samchain/econo-pairs-v1 huggingface dataset:
Earlier this year, in February, the ESRB released a report on macroprudential policy for cyberresilience.12 The document encourages authorities across the EU to make progress on three elements: (i) cyber-resilience scenario testing; (ii) systemic impact tolerance objectives and (iii) financial crisis management tools to deal with system-wide cyber incidents. This area is still work in progress – it is still in its infancy, if I may put it that way – and for this reason the ESRB continues to work on an EU-wide strategy to help mitigate systemic cyber risk. The ESRB aims to act as a hub to share good practices and insights gained from members’ experience. Likewise, climate change is another overarching concern as it can contribute to the build-up of systemic risks. Climate risk is typically broken down into: (i) transition risk (the risk of an abrupt transition towards a greener economy) and (ii) physical risk (the risk of a rise in the frequency and intensity of natural catastrophes) – both affect financial institutions. Due to unique features, in particular its long-term horizon and uncertainty, climate risk may be inadequately priced by financial markets. Besides, it can be amplified by classic systemic risk externalities, such as system-wide common exposures and portfolio correlations, as well as spillovers across the financial system and the real economy. The ESRB, together with the ECB, published two reports, in 2020 and 2021, which have contributed to the assessment of the systemic impact of climate risk, including via stress tests and scenario analyses.

11.05.2023  The financial system: current situation and challenges IE University – Banco de España – Federal Reserve Bank of Saint Louis Conference: Current Challenges in Economics & Finance Madrid Pablo Hernández de Cos Governor  Thank you very much to the organisers for inviting me to this conference. Today, I will be addressing you in my capacity as Chair of the Advisory Technical Committee of the European Systemic Risk Board (ESRB),1 a role which brings a deep EU-oriented perspective, complementary to my regular responsibilities as Governor of the Banco de España and member of the Governing Council of the European Central Bank. The macrofinancial risk landscape and the banking sector The macrofinancial risk landscape has changed in recent months and continues to evolve. In a relatively short period of time we have moved from low inflation and low interest rates to persistent high inflation and rising interest rates. This shift poses new and enhanced risks to financial stability. To heighten awareness of these risks the ESRB adopted a Warning2 on vulnerabilities in the EU financial system in September 2022. This is the first general warning (i.e. addressed to all EU Member States) that has been issued by the ESRB since its establishment in 2010. Over the last seven months some economic developments have surprised to the upside, while some vulnerabilities timely identified in the Warning have come to the fore.
Mutual fund purchases of debt and equity have become an important source of finance for emerging markets. Since end-2009, mutual funds accounted for on average 5% of non-bank portfolio debt flows to advanced economies but more than one-fifth of those to emerging markets. And mutual fund flows to emerging markets seem particularly prone to abrupt stops (Chart 7). Intuitively, market-based finance makes domestic bank-focussed macroprudential policies less effective. Raising the countercyclical capital buffer for banks does little to reduce risks from, or build resilience in, the provision-of market based finance. Moreover, it can induce regulatory leakage as credit migrates to the market-based finance sector. 14  The measure of volatility used is the standard deviation of flows relative to the long-term mean of the respective flows – the coefficient of variation. This controls for the relatively smaller role that portfolio flows have historically played in emerging market financing relative to bank flows. 6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  Chart 8, which is based on a similar illustrative model and calibration to the one I discussed earlier, 15  demonstrates this point . It shows the tradeoff available to a domestic policymaker whose only tool, the countercyclical capital buffer, is bank-focussed.

