samchain/econo-pairs-v1 huggingface dataset:
1  Helmut Schmidt; Remarks at the Farewell event for the ECB President Jean-Claude Trichet; October 19, 2011. BIS central bankers’ speeches  1  But since then, the Eurosystem has struggled to match this performance. Inflation has been well below 2% for 3 years now – with exactly the same phenomenon in Germany itself – and this fall cannot be explained completely by the decline in oil prices. At the same time, inflation expectations have gradually drifted down over the last three years. Our mandate imposes a duty to react, in order to protect the Eurozone economy – including the German one – from the lethal danger of deflation. Third, patience within a medium to long-term perspective. In this volatile world we live in, our policy reactions are not the result of short-term economic fluctuations, market overreactions, media headlines or poll results. Our credibility is also symmetric. If we tolerate long deviations of inflation under 2% now, there is a risk that in the future, when inflation wanders above 2%, our determination to bring it back to close to but below 2% lacks credibility. As Romer and Romer, two US monetary economists, forcefully argued in a recent paper 2, the most dangerous idea for central bankers is to indulge in the idea that monetary policy can do little against shifts in the output gap, be they negative or positive. In retrospect, there is sound evidence now that the Great Depression in the 30’s and the Great Inflation of the 70’s were sustained by this belief.

Credibility and anchored inflation expectations require that we do not give credit to the past “toothpaste” view of monetary policy – contractionary policy cannot fight inflation once it is out – nor symmetrically to the current “string” view of monetary policy – whereby accommodative policy cannot fight deflation. So, our results have to be judged over the medium term. We are only fifteen months after the real start of QE in the Eurozone but we can already see some positive effects. According to Eurosystem staff assessments, without the APP (Asset Purchasing Program) inflation would have been negative in 2015, more than half of a percentage point lower in 2016, and around half of a percentage point lower in 2017. If we pursue our program, what should we expect down the road? The US Federal Reserve has shown us the way, taking a series of very important steps to increase monetary stimulus even after it brought its policy interest rate to zero. The Fed issued forward  2  2  C. Romer and D. Romer “The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter” American Economic Review: Papers & Proceedings 2013, 103(3): 55–60. BIS central bankers’ speeches  guidance to signal a protracted period of low interest rates and began QE. The US logically leads the way as it was the first epicenter of the Great recession. The US QE began in November 2008 and core inflation troughed in October 2010.
William C Dudley: Panel remarks at the Brookings Institution Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at “The Fed at a crossroads: Where to go next?”, Brookings Institution, Washington DC, 15 October 2015. *  *  *  It is a great pleasure to be here today to participate in this panel with John Taylor. I am going to take today’s topic – “Where to go next?” – to address the issue of how monetary policy should be conducted. This is an issue that is getting considerable attention among policymakers here in Washington, D.C. To put succinctly the question I wish to tackle: Is it better for policymakers to start with a formal rule as the default position, or for policymakers to have a more flexible approach that considers a broader set of factors in setting the monetary policy stance? As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. 1 To get right to the punch line, I favor a more flexible approach that incorporates a broader set of factors into the monetary policy decision-making process. The world is complex and everchanging. There are many factors that can affect the economic outlook and the attainment of the Federal Reserve’s mandated objectives and, thereby, the appropriate stance of monetary policy.

