samchain/econo-pairs-v1 huggingface dataset:
Exactly how the problems will take shape can vary, but it is almost always a question of some sector having become “over-leveraged”, which sooner or later leads to problems. Here I will assume that it is household indebtedness that is the main problem. At some stage, it becomes evident that the credit boom and the increased indebtedness have been based on too optimistic expectations and calculations. A lot more people will want to sell rather than buy the asset that formed the basis for the credit expansion and its price therefore falls. Let us assume that, as with the most recent crisis, it mainly concerns housing. The banks become cautious and reduce their lending, as the value of the collateral declines. Households’ assets have now fallen in value substantially, but the size of the loans remains unchanged. To attain a better balance between assets and debts, households reduce their consumption and begin to save. In addition to the fact that the credit supply declines as a result of the banks becoming more cautious, the demand for loans also declines. This adjustment in households’ balance sheets gives a fall in demand, which in practice has often proved fairly prolonged.3 This process often leads to a substantial weakening in public finances, too, partly because of the rapid decline in economic activity and partly because the banking system may in a worst case scenario require support. This development means that the business cycle and the financial cycle take a simultaneous downturn, as in Figure 1.

Ladies and Gentlemen, Since I have been given the floor I now wish to take this opportunity to briefly share with you the Zambian experience with regard to the microfinance market. Despite its land-based wealth, Zambia faces very significant development challenges. The rapid structural adjustment process that took place during the 1990s has had a harsh impact on our people, with the result that poverty is now widespread in our country. Currently, a significant number of the 10 million or so Zambians strive for survival on far less than one US dollar a day and like in many other African countries there are high HIV/AIDS rates and indebtedness which have contributed to persistent low economic performance. Thus, our government’s focus with assistance from cooperating partners has to increasingly be on poverty alleviation via income generation and micro enterprise stimulation, using small business development and microfinance as mechanisms to improve household standards. Following the structural adjustment period, particularly from the early 1990s, affordable and publicly funded rural financial services have collapsed. A private microfinance movement, though still in its infancy, has had to emerge offering modern microfinance services. Today in Zambia we have an interesting blend of microfinance institutions that are private sector, for-profit firms, and non-profit, non-governmental organizations (NGOs). Although expansion is much slower in rural areas, growth is evident along the line of rails and the peri-urban areas of our country.
At the Brisbane summit in 2014, the G20 leaders agreed an ambitious goal to lift the level of G20 GDP by at least two per cent by 2018. But only eighteen months on, the 2 in 5 commitments are starting to look more like the 5/2 diet. Less than half of the measures have been implemented, and only around one third of the promised impact on global GDP has been delivered. Moreover, whilst implementation has lagged, the need to boost growth has increased in size and urgency. The Bank of England projects the level of global GDP in 2018 to be over 3% below what the IMF expected at the time of the Brisbane summit. We need to live up to China’s G20 priorities. Structural reforms with a long-term focus but a short-term implementation horizon. Determined reform of the global architecture for sustainable capital flows. The development of our essential macroprudential frameworks and the implementation of our financial reform commitments to address new vulnerabilities. These will allow monetary policies to fully bridge to a better future. Conclusion That future needs the arms of macro policy to operate in close concert, domestically and internationally. Demand stimulus alone will not sustainably reflate the global economy. Moreover, sustained low rates could strain the capacities of macroprudential policies. At their roots, fiscal, monetary, financial and structural policies are deeply complementary, operating through many of the same channels. A stronger financial system can better channel savings to investment, building demand in the short run and productivity in the long run.

Over the last 6 years the cumulative productivity growth in Estonia, relative to its main trading partners, has amounted to 25 per cent. The corresponding CPI-based real exchange rate appreciation amounts to 22 per cent. The share of current and future EU member states in Estonian exports is about 80%. By now, Estonian economy is strongly integrated into the European economic area. Can we say that the restructuring of our economy has been completed? III. On the way to Europe  What are the challenges ahead? For Estonia, like for all new member states, the only possible way to join the euro system is to do it in full compliance with the letter and spirit of the EU Treaty. Speaking about the present accession countries as a group, it can be said that the key challenge of the policy maker is similar everywhere - to foster real convergence and at the same time maintain macroeconomic stability. But although the underlying processes are the same for all, earlier national economic policy choices - and also the size of the country in question - play a very significant role. Thus, the optimal approach to euro area membership can in no case be a uniform one suitable for one and everybody. ERM II provides, in principle, a much-needed buffer zone before a country's EMU entry. However, there are obvious risks involved.
But monetary policy can alleviate the effects of the financial crisis on the economy. The Riksbank has also implemented monetary policy measures, largely as a result of the international financial crisis. In the space of just over two weeks, we cut the interest rate on two occasions, by a total of one percentage point, to 3.75 per cent. Rapid change in the situation when anxiety escalates in mid-September Normally, we raise or cut the repo rate in smaller steps and emphasise that it is a series of interest rate decisions and not one single interest rate adjustment that is important. When we raised the interest rate by 0.25 percentage points at the beginning of September it still appeared as though the Swedish financial markets would be relatively spared from the effects of the financial turmoil then prevailing in the world markets. The majority assessment of the Executive Board was that inflationary pressures were too high for the economic downturn to bring inflation back to the target of 2 per cent quickly enough without a high interest rate. Of course, we did not know then that the international economic situation would soon look very different, although we were aware of both upside and downside risks. Just over a week later, investment bank Lehman Brothers suffered serious problems and filed for bankruptcy protection, in accordance with US bankruptcy legislation. The financial anxiety then escalated considerably. We were soon in a situation where the global financial crisis paralysed many credit markets.

