samchain/econo-pairs-v1 huggingface dataset:
The exchange rate has, in fact, tended gradually to soften since last spring when the decision to go ahead with the euro was finally confirmed; but increasingly since the autumn the internationally-exposed sectors of the economy have been dealt a further massive blow as a result of global economic turbulence. This started, in fact, with the financial disturbances in Asia in the latter half of 1997, but even as late as the beginning of last summer it seemed as if it might have only limited impact on the overall world economy. The IMF, for example, was then still projecting 3-3¾% world growth in 1998 and 1999 respectively, which was certainly a setback compared with their forecast of over 4% just six months before, but it was hardly catastrophic. Since last summer it has become increasingly clear that things are likely to be significantly worse than that. The financial collapse in Russia, deepening recession in Japan, the long battle – then sudden defeat – in Brazil to hold its exchange rate, and fluctuating fears of possible knock-on effects on the major countries’ financial markets, all contributed to an increased sense of financial fragility, which has not been easy to contain, though I am now hopeful that we will be able to stop the financial rot.

The strong exchange rate gave us somewhat more time than we would otherwise have had to bring about this domestic slowdown – it meant that monetary policy did not need to be tightened as aggressively as would have been necessary otherwise. But we could not avoid tightening policy altogether, even though we realised that this would be likely to increase the pressures on the internationally-exposed sectors, because in anything other than the short term that would have put the whole economy – including the internationally-exposed sectors we were trying to shelter – at risk of accelerating inflation. I would remind you that right up until the summer of last year we were seeing signs of increasing pressures in the labour market, even in the manufacturing sector – reflected in increasing skills shortages and recruitment difficulties, in the employment/unemployment data, and in gradually increasing pay settlements. The uncomfortable reality, as I’ve said very often before, is that monetary policy can only target the economy as a whole – it can’t seek to protect individual firms, or sectors, or regions, however much we might wish it otherwise. That – as I’ve discovered – is not exactly a popular idea, but there’s no question that that is the reality of it. Over the past year the world – and I mean the world – has changed very substantially.
Furthermore, in economic terms, given that these deposits were used to a significant degree to finance illiquid assets outside Iceland, such a payment, if it had been possible, would have amounted to a net transfer of resources from Iceland to other countries – where the United Kingdom would have been prominent – at a time when Iceland was going through its deepest financial and economic crisis in the post-war period. That made no sense whatsoever! However, the preference given to deposits under the Emergency Act is a key element in the fact that recoveries on the failed banks’ estates will cover deposit claims from the foreign branches in full. In international discussion, there have been a number of misconceptions about this process. There have been claims that Iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. The fact is that Iceland kept the domestic part of its banking system running throughout, and at significant expense; otherwise, the consequences would have been dire. Some have claimed that the banks were nationalised. They were not. The failed private banks are private companies in winding-up proceedings governed by law. The Government fully recapitalised one of the new banks. The other two are private banks owned primarily by the estates of the old banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time.

We have been able to affect expectations for the following years through our communications. Other central banks that have not traditionally engaged in this type of communication have, as I mentioned earlier, experimented with different forms of rough ‘triggers’ of various kinds. The academic background to the concept is the insight that expectations of future policy rates are at least as important as their current level when it comes to affecting investment and consumption decisions. In normal cases, the central bank is assumed to be able to influence expectations satisfactorily through its systematic monetary policy. But when the policy rate reaches its lower bound, it is possible to communicate an intention to diverge from normal behaviour and keep the rate low for a longer period and thus substitute, to a certain extent, for an immediate policy rate cut. There has been, however, some discussion of how effective such communication actually is, particularly over longer horizons. 12 The Riksbank's method provides a more complete picture of how we see the situation and the development of the economy. But other ways of communicating about the future have their advantages. One variant of this is the state-contingent US approach: saying that the policy rate will not be raised until the outcome for inflation has reached 2 per cent. 13 In situations where the market does not share the Riksbank’s view of the development of inflation, the US way of communicating can provide more information than inflation and interest rate forecasts.
But I firmly believe that if we had cooperated better, our countries would probably not have been as severely affected by the global repercussions of the credit crunch. To avoid this kind of cooperation failure, you need a clear division of roles and responsibilities. You need to share information and coordinate your actions. And to manage a crisis effectively, you need to be prepared. This requires planning ahead. By establishing, in normal times, what is usually referred to as a Domestic Standing Group – bringing together the supervisory authority, the central bank, the finance ministry and perhaps certain other relevant authorities – you can enhance preparedness by developing suitable crisis management tools and routines. Creating recovery and resolution plans together with the banks is another productive approach. By conducting crisis simulation exercises, you can also test these tools and plans on various possible crisis scenarios. However, as banking is becoming increasingly internationalised, merely cooperating within your own country will not be enough. Cooperation must also be extended across borders. This is particularly true for countries whose banking sectors have a high degree of crossborder activities. Spain and Sweden share this characteristic, despite the fact that banks in our countries run their cross-border activities in very different ways. But cooperating across borders is difficult. There are all sorts of reasons for this. To mention a few, legal barriers, political pressure or even language and habits may all prevent fruitful exchanges between countries from taking place.

