samchain/econo-pairs-v1 huggingface dataset:
The maturing principal payments from securities purchased under the PEPP will be reinvested until at least the end of 2024, and in the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly. Further, at our meeting of 14 April, the Governing Council judged that the incoming data reinforced our expectation that net asset purchases under the asset purchase programme (APP) should be concluded in the third quarter of 2022. We also indicated that the raising of key ECB interest rates will take place some time after the end of the net purchases and will be gradual. Lastly, the ECB Governing Council stated that we stand ready to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at its 2% target over the medium term. The pandemic has shown that, under stressed conditions, flexibility in the design and conduct of asset purchases has helped to counter the impaired transmission of monetary policy and made the Governing Council’s efforts to achieve its goal more effective. Within the Governing Council’s mandate, under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability. In step with the communication of this process of monetary policy normalisation, market expectations of policy rate hikes have been brought forward since December. The prospect of the monetary policy stance returning to normal has likewise been reflected in an upturn in long-term interest rates in the euro area.

The information available to date suggests that such cost sharing across firms and workers is already taking place on a tacit basis. Specifically, in the collective bargaining agreements registered to March the wage increases for 2022 stood at 2.4%, well below the recent increase in consumer prices and that expected for 2022 as a whole. Therefore, in practice workers are losing purchasing power. That said, in large part, this increase essentially reflects the deals struck by the social partners in the multi-year collective bargaining agreements negotiated over the past two years in an inflationary setting that bears little resemblance to the current one. There are therefore signs that this stabilisation mechanism is running out of road. With this in mind, I believe that concrete action is needed. Similarly, in the case of businesses, recent data reveals that they have not fully passed on their rising costs to their customers, and their margins are therefore likely to have been squeezed. This can be inferred, for instance, from the feedback from Spanish firms  in the latest edition of the EBAE for the first quarter of 2022. According to the survey, around 82% of businesses saw their costs rise as a result of higher input prices, whereas just over 40% raised their selling prices. Second, the asymmetric impact of the current shocks on workers, firms and sectors must be borne in mind when determining the specific features of the incomes agreement.
And in this area, the most important things we can to reduce the risk of systemic financial crisis are to strengthen the shock absorbers in the financial system, both in terms of the financial cushions available to absorb losses and the capacity of the financial infrastructure to manage stress. In terms of the financial cushions, the challenge is to sustain a level of capital and liquidity that is large enough to withstand a more adverse financial and economic environment than we have experience recently. Here the job of the risk management discipline is to try to compensate for failure of imagination, to counteract the gravitational effect on measured exposure produced by recent history, and to try to anticipate the adverse effects on market liquidity that may come with a shock. This requires a healthy skepticism about models, discipline and care in the face of competitive pressures, and humility about what we can know about the future. In the world of infrastructure, the challenge is not just about the strength of the physical infrastructure, the capacity to handle volume, operational resilience, and vulnerability to single points of failure. Here the challenge is about the softer infrastructure, as well, such as the arrangements for resolving a credit event or the close out or liquidation of a complex fund or institution. The Federal Reserve is involved in a range of important initiatives on both fronts, working closely with the lead supervisors of the major global financial institutions and market infrastructure operators.

Leveraged arbitrage activity, so some of the literature suggests, is likely to reduce volatility in normal times and increase it in times of stress, because of the greater financial constraints faced by leveraged funds relative to larger, more diversified banks and  2  BIS Review 49/2007  investment banks. Whether this matters in a systemic sense or not depends on the heterogeneity of funds and how correlated their exposures are with those of the major banks and investment banks. A third reason is the consequence of long periods of low losses and low volatility. When markets have been through a sustained period of relative stability and low credit losses, this reduces the estimates of potential losses produced by conventional risk management tools. Like gravity, this force is hard to counteract. And when we’ve had a long period of low realized losses, rapid change in markets, dramatic growth in new instruments, and larger potential leverage, this creates a greater possibility of unanticipated losses, and therefore a greater potential for the trend amplifying, positive feedback effects that have characterized the major asset price shocks of 1987 and 1998. Policymakers do not have the capacity to eliminate the risk of excess leverage or asset price misalignments, nor do we have the ability to act preemptively to diffuse them. And yet policy can play a very important role in limiting the vulnerability of financial markets to the risk that a shock will pose greater potential risks to the stability of the financial system and to economic growth.
The direction of travel necessary to enrich these tests, and to make them truly macroprudential, is to incorporate feedback effects that can amplify the actions of individual institutions at the system-wide level (Demekas (2015), Brazier (2015), Tarullo (2016)) – feedbacks, for instance, that result from fire-selling assets, hoarding liquidity and counterparty risk.27 A natural consequence is that we might need to extend the field of vision for such simulations to include nonbank parts of the financial system. Non-bank sources of systemic risk proved to be potent during the crisis, in particular among shadow banks. As regulation has squeezed the banking system, there has been further migration of financial activity into the shadows, particularly within Europe. What was once credit and funding risk on the balance sheets of banking firms is metamorphosing into market and liquidity risk on the balance sheets of funds and investment vehicles of various types (Stein (2013)). Understanding these risks calls for new and enhanced surveillance tools. Systematic, market-wide stress simulations might be needed to capture new market and liquidity risks and their propagation across different financial institutions and markets (Brazier (2017b)). The same considerations apply to key pieces of the financial infrastructure, in particular central counterparties (Cœuré (2017), Duffie (2017)). As a potentially new “too big to fail” entity, they too need to be stress-tested and their resolution plans agreed and implemented. This is a whole new risk-management agenda, where work has only just begun in earnest.

