samchain/econo-pairs-v1 huggingface dataset:
1.1 Naturally, it is on the euro money market that the highest degree of integration can be found, as a result of the unification of monetary policy, and thanks to the efficiency of the cross-country largevalue payment system that support it, i.e. the TARGET system. Interest rates differentials between what are nowadays regional deposit markets have quickly vanished following the advent of the euro and the “law of one price” applies to the transactions conducted within a deep and highly liquid euroarea wide market. The recognition granted to money market reference rates such as EONIA and Euribor, the sheer development of derivatives markets based on these references - the OIS-based swap market and Euribor futures and options contracts, the impressive increase in cross-border transactions are illustrations of this already well-advanced, if not already completed unification. On the inter-bank market, cross-border transactions conducted with EU counterparties represent more than 50% of the whole inter-bank euro deposit business. Similar developments are recorded in the  BIS Review 32/2003  1  repo market: the increasing share of non-domestic euro area collateral in transactions combined with the growing use of tri-party agreements, as well as the share of cross-border transactions - which is more than 50% - provide clear evidences of an increasingly integrated market. 1.2 Changes have also been impressive, albeit more contrasted, on the securities markets. The euro had clearly stimulated the rapid development of the corporate bond markets.

Indeed, the “Lamfalussy” process has proved to be effective with a readjustment of the content of the texts between the legislative and regulatory levels and a shortening of the timeframe for the adoption of directives. The four-level regulatory approach of the Lamfalussy procedure is now fully operational, with the two bodies in charge of “comitology” - the European Securities Committee (ESC) and the Committee of European Securities Regulators (CESR) - working on the preparation of measures to implement directives, sometimes in parallel with the political negotiations. As I have mentioned it earlier, the Financial Services Action Plan (FSAP) has endowed Europe with a coherent and market responsive regulatory framework. Up to now, 34 out of the 42 initially proposed measures have already been finalised, and I would like to remind you how impressive were the progress made in implementing the Financial Services Action Plan over the last six months: in addition to the directive on market abuse, adopted in January 2003, the directive updating the accounting provisions of the fourth and seventh Company Law directives and the directive on pension funds were adopted at the beginning of May 2003. Moreover, in February 2003, the European Council and Parliament agreed on a common position on the draft directive on prospectuses, which is expected to be adopted during the course of the year, as will probably be also the directive on taxation of savings income and even the new directive on take over bids.
With this auspicious start, I trust this conference may become a regular forum of dialogue between researchers and policy-makers: central banks and financial supervisory authorities have many things to learn from the research carried out in academia, away from the frequent policy-making urgencies that drive the daily workload in our institutions. Financial stability and macroprudential policy The last crisis generated a good deal of issues to be dealt with by authorities with a role in financial stability. The experience gained over recent years has shown the importance of safeguarding the stability of the financial system as a whole. We now understand that this ambitious task requires the use of sophisticated analytical tools to identify vulnerabilities at an early stage and anticipate how potential shocks can propagate across the financial system. To this end, both micro and macroeconomic methodologies can offer valid insights, and this is why the conference programme intends to offer a mix of both approaches. One of the most relevant and obvious legacies from the crisis is the introduction of a fullyfledged macroprudential policy framework. As we all know, macroprudential policy has, essentially, a twofold objective. On the one hand, it seeks to prevent or mitigate the emergence of systemic risks over the expansionary phase of the credit cycle, as well as to strengthen the resilience of financial institutions against these risks.

