policy, monetary policy in our present situation needs to be supplemented by, among other things, a wellfunctioning macroprudential policy. An important question in this context is what formal role the Riksbank should have in the work to reduce risks and vulnerabilities in the financial system. The Riksbank’s responsibility for financial stability is expressed in the legislation as the task of “promoting a safe and efficient payment system”. More specific details are not given. In my opinion, the Riksbank’s responsibility – in common with a number of other central banks – should include financial stability and this should be clarified in the Sveriges Riksbank Act. I hope that this is dealt with at the committee stage of the review of the monetary policy framework and the Sveriges Riksbank Act.

Also, if we were to sell assets in a rising rate environment, we could also experience some capital losses on these sales. In combination, depending on the future trajectory of short and long rates, remittances could even fall to zero for a period.13 There are several important points to make here. First, the potential impact of the purchase program on future Fed remittances was known at the onset of the program – we have no new information here. The outcome depends on how the economy evolves, how we respond, and whether we decide to sell long-dated assets in the portfolio or not. Second, it is important not to put excessive weight on the possibility of a period of zero remittances. Our mandate is economic not fiscal – our job is to return the economy to full employment and price stability. Moreover, in considering the fiscal consequences of our actions, what matters is not what happens to our remittances – that is far too narrow a perspective – but how our actions affect the federal debt-to-GDP ratio over time. This is the metric we should be focusing on in assessing the potential fiscal consequences of our actions. In this respect, it is important to note that the narrow impact of Fed remittances on the federal debt-to-GDP ratio depends on the cumulative amount, not the timing of remittances. Cumulative remittances to date have been hundreds of billions of dollars higher, all else equal, compared to if the Federal Reserve had not expanded its balance sheet.
For some years the volume of consumer spending rose much faster than its post-war average. From 1997 to 2001 it rose at an average annual rate of about 4%, and calendar year growth was last below 2% in 1995. We are not so much a nation of shopkeepers as a nation that keeps shopping. Behind this growth was a steady rise in real incomes, driven by increases in employment and falls in the prices of imported goods. Those price falls followed the rise in sterling in the second half of the 1990s, and the increase in cheap imports of manufactured goods, such as textiles, toys and electronic goods, from China and other emerging market economies. Over the past three years, however, consumer spending has decelerated and its growth has fallen to a more sustainable rate, close to its post-war average. The slower pace of consumption growth was the result of real income growth returning to a normal rate. It is striking, as the Monetary Policy Committee has said before, that for a number of years, and despite the volatility of house price inflation, the saving ratio of households has been rather stable. Some commentators are exercised by the possibility of a rise in household saving and hence a further slowing of consumer spending. Their concern is that since consumption is the largest component of total demand, the path of consumer spending is crucial to the outlook for output and inflation.

At the same time, we had been charged with stabilising the financial sector, committing ourselves to take over a large portfolio of illiquid UBS assets. In addition, we concluded euro versus Swiss franc swap arrangements with the European Central Bank and the central banks of Poland and Hungary, to ease refinancing of banks that had granted mortgage loans in Swiss francs in these two countries. These swaps made it possible to counteract the rise in the Libor generated by an additional demand for Swiss francs outside our normal field of operation. The third stage began in March 2009. By then, price stability was threatened, not by the temporary inflationary escalation of 2008, but quite the opposite – the risk of a fall in prices over the coming three years. Since, by that time, our room for manoeuvre in the area of interest rates was limited, we decided to turn to unconventional instruments in order to bring about a further relaxation in monetary conditions. How has the economic and financial situation developed since our assessment in March? Global economic outlook Global economic activity declined more sharply than expected in the first quarter of 2009, especially in Europe and Japan. However, recent financial and macroeconomic indicators have shown a few encouraging signs. Stock exchange indices have started to edge up. Oil prices, which had been falling since July 2008, have been rising again since March. Risk premia in the money and capital markets have declined.
BIS Review 34/2005  5  First, it is well documented that asset price bubbles and financial imbalances are very difficult to identify ex ante. Second, the appropriate timing of a proactive monetary response is likely to be difficult to determine, given the lags in the impact of monetary policy. Third, even in the case where the central bank knew that financial imbalances were building up, the size of the interest rate rise needed to reduce the imbalances might be so large that it could lead to a severe economic downturn. A more general concern is the potential moral hazard risk of a systematic proactive response of monetary policy to financial imbalances. For example, investors may “undervalue” the risks they take on if they expect that the central bank will act to offset future financial instability concerns. In later years, the idea of using monetary policy to prevent a build-up of financial imbalances has received increased attention. Several central banks can be seen as supporters of taking into account the impact of financial imbalances on future output and inflation. The selected quotes on the chart are examples of the attention given to financial imbalances in conducting monetary policy, based on slightly different justifications.

