samchain/econo-pairs-v1 huggingface dataset:
Exchange control liberalisation began in earnest in the mid-nineties when Malta accepted the Article VIII obligations of the IMF’s Articles of Agreement and the process was completed immediately prior to Malta’s accession to the European Union on May 1st this year. The deregulation measures I have described were accompanied by institutional restructuring, which ensured that throughout the reform process the financial system was not subject to shocks. The new 1994 Banking Act and the related Directives brought Malta’s legislation in line with EU standards governing bank solvency, capital adequacy and large exposures. At the same time, the Malta Financial Services Centre was established as the regulator for financial services other than banking, which remained the responsibility of the Central Bank of Malta. At this time, the Central Bank undertook a number of initiatives to develop a properly functioning money market, focusing mainly on the three-month Treasury bill. An interbank market also began to operate and the Bank began to trade actively in the money market through regular auctions of term deposits and repos. The Central Bank also ceased to extend credit to the Government, thus further underlining its independence. To reduce its influence further, the Government privatised a small bank in 1994 and one of the larger banks the following year. In 1999 it sold its majority shareholding in the other major bank to a global banking institution, HSBC. The arrival of this bank spurred competition and helped to promote better practices.

Michael C Bonello: The banking environment in Malta Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the Raiffeisen Economic Forum, St Julians, 21 May 2004. *  *  *  The history of banking in Malta goes back at least to the earliest decades of the nineteenth century, when the island’s strategic importance as a centre for entrepot trade encouraged the establishment of banking institutions. Among the better known foreign names before World War II was that of Barclays Bank DCO. This was a time when Malta was a British colony and part of the sterling area. Barclays remained in Malta after independence and the subsequent break with sterling in 1972, and contributed to the development of a cadre of bankers trained in the British banking tradition. It left only when the larger banks were nationalised during the 1970s. This coincided with the adoption of a policy of economic autarchy. The major banks were publicly owned and lending rates were set by the Minister of Finance, while the Central Bank controlled deposit rates. Nominal interest rates were kept artificially low, often resulting in negative real rates. Strict exchange controls were imposed to sustain the value of the Maltese lira. In the absence of money and capital markets, the banking sector dominated the financial system. In the circumstances, however, the sector did not operate efficiently.
Both of these tasks make far-reaching demands on how our assets should be managed. In concrete terms, it means that I and my colleagues on the Executive Board must achieve a balance between the requirements our task place on asset management and the goal of generating earnings. In this balance it is obvious that the possibility to carry out our statutory tasks takes precedence. Earnings are only taken into account if they are attained without jeopardising the Riksbank’s central policy functions. The result of this balance is perhaps most easily described with the aid of the Riksbank’s balance sheet (see Figure 1). The Riksbank’s balance sheet Our financial assets are dominated by foreign government bonds 1 , which can be sold if necessary to intervene in the foreign exchange market. In other words, these assets have a direct link to our task concerning monetary and foreign exchange policy. Historically, the gold holding has been justified for similar reasons. However, nowadays it has become more common to regard gold as a financial asset like any other. This also applies to the Riksbank, whose gold holding partly is adapted according to its contribution to the diversification of the total asset portfolio 2 . This adjustment is made within the framework of an agreement with other central banks 3 . Other important assets are monetary policy repos, which comprise a central part of the steering interest rate system 4 . For earnings reasons, part of the repo transactions has been extended by means of FX swaps 5 .

euro and US dollar, are no larger than can be justified for reasons of intervention or diversification. Diversification is the possibility we have to reduce the currency risk. The assumption of the diversification is that the covariation between individual assets’ price movements is not always perfectly positive. This means that a portfolio’s total movement, that is, volatility, will be less. In connection with large movements in the foreign exchange market, an overly narrow currency composition might lead to large declines in value, which could in turn lead to a heavy fall in capital. Given this, we quite simply try to achieve a currency allocation that will minimise the currency risk measured in Swedish kronor, given the currencies we can hold and given our intervention need. Our choice is based on a quantitative analysis using fundamental and standard portfolio theory 8 . Our analysis does not take into account the expected earnings in currency, but merely the currencies’ estimated volatility and mutual correlations. The result of our analysis is illustrated in the following diagram (see Figure 2). 6  This and other questions regarding the Riksbank’s need to have its own capital are discussed in Ernhagen, Vesterlund & Viotti (2002). 7  For a more detailed discussion of the Riksbank’s intervention policy, see Heikensten & Borg (2002). 8  This refers to what is known as the mean-variance analysis that was originally produced by Harry M. Markowitz in the 1950s.
Elvira Nabiullina: Review of recent inflation developments in Russia and economic outlook Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, in the follow-up to the Board of Directors meeting, Moscow, 22 March 2019. * * * Today, the Bank of Russia Board of Directors decided to keep the key rate at 7.75% p.a. We have every reason to believe that the decisions to raise the key rate made last year are most likely to be sufficient to bring annual inflation back to the near 4% target in the first half of 2020. Some indicators have performed better than we expected in December: foreign financial and commodity markets have stabilised, the VAT pass-through to prices is quite moderate, and inflation expectations have turned to decline. In these circumstances, inflation stands somewhat below our December forecast, while short-term proinflationary risks have softened. Given these trends, we expect end-2019 inflation to come in at a lower level of 4.7-5.2% instead of the 5-5.5% range forecast earlier. Let me set out in further detail the factors that were central to our decision. First, as I have mentioned, annual inflation in January-February proved somewhat lower than we expected at the end of last year, In February, it came in at 5.2%. Monthly price growth rates have already been going down. Annual inflation will pass its peak in March-April on the back of the base effect. Our updated estimates suggest that at its highest point inflation may surge to approx. 5.5%.

