samchain/econo-pairs-v1 huggingface dataset:
There is some evidence of underlying measures of UK inflation having been subdued, both absolutely and relative to target.6 Chart 4 shows some measures of underlying UK inflation over the past decade. While they have fluctuated cyclically, these have more often undershot than overshot target-consistent levels over the past decade. UK inflation expectations have, nonetheless, remained stable at low levels (Chart 5). A number of reasons have been given for subdued levels of inflation, in the UK and globally, over the past decade in particular. Some of these factors are cyclical, demand-side factors, while others are structural, supply-side factors. Let me discuss each in turn. 5 6  26/02/21: These series have been corrected for a basing error in the original version. Tenreyro (2020).

For that reason, they became relevant for our monetary policy. 2  BIS central bankers’ speeches  The role of domestic inflation These global factors, however, have by no means been the only force driving disinflation in the euro area. If we decompose inflation in the euro area and the United States, a striking difference is that, at least until the start of this year, domestic factors explain a much more important part of our disinflationary trend (Figure 3). This stronger role for domestic forces in the euro area has contributed to core inflation diverging from some other advanced economies. It has hovered consistently around 1% since mid-2013 (Figure 4). The ECB’s objective is headline inflation, and there are good reasons for this, not least to keep purchasing power stable. Headline inflation is also a better predictor of short-term inflation developments. But core inflation has to be taken into account because it is more closely linked to medium-term inflation trends. In fact, ECB staff analysis shows that core inflation is a better predictor of medium-term headline inflation than headline itself. Persistently low core inflation is therefore a risk to our mandate. So why have domestic factors affected inflation more in the euro area? The main reason is that, from 2011 onwards, the euro area experienced a sovereign debt crisis and a double-dip recession, while other advanced economies recovered (Figure 5). That led to a very prolonged downturn, which was associated with a decline in employment, depressed wage growth, and low business and consumer confidence.
Zeti Akhtar Aziz: International thoughts on leadership – “Too many bosses, too few leaders” Opening address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the launch of Leading Voices and the International Centre for Leadership in Finance’s (ICLIF) latest publication, Kuala Lumpur, 23 May 2011. *  *  *  Today I am pleased to launch the first session of LEADING VOICES, an international thought leadership series presented by The ICLIF Leadership & Governance Centre. This is where you will come up close and personal with exceptional and extraordinary leadership from various industries to exchange leadership thinking and realities in our now highly dynamic operating environment. Any individual who has assumed a leadership role – at any level in any type of organisation needs to have a platform that will provide an opportunity to meet other leaders and leadership thinkers to exchange and learn from each other's leadership experience. Leading Voices is that platform. These sessions will be arranged by ICLIF, starting with this inaugural session today. While leadership requires distinct behaviors, there are wide ranging leadership styles and approaches that have been successfully adopted. Moreover, the now highly dynamic operating environment has become more complex, ambiguous and uncertain. What are the ways then to lead and bring success to our organisations in this more challenging environment. While the foundations for leadership are essential, we also need to keep abreast of the new developments taking place and the new leadership capabilities needed in this ever changing environment.

In this respect, should the recovery in domestic economic activity turn out to be faster than expected, the limited monetary policy tightening implied in the baseline scenario could be implemented earlier than envisaged. The fact that inflation will rise in the forthcoming period due to base effects and public price adjustments, poses an important risk factor through its potential impact on inflation expectations. Several adverse factors such as food and oil price increases, base effects and administered price hikes have brought about upward movements in inflation since the last quarter of 2009. Although these factors are temporary, they are likely to cause headline  16  BIS Review 31/2010  inflation to stay at elevated levels for some time. It is crucial that economic agents fully understand the temporary nature of these developments while forming their medium- and longer-term expectations. Under the assumption that resource utilization would remain low, labor market conditions would have an adverse impact on consumption expenditure, and fiscal policy would generate a gradual depressing effect on the economy, these temporary factors as well as other one-time cost push pressures would not lead to a significant deterioration in general pricing behavior. Currently, the annual rate of increase of services prices and core inflation are consistent with medium-term inflation targets, and no serious risk of pass-through is observed. Therefore, it is foreseen that policy rates would be maintained at low levels for a long period.
And deposit insurance schemes have been extended in at least 40 countries around the world. Extending public sector credit on this scale relies on the deep pockets and prudence of our grandchildren. It can be no more than a stop-gap – a temporary bridge – until private sector trust can be restored. So far, the bridge has served its purpose. There are signs over recent months from surveys that confidence is returning to banks, non-financial companies and consumers. And there have been some signs of a turnaround in the housing, equity and some debt markets. It has been said that every recession in history has been associated with a collapse in confidence.8 This time’s was plainly no exception. So with confidence turning can we anticipate an imminent return of credit to the economy? Rising confidence among firms and consumers is a necessary condition for recovery. But it is questionable whether it is sufficient. That is because confidence and trust are subtly different concepts.9 Confidence derives from observable, authoritative proof. At the time of the failure of Lehman Brothers, people struggled to make sense of the state of the economy and financial system. Without a compass, they lost their financial bearings. Lacking authoritative  7  Bank of England Financial Stability Report, June 2009. 8  “Animal Spirits”, George Akerlof and Robert J Shiller (2009), Princeton University Press. 9  For example, see “Restoring Confidence and Trust in UK PLC”, Henley Business School (2009). 4  BIS Review 108/2009  proof, confidence collapsed.

