samchain/econo-pairs-v1 huggingface dataset:
In addition, it is often difficult to determine with a sufficient degree of certainty whether financial imbalances are developing. It is also difficult to determine the magnitude of the imbalances and how close they are to being triggered. An increase in interest rates will not necessarily curb the build-up of financial imbalances to a sufficient extent. It cannot be ruled out that in some cases very substantial interest rate changes will be required. The costs may then be high. History has demonstrated that the basis for downturns is laid during upturns. Financial crises are often characterised by an initial phase of excessive optimism, where risk assessments deteriorate, the willingness to incur debt increases and asset prices rise. When negative news appears and spreads, investments do not match expectations and the sentiment is reversed, asset prices fall. Many  4  BIS Review 25/2003  experience problems in servicing their debt. The factors that contributed to the upturn may also amplify the downturn. As a rule, periods of expansion are accompanied by higher inflation. The objectives of price stability and financial stability then imply the same medicine: a higher interest rate. However, this will not always be the case. In Japan, equity and property prices surged in the 1980s, while inflation was low. In the US, household and corporate debt rose fairly sharply and equity prices trebled between 1994 3 and 1999, and inflation was moderate.

The debt burden thereby increased when the economy declined. During the three banking crises, many banks had an aggressive lending policy. Bank lending (in constant prices) increased sharply prior to the crises and decreased markedly afterwards. Deflation in the 1920s led to a real increase in lending and debt. Favourable financing terms for banks underpinned expansion during all three periods. In the second half of the 1890s and during the First World War, commercial banks expanded sharply by issuing new equity. Savings banks were not as expansive. One reason for this may be that savings banks were subject to a certain degree of supervision and regulation. There was little regulation of commercial banks until the interwar years. In all three crises, the banks that were most expansive were also the most severely affected in the subsequent crises. In the 1980s, strong lending growth was primarily made possible by foreign funding. When foreign funding dried up, when confidence in the Norwegian economy deteriorated, bank borrowing from Norges Bank increased sharply. In addition, collateral was not required – as it is now – as security for loans from Norges Bank. During the banking crisis that followed, the division of responsibility between the government authorities and Norges Bank was clarified. If solvency support proves to be necessary, the guarantee funds, and as a last resort the government, shall provide such support.
A single supervisor with a single rulebook entails that supervisory and regulatory activities should be implemented in a harmonized and consistent manner, therefore lowering or eliminating the current cost of compliance for banks with cross-border operations. 4  BIS central bankers’ speeches  Currently, there are widespread differences in terms of the interpretation and application of regulatory and prudential definitions across Member States, and especially in what concerns supervisory forbearance. In terms of the latter, the National Bank of Romania has chosen a very transparent and tough approach, with the result that non-performing loans indicators have soared. At the moment, the non-performing loan ratio calculated based on prudential regulations stands above 22 percent. However, considering the new indicator on asset quality defined by the European Banking Authority, which covers both government and non-government exposures, the ratio declines to around 17 percent and is seen falling even further when fully provisioned non-performing loans are written off. In this context, the recent increase in provisioning by the Romanian subsidiary of Erste Bank should not be interpreted as a tightening of the supervisor’s stance in the run-up to the asset quality review, but simply as business as usual, in the sense that the bank is correctly applying the same regulations and accounting standards as the rest of the system. Fifth and final argument, apart from the potential benefits mentioned so far, I believe that not opting for the Banking Union may entail significant costs for non-euro area countries as they are vulnerable to contagion effects.

