samchain/econo-pairs-v1 huggingface dataset:
This may at times be so serious as to lead to general panic, as herd instinct, following the sometimes deliberately transparent actions of the renowned market leaders, takes hold. This then results in problems of systemic dimensions, threatening financial meltdown and serious disruptions to financial intermediation and economic activities. Furthermore, the revolution in information technology, working through financial innovation, has greatly increased the potency of international capital, particularly portfolio capital. There is no doubt that the dynamics of international finance have become much more demanding than before, for an emerging market in Asia, and elsewhere, that embraces financial openness. This is so in respect of all areas of macro-economic policies, including exchange rates, which I shall also address later, and all aspects of financial market structure. Domestic macro-economic problems, considered to be benign one day, all of a sudden can become malignant the next, triggered possibly by some strange events, and then sharp, destabilising reversals of capital flow ensue. The new dynamics, of course, present difficult challenges for the maintenance of monetary and financial stability, and this is the fifth characteristic of Asian finance worthy of note. The dilemma between financial openness and the maintenance of monetary and financial stability is a real one, and a harsh one under globalisation, particularly for those who are less well endowed.

Indeed, from the business perspective and being the international financial centre of China, we must position ourselves for and try and make the best of the opportunities that come with the inevitable process of financial liberalisation of the Mainland. So we spend much of our time and attention on monetary and financial issues on the Mainland. But I must still confess an occasional inability to understand exactly what goes on there. With a high savings rate, rapid economic growth, and the attraction of an emerging market of mammoth dimensions and ample opportunities, the Mainland of China can afford to adopt a cautious approach to financial liberalisation. Even with continuing, tight capital controls, there is no lack of foreign direct investments. The size and strength of the economic magnet of Mainland China are such that it has become, for a number of economies in the region, one of the largest trading partner and destination for outward direct investment. Foreign portfolio investments into the Mainland of China, to the extent that these opportunities are available, for example, in the stock market of Hong Kong, are also in great demand. With an abundance of domestic savings (the savings rate is around 30% to 40%), the emphasis is on financial sector reform, to enhance the efficiency of domestic financial intermediation, in order to sustain growth and development, rather than to attract an inflow of foreign savings.
Similarly, the changes in the composition of labour contracts that I mentioned earlier are likely to imply that inflationary pressures might take longer than usual to build up. We need to factor this information into our policy deliberations. At the same time, we need to monitor carefully developments in long-term unemployment, labour force participation rates and hours worked with a view to informing our assessment on the likely evolution of structural unemployment. Should the share of long-term unemployed stabilise at one point, with no convincing signs of further likely downward adjustments, the risks of inflationary pressures starting to emerge at higher levels of unemployment would increase. At this point – when scratches indeed become scars – the level of slack relevant for determining medium-term price stability would decline. Policymakers would therefore need to start tightening policy earlier to remain faithful to their primary mandate. As I mentioned in my introduction, however, there are some who argue that such a response would be premature, since if hysteresis effects can be caused by lack of demand, then they can equally be reversed by excess demand. In a high-pressure economy, for example, firms might be encouraged to dig deeper into the labour market to find recruits, thereby reactivating and retraining some of those workers who were previously thought to be unemployable. Glenn Rudebusch and John Williams therefore conclude that optimal monetary policy would allow inflation to overshoot its target.13 I have some doubts about this view, mainly for two reasons.

