samchain/econo-pairs-v1 huggingface dataset:
9  Moody’s and S&P have removed or reduced government support from the ratings of some UK and US banks. Fitch has revised the support assumptions for UK and US banks to remove the ‘Support Rating Floors’ that capture government support assumptions. 4  BIS central bankers’ speeches  the cost of banking services and reduce return on equity. But those costs are the flipside of the removal of a subsidy – they are not wider social costs. It is essential that efforts to ensure even the largest banks can be resolved remain on track. In the UK, that includes the ringfencing of entities taking core deposits. Impediments to resolvability must continue to be addressed. If those efforts hit obstacles, higher equity requirements will be needed to achieve the same ends. The necessary protections for the real economy have to be bought. The only question is at what price. But even with an effective resolution backstop in place, the costs of systemic bank failure are far from insignificant. So the second part of our macroprudential approach is a baseline capital standard that makes economic disruption caused by a weak banking system extremely rare. But not more so. Our baseline – tier 1 capital of 13.5% of risk weighted assets, or around 3.75% of total assets – aims to do this. The dual key approach – risk-weighted capital and leverage – recognises the imperfections in risk weight models and guards against them.

But it also says that: “If there are signs that financial imbalances are building up, consideration of stable production and employment in some situations may lead to the interest rate being held slightly higher than it otherwise would have been”. 11  Why the Riksbank stopped “leaning against the wind” Up until a few years ago, Sweden conducted a similar policy to Norway. A development that worried us, and that we thought we needed to deal with, was that household debt and housing prices had been rising rather rapidly for some time. Even though the policy we conducted was mainly governed by traditional monetary policy motives, that is, the expected development of economic activity and inflation over the next few years, the risks associated with the development of household debt and housing prices were part of our assessment. To help dampen this development, the repo rate was therefore set slightly higher than would otherwise have been the case. There was thus an element of “leaning against the wind” in the policy, especially during the years after the financial crisis. 12 However, these fears also influenced the policy before the crisis, something I talked about at the conference in Jackson Hole in 2007. 13  For a review of the literature, see, for instance, Adrian and Liang (2018). Examples of studies saying that monetary policy should not “lean against the wind” include the International Monetary Fund (2015), Svensson (2017) and Kockerols and Kok (2019), while Filardo and Rungcharoenkitkul (2016, Gerdrup et al.
In closing, let me summarize my points in the form of suggestions for the current efforts on the EWE. First, the focus of EWE should expand beyond detecting misalignments to include assessing vulnerabilities and robustness of the global markets, system, and institutions. Second, EWE should be a two-level process. The global level process focuses on the systemically important markets, institutions, and economies. At this level, the FSB can play a role in ensuring consistent implementation of regulatory standards, as well as undertaking stress-testing to check the robustness and the resilience of the key markets, institutions, and system. Likewise, EWE at the country-level, which can be a part of the normal article IV cycle, should have an additional focus on stress-testing the resiliency of the economy and domestic financial system to large external shocks. The shock scenario can be a common set of assumptions provided by the IMF for all countries and draws on EWE findings at the global level. This will provide a good connection between the perceived global systemic risk and the abilities of the individual economies to handle them. Lastly, EWE must be part of a global policy process, in that information of EWE must be used and if needed leads to timely policy action. On this note, increased transparency of the process, as well as its recommendations, can be a way of allowing market to have a view and force the issue. I hope this has been useful. Let me stop here and again I want to thank the IMF for the invitation.

