samchain/econo-pairs-v1 huggingface dataset:
Is the euro at risk of losing its backing in Europe’s largest economy? There are different opinion polls! In early September Die Welt published the results of a survey in which two thirds of respondents in Germany called for “more common policies in Europe”. The citizens of Germany know how important European unification is for their country; the fall of the iron curtain would not have been possible without a united western Europe. BIS central bankers’ speeches  1  In that case, how do you explain the growing mistrust? I believe there is a problem of communication. Contrary to how things are often portrayed, we do not have a crisis of the euro as a currency. The euro is a credible, stable currency. In spite of the global crisis, its external value today is significantly higher than when it began. For 13 years the ECB has provided for stable prices. And observers and markets are anticipating the same stable prices for the next ten years. This achievement in particular is not valued highly enough by some commentators in Germany, and I do not understand why that is. Of course, there are shortcomings in the financial sector, in fiscal policies, and as regards financial stability: the financial markets are too unstable, some euro area countries are uncompetitive, and reliable fiscal policy is lacking in several countries. However, none of these problems have to do with the currency. They are the responsibility of the governments of the euro area.

It is the financial stability of the euro area as a whole which is at stake, and this creates difficulties for our monetary policy transmission. Taking into account the reality of the situation we have reactivated a number of non-standard measures. Many people nonetheless fear that the continuous flooding of the markets with new money will lead to inflation in the medium term. This fear is totally unfounded. First the Securities Market Programme (SMP), namely the purchase of Treasuries on the secondary market, is not at all a quantitative easing programme. We are rigorously withdrawing all the liquidity which is provided. As regards all our non-standard measures, the balance sheet of the ECB has expanded by 77% since the beginning of the crisis; that of the US Federal Reserve System by 226%. This gives a measure of our relative prudence in this very grave crisis. And we are fully credible to deliver price stability over the next 10 years, according to observers and market participants. In the spring, the ECB spoke out against the restructuring of Greek debt which was being discussed at that time. Now there is again discussion of a debt restructuring. Does your opposition still stand? In the spring, the Governing Council of the ECB unanimously made the following points. We cannot accept the securities of a state in default, even for a short period of time, as collateral for the refinancing of banks without an appropriate credit enhancement. Similarly, we said that a credit event should be avoided.
A last important theme addressed the sense that the Committee may have adopted an overly conservative approach to some aspects of the framework, resulting in much higher capital charges than banks feel are necessary. These concerns are important, as a key goal for the  2  BIS Review 42/2003  New Accord is to align capital more closely to risk. This means that where the original Accord treats exposures too harshly relative to the degree of risk that they entail, we expect to reduce the capital requirements. But where the risk is greater, and where the existing rules fail to assign adequate capital, it should not be surprising that supervisors will raise capital requirements. Respondents attribute what they view as excessive levels of conservatism to different sections of the New Accord, including, for example, the calibration of capital requirements to both expected and unexpected losses. The treatment of credit losses is an issue which has attracted a lot of comments and which is, indeed, very important. As you will probably be aware, the present proposals to calibrate on the basis of expected and unexpected losses represented a compromise in the face of cross-country differences in accounting practices and supervisory authority regarding provisioning. But the Committee will look into this important issue again, and I am optimistic that we can find a way to improve the present proposal.

By promoting a more consistent approach to supervisory review, we intend to strengthen the quality of supervision across countries. We recognise as well the special function the Committee can offer in strengthening the ability of host supervisors – particularly those in emerging market economies – to regulate the local operations of foreign banks. Harmonisation of accounting standards and the New Basel Accord  Supervisory review helps to create very direct incentives for banks to evaluate and manage their risks carefully. Transparency can supplement that incentive by leveraging the power of financial markets to encourage prudent risk-taking, and I would like now to address the third pillar of the New Accord, namely market discipline. Even just over the past few months, the popular press has reported on several examples of corporations that failed to disclose adequately the kinds of activities in which they were involved and the degree to which they bore risk. Both inside and outside the banking industry, the renewed focus on sound corporate governance practices has highlighted the importance of appropriate disclosure to the market – and the dangers that ensue when companies fail to disclose their risks adequately. These failures in disclosure have added fuel to the drive to harmonise accounting and disclosure practices worldwide. With reference to the New Accord, many respondents quite correctly noted the need to align the supervisory framework more closely with the converging accounting practices worldwide.
And indeed, inflation targeting would seem to have much to recommend it, provided that it is approached not as a panacea, but rather as a pragmatic organizing framework for policy. In other words, policy frameworks such as inflation targeting can be useful where they signal a disposition towards continuous and predictable communication, and a forward-looking, informative policy approach. But as I said, inflation targeting per se is not a sure-fire solution - for example, the costs of disinflation do not appear to be lower in inflation-targeting countries - nor is it a prerequisite for effective communication and ultimately effective policy. Role of fiscal policy Clearly, crisis prevention through promoting stable and sustainable conditions in the macro economy is not solely the province of central banks. Sound fiscal policies are needed to complement the effectiveness of even the soundest monetary policies. Chronically loose fiscal policy is a persistent 5  BIS Review 57/2000  threat to macroeconomic stability through the build-up of internal and/or external debts that can be devastating. For the countries of East Asia, the public sector’s generally low initial indebtedness provided important latitude for dealing with the recent crises. Governments had room to stimulate aggregate demand recovery through fiscal ease; moreover, extensions of public guarantees and capital helped to contain the banking crises.

