samchain/econo-pairs-v1 huggingface dataset:
As a result, the costs of the event were relatively low and order was quickly restored in both new currency markets. Despite the U-turn in decision-makers’ communication, the situation had been easy to read by markets, citizens and economic agents in general. A few years later, the Czech economy was hit by a severe currency and financial crisis. Until 1996, the Czech Republic maintained a fixed exchange rate regime and generally stabilisation-oriented (restrictive) macroeconomic policies. However, entry to the OECD and related capital flow liberalisation created an Impossible Triangle. This led to twin deficits and attempts to “half-free” the exchange rate regime similar to those made in the Bretton Woods case. Additional factors such as data errors and an insufficiently credible first reform package only exacerbated the problems. Serious worries of the Czech National Bank about its credibility and reputation contributed to its mistakes. A change of government made acts of government less predictable. The defence of the exchange rate was ended by the central bank without the knowledge of the government. This caused a wide rift to open up between these two authorities. A general lack of coordination of macroeconomic policies, and possibly too restrictive monetary policies, culminated in a severe financial crisis. The outcome was a very costly event that could, with the benefit of hindsight, be judged as avoidable to a significant extent. General U-turns made by policy authorities contributed to these high costs.

We need to avoid a repeat of the 1997 Russian default, where Russia received a programme of aid, everyone expected it to work, but the needs turned out to be much bigger two months later. There is also a very rapidly increasing risk of citizens running on Greek banks as well as a rocketing risk of some other EU/eurozone country’s voters producing an outcome that will, in addition to other more likely and more profound consequences, further complicate finding a solution to the technical issues, i.e. how to structure the debt restructuring. To conclude, this is a crisis whose causes lie in eurozone institutions, which we were assured were created – together with the eurozone itself – to prevent crises. Without further close involvement of eurozone institutions, including the ECB and eurozone member states, it will most probably result in a disorderly meltdown of at least some European economies. On many levels, including the level of European institutions, the crisis was caused by incoherent and/or insincere communication, which increased the uncertainty of market participants in the broad sense. Our country’s history tells us that a generally predicted loss of a currency fix has much lower costs (including political ones) than an unexpected one. If eurozone countries and EU institutions opt for “safe” Greek membership in the eurozone, they must present a solution that is broad, generous and general enough to convince the markets of its credibility. This solution had better come fast, though, as muddling through has significant economic costs and increases the risks dramatically.
I do think that the severity with which the crisis hit the European Union and the scramble for solutions that followed do not indicate that the European Union is an intrinsically flawed project, but rather an incomplete one. In other words, going only halfway does not pay off. Thank you for your attention. 6  BIS central bankers’ speeches

Speech  23 September 2021, 5.30 pm  Fifth Karl Brunner Distinguished Lecture Introduction of Carmen M. Reinhart  Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Zurich, 23 September 2021 © Swiss National Bank, Zurich, 2021  Page 1/4  Ladies and Gentlemen  Good evening. My name is Thomas Jordan and I am the Chairman of the Governing Board of the Swiss National Bank. We are very pleased to welcome you all to the fifth edition of the Karl Brunner Distinguished Lecture. We are delighted and honoured that Carmen Reinhart has accepted our invitation to give the lecture. This lecture was planned for September 2020, but had to be postponed by one year due to the pandemic, with the hope of welcoming Carmen and all of you in person here in Zurich. Given the still difficult situation with coronavirus, this has unfortunately not proven possible. Consequently, the fifth Karl Brunner Distinguished Lecture now takes place in a virtual format. The Swiss National Bank established this lecture series in commemoration of the Swiss economist Karl Brunner, who was one of the leading monetary economists of the twentieth century. Our aim is to contribute to the public debate on questions related to our mandate, by inviting prominent academics whose research is relevant to central banking. Carmen Reinhart is one of the most cited economists in the world, with contributions that cover a remarkable variety of topics, including financial crises, exchange rate policies and public debt.
The shift in banks’ funding away from traditional and stable sources – such as retail deposits – to wholesale funding was as much a by-product of securitisation as a source of its potentially unlimited expansion. It was a by-product of securitisation because in order to finance the large increase in their securitisation business the banking system had to draw on a larger pool of financial resources than retail deposits could offer. But that shift also caused, independently, an increase in securitisation because the lending of large sums to shadow banks needed – and needs – marketable collateral. In its essence, this lending is a large-value deposit which has to be secured by collateral. So, securitisation received a formidable boost as banks used it to generate the securities which were required to finance its overall business. Data confirm this close association between shadow banking, collateral and repo markets. A large portion of the financing of the shadow banking system takes the form of repurchase agreements (repos), which work much like deposits. The wholesale lender deposits a large sum with the shadow bank for a very short term, perhaps overnight. As this callable claim cannot be covered by formal deposit insurance, it needs to be protected by collateral. So, technically, the transaction involves the purchase of some securitised assets from the shadow bank in exchange for cash and a promise by the bank to repurchase the securities at the stated price at some future date, perhaps on the day thereafter.

