samchain/econo-pairs-v1 huggingface dataset:
Lastly, I will comment on certain aspects relating to the architecture of the euro area that are still outstanding and should be addressed promptly, also with the aim of adequately tackling the consequences of this crisis. Monetary policy Since March the ECB has deployed a broad package of measures to mitigate the impact of the pandemic on the economy of the euro area. From the start, the ECB faced three important challenges deriving from the pandemic: first, stabilising the financial markets throughout the euro area to avoid financial fragmentation between countries; second, protecting the supply of bank lending, which is especially important to provide financing for households and small and medium-sized enterprises; and third, neutralising the downward pressures on the medium-term inflation outlook generated by the COVID-19 crisis, in accordance with our price stability mandate.1 In light of the situation, a series of decisions, which can be grouped into two large blocks, were adopted. As regards the first block, the ECB approved a broad battery of measures to provide liquidity to banks so that they, in turn, would continue to grant credit to households and firms. The measures included substantially improving the conditions of our targeted longer term refinancing operations (TLTRO) and easing the collateral eligibility criteria for banks in the ECB’s refinancing operations, thus increasing the volume of funds they may obtain on such operations. These measures have been highly successful. In the June TLTRO operation, participating banks received liquidity for an amount of € trillion, an all-time high in the Eurosystem’s refinancing operations.

Consequently, it is of vital importance that the selection of these projects is such that the magnitude of their impact on economic activity and public finances is maximised; this would be fostered by structuring the distribution of the funds around a plan of structural reforms designed to strengthen the economy's long-term growth. As for the distribution of the funds between direct grants and loans, it should be noted that direct grants have a greater impact on activity, allowing for an increase in public spending not matched by an increase in debt, which is what occurs with loans. The latter are particularly useful when there is a greater difference between the cost of financing of a country’s public sector and that of the EU. Currently, the difference between the cost of EU 10-year debt and Spanish Treasury debt ranges from 50 to 80 basis points. Thus, there would be a saving of approximately € million for every € millions of EU loans replacing long-term Treasury issues. However, we should not overlook the fact that the NGEU is mainly useful in the medium term. In the short term, the delays in approving the fund and in the implementation of 8  Indeed, the consensus reached by virtually all empirical evidence is that the medium-term public investment multiplier effect would be higher than 1, whereas that of spending on government consumption or benefits would be less than 1.
Financial markets appeared at that time to take the view that European Monetary Union was being driven increasingly by political determination – even if that meant softening the interpretation of the economic convergence criteria written into the Maastricht Treaty. They concluded that this implied a broad rather than a narrow initial euro membership; and that that, in turn, implied a weak rather than a strong euro. But whatever the reason – and whether it was valid or not – the effect of sterling’s appreciation was to introduce a pronounced imbalance into the UK economy. It dampened net external demand, and had a restraining influence on cost and price inflation, at a time when domestic demand growth remained unsustainably strong, and when we were approaching full capacity. We understood very well that, after a relatively favourable exchange rate environment, following our exit from the ERM, the abrupt appreciation meant that the internationallyexposed sectors of the economy, including large parts of manufacturing industry, were now suddenly confronted with much harsher trading conditions. That, as I say, had a dampening  BIS Review 19/1999  4  effect on the UK economy and on inflation. But we couldn’t just rely on that to cool the economy for us. Clearly at some point the exchange rate would stop appreciating, and this external dampening effect would have worked its way through. In the meantime, we needed to slow the rate of growth of domestic demand sufficiently to avoid overheating in the economy as a whole.

At some point, as global economic activity begins to recover, we will again need to act to restrain the growth of domestic demand, but that is a problem for the future. Given the present international economic environment, and given the present advanced stage of our own economic cycle, if the outturn over the next couple of years is anything close to this – that is about the best we can realistically hope for. 7  BIS Review 19/1999
But if all banks are fully diversified and hold the market portfolio, that means they are all, in effect, holding the same portfolio. All are subject to the same systematic risk factors. In other words, the system as a whole lacks diversity. Other things equal, it is then prone to generalised, systemic collapse. Homogeneity breeds fragility. In Merton’s framework, the option to default selectively through modular holdings, rather than comprehensively through the market portfolio, has value to investors. The precise balance between diversification and diversity depends on banks’ balance sheet configuration. What does this suggest? Charts 4 and 5 plot the income variability of a set of 24 global banks against their asset size and a measure of the diversity of their business model. 19 There is no strong relationship between either size or diversity and income volatility. If anything the relationship is positively sloped, with size and diversity increasing income variability, not smoothing it. Charts 6 and 7 look at banks’ experience during the crisis. Size and diversity are plotted against banks’ write-downs (per unit of assets). Again, if anything, these relationships are positively sloped, with larger, more diversified banks suffering proportionally greater losses. This is consistent with evidence from econometric studies of banking conglomerates which has found that larger banks, if anything, exhibit greater risk due to higher volatility assets and activities. 20 This evidence is no more than illustrative. But it suggests that, in the arm wrestle between diversification and diversity, the latter appears to have held the upper hand.

