samchain/econo-pairs-v1 huggingface dataset:
An important objective consists in raising the potential output growth of the European economy If France and Europe seek to secure sustainable growth at levels that are as high as possible, the key variable is potential output growth. There are three ways of raising the level of potential output growth: First, to boost investment: the more we invest and the lower inflationary pressures, the stronger potential output growth. For example, a two-point increase in the productive investment ratio (productive investment / GDP, 11,4 % during the last five years in France) over the next decade would bring about an average acceleration of more than 0,5 point in potential output growth over the same period. The second way of raising potential output growth is to increase the quantity of actual labour: The European Council of Lisbon set as a central objective the rise of the employment rate of our populations from 60 to 70 % in 10 years. The Council also fixed two sub objectives: to raise the employment rate of women to 60 % and employment rate of older workers (from 55 to 64 years old) to 50 %. As a comparison, the same overall employment rate stands at 75 % in the USA. Although some progress has been achieved in this area, the lack of substantive change and the tendency in some member states to continue to use early retirement schemes remain causes for concern.

All in all, this recent recommandation from the Governing Council is testimony to its ability to smoothly adapt its internal governance to the challenges posed by enlargement. Strategy of the single monetary policy The Maastricht Treaty clearly defines the ultimate objective of the single monetary policy, that is to say maintaining price stability. However, for attaining this goal, it is essential to clearly define price stability: we define it as a year-on-year increase in the overall Harmonised Index of Consumer Prices (HICP) of below 2% in the whole euro area. Bearing in mind this objective, our monetary policy strategy is based on two “pillars”. We have first assigned a key role to the monetary aggregate M3. This “pillar” is based on a reference value which is set at 4.5% for the annual growth rate of the broad monetary aggregate M3. The concept of a reference value does not mean that the Eurosystem is committed to automatically correcting deviations in monetary growth in the short term. Naturally, we also follow the components and counterparts of M3 closely. In this regard, the development of loans to the private sector, as well as the evolution of government finance and capital flows with the rest of the world, deserve a particular attention. However, it is common sense to say that monetary developments do not account for all the risks to price stability.
Some blame loose monetary policy for laying the foundation for the crisis and there is a lively debate about the future of monetary policy and its relation to financial stability. Here I will discuss the lessons for inflation targeting after the crisis. My view is that the crisis was not caused by monetary policy but mainly by regulatory and supervisory failures in combination with some special circumstances. Ultimately, my main conclusion for monetary policy from the crisis so far is that flexible inflation targeting, applied in the right way and using all the information about financial factors that is relevant for the forecast of inflation and resource utilization at any horizon, remains the best-practice monetary policy before, during, and after the financial crisis. But a better theoretical, empirical and operational understanding of the role of financial factors in the transmission mechanism is urgently required and needs much work, work that is already underway in academia and in central banks. So I will focus on two particular issues: whether monetary policy caused the crisis and what the possible lessons for future monetary policy are. 1 Best practice before the crisis: Flexible inflation targeting It is probably not a surprise to hear that I consider flexible inflation targeting the best-practice monetary policy. The Riksbank and all the other inflation-targeting central banks conduct flexible inflation targeting rather than strict inflation targeting.

