samchain/econo-pairs-v1 huggingface dataset:
Banks are increasingly providing technology services, such as account reconciliation software and “web-enabling” assistance, while technology firms are making inroads into services once the domain of banks and brokerage firms, such as financial planning and bill payment. Indeed, many banks are beginning to think of technology firms as competitors – or are contemplating ways to partner with them. I’d guess that most of us, perhaps even all of us, consider the advancement of computing and information technologies, and their role in the development of ever-more sophisticated financial instruments and techniques, to be decidedly positive developments. Such technologies, and the innovation they enable, have reduced the costs of financial transactions, improved the allocation of financial resources, increased the competitiveness and efficiency of financial institutions and markets, and opened new avenues through which individuals and institutions can better diversify and hedge their risks. But with this progress has also come new and difficult challenges. The rapid pace of technological advancement and financial innovation has introduced new, highly complex elements of risk, increased the speed and volatility of the markets, and blurred the barriers between previously distinct sectors of the financial marketplace. Even as supervisors confront change, the fundamental questions remain the same. Where is the risk in banks’ activities, and how effectively are they managing it? Where are banks extending credit and in what form? Who are banks’ customers, and how are those customers changing? To what extent are credit risks being transformed into liquidity and operational risks?

* At the end of the summer 2020, when we began ‐ at our modest deputy level – to launch this conference, we were convinced that the message of the Green Swan was worth spreading, but we were far from sure that it would attract such a prestigious set of speakers. This was before the new momentum we are experiencing thanks to the political shift in the United States, following the ambitious Italian G20 and UK G7 presidencies. Now, only a few months later, the context is quite different. Governments are more aware than ever before, that they need to act, to anticipate; there is more appetite for multilateral cooperation. The private sector is making many commitments to net‐zero emissions. However, a number of questions arise that we cannot answer easily. Three of them seem particularly important: 3  International Energy Agency – IEA (2021). Net Zero by 2050. A Roadmap for the Global Energy Sector. Accessible at: https://www.iea.org/reports/net‐zero‐by‐2050  2  Should we focus on climate change or broaden the scope? How can we make sure that public policies are consistent? How to thrive within limits? Allow me to develop these points. * I. BEYOND CLIMATE? The Charter of the NGFS,4 adopted in December 2017, states that the network aims, in particular, to “contribute to the development of environment and climate risk management”. It is key to consider how ecological crises are in fact multiple and interconnected.
The Bank of England’s Independent Evaluation Office’s review is a valuable contribution to that learning, and we at the Bank have welcomed its recommendations. They will help guide us in our response as we continue the journey to whatever the future normal for policy looks like and the role of the Bank’s balance sheet within that. 16  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  16  The Condolence Book set up by the University of Birmingham stands as a wonderful memorial to Peter. There you can read tributes from Peter’s wife Jayne Ivimey, from his brother Michael and his cousin Lindy. There are many entries from colleagues and students at the University of Birmingham, from Oxford University and from the many other academic institutions Peter was associated with. There are also entries from many friends and colleagues, including from staff at the Bank of England. Peter had a strong association with the Bank of England for several decades, continuing right up to his death in March 2020. Peter was Director of the Bank’s Centre for Central Banking Studies from 2000 to 2008. When researching for this lecture I came across the quote he gave when his appointment to the CCBS was announced on 16 February 2000, twenty one years ago. It sums up the warmth and generosity of his approach to learning and depth and internationalism of his outlook and so I have shared it on the screen (Figure 10). “All Central Banks have so much to learn from each other.