  Could otherwise hit inflation and growth hard   M onetary policy can alleviate the effects   12  Other measures required to solve the problems entirely  BIS Review 138/2008  Financial turmoil and the inflation target     Situation changes rapidly in mid-September Repo rate has been cut to 3.75 per cent Further cuts over the coming six months  To: …alleviate the effects of the financial crisis on economic activity and… …manage the inflation target of two per cent  Behind the interest rate decision Financial turmoil important          BIS Review 138/2008  Impact of interest rate cuts (initially) Credit crunch Falling wealth Deeper economic downturn Uncertainty and falling exchange rate Falling commmodity prices Lower inflationary pressures  13  Pessimism among households… Net figures 80  80  60  60  40  40  20  20  0  0  -20  -20  -40  -40 The Swedish economy  -60  -60  Own finances Labour market  -80  -80 98  99  00  01  02  03  04  05  06  07  08  09  Source: National Institute of Economic Research  … and in the business sector Seasonally-adjusted index and net figures, manufacturing industry  65  15  60  10  55  5  50  0  45  -5  40  -10  35  -15  30  Purchasing managers’ index (left scale)  -20  Confidence indicator (right scale)  25  -25  01 02 03 04 05 Note.
Regulation 07–01 of February 3, 2007 on rules applicable to current transactions with the rest of the world has clearly confirmed this convertibility through its Article 3, which stipulates that: “... payments and transfers related to international current transactions are free. They take place through licensed intermediaries”. Regarding foreign direct investments, transfers of revenues, profits, and dividends are included in the scope of current convertibility. In case of asset sale or liquidation, transfer of the proceeds takes place through licensed intermediaries without delay, commensurate with Regulation 05–03 of June 6, 2005 on foreign investments, promulgated in implementation of Article 31 of the Ordinance on investment development. It should be noted that the measures introduced in the Supplementary Budget Law of July 2009 do not affect the current convertibility regime nor do they affect capital transfers related to foreign direct investments (FDIs). The measures do not give rise to any exchange restriction. The objective of the measures is to ensure the traceability of payments related to good faith transactions, hence contributing to combating the parallel sector and ensuring that banks operating in Algeria effectively fulfil their responsibility in terms of first-level control of the transactions with the rest of the world, in line with the terms of their license. Algeria remains committed to the stability of its exchange rate regime, commensurate with its commitments in the context of Article VIII of the IMF’s Articles and the Association agreement with the European Union (EU), notably regarding current payments and capital movements.

John Palmer: Basel II and beyond Opening address by Mr John Palmer, Deputy Managing Director of the Monetary Authority of Singapore, at the MAS Risk Conference, Singapore, 12 July 2004. *  *  *  Introduction Good morning. Welcome to the MAS Risk Conference, and for visitors to these shores - welcome to Singapore. The Conference is held at an opportune time. It was only two weeks ago that the Basel Committee on Banking Supervision released the Basel II capital framework. This is enough time for all of you to have read the full text, and recent enough for you to remember most of what you have read. Not surprisingly, my remarks this morning will be focused on Basel II. They are drawn from my perspectives as a policy maker who actively supported the development of the Basel II framework, and as a prudential supervisor now faced with the challenge of implementing this new framework. I intend to offer a perspective on Basel II, some of the challenges that remain to be addressed and offer some thoughts on the future evolution of capital adequacy rules for banks. Later in the conference, my colleague, Low Kwok Mun, will discuss MAS’ approach to Basel II implementation, including requirements for local banks and some important home/host supervisory issues. Why Basel II? What is good about it? And what are the implementation challenges? Developing Basel II turned out to be an immense challenge. Implementing it will be no less challenging.
The logic is easy to see: a reduction in short-term risk-free rates typically leads yield-oriented investors to rebalance their portfolios towards riskier assets, either along the yield curve or across asset classes. This channel is even more powerful when rates are negative: it sets strong incentives for investors to move away from short-term assets so as to ensure non-negative income flows (see Slide 4). Market stress considerably weakens this portfolio rebalancing channel. And although markets have calmed gradually, both in the euro area and in the United States, stress indicators remain at an elevated level compared to the pre-crisis period (see Slide 5). In such conditions, two sets of policy measures tend to be most effective: those acting directly on banks’ funding conditions, and those, such as asset purchases, that alleviate investors’ balance-sheet constraints. The bank-based measures materially reduce the potentially adverse impact of tightening marketbased funding conditions on lending to firms and households. In the euro area, this risk is real: 3/7  BIS central bankers' speeches  banks still face considerably higher refinancing costs in markets than before the crisis, both for secured and unsecured borrowing. Our targeted longer-term refinancing operations (TLTRO III) address this wedge in our transmission process at its root. Provided banks maintain their lending to the real economy over the next year, they can benefit from rates as low as –1%. Given these highly favourable conditions, surveys point to significant take-up for TLTRO III, in the order of € 1.4 trillion.