The mutual or building society sector’s roots in Yorkshire are just as deep.4 Although the first societies appeared in the Midlands in around 1775, within a decade Yorkshire had established its first society, the Hill House Bank Building Club in 1785. By the end of the century, numbers had swelled to around 50, mostly in the Midlands, Lancashire and Yorkshire. The early mutuals pooled savings to buy property for members and terminated once all members’ housing needs were satisfied – so-called “terminating societies”. In 1844, “permanent societies” were permitted, which allowed for a revolving set of both savers and borrowers. But the mutuality principle remained – “to enable a working man to secure himself in the course of a few years a dwelling-house as his own freehold property, as a home for himself and family.”5 Numbers of mutuals grew rapidly during the 19th century, reaching around 850 by 1850 and over 1500 by 1875, with almost 100 in Yorkshire alone. Here in Leeds, the Leeds and Holbeck Permanent Building Society was founded in 1875 and, having been renamed Leeds Building Society in 2005, it remains in the top 10 building societies by size nationally. Consolidation and, latterly, demutualization have reduced numbers over the past few decades. Today, there are only a handful of independent, indigenous mutuals in the region. But they remain some of the strongest in the country. The success of Yorkshire’s financial sector over this lengthy period is no fluke. A reading of history reveals the same successful recipe being repeated.
However, innovations constantly introduce additional layers of sophistication and complexity 13 . In this regard, the system of incentives by which professional asset managers operate should be closely and permanently aligned with the interests of investors. •  One specific type of financial innovation is the emergence of new unregulated players whose default might have implications for systemic risk. One such type of investor are hedge funds. Hedge funds’ activities could clearly be the source of systemic risk since they are now major – often dominant – actors in several market segments accounting for 40% of the turnover of major stock exchanges and 25% of the turnover of credit derivatives markets. They are also the main providers of liquidity in some markets that would dry up very quickly should they withdraw. They often leverage themselves with very high multiples either directly through borrowing or indirectly by intensive use of derivatives. •  The importance of hedge funds and more generally of the already mentioned OFIs illustrates that there may be circumstances in which injecting liquidity into the banking system – a traditional tool of crisis management used by central banks – may not be sufficient to prevent major instability. Three main avenues for mitigating the risks of contagion from hedge fund defaults either through potential losses to their bank creditors or through adverse market dynamics have been proposed 14 .

