samchain/econo-pairs-v1 huggingface dataset:
euro and US dollar, are no larger than can be justified for reasons of intervention or diversification. Diversification is the possibility we have to reduce the currency risk. The assumption of the diversification is that the covariation between individual assets’ price movements is not always perfectly positive. This means that a portfolio’s total movement, that is, volatility, will be less. In connection with large movements in the foreign exchange market, an overly narrow currency composition might lead to large declines in value, which could in turn lead to a heavy fall in capital. Given this, we quite simply try to achieve a currency allocation that will minimise the currency risk measured in Swedish kronor, given the currencies we can hold and given our intervention need. Our choice is based on a quantitative analysis using fundamental and standard portfolio theory 8 . Our analysis does not take into account the expected earnings in currency, but merely the currencies’ estimated volatility and mutual correlations. The result of our analysis is illustrated in the following diagram (see Figure 2). 6  This and other questions regarding the Riksbank’s need to have its own capital are discussed in Ernhagen, Vesterlund & Viotti (2002). 7  For a more detailed discussion of the Riksbank’s intervention policy, see Heikensten & Borg (2002). 8  This refers to what is known as the mean-variance analysis that was originally produced by Harry M. Markowitz in the 1950s.

When choosing the level of interest rate risk, we have given priority to long-term good earnings over small, annual negative effects on results. The fact that we have chosen to accept some interest rate risk and credit risk is because these are not of the same order as currency risk and thereby do not comprise the same direct threat to capital as currency exposure. All in all, we are driven by the same fundamental endeavours as other asset managers, namely to generate earnings for our owners. The major difference concerns the limitations that our statutory tasks entail for our asset management activities. Thank you. BIS Review 33/2006  5
The UK first adopted specific targets for inflation over a decade ago, and at the same time the Bank launched a new quarterly Inflation Report to share its thinking about the economic prospect. In 1997, that approach was developed, and its credibility significantly enhanced, when Gordon Brown gave responsibility for setting interest rates to an independent Monetary Policy Committee, consisting of outside experts as well as Bank of England officials. By any past standards, the period since 1992 has seen a quite remarkable degree of stability, with low and stable inflation and a record period of sustained positive output growth and steadily improving employment. Better monetary policy is not the whole story; but it can share some of the credit for that success. How does monetary stability like this benefit an area like Merseyside? The Bank of England’s job is to control inflationary pressure in the country as a whole. What we do is set interest rates to keep the total demand in the economy in line with the economy’s productive capacity. We don’t – and can’t – favour any section of the economy, or the country. Merseyside is a region facing deep seated economic and social challenges, stemming from the decline in its traditional industries. In recent decades, many well paid jobs have gone for ever, and in the new world, earning good money has required a very different set of skills. That kind of change wasn’t just a challenge to individuals and their families; it threatened the viability of whole communities.

Before I conclude, let me briefly turn to the issue of accountability, which – as I said in my introduction – is essential to secure and reaffirm trust in the central bank. For the ECB, accountability to the people of Europe is not only a matter of good accountability practices. It is important for the central bank of a currency union to reach out to the whole euro area, to people in all parts of Europe and to spread trust in our currency, our institution and our policies. As I mentioned, the ECB is accountable to the people of the European Union and – as that Union is a representative democracy – to the European Parliament, which is the only European institution elected by popular vote. Our President regularly visits Parliament to report on and explain the ECB’s policies. The Governors of the national central banks in the Eurosystem have similar hearings before their national parliaments. In addition, we have a continuous dialogue with all relevant institutions involved in the European political process, such as the European Commission, and we have regular exchanges with the finance ministries of the euro area Member States. We also regularly report on and publish our monetary policy decisions. This panel today is one such occasion. Especially in times of crisis, when policies become less conventional and more complex, it is all the more important to carefully explain our decisions.
The new exchange rate mechanism may play a similar role. In this context, we should certainly wish to acknowledge the efforts which Sweden is making to achieve sustainable convergence with the euro area. We hope that the success of the euro in its early months will help to convince the Swedish population of the benefits of early participation in monetary union. Clearly, a decision to join ERM II would be important for fulfilling the convergence criterion of exchange rate stability and would help to smooth the transition to participation in the euro area. In recent months the external value of the euro has been influenced by the market view of the economic developments in the euro area relative to the United States. More recently other factors had an impact on the exchange rate of the euro vis-à-vis the dollar, in particular the conflict in Kosovo. From the beginning of the year to mid-May, the euro weakened against the dollar by about 10%. In nominal terms, measured against a trade-weighted basket of the currencies of the 15 most important trading partners of the euro area, the euro has weakened significantly less, i.e. by about 6% since its launch. However, rather than focusing on very short-term developments, one should look at long-term evolution. In that respect, it has to be observed that the current exchange rate of the euro against the dollar is not so very different from the levels observed in the first three quarters of 1998.

