samchain/econo-pairs-v1 huggingface dataset:
2  BIS Review 39/20086  Relative food prices for several countries (ratio) 1,2  1,2  1,1  1,1  1,0  1,0  0,9  0,9  0,8  0,8  0,7  0,7 00  01  02 USA Mexico Chile  03  04 05 Euro Zone China  06 07 Brazil New Zealand  08  Sources: Each country’s central bank and statistics bureau, Bloomberg and International Monetary Fund. Relative energy prices for several countries (ratio) 1,6  1,6  1,4  1,4  1,2  1,2  1,0  1,0  0,8  0,8 01  02 USA Mexico Chile  03  04  05  Euro Zone China  06  07  08  Brazil New Zealand  Sources: Each country’s central bank and statistics bureau, Bloomberg and International Monetary Fund. The impressive scale of the supply shocks and their transmission to Chilean domestic prices can be appreciated by comparing the unusual increase of some prices in 2007 with their average increase since the year 2000. Non-perishable foods rose by nearly 15% last year, while only around 2% per year in 2000-2006. The prices of fresh fruit and vegetables – even considering high-price years like 2002 and 2005 – fell by an average of nearly 2% between 2000 and 2006, while in 2007 they increased by more than 30%. During last year, the price of gasoline unexpectedly increased by almost 15%.

Giving weight to output implies that inflation is brought back to target somewhat later. The consideration of a steady interest rate course suggests that small, temporary disturbances should normally not result in abrupt shifts in the interest rate. If this consideration is also given weight in interest rate setting (criteria 1, 2 and 3), the impact on the interest rate will be smaller. If we also give some weight to the interest rate given by a simple monetary policy rule – the Taylor interest rate rule (criteria 1, 2, 3 and 4), the key policy rate will remain at today’s level for a period and then be raised gradually. This results in a further small downward shift in the projections for inflation and the output gap and is consistent with the projections in the previous Monetary Policy Report. The projections for inflation and economic activity vary from one Report to the next. Hence interest rate prospects will also change. In our Reports we attempt to illustrate which factors have influenced the changes in the interest rate forecast through their effects on the prospects for inflation, output and employment. 1  A simple rule can function well under alternative models for the economy. The type of uncertainty we want to be robust to will determine what the best rule will be.
In the Bank of England’s monetary policy operations – the STR OMOs and the OSFs – eligible collateral includes only securities  BIS central bankers’ speeches  3  issued by those sovereign issuers of the highest credit quality and which are expected to remain liquid in all but the most extreme circumstances. In providing liquidity insurance operations, the policy objective is to provide liquidity under stressed conditions and this can be most effectively done against a wider collateral set, although similar adverse selection concerns can apply. Where collateral is of differing market value, that ideally needs to be reflected in the price of lending so that there are no market distortions. The Bank has a number of different collateral pools to reflect this. The (first) “wider” pool is available for use in the Bank’s Indexed Long-Term Repo (ILTR) operations and includes both the narrow collateral set and certain private sector securities which would be expected to remain liquid in most conditions (including the debt of a number of other sovereigns and certain third-party originated ABS). The ILTRs allow firms to bid to get reserves against either the narrow or this wider collateral set at different prices. The Bank decides how much is allocated against wider collateral, depending on how much the commercial banks bid for it (ie reflecting market demand).5 It also meets other policy objectives such as providing a signal about the degree of stress in the market. A yet wider range of collateral is eligible in the Bank’s Discount Window Facility (DWF).