Moreover, a long period of low interest rates can lead people to overestimate the debt they can safely manage if interest rates were to normalise. Central banks must be alive to these risks and deploy appropriate prudential tools in mitigation. Furthermore, if central banks do seek to sustain demand, it can dull the incentives for private agents and governments to undertake the necessary adjustments and reforms. Such moral hazard has surfaced from time to time in the euro area during the past couple of years. Accommodative monetary policy can buy time, but it is a policy best suited to filling in a temporary hiatus in demand, not a long-lived shortfall: it is a bridge, not a pier. Let me turn now to the international consequences of these unconventional monetary policies. There are several interrelated channels of propagation. First and most contentiously, they may put downward pressure on the exchange rate, a purely “beggar-myneighbour” channel. It was that which prompted Guido Mantega, the Brazilian Finance Minister, to charge advanced economy central banks with engaging in a “currency war”. Central banks in other countries may then respond by setting lower policy rates in order to lessen the appreciation of their currencies. One way to see whether this has happened is to look at the departures from what a standard Taylor rule would imply; the evidence surveyed by He and McCauley (2013) suggests that Asian central banks have indeed shaded down their policy rates in response to looser US policies.
39  All speeches are available online at www.bankofengland.co.uk/speeches  39  Appendix – estimation of firm-level mark-ups  To estimate firm-level mark-ups, we follow De Loecker and Eeckhout (2017, 2018) and Díez et al (2018), all of which are based on the original methodology proposed by De Loecker and Warzynski (2012). Theory  Consider a firm 𝑖 at time 𝑡 that produces output with a production function whose arguments are variable inputs, capital, and technology. Assume firms are cost-minimizers. Then, the Lagrangian associated with the cost minimisation problem (subject to the production function) leads to the following first-order condition for any variable input 𝑉 (free of adjustment costs):  𝑃𝑖𝑡𝑉 = 𝜆𝑖𝑡 (  𝜕𝑄𝑖𝑡 (⋅) ) 𝜕𝑉𝑖𝑡  (𝐴1)  where 𝑃𝑖𝑡𝑉 is the input price of variable input 𝑉 faced by firm 𝑖 at time 𝑡, 𝜆𝑖𝑡 denotes the marginal cost of production, and (  𝜕𝑄𝑖𝑡 (⋅) 𝜕𝑉𝑖𝑡  to marginal cost, 𝜇𝑖𝑡 ≡  ) denotes the marginal product of this input. Defining the mark-up as the ratio of price 𝑃𝑖𝑡 𝜆𝑖𝑡  , we have that the above equation can be rearranged to give  𝜇𝑖𝑡 =  𝑃𝑖𝑡 𝜕𝑄𝑖𝑡 (⋅) ( ) 𝑃𝑖𝑡𝑉 𝜕𝑉𝑖𝑡  (𝐴2)  We can rewrite this as  𝜇𝑖𝑡 =  𝑃𝑖𝑡 𝑄𝑖𝑡 𝜕𝑄𝑖𝑡 (⋅) 𝑉𝑖𝑡 ( ) = (𝛼𝑖𝑡𝑉 )−1 𝜃𝑖𝑡𝑉 𝜕𝑉𝑖𝑡 𝑄𝑖𝑡 𝑃𝑖𝑡𝑉 𝑉𝑖𝑡  (𝐴3)  where 𝛼𝑖𝑡𝑉 denotes the share of expenditures on input 𝑉𝑖𝑡 in total sales (𝑃𝑖𝑡 𝑄𝑖𝑡 ), and 𝜃𝑖𝑡𝑉 denotes the output elasticity of input 𝑉.

The qualitative implications would be little changed if other mark-up shocks were used instead. 𝜃𝜋 and 𝜃𝑦 show the weights placed on the deviation of inflation from target and the output gap in the Taylor rule, respectively. The Taylor rule also contains a lagged interest rate parameter to allow for interest rate smoothing. Charts here show the deviation of annual CPI inflation, output gap and the policy rate relative to a baseline where no shock occurred. 35  All speeches are available online at www.bankofengland.co.uk/speeches  35  Chart 14: Variability of inflation and output gap with and without mark-up shocks  Sources: Bank calculations. Notes: Chart shows the model-based variance of the inflation and the output gap for different calibrations of the Taylor rule, which alter the weight placed by the policymaker on deviations of inflation from target and output from potential. When moving from the baseline to the red markers, the various price mark-up shocks in the model are turned off. Chart 15: Variability of inflation and policy rate with and without mark-up shocks  Sources: Bank calculations. Notes: Chart shows the model-based variance of the inflation and the output gap for different calibrations of the Taylor rule, which alter the weight placed by the policymaker on deviations of inflation from target and output from potential. When moving from the baseline to the red markers, the various price mark-up shocks in the model are turned off.
That was not just deeply regrettable for the institutions concerned, but also it damaged a proud and long tradition of sound banking in Scotland. It pained me, in my role as the person responsible for resolving a number of these problems, to see the lack of regard for the basics of a well run bank, the foundations which must be there to be sound and successful. I have spent the last seven years also responsible for the Bank of England’s banking operations, and I know from this experience that unless you really understand your balance sheet and its risks, the systems and control environment that supports the balance sheet, and you have the basics needed well covered – the reconciliations work, the right management information available promptly – you aren’t doing your job. It isn’t sexy or headline grabbing, but it is surely what the good Scottish bankers of the past taught us to do, and what I hope is back with the current generation. The financial crisis has moved on since those earlier days. Over the last twelve months, concerns with both sovereign states and their banking systems have intensified in other parts of Europe. Recently, the IMF and European authorities have moved to put in place a substantial package of support for Ireland.

