samchain/econo-pairs-v1 huggingface dataset:
I do not see this as inconsistent with inflation targeting because it is the stability of inflation over long periods, not year to year changes, which is crucial to economic success. The key principles underlying flexible inflation targeting are credibility, predictability and transparency of decision-taking, and they will remain the cornerstone of successful monetary policy in the future. Conclusions Governor Leigh Pemberton’s 1992 lecture concluded with a message for the LSE: “in a world of price stability you might not think of inviting the Governor of the Bank of England to address you”. Had price stability guaranteed financial stability, and had I achieved my long-held ambition of being boring, that might have been true. Unfortunately, it is not how things have worked out! What I have tried to show tonight is that the case for price stability is as strong today as it was twenty years ago – both in theory and in practice. The clarity and simplicity of the inflation target helps to anchor inflation expectations on the target. We forget the lessons of the 1970s and 1980s at our peril. In the end, the essence of central banking is to maintain confidence in, and the value of, paper money. It is far too soon to bury inflation targeting. Together with central bank independence, it played a key role in bringing price stability to the UK.

20  Rajan (2005) argues that the “search for yield” was an important ingredient in the story of the crisis. 6  BIS central bankers’ speeches  long-term commitments (pension funds and insurance companies, for example) need to match the yield they promised on their liabilities, with the yield on their assets. When interest rates are high, they can invest in safe assets to generate the necessary revenue. When interest rates are low, however, they are forced to invest in riskier assets to continue to meet their target nominal rate of return. That tends to push down risk premia and lower the price of borrowing. Other investors too find it difficult to accept that in a world of low nominal and real interest rates equilibrium rates of return will not meet their previous expectations. 21 If these mechanisms are important, the financial cycle may be heavily influenced by monetary policy, especially when interest rates are low. That also creates the possibility of a trade-off between monetary and financial stability. All three examples suggest that the conventional analysis of the trade-off between the volatility of inflation and the volatility of output is likely to be far too optimistic. Does this add up to a case for “leaning against the wind” of rising asset prices rather than waiting to “mop” up after the bust? Certainly we have seen that monetary policy cannot fully offset the effects of financial crises for two reasons. First, crises may impact output before the response of monetary policy is felt.
These scenarios are plausible representations of the future consequences of climate change depending on the severity of the physical damage and the speed and effectiveness of the policies rolled out globally to support the transition to a sustainable economy. Specifically, an extreme scenario is defined, based on the assumption that no measures are taken to mitigate climate change, which would naturally entail materialisation of the physical risks. An alternative scenario involves an orderly transition, in which the measures necessary to reduce the volume of CO2 emissions in accordance with the Paris Agreement are taken promptly and progressively. As the measures are introduced gradually, the physical and transition risks are considerably reduced. Disorderly transition is a third scenario, under which measures to combat climate change are not taken until a relatively late stage, so that it is necessary to reduce emissions to a greater extent than under the orderly transition scenario in order to achieve the same emission reduction target. As a result, the transition risks increase. A growing number of central banks and financial supervisors have begun to carry out climate change stress tests, making use of these scenarios, adapted as necessary to reflect the specific features of each economy. In September 2021, the results of the ECB’s stress tests were published. They covered approximately 4 million companies worldwide and 1,600 consolidated banking groups in the euro area and incorporated the impact of both physical and transition risks over a 30year period.

