samchain/econo-pairs-v1 huggingface dataset:
The U.S. government’s financing of Treasury’s actions required federal debt to rise sharply, and stabilizing the financial system temporarily boosted the size of the Fed’s balance sheet. 2  BIS Review 18/2010  The final numbers aren’t in yet, but it now appears that the downturn in real gross domestic product (GDP) in the United States lasted about a year and a half, much shorter than the typical banking crisis downturn. Peak to trough, output fell about 4 percent, less than half the typical decline seen in past financial crises. While there are still some significant downside risks to the economy, in general, the outlook is improving. Of particular note, the capital markets – except for certain securitization markets – are now generally open for business. In addition, the big banks in the United States have been able to raise a large amount of equity capital to put themselves in a stronger position. I believe that Federal Reserve actions over the last year and a half have contributed very substantially to this improvement. But there still is a lot of work to do. Smaller banks – especially those with large commercial real estate exposures – are under pressure, while households and smaller businesses find that their access to credit is still constrained. Moreover, regulatory reform is essential to prevent this type of financial crisis going forward.

We will not be able to do that without working constructively with the securities markets regulator and with infrastructure providers. Resilience, risks, and financial firm behaviour So far, I have spoken as if the external threats to the financial system from the business cycle and its capacity to withstand the crystallisation of those risks are essentially separate. That is not remotely true, of course. The behaviour of the financial system affects the weather. This is due to the particular features of the credit system. A credit boom leads both to borrowers becoming overindebted and, unless they have shed the risk, to lenders finding themselves overextended as well. As the probability of default rises, the capacity of lenders to absorb default typically becomes impaired. A double whammy. And a credit boom can fuel asset price rises, giving a boost to banks’ net worth and back into lending conditions, in an apparently virtuous circle, until it proves vicious.5 It matters enormously, therefore, that the system is prone to periods of exuberance in which credit conditions become loose, borrowers overextended and asset prices inflated. That owes a lot to myopia about tail risks.6 But incentives matter too. Whether the diluted incentives of bondholders to price risk in banks prudently, given a belief that they would be bailed out.
Regarding the propagation of the relative price shocks to the overall economy – or secondround effects – one important factor is significantly related with the sensitivity of inflation  4  BIS central bankers’ speeches  expectations to the short-term behavior and the flexibility of real wages. It is possible that, if the economy sustains its dynamism beyond its installed capacity, it may foster a greater propagation of these shocks to other prices and to labor costs, heightening its inflationary effects. As I said before, the baseline scenario assumes that gaps will remain closed over the projection horizon, but the possibility remains that output and demand grow above forecasts, thus exceeding the normal use of the economy’s productive capacity and exacerbating inflationary pressures. Conversely, increased prices of fuels and other products affect the consumers’ disposable income and, thereby, can become a factor moderating expenditures in other goods and services. In the international scenario, financial tensions remain in some European countries and global imbalances are far from being resolved. There are also doubts regarding how tight output gaps are and how strong are inflationary pressures in some emerging economies, especially in Asia, and how will policy makers and investors respond to the signs of higher inflation that are appearing. Considering the experience of 2007–2008, this might trigger a monetary policy reaction that could cause a more pronounced slowdown in the demand of emerging economies, with important consequences on world growth and commodity prices.

For the case of fiscal policy, the working assumption is that fiscal expenditure will increase this year less than will output, consistently with the recent announcement of the government on the matter, to subsequently converge to a structural deficit of 1 percent of GDP until the end of the current Administration’s term. In the baseline scenario, the cyclical situation of the Chilean economy plus the withdrawal of the macroeconomic stimulus will result in y-o-y CPIX1 inflation moving from its present level of around 0.5 percent to a little over 3 percent in the early part of 2012 (figure 8). It is expected to then oscillate around the target until the end of the projection horizon, that is, the first quarter of 2013. Headline inflation, meanwhile, will surpass the upper bound of the target range, largely due to the effects of higher prices of oil and oil derivatives. The baseline scenario assumes that the oil price will average somewhat more than 100 dollars per WTI barrel in the two-year period 2011–2012. Accordingly, annual CPI inflation will stand above 4 percent for the entire second half of this year and into 2012. For December 2011, it is forecast at 4.3 percent, which compares with 3.3 percent assumed in December. Inflation projections for the latter part of this year have been revised upward in many economies around the world, even before the oil shock intensified (figure 9).
As Mr Anand Panyarachun, former Prime Minister of Thailand and now President of the Thai chapter of Transparency International, said: “The very basis of a non-corrupt culture is integrity. … It is a state of mind, an attitude. You can be corrupt without taking any money.”2 The values, norms and business environment of ASEAN countries cannot be transformed overnight. It is more than enacting new laws and regulations. It means changing deeply established social relationships and norms which vary from country to country. Businessmen, civil servants and politicians used to operating in one way for years will not suddenly abandon or condemn old practices as soon as a new law is passed. Mom Rachawong Chatu Mongol Sonakul put it aptly: “What we are doing is a very long process. We’re not talking of months or years. We are talking in, maybe, decades or generations. We’re not changing our way of working. We actually try to change our way of life.”3 These are matters that each country has to resolve for itself, in its own way. External inputs can be helpful, but may also be counter-productive. For example in Indonesia the IMF sought drastic economic reforms, which inevitably had far-reaching political implications. The result was a complete collapse of the Suharto government. But creating a new order to follow this is now a challenge which only Indonesia’s people and leaders can resolve. Foreign advice and assistance now play only a secondary role. 2 3  Asiaweek, 3 November 2000.

