samchain/econo-pairs-v1 huggingface dataset:
This is that the cost of a 1% rise in banks’ capital relative to their risk weighted assets would reduce annual GDP by about 0.1%. At a discount rate of 2.5% this implies that the present value of this loss in output over all future periods is 4.25% of current annual GDP 9. I illustrate that less conservative assumptions imply a much smaller estimated cost of higher bank capital requirements. Specifically, I sequentially take account of:  5  See Modigliani, F.; Miller, M. (1958). “The Cost of Capital, Corporation Finance and the Theory of Investment”. American Economic Review 48 (3): 261–297. 6  See Kashyap, K., Stein, J. and Hanson, S. “An Analysis of the Impact of “Substantially Heightened” Capital Requirements on Large Financial Institutions”, Working Paper. 7  See in particular box 7 in chapter 5 of Bank of England, Financial Stability Report, June 2010. 8  In particular, it notes that the costs may be over-estimated because the calculations assume that the Modigliani-Miller theorem does not hold and because they use a Cobb-Douglas production function to compute the reaction of output to changes in firms’ cost of capital. 9  Underlying these calculations are assumptions that the cost of equity and debt are 10% and 5% respectively and remain fixed. Our baseline calculations are similar, but slightly higher than those in the June 2010 Financial Stability Report.

3  See Barrell, R, Davis, E, Fic, T, Holland, D, Kirby, S, and Liadze, I (2009), “Optimal regulation of bank capital and liquidity: how to calibrate new international standards”, FSA Occasional Paper 38. The paper indicates that a 1% rise in capital requirements could reduce output by 0.08% of GDP in the long run. Discounted at a rate of 3% this would imply a 2.7% reduction in current GDP. BIS Review 100/2010  5  GDP in present value terms, though it also finds that the GDP benefits from increasing capital requirements from their current level substantially outweigh these costs 4. The NIESR and FSR estimates look much lower than the IIF figure. But the IIF estimate is for the impact of a range of adjustments which include a more than 1% rise in bank capital. Nonetheless that estimate looks likely to be higher than the illustrative calculation in the FSR. But rather than seeing the FSR calculations as generating a very low estimate of the cost of higher capital requirements, I think they are more likely to be a conservative assessment that reflects the care taken not to underestimate the cost of higher bank capital. The costs of extra bank capital Many assessments from commentators and practitioners, though often not precisely quantified, suggest that the costs of significantly higher capital requirements for banks are very substantial.
6 Despite its limits, the expansion of the balance sheet was seen by the FOMC as the best policy tool available at the time, given the constraint on traditional monetary policy easing from the zero bound on interest rates. The willingness of the FOMC to use this tool is indicative of a central bank that takes its dual mandate seriously and does what it can to deliver on it. The disappointing pace of recovery that has been realized since then suggests that the additional policy accommodation provided by the LSAP2 program was appropriate. Operational success of LSAP2 Let me now switch from the policy objectives of the LSAP2 program to its implementation by the Desk. The FOMC set the broad parameters of the asset purchase program based in part on input from the Desk on our capacity to conduct operations and the market’s capacity to absorb them. In particular, we wanted to complete the asset purchases in a timely manner, but we also wanted to ensure that the pace of purchases was not so rapid as to disrupt the functioning and liquidity of the Treasury market. In the end, I believe the program struck a good balance between these two considerations. I would like to recognize the staff on the Desk for their valuable input to the operational design of the program, as well as the effective implementation of the program over the last eight months. Our presence in the market was sizable.

