samchain/econo-pairs-v1 huggingface dataset:
I do not mean that here in Sweden we cannot pursue an independent monetary policy. But monetary policy abroad obviously restricts our room for manoeuvre. It also means that macroprudential policy measures take on even more importance in situations where the global financial cycle is not adapted to Swedish circumstances. These are questions we have to drill down into and understand better. 34  In 1970, the sum of all capital flows between countries amounted to less than 2 per cent of global GDP. Just before the financial crisis in 2007, it amounted to 20 per cent of global GDP. Global external debts have increased from 30 per cent of global GDP in 1980 to about 200 per cent of global GDP today, see IMF 2016. 35  See Rey (2015). 36  The covariance between Swedish and international GDP growth is very high; if growth abroad increases by 1 percentage point, growth in Sweden increases by about 1.3 percentage points (quarterly data). For inflation, the covariance is about 0.5 and if German 10-year bond yields rise by one percentage point, Swedish longterm bond yields increase by the same amount. 16  BIS central bankers’ speeches  We have to live with financial crises – but we can increase our resilience Today I have talked about the many different tasks of a central bank: A central bank is the banks’ bank not just in financial crisis situations, but on a day-to-day basis, “24/7”.

Flaws in the Swedish macroprudential policy framework In Sweden, Finansinspektionen has been given the main responsibility for macroprudential policy. In addition, there is a financial stability council – consisting of representatives of the Government, Finansinspektionen, the National Debt Office and the Riksbank – which is a  14  See Goodfriend and King (2016). BIS central bankers’ speeches  7  forum for the discussion of financial stability issues. I believe that there are significant flaws in several aspects of the Swedish framework for macroprudential policy. Firstly, experiences so far of the Swedish framework indicate clear inadequacies in decisionmaking power. An obvious example is the protracted discussions on the introduction of a binding amortisation requirement. An important cause of the problem is that the macroprudential policy objective is unclear and too narrow. For example, it should be made clear that macroprudential policy instruments may be used not just to manage risks to financial stability, but also to reduce risks created by the financial sector in the real economy. It must also be clear that macroprudential policy includes the entire financial system and not just the credit market. A clarified and broadened objective is also appropriate in order to bring Sweden’s framework in line with European standards. 15 There is also a lack of clear and expeditious procedures when new macroprudential policy tools are to be introduced.
Chart 6:  Chart 5: Long run government bond yields  (a)  Long run gold prices(a)  Per cent  US dollars per troy ounce (1980 prices)  16  800  14  700  12  600  10  500  8  400  6  300  4  200  2  100  US UK  0  0 1800  1840  1880  1920  1960  2000  Source: Global Financial Data. (a) US yields are on 10 year bonds. UK yields are on consolidated stock up to 1957; 10 year bonds after 1957. BIS central bankers’ speeches  1950 1960  1970  1980  1990  2000  2010  Sources: Bloomberg, Global Financial Data and Bank calculations. (a) Deflated using US CPI. CPI for July and August 2011 is projected. 9  Chart 7:  Chart 8:  VIX Index(a)  Market liquidity Per cent 90  Index (a) 1.5  80  1.0  70  0.5 0.0  60  -0.5  50 -1.0  40  -2.0  20  -2.5  10  -3.0  0 2007  2008  2009  2010  -1.5  30  2011  Source: Global Financial Data. (a) S&P 500 implied volatility (daily closing prices).

Despite her impressive academic track record, Carmen has had at least one foot in the world of policymaking throughout her career. Given her influence among both academics and policymakers, Carmen is an ideal person to hold the Karl Brunner Distinguished Lecture. Karl Brunner himself maintained close contacts with decision-makers around the world, always emphasising the importance of a continuous dialogue between academia and practice. Carmen’s biography reads like a screenplay for an American success story. She was born in Havana, Cuba. A few years after the regime of Fidel Castro came to power, Carmen’s parents emigrated to the United States, leaving almost all their belongings behind. Carmen arrived in the United States at the age of 10, barely speaking any English. The family settled in Florida, where Carmen attended college. After finishing college, Carmen moved to New York to pursue graduate studies in economics at Columbia University. She then embarked on a successful career on Wall Street, where she rose to the position of Chief Economist at the investment bank Bear Stearns in the 1980s. After a few years in the financial industry, Carmen decided to return to Columbia to finish her dissertation. This was followed by an eight-year spell at the International Monetary Fund, before Carmen was appointed professor at the University of Maryland in 1996. In 2012, Carmen moved to Harvard University, and since June of last year, she has been Chief Economist at the World Bank.
These frameworks are now equipped with tools for assessing and addressing risks at a range of resolutions – microscopic, macroscopic and telescopic. And the gaping hole in the pre-crisis policy architecture – the macro-prudential layer – has now been filled. The institutional architecture for macro-financial policy has also been adapted since the crisis to better enable interactions between these policy layers to be addressed. In the UK, the micro-prudential, macro-prudential and monetary policy arms of policy are now attached to a single body, the Bank of England. Each arm has a separate policy committee tasked with  BIS central bankers’ speeches  13  setting policy. But these policy committees have shared inputs of information and meet jointly to discuss areas of intersecting policy responsibility (Bank of England (2014)). Taking each of the arms of policy in turn, at the highest level of resolution micro-prudential policy frameworks have been significantly revised in a number of countries since the crisis. Often, this has had the aim of refocussing the microscope on the systemic, as well as firmspecific, risks facing banks. For the world’s largest banks, significant extra cushions of lossabsorbing capacity are now being required, together with changes to banks’ organisational structures to make them credibly resolvable. In some countries, including the UK and US, large banks’ activities are being separated or ring-fenced. These initiatives ought, over time, to lower the degree of complexity and inter-connectivity of these entities, making them less virulent super-spreaders of financial contagion. A second area of progress is stress-testing.

