samchain/econo-pairs-v1 huggingface dataset:
The relative passivity shown by all economic agents in the face of the build-up of imbalances is also due to excess confidence in the adjustment mechanisms that were assumed to be inherent in the functioning of the euro. For instance, it was assumed that relative price and wage rises and the changes in competitive positions, induced by the demand and spending excesses in those countries showing signs of overheating, would prompt the necessary adjustments to move demand back onto a more sustainable path and to redress the differences in competitiveness. We now have proof that the effectiveness of this adjustment channel depends on the flexibility of price- and wage-setting processes. Regrettably, virtually no progress was made during the expansion in eliminating the frictions and structural rigidities that distort the operation of labour and product markets in many countries. This lack of reforming ambition has inhibited the functioning of this adjustment channel, leading to the divergences in competitiveness not being promptly corrected. It was also assumed that financial market discipline would contribute to correcting the imbalances since, on the basis of a proper risk assessment, those public and private  2  BIS central bankers’ speeches  borrowers that were accumulating excessive debts should have been penalised.

It provides lessons on channels of transmission, basic tradeoffs across objectives, and the effectiveness of policy responses.3 The channels of macroeconomic and financial transmission among open and interdependent economies occur through the current account of the balance of payments, the capital account, or both. From the vantage point of the domestic economy, there are three main channels of transmission: the exchange rate; the external demand; and the interest rate or risk-premia channel. The last can be more broadly defined as the financial conditions channel. The intensity of transmission of spillovers will depend on the monetary policy, currency policy and the real and financial openness of the economy being affected by external developments. Other relevant characteristics include the flexibility of labor and product markets; the depth, safety and soundness of the financial system; and the economy’s position as an international creditor or debtor. The Mundell-Fleming framework suggests that a country with a high degree of capital mobility and a flexible currency will be in a favorable position to use monetary policy to attain its internal growth and inflation objectives. When foreign interest rates increase and financial conditions tighten, changes in relative prices brought about by currency fluctuations can help to absorb the external shocks. The positive expenditure switching effect from currency depreciation improves the trade balance and supports demand.
This condition captures expectations for the demand for these liabilities in normal times. 27 9 / 10  BIS central bankers' speeches  27 My colleague, Lorie Logan, illustrated this variability in “Implementing Monetary Policy: Perspective from the  Open Market Trading Desk,” remarks before the Money Marketeers of New York University, New York City, May 18, 2017. 28 See Morten Bech, Antoine Martin, and Jamie McAndrews, “Settlement Liquidity and Monetary Policy  Implementation—Lessons from the Financial Crisis,” Federal Reserve Bank of New York Economic Policy Review 18, no. 1, March 2012. The authors find that the increased amount of reserves in the U.S. banking system during and since the crisis resulted in a substantial decrease in daylight overdrafts extended by the Federal Reserve and significantly earlier settlement of payments on Fedwire, the Federal Reserve’s large-value payment system. The reduction in overdrafts lowered the Federal Reserve’s credit risk while earlier settlements suggested significant efficiency gains and diminished operational risks—outcomes that support the objectives of changes to the Federal Reserve’s Payment System Risk policy in 2008. Of course, there are other approaches to providing intraday liquidity, such as collateralized overdrafts. 29 Central banks exhibit a strong preference for the safety, confidential and reliability of accounts with fellow central  banks, discussed further in my “Keynote Remarks for the Commemoration of the Centennial of the Federal Reserve’s U.S. Dollar Account Services to the Global Official Sector,” December 20, 2017. 30 A list of reverse repo counterparties can be found here.