The global dimension must be the responsibilities of the IMF and the FSB given their comparative advantage as international organization. And as I already noted, EWE by the IMF and the FSB should focus on monitoring the development of risk in the key global financial markets, risk linked to activities of the internationally-important financial institutions, and the economic conditions and policies of the systemically-important economies. These are the areas of risk that have global-wide implications but are not being monitored sufficiently relative to their importance. Third, the focus of the EWE at the country-level also needs to expand beyond detecting and avoiding local macro-misalignments, and to include assessment of the resiliency and robustness of the domestic economy and financial system to withstand large external shocks. The key point here is that, even with good policies, crisis can happen to an economy if the externally-induced factors overwhelm the abilities and the robustness of the domestic economy to cope with. 2  BIS Review 19/2010  And forth, the value of early warning is that warning leads to the needed actions being taken in advance. This means the EWE process should serve to facilitate actions to deal with the important risk and issues by the relevant parties. To serve this end, credibility and effectiveness of the EWE depends on appropriate degree of transparency of the structural models and its appropriateness to the context, whether national or markets, as much as its track record.
Svante Öberg: The Riksbank's forecasting performance Speech by Mr Svante Öberg, Deputy Governor of the Sveriges Riksbank, at Stockholm University, Stockholm, 26 November 2007. *  *  *  Introduction ”When one remembers how foolishly one thought and how wrong one was and how different things have usually been and how the world has been affected by strange metamorphoses, one has less and less respect every year for forecasts.” This is a fairly well-used quotation from Alf Henriksson. And they are wise words. But at the Riksbank we have no choice, as the interest rate affects inflation and the rest of the economy with some time lag. Our decisions must therefore be based on forecasts. The question I wish to discuss today concerns our forecasting performance. Evaluation is important for independent central banks Experiences show that the work on maintaining low and stable inflation is made easier if the central bank can act independently. At the same time, greater independence makes demands on the central bank to be open and to clearly explain its decisions. There are several reasons why this is important. One important aspect is that openness makes it easier to evaluate and to require accountability, which is essential for a central bank’s legitimacy. Openness enables the general public to understand what the central bank is doing. This in turn makes demands on the central bank to be clear in its analysis and message.

This is a clear example of how the quality of the overall statistical system is higher than what the mere sum of independent products would be, were such products not well-connected. Micro data as the Holy Grail We can all agree that statistics have been undergoing a revolution in the last few years. Important technological advances have increased the ability to process huge amounts of data and productivity in this area has surged: policymakers and analysts have more and more information and details at their fingertips and now have the possibility of applying  1  more sophisticated models, designing more refined economic policy responses and answering more complex questions. Some of these changes stem from the experience of the Great Financial Crisis of the last decade. Then it was felt that only the availability of detailed information on economic agents’ positions (including cross-border ones) would allow the relevant policy authorities to thoroughly analyse the exposures of an increasingly interconnected global financial system and to better understand the monetary policy transmission mechanism and the massive deleveraging that followed. To close these gaps, the Eurosystem promoted a number of projects based on granular information. These included AnaCredit (to build up a Central Credit Register at the European level), the Securities Holding Statistics Database (which contains exhaustive security-by-security information on European portfolios) and Money Markets Statistical Reporting, where daily information at the transaction level is collected from financial institutions. In Spain, we also learned the lesson.
For example, they are making public commitments in different areas that can have a positive impact in terms of mitigating and adapting to climate change, such as their carbon footprint, fossil fuel exit strategies, shareholder engagement and greenhouse gas emissions reductions. The ACPR and France’s securities regulator, the AMF, which have been monitoring these commitments for the last two years, stress that significant headway has been accomplished in a short time, but also warn that progress still needs to be made if banks are to communicate more clearly and transparently about their objectives and especially about the means of action likely to ensure that these collective commitments are kept. Banks could also contribute to the transition to a sustainable economy by playing their part in the emerging green bonds market. This market doubled in size in 2021 to reach EUR 460 billion globally, of which half is denominated in euros [SLIDE 7]. But it still has lots of room to grow, judging by the fact that green bonds made up a mere 0.4% of the total volume of bonds issued during the same year worldwide and 2.6% in Europe. In this setting, the new label will help to support a fast-growing market while also preventing greenwashing risks. 2.3 Central banks are also helping to steer these transformations as they lead by example [SLIDE 8] To conclude, I would like to say a few words about what we at the central bank are doing. I will offer two illustrations for each challenge.

As is the case with any exchange rate strategy, the sustainability of the central rate and, with that, the fulfilment of the Maastricht criteria, will hinge on whether that rate is compatible with economic fundamentals. Fulfilling this criterion requires an unconditional willingness to defend the external value of the currency. For policy makers that means a commitment to abstain from practices that could be in conflict with the objectives of exchange rate policy. For participants in foreign exchange markets, including the central bank, it implies the need to intervene in the market without hesitation. Within this context, the importance which the acquis assigns to the independence of central banks is understandable. Whereas the Central Bank of Malta has been formulating monetary policy independently since 1994, there is no doubt that the recent amendments to the Central Bank of Malta Act have put the Bank in a better position to defend the peg. The amended Act, in fact, not only establishes price stability as the primary objective of the Bank, but it also protects the Bank from any external interference and provides it with the operating flexibility necessary for effective and prompt intervention in foreign exchange markets. With the coming into force of these amendments, Malta has achieved a high degree of compliance with Chapter 11 of the acquis on EMU. Another crucial precondition for maintaining the exchange rate peg and ensuring a smooth transition to the single currency is financial sector stability.
The other explanation as to why inflation in Sweden is remaining close to the target despite the low resource utilisation is that there are other factors than resource utilisation which exert upward pressure on prices. One such factor is that unit labour costs have been increasing by around 5 per cent a year during the period 2007-2009. Slightly higher wage agreements, but above all falling productivity, have contributed to pushing up unit labour costs, something that will change in the future as companies reduce their workforces. Another factor that is underpinning inflation is the weak krona. Given this, the assessment I made at the most recent monetary policy meeting was, as I recently mentioned, that there was no reason to worry about either deflation or high inflation during the forecast period. Resource utilisation is not so low that it could lead to deflation, but it is sufficiently low to prevent inflation from becoming too high. The second question I would like to take up is the limits for stabilisation policy. There are limits as to what stabilisation policy can achieve with regard to alleviating the consequences for the Swedish economy of such a powerful and global economic recession as the one we are undergoing. For fiscal policy the limits are set by what is considered compatible with a long-term sustainable development in public sector finances. Monetary policy is to some extent limited by the fact that there is a floor under which the repo rate cannot be cut.

