samchain/econo-pairs-v1 huggingface dataset:
However, there are risk scenarios which, if materialized, may alter the macroeconomic outlook, with implications on monetary policy. On this occasion, after assessing the alternative scenarios, the Board estimates that the risk balance for both output and inflation is unbiased. Although the risks in the international scenario are similar to those in previous Reports, their possibility of occurrence is smaller. Still, structural issues persist in the Eurozone, so the regained confidence in financial markets is yet to be consolidated. Repeated or intensified financial stress episodes, in a context where banks are more cautious in their lending decisions and capital requirements have increased, could deepen credit constraints, complicating the growth outlook for the region and the world at large. There are also persistent doubts about how China’s slowdown will be. If more intense, its effects will not only hinder world growth, but also pull down commodity prices, especially for copper. Conversely, other economies could well perform better than expected, and offset part of these effects. The calmer external financial markets and the renewed appetite for risk have revived concerns about how to accommodate the new capital flows into emerging economies. Prolonging the strong monetary stimuli in the developed world, particularly in the U.S., may foster an extension of global imbalances. Public indebtedness is elevated in the U.S. and the high oil price hinders the resolution of its external deficit.

Let me reiterate the commitment of the Board of the Central Bank of Chile with a monetary policy oriented at keeping inflation low and stable. This is certainly the best contribution we can make to the prosperity of our country. Thank you. BIS central bankers’ speeches  5  Table 1 International baseline scenario assumptions 2010  2011 (e)  2012 (f) Sep.11 Dec.11 Report Report  Mar.12 Report  2013 (f) Sep.11 Dec.11 Report Report  Mar.12 Report  (annual change, percent) Terms of trade (*)  19.4  0.5  -5.3  -6.7  -5.3  -2.6  -3.5  -0.1  Trading partners World at PPP  6.1 5.1  4.1 3.7  4.3 4.0  3.8 3.5  3.8 3.3  4.6 4.5  4.2 4.1  4.2 3.9  United States Eurozone China Rest of Asia Latin America (excl. Chile)  3.0 1.9 10.4 7.7 6.3  1.7 1.4 9.2 4.3 4.2  2.0 1.2 8.3 4.5 3.9  1.8 -0.1 8.2 4.4 3.6  2.1 -0.3 8.1 4.3 3.6  2.8 2.1 8.7 5.0 4.2  2.2 1.0 8.5 4.8 4.0  2.3 1.0 8.5 4.8 4.0  LME copper price $ Brent oil price $  342 80  400 111  370 108  (levels) 350 107  370 121  350 106  340 102  360 115  (e) Estimate. (f) Forecast. (*) September and December forecasts were done with national accounts with 2003 as the base year.
Each sector may be in financial surplus or deficit, but the surpluses and deficits must, in accounting terms, sum to zero (although in terms of available statistics they may not, because of errors and omissions); every piece of deficit is necessarily matched by a piece of surplus. Typically, one might envisage the savings surplus of the household sector being channelled through the banks and financial markets to fund a deficit in the corporate sector, arising from its capital investment and working capital needs. In this context the deficit in the corporate sector seems perfectly acceptable. Why, then, should a deficit in the public sector raise particular anxiety? Isn't the situation where the public sector has a funding need analogous to that where private sector corporate entities have such needs? Not necessarily so. A number of factors may differentiate the two situations. What are these factors and what are the special considerations which may apply in the case of the public sector deficit? •  First, when assessing the impact of different deficits one may need to look behind them, to associated developments in the real economy. For example, a financial deficit may reflect, at one extreme, spending on current consumption, and particularly on imports with no resulting benefit to domestic employment; or it may reflect, at the other extreme, investment which generates jobs and greater efficiency within the domestic economy.

