samchain/econo-pairs-v1 huggingface dataset:
In Latin America, the hoarding of reserves has been used several times. In the first half of the 1990s it was used to deal with strong capital inflows; in the 2000s it has been used much more frequently (figure 8). Intervening the foreign exchange market via reserve accumulation also serves the purpose of improving the international liquidity position, which is a form of self-insurance against external financial turmoil. Today other forms of insurance are available, that are more costeffective. For example, this is the case of contingent credit lines of the IMF or hedging instruments to hedge against fluctuations in the terms of trade (Borensztein et al., 2009; Caballero, 2009). But the estimated benefits of these forms of insurance vis-à-vis selfinsurance through reserve accumulation do not consider the fact that this latter option has also a stabilizing effect on the exchange rate, because the accumulation is done at a time when the exchange rate is overly appreciated with respect to its fundamentals. Furthermore, one can think that the presence of efficient insurance mechanisms may exacerbate capital 4  BIS Review 72/2010  inflows during boom periods in emerging economies. Therefore, these are instruments that can prove beneficial in critical times, but may create some inconveniences in normal or favorable periods. Some economies have adopted regimes where limited interventions are applied with some frequency. Nonetheless, larger interventions, which are precisely the ones that may have a substantial effect on foreign exchange markets, entail quasi-fiscal costs that must be taken into account.

This measured was introduced in June 1991 with a rate of 20% that was raised to 30% in 1992. It was subsequently lowered to 10% in June 1998 and further down to 0% in September of the same year. Empirical evidence indicates that the reserve requirement had a small, short-lived effect on interest rates, probably because agents adjusted their portfolios toward longer maturities and found their way around the measure (Cowan and De Gregorio, 2007). The effect on volumes was also small, around 2% of GDP, with total capital inflows that amounted to nearly 27% of GDP in the period 1991–1997. No material effects have been perceived on the real exchange rate. Where a significant effect did occur was in the composition of total inflows: the share of short-term debt dropped dramatically as a percentage of total debt. However, financial fragility was not completely eliminated. Severe speculative attacks against the peso in 1998 showed that the reserve requirement policy did not isolate the economy from global financial turbulences (figure 9). Lastly, it is possible to contend that the reserve requirement did have significant distributive effects, because large firms continued to access the international bonds market directly to obtain long-term funding, while smaller firms could only access short-term banking loans, which were made more costly due to the reserve requirement.
We believe that excluding this item, in line with the international practice, could give a better proxy for recent inflation trends. 8  BIS Review 20/2008  Figure 12: Output Gap 6 4 2 0 -2 -4  Monetary Tightening  -6  07-III  07-I  06-III  06-I  05-III  05-I  04-III  04-I  03-III  03-I  02-III  02-I  01-III  01-I  00-I  -10  00-III  -8  Monetary conditions continue to support the disinflation process. Despite the recent rate cuts, monetary policy can still be considered to be in the restrictive territory. Underlying rate of monetary expansion remains modest, consistent with a relatively restrictive monetary stance. Although medium term interest rates followed a downward trend in the past quarter, 2-year-real rates at this point fluctuate between 9 and 10 percent, implying a nonaccommodative monetary stance. Moreover, the currency remains strong, curbing inflationary pressures and easing the impact of rising commodity prices on domestic production costs. (Figure 13).

