samchain/econo-pairs-v1 huggingface dataset:
In these circumstances, it is vital that the gain in the share of our sales, both abroad and at home, should be the main driver of activity in Spain. And, accordingly, achieving sustained competitiveness gains, which must come from the implementation of ambitious supply-side reforms and measures, is crucial. If these reforms and measures should restore confidence in the Spanish economy, reduce financing costs and improve the foundations for future growth, 2013 may witness a recovery. In this situation, the 2012 Budget forms part of a more general medium-term consolidation strategy, requiring the collaboration of all levels of government. Details will be available in a few weeks, when the Government presents the Stability and Growth Programme to the European authorities. The Stability Programme should contain precise and explicit details of all the elements on which this consolidation process will be based. The targets set by this Programme must anchor the budget measures of the coming years, ensuring that the general government deficit can be reduced to below 3% of GDP in 2013 and, subsequently, that a balanced budget can be achieved. In addition, they must seek to stabilise the public debt ratio and subsequently reduce it to below 60% in 2020. The fiscal consolidation so defined must be considered unavoidable and necessary to restore economic growth in the medium term, although the size and timing of the adjustment required may have negative effects on activity in the short term.

Across various sectors, disruptive technologies are rapidly expanding the horizon of economic opportunities while challenging existing business models. In the case of banking for instance, we have already seen greater competition from new entrants amid the emergence of fintech. Rapid urbanisation, which is more pronounced in emerging markets, and demographic changes such as an ageing population are other key trends which have major implications on economic and socio-political conditions. At the same time, there is a growing appreciation for the far-reaching impact of climate change, giving rise to calls for more sustainable growth models and innovation. All these developments that are taking place in the banking industry today have created an environment much different from the one prior to the crisis. And together with the implementation of the post-crisis global regulatory reforms, which remains a key priority, their implications require careful and deep thinking as banks plan for the future. Domestic policy continuity and priorities Our banking industry is facing the current rapidly changing and challenging economic environment from a position of strength, following the successful reform measures that were implemented. Given the high degree of openness of the Malaysian economy and the increased integration with the international financial system, external developments have continuously affected our domestic economy. But the economy has been able to weather these challenges and have remained on a steady growth path of 4 to 6% over the past five years. In recent quarters, economic growth, however, has moderated.
Instead, the key judgement for the MPC was that this uncertainty would itself weigh on demand and investment spending in particular. So I’ll say something about why, in general, longer-term capital spending is particularly sensitive to uncertainty; why consumption (and faster-depreciating types of capital) are less affected; and why housing might, in this respect, be something of a grey area. The second issue is the interaction between monetary policy, bond yields and the financial position of pension funds. Not for the first time, the MPC’s decision to ease policy has been criticised by some for raising the deficits of defined-benefit (DB) pension funds. The liabilities of these funds – fixed future payouts to the pension beneficiaries – are discounted by a longer-term bond yield. So all else equal, a fall in that yield raises the present-value cost of funding these payouts. But the key phrase is “all else equal”. The overall impact of monetary easing on DB schemes – and on the companies who run them – depends on what it does to the prices of their assets, not just their liabilities; what it does to the wider economy; and the composition of other parts of the companies’ balance sheets. Much of this has been pointed out before, including in a speech in 2012 by my predecessor Charlie Bean.

But this gearing effect isn’t the only reason. Another important consideration is that many investment projects are – at least to some degree – irreversible. Once made, they can’t be easily or costlessly unmade. (Removing an extension to a house might cost as much as building the thing in the first place.) So, if there’s any uncertainty about future returns – if you know that you might come to regret the decision – you have to be extra sure before you actually take the plunge. It’s no longer enough that the expected income from the project covers the initial cost. It has to do so by a potentially wide margin, a margin economists call the 3  “option value of waiting ”. There are lots of decisions in life that have these characteristics. Moving house, taking a new job, even getting married – these are all things than can be delayed but cannot be easily reversed. And it makes 4  intuitive sense that, in the presence of uncertainty, there’s value in keeping one’s options open . How much might that option be worth, when it comes to investment decisions? Quite a bit, it turns out. Based on a simple stylised model, Chart 4 plots the additional hurdle required of irreversible investments against the variability of annual growth in the returns they generate. For individual firms, earnings vary considerably from one year to the next – the standard deviation of annual growth has on average been as much as 40% points (Chart 3).
*  *  *  BIS Review 9/1999