•  Unbalanced financial systems create vulnerabilities. Financial systems that are unduly reliant on banks for financial intermediation are likely to be more vulnerable and slower to  3  BIS Review 57/2000  recover from the onset of weakness. Shallow capital markets limit lending alternatives and delay the recovery of financing to the real sector. The challenges can be daunting, but recent experience both within and beyond Asia confirms that a dedicated commitment to financial reform contributes to greater crisis-resilience and longer-term financial stability. While financial sector rehabilitation will remain a key priority for authorities in Asia, longer-term measures need to be put in place to deal adequately with the increasingly complex and dynamic international financial marketplace of the 21st century. The threats to financial stability are many, and no one set of measures can be expected to ensure against the recurrence of future problems. Financial intermediation is a constantly evolving activity, involving new risks, instruments and control challenges. Financial institutions and policymakers alike need continually to upgrade their processes to remain in command of these risks. To that end, it is imperative that new standards not be developed to “fight the last war”, but be sufficiently robust to meet new challenges in a dynamic way. Stability ultimately can be served only by the collective interaction of the three pillars of: •  sound leadership at the firm as well as at the national level;  •  effective market discipline; and  •  strong prudential regulation and supervision.
The Riksbank is in no way an exception in this respect either. I am convinced that the monetary policy discussion at most central banks is largely conducted using this type of more qualitative argument. I am also convinced that many economic-policy decision-makers in the countries that were hit hard by the crisis now regret that they did not act to a greater extent on the basis of the concern they may have felt, even though it was difficult to quantify. 23  See for example the column by Calmfors, Lars (2012), “Riksbanken måste bli tydligare (The Riksbank must be clearer), in the newspaper Dagens Nyheter on 13 September. BIS central bankers’ speeches  11  What can we demand of inflation targeting? Let me conclude by summarising my view of the scope of inflation targeting – what it can do and what we can demand of it. As I have already mentioned, the main advantage of inflation targeting is that it provides a nominal anchor for the economy – a guideline for decisions on pricing and wage setting. This does not mean that economic agents count on inflation being on target at every given point in time, but they know that over time it will be close to the target and not get out of hand. As I noted initially, the Swedish economy lacked such an anchor 20 years ago. The fact that developments have been so favourable since then is probably largely due to the stability and order that inflation targeting has created.

I have emphasised that banks must and can prepare for facing and responding to these challenges, underscoring the fact that the industry, following the progress achieved in terms of solvency and cleaning up balance sheets in recent years, is today better placed and has greater resilience with which to tackle these challenges. Among the possible courses of action, I have advocated, inter alia, moving for greater efficiency gains and continuing with the orderly correction of excess capacity, and giving priority to bank customer care. And it is precisely the relationship with bank customers on which I wish to focus my speech today. I believe this focus sits well with the title of this Meeting, namely “Competitive Banking in a New Society”. I consider that, amid the major changes in which banking is immersed, the relationship with customers will be key. It is always key, since customers are a bank’s most important and most fragile asset. But in the future I believe it will be even more relevant. And a fundamental factor in defining what the relationship with bank customers in the future will be is technology. Mindful of this, the Banco de España is stepping up the efforts it devotes both to monitoring technological innovation and to anticipating its potential consequences. Through a crossdepartmental working structure, various matters are being addressed in order to contribute to constructing an informed opinion and helping define the central bank’s strategic positioning.
The press has continued to wage a governance campaign, especially with respect to anti-corruption matters. Some general remarks The governance debate is a difficult one, not least because of the imprecision of the concept and its multi-dimensionality. This opens room for a range of interpretations and the inclusion of diverse elements, rendering the basis of discussion somewhat fragile. There is also a measure of ambivalence regarding its practical application and suspicion in some case of the motives underlying the significance attached to it by the donor community. Its link with poverty reduction is not uncontested, and questions also arise as to whether it is not really the Washington Consensus and structural adjustment in new clothing. In the African context, there is admission of mis-governance in many areas of state management. In particular, corruption and impunity in public administration, conduct of elections, financial management and judicial processes, are bemoaned on a wide scale. Serious observers agree that there is a need to correct the institutional arrangements that create an avenue for some of the negatives observed in the governance of many countries. This admission notwithstanding, questions continue to be raised as to whether the range of measures subsumed in the governance package is appropriate to correcting these deficiencies. The emphasis, it is believed in some quarters, should be on capacity building and helping countries to pursue home-grown development programmes. While admittedly there is a capacity building element in the governance package, the relevance of some specifics is brought into question.

