samchain/econo-pairs-v1 huggingface dataset:
This in turn may lead to lower inflation and economic activity and the central bank therefore wishes to lower the policy rate. For reasons of comparison, let us first assume that neither the central bank nor other economic agents recognise that stress may arise. The blue lines in the panel show the path for the key policy rate, the output gap, inflation and financial imbalances obtained in this case. Capacity utilisation increases and inflation returns to the target. At the same time, the low interest rate level leads to an increase in financial imbalances in the economy. If we use the framework I just described instead, the central bank will take into account the possible impact of financial imbalances on inflation and output and will therefore reduce the interest rate somewhat less. In this case, it takes longer for inflation to move up to the target. The policy stance also results in a somewhat weaker increase in activity. At the same time, the slightly higher interest rate contributes to dampening the build-up of financial imbalances. In this example, a higher interest rate does not provide any gains as the assumption so far is that financial stress does not arise. Let us now see what occurs if financial stress arises after a period, with all else being equal to the first scenario. Chart: Financial distress does arise The purple lines in the panel again show a situation where the central bank has taken into account the possible effect of monetary policy on risk in the financial system.

When financial turbulence occurs, the economic setback is less pronounced and less prolonged than if the central bank had not taken this risk into account in monetary policy, as illustrated by the blue lines. The gain achieved from keeping the interest rate somewhat higher in the short term is in this case a more stable path for inflation and output over time. The interplay between the financial system and other areas of the economy is complex. This makes it demanding to predict the timing of crises and how they will arise. There is also considerable uncertainty linked to the consequences of a crisis on the wider economy. We may never achieve a fully precise understanding of these mechanisms. On the other hand, we cannot neglect the possible effects of monetary policy on the build-up of financial imbalances. Norges Bank’s modelling tools are continually being developed. Our model apparatus is also shaped by new insights about the functioning of the economy and how we can guard against the risk of financial stress. The aim is continuously to ensure that the models are the best possible support tools for monetary policy decisions. Formalising the framework along the lines I just presented can make it easier to recognise the line of reasoning and help clarify the choices we face. But the ultimate assessment will always be a result of Norges Bank’s professional judgement and incorporate knowledge and considerations that are insufficiently captured in our model. In this respect, the models are simply a tool.
SPEECH DATE:  10 November 2016  SPEAKER:  Governor Stefan Ingves  VENUE:  The Swedish Bankers’ Association bank meeting, Grand Hôtel, Stockholm  SVERI GES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel. +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  Necessary reforms for a more stable financial sector Crises are expensive and should be avoided When financial crises afflict us it becomes obvious to all how much damage they cause. Unfortunately, this insight is often temporary, as it is easy – even a human survival instinct – to forget problems and leave them behind us. As a representative of the Basel Committee I therefore see it as an important task to remind you of how costly financial crises are to the national economy and how important it is that we have robust regulatory frameworks that reduce both the cost of crises and the probability that they will occur. Although we often see a return in the growth rate of the economy, crises usually lead to a permanent fall in GDP, which takes a very long time to recover from. Even today, almost 10 years after the financial crisis broke out, many countries are struggling with low growth, high unemployment and low inflation. In several cases they also have high sovereign debt. And in the case of Sweden, there is no other event since the Second World War that has affected Swedish GDP as negatively as financial crises.

This is largely attained by the banks having the opportunity to calculate their risk-weighted assets, and thus capital requirements, using internal models. When the financial crisis broke out, however, it became clear that these models often underestimated the risks in the banks’ exposures. This meant that the capital requirement was lower than was appropriate. Many actors, both regulators and market participants, have therefore expressed doubts as to how well these models actually reflect the risks. In 2013, the Basel Committee therefore published a number of reports analysing what capital requirements the banks’ internal models generated. The reports show that there are major differences in the banks’ capital requirements. They also show that these differences cannot be explained by the differences in the underlying risk in their assets, but are instead due to the way the banks measure risk. The fact that this is so not only makes it difficult to compare capital requirements between the banks, it also reduces the credibility of the international capital regulations. The Committee’s current work therefore concerns to a large extent ensuring that the models used by the banks are reliable and reflect the risks in their operations in a correct manner. This work includes revising and to some extent limiting the banks’ scope to use internal models to calculate their risk-weighted assets and thereby their capital requirements. For instance, the Basel Committee is planning to introduce floors for a number of the parameters the banks estimate themselves.
On the contrary, one of the most important tasks with regard to the financial system is to facilitate risk-taking; to manage and redistribute financial risks. Methods for this have developed at an incredible rate over the past decade. The new possibilities for risk management have strongly contributed to increasing the efficiency of the financial sector and thereby the economy as a whole. However, it is important that the risks are managed carefully and that they are reasonable in relation to the capital allocated to cover them. They must therefore be clear and transparent to all involved. In this respect, the financial institutions and society as a whole have no fundamentally difference of interests. No one wishes to be surprised by risks they knew nothing about. The Riksbank also works on financial risk issues in many international contexts, in the Basel Committee, the IMF and on committees within the EU and ECB. As the financial markets to a large degree operate across national borders, it is often necessary to establish joint regulations and principles at international level. Throughout, the important issue is to weigh stability concerns against efficiency aspects, to find regulations that make the risks transparent and limit them in relation to the available capital. This should also be achieved without excessively encroaching upon the efficiency and development of the markets. My overall theme today is how the Riksbank views developments in the risk management field from the perspective of financial stability and efficiency.

