samchain/econo-pairs-v1 huggingface dataset:
Although not part of the baseline scenario, we cannot rule out a worsening of global economic and financial conditions. Overall, the tensions in Europe are  BIS Review 99/2010  5  something we had commented in several previous presentations and were related not only with the need to put forward expansionary policies to avert further deterioration of output in the face of the global crisis, but also with the gradual and orderly withdrawal of fiscal and monetary policy stimulus packages in the world. What prevented the financial collapse of late 2008 from becoming a second Great Depression were the strong fiscal and monetary stimulus packages around the world. Larger fiscal deficits are the outcome of increased expenditure and reduced taxes, in addition to a normal deterioration associated with a recessive period. Chile was able to make an unprecedented effort thanks to its solid financial situation and sound macroeconomic policies: the exchange rate adjusted without triggering larger imbalances; the inflation targeting scheme was consistent with a drastic and significant change of sign the monetary policy stance and the conduct of public finances managed to implement a highly countercyclical fiscal package that used part of accumulated savings from previous years. However, not all the economies were in the same position when the crisis hit. The situation has been particularly complex for those countries that started this process with fragile fiscal situations, that is, with high levels of public debt. Furthermore, in Europe, the existence of a common currency has introduced an extra constraint to the adjustment process.

BIS Review 99/2010  7  Figure 3  Currency parities (1) (index, 01/01/07=100, local units per dollar)  Stock-market indicators (indexes, 02/01/07=100) 220  220  180  180  110  140  140  100  100  100  100  90  90  80  80  60  60  140  140  130  130  120  120  110  07  08  09  10  07  08  IPSA $  Latin America (2) Emerging Asia (3) Emerging Europe (4) Commodities exporters (5) Chile  09  10  IPSA $ MSCI World (6) IPSA $ MSCI Latin America (6)  (1) Weighted averages at PPP for each region. Increase denotes depreciation. (2) Includes Argentina, Brazil, Chile and Mexico. (3) Includes China, Hong Kong, Indonesia, the Korean Rep., Malaysia and Thailand. (4) Includes the Czech Rep., Hungary, Poland and Russia. (5) Includes Australia, Canada and New Zealand. (6) Stock indexes by region, taken from Morgan Stanley Capital International. Sources: Central Bank of Chile, Bloomberg and International Monetary Fund.
Some might be best reserved for the type of acute market illiquidity experienced in this crisis. It would be helpful for the Federal Reserve System to have greater flexibility to respond to acute liquidity pressure in markets without undermining its capacity to manage the federal funds rates at the FOMC's (Federal Open Market Committee) target. The authority Congress has granted the Fed to pay interest on reserves beginning in 2011 will be very helpful in this regard. We welcome the fact that Congress is now considering accelerating that authority. The major central banks should put in place a standing network of currency swaps, collateral policies and account arrangements that would make it easier to mobilize liquidity across borders quickly in crisis. We have some of the elements of this framework in place today, and these arrangements have worked relatively well in the present crises. We should leave them in place, refine them further and test them frequently. The Federal Reserve Act gives us very broad authority to lend in crises. We used that authority in new and consequential ways, but in the classic tradition of central banks and lenders of last resort. As we broadened the range of collateral we were willing to finance, extended the terms of our lending and provided liquidity insurance to primary dealers, our actions were carefully calibrated to improve overall market functioning by providing an effective liquidity backstop and to avoid supplanting either the interbank market or the secured funding market.

I know that many hope and believe that we could design our system so that supervisors would have the ability to act preemptively to diffuse pockets of risk and leverage. I do not believe that is a desirable or realistic ambition for policy. It would fail, and the attempt would entail a level of regulation and uncertainty about the rules of the game that would offset any possible benefit. I do believe, however, that we can make the system better able to handle failure by making the shock absorbers stronger. This crisis exposed very significant problems in the financial systems of the United States and some other major economies. Innovation got too far out in front of the knowledge of risk. It is very important that we move quickly to adapt the regulatory system to address the vulnerabilities exposed by this financial crisis. With the leadership of the Secretary of the Treasury, Hank Paulson, we are beginning the process of building the necessary consensus here and with the other major financial centers. Let me just finish by saying that confidence in any financial system depends in part on confidence in the individuals running the largest private institutions. Regulation cannot produce integrity, foresight or judgment in those responsible for managing these institutions. That's up to the boards and shareholders of those institutions. One of the great strengths of our system is the speed with which we adapt to challenge. We can do better, and I am reasonably confident we will. Thank you. BIS Review 74/2008  7
The private sector has seen moderate gains, with growth in some of the key sectors I mentioned earlier, particularly professional and business services, education and health, and leisure and hospitality. Businesses in these sectors, on balance, expanded jobs at a faster rate than in the nation. But the state continues to shed jobs in manufacturing and residential construction. Notably, overall employment in the state has been weighed down by declines in public sector employment. Like many states, New Jersey faced large projected state budget deficits during the downturn, and, as in many states, the adjustment to those gaps included job cuts through a reduction in state government jobs and cuts in state funding for local government programs. Because the jobs recovery has been weak, there has been little progress in reducing unemployment. The unemployment rate among New Jersey residents currently stands at 9.5 percent, the same rate as a year ago, and slightly above the national rate. Underneath the slow overall job growth, however, there is a considerable amount of churning in the labor market. Taking a closer look at the patterns of job gains and losses during the recession and recovery reveals some interesting facts about the labor market in New Jersey. Of particular interest is that job creation in the state and the nation since the recession ended has been closely balanced between hiring into industries that lost jobs lost during the recession and jobs in expanding industries.