Admittedly, Europe has already taken bold steps to increase its capacity to detect and handle crises. During the crisis years, two new intergovernmental treaties were introduced, paving the way for strengthening economic and fiscal stability by creating the European Stability Mechanism. This key instrument provides financial assistance to countries in difficulties and, as recently agreed, may also act as a fiscal backstop in banking resolution processes. New procedures for the surveillance of imbalances (the Macroeconomic Imbalances Procedure) and the reform of the Stability and Growth Pact were also agreed. In the financial arena, important reforms, such as the creation of the Single Supervisory Mechanism and the Single Resolution Mechanism for significant banks, were implemented. On top of this, the impulse of monetary policy, with a substantial broadening of the ECB’s monetary policy toolkit, was also a crucial factor that helped cope with the Euro crisis and its negative impact on price stability. Attempts to draw comparisons between the governance framework in the United States and the European Union should be mindful that the US currency union has had 150 years to evolve, while the European currency union is still rather young. Nonetheless, it is precisely with this long-term perspective that we have to judge EMU. All in all, while acknowledging the relevance of the various institutional changes made, a broad consensus points to the fact that additional reforms are needed in the EU’s architecture, and in particular in the architecture of the European Monetary Union.
At the Federal Reserve, we try to meet with a diverse array of people in order to get a comprehensive picture of economic conditions in the regions we serve and a fuller understanding of the major issues. Earlier today, I met with developers and local community leaders to learn about the redevelopment of the Atlantic Yards, was welcomed to a roundtable breakfast meeting with members of the Brooklyn Chamber of Commerce and then traveled to Brownsville to learn about the challenges faced by that community. Following this visit to Brooklyn College, I’m headed to Bush Terminal in Sunset Park to meet with city officials and learn about an important redevelopment project and then I’ll end the day at Etsy – a successful innovative start-up and a major private-sector employer here in Brooklyn. These trips are only one of the many ways in which we seek to engage with the people and businesses in our region. We also reach out to our local communities through web resources, workshops and conferences. To assess the performance of the regional economy, we monitor economic activity on a monthly basis, we tap into the insights of the members of our Small Business and Agriculture Advisory Council and Upstate Advisory Board, and we have constructed a consumer credit panel that allows us to better understand the financial condition of homeowners and students at the local level.

We conduct two monthly surveys – the Empire State Manufacturing Survey and the Business Leaders Survey of service firms – which help us monitor regional business conditions in close to real-time. We’ve also developed a “Regional Mortgage Conditions” analysis at the county and zip code level. In addition, we conduct a biannual poll of small businesses to understand their credit needs and availability. It is noteworthy that our most recent poll found that cash flow issues replaced credit availability as the number one concern of small companies. We also have worked to support better financial decision-making by young consumers. Every year the Bank conducts two competitions in which college students are challenged to produce a 30-second video promoting wise credit use. The two contests, one held in Puerto Rico and the other in the tri-state region, provide students the opportunity to learn about the importance of personal finance while showcasing their filmmaking creativity. The winning video is then shown at numerous local movie theaters, helping promote the value of the smart use of credit. This year the judges, including Maria Bartiromo from Fox Business, Tamir Muhammad from the Tribeca Film Institute and Jim Rosenberg from UNICEF, selected a Brooklyn College entry, entitled “Elevate Your Credit” as the winner. I am pleased to again congratulate Rasa Partin, Ben Remetz and Andrew Roder, and their coach, Jay Kim, for creating the winning video.
Our monetary policy since then has been based on two elements: the negative interest rate of –0.75% on banks’ sight deposits held at the SNB and our willingness to intervene in the foreign exchange market, as necessary. The negative interest rate in Switzerland has at least partially restored the original interest rate differential and thus reduced pressure on the Swiss franc. As Chart 6 shows, the real external value of the Swiss franc has been on a gradual downward trajectory since mid-2015. Even in times of increased market volatility, as in the aftermath of the British EU referendum in June this year, the Swiss franc has remained broadly stable against the euro and the US dollar. Without negative interest and our willingness to intervene, the Swiss franc would have appreciated, growth would have slowed, and inflation would have fallen further. The impact of negative interest rates on the exchange rate is crucial for us because Switzerland is a small open economy and foreign trade is a very important factor in our economic performance. In 2015, exports contributed over 50% to GDP, while imports accounted for about 40%. Movements in the Swiss franc therefore have a big impact on domestic economic developments. The Swiss franc is still significantly overvalued and this represents a major challenge for many sectors. Imported goods and services also have a high weighting in the Swiss consumer price index basket. The appreciation of the Swiss franc since the financial crisis was therefore also directly reflected in the inflation rate.