Our experiences with supervision, monetary policy, and financial market monitoring suggest that market data gathering and market oversight responsibilities must continuously inform one another. In addition, efforts to identify stresses in the system are not a matter of running a single model or focusing on a single risk. Rather, it is the assembly of many types of analysis in a systematic fashion. The Supervisory Capital Assessment Program (SCAP) for large financial institutions – popularly known as the “stress test” when it was conducted early last year – illustrates the importance of combining analysis by credit experts, forecasts and scenario design by macroeconomists, and hands-on judgments by supervisors in assessing the financial condition and potential vulnerabilities of large financial institutions. While considerable steps have been made in the wake of the financial crisis, the Federal Reserve intends to do a good deal more. The Federal Reserve also will continue to strengthen and expand its supervisory capabilities with a macro-prudential approach by drawing on its considerable data reporting, gathering, and analytical capabilities across many disciplines. In the areas in which we are collecting data through the supervisory process on measures of interlinkages and common exposures among the largest financial firms we supervise, we are developing new analytical tools that may lead us to change our information requests from supervised firms.
The other major wave of liberalisation - the deregulation of the international capital markets - has enabled savings to be channelled to a greater extent to where they will provide the highest yield. When we Swedes were poor at the end of the 19th century, we borrowed money abroad, for instance to build the railways and the mine at Kiruna. Now we can invest our savings in emerging markets and obtain a better yield than we would at home, while we are contributing to the development of these countries. The free movement of capital has also enabled savings capital to be spread more widely and thereby reduced the risks entailed. This provides financial security both for the investor and the user of the borrowed capital. The effects of liberalisation are clearly reflected in the statistics: the Overseas Development Council has calculated that foreign parties invested around USD 1,000 billion in developing countries in the 1990s alone. In total, foreign direct investment increased by 400 per cent during the same period, and the corresponding figure for developing countries was more than 800 per cent. Recently published figures from UNCTAD show that the services sector now accounts for around 60 per cent of total foreign direct investment, compared with just under 50 per cent only ten years ago. If utilised properly, this development can improve export potential for poor countries, while also providing wealth gains for the countries importing the services.

The IMF worked out a proposal for debt consolidation a few years ago, entitled Sovereign Debt Restructuring Mechanism (SDRM), but the proposal has not won general approval in this form and the problem of managing sovereign states’ payment problems remains. The example of Argentina showed clearly the need for a framework that could, for instance, solve the current problem of a risk of different borrower groups receiving different treatment, with various “clubs” for different types of loan. It is possible that we can get the ball rolling with a lucky name change to Framework for Orderly Restructuring of Debt (FORD). Ford owns Volvo and Volvo means “I roll”. 2  This example is taken from a lecture given by the World Bank’s chief economist Nicholas Stern (now at HM Treasury in the UK) at Munich University in November 2002. 3  Collective action clauses are a means of clarifying at the time the loan agreement is signed how the contract will be renegotiated if the borrower cannot pay according to the agreed amortisation and interest rate plan. 6  BIS Review 60/2004  Conclusion There is still a lot we do not know about the growth process, but fortunately the knowledge gaps appear to be dwindling as time goes by.
Such risks may be particularly relevant in the context of close ownership links between banks and funds. For example, banks in certain circumstances may feel a need to step in to protect their brand. To tackle this issue, the Basel Committee on Banking Supervision (BCBS) has published guidelines on step-in risk that would require banks to self-assess and report their material step-in risk exposures to supervisors, who should have the possibility for supervisory action if deemed necessary.8 We also need to work on the different layers of interconnectedness between ETFs and their counterparties. In our view, the rapid growth of ETFs, coupled with their potential to transmit and amplify risks to financial stability, warrants further evaluation of regulatory action. 9 This may include enhanced rules to limit counterparty risk exposure of ETF investors, and measures that provide more transparency around ETF liquidity provision. The enhanced microprudential framework for the European fund sector is a key element in boosting the resilience of the financial system overall. But the sector’s rising role in shaping the financial cycle, and the potentially systemic nature of its risks, require a more ambitious approach. We should aim at extending the macroprudential framework beyond banks to encompass the asset management sector.10 In particular, we need to equip macroprudential authorities with the necessary tools to address systemic risks both ex ante and ex post. The recent ESRB recommendation to address systemic risks related to liquidity mismatches and leverage in investment funds11 is a crucial step towards this goal.