Solvency II review, internal models and the solvency capital requirements calculation Having mentioned the Solvency II review, I do not propose to try and cover the many topics that it encompasses. I do want to talk about one aspect which risks being overshadowed by the familiar headline topics of risk margin, regulatory reporting, and matching adjustment. That is, the overall approach to setting capital requirements, and the potential role of sector-wide stress testing in that. Under the existing implementation of Solvency II, there are many firms for which the standard formula is not appropriate, and internal models are the near-exclusive determinant of capital requirements for all or part of the business. And those models either have to be approved or, if not, rejected in their entirety, using a bottom up approach of assessing compliance with a large number of technical tests and standards. The philosophy is, in effect, that everything can be modelled, and that determining capital adequacy is essentially a technical exercise. This denies the reality: first that some risks are simply not conducive to modelling; and second that even for those that are, there will always be a chance that the model is wrong. It hinders supervisors in responding flexibly to risks not well captured by a specific model, or by modelling in general. And it has led to huge expenditure of effort by both firms and supervisors in the approval of models and model changes.
Experience of previous financial crises shows that they are usually followed by long periods of weaker growth, higher unemployment and seriously weakened public finances.10 GDP fell in both the United States and the euro area in 2009 and unemployment increased. Inflation fell rapidly, mainly because the earlier increases in the prices of energy and food turned into price decreases. However, there were other parts of the world that were not affected by the crisis to any great extent. Countries such as China and India continued to enjoy high rates of growth. The financial crisis mainly affected Sweden through the fall in the international demand for Swedish exports. GDP fell by 5.9 per cent between 2007 and 2009, but then increased by 5.5 per cent in 2010. Already a year after the downturn had bottomed out, production had returned to more or less the same level as before the crisis. But GDP was still far below the level that a postulated trend increase without the crisis would have led to (see Figure 11). Unemployment peaked at almost 9 per cent at the turn of the year 2009/2010. The increase in unemployment was much less than predicted in the Riksbank’s earlier forecasts and much less than indicated by normal Okun links between GDP growth and unemployment.11 This is probably because the crisis primarily affected the industrial sector with substantial effects on GDP but smaller effects on employment, while activity in other parts of the economy was kept up by expansionary monetary and fiscal policies (see Figure 12).

As always, we are monitoring developments carefully and in connection with the Monetary Policy Update in April will make a renewed assessment of the international outlook in which we will also take into account how events in Japan may affect the development of the global economy in the slightly longer term. Sweden At the latest monetary policy meeting in February, we decided to raise the repo rate from 1.25 per cent to 1.50 per cent and our assessment was that the repo rate would need to be increased to 3.6 per cent by the end of the forecast period, that is in three years’ time. My assessment was that we will need to raise the repo rate by 0.25 per cent at every meeting in 2011 to 2.75 per cent at the end of the year. This entails a somewhat steeper upward path in the second half of 2011 than the repo-rate path presented in the main scenario of the Monetary Policy Report. However, in light of the uncertainty about the development of interest rates, I did not enter a reservation against the repo-rate path but confined myself to commenting on this at the meeting (see Figure 17). I will now discuss my view of monetary policy in the years ahead in a little more detail and take the picture of the economic outlook presented in the latest Monetary Policy Report as my starting point.
Heng Swee Keat: The next stage – policy challenges in Asia Keynote address by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Paris Europlace International Financial Forum, Singapore, 26 October 2009. *  *  *  Governor Noyer, Your Excellencies, Ladies and gentlemen, Good morning It gives me great pleasure to join you today at this Paris Europlace International Financial Forum. Let me warmly welcome Governor Noyer and our overseas visitors to Singapore, and welcome Mr Bresson and your team for holding this Forum in Singapore. Policy challenges ahead A year ago, the global financial community was grappling with a severe crisis that hit every part of the globe and every sector. We were on the edge of an abyss. The timely and forceful action by authorities, including the use of unconventional monetary policy tools, helped avert the worst. In recent months, the global economy and financial markets are showing signs of stabilization. Though we are yet to see a firm or sustainable rebound in final demand, there is a sense of relief, even optimism. Now, what’s next? What will be the shape of the recovery, and what policy actions are appropriate? It is difficult enough to make policy judgments in normal cyclical downturns. It is even harder now that this downturn is not a garden variety recession.

Yes, it is difficult to identify an imbalance at an early stage. The fact that exaggerated optimism and high risk propensity can push up property prices and lending does cause problems, for instance. It is difficult to capture this type of factor in the models used to analyse the economy, as they are often based on everyone acting rationally, at least on average. Moreover, it is difficult to capture the risk of a bubble bursting and the consequences this might have. The idea behind “leaning against the wind” is that the actual probability of the shock occurring can be reduced by the policy the central bank is conducting today. It is difficult to incorporate this into the formal analysis. However, the scope for identifying an imbalance is probably better in the property market, which goes hand in hand with credit growth, than in other asset markets. The financial crisis has also contributed to central banks and other authorities now working even harder to better capture financial variables in their models and other analyses. Constructing early warning systems that signal imbalances in, for instance, the property market is also part of this work. However, it is difficult to say today how much we will eventually achieve here. But even if the criticism is justified – is it sufficient argument for not “leaning against the wind”? One must compare what the central bank can reasonably be expected to win and lose by taking action with the possible effects of not doing anything until a potential bubble has burst.
This process of regular and systematic assessment, based on the economic and financial data, is unimaginably different from the erratic reaction to financial market disturbances which characterised the conduct of monetary policy too often in the more distant past. And the reflective, interactive, debate within the Monetary Policy Committee is very different too from the sometimes exaggerated advocacy of a particular viewpoint which inevitably crept in to the Ken and Eddie show during which the Bank usually had at most an hour in which to persuade a sometimes reluctant Chancellor! The present arrangements allow us to explore, without initially taking hard positions, alternative possible interpretations of the data and their implications; and those discussions capture far better than before the uncertainties inherent in the conduct of monetary policy. It is, I think, how monetary policy really should be made. Transparency and accountability With operational independence comes - quite rightly in my view - even greater transparency and public accountability. The minutes of the two-day meeting at which that decision is taken, together with a summary of the information presented by the staff, are published in the week after the following meeting. Those minutes also record the individual votes of each member of the Committee. Beyond this, we publish a regular assessment of monetary policy - including a forecast of inflation over the two-year period that we believe is relevant, given the lags between policy actions and inflation outturns - in the Bank’s Quarterly Inflation Report.

