samchain/econo-pairs-v1 huggingface dataset:
The resulting market fragmentation further increased sovereign risk, entrenched domestic banks as the marginal buyer of their sovereigns’ debt, and thus deepened this bank-sovereign nexus. Finally, the interaction between bank and sovereign risk jarred with the single monetary policy. A fragmented banking system not only impaired monetary policy transmission. But more fundamentally, it called into question the singleness of money. Money, it has to be remembered, is a liability of the banking system. Banknotes represent only a fraction of the money we use daily; the bulk of money is deposits. Thus, for there to be a truly single money, there has to be full fungibility of deposits across borders. If confidence in national banking systems diverges, such that a deposit in one jurisdiction is seen to worth less than a deposit in another, then money within the euro area is no longer unquestionably single. 3. Bringing consistency back  To sum up, the problems the euro area has faced derive from the fact that it did not learn its own lesson. The stability of European countries in the second half of the 20th century was based on providing their national economies with the right accord of rules, institutions and instruments to produce desirable market outcomes. Yet when it came to the euro area economy, these tried and tested principles were somehow overlooked. Several policy areas were governed inconsistently, with little reflection given to how the different cogs wheels would fit together.

Smith argued that we “are endowed with not only a desire of being approved of, but with a desire of being what ought to be approved of…”. 7 He talked about an “impartial spectator” whose judgment we imagined and imposed as a constraint on our behaviour. Smith thought the “impartial spectator” fundamental to an orderly and prosperous society. It is what stops the hunter from breaking his  4  Wealth of Nations, I.i. p14. 5  Did Adam Smith ever visit a pin-factory? He was certainly a careful observer of the world around him. As Buchan (2006, p.12) wrote, “He had visited dye-works, pin-makers, brewers and distilleries”. His description in the Wealth of Nations of “a small manufactory … where ten men only were employed” makes clear that Smith did, at some point, visit a pin factory, but there is little evidence as to where that was. And most scholars believe, with good reason, that Smith took the example of a pin-factory from the Encyclopédie, edited by Diderot and d’Alembert and published in France in 1755 – the article on épingle describes in some detail the eighteen operations identified by Smith. I am indebted to Professor Iain McLean of Nuffield College, Oxford, for drawing this entry to my attention. But his example of nailmaking a few pages further on did come from personal experience, since the manufacture of nails took place in the villages of Pathhead and Gallatown which Smith visited on his regular long walks.
Thomas Jordan: Central bank independence since the financial crisis - the Swiss perspective Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the CFS Presidential Lectures, Goethe University, Frankfurt am Main, 9 November 2017. * * * The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). The financial crisis presented central banks with significant challenges. They resorted to unconventional monetary policy instruments and expanded their field of operations. As a result, central banks have faced growing criticism. In particular, the question has arisen as to whether their independence is still justified. The experience of the Swiss National Bank (SNB) since the financial crisis has shown that independence continues to be sensible and necessary; central banks can best fulfil their mandate of ensuring price stability and contributing to the stability of the financial system if they are protected from political pressure. Central bank independence will only endure as long as politicians and the public are convinced of its benefits. To this end, central banks must fulfil their mandate to the best of their knowledge and ability, while retaining a sense of proportion and a long-term perspective when implementing measures. Not every short-term deviation from an objective requires an activist response. Moreover, central banks must be conscious of their limits and avoid an accumulation of tasks.

