samchain/econo-pairs-v1 huggingface dataset:
To this end, it is prepared to purchase foreign exchange in unlimited quantities and to take further measures immediately if required. Once monetary policy requirements have been met, our foreign exchange investments are guided by three criteria: security, liquidity and return. In order to ensure that we meet the first two criteria – security and liquidity – we hold a substantial portion of our foreign exchange reserves in liquid government bonds, in the most important global currencies; almost threequarters of our foreign exchange reserves are currently invested in such instruments. When it comes to our third criterion – return – equities play an important role as they generally have a higher return potential than the government bonds of the major advanced economies. Currently, 16% of our foreign exchange reserves are invested in equities. BIS central bankers’ speeches  1  Given how substantial our foreign exchange reserves are, doing justice to all three of these criteria simultaneously is no simple matter. On the one hand, the considerable growth of our foreign exchange reserves has increased the concentration risk associated with conventional government bonds; on the other hand, there is the risk that we may overuse certain markets, thereby potentially triggering undesired price fluctuations. We therefore evaluate investment possibilities on a continual basis. As part of our search for diversification, Asia-Pacific markets in particular have become increasingly important for the SNB’s investment policy in recent years.

Fritz Zurbrügg: The Swiss National Bank’s investment policy – some topical issues Speech by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the Money Market Event, Geneva, 20 November 2014. *  *  *  Accompanying slides can be found at the end of the speech. Ladies and gentlemen Welcome to the Money Market Event of the Swiss National Bank (SNB) in Geneva. I am delighted to be able to speak to you today about some of the topical issues facing the SNB’s financial markets department. As usual, I shall share the floor with the head of the Money Market unit, Sébastien Kraenzlin. I shall focus my remarks on some of the investment policy challenges currently confronting the SNB. Related issues – specifically the steep rise in our currency reserves following our decision to purchase foreign exchange to enforce the minimum exchange rate of CHF 1.20 against the euro – were the focus of attention some two years ago at this same event. Since then, our currency reserves, which are primarily made up of foreign exchange reserves and gold, have stabilised (slide 1). However, the question of how to manage these investments as advantageously as possible is still a major concern for us. In this context, I shall speak about two issues this evening: first, the importance of the Asia-Pacific markets for the SNB; and second, the role of gold in our currency reserves.
As well, the ability of many accountants to hide a substantial volume of very large transactions “off the balance sheet”, contributed to the demise of many of these large financial institutions. I mention this to highlight the critical roles that Accountants can play in maintaining financial stability in national economies and thereby the global economy as a whole. The stable economic environment that Samoa has enjoyed over the past many years is also partly due to the responsible way that the members of the Samoa Institute of Accountants have carried out their duties. And, I commend and thank you all for that. Let me now say something about our economy, interest rates and a bit about the Central Bank’s expanded mandate. 2. Economic update for the first seven months of 2009/10 and outlook for the remaining five months  Mainly, as a result of the Global Financial Crisis, the Samoan economy declined by close to 5 percent in the last financial year which ended in June, 2009. So, as we tried to get our economy out of recession, through the introduction of expansionary fiscal and monetary policies, the country was struck by the devastating tsunami in September. In the event, Government and private sector resources were diverted for the rehabilitation and reconstruction of tsunami affected infrastructure and other sectors, and thus putting on hold (albeit temporarily) a number of developments identified in the 2009/2010 budget.

In principle, financial innovation is meant to increase efficiency. But, in financial markets, efficiency depends on the availability of information. And the nature of innovation that occurred in effect  BIS Review 95/2009  1  destroyed information. There was only one way out of this paradox: to create and construct market infrastructures which preserved information, its completeness and its integrity. As the failure of the rating process amply demonstrated, this did not happen. •  Increase in complexity did not come with more diversity. On the face of it, market participants looked more and more different in their legal status, investment strategies, and business objectives. It has now become apparent that, behind these veils of diverse colors, there was a profound uniformity in the approach to risk, its measurement, its management, as well as in the drivers of risk appetite. This uniformity had very destabilizing consequences. In normal times, it helped and crystallize expectations on overvalued asset prices. In times of stress, it made the adjustment process extremely disorderly. •  Finally and most importantly, complexity resulted in an increase in overall uncertainty. -  Complex systems exhibit well-known features: non-linearity and discontinuities (a good example being liquidity freezes); path dependency; sensitivity to initial conditions. Together, those characteristics make the system truly unpredictable and uncertain, in the Knightian sense.
However, there is evidence that older workers have fewer of the skills required to use new technologies because of their lesser human capital endowment, which moreover becomes depleted over time. Hence an older population may also pose difficulties for productivity growth because the digital technologies tend to complement each other better with less technologically challenged workers, who are usually younger.15 Moving on to the impact of ageing on the conduct of economic policy, it should be noted that, in the monetary policy arena, the central banks face a scenario which some have called “the new normal”, characterised by low interest rates and balance sheet expansion. Although part of this situation is unquestionably a legacy of the financial crisis, there are other longer-term causes which prompt the persistence of a low interest rate environment. Key among these are demographic factors acting through the associated increase in the saving rate. This scenario reduces the ability of conventional monetary policy to react to future crises and poses the advisability of a wide-ranging discussion on the most appropriate strategy for the conduct of monetary policy in the future. Fiscal policy, or, to be more specific, its government revenue side, is also affected by population ageing. There is evidence that the composition of income or the consumption basket change over the life cycle of individuals, so a change in the composition of tax bases could give rise to substantial variations in tax revenue.