European banks would also face impairment of their corporate bond holdings under these scenarios, further reducing their profitability and solvency. As already mentioned, the impact would be uneven across economic sectors and geographical areas, and therefore the effects on banks across different countries would also be uneven. A very important point here is that banks’ potential response to the materialisation of risks is not currently modelled in these stress tests, since the aim is to show what would happen precisely in the absence of any such response. In reality, however, banks can be expected to respond to the increase in the probabilities of default associated with the materialisation of physical risks in the event of inaction, which would exacerbate the negative implications for activity in these areas. The possibility of response makes the climate stress test methodology even more complicated, but it is a key element which will have to be incorporated in future. In addition, the ECB is currently conducting bottom-up stress tests in which banks will assess their exposure to climate risks. The exercise began with a questionnaire for banks, the aggregate results of which are due to be published in the summer. At the Banco de España we have also carried out top-down stress tests to assess the resilience of the Spanish banking sector to climate-related transition risks,17 and we are currently carrying out various empirical analyses to approximate the potential impact of the physical risks.
Clearly, then, there has been a rapidly rising tide of banking information. Or has there? The Godfather of information theory, Claude Shannon, defined information in terms of its ability to reduce our uncertainty. 60 But page length and certainty are not synonyms. As even professional investors find banks’ annual reports somewhere between undigestible and unfathomable, it seems possible more banking information, in the conventional sense, may have made for less banking information, in the Shannon sense. One interesting diagnostic comes from looking at the nature of the information provided by banks’ annual reports, rather than its quantum. Linguistic analysis provides a range of metrics for determining the complexity of a language, including word and sentence length. 61 By taking a range of measures of linguistic complexity, and applying them to banks’ annual reports, we can get a window on Shannon’s measure of information-content. Chart 3 plots six metrics of linguistic complexity, as applied to the annual reports of the four largest UK banks. 62 It compares them with a series of alternative publications, specifically a UK broadsheet newspaper, a UK tabloid newspaper, a set of recent Bank of England reports, a selection of my own speeches, and a selection of speeches by the leaders of the UK’s main political parties. These comparators have no significance beyond the fact that they are examples of material written for a general audience. What this demonstrates is that banks’ annual reports rank highly on the linguistic complexity scale, well above even a broadsheet newspaper.

The second element is for supervisors to conduct independent reviews of a bank’s capital adequacy relative to its risk profile, while the third is to help improve the ability of market forces to exert discipline on management behavior. These last two elements, which I will address in more detail in a moment, have been adopted by the Basel Committee as key parts of our proposal to revise the international standards on capital regulation. Risk-focused supervision In terms of the "risk-focused" approach to supervision, many of my colleagues would agree that what makes bank supervision so challenging is the need to keep pace with such a dynamic, fast-moving, and diverse industry. Consequently, supervision must be adaptive. The banking industry is intensely competitive and firms must constantly identify new markets, new products, and new ways to do business. Innovative products and technologies can quickly alter a bank’s exposure to risk. Continuous innovation in the industry and increasingly rapid changes in risk profiles demand that supervisors, too, keep up with the latest developments and work to anticipate them to ensure that our regulatory framework remains relevant and timely. Likewise, supervision needs to be flexible. We all know that the banking sector encompasses organizations that vary greatly in scope, size, and risk appetite, so it’s obvious that regulations that are useful for small, community mortgage banks will not apply equally well to massive, multinational trading banks, and vice versa.
First, there is the theological meaning of faith as “belief in religious doctrine”, “spiritual apprehension of divine truth apart from proof” or, more generally, “belief founded on authority”. Here, Blaise Pascal springs to mind as an advocate of a strict separation between faith and reason. In his view one could not arrive at faith by means of reasoning but only “through the heart”. On this first definition my answer to the question posed by the title of my lecture is “no”. I would prefer to confine faith, in the sense of unquestioned belief, strictly to the private and religious sphere. When it comes to central banking neither the central banker’s actions nor the public’s expectations can afford to just rely on faith devoid of proof or evidence. Moreover, I do not regard it as helpful to characterise central banking as some sort of mystical art that is to instil awe and worship. On the contrary, I consider that the public would be generally ill-advised to put “blind trust” into particular individuals or institutions. This is an important lesson to take away from liberal economic and political philosophy as well as from the overwhelming merits of the democratic system of government. Ultimately, trust must be earned, it is granted temporarily, it must be checked and it must be backed up by hard evidence, not be based purely on faith or belief.