Had countries turned their backs on foreign investments and exports, it would have impoverished them and weakened the region. Fortunately this has not happened. There have been understandable nationalistic sentiments against selling distressed companies at low prices to foreigners. But all ASEAN countries continue to seek foreign investments and trade. Their people are eager to learn English, and to exploit the internet. They know that plugging into the global economy is still the best way to sustain growth, and to create jobs and prosperity for their citizens. They also know that competition has become keener, and that they have to make their economies more attractive to foreign investments. As Malaysian Finance Minister Daim Zainuddin acknowledged in his recent Budget speech: “In a borderless world, large international conglomerates have greater choices in their investment decisions.” Accepting globalisation means progressively deregulating and liberalising ASEAN economies, easing rules on foreign ownership and participation, and opening up hitherto protected sectors. By exposing their economies to the winds of change and the pressures of global competition, countries will strengthen their own players, who will learn to hold their own without crutches or protection. Of course the process has to be managed. Sudden deregulation of a controlled economy may lead to chaos and collapse, as happened in Indonesia in 1998, when the IMF pressed the Suharto government to dismantle everything overnight. But properly implemented, opening up will lead to substantial long term benefits and prosperity, despite the short term social and economic costs.
This is extremely important, although no one knows exactly how large a share of these assets are volatile. It is clear that a small group of non-residents are ready to sell their assets at the current offshore exchange rate. This spring’s auctions did not tempt owners of short-term Treasury bonds. Many will turn out to be long-term investors in the sense that they will not unwind their positions at an auction price approaching the official exchange rate, but will continue to reinvest as long as the interest rate differential exceeds the assessed risk. The auctions will reveal whether this is the case. Because it is unrealistic to expect more than a limited portion of the offshore krónur to be released through auctions, the Investment Programme does not stop there. When the incentive to participate in the investments diminishes – for example, because investors consider the auction exchange rate not favourable enough to justify a five-year commitment, or because the investment projects are not sufficiently large in scope – an exit tax will be levied on short-term capital movements. This step will not be taken, however, unless the offshore exchange rate moves close to the onshore rate, which would be a clear indication of enhanced stability of these assets. A number of critics have found fault with this sequence of events and suggested that the exit tax be levied immediately. In their opinion, this would generate significant income for the Treasury and facilitate the full removal of the capital controls much sooner than is currently projected.

On the other hand, it is not etched in stone, and in the final analysis, experience will reveal the truth. The liberalisation strategy can be implemented in various ways and adapted to actual developments. Sound ideas on this subject are most welcome. But at this juncture, I believe it is best that we follow the path already mapped out, with strong emphasis on safeguarding the foreign exchange reserves, financial stability, and Treasury financing. 4  BIS central bankers’ speeches
A third difference is that while the 19th century globalisation was largely driven by falling transport costs, today it is largely falling information costs, thanks to computers and the Internet, that are the driving force. This development has led to entrepreneurship becoming increasingly global, as it has become much easier to localise various parts of the production process to different countries. An example using telegraphy and the current information technology can illustrate the significance of costs for the spread of innovations. Telegraphy was expensive; in the 19th century people had to go to a telegraph office or hire a telegraph boy and pay significant sums if they wished to send a telegram. In today’s money, it cost them around SEK 2,000 to send a long-distance message of 20 words, while the corresponding cost today is around 10 öre for 20 pages. In other words, the variable cost is negligible and the fixed cost is moderate. We can therefore now find powerful computers and Internet access in most workplaces and in many homes. The costs are so low that many people have the financial possibility to use computers and the Internet, at least in industrial nations. This spread also means that the time and the cost that lay in the telegraph boy’s running from place to place have been  4  BIS Review 60/2004  eliminated. It is thus this spread that makes the current information technology much more important than telegraphy was a hundred years ago.