I will take up a number of these measures a little later on. It is also fairly simple to see how inflation relates to the set target, but it is much more difficult to gain an impression of what the target for resource utilisation should be. We express the inflation target as being that the annual change in the CPI should be two per cent, but we do not have an equally well-defined target for resource utilisation. Instead, we usually say that we endeavour to reduce the fluctuations in the real economy. BIS Review 66/2009  1  Resource utilisation is important in a monetary policy context for two reasons. Firstly, it is related to important targets in economic policy, such as a high GDP, a high level of employment and low unemployment. The economic recession we are now experiencing means that GDP will fall by around 4.5 per cent this year, that employment will fall by almost 300,000 persons in three years, and that unemployment will reach approximately 11 per cent in two years’ time, all according to our most recent forecasts in April. The expansionary monetary policy we are now conducting is thus partly motivated by an aim to limit the depth of the recession. Secondly, resource utilisation is important because it is an indicator of future inflationary pressures. But a difficult question is how resource utilisation co-varies with inflation. My impression is that the connection between resource utilisation and inflation has been weaker over the past two decades than it was before.
Is the market not better handled by the private sector without public intervention? According to the law, the Riksbank is to promote a safe and efficient payment system. Like most central banks, the Riksbank is heavily involved in large value payments, running and providing credit to the RIX-system, where payments can be made in central bank money. Here the central bank role is simple to explain. But why should we be involved in the small value payments handled in the card market? Safety problems, although they may be important, are usually not systemic in nature. And in a well-functioning market, economic efficiency should be attained by the market itself, without public intervention. In my view, central bank involvement is appropriate only in the cases of market failure, coordination problems of some magnitude or the presence of obstacles outside the market itself. Usually, they 2 relate to efficiency rather than safety. Typically, we would ask questions such as 1. Are there legal and regulatory impediments to market development and innovation? 2. Are market conditions competitive? 3. Are security and operating standards and infrastructure arrangements efficient? 4. Are settlement services, however provided, safe and efficient? To answer these questions, we follow the market for retail payments and we try to exchange information and cooperate with other relevant public and private bodies. In the card payment market, issues of competition, pricing and security are of particular importance. I shall comment shortly on the first two of these.

Therefore, the previous evidence suggests that the economic policies implemented at national and supranational level have been successful in dealing with firms’ short-term liquidity risks. 9  Firms’ solvency risks  Let me now focus on firms’ solvency risks, which have also increased as a consequence of the COVID-19 crisis. On the one hand, the contraction in turnover has a negative impact on firms’ earnings, reducing their ability to repay existing debts. On the other, firms posting losses will experience a reduction in their equity while the coverage of liquidity needs with fresh debt implies an increase in their indebtedness. As a result of these trends, firms end up with a weaker composition of their liabilities. Available data for 2020 already show a deterioration in the financial position of the corporate sector. The Quarterly Central Balance Sheet Data Office Survey, which includes information from around 900 firms, mainly large corporates, shows that during the first half of the year the average Return on Assets (ROA) of this sample of firms fell to 2%, 2 pp below the figure for the same period in 2019. Moreover, the percentage of firms posting losses rose by more than 11 pp, to 37%.4 This survey also shows that the average debt-to-asset ratio of these firms rose by 1.5 pp, whereas the debt-to-earnings ratio increased more significantly due to the sharp fall in earnings. 4  See Menéndez, M. and M. Mulino (2020): “Results of non-financial corporations to 2020 Q2,” Analytical Article, Economic Bulletin, Banco de España.
The Taiwan Semiconductor Manufacturing Company, a major producer, said last week that its own production had risen 30% in the first half of 2021, relative to the same period a year earlier, and that it expects full year growth of 60% (in response to what have been much milder price rises I think this counts as relatively “elastic” supply). The Chief Executive of the company said “we expect the shortage to be greatly reduced for TSMC customers starting this quarter”.10  One would expect this to take some of the heat out of semiconductor prices, and those of the goods that rely on them. As for shipping, which has affected the time and cost required for all international goods trade, expectations of future prices, as indicated by forward contracts (Chart 15), imply material declines over the next year or so. See, for example Winkelried (2021), ‘Unit roots in real primary commodity prices? A meta-analysis of the Grilli and Yang data set’. Journal of Commodity Markets, article in press. 10 See “TSMC signals global chip crunch may be easing”, Financial Times, 15 July 2021. 9  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  Chart 15: Forward contracts suggest material declines in shipping costs  Sources: Baltic Exchange and Bank calculations. Panamax is a sub-index covering mid-sized vessels travelling on 5 of the 23 shipping routes of the full index. It co-moves quite closely with the overall Baltic Exchange Dry Index.

