samchain/econo-pairs-v1 huggingface dataset:
Goh Chok Tong: Opportunities in a New Asia – China, India and ASEAN in-between Speech Mr Goh Chok Tong, Senior Minister and Chairman of the Monetary Authority of Singapore, at the Institute of International Finance (IIF) Opening Dinner, Singapore, 16 September 2006. *  *  *  Let me bid you a warm welcome to Singapore. I hope that your stay here will not only be intellectually stimulating and professionally beneficial but also enjoyable and memorable. The IMF and World Bank meetings were last held in Asia in September 1997. A few months before the meetings in Hong Kong, the Asian Financial Crisis had started to erupt. The crisis swept across the region, causing immeasurable damage. Pundits declared the end of the East Asian growth miracle. But Asia has bounced back. Looking at East Asia through post-Crisis lens, a 2001 World Bank report "Rethinking the East Asian Miracle" noted that Asia was still: "...the most exciting development experience available to us...the Crisis has tarnished that record only slightly and, if anything, together with the strong recovery in several of the countries, may have reinforced the conclusion that there is something very special about these countries." Indeed, there is something special about Asia. Asia had problems, and will face big challenges ahead. But never in human history has the world seen such large-scale reduction in poverty and the rise in living standards for billions in so short a time. I am therefore confident about Asia's prospects.

Over the next 20 years, Asia will continue to surge, led by the re-emergence of India and China, and a revitalised ASEAN. Japan, will remain an important player in Asia. However, as a mature economy, Japan is not expected to grow as fast as India and China. This evening, I will focus on India, China and ASEAN in-between. India on the march First, India. Prime Minister Manmohan Singh said on India's Independence Day this year that India is "certainly on the march". The Prime Minister is a modest man who is not given to exaggeration. Today, India is attracting attention from foreign investors and world leaders alike. Over the past 12 years, India grew by an average of 6.5% per year. Growth was even higher, at 8% per annum, over the last three years. I believe that India will continue to grow at a fast pace for two main reasons. First, in India, old mindsets are being tossed aside in favour of pragmatic policies supporting reform and liberalisation, and integration with the global economy. India's market reforms have stayed the course despite several changes of governments and Prime Ministers. Business leaders, too, are prepared to compete against foreign companies and foreign investors in India. Early this year, I met with the Chief Minister of West Bengal in Kolkata. The state has been under communist rule for 30 years. The Chief Minister, one of the politburo members of the Communist Party of India (Marxist), was keen on foreign investments.
With more competitors around, the wider effects of the failure of an individual bank would in all likelihood be smaller. The stability authorities need to be more alert than in the past to this source of economic vulnerability. Consistent with that, as we prepare for the transfer of prudential supervision, the Bank of England wants to reduce barriers to entry somewhat, so that the banking system can, over time, become less concentrated. But for that to be sensible, we need to be confident in the authorities’ ability to resolve those banks that get into distress without dramatic spillovers – lowering barriers to entry by removing barriers to exit. For smaller banks, that should already be possible using the Special Resolution Regime introduced in 2009. Prudential supervisors will need, as a priority, to ensure that banks are set up to enable the Financial Services Compensation Scheme to pay out rapidly. To be clear, for banks funded by insured deposits, the costs of failure will fall on their peers. Over time, I suspect that that will increase pressure for a funded deposit-guarantee scheme with risk-based levies. The Bank would welcome that. Prudential regulation: higher risk-based capital requirements and a cap on leverage But the reform agenda is not just about handling failure. Banks will be better capitalised, more liquid, and less interconnected. To take just one of those changes in the global order, higher capital requirements will affect behaviour as well as resilience.

