samchain/econo-pairs-v1 huggingface dataset:
Central bank action is a first-aid kit to ensure that the patient does not die on the site of the crash from a loss of blood, but the subsequent healing process is up to the patient. Taking moral hazard into account The final lesson concerns the moral hazard problem arising from liquidity management operations. Roughly speaking, moral hazard is the name we give to the situation in which, financial institutions and investors incur higher risks than they would otherwise because they expect the central bank to intervene in times of crisis. This, in turn, may increase the likelihood of future crises. Moral hazard is relevant both at the level of systemically relevant market players and at the level of markets as a whole. Market participants that are “too big to fail” or “too interconnected to fail” may automatically factor in the help from central banks when deciding about their business strategy. However, smaller players and investors that cannot count on individual help may also take the expected central bank reaction to financial market crises into account in their investment decisions. BIS Review 71/2008  7  Because of moral hazard, central bank intervention in order to safeguard financial stability in the short term may be destabilising in the long term. Therefore, when reacting to a financial crisis, the benefits of central bank intervention in terms of short-term stabilisation must be weighed against the long-term cost in terms of moral hazard.

So far six such reports have been drawn up and submitted to the Coordination Council for Preparation of the Republic of Bulgaria for Euro Area Membership, headed by the Finance Minister and me. Each of the BNB Deputy Governors is in charge of the relevant area of activity within the BNB's mandate. Contact groups have been formed, with individually named members of the BNB and of the European Central Bank working on specific matters. The absence of a regular government and a clear political commitment to the euro area accession process are a serious obstacle to its progress. This is the reason why we are missing, one by one, important indicative time-frames. This time last year Croatia was well ahead on its way to the euro area. I will give you only one example. On 10 September 2021 the European Commission and the euro area Member States signed a Memorandum of Understanding with Croatia on the production of national euro coins. This Memorandum sets out the actions required for a future euro area Member State to begin producing euro coins. The signing of the Memorandum makes it possible to detail the schedule for the future euro coins of the country, allowing that country to start selecting its euro coin national side designs and to carry out the technical preparations for minting and producing a test series of national euro coins. The Memorandum is a precondition for that country to receive the technical specifications documentation needed for production of national euro coins.
The UK labour market is flexible and here too there are early signs that the degree of mismatch may be easing a little. But in some cases that may take time and it may take extra costs. As is often the case, therefore, the behaviour of labour costs will for me be important in judging the appropriate stance for monetary policy. This won’t be straightforward. Unfortunately, there’s still a great deal of noise in the earnings data – base effects, shifts in furlough and in the composition of employment are all still distorting official estimates of wage growth – but they are nonetheless a key area of focus. Let me now go through these two broad areas in more detail – first traded goods and then the domestic labour market – before wrapping up with some implications for what matters for policy. The strength of global goods price inflation: shifts in demand and constraints on supply The upside surprises in inflation, here and in other countries, have been concentrated in prices of physical goods. Chart 6 plots the two series in the UK. For the first time in quite a while, goods price inflation is  Put another way, mismatch in the labour market tends to raise the rate of unemployment consistent with stable wage growth – the so-called “NAIRU”. 4  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  higher than that in services. This has happened before – briefly in 2008, 2011 and again in 2017.

And what the longer run of data indicates is that this mean-reverting property in prices – the tendency for rapid increases to be followed not just by lower but by below-average rates of inflation – applies not just to non-oil commodities or particular individual goods but manufacturers’ input prices in aggregate. This is (more or less) apparent from Chart 10. It’s also confirmed by more formal statistical tests. But retail goods price inflation likely to rise further in the near term Clearly there are risks around these judgements. Rebuilding inventories and clearing backlogs will take time. So there may in some cases be continuing pressure on suppliers of wholesale goods even after (and if) growth in final demand from consumers falls back. In addition it’s possible that not all the rises in wholesale goods prices that we’ve already seen have yet been passed on to the retail level, at least in the UK (Chart 16). If so, then annual inflation in retail goods – both in aggregate and excluding energy – is likely to rise further before it starts coming down. Chart 16: Goods price inflation likely to rise further in the months ahead  Sources: ONS and Bank calculations. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  The third reason for a degree of caution is that these mismatches between global supply and demand for goods aren’t the only ones, it seems.
Euro-area corporates’ cash balances have risen to the tune of € billion, or 3% of GDP, since the crisis, for example. Modest cross-border equity flows mean inadequate risk sharing. Moreover, by design, there are virtually no cross-border fiscal flows so fiscal space is separated from fiscal needs. The burden of adjustment has been concentrated on efforts to improve competitiveness. Some of these efforts are entirely worthy. Boosting productivity reduces the burden of a debt overhang as extra supply creates extra demand and incomes. But that takes time, during which debt dynamics may become oppressive. Improved competitiveness will also support exports to the rest of the world, but it is unlikely to be decisive in a listless world economy. More important for a given country in the euro area is to improve competitiveness against other members via internal devaluation. As you know, this is not easy. 17, 18 Irish workers and citizens deserve great credit for the flexibility they have shown. Wages in Ireland fell by almost 9%. In Spain they rose by 3%. Even though Irish unemployment rose to painfully high rates, it peaked at only a little over half the rate reached in Spain. That flexibility, by keeping unemployment lower than otherwise, has undoubtedly helped to reduce the risk that high unemployment becomes entrenched and destroys future economic capacity. For three reasons it is no panacea, however. First, internal devaluations simply reallocate demand within the currency union. They do not boost aggregate demand in the euro area as a whole.