And our balance sheet tools must evolve alongside it towards a “future normal”:   On the financial stability side, the experience of the Covid crisis, and the turbulent “dash for cash” that took place in financial markets in March 2020, when exceptionally high demand for cash led to a breakdown in the functioning of core financial markets, has raised questions of whether central banks need new tools for dealing with market dysfunction.12 (I will come back to this question later in the context of the impact that our QE purchases had).   On the monetary policy side, the Bank’s Monetary Policy Committee, which is responsible for deciding what monetary policy actions to take, has asked us to start “internal technical preparations to deliver the option of a tiered system of reserve remuneration that could be ready to be implemented, should it be judged appropriate, alongside a negative Bank Rate”.13    Looking further ahead central banks around the world are grappling with the question of whether to provide the public with electronic money, or Central Bank Digital Currency, and the challenges and opportunities that such a decision could throw up in a possible “future normal”.14  Set out in Mark Carney’s speech ‘The UK at the heart of a renewed globalisation’ I described the evolution of these tools in my 2018 speech “Finding the right balance”. As set out in Andrew Hauser’s speech “From Lender of Last Resort to Market Maker of Last Resort via the dash for cash”.
Such interactions tend to amplify the amplitude of the bussiness cycle, thereby heightening the risk to financial stability. This description of procyclicality presupposes the existence of two cycles, namely the business cycle and the financial cycle, that interact and reinforce each other. However, economic and financial decisions underlying the two cycles are not independent. They are inherently linked by the risk-taking behaviour of economic agents: the behaviour which is prone to change in response to incentive, perception of risk, regulation, and new information. It is this change in risk-taking behaviour that explains large swings in investor sentiment, from a period of optimism when risk is disregarded to a period of pessimism when there is no willingness to  BIS Review 160/2009  1  take risk. And it is this change in risk-taking behaviour that underscores the abrupt change in financial behaviour, and in the direction and momentum of economic activities. It follows therefore that procyclicality is a mechanism that encompasses the interactions of at least three reinforcing cycles that move in tandem. They are the business cycle, the financial cycle, and the cycle of risk-taking beheviour represented by fluctuations in asset prices or the asset price cycle. The three cycles are self-reinforcing, and it is the ways the cycles interact with each others that define the amplitude and the momentum of the cyclical flunctuations, as well as risk of a financial crisis. Interactions of the three cycles can be illustrated with reference to a typical boom-bust cycle.

This must be done without haste, but no stone should be left unturned. Improved regulation appears to be necessary in several domains, from rating agencies to risk management, the organisation of financial markets and even the question of compensation. As a contribution to this debate, I would like to make two sets of remarks. One has to do with the fluctuations of financial systems. The other concerns financial supervision. Financial systems that operate in the context of a developed market economy are, by nature, subject to cyclical forces. Some are a consequence of the business cycle. Credit activity is an obvious example, as credit demand is heavily influenced by economic activity. Others are from within financial systems. For instance, financial institutions’ equity position moves in line with asset prices specially in a fair value world where fluctuations result in capital gains or  BIS Review 143/2008  3  losses. This effect tends to be exacerbated when financial intermediaries actively manage their balance sheets to target a preferred degree of leverage. The challenge for the authorities is to assess whether and to what extent regulations reinforce these dynamics and impact the entire financial system. With these questions in mind, work is being undertaken to examine the impact of prudential standards. It is also on this basis that the accounting adjustments that I mentioned earlier have been made. We will have to set up supervisory systems that are more suited to economic developments. The need to develop a “macro-prudential” policy is now under debate.
Having said this, I must also highlight that, by historical records, political developments had dented confidence in the economy only in the short run. Therefore, I am optimistic that with Thailand’s economic fundamentals remaining sound, the economy will be able to maintain growth momentum and overcome these short-run dips. In this regard, I wish to add that political development, which sometimes breeds strain and uncertainty within the society and economy, is not a unique phenomenon only to Thailand. Rather, it is a necessary process of growing up for most economies. For the past thirty years, the Thai economy has taken a good lead in development progress building on lessons learnt from crises, while political advancement trailing behind. From 1977 to 2007, the economy in real term has grown at an average rate of 7.0 percent (excluding 1997 and 1998), facing phases of reforms and restructuring, from import substitution to export promotion and to liberalization after the Asian financial crisis. In the meanwhile, Thai politics has evolved more gradually than the economy. And now, it may be time for catching up. And hopefully, out of this growing-up process, the gap between economic and political developments will narrow and a stronger economy under a more matured politics will emerge. Ladies and Gentlemen, I turn now to the second part of my talk. In the face of possible short-term dent on confidence, it is prudent that we do not lose sight of what importantly determines the future of the Thai economy.

