samchain/econo-pairs-v1 huggingface dataset:
José De Gregorio: Chile and the global recession of 2009 Speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the seminar Los temas del 2009 (Key Issues of 2009), organized by the Instituto de Políticas Públicas Expansiva – UDP and Libertad y Desarrollo, Santiago, 20 March 2009. I am grateful to Mariana García and Enrique Orellana for their valuable comments and contributions. *  *  *  The world is undergoing a major crisis and all economies, at different degrees, are being affected by the shrinking output in the developed world. What began as a crisis focused on the subprime mortgage market in the United States has swept over the rest of the financial systems of the developed countries and is significantly hurting global activity in a variety of ways. In fact, a surprising feature of this crisis is its high synchronicity throughout the world. Consequently, we are now facing a very complex outlook. It was only last September, when the crisis was still believed to be a problem which would chiefly affect developed financial markets, that consensus projections anticipated that the world (measured at market prices) would grow by 2.5% during this year. In March, consensus estimates foresee a 1.6% drop in global GDP. That is to say that, in six months, global growth projections for 2009 have dropped more than four percentage points (Table 1).

Although we cannot ignore the option of tightening monetary policy when faced with significant increases in asset prices, it is not so certain that these will give way with an increase in interest rates. This is particularly important in emerging economies, where a higher interest rate may raise incentives for carry trade and aggravate increases in asset prices. In order to avoid financial imbalances resulting from excessive and unjustified  2  We could state that, while the United States had an interest rate lower to that suggested by a Taylor rule (as suggested by Taylor, 2008), this was probably not the case in Chile, although I do not know of any evidence for or against this hypothesis. 3  According to Ahrend et al. (2008), between 2000 and 2003, Australia probably also had a rate below the one suggested by the Taylor rule. 2  BIS Review 41/2009  increases of these prices, the first line of defense should always be macro-prudential financial regulation and a thorough assessment of systemic risks, rather than changing the monetary policy stance.4 As I have already mentioned, a fast expansion of credit does not necessarily mean jeopardizing financial stability. What is indeed harmful, and may certainly foster the creation of bubbles, is an either implicit or explicit commitment to substantially ease monetary policy when asset prices fall, unless the financial system is actually believed to be under serious risk.
The neo-classical theories, not least those based on rational expectations, have provided a number of explanations for this. But that hardly means that Keynes is dead. Within a policy framework for macroeconomic stability and given sound, long-term rules for the market economy, there ought to be room for cyclical stabilisation, though not for fine tuning. With a fixed exchange rate regime, monetary policy has to concentrate on maintaining the given rate and leave the stabilisation of demand mainly to fiscal instruments. In the first place that implies creating enough room – sufficiently large reserves – for the automatic stabilisers to be able to act in downward phases. The European Community’s Stability & Growth Pact is designed to this end, for example. It is also a question of economic agents being able to rely on inflation remaining low. With a flexible exchange rate, a large part of the responsibility for stabilisation policy rests in practice with the central bank. Strong confidence in monetary policy and in the ability of the central bank to fulfil its objectives is of primary importance here. It will then normally be feasible to lower interest rates when economic downturns are imminent and vice versa. In that way, a policy focused on price stability will normally also help to stabilise economic activity. 4  BIS Review 81/2001  When opinions differ, it is now usually a question of practical judgements. Are the budget reserves sufficiently large for the automatic stabilisers to be given their head?

Built-in stabilisers did exist, for instance in the form of unemployment support, but the benefits were low in order to strengthen the incentive to search for new employment. This did work – when the upturn came in February 1922 the number of persons on relief work or the dole was over 100,000; by the end of 1923 the figure had dropped to 6,000 – but the flexibility did, of course, exact a price in the form of social hardship. Stabilisation policy’s emergence In contrast to the lack of an active economic policy in the period around 1920, decision-makers in the 1930s had high ambitions, underpinned by a nascent stabilisation policy theory. The course of economic events in connection with the crisis of 1930–33 partly resembled what had happened in Sweden a decade earlier. An international boom with unduly high hopes of future profits had led to markedly inflated asset prices. The party ended in a financial crash and Wall Street’s collapse in October 1929. A number of banks had to close their doors. On top of all this, the US Federal Reserve imposed credit restrictions. In Sweden, the depression was not as deep as the one in the early 1920s, though unemployment did rise to much the same level, about 25 per cent. The major difference was that the economy was successfully piloted past a steep price fall. Sweden left the gold standard in September 1931.
Charles Kindleberger’s seminal work on financial crises documents a number of credit-fuelled investment manias and bubbles in which the trigger was simply a change in sentiment about the value of the asset leading to the drying up of credit or greater fools prepared to finance further speculation.7  3 This may well have been because debt with compound interest grew much faster than the productive capacity of agrarian economies. See Hudson (2018). 4 A similar debt reset mechanism for the ancient Israelites, was provided by the Jubilee set out in the Old Testament. And when debt and credit technologies subsequently transferred to ancient Greek societies, similar problems emerged. See Graeber (2011) and Hudson (2018). 5 See Frank (1935) 6 See Cipolla (1982) 7 These are documented in the appendix of Aliber and Kindleberger (2005). 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Whatever the trigger, the point is that widespread correction of debt and asset prices and consequent loss of wealth may not happen often but it does seem to happen periodically. In other words, it is not what today we would call a ‘bug’ in the system that subsequent improvements will correct. Rather, however unwelcome, it is a feature of the system. The question for those of us concerned with financial stability is not so much whether we can prevent such adjustments happening.

