samchain/econo-pairs-v1 huggingface dataset:
These scenarios include those that seem highly implausible but might prove very damaging, as well as those that seem more plausible but might alter the outlook less. To complement this, we look at the implications for monetary policy of alternative scenarios for the outlook—what should we do if the world moves in a different direction. And we also look at the impact on the outlook for growth and inflation of different paths for the fed funds rate. These approaches help illustrate the size and sources of uncertainty we live with at any moment. They do not give us the capacity to attach precise probabilities to alternative scenarios or to quantify with precision the implications, but they help frame a discussion of the material risks to the outlook and the potential consequences of different types of policy mistakes. And they can help inform choices about how central banks should affect expectations about future interest rates. Along with these analytical tools, many central banks have adopted a decisionmaking structure that is designed to bring a diversity of independent perspectives to the table. Although the FOMC's discussions begin with the presentation of a forecast prepared by the staff of the Federal Reserve Board, the committee members bring to the discussion substantial information based on independent efforts to understand the underlying dynamics of demand and inflation and their implications for monetary policy. This can provide a stronger foundation for decisions, particularly where uncertainty is inherently great.

And that lies four square within the Bank of England’s mission to promote the good of the people of the United Kingdom, Muslim and non-Muslim alike. Global growth in Islamic Finance Islamic finance is a global success story, with assets of $ trillion in 2019 (Table 1). That’s 11% higher than a year earlier, and fully a third bigger than in 2015. Table 1: Size and composition of Islamic Finance Services Industry $ 2019)  *  *Gulf Co-operation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates). Source: Islamic Financial Services Industry Stability Report 20202  Three quarters of those Islamic finance assets are held by banks – and are large enough to play a  1  For a summary of these principles, see eg https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2017/islamic-banksand-central-banking.pdf?la=en&hash=15D94BD65C2EFA6962989D10E21543B7B7013C1C. 2 https://www.ifsb.org/download.php?id=5724&lang=English&pg=/index.php. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  systemic role in thirteen countries.3 There’s also a nascent Islamic insurance industry (takaful) – and a much larger capital market, anchored around the growing stock of sukuk4 issued by companies and governments (Chart 1), and over 1,500 Shari’ah compliant investment funds. Chart 1: Global sukuk issuance and stock outstanding  Source: Islamic Financial Services Industry Stability Report 20202  The role of the UK and the Bank of England in supporting Islamic Finance So far, so impressive.
Another central aspect of macroprudential supervision and regulation takes account of the build-up of systemic risks over time, and especially the procyclical effects in the financial sector. Discretionary action could be taken to cushion the growth of such risks over time – for instance, by imposing an obligation to build up additional capital in phases of excessive credit growth, in other words a countercyclical capital buffer. A key aspect here is that such measures help prevent possible imbalances within the financial system. Another way of achieving the required countercyclical effect is, for example, imposing direct restrictions on loan-to-value ratios if there are signs that a bubble could be forming in certain markets, such as the mortgage market. The difficulties of applying macroprudential supervision and regulation should not be underestimated, however. First and foremost, experience of discretionary instruments is still fairly limited. For example, there is not yet any conclusive research showing which indicators could be used to reliably identify systemic risks. Moreover, it is not easy to assess the point beyond which credit growth should be regarded as excessive. Furthermore, the interaction between macroprudential and monetary policy instruments could make implementation more difficult. In particular, monetary policy transmission channels could be affected. The impact of a change in interest rates on lending could vary depending on the level of a bank’s capital buffer.

