samchain/econo-pairs-v1 huggingface dataset:
Given recent experience, a decade would seem to be a reasonable timeframe to provide sufficient time and space for any illegal actions or violations of the firm’s culture to materialize and fines and legal penalties realized. As I will argue below, I also believe that this longer vesting portion of the deferred compensation should be debt as opposed to equity. 6 I noted earlier that improving a financial firm’s culture will take sustained determination and commitment from its senior leaders. Deferred compensation can play a useful role in reinforcing buy-in of senior leadership to this endeavor. As I discussed last November, an important element of a Title II resolution under Dodd-Frank is that there is sufficient long-term unsecured debt at the holding company level to recapitalize a failing bank. I indicated in my remarks that it would be useful if a meaningful component of this debt was contributed by the senior management and the firm’s material risk-takers. That is, if a bank ran into solvency problems, this component of deferred compensation would be used to recapitalize the restructured bank. The goal is to incent senior management and the material risk-takers to focus on maximizing the long-term “enterprise” value of the firm, not just the short-term share price. In this framework, I would expect the relative size of the debt component of deferred compensation to increase as one moved up the management ranks to the senior managers of the firm.

Fourth, the use of common assessment and risk management tools by market participants, and finally an excessive and shortsighted focus on “shareholder value” may also amplify swings. Prudential regulations may also occasionally have proven conducive to an excessive emphasis on the short term when assessing risks. What can the authorities do to counter these tendencies? Debate among academics, policymakers and market participants has been intense in recent years, and is far from settled. This is an area particularly open to discussion, where new ideas and new evidence are forthcoming. Indeed, the way monetary stability and financial stability interact with each other seems a particularly complex topic, and the impact of specific measures on both fields is uncertain. As far as monetary policy is concerned, the debate on whether it should react to asset prices has been one of the most interesting of recent years. Insofar as asset prices contain useful information that helps predict future price -and output- developments, they should clearly be included in the set of indicators the central bank uses for decision-making. This is not, however, as easy as it may sound. First, because empirical evidence on the usefulness of asset prices in predicting future price and output developments is not conclusive. And second, because the integration of asset prices in macroeconomic models poses a series of practical difficulties. 2  BIS Review 35/2002  Going one step further, a related question is whether monetary policy should react directly to asset prices, over and above the impact of the latter on inflationary prospects.
One of the main components of this strategy is to landscape the Fintech ecosystem in the country and to identify the emerging financial services business models and the key barriers to entry for newcomers. A very important component of this strategy will be an analysis of the current national regulatory framework, trying to identify and consider whether it is sufficiently certain and flexible to apply in the modern digital context. A legal framework that is consistent, clear, and predictable is key to fintech innovation. More broadly, i.e. country wise, the fintech agenda has been put on the front foot, as well. In this 2/3  BIS central bankers' speeches  regard I will briefly mention that we are in the process of finalizing the new Law on Payment Services and Payment Systems which transposes the PSD2 as well as other relevant European Union regulations in the payment area. The very broad and ambitious scope of the new Law makes it one of the most significant and comprehensive pieces of financial services legislation. It embodies objectives that seek to make payments safer, increase consumer protection and foster innovation while ensuring a level playing field for all players, thus increasing competition. Also in the first half of this year, a set of new laws intended to foster the development of digital services was adopted.

As Andrea Enria, the Chair of the ECB Supervisory Board, recently stated when addressing how digitalization might change banking, “supervisors are technology-neutral, but not risk-neutral”.1 As banks become more digital, the IT risks, including cybercrime risks, become increasingly relevant. In addition, as the financial system adapts to the new technological trends, concerns arise regarding issues such as data privacy, potential threats to the financial integrity, clarity, and consistency of the regulatory landscape and the potential for regulatory arbitrage, adequacy of the existing financial safety nets, including the central banks’ role as a lender-of-lastresort. Furthermore, the risk of procyclicality in light of the new lending platforms with little human interaction is also accentuated. Asymmetric information and lower transparency may result in underestimation of risks by new players, which in turn may put pressure on the profitability of 1/3  BIS central bankers' speeches  traditional players (banks) and increase their risk appetite, as well. And one of the lessons from the recent crisis is that increased access to finance yields short-term benefits, but it can also lead to financial instability overtime, especially if the level of financial literacy is lagging behind. When balancing between opportunities and risks, policymakers are faced with a rising challenge to be nimble, innovative, and cooperative in enabling financial innovation, without neglecting their main responsibility for preserving financial stability and dealing with systemic policy issues.
On the contrary, the US economy will soon have achieved the longest upward phase in the post-war era; the earlier record is due to be broken next month. While monetary policy has not, of course, been solely responsible for this, the achievement does demonstrate that a judicious interest rate increase can definitely contribute to a good economic performance, provided the sustainability of growth is taken into account. Neither should it be forgotten that in the past two years the Riksbank lowered the repo rate from 4.40% to 2.90% in connection with signs that economic activity would be checked by the Asian crisis, the suspension of Russian payments and problems connected with the American hedge fund Long-Term Capital Management. These obstacles are now out of the way. Conclusion On Thursday next week the Executive Board of the Riksbank will be having this year’s first monetary policy meeting. In the light of how we jointly consider that the economy will develop in the coming years, the six members of the Board will decide whether the repo rate is to be increased or held unchanged at 3.25% for somewhat longer. Today I have pointed to some of the factors I believe will be discussed at the Board meeting. BIS Review 6/2000  4  It will be a matter, as always, of basing the monetary policy decision on a comprehensive picture of the various indicators of economic activity and inflationary pressure that the Riksbank follows continuously.

