samchain/econo-pairs-v1 huggingface dataset:
Nevertheless, promoting the right outcomes, even if framed as principle-based expectations, will require appropriate, up-to-date systems and controls across the three lines of defence to ensure an appropriate control environment throughout the firm. Further thought is needed. The third challenge posed by greater use of AI/ML to boards is around change. As the rate of introduction of AI/ML in financial services looks set to increase, so too does the extent of execution risk that boards will need to oversee and mitigate. It appears to supervisors, and consistent with the early results from the Bank of England/FCA survey, that some firms are approaching the introduction of AI/ML piecemeal, project by project; others appear to be following a more integrated, strategic approach. Either way, the transition to greater AI/ML-centric ways of working is a significant undertaking with major risks and costs arising from changes in processes, systems, technology, data handling/management, third-party outsourcing and skills. The transition also creates demand for new skill sets on boards and in senior management, and changes in control functions and risk structures. Transition may also create complex interdependencies between the parts of firms that are often thought of, and treated as, largely separate. As the use of technology changes, the impact on staff roles, skills and evaluation may be equally profound. Many of these interdependencies can only be brought together at, or near, the top of the organisation. Conclusion  I noted at the beginning that I would conclude by trying to extract three principles for governance from the observations I had made.

I would agree that there are certainly some common features, and indeed we would usually review as part of our own work the work done by the audit department on identifying areas of potential risk and control problems. Similarly, external auditors’ observations and recommendations are often very useful to us in coming to a judgement on the effectiveness of an institution’s internal controls. However, to supervise an institution effectively a supervisor needs, in my opinion, a means of independently verifying that internal controls are sound and that all substantive risks have been identified and considered. For this reason, our ongoing dialogue with institutions, and our periodic on-site examinations of institutions’ activities, are invaluable. I believe this oversight can also be beneficial in a practical way to the institution itself. For example, we may have insights that the institution does not. We may be able to give an institution feedback on how it compares vis-à-vis its peers in similar areas and to indicate respects in which, from our experience, its controls and risk management processes are falling behind the game. I would not want to overplay this “management consultant” type role, but I think it can be beneficial, perhaps especially to the smaller, less sophisticated financial institutions. Of course, this presupposes that we have the necessary expertise to offer useful advice. This is a constant challenge in today’s environment of rapid technological change and product innovation.
I have discussed the Riksbank’s forecasting ability in an earlier speech, on the basis of an analysis made at the Riksbank.5 I shall in this speech describe how I now view monetary policy and uncertainty, after six years at the Riksbank. Uncertainty in the Riksbank’s forecasts In this section I shall describe the uncertainty in the Riksbank’s forecasts. At the same time, I would like to emphasise that the aim is not to assert that the Riksbank’s forecasts are better or worse than anyone else’s. My assessment is that the Ministry of Finance, the National Institute of Economic Research and the Riksbank make forecasts of roughly the same quality seen over time. My aim is to describe the uncertainty and then to discuss how it should be dealt with in conducting monetary policy. At the Riksbank we regularly report the uncertainty in our forecasts. We do this in the form of scenarios that describe developments under different assumptions, in report texts when we run through different areas and in fan charts, which show how accurate the forecasts usually are. GDP and inflation – limited forecasting ability one year ahead, none at two and three years ahead The Monetary Policy Reports and Updates include, for instance, four standard figures that show the uncertainty of the forecasts. Three of them refer to GDP growth, CPI inflation and CPIF inflation. They show 50 per cent, 75 per cent and 90 per cent uncertainty bands for the forecasts of up to three years ahead (see Figures 3–5).