The SNB therefore monitors the situation on these two markets continuously. An environment of low interest rates also brings fundamental monetary policy challenges. One of these arises from the fact that it is possible to hold money in the form of cash. I have shown that the SNB’s negative interest rate is an effective monetary policy tool. But how far can nominal interest rates actually fall? If the interest rate level declines further, at some point cash will become more attractive than sight deposits bearing negative interest. As the SNB has no intention of doing away with cash, this results in an effective lower bound for interest rates, which limits the scope for monetary policy action. This lower bound is below zero, because holding cash is expensive and risky. Thus, people are prepared to pay a certain amount to hold their money electronically. In Switzerland, the cost associated with the current  Page 7/16  negative interest rate is clearly lower than the cost of holding cash. Consequently, demand for cash has not yet risen substantially. So the effective lower bound for interest rates has not yet been reached, but we know that it exists. Another monetary policy challenge is the fact that the expansionary effects of low interest rates on consumption and investment can fade over time. As I have noted, following the introduction of negative interest, some banks increased their lending rates in order to offset falling interest margins.
53  By design, these seek out the views of a wider range of citizens, in a wider range of locations on a  wider range of issues around the economy and financial system than has been the case in the past. These events have established for me that there is wisdom in these crowds when gauging some of the key issues shaping the economy and financial system. The lived experience of everyday people making everyday decisions is what makes the economy tick (and sometimes tock). Tapping that lived experience can add to the Bank’s understanding of the economy and help it when setting policy to keep the economy stable. There is wisdom in crowds of citizens, as there is in crowds of companies. 54  The Bank is now taking a further step towards putting in place an infrastructure to formalise its engagement with citizens. Earlier this year, in response to a recommendation from the RSA, we announced that the Bank would be setting-up a set of Citizens’ Panels across the UK. 55  In the remainder of this year, we will be  running trials of these citizen panels to help us decide how best to organise them, before rolling them out systematically, UK-wide, next year. 53 54 55  See https://www.bankofengland.co.uk/outreach Taylor (2018) also discusses the benefits of deliberative democracy in the RSA’s 2018 Annual Lecture. Haldane (2018b). 23  All speeches are available online at www.bankofengland.co.uk/speeches  23  There are a number of key design questions that need to be answered.

For reasons set out earlier, it has probably also increased the chances of self-reinforcing and self-referential waves of collective irrationality taking hold. 35  If  so, these waves of collective irrationality could be becoming larger than ever. While a vestige of our hunter-gatherer past, the madness of crowds can these days spread to a global village. That leaves us with a conundrum. If decision-makers in complex environments were to draw on a wider set of non-expert opinion, what are they likely to encounter? Is it a case of harnessing the wisdom of crowds or avoiding their madness? Will greater public engagement help inform and improve expert decision-making by widening the pool of lived experience? Or will it hinder that decision-making by polluting the information pool with irrational or irrelevant opinions? Perhaps the most comprehensive study of the value of expert and non-expert opinion, as it applies to complex decision-making in the social sciences, has been provided by political scientist Philip Tetlock. Over a more than 20-year period, he has researched forecast accuracy and, most recently, run The Good Judgement Project. This explored the performance of a set of experts and non-experts in forecasting the outcome of a particularly complex set of decision problems. So what does Tetlock’s evidence suggest? That the usefulness of non-expert opinion in complex decision settings depends on how exactly this information is drawn in and drawn on. From Tetlock’s book with Dan Gardner in 2015, Super-forecasting, I would highlight two key findings.
The changing distribution of risks for individual firms  Moving on to my second example, even in the absence of systemic spill-overs from flash episodes, fast markets alter the pattern of risks that individual market participants are exposed to. And there good grounds for concluding that more needs to be done to ensure market participants take account of this consistently. 14  See BIS (2017), ‘The sterling ‘flash event’ of 7 October 2016’, January. See Joint Staff Report (2015), ‘The US Treasury Market on October 15, 2014’. 16 In this spirit, the FPC concluded following the sterling flash event that “such disruptions underscore the concern that liquidity in some markets may have become more fragile in recent years”. See Record of the Financial Policy Committee Meetings held on 23 and 29 November 2016. 15  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Use of algorithms does not change the fundamental risks associated with trading in financial markets (e.g. market, counterparty and operational risks). But use of high-frequency trading algorithms does change their relative intensity and can materially increase the potential to build up significant intraday positions. This latter point is most obviously true for those bank and non-bank intermediaries that specialise in highfrequency trading. And though these firms should be expert in managing such risks, history shows this is not a given.

