samchain/econo-pairs-v1 huggingface dataset:
The first is related to how we form our beliefs, opinions and attitudes.8 Specifically, the peculiar economic cycle that followed the global financial crisis – where very low interest rates around the world succeeded in reducing economic slack and in inflating the value of some assets, but not the prices of goods and services – may have made investors doubt the recurrence of upside inflation risk. And this may have led to a downward migration of the future inflation risk distribution. 4/7  BIS central bankers' speeches  This means that large shocks can push the economy into a previously unknown state – in our case a low inflation state – where the absence of, or break with, past regularities, such as the relationship between slack and inflation, may imply a long transition phase to a new steady state.9 Worse, if the beliefs I just mentioned guide our actions, then low growth or low inflation can be the result of self-fulfilling pessimistic expectations and can lead to so-called “stagnation traps”.10 The second, related, factor is that the nature of the uncertainties we face today may have changed compared with the pre-crisis period.

And within that asset class, most market participants have rebalanced their portfolios towards US Treasuries and government agency bonds. This confirms that the portfolio rebalancing channel has been instrumental in delivering the intended benefits of our quantitative easing. Slide 4 shows the extent of this rebalancing more clearly. Since the start of our asset purchase programme (APP), euro area investors alone accounted for more than half of foreign purchases of US debt securities. History suggests that these shares are highly unusual for the euro area. Only recently has the share started to decline again. Now, according to conventional models of the term structure, such capital flows should play no direct role in determining yields.4 In these models, the term premium reflects the covariance between expected bond returns and the representative investor’s stochastic discount factor. However, the conditions under which the supply of and demand for bonds are entirely neutral on yields are very restrictive and unlikely to hold in practice. Indeed, it is now widely accepted that arbitrageurs are often risk-averse and that many investors have so-called preferred habitats for certain assets or segments of the yield curve.5 Pension funds, for example, typically need to invest a significant portion of their assets in safe long-dated bonds to match the liability side of their balance sheet. With arbitrageurs capital-constrained, changes in the demand from preferred habitat investors can then affect the price of duration risk and hence term premia.
We now expect rates to remain at their present levels of –0.5%, or lower, until the inflation outlook robustly converges to a level sufficiently close to, but below, 2%, and this convergence has been consistently reflected in underlying inflation dynamics. Besides, this strengthening of our forward guidance implies the consequent prolongation of the reinvestment period for the very important stock of QE assets – 2600 billion euros. The tiering system will help us mitigate the possible side effects that negative rates might have on banks’ profitability, which is crucial to protect the transmission of our monetary policy through the bank-lending channel. The Governing Council’s discussion at the start of September is now behind us; everyone has expressed themselves legitimately – I have explained my own reservations on one part of the package –; but the decisions were taken equally legitimately, and they provide clarity well into the future. Have no doubt: we are committed, and the whole package will be implemented. We must now look resolutely forward, with three strong elements of consensus around Mario Draghi today and Christine Lagarde tomorrow: we have to maintain an accommodative monetary policy in the face of the economic slowdown and low inflation. Second, a review of our monetary policy framework in this environment will be very welcome. And third, it is very desirable that fiscal policy now prolongs this monetary support, wherever that is possible in Europe. It is time to turn the page, and turn to the future. III.