See tables 4.4 and 4.5 of Scottish Government (2014), “Government expenditure and revenue, Scotland 2012-3”. 12  Exchange rate effects alone led to an improvement of £ billion to the UK’s net international investment position between 2006 and 2008, estimated in Whittard (2012), “The UK’s External Balance Sheet – The International Investment Position (IIP)”, ONS, March. 13  See Carney (2014), Speech at the 146th Annual Trades Union Congress, Liverpool. 4  BIS central bankers’ speeches  Our remit recognises that the inflation rate may, on occasion, depart from the target and that attempts to keep it at the target may cause undesirable volatility in output. That flexibility and focus meant that the Bank’s Monetary Policy Committee (MPC) could provide additional stimulus through historically low interest rates, large scale asset purchases and monetary policy guidance even when inflation was temporarily above target. Inflation has recently dropped sharply to 0.5% – equalling its lowest rate on record. So next month I will write the first open letter from a Bank of England Governor to a Chancellor explaining why the inflation rate is too low and what we are going to do about it. The why is relatively straightforward. The majority of the weakness is caused by sharp falls in commodity prices, most notably oil, which has suffered its third largest fall in the past half century. Lower energy and food prices are unambiguously positive for the UK. Temporarily low inflation will boost real take-home pay and help household finances.
Although the crises can be explained in terms of shortcomings in the workings of the financial system, the instability has almost invariably stemmed from macroeconomic and structural problems. A reasonable economic policy is, of course, not just a requirement in emerging markets but also a standing order in the industrialised countries. Yet it is barely five years ago that Sweden regained a fairly firm economic foundation after the profound crisis in the early 1990s. There are many parallels between the Swedish crisis and the crisis in Thailand, for instance. An important factor here is, as I mentioned, the exchange rate regime. Experience has shown that exchange rates that are fixed but adjustable may often contribute to problems and currency crises. They presuppose that fiscal policy is capable of countering economic shocks at the same time as they invite speculation. In the debate it is therefore sometimes proposed that the emerging markets ought to set up currency boards (a system whereby all outstanding currency can be converted into some hard currency) or participate in some well-established regional monetary cooperation. These systems do demand just as much of policy but their stronger links are intended to confer greater credibility. There is a risk, however, of financial players being lured into a false sense of security, giving imbalances more time in which to grow. Another feature that fixed exchange rates and currency boards have in  5  BIS Review 52/1999  common is the negative effects they may exert on other countries if they have to be abandoned.

