samchain/econo-pairs-v1 huggingface dataset:
By strengthening investment in new and sustainable technologies, the euro area can accelerate its transition towards a digitalised and low-carbon economy. The COVID-19 crisis forcefully demonstrates that digital transformation is not an option, but a must. The medium-term implications of COVID-19 for monetary policy When prospects for the economy and inflation are highly uncertain, central banks essentially have to act as risk managers: they need to take action before the risks materialise to shelter the economy from further and deeper harm. Tail risks, in particular, may cause the economy to react in a non-linear and disruptive way. In spite of the receding stress in financial markets, there was therefore unanimous understanding at the June meeting of the ECB’s Governing Council that further strong policy support was needed to prevent medium-term inflation from moving further away from our inflation aim of below, but close to, 2%. Two broad decisions had to be taken. The first was the choice of the appropriate instruments. The second was the calibration of the instruments, taking into account potential side effects. These two decisions are, of course, interrelated. The choice of instruments ultimately hinges on the assessment of which instruments can address the risks to the outlook most effectively. Instrument effectiveness, however, is often highly state and time dependant. Persistent periods of market stress, for example, may weaken the transmission of changes in our key interest rates.

The Governing Council’s wide-ranging decisions of last week are geared towards this aim. They were based on the assessment that, in the current fragile market environment, the PEPP remains the best, and most effective, instrument to respond to the dual risks of a shortfall of inflation from our medium-term aim and of fragmentation in the euro area, which threatens the singleness of our monetary policy. The PEPP’s anatomy provides the flexibility – across time, jurisdictions and market segments – that is needed to effectively counter the specific challenges that COVID-19 poses. This flexibility is a key element of PEPP and will be maintained throughout its lifetime. Thank you. 1 See, for example, Autor, D. et al. (2017), “The Fall of the Labor Share and the Rise of Superstar Firms”, NBER  Working Paper Series, National Bureau of Economic Research, No 23396, May; and Gutiérrez, G. and Philippon, T. (2017), “Declining Competition and Investment in the U.S.”, NBER Working Paper Series, No 23583, National Bureau of Economic Research, July. 2 See Ari, A., Chen, S. and Ratnovski, L. (2020), “The dynamics of non-performing loans during banking crises: a  new database”, Working Paper Series, No. 2395, ECB. 3 See, for example, Vayanos, D. and J.-Luc Vila (2009), “A Preferred-Habitat Model of the Term Structure of Interest  Rates”, NBER Working Paper No. 15487. See also Krishnamurthy and Vissing-Jorgensen (2011, 2013) and D’Amico and King (2013). 4 Announcement effects are event-specific and may change over time.
By the way, for those of you who are not familiar with Professor Goodhart, he is a renowned British economist with an economic law named after him, the “Goodhart’s Law”. He had had special ties with Hong Kong, as he served on the Exchange Fund Advisory Committee of the HKMA in the 1990’s. Professor Goodhart was also a long-time advisor to Bank of England, and a member of its Monetary Policy Committee from 1997 to 2000. In his recent article “Has regulatory reform been misdirected?”1, he points out that it is individuals in banks, rather than banks as institutions, that take decisions and exhibit bad behaviour. Following this logic, he advocates that financial regulation challenges should be addressed through governance reforms, rather than a focus on just capital and liquidity management. Regulators should apply fines to the people responsible at the time of an offence, whether or not they have subsequently left the bank. In Professor Goodhart’s words, “if a bank CEO knew his own family’s fortune would remain at risk throughout his subsequent lifetime…, it would do more to improve banking ‘culture’ than any set of sermons and required oaths of good behaviour.” Harsh as it may seem, I do see considerable merit in his argument as that would help tackle the root cause of problems, i.e. the lack of accountability for individuals incentivised by short-term objectives.

