samchain/econo-pairs-v1 huggingface dataset:
As a central banker in emerging market economy well advanced on the road to developed status I ask myself a question which view of the world is correct, because it may have different implications for growth and inflation prospects. Should we expect slowing external demand combined with local currency strength or combined with a local currency weakness. These are important questions (even in the context of falling exchange rate pass-through) which will be empirically answered next year. Today we can think only in balance of risks terms. Evidence in the last few months, including December BIS report 21 shows, that official institutions may have accelerated their attempts to diversify reserve assets, which may mean more demand for high-yielding assets and for non-core currencies, and in particular for emerging market currencies (recall Government of Singapore Investment Corporation statement that emerging market weight in their assets under management will be increased, recall a number of hints given by oil exporting nations, or recall the statements given by  19  Gomez M. (2006) „Is it safe?”, Emerging Markets Watch, PIMCO, September 2006. 20  I acknowledge that it would be against the historical evidence that after the end of the tightening cycle and the beginning of easing cycle the fall of 2-year rates was deeper than that of 10-year rates. But it is precisely the issue we discuss here: are historical patterns a good guide for the future? 21  BIS (2006) „Quarterly review”, Bank for International Settlements, December 2006.

Caballero view: bubbles are inevitable and possibly long-lasting in economy facing asset shortages •  there has been significant increase in global savings relative to investments (you can merge Bernanke global savings glut with IMF global investment drought hypotheses here)  •  this excess saving is chasing too few available financial assets, which leads to very high valuations (rising equity indices, low long-term rates, low corporate and EM spreads etc.) •  problem lies in the underdevelopment of financial markets in emerging economies, which due to poor governance and property rights do not have enough good quality collateral to back debt obligations. These economies have also many other macroeconomic and microeconomic deficiencies leading to asset shortages and reduction of value of existing assets such as: weak bankruptcy procedures, chronic macroeconomic volatility and sheer appropriation risk. 15  http://www.rybinski.eu/wp-content/uploads/gi_en_rybinski_panel_discussion_1_09_2006.pdf  16  Calvo G. and Talvi E. (2006) “The Resolution of Global Imbalances: Soft Landing in the North, Sudden Stop in Emerging Markets?”, CERES, Documentos de Trabajo. 17  Caballero R. (2006) “On the Macroeconomics of Asset Shortages”, NBER Working Paper No. 12753, December 2006. 18  Faruqee H., Laxton D., Muir D., Pesenti P.(2006) “Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis”, NBEW Working Paper 12704, November 2006.
2  BIS central bankers’ speeches  The adaptation of the Spanish economy to the euro was incomplete Turning now to the Spanish economy, our adaptation to the new rules of play derived from, or imposed by, monetary union has been insufficient and belated. Our membership of the euro area compelled us to desist from long-established practices among economic agents who regarded exchange rate devaluation as the “normal” means of resolving the problems of competitiveness caused by inflation and did not consider fiscal discipline as vital for maintaining economic growth. True, in the years before we joined the euro area, we took steps to adjust economic policy rules to a low-inflation environment and set in train some reforms so it would function more flexibly. Two factors were particularly important in achieving this goal. First, the anchoring of inflation expectations, which required fulfilment of the price stability convergence criteria. And second, in the area of budgetary policy, the enactment in 2011 of an initial Stability Law laying the foundations for preventing excessive budget deficits. The transition to Monetary Union was also easier because the peseta/euro conversion rate agreed in 1999 was quite competitive as a result of the devaluations which had taken place between 1992 and 1995 during the functioning of the European Monetary System. However, those devaluations were a clear sign of the difficulties awaiting countries that make exchange rate commitments if these are not accompanied by price and cost discipline.

