samchain/econo-pairs-v1 huggingface dataset:
It could also include eradication of poverty, reduction in crime and environmental sustainability. In the current environment of greater transparency and enhanced communication channels, there is now greater awareness of the prevailing circumstances. This has produced high expectations. It has also reduced tolerance for inefficiency, poor performance, irregular practices and nondelivery of the results. The expectations are for a public sector that best serves its nation and that delivers the expected results in the most effective and efficient manner. Similar to the private sector, the public sector is confronted with a dynamic environment of rapid change. Approaches that have produced previous successes may now have become no longer relevant. In these situations, previous skills and capabilities will no longer be adequate. In addition, it will be the cumulative efforts of all parts of the public sector that will  BIS central bankers’ speeches  1  produce the results. It will no longer depend on a specific part of the system but on several parts of the system. Previous arrangements will therefore become no longer effective. New challenges that have become more complex will require new tools and systems to solve them. The organisation will thus need to be transformed to meet the changing requirements of the new environment. To contribute to a nation’s progress and development, therefore, demands for the ability to manage these new challenges. The role of the leadership in the public sector has thus changed significantly.

Since inflation is at the same time lower, the differences in the real interest rate are less, however. An important reason for inflation being so low is the broad agreement on the price stability target that now seems to exist. An expression of this is that inflationary expectations remain at a stable level despite expectations on a continued very strong upswing. The Riksbank’s most important duty in future is to ensure that expectations remain at around 2% inflation. The very low inflation which is now registered has, however, surprised many people, including us at the Riksbank. An important explanation as to why GDP growth has now been able to exceed the growth in output that is possible in the long term for many years without threatening the inflation target is, of course, that the upswing started from a level of output that was greatly depressed after the years of crisis, where a lot of resources had been made redundant. When unemployment was at its peak, there were many who feared that it would persist permanently at a considerably higher level than we were previously used to. There was also opposition to the inflation target policy just for that reason. Examples were pointed to in Europe where unemployment had been over the Swedish for a long time, but where there had been greater success in combating inflation. The labour market is performing better than expected It is difficult to determine the rate at which GDP can increase in the long term.
In the analysis of potential future paths, we have to distinguish between policy rates and market rates. Market rates, in general, respond faster to changes in the economic situation and outlook than policy rates. The low inflation environment, subdued economic outlook and downside risks that prevail all warrant the continuation of a very accommodative monetary policy with low interest rates. Given the fragile state of the global economy, a premature increase in policy rates would carry the risk of choking off the recovery. In Switzerland, specifically, the subdued inflation outlook (chart 17), the highly valued currency and the fact that a recurrence of financial market tensions cannot be excluded warrant a continuation of the minimum exchange rate policy. In the current situation, the minimum exchange rate remains an essential instrument for preventing an undesirable tightening in monetary conditions should the upward pressure on the Swiss franc intensify again. Market rates are still determined by the current cyclical weakness of the global economy. Once the global economy gets back on a stronger and broader-based growth path and uncertainty wanes, rates should return to more normal levels. For Switzerland, this would mean that safe haven forces would become less relevant, removing some of the additional negative pressures on domestic interest rates. Conclusion In sum, given that we expect a slow, but continued improvement of the world economy, market rates are set to gradually recover to more normal levels over time.