The unconventional measures used in this regard also proved to be effective. Yet despite these measures, the cost of the crisis remains enormous. One central conclusion, therefore, is that more attention needs to be paid to crisis prevention in order to improve the stability of financial systems. However, monetary policy instruments are only suitable up to a point in countering the emergence of financial imbalances. Hence, a different approach is needed. Strengthening macroprudential supervision and regulation is one plausible option. Macroprudential policy takes account of systemic risks in the financial sector through action geared to reducing such risks. As yet, however, we have little experience of this type of supervision and regulation. It is therefore vital that we act prudently and gradually when implementing any new measures, and that we give ourselves adequate time. The first step is to define clear and realistic mandates and objectives and to evaluate possible instruments. Collaboration between the various authorities involved – both nationally and internationally – is also of crucial importance. Overall, we need to create conditions that allow the timely application of suitable instruments to counter emergent financial instabilities. These instruments would essentially supplement our set of existing monetary policy instruments. Within such a framework, the SNB would be able to make an optimum contribution to both objectives – price stability and financial stability. 6  BIS Review 121/2010
Without the measures taken by the Riksbank and other authorities the financial system would have ceased functioning and would still not be functioning. The same applies of course in many other countries. As we note in the Financial Stability Report that we published just over one week ago, these measures have contributed to ensuring that there is no imminent risk of a liquidity shortage for the banks. Interbank rates have fallen, although it still appears difficult to find funding at longer maturities. There are also other signs that the conditions on the international credit markets have eased somewhat and it appears to have become slightly easier to obtain funding by issuing securities, even when these are not backed by a government guarantee. Now it is unfortunately not the case that the problems are over – we are not yet on solid ground with regard to financial stability. There is still a lack of confidence between financial institutions and the international credit markets are fairly far from functioning as they did before the crisis. The situation is still sensitive and there is still a risk of a surprisingly negative shock giving the crisis new energy and once again making it more difficult for the banks to obtain funding. The Riksbank will of course follow developments very closely. We will continue to supply the banks with liquidity and we are prepared to do so as long as necessary. But to summarise briefly, the situation does look somewhat brighter with regard to liquidity risk.

But in the recently published Financial Stability Report we are nevertheless assuming, even in the main scenario, that the Swedish banks will face fairly substantial loan losses in 2009 and 2010. A large share of the losses, approximately 40 per cent, is expected to arise from operations in the Baltic countries and the rest of eastern Europe. But in the Report we also note that all of the major Swedish banks have sufficient capital to cope with the losses that will arise if the Riksbank's forecasts are correct. We also observe that the Swedish banks are well-capitalised in an international perspective. One cannot disregard the fact that there is great uncertainty over future developments in economic activity. When one has the task of safeguarding financial stability, it is natural preparing for situations where things go very badly. And when assessing the resilience of the financial system it is also of greater interest to study a more negative development than the one forecast. We have therefore investigated in our Financial Stability Report how the banks would cope with a scenario of a much weaker development than that considered most likely today. There we assume, for instance, that GDP in Sweden will fall twice as much as predicted in our main scenario forecasts for 2009 and 2010 in the Monetary Policy Update published in April.
The thickness of the red arrows is proportional to the size of the net transactions (in terms of notional amount) between the clearing member and their counterparty. 2  This is because clearing requires an adequate degree of standardisation of a product’s contractual terms and operational processes, sufficient market liquidity to support default management in potentially stressed conditions, and reliable pricing sources to support accurate margining 3 See FBS Chair letter to the G20 (July 2017) http://www.fsb.org/wp-content/uploads/P030717-1.pdf 4 For further information see the Bank of England FMI annual report 2017. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  The concomitant of these benefits has been greater concentration of risk reducing activity in CCPs. There is notable concentration amongst the largest CCPs and largest clearing members and there are clear interdependencies between CCPs and their clearing members. 5  It would be wrong to see this as some manifestation of “unintended consequence”; it is rather the other side of the simplification coin; an intrinsic part of the overall risk reduction. Concentration brings its own risks but may still be preferable overall to the complexity that existed before the crisis: returning to a derivatives universe that linked the international financial system together through a far more complex network of bilateral exposures, would in my view be a retrograde step. But it would be equally wrong to ignore the risks that could arise from higher concentration.