Thus, for instance, fiscal policy coordination mechanisms have been the focus of particular attention, with monitoring and surveillance procedures to avoid excessive budget deficits (of over 3% of GDP) and high public debt proportions (over 60% of GDP) coming into play. Indeed, these thresholds, along with the procedures for their prevention and ultimate correction, took the form in 1997 of an agreement known as the Stability and Growth Pact. In contrast, the rules for coordinating “structural” policy (e.g. those governing the workings of the labour market or the markets for goods and services) were fairly lightweight as a result of their broader scope for application and of the difficulties involved in setting common objectives. Also, in the area of financial regulation and supervision policies, countries continued to enjoy a high degree of independence. The limitations of the monetary union’s adjustment mechanisms As events have shown, the constraints imposed by the institutional framework were not powerful enough to ensure the appropriate response by national authorities in the face of potential slippage from the stability levels required. It was hoped that the very fact of monetary union membership would activate sufficient response mechanisms.
In particular, we should bear in mind that some of the support measures for non-financial corporations that have been deployed so far, such as bank loan guarantees, involve an increase in firms’ future financial obligations. In a situation of sharply falling revenues, loan guarantees have proved to be an extremely useful instrument in the short term. Indeed, it may be necessary to expand these facilities in future, depending on the course of the pandemic and its economic effects. However, it should be recognised that prolonging this type of assistance entails a build-up of debt that may, in some cases result in a deterioration in solvency, especially in the case of those firms that operate in the sectors most affected by the shock.5 For this reason, it would make sense to assess the possibility of further actions to support firms that do not involve an increase in financial obligations, such as, for example, by means of direct assistance or, in some cases, through temporary capital injections. In the latter case, the € billion fund recently approved by the Government, to be managed by Sociedad Estatal de Participaciones Industriales (SEPI), could be a suitable tool for this type of action. Furthermore, for companies that have difficulty meeting their financial obligations, streamlined debt restructuring procedures need to be available to avoid such difficulties leading to the disappearance of heavily indebted firms whose business model is nonetheless viable.

However, in the context of uneven and uncertain recovery I have described, we cannot rule out the possibility that the risks identified may materialise or that their impact and persistence may be greater than expected. In this sense, in the banking sphere, the response to the possible materialisation of these risks can only be at the European level, given the commitment to banking union. 13  In this response, the completion of banking union with the launch of a fully mutualised European deposit insurance scheme would make a decisive contribution to ensuring financial stability in the euro area, in the coming months and in the medium term. It is also crucial to analyse how appropriate the European regulations for resolution and winding-up of credit institutions are for a hypothetical systemic crisis, or the possible role that asset management companies may play in the event of severe impairment of European financial institutions’ balance sheets. The EU Member States should also make swift progress towards an agreement to create a common European procedure for administrative windingup of credit institutions. This procedure would benefit from the instruments developed for resolution of credit institutions, aiming to maximise the realisable value of the financial assets that make up the bulk of banks’ balance sheets. In Spain, recent experience has shown how inefficient the existing insolvency proceedings for credit institutions are in terms both of timelines and recovery in value.
This event is especially important as it touches on new areas such as the regulation and supervision of the takaful industry as only minimum guidance is currently available. Ladies and Gentlemen, 3. Before I continue with this keynote address, let us all take a moment to remember Allahyarham Dr. Mohamed Aboulkhair Zaki Badawi, a great thinker and collaborator for the cause of Islam, and particularly in the area of Islamic finance . He has devoted so much of his time and energy for the benefit of the Ummah. We will always remember his numerous contributions to the development of Islamic finance. We cherish his involvement, among others, in the introduction of Shariah-compliant mortgage, the establishment of the Shariah council to reconcile conflicts between Islamic and conventional laws and the establishment of the first Islamic financial institution licensed in the United Kingdom. In Malaysia, he has made his mark a long time ago with efforts in setting up a dedicated Muslim College and the teaching of Islamic Studies at the University of Malaya, Malaysia. He was also involved in the development of Islamic finance in Malaysia by being the Shariah advisor to RHB Islamic Bank and the Labuan Offshore Financial Services Authority. In appreciation for his contribution, let us pray that God Almighty grants him a place in His paradise with the prophets, the martyrs, and the righteous, insyaAllah. Ladies and Gentlemen, 4.

As we consider the possibilities for the offshore RMB market, it is instructive to review the development of the Eurodollar market. What are the key underlying elements that have driven the growth of the Eurodollar market and how do they feature in the current offshore RMB market environment? The Eurodollar market as a comparison A close examination of the differences and similarities between the two markets can help shed light on how offshore RMB market activities might evolve as well as how its further development can be fostered. Let’s compare the two markets using four sets of characteristics. Economic weight and trade centrality The first set of characteristics involves economic weight and trade centrality. The Eurodollar market is an offshore market for the currency of a country that has both. Similarly, the offshore RMB market is supported by China’s rapidly expanding economy and its substantial trade links with other parts of the world, given its status as the world’s second largest economy and largest trading nation. Indeed, these are two important macro trends that are driving offshore RMB market activities now and in the future. In roughly three years since the relevant policies were liberalised, currently some 10% of Mainland China’s total trade, about 12% of foreign direct investment into China and about 4% of outward direct investment from China are settled in RMB. 1  Mr Tony Shale, Chief Executive Officer, Euromoney Institutional Investor, Asia. 2  Mr Richard Morrow, Editor, Asiamoney.
Simon M Potter: The advantages of probabilistic survey questions Keynote address by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the IT Forum and RCEA Bayesian Workshop, Rimini, Italy, 19 May 2016. *  *  *  Accompanying slides can be found on the Bank of Finland’s website: Slides (PDF). I would like to thank Marco Del Negro, Giorgio Topa, and Wilbert van der Klaauw for their excellent assistance in the preparation of these remarks, Luis Armona, Daniele Caratelli and Joseph Fiorica for able research assistance, and colleagues in the Federal Reserve System for their insightful comments and suggestions. Good afternoon. It’s a pleasure to talk with you about a topic that intrigues me as a former academic researcher, and that’s of significant importance to me in my current role as head of the New York Fed Markets Group and as manager of the System Open Market Account for the Federal Open Market Committee (FOMC): the measurement of policy-relevant expectations through surveys. It is entirely fitting to talk about this topic here in Italy, given the Bank of Italy’s long history of research and experimentation on expectations data. This history includes extensive work on data gathered from surveys using a probabilistic question format – the focus of my talk today. Since 1989, the Bank of Italy’s Survey of Household Income and Wealth has used this question format to ask households about their expected labor or pension earnings in the next year.