Figure 7 plots the volatility of four price indices over time. The standard deviations here are calculated over a moving 36-month period 25. The figure shows that volatility has different levels during different periods. The prices of Swedish-produced fruit and vegetables varied more in 1995-2019 than between 2005 and 2019. The volatility of prices of coffee and cocoa has increased again after being quite low over a 15-year period. The price movements on books have become much more volatile in recent years. 26 The same applies to prices for foreign travel. 27 The changed volatility can often depend on changes in measuring methods. A new way of measuring prices of foreign air travel, for instance, has contributed to a new seasonal pattern with a higher volatility in recent years. Figure 7. Rolling standard deviation for different price indices  Annual percentage change 35  35  30  30  25  25  20  20  15  15  10  10  5  5  0  95  97  99  01  03  05  07  09  11  13  15  17  19  0  Fruits and vegetables, Swedish Coffee and cocoa Books Air travel Sources: Statistics Sweden and the Riksbank  25 The calculations are based on annual percentage changes. 26 The price measurement for books was changed in 2007.
However, with regard to leveraged finance, risk managers find it difficult to appropriately and effectively play their role in a market environment characterised by fierce competition. More specifically, there are three areas where we are currently pushing for improvement. First, with regard to procedure, historical credit norms are beginning to weaken and more market-friendly structures have been adopted – I already mentioned the covenant-lite issue. In that regard, the thorniest aspect is the credit approval process. The speed of credit approval has become a cornerstone of competitiveness in the market for leveraged finance. In order to increase their market share, banks have significantly shortened their internal validation process. Anecdotal evidence suggests that many deals are presented by the borrowers as “take it or leave it”. In some cases, potential borrowers requested approval within 48 hours. To me, it seems rather challenging to properly understand a deal within 48 hours – both for the front office as well as for risk management. Second, with regard to limits, risk managers need to be alert regarding a shift towards structures that support an expanding business. Most banks have limits in place with regard to exposures held on their own books. However, these limits have sometimes been shifted upwards to accommodate business needs and the prospect of rewarding transactions; the underwriting limit, for instance, has on average increased by 49% between 2012 and 2014. In such circumstances, risk managers should ensure that stress tests adequately reflect the higher limits.

Furthermore, the sovereign has been able to tap foreign capital markets twice, for a total of 2 billion US dollars, and use part of the proceeds to repay a significant part of the loans associated with the IMF programme ahead of schedule. FX reserves and other Central Bank FX assets currently cover scheduled sovereign foreign debt repayments beyond 2022 (see Figure 10b). The balance of payments problem that the current controls on capital outflows are intended to address therefore lies elsewhere. It is best demonstrated by Figure 11, which shows, on the one hand, liquid ISK assets held by nonresidents, which amount to 22% of GDP, and the old banks’ ISK assets, which will, in the absence of other action, accrue mostly to foreign residents and may be added to the overhang of potentially liquid offshore krónur. Given that the underlying current account surplus is in the region of 3–4% of GDP and that there are a lot of other debt repayments laying claims to it, it is clear that if these amounts were to be released overnight, we would be at risk of another currency crisis, with potentially significant financial stability implications. That is why these assets must be released after significantly reduced valuations in terms of foreign currency or must flow out over a much longer period. The more their value is reduced in terms of foreign currency, the faster can the controls be lifted.
In this new scheme, meetings will be held roughly every six to eight weeks, in January, March, May, June, August, September, October and December of each year. In addition, the meeting will be extended from one day to one day and a half, starting the afternoon before the day of the policy decision announcement, thus giving the Board more time to discuss the background information and analyze the monetary policy options. This will give more time to gather information between meetings and to evaluate the impact of the different economic indicators on the baseline scenario, allowing for a more robust analysis of the recent evolution of the economy. The communication and the minutes of the Meetings is also being changed, in the sense of backing the decision having more information at hand than we currently do. Thus, the press release will be extended to include the main antecedents of the recent behavior of the economy, the grounds on which the Board based the decision and the voting. The minutes, meanwhile, following a usual practice in inflation-targeting central banks, will  10  provide additional information on the Board's discussion, which may be useful for the public to better understand its decisions and future implications. In addition, we have decided to publish the transcripts of the Monetary Policy Meetings with a ten-year lag. They contain information of the topics analyzed and opinions expressed by the participants, identifying who opined what. Disclosing them fulfills several objectives.