The Fed’s own estimates indicate that its effects should be similar to what would result with a policy rate cut of 50 basis points. This is surely an effort in the right direction, but its incidence will be limited because of their weak economic situation. The problems in Europe are more severe and worrisome because of its consequences on the world economy and financial markets. Europe is at the core of any debate on the state of the world economy. The serious insolvency of one country, Greece, which is a tiny fraction of the Eurozone, spread throughout the continent as a major confidence crisis (figure 14). There is a vicious circle from weak growth to weak fiscal accounts to weak banking. The crisis is in full swing, and its resolution is uncertain. Unlike what could be expected in the first half of the year, the market does not rule out a disorderly resolution of Greece’s problems, which could result in a default of its sovereign debt and, in a worst-case scenario, in its departure from the euro. This could be very costly, so the Eurozone authorities are fiercely committed to helping it out. The proposals under discussion call for a firewall to avoid the contagion of the sovereign debt, recapitalizing banks and find a solution to the specific case of Greece. This is obviously difficult to do without first having established the firewall for the rest of the region.
First, last February, concerns surrounding a faster-than-expected tightening of monetary policy in the US triggered a major stock market sell-off and a corresponding volatility spike (green curve). Then, in May, political uncertainty in Italy led to a considerable widening of the yield spread between German and Italian 10-year bonds (blue curve). Demand for various asset classes regarded as safe havens, such as the Swiss franc, increased. Finally, in August, we witnessed a huge sell-off of certain emerging market currencies and an increase in their volatility (yellow curve). Fears of global contagion resulted in the franc appreciating strongly. It remains a safe-haven currency during periods of high uncertainty. Indeed, an analysis of the options market confirms that the Swiss franc was in demand as a safe-haven currency during the three events described above. Risk reversal shows that during these events, participants were prepared to pay a higher premium to hedge against losses resulting from a steep appreciation of the Swiss franc vis-à-vis the euro than against a depreciation. As we can see from chart 5, three-month risk reversal for the EURCHF pair was significantly negative. Even today, risk reversal is still well below zero, indicating that the situation on the foreign exchange market remains generally fragile. And now I would like to hand back to Andréa Maechler. As we have just seen, without this kind of in-depth analysis as a supplement to traditional macroeconomic analysis, it would not be possible for us to capture the complexity of markets simply and comprehensibly.

This stems in particular from their internal transformations, which rely in large part on the development of open-platform IT systems and on greater use of IT outsourcing, especially via the cloud. The public health crisis has significantly amplified this exposure: the widespread use of remote working has been accompanied by a massive roll-out of new collaboration tools and new software. This (sometimes hasty) deployment of third-party software and new methods of labour organisation has amplified the overall vulnerability of the sector. The need for vigilance is being even further heightened by the fact that cyberattacks are evolving constantly and becoming increasingly sophisticated. On a technical level, this phenomenon can in part be explained by the diffusion of “turnkey” hacking tools and a general increase in computer skills. On an economic level, the huge financial rewards to be gained from attacks is leading to a surge in the number of potential hackers. This dual trend has taken cyber-risk into a whole new dimension: at the company level, it represents a major operational risk, while at the level of the financial system, it has now become a systemic risk. B) Digital innovation in the financial sector offers new opportunities for efficiency gains, but also carries risks. These innovations, especially the use of DLT, have the potential to enhance the functioning of market infrastructures and payment systems, notably by speeding up transactions, reducing the number of intermediaries and lowering costs.
While there has been considerable volatility in Treasury yields over the past several weeks, we attribute those movements primarily to incoming economic data and to broader risk events. However, we will continue to watch the markets and assess their adjustment to the end of the purchase program. Future evolution of the SOMA portfolio While I am sure you are happy to hear more about our actions to date, I realize that you may be even more interested in the evolution of the SOMA portfolio going forward. Just to be clear, I will not be saying anything about the likelihood of prospective policy actions beyond what has been conveyed in FOMC communications. However, I would like to make a few points about the portfolio under those prospective actions. As noted earlier, the current directive from the FOMC is to reinvest principal payments on the securities we hold in order to maintain the level of domestic assets in the SOMA portfolio. This approach can be interpreted as keeping monetary policy on hold. Indeed, one can generally think of the stance of monetary policy in terms of two tools – the level of the federal funds rate, and the amount and type of assets held on the Federal Reserve’s balance sheet. The FOMC has decided to keep both of these tools basically unchanged for now. Given the considerable amount of uncertainty about the course of the economy, market participants have observed that the next policy action by the FOMC could be in either direction.