The Central Bank’s tight monetary stance has, on the other hand, brought results, as last November inflation dropped below the target of 2½ %. Old theories reappear Recently there has been extensive discussion concerning the Central Bank of Iceland, its policy and objectives. Now that inflation has been subdued, old theories to the effect that the Central Bank should pursue multiple objectives have once more come to the fore. The Bank is to ensure full employment, it should have specific exchange rate objectives and ensure economic growth. These views reflect considerable over-estimation of the power of the Central Bank and the instruments at its disposal. It is also an oversimplification to focus exclusively on interest rates, as many people do, and expect that further interest rate reduction will solve all the problems. The Central Bank has, over the past two years, cut its rates thirteen times, and the bank’s policy rate is currently 5.3%. While this is naturally a higher rate than in the Euro zone, the problems which have to be grappled with there include long-term economic stagnation and high unemployment, and the future is by no means bright. In Norway, on the other hand, the Central Bank rate is 6%, to take an example of a neighbouring industrialised country. The Central Bank of Iceland’s real policy rate is currently around 2¾% considering future prospects, which is slightly under current estimates of the equilibrium interest rate.
The Training Department would have to provide the requisite training to address skill deficiencies on an urgent basis. Training should also be a continuous process of skill development to meet global and technical challenges as well as those emanating within the Sri Lankan economy. In order to create a learning culture, it is necessary for the employees to take the initiative to enhance their knowledge and skills through self-study and also through participating in relevant seminars, workshops etc. In the future the Training Department would provide all assistance and even sponsor such events. The Training Department is also in the process of preparing a more comprehensive training plan for the entire Bank based on training needs information furnished by each Department. I should also mention that I have already advised the Training Department to take steps to ensure greater transparency in the training policy of the Bank. Once duties are delegated and personnel empowered, it is up to the persons entrusted with such duties to take up the responsibilities thrust on them and strive for excellence when performing such duties. A fair and just performance appraisal scheme will be put in place to evaluate the effectiveness of performance. The aim of the performance evaluation scheme, the reward scheme and the promotion scheme would be to ensure that the best and brightest are promoted and rewarded. The management also intends to implement a Bank-wide job rotation scheme in the New Year.

You would recall that in my first message to you on assuming the office of the Governor of the Central Bank on the 01st July 2004, I stated that I was deeply conscious of the great honour attached to my appointment to this august post. Now, I address you with 6 months’ experience at the helm of this unique institution which is responsible for safeguarding the price stability and the country’s banking and payments system. During the last decade, the staff of the Central Bank faced several traumatic events and challenging situations. The Central Bank bomb blast, which took away the lives of 41 employees and caused injuries to nearly 1000 employees, was the most traumatic event. However, I understand that even those seriously injured joined the unaffected employees to offer their best efforts to the Bank and as a consequence, the Bank was in a position to resume normal work without an interruption within a short period of time. This reflects the resilience of our staff. Thereafter, the Bank was subject to a modernization and restructuring scheme. A major feature of the restructuring process was the offering of a Voluntary Retirement Scheme (VRS) for certain categories of the Staff at the end of 2001. Around a third of our staff opted for the VRS and left the Bank.
Unlike covered bonds, the latter are backed by packages or specific groups of foreign trade financing operations. These new bonds may contribute to reducing exporting firms’ financial costs and to increasing the total volume of financing. Along with providing financing, banks also extend coverage for export risks, relating for instance to the recipient country’s economic or political situation, so-called “country risk”; the risk that products may be damaged in transit or withheld at borders; collection difficulties in the event of non-payment, associated with different jurisdictional frameworks; and greater uncertainty in the relationship between the supplier and acquiring company. Banks have used various instruments to extend guarantees on international trade flows. The classic instrument is, of course, the documentary credit. The importer’s bank guarantees the exporter’s bank that payment will be made once it has been confirmed, through presentation of the pertinent documentation, that the transaction has been correctly completed. In this way, exporters notably reduce their risks. Naturally, the demand for coverage of credit risk is higher for trade flows with countries with which there are fewer historical ties and with those trade partners for which greater risk is perceived. Accordingly, this may prove important in the opening-up of new markets and in flows to emerging economies. As regards the medium and long term, the nature and functioning of transactions differ from those for short-term transactions. The financial services provided by banks for longer-dated terms are, essentially, financing and the extension of guarantees and bonds needed to participate in international tender procedures.