While there is still a high degree of uncertainty, recent economic data confirm the positive underlying momentum of economic activity in the euro area. The sovereign crisis in Europe While economic prospects have improved, we still face challenges. The most important one is certainly “the sovereign crisis” in the euro area. Broadly speaking, opinions and views  BIS central bankers’ speeches  1  expressed on this by people outside the euro area can be divided into three categories: hostility, skepticism and support. First, outright hostility: gloomy predictions about the imminent demise of the euro came predominantly from deeply anti-European commentators. While these views, like all opinions, should be treated with respect, there is no point in trying to refute arguments that are largely irrational and mainly reflect wishful thinking. Second, skepticism: it comes mainly, but not only, from academic circles. Prestigious and well-respected economists have been pointing to the fact that the euro is not an optimum currency area and that some form of fiscal federalism is missing to compensate for insufficient labour mobility. Let me simply recall a few facts. The benefits of the euro cannot be assessed exclusively through the lens of the optimum currency area theory. The euro has brought to more than 300 million European citizens unprecedented stability: price stability, of course, with inflation averaging 1.97% over the past decade, but also financial stability. It is always useful to think of counterfactual (?) when assessing a situation.
Similarly, many euro-sceptics characterize the euro as a pure “political” or geopolitical, project – clearly implying that it has no economic rationale. It will come as no surprise to you that I do not share this view. Obviously, the creation of the euro has been underpinned by a broad political vision and ambition. But there was – and still is – a strong economic rationale in solidifying economic and financial integration in Western Europe by the creation of a single currency. This economic rationale is clearly perceived by investors and market participants who have made the euro the second world currency for investing in financial assets and holding foreign exchange reserves. This being said, history has also shown that the geography of the international monetary system may undergo fast and abrupt changes. Over decades and centuries, new currencies emerge and existing ones disappear as major vehicles for international trade and investment. Geopolitical changes may trigger such evolutions. But some endogenous dynamics are also at work. Past some stages, or “tipping points”, the use of a currency may expand or shrink quickly due to network and scale effects: the more people use a currency, the more attractive it becomes. This begs the question of possible “spheres of influence” appearing in the future with significant evolutions in the respective role and weight of existing currencies. In my remarks, I will simply define such “spheres of influence” as parts of the world economic system where the use of a specific currency might dominate.

This may be, for the future, an interesting precedent: a new global currency can emerge without destabilizing the system. It is also worth noticing that the euro crisis had no major effect on its international role. In particular, the share of foreign reserves invested in Euro securities has barely moved. And, when the Swiss authorities decided to peg their currency, they chose the euro as an anchor. Does the euro have a “sphere of influence”? As you know, we have taken a very neutral stance on this issue and neither encouraged or discouraged the use of the euro as a reserve currency. In fact, the euro is increasingly used in international transactions and accepted for payments (including retail ones) in many countries – as European tourists can experience every day. Recently, the Eurozone seems to exert a stronger influence on global monetary conditions. For the first time in many decades, long-term rates in Europe have significantly decoupled from those of the US. Also, there is some evidence of “reverse causality” with Euro long term rates increasingly impacting US rates, creating new channels for monetary spillovers and feedbacks. However, the euro is not yet widely used as a unit of account: most global transactions – especially in commodities – are denominated in dollar. A majority of new securities issuances are also denominated in dollars. New global currencies? As the geography of the world economy changes, so will the shape of the international monetary system.
TED spread, basis points 500  500 Sweden  450 400  450  Euro area USA  400  United Kingdom  350  350 Coordinated policy rate cut Lending by central banks  300 250  300 250  Lehman Brothers 200  200  150  150  100  100  50  50  0 Jan-07  0 Jan-08  Jan-09  Sources: Reuters EcoWin and the Riksbank  Both in Sweden and in other countries the TED spread rose substantially when the crisis became acute in connection with Lehman Brothers filing for bankruptcy last autumn. Since then it has gradually fallen, although it is still above the levels that prevailed prior to the crisis. This indicates greater confidence between the banks. The total measures have probably had considerable significance. In particular, the large injections of liquidity that come from the central banks still lending large amounts to the banks should contribute to reducing the TED spread. Yes, although we are not yet on solid ground! For part of my professional life I have come to work with managing financial crises in different parts of the world, both here in Sweden and for the IMF. I know that it is difficult to say exactly where in the course of the crisis an economy is at a particular point in time and how fast the recovery will be.