Although that means that a given amount of growth translates into bigger employment gains, it certainly is not an unmitigated good development. Also, we cannot lose sight of the fact that the economy still faces significant headwinds and there are some meaningful downside risks. In the headwinds department, I would include the  1  This recurring pattern has led some economists to question whether the depth and duration of the Great Recession has distorted the usual patterns of seasonal adjustment. BIS central bankers’ speeches  3  run-up in gasoline prices mentioned earlier because that will sap purchasing power, the continued impediments to a strong recovery of the housing sector, and fiscal drag at the federal and state and local levels. In terms of downside risks, these include the risk that growth abroad disappoints and the risk of further disruptions to the supply of oil and higher oil prices. On the inflation front, the overall rate of increase of consumer prices, as measured by the 12-month change of the consumer price index slowed to 2.9 percent in February from a recent peak of 3.9 percent last September. Despite the recent rise of gasoline prices mentioned above that may interrupt this pattern, we expect this moderation in the growth rate of consumer prices to resume later this year.
Feyrer, J (2009b), ‘Trade and Income – Exploiting Time Series in Geography, NBER Working Paper, No. 14910. Feyrer, J (2009b), ‘Distance, Trade, And Income – The 1967 To 1975 Closing Of The Suez Canal As A Natural Experiment’, NBER Working Paper, No. 15557. 25  All speeches are available online at www.bankofengland.co.uk/speeches  25  Filippetti, A and Archibugi, D (2011), ‘Innovation in times for crisis: National Systems of Innovation, structure and demand’, Research Policy, Vol. 40, No. 2, pp. 179-192. Frankel, J and Romer, D (1999), ‘Does Trade Cause Growth?’, American Economic Review, Vol. 89, No. 3, pp. 379-399. Gordon, R (2012), ‘Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds’, NBER Working Paper, No. 18315. Haldane (2009), ‘Rethinking the Financial Network’, speech available at https://www.bankofengland.co.uk/-/media/boe/files/paper/2009/banking-on-the-state Haldane, A (2017), ‘Productivity Puzzles’, speech available at https://www.bankofengland.co.uk/speech/2017/productivity-puzzles Haldane, A (2018), ‘Ideas and Institutions – A Growth Story’, speech available at https://www.bankofengland.co.uk/speech/2018/andy-haldane-speech-given-at-the-oxford-guild-society Haskel, J and Westlake, S (2017), Capitalism without Capital: The Rise of the Intangible Economy, Princeton University Press. HM Government (2017), ‘Building our Industrial Strategy’, HM Government Green Paper, January 2017. Jacobs, M, Hatfield, I, King, L, Raikes, L and Stirling, A (2017), ‘Industrial Strategy: Steering structural change in the UK economy’, IPPR Commission on Economic Justice. Jones, R (2016), ‘Innovation, research and the UK’s productivity crisis’, Sheffield Political Economy Research Institute, Paper No. 28. Joyce, M, Tong, M and Woods, R (2011), ‘The United Kingdom’s quantitative easing policy: design, operation and impact’, Bank of England Quarterly Bulletin, Vol, 51, No. 3, pp. 200-212.