After provoking an exceptional increase in liquidity in August, on 6 September 2011 the SNB announced that it would no longer tolerate a EUR/CHF exchange rate below CHF 1.20. This measure remains the focal point of Swiss monetary policy. In the current global context, Switzerland’s economic situation does not justify any strengthening of monetary conditions and this should remain the case for the foreseeable future. The SNB continues to enforce this minimum rate with the utmost determination and remains prepared to buy foreign currency in unlimited quantities for this purpose. From a conceptual perspective, the minimum exchange rate is not a quantitative easing measure and most of my generic comments do not strictly apply to the Swiss case. Nevertheless, the risks associated with this measure do, to a certain extent, resemble those I just described. The first of these risks is that the minimum exchange rate may superficially seem like a simple or straight-forward measure, which may in turn give the impression that monetary policy is a catch-all problem-solver, i.e. that it is almighty. This is clearly not the case. Monetary policy has neither the capacity nor the mandate to protect the Swiss economy from all the shocks to which it is subjected. The aim of the minimum exchange rate is to avert the worst possible developments in zero interest rate environment. It is not a response to each and every challenge with which the Swiss economy is faced, nor can it be implemented at any desired level, free of any risk.
Liquidity management in the Islamic financial system and the institutional arrangements for resolution are among the other areas that need further development. Of critical importance is for the board and management of Islamic financial institutions to institute higher standard of leadership and a comprehensive governance culture and framework. Mutual recognition in Shariah and human capital challenges On this occasion, I would like to touch on two areas confronting Islamic finance firstly on, the issue of mutual recognition in Shariah and secondly the human capital development in the industry. Malaysia takes cognisance of the diversity of Shariah views within the region and among jurisdictions. Although Islam welcomes diversity of views, there is also a need to promote greater harmonisation among jurisdictions on the specific issues relating to Islamic finance. Such convergence is important for the long-term sustainability of the sector. Malaysia has taken the initiative to organise Regional Shariah Scholars Dialogue in 2006 and 2008 as part of the efforts to foster greater engagement among the Shariah scholars in the region. Indonesia has been active in these dialogues. Moving forward, the newly established International Shariah Research Academy (ISRA) has been entrusted to intensify the regional Shariah Dialogues as well as to enhance further the international engagement among Shariah scholars in our pursuit for Shariah harmonisation. Most encouraging is the greater appreciation and understanding that has been achieved in these deliberations of the Shariah practices that are peculiar to the respective jurisdictions.

Islamic banking in particular, which is a form of financial intermediation that is directly linked to trade and investment flows, has significant potential to facilitate this process. Islamic finance requires all financial transactions to be supported by an underlying economic activity. There is now a renewed focus in the global community on generating real economic activity, generating jobs and generating overall financial stability. Following the developments that have led to the current global financial crisis, there is a greater recognition for the need to reduce the decoupling of the expansion of financial transactions and the growth of the real economy. This is in fact a fundamental requirement in Islamic finance thereby resulting in a close link between financial and real flows. BIS Review 26/2009  1  In Malaysia, the Islamic banking sector continues to progress, recording double digit growth over the recent 8 years with an average annual growth rate of 20% in terms of assets. As at the end of 2008, Islamic banking has increased its share of assets in the banking sector to 17.4%. The assets share of the takaful industry grew at 23% per annum in the recent five years, with family and general takaful capturing 11% and 7% respectively, of the overall insurance sector. The MIFC initiative has focused on promoting Malaysia as an international Islamic financial hub, in particular in sukuk origination, foreign currency business, takaful, research and talent development.
But let us now turn to monetary policy. The Central Bank’s interest rates have been lowered significantly over a short period of time, mostly because inflation has subsided rapidly and inflation expectations have followed suit. Interest rates had to fall accordingly in order to prevent the real interest rate from rising, which would have been quite unfortunate given the spare capacity in the economy. For the same reason, attempts have been made to lower real interest rates without jeopardising exchange rate stability and the inflation target. As I mentioned earlier, Central Bank interest rates are at an all-time low. Nonetheless, the Monetary Policy Committee is of the opinion that there is still some room for further rate cuts if the króna remains stable and inflation continues to subside as forecast. The MPC emphasises, however, that the upcoming removal of capital controls creates uncertainty about just how much room there is to reduce interest rates. The breakeven inflation rate on Government bonds, as measured by the Central Bank, has declined since the 3 November interest rate decision, and the five-year breakeven rate is now broadly in line with the Bank’s inflation target. Shorter-term expectations could fall even further in the near term, as the Bank’s forecast projects that inflation will fall below 2% in 2011. Based on this measure, the effective real policy rate is now 2-2½%. This is below the pre-crisis equilibrium real interest  BIS Review 158/2010  3  rate, and probably lower than the rate that will prevail once the economy has normalised.

To be clear, the Senior Insurance Managers Regime should not be operated in such a way so as to put good people off. The desired outcome is that of effective governance, not enforcement. Insurance innovation and regulation Preparedness for what tomorrow’s world may bring will likely involve a degree of change – greater risk-awareness, ensuring good governance, collaboration with the regulator – but is the insurance industry capable of that change? The insurance industry has been founded upon taking the long term view. This is a concept that perhaps evokes a perception of consistency rather than innovation. However, the UK industry has traditionally not shied away from changing with the times, with the London market being a particular example. Already, in response to changes on the horizon, we are seeing shifts in business models. Insurers are refreshing their product offerings, altering operational structures and enhancing distribution channels. The PRA has an important role to play in this so let me return to the subject of regulation. To be clear, regulators have no intrinsic reason to stifle innovation. Far better to supervise a successful, profitable, innovating enterprise than a declining out-dated one. Underpinning that view, I would say that there should not be a prohibitive trade-off between insurers’ ability to innovate versus their ability to manage risks. Instead, the PRA will need to work with its regulated entities closely and early in the process of innovation.
The group referred to as impatient investors is probably not a fixed quantity; it may turn out to be quite variable, depending on expectations concerning Iceland’s economic policy, on the one hand, and on global market conditions, on the other. The agreement concluded with the Banque centrale du Luxembourg, which transferred a significant amount of ISK assets to domestic long-term investors, facilitates the removal of capital controls. The agreement expands Iceland’s foreign reserves and transfers assets into the hands of parties that are less likely to sell at the first opportunity. How to lift the controls? In August 2009, the Central Bank presented a capital account liberalisation strategy based on sequenced removal of the controls upon fulfilment of stated conditions rather than on a specified timetable. That strategy was prepared under conditions that differ from the current ones and must therefore be reviewed in its entirety. The first phase of the existing strategy, the removal of restrictions on capital inflows, was implemented in early November 2009. The original intention was that, in Phase 2, restrictions on capital outflows would gradually be lifted, beginning with long-term securities transactions. That step has not yet been taken, and its implementation must be considered carefully with an eye to stability before it can be taken.