Forecasts are usually wrong I learned how difficult it is to make forecasts during my time at the Ministry of Finance and at the National Institute of Economic Research. During different periods I was responsible for both medium-term forecasts and cyclical forecasts at the Ministry of Finance. The mediumterm forecasts within the framework of the long-term surveys were to a great extent a more or less sophisticated projection of trends. They missed recessions and were only accurate when reality followed the previous trend (see Figure 1).2 The Ministry of Finance’s cyclical forecasts are based on more information, including changes in taxes and expenditure in the government budget. Like the forecasts made at the Riksbank, they are used as a basis for policy decisions. But they are also usually wrong, which is a problem with regard to using fiscal policy to stabilise economic activity. Sometimes political aspects also have significance, such as when we deliberately had cautious forecasts as a basis for the budget consolidation in the 1990s (see Figure 2).
The point of tangency for an iso-loss line with the same slope, which represents a well-balanced monetary policy, will then be at D. In a situation in which it is more difficult to stabilise inflation, the Taylor curve will instead be closer to the horizontal axis than to the vertical axis, for example like the dashed curve to the right of point C. The point of tangency for an iso-loss line with the same slope will then be at E.  7  The term HP gap stems from the fact that potential production is estimated using a so-called Hodrick-Prescott filter. 8  BIS Review 29/2009  A central bank that has a low numerical value for lambda, that is a lower weight placed on the stability of the real economy, has steeper iso-loss lines. For a central bank with such a lambda, the point of contact with a given Taylor curve for a given decision-making situation will be higher up to the left in the figure, for example at point A, where the Taylor curve is steeper. The inflation forecast will then be closer to the target, but the forecast for resource utilisation will deviate more from the normal level. A central bank with a high numerical value for lambda, that is a high weight placed on the stability of the real economy, has iso-loss lines that are flatter.

Our knowledge of the economic situation is not complete, and neither is our knowledge of how monetary policy affects inflation and the real economy, the so-called transmission mechanism. There is a considerable time lag before monetary policy measures have an impact on inflation, and the duration of this time lag also varies depending on the circumstances. This impact is normally gradual and becomes apparent over the course of a couple of years. As monetary policy works with a time lag, it is most effective if it is based on forecasts. In order to achieve an inflation rate of two per cent, it is therefore best to set the policy rate so that the inflation forecast a couple of years ahead corresponds to the inflation target. However, during the time it takes for changes in the interest rate to have a full impact on inflation the economy will be affected by new and unexpected shocks. The inflation outcome a couple of years ahead will therefore have been affected by events that could not be predicted when the monetary policy decisions were made. A direct comparison of outcomes and targets for inflation may therefore lead to the wrong conclusions. The inflation outcome may be in line with the target even if the monetary policy decisions were incorrect because the central bank was lucky and unexpected shocks nevertheless resulted in the right inflation outcome.
While quantitative easing is likely to be associated with exchange rate depreciation, it also boosts domestic spending. Demand in other countries therefore rises as a result of the increased demand in the United States, as well as falling as a result of the appreciation of their currencies. These are just the normal mechanisms that operate when official interest rates are cut in one country. It is then an empirical matter which is the dominant channel. Quantitative easing is consequently very different in character from sterilised exchange rate intervention, which merely redistributes global demand. There is, though, more substance to the concern that stimulatory monetary policies in the developed economies have encouraged a search for yield and capital inflows into the emerging economies. So there is some justification for the imposition of temporary restraints on those inflows. But where such asset price pressures are building, they seem more likely to be related to overly loose monetary and financial policies in those countries and their unwillingness to allow exchange rates to bear more of the strain. It is the euro area, however, that is of particular importance to the United Kingdom. In aggregate, the euro area looks to be undergoing a steady recovery, not dissimilar to ours. Output in the third quarter was 1.9% higher than a year earlier, roughly in line with the euro area’s historical average growth rate. But that masks markedly divergent performance and prospects within the euro area.

Charles Bean: The economic outlook for 2011 and beyond Speech by Mr Charles Bean, Deputy Governor for Monetary Policy at the Bank of England, at the Market News International Annual Seminar, London, 13 December 2010. *  *  *  Good morning! Christmas is the traditional time for looking back over the events of the past year and contemplating what the new year might bring. Today I shall follow that tradition by taking stock of economic developments over the past year and looking at the challenges ahead. Many of the recent activity indicators have been somewhat comforting. Global growth has recovered strongly on the back of a strong rebound in the emerging economies, with the IMF projecting expansion of close to 5% this year and more than 4% next year. Here in the United Kingdom, we have also seen a nascent recovery; output in the third quarter was, according to the latest ONS estimates, some 2.8% higher than a year earlier. That is marginally stronger than our projection for the most-likely path of four-quarter growth made a year earlier in our August 2009 Inflation Report. Around half of the growth over the past year was, however, down to the contribution of stockbuilding, as businesses reduced the rate of inventory decumulation and, in some cases, started to rebuild stocks. That can only provide a temporary boost to aggregate demand growth. And the contribution of public spending to growth is also set to fall as the Government’s planned fiscal consolidation gets underway.
Conclusion Beyond the immediate Y2K issue, it is clear that Asian bankers face many serious challenges. They need to keep abreast of changing developments, and anticipate new trends. They must significantly improve their corporate governance. Technological innovations will continue. Policymakers have a full agenda to liberalise prudently, while tightening standards of supervision and enforcement. As financial liberalisation proceeds, new market opportunities will emerge and there will be a demand for more differentiated products and services. Capital markets should grow in Asia, providing an alternative means of intermediation for regional economies. If Asian financial systems can do these things and respond to new opportunities, they will be a source of strength, and not weakness, to their countries as the new millennium dawns. BIS Review 130/1999  5

