samchain/econo-pairs-v1 huggingface dataset:
It can be seen that volatility declined in developing economies towards the mid-nineties. This is almost a decade after the developed economies experienced their “Great Moderation”. Thus, we can say that this evidence suggests there is a timing mismatch between the great moderation of developed and developing economies. The “good luck” hypothesis and the explanations based on structural factors cannot properly account for this phenomenon. If volatility had fallen only due to good luck, then luck itself should have only been good for developed countries in the mid 1980s, which then took more than 10 years to arrive to help developing ones! Similarly, the argument of increased productivity, such as better inventory management, has similar problems. It is difficult to think that businesses in developing countries adopted these better techniques more than 10 years later. 3  1  Kent et al. (2005) examine also the role of reforms in product and labor markets on output volatility for a sample of 20 OECD countries. For evidence in the case of Chile and estimations of reduced-form VARs, see Betancour et al. (2008). 2  Seventy three economies classified as developing in the IFS data base and containing information since 1975. 3  A similar point for the “good luck” hypothesis in the context of industrial countries has been made by Summers (2005). He argues that the decline in volatility of growth was not synchronized among industrial countries given the common decline in oil prices.

Since imbalances persist on the Swiss mortgage and real estate markets, it is important that banks take adequate account of risks when granting mortgages. We are confident that the banks are aware of these risks. We are also confident that they will not use the latitude afforded by this access to capital to pay dividends or buy back shares, but rather to fulfil their economic function. In addition to facilitating lending, the SNB is helping to stabilise the economic situation through its expansionary monetary policy. To ensure appropriate monetary conditions, we must counteract increased upward pressure on the Swiss franc. We have therefore decided to scale up our foreign exchange market inventions – a tried-and-tested instrument – to shield the Swiss economy. Ladies and gentlemen, within the scope of its mandate, the SNB is doing everything it can, in cooperation with the Federal Council and the authorities, to mitigate the economic impact of the coronavirus crisis on the population and on companies. Page 2/2
In some countries, such as Bulgaria, Croatia, Baltics, Slovenia corporate debt level was rapidly increasing, bringing the debt level very close to 100% of GDP. The higher the debt level, the more difficult the adjustment was, particularly given the soft post –crisis economic recovery and hence the low capacity to reduce the debt burden. In fact, only Slovenia and the Baltic states managed to deleverage markedly, while in Bulgaria, the adjustment was slower and the debt level remained relatively high. In some countries such as Slovakia, North Macedonia, Poland and the Czech Republic, the corporate sector continued to accumulate leverage post-crisis. In the case of North Macedonia, the rise in corporate debt was predominantly driven by external borrowing, mirroring the expansion of foreign companies established in the Technological Industrial Development Zones (TIDZ) that mostly rely on external funding through inter-company loans from their parent entities. Corporate debt continues to account for majority of total private debt in most CESEE countries (close to 70% of total private debt on average). Loose financing conditions contribute to mitigating the risks to corporate debt sustainability. 6  Chart 7. Bank credit to households and non-financial corporations (y-o-y change, in percent)  Chart 8. Bank credit to households (structure, in percent, 2010-2018 average)  (y-o-y growth, in percent, 2010-2018 average)  Source: central banks websites. Household debt increased from a very low base in almost all countries in the region, as supply and demand factors kept this segment underserved.