•  Fifth, there may be a lurking fear that the government will be tempted to acquiesce to inflation and currency depreciation as the means both to repair its current finances (if it believes that revenue may be affected more quickly and positively than expenditure) and to reduce the real value of its outstanding indebtedness. •  Sixth, there may be a consequential fear that, as a means to that end, the government will seek to monetise its debt – "printing money" to fund the deficit. This would, however, require the cooperation of the central bank, and in most jurisdictions nowadays there is some form of prohibition on the central bank abetting such a strategy. More specifically, governments tend to be prevented – by force of law or moral pressure – from obtaining finance direct from the central bank (eg as might occur if the bank was forced to take up issues of government securities in the primary market), although the central bank is invariably permitted to buy (or sell) government paper in the secondary market as part of its discretionary monetary policy operations. Practical experience What of experience in the real world? Reference has already been made to the case of the United States. The US government is regarded as just about the best credit risk in the world and there is a huge global appetite for US treasury securities. The Federal Reserve has an equally strong track record in avoiding inflation.
In other cases, uncertainty about the possible consequences of Year 2000 disruptions could lead to over-reactions on the part of market participants. As supervisors, we will need to be increasingly alert to the possibility of Year 2000 rumors affecting the liquidity of firms during the latter half of 1999, and should support the disclosure of accurate information in response. The Basle Committee’s Year 2000 Task Force will be developing a contingency planning document focused on issues relevant for bank supervisors. I am pleased to see that the Joint Year 2000 Council also has formed a sub-group to address contingency issues, including sound practices for financial institution contingency planning as well as market-wide aspects. As I see it, there are three broad areas to consider in developing contingency plans. First, each firm should have a contingency plan that covers business continuity issues in the case of operational problems affecting its own systems. Institutions also should develop contingency plans that would help address Year 2000 problems arising from their vendors or customers, or as a result of disruptions to public infrastructure. These plans should seek to assess the risks that firms face in each instance and should focus on the possible measures that may be available to mitigate those risks. Second, supervisors and regulators need to develop their own contingency plans for how they will deal with problems affecting them or the institutions under their jurisdiction. Most organizations have some experience in contingency planning for various types of market disruptions, so this will not be entirely new ground.

Even if banks are successful at tackling their internal Year 2000 concerns, they may still face risks from critical services that they receive from vendors. In addition, banks should assess their credit exposures to customers that face significant Year 2000 challenges of their own. I hope that all financial organizations sufficiently address the Year 2000 conversion in time to limit possible disruptions. If they do not, we will find it increasingly difficult to deal with the issues arising from deficient organizations over the course of 1999. There will likely be some chance that vigorous catch-up efforts on their part will allow them to avert serious problems. On the other hand, the closer the time until January 2000, the more difficult it will be for the customers of that firm to find an alternative provider of financial services. Many banks already are indicating that they will be reluctant to take on new wholesale customers in the latter half of 1999. To avoid this bottleneck, supervisors need to take all possible steps to identify firms whose progress to date has been insufficient, and to pressure them to adopt a plan that will address their Year 2000 problems. BIS Review 85/1998  -6-  Inevitably, however, supervisors may face difficult enforcement issues during 1999 regarding those institutions that are not making appropriate progress.
Of course, within the U.S., households and businesses can react to this wedge by choosing to locate elsewhere. And because the tax base of any jurisdiction depends on the level of local economic activity, this out-migration can lead to ever-higher tax rates or everdiminished services for those who still remain – typically those with fewer opportunities or resources to relocate. Today, there are several ways that states and localities can borrow to cover operating deficits; and the relatively slow economic growth since the financial crisis has increased pressure on their budgets, making such measures more appealing. One mechanism for doing this is to treat borrowed funds as revenues that can be used to balance the budget. Another form is asset sales. Here the jurisdiction receives cash today in exchange for a reduction in its future assets – sometimes physical like an office building, sometimes financial like tobacco settlement funds – and an increase in its future costs. Finally, and perhaps most importantly, is the practice of pushing the cost of current employment services into the future. Let me elaborate on this last method. Here I’m referring to the underfunding of public employee pensions and other post-retirement benefits for current employees. Both of these practices add to the indebtedness of the state and local governments with the employees playing the role of creditors. To be clear, while unfunded promises to cover retiree health insurance are very common, unfunded pension liabilities are probably much larger in aggregate magnitude.

