samchain/econo-pairs-v1 huggingface dataset:
I’m here today to speak about how some of those changes are showing up in the economic data as it relates to the recovery. But it’s also important to remember that behind the numbers are families, businesses, and communities that have suffered and continue to face tremendous challenges of all kinds. In my remarks this afternoon I’ll share more about how what we are seeing in the incoming data relates to the economic picture nationally and to this region. I’ll also highlight some of the unique inflation dynamics we are seeing. Finally, I’ll explain what that means for monetary policy and the path forward. Before I continue, I need to give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System. Dual Mandate I know there are a lot of economics students in today’s audience. I won’t quiz you about the Federal Reserve, but one aspect of our work that you may be familiar with is the Fed’s “dual mandate.” These are the two goals set by Congress: maximum employment and price stability. Given these goals, our focus is studying and understanding the wide range of developments that affect employment, unemployment, and inflation. The Economic Outlook So, what are these developments telling us about the current economic outlook? I’ll start by saying that the economy continues to grow at a strong rate.

Over the past five years, significant efforts have been undertaken to modernise Malaysia’s retail payment infrastructure and migrate away from inefficient paper based payment instruments such as cash and cheques. Good progress has since been made, especially in the displacement of cheques. The annual decline rate had accelerated from an average of –1.6% in 2011 to 2013 to –10.1% in 2014 and –16.5% in 2015. Concurrently, there is also an increase in the uptake of electronic fund transfer services. The annual growth rate for the Interbank GIRO (IBG) had increased from an average of 18.8% prior to 2013 to 34.1% in 2014 and 2015. The Instant Interbank Funds Transfer (IBFT) service had also recorded encouraging growth where its annual growth rate of over 60% since 2011 had further increased from 67.8% in 2014 to 76.7% in 2015, signifying greater confidence in the use of e-payments. However, we must not be complacent. As we move forward, there are two technology trends that hold immense promise to revolutionize the payments market. The first is the proliferation of mobile technology and ubiquitous communications. Increasingly, mobile devices are the preferred channel for consumers to make payments conveniently from anywhere and at any time. The second is the ability to process payments and move funds instantaneously around the clock. Towards this end, Bank Negara Malaysia’s wholly-owned subsidiary MyClear has initiated a multi-year program to modernise Malaysia’s payment infrastructure.
For inflation, the reference point is not in the past – but it is rather a normative value, commonly agreed to be desirable for a given society at a given point in time. Please bear with me for a short presentation of the cumulative wage gap model (please see the attached slides). We start by defining the wage gap: 𝑊𝑔𝑎𝑝 𝑇𝑛 = 𝑊𝑇𝑛 − 𝑊𝑇0 3  where 𝑊𝑔𝑎𝑝 𝑇𝑛 is the real wage gap at time Tn, 𝑊𝑇𝑛 is the real wage at time Tn, and 𝑊𝑇0 is the real wage at time T0, the peak value of real wage in the reference period. The cumulative real wage gap at time Tn is defined as: 𝑁 𝑐𝑊𝑔𝑎𝑝 𝑇𝑁 = ∑𝑁 𝑛=1 𝑊𝑔𝑎𝑝 𝑇𝑛 = ∑𝑛=1(𝑊𝑇𝑛 − 𝑊𝑇0 ) A theoretical graphical representation of the real wage and the cumulative real wage gap for a six-period model can be observed in the attached figures. At time T0 real wage is at peak. Of course, wage earners are not aware of this peak until the next year, when real wage drops. Area A is the cumulative real wage gap between T1 and T0, area B is the cumulative real wage gap between T2 and T1, area C is the cumulative real wage gap between T3 and T2, area D is the cumulative real wage gap between T4 and T3, area E is the cumulative real wage gap between T5 and T4 and area F is the cumulative real wage gap between T6 and T5.

