samchain/econo-pairs-v1 huggingface dataset:
Another effect of financial innovation is thus to create asymmetries in the reaction of the economy to monetary policy: for example, the slow build-up of bubbles during periods of monetary easing followed by an abrupt retrenchment when monetary policy tightens. Note that there is currently a debate as to whether this inherent procyclicality of financial systems is amplified by our accounting and prudential regimes. Fourth, it may be that modern financial innovation creates new discontinuities in the financial system and dynamics. When conditions are less benign than usual, the transmission process along the interest rate curve becomes non-linear: a striking feature of this summer’s events was the surge in the short-term money market. Wider and variable spreads between term funding rates (of which many bank loans are priced off) and policy rates may reduce the efficiency of interest rate adjustments when needed. Innovation also reinforces the mechanism of the "financial accelerator", through which the level of asset prices influences credit distribution (through collateral values and, now, its impact on banks tier one ratio), then the real economy; and, in return, the real economy impacts asset prices and values. This spiral can go upwards, or, as we see now, downwards. Overall, I believe that central banks have coped well with these challenges over the past ten months. The monetary policy response has differed across industrialised countries, as warranted by the differences in economic situations and outlooks.

Despite the existence of common EU legislation in many key areas, supervision is still organised on a national basis. This raises two key challenges. First, it means that it is not easy for supervisors to capture all the relevant risks – within and across borders - faced by the financial institutions for which they are responsible. Secondly, institutions operating on a cross-border basis face duplications and inconsistencies in the supervision applied to them by the different national authorities with which they are required to deal. This increases their costs of doing business, and can therefore act as a barrier to integration. In summary, supervisors face a double challenge in the face of increased EU integration: how to ensure that their actions are effective, and thereby contribute to preserving financial stability; and how to ensure that their actions are efficient. Their response has been to enhance cooperation. Indeed, cooperation between supervisors has increased exponentially over the years. More recently, the Lamfalussy approach has been implemented, and has set this cooperation in a new structure that aims to promote a more efficient and effective approach to both supervision and regulation in the EU financial services sector. The supervisory committees that form part of the Lamfalussy structure have a major role to play in this respect. And I think everyone would agree that the efforts being made by these committees are extremely impressive. But we need to give these efforts time to bear fruit – the Lamfalussy approach is still rather new, especially in the banking and insurance sectors.
And, most striking of all, flows of information across agents and borders are occurring on an altogether different scale than at any time in the past. All of these trends increase the importance of taking seriously interactions between agents when modelling an economy’s dynamics. These benefits can perhaps best be illustrated by drawing out some of the key behavioural differences between ABM and mainstream macro-models. These differences should not be exaggerated: in practice, ABMs lie along a spectrum with micro-founded DSGE models at one end and statistical models at the other. But nor should they be overlooked. (a) Emergent Behaviour  In standard macro-models, system dynamics are fully defined by the distribution of shocks to the economy and the behavioural parameters determining how they ripple through the system. There is a classic Frisch/Slutsky impulse-propagation mechanism determining the economy’s fortunes. If the distribution of shocks and the parameters of the model are known and fixed, the dynamics of this system are well-defined and predictable. Complex systems, of which ABM are one example, do not in general have these properties. The Frisch/Slutsky decomposition is very unlikely to be stable, if it exists at all. The reason is that a complex system’s dynamics do not derive principally from disturbances arising outside the system but from interactions within the system. Dynamics are endogenously, not exogenously, driven. These feedback effects within the system may either amplify or dampen cycles.

