samchain/econo-pairs-v1 huggingface dataset:
In the field, this is referred to as measures that increase the risk of moral hazard. 10  In bad times, the capital adequacy requirement is reduced to 1.5 times the international minimum requirement. See Swiss Federal Banking Commission (2008): “SFBC and large banks agree to set higher capital adequacy targets and introduce a leverage ratio”, press release 4 December. 11  See Myners, Paul (2009): “Developing a New Financial Architecture: Lessons Learned from the Crises”, speech at the Financial Times Global Finance Forum, 18 September, HM Treasury. The same theme is also dealt with in Bair, Sheila (2009): “Remarks by FDIC Chairman Sheila Bair to the International Institute of Finance, Istanbul”, FDIC, 4 October. 10  BIS Review 131/2009  I can provide an example. A creditor may for example assume that big banks are in practice “insured” by the authorities, which will also be reflected in rating agencies’ assessments. Banks considered systemically important receive a higher rating. As a result, funding costs for these banks are lower, allowing them to increase leverage and expand even further. Reducing the procyclicality of bank behaviour Both international studies and Norges Bank studies indicate that the current capital adequacy rules, Basel II, amplify the procyclical effects arising from bank behaviour. 12 During an expansion, bank earnings are high. Ample supply of capital leads to high credit growth. In a  12  See Andersen, H. (2009), “Norwegian Banks in a Recession: Procyclical Implications of Basel II”, Working paper 2009/4, Norges Bank , and Kashyap, A.K.

Recently, Jeanne and Rancière 2 provided a “quantitative normative framework” to infer an optimal level for foreign exchange reserves in order to mitigate the impact of sudden stops of capital inflows. Their model, based on welfare criteria, suggests that the build-up of reserves has been excessive in Asian countries since 1997-1998. To be sure, the Asian crisis may have prompted emerging economies to reassess the magnitude of potential sudden stops and the subsequent output loss. Under widespread uncertainty, assessing an optimal level for foreign reserves confronts us with the problem of catastrophic events. In other words, even if the likelihood of a financial crisis may be very small, the potential consequences may be so dramatic that emerging countries could rationally accumulate very large reserves. 1  Dooley, M., Garber, P., and Folkerts-Landau, D. (2003) – An Essay on the Revived Bretton Woods System, NBER working paper ; (2007) – The Two Crises of international Economics, NBER working paper. 2  Jeanne, O. and Rancière, R. (2006) – The Optimal Level of International Reserves For Emerging Market Countries : Formulas and Applications, IMF working paper. 2  BIS Review 119/2007  Nonetheless, Jeanne and Rancière’s standard approach suggests that the level of reserves is in some countries excessive with respect to the self-insurance motive. Domestic monetary implications Excessive accumulation of foreign assets may lead to domestic financial imbalances. These can be caused by incomplete or ineffective sterilisation 3 .
Individual banks would be affected differently according to the scale of their holding of the exposures for which a risk-weight had been varied, rather than on the basis of micro supervisory judgments about each bank’s particular circumstances. Second, for that reason, the calibration would depend on the position of the system as a whole, including its weakest systemically significant links in the context at the time, rather than the idiosyncratic circumstances of each firm. Third, whereas in the micro-prudential setting Pillar II always applies an add-on to the Pillar I minimum, a macroprudential authority might reduce risk weights during the downswing in the credit cycle. Indeed, it would be important that the instruments could be used symmetrically. But the risk weights that might be reduced would not necessarily be those that had been increased during the boom phase of the credit cycle. That might well be inappropriate if those sectors were becoming distressed. This would, of course, call for quite difficult practical judgments. Fourth, the operation of the instrument would need macroeconomic as well as financial system inputs. Thus, to the extent that top-down stress tests were employed as one input to the calibration, these could not be a standard battery of mechanical scenarios. They would need to be tailored to the risks around the outlook for the economy and the financial system. That would  BIS Review 134/2009  9  also entail judgments being made. Taking all that together, it seems to us implausible that the instrument could be applied according to a rule.