If economic developments lead the FOMC to seek additional policy accommodation, it has several policy options open to it that would involve the SOMA portfolio, as noted by Chairman Bernanke in his testimony last week. One option is to expand the balance sheet further through additional asset purchases, with the just-completed purchase program presenting one possible approach. Another option involves shifting the composition of the SOMA portfolio rather than expanding its size. As noted earlier, a sizable portion of the additional risk that the SOMA portfolio has assumed to date came from a lengthening of its maturity, suggesting that the composition of the portfolio can be used as an important variable for affecting the degree of policy stimulus. Lastly, the Chairman mentioned that the FOMC could give guidance on the likely path of its asset holdings, as the effect on  7  Liquidity in Treasury bills has worsened to some degree. However, our holdings in that sector are minimal, and hence the deterioration likely reflects other factors, including the decline in the supply of Treasury bills. 8  The Federal Reserve’s holdings of Treasuries have removed a large amount of Treasury collateral from the market, which may have contributed to downward pressure on general collateral Treasury repo rates. However, repo rates do not appear unusual relative to other short-term interest rates, and most market participants point to declines in the supply of Treasury bills, rather than the coupon securities that the Fed purchased, as the primary driver.
As percentage of GDP, 2001 30 25 20 15 10 5 0 Ge  rm  any  No  rw a  y  F in  lan  d De  nm  ar k  F ra  nc e  Sw  ed e  n  UK  US  Sources : BIS/OECD SG Kommunalbanken, 30.august 2002  The turnover and issue volume in the market increased sharply up to the mid-1990s. However, Norwegian companies use the bond market on a far more limited scale than companies in comparable countries. Solid state finances also help to explain the limited size of the private bond market in Norway. A well functioning government bond market can stimulate the private segment of the debt securities market. In most countries, the state has a sizeable borrowing requirement, with a high level of debt. Even though its borrowing requirement is small, the Norwegian government also places emphasis on a well functioning bond market in its government debt policy. Government debt issues are confined to few and large standardised loans. This contributes to higher turnover in the secondary market and hence greater liquidity. With ample liquidity and low risk, government bond rates can serve as a benchmark for private bonds. Effective interest rates on government bonds and private bonds 5-10 year maturity. Per cent 9 8  9 8  Private bonds  7  7  6  6  5  Government bonds  4 Ja n .

It is just as important to avoid a rate of inflation that is too low as it is to avoid a rate that is too high. Changes in labour costs influence the rise in prices for domestically produced goods and services. Labour market tightness is heavily influenced by demand for goods and services. High levels of private and public consumption, investment and exports will sustain the demand for labour. When the supply of labour is limited, competition for labour pushes up wages. Low imported price inflation pushes down consumer price inflation. Price inflation by origin. Per cent 5  5  Goods and services produced in Norway  3  3 CPI-ATE  1  1 -1  -1  Imported consumer goods  -3  -3 1999  2000  2001  2002  Sources: Statistics Norway and Norges Bank SG Kommunalbanken, 30.august 2002  In many countries, low and stable inflation is the goal of monetary policy. It can therefore be assumed that imported inflation will remain subdued. But, the rise in prices will still vary as a result of global economic developments. The krone exchange rate also plays an important role in determining import prices. A strong krone will curb prices for imported goods. When there is a rise in interest rates in Norway and a widening differential between domestic and foreign interest rates, investments in NOK increase, and the krone exchange rate appreciates.
Mark Carney: Breaking the tragedy of the horizon – climate change and financial stability Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at Lloyd’s of London, London, 29 September 2015. *  *  *  I am grateful to Rhys Phillips and Iain de Weymarn for their assistance in preparing these remarks, and to Michael Sheren, Clare Ashton, Matthew Scott and Professor Myles Allen for their comments. I’m grateful to Lloyd’s for the invitation to speak tonight on the occasion of the first City Dinner held in this magnificent, eponymous “Room”. Lloyd’s is the bedrock of the UK insurance industry. An industry whose direct contribution to the UK economy is impressive: 300,000 high-paying jobs and £ in annual GDP. Its economic contribution goes much deeper. Insurance supports households, companies and investors, safeguarding them from perils they could not otherwise shoulder. It matches long-term savings and investment, financing the infrastructure essential to productivity. With its unique perspective and skill set, insurance diversifies the financial system and reinforces its resilience. Since 1688 Lloyd’s has, in the great tradition of the City, served both the UK and the world, providing protection against the perils of the age; helping enterprise and trade to thrive. From its origins in marine insurance, the Lloyd’s market has evolved constantly to meet the needs of a rapidly changing world. The first excess of loss reinsurance was created here.