This range for trend growth inputs the assumptions that natural resources sectors will grow around 2% on average, and the other sectors will grow near 3.4%. About this, estimates indicate that the increase in labor, understood in a broad sense, will contribute about 0.8% to growth in other sectors' GDP. Behind this estimate is the fact that improvements in human capital, the incorporation of women to the labor force and immigration will help compensate for the negative effect of the aging of the Chilean population and the tendency towards reducing the number of hours effectively worked that comes with development (figure 11). The projection assumes a relatively neutral role for capital, in the sense that it expands at the same rate as Other GDP. This assumption is consistent with the capital / product ratio remaining at levels close to its historical average, a stylized fact that is also present in other countries. For this, however, it is necessary for the investment rate to return to values consistent with potential growth. Finally, our projection assumes that the total factor productivity of other GDP will resume growth around its average of the last twenty years, an important but clearly possible challenge. Recovering the trend growth of productivity in sectors other than natural resources will be especially important, given the downward trend of natural resources, associated mainly with the fall in mineral ore.
9  7  Janet L. Yellen, “Recent Developments and the Outlook for the Economy,” Remarks at the City Club of Cleveland, July 10, 2015. 8  Paul Krugman, “The Myth of Asia’s Miracle,” Foreign Affairs, Vol. 73, November/December, pp. 62–78, 1994. 9  Enrico Moretti, The New Geography of Jobs, Mariner Books, 2013. 4  BIS central bankers’ speeches  For instance, the reason why Seattle, Washington, became a high-tech industry hub depended to a large extent on the fact that the founders of Microsoft had grown up there and wanted to relocate their company to a place familiar to them. Similar stories can be found for other U.S. high-tech cities. If these cases provide a complete explanation of productivity growth, all we can do is wait and hope for a genius like Bill Gates or Steve Jobs to be born by chance in our country. Fortunately, however, economic literature is much more hopeful in this respect: productivity is largely endogenous. IV. How to raise productivity  In the economic literature, there is a long list of factors that are thought to have a positive impact on productivity growth. I do not intend to go through all of them but, instead, I would like to focus on three things that I think are of particular importance. The first is human capital. Measuring human capital is a difficult task, but one of the simplest indicators often used is the number of school years.

Inflation targeting was therefore introduced in 2001. High and variable inflation usually accompanies instability in output and employment. But inflation should not be too low over time either. This is partly because the structure of the economy evolves over time. Demand for labour with different qualifications changes. Restructuring requires changes in real wages and relative wages. Nominal wages do not readily fall. With some measure of inflation, real wages and relative wages can be changed without reducing nominal wages. Some degree of inflation will oil the economic machinery. In periods, it will be appropriate to stimulate the economy with low, or even negative, real interest rates. If inflation becomes entrenched at a very low level, the interest rate will be less effective as an instrument because it cannot be set below zero. If the economy is again exposed to unexpected negative disturbances, we will have little scope for manoeuvre. Stability in output and employment In the long term, output and employment are determined by the supply of labour, capital and technology and by the ability to adapt. Monetary policy can contribute to smoothing fluctuations in output and employment. Norges Bank weighs stable inflation against stable output and employment. 2  BIS Review 53/2004  The output gap is a measure of the difference between the actual level of output and potential output. Potential output, which is the level of output that is consistent with inflation over time, is not directly observable and must be estimated.
In this context, I would like to underline that since the introduction of the euro in 1999, the ECB’s quantitative definition of price stability – an inflation rate of below, but close to, 2% in the euro area, over the medium term – has proved to be an invaluable asset. It has guarded against undesirably high inflation and against deflation. Long-term inflation expectations in the euro area, whether based on surveys or extracted from financial indicators, have been and continue to be firmly anchored at levels consistent with our definition of price stability. Inflation expectations have been exceptionally resistant to sudden upward short-term price changes, and we have ensured that is also the case with sharply falling inflation. Non-standard measures In addition to reducing interest rates, we have taken exceptional policy actions in response to the crisis – “non-standard” measures related to liquidity management. At the very start of the money market stress in August 2007, the ECB reacted within a few hours and temporarily provided additional liquidity to banks with immediate liquidity needs. We were in fact the first central bank to take non-standard measures. When in mid-September 2008 the crisis intensified and interbank trading came to a virtual halt, the ECB engaged in a new mode of liquidity provision. We started to provide refinancing well above the levels that banks had absorbed to fulfil their reserve requirements in normal times. Our approach comprises three main “building blocks”. •  We significantly adapted our regular refinancing operations.