These are the generic skills that will become increasingly important across a range of finance jobs in the future. These are the skills our professionals will need to thrive and grow in a digital future. They will complement the domain expertise that are unique to industry segments. We developed with active industry collaboration, this new set of Standards which will focus on areas like data science, human centered design, tools for innovation, agile approaches to technology, and risk and governance in a digital world. We will not just learn to thrive in a digital world; we will also learn digitally! And so, to promote the learning of skills under the new Standard, besides the usual training programmes, IBF is developing Learn@IBF, a mobile learning app that will provide simple and concise information on these topics. You will get to see a preview of this app after this. I want to acknowledge our partners who helped to make this happen: Amazon, Facebook, IBM, Luma and Rainmaking Innovation as well as our institutes of higher learning, training providers and of course, all of you, our financial institutions who are part of the IBF Community. They provided and reviewed the content that will be posted on the app. 2/3  BIS central bankers' speeches  The next step is for financial institutions to work with their staff, particularly those in jobs undergoing transformation, to help them explore possible pathways and acquire the skills they need for the future.
With the onset of the monetary union, the goal was to provide access to Eurosystem credit operations to a broad range of counterparties, in contrast to some other central banks which rely on a few counterparties. Therefore, the collateral framework had to take into account the various national banking systems and financial markets. Some national central banks, for example, accepted credit claims as collateral, while others did not. Some countries had developed covered bond markets, while others only started to set up a respective covered bonds law later, and the same could be said for ABS. For a collateral framework, a common standard had to be found which embraces these national characteristics, while at the same time ensuring that sufficient collateral is available. Several of the measures taken in the crisis have added to this complexity. Therefore a challenge going forward is to make the collateral framework simpler and more transparent, without impacting the ability of counterparties to access our refinancing operations. I am confident that we will achieve this. Conclusion Ladies and gentlemen, 2014 has been a year of profound change. But what has been achieved so far is not enough. 2015 needs to be the year when all actors in the euro area, governments and European institutions alike, will deploy a consistent common strategy to bring our economies back on track. Monetary policy alone will not be able to achieve this.

Understanding developments in money markets is a crucial part of the Bank’s assessment of monetary and financial conditions. It is therefore of considerable importance to the Bank that robust, transparent measures of overnight interest rates are available. It is also in the interests of sterling markets more broadly that robust benchmarks are available. The two main existing sterling overnight benchmark interest rates, SONIA and RONIA, are based on the rates paid respectively on unsecured and secured deposits placed via brokers. The volume of transactions underpinning these benchmarks has fallen significantly in recent years, reflecting reduced money market activity as well as a decline in brokers’ share of that activity. The decline in transactions volumes raises questions about the long-term robustness of these benchmarks. That is of particular concern in respect of SONIA, which forms the basis of the sterling overnight indexed swap market, and is referenced in contracts with a gross notional outstanding value in excess of £  1  2  See http://www.bankofengland.co.uk/markets/Pages/sterlingoperations/rfr/rfr.aspx. BIS central bankers’ speeches  In our view there is a clear need for a more secure and broad-based source of transactions data to support robust overnight benchmark interest rates in sterling markets. Accordingly, we have reached the conclusion that the Bank of England should collect each day, from banks and building societies active in sterling money markets, data on their sterling overnight deposit transactions.
Thus, the aim of maintaining the inflation target is not just about low and stable inflation being a good thing in itself, it also provides a means of ensuring that the policy rate can be used as a monetary policy tool. It is worth noting that this has implications for the argument that the central bank should not bother with inflation at all, but should focus on other things, such as solely balancing economic activity or dampening financial cycles. Doing this effectively requires using the interest rate and to use the interest rate we must have some average inflation. It may also be worth noting that there is an international debate that emphasises that as the neutral interest rate is historically low, even an inflation target of 2 per cent provides too little scope for monetary policy. The target, it is argued, should therefore be higher.9 I do not intend to bring up this debate now, but focus on  7 It is worth noting that it is not only the policy rate that is limited by a lower bound, the same applies to long-  term interest rates. Quantitative easing, which aims to lower longer-term interest rates thus also becomes less effective in an environment with very low inflation, see Gagnon and Collins (2019). 8 See, for example, Broadbent (2015). 9 See, for example, Blanchard, Dell’Ariccia, and Mauro (2013), Ball (2014), Krugman (2014), Rosengren (2015) and Gagnon and Collins (2019).