As presented in international literature, some of these explanations are: de-anchoring inflationary expectations, the labor market slack, a lower natural rate of unemployment, changes in expectations regarding the real pay growth, the decoupling between growth and inflation, the role of global value chains 1  in keeping prices down, the role of migration in keeping wages down in the countries of destination, and others. While there is some truth in each and every of them, no alternative has been successfully suggested so far. I think that the Phillips Curve needs a reality-check. If we want to explain inflation, we need to make some adjustments to the Phillips curve. The following presentation is based on two working papers that I recently published with Center for European Policy Studies (CEPS)i, respectively and Global Labor Organization (GLO)ii. Three major changes are needed to the Phillips curve. First, we should work with observable variables only. The problem with econometric models which use non-observable variables is built-in: they tend to under-perform in bad times. Potential GDP is revised retroactively. The output gap depends on potential GDP. Plus, an economy can grow above its potential without being at its full employment (in particular, but not exclusively, in catching-up economies). Any measure of unemployment is controversial, given the impact of insufficiently accounted factors such as the underground economy, migration, inactivity, part-time employment. A nonobservable measure of unemployment, like NAIRU, is even more debatable. If Central Banks rest their decisions solely on such non-observable variables, they are at risk of getting them wrong.
On the basis of the 2018 European-wide stress test data, we estimate that the banks’ behavioural reaction to the adverse scenario exacerbates the fall in GDP by a further 1.6% with respect to the initial shock, which itself further depletes banks’ capital.7  Cyclical factors Given that important link between bank behaviour and the cycle, let me turn to the cyclical factors affecting bank profitability in the euro area. The economic expansion continued through 2018, although with a sizeable reduction in the pace of growth relative to the previous year. Since the trough, the number of people in employment has increased by over 10 million. While the data since the end of 2018 have been weak – notably in manufacturing and the external sector – the economic fundamentals remain in place to support continued expansion. The economic expansion and employment growth have supported bank profitability. Loan growth has been robust in recent years, with higher volumes helping to mitigate margin compression.8 The stock of non-performing loans (NPLs) has been substantially reduced. Outstanding NPLs fell by € billion in 2018 and the aggregate ratio dropped to 3.8% of significant banks’ loans at the end of 2018, from 7% at the end of 2015. NPLs represent a double drag on bank profitability. First, NPLs have to be recognised and provisioned for, reducing current profitability. Indeed, the major driver of the increase in bank profitability over the past two years has been the smaller flow of new impairments.

It has also opened up the prospects for developed economies to forge stronger financial linkages with these dynamic growth regions of Asia and the Middle East. Islamic finance is well positioned to be a vehicle on the New Silk Road as the enabling supporting infrastructure is already in place. The required regulatory and legal frameworks for Islamic finance have also been established, not only growing in a number of countries in Asia and the Middle East, but also at the international level. It was with the establishment of the prudential standard-setting body, the IFSB in 2002 based in Malaysia that efforts to enforce common prudential standards have significantly progressed. Efforts towards the harmonisation of Shariah interpretations and issues concerning mutual recognition are also at an advanced stage. Today, Malaysia has a comprehensive and well-developed Islamic financial system, including a vibrant banking and takaful sector, and well-developed Islamic capital and money markets that operates in parallel with the conventional system. Our sukuk market is the largest in the world. The Islamic financial system in Malaysian is also well-supported by comprehensive Shariah, legal and regulatory and supervisory framework to ensure the soundness and stability of the Islamic financial system. We have also invested in human capital development to ensure a deep pool of talent and expertise to support the development of Islamic finance. For this purpose, Malaysia has established the International Centre of Education in Islamic finance (INCEIF) and The International Shariah Research Academy (ISRA) to support advanced education and research in Islamic finance.
After a period of low and stable inflation, it normally becomes more common and more generally accepted that prices and wages not only can be raised, but also can be lowered. In addition striving after absolute price stability with margins of error that are in all likelihood valid will sometimes lead to price increase rates that may be negative. Such a situation is not entirely free of risk, since it may be difficult to get out of a deflationary situation. Should inflation then not be allowed to be higher than 2 per cent? The basic argument against this assertion is that the disruption in the economy will be greater the higher inflation is allowed to rise. In practice the fact that other countries in Europe, especially Germany, have a criterion of 2 per cent for price stability has understandably had a decisive influence in Sweden. Moreover corresponding assessments have also been made by the majority of the countries outside Europe that work with explicit inflation objectives. BIS Review 14/1998  -7-  Question 5: Can’t the Riksbank do something about unemployment? Sometimes the view is expressed that low inflation is indeed good, but that it leads to a very one-sided direction for monetary policy; the Riksbank should also have an objective for employment. From what I have said thus far, I hope that it has been clear that there is no long-term conflict of interests between inflation and employment.

