samchain/econo-pairs-v1 huggingface dataset:
Some critics have maintained that, in the May 2008 issue of Financial Stability, the Central Bank contradicted its own knowledge of the state of the banks – or even that it did not know any better. This is untrue. The report examined in a transparent manner the financial system’s weaknesses, as well as its strengths. The developments in the global arena since the spring of 2008 rendered the risks mentioned in Financial Stability far more serious than was foreseen. In its monetary policy statement in July 2008, the Board of Governors said inter alia that “Iceland’s commercial banks play an important role in maintaining confidence in the financial system. Under the current global financial market conditions, they must protect their liquidity and capital position, seek all possible ways to reduce their need for foreign credit, and adapt the scope of their operations to dramatically changed circumstances.” Throughout 2008, the Central Bank of Iceland focused increasing attention on the developments and operational outlook at the nation’s financial institutions – particularly its large banks. Among other things, it monitored their liquidity much more closely and frequently than is stipulated in the Bank’s rules on liquidity requirements, and considerably more than had been customary. The Central Bank met with leaders from the large commercial banks and reviewed various aspects of their operations, requesting information on and explanations of the developments in certain areas, such as liquidity, funding, changes in lending and deposits, asset sales, etc.

However, through discussions with governors and other representatives from central banks abroad, the Board of Governors of the Central Bank of Iceland had become aware of growing opposition to the Icelandic banks’ accumulation of deposits. No doubt this opposition stemmed from many factors, among them the fact that banks in those same parts of Europe felt the pressure of the sudden competition and communicated their concerns to their authorities. Another cause was the fact that the accumulation of deposits in foreign subsidiaries increased the potential obligations of the deposit insurance schemes in the countries of operation. A third factor may have been concerns that the relatively high interest rates offered by the Icelandic banks might reflect underlying weakness. A fourth consideration was the concern about the Icelandic deposit insurance scheme with respect to deposits in foreign bank branches. It was clear, however, that the Icelandic system fulfilled the requirements set forth in European directives, which stipulate that the government must ensure that such a deposit insurance scheme is established but do not address the issue of government responsibility for the scheme’s commitments, and certainly not in the event of a system-wide shock. Official European documents corroborate this. Some declared outright that the Icelandic banks would be prevented from receiving deposits or that they would be forbidden to receive further deposits in the countries where they were already established.
It also applies to the field of tax policy, in both financial and non-financial sectors of the economy, which might also have contributed to the build up of imbalances and financial vulnerabilities that later on worked as amplifiers of the financial strains. Monetary policy, and the extent to which policy interest rates could be used to “lean against the wind” of financial market excesses in an effective manner, which is consistent with the preservation of price stability over a longer term horizon, has also been under debate. But the area which has been under the spotlight, as the financial crisis unfolded, has been the one of macro-prudential policy. The global financial crisis has disclosed the scale of the potential fallout from the failure of large financial institutions. It has revealed the fragility of the financial system to features and trends that cut across institutions, markets and infrastructures, namely in the form of financial imbalances. And it has illustrated the amplitude of the consequences of the adverse feedback loop between the financial system and the real economy. In a nutshell, it has shown the potential devastating effects of systemic risks materialising in various forms. While a range of risks and vulnerabilities were identified in the run-up to the crisis, the translation of these risk assessments into policy action was generally missing. Macroprudential policy aims at filling this gap.