Under the estimated distributions for economic and financial systems, such an event would occur every 10 to 15 years. Implications for policy design So what might this mean for the design of the policy architecture? Let me mention three areas where clear progress has been made since the crisis, but where more may be needed in the period ahead if we are to manage effectively this complex, macro-financial system of systems: data, modelling and policy design. (a)  Data  Monitoring risk in a system of systems requires data on each of the sub-systems, often at a high level of granularity. Often in response to crisis, efforts have been made over time to improve data on economic and financial systems. For example, there have been successive waves of improvement to statistics on international banking flows, starting in the 1970s. In response to the latest crisis, renewed efforts have been made to fill data gaps and to improve the degree of disclosure by banks of their balance sheet positions (FSB (2012)). As one example, data on banks’ cross-border assets and liabilities only distinguish between banks and non-banks. In practice, a richer sectoral decomposition of these data is often desirable to understand interactions between different parts of the financial sector and between it and the wider economy (Hills and Hoggarth (2013), Lane (2014)). For example, the dollar funding crisis which faced European banks in 2011/12 involved a complex string of cross-border financing.
Swedish prices and wages continued rising much too fast. The credibility of the exchange rate target had been gradually undermined and finally it was lost completely. In November 1992 the Riksbank was forced, under great drama – with high interest rates and in principle the entire foreign exchange reserve sold on  2  BIS Review 62/2007  forward contracts – to let the krona float. The anchor that was supposed to secure expectations of low and stable inflation had been let go. The seriousness of the situation probably contributed to a broad support for powerful measures needed to bring the Swedish economy onto a better track. The framework for economic policy was in principle redefined from scratch. We were also given a clearer allocation of roles between monetary policy and fiscal policy. Fiscal policy had previously often been overly expansionary and contributed to excessively high inflation. Now it was subjected to requirements for long-term stability and durability in public finances. A floating krona meant that the main task of monetary policy was to directly act to ensure that inflation remained at a low and stable rate. And the change in regime that was later implemented – with an explicit inflation target for monetary policy and a clear regulatory framework for fiscal policy – has gratifyingly made economic policy more long-term and stable. It is difficult with hindsight to say anything other than that inflation targeting with an independent Riksbank has been a success.

The fact that the political system in a democracy chooses to delegate such an important task as monetary policy to an authority with such a high degree of independence as the Riksbank is not in principle completely uncontroversial. But as I implied earlier, there are good reasons why one, with a clear majority has chosen to do so. I will like to take the opportunity to develop this point. Why has monetary policy been delegated? One could say that the Riksbank is at the end of a delegation chain. The Swedish people have elected a parliament which has in turn legislated on the Riksbank’s objective and appointed the General  BIS Review 62/2007  3  Council of the Riksbank. The General Council in turn appoints the six members of the Executive Board, who take the monetary policy decisions. The fact that some tasks in society, such as monetary policy, are delegated in this way may be appropriate for several reasons. This applies perhaps mainly when there is a risk that political decisions might be taken with too short a time horizon. This problem is dealt with in monetary policy by the Riksbank having a high degree of independence and a clear statutory task. Our independent position is thus an important – perhaps even an essential – condition for being able to maintain low and stable inflation in the long term. It is a necessary condition for credible monetary policy.
Phase 4: Viability of large U.S. banking organizations The next phase of the crisis started in mid-November 2008, as both the stock market and credit default swaps suggested increasing doubts on the part of market participants that large U.S. financial institutions had sufficient capital to withstand the losses that might arise from further deterioration in the real economy. For example, on the weekend before Thanksgiving, the FDIC, Federal Reserve and U.S. Treasury, in response to intense market pressures, came up with a support package for Citigroup, followed by a similar package of support for Bank of America in January 2009. From the public’s perspective, these interventions were becoming harder to understand, and from a policymaker’s perspective, there seemed no end in sight. In the market’s eyes, many banking organizations had become “uninvestable.” Thus, as part of the Financial Stability Plan of the new administration, a comprehensive and forward-looking assessment of the capital needs of 19 bank holding companies with more than $ billion in assets was set in motion. Meanwhile, the Federal Reserve was reacting with great speed to the deepening recession by cutting the fed funds target to its lower bound of close to zero, starting large-scale purchases of agency debt, mortgage-backed securities and treasuries, and introducing a facility to re-invigorate the securitization market. It is important to understand that the objective of the Supervisory Capital Assessment Program (SCAP) – the so-called bank stress tests – was not to assess the solvency of the 19 companies.