Let me quickly go over some of the most important changes to the primary market: •  Following the liberalization of interest rates in 1992 the auction system for Treasury bills was introduced to create a more transparent and market-based system of price determination that would encourage broader investor participation. •  Alongside the introduction of the auction system, the maturity structure was extended from the only existing term of 91 days to include 28 and 182 days in order to meet the various liquidity needs of investors. •  In 1995, Government bonds with a maturity term of 12 month and 18 months were added to the list of securities. •  Following the increased depth of the market, the structure of Government securities was streamlined with the termination of the 28 day Treasury bill issuance and the subsequent introduction of the 273 days maturity term. •  In 2005, reforms of the Government securities market continued with the cessation of the 12 months and 18 months Government bonds. In their place, a 364 day Treasury bill was introduced alongside the 3 and 5 years bonds. •  More recently, in August 2007, a portfolio of Government bond maturity terms was further increased to include the 7, 10, and 15 years. Since that period, the size of the outstanding issues has grown from 7% of GDP in 1994 to 17% by the end of 2007. With regard to secondary market, policy efforts have been initiated at different stages in the development of our market.
8 Beyer, R. and Smets, F. (2015), “Labour market adjustments and migration in Europe and the United States:  how different?”, Economic Policy, Vol. 30, Issue 84. 9 Dolls, M., Fuest, C., Kock, J., Peichl, A., Wehrhöfer, N. and Wittneben, C. (2015), “Automatic Stabilizers in the  Eurozone: Analysis of their Effectiveness at the Member State and Euro Area Level and in International Comparison”, Centre for European Economic Research, Mannheim. 10 Beyer, R. and Smets, F. (2015), op. cit. 11 For a review of the development of this literature see Mongelli, F. (2002), “New views on optimum currency area  theory: what is EMU telling us?”, ECB Working Paper No. 138. 12 For a fuller explanation of financial risk-sharing within monetary unions, see ECB (2016), “Special Feature A:  Financial integration and risk sharing in a monetary union”, Financial Integration in Europe, May. 13 Asdrubali et al. find that financial risk-sharing in the United States increased monotonically each decade from  the 1960s to the 1990s. See Asdrubali, P., Sorensen, B. and Yosha, O., “Channels of Interstate Risk Sharing: United States 1963–1990”, The Quarterly Journal of Economics, Vol. 111, Issue 4, 1 November 1996. 14 See Hane, G. (1998), “The Banking Crises of the 1980s and Early 1990s: Summary and Implications”, in FDIC  Banking Review, Vol. 11, No 1. 15 ECB calculations based on FDIC data. The term “institution” refers to a separately chartered commercial bank  or savings institution.

26 Ellis, D. (2013), “Deposit Insurance Funding: Assuring Confidence”, FDIC Staff Paper. 27 For a review of the interactions between public and private risk-sharing, see Ioannou, D. and Schäfer, D. (2017), 8/9  BIS central bankers' speeches  “Risk sharing in EMU: key insights from a literature review”, SUERF Policy Note, Issue No 21. 28 For example, cross-border banking mergers and acquisitions in the euro area have been on a declining trend  since 2007. 29 See Draghi, M. (2017), “Structural reforms in the euro area”, introductory remarks at the ECB conference  “Structural reforms in the euro area”, 18 October 2017. 30 Eurobarometer 88. 31 Parlemeter 2016, Special Eurobarometer of the European Parliament, November 2016. 9/9  BIS central bankers' speeches
Most of the time, they are driven by rapid inflows and outflows of capital. We still vividly remember the crises in Mexico, Asia, Russia and Argentina. Obviously, these crises have not been restricted to the financial sector, but have had a profound impact on the real economy as well. The lifting of restrictions to cross-border holding and trading of financial assets has unleashed massive capital flows. According to World Bank figures, global debt and equity flows (excluding foreign direct 2 investment) expanded by more than five times since 1991, from USD 794 billion to USD 4.3 trillion . Without doubt, this development reflects a long-term trend. More and more investors decide globally and on the basis of risk-adjusted expected returns. Taking place in a system of increasingly integrated capital markets, capital allocation has become more efficient. The other side of the coin, however, is the increased volatility on financial markets. Indeed, portfolio investments, in particular those in markets with relatively high liquidity, have become more erratic, as fund injections and withdrawals respond very quickly to new information. According to the IMF, assets managed by institutional investors on mature markets are estimated at about USD 30 trillion in 1998. Thus, any shift in such a huge portfolio is very likely to exacerbate economic cycles and will possibly lead to contagion among financial markets. The impact of portfolio re-balancing will be all the more powerful as macroeconomic policies seem to be unsustainable and as financial institutions show fundamental weaknesses, often with regard to financial strength, supervision and transparency.