The issue here is not only the financial effort involved, but also the difficulty, from a political perspective, to explain to the public the need for a financial contribution to mechanisms benefiting wealthier countries for the time being. A case in point is the fall of the Radičová cabinet in Slovakia in 2011. Euro adoption – a conclusion In my view, euro adoption is in the best interest of EU Member States in the long run – given the high degree of business cycle correlation and market integration –, but several essential preconditions, added to the nominal criteria, need to be cumulatively fulfilled in order to make the most of these benefits. I have been on this job long enough to remember a time when the dominant view was that fulfilling nominal convergence criteria was enough for successful euro area membership. The paradigm appears to have shifted. First, the emphasis falls now on the sustainability of nominal criteria fulfilment. Second, achievement of a relatively high degree of income per capita convergence, prior to joining the euro area, is considered increasingly important, since too much catching-up in terms of real convergence poses the risk of more intricate economic cycle management in the absence of independent monetary policy. Third, another essential prerequisite is that the new institutional framework of the euro area has to prove its efficacy in preventing and addressing the imbalances menacing economic activity.
2 Albert Gallatin’s efforts to solidify the Hamiltonian structure and to establish fiscal discipline in the early years of the United States are less well known. 3 As you will see, they clearly merit attention. The story of Albert Gallatin provides a wonderful example of how Swiss and American politics and economics have nourished each other for centuries through the exchange of ideas and people. Moreover, Albert Gallatin’s legacy arguably provides some valuable lessons which remain relevant in the present time. Today, I would like to focus on a crucial part of Gallatin’s legacy – his strong adherence to fiscal discipline. But first, let me take you on a brief tour of Gallatin’s fascinating life story. 2. The life and achievements of Albert Gallatin  For the sake of clarity, allow me to divide Albert Gallatin’s life into four distinct periods. 1761-1788: Youth The first period covers Gallatin’s life prior to becoming politically active in the United States. Gallatin was born into a wealthy merchant family in Calvinist Geneva in 1761. He became an  1  Gallatin served 13 years – longer than any other serving Secretary of the Treasury before or since. 2  Ron Chernov, Alexander Hamilton (The Penguin Press, New York NY, 2004), provides the most recent and complete Hamilton biography.

This is thanks to unprecedented international cooperation on financial reforms under the aegis of the Financial Stability Board and the coordination of the Basel Committee in the banking sector, and thanks to the remarkable efforts made by the banking industry. Thankfully, the world of finance in 2017 is not what it was in 2007. That is particularly true for banks in Europe and in France. It is important to stress this achievement, as the European banking sector is often criticised, particularly from the other side of the Atlantic, solely in the light of its difficult cases or institutions that are trailing at the rear, whereas on the whole, it is clearly far more robust than before the crisis. Banks in France for example, have doubled their levels of capital since the crisis and generate a return on equity (RoE) of 7%, and even up to 9% or 10% when adjusted for one-off items. As regards this return, it is clearly lower than the pre-crisis levels, but in certain respects, this can be expected and is reasonable. We cannot ask banks to generate a double-digit return on equity when interest rates and the risk-free rate are so low and banks are indeed more resilient than they were. Moreover, this improvement does not only concern the banks: it can also be seen in the non-banking sector and the financial markets, with particular progress made with regard to over-the-counter derivatives and the shadow banking system.
This is not entirely correct because any country with its own currency must hold foreign exchange reserves, and it is easy to demonstrate that the reserves must be larger under a pegged exchange rate than under a floating exchange rate. I could continue to beat the drum on simplifications and magic solutions. The main thing, though, is that selecting a currency and monetary policy regime is not as simple as it is sometimes made out to be. And it is not merely a question of which policy is best if implemented perfectly – because implementation is never perfect. Mistakes are made, and then it matters how robust the systems are in the face of such mistakes, and what scope there is to correct them without overstraining the systems. 2  Monetary Bulletin 2016/4, p. 12-14. http://www.cb.is/publications/publications/publication/2016/11/16/Monetary-Bulletin-2016-4/  10  Conclusion In view of the discussion of monetary policy that has taken place recently – not least during the run-up to the Parliamentary elections – I consider it necessary to engage in continued thoughtful discussion of what type of monetary policy framework will be most appropriate once the capital controls have been lifted, as we are not members of a currency union. Many attempts have been made in this regard, and the Central Bank has published a range of material on the topic.

