samchain/econo-pairs-v1 huggingface dataset:
Part of the recent relative stability relies on specific programs to support the financial system and in monetary policy conditions that have allowed access to liquidity at a very low cost. This has allowed generating profits that strengthened the banks’ balance sheets. However, credit risk in certain assets, such as the commercial mortgage portfolio of US and European banks is still high. The recent default in Dubai is one example of such risk being materialized, considering that Eurozone banks with systemic importance in the area show a high degree of exposure to this type of operations. Another risk comes from challenges posed to macroeconomic management by portfolio rebalancing or external savings being redirected to emerging economies which could cause significant increases in capital flows. Like its emerging peers, Chile has been at the receiving side of important portfolio investment flows. The difference is that outflows from institutional investors have been particularly high, more than offsetting the inflows (figure 16). Another BIS Review 9/2010  5  risk, as has been said repeatedly, relates with uncertainty surrounding the persistent global imbalances. Domestically, it is possible that in the short run economic activity picks up faster than expected because of faster inventory replenishment. Also noteworthy is the risk associated to the trends of the different exchange rates and their effects on the RER. The RER has appreciated since September, with direct consequences on projected inflation. The Board reiterates that it closely monitors the implications of the RER level on inflation and compliance with its monetary policy objective.

Although the process of financial integration in the euro area was heavily disrupted in the aftermath of the global financial crisis in 2008 and the sovereign debt crisis in the euro area in 2011, the single currency area has held together. These gains should not be lightly discarded. 1  But the double shock of the financial crisis and the subsequent fiscal crisis has hit EMU hard. The euro area economy is currently in a moderate, gradual recovery that has been under way since the second quarter of 2013. However, in some member states that were hit the hardest by the sovereign debt crisis, output remains considerably below the levels registered in 2008. Unemployment rates diverge considerably across the euro area, ranging from over 20% in Greece to below 4% in Germany. The euro area is facing pressure along four different fault lines. First, there is the tension between euro area member states that are in different cyclical and, in some cases, secular positions and yet face the same nominal interest rate and exchange rate. Second, there is the related tension between monetary policy that is determined at the level of the euro area as a whole and fiscal policy which has remained, in effect, largely national. Third, there are tensions that arise from the fact that the single currency is embedded in an incomplete single market, including only a partial banking union.
Tarisa Watanagase: Issues important to small and open emerging market economies Speech by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Panel Discussion on Financial Globalisation, Capital Flows, and Challenges for Central Banks, at the 77th Annual General Meeting of the Bank for International Settlements, Basel, 24 June 2007. *  *  *  My discussion will focus on the issues important to small and open emerging market economies. The first is regards to whether the present situation of sustained inflows into emerging markets is really sustainable. What do these seemingly sustained inflows tell us, particularly in terms of investors’ assessment of riskiness of the region? Or from another angle, have risks in the region declined? I will discuss this in the context of financial innovations in risk management, and conclude with a few remarks on how these developments affect central banks across the globe. My first question, therefore, arises from the observable reduction of risk premia for financial assets in the region. On the surface, this low risk premia implies lower risks. But does, it, really? We all realize that the international financial system is currently in an environment with low risk premia across a broad set of asset classes, combined with low volatility in the prices of these assets. Furthermore, this low risk premia has been sustained despite the various episodes of risk aversion in the recent past. This raises concerns about whether prices – and consequently the risk premia themselves – accurately reflect actual risks.

Ardian Fullani: Albania’s Financial Sector Development Program Opening remarks by Mr Ardian Fullani, Governor of the Bank of Albania, at the inaugural reception of the Financial Sector Development Program, Tirana, 9 February 2012. *  *  *  Dear Mr. Spindler, Dear Mr. Williams, Dear Ms. Timofeeva, Dear participants, It is a special pleasure for me to be here in this ceremony, which marks the commencement of a new phase of cooperation with the Financial Services Volunteers Corps (FSVC). This is evidence of the successful existing cooperation and our commitment to take it further in the future. The Bank of Albania has benefited largely from the cooperation with the FSVC. In concrete terms, this cooperation has focused primarily on strengthening the institution’s oversight function. The assistance from the FSVC has addressed specific training needs for the Bank of Albania’s supervision staff and has complemented with concrete activities other development projects we have had with the International Monetary Fund and the World Bank. More specifically during this period, we have been assisted to draft and implement the Supervision Development Plan in 2004–07, in the framework of the cooperation with the World Bank. Later, cooperation challenges and needs became more concrete and specific against the background of the proliferation of the international financial crisis, re-conceptualization of international banking supervision standards and re-assessment of the role of other public authorities working to maintain the financial system’s stability.
The big swing from inventory liquidation during the recession back to accumulation will soon end as inventory levels come back into better balance with sales. And fiscal stimulus from the federal government is subsiding and will soon reverse. Coupled with the benign outlook for inflation, these headwinds to growth and employment explain why the Federal Reserve is keeping short-term interest rates unusually low. We want to do all we can to support more rapid economic and employment growth, subject to keeping inflation low and stable, and inflation expectations well anchored. The situation has improved and total employment is now growing – for example, U.S. payrolls rose by 290,000 last month. But we are still far from where we want to be. In this environment, finding a job will be tough, but when you hit the pavement remember that the job market is improving. Don’t get discouraged. Get your foot in the door by doing something productive, even if it may not be exactly what you want to do for the rest of your life. Gaining knowledge and experience is what is important at this point. The first job out of college is a foot on the ladder – the job doesn’t have to be perfect to be valuable to you. A bit of advice In terms of your career, my first bit of advice is: don’t rush. There is plenty of time for your careers to unfold. It’s not a sprint, it’s a marathon.

