samchain/econo-pairs-v1 huggingface dataset:
We have imperfect knowledge about the state of the economy, nor are we absolutely certain of how economic relationships function. Alan Greenspan, the former Chairman of the US Federal Reserve, described this in the following words: “Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape” 7 Sometimes, the nature of the uncertainty allows one to draw inferences regarding the probabilities of different outcomes. It is possible, in other words, to judge the risks one is facing, at least to a certain degree. In that case, decisions can be made on the basis of a calculated risk, which is an approach underlying theories of equity investment, 8 for example. But the financial crisis reminded us that keeping the overall risk picture in view may be difficult. When Queen Elizabeth visited the London School of Economics in autumn 2008 she asked why no one had foreseen the crisis. The British Academy Forum replied to the Queen in a letter six months later. Included in the letter was the following:  4  The euro area operates under rules intended in principle to facilitate long-term policy choices. The Maastricht criteria require participating states to keep fiscal deficits and public debt within defined limits. Recent history has shown that this framework must be reinforced through sanctions. Decision-makers need an incentive to comply with the rules in practice.

Continued lending from other parts of the euro area can therefore help cushion the impact and support consumption and investment. In addition, holding foreign bonds – which are less affected by the asymmetric shock – helps maintain income and support domestic consumption. In the United States, these channels alleviate around 60% of the impact of state-level shocks on GDP growth, compared with just 20% in the euro area. Indeed, the contribution of credit smoothing in the euro area was negative during the global financial crisis as cross-border credit provision evaporated, worsening the recessions in the periphery. [2] During the pandemic there have also been sizeable swings in measures of financial integration, albeit more muted than during the financial crisis. [3] Indicators based on the convergence of asset prices declined sharply at the onset of the pandemic, but then rebounded following the ECB’s announcement of substantial monetary accommodation and subsequent progress on European fiscal support packages (Chart 1). Movements in quantity-based financial integration indicators, which reflect cross-border asset holdings, have been slower, but more persistent. [4] Cross-border activity in the unsecured segments of the money markets paused and cross-border equity holdings declined sharply at the onset of the pandemic, posting a partial rebound in mid-2020. Over the past year, financial flows have tended to be characterised by more liquid assets and securities with shorter maturities, pointing to a higher vulnerability to shocks.
And a second theme is the need to bear in mind the distinction between the stability of individual institutions and the stability of the system. Bank of England's role in financial stability But if I may, I'd like to precede all this with a brief explanation of why we are discussing this topic here – that is, why we at the Bank of England have a keen interest in promoting debate in this area. As many of you may know, in 1997 the UK Government took the decision to separate banking supervision from the central bank and unify it with the rest of financial supervision under the new Financial Services Authority. At the same time, the maintenance of stability in the overall financial system was clarified as one of the three core tasks of the Bank of England, along with responsibility for monetary stability and promotion of efficiency and effectiveness in the financial system. So we continue to take a strong interest in the issue of overall systemic stability, including how to monitor it, how to promote it, and how best to deal with any stresses that might arise. Obviously co-ordinating our efforts with the FSA's supervision of individual institutions and the Treasury's legislative responsibilities is key. We work hard at fostering a close relationship, helped by the fact that I am a member of the FSA Board and Howard Davies, who is giving the key-note address tomorrow, is a non-executive director of the Bank.

