samchain/econo-pairs-v1 huggingface dataset:
Import prices will therefore depend on changes in the bilateral exchange rate between the local and the dominant currency, rather than that between the local and producer currency. For evidence, see Goldberg, L and Tille, C (2009), ‘Macroeconomic interdependence and the international role of the dollar’, Journal of Monetary Economics, 56 (7), pp. 9901003; and Gopinath, G(2016). “The International Price System,” Jackson Hole Symposium Proceedings. 9 Gopinath (2016), ibid, and Ito, H, and Kawai, M (2016), ‘Trade Invoicing in Major Currencies in the 1970s-1990s: Lessons for Renminbi Internationalization’, Journal of the Japanese and International Economies, Volume 42, pp. 123–145. 10 For a country with a large share of trade invoiced in dollars, a depreciation against the dollar raises the domestic price of imports, causing domestic households and firms to switch their expenditure away from foreign goods. But it leaves the (dollar) price of exports in the markets in which they are sold unchanged, albeit making them more profitable for domestic exporters in terms of home currency. Because imports would fall straight away and it would take time for the export sector to expand to take advantage of the higher profits, it is therefore likely that a rebalancing of the economy from imports to exports would be slower than if traded goods were priced in the currencies of their production. In addition, other things equal, the rise in import prices would lead to a pick-up in imported inflationary pressure.

Chart 5: Pull factors have reduced Capital Flows at-risk for EMEs since the Asian Financial Crisis Probabilty density 0.12 0.10 0.08 0.06 0.04  B  A  0.02 0.00 -8  -6  -4  -2  0  2  4  6  8  10  12  14  16  18  Capital flows as a % of GDP Post-2008 crisis  Asian Financial Crisis  Sources: IMF and Bank staff calcluations. Notes: Chart shows the contribution of pull factors to capital flows to EMEs during the Asian Financial Crisis (purple), and since 2008 (green). The diamonds highlight the fifth percentile, which is our preferred measure of Capital Flowsat-Risk. In both distributions push factors are held at their sample average, so only pull factors are changing. 19  All speeches are available online at www.bankofengland.co.uk/news/speeches  19  Capital Flows as a % of GDP 2 0 -2 -4 Average Capital Flows-at-Risk Contribution of pull factors Contribution of push factors Total Capital Flows-at-Risk 1996  1999  2002  2005  Gross Gross outflow inflows s  Chart 6: Push shocks have offset some of the improvements in the ‘pull factors’  -6 -8 2008  2011  2014  2017  Sources: IMF and Bank staff calculations. Note: The grey bars on this chart show the unconditional 5th percentile of the distribution of capital flows in a panel of 13 EMEs since 1996.
9  See May 2020 Federal Reserve Financial Stability Report 6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  From where they are today, these highly indebted companies may find equity to be the only – if any – source of finance to minimise the damage to their productive capacity. This leads to the second motivation for equity. Some of these companies may struggle. As will others who were already being challenged by underlying structural shifts in the economy, some of which have probably been accelerated in recent months. A fifth of the companies facing cash-flow deficits had poor profit performance even before the virus disruption. It would always be tough for companies in that position to raise new finance to withstand the disruption. These issues – debt and structural change – mean some companies will be forced to make cuts and some may fail or close. The number of paid employees has fallen by around 700,000 since February10. And we have seen announcements of plans for over 100,000 redundancies. Unemployment and business insolvencies will rise. If we are to limit the extent of economic scarring, new muscle must be created to replace that which is lost. Businesses must be born and be able to grow, to seize new opportunities, create new productive capacity and new opportunities for employment. And that will require new equity.

