samchain/econo-pairs-v1 huggingface dataset:
The reason for this is that those investing our money today are to a greater extent assessed – and thereby also rewarded – in relation to other agents and on a shorter-term basis than was the case in the world of traditional banking. It is also simpler to follow in others’ footsteps, as there is more information on what others are doing. The crises we have experienced in recent years have recurrently shown that events assessed as almost improbable can nevertheless occur sometimes and will then have a severe impact. To use Tage Danielsson’s words, this type of risk could be described as follows: Before the event occurred, it was extremely improbable that what happened could actually happen. There are still those who believe that what happened was so incredibly unlikely that it probably did not really happen. And one can understand that they have their doubts, because according to their probability calculations, this sort of event happens so rarely. And if what happened was really true, the risk of it happening  2/5  again is ridiculously slight. Actually, it was lucky it did happen. Because now we know that it is almost definite that it will not happen again. It is possible that there are some inherent mechanisms in the agents’ ways of acting that may lead to these risks being undervalued. One such mechanism could be the fact that they are evaluated in the short term.

In contrast, the U.S. version of the ratio uses daily averaging. BIS central bankers’ speeches  9  Recent SEC money market fund reforms are beginning to change the landscape of the U.S. money fund industry and will likely influence investor use of prime funds relative to government funds or other investment options. Money fund reforms are one of many factors expected to increase demand for high-quality, short-term assets – a trend that will have implications for the relative pricing across different money market instruments and flows to different investment options, including Fed RRPs. We are also attentive to changes in money market infrastructure and technology. For example, the tri-party repo market has undergone significant changes in its settlement process and infrastructure since the crisis. Recent changes to the timing of settlement and maturity of tri-party repo trades have implications for market participants, such as making triparty repo investments unattractive for lenders requiring morning return of funds. All these factors contribute to changing dynamics in money markets, with some potentially resulting in greater demand for Federal Reserve liabilities. New data collection on money markets In addition to developing new tools and approaches to operate in this environment, the Fed is also improving tools that support daily implementation of monetary policy and analysis of money market conditions.
4  BIS Review 103/2009  Figure 7: Special CPI Aggregates I and I* (Annual Percentage Change) 9 8 7 6 5 4 3 SCA-I  2  SCA-I*  1 0609  0409  0209  1208  1008  0808  0608  0408  0208  1207  1007  0807  0607  0  I*: Tax adjustments corrected SCA-I. Source: ISE, CBT. Parallel to these developments, while the fall in near-term inflation expectations became more pronounced, medium-term expectations have posted a limited decline and the expectations curve has flattened over the last three months (Figure 8 and 9). Currently, expectations for end-2009 are anchored at 6.09 percent, well below the target. On the other hand, end-2010 inflation expectations, calculated by averaging inflation expectations for 12and 24-months ahead remain consistent with the target at 6.5 percent. Figure 8: 12- and 24-Month Ahead CPI Figure 9: Inflation Expectations Curve* Expectations * (Annual Percentage Change) (Annual Percentage Change) 10  8.0  9  7.5  8  July April Inflation Target  7.0 6.59  7 6  6.40  5.5  12 month 24 month  *CBT Business Tendency Survey results from the second survey period Source: CBT.

Fiscal and monetary policies are but tools to achieve these goals. Government policies can play a vital role in providing a stable and predictable macroeconomic environment for investors, which is why the policy horizon is long-term. Monetary policy is anchored on the pegged exchange rate to the Dollar, so interest rate risk premia over the Dollar can be kept low and investors have confidence to commit long-term funds. The result of this long-term success is that Riyal financing is available with no currency risk and at attractive interest rates. Saudi Arabia’s fiscal policy provides a stable background for investment. It works on countercyclical basis, so that it runs budget surpluses when times are good, as at present, so as to allow for deficit spending to keep the economy on a steady growth track when global demand for oil weakens. The result is that Saudi Arabia currently has a very low debt/GDP ratio (less than 10%). Saudi Arabia also has favourable tax rates for businesses (such as a maximum 20% rate on foreign enterprises) with no capital controls on remittances abroad. The government provides support for investment projects besides developing a supportive legal and arbitration structure. In summary, Saudi Arabia’s economic policy remains cautious and long-term and provides global investors with an ideal backdrop for allocating their capital to the different sectors of the Saudi economy. 2. Financial stability  A sound financial system is the backbone of an economy. Indeed, banking crises tend to be very costly to the exchequer and taxpayers.
This translated into a drag on the economic recovery. As a result, the singleness of monetary policy was no longer ensured, posing significant challenges to the ECB’s policy conduct. Fixing the monetary transmission mechanism and the elimination of tail risks The ECB responded forcefully to these challenges with a number of standard and nonstandard monetary policy measures. The main purpose of the non-standard measures was to reduce financial fragmentation and restore an appropriate functioning of its monetary policy across the euro area. In particular, the measures were geared towards removing two sources of risk premia: bank funding risks and redenomination fears. Higher funding risks for banks had been a symptom of the crisis ever since liquidity strains had first emerged, almost overnight, in the summer of 2007. They had escalated to systemic proportions after the Lehman demise. Since the onset of the crisis, the ECB’s mainstay response to this problem has been twofold: a policy of unlimited provision of liquidity at fixed interest rates against eligible collateral in the weekly main refinancing and longer-term operations, and an extension of maturity of the liquidity operations from 3 months to up to 3 years. This dual approach to crisis management has been reinforced by two further initiatives. First, collateral rules have been adapted in various stages with a view to broadening the pool of assets that banks could mobilise for Eurosystem liquidity provision.

