samchain/econo-pairs-v1 huggingface dataset:
Let me briefly recall the benefits of the “managed floating plus” strategy, as described by Goldstein: the more currency mismatch is brought under control, the less should there be fear of floating; if the exchange rate is allowed to move, the greater will there be the awareness of currency risk and the incentive to hedge against it; the less necessary it is to see the exchange rate as a target, the more likely inflation targeting will be successful and, hence, the more willing will foreign investors be to lend in local currency; the greater the availability of domestic-currency denominated instruments, the better the prospects for reducing currency mismatch. Let me add two comments: first, monetary policy alone cannot ensure current account sustainability in the long run. It also takes good fiscal and structural policies. The best monetary policy can achieve is “buying time” for these policies to be implemented, without jeopardizing its own objectives. Second, managed floating faces a composition problem on the global scale. Attempts by many countries to keep their currencies at an undervalued rate may end up in a race to the bottom – akin to the “beggar-thy-neighbor” policy of the ’30s. Multilateral or global arrangements are perceived as the best solution to such problems (Flassbeck, 2004). As changes in the exchange rate, deviating from purchasing power parity, affect international trade the same way as changes in tariffs, they should be governed by multilateral regulations.

Therefore, we must make use of all the tools available to us to bring it back to 3%, without adding unnecessary costs, of course. I want to be particularly emphatic in saying it: there are no easy solutions to this problem. Bringing inflation back to levels that do not affect the population severely, especially the most vulnerable, necessarily involves restoring the macroeconomic balances and, in this case, what is required is a reduction in the level of activity and demand. Monetary policy will continue to contribute to this necessary adjustment in an efficient and orderly manner. The coordination of macroeconomic policies is essential for this purpose, and in this sense the contribution of fiscal policy has been paramount. With yesterday's monetary policy meeting decision to raise the MPR we have brought it to a level that is near the maximum considered in this Report's central scenario. It is very high, but it is in line with the levels that inflation has reached and with the challenges we face in solving the problem. During the last few months, not only has inflation been high, but its expectations two-years ahead continue to be above the 3% target. This misalignment is a cause for concern because, as the inflationary phenomenon becomes more persistent, it makes stabilizing the price level more difficult and costly. Hence the need to move forward resolutely in order to prevent this problem from intensifying because, as we well know, it imposes great costs on the population.
Our experiences with supervision, monetary policy, and financial market monitoring suggest that market data gathering and market oversight responsibilities must continuously inform one another. In addition, efforts to identify stresses in the system are not a matter of running a single model or focusing on a single risk. Rather, it is the assembly of many types of analysis in a systematic fashion. The Supervisory Capital Assessment Program (SCAP) for large financial institutions – popularly known as the “stress test” when it was conducted early last year – illustrates the importance of combining analysis by credit experts, forecasts and scenario design by macroeconomists, and hands-on judgments by supervisors in assessing the financial condition and potential vulnerabilities of large financial institutions. While considerable steps have been made in the wake of the financial crisis, the Federal Reserve intends to do a good deal more. The Federal Reserve also will continue to strengthen and expand its supervisory capabilities with a macro-prudential approach by drawing on its considerable data reporting, gathering, and analytical capabilities across many disciplines. In the areas in which we are collecting data through the supervisory process on measures of interlinkages and common exposures among the largest financial firms we supervise, we are developing new analytical tools that may lead us to change our information requests from supervised firms.