There are several key benefits of issuing the Islamic Monetary Notes under this structure. It provides Islamic financial institutions an additional instrument to manage liquidity risk on a short-term basis. It is also a financial instrument whose structure has been widely used for retail banking and syndication products in the Middle East. Finally, it provides an opportunity for new investors to invest in Islamic financial papers in the Malaysian market, thus diversifying the investor base. As part of the initiative to be linked to the global Islamic financial markets, this instrument will be promoted to the international financial market. Islamic Derivative Master Agreement (IDMA) Recognising the importance to develop Islamic hedging products for Islamic financial market to mitigate investment risks, Malaysia has introduced the first global Islamic Derivative master agreement to document Islamic derivative transactions. The effort is initiated by Bank Negara Malaysia and driven by the financial industry via the Persatuan Pasaran Kewangan Malaysia. The implementation of the agreement is expected to improve the risk management practices, balance sheet management, increase fund mobilisation efficiency and enhance their investment banking capability of the Islamic banking institutions. With the introduction of IDMA, the rights and obligations of contracting parties are clearly stated, thus creating an environment that is more transparent. As IDMA also incorporates best practices in market conduct, this document serves as an important catalyst for the future linkages between financial markets that offer Islamic financial market instruments.
If systemically important domestic institutions expand abroad, central banks - with responsibility for financial stability - will have to assess the risks involved. In addition, structural changes also influence central banks’ role as “lender of last resort”. Although structural changes alter the risk profile of the financial system, they shouldn’t be viewed as negative. On the contrary, these changes may be necessary to reap the benefits of more efficient intermediation of savings and better risk management. Changes are thus something the authorities should facilitate and adapt to - through high quality supervision and surveillance and through regulatory changes if necessary. Currently a variety of regulatory initiatives are being discussed. Important examples are the EU Financial Services Action Plan, the revision of the Basel Capital Accord, and the different initiatives gathered under the heading of “New Financial Architecture”. However, as the current wave of consolidation progresses, the authorities must take the necessary steps to ensure an adequate level of competition. While executing this task, the authorities should recognise that the competitive environment of the financial sector has changed and will continue to do so. Furthermore, it is important that the market surveillance function is improved. Increased transparency and harmonisation of regulation and industry practices are particularly important in this respect. However, enhanced supervision, international cooperation and regulatory changes are not enough. Improving institutions’ own risk management systems is a key challenge. It is vital that these systems develop as the structure and activities of institutions change. 7.

3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Building public understanding of what the Bank does – by engaging with people directly– is essential to our work. That’s because our policies work better if our objectives are clear and the British people have confidence that we will do the right thing whatever happens. Improving understanding of the Bank’s role is also part of being accountable to the people we serve. The Bank is at the heart of the UK economy. The responsibilities Parliament has given us are wide-ranging and the decisions we take affect everyone in the country. People deserve the information and tools to judge how well we are doing our job and to know that we are listening to your views. Today’s event is also part of a wider effort by the Bank to move beyond traditional modes of communication to speak more directly to the people we serve. While three hundred thousand people read the Financial Times, there are 30 million Facebook users in the UK. And while everyone knows it is good to talk, the Bank is learning how it can also be good to Tweet – our Twitter account has 227,000 followers, though that still leaves us a little behind Wayne Rooney’s 16.7 million. We are revamping our publications to make them more accessible, using icons and graphics to convey our messages on webpages designed for mobiles and tablets, rather than relying only on pages of words on paper.
The impact would continue to grow as the crisis persists, since the cash flow crunch would force companies – including those previously in a good liquidity position - to shut down for failure to secure financing; either due to increasing financing costs or the banks’ reluctance to finance amid fears of growing default risk during the crisis. This could lead to companies’ bankruptcies, which, due to the chain effect between economic sectors could thus result in a contraction in non-oil GDP. The Committee’s Mandate To counter the impact and repercussions of the crisis on the national economy, the Higher Steering Committee for Economic Stimulus (The Committee), formed by the Council of Ministers Resolution (455) on 31 March 2020, and chaired by the Governor of the Central Bank of Kuwait, adopted a proactive approach to realize economic stability throughout the crisis. It laid down and initiated economic stimulus measures to prepare for the economic recovery stage that shall  Central Bank of Kuwait - Public ‫ عام‬- ‫بنك الكويت المركزي‬  -3-  follow once we overcome this crisis. Immediately afterwards, a national economic and structural reform plan needs to be launched and adopted by all the relevant stakeholders. The Committee listed several measures and governing principles to serve as a framework for all its activities, and they are as follows:  -  -  -  -  Introducing immediate remedies that provide practical and swift solutions to protect the national economy supporting economic reform and best possible resource allocation.