By this point, buffeted by gloom and uncertainty, you may be considering joining the bankers in pushing me off the mountainside, so let me begin to outline how we can address these challenges. We can start by recalling that the global economy has been in similar circumstances before. Everyone knows that the 1930s marked the depressing aftermath of a great financial crisis. Less well-appreciated was that it also marked a period of intense innovation that laid the groundwork for post-war growth, particularly in the United States. Alexander Field in his book “A Great Leap Forward” contends that the 1930s were the most technologically progressive decade of the 20th century. He notes the development of chemical-based materials like Teflon, Nylon and synthetic rubber; the development of the Television, and the expansion of the public road network that paved the way for advances in distribution and transportation. In the 1930s, the collapse of demand meant mass unemployment and slow adoption of new technologies. It took a recovery in aggregate demand after the Great Depression, partly spurred by mobilisation for the Second World War, for many innovations to be applied and new markets to develop. Demand was persistently weak in the 1930s because policy mistakes were legion. A protectionist backlash closed global markets and ended global finance. Policies favouring liquidation led to widespread bank failures. Monetary policy was tightened dramatically. This time, thus far, is different. Protectionism is being resisted, banks recapitalised, and the global financial system rebuilt. In parallel, monetary policy is highly accommodative.
We do not have the “time to market” pressure that private companies have. This raises questions that in my opinion have appeared far too seldom on our agendas; questions about management, about setting objectives and managing resources, about internal control and, not least, questions about governance. How should we lead the operations of a central bank? Generally, a central bank may learn from any type of successful organisation, we are not that different. But we face a special challenge. Our governance model has often been created to arrive at a well-founded monetary-policy decision. Such a decision benefits from a careful process with a wide-ranging discussion of different scenarios that finally results in a collective decision-making discussion in (in our case) a group of six. This is a structure that has worked well for our policy decisions, but few organisations voluntarily choose a collective of six individuals for the operational management of its activities. Our challenge has thus been to draw a clear line between the structure for making policy decisions and that for other decisions. At the Riksbank, this has entailed relieving the Executive Board of responsibility for day-to-day management and transferring this responsibility to a lower level in the line organisation. This has been – and still is – easier said than done and requires constant attention. It also demands discipline on the part of those at the top of the organisational chart.

3  The slow decline in consumption is consistent with a recent rebound in employment and reduced local political and economic uncertainty. Developments in the global economy, prior to the banking turmoil, operated in the same direction. Thus, seasonally adjusted, recent months have seen an increase in employment, especially salaried jobs, which has contributed to a slight rebound in the wage bill. Indicators of domestic uncertainty have declined significantly, approaching the levels observed prior to the October 2019 social outbreak. The slower adjustment in consumption also coincides with an increase in revolving consumer credit flows, which reflects a greater use of credit lines and credit cards (figure 5). In contrast with consumption, investment has been performing poorly for several quarters. The revision to the National Accounts also shows that, seasonally adjusted, the level of gross fixed capital formation has been stagnant since mid-2021. This is consistent with the increase in the cost of credit; for some quarters access to long-term financing was severely constrained; and business expectations deteriorated amid high local political-economic uncertainty. Some of these factors have eased their importance in recent months (figure 6). As for the current account deficit, in the last quarter of 2022 it showed a significant decrease, and partial first quarter data suggest that this trend will continue. Considering the data for the end of 2022, the cumulative deficit for the last four quarters narrowed to 9%of GDP (10% in the third quarter).
Its non-energy portfolios were liquidated smoothly; prime brokers largely released the resulting ‘excess collateral’ in a timely manner; and other parts of the hedge fund industry provided a pool of capital to take on the risk in the natural gas contracts. I would not want to play that down but, inevitably, some caution may be warranted too. Amaranth’s ability to build up highly  20  Synthetic financing, via eg Total Return Swaps, does not show on bank/dealer balance sheets beyond any net mark-tomarket derivative exposure. 21  In really adverse states of the world, collateral values would not cover all of the bank/dealer’s exposure, and the net asset value of the hedge fund would have fallen too. 22  ‘Private equity: a discussion of risk and regulatory engagement’, Financial Services Authority Discussion Paper No. 06/6, November 2006. BIS Review 2/2007  7  concentrated positions in centrally cleared markets was a reminder of some earlier lessons, dating back to the 1987 stock market crash23, about the detection of large trader positions. More generally, this year’s Counterparty Risk Management Group Report, produced by a group of leading practitioners, identified a range of issues for the industry to tackle. Macro and financial market uncertainty As will have been apparent, the issues I have been discussing are not really separable. There are, to be clear, a lot of reasons for confidence in monetary and financial stability being sustained. Monetary regimes are much improved. Banks are generally regarded as well capitalised.