It concludes that there is some concern that the deteriorating performance of sub-prime RMBS could affect the broader market for structured credit instruments, due to the fact that the concentration of sub-prime mortgage loans as collateral for collateralised debt obligations (CDOs) is very high. It cannot be ruled out that further poor performance of this type of collateral could trigger rating downgrades of CDO tranches themselves and lead to a reassessment of risk in other segments of structured credit markets. Financial market liquidity An overarching theme, pertaining to several sources of risk and vulnerability in the financial markets, is the abundant liquidity characterising global markets. Indeed, there appears to be a consensus among market participants that market liquidity has reached unprecedented levels. Financial market liquidity is a measure of the ability of market participants to undertake securities transactions without triggering large changes in their prices. The concept of financial market liquidity is distinct from the concept of monetary liquidity, but there can be links between the two. Although the measurement of market liquidity is rather complex, symptoms of the abundance of liquidity include high leverage, low yields, low market volatility, narrow credit spreads, and high market turnover. Overall, abundant liquidity seems to be intertwined with the “search for yield” which has been discussed in past issues of the FSR and it appears to be dependent on confidence remaining in the smooth functioning of the market.
A second striking feature has been the rise in the importance of passively managed funds, including Exchange Traded Funds (ETFs) and other index-tracking strategies. These passive or tracking funds have risen from $ trillion in 2003 to almost $ trillion by 2012, a rise in global market share from 5% to 13%. Within this, ETFs have been growing at an annual rate of around 30% for the past decade with AUM currently standing at $ trillion. A third trend – the mirror image of the first two – has been the declining share of actively managed funds operating in large-cap equity and government fixed income markets. Their slice of the global AUM pie has fallen sharply over the past decade, from two-thirds to around a half. For some institutional investors, this is part of a longer-term trend towards “deequitisation” – a dreadful word – to which I will return. The reasons for these shifts in portfolio allocation are not difficult to fathom. Like many advanced economies, the asset management industry is facing its own version of the “squeezed middle”. Active funds operating in core markets, in the middle of the risk/return distribution, are feeling the pinch: from above, due to the rise of alternative funds and strategies seeking higher return in a low yield environment – the search for yield; from below, due to the rise of passive funds and tracking strategies delivering lower cost to investors – the quest for cost.