8 [15]      The neutral interest rate has continued to fall and is currently at a record low level. Inflation and inflation expectations have systematically undershot the Fed's target of 2 per cent. Prior to the pandemic, unemployment in the United States had fallen to the lowest level in 50 years without any tangible impact on inflation. It is primarily two of the changes made by the Fed in its policy document that are central to my discussion here today. Firstly, that monetary policy shall be aimed at inflation overshooting 2 per cent for a period of time if inflation has previously undershot 2 per cent. Earlier target deviations will thus be compensated for by deviations in the other direction.16 This is new. In conventional inflation targeting, deviations from the target are regarded as bygones, which do not need to be compensated for. In his speech at Jackson Hole in August, Chairman Jerome Powell called this a “flexible form of average inflation targeting”. What the Federal Reserve is concerned about is the relationship I mentioned earlier, that is, that if inflation has not reached up to the target level on average over a long period of time, this risks sooner or later affecting the long-term inflation expectations in the economy.
High vulnerabilities pose risks to financial stability ...  To summarise, we are currently seeing clear signs of unsustainable mortgage lending on the one hand and heightened risks of a price correction on the other. I would now like to use the example of an unexpected and rapid rise in interest rates to illustrate why these vulnerabilities can pose risks to financial stability. Such a scenario could simultaneously lead to a materialisation of affordability risks and to valuation losses due to price corrections – two risks that can also be mutually reinforcing. First, let us consider the affordability risks. As shown on slide 4, these risks have been steadily growing over recent years and are currently at a high level. This means that a substantial number of borrowers could experience payment difficulties should interest rates go up, and this would have a negative impact on banks’ credit portfolios. An abrupt interest rate hike could also lead to widespread price corrections on the real estate market. A large proportion of mortgage loans in banks’ portfolios have an LTV ratio of between 60% and 80%. A ratio in this range normally ensures that a bank would not incur a loss in the case of an individual borrower defaulting, as the mortgage loan is sufficiently covered by the value of the pledged property. However, a marked and widespread price correction on the Swiss real estate market would reduce this security margin.

Let me go over quickly these points: In order to fulfill this inadequate access to financial services by under-served consumers, the Bank of Thailand initiated a pilot project on micro finance in collaboration with commercial banks. Against misconception that micro finance is an unprofitable segment, this project aims to demonstrate that the coexistence of profitability and satisfied customers is possible with a right business model. Late last year, we invited foreign speakers to share with senior management of Thai commercial banks their experience in successful conduct of retail business in their countries. Following this seminar, a number of banks already expressed their interests to participate in this pilot project. One social aspect that has clear benefits to all parties concerned is consumer education. It has two major dimensions, one on the cultivation of responsible use of credits and the other the introduction of new financial products and channels of distribution. While the former can improve the overall risk profile of financial institutions’ retail portfolio, and thus lower the lending rates, the latter can potentially stimulate more demands and lower the cost of service provision. It is therefore the responsibility of lending institutions to convey clearly the message of ‘no free lunch’. In other words, prudent lenders must ensure that borrowers are fully aware of the financial obligation of their debt burdens and legal consequence of default. Failure of either party could tarnish the healthy usage of retail credit.
Hence, the farmers would concentrate on producing more of carrots and less of cabbages. But, when an economy is hit by inflation, all the prices would rise simultaneously, so both carrots and cabbages seem to be equally profitable. This would confuse the producers who would now be unable to make any choice between the two products. Hence, the much desired relative price change does not occur, when an economy has been hit by inflation. Instead, the absolute prices start to change and such changes do not provide the price signals for allocating resources. Fifth, continued inflation distorts the balance sheets of companies, especially the balance sheets of financial institutions. Companies may record profits in nominal terms, but a large part of such profits are eroded in real terms by inflation. When profits are adjusted for inflation, companies would find that their performance has not been so spectacular as has been depicted by the amount of rupees they have earned. In fact, their real position has pushed them backward to a lower level. Sixth, inflation very forcefully hits the vulnerable groups with a weaker bargaining power. Such categories include housewives, students, pensioners and workers whose salaries are not linked to inflation. It would lead to continuous agitation by these groups creating social and political dissension. The country, instead of using its resources for investing in long term growth generating projects, would have to spend its energy and resources for solving such social issues. Thus, inflation is the unrivalled public enemy number one.