Holding firm during the financial crisis has paid off. The economic recovery may have taken some time in many areas, but the global economy is now back in fairly good shape. But it is at this very moment, when a lot of countries are able to post respectable economic growth, that protectionism appears to be rearing its head again. Trade disputes between several countries are jeopardising the global upturn. Burgeoning protectionism also entails considerable challenges for central banks – and thus for the Swiss National Bank (SNB), too – as it brings with it the threat of negative consequences for monetary policy. Free trade as a scapegoat Before I come to the actual subject of my speech, namely the relationship between protectionism and monetary policy, I would like, if I may, to take a step back for a moment and look at where the calls for protectionism stem from. Numerous academic and empirical studies 1 have demonstrated that the free exchange of goods and services improves people’s standard of living.
In other words, within-system interactions are sufficient to generate booms and busts in the housing market. Cycles in house prices and in mortgage lending are, in that sense, an “emergent” property of the model. Chart 9 shows a simulation run of the model, looking at the dynamic behaviour of listed prices, house prices when sold and the number of years a property is on the market. The model exhibits large cyclical swings, which arise endogenously as a result of feedback loops in the model. Some of these feedback loops are dampening (“negative feedback”), others amplifying (“positive feedback”). For example, when mortgage rates fall, this boosts the affordability and the demand of housing, putting upward pressure on house prices. This generates expectations of higher future house price inflation and a further increase in housing demand - an amplifying loop. Ultimately, however, affordability constraints bite and dampen house prices expectations and demand – a dampening loop. We can use the simulated data from Chart 9 to construct distributions of house price inflation over time (Chart 10). This simulated distribution exhibits fat-tails, if not as heavy as the historical distribution. Nonetheless, the model goes some way towards matching the moments of the real-world housing market.

These historical distributions can be compared with a normal curve calibrated to the same data. In each case, there is strong evidence of non-normality in the empirical distribution. Specifically, the tails of the historical distribution are often significantly higher than normality would imply. For real variables like GDP, around 18% of the data across the UK, US, Germany and Japan fall outside the ‘bell’ curve described by a best-fit normal distribution. For financial variables like equity prices, around 10% of that data fall outside the normal distribution. In both cases, there is evidence of out-sized dislocations in variables, which occur with far-higher frequency than normality would imply. This evidence is consistent with, if not proof of, complex system dynamics. Chart 6: Long-run distributions of economic and financial variables  UK House Prices: 1846-2015, Annual  Oil Prices: 1862-2015, Annual  M4 Credit Growth: 1881-2015, Annual  CPI inflation: 1662-2015, Annual  25  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  25  World GDP growth (across the UK, US,  UK GDP growth: 1701-2015, Annual  Germany, Japan): 1871-2015, Annual  UK wage growth: 1751-2015, Annual  Equity prices: 1709-2016, Monthly  Corporate bond spreads: 1854-2016, Monthly  Dollar-Sterling Exchange rate: 1791-2016, monthly  Source: Hills, Thomas and Dimsdale (2016); Bank calculations. Notes: For each empirical distribution f(x), a Gaussian fit to f(x) of the (𝑥−𝜇)2  form 𝑔(𝑥) = 𝐴exp (− ) is sought in which A, 𝜇 and 𝜎 are varied and optimised using the Levenberg–Marquardt non-linear least 2𝜎2 squares fitting algorithm.
This time, from an economic model based on cost minimisation (i.e. a low cost model) to premium maximisation. We need to aspire to become an innovation-based economy. What do I mean by being an innovation-based economy? a. First, the most critical raw materials of the economy are ideas instead of natural resources or capital. b. Second, products are of mass customisation and high complexity, instead of mass production. c. Third, organisations are characterised by entrepreneurs, start-ups and collaborative networks. d. Fourth, business competitiveness is not dependent on incentives, subsidies or cheap labour, but defined by world class talent, strong institutions and good governance. e. Finally, market forces work through creative destruction to respond efficiently to the changing needs of the economy and society. We cannot protect every job, business, and industry. But social safety nets can protect the most vulnerable and help all segments transition to new opportunities. 26. To some extent, the work has already started. The Government has already laid down the key strategies within our national policy documents such as the Twelfth Malaysia Plan (RMK-12) and the National Policy on Industry 4.0. However, the success of these plans and aspirations requires strong policy coordination to secure success. This is especially important given our need to invest to strengthen economic complexity and leverage on our strength as a resource rich country. 27. Now, the challenge is to turn these plans and blueprints into action and results.