Back in 500 BC Sun Tzu, Chinese general and author of a book on the art of war, observed: “Where the army is, prices are high; when prices rise the wealth of the people is exhausted.”1 What this refers to is, of course, that an army of perhaps tens of thousands of soldiers requires a lot of resources just to stay alive and these can be difficult to raise in a geographically restricted area. Demand simply rises in relation to the available supply of food and other necessities, and this causes inflation to rise. If, as has often been the case throughout history, the army supports itself by looting, it may be able to survive for a while, but for the civilian population, prices will rise because supply decreases. Of course, an army could not survive indefinitely in one place, because resources sooner or later run out. In his book “Ofredsår” (“Years of Trouble”), Peter Englund has likened the Swedish army during the Thirty Years’ War to a shark that must be constantly on the move to avoid succumbing.2 Once a war had started, the armies of the time lived partly their own lives, separated from the state, and largely organised their own supplies, especially of course during campaigns abroad. Inflation therefore increased more locally depending on where the armies happened to be, as a result of the demand for food and other necessities exceeding supply.
In France, in December 2012, the Government approved a draft Law on the reform of the banking sector that, among other things, envisages the establishment of an equivalent authority, the “Conseil de la Stabilité Finacière” (CSF). At the Bank of Spain we are also currently looking at the way a Spanish Macroprudential Authority should be set up. Changes in bank regulation Ladies and Gentlemen, I would like to turn now to the changes that have occurred in the regulatory field  BIS central bankers’ speeches  3  The crisis we are still going through was triggered, on the one hand, by the extraordinary loose monetary and financial conditions – and the expansion of credit – of the period between 2000 and 2007. On the other hand, inadequate rules – result of two decades of deregulation, and sometimes bad deregulation – compounded the problem and facilitated high leverage. The Basel capital ratios of the time were low or, in some cases, not applied. There was excessive reliance on internal bank models. The way VaR models were defined by Basel and applied by banks underestimated what we call tail risks, that is, risks associated to events with low probability of occurrence but extremely high cost. Therefore, there was a need for a regulatory response after the crisis. Since the main elements of this response are well known, I will limit myself to a few remarks. First, the response took a predictable pattern: the strengthening of capital requirements, both as regards levels and quality of capital.

Beyond talk of hiring more data scientists and cyber-security experts, or automating counter and customer services, most institutions have not fully examined how changes to workflows or business strategies under different digital scenarios will impact existing jobs. It is also not uncommon for institutions to chiefly focus on ITrelated technical skills as a core competence for future workers. Yet we all recognise the speed at which technical knowledge becomes quickly obsolete. In reality, learning agility, creative thinking and behavioural insights may be far more important in future workers. In responding to technological disruptions, the implications for the workforce therefore demand much more rigorous attention than the cursory acknowledgement that it is getting today. We intend to work with financial institutions over the coming months to take this forward, beginning with a holistic assessment to better understand the dynamics of the financial sector workforce as a basis to forecast skill demand and supply under different scenarios. This in turn aims to support the formulation of strategies – both an the institution and industry level – to effectively transition the workforce. For Malaysia, with a significant majority of jobs in the high-skilled category, technology is more likely to augment and redefine job roles in the financial sector, rather than eliminate occupations altogether over the next decade. Nevertheless, some segments will inevitably face the risk of displacement. We aim to work with the industry to establish appropriate mechanisms to re-skill workers and enhance their prospects for gainful employment in different roles.
The diversification into a broader range of activities however increases the potential for conflicts to arise between the interests of clients in a traditional broking context, and that of the broker which may seek to protect relationships with insurers that it has dealings with in a different context. Brokers engaged in risk consulting activities may also have strong incentives to increase commission revenue by inappropriately influencing clients to purchase more insurance than they need or which do little to provide meaningful protection. In Malaysia, these issues are coming into greater focus with growing demand for valueadded services that brokers can provide. We do not believe that disclosures alone are sufficient to mitigate the risk of conflicts. We have presently required brokers to limit the revenue earned from these activities to 20% of total revenue in the previous financial year. We are also insisting on strengthened procedures and controls within brokers to manage conflicts. And we are asking brokers that engage in additional activities to demonstrate to us that their core broking responsibilities have not been compromised – including in terms of the adequacy of competent resources performing core broking functions, the quality of infrastructure supporting core broking activities and the outcomes produced for broking clients. This is also a time for the industry to come together collectively to raise the bar on standards of professional ethics and conduct that must be demonstrated towards clients. Such a code needs to clearly address new business realities and changing expectations of the industry.