While this has become a common practice, ideally more competitive retakaful operators who provide reinsurance in accordance with Shariah principles need to be established so that the takaful industry would not be dependent indefinitely on conventional reinsurance as the conduit to which they can mitigate risk. More importantly, retakaful operators ultimately serve to strengthen and enhance the financial capacity of the takaful industry, and the synergistic by-products emanating from the interactive business alliances would contribute towards the overall betterment and robustness of the Islamic financial system. Indeed, there is much to be gained by the takaful operators in particular, and the Islamic financial industry in general, by having access to an adequate and competitive market of the retakaful facility. It is therefore important to increase the collaborative efforts and examine plausible ways to address this gap in the takaful industry. Our quest to create a dynamic Islamic financial system is to achieve the ultimate objectives of developing an Islamic financial system that will be able to contribute significantly to the overall development of our economy through the intermediation process. Thus, Islamic banking and finance industry needs to extend its agenda towards the development of a comprehensive Islamic financial system. The Islamic banking and finance should strive to add value towards enhancing greater integration to the economy and the financial system.
Second, in Switzerland - as, incidentally, also in Japan - the so-called BalassaSammelson effect probably also plays a role. It rests on the fact that the productivity trend in the internationally active part of our economy proved to be much more vigorous than in the less competitive domestically-oriented sectors. It remains to be seen whether, and if so, to what extent, the deregulation of various formerly protected areas of our economy will cause this effect to disappear. The upside trend of our exchange rate development, however, is not really a problem. This is evidenced by the remarkably strong performance of the export sector since 1973 as well as by the favourable trend of our terms of trade which showed an average improvement of 0.8% per year. On the contrary: the appreciation is a clear sign of the confidence placed in our currency. It has a positive effect on prosperity since the purchasing power of a given income in Swiss francs increases in the wake of falling import prices. By contrast, the individual periods of massive and prolonged deviations from the trend proved to be a serious handicap for macro-economic development. No doubt, such shocks are a major stability risk for our open economy even if, fortunately, they are a rare occurrence. Conclusions for monetary policy Let me now turn to monetary policy, focusing first on recent developments followed by some long-term considerations. The pattern of the 3-month Libor rate illustrates how we have proceeded since the euro was launched.

One could thus say that, in this case, the reason one may want to prevent a balance sheet recession is because of monetary policy considerations – one wants to stabilise inflation and the economy as a whole – rather than to maintain financial stability. Those occasions when I have advocated a policy of “leaning against the wind”, that is, holding the policy rate a little higher because I perceive risks in a rapid increase in lending and house prices, this is the sort of problem I have had in mind. A further aspect of the problem is that in countries like Sweden most people buy a house or apartment to live in, not to rent out. Nor do we have the possibility that exists in some countries of handing the property over to the bank when interest payments become too much, and thus getting rid of the loan. When interest rates rise or one wants to pay off one’s debts, one simply cuts down on other expenditure. One could thus speculate as to whether the risk of financial instability resulting from an over-mortgaged household sector is less here, but on the other hand the effect on demand in the economy when households begin saving is greater. Interplay between monetary policy and macroprudential policy The two areas I have discussed so far have concerned monetary policy possibly contributing to a credit-driven bubble, and the fact that it may not be particularly effective when the bubble has burst.
For example, it is much more common today than in 1998 for hedge funds to seek arrangements that provide contingent credit and thus provide the hedge fund with protection against the need to liquidate positions too rapidly. Similarly, many hedge funds are today seeking to base margining agreements, including initial margins, on the results of VaR calculations that incorporate the effect of netting across multiple products. While both of these developments have their basis in sound risk management principles, firms extending such credit should carefully examine the impact of these and other innovations on their potential exposures to hedge funds in stress conditions, and set the terms for such credit accordingly. A reinforced due diligence process also is critical in assessing the operational capabilities of the hedge funds, the quality of their risk management process and execution and compliance infrastructure. This may sound self evident, but it is not as common as one might think. Timely access to forward looking measures of risk by hedge fund counterparties is obviously important for assessing the risks in firms’ exposures to hedge funds as a group, and for assessing the impact of hedge funds’ activities on a firm’s own positions. To the extent that information is not made available, and there seem to be a number of legitimate reasons why hedge funds may resist providing it and are sometimes successful in doing so, then it makes sense for the dealer to reduce the exposure it is willing to take to that fund.

Currently, two of China’s biggest banks, namely Bank of China and ICBC have operations in Malaysia while Malaysia’s two largest banks, Maybank and CIMB have established their presence in China. Our Beijing Representative Office, being inaugurated today, also signifies an important milestone in the cooperation between the People’s Bank of China and Bank Negara Malaysia. Our two central banks have long cooperated in many areas of common interest in particular in the area of financial cooperation. In July of 2005, our currencies transitioned into a more flexible exchange rate regime at the very same moment. This enabled Malaysia to transition to this new regime effectively and efficiently. Bank Negara Malaysia has for more than a decade also participated in the fixed income market in China. We were among the first central banks in the world to be awarded the Qualified Foreign Institutional Investor (QFII) license to invest in China’s fixed income onshore financial markets and to be granted access to the China Interbank Bond Market. Our close central bank cooperation is also reinforced through the various regional platforms, including ASEAN+3, EMEAP and SEACEN. More recently, a series of measures have been undertaken to encourage the use of renminbi in the settlement of our bilateral trade and investment.