Norges Bank operates a flexible inflation targeting regime so that variability in inflation and variability in output and employment are given weight when we set the interest rate. Monetary policy influences the economy with long and variable lags. Norges Bank sets the interest rate with a view to stabilising inflation at the target within a reasonable time horizon, normally 1-3 years. The relevant horizon will depend on disturbances to which the economy is exposed and how they affect the path for inflation and the real economy ahead. We have increased the transparency surrounding the basis for monetary policy decisions in recent years. Norges Bank’s statements following its monetary policy meetings, press conferences, the Inflation Report and speeches provide an account of economic developments that are of importance to the Executive Board’s assessments and interest rate decisions. All publications are available on our website. Underlying each interest rate decision is a monetary policy strategy drawn up by the Executive Board every four months. The strategy is published directly after it has been approved and at the start of the relevant strategy period. Developments in inflation in 2004 and the first months of 2005 Between December 2002 and March 2004, the key rate was reduced by a total of 5.25 percentage points. The interest rate has since remained at 1.75 per cent. The interest rate decline can be ascribed to a number of factors. In late autumn 2002, inflation started to fall. The inflation projections were also revised down.
Rodrigo Vergara: The global economic scenario and monetary policy management Speech by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, at the 2012 Latin American Forum of the Institute of International Finance (IIF), Montevideo, Uruguay, 17 March 1012. *  *  *  I thank Luis Oscar Herrera, Enrique Orellana and Tatiana Vargas for helpful comments. Thank you for inviting me to speak at the 2012 meeting of the IIF Latin American Economic Forum. This is my first time here as governor of the Central Bank of Chile. I have been asked to share with you some thoughts on the impact on our region of the crisis that is affecting the developed world, especially of how we can confront it using policy instruments, and the challenges that lie ahead of us. These last years have been very challenging in terms of the evolution of macroeconomic conditions in our region and worldwide. After the crises in Argentina and Brazil of the late 1990s and early 2000s, for the most part Latin American economies experienced a period of sustained growth, lower unemployment and a drop or relative stability of inflation rates. Nonetheless, towards the end of the past decade this state was abruptly interrupted by the international financial crisis. The worst came with the fall of Lehman Brothers in September of 2008. The abrupt and significant collapse of global demand caused serious problems in all our economies. Terms of trade plummeted and soon we were facing a completely different picture.

The other half seems to be explained by a significant diminishing of total factor productivity which is extremely surprising because it occurs precisely at the moment of powerful historical surge in science and technology. There we are at the heart of the conundrum. The conjecture I would propose is that, under certain circumstances, in a period of very rapid technological and structural changes, the more an economy is inflexible, the more it resists to these changes, to the extent that far from taking advantages of the acceleration in progress in technology its “Total factor productivity“ growth diminishes in comparison with what it was in the period preceding the surge of technology. In other words it seems that there is not only an “opportunity cost” for being inflexible in a period of very rapid technological change – i.e not seizing the new opportunities offered by the acceleration of changes - but also a “direct cost”, coming perhaps – and there lies the conjecture - from the fact that under the stress of accelerating changes the economy becomes even more inflexible and hostile to technological progress than in more “normal times”. The evolution of the “Total factor productivity” growth in Europe seems to confirm that phenomenon. From an average level of 1.3 % in the 80’s it diminished to an annual average of 1.1 % during the 90’s and 0.7 % between 2000 and 2004.
12  BIS Review 139/2009  Tucker, P (2009), “Regimes for Handling Bank Failures: Redrawing the Banking Social Contract”, available at http://www.bankofengland.co.uk/publications/speeches/2009/speech396.pdf. ANNEX  Table 1: Support packages $ Trillions)  UK  US  Euro  - “Money creation”  0.32  3.76  0.98  - Collateral swaps  0.30  0.20  0.00  - Guarantees  0.64  2.08  >1.68  - Insurance  0.33  3.74  0.00  - Capital  0.12  0.70  0.31  Total (% GDP)  74%  73%  18%  Central Bank  Government  Source: Bank of England Financial Stability Report, June 2009. Figures for UK updated to November 4th 2009. Notes: (1) Exchange rates used: FSR Euro / US dollar exchange rate of 0.710. Sterling / US dollar exchange rate of 0.613. (2) Money creation includes both monetary and financial stability operations. Table 2: Capital provision in past UK crises Date  Crisis  1977  Secondary Slater Banks Walker  1984  1994  2008  Support Reason for recipient(s) capital provision  Johnson Matthey  Johnson Matthey  Small banks  National Mortgage Bank RBS, LBG, Northern Rock  Current crisis  Orderly resolution (wind down) Orderly resolution (wind down) Orderly resolution (wind down) Mitigate systemic risk and promote lending  Did UK clearing banks receive direct capital support?