But there is one other area – as investors in bank capital instruments. I am therefore sure you understand that the authorities, internationally, cannot avoid reviewing what should count in the medium term as regulatory capital for banks. It won’t do for banks to be able to leverage up on subordinated debt (or other forms of hybrid capital) if, just when it matters, the holders do not suffer because the authorities cannot let the banks concerned be liquidated without bringing system collapse down on us all. We either need a system where banks of any type can quietly fail and hybrid capital is actually useful in protecting the deposit insurer; or, more realistically, we shall need a much narrower definition of capital. Only equity can absorb losses and sustain a going concern. Finding a way through that in the current crisis remains a challenge. One helpful step might be for the investment industry to seek out opportunities to convert subordinated debt into equity; or, at a discount, into senior unsecured debt, as has occurred in a few instances already. It would probably entail a haircut, but I wouldn’t air it unless I thought it could be in your collective and medium-term interests as investors in our economy and the system of credit that supports and lubricates it. The new Special Resolution Regime for banks may create healthy incentives in that broad direction. In concluding, can I thank you again for inviting me to join you today.
Solvency II allows insurers to apply to the PRA for permission to use a model to calculate their capital requirements. The purpose of these models is to estimate the amount of capital needed to protect the insurer against losses in a ‘1 in 200’ scenario over one year. They are highly complex. Taking the example of a life insurer, a typical model might involve:   Producing a base balance sheet. Many assets and liabilities can be valued without models: for example using market prices. But other valuations are themselves based on models;    Estimating a distribution of outcomes over one year for the material risks to which the insurer is exposed: such as, changes in interest rates, credit spreads, inflation, property prices, longevity, etc;    Assessing to what extent these risks are inter-dependent: for example, asset prices are related to interest rates;    Estimating the impact of the combination of risks to which the insurer is exposed on its balance sheet across many different scenarios;    Taking these outputs and converting them into a simpler set of equations – or proxy model – that relates the insurer’s net assets to a series of risk factor inputs. The purpose of estimating a proxy model is to make it tractable to run many more scenarios. The complexity of the underlying valuation models would make this impractical computationally.

Bank Negara Malaysia has so far issued eight financial advisers licences which employ a total of 57 financial advisers’ representatives. I encourage you to follow their footsteps and embark on a new chapter in your professional careers, to make the most of the opportunities that you will have to create a lasting impact in promoting sound financial planning among Malaysians. I trust that the distinguished speakers will share their valuable insights and experiences to provide you better clarity on the opportunities as financial advisers. On that note ladies and gentlemen, I wish you a successful and productive seminar. We look forward to your contribution to the further growth and development of the financial services industry. Thank you. BIS Review 136/2008  3
At face value, this would suggest that the repricing of interest rate expectations at the short end of the US curve has not been passed through to long-term rates. This interpretation is incorrect, however. Indeed, and this is my second point, the broad stability of the ten-year yield masks two sharply diverging developments: a marked fall in the term premium – the yellow area – and an appreciable repricing by markets of the expected future path of short-term interest rates – the dark orange area. You can see this clearly on the slide. Put simply, if it weren’t for the parallel fall in the term premium, ten-year Treasuries would trade some 50 basis points above their January 2017 levels and we wouldn’t be having a discussion about flattening. US long-term yields have resisted upward pressure only because of a considerable re-compression of the term premium. Only shortly after the UK’s referendum on EU membership in summer 2016 was the US ten-year term premium more negative than it is today. This allows for one preliminary conclusion but begs one question. The conclusion is that markets seem sanguine about the prospects for the US, and probably also for the global, economy. Judging from the average expected short-term rate over the next ten years, the markets appear to have shaken off some of the pessimism that caused them to tread very carefully over the past few years. Past and currently expected policy rate changes are predicted to last.

Banks that use the internal rating systems are required to consider longer-term horizons in assigning ratings, and to estimate risk parameters as long-run averages or to reflect downturns. Finally, they are also required to carry out stress tests under conditions of simulated recessions. Following on from this last point, as banks are required to perform a meaningfully conservative credit risk stress test, they will hold capital buffers that make regulatory capital requirements less of a constraint. Pillar 2 will also enhance this precautionary behaviour. At present, actual capital held by most banks is, in general, well above minimum regulatory requirements and there is some empirical evidence of a negative relationship between the capital buffers and the cycle, although the magnitude of this effect is more disputed. By promoting sounder practices for risk assessment, Basel II creates incentives for more forwardlooking capital management through which banks will fully recognise the benefits of a prudent strategy of capital accumulation from an intertemporal perspective. The new framework places capital and risk management at the centre of the bank’s responsibility and strategy, requiring managers to be very mindful of and serious about understanding the drivers of risk through the cycle within a medium-term time horizon. A second idea to bear in mind when considering procyclicality in bank credit is that bank behaviour is inherently procyclical. Regulatory considerations aside, a general fall in returns on investment together with a perception of increased risk are natural ingredients during a recession, thus leading per se to a contraction of credit.
These reforms have enhanced the credibility and independence of public institutions and, in particular, the central bank’s role and independence. They were not guided by the wish and goal to join Europe, but rather to build a society similar to the European one. By achieving economic, political and social convergence in these countries, each of them hopes to become a worthy partner to the developed Europe, and adopt the euro as the final phase of this transformation process. From this viewpoint, the European integration process, European Commission and the euro became powerful external anchors for each SEE country. Current developments have diminished the anchoring role of the EU and the euro. Consequently, the European Commission and all European decision-making authorities should, in the future, pay greater attention to the characteristics of countries and regions aspiring to EU membership, and engage in closer cooperation with the respective national authorities. It is, however, important to emphasize an evident and indisputable fact to all of us: external factors cannot safeguard long-term stability if internal anchors are missing. The current situation in Europe shows that the integration process does not prove to be a sufficient anchor, be it both inside and outside the euro area, as long as the internal economic and political choices are not stable in the long run. This conclusion underlines the role and importance of internal anchors as warrantors for macro-financial stability and continuation of structural reforms that have brought our  2  BIS central bankers’ speeches  economies to this point.