This won’t a silver bullet – investment funds may face  15  See December 2019 Financial Stability Report , and speech by Alex Brazier (2019): Stability, Agility, Opportunity See December 2019 Financial Stability Report 17 See speech by Christopher Woolard (2020): The role of investment managers in the post Covid-19 recovery 16  10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10  other obstacles to investing in unlisted equity and the needs of unlisted companies will vary depending on their current ownership structure and size. But it would certainly be a step in the right direction. To reinforce it, we will also need to examine whether there are obstacles to insurance companies and pension funds making investments in unlisted equity, whether that’s directly or through funds structures of the sort I described. On the insurance side, there is little case for compromising on the resilience of insurance companies and protection of their policyholders. But we need to examine whether, within that level of safety, regulations strike the right balance in encouraging asset allocations to equity. The upcoming review – announced by the Chancellor – of certain Solvency II regulations may be a good opportunity to look at that issue. The Government expects to publish a Call for Evidence in the Autumn.18  On the pension side, it is notable that funds typically offer a daily price of their assets.
The current target range lies between 0.25% and 1.25%. We reacted to the increasing signs from Switzerland and abroad that point to a delay in the economic recovery and slower-than-anticipated economic growth in 2002. We now forecast the average growth rate for real GDP to fall clearly short of 1% in 2002. In addition, the further appreciation of the Swiss franc tightened the monetary conditions, which were regarded to be undesirable under the current environment. Concluding remarks It is more than one year that we are in this difficult economic situation. The loss in business confidence began with the downturn in economic activity lead by a sharp correction in capital spending. The path to economic recovery has been recently overshadowed by the loss in investor confidence, which found its origins in the highly publicized scandals involving fraudulent balance sheets. This setback in investor confidence undermined the required trust in financial markets that the right rules are in place and that those rules are being enforced. Although I am confident that stronger rules will merge to restore trust in financial markets, consensus will not be achieved overnight. Corporations must continue to build on the social capital that is entrusted in them by investors. They should promote the efficient operation of financial matters, and optimize the benefits that markets can bring to everyone in society.

Trust is a term that is closely related to confidence and credibility. Trust is understood to mean when individuals share a mutual understanding that the rules of conduct governing their network work well and make things better for everyone. Trust can therefore be thought of as a kind of social capital - a shared asset that benefits everyone. Just as we speak about trust between individuals and public institutions, the same is true for publicly traded firms that interact with markets. With trust, economic systems and networks are more efficient for less effort is spent on monitoring and checking. With the establishment of trust, confidence is developed. Over time, as trust is built up, confidence and credibility are developed. Maintaining price stability is a key trust-building responsibility of the Swiss National Bank. Protracted changes in the price level, as a rule, stem from a malfunctioning of the monetary system. Price stability is important particularly because relative prices in our market economy govern the production and consumption of individual goods. Changes in the price level are liable to give misleading signals and lead to expensive mistakes in planning and investment. Inflation has other dire consequences. For the less fortunate - those unable to protect themselves against price increases - inflation means an erosion in purchasing power. This is especially true for fixed income investments. In contrast, for those that can protect themselves against inflation, it means  BIS Review 50/2002  1  that considerable resources are squandered in trying to hedge against inflation.
But the extraordinary stability of the past decade may have given people an exaggerated idea of what to expect of monetary policy. While the Bank can deliver low inflation, we cannot reliably deliver rock steady growth in output and employment, still less falling unemployment. Whether or not that happens depends on events in the wider world – what economists like to call ‘shocks’ - and other economic policies, including taxes and regulations. All we can do is try to keep demand growing in line with supply. And in fact, most economists a decade ago would have said that the Great Stability, as we have experienced it in the UK, represented a pretty unlikely set of outcomes. The then Governor, Eddie George, said he hoped that low inflation would contribute to a more stable economy but warned: ‘We cannot hope to achieve that with any great precision’ 2 . The MPC’s formal remit from the Chancellor, originally drafted nearly a decade ago and still in force, seems to be predicated on a more turbulent world. It makes specific allowance for situations in which inflation might be thrown sharply off course. It reads: ‘The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.