On the one hand, aiming at containing systemic risk might be phrased in too vague terms; on the other hand, the specification of explicit (quantitative) targets might be inappropriate. Some experiences in introducing prudential policy instruments in the past seem to suggest that while these were congruent with micro-prudential policy objectives, the macro-prudential dimension may be missing in their design or calibration. 2. Further consideration also needs to be given to enhancing the understanding of macro-prudential policy transmission channels. The task of understanding transmission channels and assessing the potential impact of measures poses a number of challenges. For instance, it needs to take account of substitutability and competition between institution and market-based sources of credit. As such, the choice of the appropriate policy instruments may depend on country-specific factors such as the structure and features of the financial system. A better understanding of the transmission channels of macro prudential policy is critical, also on account of possible interaction with other policy areas, in particular with monetary policy. 3. Consideration also needs to be given to the potential for regulatory arbitrage. Pursuing macro-prudential policy action is likely to require a great degree of international coordination, in order to keep the scope for cross-border and crosssector arbitrage contained. This aspect is particularly important within the European Union (EU) which is characterised, among other things, by a high degree of policy harmonisation in the financial sector. 4.
Yet, MiCA stands out from other legislative initiatives in how it tackles stablecoins, of which it distinguishes two types: electronic money (e-money) tokens and asset-referenced tokens. E-money tokens purport to maintain a stable value by referencing to the value of one official currency. As such, they are considered electronic money. Their issuers are limited to credit institutions and electronic money institutions, which must comply with MiCA and the existing provisions in this field. Asset-referenced tokens, on the other hand, are a different kind of animal. These cryptoassets are not e-money tokens and purport to maintain a stable value by referencing to any other value or right, or a combination of both, including one or more official currencies. The composition and administration of the underlying reserve assets thus become key elements and, consequently, MiCA extensively addresses the conditions which should guide their management. As such, the reserve assets may only be invested in highly liquid financial instruments with minimal concentration, credit and market risk. Moreover, MiCA requires that the reserve be managed in such a manner that the liquidity risks associated with the permanent redemption rights of the holders are addressed, and that the risks associated with the assets referenced by the asset-referenced tokens are covered. Finally, in order to protect the interests of token-holders, the reserve will have to be operationally segregated from the issuer's estate. Despite the significant progress achieved, MiCA is unfortunately facing what I hope proves to be one last delay in its adoption process.

However, what seems more challenging to me is being able to reach the delicate balance between achieving our policy objectives and, at the same time, avoiding collateral damage, to the transmission of monetary policy and particularly to the stability of the financial system. It would probably be short-sighted to think that a CBDC would have no impact on the financial system. Of course it may replace cash to some extent, but it is difficult to believe that it will not attract a fraction of deposits as well. This means that a CBDC could have implications for financial stability, monetary policy, and the allocation of credit to the real economy. However, dispensing with its issuance in order to preserve the status quo is not an option either. Let me explain. We are in the middle of a  3/6  BIS - Central bankers' speeches  whirlwind of change, so the question should not be "what should we do to avoid change?" but rather, "what should we do to ensure the stability of the financial system, in the midst of change?". That said, CBDCs may come in different shapes and forms; therefore, adequate design and implementation are needed in order to minimise their impact. This is not a minor task and requires careful analysis. There are many interlinked design options and they all have to be considered, both individually and holistically, in order to ensure they are a perfect fit. This is, in fact, what the Eurosystem is currently doing in the context of the digital euro.
Challenges for Monetary Policy in the current IMFS When Ben Bernanke was retiring from the Fed, his closing remarks to central bank governors at the BIS set us the task of sorting out the deep flaws in the international monetary and financial system (“IMFS”). Six years later, with my demise as governor on the horizon, I’m going to ‘pay it forward’ by focusing on how the nature of the IMFS challenges monetary policy. For decades, the mainstream view has been that countries can achieve price stability and minimise excessive output variability by adopting flexible inflation targeting and floating exchange rates. The gains from policy coordination were thought to be modest at best, and the prescription was for countries to keep their houses in order.1 This consensus is increasingly untenable for several reasons. Globalisation has steadily increased the impact of international developments on all our economies. This in turn has made any deviations from the core assumptions of the canonical view even more critical. In particular, growing dominant currency pricing (DCP) is reducing the shock absorbing properties of flexible exchange rates and altering the inflation-output volatility trade-off facing monetary policy makers. And most fundamentally, a destabilising asymmetry at the heart of the IMFS is growing. While the world economy is being reordered, the US dollar remains as important as when Bretton Woods collapsed (Figure 1). This view is summarised in a speech by John Murray, ‘With a Little Help from Your Friends: The Virtues of Global Economic Coordination’, 29 November 2011.