This is very similar to the estimated impact of domestic credit growth, suggesting that foreign credit growth could even be as important as domestic credit growth in explaining movements in each country’s risk of a banking crisis. The research also finds that the effect of foreign credit growth on domestic financial stability is stronger for countries that are more financially open. Taking all of this together underlines the need to think globally. At first blush, this may appear to sit awkwardly with the largely domestic nature of macroprudential tools that have been developed thus far. But there are number of ways in which international considerations form part of the calibration of those tools. Acting locally – the use of domestic macroprudential tools to mitigate risks from abroad  The most obvious way to take international considerations into account is by treating risks emanating from abroad as an important input when setting domestic macroprudential policy. At the Bank of England, for example, spillovers from the crystallisation of global risks play a key part of the design of the Bank of England’s annual stress tests, which are used to inform the Financial Policy Committee’s (FPC) decision on 8  the countercyclical capital buffer. By building resilience to stress, the countercyclical capital buffer allows the banking system to remain an absorber, rather than an amplifier, of shocks, and reduces the probability of a downturn abroad becoming crisis at home. 9  However, we cannot go it alone.
42  Economists were towards the  bottom of this list, well below scientists, historians, weather forecasters and even sports commentators  39  Akerlof and Shiller (2009), Shiller (2017). Shiller (2017). Elsewhere, I have called this widening trust gap the Great Divide (Haldane, 2016). 42 YouGov (2016). 40 41  10  All speeches are available online at www.bankofengland.co.uk/speeches  10  (Chart 11). There is always someone worse off than you – in this case it was politicians – but the overall picture is discouraging. If trust in institutions is low, and if trust in economists is low, the backdrop is not propitious for institutions containing (lots of) economists. So it is with central banks. Chart 12 shows some measures of trust or confidence in the four major central banks over the past decade. In the UK, the US and the euro area, trust has fallen over that period, often coincident with the global financial crisis. The Bank of Japan has been an exception, although its financial crisis came rather earlier. If we turn from trust to understanding, the picture is similar. In 1997, Robert Shiller conducted a survey of public attitudes towards inflation. He concluded then: “there will probably always be a communications gap between economists and the public. But there appears to be rather more of a gap than most of us would have expected”. 43  In the period since, there is little evidence this gap has closed.

Their latest metamorphosis needs to ensure they reach the parts of society they previously have not reached, using media they have not previously used, conversing as much as convincing, listening as often as talking. It is an irony, and not one lost on me, that this speech is a classic example of one-way central bank communications. Worse still, it comes in at around 11,500 words, contains 2,000 adverbs and adjectives and has a reading grade score of around 11. Perhaps central bankers, like this one, have always been better at preaching than practicing. If so, that needs to change. And when better to change than now. This would be a brave new world for central banks. They do not need to be as magical as Mandelbrot’s shaman, as good a storyteller as Charles Dickens, as great a showman as Elvis. But to make a success of this new world, central banks will need to be brave. 82  Roy et al (2012).
With interest rates at historically low levels, and some even in negative territory, and after deploying extraordinary credit-support programmes, central banks have set about managing the size and composition of their balance sheet as a monetary policy instrument, through the so-called quantitative easing programmes. Under QE, the Eurosystem purchases outright on the secondary market private and public debt instruments, the former encompassing covered bonds, securitisations and corporate debt, and the latter securities issued by governments, European agencies and, since December 2015, regional and local governments. Cumulative asset purchases over the period of almost two years in which the purchase programme has been in place now stand at around € trillion, with public debt securities accounting for over 80%. The extension of the asset purchase programme until the end of 2017, at least, will mean that the volume of assets acquired by the Eurosystem may exceed € trillion, tantamount to around 20% of euro area GDP. European structural and governance reforms Euro area governments have focused their reform efforts since 2010 on two fronts: i) European Union institutions and euro area governance arrangements; and ii) domestic structural reforms. In the area of governance, the reforms were initially geared to strengthening national budgetary policy surveillance mechanisms, extending the multilateral surveillance perimeter to macroeconomic imbalances and agreeing on the creation of the European Systemic Risk Board, the new European body entrusted with macroprudential supervision.

Although the economic recovery has provided for an appreciable reduction in this rate, it still stands at around 19%. Foreseeably, several years must go by before unemployment in Spain falls to levels comparable with those of other developed economies. Of note in Spain’s case is the heterogeneity of the unemployment rates in different regions, from levels slightly over 12% 4/7  in Navarre to close to 29% in Andalusia, with Catalonia in the lower part of the table at around 15%. Monetary and financial policy in the face of the crisis The recovery in the developed economies, and in particular in the euro area and of course in Spain, has necessitated far-reaching actions in all economic policy areas. Early efforts by the central banks focused on alleviating the liquidity problems affecting the financial system. But the serious worsening of the situation opened the way for more powerful plans, both in the financial and monetary realms and in terms of fiscal initiatives to boost aggregate demand. Regarding monetary policy, the depth and persistence of the crisis has required an ongoing effort by central banks. Over these years, the monetary authorities have broadened their range of instruments, resorting to non-conventional tools that have enabled monetary stimuli to be deepened and that have been conducive to their pass-through to lower borrowing costs, thereby encouraging household and business consumption and investment decisions.
If in the interests of sustaining growth in the short run, we were to risk letting inflation become established at higher levels, things could easily get out of control as higher medium-term inflation expectations would become embedded. We would then find it much harder to bring inflation back to target, and could well end up having to generate a serious recession to put the genie back in the bottle. The experience of the thirty years before the current regime demonstrated the economic and social costs – to households, livelihoods and businesses – of what that entails. The MPC’s inflation targeting mandate is the expression of those lessons that – tragically for millions of people, given the chances of getting stuck in unemployment – UK policymakers had to learn. We’re not about to give up on the mandate. Success in anchoring inflation expectations in line with the target will give us more scope over time to cushion the economy from the adverse shocks to growth – which of course we would want to do when we can, consistent with medium-term stability. What does, of course, shift as the months pass is our assessment, as nine individuals, of the balance of risks to inflation, given changes in the economic environment. And quite a lot has happened since our August forecast. In the six weeks or so since the Committee’s August report was finalised, the signs of weakening in the UK’s major trading partner, the euro area, have intensified. Growth appears to be slowing in parts of Asia too.