5 In sum, a lot has been achieved in the past, not the least through the introduction of the euro, but more needs to be done in the future to reap the full benefits of the Single Market for Financial Services. Let me now mention some examples where we have focused our efforts to contribute – within the realm of our competencies – to improving financial integration and where we plan further work. We tend to group our efforts relating to financial integration in four types of activities: (i) giving advice on the legislative and regulatory framework; (ii) acting as a catalyst for collective private sector initiatives; (iii) enhancing knowledge and raising awareness; and (iv) providing central bank services. I select examples from each group. 3  Giannetti and Ongena (2007), Lending by example: direct and indirect effects of foreign bank entry in emerging markets, mimeo., Tilburg University. 4  Abiad, Leigh and Mody (2007), International finance and income divergence: Europe is different, IMF working paper, WP/07/64, March. 5  Baltzer, Cappiello, De Santis and Manganelli (2007), Measuring financial integration in the new EU member states, mimeo., ECB. 2  BIS Review 17/2008  As regards legislative and regulatory advice, the Eurosystem was fully involved in the review of the Lamfalussy framework that took place at the end of last year and published a contribution to the assessment regarding the banking sector.
I usually mention an example from the 1990s crisis when talking about this phenomenon; in 1989 the requirement for direct return on the commercial property market was around 4 per cent. A risk-free five-year government bond provided up to 12 per cent interest. But the  4  BIS Review 70/2010  market preferred to invest in an unsecured property asset to a covered bond with a return of 8 per cent more! It takes a lot to defeat that kind of optimism. But the exact size of the increases in the policy rate that are necessary would probably vary from situation to situation. Under certain circumstances it may even be enough to make very small increases. In the world of theory, everyone tries to stay well-informed with regard to for example the most probable development of the interest rate. But this does not mean that things always work out this way in reality. Smaller interest rate increases combined with successful communication can function as a clear signal that the central bank regards the current situation to be untenable. It can contribute to correcting or at least dampening irrational behaviour. If a central bank were to judge that developments in property prices and lending were beginning to give cause for concern, it would also be rather strange, in my opinion, if the governor or governors were to just sit there and not do anything on the grounds that the policy rate would probably need to be raised a lot.

I strongly disagree with the idea that confidence in rules and public institutions can be replaced by some form of “algorithmic confidence” once and for all. Preserving confidence in money and financial stability thus requires a clear, fair and balanced “technology-neutral” regulatory framework with a simple principle: “same activities, same risks, same rules” in order to prevent both excessive and hidden risks and regulatory arbitrage. But 1/3  BIS central bankers' speeches  this is easier said than done! In the European Union, the proposal for a “Markets in CryptoAssets” (MiCA) legislation aims at finding the appropriate balance between innovation and security when regulating crypto-assets issuers and service providers. It needs to be adopted rapidly but we also have to make sure the European rulebook leaves no gaps open in view of most recent trends. Another important issue to maintain trust is that of cybersecurity. Digitalization increases the exposure – and therefore the vulnerabilities – to cyber-threats, for financial institutions as well as for their customers, and their service providers. Cyber-risk is not only a major operational risk at the entity level, but also a systemic one for the financial system as a whole. In that area, the European proposal for a Digital Operational Resilience Act (DORA) is exploring how to strengthen and upgrade IT security throughout the financial sector. I would also like to mention artificial intelligence. Because trust is about not only the financial system working well, but also making sure that algorithms do not lead to outcomes that are unduly biased or unfair.
Since the banking system as whole cannot return to equilibrium (after the three-year LTROs, the supply of reserves is inelastic in the short term), this behaviour will put pressure on asset prices and (as soon as the economy reaches its full potential) on consumer prices as well, unless an appropriate monetary policy stance is taken. These effects and the speed at which they may materialise are difficult to quantify as cases of protracted periods of excess liquidity have been rare in the past. The experience of Japan does not suggest direct effects on inflation. In the United Sates and United Kingdom, there is also no clear-cut evidence so far of a pick-up in monetary and credit aggregates spurred by excess liquidity. However, it is fair to say that in case of a sustained and more robust recovery in economic activity, excess reserves may have a potential macroeconomic impact by allowing a build-up of significant asset price misalignments, or by distorting the banks’ incentive to supply funding to the economy. Moreover, in the face of asset market fragmentation, such asset price misalignments are more likely to build up in countries where banks have ample liquidity positions. There is nothing, however, in this reasoning that prevents the ECB from tackling these effects by increasing policy rates, whenever the Governing Council deems it necessary to do so. Our operational framework makes it possible to steer a whole range of money market  6  BIS central bankers’ speeches  rates in line with the desired monetary policy stance.