The weakening of the krone came to a halt in winter 2004. Again we started seeing signs of a stronger krone. At the same time, inflation remained low. We therefore placed emphasis on interest rate developments in other countries, and in May 2004 Norges Bank thus stated: “The inflation outlook in Norway implies that Norway should not be the frontrunner when other countries increase interest rates.”3 At the monetary policy meetings between September 2004 and February 2005, after key rates had been raised in several other counties, the formulation was changed to the following:”that we should lag behind other countries in adjusting interest rates to a more normal level.”4  3  See Norges Bank press release of 26 May 2004. 4  See press releases following the monetary policy meetings in the period between 22 September and 2 February 2005. BIS Review 38/2005  3  In February, we no longer used this formulation. The background for this is that central banks in other countries such as the US, Canada, UK, Australia, New Zealand and Switzerland had raised their key rates. Our closest neighbouring countries – Sweden and the euro-area countries – and Japan have left their key rates unchanged. On average, the key rates among our trading partners have increased by 0.3 percentage point during this business cycle.
However, ensuring that the payment system functions efficiently is also a fairly general definition that requires further precision. To become more specific, it is necessary to define what characterises an efficient payment system. I intend to discuss two characteristics here that I perceive to be the most central – price stability and financial stability. Price stability An important component of an efficient payment system is that economic agents have confidence that the value of the means of payment will remain stable over time, that is in practice that inflation will be low and stable. One usually expresses this as there being a nominal anchor that prevents inflation and inflation expectations from drifting off. If households and companies are confident that the general price level will not change very much, they are better able to plan for the future and need not put effort  1  See, for instance, Santomero, A.M., S. Viotti and A. Vredin, (2001), "Challenges for Central Banking: An Introduction”, in Santomero, A.M., S. Viotti and A. Vredin (ed. ), Challenges for Central Banking, Kluwer Academic Publishers. BIS Review 21/2006  1  into finding ways of protecting themselves against inflation, but can focus on more productive activities. Another argument for keeping inflation low focuses on the role of price formation as a signalling system. When inflation is low and stable it is easier for economic agents to distinguish changes in relative prices and to adjust their decisions regarding consumption, saving, work and investment accordingly.

BIS Review 21/2006  5  optimism regarding the role monetary policy can play in long-term real economic growth was one important reason why inflation was so high during the 1970s. The value of independence How can one then construct a framework for monetary policy that provides the central bank with the best possible conditions to carry out its tasks? Here I intend to be fairly brief as this is something that will be discussed in more detail in the next contribution to this conference. Let me just note that there is currently general agreement that the central bank should be given the opportunity to work independent of the political system in order to attain the objective of price stability. It has been observed that if monetary policy is conducted at arm’s length from party politics, there is greater confidence in the price stability objective. This is linked to the fact that there has often been a tendency for politicians to use monetary policy for more short-term purposes which have conflicted with the long-term price stability objective and which have often entailed loosening the nominal anchor. Making the central bank independent is probably the element of the past decades’ monetary reform process that has triggered the most debate and has been perceived as the most controversial. It is probably natural for politicians to feel uncomfortable giving the central bank increased independence as it unavoidably means that they give up some of their decision-making powers, and moreover in a field perceived to be central.
The FTSE All-Share index fell over 10% on 12 March, the largest one-day fall since 1987. Other markets also saw shocks beyond or close to the largest in history. 2. FSB (2017) Report on effectiveness of derivatives reforms  . 3. By March 2020, 60% of credit default swaps were cleared, and 80% of interest rate contracts, up from about 10% and 40% respectively in 2008. 4. Review of margining practices (bis.org) 5. From Lender of Last Resort to Market Maker of Last Resort via the dash for cash: why central banks need new tools for dealing with market dysfunction (bankofengland.co.uk) 6. VM calls were six times larger compared to normal levels on 1 March 2022 £ compared to a five-fold increase on 18 March 2020 £ VM calls at the most affected clearing services were as high as 35 times normal levels (LME Base). 7. Total IM requirements of UK CCPs peaked at around 30% higher relative to their pre-stress levels in Q1 2020. The peak aggregate increase in Q1 2022 was 13% (relative to 1 February 2022). 8. Review of margining practices (bis.org) 9. Joint statement from UK Financial Regulation Authorities on London Metal Exchange and LME Clear | Bank of England 10. This is different to climate change, where it is possible to model how the future will be different to the past and this is informing the pricing of risk today – but there is no obvious way to identify future market shocks and volatility robustly. 11.

