samchain/econo-pairs-v1 huggingface dataset:
Opening up our data for analysis / transparency The current statistical revolution has gone hand in hand with substantial progress in empirical economics and modelling. Some years ago, macro literature often relied on representative agent models. That was a natural consequence of computational limitations. However, the aggregation of individual behaviour does not in general coincide with the behaviour of one average individual. That’s why this literature is now moving towards models with heterogeneous agents (each with distinct behaviour and a distinct reaction to policies), which allows not only for a more accurate representation of the economy, but also for the analysis of distributional issues, such as inequality. For such sophisticated analysis, detailed micro information is key. This is also true for empirical economics, and in particular for the evaluation of economic policies. Many policies target very specific groups of agents according to some individual- or location-specific characteristics. Moreover, one must take into account that the effects of policies depend on many individual features as well as on other contextual issues. Those two factors notably increase the heterogeneity of the effects of such measures. As a consequence, access to  3  massive data that do not limit the scope of the analysis on account of small sample biases is key for the evaluation of economic policies.

The goal here is to have a better knowledge of the overall datasets available at the institution (which may point to some synergies, overlapping and gaps), and to establish good data governance procedures and a technically sound platform to host and exploit all that information. At the European level, several initiatives are in motion as well. First, the European Commission has asked the European Banking Authority (EBA) to conduct a feasibility study to explore the possibilities for statistical, supervisory and resolution reporting to converge, thus reducing the reporting costs of financial institutions. The ESCB proposal to the EBA feasibility report –published last September- is based on three main avenues of work: a) a common standard data dictionary; b) the harmonisation of reporting formats, the removal of duplications and improved data-sharing; and c) increased cooperation between authorities and reporting agents. Linked to this project, the ESCB is developing an Integrated Reporting Framework whose aim is to reduce the reporting burden for banks and to ensure the effort made by any credit institution does not depend on the particular euro area country in which a bank is resident. To this end, the purpose is to integrate the existing ESCB statistical data requirements for banks into a single, standardised reporting framework, making it homogeneous across the EU. There are also initiatives to explore the role played by national central banks as producers of statistics at the euro area level.
So, what are the possible policy implications of these recent patterns or trends on financial markets? My opinion is that financial authorities might reflect on some ways to foster behavioral diversity in financial markets. As we have just seen before, some specific factors, such as short-termism, mimetic behaviour etc… have tended to make “contrarians” less pro-active on financial markets. As a consequence, in order to safeguard the smooth functioning of the markets, the diversity of participants’ behaviours must be protected or even reinforced. This necessary diversity should logically reflect natural differences in time horizons, strategies and reaction functions of market players. On this point, I would like to explore amongst many others three possible avenues for future action for both monetary or financial authorities and the financial industry. First avenue: Strengthening the continuing efforts aiming at market transparency Experience shows that uncertainty and incomplete information are determining factors in mimetic behaviour. These shortfalls in market transparency make mimetic behaviour seem rational to agents, who prefer to follow bigger participants, who are thought to be better informed, rather than develop their own analysis. Therefore, strengthening transparency continues to be the priority. In the same vein, attention should be paid to expand the skills and competencies required by the analysis of a more detailed and complex information. Transparency is useless if only a limited number of experts are able to deal with it. One of the objectives of transparency is to enable better differentiation of borrower creditworthiness.

Atchana Waiquamdee: Brief look at financial market indicators Opening remarks by Dr Atchana Waiquamdee, Deputy Governor for Monetary Stability, Bank of Thailand, at the Workshop on Financial Market Indicators, Bangkok, 7 June 2007. *  *  *  Good morning, and allow me to welcome you to Bangkok, and to this morning’s Workshop on Financial Market Indicators. The issue we are about to discuss today, namely the use financial indicators, itself is not a new topic. Especially in more developed financial markets, the use of financial indicators has been integral to the well-functioning of markets. In those cases, utilizing financial market indicators in the policy-making process is nothing new. In many of the emerging markets of Asia, however, this has not been the case. Financial indicators in the emerging markets have been more difficult to come by, and even much more difficult to interpret – due largely to gaps in market development. Yet, as the financial markets of Asian economies began to gather both depth and breadth, more and more financial market indicators are becoming readily available for policy use. Since the availability of the indicators in emerging markets is rather recent and the fundamental conditions in these markets are still very dissimilar to those of the more matured ones, the use of financial market indicators in emerging markets for policy purposes merits much thought and attention. So what exactly are we talking about when referring to financial market indicators?
15  All speeches are available online at www.bankofengland.co.uk/news/speeches  15  material trade shock, other policies, including fiscal policy, would likely need to play important roles in supporting the economy. Conclusion For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties. Monetary policy must address the consequences of such uncertainty for the behaviour of businesses, households and financial markets. In some jurisdictions, the impact may warrant a near term policy response as insurance to maintain the expansion. Markets are currently pricing in much more stimulus than this, suggesting greater pessimism about trade developments as well as potentially concerns about the absence of inflationary pressures. In the UK, the combination of the relatively strong initial conditions – including a tight labour market and inflation at target – and the prospect of greater clarity emerging in the near term regarding the UK and EU’s future relationship argues for a focus on the medium term inflation dynamics. These will be importantly influenced by global developments and even more so by the form that Brexit takes. The MPC’s projections for the UK economy are based on the assumption of a smooth Brexit to the average of a range of outcomes. That assumption is consistent with the MPC’s standard approach to condition its projections on the government policy and with the fact that agreeing a deal is the preferred strategy of both candidates to be the next Prime Minister.