François Villeroy de Galhau: Ethics and trust in finance Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the 6th "Ethics and Trust in Finance" Global Prize ceremony, Paris, 15 January 2018. * * * Ladies and Gentlemen, It is with great pleasure that I welcome you all to the auditorium of the Banque de France for the 6th "Ethics and Trust in Finance" Global Prize ceremony. I would particularly like to welcome Angel Gurria, Secretary-General of the OECD, and Professor Paul Dembinski, the Co-chair of the prize. The venue that you have been invited to today sends a message in itself: as the Autorité de contrôle prudentiel et de résolution is backed by the Banque de France, some might have a tendency to think that the bank and insurance supervisor, as the "guardian of the temple", would only be concerned with compliance with prudential rules, which are collective and compulsory. They might also think that the supervisor would consider that an ethical approach is too poorly defined to be inspected, as each financial institution – and even each professional – has their own perspective on it, and would also consider that an ethical approach leaves them free to look after the interests of their clients. The philosophers among you will have recognised in this divergence between rules and ethics the classic contrast between Kant's "categorical imperative" and Aristotle's "practical wisdom".
But, for my purposes today, the key point is that any correction in asset prices would most obviously be concentrated, at least initially, in the foreign exchange markets and, if associated with a reduced appetite for dollardenominated assets, plausibly in US Treasury yields too – perhaps amplified by various option-like structures. 4 But these are, of course, the deepest, most liquid markets in the world. So while sharp changes would no doubt inflict losses through parts of financial system, many practitioners seem to regard the market dynamics as manageable. Indeed, when in the Bank’s Market Intelligence rounds we explore this issue, the mechanism that elicits most concern is that any consequent macroeconomic slowdown – brought about in the US by higher risk-free bond yields or in the euro area by exchange rate appreciation – might put pressure on the corporate and household sectors after a period in which credit risk may have been underpriced and so abundantly available. In other words, discussion of “global imbalances” shades into an exploration of the potential consequences of “low risk premia”. But more important, the fundamental changes in the structure of credit markets over the past half decade or so have left many practitioners uncertain about the dynamics of any adjustment. Views vary of course, with some seeing the system as clearly more resilient than half a decade ago, but on the whole practitioners seem to be more uncertain about the potential for nasty spillovers from adjustment in “low risk premia” than in “global imbalances”.

12  The Global Documentation Steering Group (GDSC) is an industry group formed in 1999 to implement the documentation-related recommendations of the report of Counterparty Risk Management Policy Group (CRMPG). The primary objective of the Committee is to encourage the harmonisation of documentation in standard over-the-counter contracts in order to minimise disparities that can exacerbate market, credit and legal risk. It took the lead in updating the recommendations on documentation issues for the second CRMPG report released in 2005. GDSC is sponsored by, but independent of, the Federal Reserve Bank of New York. The hedge fund community is represented on the GDSG. The Stock Lending and Repo Committee, facilitated and chaired by the Bank of England, provides a forum for practitioners and the authorities to discuss structural (including legal) developments in London-based securities lending and repo markets. 6  BIS Review 44/2007  At the macro end of the spectrum, that above all means credible monetary regimes. The MPC is now ten years old. During that period, inflation expectations have been well anchored to our target. And no one should be in any doubt that the Committee is determined to keep it that way. But a credible monetary regime does not insulate the economy, or financial markets, against all shocks. Over the coming decade, some currently observable imbalances will plausibly work their way through the system, as the pattern of global saving shifts, asset prices adjust, and we encounter, eventually, a period of corporate defaults.
Table 1: Inflation path consistent with the end-year target and the uncertainty band  March June  SeptemberDecember  Uncertainty Band (upper limit)  11,2  8,7  7,3  6,0  Path Consistent with the Target  9,2  6,7  5,3  4,0  7,2  4,7  3,3  2,0  Uncertainty (Lower Limit)  Band  The difference between the targets and forecasts In last year’s policy statement regarding the general framework of the inflation-targeting regime, it was stated that the inflation target would only be changed in the event that sharp and long-term deviations from the target are expected or the medium-term targets no longer make sense due to factors beyond the control of monetary policy. It was also stated that temporary shocks would only change inflation forecasts rather than inflation targets and the points of reference to be used by economic agents would be inflation forecasts for the short-term and the inflation target for the medium-term. This policy approach was put into practice after the supply-side shocks of 2006. The inflation forecasts were updated in July and it was announced that inflation would stand well above the end-year inflation target; however, the target for end-2006 was not changed. Accordingly, the economic agents have taken the inflation forecasts announced by the Central Bank for end-2006 as a point of reference instead of the end-year inflation target for 2006. In fact, inflation expectations for end-2006 are in line with the Central Bank’s forecasts.