As we all know from first hand experience, the world economy is being transformed by the lowering of all sorts of barriers to the free movement of people, money, knowledge, goods and services. These trends are, of course, as old as human history. But there have been periods, like the second half of the nineteenth century, when globalisation has proceeded rapidly and periods, like the first half of the twentieth century, when it has gone into retreat. The past fifteen years or so have been a period of major advance as a result of far-reaching political and regulatory changes as well as revolutions in technology and communications. The pace of change has been striking in several key areas. First, international capital flows have grown explosively, as financial markets have become more integrated. As a result, the value of the global stock of assets in cross-border ownership tripled over the ten years to 2004. As well as increasing the scope for mobilising savings and allocating capital across different markets, the development of deep and liquid international financial markets has opened up new possibilities for diversifying risks and smoothing the adjustment to unforeseen events. This should promote both economic stability as well as growth. BIS Review 116/2006  1  Second, the sheer scale and pace of economic development in China is without precedent. What is not new is its strong export orientation – this was the route taken by Japan and the East Asian Tiger economies.
4/5  BIS central bankers' speeches  One last optionality after lift-off would be about the pace of further rate hikes. In particular, some market participants anticipate a scenario where we could pause or adjust rates significantly more slowly after having exited from negative territory. This is not a preset course, but this would be a possibility as our hands here are completely free. Besides optionality, necessary flexibility We should obviously keep optionality as we navigate this course. But we will also retain flexibility: to ensure not only the right stance of monetary policy, but also its right transmission throughout the euro area, in terms of asset classes and jurisdictions. Optionality and flexibility strengthen each other in our path towards a smooth normalisation: on the one hand, gradualism will help to avoid possible markets overreactions; on the other hand, we explicitly stressed the need for flexibility already in December, “under stressed conditions, flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardizes the attainment of price stability”. This is not a question of moral hazard or supporting any country unconditionally, still less about tolerating any form of fiscal dominance. It’s about avoiding risks of unwarranted fragmentation: having, if needed, in our “virtual toolbox”, some “contingent option”. It would work partly – but not necessarily solely – through PEPP, including its reinvestments and possibly resuming its purchases under certain conditions.

Let me at this stage turn to more open questions and give more personal reflections on how to increase this optionality: 3/5  BIS central bankers' speeches  The first option we’ll have to consider – at our March meeting – is the calendar of net asset purchases. Keeping them open ended from October would not be appropriate, as (i) as a principle, it ties our hands for too long: I said earlier that calendar based guidance shouldn’t go beyond some months in the prevailing uncertainty (ii) in substance, there is now much less reason to continue pressing the gas pedal while increasing our asset stock, as inflation is converging towards our 2 % target “from above”. I still believe it’s useful to have some transition between the end of net PEPP purchases in March and the end of net APP purchases: but this reduction could follow a bimonthly or monthly pace instead of a quarterly one, and APP purchases could therefore end in Q3, at some point to be discussed. In parallel, another way to enhance optionality could be to remove the word “shortly” from the forward guidance on asset purchases. This would be a possibility to break the quasi automatic temporal link between the two instruments whilst retaining the sequencing. Optionality would mean that the lift-off could possibly take more time, if warranted. This temporal decoupling could give more scope for fine-tuning, which is an advantage in uncertain times.
This legislation, now in passage through Parliament as a draft law, includes initiatives in the area of insolvency law to strengthen the application of out-of-court payment settlements, and introduces a second-chance mechanism. In relation to the Code of Good Practices, the exclusion threshold, the application of so-called “floor clauses” and the calculation of the limit on the price of properties acquired to be able to avail oneself of the dation in payment envisaged in the code have all been reviewed. Lastly, the law on measures to strengthen the position of mortgage debtors provides for an extension of the moratorium on evictions in the cases of particular vulnerability identified in Law 1/2013. These improvements are in addition to those adopted as a result of the financial crisis. They are steps in the right direction which, given their significance, merit analysis and assessment. And, in this respect, I would like to voice two ideas. First, in this new setting it is essential that legislation should preserve the payment culture that has traditionally existed in the Spanish mortgage market. The erosion of this culture, as occurred in some euro area member countries under European Union bail-out programmes, would truly be most negative for the stability of the financial system.