The risk associated with what used to be considered risk-free assets is something new in financial markets. What type of risk will be incorporated in the market returns on sovereign debt? For people of my generation, Sargent and Wallace provided the traditional answer: in a game of chicken between an irresponsible and institutionally strong fiscal authority on the one hand and a committed but unrealistic central bank on the other, the former is bound to win. Inflation will be the outcome. Knowing this, investors will demand high returns on government debt to offset higher expected inflation. So the game ends before it has even started. In the new world, the Sargent and Wallace story has lost some of its descriptive and predictive power. The fiscal authority is confronting a strong player with institutional backing. And certainly in Europe’s Monetary Union, the central bank is as strong and institutionally established as the fiscal authority. If the fiscal side does not adjust, inflation risk mutates into liquidity risk. In the most severe cases, if the fiscal adjustment is delayed, liquidity risk turns into solvency risk As you know, markets have learned to become more discriminating with regard to fiscal solvency than they have been for decades. Countries with comparatively  6  See: T. Adrian and H.S. Shin (2008), “Liquidity and Leverage,” FRB New York Staff Report no. 328. 7  See: G.B. Gorton and A. Metrick (2009), “Haircuts,” NBER Working Paper No. 15273. 8  See: V.V.
At the same time, real wages have increased strongly in recent years despite low nominal pay increases. This has probably increased support for the inflation target and contributed to holding down the nominal wage increases. The weak development of inflation and the moderate pay increases despite strong growth in the economy have led the Riksbank to modify its assessment of the amount of free resources in the economy. Developments in the labour market indicate that it is possible to increase output more than we previously thought without threatening the inflation target. If we include those in labour market policy measures, unemployment still amounts to almost 7%, which indicates about 3% more unemployed now than in the 1970s and 1980s. Change of inflation regime expensive in the short-term In retrospect, we can note that the changeover to low-inflation economy after several decades with high and varying inflation required high unemployment and depressed output for a rather long period  BIS Review 98/2000  2  of adaptation. High inflation expectations despite low registered inflation and abundant free resources resulted in the Riksbank considering it necessary to hold interest rates up quite a long time with the good intention of maintaining stable prices in the long term. Experiences from this period clearly indicate then that the macroeconomic costs can be very great if inflationary expectations are allowed to increase. At the same time, with high interest rates, fiscal policy was focused on reducing the budget deficits.

In order for the Riksbank’s legitimacy to be maintained, it is required that we show great openness on the grounds on which the monetary policy decisions are made. The conceptual framework and the decision-making rules that are guiding the monetary policy decisions make up the basic framework for our communications with the surrounding world. We describe how we conduct monetary policy in the inflation reports, minutes and speeches. However skilful we are, we cannot guarantee that we will always meet the target. The economic correlations change and unexpected events take place. We must therefore be evaluated on the basis of the quality of the assessments of growth and inflation that have served as the basis for the monetary policy decisions and the balance struck when we have arrived at decisions. It is therefore very important that we always state when we depart from the main rule I have described and the reasons for the departures. In this way, we will also avoid misunderstandings about our intentions. A high degree of transparency sharpens and improves the internal analysis as well since we are then exposed to continual review by experts outside the Riksbank in the academic world and in the financial markets at home and abroad. Clarity about the grounds on which we make our decisions creates good conditions for players in the financial markets to assess how the repo rate will develop in future.
Measures of consumers’ propensity to save have surged to historical levels, far above what we saw after the Lehman crash. Some of this reflects “forced saving” because people have been unable to spend and will therefore reverse naturally. But we are also seeing significant precautionary saving, which is a sign that households are preparing for an uncertain future, and uncertainty is likewise a key factor in weak business investment. There are two main sources of uncertainty today. The first source is uncertainty about how the economy will recover from the coronavirus (COVID19), which is evident in the Eurosystem’s latest macroeconomic projections. Our baseline projection sees GDP falling by 8.7% this year, but this is surrounded by a wide range of potential scenarios. In our mild scenario, the drop in GDP would be 5.9% this year, and in our severe scenario it would be 12.6%. In this latter case, output would still be well below its pre-crisis level at the end of 2022. Faced with such an outlook, it is understandable that households are anxious about their future incomes and firms are hesitant about making irreversible decisions. In particular, many citizens fear that, in a slow recovery, some jobs will be lost once government support schemes are phased out. This underlines why it is so important that the recovery is properly managed and that the economy is adequately stimulated. Confidence in government policies is critical to reducing uncertainty, which is itself a form of stimulus.