Nature’s education website declares: “Ignoring Population Structure Can Lead to Erroneous Predictions of Future Population Size.”[11] The lesson is no different in markets – underlying market structures matter. CCPs – who are in the risk management business – can help with this by understanding and managing the markets in which they operate. This includes client positions and the role of physical delivery. The recent events in the nickel market are a good example. The historic price moves I just spoke about can be the result of things completely outside of the financial system – weather, plagues, and invasions. But they can also be exacerbated or even driven by market structure. In the case of nickel, much of the price move was related to the build-up of a very large position in the form of a tangled and opaque web of derivative exposures involving a single client. We have seen these before: Archegos, Long Term Capital Management. This time, while the bulk of the contracts were bilateral, many were centrally cleared. There will be important lessons learned from the events in nickel – both with respect to the specific incident and more generally,[12] and I am sure I will have more to report following the conclusions of the independent review we have commissioned. Page 6  When it comes to this early lesson, CCPs could form part of the solution.
Higher bad debts mean higher specific provisions, which, however, were partly offset by general provisions, since some institutions began to use the provision which had been set up for this purpose at a favourable time in the business cycle. In addition, the rise in loan loss provisions was because some institutions decided to increase their provisions to help them face this more uncertain and troubled period, since the system in place in Spain sets an obligatory minimum but permits larger amounts to be set aside when there are signs of problems. In short, analysis of the data for 2008 shows that, although the results of Spanish institutions compare favourably with those of their counterparts in banking systems in other developed countries, income statements have begun to come under downward pressure. This situation, which may persist in the medium-term, is due to a broad range of factors mentioned earlier: narrower net interest margins, smaller fees, lower gains on financial transactions and higher loan loss provisions. Given this complex situation, what courses of action are available? First, it does not now seem reasonable to expect that the narrowing of margins can be offset by increased volumes of activity. Banking activity, particularly lending, has gone from growth rates of more than twice nominal GDP growth before the crisis to rates currently around 5%. It cannot be ruled out that the slowdown of this variable will continue, or even that it will record zero or negative growth rates.

3 Federal Reserve Bank of New York, Short-Term Inflation Expectations Continue to  Decline, Tick up Slightly in Longer Term , January 9, 2023. 4 Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC  Statement , December 14, 2022. 5 Board of Governors of the Federal Reserve System, Plans for Reducing the Size of  the Federal Reserve's Balance Sheet , May 4, 2022. 4/4  BIS - Central bankers' speeches
For example, afire sale of assets by one bank may have a mechanical amplifying impact on other banks through its effect on market prices, but could simultaneously affect other banks via confidence and beliefs, if people become less optimistic about valuations of other assets when one asset class is in distress. 5 The role of beliefs and behaviour in affecting outcomes means that there is a premium on understanding decision-making under uncertainty. In economics, broadly speaking there are two approaches to modelling decision making under uncertainty: the standard, “rational” approach of “homo economicus” which assumes that beliefs are based on an efficient processing of all available information, and the “behavioural” approach, informed by the psychology literature, which highlights psychological traits that violate the assumptions underlying the “rational” view. The two approaches yield different conclusions on both the desirability of policy intervention and the form it should take. In practice, the applicability of each approach depends on the context. Rationality may be a reasonable approximation when decisions are carefully considered (perhaps because the returns to a “good” decision are high). But behavioural economists and psychologists contend that people often make decisions using simple or “fast and frugal” heuristics because of limited time, information, and cognitive capacity (Gigerenzer and Todd 1999). 4  For example, Caballero and Krishnamurthy (2008) show how liquidity shocks in the presence of Knightian uncertainty can cause investors to hoard liquid assets.

Mervyn King: Uncertainty in macroeconomic policy making – art or science? Lecture by Mr Mervyn King, Governor of the Bank of England, at the Royal Society conference on “Handling Uncertainty in Science”, London, 22 March 2010. Accompanying slides to this speech can be found on the Bank of England’s website. David Aikman, Philip Barrett, Sujit Kapadia, Mervyn King, James Proudman, Tim Taylor, Iain de Weymarn and Tony Yates (Bank of England) contributed to this paper. * 1. *  *  Uncertainty and public policy  Most questions of public policy relate to uncertainties. Answers depend upon an ability to understand and evaluate those uncertainties. Yet many commentators and members of the public want to believe in certainties. They want to cut through the thickets of caveats and technical difficulties to the “bottom line”. We see this in economic policy, weather forecasting and the interpretation of secret intelligence. Five years ago, the Bank of England and the Met Office held an informal seminar to exchange ideas on how to communicate measures of uncertainty to the general public. Although we failed to persuade broadcasters to explore the issues of economic and weather forecasting in more depth, the bilateral relationship which developed between the Bank and Paul Hardaker, who moved from the Met Office to take over the Royal Meteorological Society, flourished. Today’s conference is a tribute to Paul’s persistence. It could hardly be more timely.