(f) Ecology  ABMs have been applied to a number of ecological problems involving the interaction of multiple agents with each other and with the environment. In the 1990s, ABMs were applied to population and resource dynamics and migration patterns (Grim (1999)). For example, there is now a large body of work on ABMs of marine organisms (Werner et al (2001)), simulating how these organisms are moved around by ocean currents and how they interact in food webs. Model-derived fish spawning locations have been found to coincide with observed spawning locations of fish (Heath and Gallego (1998)). These models have also been used to simulate the effects of hypothetical interventions, such as the impact of introducing new predatory species to eliminate pests, different techniques for managing fish stocks, or the impact of contamination of marine eco-systems (Madenjian et al (1993)). ABM techniques have been applied to the management of forests, by simulating the establishment, growth, and death of individual trees, taking account of tree-tree interactions as they compete for resources. These models have been used to help forest management and assess the systemic impact of environmental changes, such as widespread deforestation. 13  13  See Liu and Ashton (1995). 18  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  18  Figure 12: Migrating animals  Figure 13: Oceanographic patterns  Source: Bjørn Christian Tørrissen (CC-BY-SA-3.0). Wildebeest on Source: Bruno de Giusti (CC-BY-SA-2.5-IT). Fish (image  the Serengeti (image available here). available here).
William C Dudley: Conducting monetary policy – rules, learning and risk management Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the C Peter McColough Series on International Economics, Council on Foreign Relations, New York, 24 May 2012. *  *  *  It is a great pleasure to have the opportunity to speak here today. My remarks will focus on how I think about monetary policy in today’s challenging economic environment. As part of this, I will discuss how simple policy rules might appropriately be used as a guide to decisionmaking. I do this not because policy rules play a dominant role in my own thinking, but because the use of these tools is widespread, with many framing their arguments this way. To start with the punch line, although I believe simple policy rules can provide useful input into the policymaking process, it would be unwise to rely on them mechanically. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. Policy must strive to promote the dual mandate objectives of maximum employment and price stability given to the Federal Reserve by Congress. I believe that this should be done in a transparent and systematic manner because this will help us to achieve our objectives.

You know the customers in your community because you are an integral part of the community. You represent an essential part of our financial system and economy. But I know you didn’t come here today to hear me tell you what an important job you do. What I hope is that I can give you some insights that will be useful going forward. I know interest rates play a vital role in your businesses, so I’d like to spend a bit of time talking about the outlook and what that means for monetary policy. But before I do, I need to give the standard Fed disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Where Things Stand For the last decade we’ve all had our focus on recovery from the Great Recession. The path to getting back on track has been a long one, and there is a sense that the economy has now fully recovered. GDP growth came in at 3 percent in 2018 and I expect it to be around 2 percent this year. The difference between last year’s numbers and this year’s forecast has caused some concern, and that’s where I’m going to keep my focus. Many people are hoping for GDP growth of 3 or 4 percent, similar to what we saw in the late 1990s. Less optimistic forecasts for 2019 growth are therefore, understandably, a source of worry.
With that I mean first and foremost the increased level of efficiency that has been achieved in the financial system in the past few years. This rise in efficiency can be ascribed to the innovativeness of financial markets. New financial instruments, such as credit derivatives, enable banks to separate their credit risk and transfer it either completely or partially. This facilitates a better distribution of credit risk in the financial system and means that the risk is borne by those who want to and are able to bear it. The improved efficiency has resulted in a reduction in the financing costs of companies and households. Lower financing costs help the economy and stock markets to achieve greater growth. The increased efficiency also appears to have improved the ability of global financial markets to absorb shocks. The downgrading of General Motors’ credit rating in 2005, for instance, or the major losses suffered by the hedge fund Amaranth last year had no lasting impact on stock and credit markets. All in all, global financial markets are currently better able to absorb shocks, at least small to mediumsized ones. Accordingly, serious turbulence in the financial system seems less likely today. From a financial stability perspective, this is a positive development indeed. However, the greater the stability of the financial markets, the greater the risk appetite of market participants tends to be. This in turn can increase the likelihood of a crisis and, in the event of one occurring, the extent of the damage.

Muhammad bin Ibrahim: Migration to electronic payments Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the Payment System Forum 2013 “Migration to electronic payments”, Kuala Lumpur, 9 December 2013. *  *  *  It is my pleasure to welcome all of you to the Payment System Forum 2013 organized by Bank Negara Malaysia in collaboration with the Association of Banks in Malaysia (ABM) and the Association of Islamic Banking Institutions Malaysia (AIBIM). Overview of the payment system forum The objectives of the Payment System Forum are: •  Firstly, to build greater awareness amongst the business community on the wide range of electronic payment solutions available in the market; and  •  Secondly, to showcase experiences by businesses who have successfully migrated to, and are reaping the benefits of, electronic payments. Besides featuring presentations by banks and payment system professionals, and the sharing of experiences by businesses, I am pleased to announce that the Payment System Forum has also brought together 27 exhibitors. The exhibitors comprise representatives of banks, payment service providers and government agencies who will showcase their electronic payment solutions. Members of the business community are encouraged to visit the exhibition booths located outside of this Auditorium and sign-up to the latest offers. Enhancing Malaysia’s payment system infrastructure An efficient, reliable and secure payment system is critical to the stability of a country’s financial system, besides contributing to a country’s economic growth and competitive position.
Suppose you split consumption into stuff that can only be produced domestically (“non-tradables” like homes or haircuts) and things that can also be imported from abroad (“tradables” such as holidays and cars). This distinction is important because you’d expect prices of traded goods and services to move reasonably closely across countries (I’ll return to this point later). If so, it turns out you can re-express the real exchange 2  rate in terms of another relative price, that of non-traded to traded output :  𝜀≈  𝑝𝑁𝑇 ⁄𝑝𝑇  [1]  So when things happen that push up this relative price, whether on the demand or the supply side of an economy, the real exchange rate will tend to move in the same direction. Take domestic demand first. The material distinction between non-traded and tradable output is that, whereas the first can only be supplied domestically, the second is also produced elsewhere: its overall supply is more “elastic”. New houses can only be built by domestically located firms; cars are made everywhere. So even a general increase in domestic demand will put relatively more pressure on the resources used to produce non-tradables as their global supply is more limited. As a result their relative price will tend to rise in domestically led expansions and to fall in contractions. This is illustrated in an extremely stylised way in Chart 2.