So far, the second round impact of food prices has been limited and confined to selected sub-components of the overall index such as restaurants and catering services. The potential second round impact of elevated food and energy prices, however, on overall economy should not be overlooked. Therefore, the CBRT will keep a close eye on the price setting behavior along with various core inflation measures. In the upcoming period, the Central Bank will tolerate the first-round impacts on inflation resulting from food, energy and one-off adjustments in administered prices, yet remain responsive to the second round effects such as possible deterioration in general pricing behavior. The Central Bank closely monitors the developments in global markets. The potential impact of ongoing difficulties in the US credit markets, on the financial markets and the real economy, continue to create uncertainty about the course of the global economy. Our baseline scenario assumes a soft landing in developed economies, with no major portfolio shock on the Turkish financial markets. However, the probability of a sharper than expected slowdown should not be ruled out. While the possibility of a sharper-than envisaged slowdown in global economic activity, through its potential impact on the exchange rates, may constitute an upside risk for the short term inflation outlook, it also poses downside risks for inflation in the medium term through a possible weakening in external demand and domestic credit.
These institutions have been hit in particular by the closure of various wholesale funding markets which they had turned to in previous years to finance part of the growth of their lending activity. The ability of Spanish institutions to step up deposit-taking, as an alternative source of financing to wholesale funding markets, and the ECB and governments’ measures have alleviated the liquidity shortage. However, time deposits cannot grow indefinitely at rates of above 20% and, in fact, this source of funding will foreseeably peter out. Similarly, it cannot be assumed either that the measures adopted to facilitate liquidity in the system and the structural characteristics of the Spanish banking system, which I referred to before, are a foolproof guarantee that there will not be any problems. 2  BIS Review 52/2009  In fact, the turmoil generated by the international crisis has fed through to the Spanish economy and impacted it at a time when it was beginning to adjust the imbalances which had built up during fifteen years of continuous high economic growth. All these factors led Spain into an economic recession which is reflected most significantly in the sharp rise in unemployment. This, together with high corporate and household debt, in the framework of what had been excessively lax financing conditions, has now resulted in a weakening of households’ and firms’ spending capacity and of their financial position. And the consequence has been a rise in bad debts in the Spanish banking system.

In all these occasions, once the asset prices reversed down, there was an abrupt relaxation of the monetary policy. 2 This implicit insurance, popularly known as the Greenspan put, certainly makes the creation of bubbles more likely. This strategy, which worked in some earlier episodes, failed miserably during the biggest collapse in decades. A monetary policy strategy that used to provide insurance to speculation in episodes of limited financial turbulence proved incapable of confronting a financial crisis of systemic proportions. This strategy to deal with bubbles is a prescription derived not from inflation targeting, but from a need to insure financial stability. In my view, financial stability must be addressed first with appropriate regulation of the financial system that limits the excesses we saw before the crisis. There may be situations in which it might be appropriate to deviate transitorily from an inflation targeting regime in order to ensure financial stability, but this must be an exception, which in normal times should not arise. I think a first lesson for the conduct of monetary policy is to avoid providing insurance to speculators, which creates enormous moral hazard problems. In emerging countries we have lived this, with much milder consequences, when we attempted to manage exchange rates disconnected from fundamentals for a prolonged period of time. Therefore, an examination of monetary policy and financial dislocations around the world suggests that the culprit of the current crisis was related more closely with the functioning of financial systems than with monetary policy.
Even if swap agreements can be concluded proactively, which is not at all certain, there are no guarantees that they can automatically be used in the event of a crisis or when we consider it necessary to do so. It is the creditor who decides whether it wishes to lend in each specific situation. The Riksbank has a responsibility for financial stability... The measures and phenomena I have now spoken of have led to banks always turning to the central bank in difficult times. Regardless of where the supervision is formally located, central banks therefore exercise some de facto supervision of banks. Everyone knows that “the central bank is where the money is” and that it is not willing to lend it to just anyone. For us at  10  See Buiter (2008). 11  See Fleming and Klagge (2010). 12  See Molin (2009). 13  See Capie (1998), Cechetti (2014). 6  BIS central bankers’ speeches  the Riksbank to be able to fulfil our role as liquidity provider, we must have good access to information on financial institutions and markets. The fact that the banks have been subject to regular analysis by the Riksbank – both before and after the deregulation of the financial markets in the 1980s – is a natural consequence of their central role in the payment system and the special systemic risks with which their operations are associated.