Let me note, in passing, that those problems unfortunately were not specific to the Euro area. Public debt jumped by around 30% of GDP in UK and in US. Structural deficits in those countries stand at similar or higher levels than those in most parts of the Euro area. Overall, the crisis has put into light major deficiencies in the implementation of fiscal discipline and, more generally, in the economic governance of the Euro area. It is indeed demanding to operate a single currency with multiple fiscal and structural national policies. Given the insufficient of market discipline, the founders of the Euro had seen the problem and put in place the Growth and Stability Pact. The principles were sound. The framework was adequate. The implementation has been extremely weak. Bluntly speaking, peer pressure failed to ensure consistent and rigorous respect of the principles which had been agreed upon. It was, and remains necessary to make a “quantum leap” in economic governance. What did we do ? The governments are now trying to address those deficiencies. Significant progress has been made over the past year. At the national level, all Member States have embarked upon credible public finance consolidation plans that are already bearing fruit. At the EU level, a new framework has been agreed upon. The first pillar is a strengthening of the SGP with a much stronger preventive arm. Surveillance over budgetary policies has been reinforced with a more effective prevention/correction of excessive deficits.
BIS Review 18/2005  1  It takes time for an interest rate reduction to have an impact on inflation. We are now seeing the effects of monetary policy decisions some of which were taken two years ago. The interest rate has affected inflation via the krone exchange rate and via demand for goods and services. In particular, the rise in prices for domestically produced goods and services has picked up. In addition, the reduction in the interest rate has probably contributed to holding up expectations of future inflation even when inflation is low. If there is confidence in monetary policy, economic agents will expect inflation to be close to target over time. This will provide a basis for company budgets. This will then contribute to stabilising inflation. Many companies change their prices only once or twice a year. When they change prices, they probably take into account the expected rise in other prices. It has been important to prevent inflation expectations from falling and becoming entrenched at a low level. Surveys of inflation expectations indicate that expectations are well anchored around the inflation target in the long term. The first signs of the effects of the interest rate cuts appeared in the foreign exchange market. The interest rate differential against other countries narrowed. It became more attractive to borrow and less profitable to invest in the Norwegian krone. The movement in the krone exchange rate was reversed and it depreciated through 2003 and into 2004.

However, by maintaining price stability, the ECB almost automatically fosters the attractiveness of the euro as an international currency. Third, the international use of a currency is a complex phenomenon that does not lend itself to ad hoc promotion measures. A currency can be used not only for different functions, but also by different groups of economic agents. In this context, the use of the euro by private agents as an investment and financing currency, as well as a payment and vehicle currency, plays a prominent role. Although the euro is also used by the public sector as a nominal peg and reserve currency, the behaviour of the private sector dominates the internationalisation of the euro. The amount of financial assets managed by the private sector is many times larger than official reserve holdings. In addition, private agents usually adjust their asset management strategies more rapidly than most public sector institutions. But what are the factors behind the internationalisation of a currency? In principle, two basic factors might eventually determine the international role of the euro - size and risk. With regard to the size factor, a broad, deep and liquid euro area capital market may lead to a greater use of the euro through lower transaction costs. This may, in turn, facilitate the development of the euro as a vehicle currency for trade and commodity pricing. Already at this early stage, the introduction of the euro has brought about fundamental structural changes in euro area capital markets.
Both FIDE Forum and ICLIF are uniquely positioned to advance corporate governance in the financial sector. After all, they bring together those who represent the ultimate governing body of financial institutions, with great responsibilities and accountability. Such an opportunity must be capitalised and not wasted. FIDE Forum and ICLIF should therefore complement each other and avoid duplication. There are significant benefits to be gained from an effective partnership where resources can be channelled to increase the collective impact of programmes and initiatives by the two organisations. In my own engagements with the industry, over the years, coordination and cooperation among financial institutions can become game changers for the industry. In this respect, we should fully appreciate the distinctive purpose of ICLIF and the FIDE Forum and how they coordinate with each other within the space of directors’ development. With close coordination and cooperation we can avoid the redundancies and wastage and realise the synergistic benefits from the alliance between the two organisation. Being a director of a financial institution will demand a lot from the individual. It is a position of trust where integrity is the norm. It should be, given the critical role of financial institutions in any economy. 2  BIS central bankers’ speeches  As a network of financial institution directors, FIDE Forum provides a valuable resource for directors as they navigate the heavy responsibilities that come with the position.