In conclusion, the exchange of views and experiences is an important step to develop a coherent overall sense of economic identity. With this note, I would like to thank Bilkent University once again and wish a successful conference. Thank you. 11  4  Speech by Issing, O. (2004). “EMU and Economic Governance”. BIS Review 35/2007
This event led to a rethinking of the configuration of the North American electricity grid, with built-in latencies and stricter controls on power circulation. In the mid-1980s, an attempt on the world domino-toppling record – at that time, 8000 dominos – had to be abandoned when the pen from one of the TV film crew caused the majority of the dominos to cascade prematurely. Twenty years later a sparrow disturbed an attempt on the world domino-toppling record. Although the sparrow toppled 23,000 dominos, 750 built-in gaps averted systemic disaster and a new world record of over 4 million dominos was still set. No-one died, except the poor sparrow which (poetically if controversially) was shot by bow and arrow. So to banking. It has many of the same basic ingredients as other network industries, in particular the potential for viral spread and periodic systemic collapse. For financial firms  16  Carlson and Doyle (1999). 17  Kelling et al (2003). BIS Review 40/2010  7  holding asset portfolios, however, there is an additional dimension. This can be seen in the relationship between diversification on the one hand and diversity on the other. 18 The two have quite different implications for resilience. In principle, size and scope increase the diversification benefits. Larger portfolios ought to make banks less prone to idiosyncratic risk to their asset portfolio. In the limit, banks can completely eradicate idiosyncratic risk by holding the market portfolio. The “only” risk they would face is aggregate or systematic risk.

In response, some economists have proposed corner solutions to the systemic risk problem – in effect, radical structural redesign. Starting with Irving Fisher in the 1930s, some have proposed narrow banks with a 100% liquid asset ratio to protect the liquidity services banks provide. 26 Others have proposed mutual fund banks with a 100% equity ratio to safeguard banks’ solvency. 27 These limiting solutions are proof to risk incentives. The one guaranteed safe hiding place for the risk-fearing policymaker is the corner. One criticism of these proposals is that they might raise materially the cost of capital to banks and hence to the real economy. For example, 100% capital ratios could cause the economywide cost of capital to sky-rocket given the premium charged for equity over debt finance. This same argument is frequently heard in debates about more modest rises in banks’ capital ratios. But there are good counter-arguments that need also to be weighed. By lowering risk, higher levels of equity ought to lower banks’ cost of debt finance. Indeed, in a frictionless world Modigliani and Miller famously showed that this effect would fully offset the higher cost of equity, thereby leaving the total cost of capital for banks unchanged. 28 In other words, the cost of capital for a bank may be unaffected by its capital structure, at least when distortions in the economy are small. Even when they large, some offset in debt costs is likely.
The main channels through which the crisis was transmitted internationally are now relatively well understood, although the extent and strength of the interconnectedness was quite surprising in real time. Activity corrected most in countries where credit was booming prior to the crisis, with large current account deficits, high external debt and highly leveraged financial sectors, in particular.1 In the euro area, a channel of particular importance was the fact that some banks had tapped US wholesale funding markets in large amounts to finance their activities.2 Some of these banks were in addition as heavily involved as US banks in the production of allegedly riskfree securities, such as asset-backed commercial paper, that aimed to meet the needs of US money markets funds.3 They were severely hit when these markets froze. Moreover, although the euro area’s current account was broadly balanced, it still had significant gross external assets and liabilities vis-à-vis the US, which acted as a powerful conduit of the crisis. Challenges became more intricate still when the third layer of the iceberg – the sovereign debt crisis – surfaced towards the end of 2009. Risk re-pricing intensified, spreading from banks to sovereigns and back to banks in an adverse feedback loop, and interacted with existing – but previously hidden – vulnerabilities in several euro area countries. This feedback loop included three separate ingredients. First, the solvency of some banks was strained by significant exposures to domestic sovereign debt and write-offs or declines in the market value of government bonds that eroded their capital.