The reason for this, as I said, is that in Sweden and abroad, it is at this maturity that a sufficient number of transactions are carried out. For the rate to be credible and representative, there needs to be a steady flow of enough transactions on which to base the calculation. The interbank rates can be developed at longer maturities even with a very limited transaction base, precisely because there is scope for the banks' own judgements – but this is also what makes them lacking in objectivity and easier to manipulate. Alternatives to longer-term interbank rates being developed In order to address this problem, central banks in several countries are now working to ensure that the new reference rates can also replace interbank rates in contracts with longer maturities. In principle, it is possible to create forward-looking rates based on traded derivative instruments with the new rates as a base. However, in most countries the derivative markets based on the new reference rates are not yet large enough to form the foundation for reliable forward-looking reference rates. A simpler way forward is to calculate backward-looking average rates based on the history of the transaction-based reference rate. The average rates then show the average return over a given period, including a compound interest effect, based on daily SWESTR values during the period. The central banks of the United Kingdom, Norway and the United States and the ECB have already begun to publish backward-looking average rates or indices that can be used in a similar manner.
On 1 July, we returned risk weights for consumer loans to the pre-pandemic level. However, given recent months’ data, we will soon make a decision on additional macroprudential measures to cool down this segment of the retail market. 2/3  BIS central bankers' speeches  I will now speak on possible risks to the forecast. Proinflationary risks continue to prevail. We consider that the main risk is a potential anchoring of inflation expectations at a high level. Fuelled by high inflation expectations, temporary growth might become sustained. There is a slight increase in risks associated with a possible faster normalisation of monetary policies in advanced economies. As a result, market volatility in emerging market economies might intensify, which can affect exchange rate and inflation expectations. There are also certain risks caused by structural changes in the labour market due to the pandemic. The demand for some professions is declining, whereas the demand for others is rising. This is confirmed by data on a record-high increase in vacant jobs. Adjusting to the new needs of the economy requires time for specialist retraining. Consequently, this provokes local staff shortages. The situation is aggravated even more due to the restrictions on the inflow of labour migrants, which affects construction and seasonal agricultural works most seriously. The situation in the labour market might increase companies’ costs. Proinflationary risks associated with the environment in global commodity markets persist. Nonetheless, June—July recorded the first signs of a decline in world prices.

Monetary policy response  The CBRT has been clear about its approach in responding to inflation resulting from factors beyond its control: Monetary policy will tolerate the first round effects, but will promptly respond to any deterioration in overall pricing behavior. I want to emphasize that the policy pursued since September 2007 should be interpreted in this context. In September 2007, the Monetary Policy Committee (MPC) decided to initiate the rate cuts, which had already been signaled earlier in the year. Accordingly, policy rates were lowered by 225 basis points between September 2007 and February 2008 (Table 2). Table 2: Monetary Policy Committee (MPC) Decisions in 2007 and 2008 Dates for MPC Meetings  Decision on Interest Rates  Interest Rate  January 16th, 2007 February 15th, 2007 March 15th, 2007 April 18th, 2007 May 14th, 2007 June 14th, 2007 July 12th, 2007 August 14th, 2007 September 13th, 2007 October 16th, 2007 November 14th, 2007 December 13th, 2007 January 17th, 2008 February 14th, 2008 March 19th, 2008 April 17th, 2008  No Change No Change No Change No Change No Change No Change No Change No Change -0.25 -0.50 -0.50 -0.50 -0.25 -0.25 No Change No Change  17.50 17.50 17.50 17.50 17.50 17.50 17.50 17.50 17.25 16.75 16.25 15.75 15.50 15.25 15.25 15.25  Source: CBT. In the January 2008 Inflation Report, we indicated that uncertainties in the global economy, hikes in electricity prices, and risks to price setting behavior had compelled the CBRT to be more responsive to incoming information.
The International Energy Agency expects to see the second-biggest increase in carbon emissions in history this year, eradicating 80% of the 2020 reductions. 2 The good news is that 2021 may also provide just the kind of momentum we need to tackle climate change effectively. As the European Union and national governments start making large investments to pave the way for recovery, it is crucial that those funds are channelled towards activities that support our transition to a greener economy. I will now discuss ECB Banking Supervision’s latest initiatives to ensure that banks adequately manage climate-related risks. This is our mandate. As I said earlier, this will also have the positive knock-on effect of inducing banks, and thus companies and households, to factor in climate effects when allocating funds. And this will help accelerate the reduction of carbon emissions – all the way to zero by 2050 at the latest. How ECB Banking Supervision is tackling climate risk Climate risk can affect banks through different channels. As I am sure many of you already know, the main risk drivers for banks are physical risks and transition risks. Physical risks include all those resulting from a changing climate, from more frequent extreme weather events and gradual changes in climate, to environmental degradation, such as air, water and land pollution, water stress, biodiversity loss and deforestation.