The IMF just stressed it in its latest “radar” in the GFSR [slide]. On both sides of the Atlantic, we should pay greater attention to non-banks and leveraged debt, and not be shy of activating macroprudential tools, and go beyond the old “separation principle” between monetary policy and financial stability: I advocate a smarter coordination1. 2/ Furthermore, the euro area has an abundant resource at its disposal: a savings surplus towards investment of more than 300 billion euros. The top priority on the European growth agenda should be a Union for Savings and Sustainable Investment to achieve two major objectives, as proposed by the “Next CMU report” published last week by the Ecofin Council: (i) offering saving products to serve citizens’ needs and allocating capital to value creating 2/3  BIS central bankers' speeches  investments in the real, innovating and sustainable economy; (ii) building/strengthening an integrated, competitive, deep and liquid European Capital Market, to maintain the EU as one of the top 2 financial centres of the world [slide]. To achieve this, it is now high time to give the Banking Union and the Capital Markets Union a significant push forward, let us at last, walk our talk!
The first is, the COVID-19 shock hits the Thai economy at particularly where we are vulnerable. If we look back at the previous crises which the world economy faced - for example, the 2008 global financial crisis - Thailand got hit very little. We went through that crisis relatively quite well. However, due to the nature of this crisis, COVID-19 hits us exactly where we are vulnerable. This is because we are an economy which highly depends on tourism where the share of services to GDP is very high. Therefore, this makes our recovery much slower than other countries in the region. The second point is that our recovery has been uneven. Certain sectors have recovered quickly. For example, the manufacturing production index is roughly about 95 out Page 1 of 11  of 100 percent back to where it was pre-COVID. A similar picture would be on the export side where the current value of our exports, excluding gold, is actually higher than the pre-COVID level. But for other sectors, like the service sector, the service production index is still tracking roughly at about 70 percent of where it was pre-COVID. This is also due to our high dependency on tourism, and foreign tourists are basically not able to come back. This has accounted for both, our relatively slow recovery and the very uneven nature of the recovery. But one point, if I might add, is that it could have been much worse.

This indicates, again, the willingness of the government to undertake additional spending to support the recovery of the economy. On the monetary and financial side, the Bank of Thailand has ensured that monetary conditions remained sufficiently accommodative to support the recovery. We reduced our policy rate down to 0.5 percent which is as low as it has ever been in the history of the Bank of Thailand. In addition, financing conditions were also accommodative and supportive of economic recovery. For example, 10-year government bond yields in Thailand stand at only about 1.7 percent which is almost at a record low. Although we have not reached a zero or negative rate as we see in Japan, but for Thailand, it is a very low interest rate. For the overall liquidity, the loan to deposit ratios in the banks, as well as other measures of liquidity, indicate that overall liquidity is high. Nevertheless, the problem is that not all the liquidity is going where it needs to. In particular, we would like to see more liquidity being distributed to small and medium enterprises (SMEs). If we look at credit growth in Thailand and this is another illustration of my point that overall liquidity in Thailand remains adequate, credit growth to large corporates has been growing at over 10 percent a year. Even for the household sector, credit growth has also been growing at about 4 percent a year. However, the segment where credit growth has been shrinking is the SMEs.
The clarity of the objectives and the reporting system provided a stronger collective confidence that individual firms would be held to similar standards independent of their principal supervisor. And we have made a more systematic effort to share concerns with the SEC, the FSA and other supervisors and identify areas where we can work in parallel to highlight issues we see in the major markets and encourage change among the major institutions. We are in the process, for example, of consulting with these and other authorities on the use of stress testing and scenario analysis in the largest institutions. These efforts of course complement a substantial amount of cooperation in other contexts in the U.S. and internationally in the Financial Stability Forum, the Joint Forum and the Basel Committees on Banking Supervision and Payment and Settlement Systems. These initiatives help keep the supervisors closer to developments in markets, more informed of differences in approaches across the functional and geographic lines of supervision, somewhat more nimble in responding to potential problems and closer to creating a more integrated supervisory framework. The evidence to date suggests that dramatic growth in new instruments for risk transfer and the greater role of nonbank financial institutions have contributed to a more stable and more efficient financial system. But these changes present continuing challenges for the discipline of risk management.

However, we still face considerable uncertainty about how market liquidity will behave in the context of a major deterioration in credit conditions or a sharp increase in volatility in equity and credit spreads, and this uncertainty is hard to quantify and therefore hard to integrate into the risk management process. •  The apparent increase in the scale of demand for exposure to credit risk relative to the growth in supply of credit has contributed to a substantial reduction in credit spreads and to some erosion in credit terms. Banks and dealers have reported pressure to reduce initial margin levels. The scale of leverage in some transactions is reported to have risen. The spread of portfolio-based margining creates the potential for greater overall leverage in the financial system, and the substantial variance in margin required by different dealers for similar portfolios suggests a wide diversity of views on how to measure the economic exposure. BIS Review 14/2006  •  Although banks hold a substantially smaller share of the overall credit risk in the system than they did twenty years ago, this shift understates the importance of the role they play in the underwriting, distribution, trading and market making of credit related assets, and it understates the importance of earnings derived from these activities to overall profitability.
Regarding productivity growth in the other sectors, the possibility of further improvements relies mainly on: (1) increasing human capital accumulation through increased labor participation, raising working skills above the already projected levels or the migration of workers with the competences required by the Chilean system; and (2) making productivity improvements via enhancing companies’ efficiency, lowering production and trading costs, and changing output composition toward more competitive and productive sectors, while advancing in terms of innovation and technological development. 24. As Chile’s concern for growth has intensified, many ideas about public policies have emerged that could help enhance productivity, with proposals coming from the government, private agents and the National Productivity Commission. In particular, policies have been developed that have permitted to diversify the energy matrix, increase supply reliability and reduce costs. There have been other factors, however, that pose a risk to productivity, including initiatives that may overburden corporate costs, generate new trading costs or reduce savings. 25. Finally, any discussion about productivity must necessarily cover technological development. This is a key driver of economies’ productivity and competitiveness around the world. It is obvious in my opinion that the new technologies, knowledge and innovation capacity are input into the productive system through new ventures, investments and restructurings.