As a result, the structure of the euro area financial sector is changing. In 2008, total assets held by investment funds were only 15% of banking sector assets. In 2017, euro area investment fund assets had grown to 42% of total banking sector assets, amounting to EUR 12 trillion. This major growth in relative size is likely to have far-reaching implications for the ability of the financial system to absorb shocks and for the financing of the economy more broadly. On the positive side, an increase in market-based finance through the issuance of debt and equity instruments can help diversify the funding base of the real economy. It also gives investors more choice and enables them to benefit from diversification effects offered by investment products. This holds true for retail and institutional investors alike, as an increasing share of institutional investors are using professional asset management services. The growing share of investors outside the core financial system tends to increase the system’s risk-bearing capacity, as traditional end-investors, typically not leveraged, can absorb any potential losses more smoothly. One should also acknowledge that thanks to significant efforts in the last ten years, investment funds in the EU are subject to an enhanced regulatory framework.
Employees who speak up should be recognized. The courage it takes to speak up, despite the perceived costs, should be counted as a very positive factor in evaluations. And, where raising one’s hand has saved the firm’s money and reputation by avoiding or keeping a problem small, that action should be rewarded. It’s only natural for an economist like me to consider the issue of unintended consequences. One that comes to mind is creating a culture of distrust and suspicion, where everyone looking over his or her shoulder. That would be unfortunate and costly. But, I think it is more likely that a different culture will result. Instead, talented and conscientious people will be happy to remain at a firm or in the industry because their personal and professional values are well aligned. Such employees will feel relief that they can speak up without fear of reprisal, and they can enjoy a clear conscience for having done the right thing. There is significant value in being able to sleep well at night. Moreover, being receptive to diverse and dissenting views will likely yield better results. It is in the industry’s self-interest to deter silence, not only because money will be saved on fines not incurred for misconduct, but also because better ideas will be brought to the table. I believe that business performance will benefit from having a culture in which people feel empowered to speak up. Let me give you a few examples from my own experience at the New York Fed.

In both cases, though, the same enabling mechanism is at work: culture. Culture—within a firm or across an industry—is not determined primarily by rules or laws, though certainly rules and laws can amplify good or bad attributes. Culture comprises, instead, what people observe and do, resulting in accepted and mostly unspoken norms. Mostly, people look for what succeeds and what does not, and they try to align themselves with the former. If we want to improve culture and conduct, we need to start by being realists about human behavior. At the New York Fed’s culture conference last October, Dame Minouche Shafik observed pragmatically that an end to all misconduct is not the goal of reform. There will always be a few bad apples. Rather, the goals should be far fewer instances of misconduct and far less scope, magnitude and duration when such misconduct inevitably occurs. I submit that the best way to keep problems small is to encourage a culture that spots issues and raises concerns early. In my view, the most dangerous type of culture in finance occurs when people see something wrong but do not say something. I think back to the chat room transcripts from the LIBOR and FX scandals. The way traders communicated so openly about their manipulation of markets makes it hard to imagine that others in their firms did not know what was happening. So, why didn’t those people say something? There are understandable, human tendencies that can cause each of us to avoid rocking the boat.
We particularly need to strengthen active employment policies to provide the right guidance and training to those who have lost their jobs, thus improving their employability. Another differential characteristic of the Spanish labour market is the high proportion of temporary employment, higher than in any other euro area country. This means that when there is a recession, temporary employees are the first to lose their jobs, which is usually exacerbated by the fact that these individuals belong to vulnerable groups. The harmful effects of temporary employment extend to productivity growth. Resolving this problem calls for changes to hiring mechanisms, so that firing costs differences may be reduced between permanent and temporary contracts, without harming job creation capacity. As well as correcting the structural shortcomings, we must tackle the medium-term challenges, including most notably those stemming from population ageing, climate change and inequality. The rise in the demographic dependency ratio, which will foreseeably double in the coming decades, will exert a significant impact on the economy and, in particular, rising pressure on pension spending. The 2011 and 2013 reforms helped ease these pressures. But the decision to link pensions once again to the CPI will mean additional compensatory measures will have to be taken. There are three parameters within which action can be taken: revenue, expenditure and retirement age. The scale of the problem advises diversifying the measures with broad and stable agreements.