But on many occasions, and compared with this simple representation, experiments suggest that people focus excessively on the present. It’s not just that they generally place higher value on getting something sooner rather than later: people seem to put a particularly high weight on current outcomes. They seem to discount the importance of what comes tomorrow, relative to today, more heavily than they do any two successive days further into the future. This is referred to in the economic jargon as “hyperbolic discounting” and by psychologists as “present bias”. It helps to explain why we often put things off right until the last minute, even if the cost of doing it is much higher by that time. It means it can be advantageous to commit to things that are good for you over the longer term – regular saving, or signing up to a gym programme – but that, when the time comes, you might be tempted to avoid.2 And it can also explain why people borrow money, and roll over those debts, even at very high interest rates. This borrowing can take many forms, including foregoing opportunities to reduce the longer-term cost of something. In their recent book “Scarcity”, economist Sendhil Mullainathan and psychologist Eldar Shafir give the example of rag collectors in India – people who rely on collecting discarded clothes and selling them on. It is an ardous job with very little reward.
But potential measures must be balanced against the risk that the interbank market will cease functioning more quickly if there are signs of financial turmoil in the future. There is also a risk that a temporary extension of the collateral a central bank accepts can reduce the banks’ incentives to hold sufficient amounts of what are normally considered eligible assets. If the central bank takes over some of the functions of the shortest interbank market, there is also a risk that banks which are essentially creditworthy will suffer liquidity problems as the access to short-term financing in the interbank market will disappear. Although there is still the possibility to borrow from the central bank, collateral is required, while the interbank market usually provides loans without collateral. Even though we have not needed to take a stand in these considerations in an emergency situation, we do of course discuss the issues and monitor developments closely. Conclusion The financial turmoil has meant that several central banks have had problems stabilising the overnight rate at the target levels. The uncertainty has also contributed at times to difficulties for some banks in obtaining funding on the interbank market. Several central banks have therefore taken measures beyond the normal to stabilise the overnight rate and to reduce the pressure on the slightly longer interbank rates. In Sweden there has been no reason to take any extraordinary measures. The Swedish interbank market has on the whole functioned smoothly.

There it is possible for a bank to deposit more in its minimum reserve account at the beginning of the period without any extra cost in the form of lower interest than the market rate. This difference in interest rate systems is reflected in the fact that the overnight rate tends to fluctuate slightly more in, for instance, the United Kingdom and the euro area than in Sweden, even under normal circumstances. Thus, there has been no reason for Sweden to take measures to ensure the overnight market functions. The Riksbank’s objective of stabilising the overnight rate has been achieved. At the same time, Swedish banks have had good opportunities to finance themselves. On the other hand, the uncertainty in the financial markets could lead to monetary policy not affecting other market rates in the way we are used to. Ultimately, this could mean that monetary policy does not have the desired impact on economic activity and prices. At present we can see, for instance, that the uncertainty on the financial markets has probably contributed a restraining effect in addition to the actual monetary policy, which is reflected in a larger spread between the interbank rate and the expected monetary policy than normal. However, this is something we handle within the framework of how we conduct our monetary policy, by taking account of events in our decision-making base. There has thus not been any reason for the Riksbank to take special measures from a monetary policy perspective.
With some investors reaching for yield, there are reports that it has become an increasingly popular way to generate some income. Consistent with that, insurance premiums have fallen. Implied volatility is a measure of that. It captures the level of market volatility in future at which the options being sold would be expected to break even. Lower implied volatility equates to lower insurance premiums for a given excess. Across markets, implied volatility has recently been squeezed to near all-time lows. So far, so esoteric. However, two possible knock-on effects make this worth exploring further. First, to some degree betting on low volatility could become self-fulfilling. Dealers who buy the options that are being sold by investors have an exposure to market moves. That exposure gets bigger as market prices move close to option strike prices. When an option is close to being ‘in the money’ small moves in market prices have a big effect on its value. This ‘dynamic hedging’ means dealers trying to hedge their positions need to buy more of the underlying asset as prices fall, and sell more as they rise. They can add a stabilising influence to markets. As a result, the decision to sell cheap insurance can appear vindicated: betting on low volatility begets low volatility. 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  Second, measures of actual and implied volatility are often used as an indicator of risk to inform investment decisions.