As this discussion illustrates, the literal-but-symmetric interpretation of the MINIMAX approach to robust monetary policy would imply very ‘activist’ policy responses in the face of uncertainty. In this framework, from having their foot to the floor with the monetary accelerator, policymakers might have to switch in short order to stamping on the monetary brake. Unsurprisingly, on my reading, that characterisation also finds little sympathy in policymaking circles. In the interests of avoiding tail outcomes, such activism threatens to induce volatility into monetary policy, financial markets, the economy and inflation in other circumstances, which is both costly and hard to communicate. But the research on monetary policy and uncertainty as a whole has influenced the discussion and conduct of policy in practice. I would pick out a number of lessons that have been drawn.  The magnitude and evolution of uncertainty and risk can, do and should influence monetary policy decisions.  Not all uncertainty is the same. The way uncertainty influences monetary policy decisions depends on the circumstances and the nature of the uncertainty – its source, its persistence, its magnitude – that is being faced  Monetary policy should not be paralysed in the face of uncertainty. If policymakers were to wait until all uncertainty is resolved before taking decisions, they would wait forever.  At the same time, there is no general rule that says policy responses should either be attenuated or more activist in the face of uncertainty.
Here, we need both more data and more analysis in the coming years to gain a better understanding of these mechanisms and of how monetary policy can and should react to this type of slow structural change in the economy.9 Central banks strive to stabilise resource utilisation around a long-term sustainable level. We know at the same time that climate risks and other environmental problems are mispriced, and I will come back to why this is so later in my speech. How we, as a central bank, should consider this and other market failures is far from obvious. Bearing in mind the potentially serious consequences of mispriced  7  See Cœuré (2019) for a discussion. See Brainard (2019). 9 See Debelle (2019). 8  6 [18]  climate risks, I would welcome a debate on the various benefits and drawbacks of taking this market failure into account.10  A severe economic crisis The final and third scenario is the most serious – a severe economic crisis. The transition to more sustainable development could trigger dramatic and rapid changes in financial markets, and in the worst case a financial crisis.11 What starts with financial instability tends to generate serious effects in the real economy with falling growth, rising unemployment and lower inflation. There is a certain unease in Sweden and in many other countries that central banks will have difficulty combatting a new economic crisis.

Regulations – cooperation with other authorities The Riksbank’s work to promote financial stability includes the consideration of climate-related risks.26 The Riksbank also participates via international organisations, including NGFS, the Basel Committee, EFC and others, in the drafting of recommendations on a well-balanced policy. I would like to comment on three areas where work is already under way: stress testing, the reporting of climate-related risks and banks’ capital requirements. Stress testing is an important tool for assessing banks’ resilience to financial and economic unease. Stress testing is normally based on scenarios that reflect a severe economic recession or a financial crisis. However, climate-related risks are not captured by traditional stress tests and risk models. The Riksbank cooperates with NGFS to develop stress tests that include forward-looking scenarios with different rates of transition and different climate outcomes. Better reporting of companies’ climate-related risks is needed in order to develop successful forward-looking stress tests of the financial sector. Banks’ stress tests require greater disclosure and better access to data. Finansinspektionen recently announced that it intends to examine the scope on both the national and international level for urging companies to report an internal price for carbon emissions to a greater extent.27 Such reporting can pinpoint transition risks in their business models, which in turn can increase the scope for companies to consider such risks and the scope of investors for assessing them.28 On the European level, the European Commission has presented an action plan for the funding of sustainable growth.