6/9  BIS central bankers' speeches  First, it is only available to solvent banks. Second, it can only be used to cover capital shortfalls which were identified in the adverse scenario of a stress test. And third, it can only be of a precautionary and temporary nature. In other words, it must not be used to cover losses which the bank has already incurred or is likely to incur. I will highlight just one issue here which relates to the role of the ECB. With regard to the first condition, it is up to the ECB to confirm whether the bank in question is solvent. It has some discretion here, as the European legal framework does not offer a specific definition of solvency. So it is crucial that we have a consistent definition of solvency – a definition that not just covers a point in time but takes a forward-looking perspective. Even if a bank is solvent today, it might not be so in the near future. In the end, it is the European Commission that grants or denies permission for precautionary recapitalisation, as state aid rules apply. Among other things, this entails burden-sharing. Shareholders, as well as holders of hybrid and subordinated debt, must contribute to reducing the capital shortfall. This ensures that the burden of failure is still borne by those who took the risk and reaped the return.
Ten years ago – at the time of the Asian crisis – emerging markets as a whole were running a current account deficit. Since then they have been running progressively bigger current account surpluses reaching an estimated $ billion last year (1.3 % of world GDP). 3 The counterpart to this is that developed countries as a group have been running progressively bigger current account deficits not just in the United States but also in a number of other developed countries including the UK. 4 Of course there are some notable exceptions in each group: Canada, Japan and Germany for example are still creditors while many countries in central and eastern Europe and Africa are running large deficits. But maps 1 and 2 show how much the pattern has changed in the last 10 years. Most of South America and South East Asia have swung from deficit to surplus. Perhaps as important, the scale of the differences has grown with more countries running surpluses or deficits of over 5% of GDP. Oil and other commodity inflation is part of the story, of course, but that does not account for the large current surpluses in most of East Asia. Here strong manufacturing growth resulting from higher labour productivity has not been matched by higher domestic spending so savings have grown ahead of even dramatic investment growth. A deliberate policy of fostering export industrial growth has slowed the rise of exchange rates that would reduce these imbalances.

In the introduction of accredited training courses, it is necessary to co-operate with leading and renowned educational institutions to provide quality training so as to achieve the objective of raising professional standard and gain wide recognition. I am happy to announce that the Chinese University of Hong Kong and the University of Science and Technology will offer certificate programmes on dealing, settlement and fixed income securities. Practitioners can take these courses to obtain a professional qualification to meet part of the membership requirement of the Association. In addition, the new regime recognises the rapid evolution in financial markets, and the need for continuous professional training in upgrading the skills and expertise of practitioners. A new requirement on continuous professional training is therefore introduced for the renewal of the membership. In strengthening the international financial centre status of Hong Kong, it is important to foster our advantage in having a professional workforce. We believe that the launch of the new membership regime of ACI - The Financial Markets Association of Hong Kong and educational programmes will help upgrade the technical skills and expertise of treasury market professionals and help them to catch  BIS Review 58/2004  1  up with the latest developments in the markets. This will work towards our ultimate goal in raising overall competitiveness of treasury markets in Hong Kong. Alongside the rapid growth of the Mainland economy and the gradual liberalisation of their markets, there is an increasing demand for treasury markets products and services from the Mainland.
Even then it was fairly inconceivable for most people to finance a home purchase without taking out a substantial mortgage. Today we have few scruples left, and we have never borrowed as much as we do now. The striking pattern in the chart applies to more countries than Norway. This pattern is described in detail in the well-known book about financial crises by the American professors Reinhart and Rogoff, This Time Is Different.1 Debt levels fluctuate substantially over time, but the cycle is very long. It may take several generations of debt accumulation before a sudden adjustment takes place – usually owing to some economic shock. According to Reinhart and Rogoff, crises generally occur when most people stop expecting them – often because one factor or another leads many to assume that economic mechanisms have changed. But they seldom have. The adjustment comes, and usually out of the blue. In Norway, such major corrections have only occurred twice over the past 120 years. The first time was after the Wall Street crash in October 1929. The deleveraging that followed is known as the Great Depression. The second time we experienced a correction, but on a substantially smaller scale, was during the banking crisis around 1990. The backdrop was the fall in the oil price in 1986 and the sharp jump in interest rates in Europe following German reunification. Those of us born before 1970 clearly remember the banking crisis and drop in house prices in the early 1990s.