However, finding a job will not be easy – the unemployment rate is much too high – nearly 10 percent. And the recovery seems likely to be more sluggish than we would like. The economy is suffering from the hangover of the real estate and consumption boom that ended a few years ago. That boom collapsed beginning in mid-2007. The result was a very deep downturn from which we are now only emerging. Although the Federal Reserve has been aggressive about easing monetary policy to support economic activity, the recovery is not likely to be as robust as we would like for several reasons. First, households are still in the process of deleveraging. The housing boom created paper wealth that households borrowed against. This pushed the consumption share of nominal gross domestic product to a record high of about 70 percent. When the boom turned into a bust, those paper gains evaporated. In fact, many households now find that the value of their homes is less than the amount of their mortgage debt. This has created a difficult time for many families and has caused the hangover to last longer. Second, the banking system is still under significant stress. This is particularly the case for small- and medium-sized banks that have significant exposure to commercial real estate loans. This stress means that banks have been slow to ease credit standards as the economy has moved from recession to recovery. Third, some of the sources that have supported the nascent recovery are temporary.
That is because, as I have discussed, the central vulnerabilities in the financial system, and the mechanisms through which it can amplify the credit and business cycles, are leverage (inadequate capital) and maturity mismatch (inadequate liquidity). Today, I shall focus almost entirely on the macroprudential deployment of capital requirements. That is largely because the microprudential toolkit for liquidity regulation is still in its infancy and subject to international discussion. So why are we doubtful about simply varying headline capital requirements through the credit cycle? Imagine that the authorities judge that a boom in lending to (or related to) a particular sector of the economy had become overly exuberant. To make it topical, assume that this was lending to the shadow banking system (say conduits, SIVs etc). The authority raises the minimum capital ratio by Xpp. The affected banks could respond in a number of very different ways. This could include the perverse reaction of cutting lending to unexuberant parts of the real economy, while continuing to lend on overly relaxed terms to, in this example, the exuberant shadow banking system. That kind of thing really could happen if such lending seemed to offer terrific returns. What lies behind this problem is, of course, that quite often a credit boom is at least initially concentrated in one or a few sectors of the economy. That being so, the appropriate instrument needs to be able to work with a degree of granularity.

Chart 6: The level of supply remains weaker than its pre-pandemic level GDP and estimated potential supply (a)  (a) Diamonds are projections for 2023 Q1, 2024 Q1, 2025 Q1 and 2026 Q1. Diamonds for GDP show MPC projections. GDP in 2022 Q4 is a Bank staff projection incorporating official data to November 2022. Data include the backcast for GDP. Estimated potential supply is derived using the MPC’s projection for the level of GDP and the level of excess demand/supply. Both GDP and estimated potential supply are indexed to GDP in 2019 Q4. Source: ONS and Bank Calculations. Chart 6, taken from the February Monetary Policy Report, shows that the Monetary Policy Committee’s estimated level of potential supply has not yet regained its pre-pandemic level. It illustrates that the Committee based its most recent forecast of the economy on the key judgement that the level would only recover very gradually. On our latest estimates, the growth rate of the potential of the UK economy – the supply side – is probably now around 1% per annum. This compares to a typical growth rate in the decade leading up to the financial crisis of nearly 2¾%. To understand these movements in supply, we can dive into its constituent parts. Supply depends on the amount of both labour and capital in the economy. Most simply, it can be thought of as the amount of labour available in the economy and the productivity of that labour in producing goods and services.
1987-2003 10  10  8  8  6  6  4  4  2  2  0  0 1987 1989 1991 1993 1995 1997 1999 2001 2003  SG CME 08.06..2004  Source: Statistics Norway  2  The exchange rate remained stable up to autumn 1996, partly because wage growth was low and overall demand did not generate pressures in the economy. Gradually, the krone began to show wider fluctuations. The experience of the last half of the 1990s demonstrated that monetary policy cannot fine-tune the exchange rate. Developments in international financial markets led to more pronounced fluctuations. And more fundamentally, exchange rate developments no longer provided signals to wage formation and fiscal policy when labour market pressures mounted and incomes policy failed. High petroleum revenues, fiscal slippage and expectations of increased use of petroleum revenues contributed to this. Hence, the exchange rate was no longer appropriate as a nominal anchor. Norges Bank therefore placed increasing emphasis on low and stable inflation. A formal inflation target for monetary policy was introduced in the spring of 2001. The mandate for the conduct of monetary policy is provided for in the Regulation on Monetary Policy, issued by the Ministry of Finance on 29 March 2001. The operational target of monetary policy as defined by the Government is inflation of close to 2.5 per cent over time. The idea of an inflation target for monetary policy was not new.