5 See Benos, E, Brugler, J and Hjalmarsson, E (2015), ‘Interactions among high-frequency traders’, Bank of England Working Paper, No. 523. 6 See Kervel, V, and Menkveld, A. J (2017), ‘High-frequency trading around large institutional orders’, Working paper. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  7  In equity markets, for example, there has been a shift away from trading on ‘lit’ exchanges (Chart 8). The market has moved more towards ‘off-book’ trading, where participants transact bilaterally, seeking not to 8  9  reveal information on their trading intentions, and to dark venues , such as broker-crossing networks and some multi-lateral trading facilities. 10  Meanwhile, FX markets have seen a move away from ‘exchange-like’  11  platforms toward trading methods offering a more restricted range of counterparties and/or offering visibility to participants on who they are trading with (Chart 9). The aim is to disclose less information to the broader market, while counterparty awareness allows monitoring of metrics such as fill ratios and market impact over time. Second, market participants’ desire to avoid revealing information on their trading intentions and seek the best price has led them to split up large orders, including via the use of algorithms. This can be seen in a reduction in trade sizes (Chart 10), as well as an increase in the rate at which orders in some markets are updated or cancelled. Here at the Bank we want end-users to both benefit from and be confident in the effectiveness of financial markets.
If you are the treasurer of a bank and plan for the end-of-day settlement of your accounts, uncertainty about whether expected incoming payments will actually be received is obviously a major issue. It does not make an immediate difference if expected incoming payments are at risk for payment system reasons, or because the payments may not have been initiated. In both cases, the treasurer will need to look for alternative funding, and if there are no internal buffers, will turn to the interbank market for overnight funds. There, the treasurer will be ready to pay a premium and will thus bid up rates. If uncertainty about incoming payments generally increases and affects all banks, be it for payment system or other reasons, banks will all tend to enter the interbank market on the buy side and will bid up the overnight rate accordingly. This is a monetary policy issue and will imply the need for the central bank to inject excess reserves into the system to bring interest rates down again. While payment system disruption may hence potentially have an impact on monetary policy, central banks have found ways of safeguarding price stability, while at the same time ensuring the smooth functioning of the payment system. This is achieved by drawing a clear line between providing intraday liquidity for payment system purposes and providing credit for monetary policy implementation. Let me therefore turn briefly to these two types of liquidity provision by central banks.

The takaful industry continues to exhibit good financial results each year, as reflected in the three-fold increase in total assets to RM6.5 billion in June 2006, as compared to RM1.9 billion five years ago. More significantly, average doubledigit growth rate of 18.9% for net contributions of combined family and general takaful in the past three years, demonstrated the high potential of the industry. Whilst sustaining the current pace of development, there still exists high growth prospect for the takaful sector, in view of the large untapped potential, with the market penetration rate recorded at merely 6.1% in June 2006. Ladies and gentlemen, Bank Negara Malaysia has laid down a number of initiatives to further enhance the competitiveness and growth momentum in the development of the takaful industry. These initiatives emphasised on enhancing operational efficiency, strengthening corporate governance and risk management as well as improving the market practices and consumer awareness. All players need to capitalize on these initiatives for the takaful industry to achieve sustainable success and unleash the potential gains of the Islamic finance in Malaysia and abroad. Allow me to share some significant developments that may shape the future direction of the takaful industry moving forward. Firstly, as the prudential framework evolves towards a predominantly principle-based and riskbased regulatory approach, there will be a greater emphasis on risk management, corporate governance and transparency so as to maintain investor confidence and public trust.