2  Personal Financial Assets are defined as financial assets that are held by households, rather than companies or other institutions  3  The growth in AUM may be overstated by increased coverage of the source data over the period. 2  BIS central bankers’ speeches  From an end-investor perspective, both of these trends are understandable. Yet they also potentially carry risk implications, both for end-investors and for the financial system as a whole. For example, the shift towards illiquid assets heightens market risk for investors. And the move into passive and tracking strategies increases the potential for investor herding and correlated market movements (Bolognesi and Zuccher (2008)). Both potentially have implications for financial markets dynamics and systemic risk. Turning to the liabilities side of the balance sheet, here again some important trends are at play. Among the most important is the progressively greater share of investment risk being put back to end-investors, with commensurately less being borne by intermediaries and companies. One clear example is found in the pensions industry, with the structural shift away from Defined Benefit (DB) and towards Defined Contribution (DC) pensions. Here in the UK, the proportion of DB schemes offered to new members has fallen from 31% to 14% since 2008. Contributions to DC funds have been roughly twice as large as those to DB funds since the early part of the century.
Growth in mainland GDP was revised upwards by an average of 1 percentage point per year for the period 1995-1999. The largest revision was for 1999. As late as in May 2002, we believed that growth in 1999 had been 1.1 per cent. The revised figures now show that growth was in fact 2.7 per cent. It is obvious that such revisions can have a considerable impact on the actual output gap. Norges Bank is currently systematising different vintages of national accounts figures. We can then go back and evaluate monetary policy in “real time” to learn how we should respond to uncertain data. Frank Knight (1921) differentiates between “risk” and “uncertainty”.12 With risk, we know the probability distribution for the potential outcomes, but with pure uncertainty we do not. Thus, there is risk, but not  10  In the opening address at last year’s Jackson Hole conference, Alan Greenspan expressed the following: “Uncertainty is not just an important feature of monetary policy landscape; it is the defining characteristic of that landscape. As a consequence, the conduct of monetary policy in the US at its core involves crucial elements of risk management.”  11  Orphanides, A. “The Quest for Prosperity without Inflation”, Journal of Monetary Economics, 50(3), April 2003, 633-663. 12  Knight, Frank H. (1921) “Risk, Uncertainty and Profit”. 6  BIS Review 6/2004  uncertainty, associated with the fall of a die, according to Knight. Thus, for a decision-maker, risk is far more manageable than pure uncertainty.

Projections for imported price inflation may therefore be said to be characterised more by Knight uncertainty for a period ahead. Monetary policy under uncertainty was one of the many topics discussed in the report Norges Bank Watch 2003, where our policy response pattern and communication were evaluated in the light of the theory of monetary policy under uncertainty. This was useful input and constructive criticism which we will keep in mind in our future work. Norges Bank Watch 2003 points out, for example, that we should make a clearer distinction between additive uncertainty and multiplicative uncertainty. This distinction is most clearly reflected in our economic models. The uncertainty associated with the exogenous variables is called additive uncertainty. Examples of additive uncertainty are add factors in our economic models and other exogenous factors such as fiscal policy and the oil price. Uncertainty about the actual functioning of the economy may, however, lead to multiplicative uncertainty. Multiplicative uncertainty often involves uncertainty about the structural parameters in the model, such as the effect of the interest rate on demand and the exchange rate and the slope of the short-term Phillips curve.
Real GDP growth is now 1/5  BIS central bankers' speeches  projected to be 1.1% in 2019, down by 0.6 percentage points from the December 2018 staff projections, and 1.2% in 2020, down by 0.5 percentage points from the December projections. This slowdown is mainly due to the weakness of international trade in an environment of persistent uncertainties related to protectionist policies and geopolitical factors. These factors are increasingly weighing on economic sentiment and, in particular, on the manufacturing sector, which is more trade-oriented and exposed to foreign influences. Of course, countries which have a relatively large manufacturing sector are more vulnerable to any turn in the global economic cycle. Germany, for example, accounts for 28% of euro area GDP, but for as much as 39% of euro area manufacturing value added. Accordingly, Germany is today one of the euro area members most affected by the slowdown. While the euro area services sector continues to be resilient, we should not be complacent about its capacity to remain robust to negative spillovers. The longer the weakness in manufacturing persists, the greater the risks that other sectors of the economy will be affected by the slowdown. Looking ahead, recent data and forward-looking indicators – such as new export orders in manufacturing – do not show convincing signs of a rebound in growth in the near future and the balance of risks to the growth outlook remains tilted to the downside.

Mario Draghi: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament Introductory statement by Mr Mario Draghi, President of the European Central Bank, before the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 23 February 2019. * * *  Introduction Madam Chair, Honourable members of the Economic and Monetary Affairs Committee, Ladies and gentlemen, I would like to start by congratulating all of you on your election, and you, Madam Chair, on your recent appointment as Chair of this Committee. It is a pleasure to appear before this Committee in this new legislative term and before my term as ECB President comes to an end. The legitimacy of the ECB’s independence, as enshrined in the EU Treaties, crucially relies on our accountability. And the Treaties have conferred this Parliament with a central role in holding the ECB accountable. Hearings before this Committee play an essential role here. In my time as President, I have found them to be extremely beneficial. When I appeared before the ECON Committee for the first time, in December 2011, the euro area was rife with financial instability; it was falling into a second recession, which eventually led to sustained disinflation and, at times, heightened risks of outright deflation.1 The euro area has come a long way since the crisis, in part thanks to the support provided by the ECB’s monetary policy.