These have included the change of competition law and the regulatory framework, the reform of the judicial system, and the reform of regulated professions and of the housing market. Finally, programme targets for privatisation were achieved ahead of time. Structural reforms need a long-term commitment As I said at the start of my remarks, an improvement of the underlying prospects for these economies has moved expectations. Perceptions about the sustainability of the recovery path in Portugal, in particular, have been reflected in persistent improvements in confidence and associated reductions in risk premia. Over time the economic and social pay-offs of reforms will be high, in terms of higher wealth and employment. High and sustainable GDP growth will in turn bring about improvements in fiscal positions and sizeable reductions in debt-to-GDP ratios in the medium to long-run, contributing therefore to long-term debt sustainability. However, to reap these benefits implies a long-term commitment. The reform process is a continuum. A reform that has just been legislated does nothing for the citizens of a country, if it is not followed-up with effective implementation. Making sure that reforms transfer from the statute book to the real economy requires painstaking monitoring, as well as a prompt reaction in case outcomes deviate from expectations. When countries exit adjustment programmes, such an orientation will help prove to markets that reforms have been undertaken not only due to external pressure, but also out of a genuine recognition of their benefits.
In addition, at liftoff, the FOMC decided to widen the spread between IOR and the ON RRP offered rate by 5 basis points, which acted to slightly reduce secured rates relative to unsecured rates.30 These two factors explain why dispersion rose around the first tightening, but not at the following two tightenings: reduced uplift from the zero lower bound and the lower relative setting of the ON RRP offered rate had some effect on the outcome of the first tightening, but had no effect on the subsequent two. Finally, the new SEC money market fund rules brought about a pickup in demand for ultra-low-risk investments, and a corresponding decline in demand for unsecured investments. If these one-off factors were the primary reasons that this spread widened, we would expect to see essentially one-for-one passthrough of future monetary tightening into both markets. Transmission to broader money markets This evidence on control and transmission is encouraging. However, there have been some recent signs of more volatile transmission of interest rates into broader money markets. The most notable of these has been the rise in LIBOR rates relative to like-maturity overnight index swaps, shown for a 3-month maturity in (Figure 14). This figure suggests that banks’ cost to obtain funding for three months has risen relative to the cost of borrowing that funding overnight—for example in the federal funds or Eurodollar market—and hedging the overnight interest rate risk of such borrowing with a swap.