At the global level, the incorporation of emerging markets into the world economy weighed down on price developments (especially of manufactured goods). In response to the resulting benign inflation developments, the prevailing inflation targeting orthodoxy led to the adoption of an accommodative monetary policy stance. In retrospect, such accommodation was probably inappropriate, at least to the extent that it supported the financial imbalances and asset price bubbles that underlay the recent financial crisis. Failure to take into account financial factors and channels of transmission led to a mis-calibration of the monetary policy response to the impact of globalisation. A simplistic account of the financial sector may have had other, adverse implications for the conduct of monetary policy in recent years. Within the canonical New Keynesian model, financial markets are “perfect”. On the basis of arbitrage considerations, long-term interest rates and other yields and asset returns all derive from the expected path of short-term interest rates determined by the central bank. Such a construct suggests that monetary policy-makers can steer long-term rates closely by simply making pre-commitments about the future path of short rates. No doubt there is an  16  See: E. Fahri and J. Tirole (2009), “Leverage and the central banker’s put”, American Economic Review 99(2), pp. 589–93. 17  See: D.W. Diamond and R.G. Rajan (2009), “Illiquidity and interest rate policy”, NBER working paper no. 15197. 18  See: T. Adrian and H.S. Shin (2009), “Financial intermediaries and monetary economics”, Handbook of Monetary Economics, forthcoming; R.G.
Furthermore, if market expectations of upside currency gains persist, it could invite even more capital inflows, along with greater pressures on the exchange rate and higher chances of imbalance buildups in the future. For the real economy, it may delay some of the necessary adjustments. Finally, FX intervention is not costless. We have to fund the intervention with local interest rates that are higher than what we would earn from our international reserves. 2  BIS central bankers’ speeches  Experiences have also shown that, even after a large appreciation of the currency, capital inflows could still seep in and fuel speculative activities in markets such as real estate and equity. To help deal with specific pockets of the economy showing signs of potential bubbles, macro-prudential measures could be used. A recent example is the risk-weights adjustment related to the loan-to-value (LTV) ratio of loans made to property purchases. While macro-prudential measures aim to help lessen the effects of capital that has already flowed into the economy, capital account regulations can be used to deal directly with the size and type of incoming and outgoing flows. With an aim of creating more balanced capital flows, the Bank of Thailand has continued to liberalize our capital outflows, while on the inflow side we at times resort to tighter regulations when the situation deems necessary. Implementing a capital account regulation, or less of it, requires a delicate balancing act.

There are still a sizable number of properties that are either in foreclosure or up for foreclosure sale, which has weighed down the local housing market. Yet, Fairfield County has not been the only place in the metro region to see a sluggish recovery – notably, both northern New Jersey and the Mid-Hudson Valley have yet to see employment return to their pre-recession peaks. This picture is in contrast with New York City’s economic performance, which has been exceptionally strong throughout this expansion, and has been a driver of growth for the whole tri-state region. Why is New York City seeing so much stronger job growth than Fairfield County? After all, it wasn’t so long ago that Stamford was attracting finance-sector jobs away from Manhattan. The answer lies in a mix of cyclical and secular trends. On the cyclical side, while finance employment has been sluggish in both New York City and Fairfield County, New York City is benefiting from strong employment gains in technology, construction, retailing and advertising – sectors that are not contributing to the same degree in Fairfield County. In addition, Stamford has had to deal with the relocations of UBS and RBS, while Fairfield faces the prospective relocation of GE. One potential long-term trend that is likely affecting the region is a renewed urbanization: that is, a gradual but broad-based shift of preferences to urban living, especially for younger generations. Throughout the second half of the 20th century, we saw a steady and widespread migration from cities to suburbs.
The long-term downward trend in interest rates globally and expansionary monetary policy occasioned by cyclical factors have therefore combined to produce historically low interest rates. Transmission channels of negative interest rates in Switzerland Irrespective of the equilibrium rate, questions arise regarding the transmission mechanism of monetary policy below the zero lower bound. Specifically, how does monetary policy using negative interest rates effect a rise in inflation? As you will probably remember from your student days, monetary policy usually operates through a variety of transmission channels. For a small open economy like Switzerland, the exchange rate channel is the most important. Lower interest rates, other things being equal, make the Swiss franc less attractive as an investment currency. The franc loses value, which makes Swiss goods cheaper abroad, and leads to a rise in net exports. This in turn raises GDP and inflation in Switzerland. Depreciation of the Swiss franc also has a direct impact on inflation because import prices rise. A reduction in interest rates also operates via the credit channel. Put simply, if the SNB reduces the short-term interest rate, longer-term market rates also fall. Loans become cheaper and this stimulates consumption and investment. These factors boost the economy and inflation rises. Page 4/16  Is the negative interest rate in Switzerland having the anticipated effect? Let me first look at transmission via the exchange rate channel. Historically, Switzerland has always had lower interest rates than most other countries, particularly euro area countries.