However, it has long been a cross-party objective for people to be able to own their home if they wish. Chart 5: Strong house price inflation As we can see from the chart, inflation-adjusted house prices have fluctuated over the past 150 years. House prices reached a preliminary peak in 1899, the year before the housing market crash in Kristiania (the name of Oslo at the time), falling thereafter, especially during and after the two world wars. If you had bought a home just before the Kristiania crash, it would have taken more than 80 years for you to recoup your investment. And after the fall in house prices at the end of the 1980s, 12 years passed before prices returned to 1987 levels. Following the banking crisis at the beginning of the 1990s, house prices took off and in real terms are now more than twice as high as before the housing bubble burst at the end of the 1980s. A home purchase has been for many years an exceptionally good investment. Thanks to rapid house price inflation, many of us have accumulated considerable wealth – at least on paper. Chart 6: How much housing can an average wage buy? In the most of the past century, Norwegians experienced a substantial rise in prosperity. Larger and cheaper housing was a significant contributor. This meant an ordinary wage could by more housing space, even though the real price of housing also rose sharply.
In sum, due to developments beyond the control of monetary policy, such as soaring energy prices and renewed tariffs, we revised the mid-point for our end-2011 inflation forecast up by 1 percentage point. Distinguished Members of the Press, Within the new policy framework, the question of how and which policy tools will be employed to change the policy stance is determined by factors affecting financial stability and price stability. Given the high level of uncertainty arising from global economic conditions, we believe that it would be more appropriate to remain flexible regarding the exact content of the policy mix. Therefore, in this Report, the monetary policy stance underlying our inflation forecasts will continue to be communicated using the term “monetary tightening”, and we will not provide any information about the explicit path for individual instruments. Against this background, I now would like to share our inflation and output gap forecasts. Assuming an additional limited monetary tightening during the second half of 2011, which would bring credit growth to 20–25 percent at the end of 2011, inflation is expected to be, with 70 percent probability, between 5.6 and 8.2 percent with a mid-point of 6.9 percent at the end of 2011, and between 3.4 and 7.0 percent with a mid-point of 5.2 percent at the end of 2012. Inflation is expected to stabilize at around 5 percent in the medium term (Chart 15). Chart 15. Inflation and Output Gap Forecasts  * Shaded region indicates the 70 percent confidence interval for the forecast.

Chart 14. Revisions to Oil and Import Price Assumptions Oil Prices (USD/bbl)  Import Prices (2003=100)  Source: Bloomberg, CBRT. Source: TurkStat, CBRT. Particularly due to supply-side developments, oil and other commodity prices remained considerably above our assumptions presented in the January Inflation Report (Chart 14). Hence, we revised our assumptions for oil and other commodity prices upwards (Table 2). As illustrated on the slide, these changes in assumptions led to an upward revision of about 50 basis points for the end-2011 inflation forecast and a slightly upward revision for the 2012 inflation forecast. BIS central bankers’ speeches  7  Table 2. Revisions to 2011 Assumptions  Oil (Annual Average, USD)  Prices  Import (Annual Percent Change)  Prices  Food Price (Year-end Percent Change)  Inflation  January 2011  April 2011  95  115  10.9  16.2  7.5  7.5  Another factor affecting 2011 inflation forecasts has been the tariff hike on fabrics and apparels. Although major uncertainties exist about how this development will be reflected on prices, we assumed that this would add to year-end inflation by about 50 basis points while revising our forecasts. Despite the recent benign course of food prices, we preserved our assumption regarding food inflation for end-2011 at 7.5 percent in view of the extreme volatility in unprocessed food prices and rapid increases in agricultural commodity prices (Table 2).