This long-standing and widely held view reflects the 4  The analysis of Gita Gopinath, Emmanuel Farhi, Matteo Maggiori and Jeremy Stein, amongst others, emphasises the persistence in the structure of the current IMFS. 5 See Corsetti, G, Dedola, L, and Leduc, S (2010), ‘Optimal Monetary Policy in Open Economies’, Handbook of Monetary Economics, Vol. 3, Chapter 16, pp. 861-933; and Benigno, G and Benigno, P (2006), ‘Designing targeting rules for international monetary policy cooperation’, Journal of Monetary Economics, Vol. 53(3), pp. 473-506. In the standard welfare-based analyses of optimal monetary policy in an open economy, a key consideration is the extent to which sticky prices in different currencies lead to deviations from the law of one price (LOOP) for different goods. The first-best (efficient) outcome is for goods to sell for the same price when converted into different currencies. If this is not the case, demand is misaligned internationally, which in turn creates an inefficient allocation of factor inputs. Under PCP, the full flexibility of import prices means the exchange rate can act as an efficient shock absorber, adjusting to ensure that the LOOP holds. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  beliefs that any externalities that might exist are almost trivially small and that trying to address them would be fine-tuning to the nth degree. The mainstream view is increasingly anachronistic for several reasons.
This constraint paves the way for scenarios characterised potentially by self-fulfilling expectations and that lead to unfavourable outcomes in which funding suddenly dries up and the country affected may find itself bound to default on its debts, irrespective of the soundness of its economic fundamentals. Euro area governments have spent almost two years trying to construct some mutual insurance mechanism that will perform a market-stabilising role, so far unsuccessfully. While waiting for them to achieve this, a disproportionate part of the task of defending the stability of the euro area has fallen on the European Central Bank. Since the sovereign debt crisis broke, we have on the ECB Governing Council adopted numerous non-conventional measures to restore the workings of specific financial market segments – namely the money and public debt markets – that have proven crucial to bringing the operation of the monetary policy transmission mechanism back onto a more normal footing. BIS central bankers’ speeches  3  Early in the crisis the ECB adopted a generous liquidity-providing policy vis-à-vis financial institutions, implementing it over these years using far-reaching measures.

The ECB’s conjunctural measures are of no use, however, in resolving the central problem revealed by the crisis: the need for mechanisms that help counter the risks arising from the fact that countries with heterogeneous structural features share a common currency and that, therefore, they can no longer resort to their own monetary and exchange rate policies as macroeconomic stabilisation instruments. At the various summit meetings held in recent years, the euro area Heads of State or Government have reaffirmed their unequivocal political commitment to keeping the EMU project on track and to completing monetary union and moving towards greater economic integration. Evidently, though, in this process it will be necessary to share substantial sovereignty in sensitive areas such as fiscal policy or banking system oversight, and to set in train mechanisms allowing some degree of risk mutualisation, without this potentially discouraging economic discipline in the various countries. The steps taken so far are along the right lines. But without wishing to speak out of turn, there is notable room for improvement in the pace at which decisions are being taken. On the fiscal front, reforms to date have translated into a significant strengthening of the Stability and Growth Pact. Key factors in this reinforcement have been the greater attention to debt ceilings and the establishment of greater automaticity in the procedures to evaluate potential non-compliance and to activate the necessary corrective mechanisms, along with the requirement to revise national legal frameworks.
This brings me to the fundamental question of why a particular pattern of asset price moves tends to precede recessions. Let's suppose for now we have estimated and evaluated the best possible model to incorporate the statistical implications of these asset price patterns on recession probabilities and of the depth of a recession based on the available data. Is the model showing a causal relationship or is it just a predictive relationship with a different causal factor driving both asset prices and the real economy? And if the latter, what are the causal factors? This is a different question than the one we were debating in our internal discussions in 19992000 and 2006-2007. We spent much of that time arguing about whether structural change, particularly lower compensation for interest rate risk, meant that asset price indicators were less relevant than before. An alternative approach would be to ask, if the probability of recession is elevated, what might be causing this phenomenon? And then ask the complementary question: If the probability of recession is unusually low, what might be causing that phenomenon? In this latter case, given the asymmetry in loss between elevated recession probabilities and elevated 4/6  BIS central bankers' speeches  expansion probabilities, a very helpful follow-up question would have been whether beliefs in central banks contributing to the economic stability of the Great Moderation had made us too complacent about recession risks. Tetlock emphasizes the importance of post-mortems once outcomes are known.