I should perhaps mention here for the sake of completeness that, put simply, real interest rates are nominal interest rates less inflation. 1 Chart 2 shows longterm real interest rates in Switzerland, Germany and the US, calculated as the difference between the nominal yield on 10-year government bonds and the observed inflation rate. I should emphasise two points: First, while real interest rates in Switzerland are currently negative, a historical comparison shows that this is by no means a new phenomenon. For example, real interest rates in Switzerland were also negative in the 1990s. Second, real interest rates have fallen on a global basis over the last 20 years. I shall now turn to an economic concept that plays a key role in the current monetary policy debate, namely the equilibrium real interest rate. The equilibrium real interest rate is not directly observable and is determined by fundamentals such as time preferences and the age structure of a society, which define the supply of savings and the demand for investment. The SNB controls a short-term nominal interest rate. By contrast, it has only an indirect and temporary influence on long-term real interest rates, which drive investment decisions. Longterm real interest rates are primarily determined by saving and investment decisions and hence by market forces. If the central bank wishes to stimulate the economy and increase inflation, it cuts the policy rate. Since inflation does not react immediately, real interest rates temporarily fall below the equilibrium rate.
One dimension of liquidity is the availability of credit or the ease with which institutions can borrow or take on leverage. This is generally referred to as funding liquidity. Another dimension of liquidity is the ease with which market participants can transact, or the ability of markets to absorb large purchases or sales without much effect on prices. This is what is generally called market liquidity. Although these two concepts are distinct, they are closely related and are often mutually reinforcing. Fundamentally this is so because when funding liquidity is abundant traders have the resources with which to finance trading positions that smooth price shocks and make markets liquid. In practice, this mutually reinforcing behavior is driven by a complex array of factors, including the degree of leverage embedded in the markets at any given time, the difficulty that lenders face in discerning whether a surge in volatility is driven by a transitory shock of some kind or a permanent shock to fundamentals, and risk management practices. Institutions manage the credit risk in their trading-related exposure by requiring some counterparties to post collateral or margin. Typically, institutions require of hedge fund counterparties both initial margin against potential loss and variation margin, which requires payment to cover any decline in the value of the position. If the position declines in value, the counterparty will have to meet margin calls. If it does not have enough liquidity on hand to meet those calls, it will have to liquidate other positions to raise the requisite cash.