The majority of advanced countries have not come close to experiencing aggregate credit booms in the post-crisis period. When it comes to assessing the efficacy of these tools, it has largely been a case of ‘learning by doing’. Cerutti et al (2017), Kuttner and Shim (2013), Crowe et al (2013) and Boar et al (2017) provide evidence on the impact of tools using cross-country panel studies. Aikman et al (forthcoming) and Banerjee and Mio (2017) study the UK’s experience with the CCyB and with macroprudential liquidity actions respectively. And He (2013) considers the impact of the HKMA’s use of LTV limits. Overall, however, the evidence base on the transmission of macroprudential tools remains fairly slim. There is also relatively little guidance from the literature on tool strategy, selection and interaction. One exception is work assessing the role of monetary policy in leaning against financial cycles. A paper by the Federal Reserve Board (Ajello et al (2016)) analyses the costs and benefits of using interest rates to lean against vulnerabilities in the financial system. In the baseline calibration of their model, the costs of using monetary policy in this way are large relative to the benefits: the optimal adjustment in interest rates in the face of financial stability risks is in the order of 3 basis points.
According to the survey of damages from the earthquake and tsunami delivered by the government on March 23, the cost to replace the destroyed capital stock amounts to 20.94 billion US dollars. Following the reasoning described above, this figure is the equivalent to the gross value of the lost capital stock. How then can we estimate the net value of the capital destroyed? Estimates in our national accounts indicate that between the years 2000 and 2008 the net value of the capital stock was around 63 percent of the gross stock. Applying this percentage directly, we estimate that the damage to the net capital stock, consistent with the figure disclosed by the government, is 13.2 billion US dollars. If we consider that the net capital stock amounted in 2009 to an estimated 435 billion US dollars, the aforementioned loss is equivalent to nearly 3 percent of the total. Therefore, given a loss of 3 percent in the net capital stock, the Board estimates that during this year the level of trend GDP will fall 1.0% to 1.5% because of the catastrophe. The magnitude of the short-term impact of the natural disaster depends on the share in national GDP of the hardest hit regions, the sectoral composition of production by region and the duration of downtime in productive processes, among other factors. In 2008, Regions VI, VII and VIII produced nearly 16% of national GDP, mostly concentrated in the manufacturing sector. As for the labour market, the three regions generate almost one fifth of national employment.