The evidence suggests that investment is less 13  responsive to these commercial incentives the greater the degree of uncertainty about future returns . Nor is it just a matter of uncertainty: it’s unlikely that these propitious conditions will last forever. Either the currency market is right about the consequences of Brexit, in which case the UK’s trading relationships will become less favourable; or it’s wrong, in which case sterling is likely to recover. Yet even in normal times, currency moves generally have to endure for quite a while before multinationals decide to shift production from one 14  location to another . So these are not straightforward decisions. Put simply, firms in the tradable sector, and those thinking of entering it, will be weighing the boost in the current rate of return against any additional risk premium they currently require of such investments. The question is whether the first is big enough to compensate for the second. Summary and conclusion The adjective “post-Brexit” is bandied around quite a bit these days. The term’s a bit previous. A better description of the UK’s current economic circumstances is “post-referendum” but “pre-Brexit”. The result is something of a sweet spot for exporters. Sterling fell sharply after the referendum and, despite the strength of consumption since then, has remained close to record lows.
Central banks can help reduce the negative effects of an excess of credit growth if they apply a monetary policy that is oriented to maintain price stability in an horizon long enough as to account for this cyclical behaviour of debt, thereby ensuring that the effects of the crisis are not so devastating for households and firms. Indeed, this should be of particular concern since we know that a monetary policy successful in containing inflation can also contribute to increase household and corporate leverage. A successful inflation fighting monetary policy manages to anchor agents' inflation expectations. In such a setting, the demand-side excesses that tend to be generated during cyclical upturns do not translate – or do so only very slowly – into inflationary pressures. Consequently, central bankers do not consider it necessary to tighten monetary policy, so that interest rates remain very low and continue to fuel the cycle and the consequent expansion of credit and debt. White (Weiβ in German), which is not only a type of wine but also the name of the chief economist of the BIS who retired last summer, has been calling in recent years for the introduction of financial stability considerations into monetary policy design and implementation. And we should acknowledge that the latest events have shown the validity of his proposals. In short, he recommends that central banks act against the build-up of financial imbalances even in the absence of inflationary pressures at the usual reference horizons.

8 The Chancellor’s annual remit letter sets out that the ultimate purpose of pursuing this objective is that “a strong and stable financial system supports economic growth, facilitates the provision of finance to support the expansion of the economy’s productive capacity and underpins the UK’s position as an important global financial centre”. 10  All speeches are available online at www.bankofengland.co.uk/news/speeches  10  could include those that increase the efficiency of financial services, level the playing field between existing firms and new entrants, or that support the development of new products and markets. The FPC’s setting of macroprudential policy can be broadly characterised as minimising the loss function, ℒ: 𝑇  min ℒ ≡ 𝐸𝑡 {∑ 𝛽 𝑖 [𝑓(𝐺@𝑅𝑡+𝑖 ) − 𝜙𝑦𝑡+𝑖 ]} 𝜌𝑡  𝑖=0  where 𝜌𝑡 is a policy setting at time t, 𝐸𝑡 probability-weights all future states of the world conditional on information available at time t, 𝛽 is the discount factor, 𝑇 is the FPC’s time horizon, which should be thought of as representing the medium-to-long term, and 𝑓 ′ (·) < 0 and 𝑓 ′′ (·) > 0. The FPC’s primary objective is captured by the first term, 𝐺@𝑅𝑡+𝑖 , “GDP-at-risk”.9 This is the far-left tail of the forecast distribution of GDP, and is a summary measure of the impact of tail risks on the economy. GDP-at-risk can be thought of as the consequence of financial instability.10 𝐺𝐷𝑃𝑡+𝑖 is the central GDP forecast, which will over time be determined by the economy’s trend rate of growth.
It is constantly developing its skills to understand and assess the impact of relevant risks – including those linked to climate change – on the economy and the stability of the financial system. It also integrates these considerations into its balance sheet risk management in order to guarantee the value of its reserves over the long term. Here, the SNB applies ESG criteria to its asset portfolio, while respecting the requirements of monetary policy. Given the rapid  13  IMF Global Financial Stability Report (2019), October. Cf. also Krüger, P., Z. Sautner and L.T. Starks (2019), ‘The importance of climate risks for institutional investors’, Finance Working Paper No. 610/219, September. Page 11/12  pace of developments in environmental economics, the SNB is closely monitoring developments at both national and international level. Ladies and gentlemen, it is now my pleasure to invite you to a round table. This will give us a chance to broaden the debate beyond central banking and to hear what other players have to say about the impact of climate risks on the economy and the financial system. Page 12/12  Climate risks and central banks: an SNB perspective Andréa M. Maechler, Member of the Governing Board Thomas Moser, Alternate Member of the Governing Board Swiss National Bank Money Market Event Geneva, 14 November 2019  Sources: SNB, Baker, Bloom and Davis.