If we are collectively successful, uncertainty will start to turn into confidence, and then a real recovery can begin. 1 See Anderton, R., Jarvis, V., Labhard, V., Morgan, J., Petroulakis, F. and Vivian, L. (2020), “Virtually everywhere? Digitalisation and the euro area and EU economies: Degree, effects, and key issues”, Occasional Paper Series, ECB, forthcoming. 2 European Commission (2020), “Identifying Europe’s recovery needs”, Staff Working Document, (2020) 98. 3 Anderton et al. (2020), op. cit. 4 Perez, C. and Murray Leach, T. (2018), “A Smart Green ‘European Way of Life’: the Path for Growth, Jobs and  Wellbeing”, Beyond the Technological Revolution Working Paper, 2018–01. 5 In terms of revenues. See: ec.europa.eu/environment/ecoap/indicators/socio-economic-outcomes_en 6 ECB (2020), The international role of the euro, June. 7 Sondermann, D. (2016), “Towards more resilient economies: the role of well-functioning economic  structures”, Working Paper Series, No 1984, ECB, November. 4/4  BIS central bankers' speeches
In the baseline scenario, ECB staff projections predict notable downward pressure on inflation arising from the much larger shortfall in aggregate demand than 1/7  BIS central bankers' speeches  supply. As a result, headline inflation is not anticipated to be back on its pre-COVID-19 path by 2022 in that scenario, and underlying inflation is also expected to remain subdued in the medium term (see right chart on Slide 2). Given the unprecedented impact of the crisis on income and consumption, such disinflationary effects are not surprising. But uncertainty around these forecasts is exceptionally large: while measuring economic slack is already a challenge in normal times, it is currently exacerbated by the highly uncertain effects of the crisis on potential output, both in the short and in the medium to long run. In the short run, potential output is severely affected by disruptions in global value chains and social distancing measures, which constrain the full use of capital. Think of the hairdresser who may only be able to use half of his or her physical capacity. Such effects may partly offset the negative effects of weakening demand on inflation even in the short run. In the medium to long run, the impact of the crisis on potential output, and hence on inflation, will crucially depend on the response of firms and policymakers to the challenges we are currently facing. First, some sectors of the economy may never return to their previous size, requiring a large reallocation of capital and labour, also across borders.

The dual objective of PEPP  5/7  BIS central bankers' speeches  To enhance the effectiveness of our asset purchases, the PEPP has to be operationalised in a way that it meets the described dual objective. The PEPP is not an interventionist programme where we stand on the sidelines when conditions are calm and enter the market only in times of market disturbances. It rather resembles a two-staged pyramid. At the basis, there is a constant flow of purchases that reaches out to all eligible market segments. In the sovereign space, these purchases are guided by the ECB’s capital key. This is the “stance” element of PEPP. It seeks to create financial conditions that are consistent with our inflation aim. The upper part of the pyramid is its flexibility. This element responds to the challenges posed by the pandemic to market functioning and the smooth transmission of our policy to all parts of the euro area. The first granular breakdown of our PEPP purchases, published last week, highlights this particular aspect of our reaction function. It stresses the three dimensions of flexibility in the PEPP. First, in the sovereign space, monthly purchases in all jurisdictions will exceed the “basis” flow if we observe a general tightening of financial conditions across countries, unusually high volatility or poor liquidity. In this case, we frontload purchases, following the ECB’s capital key. Second, we raise the share of purchases above the capital key in countries facing severe risks of fragmentation.
For instance, fluctuations in private consumption are considerably larger in Iceland than in other developed countries, and much greater than can be explained by fluctuations in external conditions. But there is a certain problem concerning the implementation of various types of exchange rate peg, in that studies of the structure of the Icelandic economy suggest that a flexible exchange rate is in some ways a beneficial arrangement for Iceland. It is also clear that concluding Iceland’s EU membership application will take some time and, if Iceland does choose to join the EU, adopting the euro will take even longer. As a consequence, it is very important to ask whether monetary policy, demand management in general, and the regulatory and supervisory framework of the financial sector can be reformed in such a way as to make a flexible exchange rate on the basis of the Icelandic króna an attractive option without sacrificing free movement of capital. Such a solution could benefit Iceland either in the run-up to euro area accession or for the longer term. The Central Bank report entitled Monetary policy in Iceland after capital controls contains a discussion of possible reforms aimed at addressing the shortcomings in demand management and the regulatory framework before the financial crisis. A subsequent report, Prudential rules following capital controls, outlines the regulatory framework that would reduce the financial system risk that can accompany free movement of capital. Together, the recommendations in these two reports would make domestic monetary policy more effective and would hopefully reduce excess exchange rate volatility.