Ladies and Gentleman, For Thailand to achieve the goal of long-term sustainable growth, commitments have to be made today. And, this leads to the final part of my talk. As Governor of the central bank, I am committed to pursuing price stability and financial stability to foster medium and long-term economic growth. On the financial stability side, I see that the Thai banking sector has decoupled from the direct impact of the global credit crisis. In fact, the banking sector’s exposure to CDOs was only 0.3 percent of its total assets in 2007, which was completely sold off. On non-performing loans, the net NPL level will be one of the issues that we will be addressing through second-phased financial sector master plan. As of end June 2008, net NPL of the banking sector in relation to its total credit is 3.4 percent, not a terribly high level. In addition, since the potential losses of these NPLs have already been provided for according to IAS39, the international accounting standard, the financial implication of NPLs on the banking sector’s financial standing is very small. However, reducing NPLs further should improve the banking sector’s credit rating. The master plan will also focus on improving competition and efficiency of banks, while also broadening financial access to a bigger base of clientele. After the industry-hearing, we will announce the FSMP so that market players have a clear picture of the banking sector going forward.
That script has meant that the size of the global stock of bonds yielding more than 4% has fallen to only about $ in 2007 it was $ In that environment it may be just too tempting to succumb to the illusion that a higher yielding asset isn’t a higher risk asset. After all, recent performance has been good. Corporate insolvencies have been close to pre-crisis lows and, of course, interest rates have been low and stable for very many years. This ‘reach for yield’ explains why fixed income investors have been prepared to take on more risk to get returns just a little closer to what they had been used to. It helps to explain why compensation for risk on higher-yield bonds has fallen relative to that on investment grade bonds, which in turn has fallen relative to the return on safe assets. Regardless of what caused the stretch, we need to address the question of whether the economy is fit enough to deal with it. 3. Is the corporate sector reliant on these stretched valuations? There is better news in this regard. Despite recent headline examples of indebted companies, Britain is among a small group of major economies not to have seen overall corporate debt increase as a share of GDP over the past decade. Within that, amongst companies investing in commercial property, debt levels are well below pre-crisis levels and have remained static for four years. Rising property prices have been financed with more equity, not debt.

18  Chen, Q., Goldstein, I., Jiang, W., 2010. Payoff complementarities and financial fragility: Evidence from mutual fund outflows. Journal of Financial Economics 97, 239-262. In addition, Feroli, Kashyap, Shoenholtz and Shin (2014) describe an alternative mechanism creating the same effect based on how investors evaluate performance of funds relative to other funds. Concerns about standing out of the sample and seeing a decrease in assets under managements can drive herding behaviour among funds. 19 Goldstein, Jiang and Ng (2017) show that corporate bond funds experience greater outflows when they have more illiquid assets. One example of this is the behaviour of investors in Pimco’s Total Return Funds in the aftermath of the departure of Bill Gross in 2014. In contrast to the other funds, the most liquid funds, such as Total Return Fund IV, did not see sharp redemptions. 20 See pages 29-31 of the October 2017 Global Financial Stability Report. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  Conclusion All of this is a far cry from the build-up to the financial crisis when nobody was asking “what could go wrong?” We now have a mandate – a duty in fact – to ask that, so we can guard against the financial system disrupting the wider economy. Our work is broadening out as the financial system evolves; from banks and mortgage lending to market-based corporate finance. Growth of market based finance offers a big opportunity. There can be strength in greater diversity.
As a result, expected short-term rates have fallen by 10 basis points at all horizons and the euro has depreciated since May by 2.5% to 1.354. If taken as new conditioning assumptions, these developments would move the whole path of the inflation projections upwards and ensure a faster return to price stability. The second channel through which the recent ECB decisions will be consequential is the credit channel, which is expected to be positively impacted by the new targeted LTRO facility and the extension of the ACC programme.7 The third channel has to do with expectations. The announcement of the measures adopted at the beginning of June has been accompanied by a clear communication concerning the future path of policy. In his Press conference, President Draghi emphasised again that “key ECB interest rates will remain at present levels for an extended period of time in view of the current outlook for  7  The Additional Credit Claims (ACC) programme is an extension of our collateral policy to accept directly loans to non-financial firms as eligible collateral for banks to borrow from the ECB. BIS central bankers’ speeches  7  inflation”. He also added that “if required, we will act swiftly with further monetary policy easing.