Malaysia then embarked on policies to transform the economy towards becoming manufacturing based. Government agencies courted global firms to set up shop in Malaysia. This 1972 photograph from Penang speaks volumes of those days, and how far we have come since then. A night of heavy rain meant that cars would get stuck in the mud. The car you see in this picture belonged to Andy Grove, the CEO of Intel back then. Intel – along with eight other leading E&E companies – had visited Penang to take up the Government’s invitation to plant roots on Malaysian soil. Fast forward to today, Malaysia has established itself as a bustling hub for Malaysia’s E&E manufacturing industry, playing an important role in the global supply chain. The policies and reforms from those years ago proved far-sighted and well-sequenced – leaving Malaysia transformed for the better. This is what we need to do again, in the aftermath of the pandemic – to put in place reforms that reimagine and completely transform the economy. 24. This ability to rise above challenges also enabled us to quickly bounce back from the COVID-19 pandemic. In large part, this is a testament to the strength, resilience and agility of the Malaysian economy. Where we are today is not by luck or an accident. 25. And so, as we look towards the challenges ahead, we must continue to build on and fortify the strong foundation of the economy and once again, transform our economy as we did in the past.
To promote these new products, we also need, at the very least, to avoid any tax distortions that might penalise them more than liquid and risk-free investments. Second, savings should better circulate across Europe, to where investment needs are. A large part of the solution lies at the European level, with the building of what I call a “Financing and Investment Union” (FIU), rather than just a “Capital Markets Union” (CMU). This FIU would merge together the initiatives already in place – the CMU of course, but also the Juncker Plan and the Banking Union – in order to magnify their impact through synergies and more ambitious measures. Let me mention two measures for tackling obstacles to cross-border investment. Firstly, the FIU would encourage the development of a pan-European venture capital ecosystem. One of Europe’s most obvious limitations is indeed the size of its funds compared with US ones: the size scale varies from at least 1 to 10 given the national borders and the domestic bias in Europe. This unfortunately limits European funds’ ability to take on big enough equity stakes, especially in “scale up” companies – successful start-ups at a later stage. The second example concerns the regulatory and legal barriers to equity financing. The FIU would promote further convergence of insolvency regimes, as well as standardised and more detailed financial information on European corporates, including SMEs. In this regard, advantage could be taken of the experience acquired in certain Member States – in France for instance, the central bank’s expertise in company rating.

Note: Finland, France and Italy are not included in the panel. ix Ibid. ii
Similarly, in 2005 euro area residents held foreign portfolio holdings with a total value of approximately 3.5 trillion euro, a figure that is almost half of euro area’s annual GDP. Cross-border financial linkages, new financial products and the possibility of more accurate and wider risk-sharing have however also raised the level of interrelations across national financial markets. This implies that financial systems are more exposed to common risks, as financial disturbances may be transmitted more easily across borders in periods of turbulence. As a result, sceptics have indeed expressed concerns about the sustainability of global financial integration, which is regarded by some as having the potential to destabilise the global economy. But there is also an opposing view according to which global financial integration reduces the risks to the global economy, for which there are convincing arguments. In this respect, empirical evidence suggests that the strongest determinants of the global portfolio reallocation over the 1997-2001 period were (1) the need to diversify the risks of holding foreign portfolio assets across several countries, and (2) the willingness to close the gap between actual and optimal shares of foreign investment, which suggests that rational portfolio optimisation was the primary motivation behind investors’ reallocation of their international portfolios. This has two main implications: first, that investors do not ignore the main principles of portfolio theory; and second, that portfolio investments might be less prone to boom and bust cycles, being driven by long-term economic fundamentals.

Otmar Issing: Globalisation, EMU and the euro Speech by Mr Otmar Issing, Member of the Executive Board of the European Central Bank, at the 34th Economic Conference 2006 on “Globalization: Opportunities and Challenges for the World, Europe and Austria”, Vienna, 22 May 2006. References to the speech can be found on the website of the European Central Bank. *  *  *  Introduction Let me first extend a warm thank to the Oesterreichische Nationalbank (OeNB) for inviting me here today to share a few thoughts on globalisation and the role played by the euro and the European and Economic Monetary Union (EMU). In the last decades, Austria hosted a number of distinguished economists, such as Carl Menger, Friedrich von Wieser, Ludwig von Mises, Joseph Schumpeter, Friedrich von Hayek, who shaped the economic thought worldwide. In the context of this conference, it is useful to mention the “creative destruction” term, coined by Joseph Schumpeter in 1942 at Harvard after his migration to the United States. Schumpeter argued that the process of industrial mutation, which is intrinsic to capitalism, “revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” 1 No doubt globalisation has a big “destruction” potential. To benefit from the global changes, countries need to be flexible and quick enough at adopting and spreading new technologies, risking in moving into new areas with big market opportunities in the future, which then translates in new jobs and higher economic growth.