1.8  Conclusion  At this point, no unequivocal conclusion can be drawn concerning Iceland’s optimal currency and exchange rate policy option. All of the possibilities have advantages and disadvantages. Although the assessment of these options is based on a relatively sound economic foundation, there is no simple economic formula stating how these pros and cons should be weighted together so as to yield a clear answer. In addition, it is quite uncertain how these factors will develop in the future. But it should also be noted that this report contains numerous findings indicating that the selection of a currency and exchange rate policy may be less important for economic welfare and stability than might be expected in view of the public discussion on the issue. An example of this is how different countries have fared during the financial crisis (see Chapters 16 and 17) and how likely asset price bubbles are to develop inside and outside a currency union (see Chapter 11). Based on the limited experience to date, it appears that fiscal policy, financial system structure and regulatory framework, and the incentives and opportunities of private agents to borrow are much more important. One of the reasons it is difficult at this point to draw a clear conclusion about which path Iceland should take is the uncertainty about near-term developments in the two most likely scenarios: an improved framework for the króna and removal of the capital controls, or EU membership and eventual adoption of the euro.
First, by demanding clearer and more informative disclosures on the services you get from liquidity providers and platforms – including hold times, timestamps and reject codes. Second, by seeking out more effective, robust and independent analytical, aggregation and execution tools. And, third, by signing up to the FX Global Code – where buyside representation remains far too thin. Through these and other actions, it’s time for the buyside to recognise, and use, its influence in the FX market to the full. Because you collectively control trillions of dollars of assets – and when you have that sort of buying power, to quote a rather different Lola from Sarah Vaughan’s 1950s song, ‘whatever Lola wants, Lola gets’. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  The macro-behaviour of FX markets: a scorecard  Central banks like the Bank of England care a lot about FX markets. They determine the relative prices of our national currencies. They help transmit monetary policy, and hence also reflect market expectations. And they underpin international trade and asset markets, and hence economic and financial stability. To do all this well, we need FX markets to be efficient, resilient and fair. How do today’s markets score? An informationally efficient market is one in which prices reflect all relevant information, in a timely way. FX markets are typically thought to come as close as any to meeting that test.

Run Lola run! The good, the bad and the ugly of FX market fragmentation – and what to do about it Speech given by Andrew Hauser, Executive Director, Markets  Tradetech FX 2019, Barcelona 13 September 2019  I am grateful to Grigoria Christodoulou, David Edmunds and Joann Spadigam for their help in writing this speech, and to Benjamin Bowry, Rohan Churm, Amber Evans, Michael Foster, Frederick Ladbury, Ankita Mehta and James O’Connor for their input and guidance. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Introduction I wonder if anyone remembers ‘Run Lola Run’ – a somewhat ‘experimental’ German film from the late 1990s? In it, the lead character runs the streets of Berlin, racing against the clock to save her hapless boyfriend Manni from a ganglord, whose money Manni has left on a train. The big idea of the film is that Lola’s race is shown in three alternative realities. In the first, she secures some replacement money, but is tragically shot in a police standoff. In the second, she gets the money a different way, and repays the ganglord – but Manni gets run over by an ambulance Lola has distracted. And, in the third, Lola and Manni both secure their own money, leaving them quids in after the repayment, and living happily ever after. What on earth does all this have to do with the FX market? I certainly draw no comparison to the handling of ill-gotten gains.