It is therefore no surprise that the lack of innovation and the scant accumulation of technological capital of Spanish firms is a determining factor in explaining why Spanish firms are less productive than their European counterparts. This technological capital gap between Spain and its European partners is at least partly due to structural characteristics which limit firms’ innovative capacity, such as the lack of available human capital referred to above, or a productive structure skewed towards sectors with a low technological content. Another basic determinant requiring special attention and which poses major challenges in the current context of technological change, is the access to finance – whether public or private – for business projects with a high innovative content. Financing of innovation In general, the growth of firms is conditioned by the availability of external finance to undertake new investment projects. But external finance also plays a particularly vital role in the success of the innovative projects of small new firms whose characteristics make it more difficult for them to obtain funds.9 These greater difficulties have their origin in information asymmetries between firms and financiers and in the comparatively higher inherent risk than that for established companies, all the more so when the returns will only be received in the long term. These characteristics contrast with the preferences of capital market financiers, who tend to seek more shortterm returns and have a certain aversion to risk.10 Evidently these asymmetries apply to any investment project.
The role of the compliance officer is often divided into two categories—serving as a control function and serving as an advisor. In many respects, this framing works just fine. Compliance sometimes needs to control. And sometimes it needs to advise. Indeed, for in-house counsel, this dual-hatted approach is not unfamiliar. I have discussed in previous remarks the “partnerguardian” model espoused by the former general counsel of General Electric, Ben Heineman. He argues that a lawyer serves as both a partner to the business unit and a guardian of the organization.4 I am a big fan of this model and think it serves in-house lawyers well. But, this binary approach—advisor versus controller—also misses something. I think we would be well served to keep in mind that the mark of a strong compliance function—at least, from my perspective—is that it is influential within the organization. Compliance functions, like in-house counsel, need to adeptly use all the tools in our respective toolkit to influence behavior within an institution. Some of these tools are more advisory; others, are more controlling. Policies and procedures that reinforce clear roles for the first and second lines of defense, along with clearly defined escalation paths, can help compliance exert appropriate influence over business decisions. When a senior manager understands that she has responsibility for control failures that occur on her watch, and sees that her responsibility cannot be deflected or redistributed, then her view of the compliance function shifts.

When employers recommend that their employees “opt in” to retirement plans, they achieve a far lower rate of participation than when employees are automatically enrolled, but may “opt out.” What accounts for this? The economics of the plan work either way. And the incentives have not changed. Employees are not promised more money if they choose not to “opt out” than if they choose to “opt in.” But a better result is achieved by “nudging” employees simply by changing the starting point.2 Compliance programs may be more likely to achieve their desired effects if they are based on studies of how people actually behave. Here are three ideas that would benefit from continued empirical study. 1/6  BIS central bankers' speeches  First, can we increase participation in voluntary training and education programs by prepopulating enrollment? That is, can we rely on the same type of inertia that keeps employees from opting out of retirement savings programs? I’m speaking here of programs above and beyond the minimum training firms already require. These might explore in greater depth the ethical decisions that come up in corporate life—in particular, times when the corporation’s interest and a client’s interest appear to diverge. Second, I am interested in the potential for certain employees to serve as carriers for social norms. Their identification is not always based on rank in a corporate hierarchy. Step one is to find out who these people are. We might, for example, attempt to map electronic communication within an organization.
Sources: UK line – Bloomberg Finance L.P, TradeWeb and Bank calculations, US and German lines – Bloomberg Finance L.P. and Bank calculations. the effect of changes in public-sector debt. When the UK government borrows money it’s tapping a global market for savings, not just a domestic one. And from the perspective of a relatively small, single borrower – certainly one who’s still judged to be creditworthy – a greater demand for credit needn’t have any impact on what is essentially a global price. This doesn’t mean a country’s fiscal position never matters at all. Just as for an individual household or company, a government’s creditworthiness can affect the risk premium it’s charged for new borrowing. If there’s a concern that high levels of debt might result in some sort of default – whether directly or in the form of a sudden burst of inflation – you’d expect to see that reflected in some sort of extra margin on its bond yields10. But that’s a long way from saying that any variation in public-sector debt will have a measurable impact on its price. It’s further still from the claim that such an effect should be the dominant (let alone the only) influence on yields. Clearly, that’s not what the data tell you. Before closing this section I should make one other point. I’m taking it as given here that monetary policy does actually have some effect on demand and inflation (all else equal), through all the channels we know about.

