samchain/econo-pairs-v1 huggingface dataset:
Goodhart and Tsomocos (2007). BIS Review 37/2008  1  open-market operations that we have conducted so far in the euro area (they include in particular targeted ELA to an illiquid credit institution). 2 To make my point more explicit, let me briefly recall a standard result by William Poole (1970), which implies that, when demand for central bank money is uncertain, it is optimal to stabilise the short-term interest rate, letting money supply adjust endogenously. That is precisely what has happened in the euro area over the last few quarters. Indeed, the bulk of liquidity injections since last August has merely been an attempt to align the timing and maturity of liquidity supply with changing demand within the reserve maintenance periods, in order to stabilize the very short-term interest rate on the interbank market. Of course, this is always a difficult task, since the increase in the precautionary demand for liquidity altered the behaviour of banks and rendered the forecasting models we use to calculate the benchmark need for liquidity less effective, at least temporarily. However, since the Eurosystem acted as a price-taker during these liquidity injections, it is obvious that the interest rates at which these fine-tuning and longer-term operations were settled had no information content for the monetary policy stance.

Transmissions occur through networks whose structure and architecture is constantly changing through financial innovation and regulatory arbitrage. Also, financial systems are "human" systems. Their behaviour is shaped by the way human beings react to shocks in their environment. Herd behaviour has long been known to be an essential feature of financial markets. More subtly, individual reactions, by themselves rational, can, by the virtue of their mutual interaction, produce strong amplification effects 3 . A broader definition of procyclicality would thus encompass three components, which cannot easily be distinguished in real life: (1) fluctuations around the trend (2) changes in the trend itself and (3) possible cumulative deviations from equilibrium value. This points to the policy challenges regulators face. They have to try and identify when pure cyclical fluctuations morph into something different: either a change in the trend itself or the start of a cumulative process. A good operational approach to procyclicality would look at all amplification mechanisms which provoke (or allow) the financial system to deviate durably or permanently from its predetermined path) so that the trend itself may be affected in the short or medium run. 1  Quote from FRBNY Economic Policy Review Issue on Systemic Risk (November 2007, page 26). 2  See Haldane (2009). 3  This has been luminously shown by Danielsson and Shin in their seminal article on "endogenous risk", based on the now famous parable of the Millennium Bridge. BIS Review 94/2009  1  What are the mechanisms at work?
Chart 12: Interest rates on government bonds in % Spread to German Bonds in pp  Interest Rate on 10 year government bonds 10  14 12 10 8 6 4 2 0 -2 -4 -6 -8  8  6 4 2  0 -2  average (2008-2012)  average (2015-2013)  Difference in pp  average (2008-2012)  2015-2013  Average  SRB  ALB  MKD  SLO  ROM  POL  HUN  LIT  LAT  CRO  CZR  -6 BUL  Average  ALB  SRB  MKD  SLO  ROM  POL  HUN  LIT  LAT  CRO  BUL  CZR  -4  Difference  *The data for all the countries, except for Albania, Macedonia and Serbia is Eurostat data referring to the Maastricht Treaty EMU convergence criterion series which relates to interest rates for long-term government bonds denominated in national currencies. Data is based on central government bond yields on the secondary market, gross of tax, with a residual maturity of around 10 years. For Serbia and Albania –Thomson Reuters data on average interest rate on government securities. Macedonia data refer to the average interest rate on securities at the longest available maturity issued. The continuous debt increase suggests need for further fiscal adjustment, which will be challenging in case of tightening of financial conditions. The presence of ultra-low interest rates in the Euro Area and the abundance of liquidity on the market have not been conducive to faster consolidation.