Ten years ago – at the time of the Asian crisis – emerging markets as a whole were running a current account deficit. Since then they have been running progressively bigger current account surpluses reaching an estimated $ billion last year (1.3 % of world GDP). 3 The counterpart to this is that developed countries as a group have been running progressively bigger current account deficits not just in the United States but also in a number of other developed countries including the UK. 4 Of course there are some notable exceptions in each group: Canada, Japan and Germany for example are still creditors while many countries in central and eastern Europe and Africa are running large deficits. But maps 1 and 2 show how much the pattern has changed in the last 10 years. Most of South America and South East Asia have swung from deficit to surplus. Perhaps as important, the scale of the differences has grown with more countries running surpluses or deficits of over 5% of GDP. Oil and other commodity inflation is part of the story, of course, but that does not account for the large current surpluses in most of East Asia. Here strong manufacturing growth resulting from higher labour productivity has not been matched by higher domestic spending so savings have grown ahead of even dramatic investment growth. A deliberate policy of fostering export industrial growth has slowed the rise of exchange rates that would reduce these imbalances.
Hoerova and Monnet (2011) view market  6  BIS central bankers’ speeches  money market (as demand might not be fully matched by supply) and segmentation in the market between maturities over and below 30 days. At the same time, by reducing liquidity risk, the LCR may lead to lower liquidity risk premia. The overall effect of these two countervailing forces is unclear though. While there could be an overall impact on the difference between short and longer-term rates, to assess the overall impact on the monetary policy transmission, one would need to see whether the transmission from short to longerterm rates would be also affected. However, it remains to be seen whether unsecured lending beyond 30 days will revive after the crisis. As mentioned, this new set of liquidity requirements is expected to have important consequences for limiting solvency risk and encouraging good risk management. In fact, the regulation is expected to bring an overall positive effect on the functioning of the money market by internalising the negative externalities for financial stability and monetary policy, i.e. reducing information asymmetries concerning banks’ liquidity risk exposure and their liquidity risk bearing capacity, creating the conditions for a better functioning of the money market.17 This has to be combined with actions ensuring a proper functioning of the money market (such as oversight of reference rates along the lines recently proposed by the European Commission).

Alternatively, a solution would consist in requiring banks to form pools of liquidity and to sign multilateral credit lines commitments, specifying the conditions under which an illiquid bank would be allowed to draw on its credit line. However, the risk of coordination failures is substantial and a purely private solution, by shifting inside liquidity around the system, does not address the aggregate liquidity need that arises in the case of systemic shocks.22 In such a situation, the public sector should intervene and provide outside liquidity ex-post. 20  See Bindseil (2013, op. cit.). 21  Rochet and Vives (2001) provide a theoretical foundation for rescuing Bagehot’s view; see J.-C. Rochet and X. Vives “Coordination failures and the lender of last resort: Was Bagehot right after all?”, Journal of the European Economic Association, 2, 6, 1116–1147, 2004. 22  See B. Holmström and J. Tirole “Private and public supply of liquidity”, Journal of Political Economy, Vol. 106, No. 1,1998. Tirole (2011) emphasises the role of macro-prudential policies to deal with shortages of aggregate liquidity; see J. Tirole “Illiquidity and all its friends”, Journal of Economic Literature, Vol. 49, No. 2, 2011. 8  BIS central bankers’ speeches  Conclusion Let me conclude. In my remarks today, I have focused on new liquidity regulations and have argued that the interaction with monetary policy implementation is expected to be significant and complex. I would therefore conclude that liquidity regulation and central bank operations cannot be looked at in isolation.
Euro area real GDP increased by 0.3%, quarter on quarter, in the third quarter of 2016, after recording a similar pace of growth in the second quarter. Incoming data, notably survey results, point to somewhat stronger growth in the last quarter of 2016. Looking ahead, we expect the economic expansion to firm further. The pass-through of our monetary policy measures is supporting domestic demand and facilitating the ongoing deleveraging process. The very favourable financing conditions and improvements in corporate profitability continue to promote the recovery in investment. Moreover, sustained employment gains, which are also benefiting from past structural reforms, provide support for private consumption via increases in households’ real disposable income. At the same time, there are signs of a somewhat stronger global recovery. However, economic growth in the euro area is expected to be dampened by a sluggish pace of implementation of structural reforms and remaining balance sheet adjustments in a number of sectors. The risks surrounding the euro area growth outlook remain tilted to the downside and 1/2  BIS central bankers' speeches  relate predominantly to global factors. According to Eurostat, euro area annual HICP inflation increased markedly from 0.6% in November 2016 to 1.1% in December. This reflected mainly a strong increase in annual energy inflation, while there are no signs yet of a convincing upward trend in underlying inflation.