Indeed, financial globalisation and digitalisation are also challenging the perception that central banks have a monopoly on the issuing of means of payment. The Riksbank’s responsibility for cash management has changed By law, the Riksbank shall supply the country with banknotes and coins and has the exclusive right to issue them. The law also states that these banknotes and coins are legal tender. Giving central banks a monopoly on the issuing of banknotes and coins, along with a certain degree of autonomy, has been seen as an effective and credible way of managing the supply of means of payment. Payment trends have a long history. From bartering and the first silver coins in Sweden in 995, to the first standardised and collective means of payment in the form of transport bills, which were introduced during the 17th century. Besides cash being much more modern today than when the Riksbank was founded almost 350 years ago, we also have access to several different electronic payment options. The Riksbank’ responsibility for means of payment has been adapted over time as needs have changed. At one point, the Riksbank had over 20 offices around the country, basically one in every county, where banks often deposited and withdrew cash. For a period, the Riksbank also accepted daily takings directly from companies. The Riksbank counted, performed quality checks, invalidated and stored cash. Over time, the Riksbank has rationalised and adapted its cash provision. Today, it is banks and other private entities who are responsible for the distribution of cash.
If the Fed were to raise its rates, it would be a sign that growth and employment indicators are robust in the United States. This, essentially, would be good news for Europe. Despite all of the ECB’s efforts to inject liquidity, large companies in the euro area are sitting on mountains of cash and not investing… Monetary policy is supporting the recovery in demand and has removed a key obstacle to investment – financing. But obstacles remain on the supply side. Weak investment, even though financing costs are low, shows that there is a dearth of projects that are sufficiently profitable in the long term. This reveals a lack of productivity and innovation. The ECB cannot do much about that. On top of this, there are external risks: slowing global growth, particularly in large emerging economies. In other words, it’s pointless to expect that an eventual increase in quantitative easing will be enough to stimulate investment… Quantitative easing, by pushing back the horizon for monetary policy action, removed the financing obstacle. Lending rates to enterprises have fallen significantly, including in the stressed euro area countries. What we can do, what we must do, is maintain confidence in inflation returning towards our objective of 2%. The ECB, within its mandate, cannot accept inflation stabilising in the vicinity of 1%. You regularly underline the risks of inflation and growth being too low. But there are always risks – the sky could fall in!

Nevertheless, a positive dynamic seems to have taken hold since July and is starting to bear fruit. Interest rates have fallen and money is flowing back into the Greek banks. And this will speed up once the banks are recapitalised, which must take place before the end of the year. But it won’t be easy. 4  BIS central bankers’ speeches
Brexit  Nowhere has that been more obvious than Brexit. On June 24th 2016, we started contingency planning for a ‘no-deal’ Brexit. With our focus on making sure finance can serve the wider economy, our work has had two elements. First, checking that, whatever economic disruption arises as we leave the EU, major banks have the capacity to keep lending through it. We know from our stress tests that banks can withstand an economic scenario for the UK that is worse than the financial crisis. That stress test scenario encompasses even a Brexit scenario based on the very worst case – ‘disorderly’ – assumptions, including: severe disruption at the border, acute economic uncertainty and financial market instability, and sharp increases in inflation requiring interest rates to rise. On that basis, we’ve been able to judge the core of the UK banking system to be able to continue to serve through Brexit, whatever form Brexit takes. The second element of our work has been to ensure that households and businesses using services from EU financial companies can continue to draw on those services after Brexit. 70 branches of EEA banks operate in the UK and provide services to both EU and UK end users. UK households and businesses hold 16 million insurance policies with EU insurers.8 UK investors invest in funds based in the EU. And clearing houses based in the UK sit at the centre of EU and global derivatives markets, helping the financial system to manage and distribute risks.

The need for active multilateralism to face our global challenges. Let me now turn to my second point: the need for active multilateralism to face our global challenges. In the current context, international cooperation between countries is maybe more important than ever. Beyond the EU’s borders, and with all our partners, we have to strive to maintain the collective rules of the game in order to preserve the improvement in the global economic environment. The global recovery has indeed been gathering pace since 2016: according to the latest IMF forecast, global growth should stand at 3.6% in 2017, after 3.2% in 2016. However, there are two major risks threatening growth: first, financial instability, with the continued rise in global public and private debt since the start of the 2000s – from 190% of global GDP in 2001 to 230% in 2016. The 2008 crisis stemmed from this, but this trend has unfortunately not slowed down since; the private debt in emerging countries (namely corporate debt) has risen particularly rapidly. Any temptation to dilute the financial regulations implemented in the wake of the 2008 crisis would be all the more worrying.
Prices, investment and home sales show considerable swings. Homes are important forms of collateral and price developments influence household borrowing and give rise to credit cycles. Housing loans account for 40 per cent of Norwegian bank balance sheets. 5 The framework conditions for the housing market are thus important for how wide fluctuations in output and employment are and for the risk of financial shocks and instability. The experience of the banking crisis in the early 1990s did admittedly entail limited bank losses on loans to households, and substantial losses on loans to business and corporate customers, which were affected by a fall in household consumption. Banks may certainly refer to this when they assess the credit risk of their loans, but they should perhaps not be as certain that people will stand by their creditors in the future as they did 15-20 years ago. Household debt is very high. Attitudes may change and debt servicing discipline may also be influenced by the debt settlement scheme that has gradually become less  4  See Financial Stability 2/2004, p 36, Norges Bank. 5  Including branches of foreign banks, subsidiaries and housing loans in mortgage companies. 4  BIS Review 110/2008  restrictive. 6 Banks should make ample allowance also for this risk in their loan disbursement and interest rate premiums. It is important for stability in the housing market that the supply of housing reacts rapidly to changes in demand.