Politicians cannot make beautiful declarations about providing their citizens with the best possible financial services at the lowest possible prices without facing the consequences of that. In practice, this might mean stopping the nurturing of national champions. At the moment it is quite obvious that in banking no significant cross-border deals can be made without the silent approval from concerned governments. No wonder, banking integration is slow. BIS Review 22/2004  3  To conclude: in order to gain the full benefits of financial integration, we must build a regulatory framework which minimizes the costs and barriers of cross-border expansion. This does not have to mean less regulation, but certainly more efficient and harmonized regulation. Again, there must be an efficient process to continuously update banking regulation to take account of developments in banking activities, instruments and structures. At the same time, we must adjust our supervisory and crisis management arrangements so that we can deal with this new banking landscape in an adequate way. We have had enough of declarations. Let us now move to attack the real political problems. 4  BIS Review 22/2004
(2016), “Low interest rate environment – an economic, legal and social analysis”, speech at the  University of Applied Sciences of the Deutsche Bundesbank, Hachenburg, 27 October. 5 Brunnermeier, M., Langfield, S., Pagano, M., Reis, R., Van Nieuwerburgh, S., Vayanos, D., (2016), “ESBies:  Safety in Tranches“, ESRB Working Paper Series, No 21, September. 5/5  BIS central bankers' speeches

Central bank action is a first-aid kit to ensure that the patient does not die on the site of the crash from a loss of blood, but the subsequent healing process is up to the patient. Taking moral hazard into account The final lesson concerns the moral hazard problem arising from liquidity management operations. Roughly speaking, moral hazard is the name we give to the situation in which, financial institutions and investors incur higher risks than they would otherwise because they expect the central bank to intervene in times of crisis. This, in turn, may increase the likelihood of future crises. Moral hazard is relevant both at the level of systemically relevant market players and at the level of markets as a whole. Market participants that are “too big to fail” or “too interconnected to fail” may automatically factor in the help from central banks when deciding about their business strategy. However, smaller players and investors that cannot count on individual help may also take the expected central bank reaction to financial market crises into account in their investment decisions. BIS Review 71/2008  7  Because of moral hazard, central bank intervention in order to safeguard financial stability in the short term may be destabilising in the long term. Therefore, when reacting to a financial crisis, the benefits of central bank intervention in terms of short-term stabilisation must be weighed against the long-term cost in terms of moral hazard.
A Low Inflation Equilibrium The inflationary backdrop in the recent and distant past has been a benign one, in the UK and globally. Since the 1970s, global inflation has fallen steadily. Having averaged around 10% in the 1970s and 1980s, it fell to around 5% in the 1990s, just below 3% in the 2000s and around 2% in the 2010s (Chart 2)). After the Great Inflation of the 1970s, low inflation has, within a generation, become an entrenched norm among  2 3  For example, Orphanides and Williams (2007). Von Hayek (1972). 3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  developed and emerging market economies alike. And despite large shocks – the global financial crisis, Brexit, Covid - inflation has remained stable at levels considered to be around optimal Chart 2: Global Inflation  per cent  16 14  12 10 8 6 4 2 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 OECD inflation rate  70s  80s  90s  00s  10s  Source: OECD and Bank calculations. While success has many fathers, a significant contributor to this fall in global inflation has been the widespread adoption of inflation targets by central banks. Around three-quarters of countries globally have now adopted them.4 In the main, and contrary to the expectations of many at the time they were introduced, these inflation targets have been hit.

The thought that injections of central bank money can be transmitted to the wider economy through risk premia, as well as through the risk-free rate, goes back at least to Brunner & Meltzer.12 It is precisely how the Monetary Policy Committee, and our international counterparts, regard Quantitative Easing as working – influencing term, liquidity and risk premia.13 And since prices are the “dual” of quantities, it is hard to see why there should be something special about injecting central bank money into the economy by buying assets rather than via our normal policy lever of the overnight interest rate (and expectations about its path). This prompts a number of conjectures. One is that maybe monetary policy did contribute to the widespread search for yield, not just along the yield curve but also, as Rajan suggested in 2005, into credit products to earn a spread compensating for illiquidity or complexity. Another conjecture, perhaps supported by other recent research,14 is that this may have a bearing on the phenomenon of cross-currency carry trades, and thus on the generation of “Global Liquidity”.
2 Exactly how these frameworks will look is still somewhat unclear, but a few general principles have crystallised as regards both appropriate institutional structures and which instruments it may be appropriate to use. 3 Finansinspektionen already has instruments at its disposal that are focused on the health and behaviour of individual participants and companies. But one important lesson of the crisis is that this is not enough. Our toolkit needs to be complemented with tools that can focus on the system as a whole. Today, I will discuss what such a Swedish toolbox for macroprudential supervision could include. 1  The speech “Macroprudential policy and clear communication contribute to financial stability” was held at the Swedish Bankers’ Association on 30 March 2012. See www.riksbank.se. 2  For more detailed analyses of macroprudential policy and its ability to counteract systemic risk, see, for example, Borio (2010), Galati and Moessner (2011) and Viñals (2010 and 2011). 3  See, for example Lim, C., et al., (2011),”Macroprudential Policy: What Instruments and How to Use Them? Lessons from Country Experiences”, IMF Working Paper, 11/238. BIS central bankers’ speeches  1  Different types of risk… Before I go into the different types of tools that could be used to manage systemic risks, I will explain what is meant by systemic risk. The Riksbank usually defines systemic risk as the risk that a shock will occur in the financial system, leading to substantial costs for society. 4 Such risks can arise for various reasons.