To achieve this, risk sensitive capital requirements need to be both sufficiently backward looking and sufficiently forward looking: backward-looking in the sense that they should be based on long runs of data that incorporate experience of both peaks and troughs; and forward-looking in the sense that risk measures hold good through the business cycle, taking account of possible future downturns even as banks are extending credit in benign conditions. (b)  Overall capital  The issue of how the new Basel framework will affect the overall amount of capital in the international banking system is also a hot potato at the moment. Again, this is a question which is crucial to the right balance between financial stability and financial efficiency. Erring on the low side in the minimum capital standard could result in unacceptable risk, while erring on the high side with too much capital is likely to result once again in wasteful and costly regulatory arbitrage. The importance of the question is, however, mirrored by its difficulty. Deciding the relative riskiness of different types of banking business is technically challenging enough, but the issue of where absolutely our tolerance of banking fragility lies is not only a problematic technical question but is also of course a normative one. And like all normative questions, different people will have different answers.
One that has featured heavily in our market intelligence gathering is spillovers from international monetary policy actions. 17 In August of last year, financial markets began to anticipate that the European Central Bank (ECB) would embark on a programme of asset purchases, and it has subsequently announced that it intends to expand its balance sheet by € over the coming 18 months. Of course this action is not exogenous – it is itself a reflection of the headwinds facing the euro area economy. Between the ECB and the Bank of Japan (which is continuing its programme of Qualitative and Quantitative Easing announced in early 2013), central banks will purchase the equivalent of around $ worth of assets per month between now and September 2016 (Chart 10). You could say that the quantitative easing baton has been passed from the UK and US to the ECB and BoJ. That these large flows (or the anticipation of them) would have spillover effects on borrowing rates in the UK should not be a surprise. The ECB and the BoJ purchases will be equivalent in value to all of the net issuance by advanced economy governments over the next 18 months. And given that UK government bonds and other government bonds are (to varying degrees) substitutes, it is natural to expect their prices to co-move – in much the same way that if the ECB were to buy $ of Eurozone butter we might expect the price of British margarine to increase.

The conclusion is, according to these figures, that the candidate countries will not catch up to the EU countries for a long while yet. BIS Review 9/2002  1  These figures reflect partly real poverty, particularly in regions beyond the cities and regions that already have an intensive exchange with the EU. However, a considerable part of the statistical comparison is misleading. This is partly because the statistics were often rigged under the dictatorship, which makes it difficult to reconstruct proper data, and partly because production in 1989, at the end of the Communist regime, contained a large percentage of heavy military equipment as well as inferior machinery and consumer goods that never came anywhere near marketing or market valuation. Much of this would probably be impossible to sell in a market economy, and much would be unusable even in a planned economy. It was necessary to adjust this production, close down parts of it and it is quite impossible to compare it to what these countries are manufacturing today. As the official figures for GDP from before the changeover were exaggerated, the decline in GDP is also an exaggeration, while the improvement in quality in recent years is underestimated, as are the growth figures. Given that the candidate countries have nevertheless shown high growth figures during the late 1990s, this would indicate a revolutionary changeover that makes the structural transformation in the OECD economies pale in comparison.
The sudden stop in capital flows during the initial phases of the crisis and the subsequent rapid increase in capital inflows into emerging-market economies have focused attention on the problem of volatile capital flows. Massive inflows can lead to overheating and asset-price bubbles and as there are no clear guidelines a number of emerging-market economies have chosen to manage massive inflows by introducing a range of capital controls. The member countries have therefore given the Fund the task of drawing up guidelines on how countries should manage such capital flows. This work has been underway for the last 12 months and a proposal for a comprehensive framework will be discussed by the IMF’s Executive Board at the end of October. According to the proposed guidelines, countries should in the first instance review their fiscal and monetary policies in order to manage or counteract major capital flows, and as a complement to this they should use various macroprudential-policy tools. As a final resort they may introduce capital controls. The idea is that the IMF should give advice on how these tools should be designed in order to be effective. No organisation has played a clear role in the liberalisation of capital flows. This is a major difference compared to the liberalisation of trade, where the World Trade Organisation (WTO) played and still plays a prominent role.

