samchain/econo-pairs-v1 huggingface dataset:
In 1835 Alexis de Tocqueville wrote that, “the authority which public men possess in America is so brief and they are so soon commingled with the ever changing population of the country that the acts of the community frequently leave fewer traces than events in a private family. .... The instability of administration has penetrated into the habits of the people”. The stability of institutions is, therefore, one of their greatest assets. Barro and Gordon (1983b) assumed the existence of an ongoing government or central bank which had an interest in preserving a reputation for “good” behaviour. A substantial literature, reviewed by Nancy Stokey (2002), analyses the circumstances in which it is attractive for a “good” government to distinguish itself from a “bad” government. Stokey shows that if it is not easy to do so, then it may be optimal to impose a monetary policy rule on all governments in order to reduce the damage done by the prospect of a bad government in the future. But how can society convince itself that it can eliminate bad government by adopting a policy rule? A really bad government will simply restore discretion to itself. Good and bad governments are not independent actors. They reflect the degree of consensus on how to construct institutions that will pursue consistent objectives. The experience of high and variable inflation itself can be an important force shaping public attitudes towards the design of institutions to control it.

Thomas Jefferson believed that the US Constitution should be rewritten every 20 years or so at a new constitutional convention.7 Second, we cannot fully describe an optimal monetary arrangement because we do not know all possible states of the world and hence the policy rule to which we would like to commit. Those two aspects of the technology of collective decisions create a role for institutions. But they differ in important ways. If there were only a commitment problem, then we could describe an optimal state-contingent monetary policy reaction function. Mechanisms could then be devised to make it less likely that policy would deviate from this optimal plan - perhaps by writing the optimal rule in the form of a constitutional provision which could be overturned only by a substantial majority, or financing deficits by issuing index-linked debt. Such mechanisms would make it incentive compatible collectively to stick to the optimal plan. None of this would have come as a surprise to the authors of the American Constitution. In Federalist Paper No.10 James Madison points out that “our governments are too unstable” (p173) and in No. 37 he writes: “the people of this country, enlightened as they are with regard to the nature ... of good government, will never be satisfied till some remedy be applied to the vicissitudes and uncertainties which characterise the State administrations” (p243). Outside observers agreed.
•  The third is the importance of regular vulnerability testing. We launched CBEST, a controlled, bespoke, voluntary cyber security testing framework which aims to bring to bear the best available intelligence on potential threats to test directly a firm’s ability to protect, detect and respond to cyber attacks. 2. Recovery capabilities  But even with improved ex ante resilience, no network is impenetrable. Hence why firms’ recovery capabilities are equally important. We still need firms to work to be able to resume vital services quickly and reliably in the event of operational disruption. We are keen to see firms adapt their approaches to business continuity planning to take account of cyber. One possibility raised in the FSR is seeking more segregation between primary and backup systems. 3. Effective governance  I mentioned earlier it is for firms in the first place to be responsible for their cyber resilience. I’ve also noted that cyber is about people as much as it is about technology. And let me be clear, the responsibility for understanding this risk extends beyond technology specialists; firms’ boards need to view cyber risk as a core strategic issue and be in a position to challenge senior management in all business areas on the adequacy of their arrangements to deliver cyber resilience. Going forward So this is where we’ve got to on cyber. But now it’s clear we need to place cyber on a more permanent footing.

The reforms proposed by the Central Bank in two recent reports are designed to foster such discipline. In many instances, the same measures could contribute to stability and sustainable output growth as a member of a currency union and, in some respects, could be easier to implement from within it. Thank you. 8  The most viable option would perhaps be the Danish krone, provided that the authorities were willing to bet on its continued stability vis-à-vis the euro. 6  BIS central bankers’ speeches  Below are the slides shown during the speech: Chart 1  Chart 2  BIS central bankers’ speeches  7  Chart 3  8  BIS central bankers’ speeches
The key difference is that the inflation target is symmetric – the monetary policymaker’s loss grows equally when inflation is either under or over the target, whereas the macroprudential policymaker’s loss function is asymmetric – increases (ie deteriorations) in GDP-at-risk are far more costly than the benefits of the reductions in GDP-at-risk. The relationship between the primary objective of financial stability and the macroprudential policymaker’s loss function can be represented by a decreasing and convex function, 𝑓(·). This means the marginal gains from taking action to protect financial stability grow as GDP-at-risk increases. Conversely, the marginal benefit from reducing GDP-at-risk falls as tail risks decline. This is illustrated in Chart 7. Financial risks increase moving along the curve to the right. A policy to reduce GDP-at-risk (lines A) is more valuable to the policymaker at higher levels of GDP-at-risk (line B) than lower levels (line C). The weight the macroprudential policymaker places on the central GDP forecast relative to GDP-at-risk is also determined by 𝜙 (“phi”). 𝜙 is analogous to the monetary policy’s 𝜆, the weight monetary policymakers place on output stabilisation relative to inflation stabilisation. 𝜙 is strictly greater than 0, as dictated by the “stability of the graveyard” clause in the Act that the FPC should not take action detrimental to medium-to-long term growth.13 In its annual remit letter, the emphasis the government places on this clause, and therefore the FPC’s secondary objective, can be thought of as changing 𝜙.