Peter Praet: The crisis response in the euro area Speech by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the afternoon session “The challenges ahead” at Pioneer Investments’ Colloquia Series “Redrawing the map: new risk, new reward”, organised by Unicredit S.p.A., Beijing, 17 April 2013. *  *  *  I would like to thank P. Hess, L. Stracca, R. Beck, A. Mehl and R. Straub for their contribution. A pdf of clearly detailed accompanying slides to this speech can be found on the European Central Bank website. Ladies and Gentlemen, It is a great honour and pleasure for me to speak to this esteemed audience at this esteemed place. Introduction  Today, I will provide you with a central banker’s view on the role of monetary policy in overcoming the current crisis in the euro area, but I will also touch on other, equally essential elements of policy-making in the euro area.
In the absence of independence, the Central Bank of Turkey would not be able to focus on its primary objective of price stability. Introduction of the free-floating exchange rate regime in 2001 and formal inflation targeting regime in 2006 can be classified as the other two key steps. The inflation targets became the new anchor instead of exchange rates and the Central Bank has started using overnight interest rates as the main policy tool to reach these targets. Communication tools of the central bank have played a key role in explaining the price developments and the monetary policy outlook to the public and also in managing expectations. The Bank’s communication policy has become more effective over time with the introduction of new communication tools, such as the quarterly inflation reports since 2006, the bi-annual financial stability report since 2005 and the monthly price development reports since July 2006. In addition, a summary of Monetary Policy Committee meetings are published on our website within 8 business days following the Committee meeting, simultaneously in English and Turkish. I believe all of these instruments have contributed to a more transparent monetary policy. After briefly touching upon the main features of the monetary policy in the context of good economic governance, I will continue with the fiscal side. The prudent fiscal policy that has been implemented since 2002 has made significant contributions to the disinflation process and the economic growth. The ambitious primary surplus targets are at the center of the improvement in fiscal policy.

The International Energy Agency has called for a 55% reduction in coal-related emissions by 2030 and a full phaseout of unabated coal in power generation by 2040. Early phaseout of coal is especially critical in the Asia Pacific. The region's coal plants account for about a third of APAC's total GHG emissions. More ominously, if they continue to operate as planned, they will exhaust twothirds of the carbon budget that we have remaining to keep the rise in global temperatures from increasing to within 1.5 degrees Celsius. The challenge of phasing out coal is also most acute in the Asia Pacific. Coal accounts for nearly 60% of power generation in the region. Asia's energy demand is projected to increase by two-and-a-half times by 2050, on the back of economic development, population growth, and urbanisation. The Asian Development Bank estimates that around 150 million people in APAC still do not have access to electricity. So this is a huge problem. Asia stands to suffer the most in terms of hundreds of millions of lives due to climate change, and yet the transition is going to affect them the most as well. 1/3  BIS - Central bankers' speeches  Added to the challenge, Asia's coal plants are young, less than 15 years old on average. This makes the economics of phasing out coal more challenging, especially as new coal plants continue to be built to keep pace with energy demand.
Here, the challenge lies in selecting a set of indicators that can condition a timely policy choice, given the discrete nature of the instruments. To this end, we have put in place a macro-surveillance system to  2  BIS Review 141/2010  monitor vulnerabilities in seven key areas; namely, property market, stock market, banking sector, non-financial corporate sector, household sector, government sector, and external sector. Indicators are used to evaluate the build-up of vulnerabilities and imbalances in these sectors and the need for macroprudential measures is then assessed. This ultimately boils down to a judgement call. For us, integrating macroprudential measures in the overall macroeconomic modelling exercise to ensure a consistent and timely policy outcome remains a key priority. Finally, I want to come back to the point I raised earlier about the global nature of capital flows and the national orientation of policy. This is an important point and applies both to emerging markets and advanced economies. Simply put, the current cycle of capital flows has a strong international dimension as a key driving force of capital flows is the exceptionally low interest rates in the major economies. Hence, policy response by emerging markets is made more demanding if the problems at the source remain. Therefore, given the potential destabilizing influence that capital inflows may have on emerging markets, a question that must be asked is whether there are gains to be had for the global economy as a whole in moving away from exclusively domestic-oriented policies?