Monetary policy: achievements and review? Már Guðmundsson, Governor of the Central Bank of Iceland. Monetary policy meeting of the Iceland Chamber of Commerce, held at Harpa in Reykjavík on 17 November 2016  Madame Chairman, honoured guests, The Iceland Chamber of Commerce has a long-standing tradition of holding a meeting like this one on economic developments and prospects and monetary policy. The meeting is held following the publication of the Central Bank’s autumn forecast and, in latter years, the Monetary Policy Committee’s interest rate decision. In recent years, it has been the practice to select a particular topic for the meeting, and in keeping with this, today’s topic is: Is independent monetary policy too costly? This departs somewhat from the contents of the Central Bank’s Monetary Bulletin and current tasks of monetary policy, but I will touch on these towards the end of my speech today. Yesterday the Bank published Monetary Bulletin 2016/4, which contained the Bank’s new macroeconomic forecast, and announced the Monetary Policy Committee’s interest rate decision. The big picture of the current state of the economy is that things have seldom been better. Icelanders have received a significant boost from improved terms of trade and growing goods and services exports, particularly due to strong growth in the tourism sector. It is this that underlies the vast increase in Icelanders’ real income and the country’s high employment level. In addition, Icelanders have proven more cautious this time than often before during an economic boom.
The ECB’s monetary policy strategy has been described as ‘rule-based, but not rule-bound’ approach, while the Bank of England’s flexible inflation regime has been characterised as an expression of ‘constrained discretion’. [9] There is a tendency in the academic literature to emphasise differences in policy framework, but these two expressions reflect a common pursuit of systematic yet pragmatic monetary policies in pursuit of price stability. Indeed, the most striking tendency in the design of monetary policy frameworks across advanced economies over the past thirty years has been convergence towards such a common approach, which embraced many monetarist tenets. [10] The notable exception to this pattern is the fifth and final element of the monetarist agenda listed above: the central role for monetary quantities in the analysis and presentation of monetary policy transmission. This part of the monetary framework is widely seen as dis-credited, largely on the back of the poor experience with intermediate monetary targetry in many countries from the mid-1980s onwards. Monetary quantities have not played a significant role in monetary policy decisions. Does experience with QE policies imply this outcome should be reviewed? Page 9  Encompassing QE Colleagues recently published a survey of research into QE conducted at the Bank and elsewhere, building on previous similar exercises.

When shocks to money demand are large, expressing the stance of monetary policy in terms of an interest rate – in other words, as a price rather than as a quantity – can help to insulate the wider economy and price developments from the volatility that those demand shocks induce in monetary quantities. This insight had long been embedded in central bank practice, with short-term interest rates being the operational instrument of monetary policy. And it is now central to the canonical model of monetary policy outlined in Woodford’s magnum opus Interest and Prices, which both captures and has catalysed the large and still growing literature on interest rate rules for monetary policy. Three questions: Past, present and future While I will revisit some of these arguments in what follows, you should not expect much innovation from me on those dimensions. But, two decades on, a number of new questions have emerged, which I do hope to address. Page 4  Past: What are the lessons of the past twenty years? A natural focus is to explore how we should think about the expansion of central bank balance sheets via quantitative easing (QE) and other mechanisms. In Lord King’s article, discussion of QE is limited to the case of Japan and treated as something of an anachronism.
The focus of strengthening the system since the crisis has been on building the resilience of the core banking system. The results have been transformative. A system that could absorb losses of only 4% of (risk weighted) assets before the crisis now has equity of 13.5% and is on track to have overall loss absorbing capacity of around 28%. 32  Our stress tests show that it could absorb a synchronised recession as deep as the financial  crisis. And if signals emerge that what could happen to the economy is getting worse, or the feedback loops in the system that would be set in motion are strengthening, we will go further. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  But bank capital is not always the best tool to use to strengthen the system and is almost certainly not best used in isolation. It is a classic ‘cure’ – a largely fatalistic approach, taking what could happen in the economy and the feedback loops in the financial system as given, and ensuring they can be withstood. 33  Sometimes we must be fatalistic. We don’t have the means to prevent foreign credit booms, for example. But building resilience into the financial system solely using bank capital is equivalent to addressing road safety only with tougher car safety standards – more airbags – while ignoring standards of driving behaviour. Such an approach is not robust: no airbags will deal with all types of crash.

This may include the use of machine learning and artificial intelligence capabilities to mitigate ML/TF risk, while preserving the speed and convenience of faster payment systems. Proportionate regulation Let me now turn to the next regulatory priority, which is proportionate regulation. Importantly, efforts to strengthen the regulatory and supervisory framework for payments oversight must seek to uphold a key principle: proportionality. More than ever, regulators will have to make tough 3/6  BIS central bankers' speeches  judgment calls on the appropriate trade-offs between competing regulatory demands. For example, open data initiatives that seek to democratise access to customer information would need to consider implications to data security as well as cultural attitudes to data privacy. Providing a seamless user experience to on-board customers for digital payments could also run counter to AML/CFT controls that are traditionally held up as best practice. These are but a few of the examples of the dilemmas that we will have to grapple with. In this regard, a ‘one-size-fits-all’ approach is tempting because it is simple. But its simplicity is precisely why regulators must avoid it. Effective regulation today demands differentiated regulatory requirements that cater for a spectrum of risk profiles. This should be ascertained after undertaking a granular assessment of these risk profiles, and identifying the necessary areas that continue to require risk mitigation measures. Of note, this goes beyond having sandboxes, which are already more common in the regulator’s toolkit. In Malaysia, for example, the regulatory regime for e-wallets is differentiated by size.
Second, that 2017 not be a lost year in Europe for Economic Union, which must complete and balance out the success of Monetary Union. The short-term priority is to build a “Financing and Investment Union", to better mobilise the 350 billion of European excess savings. But it would also be desirable to start preparing the options for a better collective economic strategy, which will be submitted to future governments: the White Paper to be published by the European Commission by spring is a good opportunity. 1. For our country 2017 is obviously the year of a great democratic debate in France. In the economic field, I make the wish that this debate clarifies the assessments, presents the possible solutions, sheds light on the avenues for action. The Banque de France is independent: this essential value is valid for all times, but even more so this year. Our role, therefore, is certainly not to hand out good and bad political points, and we will have, like any major public institution, a duty to exercise restraint. As a trusted institution, we may just contribute to a serious debate, thanks to the data and studies we publish, and by recalling the facts. In view of the successes of many of our neighbors, which are compatible with the European social model, I have already had the opportunity to say that fiscal credibility and economic reforms are the best way to improve growth and employment in France, and for France to be listened to in Europe.