Looking beyond the special factors that operated in November, broad money and loan growth is still low, corroborating the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term should remain contained. The interest rate constellation continued to exert a significant impact on the growth of monetary aggregates. Looking at M3 components, the interest rates paid on short-term time deposits remained higher than those paid on overnight deposits. As a result, annual M1 growth continued to moderate, standing at 4.6% in November 2010, while the annual growth rate of other short-term deposits continued to become less negative. At the same time, the yield curve has lately become steeper again, implying that the attractiveness of short-term deposits included in M3 has declined somewhat compared with more highly remunerated longer-term assets outside M3. The annual growth rate of bank loans to the private sector continued to increase in November, partly owing to special factors. At the sectoral level, this strengthening increasingly reflects the upward movement in the growth of loans to non-financial corporations, which stood at –0.1% in November, after –0.5% in October, thereby further confirming that a turning point was reached in the course of 2010. The growth of loans to households remained stronger, at 2.7% in November after 2.9% in October, but the latest data point to some signs of a levelling-off.
This strongly implies it is not the greater incidence of ideas-fuelled booms after 1750 that accounts for the growth inflexion. The explanation lies instead in the dramatic fall in both the probability and cost of GDP contractions. Recessions have occurred only 30% of the time since 1700 and only 17% of the time since 1900. During these periods, growth has averaged minus 2.2% per year since 1700 and minus 3.4% per year since 1900. Since 1750, recessions have become far less frequent and less painful. It is the avoidance of deep recessions that differentiates the Golden Era from its Malthusian predecessor. Where does this leave our story of growth? Well, the story that better fits the facts appears to be one in which the conveyor belt of ideas and innovation has been continuous over the centuries, causing lengthy if lumpy ideas-fuelled expansions. But whereas prior to the Industrial Revolution this conveyor belt was regularly halted by recessions, more recently these interruptions have been far fewer and less costly. Put differently, the real revolution in living standards after 1750 came about not exclusively, or perhaps even mainly, from the surge in ideas and technologies. Rather, it resulted from societies having found some means of avoiding the subsequent recessionary bullets. Prior to the Industrial Revolution, these killed expansions dead. After it, societies appear to have found some effective means of dodging them. A Second “i” on Growth  To understand growth, then, we need to explain why economies become less recession-prone after 1750.

But it’s one that has gained colour from the debate about derivatives. An oddly polarised debate. Overstating it somewhat: in one corner, a group contending that derivatives bring tangible benefits to civilisation. In the other, a group arguing that they have within them the seeds of severe disorder. Unsurprisingly, my take is that the truth lies somewhere in between. It is nicely illustrated by the quite extraordinary development of the credit derivatives market over the past five years or so.2  Dispersion of risk, and the price of risk Credit derivatives plainly have been used as an effective risk management tool by a number of banks and others. Contrary to some suggestions, the acid test is not especially whether banks, individually or in aggregate, have been net sellers of credit risk. Individual banks have been able to reduce concentrated loan exposures to single corporates, industries or countries. As the Telecom episode reminded everyone just a few years ago, that is really important, if elementary. Individual banks have also been able to increase their exposure to borrowers with which they do not have a lending relationship. (Indeed, some commentators suggest that it may sometimes be more effective for second-tier and smaller banks to take corporate credit exposure via the derivatives market than via participation in the lower tiers of loan syndicates.)
We have seen progress in this area over the past few years with some firms hiring outside experts, engaging in cultural diagnostic work and implementing programs that focus on improving ethics, behaviors and internal culture. We’ve also seen progress in our direct engagement with boards of directors – and we’ve seen this across institutions of all sizes. When we, as supervisors, first began requiring deeper engagement with directors and senior leaders, the reactions varied, with an initial wariness of the purpose. In fact, directors were often accompanied by a compliance or regulatory relations liaison during our early interactions with them. Over time, though, as senior leaders and board members recognized the advantages of this level of engagement, the process has been smoother and our exchanges are becoming more engaging and direct (and few if any “escorts” are present during our interactions now). While the level of  2  BIS central bankers’ speeches  engagement varies across firms, in general, we are seeing boards being more active in asking questions, providing oversight of management and engaging with supervisors. We, in turn, have deeper insight into decision making dynamics at the board and c-suite level, including the how and why of decision making on key strategic issues. Regular communications also encourage early and proactive surfacing of issues. In addition, we’ve seen good progress in recruiting additional directors to complement current skills on the board – better positioning the board to engage with the senior management team in a productive and appropriately challenging way.