During my years at the IMF, I have seen this pattern repeat itself – and it is not a pretty sight. In Europe, we face a particular and somewhat peculiar cooperation problem. This is sometimes described as the trilemma of banking supervision. A trilemma is similar to a tradeoff, and means that you want to pursue three objectives but you can only achieve two of them. One needs to be given up. The three objectives in this context include, first of all, effective banking supervision and crisis management, secondly, national sovereignty of supervision and crisis management; and, finally, an integrated European market and all the benefits coming from more competition. In the EU, we have chosen the latter two – economic integration and national sovereignty of supervision and crisis management. This national sovereignty is manifested in what is known as the home country principle, meaning that the supervisory authority in the country where a bank is domiciled takes complete responsibility for the supervision of its branches abroad. This home country principle is combined with economic integration and allowing banks to establish operations across Europe. In choosing these two objectives, the third objective – effective supervision and crisis management – has been forsaken. This is clearly manifested in Europe’s current approach towards supervising banks and managing crises. Economic integration and the EU’s pursuit of a single market for financial services have meant that some banks have expanded beyond the means of their home countries.
In terms of the outlook, a key issue that the Committee faces in deciding the appropriate stance of policy is the extent to which the current elevated levels of inflation will persist into the medium term. Our most recent projections, conditioned on market interest rates, existing fiscal plans and the futures prices of commodities, are shown in Chart 10. The central view is for inflation is to rise further in the near term as recent commodity price increases pass through, but then to fall back, particularly in 2012 as the rise in VAT to 20% drops out of the twelve-month comparison. It then continues to ease back, reflecting the continuing – though uncertain – drag from the margin of spare capacity in the economy. A number of factors will determine the rapidity of that return to target. Profit margins have been squeezed during the recession and businesses are likely to want to rebuild these as the recovery proceeds. But the real purchasing power of wages has also been severely squeezed and employees may also seek to recoup some of that. Ultimately this is about how the costs of the recession and the deterioration in the terms of trade associated with higher real import costs are shared out 7 , but during the adjustment phase it may be manifested in temporarily higher wage and price inflation. Consistently above-target inflation, whatever its cause, may also lead people to believe that it will remain high in the future.