In this  2  BIS Review 81/2010  context, it is useful to recall an unease articulated by former Federal Reserve Board Chairman Alan Greenspan in 1996 2 : “Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets…. But how do we know when irrational exuberance has unduly escalated asset values...?” This uncertainty about the link between underlying fundamentals and current asset valuations is crucial to interpreting this initial phase of the crisis. For example, one relatively benign interpretation of what was playing out was that the financial system was experiencing a liquidity problem driven by a maturity mismatch in the shadow banking system. The liquidity problem was unusually severe because of the collapse of the shadow banking sector and the resulting pressures that collapse placed on the balance sheets and liquidity positions of the traditional bank sector. Nonetheless, the situation was fundamentally viewed as a liquidity problem rather than a solvency problem, meaning that any potential credit losses were likely to be small and easily absorbed. An alternative darker view was that the global financial system was overexposed to land prices in the United States, through the home sale and mortgage refinancing boom that had taken place in the last four years.
Indeed, some sort of an intellectual vogue is flourishing, which contends that, in light of past experiences, any banking crisis is bound to have severe adverse economic consequences. You have those, the optimists, who predict a Swedishtype of crisis. And you have those, the pessimists, who allude to Japan's "lost decade". If referring to the past is of any use, it is precisely to learn from past errors. As a result, any comparison is bound to be misleading. Not only is today’s economic situation critically different. It is also addressed very differently. Let me insist on one key difference, which has to do with policy reactions to the crisis. They have been extraordinarily rapid, massive and vigorous. We have learnt from past crises, especially from the long adjustment Japan has been through after the burst of the asset price bubble in the late 80s. Let me also mention that macroeconomic policy instruments are available and could be used should output decline dramatically. The outlook for financial regulation A major consequence of the crisis already apparent is the growing consensus around the need for a fundamental review of the foundations of financial regulation. The crisis has also rekindled concerns about the structure of supervision. As you know, at the French President’s instigation, huge efforts are made to think about what is termed now a “new Bretton Woods”. Beyond these ambitious words, I do believe it to be useful to take a fresh look at the existing financial regulation.

This provides a powerful secular incentive for non-decomposable socio-economic systems. Moreover, if these hyper-connected networks do face systemic threat, they are often able to adapt in ways which avoids extinction. For example, the risk of social, economic or financial disorder will typically lead to an adaptation of policies to prevent systemic collapse. These adaptive policy responses may preserve otherwise-fragile socio-economic topologies. They may even further encourage the growth of connectivity and complexity of these networks. For example, policies to support “super-spreader” banks in a crisis may encourage them to become larger, and more complex, still over time (Haldane (2009)). The combination of network economies, and policy responses to failure, means socio-economic systems may be less Darwinian, and hence decomposable, than natural and biological systems. It is against this backdrop that a complex, socio-economic “system of systems” may emerge. This can defined as one comprising an interlocking set of individually complex webs ((Gorod et al (2014)). The system of system concept initially emerged for engineering and enterprise systems, which involved the multi-layered assembly of component parts. But it has since found its way into a number of other domains including military planning, ecological evolution, power grids, transport networks and neurological structures (Gao et al (2014)). Although still in its infancy, there are some general properties of a “system of systems” perspective that are worth bringing out. For example, Kurant and Thiran (2006) look at the behaviour of a particular topology – a layered complex network.
It should prompt them to make adequate planning, to retain sufficient own funds and to issue MREL-eligible debt, and to take any opportunity that may present itself to comply with the requirements within the period established for the purpose. 5/7  Challenges remaining on the resolution front in Europe Despite the tremendous efforts made on the resolution front in Europe, there are clearly important challenges remaining. First, the details of the backstop for the Single Resolution Fund (SRF) must be outlined. Recently it was agreed that the European Stability Mechanism (ESM) would assume this financial backstop, which would take the form of a credit line, to be used to address exceptional situations where the SRF’s own resources prove insufficient for resolution of certain credit institutions. The backstop will have a limit of 1% of the deposits guaranteed in the banking union. It will come into force in 2024 at the latest and must be fiscally neutral in the medium term, so the resources committed will subsequently be recovered through banking sector contributions. In addition, the introduction of the financial backstop will eliminate the ESM’s tool for direct recapitalisation of banks. In this setting, it is vital to ensure that the backstop is sufficient to meet all the potential challenges that the SRF may have to face. Second, the question of provision of liquidity in bank resolution has to be addressed. If a bank under resolution is sold, the purchaser assumes any liquidity commitments that may arise when the bank opens its doors the next day.