Mugur Isărescu: Closing remarks - EUROFI High Level Seminar 2018 Closing remarks by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the EUROFI High Level Seminar 2018, Bucharest, 27 April 2018. * * * I am honored to be invited to give a few closing remarks at this EUROFI conference. EUROFI has turned, over the years, into a major European event that deals with financial issues. The Great Recession compelled governments and central banks, regulators and supervisors of finance, to put into motion a radical reform of the ways financial industry does function. I do not wish to bother you with remarks that repeat what seems to have become a new conventional wisdom. However, it is never redundant to remember that oversize, too high leverage, unconstrained and reckless risk-taking, dangerous financial products, insufficient transparency, and, not least, poorly understood systemic risks, have forced the content and the pace of reforms. The European Institutions created a new regulatory framework after the eruption of the Crisis. The European Systemic risk Council (ESRB) represents the attention we all give to interconnectedness, to systemic risks that show up in financial markets. Not long ago, our widely embraced practices and thinking in central banking, in the regulation and supervision of finance, seemed like indestructible building blocks. The expansion of shadow banking, Fintech, nonconventional threats under the appearance of cyber-attacks, tail events in general, keep us vigilant and ask from us open-mindedness and constant reexamination of our beliefs.
The equilibrium real rate (typically labelled r*) is the rate required to match the desired levels of saving and investment. The combination of slower population growth, rising life expectancy and an ageing population acts through multiple channels to push up desired savings and reduce desired investment. A reduction in desired investment also reflects slower productivity growth and, possibly, shifts in the structure of the aggregate production function. In the wake of the global financial crisis, risk appetite may also have diminished, which provides a disincentive to invest, reinforces the precautionary saving motive and encourages a portfolio shift to less risky assets, such as sovereign bonds. Finally, the scars of the crisis have also affected desired savings and desired investment levels: many banks, firms, governments and households have focused on repairing their balance sheets or have been constrained by legacy effects when making investment decisions. Some of these forces may go into reverse over time, especially if we see a more complete recovery from the crisis and if there were improved public policies to cope with demographic trends and better productivity developments (such as the successful, widespread adoption of artificial intelligence, innovations in automation and enhanced infrastructure investment). However, for now the downward pressure on the equilibrium real rate is a significant environmental constraint on the options available to central banks. The low equilibrium real rate has been compounded by weak nominal developments over the last decade.

A corollary fundamental principle in the design of monetary policy in this environment is that – in order to avoid a long-term de-anchoring of inflation expectations – easing measures must be sufficiently pre-emptive to guard against a further downward drift in inflation dynamics. Furthermore, under conditions in which policy rates are likely to rise only gradually over time, fiscal measures have an especially powerful macroeconomic impact, both by providing stabilisation in the event of adverse shocks and by supporting the return of inflation to our aim. In conclusion, I have briefly described some of the forces shaping the ECB’s current monetary stance. However, there are still many open questions that are raised by the combination of low interest rates and low inflation. Accordingly, this year’s review of our monetary policy strategy provides an excellent opportunity to take stock, reflect on our experiences and listen to a wide range of external voices. 1 For a more detailed discussion, see: Lane, P. R. (2020), “The monetary policy toolbox: evidence from the euro  area”, speech at the US Monetary Policy Forum, New York, 21 February; and Lane, P. R. (2019), “ Determinants of the real interest rate”, remarks at the National Treasury Management Agency, Dublin, 28 November. 2/2  BIS central bankers' speeches