Thus, the recovery in the services and tourism sectors ensures a rebalancing in the composition of demand in the third quarter in terms of goods and services. In fact, sectoral confidence indices also suggest a significant improvement in recent months particularly in the services and retail sectors. When talking about the recent developments, I would like to place a special emphasis on investments. Data for the second quarter indicate that investments, particularly in machinery-equipment, contributed significantly to growth. The CBRT’s research shows that our firms have a high investment appetite. In the recent surveys, firms operating in all sectors excluding construction have reported that the weight of financial constraints among factors limiting activity/production has declined. We see that the weight of this factor is even below the historical averages currently. Moreover, investment and employment tendencies of firms have reached very high levels compared to previous years. We are pleased to see that the improvement in the employment expectation of firms also continues in the third quarter while the investment tendency remains strong across main sectors. We envisage that as the improvement in macro indicators continues in the upcoming period, as the risk premium declines and volatility decreases on the back of improving current account and inflation outlook, the credit channel will function effectively and stabilize the positive outlook regarding the investment appetite. Although there seems no obvious problem in accessing credit, high loan rates limit the access to credit.
[15] To meet redemptions or margin calls, funds sold large amounts of US Treasuries beyond the capacity of dealers to accommodate the demand for liquidity, contributing to the highly unusual decline in Treasury prices in this period of stress. Similar developments may have played a role in euro area sovereign bond markets. The crisis also exposed the strong interconnections between banks and non-banks through direct exposures and overlapping portfolios, and demonstrated how these can increase the risk of contagion. [16] For example, MMFs play a particularly important role in the short-term funding of banks. They hold around 10% of outstanding debt securities issued by euro area banks. During the crisis, many of these funds, in particular low-volatility net asset value (LVNAV) funds, which account for almost half of the euro area MMF sector in terms of total assets, came under severe liquidation pressure as investors redeemed large amounts of shares (see left chart slide 10). [17] Large outflows, in turn, led to a freeze in the demand for commercial paper and a measurable rise in their issuance rate for both banks and non-financial corporates, draining liquidity from the system at a time when it was most needed (see right chart slide 10). [18] While some investment funds and MMFs took exceptional measures to cope with their liquidity stress, these were not sufficient to prevent systemic stress. Some investment funds used quantity-based measures, such as the suspension of redemptions and redemption gates to address liquidity issues.