In the same way, the crisis revealed the critical deficiencies in the toolkits available to the regulators to deal with nonbank institutions in duress. Emergency lending by the Fed might be enough to forestall the disorderly failure of a systemically important institution and all the wider damage such a failure might cause, but it was a blunt and messy solution, employed as a stopgap measure because better alternatives were not available. What is needed – what our country still lacks – is a large-firm resolution process that would allow for the orderly failure even of a systemically important institution. 2  BIS Review 6/2010  Thus, in the fall of 2008, regulators and policymakers found themselves facing the prospect of the total collapse of a complex and interconnected system. It was these circumstances, and the prospect they created for an even deeper and more protracted downturn in real economic activity and employment, that required truly extraordinary actions on the part of the Federal Reserve, as well as the Treasury and many other agencies. This is a situation in which the United States must never again find itself. For its part, the Federal Reserve is hard at work on developing and implementing new regulations and policy guidance that take on broad lessons of the recent crisis. We are working with other banking regulators in the United States and overseas to strengthen bank capital standards, both by raising the required level of capital where appropriate and improving the risk capture of our standards.
Recent research, for example, analysed more than 120 million mortgages in the US written between 1995 and 2014 and identified significant non-linear relationships between risk factors and mortgages becoming non-performing. These ‘jumps’ in the chance that a loan defaults – sometimes with just a small change in circumstances – are precisely the kind of non-linear relationships for which machine learning models are well suited.4 ML is also starting to influence how wholesale loans are arranged. In contrast to retail lending, the idiosyncratic risks and limited data available for corporate lending make typical automated underwriting more difficult. But ML can still be used to improve the quality of underwriting by making use of nontraditional data. For example, natural language processing of annual reports and social media can give firms useful information on the quality of the credit.5 But the increased use of ML and AI may also increase some risks to the safety and soundness of firms. Implementing ML and AI at scale is likely to require considerable investments by firms in their data and technology capabilities. While in the long-run these investments could increase revenue, in the shortterm they are likely to increase costs. They will also amplify execution and operational risks. And even if firms eventually are successful in embedding new tools and techniques, these may make their businesses more complex and difficult to manage.

And, according to Congressional Budget Office projections, even if remittances drop sharply in future years, cumulative remittances would still likely be higher compared to the counterfactual regime in which the Fed had not expanded its balance sheet (Exhibit 14). In addition, because Fed purchases put downward pressure on long-term interest rates, this  12  Asset Bubbles and the Implications for Central Bank Policy, Economic Club of New York, April 7, 2010. 13  If the Fed’s net income fell below zero in a year it would record a deferred asset that it would redeem with future net income. Paid in capital and surplus would remain positive in a very wide range of scenarios. See The Federal Reserve’s Balance Sheet and Earnings: A primer and projections , Seth B. Carpenter, Jane E. Ihrig, Elizabeth C. Klee, Daniel W. Quinn, and Alexander H. Boote, Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System, 2013-01. See also SOMA annual report (forthcoming). 6  BIS central bankers’ speeches  generates interest savings for the Treasury, and this benefit should be included in the fiscal cost calculations. Finally, and most importantly, to the extent that asset purchases are effective in pushing the trajectory of economic growth above what would otherwise have been the case, this will lead to higher federal government tax revenue and lower safety net spending outlays during the recovery period.
Paul Fisher: Why is CPI inflation so high? Remarks by Mr Paul Fisher, Executive Director, Markets, and Member of the Monetary Policy Committee of the Bank of England, based on a talk to Merseyside Young Professionals, Liverpool, 14 June 2010. *  *  *  Annual CPI Inflation reached 3.7% in April (Chart 1). Given the Monetary Policy Committee’s remit to target CPI inflation of 2%, you might well want to ask “how has inflation got so high and what is the MPC going to do about it?” 1 I intend to tackle those questions head on this morning and, in the process, illustrate some of the challenges the Committee faces in setting monetary policy. First we should note that inflation has become more volatile in the past few years than it has been at any time since the early nineties (Chart 2). CPI inflation had previously risen as high as 5.2%pa in September 2008 before falling back to just over 1%pa in the autumn of 2009 and then rising to its recent peak. But historical data suggest that it was the stability of price inflation between 1993 and 2007 that was unusual, not the recent volatility which has been quite mild compared with the pre-nineties experience. The rise in inflation since mid-2009 was surprising given that it happened against the background of a deep recession which generated the biggest fall in output in the UK economy since at least the Second World War (Chart 3).