Reinhart, C M and K Rogoff (2009), This Time is Different: Eight Centuries of Financial Folly, Princeton University Press. Robinson, A (1934), “The Problem of Management and the Size of Firms”, The Economic Journal, vol. 44(174), p/242–257. Santomero, A M and D L Eckles (2000), “The Determinants of Success in the New Financial Services Environment: Now That Firms Can Do Everything, What Should They Do and Why Should Regulators Care?”, Federal Reserve Bank of New York Economic Policy Review (October), vol. 6(4), p.11–23. Saunders, A (1996), Financial Institutions Management: A Modern Perspective, Irwin Professional Publishing. Schmid, M M and I Walter (2009), “Do Financial Conglomerates Create or Destroy Economic Value?”, Journal of Financial Intermediation, vol. 18(2), p.193–216. Stern, N (2006), Stern Review on the Economics of Climate Change, Cabinet Office-HM Treasury, available at http://www.hm-treasury.gov.uk/sternreview_index.htm Stiroh, K and A Rumble (2006), “The Dark Side of Diversification: the Case of US Financial Holding Companies”, Journal of Banking and Finance, Vol.80, p.2131–2161. Tucker, P (2010), Resolution of Large and Complex Financial Institutions: The Big Issues, available at http://www.bankofengland.co.uk/publications/speeches/2010/speech431.pdf Weitzman, M L (1974), “Prices vs. Quantities”, Review of Economic Studies, vol. 41, p.477–91.
It is this tradeweighted krona rate that the Riksbank tries to analyse and forecast. If one looks at the period with a floating exchange rate (since November 1992), one can draw the conclusion that the nominal and real exchange rates are strongly correlated. This is because exchange rates, which translate prices into a common currency, change quickly, while price levels change slowly. Nominal exchange rates are determined at the trading counters daily, while it takes time to change prices. Figure 4 Nominal and real TCW-weighted exchange rates Index, 18 November 1992=100  Note. Broken lines represent the Riksbank’s forecasts. The real exchange rate has been calculated using Swedish and TCW-weighted CPI. Sources: Statistics Sweden and the Riksbank. How do we compare the impact from the nominal exchange rate on inflation, which I took up earlier, with Figure 4, which shows a strong correlation between the nominal and real exchange rates? According to the earlier example, only around 15 per cent of a nominal exchange rate change “spills over” into domestic inflation. This means that 85 per cent of the nominal exchange rate change does not have any effect on inflation and that the real exchange rate is thus affected by 85 per cent of the change in the nominal exchange rate. There is thus a strong, but not complete, correlation in the short term between the nominal and real exchange rates.