The importance of state and local governments manifests itself in different ways, which are really different sides of the same coin. First, the sector directly produces a very large amount of economic activity. In 2014, state and local governments generated output valued at about $ trillion. This represents over 11 percent of total U.S. GDP and is more than 50 percent higher than the federal government’s contribution. And, even after years of retrenchment following the financial crisis, state and local governments employ almost 20 million individuals – nearly one in seven American workers. Clearly, a successful and stable state and local government sector is a vital contributor to overall output and employment. On the other side of the coin, we find the real effects of this activity: the provision of public safety, education, and health; as well as water, sewer and transportation services. These are the core public services that our citizens need, and which are absolutely fundamental to support private sector economic activity. So, as a central banker, I recognize the essential role that state and local governments play in the economy. Without successful state and local governments, the Fed’s dual mandate of maximum sustainable employment with stable prices would be much more difficult to attain. A final important dimension of the state and local sector – and the one that is perhaps most obviously front and center for today’s discussion – is its debt. The municipal bond market is very large, with outstanding issues totaling over $ trillion.
In the United States, the strategy of turning a blind eye to the period of soaring asset prices and then cleaning the mess when it was already there used to be long  2  BIS Review 68/2009  considered appropriate (Blinder and Reis, 2005). The cleansing consisted in cutting the interest rates and granting all the necessary liquidity for the market to continue operating. This approach was first used on the “Black Monday” of October 1987, then with the breakdown of Long-Term Capital Management (LTCM) and later with the bursting of the high-tech bubble. In all these occasions, once the asset prices reversed down, there was an abrupt relaxation of the monetary policy. 1 This implicit insurance, popularly known as the Greenspan put, certainly makes the creation of bubbles more likely. Sadly, having worked for some earlier episodes, it lost its power with the biggest collapse in decades. A monetary policy strategy that used to provide insurance to speculation in episodes of limited financial turbulence proved incapable of confronting a systemic financial crisis. And it is possible that the very “risk management” strategy had as a consequence that a great collapse was bound to happen sooner or later. The final verdict is yet to be seen. This strategy certainly contributed to increase liquidity, but low interest rates need not result in a financial crisis as I have illustrated with these few examples. An inflation-targeting policy that in some circumstances determines an extraordinary monetary impulse is perfectly compatible with preserving financial stability.

Source: Central Bank of Chile based on data from investment banks, Consensus Forecasts, and IMF. Figure 3  Monetary policy and housing prices Monetary policy  Housing prices  (percent)  (nominal index, first quarter 2001=100)  10  10  250  250  8  8  200  200  6  6  150  150  4  4  100  100  2  2  50  50  0  0  0  0  00 01 02 03 04 05 06 07 08 09 U.S.A. Chile (*)  Canada  01 02 03 04 05 06 07 08 09 Australia Chile Canada  U.S.A. Spain  (*) As from August 2001, the monetary policy interest rate is set in nominal terms. Before that, it was indexed to the CPI. Sources: Central Bank of Chile, Bank of Canada, Bloomberg and U.S. Federal Reserve. 8  BIS Review 68/2009  Figure 4 Inflation (percent) 1.5  15  1.0  10  0.5  5  0.0  0  -0.5  -5  -1.0  -10  -1.5  -15  04  05  CPI (monthly change)  06  07  08  09  CPI (annual change) CPI minus foods and energy (annual change)  Sources: Central Bank of Chile and National Statistics Bureau (INE). BIS Review 68/2009  9
The necessity for stronger financial knowledge and financial inclusion is undisputable. It is important for curbing risks, and unleashing the potential of the economies to grow. But, what is the current state of play? Data shows that notable gaps exists and there is a long way to go. International institutions reports indicate that Southeast European countries are lagging behind developed economies in terms of financial literacy and inclusion, despite their efforts to actively address these issues. According to the financial literacy surveys pursuant to the standard methodology of the International Network on Financial Education at the OECD (INFE-OECD), on average 62% of the population of the OECD countries achieved the minimum target score for financial knowledge, while in Southeast European region, this percentage was lower and amounted to 40–55%. Despite the fact that the level of financial inclusion, measured as a percentage of adult population holding a bank account, has been increasing, in the SEE region it is still lower when compared to some of the more advanced countries in the wider CESEE region. The data from the Global Findex database of the World Bank, points to a percentage of 77% in 2017 for our country, lower than that compared to Croatia (86%), Slovenia (98%), Latvia (93%), Estonia (98%). According to the Standard & Poor’s Global Financial Literacy Survey, the average difference in the rank is around 20 places between the countries of the region and the EU-15 countries. What role as central banks do we have in elevating financial literacy?