It ensures the robust collateralisation of the remaining net exposures through the margin taken from participants. And in the event of a default, any losses that exceed the defaulter’s collateral margin held by the CCP are mutualised between the members. As the Lehman experience illustrated, the centralised, rules-based management of a clearing member’s default by a CCP, combined with the incentives created by mutualisation enhance the system’s resilience and continuity during a stress and brings greater certainty to the default management process for market participants. Central clearing also brings greater transparency – in the run up to the crisis and during the crisis itself, authorities had very poor visibility over the network of derivatives transactions. That made it much harder to identify risks and the connections between institutions. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  2  Not all derivative contracts are suitable for central clearing. Where clearing is not possible, the post crisis reforms include similar requirements to margin and report bilateral derivative contracts. But the additional mutualisation and central default management benefits of central clearing, justify in my view, the authorities efforts since the crisis to move derivatives that are suitable for clearing onto CCPs. These efforts have been successful. Reforms since the crisis have led to a very substantial increase in the use of clearing services for both exchange traded and over the counter derivatives.
Yet even after successful structural reforms, in a monetary union with 19 Member States there can always be economic shocks which affect some countries more than others. Flexible labour markets and a responsible fiscal policy help to cushion such shocks – not only in a monetary union. In such a union however they play an even greater role, because the countries concerned can no longer react by way of the exchange rate or national monetary policy. But if the shock is excessive or the economic structures too rigid and the national budget under pressure, the Member State in question may be quickly overwhelmed. This is exactly what we have seen during the recent crisis. The costs of the crisis were borne in large part by the citizens in the crisis countries, but also shifted in part to the European level through mutual guarantees. Basically, the countries concerned resorted to a sort of implicit insurance that was not originally foreseen. This experience gives rise to two key questions: •  First, how can Member States better absorb external shocks – even without an independent exchange rate and without a national monetary policy? •  Second, how can risks be shared at European level without a transfer of risk occurring which distorts the incentives for the individual Member States? A monetary union needs strong members... As for the first question, the euro area countries need economic structures which meet the requirements of a single currency. The crisis has made this abundantly clear.

You gave your time freely and shared your ideas selflessly. Thank you. We are also indebted to our partners and trainers who have contributed on a pro-bono basis to IBF’s learning resources – working on impossible timelines to deliver high-quality training standards and study guide materials. There is a final group that I want to acknowledge, the unsung heroes of the IBF story – the past and present staff of IBF. •  From administering the CMFAS examinations to developing new industry examinations;  •  from reviewing and accrediting training programmes to certifying individuals under FICS;  •  the management and staff of IBF have been unrelenting in their commitment to raising industry standards. As we look back at IBF’s 40 years, we can take pride in what it has achieved. •  Some 200,000 participants have benefitted to-date from training courses offered or accredited by IBF. •  Close to 2,000 practitioners have been certified under the FICS Standards. One of the reasons why IBF has done well is that it has renewed itself periodically, to stay relevant and effective amidst a changing environment but always focused on its core mandate of promoting competency in finance. Today, IBF embarks on the next phase of its journey to raise industry standards. Our new mission is to “empower practitioners with capabilities for a robust Asian financial industry”. To equip our finance professionals for the next phase in Singapore’s development as a financial centre, IBF will focus on two new dimensions.
This should also improve the chances of ensuring stable developments in demand in the economy. That in turn should help smooth the fluctuations in the cyclical component of unemployment, even though the relationship between demand and unemployment does not always have to be especially strong, as demonstrated in particular by recent developments. It is just as important to realise that monetary policy, and for that matter stabilisation policy in general, cannot be used to permanently raise growth and reduce unemployment. If the aim is to achieve a permanently higher employment rate and lower unemployment, it is essentially a question instead of  6  BIS Review 18/2005  trying to influence the structural component of unemployment, i.e. the component that does not depend on fluctuations in demand for goods and services in the economy. And that requires completely different measures than those of monetary policy. Examples include how to improve the business climate and how to make the labour market as efficient as possible. It is vital to discuss and evaluate monetary policy, but it is also important that the discussion of economic policy and developments on the whole be based on a realistic view of what monetary policy can accomplish. If so, the discussion is more likely to help us in our efforts to conduct monetary policy in the best way possible. Thank you. 1.

Lars Heikensten: Introduction on monetary policy Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, to the Riksdag Committee on Finance, Stockholm, 15 March 2005. *  *  *  Allow me as usual to begin by thanking you for your invitation. I think it goes without saying that these hearings are a highly valuable feature of the open discussion of monetary policy that we are all keen to safeguard. It is also my hope that the hearings can help spread knowledge about monetary policy issues to a wider audience, especially since they are now broadcast live on television. As is customary at the first hearing of the year I intend to begin by looking back on developments last year. As we all know, inflation turned out sharply lower than the Riksbank’s target in 2004. When that happens it is natural that a debate on monetary policy should arise in the public domain. It is hardly an exaggeration to say that the discussions in the past year have been unusually lively. I commented on the debate in detail when I was here in October, but there may be reason to touch upon it again today. Subsequently I intend to present our current assessment of the inflation outlook and explain the interest rate decision we made yesterday, after which I will round off with some general reflections on Swedish monetary policy and the conditions under which it operates.
Chart 9: Gilts sold in 60s and early 70s suffered large losses in real terms; ex post, returns in 1980s much higher  In the 1970s, when inflation was far higher than anyone had anticipated at the start of the decade, these effects were sizeable. In 1970 the ten-year gilt yield was 8½%. So someone who’d bought such a bond, if he’d planned to hold it to maturity and reinvest the coupons along the way, might have expected to earn a cumulative return of close to 130%, more than doubling his money in nominal terms over the following decade. We don’t know what inflation expectations were at the time. But if (say) people anticipated a similar rate of  Ex post returns on 10-year/ medium-term government bonds. Sources: Thomas and Dimsdale (2017), Annual abstract of statistics 1947, O'Donoghue et al (2004), ONS, Bank of England and Bank calculations. inflation as over the previous five years (it averaged 4% in the second half of the 1960s) they might still have expected a cumulative real return of over 50%. As it was, prices rose 13% a year in the 1970s, the highest rate over any 10-year period in British history, and the cumulative real return on the bond was minus 35% (Chart 9). This is what surprise inflation can do. It acts as a capital levy on investors in government debt. It can also prove extremely disruptive to the wider economy, of course.