Hedging markets developed rapidly. All in all, financial engineering emerged as a new area of knowledge. Dear Guests, The aggressive capital movements among countries and developments in financial markets generated a number of economic benefits at the global level. When borders between countries have disappeared in favor of capital flows, funds flew to regions where capital had the highest return. So, it has been observed that competitiveness and productivity of capital in global scale increased considerably in the 90s. There has been also a substantial rise in the volume of global merchandise trade. However, all developments that I mentioned now represent only the front side of the medallion. The back of the medallion has not been as bright as the front. In the 90’s, not only the scope, timing and speed of the financial liberalization varied across countries, but also the consequences of economic policies had various effects on national economies, depending on the initial conditions and country specific factors. Hence, the rapid increase in capital movements among countries shook the financial markets from time to time, led to financial and banking crises in many countries and, even more importantly, caused the crisis in one country to spread to others. In 2003, Caprio and Klingebiel reported 117 episodes of systemic and highly costly financial crises in developed and emerging market countries since the late 1970’s1.
We export not only goods but also services - primarily transport and travel services - also computer and IT services and the volume of these services has been increasing rapidly during the last three years. The FDI inflow that has reached the 9 billion kroon level in recent years proves our competitive position in the Baltic Sea region as well as a broader region. Equal distribution of investments between the main sectors of economy is an indication of the balanced economic development (in 2001, for example, manufacturing industry - 20%, transport and communications - 23%, wholesale and retail trade - 14%). It is also important to note that the FDI inflow was not contingent on the privatisation of former SOEs. And finally, our competitiveness is demonstrated by the yield of investments made in Estonia and reinvesting of substantial part of annual profits which in 2001 amounted to 3,8 billion kroons. This is also shows our competitiveness. The readiness of Estonian economy for the integration with the European economic system is demonstrated especially well by such key sectors of our economy as the financial and telecommunication sectors. Here we talk about the complete opening of the market to domestic and foreign competition, strong state supervision and integration of Estonian enterprises in the big multinational corporations. What should we focus on in the future? Estonia is no longer a catching-up candidate country as it was three-four years ago. However, we still cannot say that the restructuring of our economy has been completed.

Thus far, 6 Kijang Emas scholars have completed their studies and have returned to serve the nation, while another 7 of them are expected to complete their studies in the next six months. For the 2014 Kijang Emas scholarship, we received a total of 331 applications, representing 82% of the 405 straight A+ students in the country. From this, the Bank had shortlisted 26 students based on their SPM results and also their level of involvement in co-curricular and sports activities. The students then underwent a rigorous evaluation process under the Bank’s “Kijang Academy” assessing their technical and leadership competencies, as well as their values. We are pleased to award 3 outstanding students the Kijang Emas Scholarship this year. Having just completed their SPM, Justin and Nurizati will be enrolled into the pre-university programme, whilst Alicia will be pursuing her undergraduate studies. Alicia has successfully obtained a conditional offer to study for the BA degree in Law at the prestigious University of Cambridge. Following their pre-university programme, Justin aspires to be a doctor and Nurizati is keen to read dietetics. I am confident that all of you will do your best and will contribute to the future of our nation. In addition to the Kijang Emas scholarship award, every year the Bank also awards scholarships to about 40 high achieving SPM students for them to pursue their undergraduate studies abroad with the objective of them being part of the Bank’s future talent pool.
But being in a currency union can amplify fiscal stress for individual nations, limiting their ability to perform this valuable role just when it is most needed. So it makes sense to share fiscal risks across the whole currency area. A localised shock is less likely to stretch the fiscal position in a larger more diversified currency area, especially if it shifts demand between different parts of the area. That makes a given shock to Nova Scotia less severe than the equivalent to Portugal. The second justification for shared fiscal arrangements is that problems in one country are very likely to spill over to others. For example, the threat of default by one country may trigger a generalised crisis, particularly if the liabilities of the crisis country are held by the banking system of the broader currency area. It will be in the interests of other countries in the union to bail out a country in crisis, and that reduces the incentives for countries to run their finances prudently in the first place. At a minimum, this “moral hazard” problem suggests the need for tight fiscal rules, to enforce prudent behaviour for all in the union, although credible sanctions for breaking those rules are hard to develop.26 There is an obvious tension between using robust fiscal rules to solve this problem, and allowing national fiscal policy to act as a shock absorber. This reinforces the need for fiscal risk sharing between nations.

Conclusion The Scottish government has stated that in the event of independence it would seek to retain sterling as part of a formal currency union. All aspects of any such arrangement would be a matter for the Scottish and UK Parliaments. If such deliberations ever were to happen, they would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place. Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance. The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources. In short, a durable, successful currency union requires some ceding of national sovereignty. It is likely that similar institutional arrangements would be necessary to support a monetary union between an independent Scotland and the rest of the UK. I suspect you have reached your limits of endurance of the dismal science, so you’ll be relieved to know that economics can take us no further. Decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics. For those considerations, others are better placed to comment. 8  BIS central bankers’ speeches  References Adrian, T., and D. Gros (2004), “The degree of openness and the cost of fixing exchange rate”, Economics Letters, Vol.