Our contacts in the money market fund industry could foresee, based on their own business plans and discussions with their clients, that these reforms would lead to a substantial shift in money market fund assets. Substantial amounts were expected to come out of prime funds and into government-only funds, which generally hold Treasury securities, repo against Treasury collateral, or similar ultra-low-risk assets. As a result, this reallocation was expected to bring about somewhat lower rates on Treasury bills and repo backed by Treasury collateral, and somewhat higher unsecured rates. It is important that the monetary policy implementation framework take note of changes to the broader financial market landscape, including its regulatory structure, and adapt as necessary in response to such changes. Ahead of the reforms, our focus, which I discussed in a speech in early 2016, was on whether the reforms would have an impact on the transmission of monetary policy that might require such adaptation. In particular, we wanted to observe whether markets remained sufficiently competitive to allow for robust control of rates, and see whether the shifts in volume—particularly the anticipated upswing in demand for government-fund-eligible assets— would impair competition.12 We also wanted to see whether linkages across markets remained strong enough to ensure that policy was transmitted in accordance with the FOMC’s forecasts, especially given prime funds’ broad investment scope, and their ability to reallocate across markets according to relative value.13 The size of the reallocation ended up being quite a bit larger than most had expected.
Mervyn King: A tale of two cities Speech by Mr Mervyn King, Deputy Governor of the Bank of England, at Cardiff Business School, Cardiff University, 18 June 2001. *  *  *  Vice-chancellor, ladies and gentlemen, It was once said that economic forecasters are the unfathomable in pursuit of the unpredictable. As a student I found this odd. Whenever England played Wales at rugby the result was wholly predictable. The reason was simple. My fellow-student, Gerald Davies, ran faster than Englishmen, even when he carried the ball and they didn't. Economics is, unfortunately, less straightforward. Yet any decision that involves an elapse of time between its implementation and its effects requires a forecast. Time lags are the essence of the transmission mechanism of monetary policy. And that is why the Monetary Policy Committee spends much time thinking about the likely future path of the economy. The severe limits on our ability to anticipate future events means that forecasts can be no more than a description of the relative likelihood of a range of possible outcomes. Anyone who presents you with a point forecast for the future path of the economy is either concealing the most interesting part of their analysis, or suffering from self-deception. So the Monetary Policy Committee presents forecasts in terms of probabilities. And it is the balance of risks to the economy which determines monetary policy. So what are the balance of risks to the British economy at present?

The Russian invasion of Ukraine has exacerbated some of these factors, amplifying the challenges that the world economy, and therefore the economic and monetary authorities, will now have to contend with. But beyond the impact on the global economic outlook, the war has struck the largest blow to the international economic order since the Second World War. This dramatic event has thrown into relief the need to reinvigorate and bolster the foundations of multilateralism, which are the set of rules and values that we have established to ensure peace and prosperity. But we should also view this as a chance to give fresh impetus to international cooperation, which has contributed so much to global progress in recent decades. Such impetus means strengthening the international institutions, many of  1  which date back to the mid-20th century, so that they can respond more effectively to the new crises, such as the global financial crisis and the pandemic crisis, which are more global in nature than the typically regional crises of past decades. International institutions should equip themselves, in their respective field of competence, with the appropriate tools to prevent and respond to systemic crises. In addition, the global nature of processes such as the green transition and digitalisation means these institutions must adapt in readiness to deal with these challenges and help attain the goals and fulfil the commitments we have set ourselves in these areas.
Initiatives are well advanced to introduce electronic ‘straight-through-processing’ in various markets, allowing the transaction process to be automated from the initial trade right through to settlement. On top of all this there is the as yet unknown potential of the internet. In the US, there has been an explosion of retail investment activity through the internet; in Europe we are still way behind. Much of the internet business that is already taking place – here or in the US – is essentially substituting for speaking to a broker, and the brokers that have adjusted most quickly to this change in the US have benefited accordingly. But use of the internet has already led to a change in retail investor behaviour in the US. And if the internet is eventually to have a really profound impact on the investment landscape – wholesale as well as retail – it may come through its capacity, as an almost completely open system, to link investors of all types directly into order and execution systems. But that is much easier said than done. There are a whole range of factors – technological limitations, regulatory issues, settlement and the like – which mean that the eventual impact of the internet is very uncertain. What are the implications of all this? First, electronic trading widens access to markets. It removes any need for geographical proximity to an exchange and relaxes any limit on the number of firms that can participate directly (subject to any credit or regulatory constraints).