This is because when such adjustment is not made, though the amount of money received by way of interest may be high, its actual real value is lesser and lesser than before. It is tantamount to the awkward situation where savers pay interest in real terms to borrowers. Thus, inflation contributes to enrich borrowers at the expense of savers. The high borrowings so encouraged would further fuel inflation. At the same time, the much needed savings flow would dry up retarding the long term development. Third, arising from the same unadjusted interest rates, inflation discourages financial savings and encourages non-productive types of investments in real estate, gold, bullion and other types of precious metals. Bank deposits, stocks and shares are the main casualties, because their real value falls every year due to inflation. But, on the other hand, real estate and precious metals appreciate in value due to inflation. Hence, as an insulating measure against inflation, people would transfer their financial savings into such non-productive types of investments. But, for sustainable long term growth, the necessity is for savings in the form of financial savings and inflation would dry up that savings flow. Fourth, inflation distorts the resource allocation function of an economy. For the market system to allocate resources among competing uses, a price expressed in terms of another price called the relative price, should change. For instance, if the price of carrots increases relative to the price of cabbages, carrots would become more profitable than cabbages.
Fiscal policies have supported jobs directly and buffered businesses and households from income shocks. Central banks eased monetary policies through interest rate cuts and financial asset purchases and provided sufficient liquidity for the smooth operation of financial markets. There is substantial uncertainty over the global economic outlook – largely because there is substantial uncertainty over the trajectory of the COVID-19 pandemic. If there are new waves of infection, it could lead to a return of containment measures that drag down economic activity again. Even if subsequent waves of infection are more limited, it is not clear if confidence in resuming normal economic activities will return fully. It is also not clear to what extent the destruction unleashed by the pandemic in the first half of this year has damaged the productive capacity of economies. The recovery will be uneven – across countries, across industries, and across time. 1 / 15  BIS central bankers' speeches  There is wide dispersion in projected growth rates across countries. Those countries that are more successful in containing COVID-19 and have put in place strong policy support are likely to stage stronger recoveries. China is expected to grow by about 1% this year, which would make it the only large economy to record an expansion. At the other end of the spectrum, the Eurozone is expected to contract by about 9% this year, weighed down by the significant disruptions caused by the high rates of infection; and the global trade slowdown. The outlook for the US is mixed.

CREDIT AND INSURANCE RELIEFS FOR INDIVIDUALS AND SMEs  MAS has worked with the financial industry to put together a package of measures to help ease the financial strain on individuals and SMEs. The relief package was implemented over three tranches, as new needs emerged. It is aimed at helping individuals meet their loan and insurance commitments and supporting SMEs with continued access to bank credit. Let me spell out the various relief measures and their take-up rates as of the end of June 2020. Banks and finance companies have been providing reliefs for individuals with difficulty making their loan repayments: Nearly 34,000 mortgage loans now enjoy deferment of principal or interest payments or both, till end December 2020. Banks have also deferred both principal and interest payments on over 2,100 renovation and education loans. More than 6,200 applications to convert outstanding credit card and unsecured debt to term loans at lower interest rates have been approved. Over 3,200 motor vehicle loans and hire-purchase agreements have benefitted from a variety of repayment reliefs. 7 / 15  BIS central bankers' speeches  Banks and finance companies have also been providing repayment relief to SMEs for their secured loans. More than 5,300 SMEs’ secured loans now enjoy repayment deferments. Beyond the relief package, banks have allowed some of their SME customers to defer repayment on their unsecured loans as well. Insurance companies have been providing reliefs for individuals and SMEs with difficulty paying their insurance premiums.