As late as 2008, the year 2006 was still being seen as one of wasted resources. But by 2009, with revised estimates, the experts were telling us that three years earlier, the euro area was overheated and output exceeded its potential by a significant amount. Mismeasurement of the output gap can lead to errors not only in monetary policy – if and when central banks incorrectly rely on this information – but can also lead to mistakes in fiscal policy. In 2006 we had a fiscal deficit in the euro area as a whole. Alarms about fiscal soundness should have sounded before the crisis. But the alarms would have sounded much louder if the EC, the IMF and others had not suggested that the economy was running below potential. Inappropriate reliance on mismeasured output gaps can lead to complacency during good times. 2  BIS central bankers’ speeches  I recount this example about how the output gap can be misused in policy debates because once again, as we are coming out of the crisis, some voices are stressing the extent of the output gap that the euro area is facing today, perhaps drawing conclusions about policy that could again be reversed as time goes by. The focus on price stability must remain unrelenting. *** That said, another lesson is the following: the central bank focus on price stability is insufficient to maintain overall stability in the economy.
[7] Changes in the structure of the financial sector – both secular trends and the consequences of regulatory changes introduced following the crisis – have shifted activity away from banks to nonbank financial institutions (NBFIs) (what we used to call ‘shadow banks’). The NBFI sector has become a more important part of the financial sector and, as a result, a more important channel of monetary policy transmission. For monetary policy makers, understanding transmission via the asset markets where NBFIs operate has therefore become more important. How money flows within the financial sector – among banks, among NBFIs, and between banks and NBFIs – influence asset prices are becoming more central relative to the more traditional analysis of how financial flows between banks, on the one hand, and households and firms, on the other, influence spending and pricing decisions in the real economy. This has important implications not just for the character of the analysis but also the definition of the relevant measures of money upon which focus is required. While this shift has been evident for some time, the so-called ‘dash-for-cash’ episode at outset of the Covid-19 pandemic brought home the potential magnitude of these effects. As the label itself  Page 5  suggests, the conventional explanation of this event suggests a lack of safe and liquid monetary assets fed market dislocation. This is an episode to which I will return later in the talk.

I have in mind, in particular, the framework for the development of decentralised finance (Defi), for which the usual regulatory frameworks come up against the absence of easily identifiable issuers or providers in an environment governed by protocols executed automatically without intermediaries, and the absence of an appropriate jurisdiction for the services offered. In order to build trust in the financial industry of tomorrow, we therefore need to follow together a two-pronged learning curve: exploring the transformation potential of new technologies on the financial sector, and identifying the regulatory, governance and best practice principles that must accompany this transformation. In this respect, I cannot emphasize enough the relevance for us of the experiments that we have recently conducted with the sector, for our activities of putting into circulation the currency that we issue as a central bank, as well as for our activities as supervisor of banks and insurers. The Banque de France thus performed nine experiments with “wholesale” central bank digital currency between mid-2020 and today. As for the ACPR, it conducted this year, following the publication of its July 2020 report on the governance of algorithms which outlines the principles of the proper use of AI in the financial sector, its 1st Tech sprint to test the market in practice on the concept of algorithm explainability.
We’ll miss great British architects of our projects, like former Chancellor Sir Kenneth Clarke, whom I can personally testify to how much he contributed. What we do sometimes regret is when Britain’s vibrant debate on European issues verges on schadenfreude in relation to our own projects and ambitions. Take, for instance, Sir William Cash, a long-standing Conservative Member of Parliament, who at a debate on euro membership in 1997, insisted that “the euro would be extremely weak” and that “we are heading for disaster.” Fourteen years later, in 2011, Bill Cash wrote that “the Euro with its one size fits all approach and the uniformity demanded by the EU simply cannot work... The survival of the euro itself is in question due to its structural shortcomings and the inherent workings of monetary union.” Well, here we are, more than a decade later, and the euro is still alive and kicking. Not only has the euro survived, but it is recognised and used globally, including outside its own borders as both a store of value and a means of trade. The single currency has also proved remarkably stable, with inflation averaging 1.7% since its inception in 1999, compared with 4.9% during the two decades before. The euro has therefore helped to protect the purchasing power of European citizens, which has increased by 15% since 1999. Page 3 sur 9  Moreover, the euro is not simply an elite project as is frequently charged.