Museums and various activities organised in light of promoting national values and raising the public awareness help to better transmit the message embedded in banknotes, and educate the public through the art in banknotes, featuring elements of our national identity. For this particular reason, numismatists take delight in the subtleties of colours and images of the banknotes. In the apparently just pieces of paper, they are able to distinguish and recognise different ages, and the degree of social freedom. 1/2  BIS central bankers' speeches  In addition, banknotes may also depict concerns of a society, of course, when the artist was able to properly read this concern. Hence, the green of US dollar was chosen as a symbol to express the need of the stability in the period of civil war. The 2017 series of Norwegian currency reflects the concern on the return to the human basic needs, which are taken away by digitalisation. In reflection to this concern, the portraits of distinguished people of art and science are replaced with the symbols of natural resources, strongly related with the identity of the Norwegian people, such as the Viking ship, fish or the lighthouse. All these facts show that nothing has threatened the educational and national mission of the banknote. Owing to this reason also, it continues to carry it out by resisting even the virtual forms of the currency. In addition, as a Harvard researcher states, the paper may disappear earlier than the banknote.
Output fell precipitously through the second half of 2008 and into 2009 and, despite the recovery in recent quarters, the level of output remains around 10% below that implied by a continuation of its pre-recession trend. The precise degree of spare capacity is difficult to judge since it depends on the extent to which the recession damaged the supply potential of our economy. 4 Some of the channels through which recessions in the past have impeded supply growth appear, thus far at least, to have been less damaging than we initially feared. Despite a larger fall in output, the fall in employment, although substantial, has been less than in past recessions. Likewise, the pickup in company liquidations has been relatively muted. It is likely that the financial crisis and the reduced availability of credit have affected supply in other ways, such as making it harder for smaller or more entrepreneurial companies to raise funds for investment or expansion. But even so, demand has probably weakened by substantially more than potential supply, implying a large degree of slack both in the labour market and within companies. Consider each in turn. Slack in the labour market has contributed to the muted growth in earnings seen over the past 18 months or so. Annual private sector earnings growth has averaged a little below 1 1/2 % since the start of the recession, around a third of its rate in the five preceding years.

It reduces companies’ average costs and so protects their profitability during the period of weak demand. A by-product of this adjustment, however, is that the marginal cost of producing additional output is higher. Although the mothballed capacity can be reinstated, it is likely to be more costly to do so, especially in the short-run, than if the resources were simply standing idle. Assembly lines need to be serviced before being restarted; staff need to be brought back from sabbaticals. As a result, the downward pressure on costs and prices stemming from the latent spare capacity within companies, at least in the near term, is likely to be less. 6 Developments in margins Consider next the mark-up over and above costs that companies include in their selling price. In the past, margins in the UK have tended to fall back during periods of weak demand and vice versa. 7 One possible reason for this is if companies reduce their prices relative to their costs when demand is weak in order to gain market share which they hope to hold onto as demand increases, ie they hope to be able to exploit some degree of pricing power. If successful, the lower profits in the downturn are outweighed by the gains during the upswing. This pro-cyclicality of margins is another reason why inflation in the UK has tended to moderate during periods of weak demand. But margins appear to have fallen by less during the recent recession than expected given the marked contraction in demand.