•  The government budget – growth in public spending – influences the real krone exchange rate and the size of the internationally exposed business sector in the long term. •  Wage formation and economic structures and incentives determine how efficiently labour and other economic resources are used. Even if inflation fluctuates somewhat from one year to the next, inflation has remained fairly close to target over time. Inflation was particularly low in the years around the turn of the millennium when cheap goods flowed from Asia into our country while productivity in the business sector grew sharply. The rise in prices for domestically produced goods and services was also low. Interest rates were cut in response to lower inflation. Economic agents could then expect inflation to gradually move up to target over time. Growth could also remain high for a period without a rapid rise in inflation. Low interest rates made it possible for us to make use of the potential for higher consumption and investment. There are now signs that price and wage inflation is on the increase. Higher food and energy prices are fuelling inflation in other countries. Thus, we cannot assume that prices for imported goods will continue to fall. Moreover, domestic productivity does not seem to be improving as quickly as earlier. The rise in prices is therefore likely to quicken for goods and services produced in Norway.
This is designed to repair the link between policy rate cuts and ample liquidity provision, on the one hand, and lower borrowing costs, on the other. It is also meant to counter the socalled redenomination or convertibility premium that compensates investors for the perceived risk of a breakup of the monetary union. OMT are actually equivalent to traditional open market operations that central banks have long resorted to in order to provide stability and a better functioning of the monetary transmission process that can get impaired in certain circumstances. The unfolding of the crisis has revealed various intertwined dimensions of the existing fragilities and a broad range of imbalances. In various ways, the problems that are evident in the euro area are of a structural nature, resulting in a number of governance reforms that are currently underway. Inappropriate banking practices, weak regulatory frameworks, fiscal slippage and deterioration in competitiveness are now recognised as the main sources of the crisis. A fundamental aspect of the banking crisis is the failure of regulation, which allowed financial institutions to engage in excessive risk that was not matched by adequate capital protection. Systemic risk was exacerbated via strong linkages between financial institutions. Economic fragilities were worsened by the burden imposed on government budgets by bank bail-outs, the lack of market funding available to sovereigns, and the negative impact of sovereign debt downgrades on bank balance sheets. Lack of trust spread across the euro area, with this contagion creating a mutually reinforcing loop between weak sovereigns and bank credit conditions.

Although policies have now been in crisis management mode for five years, the interbank market has yet to return to its normal state, reflecting the extent of the lingering damage within the financial sector. To a considerable extent, the common currency masked vulnerabilities related to the build-up of various imbalances, since such imbalances could no longer be addressed by exchange rate corrections. BIS central bankers’ speeches  1  These factors have raised questions on the viability of the European single currency model as this has perhaps failed to achieve the targets it was primarily set-up for. The extent of these fragilities is reflected in Chart 1, which shows a convergence in sovereign yields in the run-up to the formation of the monetary union, followed by a decade-long stability. In retrospect the low yields were clearly not consistent with the underlying fiscal positions or economic fundamentals at the national level. Indeed, low interest rates enabled governments to pile on additional debt at relatively cheap interest costs. This period coincided with deterioration in competitiveness and wider current account deficits as peripheral countries continued to finance such deficits via capital inflows. Eventually, when markets switched their focus to economic sustainability, the flow of capital reversed direction, sovereign debt was downgraded and yield spreads widened dramatically, as seen in Chart 1. Chart 2 provides a contrast between two groups of countries.