You were driving, and one of your friends asked you, “When will we make a turn?” If you have a GPS navigator or open up Google Maps, you might be able to say with precision, “In 2.5 kilometers.” When talking about a policy course, the answer might be, “In the next two or three quarters, if things go according to plan.” In real life, we policymakers do not have the luxury of having a GPS navigator, not to mention the fact that this said turn could be moved closer or further away without giving any warnings in this volatile world. What we do have, however, are indicators we observe from our surroundings, and indicators of road conditions and possible storms ahead of us. Similarly, the MPC considers a number of factors when formulating a policy decision—not only the current state of such factors, but also their longer-run trends and expectations of risk scenarios going forward. For a small open economy in an increasingly volatile world, MPC’s decisions will have to be data dependent. In my address to you this morning, I will share with you the factors that the MPC considers when making policy decisions. Since the main objective of a flexible inflation targeting framework is to attain sustainable economic growth while preserving price and financial stability, I am going to take inflation, growth, and financial stability each in turn. 1/5  Ladies and gentlemen, The first factor that the MPC takes into consideration is inflation.
We experienced an economic contraction for five consecutive quarters and property prices plunged by more than 60%. Many families found themselves trapped in “negative equity”, and the unemployment rate was above 8%. Hong Kong began to recover in 2003 after six years’ hard struggle. I am sure that this experience is still fresh in our memory. 4. Japan is another good example. It enjoyed rapid economic development after World War II, quickly becoming a powerful industrial nation. During the late 80’s when its stock and property markets were booming, a huge bubble was created, which we only realised afterwards. Few people spotted the emergence of a bubble at the time, and the extraordinary and irrational exuberance was interpreted as the “Japanese miracle”. We all know now that what a disaster this “Japanese miracle” was for its people. Twenty years on, the Nikkei Index still hovers around the 10,000 level, only a quarter of its peak of 39,000, while the average residential land price in six major cities is equivalent to only a third of its level two decades  BIS Review 167/2009  1  ago. Of course, there are other structural problems that have prevented a Japanese recovery for such a long period. 5. The current global financial crisis was caused by the bursting of the property bubble in the US, which left many financial institutions under stress.

For those who take the view that asset bubbles cannot be identified with certainty, it is neither appropriate nor necessary for the government to take action to burst them. Support for this view comes from the stock market crash in 1987 and the collapse of the IT bubble in 2000. In both cases, central banks were able to stabilise the financial market rapidly by aggressively cutting interest rates and injecting large amounts of liquidity into the market, and the economy and employment quickly resumed their upward paths. But the situation may be very different this time. Because the property and financial markets were closely inter-locked, risks were dispersed by the bundling of sub-prime securities and other financial derivatives, and a large bubble formed. The bursting of this bubble caused great damage to the European and US economies and people in Europe and America have had to pay an unprecedented price. The US government used $ billion to bail out banks and car manufacturers, and the UK government spent GBP 76 billion on rescuing the Royal Bank of Scotland and Lloyds Bank alone. Many European governments have also bailed out their banking systems, including the injection of capital into large banks by the Dutch and Belgian governments. 6. Based on experience in Asia in the past two decades, I believe asset-price bubbles, rather than inflation, pose the greatest risk to financial stability. My reasons for thinking this are many and complex, and we may discuss them on another occasion.
To the extent that a move to off-balance-sheet activities raises banks’ risk, Basel II will result in higher capital charges – and thereby reduce banks’ incentives and possibilities to arbitrage around a leverage ratio. More importantly, the Basel Committee is now in the process of improving the treatment of off-balance-sheet items under Basel II. Second, if we conclude that despite the ongoing reforms of Basel II, off-balance-sheet exposures continue to undermine adequate capital provisioning, the leverage ratio can easily be enhanced to include such exposures. In Canada, for instance, some off-balance-sheet items are added to banks’ total assets when calculating the leverage ratio. Alternatively, we could go further and consider defining a “managed leverage ratio” as proposed by Professor Joseph Mason of Louisiana State University, “which takes all the securitisations and puts them back on the balance sheet”. 21 •  Pro-cyclicality: There are valid concerns that a leverage ratio may amplify the financial cycle. First, the imposition of a leverage ratio in the middle of the current crisis would put additional de-leveraging pressure on banks. Second, in the long run it would make the availability of credit more volatile. Banks would be forced to cut down on lending in a downturn in order to comply with the leverage ratio requirements. Unfortunately, this so-called pro-cyclicality is inherent to all forms of capital regulation. The problem stems from the fact that in most cases, specific capital minima have to be respected throughout the cycle.