6 See Donald Kohn and Brian Sack, Monetary Policy during the Financial Crisis, preliminary discussion draft  presented at the Hutchins Center on Fiscal and Monetary Policy at Brookings and Yale School of Management Program on Financial Stability event, Responding to the Global Financial Crisis: What We Did and Why We Did It, Washington, D.C., September 11–12, 2018. 7 Possible sources to which this lament has been attributed are catalogued here, although its actual provenance  is not known. 8 As part of our analysis of what went wrong in our forecasting before the Great Recession, researchers at the  Federal Reserve and European Central Bank jointly looked at various methods of more directly including highfrequency fluctuations in our forecasting models. The results from this research are reported in Luci Alessi, Eric Ghysels, Luca Onorante, Richard Peach, and Simon Potter, Central Bank Macroeconomic Forecasting during the Global Financial Crisis: The European Central Bank and Federal Reserve Bank of New York Experiences, Federal Reserve Bank of New York Staff Reports, number 680, July 2014. 9 See survey questions and results to the Survey of Primary Dealers and Survey of Markets Participants, Federal  Reserve Bank of New York. 10 Of course, the NBER didn’t actually declare the start of the recession until late November 2008, nearly a year  after it officially began. 11 Estrella and Mishkin’s original paper, updates, related research, and current recession probabilities implied by  the term spread are available on the New York Fed’s Research website.
We thus will need to see more data to determine the extent to which the March data represent a transitory weather-related setback. Regardless of the importance of the mild winter in distorting the economic data, real economic activity has yet to be strong enough on a sustained basis to make a big dent in the overall amount of slack in the U.S. economy. While growth was stronger in the fourth quarter, most of it was due to inventory accumulation. Growth of final sales remained quite weak. Historically, quarters in which inventory investment makes significant growth contributions are typically followed by quarters in which that growth contribution is modest or even negative. That appears to be what is shaping up for the first quarter of this year. Based on available data, our current expectations are that real GDP will expand at around a 2 ¼ percent annual rate during the first quarter of 2012. Even with the robust increase of light vehicle sales, overall consumer spending in the first quarter appears to be rising at a similar moderate rate. At the same time, real disposable income has been flat over the past three months, and the large increase of gasoline prices is likely further sapping consumers’ real purchasing power. And growth of business investment spending, which softened in the fourth quarter of 2011, may have been even a little softer in the first quarter of this year.

In December last year, the Hong Kong Mortgage Corporation signed a joint venture agreement with Cagamas Berhad, Malaysia’s national mortgage corporation, to establish a company to develop mortgage guarantee business in Malaysia and other parts of the world. Earlier this month, a new Dow Jones Islamic Market Index came to the marketplace to track China-related equities listed in the Hong Kong stock exchange, further enriching the Islamic index infrastructure in Hong Kong. These initiatives clearly demonstrate the dynamism of Hong Kong’s financial systems in responding to an emerging market opportunity. Is the timing right? Some observers have questioned whether it is a bit late for Hong Kong to develop Islamic finance, when some other financial centres in the region have already made a head start. It may be true that Hong Kong has started the development only recently, but so long as the demand is there, it’s never too late for Hong Kong to contribute to this vibrant and growing sector. The Islamic financial sector we believe has huge headroom for growth. Hong Kong can also learn from the experience of other established centres, and co-operate with them to grow the market. Indeed, there is no better time than now to contribute to the development of Islamic finance. This region is in possession of a significant part of the global oil reserves and has topped the world in the accumulation of wealth. The abundance of oildriven liquidity generates a huge appetite for investments that cannot now be satisfied within the Gulf area alone.
For inflation in the years ahead, it is of course important that there are some unutilised resources to begin with. So what can we expect in terms of inflation developments? In this respect, the outlook has gradually undergone a number of more marked changes since the end of the autumn. Principally, as a result of lower expected increases in wage costs and better productivity growth, unit labour costs are expected today compared with in December to grow a number of tenths slower in the years ahead. Normally, there are few factors that are more significant for inflation a few years ahead than unit labour costs. In addition, international price pressure is muted. Against this background, most factors suggest that inflation in the next two years will be below the Riksbank’s target. Also with regard to the various risks to economic activity and inflation, I believe there is cause to reason somewhat differently than in December. As the economic upswing is gradually confirmed, the risk of a setback in the coming two years will diminish. Correspondingly, the probability that economic activity could prove unexpectedly positive and that the upswing will be quicker than anticipated is also likely to increase. However, this does not mean that there are no downside risks whatsoever in the short term. One such risk is that the weak labour market in the US or in Sweden - confirmed by the latest data - will worry households and dampen their consumption.

There may be reason to take this into account and expect a somewhat lesser probability than before of a krona appreciation. On the whole, this discussion of different uncertainty factors and risks does not lead me to see reason to make any appreciable changes to the assessment I have just presented. The risks I have discussed could perhaps push up inflation somewhat. Nevertheless, with what we know today, the conclusion remains that inflation will be below the Riksbank’s target one to two years ahead. By way of conclusion, allow me to stress that much work remains to be done before the next Inflation Report is published and it is this that will form the basis of our decision about the repo rate at the end  4  BIS Review 16/2004  of March. So it is not just today’s assessment that could be affected by new data. In the light of the analyses currently being carried out, the Executive Board may assess some of the factors that are significant for inflation in a different way than I have today. Thank you. BIS Review 16/2004  5