Under this approach, the supervisory and regulatory agencies would maintain most data collection and analysis, with some enhanced authority along the lines I have suggested. Coordination would be committed to the council, which could also have authority to establish information collection  BIS Review 16/2010  19  requirements beyond those conducted by its member agencies when necessary to monitor systemic risk. This approach might achieve the benefits of the current arrangement and the proposed independent agency, while avoiding their drawbacks. The council would be directed to seek to resolve conflicts among the agencies in a way that would preserve nimbleness, and it could recommend that an agency develop new types of data, but it would leave the details of data collection and analysis to the agencies that are closest to the relevant firms and markets. And while this council of financial supervisors could act independently if needed to collect information necessary to monitor the potential buildup of systemic risk, it would benefit directly from the knowledge and experience of the financial supervisors and regulators represented on the council. The council could also have access to the data collected by all its agencies and, depending on the staffing decisions, could either coordinate or conduct systemic risk analyses. Conclusion Let me close by thanking you once again for your attention to the important topic of ensuring the availability of the information necessary to monitor emergent systemic risks and establish effective macro-prudential supervisory oversight. As you know, these tasks will not be easy.
By placing value-based and sustainability consideration at the core of the economic recovery plan, enormous opportunities lie for Islamic finance to support sustainable solutions towards postpandemic recovery. With deeper materialisation of these principles nurtured into modern financial context, it could create a seismic change in mainstreaming value-based consideration as an anchor to any business and commercial decisions. This encourages the embedment of Shariah values in financial offerings to deliver positive outcomes. The wisdom, diligence, and inquisitive mind of Shariah scholars are thus undoubtedly the integral component within a 1/4  BIS central bankers' speeches  financial system in providing impactful and practical Shariah advice amid the fast-changing business environment. More so, during the time of crisis. We see this transpiring. Through an industry-driven initiative, Islamic banking institutions in Malaysia are committed to adopt “Value-based Intermediation” (VBI) which advocates for positive and sustainable impact through the practices, offerings, and conduct of institutions. Guidance is also provided in incorporating SDG-oriented risk considerations in financing and investment decision making process, through the Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF). Similar importance has also been recognised in the takaful industry, with the recent introduction of VBI for Takaful Framework. The framework focuses on integrating VBI principles into the underwriting and investment decisions, as well as business operations of takaful and retakaful operators that will reshape and sharpen practices of the industry towards delivering economic and societal outcomes more sustainably.

Jan F Qvigstad: Understanding macroprudential regulation Introductory remarks by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the workshop on “Understanding macroprudential regulation”, organised by Norges Bank, Oslo, 29 November 2012. *  *  *  Dear all, It is a pleasure to welcome you to Norges Bank for this workshop on Understanding Macroprudential Regulation. The topic of the workshop is timely; Authorities in all parts of the world are now actively debating macroprudential policy. Academic research provides a necessary foundation, both for the design and the implementation of such regulations. During my years of service here at the central bank, and also some years at the Treasury, I have had my fair share of dealings with banking and financial crises in Norway. In the 1990s, Norway was hit by a severe banking crisis. Three of the four largest banks failed. Required capital injections were more than three and a half per cent of GDP. This is substantially more than the percentage share that euro area banks currently need to recapitalise. Ever since the Norwegian banking crisis in the early 1990s, our banking industry has been regulated more strictly than banks in comparable countries. For instance, bank capital definitions have been tighter, while packaging loans into complex instruments was in practice not permitted until 2007. Financial supervision has also been rather strict.
3  BIS Review 44/2000  Financial stability leads to a secure payment system An important component of the Riksbank’s task of promoting a secure and efficient payment system is to monitor and evaluate developments in the bank system. Since the banks have a key role in provision of banknotes and payment services to the general public, it is important that their activities function well. A prerequisite for this is that financial stability is not threatened. Unlike many other countries, the Swedish central bank does not have the role of supervisory authority. Here instead there is a special authority, Finansinspektionen (the financial supervisory authority), that bears the responsibility of supervising the individual institutions while the Riksbank focuses its supervision on detecting systemic risks. The Riksbank has decided to act with the same openness and clarity as regards the responsibility for a secure efficient payment system that characterises the monetary policy decision-making process. An important component of this strategy is the production and publication of a report on financial stability a couple of times a year. This report goes systematically through the risk factors that could lead to major imbalances being created in the financial systems so that financial stability is threatened in a broad sense. Since the Swedish bank system is concentrated in four major banks which have large exposures to one another, problems in one bank can rapidly spread to the entire bank system.