There is a greater concern upon making long-term economic decisions in the monetary union: whether the euro area’s central banks (that is, the Eurosystem as a whole) are able to keep the pan-European average inflation rate at a suitable level. This means that in the medium term, the inflation rate has to remain below but close to 2%. While in Austria or Slovenia, or in Estonia for that matter, inflation may temporarily differ from that of the euro area, we have to look at the whole picture when making decisions. The ability of the euro area to keep inflation close to 2% over the entire past decade has inspired confidence. The average inflation rate has remained slightly below 2% throughout the history of the single currency and annual inflation has mostly ranged within 1.5–2.5%. However, we must not be distracted by our success. The euro area’s inflation indicator was over 2% at the beginning of this year, and, most recently 2.4%. This is worrying. BIS central bankers’ speeches  1  The more detailed picture is, of course, more diverse and future monetary policy measures will also have to take that diversity into account. On the one hand, the European economy is just recovering from a deep economic recession. Unemployment is higher than usual, the relatively high debt burden is inhibiting borrowing activity in many countries and the majority of the recent price hike stems from global factors, such as the price growth of energy and food on the global market.
At the same time, higher rated corporate borrowers took advantage of lower yields to strengthen their balance sheets, accounting for 45% of total issuance. This was despite a general widening of credit spreads – which though they have come back some way from the peak levels of the autumn are – and are likely to remain – substantially wider than before the emerging markets crisis, reflecting a more sober assessment of relative credit risk. Against that, the bond markets generally benefited substantially from continuing low inflation and a further decline in inflationary expectations, so that yields have declined in virtually all the main currency sectors. In terms of government bonds they have come down by 100 basis points in the US, by 150 basis points in bunds, by close to 200 basis points in the sterling gilt market, and even by over 100 basis points in Japan before yields there began to back up late last year. Borrowers have been attracted by lower nominal borrowing costs; and investors in the market have been attracted by the prospect of rising values as yields have declined. Significantly, the decline in yields in the underlying government bond markets has typically more than offset the widening in spreads faced by lesser credits. In the US corporate bond market, for example, BBB spreads widened over the year from around 75 basis points to around 140 basis points, but because of the underlying fall in yields, yields paid by BBB borrowers actually fell from around 6½% to 6%.

But after the series of new shocks during last summer – Russia, LTCM, the deepening recession in Japan and the worsening position in Brazil – the prospects, at around the time of the IMF meetings in Washington last autumn, were looking pretty bleak. Now I would completely destroy my reputation as a central banker if I were to suggest that we are out of the woods. But the darkest financial storm clouds have lifted a little since the Fund meetings. The US Congress finally approved more resources for the IMF, the threat of a credit crunch extending to the industrial economies in the wake of LTCM receded, helped also by an easing of monetary policy in Europe as well as in the United States. In Asia, Japan took more determined policy action to address the fragility of the banking system and to stimulate domestic demand; the yen strengthened; China and Hong Kong both remained admirably resolute; and there have even been some encouraging signs of renewed capital inflows to some of the Asian countries. The floating of the exchange rate in Brazil last month inevitably increased concerns about emerging market instability, but it is encouraging that adverse effects on other markets have so far been limited. BIS Review 17/1999  –3–  There may be further particular setbacks, as far as the overall financial situation is concerned, but I think I can confidently say that if it doesn’t get any worse it is likely to get better.
Chart 4: Relationship between stock price and number of TCFD disclosures made  And TCFD disclosure is increasingly a responsibility, as suggested by research from the Commonwealth Climate and Law Initiative that concludes that non-disclosure is a bigger liability risk than disclosure.11 That is just one reason why jurisdictions like the UK and EU have signalled their intentions to make TCFD disclosure mandatory. Second, the TCFD disclosure recommendations should be refined to those that investors consider most decision-useful. The TCFD needs to reach a definitive view of what counts as a high quality disclosure before they become mandatory. In my view the next two reporting periods should balance the urgency of the task and the imperative of getting it right. This is best delivered by the current process of disclosure by the users of capital, reaction by the suppliers of capital, and adjustment of these standards to ensure that the TCFD metrics are as comparable, efficient and as decision-useful as possible. “Laggard companies that fail to disclose climate risk in line with the TCFD recommendations may be less attractive to investors and struggle to secure loans or insurance. [F]ailure to disclose may suggest that a company has not considered climate risk, or that it has something to hide in relation to its exposure – either way, silence can send a warning signal to the market.

Climate risks have a number of distinctive elements, which, in combination, require a strategic approach. These include their:   Breadth, as climate risks affect multiple lines of business, sectors and geographies;    Magnitude, as the full impacts of climate risks are large, potentially non-linear and irreversible;    Foreseeable nature;    Dependency on short-term actions given that the size of future impacts will, at least in part, be determined by the actions taken today; and    Uncertain time horizon which may stretch beyond traditional business planning cycles. The nature of these risks means that the biggest challenge in climate risk management is in assessing the resilience of firms’ strategies to transition risks. Markets need information to assess which companies can seize the opportunities in a low carbon economy and which are strategically resilient to the physical and transition risks associated with climate change. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  The good news is that half of the companies surveyed by the TCFD are using scenario analysis to assess the resilience of their strategies. Financial firms are at the forefront of these assessments.