This is just an example to illustrate how the railways played a major part in Sweden’s industrial upswing in the late 19th century. Productivity and growth rose. For the information technology, this phase of the process probably lies ahead. The new technology has not yet seriously altered either production and distribution processes or consumer behaviour. Progress is still a little hesitant as more and more people use the new technique for surfing and learn the new technology. The potential will also be limited as long as the technique is not entirely user-friendly. IT generates pressure for change When the new information technology really catches on, it will probably lead to a rapid expansion and transformation of capital stocks. The entire economy will then be involved in intensive investment and high productivity growth. Old technology will be replaced by new and each unit of capital equipment will then require a smaller input of labour. Unprofitable units or firms will be closed down, accompanied by new establishments. Structural changes generate developments that are often referred to at present as a new “economy”. The marked improvement in productivity maintains profits and keeps prices down. During the transformation, a good circle is created but it is difficult to tell how long it will last. It can be described, if you like, as a period of extensive rationalisation and heightened efficiency. The growth trend is raised for an indefinite period, enabling the economy to expand more rapidly without inflation taking off.
Therefore we do see the promotion of digital financial inclusion becoming one of the main priorities on a global level. For instance, the G-20 Global Partnership for financial inclusion in late 2020 has set the digital financial inclusion as one of the main priorities in its financial inclusion action plan stressing financial education and consumer protection complemented with regulation as key factors in protecting and empowering the most vulnerable groups. Therefore, we are very grateful that the INFE OECD and the Ministry of Finance of the Netherlands accepted our request for workshop on digital financial services and financial education. Bearing in mind the importance of financial education in a dynamic and innovative financial 2/3  BIS central bankers' speeches  system, there is unquestioned need for an innovative and systemic approach based on our Strategy for Financial Education and Financial Inclusion. In general, the central banks together with other financial regulatory authorities play the leading role. The last survey on financial literacy of adults in South East Europe done by OECD (2020) revealed that the National Bank of the Republic of North Macedonia is the most trusted among central banks in the region as provider of financial education. However, the active participation of other stakeholders from the private and civil sector is more that welcome to achieve this mission. Last but not least, as socially responsible institutions, we have a mutual obligation to work together closely and constructively and to exploit available synergies for the benefits of the overall population and society.

Thus, in the wake of the financial crisis there has been a substantial increase in the intermediation of credit via financial markets rather than long-term on the balance sheets of banks, involving both the supply of new credit to borrowers and the absorption of assets coming out of the banking system, as banks reduce their balance sheets. Over the same period, there has been a fundamental and rapid change in the microstructure of financial markets – the organisation of how they work. Electronic platforms are increasingly used in a number of major financial markets (notably equity and foreign exchange markets). As part of that change, automated trading – which is a subset of electronic trading using algorithms to determine trading decisions – has become common in those markets. And, within automated trading, there has been growth in high frequency trading – which relies on speed of execution to get ahead of other market players. 3 While electronic trading has contributed to increasing market efficiency and probably reducing transaction costs, there are also risks that arise from trading strategies that are flawed, or where in constructing the strategy not all possible outcomes were considered, including the ability to trade large blocks. To recap, the last two decades have seen major changes in the financial system. These have, in turn, shaped the impact of the global financial crisis and its aftermath.
Furthermore, although the soundness and solvency of banks tend to strengthen their capacity to grant credit, it is true that the combined effect of all the measures will (by their very nature) tend to reduce the profitability of banking and banks’ ability to channel savings to business activities involving risk. Further evidence on the quantitative importance of this effect would be useful for assessing the key parameters of each measure. Effects in Spain Against this background, how do the regulatory changes affect the Spanish banking sector? It is true that the regulatory avalanche represents a huge challenge for Spanish banks, but I do not think that it is greater than that faced by other banking systems, especially after all the financial reforms adopted in Spain over the past year. Currently, we have confirmation that Spanish banks are reasonably capitalised, that they have substantially improved their liquidity situation and that their leverage ratios are relatively low, in comparison with those of other European banks. In addition, the bank business model in Spain continues to be based on traditional commercial activity so that own-account investment securities portfolios are generally moderately sized. As a result, the structural measures that may be approved by the European Union will have a more limited impact on Spanish banks than on banks in other jurisdictions. Moreover, international banks have established a model of independent subsidiaries that is conducive to the application of simple resolution arrangements.