We nevertheless have reasons to cheer: in 2021 around EUR 100 billion were invested in the European technology ecosystem, almost three times the previous record of 2020, with around 100 new unicornsi. Furthermore, although technologies have not yet shown their full potential in terms of productivity, we may be at a turning point with the latest advances in artificial intelligence, biotechnologies or telework-related reorganisations - after a lag which corresponds to the process of appropriating these technologies by the economic fabric (investment, training, etc.). Page 7 sur 9 These disruptions are also reflected in the monetary, financial and payments spheres – which we scrutinise as central banks and supervisors –, where digitalisation is bringing about a triple revolution – and it is far from over: (i)  First, the arrival of new players: new actors born from the tech world – Fintechs and Bigtechs – are challenging historical players with radically new approaches to financial services and at present much less regulation;  (ii)  Second, the emergence of new assets: crypto-assets from the blockchain universe in the form of tokens: they will never according to me be credible as “crypto-currencies”, but could be used as settlement means – think of stablecoins for instance;  (iii) Lastly, the emergence of decentralised market infrastructures: new technologies tend to reduce the use of proven centralised settlement systems. These revolutions offer the potential for increased market efficiency while reducing costs and time.
Consumer Loans and Credit Card Claims (Real Quarterly Percentage Change, End Values) 2008  Consumer Loans  2009  III  IV  I  II  III  IV  6.0  -5.0  -0.7  2.0  2.0  2.2  Housing  3.5  -4.4  -0.6  2.0  2.5  3.4  Automobile  -0.5  -11.9  -10.5  -4.9  -5.7  -7.1  Other  9.6  -4.5  0.5  2.9  2.5  2.1  Credit Cards  6.6  -0.4  -3.3  5.0  1.7  -1.9  Source: CBRT. 25. Measures taken by the Central Bank to maintain financial stability and to promote the functionality of credit markets had favorable impacts on credit markets during the crisis. Policy rate cuts and stabilizing liquidity measures were reflected on credit rates and this contributed to the easing of financial tightness. Especially as of the second half of 2009, with the decline in credit rates, the uptrend in credit volume became more pronounced. Distinguished Guests, 26. The comprehensive fiscal incentive policies implemented to alleviate the effects of the global economic crisis caused fiscal deficits and debts stocks to soar globally, primarily in advanced countries. Additionally, the decline in tax revenues consequent to the contraction in economic activity accelerated the increase in budget deficits. 27. In parallel with the global rise in government fiscal balances, the ratios of budget deficits and debt stocks to national income also soared in Turkey in 2009.

In the absence of almost total retrenchment in international banking – except in cases involving countries issuing reserve currencies and with strong fiscal capacity – the problem these swap lines were meant to address will not go away. The past few years have seen lively discussion of whether it is desirable and feasible to anchor the swaps more firmly in the international monetary system, through clearer and more transparent access criteria and a multilateral governance mechanism. Clearly, there are arguments for such institutionalisation, but I sense that this might be premature and that we should allow the discussion to evolve further. Those who oppose constraining central bank discretion in this area present important arguments. The most compelling are those based on the analogy with liquidity provision and LOLR in a national setting, where flexibility, speed, and large scale can be essential. This argues in favour of giving central banks a major role in the arrangements. Less compelling are arguments based on moral hazard, which would apply equally to domestic arrangements. What seems clear is that even greatly enhanced IMF facilities are not close substitutes for swap lines among central banks. First, the swap lines are there to provide short-term collateralised FX liquidity to banks, whereas IMF facilities are uncollateralised longer-term lending to sovereigns and are intended primarily to mitigate balance of payments problems. Norway and the euro area were offered USD swaps without prior balance of payments disequilibrium and the euro area, at least, badly needed it.
This is true both at a domestic and an international level. A first step is for the relevant national authorities to have clear, well established, processes for decision making and for communicating externally, and to ensure that these processes are well understood by all parties. In the UK, HMT, the Bank and the FSA have a published Memorandum of Understanding (MOU), established in 1997, which sets out a high-level framework for co-operation in the field of financial stability. Although there is no such agreement at an international level at an equivalent level of detail, a ‘Memorandum of Understanding on co-operation between banking regulators, central banks, and finance ministries of the European Union in Financial Crisis Situations’ was signed earlier this year. It is fair to say, however, that this represents only a first step. Finally, if the authorities decide to take measures to mitigate the systemic impact of a crisis—for example through emergency liquidity injection of one sort or another—it is vital that the central bank, supervisor and ministry of finance act, and are seen to act, in a decisive and joined up way. In the UK, the MOU provides for strategic management of a crisis at meetings of a ‘Standing Committee’, the members of which are senior representatives of HMT (who chair the meetings), the Bank, and the FSA. BIS Review 79/2005  5  liquidity became fragile, then, all else being equal, firms would be more vulnerable to liquidity problems.