That is because the rise of international free trade – and the stability that comes with it – has historically depended on the backing of a global hegemon. This was evident during the British Empire in the 19th century, as it was with American support in the wake of the Cold War. [3] However, major economies – led by the United States and China – are now increasingly using trade to limit the ambitions of geopolitical rivals. That could fragment world trade with potentially huge costs. The IMF estimates that severe trade fragmentation may cost global output roughly 7% in the long term – an amount similar to the annual output of Japan and Germany combined. [4] These geopolitical winds are reshaping the second feature of this new map: supply. We are seeing strategic considerations becoming increasingly important in where suppliers are located. The US Inflation Reduction Act, for example, is deliberately aimed at “reshoring” production and reducing the country’s reliance on strategic imports like batteries. [5] China is also seeking to reduce its own dependence on the rest of the world. And some surveys suggest that even firms in “non-strategic” sectors are increasingly likely to regionalise their supply chains. [6] This in turn is leading to the third key feature: the growing importance of security. With the security of supply for critical inputs no longer guaranteed, we are likely to see a new “scramble for resources”.
Money market activity In his paper, Ulrich notes that money markets, and the overnight markets specifically, are very important for the transmission of monetary policy. This is a common perspective among central bankers involved in market operations, which I share as well, although I question whether overnight trading between banks is as special as Ulrich suggests. Money markets are where the policy stance of central banks is most directly expressed in market pricing,  BIS central bankers’ speeches  1  either by classic temporary open market operations to vary the quantity of reserves in money markets (as in the Fed’s pre-2008 operating regime) or through the price incentives set by the administered rates available at lending and deposit facilities (as in the ECB’s current full allotment regime). We have seen a myriad of important changes in money market behavior in recent years, with volume decreasing substantially in some instruments and significant changes in the flows between counterparties. How should we evaluate the current state of our money markets? Are they better, worse, or different but just as good as they were pre-crisis? Unfortunately, I don’t believe we currently have an agreed upon framework to evaluate these changes. Let me take a concrete example: Prior to the crisis, activity in the overnight interbank federal funds market was driven by the scarcity of reserves balances relative to required and precautionary demand for those reserves by banks.

For example, the FOMC has indicated that it will continue reinvestment of principal payments on its portfolio until normalization of the fed funds rate is well underway. As can be seen in Figure 7, market estimates of when the SOMA portfolio will start to normalize have moved out from the end 2015 to the middle of 2018 or even later. Ulrich expresses a strong preference for a balance sheet which is short or lean, i.e. closer in size to the amount of currency outstanding. 20 The argument for such a lean balance sheet in normal times is strong and is encapsulated in the Federal Reserve’s 2014 Policy Normalization Principles and Plans. That said, if asset purchases work through stock effects and, thus, require a long holding period, how exactly do we get to a lean balance sheet or, as we call it, balance sheet normalization? 21 One possibility is that the time between visits to the zero bound will be sufficiently long relative to the duration of assets added to the balance sheet that, in practice, this will not be a problem. I am sure everyone in the audience would be happy if this were the reality; I certainly would be. Another possibility is that balance sheet normalization could be accelerated by asset sales. However, we only have experience with selling shorter-duration assets; sales of longer-duration assets, which carry some uncertainty, would be necessary to speed the path to a leaner balance sheet.