For banks, this would erode the creditworthiness of debtors. In the area of mortgage lending, the adoption of stricter environmental standards could also diminish the collateral value of non-compliant real estate. 7 As you can see, climate risks may be of interest to central banks on a number of fronts. Each central bank tackles these challenges in its own way, depending on the profile of the economy in question and the institutional framework within which it operates. Countries are affected differently by climate risks due to their geographic location and economic structure. I am thinking in particular of countries that are partially below sea level (e.g. the Netherlands), those that are highly exposed to extreme weather events (e.g. droughts, storms, floods) and economies in which carbon-intensive industries (e.g. steel and cement) are strongly represented. Similarly, the institutional framework of each central bank will determine its room for manoeuvre in discussions on climate change. Some, for example, are responsible for microprudential supervision and also function as bank resolution authorities. They have to evaluate the soundness of each bank’s balance sheet, and this includes assessing banks’ exposure to climate risks. In Switzerland, this role is assigned to the Financial Market Supervisory Authority (FINMA). Other central banks advise the government and are expected to take a position on issues that go beyond pure monetary policy (e.g. fiscal or energy policy). This is not the case at the SNB. The SNB’s mandate is clearly defined.
But as the Bank’s Monetary Policy Committee (MPC) has seen wages, employment and productivity evolve, we are increasingly of the view that there has been a material labour supply shock for the reasons that I have discussed. So we have been paying increasingly close attention to developments in the labour market. Our forecasts for the next three years, and hence our interest rate decisions, are based on key judgements that: •  the number of people participating in the labour force will continue to rise, reaching 64% of the population later in the year and continuing its upward trend of the past decade;  •  the unemployment rate that the economy can sustain without generating accelerating inflation will return to where it was before the Great Recession (around 5%), and, at around 5½% now, is currently only a little above that; and  •  there is scope for the average hours people work to increase further, reducing by about half the current gap between actual and reported desired hours. In short, and unlike the US and euro area, the economy is likely to be able to sustain a higher level of employment than in the past. The uncertainty is less the direction of that development and more its magnitude. To assess that magnitude and its implications for inflation, we are tracking a range of indicators, including those of the prospective paths for wages and unit labour costs. Actual wage growth, at just 0.6% since a year ago excluding bonuses, is currently very weak.

There we made it clear that some deviations from the target level could be accepted, but that the Riksbank at the same time normally strives to bring inflation back to target level within two years. One reason for allowing deviations is that monetary policy does not make such a rapid impact and does not have the precision to closely steer inflation in the short term. Another reason is the need to be able to take account of other factors than inflation trends – for instance, growth in the real economy. The principle of normally bringing inflation back in line with the target within two years can be interpreted as a restriction the Riksbank has imposed upon itself to make its policy more clear. This restriction helps clarify the consideration normally given to factors other than the price stability target. However, sometimes situations arise where flexibility with regard to the target needs to be greater to avoid the effects on the stability of the real economy – variations in production and employment – reaching unacceptable levels. In extreme cases the deviations from the inflation target may be so large that it is neither possible nor desirable to return inflation to target within the usual two-year perspective. There are a number of examples of situations where considerations other than the assessment of CPI growth over the coming two years have affected our policy.