Building on the paper’s analysis of the Fed’s Reverse Repo Facility (RRP), I will make the case that central banks are now more proactive in: the influencing of market rates; the provision of liquidity insurance, and the design of market infrastructure. Finally, I’d like to say a few words about pass-through beyond the money markets. As interest rates decline toward zero, it becomes more difficult for banks to pass through changes in policy rates to those rates faced by households and businesses – hampering the transmission of monetary policy. The Term Funding Scheme is designed to mitigate this impact, and hence re-inforce pass-through to the real economy. So I’ll end by briefly outlining how that works. BIS central bankers’ speeches  1  The impact of regulation on money market function Let me start with the impact of regulation on money market function. Darell and Arvind’s analysis of the dispersion of money market rates offers evidence of the impact of regulation on behaviour and pricing. Their index of money market rate dispersion has risen since the introduction of the Supplementary Leverage Ratio, and has a tendency to increase around key regulatory reporting dates (Chart 1). It is difficult to dispute the idea that regulation has had an impact on how markets function globally. The decline in repo market activity has actually been larger in the UK than in the US and is around 20% below its 2013 level (Chart 2).
Another potent factor is indeed the movement towards disintermediation, which should further amplify the role of CCPs. This disintermediation trend is fostered by public initiatives, such as the Capital Markets Union promoted by the European Commission in the EU. This movement is also related to market initiatives, notably in our financial centre here in Paris, to promote market financing as a complement for bank credit: for instance, the ESNI (Euro Secured Note Issuer) allows for the securitisation of high quality credit claims to improve SME financing. We also see a growing appetite of market participants for central clearing to further secure their transactions. Repos are increasingly cleared in CCPs in the EU, and this has stood as a key factor in the resilience of the European repo market over the latest years. However, with greater systemic importance come greater responsibilities. Greater responsibilities lie first with the industry. The clearing industry must have a coherent and resilient organization. We must not yield to the temptation to maximize netting effects. We all agree that the primary objective of central clearing is to reduce systemic risk. CCPS cannot be considered primarily as vehicles for improving operational and capital efficiency. They should be as well financial stability enhancers. The proposed merger of the London Stock Exchange Group and Deutsche Börse might be a relevant illustration of the risk of a trade-off between these two objectives. So we will closely look at it from a financial stability perspective, as I already said.

Finally, let me say a last few words to introduce the precise topic of this conference. As you know, regulations require CCPs to consider all extreme but plausible scenarios in their daily risk management. However, we cannot ignore tail risk. The remote possibility that CCP resources would be exhausted in a crisis must be dealt with appropriately. This is why we need robust recovery and resolution arrangements for CCPs, to preserve financial stability in all circumstances. Before I leave you to discuss this complex issue, I would like to offer a few thoughts: –  The cornerstone principle of resolution is always financial stability: this should be achieved through the continuity of CCP services when possible, but not at the expense of the financial survival of CCP members and clients. –  The permanent cost of such a regime should be assessed carefully in order to preserve incentives in favor of central clearing. CCPs already have properly sized financial resources and a sound business model that must be preserved. –  Resolution arrangements should balance predictability for CCP participants and flexibility for the resolution authorities, whose task to preserve financial stability in the most extreme circumstances should not be hampered. –  And lastly, cooperation between authorities and consistency at the international level are key to ensure efficient resolution planning and resolution actions, and to avoid regulatory loopholes and arbitrage. This conference is indeed illustrative of the spirit for further international cooperation in this field. Thank you for your attention.