These measures aim to influence short and longerterm interest rates, asset prices and loan volumes, thereby fostering economic growth and supporting price stability. The ECB’s actions were not unique. Central banks in the United States, Japan and the United Kingdom also used asset purchases, while central banks in for example Sweden and Switzerland reduced key interest rates to below zero. Our measures have been very effective: they have led to very favourable financing conditions. Since mid-2014, bank lending rates for both firms and households have dropped by more than 100 basis points. And we have witnessed a pronounced convergence in borrowing conditions across both euro area countries and types of borrowers. These favourable financing conditions have in turn supported the economic recovery. For 15 consecutive quarters, euro area quarterly GDP growth has been consistently between 0.3% and 0.8%. In 2016, GDP per capita grew faster in the euro area than in any other major advanced economy. Four and a half million jobs were created in the last three years. And unemployment in the euro area is at its lowest point since May 2009. Our monetary policy has successfully stabilised inflation expectations. In our March ECB staff macroeconomic projections for the euro area, the outlook for headline HICP inflation has been revised upwards significantly for 2017 and slightly for 2018, while remaining unchanged for 2019. These projections foresee annual HICP inflation at 1.7% in 2017, 1.6% in 2018 and 1.7% in 2019. The staff projections are conditional on the full implementation of all our monetary policy measures.
xxi  Chart 11: The UK bond-equity correlation has turned negative for the first time ever Correlation 0.8  0.6  0.4  0.2  0.0  -0.2  -0.4 1759  1809  1859  1909  1959  2009  Source: Thomas and Dimsdale (ibid.) and Bank calculations. Line shows ten-year trailing correlation of monthly returns on UK equities and consols. See also Roberts-Sklar, M. (2016), “250 years of the bond-equity correlation”, Bank Underground, 20th October. This unprecedented desire for safety has helped to drive down the equilibrium interest rate – the interest rate central banks must deliver in order to balance demand with supply and so achieve stable inflation. In this sense, low policy interest rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution. xxii  9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  Those same forces are contributing to deficits in defined-benefit pensions. The value of these schemes’ investments in equities and real estate are low relative to the level of interest rates because investors are valuing safety much more than they are expecting faster growth. Said differently, since pensions are future claims on the economy, there isn’t a parallel universe of higher interest rates, higher growth and equity prices, and lower pension deficits. That is, there isn’t without real structural reform. Blaming monetary policy avoids these hard truths.

xi Alan Krueger documented that countries with greater inequality at one point in time also tend to experience less earnings mobility across generations, and labelled this the “Great Gatsby Curve”. See Krueger, A. (2012), “The rise and consequences of inequality”, speech at the Center for American Progress, January. See also Corak, M (2013), “Income Inequality, Equality of Opportunity, and Intergenerational Mobility”, Journal of Economic Perspectives, 27(3). In addition, across a wide span of countries and time, Gregory Clark has found a striking uniformity in rates of social mobility. See Clark, G. (2014), The Son Also Rises, Princeton University PRess. xii All of this matters. As formal studies of people’s happiness find, subjective well-being is significantly affected by perceptions of inequality and the sense of community. Moreover, psychologists have shown that the quest for higher wealth only provides short-term satisfaction and draws people into a pattern of consumption that never satiates. Individuals who put a higher premium on income have been shown to have lower subjective well-being and to be more prone to mental illness. And research suggests that only those in the bottom quintile of the wealth distribution are notably happier when their wealth increases. Even that effect only holds for the time it takes for people to adjust their expectations to their new circumstances. At the same time, those in the lowest quintile of wealth are found to be significantly more likely to report psychological distress compared to those in the highest quintile.
While not establishing a statistically reliable trend, these figures provide at least tentative support to the hypothesis of an upward level shift in the equilibrium price range of oil (see Figure 2). For a central bank concerned with maintaining price stability, it is important to examine such a hypothesis in some detail. My remarks today will initially focus on a number of factors that support the equilibrium price level shift argument. I will then briefly examine to what extent information extracted from the oil market confirms the hypothesis of a persistent level shift in oil prices. Finally, I will discuss how higher oil prices affect aggregate output and inflation and consider their consequences for monetary policy with a brief reference to the current economic situation and monetary policy challenges in Switzerland. 2. Oil price level shift hypothesis  Demand and supply of oil are strongly affected by increasing global integration. Throughout the 1980s, the relationship between oil prices and economic output was characterized by a largely one-way causal effect from oil prices to economic growth. Today, the opposite dynamic appears to have become more relevant. The demand for oil and the price of oil is increasingly a function of global economic developments. In other words, an increase in the price of oil can be viewed as a consequence associated with an acceleration of global economic growth. A simple statistical calculation provides evidence of a structural break in the relationship between world GDP and the price of oil in 1995.