The presence of some distinguished officials from the World Bank at this inauguration is an encouragement. 8.5 The SAARC member central banks should be happy to have been able to get the SAARC Payments Initiative off the ground within such a short period of time. Given the enthusiasm and commitment by all of us, I hope that we, as a regional group, will make a substantial contribution to trade, investment and economic activity of each of our countries and also the region, as a whole. Thank you. 4  BIS Review 35/2008
Acemoglu and Robinson (2013). 6  BIS central bankers’ speeches  20-fold. Prior to the Industrial Revolution, institutions in general, and government in particular, became an increasingly important growth-enabler. Institutional and infrastructural capital has continued to accumulate in the period since. Since 1950, the number of countries operating with democratic institutions has risen from around 25 to almost 90. 31 Legal systems globally have continued to improve in quality, and central bank numbers have continued to swell. Cross-country studies have found that the quality of these institutions and infrastructures is often key to driving growth. 32 In what is perhaps the most comprehensive study of historical experience, Daron Acemoglu and James Robinson have taken the institutional argument one step further. For them, the lack of good institutions is the defining reason “Why Nations Fail”. 33 You do not need to go that far to think they have really mattered historically for living standards. The final ingredient in the growth recipe is intellectual capital, for some the source of the Industrial Revolution, Hargreaves, Arkwright, Watt and all. Yet it would be wrong to think innovation somehow began in the 18th century. From the windmill in the 12th century, the mechanical clock in the 13th, the cannon in the 14th, the printing press in the 15th, the postal service in the 16th and the telescope and microscope in the 17th, the innovation escalator was in service well before the Industrial Revolution, albeit stepped and sticky.

The less willing they are to do so – the greater their impatience – the higher the compensation they require. That compensation takes the form of a higher interest rate. So, for a given level of saving, an impatient society will have higher interest rates than a patient one. 31  See http://ourworldindata.org/data/political-regimes/democratisation/  32  Levine and Renelt (1992). 33  Acemoglu and Robinson (2013). 34  Clark (2009). 35  Comin, Easterly and Gong (2010). The same is found to be true of technological advances in 1000 BC and 1 AD, although the effects on subsequent patterns of growth are less strong. BIS central bankers’ speeches  7  Chart 12 plots a measure of short and long-term interest rates back to 3000 BC. Though the data are patchy, they suggest interest rates fell secularly in the run-up to the Industrial Revolution, from double-digits to around 3%. Alternative interest rates, such as the rate of return on physical assets such as land, show a similar pattern. 36 One interpretation of these trends is that they reflect society’s evolving time preferences. In the run-up to the Industrial Revolution, society became more willing to wait than in the past. That, in turn, enabled saving, investment and ultimately growth. Patience was a virtue. But if society’s time preferences were indeed shifting, that still begs the question why? Here, we can enlist some outside help.
Implementation Has Been Satisfactory But More Needs to be Done Achieving international consensus on the key elements of bank regulatory reforms is laudable. But for the reforms to have their intended effect, implementation is crucial. •  The FSB has formed a Standing Committee on Standards Implementation to monitor the implementation of the financial reforms among its members  •  I chair this Committee and so have particular interest in the issue of implementation. The Basel III standards have generally been implemented in a timely manner. •  Basel III risk-based capital rules have been rolled out in all 24 FSB jurisdictions. •  Final liquidity rules have been issued in all but two jurisdictions. In bank resolution, progress is more mixed. •  On the positive side, regulators have set up crisis management groups and developed recovery plans for all G-SIBs  But significant work remains on operationalising these resolution plans. •  And not all FSB jurisdictions have bank resolution regimes that are in line with FSB’s Key Attributes of Effective Resolution Regimes. Implementing reforms in a timely manner is one thing; implementing them in a consistent manner across jurisdictions is another. Ensuring consistency and level playing fields, and minimising opportunities for regulatory arbitrage have become the focus of implementation monitoring. The Basel Committee conducts in-depth assessments of member implementation of the Basel III capital standards to check for consistency.

But post-crisis, bank profitability has come under pressure in a prolonged period of low growth and low interest rates. •  The banking industry’s return on equity (ROE) has fallen significantly since the financial crisis. •  The average ROE of the 200 largest banks has fallen from 17% before the crisis (2005–2007) to 9% in the period 2011–2013. Monetary policy, as it comes up against diminishing returns at the zero lower bound, is also not helping bank profitability. As policy rates are pushed into negative territory in a growing number of countries, the implications for financial stability need to be assessed carefully. In a low or negative interest rate environment, banks are likely to engage in market segmentation and charge different rates to different groups of clients. •  Banks are reluctant to impose negative interest rates on retail depositors. •  This means that, to make up for the interest they have to pay on their deposits with the central bank, they may have to charge a higher interest rate on their borrowers. High returns during the pre-crisis period were in part due to excessive risk taking or leverage, coupled with insufficient capital buffers against these risks. •  This has proven both untenable and perilous. •  A reduction in leverage and an increase in capital requirements are therefore desired outcomes of the reform agenda, to restore more prudent business practices and provide more sustainable finance over cycles. But sustainability in finance requires that banks are reasonably profitable.