Such reversals, abrupt or not, are bound to happen once better growth prospects in the advanced economies are confirmed. The upshot is that we are living in a world where disruptive tail events can be more of a frequent occurrence than was the case in the past. And third, while the forces underlying the current cycle of capital flows are global, policy response in emerging economies remains domestic-centric. This, I think, is an important point to note in the current capital flows episode. Also, because financial markets are more integrated, policy response in one country can have significant unintended consequences on other economies. In other words, we are living in a world where events and policies in a country can result in large spillover effects on other economies. BIS Review 141/2010  1  So, this is the new economic and financial context in which the flows are taking place and the policy responses are being shaped. Managing this will be a challenge, and effective policy response will require an integrated approach that combines flexible monetary and exchange regime, fiscal policy, capital account liberalization, and the use of macroprudential measures, in a coherent policy framework. Moreover, the policy response will need to be supported by structural reforms and policies to enhance the depth, the resilience, and the strength of the domestic financial system, as well as policies to promote a greater degree of product and labour market flexibility.
The last time petroleum investment showed a sharp increase, in 1997/1998, growth was substantially stronger than had been assumed. An upturn occurred in the Norwegian economy as a whole at the same time. The unexpected increase in petroleum investment contributed to an economic upturn that was substantially stronger than projected. If oil prices rise further or remain at the current high level for a long period, petroleum investment may again amplify the cyclical upturn to a greater extent than projected. Inflation among our trading partners is expected to be low in the next few years. It is likely that high prices for oil and other commodities will continue to push up prices for goods where wages account for a small portion of total costs. On the other hand, growth among most of our main trading partners will probably be too low for idle resources to be utilised in the next few years. Particularly in the euro area, wage growth is likely to be low as a result of moderate economic growth and high unemployment. Overall, it would appear that external price impulses via consumer goods to the Norwegian economy will remain negative this year and next. There is no indication that growth in imports from low-cost countries is declining. For example, China’s share of footwear imports to Norway increased by 4 percentage points to 20 per cent in 2004. The share of clothing imports increased by 2 percentage points to 32 per cent.

The interest rate decline can be ascribed to a number of factors. In late autumn 2002, inflation started to fall. The inflation projections were also revised down. New information gradually emerged about the outlook for other countries and the Norwegian economy, indicating that inflation might be very low. Short-term real interest rates have fallen by close to 4 percentage points. It would seem that it is not only changes in the real interest rate that have an influence, but also its level. Between December 2002 and March 2004, the interest rate has moved from a high to a low level. The real interest rate is now lower than a neutral real interest rate. A real interest rate that is lower than the neutral rate will stimulate activity even after the effects of the interest rate fall itself have been exhausted. Calculations seem to indicate that the neutral real interest rate for Norway is between 2½ and 3½ per cent, and it has probably fallen somewhat in recent years. It takes time for an interest rate reduction to have an impact on inflation. We are now seeing the effects of previous monetary policy decisions, some of which were taken two years ago. The interest rate has affected inflation via the krone exchange rate and via demand for goods and services. In particular, the rise in prices for domestically produced goods and services has picked up.
Fatos Ibrahimi: The banking system situation and the future challenges Address by Mr Fatos Ibrahimi, Deputy Governor of the Bank of Albania, at the European Finance Convention, Tirana, 14-15 September 2007. *  *  *  Dear participants, It is a pleasure to participate in this summit and to outline some of the main developments in one of the key areas of the Albanian economy, that of the banking system. In my following discussion, I will dwell on two main issues: First, the key steps in the banking reforms, with special focus on the issues related to commercial banks and the system’s financial developments in the recent years. Second, the aspirations of the Albanian economy to absorb foreign direct investments, their importance to our financial system and the FDI growth implications in the future. 1)  The performance of the Albanian banking system  Reform in banking was part of the structural reforms undertaken by the Albanian authorities after 1992. In addition to the macroeconomic stability, these reforms aimed to transform the Albanian economy into a market economy, through its privatization and the establishment of financial institutions and institutions of social protection. Albania has been going through a constant process of banking system consolidation since the transition into a market economy. In most of the 90s, this process was relatively sluggish as a result of the informal financial markets which had held the country’s economic and financial development back.

Greek banks have been present in the market since 1996; the German and Italian investment has been present for quite a long time as well, while the latter has grown substantially and has become one of the market’s key actors. Austrian investments may be considered as the most dominant ones. Their ownership has resulted from the acquisition of the largest domestic state-owned bank. The long presence of foreign banks in the Albanian banking system has influenced the establishment of a stable banking system and its stable growth. Despite the financial collapse of 1997 or the panic crisis in 2002, in none of the cases was the system’s performance a source of crisis or instability. Previously, foreign banks were more conservative in terms of expanding their geographical activity; however, the entry of Raiffeisen Bank into the market pushed them to be more active. This fact may be evidenced by the variety of products provided in the market, the growth of lending and the employment of clear strategies to increase or maintain their market share. However, the economic benefits deriving from the presence of foreign banks have not reached the proper levels yet. The enhancement of the quality of information provided to the public at large and to the central bank, the lowering of the intermediation cost, the further improvement of risk management, and the standardization of the accounting and financial reporting systems are not in the desired levels yet.