The key difference with previous programmes is that purchases are now conducted in a flexible manner and fluctuations in their distribution will be allowed over time, among jurisdictions and across asset classes, with a view to preventing fragmentation in monetary policy transmission. 1  The volume of purchases initially announced under the PEPP was € billion for the whole of 2020. In June the term was extended up to at least June 2021, and the volume by a further € billion, making for a total of € trillion. The PEPP, together with the new purchases under the Asset Purchase Programme (APP), will increase the portfolio of the Eurosystem’s securities purchase programmes to around € trillion in June 2021. In early October 2020, net purchases of public and private sector assets under the PEPP had already reached € billion since its launch at the end of March, i.e. 42% of the current envelope. Today we can safely say that the PEPP has been clearly successful in curbing financial market deterioration in all euro area countries. This is particularly visible in sovereign yields, which are now close to their pre-crisis levels; but it may also be perceived in other market segments such as that for corporate debt. And, of course, this decline in the cost of sovereign debt has provided policy space for fiscal authorities in all euro area countries, enabling them to take unprecedented measures to sustain the income of households and firms.
To paraphrase a well-known quote, when the facts change, we might need to change our instruments – but we do not change our mission. Managing the side effects In terms of reaching our objective, our package of measures is already having strong effects – perhaps stronger even than many observers anticipated. The latest data on bank lending show continued improvements in the cost of credit, the availability for credit and the demand for credit. Confidence has also notably improved, with the latest European Commission economic sentiment indicator confirming the pick-up in both consumer and business confidence. And the more confident firms and households feel in the recovery, the more credit should continue to improve. Crucially, our intervention in January also first halted and then reversed the fall in inflation expectations. For example, the 5-year forward 5-year ahead inflation-linked swap rate has risen from its trough of below 1.5% in January to more than 1.8% now. This helped lower real interest rates by almost 50 basis points at medium-term maturities. And it has also meant that we have experienced all the upsides of oil price shock in terms of lower input prices and higher real incomes and, by preventing second round effects, none of the downsides in terms of lower wage settlements and higher real debt burdens. Still, despite the success of our programme so far, it is important that we do not get carried away. Unconventional monetary policy must remain exceptional and time-bound.

Inflation is higher in the euro area than in the US and approximately in line with the objective defined by the European Central Bank. In the euro area, however, capacity utilisation is very low, unemployment high and the outlook for growth is weaker. Against this background, it will probably also take time before interest rates rise markedly in the euro area. Chart 14. USD/EUR and the US current account balance as a percentage of GDP 0.8  0 USD/EUR (left-hand scale)  1  -2  1.2  -4 Current account balance (right-hand scale)  1.4 1999  2000  2001  2002  2003  -6 2004  Sources: OECD and Norges Bank  The imbalances in world trade represent a particular risk. The US is running a substantial trade deficit, which was financed for a number of years by private capital flows to the US business sector. The flows have subsided and led to a sharp fall in the US dollar at the same time as the euro has appreciated. Through purchases of US government securities, Asian countries have thus far kept their currencies stable against the US dollar. The US federal budget deficit is an important source of the imbalances in world trade. It appears that it will take time before the deficit is reduced to a considerable extent. This entails a risk that the dollar will depreciate further and that US long-term government bond yields will move up.
13  “Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs)”, published by the Financial Stability Board, 12 April 2011. The Bank of England covered similar issues in its June 2010 Financial Stability Report, pages 40–41. BIS central bankers’ speeches  5  to keep up with innovations and, like bank supervisors, they need to be ready to accept an occasional steer from macroprudential authorities. Product “gatekeepers”: Credit Rating Agencies It would be hard to talk about the issue and distribution of securities without mentioning Credit Rating Agencies. It is important to reduce the significance of CRA ratings in our capital markets. Pervasive mechanistic reliance on ratings is by no means mainly the fault of the Rating Agencies themselves or of financial firms, although many of the latter have acted – and probably continue to act – foolishly. The extent to which ratings have been bolted into regulatory regimes – by securities regulators and prudential supervisors – has plainly been a great mistake. And it is one of those mistakes whose effects have become so woven into the fabric of “modern” finance that it is going to take an extraordinary act of will (and patience) to undo it. Yes, we do have asset managers (and banks) who might not be able to evaluate some securities on their own if they were not permitted, by official regimes, to rely on CRA ratings.