And businesses are unlikely to want to expand while capacity is lying idle and there is still much uncertainty about the outlook for demand. But the substantial depreciation of sterling – down nearly 25% since the start of the crisis – should, over time, help to boost the contribution of net exports to UK growth. We have seen some of the fruits of that in the robust performance of manufacturing over the past year. As I already noted, the economy began to grow again more than a year ago, in the fourth quarter of 2009. And over the first year of the recovery, growth was around the UK’s historical average rate. In part, that was on the back of the boost to growth from a slowing in the rate of inventory de-stocking. Given the prospective fiscal consolidation, the maintenance of such growth rates requires a pickup in the contribution of private domestic final demand and in net exports. In our November Inflation Report, our central view 3 , predicated on market interest rates, was for the recovery to be maintained, with the boost from a stimulatory monetary stance and from the past depreciation of sterling offsetting the continuing headwinds from de-leveraging and fiscal consolidation. Since the November Report, we have, of course, had the first estimates from the ONS of growth in the final quarter of last year. They suggest that the economy contracted by 0.6%. In part, that was down to the disruption caused by the snow.
11  Specifically, Level 1 assets are entirely taken into account in the LCR (no haircut) and thus benefit from a more beneficial treatment in the LCR than in the Eurosystem’s collateral framework, while level 2 assets generally enjoy lower haircuts in the Eurosystem’s collateral framework than in the LCR. These differences certainly reflect the different objectives of the LCR and the Eurosystem’s collateral framework. 12  Central bank refinancing always benefit from a 100% rollover rate no matter the quality of the assets used in the transaction. A 100% rollover rate ensures equal treatment between central banks implementing monetary policy through repo operations and central banks implementing monetary policy through outright purchases of  4  BIS central bankers’ speeches  depends on the opportunity cost of obtaining liquidity from the Eurosystem, there may be a number of LCR-constrained banks with large amounts of non-HQLA collateral that is eligible for monetary policy operations. Imagine a post-crisis monetary policy framework where the liquidity provision by the central bank would again be rationed and implemented through competitive auctions (instead of today’s fixed rate, full allotment). If some banks have no access to market repos using their assets as collateral (owing to concerns in the market place about country, counterparty or collateral risk), it will be likely that these counterparties will bid in the liquidity-providing monetary policy tender operations using this collateral in order to obtain cash to cover both their funding needs and their LCR.

BIS central bankers’ speeches  7  fixed-rate, full allotment regime in its refinancing operations, offering unlimited liquidity to banks at a predictable cost against an expanded set of eligible collateral. The widening of collateral might be seen as a way to mitigate the adverse and destabilizing effects of shortterm funding “runs” relating to a deterioration of asset liquidity, but it can also be seen as a way to prevent large recourse to central bank liquidity by banks, who would otherwise be subject to funding outflows at a later stage of the crisis. Such a widening has to be accompanied by proper risk management measures, such as haircuts, to mitigate the increase of the risk profile of the central bank. The challenge for the central bank is to “buildin” the possibility to expand the set of eligible collateral while mitigating the incentives for banks to abuse it.20 Similarly, the LOLR’s function of providing emergency liquidity assistance has been criticised for provoking moral hazard by banks. Indeed, support that is considered as appropriate during the crisis might have perverse effects on the incentives of banks at a later stage. Banks may ex ante decide to take an excessive exposure to risk, knowing that the central bank will intervene if that risk materialises. Moreover, there is a fine line between liquidity and solvency needs, which in a crisis is often blurred. Central banks should therefore be particularly wary not to substitute for capital support that should be provided by shareholders, investors, or in last resort by governments.
One simple method is to assume that potential output over time grows at trend because the labour force expands and productivity rises. Developments in the output gap provide a basis for assessing cyclical developments and can thus also shed light on domestic price and cost pressures in the economy. It is difficult to know how high capacity utilisation is at any given time. Output and employment figures are often revised and do not therefore always present an accurate picture of the current economic situation. Norges Bank therefore also uses a number of other indicators to take the temperature of the Norwegian economy. The period of strong expansion that began in 1997 came to an end in winter 2003. The Norwegian economy was hit by a pronounced downturn in the global economy. An economic turnaround has now occurred in Norway, with a soft landing after the long period of high domestic cost inflation and sluggish external activity. Output is showing a marked increase, but inflation is low. Monetary policy easing From spring 1999 to December 2002, the interest rate in Norway was fairly stable at between 5.5 per cent and 7 per cent. In other countries, the interest rate fell in 2000 and 2001 when the ICT and equity bubbles burst. The interest rate differential between Norway and other countries widened due to cyclical divergence. The expansion continued for a longer period in Norway, with strong wage and cost inflation. The 2002 wage settlement resulted in very high wage growth for the fifth consecutive year.