Debt has an advantage over equity capital in the sense that payments to debt holders are deducted from profits. In contrast, payments to shareholders, i.e., dividends, are made out of profits and hence are subject to corporate taxes. Forcing banks to hold more capital reduces their tax shield and thereby diminishes banks’ market value. What are the orders of magnitude we are talking about here? Let me offer you a very rough back-of-the-envelope calculation using publicly available data in Switzerland. Assume that a bank has to increase its leverage ratio from 1% to 5%. If this bank is subject to  ”Capital Ratios Helped Mask Looming Crisis”, The Wall Street Journal Europe, 11 November 2008. BIS Review 158/2008  an effective tax rate of 20%, the increase in capital will reduce the bank’s total market value by less than 1%. However, these costs notwithstanding, banks and shareholders may also benefit from holding more capital. For instance, banks that were more conservatively capitalised before the outset of the current crisis have now benefited from their relative strength. In the area of wealth management, for instance, stronger banks have been successful in attracting clients from weaker banks. Moreover, looking at the poor performance of thinly capitalised banks’ stocks over the last decade or so, low leverage ratios do not seem very attractive. Our empirical analysis suggests that risk-adjusted stock returns of banks do not increase with leverage. A cross-sectional comparison of risk-adjusted returns with other industries is also sobering.
First, it is very clear that “shadow banking” is not the same as the non-bank financial sector. This is not a debate about the appropriate regulatory framework for the whole of finance. For example, the vast majority of hedge funds are not shadow banks, and don’t trade in the credit markets or especially illiquid markets. Second, non-bank intermediation of credit is not a bad thing in itself. Indeed, it can be a very good thing, helping to make financial services more efficient and effective and the system as a whole more resilient. We must remember that as we make policy. But, as we know from this crisis and from previous ones, true shadow banking can weaken the system. Regulatory arbitrage, which is always with us, can distort and disguise channels of intermediation. That leads me to my third general point. Shadow banking comes in lots of shapes and colours. There are degrees to which any particular instance of shadow banking replicates banking. The liquidity offered by some shadow banks relies pretty well entirely, and more or less openly, on committed lines of credit from commercial banks. In these cases, the liquidity insurance offered by the shadow bank is “derivative”; there is a real bank in the shadows. But for other shadow banks, liquidity services are offered without such back-up lines. In those cases, claims on the shadow bank have, in effect, become a monetary asset.