We as a central bank also vested enormous efforts making many adjustments in data collection, production and communication process that helped us smoothing the pandemics effect on the production and dissemination of statistics. The pandemic in the initial phase tested the resilience of the statistical system, i.e., the ability to continue with timely supply of statistical data. But it also created demand pressures for new data that was not produced by the official statistics. Data on the epidemiological curve became highly needed as they are leading indicator on how the economy will evolve and how economic and social policies should be calibrated. At the same time, there has been growing demand for real-time high-frequency data on the economy, as many of the historical systematic linkages that policy decisions were based on were broken. For instance, we have been intensively using google mobility data during the lockdowns to assess the behaviour of consumers. We have also leveraged on the private sector data for payment card transactions, as an indicator to assess the personal consumption dynamics and its structure. Although highly useful, the abundance of data also poses a challenge for statisticians, as accentuated by the health crisis. As we go further down the road, the need for quick and granular data, for example on the changes of the economic behaviour of the agents, the longer term scarring to the economy, or the impact of the policy actions on economy will be a "must".
At the central bank level, the HKMA has a swap arrangement with the PBoC, which is the largest in size globally. This swap line could serve as an effective back-stop liquidity facility to support the development of our RMB offshore market. 14. But more liquidity is just part of the equation. We also need more products to put the liquidity to productive use. This brings me to the second factor to build markets, which is products. We need to develop more RMB-denominated products in our equity, bond and wealth markets. 15. The continuous enhancement of the Connect schemes will help create this product diversity. For example, by opening up the new Southbound channel of the Bond Connect, we will expand the investor base of our bond market, which will in turn attract more liquidity in secondary trading as well as more primary issuance activities. And this will help reinforce the growth of our dim sum bond market in depth and diversity. Similarly, we are hopeful that the launch of the Wealth Management Connect will create room for more innovation in wealth management products, including those denominated in RMB which, according to some surveys, are favoured by potential Mainland customers. 16. What about equity products? Together with other regulators, we are now studying market proposals about enlarging the use of RMB in our stock market trading.

Both these items are limited in time and size, making necessary a steadier correction of the external position of our economy. This correction should aim at covering the trade deficit with stable funding resources, in the form of foreign direct investments and promoting export industries in branches that may constitute a competitive advantage for Albania. However, short-term developments in foreign trade for October to November show a somewhat different performance compared with the first nine months of the year, testifying a modification of the trends observed earlier. Thus, the country’s exports fell in annual average terms by about 7.4 percent, recording a slowdown in comparison with the average decline by about 19 percent during the first nine months of the year. On the other hand, imports recorded an annual average decline of 17% per cent over these two months, compared with the average annual decline of 7 percent recorded in 2009. These developments contain encouraging signs for sustainability of the balance of payments in the short run Fiscal policy had an expansionary nature during most of the year, being materialized in a budget deficit of 6 percent of GDP. The increase of budget deficit reflects both the action of automatic stabilizer in the form of decreased revenues, and the intended countercyclical character of fiscal policy, through increased wages and capital expenditures. The country’s economic activity slowdown has dictated a slow pace in budget revenue growth, especially after the first quarter of the year.
As a result of the turmoil, and of the policies implemented to contain it, some financial activities have become heavily concentrated among a very small numbers of players. This raises some basic questions about monopolistic tendencies. Competition policy in the financial sector must be reinvented. This cannot be done without some vision about the future shape and structure of the financial industry, as well as the degree and modalities of its internationalisation. The debate is clearly open. This is – for all G20 policy-makers, the FSB and regulators – a formidable challenge. BIS Review 133/2009  3

6 See Donald Kohn and Brian Sack, Monetary Policy during the Financial Crisis, preliminary discussion draft  presented at the Hutchins Center on Fiscal and Monetary Policy at Brookings and Yale School of Management Program on Financial Stability event, Responding to the Global Financial Crisis: What We Did and Why We Did It, Washington, D.C., September 11–12, 2018. 7 Possible sources to which this lament has been attributed are catalogued here, although its actual provenance  is not known. 8 As part of our analysis of what went wrong in our forecasting before the Great Recession, researchers at the  Federal Reserve and European Central Bank jointly looked at various methods of more directly including highfrequency fluctuations in our forecasting models. The results from this research are reported in Luci Alessi, Eric Ghysels, Luca Onorante, Richard Peach, and Simon Potter, Central Bank Macroeconomic Forecasting during the Global Financial Crisis: The European Central Bank and Federal Reserve Bank of New York Experiences, Federal Reserve Bank of New York Staff Reports, number 680, July 2014. 9 See survey questions and results to the Survey of Primary Dealers and Survey of Markets Participants, Federal  Reserve Bank of New York. 10 Of course, the NBER didn’t actually declare the start of the recession until late November 2008, nearly a year  after it officially began. 11 Estrella and Mishkin’s original paper, updates, related research, and current recession probabilities implied by  the term spread are available on the New York Fed’s Research website.