And although inflation also rose during the Second World War, and was much more persistent afterwards – with monetary policy in the hands of the government many argue this does count as a period of “fiscal dominance” over, or at least “fiscal influence” on, that policy – it was at least brought down, and contained to a degree5, by the fixed exchange rate of the Bretton Woods system. Only in the late 1960s and 1970s, once Bretton Woods broke down and by which time government debt ratios were already much lower, did inflation really take off. Finally, to tick off one more relevant episode, we all know that the financial crisis of 2008-09 was  Chart 2: But in British history there is no correlation between public-sector debt and inflation  followed by rapid and material rises in publicsector indebtedness. Yet despite this, and despite large-scale monetary easing as that rise was occurring, inflation remained close to target. Indeed, for much of the post-crisis period many developed country central banks have found themselves battling rates of inflation that are too low, not too high. All in all, taking the past three centuries as a whole, the correlation between public-sector indebtedness and inflation – whether that’s  Sources: Thomas and Dimsdale (2017), Mitchell (1988), Feinstein (1991), Crafts and Mills (1994), Feinstein (1998), O'Donoghue et al (2004), ONS and Bank calculations. measured contemporaneously or after the event – is zero (Chart 2). I think we can draw a few lessons from this.
A direct consequence of this growth was that the short-term liabilities associated with the shadow banking system – repos and commercial paper – exceeded the level of demand deposits as seen in Chart 3. Despite this rapid transformation of the financial system, the liquidity protections put in place for demand deposits (deposit insurance and access to the Fed’s discount window) were not available to these new funding sources. This lack of liquidity protection was a source of systemic risk that was building in the financial system – akin to underbrush that builds up in a forest over time increasing the risk of a major fire. The Panic of 2007, however, required a trigger – a spark to ignite the fire. As I will describe in more detail in a moment, subprime mortgages provided the spark. Once the fire was started, the Fed was confronted with fighting the fire using a set of tools designed for a 20th century banking crisis – not a 21st century shadow banking crisis. As a result, the Fed had to improvise and design new tools as it battled the financial blaze. Another choice would have been to let the fire burn on the theory that this is the best way to clear away the underbrush that has built up over time. The great risk with this strategy is that the fire burns out of control creating considerable collateral damage in the process.

For an independent central bank to be perceived as legitimate in a democracy, it must be granted a clear mandate against which its performance can be assessed. However, the environment in which central banks operate is highly complex, and conditions can change rapidly. For this reason, mandates usually only sketch out a framework for central banks’ operations. This gives them much-needed flexibility in difficult situations. As a counterweight to its independence, a central bank has a duty to report on its actions, and the results. Indeed, the SNB has regularly provided detailed reports on matters relating to both monetary policy and financial stability. For example, it has explained the rationale behind deciding to discontinue the minimum exchange rate or introduce the negative interest rate, and how these measures have helped it to fulfil its mandate. As regards financial stability, the fact that macroprudential instruments often have powerful distribution effects speaks against handing over the entire responsibility for such instruments to the central bank. In contrast to monetary policy, these measures are sometimes targeted at specific sectors and groups, and thus also have fiscal implications. In Switzerland, macroprudential tasks have therefore been divided up between the government, the financial market supervisory authority and the SNB. The SNB is responsible for assessing the systemic importance of banks and financial market infrastructures, and plays a key role in the deployment of the countercyclical capital buffer. 1/1  BIS central bankers' speeches