Moreover, because we’ve experienced such a variety of different types of stress, overall risk may be lower. But this recent history also suggests that we need to maintain a degree of humility and caution about our capacity to anticipate the nature and dynamics of future stresses to the financial system. How strong and resilient is the U.S. financial system today? Our sense is that the system is quite strong and resilient relative to the recent past. The major financial institutions at the core of the system are profitable and well capitalized. The total risk-based capital ratio for the ten largest U.S.-owned bank holding companies has averaged more than 12 percent over the past two years, a slight increase relative to prevailing levels since the mid-1990s. At year-end 2003, nearly every bank in the country met the regulatory standards to be considered “well capitalized”, with fewer than 100 - representing less than 1 percent of banking industry assets - failing to meet these standards. While risk-based capital ratios do not always provide an accurate picture of true capital strength, especially for the larger and more complex institutions, these statistics are nonetheless broadly indicative of a very strong underlying capital position of the industry. BIS Review 33/2004  1  Robust capitalization is important because capital, along with earnings, provides the first line of defense against losses. Counterparties and customers are less likely to lose confidence and pull back from a well-capitalized institution in the wake of a large loss or other negative event.
Moreover, ongoing uncertainties regarding the exit strategies from unconventional fiscal and monetary stimulus continue to pose risks on the durability of the recovery process. BIS Review 31/2010  1  1. Inflation developments  Distinguished Members of the Press, During the final quarter of 2009, factors affecting inflation evolved in line with the outlook presented in the October Inflation Report. Both domestic and external demand displayed a gradual recovery, yet resource utilization remained at low levels. However, an unexpected surge in unprocessed food prices caused the inflation rate to realize one-percentage point higher than forecasted in the October Inflation Report. In other words, the deviation from the end-2009 inflation forecast presented in the October Inflation Report could be explained almost entirely by the increase in unprocessed food prices. Consequently, in the last quarter of 2009, annual inflation climbed to 6.53 percent, remaining within the uncertainty band, albeit slightly below the target set (Figure 3). While the contribution of food and energy items to annual inflation increased in the last quarter of 2009, no significant change was observed in the contribution of the categories excluding food and energy (Figure 4). Meanwhile, rising oil and other commodity prices as well as the withdrawal of tax cuts within the fiscal stimulus package were other factors leading to an increase in annual headline inflation in this period.

Finally, regarding fiscal policy, it is assumed that the consistent framework outlined in the Medium Term Program (MTP) will be implemented and further enhanced by institutional and structural measures. In other words, it is assumed that no public price/tax adjustments would  14  BIS Review 31/2010  be made to lead to unpredictable volatilities in inflation and administered prices would be set in line with inflation targets over the next three years. Moreover, it is assumed that the fiscal stance will remain expansionary – but less so than in 2009 – throughout 2010, and subsequently fiscal tightening would be gradually adopted starting from 2011. In this respect, it is envisaged that the rising debt-to-GDP ratios would reverse their course steadily starting from 2011, and hence the risk premium would not display any significant changes throughout the forecast horizon. Distinguished Guests and Members of the Press, Against this background, assuming policy rates are kept constant for a long period followed by limited rises thereafter, with policy rates staying at single digits throughout the three-year forecast horizon, the medium-term forecasts suggest that, with 70 percent probability, inflation will be between 5.5 and 8.3 percent with a mid-point of 6.9 percent at end-2010; and between 3.4 and 7.0 percent with a mid-point of 5.2 percent by the end of 2011. Furthermore, inflation is expected to decline to 4.9 percent by the end of 2012 (Figure 34).
However, in a few areas the EU authorities will be able to make binding decisions which have a direct effect on national regulations and supervision: •  First, in the area of regulation, the authorities will develop binding technical standards to promote uniformity in the implementation and application of EU-law. •  Second, the EU authorities will be equipped with powers to address national supervisors that are considered to be diverging from the existing community legislation. If it is deemed that the supervisor concerned is not in compliance with EU law, then the authorities will be able – as a last resort option – to adopt decisions directly applicable to the supervised financial institutions. •  Third, in areas where EU law requires coordinated decision making between home and host supervisors the authorities will be able to make binding decisions directly applicable to individual institutions if supervisors cannot reach a joint decision (for example on the validation of Basel II internal models). •  Fourth, in the event of a crisis situation the authorities will be able to make certain emergency decisions requiring national supervisors to jointly take specific action. •  Finally, the EU authorities will be awarded full and direct supervisory powers over credit rating agencies. Besides these binding powers the authorities will also have other “soft” instruments to promote and strengthen harmonisation and co-operation. For example, the authorities will be able to participate as observers in all supervisory colleges.

It is laudable that within such a short period of its promulgation, 25 of the 27 member jurisdictions of the Basel Committee have issued the final set of Basel III regulations. But the implementation has been uneven. The Basel Committee conducted studies on the consistency of risk-weighted assets measured in the banking book under the internal model approach. It found considerable variation across banks in average risk-weighted assets for credit risk. A material part of this variation was due to different bank and supervisory practices. Such differences in measurement could result in capital ratios varying, in extreme cases, by as much as two percentage points in either direction. To enhance consistency in implementation, the Basel Committee is considering three steps: •  first, improve public disclosure and regulatory data collection to help the market and regulators to better understand how risk-weighted assets are derived;  •  second, narrow the range of acceptable modelling choices for banks; and  •  third, provide additional supervisory guidance for model approvals. Inconsistent application of rules across entities carrying out similar activities leads to the issue of shadow banking. The higher capital and liquidity requirements required under Basel III may create the incentive for activities to be conducted outside the regulated banking sector. The FSB estimates that shadow banking constitutes about 25% of the total financial system, and with regulation of banks still tightening, analysts expect the shadow banking sector will continue to grow.