As discussed in a box in this Report, just adding up the above elements configured a medium-term scenario where inflationary pressures and inflation would exceed December expectations. A counterfactual forecast exercise that considers developments only up to February 26 yields that the foreseen growth range for this year would have been around one percentage point higher. Output gaps, besides starting at a smaller level than had been projected, would also close sooner, with corresponding effects on inflation. In the medium term, all these changes would have shaped a scenario where inflation would have risen to 3 percent or more over the course of this year, and would have approached the 3 percent target from above in a two year horizon. The response of monetary policy in this hypothetical scenario is unambiguous. The pace of monetary policy normalization would have been faster than the one foreseen in December’s Report. Indeed, it is likely that inflation convergence to the target would have been consistent with a higher level of the MPR beginning in midyear and throughout the policy horizon. It was in this context that the earthquake and tsunami hit. Their effects on the macroeconomy are relevant for the conduct of monetary policy. First, they caused a loss in capital stock that affected the economy’s productive capacity and therefore the evaluation of output gaps, inflationary pressures and the monetary policy reaction. Second, they are having an impact on output, demand and inflation in the very short term, mostly due to the disruption of retail and manufacturing activity.
With the recognition that similar risks are being run in different subsidiaries (for example a Japanese bank might have exposure to US interest rate risk from its activities both in London and New York), there has been a move to consolidate these homogeneous risks and manage them centrally within a group. This means control lines which transcend or cross the entity structures and a matrix management structure. It means that the head office can exercise much stronger control over the volume of a particular type of risk being run across the group. For example, for some UK banks, the management of their global foreign exchange book will be managed in London during London office hours, then it will switch to the US operation but under strict limits set by London; after the US close it will move again, to the Far East, but still under the control of limits set by London. The increasing development of whole book value at risk models has also encouraged this centralisation of control. In the foreign exchange example, the value at risk model used by the group will be maintained and run in London. So the riskiness of positions across the world wide group will be assessed according to the London model. But centralisation of controls goes even further. Oversight of credit and key credit risk decisions may well also be centralised. Oversight of FX settlement risk is sometimes centralised in London as well as control of the position risk.

As chairman of the Global Economy Meeting which takes place every two months in Basel, under the auspices of the BIS, I mentioned regularly in 2006 as well as in the first months of 2007 that my colleagues and I were judging that there was a significant underpricing of risks in global finance. This situation was substantiated by a very low level of spreads, a very low level of risk premia, an abnormally low level of volatility in a large number of markets. We had explicitly and publicly called for institutions and markets to prepare themselves for a correction that was both unavoidable and necessary to pave the way for more sustainable path of global finance. Such analysis and diagnosis were reflected pretty well in most Financial Stability Reviews published by central banks, not the least in the ECB publication a long time before the market correction. The BIS publications were themselves equally clear in this respect. Second, a good analysis and a pertinent diagnosis are a necessary condition for future necessary market corrections to be as smooth and as orderly as possible. But it is not a  8  See European Commission (2006), Financial services: Commission proposes self-regulatory improvements to deposit guarantee schemes, Brussels, 28 November. 6  BIS Review 17/2008  sufficient condition per se as is clearly demonstrated in the present episode of turbulence and as was regularly observed in the previous periods of sharp and abrupt market corrections.
The performance of the real estate market during this crisis has also been very uneven across countries. In Spain, both the number of sales and activity in the housing segment have fallen very sharply. However, prices have proved to be more resilient, although real asset prices traditionally take longer to correct than financial asset prices. Meanwhile, prices in the non-residential real estate segment (i.e. offices, warehouses and commercial property) show highly polar behaviour, between the main areas where prices are holding up and the other areas where they are declining significantly. In any event, how well the sector ultimately recovers once the health crisis is over will depend on the greater or lesser degree of persistence of the adverse economic and financial effects. 9  3 The economic policy response The rest of my address will focus on analysing the economic policy response to this crisis, and how this response must now adapt to the latest developments connected with the pandemic and its economic impact. 3.1  Monetary policy  In the monetary policy sphere, it is now almost seven months since the ECB began to roll out an extensive package of measures that sought to mitigate the impact of the pandemic on the euro area economy. This vigorous and robust response from the ECB was crucial to address the tightening of financial conditions observed in the initial phases of the pandemic and, therefore, to avoid a more severe impact on the real economy.