Indeed, after the Global Financial Crisis, the US suffered its worst recession since the Great Depression of the 1930s. In a desperate bid to stave off the recession, the US literally moved mountains, including introducing the unprecedented QE policy and splashing out $ trillion between 2008 and 2010 to cut taxes and implement other fiscal policy measures to prop up the economy. However, as we can see from Chart 1, the current recovery has been the weakest of all the economic cycles in the past 55 years. The average growth rate is just 2.2%, half the average rate of 4.6% in the previous recovery cycles. (Chart 1) 5. As for employment, the US has lost a total of 8.7 million jobs during the financial crisis and recession, with the unemployment rate peaking at 10%. Although employment bottomed out in 2010, and some 13 million jobs have been created since then, this only represents 4.3 million more jobs compared with the peak eight years ago in early 2008, and way behind the 8.8 million people who have been added to the labour force over the same period. In other words, while the US unemployment rate has declined to 5% recently, it does not mean the labour market has fully recovered. One of the main reasons for the faster-thanexpected drop in the unemployment rate is the dwindling labour force participation rate, from an average of 66% in 2007 to the current 62.4%, the lowest since 1977.
This, considering that few bank credit operations are performed at rates higher than 41 and 39 percent, the actual TMC levels for the third quarter in operations between UF 0 and UF50, and between UF 50 and UF 200, respectively. Still, such provisions regarding the TMC are still in the process of being implemented, so future reductions  BIS central bankers’ speeches  5  are expected, which might have a greater impact because of the significant number of operations that are performed with interest rates in the 35 to 40 percent range (figure 13). Bank financial indicators are sound and stress tests show that capital levels are adequate to confront a severe stress episode (figure 14). Although bank profitability has increased lately, this was boosted by the temporary effect of higher inflation. The interest rate spread has been stable over 2014 and continues to be the main contributor to the banking system’s profits. The impact of the stress scenario involves a drop in profits similar to the one in the previous IEF, but as the initial profitability was better the banks can obtain a positive closing ROE in this scenario. Bond issues, locally and abroad, have helped to diversify the banks’ funding sources (figure 15). Lower funding costs have favored debt issues locally and abroad, increasing the duration of liabilities. Some banks operate with high dependence on wholesale sources, which can be a significant vulnerability if these investors change their portfolio decisions or flows become more volatile.

Thus, any surprises in the evolution of the US monetary policy could affect  4  BIS central bankers’ speeches  financial conditions – like they did in May of 2013 –, raising credit costs in world markets, reversing portfolio flows and depreciating emerging-country currencies against the US dollar. The beginning of a new cycle of quantitative expansion by the European Central Bank, plus similar announcements by the Bank of Japan, might reduce the likelihood and impact of these volatility episodes, depending on how these unconventional policies ultimately reflect in global lending conditions. A different risk has to do with the slowdown of emerging economies resulting in reduced capital flows. This because their assets become less attractive, all the more so in Latin America. A scenario in which the recent drop in commodity prices is prolonged or intensified, or where doubts about China’s performance resurge strongly, might trigger this kind of event. The scene may become more complex if at the same time long-term rates go up in the US, increasing the cost of external funding. It should also be considered that an increase in the cost of external financing could put upward pressure on local long-term interest rates. The decline in external and domestic long-term interest rates has motivated bond issues in both markets and local demand for type-3 mutual funds.
This gives a sufficiently broad scope of action to be serene, open: after March there will be less monetary urgency as we will need to analyse the economic evidence more closely. Regarding the substance and method, I do not believe it is possible to model “a targetcompatible rate”. It is appealing from an academic point of view, and such a model was notably developed by the economist Lars Svensson who went on to become Deputy Governor of the Swedish Riksbank from 2007 to 2013.11 But in practice this method is ineffective. It relies heavily on having a very accurate model and clear identification of the shocks hitting the economy. The substantial forecast revisions over recent quarters underline just how difficult it is to calibrate policy based on forecast targeting. As a consequence, this method gives highly volatile estimates of the terminal rate, which can double depending on the assumptions and forecasts. However, I do think we need some pointers, which brings me, regarding our channels of transmission, to the first essential “navigation lock”: that of the future stabilisation of the level of rates. What economic data should guide us in deciding whether or not to stop the rate hikes? In my view, the central criterion is a turnaround in the trajectory of inflation, not just headline inflation – we are very probably close to that point – but above all underlying inflation, notably excluding energy prices – which may lag the headline measure by several months.