When parliament decided in 1811 to delay the restoration of convertibility until after the war had ended Ricardo was withering: “I trust the day is not far distant when we shall look back with astonishment at the delusion to which we have so long been subject, in allowing a company of merchants [i.e. the Bank of England], notoriously ignorant of the most obvious principles of political economy, to regulate at their will, the value of the property of a great portion of the community”. In defence of the modern company, I feel bound to point out that it is now state-owned, employs no “merchants” but has plenty of well-trained economists. Ricardo would also be satisfied, one would hope, that “the value of the property of a great portion of the community”, which I will take to be the CPI, is no longer regulated “at will” but at the behest of parliament in the form of a 2% target for inflation. 22 Thanks to over-issue of the new “assignat” France had suffered from a hyperinflation in the years after the revolution. When the new government came back to the market, in the mid-1790s, it was charged over 60% for new debt. Determined efforts to restore the link credibly to gold allowed that yield to fall significantly but it remained well above the cost of British government debt throughout the war (for the contrast with the credibility of British policy see Bordo and White (1991), Bordo and Kydland (1995) and Chada and Newby (2013).
13/15  Testifying to this is the letter sent last week by the US authorities to Facebook. In its first paragraph, a request – or rather a demand – is made for the implementation of the project to be delayed while its potential consequences are evaluated. The same paragraph indicates that the libra project “is intended to rival US monetary policy and the dollar”. I do not think this is an exaggerated reaction, since the irruption of big tech has potentially systemic implications. Customer relations I think it is also important to talk about customer relations as another key factor of any future business model. I shall not dwell on this point, the ground for which has been previously covered. But I would like to point out that this change is the only means of responding to the challenge the sector faces to restore its image and reputation. Society has changed in terms of its demands of the financial sector. The rules governing customer-bank relations have likewise changed. A good example of this is the recent law on real estate lending. Banks should, therefore, change to respond to the new social and regulatory reality. Evidently, legal cases from the past continue to weigh on and hamper the restoration of image. But if banks change their behaviour today they will be laying the foundations on which to build the industry’s future reputation. In this respect, last year we saw a decline in claims lodged against banks.

As we know, this framework is based on four pillars: an enhanced supervisory intensity; the requirement of a higher loss absorption capacity; the existence of effective resolution regimes; and an improved resilience of market infrastructures. Substantial progress has been made in implementing this framework. In particular, the so called “Key Attributes of Effective Resolution Regimes for Financial Institutions” have been endorsed by the G-20 as a new international standard. 2  BIS central bankers’ speeches  Substantive reform has been implemented or is going to be implemented soon in the main jurisdictions in which G-SIFIs operate. In Spain, Law 9/2012 adopts and implements many of the principles set forth in the “Key Attributes”. In the European Union, the Bank Recovery and Resolution Directive is expected to be adopted later this year. It will be an important step towards full implementation of the “Key Attributes” in all EU Member countries. The two main new elements of this new framework are, first, planning for orderly resolution; and, second, the scope of the resolution tool known as “bail-in”, which is linked to the existence of an adequate level of loss absorbing capacity in each G-SIFI. Work on resolution planning is currently under way within Crisis Management Groups (CMGs), now set up for all the G-SIBs. There has been considerable progress in developing resolution strategies and identifying conditions relating to the firms’ legal, operational and financial structures and their impact on resolvability. I would now like to comment on the resolution strategies being developed for global banking groups.
The global recovery also increases the need for investment in the business sector and contributes to stronger growth in investment. The demand for housing remains strong, which helps maintain the level of housing investment. All in all, the increasingly strong demand, both domestic and international, means that GDP growth will be higher than the historical average over the coming years, see Figure 3. Good prospects for inflation in Sweden to continue to rise Inflation in Sweden is still low, just like in many other countries, see Figure 4. However, CPIF inflation excluding energy has been rising for some time and several different indicators point to it continuing to rise. The ever-stronger global economy leads to both higher international prices and higher demand for Swedish goods and services. Domestic demand also becomes higher and contributes to rising price pressures. The weakening of the Swedish krona over the past year has meant that imports of goods and services has become more expensive, which tends to increase consumer prices. The weaker exchange rate has not yet had a full impact on prices yet, either. Import prices are expected to rise further for a time before the contribution to higher inflation from the exchange rate wanes. 2  BIS central bankers’ speeches  A more expansionary monetary policy supports the upturn in inflation The Riksbank has implemented strong measures to reduce interest rates in general in the Swedish economy and thereby make monetary policy more expansionary. The repo rate has been cut to negative levels.