But they are using Regtech much less in their risk management and regulatory compliance activities, despite the many advantages that doing so could bring for them. 8. More generally, banks currently have little engagement with the wider Regtech ecosystem. We found that only 16% of banks are currently taking part in associations and industry 1/3  BIS central bankers' speeches  groups and only 33% of banks are partnering with Regtech firms. So this is an area that definitely needs more work. 9. Our second action is to raise Regtech awareness among banks – in particular their awareness of the benefits, applications and solutions associated with Regtech. 10. Our Regtech Adoption Index told us that a massive 86% of banks consider one of the top public sector activities in this space should be to enhance the engagement between the banking sector and the Regtech ecosystem. 11. And this is where today’s virtual event comes in! It brings together banks, regulators, Regtech providers, industry associations, and representatives from other parts of the Regtech ecosystem. We see this as a perfect opportunity for banks to learn more about the potential benefits of Regtech for their own operations and also for their customers. 12. As part of the efforts to raise awareness, the HKMA has also been publishing a series of Regtech Watch newsletters since November 2019. This series of articles outlines the benefits of Regtech through providing high-level sample use cases for areas like Cyber Risk, Credit Risk, AML/CFT, and also Conduct Management. 13.
Accompanying this has been a sharp rise in the ratio of global wealth to income. Among Western economies, this ratio has roughly doubled since 1950 from around 200–300% of GDP to around 400–600% of GDP (Piketty (2014)). Among other things, this has been attributed to post-war capital market liberalisation causing an upward shift in asset prices. 1  Estimate based on aggregate assets of insurers, pension funds and mutual funds. BIS central bankers’ speeches  1  Looking forward, none of these global forces – population, ageing, incomes, wealth – are likely to go into reverse in the near future. Between now and 2050, life expectancy is expected to increase 9% (to 77 years), global population to rise by a further 30% and real GDP per capita to rise almost threefold. Wealth-to-income ratios, while high, remain below their peaks in the 18th and 19th centuries and so could rise further (Piketty (2014)). These trends will be given impetus by changes in the pattern of global growth. The fastest growing economies globally will be those where penetration of the asset management industry is lowest. Developing markets currently represent less than 20% of global personal financial assets, but represent 40% of global GDP. 2 By 2050, developing countries will represent 60% of global GDP. In China and India, personal financial assets have grown at a rate of 25% per year for the past 20 years. All of this suggests that the global asset management industry is likely to continue its upwards march, absolutely and relative to the economy.