Participants in the Lloyd’s market know all too well that what appear to be low probability risks can evolve into large and unforeseen costs over a longer timescale. Claims on third-party liability insurance – in classes like public liability, directors’ and officers’ and professional indemnity - could be brought if those who have suffered losses show that insured parties have failed to mitigate risks to the climate; failed to account for the damage they cause to the environment; or failed to comply with regulations. 17  Discussions on correlation are not new. For example, a current issue is the extent to which European windstorms occur in clusters, such as windstorms Daria, Vivian, Wiebke and Herta in 1990 and Lothar, Martin, and Anatol in 1999. 18  See Standard and Poor’s – “Climate Change Could Sting Reinsurers That Underestimate Its Impact” (2014). 19  In 1992 after Hurricanes Andrew and Iniki hit the US, the price of reinsuring weather risks spiked and several carriers left the market, leading to a rise of up to 40% in premiums in some parts of Florida. A series of hurricanes affecting the Bahamas has prompted several insurers to withdraw flood cover for low-lying areas. 6  BIS central bankers’ speeches  Asbestos alone is expected to cost insurers $ on a net ultimate claims basis in the United States – equivalent to almost three Superstorm Sandy-sized loss events.
12 An early, working paper version of this research can be found in Marcelle Chauvet and Simon Potter,  Forecasting Recessions Using the Yield Curve, Federal Reserve Bank of New York Staff Reports, number 134, August 2001. 13 Brier scores measure probabilistic forecasting accuracy as a function of the distance between a probability  estimate and the actual outcome. For details on origin and calculation see “Verification of Forecasts Expressed in Terms of Probability,” Monthly Weather Review 78, no. 1, 1950. 14 See Michael D. Bauer and Thomas M. Mertens, Economic Forecasts with the Yield Curve, Federal Reserve Bank  of San Francisco Economic Letter, 2018–07, March 5, 2018. 15 Tetlock does discuss ambiguity aversion. Formalizing its role and that of asymmetric loss functions, seen for  instance in the work of Hansen and Sargent, is a good example where formal modeling can make significant advances over less structured judgmental approaches when it comes to decision-making based on forecasts. 16 The minutes to the July 31-August 1, 2018, FOMC meeting report on a Committee discussion about monetary  policy options at the zero lower bound. Although participants generally agreed that their current policy toolkit could provide significant accommodation, participants saw an apparent secular decline in neutral real interest rates as leaving less scope than in the past to reduce the federal funds rate in response to negative shocks, meaning spells at the ZLB could become more frequent and protracted than in the past.

Their solutions, however, undermine the liberal market democratic system that has brought about prosperity. The appropriate solution to many of our problems consists of returning power from the state to the community. Communities should be able to develop policies to address their own needs. This makes them less receptive to populist solutions. Raghu’s view reminds me of the political system in Switzerland. Here, political decisions are taken at the lowest possible level of governance, closest to the people concerned. This decentralisation fosters citizens’ engagement in their communities. Today, Raghu will speak about an issue that is more narrow in scope, but which is of great importance to central banks, not least to the Swiss National Bank. His speech is about the spillovers of monetary policy beyond a country’s border. This topic has attracted a lot of attention in the past few years following QE and other unconventional monetary policy measures adopted by central banks. Who better to speak to us on this subject than Raghu with his profound knowledge of capital markets and his experience as the central bank governor of a country highly exposed to monetary policy decisions taken elsewhere? Ladies and gentlemen, please join me in welcoming Raghuram Rajan with a big round of applause. Page 4/4
In line with this assessment, we are taking steps to increase our understanding of the impact of climate change from a financial perspective and to ensure that banks fully incorporate these risks into their processes and practices. I will now go through the recent and ongoing climate-related initiatives related to our supervisory work. The ECB Guide and climate-related disclosures  2/5  BIS central bankers' speeches  In November last year we published the ECB Guide on climate-related and environmental risks.6 It builds on the Guide for Supervisors7 of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), and communicates the ECB’s understanding of a prudent approach to managing such risks to banks, markets and the wider public, with the aim of raising banks’ awareness and preparedness for managing them. In our Guide, we outline our supervisory expectations for how climate and environmental risks should be embedded in all relevant bank processes, from banks’ risk management frameworks to their governance structures, risk appetite, business model and strategy, and, importantly, their reporting and disclosures. Our ultimate goal is to cause banks to make sure their business strategies fully reflect the Paris Agreement – and there is one thing that will be key in getting us there: data. When it comes to tackling climate risk as a financial risk, data are what we are missing the most.