I will then discuss the risks and challenges facing the Thai economy, especially those relating to volatile international capital movements and their impact on the Thai baht in the short term and in building resiliency and enhancing productivity for the longterm. Ladies and Gentlemen, Let me start with the global picture. For a number of years now, we have witnessed strong global growth driven mainly by growth in the US economy and in emerging markets, particularly non-Japan Asia. During this same period, we have also seen growing global imbalances with the rest of the world financing the US’s growing current account deficits. There is yet no consensus on how this global financial imbalance will unwind, but everyone expects that a large dollar correction will be part of the unwinding process, which will impact on financial markets and exchange rates worldwide. My view is that we are likely to see more market jitters along the unwinding process of this global imbalance. Indeed, for the last couple years, we have already experienced large magnitude of capital fluctuations and exchange rate volatilities. This year alone, we have observed two episodes, in February and again in August, of the shift toward greater risk aversions, with sharp falls in the stock markets across the world, from New York to Shanghai, and Bangkok included. At this juncture, there seems to be an increasing disconnect between global growth and financial stability.
Spelling out the benefits in personalised terms can potentially increase understanding and awareness of central banks’ actions. There is already a precedent for this in another arm of UK policymaking – tax policy. Taxpayers in the UK receive a personal scorecard, telling them how their tax payments have funded spending on various public goods at the macro-economic level. This personalisation has been found to have improved the public’s understanding and acceptance of tax policies. (b)  50  Public Education  A second way of improving public understanding is through improved public education. Many central banks have made efforts in this direction over a number of years, including through school visits, schools competitions and schools materials, including at the Bank of England and Bank of Estonia. That does not yet appear to have satiated demand from pupils and their parents, almost 80% of who say they think 51  economics should form part of the curriculum. In part in response, earlier this year the Bank of England launched a new education strategy. There are a number of elements. One is a new set of schools competitions, aimed at reaching a broader range of students. A second is a schools ambassador programme, with Bank officials giving 200 talks in schools across the UK this year. We are on schedule to hit our target. The most ambitious part of our education strategy has been to develop classroom materials on the economy and financial system for use in schools as part of the curriculum for pupils aged 11-16.

On behalf of the Supervisory Board I would like to thank Lilja Steinþórsdóttir for our pleasant work together. In her place, the Supervisory Board appointed Stefán Svavarsson Chief Auditor. Financial institutions compete fiercely for talented employees, which is not surprising given the pace at which the Icelandic banks’ activities have expanded. It is vital for the Central Bank to have as capable employees as possible in its service. It must take prevailing conditions into account to ensure that this is the case. On the Supervisory Board in 2006, Ólafur G. Einarsson resigned from the post of Chairman which he held since 1998. Helgi S. Guðmundsson was elected Chairman in his place. On behalf of the Supervisory Board I would like to thank Ólafur G. Einarsson for his particularly successful leadership during his years as chairman. The Supervisory Board held 22 meetings during the year. I would like to thank the members of the Supervisory Board for their pleasant cooperation and fine work. I also thank the Board of Governors and employees of the Bank for their very good work during the year and fruitful collaboration with the Supervisory Board. 2  BIS Review 34/2007
The securitization markets have shrunk since the financial crisis and the Federal Reserve has further reduced the amount of available securities by snapping up trillions of dollars in bonds in recent years.” Let me repeat that last clause: The Federal Reserve has further reduced the amount of available securities by snapping up trillions of dollars in bonds in recent years. To be precise, $ trillion of Treasuries and asset-backed securities were purchased under QE3, on top of the $ trillion purchased under the previous rounds of quantitative easing. To be sure, we have instituted programs to counter this problem: We have developed sophisticated operations whereby we sell assets in our portfolio and promise to buy them back at a later period. This is known as our overnight reverse repurchase agreement (ON RRP) facility, and its net effect is to shift longer-term securities out of our portfolio and into the hands of market operators. This has expanded the traditional reach of our New York desk, where the aggregate portfolios of the 12 Federal Reserve banks are traded under directives given it by the FOMC. Thus the Fed's reach – some would say intrusion – into trading markets has been expanded. Now, let's bring together these observations with the thought I asked you to hold earlier. It strikes me that given current circumstances, it would do no harm to start slowly trimming our holdings by letting them roll off as they mature.