A persistently high rate of increase in house prices can in isolation engender expectations of a further rise and can thus prove to be self-reinforcing for a period and push up credit demand. At the same time, the switch to a flexible inflation targeting regime reduces the possibility of exposing households to a double shock in the form of higher unemployment and higher interest rates, as was the case prior to the banking crisis in the beginning of the 1990s. If the economy is exposed to disturbances that may lead to higher unemployment, inflation will normally decline and interest rates will be lowered. High debt growth increases the vulnerability of households to economic disturbances. As a result of low interest rates, the household interest burden will remain fairly low in spite of high debt growth. It may prove to be particularly challenging for borrowers to assess their debt-servicing  4  BIS Review 53/2004  capacity over time in a period when the interest rate is abnormally low. Such a low interest rate also places particular demands on banks in assessing the creditworthiness of borrowers. The interest rate can be used to reduce credit demand. At present - with low interest rates abroad and a close link between domestic interest rates and the krone - a tighter monetary policy would restrain credit demand primarily because job security would be reduced as a result of a stronger krone. Summary of the situation in the Norwegian economy A turnaround in the Norwegian economy has occurred.
William J McDonough: Issues in corporate governance Remarks by Mr William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the William Taylor Memorial Lecture, Washington, D.C., 29 September 2002. *  *  *  I am honored this evening to be invited to deliver the William Taylor Memorial Lecture. Bill Taylor was a very special person. He was deeply committed to public service and to the well-being of this nation's financial markets in his many years as head of Bank Supervision at the Federal Reserve Board and as chairman of the Federal Deposit Insurance Corporation. For many of us, he embodied the ideals of a central banker and a bank supervisor: measured, professional, impartial, and unstinting in his willingness to go the extra distance in his search for the right answers to the problems he needed to address. His years in the bank supervisory community were cut all too short. We have sadly missed the benefits of his wisdom. This evening I would like to honor Bill's memory by talking about some issues I know would have been of profound interest to him. Specifically, I would like to focus my remarks on the elements that make for a sound banking and financial system and the issues that have been raised over this past year which have led many to question the quality and integrity of the information available to our markets.

When anyone could log on to receive market information and trade in real time, wouldn’t traders flee the hurley burley and relocate to other, quieter and cheaper financial centres or even out of cities altogether? What seems to have happened is the opposite. The reducing costs of collating information and trading at a distance have led to operations relocating to London and the City becoming an even more important cluster for financial activity. The technology which could have allowed the dispersion of business has instead allowed greater concentration. 12 So whereas in 1997 the largest share of market turnover of Frankfurt’s Eurex market came from traders based in Germany (over 80%), the largest share in 2005 came from the UK (with over 45%). As more assets can be traded remotely, this may further drive the growth of centres like London with large pools of skilled financial workers. The growth of European capital markets relative to traditional commercial banking should reinforce that process. Historically, European and equity markets have been smaller relative to their economies than in the US. With around some $ trillion in assets, euro-zone financial markets are still significantly smaller than the $ trillion in the US. But Europe is closing the gap. In 2005 the  12  HM Treasury, “The location of financial activity and the euro”, 2003. BIS Review 29/2007  5  eurozone’s financial stock grew by over 20%, compared with around 6% in the US.
Second, a set of resolutionrelated reforms are intended to limit the consequences to the financial sector if a failure by such an institution still were to occur. Given the limited time on this panel, I will not review in detail the post-crisis comprehensive capital and liquidity framework that the Federal Reserve has put in place. However, from the perspective of addressing too big to fail, it is important to highlight the Federal Reserve rule finalized this year that imposes risk-based capital surcharges on the handful of U.S. global systemically important banking organizations (GSIBs). Under this framework, a GSIB’s riskbased capital surcharge will reflect the degree to which its failure would impact the financial system. In effect, the risk-based capital surcharge confronts each U.S. GSIB with the choice to either reduce its systemic footprint or instead to hold more capital. The policy approach to too big to fail recognizes, of course, that we can reduce but cannot completely eliminate the possibility of a large financial institution’s failure. Therefore, a second aim of our post-crisis reforms has been to limit the adverse consequences that would result if a large financial institution were to fail. That is, large financial firms need to be capable of being successfully resolved without creating unacceptable collateral damage to the rest of the financial system and to the economy.

A key next step will be for the U.S. and other major jurisdictions to put in place regulations and supervisory measures that will require non-bank counterparties of GSIBs to trade with the  2  BIS central bankers’ speeches  GSIBs on terms equivalent to those found in the ISDA resolution stay protocol. This further step is needed in order to limit the potential for arbitrage within the market and to promote greater stability in the event of a necessary resolution. As we move this work forward, we should acknowledge and take stock of the significant advances achieved over the past few years, while at the same time remain focused on our responsibility to address the challenges that remain. Thank you for your kind attention. BIS central bankers’ speeches  3