They are firmly grounded on actual requirements and stem from the simple fact that climate-related risks are on the rise and need to be tackled seriously by the whole financial sector. Incorporating climate-related risks into ongoing supervision and stress testing This is why we have already asked banks to conduct a self-assessment against the supervisory expectations outlined in our Guide and draw up action plans for aligning their practices to them. The assessment covers 112 institutions, representing 99% of total assets under our direct supervision. All banks have already handed in their self-assessments and are now finalising their action plans. We are currently assessing banks’ submissions and will be challenging them in all of these areas. Where we see that banks are not managing their exposures to climate-related risks in an adequate manner, we can and will draw on the full supervisory toolkit at our disposal to correct that situation. Just as we do for any other material risk. We have already started work on incorporating climate-related risks into our Supervisory Review and Evaluation Process (SREP) methodology. This year the outcomes of these assessments will not be translated into quantitative capital requirements across the board, but we may impose qualitative or quantitative requirements on a case-by-case basis. We expect that the actions we are taking in 2021 will result in banks being adequately prepared for the full supervisory review which we will conduct in 2022.
François Villeroy de Galhau: Monetary policy in the present environment - reconciling clarity and flexibility, as well as independence and cooperation Remarks by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Group of Thirty's annual International Banking Seminar, Bali, Indonesia, 14 October 2018. * * * Good morning. Let me begin by thanking the organisers of this seminar for the opportunity to speak on such a distinguished panel. I’d like to elaborate on two challenges. The first is domestic and concerns how we, as Euro-area central bankers, decide and communicate about the gradual normalisation of our monetary policy in uncertain times. The second challenge is a collective one: how we co-ordinate facing diverging economic paths. ** 1. Our domestic challenge in the euro area: combining clarity and flexibility The Euro-area is experiencing a broad-based economic expansion. Q2 2018 was the 21st successive quarter of economic growth. 9.2 million jobs have been created since 2013 and the unemployment rate has fallen from 12.1% to 8.1%, although this figure is still too high. There are increasing signs that the labour market is tightening and nominal wage growth is picking up: the Phillips curve is back to work, albeit a bit later than expected. The output gap was probably closed by the end of last year.

The regional economies recognize the importance of developing these markets thus co-ordinated efforts through various initiatives have been undertaken to remove impediments to these developments. With further lowering of trade barriers under the ASEAN Free Trade Area and ASEAN+3 initiatives, intra-regional investment flows would further increase. The intensification of regional co-operation has been enhanced in recent years. In the aftermath of the Asian financial crisis, there has been an increase in the level of financial co-operation among the Asian countries. These efforts have revolved around swap facilities to provide emergency liquidity assistance, regional surveillance and peer review to enhance regional financial and monetary co-operation, regional capacity building and the enhancement of skills and capabilities of regional financial regulators and policymakers. Regional surveillance and peer review in particular is an important step forward as it will contribute to confidence building and would complement the implementation of the various regional financing schemes. Significant progress has been made in achieving the objectives of the Chiang Mai Initiative to create swap facilities to provide emergency liquidity assistance for the region. Closer co-operative efforts in the standardisation of systems and documentation procedures would also contribute to facilitating intra-regional trade and investment among economies within the region, as well as with the rest of the world. Effective co-operation in these areas will augment the foundations for realising the tremendous potential that this region possesses for future growth and prosperity.
Lars Nyberg: The Riksbank's monetary policy strategy Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at the Foreign Banker’s Association, Stockholm, 14 September 2006. *  *  *  Introduction Let me begin by thanking you for the invitation. It is a pleasure to be able to come here and talk about the Riksbank and our monetary policy. When conducting modern monetary policy, it is important that the principles guiding interest rate decisions are known to all. Monetary policy largely has an effect through its influence on expectations of future inflation and interest rates. Therefore, we regularly describe our views on economic developments in our Inflation Reports and publish the minutes of our monetary policy meetings to enable everyone to understand the considerations we make. In addition, twice a year the Governor of the Riksbank holds a public speech for the Riksdag (the Swedish Parliament) Committee on Finance and responds to questions from members of parliament and journalists. Moreover, we Executive Board members hold a large number of speeches, in which we discuss various aspects of the Swedish economy and explain our interest rate decisions. I should say that a continuous debate on monetary policy and its terms is a necessary condition for the policy to function satisfactorily. One difficulty with monetary policy is that it does not have an immediate impact. It is therefore necessary to base monetary policy decisions on forecasts of future inflation and developments in the real economy.

Before I start, however, there are three important points to bear in mind. The first is that credit or debt is not “bad”. It is an essential part of what makes modern economies grow. It facilitates consumption smoothing, house purchases, investment and risk management. The last eight years have demonstrated what happens to the economy when the credit mechanism is badly damaged.2 Nor does the stock of credit to GDP have to be constant; there are good reasons, as I will try to set out, why advanced economies may have been able to sustain and indeed benefit from an increase in the level of credit to GDP. Our economy and society would be very different, and I suspect much less congenial if the credit to GDP ratio were at its 1880 level of 16%. The issue rather is what are the financial stability and broader economic risks for the UK if credit consistently grows faster than GDP and as a result debt to income resumes its upward path? That cannot continue indefinitely. Trees cannot grow to the sky. The second important point to make at the outset is that the great financial crisis of 2007 was not triggered by UK households’ build up of debt. But the debt made our economy much more vulnerable when the shock hit us. And high stocks of household debt – especially when secured on housing assets – have been at the root of many other financial crises in the past. I will say more about this later on.