This is a rapidly-developing area even by fintech standards and an important area of work for us, and one worthy of a speech in its own right. I don’t have time to do it full justice today, so I’ll just note three key recent developments. 1. First, we are continuing with our work to renew our RTGS service, which is twenty five years old this week. Building on the functionality provided today, the new RTGS service will deliver a range of new features and capabilities for payments and settlements between financial institutions, ensuring our payments architecture is fit for the future.5  2. Second, as the Chancellor of the Exchequer highlighted in his speech at the start of Fintech Week on Monday, we have also enabled ‘omnibus accounts’ to be opened in RTGS: these allow us to offer the benefits of settling in the ultimate risk-free asset, central bank money, to a wider range of payment systems, and by so doing can help the industry to develop faster and cheaper high-value payment services.6  3. And third, as the Chancellor also highlighted, we are, together with HM Treasury, establishing a new joint Taskforce, along with two stakeholder engagement forums, to explore a possible central bank digital currency or CBDC. A CBDC would, if introduced – and that is an important if – be a new form of digital money issued by the Bank of England and for use by households and businesses, existing alongside cash and bank deposits rather than replacing them.
What the UK may lack is some diffusion spokes to accompany these innovation hubs – spokes that could help spread new and existing technologies, new products and practices to the long and lengthening lower tail of companies. To be successful, these spokes would need to be repositories of knowledge and expertise on technologies and their application to companies. And, ideally, these repositories would have regional and sectoral reach to enable them to touch the long tail. The UK’s existing university network would be one institutional solution to this spoke problem. They have regional and sectoral reach. They also have embodied expertise and knowledge. By working in partnership with local businesses, they could serve as repositories of expertise on good company practices – in management, organisation, logistics, robotics, AI and the like. A new set of business parks attached to these universities could serve, not so much as innovation incubators for new companies, but as diffusion clinics for existing ones. This idea goes with the grain of the earlier proposal; it would broaden the scope and purpose of universities. In future, these would develop a broader set of capitals – beyond human capital (in people) to include physical and intellectual capital (in firms). And they would do so throughout the lifecycle of companies, not just in their early years. As it happens, this would also be consistent with Newman’s original conception of universities as diffusion-engines, every bit as much as innovation-engines.

Even if we had had perfect foresight at the time, the MPC would have still been faced with the same choice – the adjustment in real wages was unavoidable. Of course if nominal wages start to rise in an attempt to offset that inevitable fall in standards of living, risking a wage-price spiral as the UK had in the seventies, then the MPC would be duty-bound to raise Bank Rate sooner to bring inflation back to target, regardless of any short-run pressures on output. Given the nature and timing of the shocks, I would argue that the best we can do with monetary policy is accept the initial impact and then to gently steer inflation back to target in the medium term. In the remainder of this speech, I want to consider how we come to make our judgments about that, month-by-month, and in particular, discuss the relative role of economic forecasts and human judgment. Monetary policy in practice The Bank has come in for a lot of criticism recently about its forecasting record. For a period now, CPI inflation has been significantly higher than the Bank had been previously expecting. And in 2010 Q4 and 2011 Q1, output growth disappointed relative to our central expectations. In this section, I want to dig a little deeper into the issues around models and forecasts. Step back for a second and consider what an economic model actually is and why it might be useful.
In the recent financial crisis, the leverage ratio of certain financial institutions was so high that their entire capital would have been eroded as a result of a mere 2% loss in the value of their assets. It could then be clearly demonstrated that the institutions with relatively low leverage weathered the crisis much better than those with high leverage. 7 Second, simple instruments offset the shortcomings of complex rules, in particular. In this way they provide a kind of safety net in case the complex regulatory approach emits incorrect signals. For instance, the  5  A “capital conservation buffer” whose function is to achieve this effect is also planned within the Basel III framework. 6  With respect to the leverage ratio, it is argued that this measure creates incentives to substitute high-risk assets for low-risk assets, thereby increasing a bank’s overall risk exposure. 7  Comparing 2006 data for a broad sample of banks, a recent BIS study concludes that the mean leverage ratio of eventually severely stressed banks were lower than the mean leverage ratio of non-stressed banks. Cf. BIS (2010): Calibrating regulatory minimum capital requirements and capital buffers: a top-down approach. 4  BIS Review 146/2010  risk assessment models upon which the risk-weighted capital approach is based are most certainly prone to error. For these reasons, Switzerland decided to introduce a leverage ratio for the big banks as far back as 2008. 8 Another way of making regulation more robust is by ensuring the diversification or complementarity of measures.