Such a tool would reduce the pressure on monetary policy as an instrument for managing risks on the Swedish housing market, something that I personally would very much welcome. This would allow influence to be exerted on the expansion of credit in the household sector and on housing prices, without simultaneously impeding credit granting in other sectors and possibly influencing the krona exchange rate in a direction that would impede exports. A ceiling on household borrowing Another way of counteracting systemic risks is to use loan ceilings as a macroprudential policy instrument. These can certainly be focused on all categories of borrower in society, but, in the countries in which they have so far been applied, they have been directed at households and their indebtedness. 12 These instruments have usually been formulated as a limit on the amount of the loan in relation to the household’s income or the value of the household’s assets that form the collateral for the loan. There is no internationally harmonised definition of these instruments, allowing them to be defined differently as regards loan amount, income and value of underlying collateral. In Sweden, Finansinspektionen issued a recommendation almost two years ago regarding a limit on how much borrowers may borrow, the so-called mortgage ceiling. According to this, household loans should not exceed 85 per cent of the property’s market value when the loan is granted. Lending above this threshold is still possible, but should be granted without residential collateral and therefore at higher interest rates.
Supervisory practices must be revamped so that supervision is also horizontal – looking broadly across banks, nonbanks, markets and geographies. This also means that regulatory standards need to be harmonized  BIS Review 14/2010  2  across different regions. Without harmonization, there will inevitably be a “race to the bottom” and regulatory arbitrage will be encouraged, rather than inhibited. Many steps are needed to make financial institutions and infrastructure more robust. For example, we need to strengthen bank capital requirements, improve liquidity buffers and make financial market infrastructures more resilient to shocks when individual firms get into trouble. In terms of capital requirements, many changes are needed, including global capital standards that put more emphasis on common equity, establish an overall leverage limit and better capture all of the sources of risk in the capital assessment process. Improved risk capture, for example, includes the trading accounts of banks. Some institutions had clearly not set aside adequate levels of capital given the risks that were embedded in their trading positions. It would also be very desirable to develop a mechanism to bolster the amount of common equity available to absorb losses in adverse economic environments. This might be done most efficiently by allowing the issuance of debt instruments that would automatically convert to common equity in stress environments, under certain pre-specified conditions. Such “contingent capital” instruments might have proven very helpful had they been in place before and during this crisis.

The challenge faced by central banks is to establish a framework that combines both price and financial stability as primary mandates and identify the policy instruments to target both, even at times they seem to conflict with each other. 2  BIS central bankers’ speeches  Central banks have typically calibrated short-term interest rates as their primary policy instrument to determine their monetary stance. Since policy rates are too blunt instruments that affect the entire economy, using them to achieve both of these targets may lead to unintended consequences. The level of interest rate required to ensure price stability can differ from an interest rate needed to preserve financial stability. For example, during boom periods driven by productivity and financial innovation shocks, a low policy rate would suffice to contain inflation; yet the very same level of interest rate may still lead to accumulation of financial risks. Moreover, during boom periods, emerging markets typically attract large capital inflows even with reasonably low level of interest rates. In such periods, the external and internal equilibrium requires different interest rates and monetary policy has to use more than one instrument. The “Tinbergen Rule” suggests that one instrument could be employed to achieve only one target, which in our case is conventionally recognized as price stability. There is clearly a need for a second set of policy tools. This second instrument, in my opinion, may be in the form of macro prudential tools that directly address financial activities.