And despite the good starting point, there are some quiet signals of the need to be alert in the UK. The level of debt relative to corporate profits has started slowly rising again. The evolution of corporate debt levels will bear close scrutiny in this market environment. 4. Is the banking system exposed to an adjustment of asset prices? The answer here is given by our stress test last year: Britain’s major banks are resilient to an economic and market stress more severe than the global financial crisis. The 2017 stress test subjected the banks to simultaneous UK and global recessions, a deep market shock and stressed estimates of conduct redress fines. The test included a sharp adjustment in corporate credit markets and commercial property markets. Sterling investment grade corporate bond yields were assumed to snap up almost 800bps as long-term gilt yields rose by over 500bps and credit spreads blew out. Commercial property prices were assumed to fall by 40%. 10  These are typically syndicated loans to large companies which have either high levels of indebtedness, a non-investment grade credit rating, or are owned by a private equity sponsor. For more information, see pages 30-31 of the November Financial Stability Report. 11 As a percentage of institutional leveraged loan issuance. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  More than 5% of UK and global business loans would have been impaired over the first two years of the test period.
When Bank Rate was cut rapidly and by more than was anticipated by the market during Autumn 2008, the Bank recorded a large, unintentional surplus. 11 In the permanent regime, it is important that the Bank not be exposed to the risk of a large loss if Bank Rate were to be increased above market expectations. In June 2010, those operations were replaced with a new permanent framework designed in part to reflect these concerns. The operations, pioneered with the invaluable help of Paul Klemperer from Nuffield College, Oxford, are known as “Indexed Long-Term Repos”. The most innovative aspect is that banks can bid to borrow cash against either the normal, “narrow” collateral set – as standard in short-term repos – or a “wider” set of collateral, including private sector securities. Counterparties can submit bids using one or both types of collateral. They can even make a “paired bid”, quoting spreads at which they would be indifferent between the two collateral sets. The Bank of England then allocates a proportion of the operation against wider collateral, where that proportion depends on the spreads offered. The idea is that as the market becomes more stressed, counterparties are willing to pay more to borrow against wider collateral. As the clearing spread rises the Bank, automatically within the auction, lends a greater proportion against wider collateral. The clearing price is the intersection of the revealed demand schedule of the firms bidding and the private supply schedule of the Bank of England.

BIS Review 126/2010  3  This process of lending on one side of the Bank’s balance sheet and borrowing on the other – both in large scale – effectively dis-intermediated the malfunctioning sterling inter-bank market, ensuring that central bank money got to all those counterparties which needed it. In addition to the greater size and longer maturity of lending, the Bank also widened the pool of collateral eligible in the three-month lending operations to accept high-quality private sector securities. 9 These included AAA RMBS and covered bonds, neither of which had previously been taken as collateral by the Bank in OMOs. 10 This provided further support to the banking system, at a time when both primary and secondary markets for these private sector securities had closed. The temporary expansion of long-term repos during the crisis raised a number of important policy questions for the Bank. Firstly, it was very difficult to decide exactly how large the operations should be. This had to be assessed by reading market conditions. Secondly, the Bank also had to set an appropriate price to charge for lending against wider collateral, to mitigate adverse selection and the moral hazard risk. A minimum 50 basis point spread was applied. Thirdly, since the increase in the Bank’s liabilities (commercial bank reserves) was being funded at Bank Rate, and the assets were earning rates linked to 3-month market rates, there was a significant interest-rate mis-match.