This is also an issue that we are pursuing in our constituency. Until financial stability is covered by the articles, the members will have no obligation to discuss financial stability issues with the IMF and even less of an obligation to explain their choices in cases where they do not follow the Fund’s recommendations. Summary and concluding remarks As I said earlier, it is important to clarify the IMF’s role in the surveillance of the global financial system. My view is that the IMF is an institution that is well equipped to perform an independent and stringent analysis of the international financial system. An important aspect to discuss in this context is how to make the best use of the Fund’s risk analyses, advice and recommendations. First, it is important for the IMF to present clear and focused recommendations on global financial stability that are not too general. The IMF’s consolidated surveillance report has this aim. The report is wide ranging and may easily become toothless, but it has the potential to play a greater role in this context. Second, the IMF’s advice and recommendations will be ineffectual if the member countries do not comply with them. The follow-up of these recommendations must therefore be improved. The IMF has now said that the follow-up of advice and recommendations will become a permanent feature of the annual country reviews. Sweden welcomes this initiative and looks forward to its full implementation.
The Monetary Policy Committee has needed to provide monetary stimulus not only to contain the short-term economic weakness but, even more important, to reduce its longer-run costs – social and economic. But we cannot do that at the expense of price stability – or, more technically, of allowing medium-term inflation expectations to drift away from the target of 2%. Were the anchor to slip, our ability to support recovery would be undermined. It is sometimes suggested that independent central bankers are more averse to inflation than to periods of low growth and increased unemployment. I hope the past few years have demonstrated that, in fact, it is the credibility of the Bank of England’s commitment to price stability that enabled us to provide such exceptional monetary support to help the recovery. It is unimaginable that, prior to Bank independence in 1997, any government would have been able to hold the policy rate at effectively zero and make a further monetary injection of £ without inflationary expectations – and government financing costs – spiralling out of control. But credibility is not to be taken for granted. Even we cannot provide stimulus without limit, without a wary eye to inflation expectations. Nor has it been at all easy to judge just how much stimulus has been needed to secure recovery given the extraordinary uncertainties about what is going on in the real economy.

The government having revised its Remit to the MPC, the Committee has, in effect, formally clarified that it is adopting a probing approach to policy in order to strike the right balance between risks to stability and the risks of sclerosis. To be clear, I do not see the Forward Guidance – and personally would not favour – committing the Committee to knowingly keeping policy loose beyond the point that would be prudent. I say that because, in parts of academia and the commentariat, the expression “low for long” is used in a rather special way to mean just that: that policy should be loose beyond the period that, ex post, would warrant special stimulus, in order actively to deliver a persistent rise in inflation and inflation expectations above target, thereby pushing down prevailing real rates of interest and so accelerating recovery.2 While not without insight on the mechanics of monetary stimulus, that stream of economic modelling makes the absolutely critical assumption that even as the monetary authority deliberately generates a persistent rise in inflation, its anti-inflation credibility remains 100% intact; later, the central bank simply announces that things are back to normal. That is utterly unrealistic. To re-iterate: the MPC’s forward guidance provides an articulated framework for a probing approach to policy, without a change in our preferences on inflation.3 Saying more about the Committee’s approach to policy in this way might be particularly valuable during a period when signs of recovery have become more apparent.
I think our track record is good here so far, but there is more to be done. The UK does not yet have a resolution authority for insurers, as recommended in the FSB’s key attributes. Assessing firms’ preparedness for exiting the market in an orderly manner, and working with boards to make improvements where needed, will be an increasing focus of our supervision in the next few years. Nor is there generally an inherent conflict between prudential and other government objectives, as is sometimes suggested. For example, take the government’s three objectives for the review of Solvency II:  2/5  BIS central bankers' speeches  to spur a vibrant, innovative, and internationally competitive insurance sector; to protect policyholders and ensure the safety and soundness of firms; and to support insurance firms to provide long-term capital to support growth. These are consistent and mutually supportive objectives. Safety and soundness underpin the other two: the sector can only be internationally competitive if it operates within a robust and reliable infrastructure, which includes the prudential regime as well as things like the legal system; and only a financially sound insurance sector can make a sustainable contribution to long-term investment. Likewise, an innovative sector, in which business models adapt to changes in circumstances, is ultimately a sounder one. In this context I am wary of calls to encourage specific forms of investment with prudential regulatory incentives, which is usually polite code for lowering capital requirements.