Higher leverage boosts required returns on equity because it simultaneously makes the banking system’s balance sheet more fragile. There is unlikely to be a better case study of these dynamics at play than events over the past decade. So how has the state’s safety net evolved in response? The element of the safety net with the longest historical pedigree is liquidity insurance, typically provided by the central bank in the form of last resort lending. The principles behind last resort lending were first articulated by Henry Thornton at the beginning of the 19th century and were subsequently elaborated by Walter Bagehot. 6 Last resort lending in practice was often rather less elegant than the theory. Writing at the time of the 1825 banking crisis, Jeremiah Harman, Director of the Bank, described it thus: “We lent [money] by every possible means and in modes we have never adopted before; we took in stock on security, we purchased Exchequer bills, we made advances on Exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the Bank…Seeing the dreadful state in which the public were, we rendered every assistance in our power.” 7 Chart 5 plots the Bank of England’s balance sheet in relation to GDP since 1830.
In this respect, both public speeches and testimonies by the President of the ECB to the attention of the European Institutions and public opinion, as well as those by the Governors of National Central Banks to the attention of national Institutions and public opinion, are of vital significance. Indeed, a crucial part of our collective duty consists in tirelessly explaining the reasons and the arguments that underpin the decisions of the Governing Council. In December 2000, the Eurosystem decided to release, for the first time, its euro area economic staff projections, with a view to improving transparency and communication. 2  BIS Review 96/2001  Thus, from the point of view of the accountability of the central bank in a democratic society – that is to say the duty to explain, justify, convince, whenever possible, and take full responsibility vis-à-vis public opinion for decisions taken –, the Eurosystem strives to meet the highest standards of the main central banks in the world. 2. The euro significantly contributes to growth in Europe by enhancing the co-ordination of economic policies  A few years ago, it was necessary to convince a great number of sceptics, in Europe as well as in the rest of the world, that the euro would really be launched. Many observers believed that the single monetary policy would never succeed ! Facts have disproved this conclusion. However, other observers still sometimes evoke the supposed fragility of the euro area stemming from the supposed economic and structural divergences between euro area countries.

I will then turn to financial stability, which is essential for the effectiveness of monetary policy (by preserving its transmission channels). Finally, I will talk about economic stability and the way monetary policy, in combination with fiscal policy, can smooth the business cycle and foster a robust and sustainable recovery from the covid crisis. Clearly, these different aspects are closely intertwined: monetary policy, while pursuing its primary objective of price stability, can affect financial stability; fiscal and monetary policy closely interact with each other, as do monetary and macroprudential policy. But for the sake of clarity I will tackle each concept in turn. I. Price stability To achieve the ECB inflation objective, we are determined to maintain, as long as necessary, a very accommodative monetary stance. We continue to stand ready to adjust all of our instruments, as appropriate, including possibly a lowering of the DFR if needed. And to guarantee the full transmission of this accomodative stance, we pay particular attention to ensuring that both bank and market financing conditions remain favourable for all agents (governments, firms and households). This leads us to monitor a large set of indicators, with a multifaceted and holistic approach. Let me add some comments about the recent increase we have seen in long-term rates, following although to a lesser extent the move in the US. This increase has different causes, and hence calls for different reactions and instruments.
The private sector will drive the transition to a low carbon economy and contribute to countries meeting the commitments made in the 2015 Paris Agreement. Reducing emissions will require significant investments in new technologies and infrastructures. 7  See PRA (2018), ‘Transition in thinking: The impact of climate change on the UK banking sector,’ September 2018. See PRA (2018), ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change,’ Consultation Paper 23/18, October 2018. 8  4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  A4S’ Financing our Future report highlights the need for everyone in the investment chain to act: from individuals managing their savings, to financial intermediaries investing in the real economy, to regulators and policymakers creating the frameworks for action, to real economy firms investing in new processes, products and services. TCFD Doing so requires the right information. That’s why in 2015, in response to a call from G20 leaders, the Financial Stability Board (FSB) established the private sector Task Force on Climate-related Financial Disclosure (TCFD) under the leadership of Michael Bloomberg.