2  BIS Review 79/2005  3. How have firms reacted to these changes? The banking industry has, not surprisingly, responded to these changes by paying greater attention to liquidity risk management. And, as well as day-to-day management, banks have given more consideration to how they would cope with extreme or ‘tail’ events. Banks have developed, or are at least in the process of developing, sophisticated scenario analyses, and are assessing the contingency arrangements that would be required to respond to these scenarios. It is certainly encouraging to observe the determination with which many banks are addressing liquidity risk, and it is at the same time noteworthy how efficiency drivers have led many banking groups to take a more centralised approach to liquidity management. But, despite the progress that banks are making in addressing liquidity risk, the framework that underpins their contingency plans makes a number of assumptions, particularly regarding access to funding markets. There seems, for example, to be a widespread view that, whatever has happened to a firm’s access to wholesale unsecured funding, it will be able to borrow secured against good collateral. Lying behind this is probably an expectation that national authorities, and in particular central banks, will be ready to provide liquidity against good collateral in the event of the failure of one or more of the markets for secured borrowing.
He is supposed to explain both what is happening and what would happen if such and such an action were taken.” 10 However, as he also points out: “The purpose is not that he should reach a conclusion of the type: this is how you should act now! … Any economically important decision must also be based on a number of human, ultimately political, assessments that the expert, the economic scientist, is by no means more qualified to decide on than other good citizens.”10 It can often be difficult to distinguish the object, ie exercise objectivity, from the perception of that object, ie subjectivity. Ragnar Frisch discusses this too. In an article written in 1936, he draws a line from the natural sciences through to the social sciences, where “… the difficulties of arriving at such unconditionally valid results become greater and greater. The reason for this is first and foremost that the whole system of ideas on which the natural sciences are based becomes increasingly more diffuse as one approaches the social sciences.”10 When I was a student here at the University of Oslo at the beginning of the 1970s, there was a fairly broad consensus that the problem of unemployment had been solved once and for all. The belief was that the economy could be fine-tuned through government management, control and regulation. A similar optimism prevailed with respect to economics in the years prior to the financial crisis.

Last but not least, rules and principles for economic policy were introduced in Norway, as in other countries, to prevent policy decisions based on shorter-term considerations and shifting preferences. The Norwegian economist Finn Kydland, who is from my home district of Rogaland, received the Nobel Prize in economics for his study showing that economic  4  BIS Review 109/2010  performance can be improved if policymakers can commit to a pre-established set of credible policy rules. 7 Four pillars were established in the 1990s and in 2001 to stabilise economic developments: •  the petroleum fund mechanism  •  the fiscal rule  •  a floating exchange rate  •  inflation targeting  This system was introduced in response to the sharp upturns and downturns in the economy over the first twenty years of the Norwegian oil age. As a result of the petroleum fund mechanism, a greater share of government petroleum revenues is invested abroad. This curbs the impact of oil price fluctuations on demand and output – as well as on inflation and the exchange rate. The rules for the investment of these oil revenues prevent individuals or groups from gaining strong control over Norway’s oil wealth. The fiscal rule for the central government budget states that petroleum revenue spending shall be limited to the return on the funds invested abroad. This provides for a gradual phasing-in of oil revenues and a rate of spending that can be sustained for several generations.
Information technology  My second worry is about the broad area of information technology – and this has really a couple of dimensions to it. The first is legacy: that most firms still have so much “clean-up” to do to fix longstanding technology and data issues that have built up over the years: systems don’t talk with one another; data aggregation takes days or weeks, when the needs are really more immediate; and data quality isn’t what it needs to be. So, there is still a significant amount of basic blocking and tackling that needs to be done. The second dimension that concerns me is the competitive landscape for financial institutions in the digital world. As more and more non-financial entities are entering the financial arena, like Amazon, Apple, peer to peer lenders, and others, I worry that financial firms lack the agility and ability to compete at the level that they need to – particularly with the constraints of regulation. At the end of the day, will financial firms be able to compete in the same way – or will these largely unregulated players be the future of our financial system? The final dimension I’m certain won’t surprise you – and that’s cybersecurity. I’m sure I don’t have to explain too much why this keeps me awake at night, but suffice it to say that as I think about the kinds of risks that might cause the next crisis, cybersecurity is the one that worries me the most.

As we strive to find the balance, it is important that we engage with you – the industry. And, it needs to be productive engagement. We need honest, frank and educated discussions, we need concrete examples, we need solid data, and we need to work together to gain a better understanding of a shared goal and how to get there. Thank you for your attention. BIS central bankers’ speeches  7