To achieve this, the priority is to boost business investment – in France it is currently forecast at +3.4% for 2016. This depends on economic levers, to be strengthened through structural reforms. But it also depends on financial levers – the core challenge being equity financing, which is key for innovation. In this respect, Europe is lagging far behind the US: the equity share of corporate financing in the euro area is 52% of GDP compared with 121% in the US. BIS central bankers’ speeches  1  France and Europe do have substantial strengths to meet this investment challenge. Let me focus on two of them today: –  First, savings are abundant. In France, the household saving rate is high: 14.1% of gross disposable income in 2015, second only to Germany (17.4%) among the main European economies. In the euro area, the current account surplus is substantial: more than 3% of GDP in April 2016 – meaning that savings exceed investment by nearly EUR 330 billion. This gap needs to be closed by fostering investment rather than by reducing savings. –  Second, our financial system is solid. The regulatory and supervisory frameworks have been considerably strengthened since the crisis, both at the international and European levels. Today, the French banking system is one of the soundest in Europe and in advanced economies: between 2008 and 2015, the CET1 solvency ratio of France’s major banking groups more than doubled, from 5.8% to 12.6%, which is EUR +143 billion of core capital.
Those powers are limited and their effects often take a long time to emerge. I began by mentioning that I would like to refer to two points from last year’s address by the Chairman of the Board of Governors, and use them as headings for my discussion here of the Bank’s two most important tasks at present, and in fact at all times. The first concerns the inflation target and figures connected with it. The second is the position and performance of financial companies. As it happens these two issues are generally interlinked, because decisions by financial companies have a strong impact on the first task, and imbalances in the Icelandic economy can affect international analysts’ assessments of the position of the financial sector. But be that as it may. I was interested to note that my cautious predecessor as Chairman of the Board of Governors described in his last address to the annual meeting how the strong growth in lending by the banks showed that they have overstepped the mark. Those were the words he used. He was discussing the impact on growth, overheating and inflationary pressures in the economy.

The international debate may now be turning in the opposite direction to that taken by Iceland and others when the banking supervision was separated from the Central Bank in its day. Iceland is a small country with rapidly expanding financial and banking business. It is a cause of some concern that supervisory and regulatory institutions have not grown correspondingly, although they have still performed their functions very well. The Icelandic banks are well aware of and understand the fundamental importance that strong institutions such as the Central Bank and FME have for assessments by ratings agencies and international analysts. The Board of Governors raises this point here for consideration in conceivable reforms of Iceland’s financial institutional framework. But other action is needed as well. In consultation between the Government of Iceland and the Central Bank, it has been decided to increase the Bank’s foreign reserves in coming years and boost its capital position further, probably with foreign borrowing rather than by purchasing foreign currency in the markets. This is of course done on a long-term view and reflects ongoing changes in the external economic environment rather  BIS Review 28/2006  3  than the temporary market unease at present. Also, the Central Bank has recommended to the Ministry of Finance and the Government that special action should be taken to strengthen the foundations of the Icelandic bond market. The Treasury is in an unusually strong position at present and its debts are decreasing from one year to the next.
This alternative for Norway was discussed in 1997 at the initiative of Norges Bank.10 Many countries had already gained many years’ experience in operating such a system. New Zealand was the first in line towards the end of the 1980s. Canada followed shortly thereafter. In New Zealand, the switch to inflation targeting was one component of a comprehensive public sector reform aimed at addressing incentive problems associated with economic policy. Canada, which is one of the industrial countries with the most experience of floating exchange rates, had been seeking a nominal anchor for some time. Towards the end of the 1980s, the central bank’s communication increasingly emphasised price stability as a monetary policy objective. An inflation target was officially introduced at the initiative of the finance ministry and in a joint statement issued by the central bank and the finance ministry.11 Sweden introduced an inflation target in December 1992, inspired to some extent by the experience of Canada and New Zealand. After the deep economic crisis at the beginning of the 1990s, reverting to a fixed exchange rate policy was no longer deemed realistic. In this context, it must be added that the central bank of Sweden, when it was seeking to motivate and firmly establish inflation targeting during the 1990s, was able to draw on its own experience from the 1930s. Admittedly, Sweden did not have an inflation target but a price target for monetary policy in the period 1931-1937.

Substantial emphasis was  6  Kydland, Finn and Edward Prescott (1977): “Rules Rather Than Discretion: The Inconsistency of Optimal Plans,” Journal of Political Economy 85, 473-91, June 1977. 7  Skånland, Hermod (1979): “Strategier for 1980-årenes politikk” (Policy strategies for the 1980s), Sosialøkonomen No. 10, 1979. BIS Review 36/2004  3  placed on the importance of wage formation for developments in employment. Only when wage growth dropped below the level of our trading partners did unemployment begin to fall and the manufacturing sector began to pick up. Thus, the fixed exchange rate policy was not introduced in order to strengthen the internationally exposed business sector in the short term. On the contrary, it was a breach in the approach whereby monetary policy and “exchange rate policy” had been oriented towards safeguarding these sectors. A fixed exchange rate was an intermediate target for achieving low and stable inflation. The alternative of inflation targeting was not developed in 1986, and adhering to the fixed exchange rate regime was probably the best available option. The report from the publicly appointed Steigum Commission, submitted in 1988, contains a very thorough discussion of the need for a credible longterm policy, but also of the challenges involved in providing the economy with a nominal anchor after such a long period of high inflation:8 “Such a consistent exchange rate policy can yield better results in the long run than a strategy that is based on frequent devaluations or downward adjustments of the krone.