Core inflation is estimated to have stabilised in January, albeit tentatively, at the elevated rate of 5.2% year-on-year, according to the Eurostat Flash estimate. There are other “exclusion-based” indexes that better strip out the effects of transient shocks to items other than food and energy. These indexes are less volatile than the “core” HICP measure and can thus provide a better reflection of the fundamental trends in inflation.12 However, in the current phase, these indicators are not best suited for identifying real time shifts in the persistent component of inflation. 12  Trimmed mean HICP is a real time index that excludes those items hit by large, one-off shocks at that time. It thus gives a reliable reading of underlying inflation pressures. Fine core HICP eliminates most of the problems involved in analysing underlying trends. For a presentation of the fine core indicator developed by the Banque de France, see Lalliard (A.) and Robert (P.-A.) (2022): “A possible new indicator to measure core inflation in the euro area”, Banque de France Bulletin, No. 240/1. 15  Page 16 of 19  Compared with these exclusion-based indicators, the Persistent and Common Component of Inflation (PCCI)13 constructed by the ECB has the merit of including the impact of medium-term shocks to energy and food, to the extent that they have common effects. By construction,14 the PCCI can also potentially provide earlier signals of turning points in underlying inflation. For example, the PCCI was the first indicator to signal the rise in inflationary pressures in 2021.
Our fundamental policies are enshrined in the Basic Law: among these are fiscal independence; maintenance of Hong Kong as an international financial centre; and a financial system governed and protected by locally enacted laws. Most important, the Basic Law prescribes a separate currency for Hong Kong - the Hong Kong dollar - which is to continue to be freely exchangeable and fully backed by reserves. These points are worth stressing, because there has been much misunderstanding about Hong Kong’s position. The challenges ahead  I believe we should also look to the future, and not just dwell on current anxieties or deal with the political fall-out from our recent measures against market manipulation. As I see it, there are two main challenges ahead. One is the challenge before every economy in the region, including Hong Kong, to pull ourselves out of the economic difficulties that now face us. The other is a challenge to the global financial community as a whole. For Hong Kong, the challenge is to see through the economic adjustment that is now in train, to continue to promote our competitiveness, and to plan for economic recovery. There is no denial that this is a painful process. Nor can there be any pretence that the current downturn will be over quickly, whatever the positive signs in the markets over the past few weeks. In the financial markets we need to be vigilant against future attacks and to introduce further safeguards in our financial system.

At the Riksbank we are working continuously on, for instance, improving our analyses and forecasting methods to provide the best possible basis for making decisions. Our decision to publish inflation forecasts based on market expectations in the March Inflation Report was an example of this. One can assume that the Ministry of Finance conducts equivalent development work. I believe that an even deeper discussion of what is entailed in the considerations made between inflation targeting and the real economy can be a good thing. During the first years of inflation targeting, the Riksbank sometimes sounded like an “inflation nutter”. However, this stance was abandoned after a few years and since then we have communicated that we also take into consideration financial and real factors. A decision by the Executive Board of the Riksbank in 1999 clarifies our views on these issues. However, we can probably become even better at analysing and explaining the considerations we have to make when conducting a flexible inflation-targeting policy. The Executive Board has held several speeches on this theme over the past year and the aim is to publish some form of joint document on this subject in the near future. BIS Review 39/2005  3  With regard to fiscal policy, it has a stimulating effect on the economy primarily through what are known as the automatic stabilisers, i.e. through systems for taxes and expenditure, which are very extensive in Sweden, being designed to allow some “automatic” adjustment to cyclical developments.