In 2013 a joint venture for production of banknotes was set up by the BNB Printing Works and one of the world’s leading banknote printers François-Charles Oberthur Group, France, and thus Bulgaria became an important player in the banknote industry. It is interesting to note that over its 137-year history the BNB has organised the production, issue and circulation of more than 500 types of coins, including commemorative coins and medals produced by the Bulgarian Mint in Sofia. You know that a few months ago, on 7 December, the new 2 leva coin came into circulation. The design of that coin enjoys enormous public approval. But let’s come back to our exhibition. Along with the coins struck after Bulgaria’s liberation until now, the visitors will be able to catch a glimpse of the history of money on the Bulgarian lands going back centuries. I am convinced that the displayed items can tell a lot about the  BIS central bankers’ speeches  1  long history and background of the economic and political life on the territory of today’s Bulgaria. I wish much success to this exhibition. I hope many citizens and guests of Burgas will come to see it, to learn more about the money used on the Bulgarian lands, and to feel, as we do today, deep respect for the history and accomplishments of our ancestors. 2  BIS central bankers’ speeches
Inflation has fallen back since June but not as much as we had expected. This is because energy prices have not dropped as forecast. This decline will now come somewhat later. Excluding energy prices, inflation two years ahead is expected to be on target. Risk factors for Swedish inflation What then are the risks and threats that we see regarding a continued improve-ment in economic activity? In the Riksbank's Inflation Reports, we always assess the risk of inflation being higher or lower than in the main scenario that we present, which in turn is closely related to our forecast of future economic activity. There is a risk that international economic activity will be slacker than in our main scenario. In the US, the large deficits in the public finances and current account may prompt a rise in long-term interest rates, which in turn would hamper consumption and investment. The large current account deficit implies that there has been a substantial flow of capital to the US from abroad. Good productivity growth and high GDP growth have so far contributed to considerable confidence in the US economy. This has enabled the US to attract international investors. But should investors believe that they risk earning less or risk losing money by investing in US assets, their interest will wane. This could give rise to both a weaker dollar and a rise in bond yields.

Last week the Riksbank presented a new assessment of economic and inflation prospects in this year's third Inflation Report, which led to our decision to leave the repo rate unchanged. Assessment of economic activity and inflation It is our assessment that there has been an improvement in the economic outlook for Sweden and the world economy since June. But the picture is neither clear-cut nor problem-free. Economic conditions in Europe have continued to be gloomy, with several countries experiencing a decline in GDP during the second quarter, in particular large countries such as Germany and France. Elsewhere, mainly in the US, expansionary economic policy appears to have had some impact. This has been reflected in high consumption and signs of a recovery in business investment. The positive signals have been mirrored in rising equity prices and long yields in the financial markets. Moreover, in the US labour market there are indications of a possible turnaround, which is a precondition for a sustainable upswing in economic activity. Asia has also been witnessing relatively favourable economic conditions, particularly in China, where economic growth has been approximately 8 per cent per year. In Sweden, GDP growth was somewhat more robust during the first half of this year than we previously thought, and the outlook for the economy appears now to be slightly brighter. Adding to this is the repo rate cuts totalling 0.75 percentage points during the summer. However, in the labour market, conditions remain weak.
For these countries, accession to the EU will mark the completion of the transition from the former centrally planned economies to fully-fledged market economies. The prospect of EU membership is an incentive for transition efforts of accession countries and the ultimate adoption of the euro is already taken into account in their monetary and exchange rate policy strategies. However, the countries concerned will not adopt the euro by the date of their entry into the EU and the timing for this step might be quite different from country to country. The path towards full euro area participation implies progress towards nominal and real convergence. Ultimately, these countries are required to observe the same convergence criteria with regard to public finance, long-term interest rates, exchange rate stability and inflation as the current euro area countries. In the legal area, accession countries will be required to provide their central banks with the same degree of independence as today in the euro area. In the technical area, preparations will require long lead times, and the ECB has already established a dialogue with them, to assist when requested. Outside the euro area, an ongoing debate on deepening regional integration beyond trade liberalisation is taking place among Mercosur countries. The relative economic conditions of these countries appeared even more differentiated than those of European countries when the integration process started more than fifty years ago.