I will now turn to possible developments in particular markets. First the market for euro area bonds. In aggregate, the euro area government bond market is of a broadly similar size to the US Treasuries market. So it is one of the largest securities markets in the world. It is of course not yet as fully integrated as the Treasuries market. Substantial further progress in that direction probably depends on how quickly the various initiatives to link together Europe-wide trading and settlement systems come to fruition. And there are, and will remain, credit differences between particular issuers. But I would nevertheless expect the market to become increasingly integrated and, with other bond markets, more sophisticated over time. This ‘cash’ market is of course important in its own right; and London based market participants will remain very big players in it. But as far as the development of UK financial services business is concerned, the other interest rate markets which spin off the government bond market may be the ones where we see the most rapid growth, and the greatest scope for innovation. Good examples would be the markets for repo, swaps, and other interest rate derivatives. I think that in terms of new market opportunities, one of the most important areas in the evolving euro-denominated markets could be that for corporate bonds.
We have been flexible in our implementation, but the size of the benefit offered by the MA and the relatively coarse framework for measuring levels of retained asset risk have necessitated strict eligibility conditions. 3  See June 2020 FPC remit response letter See speech by Alex Brazier (2020): ‘Protecting economic muscle: Finance and the Covid crisis’ See speech by Alex Brazier (2020): ‘Protecting economic muscle: Finance and the Covid crisis’ 6 See speech by David Rule (2018): 'An annuity is a very serious business' 4 5  5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  It is extremely difficult to model the behaviour of long-dated, illiquid assets, particularly under economic stress. The size of the MA benefit that a firm can take on its liabilities is driven by the credit rating assigned to its assets, which in turn depends on correctly assessing the risk of default or downgrade – an assessment which may be performed by an external rating agency, or by the insurer itself. Furthermore, when firms stress their balance sheet to calculate capital requirements they have to consider the impact of changes to the MA under stress. This means making assumptions about the impact of a stressed economic environment on default and downgrade risks, on ratings migration, and on the cost of re-establishing an MA-compliant position if necessary. Each step introduces the possibility of inappropriate or over-optimistic assumptions and therefore inadequate capital.

From our point of view, while there is no agenda to increase capital levels, neither do we start from the viewpoint that the sector is obviously overcapitalised. We would expect that there will be significant changes at the level of individual measures, most notably the risk margin which we all agree is mis-calibrated for longer term liabilities, at current low levels of interest rates.7  And of course while dealing with the current regulatory regime we must be careful not to lose sight of our longer term forward-looking priorities: the impact of climate change and measures to mitigate this; the growing importance of Fintech and the role of shifting demographics across the globe. Conclusion  7  See June 2018 letter from Sam Woods to Treasury Select Committee 6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  I began these remarks by highlighting three things that insurers do for the wider economy:   Provide protection for significant financial losses;    Channel investment into a wide range of assets; and    Provide security of retirement income in the form of savings and annuities, facilitating stable demand for goods and services. On the first, there is a critical role for insurers to adapt and ensure they are able to meet customers’ insurance needs, particularly during the transition out of the crisis and also into the longer term. Firms should take early steps to assess what this could mean for their current business models.
But the catastrophic risk, of dealers withdrawing from market making altogether because balance sheets have become dangerously overstretched, should be much reduced. Managing the impact of failure With a zero-failure regime neither feasible nor desirable, reform is also underway to reduce the impact of failure as well as its probability. And specifically to allow even the largest banking groups to fail and be resolved in a safe way without recourse to taxpayer funds. The key is to be able to recapitalise a failed group safely, quickly and credibly by bailing in the group’s uninsured, unsecured creditors, such as debt-holders. To be clear, the aim is not to resurrect every failed business, though that may be the outcome in some cases. The aim is to enable the critical parts of the group – the parts vital to the real economy and the parts that financial stability depends upon – to keep operating so the group can be safely resolved over time. The ultimate solution could involve a mixture of sales, administrations and run-off. The bail-in provides the time and the loss absorbing capacity to allow that to happen. The required legal framework is well progressed. In both the UK and US, it will in future be possible to bail-in debt holders. An EU framework has been agreed with the Banking Recovery and Resolution Directive, which will come into effect in January next year. This not only provides the powers for bail in.

Even if we need to wait for the Parliament's proposal and the outcome of the trialogue discussions, this agreement is overall positive. On the supervision side, it provides the European Union with all the prudential ratios of the international framework. It also provides for the gradual introduction of the revised market risk framework, the Fundamental Review of the Trading Book (FRTB), which is still being finalised in Basel. In addition, a first step has been taken towards recognising the euro area as a single jurisdiction, in which cross-border exposures within the Banking Union are considered domestic exposures for measuring the systemic importance of European banks. On the resolution side, we have obtained an agreement to broaden the subordination requirement of the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) to  Page 4 of 6 beyond global systemically important banks (G-SIBs), thereby reducing the threshold effect between G-SIBs and other banks. In addition, the text defines a subordinated debt ceiling, very close to the international Total Loss Absorbing Capacity (TLAC) standard. However, this agreement contains a number of more problematic aspects about which we shall remain vigilant. To name but one, as regards the internal MREL, cross-border exemptions within the Banking Union similar to the methodology for calculating the capital surcharge for systemic banks would have been desirable.