And they have started to assess exposures to transition risks where government policy is already pulling forward the adjustment. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles, and buy-to-let lending given new energy efficiency requirements. But many banks have some way to go to identify and measure the financial risks from climate change comprehensively. This requires strategic board oversight and more dynamic scenario analysis so actions today can be considered in light of future impacts. Informed by these findings, the PRA published in October a draft supervisory statement for banks, insurers and investments firms which sets out expectations regarding firms’ approaches to managing the financial risks from climate change.8 The supervisory statement gives guidance in four key areas: governance, risk management, scenario analysis, and disclosure. Recognising the need to build capacity and to develop best practice, the PRA is establishing a Climate Financial Risk Forum, jointly with the FCA, to work with firms from across the financial system to advance approaches to managing climate-related financial risks. And the Bank of England is working in close collaboration with central banks and supervisors from around the world as one of the founding members of the Network for Greening the Financial System (NGFS). The NGFS brings together authorities from jurisdictions responsible for almost half the world’s emissions to share analysis and develop policies to climate-related risks and green finance. A4S A4S has long recognised that the business community needs to consider the risks and opportunities presented by climate change.
18  See Emanuelsson, R., Melander, O. and Molin, J. (2015), “Financial risks in the household sector”, Economic Commentaries no. 6, 2015, Sveriges Riksbank. 14  BIS central bankers’ speeches  However, we should be clear that this requirement looks mild by international standards. In most countries, the loan has a clear maturity date, which specifies when the debt is to be repaid, often between 20 and 40 years, and the proportion of interest-only loans is often low. 19 If the home is not revalued, the Finansinspektionen proposal for an amortisation requirement means that households with a loan-to-value ratio of 85 per cent would need to amortise down to a loan-to-value ratio of 50 per cent within 32 years. We see in Figure 12 that the amortisation requirement, in its present draft form, will have little impact when it comes to slowing down total indebtedness in the coming years. As I mentioned, it is the case for all loan-limiting macroprudential policy measures (for example loan-to-value limits, amortisation requirements and debt-to-income limits) which only affect new borrowers that they are relatively slow to have an effect on the debt stock. For this reason, such measures have a minor effect in many cases on total indebtedness over a 10-year period, although the scope of the measure itself (that is to say how many fewer new loans can be taken out) obviously also plays a part.

On the other hand, long term interest rates are on the rise in industrial economies, mainly reflecting increased real rates rather than an increase in inflation expectation or of duration premiums. The increases in long-term interest rates may be indicating better growth prospects in the U.S. now that a soft landing is more likely. However, overall global financial conditions are very accommodating, with risks premium that, although beginning to rise, are very close to their record lows. This, despite the flight to quality phenomenon observed in the past several weeks as a result of perceived risk increase because of the market status of low-quality mortgage loans in the U.S. In any case, the levels of market volatility in emerging economies are significantly smaller than they have been in earlier episodes. The dollar has depreciated against the currencies of industrial economies, responding to the evolution of the business cycle. In the past few days, this has been aggravated by concern about how the U.S. housing market situation will unfold. The Chilean peso, similarly to currencies in the rest of emerging economies, has also appreciated against the U.S. dollar due to weakness of the latter. Exporting or import-substituting sectors that are selling their produce at a dollar price not too different from the price they were getting towards the end of 2001, have possibly endured a large loss of profitability. This is directly associated with the multilateral depreciation of somewhat more than 40% suffered by the dollar in the world since then.
It will make the transmission of the single monetary policy more efficient, it will break the vicious circle between banks and sovereign risk, and it will bring more confidence, more stability and, ultimately, more growth. However, the problem we face today is that many countries in the euro area are too often unable to take full advantage of these benefits, due to rigidities that have built up gradually during periods of easy growth. The only solution is to carry out structural reforms. In this field as well, the euro area has made considerable progress these last few years, especially in those countries with the biggest competitive lag relative to the rest of the region, and which had thus been plunged deeper into crisis than their neighbours. Cost competitiveness has improved substantially. There has also been a strong correction in current account balances, with several countries managing to turn significant trade deficits into surpluses. This progress can be attributed to major reforms in some of the most decisive areas for competitiveness, that is goods and labour markets, social security systems and pension schemes. Of course, the effects of these changes will mainly be felt over the medium to longterm. We still have a lot of work to do, however, particularly in liberalising goods and services markets, making labour markets more flexible, and increasing profit margins to enable companies to start investing in innovative technology again.

Even in the predominantly agricultural areas, the trend has been the same. Consequently, it has become a nearly impossible task to keep the rural youth occupied in agricultural activities. This has made it necessary for opening new employment avenues for such youth. An additional factor has been the natural limitation for growth of agriculture due both to the slow growth in demand for agricultural products and the supply constraints of land for further extensive cultivation practices. Hence, in the beginning, agriculture may be the growth promoter, but later, its growth would slow down due to the above limitations. The global experience has been that the average rate of growth in agriculture has been less than 2 percent per annum during the last 100 years. With higher and higher numbers being added to the job market every year, agriculture has, therefore, a limitation for providing jobs for all. Sri Lanka’s agriculture sector has made its utmost contribution to create wealth and employment in the past. Its current ability to do so has been a matter for debate. With employment in agriculture being seasonal and the concentration of a large farm-based work-force on a limited extent of cultivable land, underemployment has been the natural corollary in Sri Lanka. The new evidence shows that the under-employment in agriculture in Sri Lanka is not only the highest but also on the increase.