But a simpler regime, perhaps borrowing from the philosophy of recent moves in Switzerland and the US, could make small firms stronger and more competitive at the same time. This is an area where we may have more room to manoeuvre following Brexit. 9  All speeches are available online at www.bankofengland.co.uk/news/speeches  9  Action I’m worried that this may all sound rather theoretical to some of you, and some distance from the front line of providing banking services. So let’s come right back down to ground level and look at credit unions. Credit unions provide a vital service for their members, often acting as a backstop by allowing those members to access services they might find more difficult to get from banks and building societies. The sector plays an important role in many communities – particularly in Northern Ireland. Now credit unions, including those in Northern Ireland, may be relieved to hear that the hard-working PRA competition robot is not about to be unleashed upon them. As an aside, they may not know that they have been living with another of our robots for some time. A few years back some of our economists from the wider Bank of England teamed up with our credit union supervisors and found out that by using some different analytical techniques to study regulatory returns we could do a better job of predicting which credit unions would get into trouble next.9 This is highly relevant given we oversee around 440 credit unions with a team of 9 staff.
That being so, central banks may be able to stabilize demand and output growth more effectively than in the past. Most obviously, cuts in interest rates are now much more likely to be understood as a response to an adverse demand shock rather than as attempts to generate extra demand and jobs in the short run at the cost of stoking up higher medium-term inflation. And so it is easier for central banks to cut interest rates when that would desirable in order to stabilise demand conditions and so keep inflation in line with the target. Related to that, greatly increased transparency across the central banking world makes policy surprises – and so outsized market reactions to policy decisions – somewhat less likely. Second, more competitive and transparent product markets (partly thanks to the internet), together with more flexible labour markets, may have improved the real economy’s ability to absorb nasty shocks without persistent large falls in output. Third, developments in banking probably mean that more households have access to credit to help them to smooth their consumption by borrowing during ‘bad times’. And by routinely distributing more risk to non-banks, the banking system may be less likely to wish or need to conserve capital, refraining from taking risk, when faced with increased demand for liquidity from its corporate and household customers. For these reasons, consumption growth may be less prone to violent lurches than during, say, the 1970s and 1980s.

Imported inflationary pressures remain subdued; inflation in Albania’s trading partners and the rise in commodity prices are at low levels, while the exchange rate is stable. Inflation expectations and the liquidity situation in the economy are in line with the low inflation rates for the period ahead. Indirect available data on economic activity signal for positive growth rates in the first months of the year. Aggregate demand improved, driven by both private domestic and foreign demand, while the consolidating fiscal policy pursued during this period did not contribute to an increase in demand. Incoming data for June have not changed our assessment on the performance of private consumption and investments. While these important components of aggregate demand were upward during the period, their performance remains weak. Their steady recovery continues to be impeded by uncertainties faced by households and businesses and reflected in the greater risk aversion of the real and financial sectors of the economy. The Bank of Albania expects further improvement in private consumption and investments for the rest of the year, reflecting, among others, its easing monetary policy. The pace of recovery of these two indicators will determine the short and medium-term dynamics of the country’s development. Data on public sector performance show a consolidating fiscal policy over the first five months of the year. This policy materialised in a budget deficit of about 68% lower than the previous year. The tightening fiscal policy is evident both on the revenue and expenditure side.
It would be naïve to think we can ever entirely prevent crises - and indeed it may be undesirable to attempt to do so. But it is realistic to think that the incidence and severity of crisis can be mitigated through appropriate public policy actions. This is the grandly-titled “new international financial architecture” about which you have no doubt heard. I want to discuss some of the efforts of the official sector in redesigning the international architecture achievements to date and, importantly, challenges for the future. While a lot has been achieved, much remains to be done. I will also suggest where I think the official community’s future efforts might best be directed. 5  BIS Review 70/2000  Dealing with financial crisis The first priority of the official community must of course be crisis prevention. And on this front good progress has been made. For example, we now have a substantial array of codes and standards of best practice covering public policy issues: transparency in macroeconomic policies; core principles for the supervision of banks, insurance companies and securities firms (including the changes to the Basel Accord which I have just discussed); principles for corporate governance, insolvency and market integrity; and standards for data, auditing and accounting. Implementation of these codes of best practice is now the key - ensuring that crisis-prevention principles are put firmly into practice, in both developed and emerging economies.

One concrete result was the creation of the Financial Stability Forum, which meets semi-annually, bringing together central banks, finance ministries and regulators to discuss issues of common concern and to develop policies for controlling risks to the international financial system. The work broadly falls into three categories: crisis prevention, surveillance and crisis resolution. It is my intention today to concentrate on crisis prevention and crisis resolution and to discuss in some detail two issues currently under debate. The first relates, in the context of the revision of the Basel Accord, to the aggregate capital in the banking system and the optimal level of bank capital. The second concerns the international financial architecture and the respective roles of the private and official sector in dealing with liquidity crises. But before I turn to these I would like to say something about surveillance. This responsibility is shared in the UK between the Bank, FSA and HMT. Following the creation of FSA, the respective roles of the three parties were set out in a Memorandum of Understanding between them. While HMT is responsible for the structure of financial legislation and the FSA is responsible for the regulation of individual firms, the Bank is responsible for the stability of the financial system as whole. To this end, the Bank dedicates significant time and resources to tracking developments in the global economy and financial markets with a view to identifying potential threats to financial stability. Major developments are discussed each month in the Bank’s Financial Stability Committee.