I hope that in time, the bulletin will become a popular portal through which retail investors could easily navigate and shop for the bonds that will suit their investment needs. Thank you. BIS Review 1/2006  1
Financial stability Our interest in stability and efficiency reaches of course beyond the money market itself. We have a broader interest in a robust financial system. The transition from a bank requesting liquidity to a bank with longer-term funding requirements, and perhaps solvency problems, can be blurred. Like other lenders, Norges Bank has to decide on the collateral it is prepared to accept for the loans it provides and be qualified to evaluate the financial strength of borrowers. As lender of last resort, we must also be able to assess whether problems in individual banks could jeopardise the stability of the financial system as a whole. The financial crisis has revealed major weaknesses in the financial system. Work is in progress across the board on proposals for revising the regulatory framework and introducing new regulations. It has become increasingly clear that supervision must encompass the financial system as a whole and not be limited to the individual financial institution or the individual financial market. The term used to refer to this supervision of the financial sector is macroprudential policy, which has to be based on analyses of the financial sector as a whole.

In 2005 and again in 2009, the key policy rate fell to very low levels. In both cases, our forecasts showed that economic agents would have to expect a higher interest rate level after a period and they illustrated how long it would take for the interest rate to return to its normal level. Moreover, it is our experience that it has become easier to talk about monetary policy when we can speak openly about the future. 3  6  The deviation was measured on 23 June after the publication of Monetary Policy Report 2/10. BIS Review 113/2010  Liquidity instruments Central bank balance sheet – stylised  The key policy rate must have a clear impact on market rates if the key rate and the interest rate forecast are to be effective. Norges Bank provides central bank funding to achieve this. We provide loans to banks so that they have sufficient funding to settle their accounts each day. These loans result, in isolation, in higher central bank reserves, i.e. increased deposits from private banks in the central bank. In addition, the central bank reserves are affected by other movements on our balance sheet, such as government account transactions or changes in demand for notes and coin. Norges Bank takes account of changes in banks’ liquidity due to these factors when determining the size of our loans to banks in order to maintain the intended level of bank liquidity.
In pursuit of the inflation target, the MPC employs monetary policy – changes in Bank Rate – to steer aggregate demand in the UK economy around the trends in aggregate supply, so as to relieve current inflationary pressures. The relevance of recent market developments to our monetary policy decisions stems from how those developments influence our efforts to come to an appropriate balance between demand and supply. But crucially, the impact of market developments has to be seen in the context of all the other important macroeconomic influences on demand and supply, including the impact of fiscal measures announced by the Government in the past few weeks, as well as developments in energy prices and labour markets that my colleagues and I have discussed in the past. The vehicle for making that necessarily comprehensive assessment is our MPC forecast. The process of producing that forecast ahead of the MPC’s next scheduled meeting in early November is already well underway. That assessment will need to embody recent evidence of weakness in economic activity, as well as the impact of the Government’s Energy Price Guarantee on headline inflation and wage and price setting behaviour. It will have to factor in the evolution of international commodity prices, not least developments in wholesale natural gas markets. And it will need to assess the impact of the Government’s Growth Plan and other fiscal announcements in detail. I don’t have time to discuss all that this evening.

In addition, the Bank of Zambia has incorporated financial inclusion as part of its current strategic plan in which it has undertaken to achieve financial inclusion to 50% of the population of the land by 2015 from the current level of 37.3%. The rationale for this objective is that it responds to the need to bring the poor into the financial system and thereby avail them of the opportunities for financial access and growth. It is expected therefore that this branch we are opening today will play its part in enhancing savings mobilization and effectively channeling the savings to support financing of economic activities. Honourable Ministers, Distinguished Ladies and Gentlemen, the Bank of Zambia has for sometime now, been discussing with commercial banks and financial institutions such as NATSAVE on the need to seek ways and means of introducing branches and agencies in districts which do not have any bank branches or agencies such as Mpongwe, Masaiti, Lufwanyama to name but a few. I am pleased to inform you that, in November 2012, the Bank of Zambia sent a mission to Mpongwe and Masaiti to gather information which could assist in developing a business case for financial institutions to establish branches and support economic activities in these two districts. The report we obtained from the mission provided overwhelming evidence of a viable business case for not only one bank branch but several, to open up in these two districts, especially in Mpongwe district.