Those requirements were meant to be exacting if the securities were issued onto the public markets. In Europe, it seems most issuers of ABS and CDOs chose to list them in Ireland or Luxembourg. In many jurisdictions, including the USA, the requirements were deliberately less exacting if the securities were distributed solely via the “private markets” to wholesale or sophisticated investors. This prompts two thoughts. First, with hindsight, could Listing Authorities and securities regulators8 do more in the future to ensure that the disclosure around complex securities are comprehensible, coherent and, crucially, simple and short enough to be capable of being absorbed? And should Listing Authorities be more willing to step in and require changes to the structure of complex securities where they conclude that the disclosure is inadequate and just cannot realistically be made adequate? Have “risk factors” become so numerous, wordy and wide-ranging that they lose their impact? In their understandable desire to avoid validating products and securities, have securities regulators retreated too far towards simply checking that the required boxes have been ticked? Perhaps I am imagining it, but I recollect a period in which Listing Authorities were guardians of the integrity of primary markets. That over time came to rely upon disclosure. And that ended up meaning accepting documents that were comprehensive rather than comprehensible. Where something is incomprehensible, and has reached a scale where it could even jeopardise stability, the relevant authority should say so.
BIS central bankers’ speeches  1  We all agree that the Black Sea Region is increasingly becoming a priority on the international agenda. In fact, a regional approach is emerging as actors completely understand that common problems need to be addressed jointly. Over the past five years the region and the world have faced many troubled moments; fast changes have influenced the way peoples choose to look to the future. The idea of strengthening cooperation in the Black Sea Region is not new. It sprang from a paradox: although the countries in the area shared geographical proximity, they came from different historical and political backgrounds and, as a consequence, had poor or quasiinexistent economic relations. As a veteran in this field, I can give you a simple example: in the ‘90s, to reach either Baku or Tbilisi one had to fly through Vienna. In effect, in the autumn of 1997, the Governor of the Central Bank of Turkey contacted me and suggested the founding of a Governors' Club of Central Asia and Black Sea Region, with the Bank for International Settlements serving as a model. It was officially instituted on May 1st, 1998, in Istanbul, when nine countries signed the founding protocol. During the following years, thirteen more countries gradually joined our Club, now spreading from the Baltic Sea to the Pacific Ocean, from Central Asia to the centre of Europe.

However, macroeconomic policies can help the economy to better accommodate this changing reality. During the last decade, Chile’s policy mix has succeeded in significantly reducing output volatility and external vulnerability. This scenario of stability makes room for further economic growth. I will begin my presentation by taking a look at the major changes occurred in both the world and the domestic economy in the past couple of years and which help explain the behavior of our currency. Then I will examine in some detail the role that macroeconomic policies play, with special emphasis on the monetary and exchange rate policies in this new external scenario. II. Factors affecting the evolution of the real exchange rate  The past six months have seen the peso appreciate around 3% against the euro, and 12% against the dollar. The dollar, measured in multilateral terms compared to the main foreign currencies, has hit record lows for the past 40 years. Today, the real exchange rate index estimated by the Central Bank is 5% below the average for the period 1990–2010 (October), and 6.5% below the average for 2000–2010 (figure 1). However, and as I will discuss in a moment, current conditions are very different from those prevailing over the past two decades. These factors warrant a somewhat more appreciated real exchange rate than the average for the past twenty years. Overall, we are aware of the volatilities affecting the international markets which can magnify the fluctuations of our real exchange rate way beyond its long-term fundamentals.
It can be used to assess whether the letters convey a clear and consistent supervisory message to firms. For example, it is possible to compare the strength and content of these letters with the Bank’s internal assessment of firms’ strengths and shortfalls. Are the two, and the Bank’s supervisory messaging, consistent? In general, the research found they are. This approach can also be used to assess how the style of supervision has evolved over time. For example, how has it changed since the transition in supervisory models from the Financial Services Authority (FSA) to PRA? The research finds that supervisory messaging has become more forward-looking, formal, and content-rich comparing the two regimes, consistent with the PRA’s new supervisory model. This exercise is, I think, a good example of a new technique (random forests) being applied to an entirely new database (the Bank’s supervisory assessments) in a policy area virtually unexplored previously by researchers (financial firm-specific supervision). It reaches conclusions that have a direct bearing on policy questions. As such, I think it highlights nicely the promise of Big Data. 43 44 45  Notable examples include Schonhardt-Bailey (2013) and Goldsmith-Pinkham, Hirtle and Lucca (2016). Haldane and McMahon (forthcoming). Bholat et al (2017). 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  My final example uses not newly-created but old data. Nonetheless, I think it provides a good illustration of how new techniques can also be used to understand the past.