In the baseline scenario, ECB staff projections predict notable downward pressure on inflation arising from the much larger shortfall in aggregate demand than 1/7  BIS central bankers' speeches  supply. As a result, headline inflation is not anticipated to be back on its pre-COVID-19 path by 2022 in that scenario, and underlying inflation is also expected to remain subdued in the medium term (see right chart on Slide 2). Given the unprecedented impact of the crisis on income and consumption, such disinflationary effects are not surprising. But uncertainty around these forecasts is exceptionally large: while measuring economic slack is already a challenge in normal times, it is currently exacerbated by the highly uncertain effects of the crisis on potential output, both in the short and in the medium to long run. In the short run, potential output is severely affected by disruptions in global value chains and social distancing measures, which constrain the full use of capital. Think of the hairdresser who may only be able to use half of his or her physical capacity. Such effects may partly offset the negative effects of weakening demand on inflation even in the short run. In the medium to long run, the impact of the crisis on potential output, and hence on inflation, will crucially depend on the response of firms and policymakers to the challenges we are currently facing. First, some sectors of the economy may never return to their previous size, requiring a large reallocation of capital and labour, also across borders.
Major events that could shape global growth in the near term include uncertainties in policy and political spheres, especially in major economies; the potential retreat arising from backlash against globalisation; the rise in trade protectionism; and the volatilities of global commodity prices. Financial markets have in recent months remained eerily calm. However volatility may 1/6  BIS central bankers' speeches  reignite if risks re-emerge, whether real or perceived. Beyond these short-term risks, structural changes are also afoot. The ageing population, income inequality and youth unemployment are slow-churning yet potent structural changes that require policy prescriptions. Changes in policy today are needed to secure future prospects for growth. In Malaysia, the economy has been boosted by the expansion in global demand. The strongest export growth in 28 quarters has provided additional impetus to our domestic demand. Consequently, the Malaysian economy started 2017 with a robust growth of 5.6% in the first quarter. We are on track for a better economic growth compared to last year. Nevertheless as an open economy with sizable and globally connected financial markets, Malaysia cannot neglect the risks dominating the global environment. We are certainly not immune from events unfolding around us. Some say central bankers are paid to worry. In good times and even more so, the bad. However I am comforted that earlier reforms have accorded the country with strong macroeconomic fundamentals and resilience to weather these still-challenging times. However, we cannot afford to rest on our laurels. New risks and challenges continue to emerge and confront us.