It is also important to appreciate that there is no systemic problem across the O&G industry. •  The problems in the O&G industry are concentrated in the upstream marine and offshore engineering segment which makes up less than one-fifth of the industry. •  About 60% of the surveyed banks’ O&G exposures are to the more resilient downstream, oil trading, and integrated firms, which are less impacted by the decline in oil prices. •  Firms focusing on oil refining have also fared better on account of regional demand for refined petroleum products and lower feedstock prices. The most recent stress tests conducted by the MAS indicates that the banking system would not do too badly even under some pretty severe scenarios. The stress scenario assumed: •  the US, EU, Japan and several emerging Asian economies slipping into recession and China’s economic growth falling below 3%;  •  sharp depreciation in regional currencies and oil and commodity prices falling by another 50% over 3 years;  •  a protracted recession in Singapore with resident unemployment spiking to more than 6%;  BIS central bankers’ speeches  3  •  property prices falling by another 50% over 3 years, with similar declines in China and Hong Kong; and  •  the banks’ top O&G counterparties failing. Under these rather dire conditions, the banks’ NPL ratios could rise to 8–10% by the end of 2018. That should not be surprising.
To this end, the Blueprint seeks to align the financial sector with the national aspiration to not only become a high value-added and high-income economy, but also lay a solid foundation for a more dynamic, inclusive and sustainable development path. Fourth, we continue to be firmly anchored on the Bank’s monetary and financial stability mandates. As we have always emphasised, sustainable economic growth can only happen within a context where monetary and financial stability is preserved, and where the integrity of the financial system is safeguarded. This Blueprint is the fruit of the labour of many, both from within and outside Bank Negara Malaysia. For this, our heartfelt thanks goes out to all who have generously given ideas, insights and time to make this Blueprint possible. I would also like to thank Yang Berhormat Senator Tengku Datuk Seri Utama Zafrul Aziz, Minister of Finance for gracing this event and launching the Blueprint. While producing the Blueprint has been a lot of hard work, the greater task for us is to turn its 2/3  BIS central bankers' speeches  vision into reality. This requires us to work and think outside the box as the nation enters a new stage of development. It is our desire and belief that the financial sector will continue to serve Malaysia well in the years ahead, doing its part to improve the well-being of people now and for the generations to come. 3/3  BIS central bankers' speeches

The euro exchange rate misalignment  Let me first recall what the Eurosystem’s position on exchange rates is: •  The Eurosystem rejects both activism and neglect vis-à-vis the exchange rate and believes that the pursuit of stability-oriented monetary and fiscal policies is the main prerequisite for reasonably stable exchange rates. •  The exchange rate is not the objective of the single monetary policy, but it is an important indicator included in the second pillar of the ECB’s monetary strategy. •  So while the ECB does not target a Euro exchange rate vis-à-vis the dollar or any other currency, it would be wrong to imply that it pursues an attitude of benign neglect or is indifferent to the exchange rate. •  A strong euro is in Europe’s interest. The more stable it is at home, the better its prospects on the international stage. Since January 1999, the euro has significantly depreciated against most currencies (by 20% against the US dollar and 25% against the yen). We know that exchange rates can, from time to time, diverge from economic fundamentals. This sort of divergence or misalignment can considerably distort 5  BIS Review 61/2000  relative prices and alter financial asset choices. You know that we are not satisfied with the current level of the exchange rate of the euro. Most commentators recognise that the euro is now significantly undervalued and that the tide will turn. 3.
Digital finance: a regulatory challenge [Go toslide 5] I will now turn to digital finance and its regulatory and supervisory challenges. 2.1. Rapidly growing markets but increased risks This digital finance relies on new players, new assets and new infrastructures. Among these new players are big techs, which should not be reduced to the GAFAMs alone. These have made targeted and fragmented inroads into financial services. These incursions include the provision of cloud services to financial institutions, which are progressively migrating their IT systems and infrastructures to these new solutions in order to reduce costs, increase the flexibility and security of their infrastructures, and improve customer experience. Furthermore, big techs are setting up their own financial activities, in a fragmented and unregulated manner, in the form of technical services (e.g. Apple Pay digital wallet, Google Pay, etc. ), or in the form of financial products and services (savings products, loans, issuance or trading of cryptoassets, etc.) which are developed in-house or in collaboration with traditional players. For example, Apple offers a savings account in partnership with Goldman Sachs, while also offering its own fractional payment service. What are the risks associated with these inroads into financial services?