Semantic data and semantic search techniques have a rich pedigree in other social sciences, such as sociology and psychology. But, so far, their application in 43  economics and finance has been relatively limited. Like other social sciences, economics and finance involves human choice. And we know humans often rely on heuristics or stories, rather than statistics, when making sense of the world and when making decisions. Capturing these stories, semantically, is thus important for understanding human behaviour and decisions. As an example, the Bank has recently begun looking at the language it uses when communicating externally, whether to financial firms or the public at large. For example, Michael McMahon at the University of Oxford and I have recently assessed how the simplification of the Monetary Policy Committee’s (MPC) language in 44  the Inflation Report at the end of last year boosted public understanding of monetary policy messages. A second example considers a far less well-explored aspect of the Bank’s decision-making – its supervision 45  of financial firms. This draws on a text-based analysis of the Bank’s confidential Periodic Summary  Meeting (PSM) letters to financial firms. These are arguably the single most important letters the Prudential Regulation Authority (PRA) regularly sends to firms, setting out supervisors’ assessment of firms’ risks and requested actions to mitigate these risks. Using a machine learning technique called random forests, the research analyses these letters and extracts data on their tone and content. This type of analysis has a number of policy applications.
These reforms, it is said, may work very well, but they should be postponed until later because they are not useful for exiting the current crisis. Firstly, some of these reforms, such as those conducive to hiring, would clearly have immediate effects in resolving the main problem of the current crisis, namely unemployment. Yet while it is true that other structural reforms would not have immediate direct effects but would yield future results, the decisions economic agents take today depend greatly on how they see the future. What has brought decisions to consume and invest today to a grinding halt is mistrust of the future; accordingly, if confidence about the future is restored, that would have highly beneficial effects not only in the medium run but now, in the present. In sum, tomorrow we'll broach again the financial and real-sector crisis facing us. And how to exit it. We’ll be reflecting on how to break the vicious circles of the lack of confidence. We'll discuss how it is naive to believe these vicious circles can be broken only in one place, concluding that what we need is a recovery in the confidence of all economic agents. These measures cannot be taken only at the national level; the crisis is a global one and attempts should be made to coordinate action to the full worldwide. That makes very strong demands on all multilateral fora and institutions, governments, politicians, central bankers, supervisors and all those with responsibilities in the matter.

In the past year we regrettably posted once again the highest unemployment rate in the OECD; and furthermore, the speed at which joblessness in Spain is increasing during the current crisis is the fastest among all the developed countries. In countries facing a contraction in activity similar to that in Spain, the unemployment rate rose only slightly last year (e.g. by 0.2 pp in France), or even fell (Germany). We might argue that these countries show much lower increases in the labour force than Spain and that the expansion in their construction sectors was not comparable. The problem is that when we compare with countries that do have these two characteristics, such as the United States or the United Kingdom, Spain's unemployment increase continues to stand out. Specifically, the US unemployment rate rose by "only" 2.3 pp in 2008, somewhat more than in the United Kingdom, where the increase from January to October 2008 was 1.4 pp. These are very moderate increases when compared with the figure of over 5 pp for Spain in 2008. Evidently, the Spanish economy’s labour adjustment mechanisms are not working properly. Another harmful effect of an inefficient labour market is that it reduces the room for workers' real compensation to improve. In recent years, the Spanish economy has had to compete abroad on the basis of holding down its real labour costs, which was imposed by the economy’s low productivity.