Then, when the boom turned to bust, real home prices reversed course, declining by about 40 percent on a national basis, with larger price declines in several states.1 The magnitude of the national price declines was unprecedented during the postwar period. The evolution of the financial crisis illustrates a number of key issues, including the potential hazards of financial innovation, the procyclicality of the financial system, and the importance of confidence in sustaining effective financial intermediation. The housing boom resulted from several factors. Innovations in subprime mortgage lending enabled moderate-income households to purchase homes with negligible down payments. This led to an increase in the demand for housing, which helped push up home prices. Home price appreciation masked the potential riskiness of such lending and, in turn, sustained the wisdom of 1/7  BIS central bankers' speeches  the easier underwriting standards. As long as home values were rising, subprime borrowers could either refinance their loans or sell their homes when the initial teaser rates expired. Thus, losses on subprime and other mortgage lending were low, reinforcing the belief that such loans were “safe.” Easier mortgage underwriting practices were also supported by the ability of mortgage originators to pool their mortgages into collateralized debt obligations (CDOs), transforming lowquality assets into triple-A-rated securities. Investors, including banks, relied too heavily on credit ratings and didn’t do sufficient due diligence on the underlying quality of the assets and the assumptions that underpinned the triple-A ratings.
Indeed, one criticism we could perhaps make of Optimal Currency Area theory is that is does not take account of the financial instability that may arise when capital reallocates across regions, both in terms of inflows and outflows. Banking Union goes some way towards redressing this, which is why it is essential for the longer term stability of the euro area. In terms of improving incentives, the Single Supervisory Mechanism (SSM) should in principle be better placed to prevent credit misallocation as supervision will be decoupled from national economic conditions. The shift towards bail-in ability under the new EU resolution framework should also, over time, increase the quality of scrutiny over allocation decisions by shareholders and creditors. And by removing supervisory barriers to retail banking integration, the SSM should provide the pre-conditions for greater foreign entry into national banking markets, which research suggests could improve capital allocation by increasing the distance between the main shareholders and management of a bank and the vested interests in the country where the bank operates.21 These same factors also provide stronger channels for risk-sharing within the euro area. A more integrated retail banking market would imply that losses from local banking crises would be shared across multiple jurisdictions, thus acting as a shock absorber as we see, for example, in the United States.

Compared with the December Inflation Report the forecast for GDP growth in 2005 has been revised up marginally to 3.2 per cent, mainly due to higher investment and increased services trade. Towards the end of last year investment in the economy grew more than expected and there is much to suggest that the fast increase will continue in early 2005. Despite last year’s robust productivity growth the number of employed fell for the second consecutive year. The fact that firms were able to boost output so sharply without hiring new staff was due to a rise in both productivity and average working time. It is reasonable to believe, though, that a continuation of strong GDP growth will result in higher employment during the forecast period. Different indicators from the labour market also suggest that a turnaround is on the way. For example, the number of temporary employees has risen since summer 2004 and the number of new job vacancies reported to Swedish employment offices rose in annual terms in the period November-January after having dropped for almost two years in a row. There is reason to expect average productivity growth in the economy to decrease somewhat as the economic upswing continues. Nevertheless, the Riksbank’s assessment remains that there has been a lasting increase in the rate of productivity growth, and the Bank’s forecasts for the coming years are therefore relatively high in a longer historical perspective.
The latter should comprise people who help to formulate the policies of their countries in national capitals, and so could not be full-time in Washington. The main function of the Executive Directors was not to manage the Fund, but to act as an essential link between the Managing Director and the national treasuries and central banks from which they were drawn. In retrospect, Keynes's position seems sound. Given the ease of modern travel – at least in comparison with 1946 - serious consideration should be given to a non-resident Board, meeting some six to eight times a year with directors comprising senior finance ministry or central bank officials. 6  BIS Review 11/2006  The process of shifting to a non-resident Board would bring the issue of the division of responsibilities to the fore. Member countries might conclude, for example, that they wanted to retain control of decisions to lend under the exceptional access framework. But in other areas, such as surveillance, it would make sense to delegate responsibility to the Managing Director in the context of a clearly defined remit. Moves in this direction would need to be accompanied by reforms to strengthen the accountability of the Managing Director. A first step in this direction would be to instigate regular IEO assessments on the effectiveness with which the Managing Director and staff had discharged their surveillance responsibilities. Finally, in terms of legitimacy, its members must feel that the ownership of the Fund is shared and that all have a voice.

At the time there was evidence of a breakdown in communication and trust between small firms and their finance providers which threatened the effectiveness of the provision of finance to this sector of the economy. Since that time, the situation has improved, in part against a background of economic growth but also with a change in the structure of small business finance with a move away from overdrafts towards some element of fixed-term  3  BIS Review 19/2000  lending. A particular interest has been financing for high technology companies, focusing attention on the access that technology-based firms have to the equity they need in their early stages. The Bank produced its first report in this area in 1996 and has since held an annual forum with regular meetings with small business groups, venture capitalists and fund managers. Small business investment is especially relevant for Wales given the ongoing need to attract more knowledge-based industries to replace more traditional sources of investment. One final area where the Bank has taken an active role is worth mentioning; and that is in assisting the UK financial sector in its practical preparations for EMU. This was concentrated in the run-up to the introduction of the euro at the end of 1998 but the UK’s readiness at that time has meant that a large part of cross-border business in euro, whether in bonds or equities, is transacted with the UK, particularly in London.