Publication of aggregate results allows the regulator to communicate to the market and the public our view on the resilience of the sector in plausible, narrated stresses, and identify sector-wide risks. This serves our accountability and can enhance confidence in the capacity of the insurance sector as a whole to continue to support the wider economy through provision of essential financial services. We should also think about whether it will be valuable in the longer term not only to give a sector view but a firm-specific view as well. In stress testing the banking system through the annual cyclical scenario (ACS), the Bank publishes the results for the seven participants. The objectives for the ACS test include improving firms’ risk management and enhancing market discipline, with confidence in disclosures contributing  7  See Discussion Paper 'The 2021 biennial exploratory scenario on the financial risks from climate change' (December 2019). 5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  positively to access to capital markets. Publication has been helpful in cementing the integrity of the exercise and being part of the regulator’s accountability. These are valuable benefits, and the current consideration of both the future regulatory framework and the review of Solvency II, on which HM Treasury recently published a call for evidence, suggest we should look carefully at both what we are seeking to achieve, why, and how.
If an asset is rated too optimistically a firm may be holding insufficient reserves to meet the risk of default or downgrade. Insurers face the challenge that ratings for illiquid assets are generally more uncertain and less reliable. They are usually assigned internally, rather than publicly, and invariably rely on less data than is available for traded investments. So, if we are to expand eligibility – ideally to the full range of assets that are suitable to back annuities in a properly diversified portfolio – but without reducing security of retirement income, then the MA benefit – which is very large and binary – needs to be more graduated, and tailored better to the specific risk characteristics of those assets. In particular, the varying balance between short-term risks, to which buy and hold investors are not exposed to, and longer term risks which they do retain. This varies a lot more across the reasonable universe of assets suitable to back annuities than the current design and calibration of the MA allows for. We expect the calibration of the framework will need to be more granular than it currently is and will need the flexibility to respond prudently when firms expand into further new asset classes with novel risk characteristics. A reform like this could support investment without compromising policyholder protection. Of course, the outcome of the S2 review is ultimately a matter for the Treasury.

Guidance that provides clarity around both short-term interest rates and the balance sheet might help to anchor interest rate expectations—for example by indicating while purchases continue that the central bank intends to maintain overnight interest rates at low levels even after the completion of asset purchases.38 Lesson 6: Focus on one tool during normalization Uncertainty associated with managing multiple tools and the degree of substitutability between them poses possible challenges in removing policy accommodation after a zero lower bound episode, as the central bank switches from conducting policy with one lever to another. It therefore seems prudent to take a gradual approach to normalization, emphasizing one tool at a time. The Fed’s adopted normalization approach has thus far been an effective one. Starting to raise rates first, and waiting to start reducing the balance sheet until normalization in the level of overnight rates is well underway, has helped to ensure that the economic recovery is sufficiently advanced before making changes to the balance sheet.39 This strategy has reduced the likelihood that an unexpected adverse shock to the economy not long after the start of policy tightening would have necessitated a return to the zero lower bound on the federal funds rate and 7 / 13  BIS central bankers' speeches  potentially a reversal in balance sheet normalization.
  Running hundreds of thousands of scenarios through the proxy model in order to generate a distribution of probable balance sheet outcomes over one year; and  1  This definition is based on the one in Supervisory Guidance on Model Risk Management, SR Letter 11-7, Federal Reserve Board and Office of Comptroller of the Currency, April 4 2011 2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2    Focusing on the tail of losses and estimating the 99.5th percentile of the distribution to identify the minimum amount of capital necessary to protect the insurer against a ‘1 in 200’ scenario. (see Chart 1)  The use of models in Solvency II is more ambitious than in banking regulation. Comparing use of models in banking and insurance regulation:   The insurance capital model framework encompasses the whole balance sheet whereas banking models focus on particular risks (market, credit, counterparty).

One example is real time information about customer behaviour taken from computing devices embedded in everyday objects, such as mobile phones, home appliances and cars – the so-called internet of things. Together with digital distribution of insurance, these changes bring huge opportunities. For example, better information may bring improved pricing, wider availability of insurance, more tailored and relevant products, enhanced fraud detection and better customer service. At the same time, they are raising new questions and risks. Many are ethical and conduct related. For example, when designing a pricing algorithm what characteristics and behaviours of people is it acceptable to include? How transparent do insurers need to be to their customers about these algorithms? Where is the boundary between collecting data on behaviour to improve pricing and unacceptable interference in privacy? Is it acceptable to charge a customer more because their behaviour suggests they might be willing to pay more? All these questions highlight the growing importance of managing model risk, including these ethical issues. The US Federal Reserve System and Office of the Comptroller of the Currency published the seminal guidance on model risk management in 2011.4 Although targeted at banks, most of it is also relevant to any organisation making extensive use of models. Its recommendations cover model development, implementation and use; independent model validation, comprising evaluation of conceptual soundness, ongoing monitoring and backtesting; and effective governance, policies and controls, including the importance of a comprehensive model inventory and good documentation.