Credible domestic frameworks for implementing monetary policy – with an operationally independent and accountable central bank at their core – have generally delivered inflation rates that are both lower and less variable. 7 This directly benefits all citizens in good times. Moreover, greater monetary policy credibility gives a central bank more scope to respond to shocks, and enables financial markets to anticipate better the path for monetary policy, thereby providing a stabilising force during bad times. During the taper tantrum, those economies with betteranchored inflation expectations were able to keep monetary policy relatively more accommodative. 8    Flexible exchange rates. A flexible exchange rate acts as a valuable shock absorber for an economy because domestic wages and prices are relatively “sticky” (in other words, slow to adjust). For example, suppose there is a spike in global risk aversion. As capital flows are withdrawn flexible exchange rates depreciate. In general, this boosts an economy’s competitiveness. However, where economies borrow heavily in foreign currency, and this exposure is unhedged, depreciations can be detrimental for the economy. 9    Fiscal sustainability. A sustainable fiscal position provides governments with more room to respond to adverse shocks to demand. Financial markets therefore reward more sustainable fiscal positions: the IMF found that declines in inflows between 2010 and 2015 were 1 percentage points of GDP larger for countries with above-average public debt ratios.10 Fiscal sustainability is also necessary for a credible nominal anchor. 6  Fischer, S (1988), International Macroeconomic Policy Coordination, in International Economic Cooperation, ed.
14 The evidence on the impact of financial globalisation on economic growth is not as conclusive or sufficiently robust. 15 This partly reflects the fact that the impact is conditional on the macroeconomic policies pursued as well on the institutional and regulatory framework in place, which makes it difficult to isolate empirically and estimate its net contribution. Moreover, the impact of financial globalisation on growth may take some time to become visible as it exerts its influence through various channels, some of which involve indirect effects. Indeed, a new approach which emphasises the indirect effects of financial globalisation growth by promoting the development of the financial sector, by strengthening competition and by enhancing market discipline on macroeconomic policies suggests that the total impact on growth of financial globalisation through these indirect effects can be significant. In particular, for advanced economies their integration into global financial markets fosters (total factor) productivity growth and improves risk-sharing. Moreover, there is some evidence that financially integrated economies can  13  See Ferguson et al. (2007), Ch. 9. 14  See Hartmann et al. (2007). 15  See Kose, Prasad, Rogoff and Wei (2006). 6  BIS Review 9/2008  absorb shocks – and can tolerate a higher level of volatility – without this volatility having an adverse effect on growth. 16 Globalisation and the volatility and liquidity of financial markets An important issue for financial system stability is whether financial globalisation has been – or can be– a key factor in reducing volatility and increasing liquidity in financial markets.

A reduced correlation – or even a lack of it – could simply be a consequence of the effective monetary policies of central banks which have succeeded in anchoring inflation expectations to price stability. 11 Direct effect of globalisation on domestic inflation The two more direct effects of globalisation on world and domestic inflation dynamics have been more visible but have partly offset each other, and the relative impact may be changing over time. On the one hand, raw materials and basic commodities, notably oil and other sources of energy, have become scarcer relative to world demand, leading to substantial upward pressure on prices. [see Chart 1] For example, Brent crude oil prices have increased almost tenfold over the last nine years, reflecting to a very large extent the impact of rising demand, especially in emerging market economies [see Chart 2], although supply-side factors have also played a role during some periods. On the other hand, the integration of a large reserve of low-cost, skilled labour in the international economy and the increasing production of manufactured goods in emerging market economies have put downward pressure on import prices of manufactured goods as well as on wage demands in industrial economies. As a consequence, the prices of a wide range of manufactured goods have been declining since 2000. This is reflected in the unit value of imports of manufactured products in the euro area, which in mid-2007 was virtually at the same level as in 2000.