It would be too much to promise that that can never recur. Nor can we hope completely to eliminate the linkages within the system that can propagate distress. But this realism is not remotely a counsel of despair. On the contrary, I want to emphasise this morning that the emerging new regime will enable the authorities to lean against stability-threatening exuberance and will make the financial system much more resilient . The tendency to excessive risk in the system That excesses occurred in the run-up to the current crisis is not remotely in doubt. As leverage increased, asset prices rose, increasing net worth and so inducing more balance sheet expansion. The buoyancy in markets gave intermediaries the confidence to lend secured on wider classes of securities – temporarily enhancing day-to-day liquidity. Facing depressed returns from their core business of providing liquidity to customers, banks sought to sustain high headline returns by resorting to ever more leverage and maturity transformation. In other words, increasing leverage fed upon itself. This poses deep but pressing questions about the efficiency and effectiveness of capital markets in monitoring and pricing risk. Why did boards and investors in bank equity expect such high returns? Why didn’t the capital markets downgrade the value of bank equity and debt as leverage and other sources of risk increased? Why didn’t the markets distinguish more between banks? 1  These remarks draw on a chapter contributed to a book, edited by Andreas Dombret of the Bundesbank and Professor Otto Lucius, being published next year.
Investment grew by an estimated 12.8%, somewhat less than in 2003. GDP growth in the euro area is estimated at 1.9% in 2004 and growth prospects are lean for the years to come. This shows yet again the difference in the economic challenges faced by Iceland and the rest of Europe, since policies there aim at stimulating the economy, whereas Iceland’s problem is to try to prevent overheating. The widening current account deficit is also a cause for concern. Last year it is estimated at 70 b.kr., the equivalent of 8% of GDP. Exports increased by 12% in 2004 after being virtually stagnant in 2003. The strong value of the króna, robust private consumption and stepped-up investments in  BIS Review 22/2005  1  aluminium-related projects are reflected in substantial import growth during the year. Merchandise imports were up by 23% in real terms, the sharpest increase since 1998. Roughly one-third of the current account deficit may be attributed to investments in the aluminium and power sectors. The current account deficit is forecast to widen even further in 2005, but will also peak this year instead of in 2006, as had been forecast earlier. Unemployment declined slowly last year despite brisk economic activity. It was not until the closing months of the year that labour market statistics indicated mounting pressures. Seasonally adjusted unemployment measured 2.4% in February and vacancies have soared. To some extent, growing labour demand was met with imported labour; issues of new work permits almost doubled in 2004.

However, even if liquidity worked,  4  BIS Review 22/2005  their impact on interest rates and the exchange rate would be broadly the same as raising the policy rate, although the transmission mechanism might be different, and they would affect individual segments of the credit system unevenly. In addition, changing the minimum reserve requirement is not a transparent measure and its impact on expectations is unpredictable. The Central Bank firmly advocates that housing costs should remain part of the reference index for the inflation target, and believes that by and large the best available methodology is being used by Statistics Iceland to evaluate them. This is because housing costs are a major item in household consumption in Iceland, where the level of owneroccupancy is 80%. Excluding changes in housing prices would ignore a large proportion of household expenditures. Experience also shows that housing inflation has the advantage, from the perspective of central banks on an inflation target, of being a leading indicator of general inflation later on. Presumably this is because the housing market is independent from foreign markets. Increased housing demand cannot be channelled out of the economy, unlike various other goods and services, nor is foreign competition present to any significant extent. When demand surges, housing prices often rise sooner and by more than prices of goods and services in general.
Yields of shorter-term notes and bills have declined, with two-year government bond yields of Italy, Ireland and Portugal declining by over 400 bps since 8 December 2011. Longer-term government yields have declined as well, although not to the same extent as shorter-term yields (Slide 7). The positive secondary market developments were accompanied by favourable primary market activity with sustained demand in auctions of T-bills and shorter bonds in several euro area countries. All in all, there is now strong preliminary evidence that the three-year LTROs have helped the banks to reduce liquidity risk and therefore allowed them to smooth the deleveraging process over a longer period of time and maintain exposures to SMEs – at least in some cases. Anecdotal evidence also points to the return of some institutional money market investors, with quite a number of banks reporting that funds (also unsecured) are becoming available again at somewhat longer maturities. While banks seem to have used the funds obtained from the first three-year LTRO mainly for refinancing purposes, when looking forward to the next six months, they now seem to expect a stronger use of these funds for granting loans. Whether these expectations will materialise remains an open question and the Governing Council will closely monitor these developments. Challenges ahead A side effect of the three-year LTROs is that the banking system in the euro area is now in a situation of abundant excess liquidity.