Against this background, I would like to organise the rest of my remarks today around three issues. First, why do we find ourselves in the current, low inflation predicament? I sustain that inflation fluctuations have been somewhat surprising ever since the beginning of the Great Recession. In part, they were the result of adverse exogenous shocks. To some extent however, they were also connected with unwarranted variations in markets’ expectations of the future stance of monetary policy. Second, I will argue that the Governing Council meeting at the beginning of June is important not only for the decisions that were actually adopted. It is important also for the clear signal that we provided about the determination to do more in the future, in the event of additional downward pressures on inflation. I will develop these two points which deal with the way our recent policy decisions will produce effects. The third question is: how would the ECB react, should the risks of a protracted period of low inflation materialise? At this point in time, this is essentially a scenario analysis – and specifically an analysis of a low probability scenario. Outright purchases of a range of financial assets would be effective in this situation, but structural reforms would also be essential to spur economic growth. 3  See Giannone, D., M. Lenza, H. Pill and L. Reichlin (2011): “Non-standard policy measures and monetary developments”, ECB Working Paper Series No. 1290; De Pooter, M., R.F.
Finansinspektionen has also already placed demands for how the banks should manage their liquidity risks, among other means by requiring specific buffers in euros and US dollars. As I am sure you know, the Riksbank’s opinion is that the banks also need buffers in other important currencies that they use in their operations. Even if the banks were to have strong self-insurance, it is not certain that this would be enough in a crisis situation. Then the Riksbank can act as “lender of last resort”, that is, assist the banks with liquidity if they experience difficulties obtaining market funding. The Riksbank can in principle create any amount of liquidity in Swedish krona. Swedish krona can normally be exchanged for foreign currency. So what is the problem? Well, it is the word “normally” that is the snag. In a financial crisis, there is very little that functions “normally”. This is the whole purport of the word “crisis”. In other words, it is far from certain that the foreign  6 [14]  exchange markets will function in a crisis. And this is when it is most urgent and most expensive to acquire foreign currency. Swap agreements, not just a phone call During the financial crisis, an acute shortage of US dollars arose in the banks. In September 2008, the Riksbank was able to establish, together with some other central banks, temporary currency loans – swap agreements 7 – with the US central bank, the Federal Reserve.

•  As one of you put it recently, the adjectives used by bankers to describe the MAS are “no-nonsense”, “business-friendly”, “pragmatic”. •  You will be forgiven to think that we are sometimes schizophrenic. •  In my meetings with foreign bank CEOs, I have sometimes, in the same breath, said we would like to see an improvement in the bank’s risk management and internal controls and then asked what we could do to encourage the bank to expand its operations in Singapore – safely of course! Let me explain why we are both “no-nonsense” and “business-friendly”. The financial services sector is one of the key pillars of the Singapore economy. •  It accounts for about 13% of GDP and has strong positive demand spillovers on the rest of the economy. •  The sector employs about 200,000 people, 84% of them are Singapore citizens and PRs. –  It creates good jobs. –  The median wage for Singaporeans in financial services is $ compared to the national median of $  Financial services will become even more important in the future economy. •  The sector grew by an average of 8.6% p.a. during the last five years (2011–2015), two times faster than the overall economy at 4.0%.
As reflected in assessment presented in the recent Bank survey paper I mentioned, the empirical evidence on QE largely stems from ‘event studies’ analysing the impact of QE announcements. [15] This approach is a practical response to the challenges QE poses for researchers. There have been only five episodes of QE in the UK since 2009. The evidence base for QE is therefore narrow, certainly narrower than that available for assessing conventional interest rate policy (a ‘small sample’ problem). Moreover, QE has been implemented in the face of economic and market disturbances. It is difficult to distinguish the impact of the QE implemented in response to those disturbances from the impact of the disturbances themselves (an ‘identification’ problem). Researchers at the Bank and elsewhere have made valiant efforts to address these challenges, reflected in the studies summarised in this article. But drawing robust and universal conclusions is difficult. Nonetheless, those event studies suggest that QE does lower yields, and thus supports an easing of financial conditions that supports the pursuit of the inflation target once policy rates have reached their effective lower bound. But these conclusions are the empirical analogue to former Federal Reserve Chairman Ben Bernanke’s famous statement that ‘the problem with QE is that it works in practice, but doesn't work in theory’. That didn’t seem a very satisfactory place on which to base monetary policy decisions at the time. And – eight years on from when the remark was made – it seems even less satisfactory now.

He seemed to suggest that, were the role of money to be neglected and monetary policy become focused on shorter-term stabilisation of real economic variables, then the longer-term stability of inflation could be put at risks. With inflation already at undesirably elevated levels, the stakes are high. There is still much to do in thinking about whether and, if so, how monetary variables can help pin down the wider nominal dynamics of the economy and keep inflation at target sustainably and credibly over the medium term. So, to conclude, I return to the question asked at the outset: ‘What did the monetarists ever do for us?’ I doubt that monetarism will be (re) embraced by either the academic or central bank communities in the coming years. But – just like the Romans in the famous Monty Python sketch – maybe our understanding of how the monetary policy transmission mechanism has, does and will work owes more to them than we typically care to admit. The views expressed in this speech are not necessarily those of the Bank of England or the Monetary Policy Committee. I would particularly like to thank Ryland Thomas for his considerable help with the analytical work presented in the Annex and Saba Alam, Rich Harrison, Jack Meaning, Martin Seneca, Rashmi Harimohan, Bob Hills and  Page 16  Gavin Wallis for helpful discussions in the preparation of this speech.