On the other hand, the U.S. is less dependent on oil imports than the European Union, let alone Switzerland. Structural characteristics of an economy can also affect the economic impact of an oil price shock. Rigid labor markets, for instance, can lead to asymmetric effects on output. The output loss in the event of a rise in oil prices can exceed the output gain in the event of a corresponding decline in oil prices. It is generally assumed that the overall impact of an oil shock is somewhat less pronounced in the U.S. than in Europe. Finally, exchange rates can play a role. As a result of the substantial decline  3  See eg M A Adelman (1995): “The Genie out of a Bottle: World Oil since 1970”, MIT Press, Cambridge. BIS Review 69/2004  3  in the U.S. dollar against most non-Asian currencies, the recent increase in the price of oil in local currency has been less pronounced in Europe. For a central bank concerned with maintaining price stability as the bedrock condition for sustained economic development, the crucial question is how a level shift in the equilibrium price range of oil would impact longer-term inflation rates. Oil prices have a direct impact on inflation because the price of crude oil immediately impacts gasoline and heating oil prices. The inflation effect depends on the weight of oil based products in the CPI. In Switzerland, heating oil makes up 1.2% of the CPI. Total oil based products represent 3.8% of the CPI.
This circularity creates powerful feedback loops which may lead to absolute market freeze. Finally, banks form a closely interconnected network. Interbank relationships are key to the smooth functioning of financial intermediation. They have been severely disrupted during the current turmoil. It is important to note – and accept – that counterparty risk between financial intermediaries depends as much on perception as on reality. It was enough for European banks to be perceived as vulnerable, even if that was unjustified, to experience tensions on funding. A case in point is the significant retrenchment by US money market mutual funds from European banks on the basis of their exposure to peripheral sovereign risk. What we have seen in the last three weeks is the simultaneous interaction between these three dynamics: solvency and liquidity; banks and sovereigns; and inside the banking sector itself. All sovereigns have been impacted. This includes, most recently, all triple A countries, even Germany. I draw three conclusions from this analysis First, the essential weakness of Europe does not primarily lie in the fragility of any of its components. Europe’s fragility comes from its difficulty to organize and manage, in times of crisis, the complex interactions occurring at the heart of its financial system. Second, we are facing a financial crisis, not a monetary one. There are huge differences. Confidence in the currency remains as strong as ever. Gross capital inflows in the euro area remain unaffected.

It is important to note that in our case, the objective was not to expand the monetary base. Central bank money created through these purchases has been sterilized. There have been some criticisms against this bond buying program. But it is; in my view, totally justified by our primary mandate. Faced with a clear risk of completely disrupted financial markets, and with huge divergences in credit market interest rates, the ECB was in danger of not being able to implement a truly single monetary policy, nor to meet its primary mandate, i.e. maintaining price stability over the medium term in the whole of the euro area. There have been calls for more. Both markets and some governments seem to consider that the ECB should take a more aggressive stance in buying public debt. Let me give you some perspective on the issue. In some jurisdictions, unconventional monetary policies have led central banks to purchase significant amounts of government debt – these purchases amount to 58% of total debt issued since 2009 in the UK, 21% in the US and between 9 and 10% in the euro area (there was a monetary policy objective in all cases). Although this was not the primary purpose, this policy stance has contributed to providing markets with an insurance, or even an assurance, against a potential dry-up in liquidity. In countries where significant amounts of debt have been purchased by monetary authorities, long-term interest rates have been kept at very low levels, irrespective of their fiscal situation.