We have also seen Germany under tremendous pressure both at home and abroad with regard to its role in solving the crisis. Moreover, the future of Greece, where it all started, also remains unclear. We have seen various attempts in engineering debt restructuring for Greece, even an “orderly default”; and in late October we have seen agreement between Eurozone leaders and banks on Greek debt’s haircut. Personally, I am concerned that many of these steps are merely “technical” solutions that do not address the situation at its root causes, and only time will tell how these “technical” steps would play out as well as what the eventual fate of Greece in the European Union would be. Looking beyond Greece, some contagion of the sovereign debt crisis to the financial sector and the real economy of other European countries and beyond seem to be inevitable at this point, with countries that are “too big to bail” such as Italy also on the list. Private holders of PIIGS bonds face substantially higher risks, which have already led to recent downgrades of several financial institutions. Without decisive actions and unreserved collaboration in solving the debt crisis, the outlook for Eurozone economy is likely to be affected – given the possibility of further fiscal consolidation in countries like Italy, Spain, and even France. Ladies and Gentlemen, I would like to restate that what happens on both sides of the Atlantic will likely shape the global economy over the years to come.
At end-2008, the largest ownership interests were in British Mondi (8.7 per cent), Australian Babcock & Brown Infrastructure Group (7.8 per cent) and Finnish UPM-Kymmene (5.8 per cent). In bond markets, the largest issuers are sovereign states. The Fund will therefore normally have large holdings of government debt. The Fund’s average share of market capitalisation in fixed income markets at the end of 2008 was around ½ per cent. The Fund has a longer investment horizon than the vast majority of other market participants. The important question is therefore how sound today’s investments prove to be in the long term. The government now owns a fair share of the global business sector. This represents real value that will provide a return reflecting both global economic growth and the risk related to fluctuations in equity prices. Active ownership Active ownership has also become an important part of Norges Bank’s investment operations. The purpose is to help safeguard financial wealth for future generations by promoting good corporate governance and encouraging high ethical, social and environmental standards at investee companies. As a shareholder in almost 7 900 companies, Norges Bank has both rights and obligations in relation to these companies. Our long time horizon exposes us to developments in markets traditionally of less concern to more short-term investors. We use our position as a shareholder to address topics relating to traditional shareholder rights, such as the right to equal treatment and influence.

Fullwood, J (2016) “A cat, a hat and a simple measure of gobbledygook: How readable is your writing?”, blog on Bank Underground (https://bankunderground.co.uk/2016/10/04/a-cat-a-hat-and-a-simple-measure-of-gobbledygook-how-readable-is-your-writing/) 20 21  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Chart 2: Level of reading comprehension required for various publications  a  % of population proficient at each level 100 - Mark Twain  90 80  - Tabloid Newspaper - Political Speeches - This Speech  70 60 50  - Bank of England publications - Commercial bank T&Cs - Broadsheet newspapers  40 30 20 10 0 Rudimentary (1-2)  Basic (3-6)  Intermediate (7-10)  Adept (11-15)  Advanced (16+)  Literacy Grade Level of Adults Source: Fullwood, J (2016), US national adult literacy survey (1992), Flesch-Kincaid readability test a Literacy grade level and % of population proficient at each level are based on US data. Experts’ attempts to make themselves heard is also made more difficult by the changing landscape of trust. The age of deference is certainly over. The Edelman Trust Barometer for 2017 finds that in two-thirds of countries, less than 50% trust mainstream institutions of business, government, media and NGOs to do what is right. 22  It is important to note that measuring trust is perilous because reliable longitudinal data is scarce  and when available does not show a clearly declining trend in all areas.