Fernando Restoy: Regulation and banking reform Closing address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at “The new financial regulatory system and its implications” event, University of Oviedo, Oviedo, 28 October 2013. *  *  *  Good morning. I would like to thank the Dean, Manuel González, for his kind words of introduction and for inviting me to deliver the closing address at this event in the University of Oviedo. I would also especially like to thank Julio Segura for “brokering” my participation in this session today. I don’t always have to say yes to everything my former mentor and boss proposes to me, but I have never regretted doing so. Given the academic profile of this forum, allow me to step back from the immediate challenges of supervisory policy – which, as can be imagined, are numerous and complex in the midst of a financial crisis – and to take this opportunity to reflect, from a more general perspective, on the profound transformation taking place in the regulatory framework of the banking sector in response to the international financial crisis. As usually occurs with crises triggered by significant shocks affecting the stability of the financial system, this crisis is very costly in terms of welfare. In the case of Spain, we have suffered a double-dip recession associated with the collapse of the real estate sector against a backdrop of profound macro-financial imbalances and marked turmoil in international markets.
How does the central bank relate to the fact that we do not know precisely how the world is or how it will be in the future?13 Alan Blinder, former Vice Chairman of the Board of Governors of the Federal Reserve and currently a professor at Princeton University, touches on this when he formulate the recipe for a successful monetary policy: 14 •  Step 1: Estimate how much you need to tighten or loosen monetary policy to “get it right.” Then do less. •  Step 2: Watch developments. •  Step 3a: If things work out about as expected, increase your tightening or loosening, toward where you thought it should be in the first place. •  Step 3b: If the economy seems to be evolving differently from what you expected, adjust policy accordingly. I have not doubt that a number of central banks will sympathise with this recipe. Norges Bank normally takes a gradual approach to interest rate setting due to uncertainty concerning economic developments, including the effects of previous changes in the interest rate. 13  See Frøyland, E. and Lønning, I. (2000): “The significance of uncertainty in monetary policy”, Economic Bulletin no. 4/2000 for a more detailed description of different types of uncertainty. 14  Blinder, A. (1998) “Central Banking in Theory and Practice”, MIT Press  BIS Review 6/2004  7  This principle is also supported by economic theory.

Jarle Bergo: Flexible inflation targeting Speech by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at a seminar arranged by the Association of Norwegian Economists, Gausdal, 23 January 2004. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 17 December 2003 and on previous speeches and publications. The references and the Charts in pdf can also be found on the website of the Norges Bank. *  *  *  Price stability, or low and stable inflation, is the primary objective of monetary policy in most countries. Historical experience from Norway and other countries has shown that the absence of price stability has resulted in low and unstable output and employment. High inflation or deflation is both a cause and a symptom of systematic imbalances in resource allocation. In the 1920s, John Maynard Keynes suggested that monetary policy should be aimed at stabilising the price level.1,2 This did not become common until the 1990s, however, even though Sweden had an explicit target for price stability in the period 1931-1937. We have had four periods of high inflation over the past 100 years: during the two World Wars, the Korean War and a 15-year period from the first half of the 1970s to the second half of the 1980s. In Norway, high inflation is a wartime phenomenon and a 1970s and 1980s phenomenon.
Timothy F Geithner: Further investments to strengthen the financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Economic Club of Washington, Washington, 9 February 2005. *  *  *  Good evening. I am honored to be here. It’s good to be back in Washington and to have a chance to talk with such a distinguished group. Much of our nation’s financial history and the history of our central bank is a story of contest for influence and over ideas between political leaders in Washington and the financial center of New York. I think it is important that ideas shuttle back and forth between our cities, and I am pleased to have a chance to share a few tonight. My overall argument this evening is this. We face a delicate balance between genuinely positive near-term economic conditions, and some fundamental challenges. If we are to increase the likelihood of continued strong growth in living standards, we should use this time of relative prosperity to address the imbalances that hang over our economy. Even with good policy choices, and with considerable luck, these imbalances will take time to unwind. During this time we face some risk of a more volatile and less benign overall financial environment. This makes it important that we continue to invest in making our financial system stronger and more resilient. Markets now reflect a fairly positive view about overall economic prospects.

The challenge ahead is to help manage the transition to a monetary system that provides flexibility in the exchange rates of all the major economic areas, and this has to be handled with care. Even with good policy choices here and in other countries, bringing these imbalances down to a more sustainable level will take time. During this period of adjustment, despite our fundamental economic strengths, we will be vulnerable to an elevated risk of volatility in financial markets. This prospect makes this a good time to examine the health of the financial system. The strength of the financial system is a major factor in determining how well economies respond to shocks - weak financial systems amplify the damage to growth. The stronger the financial system, the more effective policy - monetary policy in particular - can be in cushioning the effects of those shocks and helping to restore expansion. We are fortunate in the United States today to have a strong financial system. This system has a tremendous capacity to match capital to ideas, reward innovation, and channel savings to the highest return. And it has demonstrated a capacity for very considerable resilience and stability in face of shocks. What are the main sources of these strengths? Our banks are stronger than they have been in the past. Their larger earnings capacity, higher capital cushions, and the greater diversity of their activities help shield them from a broader range and greater magnitude of shocks than in the past.