As observed earlier, credit volume has gone from around 150% to around 170% of GDP in the past few years. This is the result of an average growth of credit of nearly 4%, while nominal GDP growth has averaged slightly above 1% over the same period. For this movement to be fully reversed, credit growth would have to significantly undershoot nominal GDP growth. The critical question is: could such a reversal happen smoothly, or in other words, is a soft landing possible? International experience (Figure 3) suggests this is a significant challenge. Credit-to-GDP ratios often fall in the wake of a severe crash, with pronounced falls in property prices and large increases in credit default rates; but this is exactly what we aim to avoid. While the diagnosis cannot be totally certain until history has run its course, the lessons from the analysis are, in my mind, crystal clear. The large increase in leverage, presumably of a  10  Reinhart, C. and Rogoff, K. (2009)  11  According to SNB survey data, about 20% of new mortgages are granted for investments with a loan-to-value ratio above 80%, and 25% of newly originated mortgages are granted to lever existing mortgages. Moreover, in the case of 40% of new mortgages the imputed costs would exceed one-third of gross income at a mortgage interest rate of 5%.
The first is how to deal with the cost and the constraint of coping with capital inflows. The second is the challenge in finding a set of tools that can help assess the potential build-up of financial vulnerabilities. And the third is how best to complement monetary policy with prudential measures to help prevent potential financial instability. On the first decision, for those under a managed float regime, lowering interest rates to reduce the relative attractiveness of the country to capital inflows may be an appropriate way to ensure price stability. But concerns of fast appreciation may not subside as exchange rates tend to behave more like asset prices than relative goods prices in practice. That means the nominal effective exchange rate can appreciate for a while in the short run, even after central banks repeatedly cut interest rates. This is an element of the well-known exchange rate disconnect puzzle. The risk is that a central bank may cut interest rate by too much, and at the same time sowing the seeds for inflation and an asset price boom down the road. An obvious important technical challenge to emerging market central banks, then, is to improve its ability to forecast inflation and output and be more precise about the range of possible natural rates of interest, which vary through time. Resisting the appreciating momentum of the exchange rate through interest rates alone may not be sufficient. A widely adopted practice that is assumed to be effective in the short run is through sterilized intervention.

The ECB should support the adjustment process in the Member States in the best manner possible, namely by providing price stability in the euro area as a whole. The ECB’s response to the crisis Let me now address the measures taken by the ECB in response to the crisis, before turning to the response by the euro area governments. During the crisis, the ECB has been confronted with unprecedented threats to monetary stability in the euro area. Broadly speaking, these have come from two sources: first, the deflationary forces stemming from the economic downturn and, second, the impairment of the transmission of its monetary policy, which reflected to the growing tensions in financial markets. The ECB had to react decisively to these challenges. First, we used our standard monetary policy measures to address the downward pressures on price stability that resulted from the sharp slowdown in economic activity in the crisis. In full consistency with our mandate, we reduced our key policy interest rate rapidly between October 2008 and May 2009, from 4.25% to 1%. In other words, we reduced our policy rate faster than any euro area country has ever done in recent history. Given that the ECB has ensured that inflation expectations in the euro area as a whole remain very solidly anchored, we have been able to maintain an accommodative monetary policy stance over the past four years.
While consumption certainly provides a large contribution to the strong growth in GDP in coming years, strong increases in real income also make a contribution. Strong increases in the property and share prices area are also assessed, however, to contribute to the high growth figures for consumption. An important issue is whether the current monetary policy regime per se prevents the major imbalances that we saw during the 1980s being built up? During the years monetary policy could not counteract an altogether too high loan-financed increase in demand as the overheating did not seem to threaten the exchange rate target despite the large deficit in the current account and a continued deterioration in competitiveness. In retrospect, it can be noted that too much confidence was placed in the fixed exchange rate policy. It is difficult to conceive that such a high increase in demand and such a high use of resources today would not be considered to threaten the inflation target and thus be counteracted by a more stringent monetary policy. Accordingly, the debt ratio of businesses and households would not either increase in such an unrestricted way as at the end of the 1980s. The banks have also become considerably better at handling risks in their balance sheets at the same time as supervision and monitoring has been improved and adapted to the deregulated financial markets that we now have. Conclusion I have discussed the effects that rising asset prices can have on the real economy.