As stated, one aspect of recent developments that should be assessed is the fact that much of the adjustment in results is due to expectations of loan impairment provisions that have not yet materialised but will do so in the coming quarters, allowing these provisions to be appropriately distributed over time. In fact, the downturn in economic activity caused by the pandemic has so far only fed through moderately to non-performing loans, with but a slight rise in Q2 which, given the high growth of credit, has provided for additional reductions in the NPL ratio. Recurring income has already begun to feel the effects but, so far, expenses have also adjusted downwards. The downturn in banks’ profitability has not yet led to a reduction in their solvency. Indeed, in the first half of the year, solvency has increased slightly. That highlights the significance of the measures adopted by economic policymakers in their respective areas. The recommendation not to pay out dividends has enabled banks to add these resources to their capital buffers, the numerator of the solvency ratio. Further, risk-weighted assets, the denominator of the solvency ratio, have fallen owing to the use of the guarantee programme and to the rapid changes to European capital rules in late June. These amendments were dubbed “Quick Fix”, and I shall refer to them later. The ECB’s decisions, for their part, have helped keep very loose financing conditions for banks in place. But this situation must not lead to complacency.
They also have dropped steadily relative to those of simpler manufactured products – by 30 per cent over the last two decades – reflecting superior productivity growth.1 Your customers and society as a whole are the beneficiaries of your doing much more with less. The strong recovery of UK manufacturing over the past year – with growth stronger than at any point in the decade prior to the crisis – is a testament to the sector’s focus on continual improvement. Manufacturing punches well above its weight in spending on research and development. Manufactured products R&D has grown by a quarter since the mid-1980s and currently accounts for well over two-thirds of total UK spending on innovation. Advanced manufacturing sectors, including pharmaceutical, aerospace and automotive, represents well over half of this amount. Such contributions are crucial for the UK’s prosperity because our long-run economic performance hinges on productivity growth. Productivity is the ultimate determinant of people’s incomes, and with it the capacity of our economy to support health, wealth and happiness. The best contribution the Bank of England can make to these goals is to maintain monetary and financial stability. Our remit for monetary stability is simple: achieve 2% CPI inflation by setting Bank Rate, the fulcrum around which all other interest rates in the economy pivot, and, as necessary, conducting large-scale asset purchases to affect overall financial conditions. Our monetary policy framework is known as Inflation Targeting. 1  Based on ONS producer price indices.

Mark Carney: Writing the path back to target Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the University of Sheffield Advanced Manufacturing Research Centre, Sheffield, 12 March 2015. *  *  *  Accompanying charts can be found at the end of the speech. It is a great pleasure to be in the City of Steel to honour both its historic role in forging the industrial foundations of modern Britain and its current leadership in promoting advanced manufacturing for the post-industrial age. This city has been at the very forefront of innovation for hundreds of years. In the 18th Century Sheffield revolutionalised steelmaking with the discovery of the crucible steel process. By the mid-19th Century the city represented almost half of Europe’s total steel output. Since then, Sheffield has remained fleet of foot through hard work and innovation. The University of Sheffield’s Advanced Manufacturing Research Centre is a prime example of that spirit. No one knows better than you that manufacturing needs to become ever-more productive to prosper in a world of steadily falling prices and relentless international competition. Prices for advanced manufactured goods fell on average by around 1 per cent a year during the decade prior to the crisis.
It relies on positive demographic trends, high educational standards and the quality of infrastructure. So it is not true to say that the French economic model has been characterised exclusively by the excessive inflexibility of its welfare system. I would add finally that France has started taking measures to correct the excessive costs in the welfare system while not by changing radically the way it is constructed. Instead, we will probably move more towards what the Scandinavian countries have been able to do by introducing pension reforms to contain the costs of the system for corporates and containing healthcare expenditures. The Nordic countries have proved that you can have an efficient welfare system without damaging competitiveness. EUROWEEK: But countries like Portugal are seeing their exports surging, underpinned by lower unit labour costs, while France’s exports continue to fall. Does it concern you that the IMF has openly suggested that France is in danger if being overtaken by southern Europe? Noyer: My understanding of what is behind the IMF’s comment is the idea that these countries are addressing their competitiveness problems in a very strong manner, knowing that their problems were much more severe than those we had in France. Their relative productivity was lower and they also had relatively inflexible labour markets, which they are now reforming, notably in Spain and Italy.

•  There will be a greater rebalancing between the role of the public and private sectors in the economy, with the public sector activity focussed on providing the enabling environment to strengthen the role of the private sector in the economy. •  While large domestic corporations and multinational corporations will continue to be important in the economy, the role of the small and medium-scale enterprises will gain significance. •  Greater focus will be given to secure competitiveness on a more comprehensive basis in terms of other dimensions such as productivity and efficiency, labour quality, logistics, research and development, the delivery system and the supply chain. BIS Review 44/2004  1  Malaysia will also continue to leverage on our low country risks in terms of the political stability, industrial maturity and the supply of a skilled workforce. To promote endogenous sources of growth, greater focus has been directed at promoting greater private investment, including by the small and medium enterprises (SMEs). The financial infrastructure and incentive structure will continue to be enhanced to promote investment in new sub-sectors in particular, the services, agriculture and manufacturing sectors. On the external front, while there has been a synchronisation of growth among the major economies, there has also been some rebalancing of the relative strength of the growth among the economies. The increase in the expansion of world trade and the strengthening of labour market conditions in most of these economies suggest continued and self-sustaining growth.