Up to a certain amount, banks’ demand for central bank reserves is completely inelastic (due to central bank reserve requirements, internal and external liquidity regulation and other factors). Beyond this amount, however, the decision to hold excess reserves responds to risk-return considerations as for any other asset: if a bank decides to hold a certain amount of excess reserves, it is because their risk-adjusted return dominates that of other assets. As I mentioned earlier, while an individual bank can decide to hold less excess reserves, in the short run the banking system as a whole cannot dispose of excess reserves. Since, in equilibrium, supply must equal demand, if interest rates on central bank deposits (the riskfree remuneration of excess reserves) are at levels such that demand for reserves exceeds supply, banks will be willing to hold on to the excess reserves present in the market. This is likely to be the case in a situation of high risk aversion, where – like today – the risk premia demanded to hold risky assets are so high that their risk-adjusted return is lower than that offered by the deposit rate. If, however, banks become more willing to accept risks, their demand for excess reserves for a given deposit rate will decrease and they will look for more attractive alternative uses for these funds: riskier assets and/or loans.
Risks arising in a single bank’s operations can thereby easily be spread to the other major banks. During the crisis, we also saw how uncertainty over future loan losses in individual banks spilled over to the others. In the eyes of a foreign investor, the Swedish banks were all travelling on the motorway in the same vehicle. Swedish banks are large and internationally dependent The Swedish banks are also large in relation to the Swedish economy. The assets in the total banking sector are equivalent to about 425 per cent of Sweden’s GDP. One reason for this is that they have comprehensive international operations. At the same time, there are few effective international agreements on how to manage cross-border banking groups in a crisis situation. Consequently, the failure of a major Swedish bank would risk being difficult to manage. This also means that the cost for Sweden’s taxpayers would risk being significant. The market assumes that major Swedish banks have implicit state guarantees The market also assumes that the major banks have an implicit guarantee from the state, as they are considered to be too big for the state to allow them to fail. This means that these banks can obtain cheaper funding than would otherwise have been the case. The implied state guarantees were clearly illustrated by our neighbour, Denmark, when Amagerbanken collapsed and the Danish authorities forced senior lenders to contribute.

The correlation between the two series was a remarkable 0.85 during the period 2005 to 2011. 2 / 11  BIS central bankers' speeches  Admittedly, academics typically take this correlation much less seriously than practitioners. It is a good habit of academics to dismiss contemporaneous correlations between two variables as spurious. If anything, standard theory – also known as uncovered interest parity (UIP) – predicts a correlation between today’s interest rate differentials and tomorrow’s exchange rate changes, thereby discrediting any perceived contemporaneous causality. Other approaches are less dismissive, however. The “asset market approach” to exchange rates, for example – which, in essence, is an alternative representation of the UIP – posits that, as an asset price, exchange rates should fully reflect today’s expectations about the future, just as equity prices reflect the expected discounted stream of future earnings and other relevant information.5 The implication is that the current level of the exchange rate should be a function of the average of current and future expected short-term interest rates. And because monetary policy, away from the zero lower bound, predominantly sends signals about the current level of central bank interest rates, and because the term premium – the additional return that investors demand for the risks incurred by not simply rolling over a series of short-term bonds – was typically contained at shorter horizons, it is not surprising to see a strong correlation between short-term interest rates and the exchange rate.
5 This reduces the return potential of investments and hence also the demand for capital to finance investments. The real rate of interest had to fall in order to balance supply and demand on the capital market. Negative interest – still essential from a monetary policy perspective The decline in long-term interest rates also has implications for monetary policy and thus for short-term rates. What is known as the ‘neutral rate of interest’, i.e. the rate at which monetary policy neither holds back nor stimulates the economy under conditions of price stability, is also lower than it used to be. To achieve the same degree of monetary policy expansion in these circumstances, short-term interest rates must therefore also be lower now. This is one of the reasons why many central banks lowered their policy rates to zero or even into negative territory in the financial and debt crisis. It was because of this that the SNB, too, introduced a negative rate of interest on the sight deposits that banks hold with it. We are aware that the negative interest rate is an unconventional instrument, and one that has side effects. That is why we subject the benefits of this instrument for monetary policy, as well as any resulting costs, to particular scrutiny. We will only maintain the negative interest rate for as long as the benefits outweigh the costs. We undertook the most recent evaluation during our September monetary policy assessment.

Retail activity, which was buoyant in May, fell back in June partly due to poor weather conditions. In aggregate, activity was up over the last two months. The construction and civil engineering sector1 recovered in the second quarter of 1997 primarily as a result of seasonal factors. Employment levels held steady in industry, except for the automobile sector, where there was a further contraction, and the building, retail and market services sectors. Wherever possible, companies sought to enhance workforce flexibility via temporary staff and overtime, in order to cope with fluctuating demand and organize themselves for the summer vacation period. __________________ 1  Unadjusted data. BIS Review 70/1997
In some respects, this may sound like old news. For example, an evaporation of liquidity, amplified by algorithmic trading, lay at the heart of the 1987 stock market crash. And it is also well-known that stock prices exhibit non-normalities, with the distribution of asset price changes fatter-tailed and more persistent than implied by the efficient markets hypothesis at frequencies of years and months, perhaps weeks and days. 14 But these abnormalities were thought to disappear at higher frequencies, such as hours and minutes. Over shorter intervals, efficient market pricing restored itself. Recent studies point, however, to a changing pattern. Non-normal patterns in prices have begun to appear at much higher frequencies. A recent study by Smith (2010) suggests that, since around 2005, stock price returns have begun to exhibit fat-tailed persistence at 15 minute intervals. Given the timing, these non-normalities are attributed to the role of HFT in financial markets. 10  Lehalle et al (2010b). 11  Lehalle et al (2010a). 12  CFTC-SEC (2010), Kirilenko, Kyle, Samadi and Tuzun (2011). 13  For example, Jarrow and Protter (2011, Cvitanic and Kirilenko (2010). 14  For example, Gopikrishnan et al (1999), Bouchaud et al (2009). 6  BIS central bankers’ speeches  The measure of stock price abnormality used by Smith is the so-called “Hurst” coefficient. 15 The Hurst coefficient is named after English civil engineer H E Hurst. It was constructed by plotting data on the irregular flooding patterns of the Nile delta over the period 622–1469 AD.