The recent IMF report that I mentioned earlier noted the strong performance of Malta’s financial sector but also stressed the importance of strengthening the resilience of the sector. 8  BIS central bankers’ speeches  The elevated levels of credit and concentration risks call for stronger financial buffers, through higher provisioning and retention of profits. Such measures would strengthen the banks’ ability to absorb potential shocks and would also allow them to prepare themselves for compliance with stricter Basel III regulatory requirements. On the positive side, credit risk is being mitigated by prudent credit standards and cautious lending behaviour on the part of the banks. On the funding side, the resilience displayed by the banking system in the face of adverse international conditions is explained by the business model that has been a traditional characteristic of domestic banks, which rely strongly on retail deposits. Another indication of the overall prudent bias of the Maltese domestic banks is evident in the first chart presented earlier, which shows that leverage ratios of Maltese banks are considerably lower than in euro area in general. While the euro area average has declined on account of widespread deleveraging, the ratio remains significantly higher than the Maltese ratio, which has been quite stable. A further indication of the traditional funding model is the loan to deposit ratio, as shown in Chart 8, which is significantly low when compared with the major economies. This business model has served the domestic banking sector well.
Deregulation has followed as an inevitable consequence of competitive pressures. Particularly in the Anglo-Saxon countries, labour and product market reforms enhanced this structural shift towards a global competitive trading and financial system. This increased flexibility in factor and goods movements coupled with large scale technological innovations led to a boost in productivity which is the ultimate underlying force of potential trend growth. Though the long-term effects of these structural adjustments on the real economy are complex, there is no doubt they have unleashed a powerful dampening effect on prices in many sectors of the economy. Most of you who are present here today are actively engaged in running companies in a global competitive environment. You need no sophisticated economic analysis to tell you that when exposed to fierce global competition, monopoly rents and pricing power decline and prices therefore come under downward pressure. 4. Switzerland: one Country – two Economies  As a small open economy, Switzerland is greatly affected by global cyclical let alone global structural developments. Unfortunately, over the last twenty years, our economy only partly subjected itself to the global market place. It has therefore developed along diverging paths. Our export sector has been fully exposed to the competitive forces of global economic and financial integration. Many of you represent this sector. To remain competitive in the global market place, you have had to innovate your production processes in a continuous attempt to increase your productivity.

Secondary market purchases of Treasury securities reached about $ billion per month during the second LSAP program (a time when proceeds from agency debt and MBS were being reinvested in Treasuries), and we doubled our per-issue concentration limit from 35 percent to 70 percent. Meanwhile, monthly purchases of agency MBS were successfully ramped up from a pace of $ billion per month for just reinvestments in the first half of 2012 to more than $ billion per month later that year when additional purchases under the third LSAP program were also conducted. This volume represented a substantial share of monthly gross issuance.25 Staff actively monitored indicators of market functioning available in the broader market and through our own operations for signs of any material deterioration.26 As necessary, we modified our operational schedules (while still meeting the policy directive we were given) to ensure smooth functioning, such as periods of ramping up or winding down purchase programs. The Fed also put in place active policies to help prevent market dysfunction as a result of its operations. Preventive measures included concentration limits on holdings of individual Treasury securities and prohibitions against purchasing some specific, highly-demanded securities.
At the end of the day, what matters is the cost of borrowing for households and firms, which does not stem directly from risk-free interest rate structures, but goes through the filters of the capital market and the banking system. Pass-through from monetary policy to market interest rates As I indicated the latest monetary policy measures were clearly transmitted to the banking system’s borrowing rates, thanks to the complementary measures adopted by the Board at its last meeting (figure 3). Last March, we stated that the aggressive reductions to the MPR implemented by the Board in January and February had begun passing through to the cost of borrowing faced by households and firms, affirming that such transmission could be reasonably expected to continue. This diagnosis still holds, particularly after what we have seen since our last meeting and especially in consumer and commercial loans (figure 4). We estimate that,  2  BIS Review 105/2009  without the 425 basis point’s reduction of the MPR that began in March, consumer lending rates would be between 400 and 500 basis points above their current levels. Short-term commercial credit rates, at 30 to 89 days, would be between 350 and 450 basis points above their current figures. Long-term mortgage loans would be some 25 to 30 basis points higher. We believe that the reduced funding costs of financial institutions will continue to be passed on to the cost of credit with the usual lags. We expect the banking industry to actively cooperate in this process.

This was necessary to lay the foundation for our work and to exploit that we are one of the biggest supervisors of the world. We are exceptionally well placed to look for the best practices and to identify emerging risks by using our unique database. Good benchmarking combines strong analysis and data-driven assessment with expert judgement. It allows taking into account the specificities of individual banks while still fostering consistency of assessments across banks and countries. Good benchmarking looks at risks from multiple perspectives and helps to develop a deep, holistic understanding of each institution’s overall risk profile and viability. Third, we need to further analyse in detail and for each topic individually where we are able to create a harmonized approach within the SSM, where we are able to remove uneven playing fields. We already did so for the options and national discretion. In November we will consult on the legal text we drafted for executing the discretion given to us regarding the 122 OND identified and decided upon by the SB. Apart from the famous ONDs, the current legal environment in which we operate is characterised by many different interpretations and national gold plating. In this  2  BIS central bankers’ speeches  context, we face a particular challenge. It goes without saying that the SSM applies national law; consequently, the SSM is not always able to ensure a level playing field when national laws diverge.