In this way, expectations can have an impact on actual inflation, which risks reducing expectations further, and so on, in a self-reinforcing negative process. It can be very difficult to get out of this situation. This is how the rapid cuts in the repo rate since the middle of 2014, and the purchases of government bonds that have recently been a complementary part of monetary policy, should be regarded. The Riksbank is the authority that has the explicit responsibility for attaining the inflation target. Although we must also act to ensure the financial system is stable and functions efficiently, through the wording in the Sveriges Riksbank Act on “promoting a safe and efficient payments system”, the latter is a task that we share with the Government, Finansinspektionen and the Swedish National Debt Office. And the first line of defence with regard to counteracting the emergence of financial imbalances is macroprudential policy, including the tools for which Finansinspektionen has been given chief responsibility. Finansinspektionen’s mandate and tools for macroprudential policy need clarification in law It is therefore very unfortunate that there appear to be doubts with regard to the legal possibility for Finansinspektionen to use some of the tools – as in the case of the amortisation requirement. 2 The decision to give Finansinspektionen the responsibility for macroprudential policy was preceded by a fairly intensive debate, where other possible solutions were also discussed. One can therefore assume that the decision finally reached actually reflects the solution desired from a political point of view.
The natural rate of interest (R*)  The second concept of the interest rate I want to look at today is the natural interest rate. The natural rate of interest is quite an old concept, first posited by Knut Wicksell at the end of the 19  th  Century as the rate of interest at any given time that keeps the price level stable. Wicksell argued that if the market rate exceeded the natural rate, prices would fall; if it fell below, prices would rise. The economics discipline then went on an intellectual journey over the 20  th  Century, first largely abandoning the natural rate  concept in favour of Keynes’ advocacy of fiscal policy for demand management and then returning to monetary policy, albeit in the form of the famous quantity theory of money. By the start of the 1990s, however, the difficulties of targeting the growth in monetary aggregates were clear and central banks turned to interest rates as the principle instruments of policy. Nowadays, we tend to think of the natural rate not so much as the rate that would hold prices stable at any given time but, given frictions in the economy and lags in the impact of monetary policy, as the interest rate that will close the output gap over the monetary policy horizon. However, unlike the trend real rate, the natural rate is a shorter-term concept.

But while central banks need to be mindful of the possible side-effects of their policies, I would caution against requiring them to make more granular distributional judgments. Low and stable inflation and smoothing output volatility are public goods that benefit all; technocratic central bankers should use the tools available to them to achieve that public good and avoid as far as possible taking views on distribution. Distributional considerations and decisions should remain the province of elected authorities that have many instruments to address these issues. 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  I have discussed some of the policy implications of a low natural rate for central banks generally. In the UK, of course, Bank policy is now focused on assessing and, where necessary addressing, the implications for the economy over our policy horizon – the next two to three years – of the UK’s forthcoming exit from the European Union. I don’t need to say too much about this today. The minutes of the MPC’s November meeting and the November Inflation Report give a detailed picture about the Committee’s current forecast and policy stance to which I fully subscribe. But there is one point that is relevant to the analysis I have just laid out on the natural rate. As I said earlier, the policy rate may need to depart from the natural rate if the policymaker is faced with a shock that creates a tradeoff – for example between bringing inflation to target and smoothing output volatility.