32  All speeches are available online at www.bankofengland.co.uk/speeches  32  Chart 8: Trade openness and productivity  GDP per hour worked  100 90 80 70 60 50 40 30  R² = 0.4434  20 10 0  100  80  60  40  20  0  Average of Goods and Services MGI Connectedness Ranking Sources: McKinsey Global Institute, OECD and Bank calculations. Notes: Data for 2014. GDP per hour worked in $ at constant prices, in 2010 PPPs. UK marked in red. Chart 9: Finance openness and productivity GDP per hour worked 100 90 80 70 60 50 40 R² = 0.3431  30 20 10 0  100  90  80  70  60  50  40  30  20  10  0  Financial MGI Connectedness Ranking Sources: McKinsey Global Institute, OECD and Bank calculations. Notes: Data for 2014. GDP per hour worked in $ at constant prices, in 2010 PPPs. UK marked in red. 33  All speeches are available online at www.bankofengland.co.uk/speeches  33  Chart 10: People openness and productivity GDP per hour worked 100 90 80 70 60 50 40 R² = 0.199 30 20 10 0 120  100  80  60  40  20  0  People MGI Connectedness Ranking Sources: McKinsey Global Institute, OECD and Bank calculations. Notes: Data for 2014. GDP per hour worked in $ at constant prices, in 2010 PPPs. UK marked in red.
This underlines the importance of policy coordination at international level for effective reduction of greenhouse gas emissions and to reduce the magnitude of the transition costs. Obviously a world with differing sensibilities and environmental policies poses significant challenges. In particular, there is a risk of a significant “carbon leakage” towards countries that decide to adopt a more gradual transition path. Also, in the absence of sufficient coordination, there is a risk that unilateral measures may hamper trade and the functioning of the world economy, with the consequent loss of global welfare. In this respect, in the sphere of central banks and bank supervisors, I wish to highlight the coordination carried out by the Network for Greening the Financial System (NGFS), which the Banco de España joined in 2018. Meanwhile, the Basel Committee on Banking  4  This is precisely the essence of the proposed Carbon Dividend Act promoted by the Climate Leadership Council, which states that “a carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary”.

https://www.icmagroup.org/green-social-and-sustainability-bonds/green-bond-principles-gbp/ 9  4  The second problem is the price that the markets assign to these assets and the higher costs associated with their issue. The issue of a green asset involves additional costs for the issuer, as it is necessary to hire a certifying company for the issue of the green bond and to pass regular audits to be able to continue to use the label over the lifetime of the bond. Thus, issuing a green bond will only be worthwhile for the issuer if it can sell such bonds at a higher price than normal bonds. At the moment, this is the case, given that there is a negative premium in their favour (greenium), which shows the greater appetite of certain investors for these assets. And the third problem arises from the limitations inherent in bond markets. Access to bond financing, due to its high fixed costs, is restricted to issuers requiring large volumes. It is currently unimaginable that SMEs or households would issue bonds to make the transition towards a more efficient economy less based on greenhouse gas emissions. For this transition to occur it is therefore necessary for a green credit market to be developed, in which banks will have a fundamental role to play. This is particularly important in countries like Spain, in which banks intermediate the bulk of funds between savers and investors. For this purpose, it is crucial that banks include these types of considerations in their analysis.
Most significantly, this process induces banks to improve their capital planning processes in light of potential stress scenarios. It also creates an enforcement mechanism so that dividends and share repurchases can be suspended more quickly when economic circumstances deteriorate. On the liquidity side, there has also been progress. U.S. banks have bolstered their liquidity buffers and the Basel Committee has proposed a liquidity coverage ratio requirement that effectively would require large, systemically important banks to hold sufficient liquid assets so that they could reasonably conduct their operations for 30 days without having to raise any new funds. In addition, the industry is reengineering how the triparty repo system operates in order to significantly reduce the large intraday exposures of the two clearing banks in the system. This is important because, as we saw during the financial crisis, very large intraday exposures can prove destabilizing. However, I would argue that progress on the liquidity front has not progressed as far as desired.1 First, many banks remain dependent on short-term funding to finance longer-term assets from counterparties that tend to flee at the first signs of distress. In particular, money market mutual funds remain vulnerable to runs. Such runs can occur even when the underlying risks remain negligible, making money market mutual funds a source of instability. Just a question from an investor about the fund manager’s exposures can cause the fund manager to withdraw funding from a counterparty.

The latter responds to both the expansionary monetary policies in Chile and around the world and more structural conditions (figure 11). In any case, qualitative information, such as the Bank Lending Survey for the second quarter and our August Business Perception Report, shows that a weaker demand for credit is perceived. According to the respondents, this is due to a shortage of investment projects and job security fears. Turning to our monetary policy, if the macroeconomic scenario that has been taking shape over the past few months consolidates, with external financial conditions that, while volatile, are better than we projected in June, where gaps are bounded and inflation is returning to the target a little earlier, we see no need to make any new increases in the policy rate over the policy horizon. Accordingly, we use as a working assumption that the monetary policy rate will be kept unchanged during the projection horizon. As always, any monetary policy measure or adjustment to the rate will be conditional on the expected effects of incoming information on the projected inflation dynamics. Some thoughts I wish to share on monetary policy conduct. For two and a half years, inflation has been above the Central Bank’s defined tolerance range. The main reason being, as we have said time and again, the increase in the exchange rate, which was necessary in the new conditions facing the Chilean economy. Because it was a one-time shock and therefore with transitory effects on inflation, tightening the policy was less than optimal.