An altogether bigger prize would be to put these data to work before the fact, identifying the next victim pre-autopsy. That could mean using transactions data to help detect early warnings of systemic fault-lines and stresses. This is a potentially massive analytical and technical challenge. The technical challenge is certainly surmountable. Advances in computer power over the past decade mean that storing and processing huge volumes of data poses no technological barrier. The answer lies in the clouds – conveniently enough, since they too exhibit fractal properties. If we can search and track the world wide web in close to real time, we can certainly do the same for its financial sub-component. The analytical challenge is altogether greater. In essence, it is to find summary measures of billions of transactions data which are informative about impending market stress. There is serious needle-in-haystack risk with such an endeavour. And experience in economics and finance of finding robust early warning indicators is mixed. But here again, the market microstructure literature offers some tantalising clues. For example, Easley et al (2011b) have suggested that measures of “order imbalance” may provide early warning signs of liquidity voids and price dislocations. Their measure of imbalance follows closely in Mandelbrot’s footprints. It uses a volume-based metric of the proportion or orders from informed traders. Any imbalance towards informed traders causes potential liquidity problems down the line as a result of adverse selection risk.
The funds obtained through the issuance of supranational debt will be used to tackle the effects of the COVID-19 crisis and to prepare the European economy for future challenges. More than half the funds are expected to be used in two priority areas: digitalisation and the environmental challenge. To access these funds, countries must design recovery and resilience plans containing specific proposals for projects aligned with the particular country recommendations made in the context of the European Semester.7 To assess the impact of these funds, we must turn our attention to some of the aspects that are yet to be clearly defined. Specifically, there are four sources of uncertainty, the response to which will be crucial to determine the fund’s capacity to boost economic activity: the amount to be disbursed, the schedule for implementation of the projects, the type of projects to which the resources will be allocated and, lastly, how the loans envisaged in the agreement will be used. Regarding the amount to be disbursed, it is important to set in context the sheer scale of the resources that the NGEU programme could potentially make available to a number of European countries, including Spain. Specifically, the portion taking the form of grants would alone approximately triple the entire general government's investment expenditure in 2019. Since countries risk facing difficulties when it comes to absorbing such a huge volume of funds, it is vital that bottlenecks are reduced at all levels of government, and that effective and swift public tender processes are designed.

However, a common European response should be considered a necessary but not sufficient condition for ensuring a swifter and stronger recovery of our economy and minimising the structural damage caused by this crisis. To attain these goals, not only must fiscal policy continue to provide adequate support for households and firms in the short term, but the European funds must be allocated to high added-value investment projects, accompanied by a structural reform programme designed to strengthen the economy’s long-term growth. Indeed, the European funds should also be used to finance the structural improvements required by the Spanish economy. Thank you very much for your attention. 11
BIS Review 124/2008  17

This fragmentation was affecting the whole economy of the area, and a banking union has been proposed in order to re-establish a smooth transmission of monetary policy and ensure that the credit supply meets the real economy’s needs. Some evidence on the fragmentation of the banking system First of all, let me give you some evidence on the fragmentation of the banking system. BIS central bankers’ speeches  1  The ECB has been continuously monitoring the degree of integration in the euro area financial markets. The latest Financial Integration in Europe report, published in April 2012, showed several indicators pointing to rising fragmentation in various market segments as the sovereign debt crisis has escalated. In addition to the price-based indicators highlighted in the report, quantity-based indicators also continue to point to a further and significant renationalisation of euro area banks’ funding markets. Banks located in peripheral countries continued to lose market funding, while those in some other countries retained it and managed to issue bank debt at attractive yield levels. The market for secured bank funding has also been affected by the increased tensions in some euro area government bond markets. Differences between bank lending rates offered to non-financial corporations and households in euro area countries reflect divergences in bank funding conditions that go beyond country-specific economic conditions. Let me give you a few examples. The coefficient of variation across euro area countries of the short-term cost of borrowing for non-financial corporations has been increasing towards all-time highs.