Traditional nine-to-five jobs are becoming less common, and people are increasingly employed in less traditional work arrangements. Measuring the creation and destruction of these new jobs is of utmost importance to gain a better assessment of the health of the labor market. We also need to understand how this evolution is affecting job security and earnings stability. While these jobs might provide workers with more flexibility, they might also come with increased income volatility and financial vulnerability. In today’s gathering, we will discuss the measurement challenges we face to better understand this growing segment of the labor market, and we will facilitate a dialogue aimed at developing a workforce aligned with the evolving nature of work. The Fed’s efforts to understand labor markets include analyzing the comprehensive data that exist now. But, in an ever-changing workplace, it is critical that we hear from external stakeholders to understand their views on these changes and to ensure we incorporate them in our assessments. This is an important part of our discussion. As technological changes persist, it is inevitable that the nature of our jobs will continue to evolve. We may not readily recall the days when there was little job flexibility and we did not have today’s technology to assist us in our work. While technological transformation allows for further growth in productivity and innovation, we must also think through how these changes affect the workforce overall. We must realign our workforce development strategies with these changes.
Page 1 sur 8  Asociación de Mercados Financieros Annual Financial Convention Madrid, 21 November 2016 François Villeroy de Galhau, Governor of the Banque de France Europe facing a new political economy  Mr. President, Ladies and Gentlemen, Thank you for your invitation. I am grateful for the opportunity to speak here in Madrid today with my friend Governor L. Linde, in the midst of the Spanish financial community, and in a country which has demonstrated its active commitment to the European project since it joined the European Union thirty years ago. We have come a long way in Europe and our common history and past success will help us look ahead in these challenging times. The Brexit referendum in June and Mr. Trump’s victory two weeks ago have indeed come as shocks for Europe: both have increased uncertainty and are raising questions about the European identity. How should we, as Europeans, react? Not by less Europe: this would clearly be a mistake if we want to collectively master our own destiny in this new world. But by a better Europe, a more focused and efficient one. In concrete terms, we need to adapt in two ways: first, by building actively on our economic and social assets – among them our single currency and monetary policy; second, by coming together around a few new select priorities – including tackling the current “investment crunch”. **  Page 2 sur 8 I. First, Europe’s assets in the new “political economy”.

3  In any event, given the scale of the shock, and even taking account of the economic policy measures most directly affecting non-financial corporations (such as furlough schemes and tax deferrals), different simulation exercises performed by the Banco de España3 suggest that the percentage of firms with liquidity needs in the Q2-Q4 period will rise by nearly 10 percentage points (pp), to stand at 70%, as a result of the pandemic. In terms of size, the percentage of firms with liquidity needs is higher among large corporations; by sector, it is higher in leisure and tourism activities. Nearly 90% of these needs are expected to derive from the maturity of past financial obligations, and close to 50% could be covered using liquid assets and undrawn amounts on the credit lines held before the crisis. The information on bank lending shows firms resorting to this source of financing to cover a large portion of these liquidity requirements. Specifically, after shrinking by 1.1% year-onyear in February, the outstanding balance of bank financing granted to Spanish non-financial corporations rose by 7.2% in July. Analyses by the Banco de España suggest that the ICO's guarantee facility is, in particular, facilitating the financing both of firms facing greater difficulty gaining access to credit and of small enterprises, which have generally been more affected by the impact of the health crisis and have a greater risk profile.
Stuff happens: Forecasts are not promises Let me summarise these points: the MPC doesn’t have a concern only for inflation and, depending on the circumstances, it will face trade-offs with other objectives. This means the horizon over which it’s appropriate to return inflation to target can vary, and that the horizon will generally be beyond the earliest date at which policy can affect inflation. There are therefore many interest-rate paths that can prospectively achieve a particular rate of inflation two years ahead and one shouldn’t expect the central forecast at that date to be a failsafe indicator of future changes in interest rates. 4  BIS central bankers’ speeches  Chart 2 Inflation forecasts explain a small proportion of subsequent average vote  And it isn’t. Chart 2 plots the MPC’s central two-year inflation forecast against the average interest-rate vote on the Committee over the following three months. There’s a moderate correlation – on average, a higher inflation forecast is followed by votes for tighter rather than looser policy, conversely when it’s below target. It’s hardly a tight relationship, however. The degree of fit – the proportion of the policy variation explained by the most recent inflation forecast – is only 8%, even less if you exclude the figure for 2008Q4 (the dot in the bottom left-hand corner). Source: Bank of England and Bank calculations. What seems to have mattered much more is what actually happens to the economy. Chart 3 plots the same average vote against a contemporaneous survey measure of economic growth.

This lot are a bit more random and one can’t say their slightly drunken path for policy does much for the stability of anything in the economy, whether inflation, output or (most obviously) interest rates themselves. But it’s still sufficient to return inflation to target after two years. How is this possible? Fundamentally, it’s because monetary policy begins to affect inflation not just at but strictly within two years. The peak impact may take some time to build, in this model, and it also persists for some time beyond two years. But as long as policy has any effect at all on inflation before the two-year point, there’s an infinite variety of interest-rate paths that can prospectively get you to any given rate at that date. We could invent policies for Committees Xerxes, Yaphet and Zog and still not be done. 2  BIS central bankers’ speeches  Chart 1: Some policy simulations  Source: Bank calculations. This raises a legitimate question. If you can do something about it before then, and all you care about are deviations of inflation from the target – which in our remit “applies at all times” – why not try and eliminate them as soon as possible, like our monotheistic friends on Committee A? Shouldn’t the policy horizon simply be the shortest time delay between changes in interest rates and their impact on consumer prices? Well one problem is that one can’t be entirely sure about what that delay is.