There are also a wide range of domestic and international policy changes ranging from the creation of the New Payments Architecture to the implementation of PSD2 so now seems an opportune time to promote the transformation of the payments landscape. The Bank is committed to introducing the new service in a safe and sustainable way which ensures the integrity of the high-value payments system and provides for close levels of co-ordination with participants. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  A core objective in the renewal programme is to ensure the resilience and safety of the UK’s payment infrastructure whilst also supporting competition and innovation in the financial services industry. We want to support new ways of doing business and serving society’s payment needs. Our vision of the future RTGS 1  was set out in a Blueprint published in 2017. In developing this vision we undertook considerable dialogue with industry: it is essential that the new system meets its needs. Our vision  Five guiding principles sit behind our vision for the renewed Real-Time Gross Settlement service. Higher resilience: Resilience to operational and security issues will be at the heart of the new service, as it is today. The renewed RTGS will continue to offer best-in-class resilience which means it will be designed to deliver an improved objective of zero or near-zero downtime for currently known resilience problems.
Ladies and gentlemen, Let me conclude by stressing that the BOT has a significant contribution to make in helping Thailand upgrade competitiveness and achieve long-term macroeconomic and financial stability. However, we cannot do this alone. A common vision and strong commitment among all stakeholders are necessary pre-conditions when it comes to long-term structural reforms. Rest assured that the BOT is committed to push forward the national agenda on reforms, particularly on issues involving the public sector, to ensure that our economic system attains greater efficiency. Thank you for your attention. 4  BIS central bankers’ speeches

Peter Praet: The role of the central bank and euro area governments in times of crisis Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the German Federal Ministry of Finance, Berlin, 19 April 2012. *  *  *  I would like to thank Maximilian Freier and Gianluigi Ferrucci for their contribution in the preparation of this speech. Introduction Since 2007, we have constantly been confronted with exceptionally tense financial and economic conditions. When the tensions in the financial markets first emerged in the summer of 2007, they were perceived as a liquidity shock. However, the collapse of Lehman Brothers in September 2008 – the first climax of the crisis – revealed more fundamental fragilities in the global financial system. The accumulated credit excesses, paired with the complex cross-country linkages in the financial markets, quickly exacerbated the financial market tensions on the other side of the Atlantic, transforming them into a crisis of global dimensions. The resulting Great Recession of 2009 affected virtually all industrialised countries and caused other weaknesses in the economic and financial system to be crystallised. Specifically, the severe economic contraction worsened the fiscal positions in many countries around the world, particularly in those that already had sustained public or private debt imbalances before the crisis. The subsequent tensions in some sovereign debt markets have spilled back into the financial markets. As safe assets, sovereign bonds play a key role in financial systems.
Vítor Constâncio: 2012 Bernácer prize award ceremony in honour of Nicholas Bloom Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, on the occasion of the Awarding Ceremony of the Germán Bernácer Prize for Promoting Economic Research in Europe to Nicholas Bloom, Madrid, 24 September 2013. *  *  *  I wish to thank Marie Hoerova for the help in preparing this text. Ladies and Gentlemen, It is a pleasure for me to be part of this session to award the 2012 Germán Bernácer Prize to Nicholas Bloom, Professor of Economics at Stanford University. Nicholas Bloom has made influential contributions to the academic debate in two broad areas, both of which are of great relevance for central bank policy-makers. First, his research on the effects of policy and economic uncertainty on business cycles helped us understand better some of the key contributing factors to the protracted slump in output during what has become known as the Great Recession. Second, his research on the determinants of good management practices at the firm level provided important insights on how to support long-term economic growth and competitiveness, including in the European context. The financial and economic crisis that started in the summer of 2007 brought about unprecedented challenges for central bank policy-makers. Some well-accepted paradigms and widely used models have come to be questioned. It is of course the fact of life that central bankers operate in an ever-changing and, to use one of the keywords from Professor Bloom’s research, uncertain world.

It is thus an important responsibility of a central bank to ensure that relevant new insights from academic research find their way into the actual conduct of monetary policy. The Eurosystem attempts to cope with this responsibility by fostering a constant intellectual exchange with the research community. The ECB organises great many seminars, conferences and workshops where the most recent research findings can be discussed, and invites leading scholars to visit and conduct research in the ECB, for example by means of the Wim Duisenberg Fellowship. Moreover, the ECB supports promising young researchers by funding five Lamfalussy Fellowships each year. The aim is to promote policy-relevant research that meets the highest academic standards. The ECB also leads and co-ordinates research efforts through Eurosystem research networks to obtain research output which is necessary for ECB decision-making but which is as of yet unavailable at universities or other research institutes. I will come back to activities of one such research network at the end of my remarks. Research by Nicholas Bloom analysing the effects of uncertainty shocks on the economy is a prime example of a policy-relevant research output. Published in Econometrica in 2009, it could not be more timely.1 The unprecedented level of uncertainty has been one of the key distinguishing features of the Great Recession. Economic uncertainty refers to an environment in which little or nothing is known about the future state of the economy.