But, as any self-respecting asset manager would tell us, past performance is no guide to the future. This is especially true in an industry as large and as rapidly changing as asset management, with asset portfolios becoming less liquid and more correlated and investor behaviour becoming more fickle and run-prone. Future illiquidity pressures in financial markets, generated by asset management distress or wholesale portfolio reallocation, may  5  4  Figure represents total assets, adjusted for equal and offsetting liabilities and non-controlling interests and excluding intangible assets and goodwill, as of June 2013. BIS central bankers’ speeches  be larger and more potent. In other words, Black Swan risk in asset management may be real and rising (Taleb (2007)). Pro-cyclicality In practice, such adverse financial market dynamics are more likely to arise from asset managers behaving in a correlated fashion, perhaps because they face a common set of constraints or sources of stress. In this respect, it is possible to identify a set of market-wide conventions or regulatory practices which have the potential to drive common behaviour among asset managers and their institutional client base. These have the potential to turn idiosyncratic market frictions into systemic market failures. Around a year ago, the Bank began working with some academics and industry practitioners to explore these dynamics. In particular, it focussed on evidence of pro-cyclicality among insurance companies and pension funds (ICPFs) – their potential to amplify, rather than damp, the risk cycle through their portfolio choices.
For some time, efforts have been under way worldwide to reform major reference interest rates such as Libor. These reforms aim to put existing benchmarks on a more solid footing and, where necessary, to develop alternatives. In the case of Libor, these reforms are still ongoing. In the context of these reforms, a decision has already been made to discontinue the TOIS fixing on the Swiss money market and replace it with SARON at the end of 2017. This is due to the fact that, despite various reform attempts, the volume of transactions underlying the TOIS reference rate has remained too low for efficient price formation. Transaction volume is not expected to be an issue with SARON. Unlike the TOIS fixing, which is calculated using data contributed by a panel of banks, SARON is based on actual market transactions and binding quotes. This fact reinforces trust in SARON and makes it more attractive as a reference rate for all money market transactions. Progress has already been made in establishing SARON on the Swiss money market. For some weeks now, it has been used as the reference rate for interest rate derivatives; hence, quotes for SARON interest rate swaps (SARON swaps) are already being offered. We can observe this in chart 4, which plots the curves for TOIS and SARON swaps. We see that the yield curve for SARON swaps already covers all maturities. Moreover, the SARON yield curve is below the TOIS curve.

Overall, these patterns of credit growth support the idea that the weakness of banks at the end of the Great Recession has been a contributing factor to the slow recovery of the U.S. economy since the recession. These patterns are consistent with evidence provided in the work of Carmen Reinhardt and Kenneth Rogoff, and in that of Christina and David Romer,  2  BIS central bankers’ speeches  indicating that the severity of recessions and strength of the subsequent recovery are associated with the amount of financial distress experienced in a financial crisis. 1 There is also a strong likelihood that decreased credit demand – for example, from households whose homes fell in value below what they still owed on the mortgage – also has played a part in the slow growth of credit in this expansion, as has been expressed in the work of Atif Mian and Amir Sufi. 2 Nevertheless, the patterns that I have reviewed here point to an adverse impact from a relatively weak banking sector on credit supply. However, it also suggests that the recent improvement in banks’ financial condition should provide support to credit growth going forward, which in turn would provide support to the economic growth we project over the medium term. As I noted earlier, one area where credit has flowed freely is student lending.
This virtually eliminates the possibility of one person holding a double role as both general manager and as chair of the Executive Board. The executive director’s investment mandate sets rules for the Fund’s choice of investments and risk limits for NBIM’s investment management. The financial crisis revealed that the risk measures used previously, and which were based on what was regarded as best international practice, were inadequate. The Executive Board has therefore also set supplementary risk limits, for example for the size of the percentage deviation between the actual portfolio and the benchmark portfolio, the degree of leveraging and liquidity requirements for the Fund’s investments. The mandate is also intended to ensure that active  BIS Review 53/2009  1  risk positions are taken in a balanced manner and to avoid active strategies with a considerably skewed outcome set. NBIM’s monthly and quarterly reports to the Executive Board are to reflect the guidelines in the investment mandate. The results for 2008 were influenced by the global financial crisis. The total return on the Fund was a negative 23 per cent, the weakest in the Fund’s history. There was a negative return of 41 per cent on the equity portfolio, while the return on the fixed income portfolio was close to zero. The real rate of return after costs has been one per cent since 1998. International stock exchanges lost more of their value in 2008 than in any other single year in recent history. Absolute results, especially with regard to equities, were highly abnormal.

Correlation was not expected to be high between investments in, for example, Japanese inflation-indexed government bonds, bonds issued by international organisations such as the European Investment Bank, European covered bonds and US mortgage-backed bonds. These experiences and the abrupt turnaround in market liquidity suggest that active management of the fixed income portfolio should be limited and measured on the basis of a number of criteria, as laid down by Norges Bank’s Executive Board. The Fund currently has extensive holdings of bonds that are difficult to trade in today’s market. Realised losses related to these investments have, as mentioned above, been limited. The flipside of large book losses is that this portfolio has a high return, reflecting not only the increase in credit risk but also high liquidity premiums and fears and uncertainty in the market. The return, measured as the difference in the effective interest rate between the actual portfolio and the benchmark portfolio, is now close to two percentage points. History has seen a number of deep financial crises, and market conditions will return to normal in time. The final results of the management of the Fund’s fixed income portfolio since the beginning of the financial crisis cannot be deduced from the quarterly results while the crisis is at its  BIS Review 53/2009  3  most intensive. Values are not lost as long as borrowers fulfil their obligations. The Fund is prepared to retain ownership of a large volume of bond holdings until they mature in a few years.