In the second place, the development of asset prices can lead to financial imbalances accumulating so as to threaten the stability of the financial sector and the Riksbank has a special responsibility here. Asset prices stimulate household consumption and business investment and it is probably here that asset prices are most significant for inflation target policy. Rising share prices, for instance, increase household wealth inter alia and are an indication that the economy is expected to grow strongly. Household consumption decisions are to a great extent based on expected incomes and wealth. At the same time, investment decisions by businesses are based on expectations of increased production. If households and businesses base their consumption and investment decisions on the expectations reflected in asset prices, demand will probably increase more rapidly than the actual growth of the economy. This creates an inflationary pressure in the domestic market. If the international investors also expect that productivity and the return will increase more quickly in Sweden than in the surrounding world, the exchange rate can, however, strengthen and also dampen inflation. Asset prices are also important for the assessment of stability in the financial system. It is important for instance to assess the risk for debt among businesses and households, which can be the result of rising asset prices, creating risks for suspensions of payments and ultimately for bank crises. What characterises a financial imbalance? Rising asset prices can thus contribute to financial imbalances being created in the economy.
The Bank has been able to take on these tasks by further developing the governance structure and the organisation. If responsibility for the management of the GPFG remains with the Bank, the existing investment mandate could serve as a basis for the future development of the GPFG. Norges Bank is well equipped to continue to carry out this task. The future organisation of the GPFG should be assessed in conjunction with the future development of the investment strategy. As noted by the Commission, a number of strategic 6/8  BIS central bankers' speeches  decisions can be left to the manager while at the same time expanding the investment strategy to include new unlisted asset classes. Prospective developments along these lines could suggest that the management of the GPFG should not be organised within the central bank. In addition to proposing that the management of the GPFG should be placed in a statutory entity separate from the Bank, the Commission also proposes substantial changes to the Bank’s governance structure. These changes include the establishment of a committee for monetary policy and financial stability that would be responsible for the use of instruments in these areas and would be chaired by the Governor of Norges Bank. Moreover, the Commission proposes the establishment of a board of Norges Bank solely comprising external members. The Commission proposes that this board should be responsible for central banking matters that do not fall within the remit of the committee and for operational, budgetary and administrative matters.

The main responsibility for financial stability rests with the Government, while the Ministry of Finance, the Financial Supervisory Authority of Norway and Norges Bank are responsible for the use of the various instruments delegated to them. Norges Bank is among other things lender of last resort and operates the interbank settlement system. The overriding responsibility for macroprudential policy rests with the Ministry of Finance. Norges Bank holds the view that a clearer framework for setting and using macroprudential instruments is needed in Norway. Time-varying macroprudential instruments could to advantage be delegated to an independent authority. Delegating instruments to an independent authority could facilitate implementation and enhance predictability over time. It could also ensure that the decision is taken in the interests of financial stability. Today Norges Bank draws up the decision basis for the countercyclical capital buffer and advises the Ministry of Finance on the level of the buffer. The Commission proposes that decision-making responsibility for the level of the countercyclical capital buffer be delegated to Norges Bank. Norges Bank supports this proposal. The Commission also suggests that it may be appropriate for Norges Bank to assume responsibility for other instruments to mitigate systemic risk in the financial sector. The Commission refers in particular to the residential mortgage lending regulation. This regulation also serves other purposes in addition to the mitigation of systemic risk.
But just as a town ravaged by flooding will seek to rebuild in ways that help it withstand the next big storm, so, too, must we think about how to shore up the Treasury market so it can better endure the next big shock. Today, I’m going to touch on the notable market disruptions that have taken place over the past decade. Then, I’ll discuss the imperative of a resilient Treasury market. I’ll close by challenging all of us to come together to prepare for the future. As always, before I continue, I must give the standard Fed disclaimer that the views I express here today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. Look Back to Prepare for the Future A well-functioning U.S. Treasury market is critically important for our economy and, in fact, the entire world. It enables the safe and stable flow of capital and credit to households, businesses, and governments. It serves as a primary benchmark for pricing in other financial markets, both domestic and global. Last, but definitely not least, it’s vitally important for the effective transmission of monetary policy to the broader financial system and to the economy. Thankfully, most days—most years—the Treasury and related markets function incredibly well. But in the past decade, these markets have experienced three abrupt and notable disruptions, each of increasing severity.

3 Recent Disruptions and Potential Reforms in the U.S. Treasury Market: A Staff Progress Report, Inter-Agency  Working Group for Treasury Market Surveillance, November 8, 2021. 4/4  BIS central bankers' speeches