A central authority and a national repository can significantly improve the ability to better distribute, monitor and manage the supply-demand imbalances. Developing a thriving rental market should also be on the agenda to temper the nation’s fixation on home ownership. Another issue that banks should be concerned with is the sizable surplus in commercial property. In contrast to affordable housing, the office and retail markets are in oversupply. In 2016, the vacancy rate for prime office space in the Klang Valley stood at 21.8%, outstripping the regional average of 6.2%1. Monthly rentals of prime office space in Kuala Lumpur are the lowest among regional cities. Over the next few years, the significant incoming supply of large projects is likely to aggravate supply conditions in this segment. Signs of oversupply are also emerging in the retail segment in major urban centres in Malaysia. This can be traced to the abundance of shopping malls. You may be surprised to learn that there are as many as twenty shopping malls just along the 40km stretch of the LDP highway. It is equally astonishing that the prime retail space per capita in cities like Johor, Penang and Kuala Lumpur is actually higher than regional megacities such as Shanghai and Beijing, and also higher income cities such as Singapore and Hong Kong. A significant increase in vacancy rates, and the ensuing price corrections, are risks that the Bank has highlighted as far back as 2013.
The oceans provide a rich and lengthy test-bed of the links between diversity and robustness. Over the past millennium, studies of coastal eco-systems reveal some dramatic patterns. 18 For around 800 years, between the years 1000-1800AD, fish stocks and species numbers were seemingly stable and robust. Since then, almost 40% of fish species across the world’s major  18  The results here are based on Worm et al (2006). BIS Review 53/2009  9  coastal eco-systems have “collapsed”, defined here as a fall in population of greater than 90%. That is systemic by any metric. There appear to be many environmental reasons for this collapse, some natural, others manmade. But the distribution of this collapse across eco-systems is revealing. For species-rich – that is, diverse – eco-systems the rate of collapse has been as low as 10%; for species-poor eco-systems, as high as 60%. Diverse coastal eco-systems have proved to be markedly more robust, measured over century spans. Results for large marine eco-systems suggest a similar picture. Over the period 1950-2003, the incidence of collapsed fisheries declines exponentially with species-diversity. 19 Diversity also appears to increase the resilience of fisheries – that is, their capacity to recover – in the event of collapse. These results reappear throughout marine eco-systems, “in coral reefs in Jamaica and on rocky shores in Panama”. 20 And they do not appear to be unique to marine eco-systems.

Because a targeted attack on a hub risks bringing the heart of the system to a standstill, whereas random attacks are most likely to fall on the periphery. This result carries important policy implications. Long periods of apparent robustness, where peripheral nodes are subject to random shocks, should offer little comfort or assurance of network health. It is only when the hub – a large or connected financial institution – is subject to stress that network dynamics will be properly unearthed. When large financial institutions came under stress during this crisis, these adverse system-wide network dynamics revealed themselves. The third result is the well-known “small world” property of connected networks. 11 The origin of this was a chain letter experiment by Stanley Milgram in 1967. This showed that the average path length (number of links) between any two individuals was around six – hence “six degrees of separation”. Although networks tend to exhibit local clustering or neighbourhoods, certain key nodes can introduce short-cuts connecting otherwise detached local communities. This small world property has again been found across a range of physical networks, including the World Wide Web and forest fires. 12 Its implications for network robustness are subtle. In general, however, it will tend to increase the likelihood of local disturbances having global effects – so-called “long hops”. That could occur between different institutions or between different nation states. Either way, a small world is more likely to turn a local problem into a global one.
Lastly, Patricia Mosser, now a Senior Research Scholar here at SIPA, used to work at the New York Fed, and a number of Banque de France staff have had the privilege of working with her over the years. So, Patricia, allow me to thank you warmly for organising this lecture on the ECB’s monetary policy and the resilience of the Eurozone. In Europe, the euro construction process is pretty well-known, while the ECB monetary policy is often debated. In the United States, it may be the reverse: the monetary policy is often better understood than the euro construction process. Thus I will deal successively with both issues before turning to the future and a call for action in Europe. 1. The euro has strong foundations. Political foundations As you know, the single currency was officially launched with the Maastricht Treaty in 1992 and introduced in 1999. But Maastricht and the euro are naturally part of a broader history: the history of Europe, and its singular achievement of making the transition from war to peace. As early as 1946, Josef Müller, who was a leading figure in the German resistance to the Nazis and the founder of the Bavarian CSU, acknowledged that “we need[ed] a European currency, because countries that share a currency will never be at war”. The euro has indeed provided us with a strong symbol of unity among European nations.

With the European Stability Mechanism (ESM) introduced in October 2012, they have established a powerful crisis management mechanism for the euro area. With its effective lending capacity of EUR 500 billion, this backstop gives euro area countries in distress time to implement measures to restore fiscal sustainability, competitiveness and financial stability in the medium term. Besides the ESM, the Banking Union is a major progress towards further European financial integration and therefore a more performant currency union. It is now operational, based on two pillars. The first one, since end 2014, is the Single Supervisory Mechanism. It gives the ECB the responsibility, in cooperation with the national supervisors, to oversee banking supervision in the euro area, and ensure the consistent application of regulations across the region. The second pillar, since January 2016: the Single Resolution Mechanism. It ensures that banks across the euro area can be resolved according to the same rules and with minimal costs for taxpayers and to the real economy. Yet, we also have to look at what is still to be done. Further important steps for the Banking Union are under discussion, with a priority to completing an efficient resolution pillar. Moreover, there 4/6  BIS central bankers' speeches  are still some issues with certain banks, in particular regarding non-performing loans in Italy and Portugal. These are manageable but now need to be addressed seriously and quickly. That said, we should not judge the European financial sector only on the basis of its difficult cases, or those “trailing at the rear”.