The shift towards imports from low-cost countries has moderated. After falling for several years, prices for imported goods are now beginning to rise. Looking back, inflation has varied somewhat. The three supply-side shocks reduced inflation while boosting production capacity. Low interest rates, favourable economic conditions internationally and substantial investment in the petroleum sector increased demand for goods and services. High capacity utilisation gradually pushed up inflation. Now that interest rates have risen to a more normal level and the global economic situation is deteriorating, growth is slowing and capacity utilisation may again seem to be approaching levels that are more sustainable. The impact of the downturn abroad on the Norwegian economy is uncertain, but on balance it now seems that inflation will gradually stabilise near 2.5 per cent without unnecessary wide fluctuations in output and employment. By and large, we must then be able to assert that inflation targeting has served us well during these years. There have been surprises. The growth potential of the Norwegian economy has been very high. It took a long time for employment to rise after the recovery started, and in 2006 – well into the upturn – inflation fell markedly. Over the past year, import prices and food prices have increased, and against this background the monetary stance may have to be on the tight side for a period.
The agency debt and agency MBS purchase programs proved effective in narrowing credit spreads in the debt and MBS market, but the Federal Reserve would have encountered diminishing returns in terms of impaired market function if it had raised the sizes of these two programs further. This suggested that the best course to hold down mortgage rates and other private borrowing rates would be to engage in a Treasury purchase program that would put downward pressure on Treasury rates. In this regard, the Fed’s purchases have not been motivated by accommodating an expansive fiscal policy and the large fiscal deficits that are its consequence. I can assure you that the Federal Reserve will never engage in a program to accommodate or facilitate an unsustainable fiscal policy program. Instead, these programs were designed to help ease financial conditions at a time that the Federal Reserve could not push the fed funds rate below zero. Second, the program is small. So even if one were to take a darker view of what the Federal Reserve has done, it is important to put the purchase program in context. Even after completion of a purchase program of up to $ billion of Treasuries, the Federal Reserve’s holdings of Treasuries will be smaller than they had been in August 2007 on the eve of the crisis. Moreover, as a share of Treasuries outstanding, the Fed’s share will be the lowest since the early 1990s. Overall, the Federal Reserve’s balance-sheet expansion has had notable benefits.

For instance, in the case of the French indexed bonds, the lag length is limited to three months, equivalent to that of the US TIPS and the Canadian indexed government bond, but slightly below that of the UK where an eight-month lag is  4  To give a magnitude order, a real rate of 4% and an expected inflation rate of 2% would generate a compound bias of 8 basis point, which is in practice fairly small. 5  This phenomenon is known as the convexity bias. It grows with maturity, as compounding increases, and may vary across time, as volatility in the yield is also likely to change over time. There is no reason to think that the convexity adjustment is the same for the conventional forward curve and for the indexed forward curve. BIS Review 37/2004  3  required. As a consequence, because the real yield is distorted, the information content of the breakeven inflation rate will also be affected. According to some empirical research6, this bias is also estimated to be fairly small, at around 5 basis points. Liquidity bias: Finally, to conclude with this non exhaustive review of technical biases, one should also mention that, in general, indexed bonds are relatively less liquid than conventional government bonds. Holding periods seem to be longer for the former and this is also reflected in the relatively low trading volumes of inflation-indexed bonds.