Ensuring that banks have the capacity to lend If the first aim for policy is ensuring that banks have the incentives to remain engaged is economically important lending, the second is ensuring that they have the capacity to do so. A pre-condition for this is that banks are appropriately capitalised, as I have already discussed. But what also matters is the landscape of the banking sector – that is, whether the banking sector is sufficiently efficient and diversified to ensure a stable supply of credit. According to some indicators the European banking sector is characterised by over-capacity relative to the size of the market. For example, the Herfindahl-Hirschman concentration index for the euro area currently stands at around 700; as a general rule, a figure below 1000 signals low concentration. 8 This suggests that one factor in difficulties facing the sector is that it is not operating at the efficient frontier – and consequently, that there would be macroeconomic benefits to some restructuring and consolidation. We also saw during the crisis that the banking sector in the euro area was not well-diversified on either the asset or liability sides. Cross-border exposures mainly comprised of short-term debt, which meant that when bank assets were hit by an adverse shock, funding quickly dried up. The result was that risk-sharing through the banking system virtually collapsed  7  See for example Buch, Claudia and Esteben Prieto (2014), “Do better capitalized banks lend less? Long-run panel evidence from Germany”, International Finance 17:1.
The second is a measure of gambler’s luck in gearing up those assets. In effect, ROE is skill multiplied by luck. So which has been the dominant determinant of banks’ ROE, historically and recently? Chart 2 looks at the decomposition given by equation (1) for UK banks over the period since 1920. Movements in leverage have clearly been the dominant driver. Since 2000, rising leverage fully accounts for movements in UK banks’ ROE – both the rise to around 24% in 2007 and the subsequent fall into negative territory in 2008. Chart 3 looks at the same decomposition across a panel of 70 global banks at the end of 2007. The vertical axis measures return on assets and the horizontal axis leverage. The curves are iso-ROE lines, drawn at 5%, 20% and 40%. The distribution of points lies along a downward-sloping curve. Two implications follow from this. First, the downward slope is consistent with global banks targeting a ROE, perhaps benchmarked by peers’ performance. The Bank’s market intelligence in the run-up to crisis suggested that such “keeping up with the Jones’s” was an important cultural influence on banks’ decision-making. Second, Chart 3 suggests that banks kept up in this competitive race by gearing-up. Banks unable to deliver sufficiently high returns on assets to meet their ROE targets resorted instead to leveraging their balance sheets. During the golden era, competition simultaneously drove down returns on assets and drove up target returns on equity.

Philipp Hildebrand: Risk management Introductory remarks by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 14 December 2006. *  *  *  As I have reported at a number of recent media conferences, the SNB has updated its investment policies for foreign exchange reserves over the past few years. I would like to take this opportunity to look back, once again, at our motives for these adjustments and to outline the context of conflicting objectives within which the investment policy of a central bank operates. I would like to devote special attention to risk management, which performs a key function in investment policy at the SNB. Looking at the current structure of our foreign exchange reserves, it is evident that we have moved a certain distance from the traditional structure of central bank portfolios. Traditional portfolios consisted almost exclusively of short-term government bonds in USD as well as, possibly, EUR or JPY. By contrast, we at the SNB have gradually diversified our currency risks over the past few years, have lengthened the maturities of our investments and invested in additional bond categories and in shares. As a result of these adjustments, we are probably one of the most innovative central banks in the area of investments nowadays. However, I would like to stress the fact that we have never pursued innovation for its own sake.
The Future of Money Speech given by Mark Carney, Governor of the Bank of England  To the inaugural Scottish Economics Conference, Edinburgh University 2 March 2018  I am grateful to Alice Carr, Wayne Chapman, Victoria Cleland, Ben Dyson, Martin Etheridge, Andrew Hauser, Cordelia Kafetz, Jack Meaning, James Southgate and Iain de Weymarn for their assistance in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  “Everyone can create money; the problem is to get it accepted” – Hyman Minsky  1  It is a great pleasure to join the inaugural Scottish Economics Conference, which brings together students from six universities with proud intellectual traditions. I would like to congratulate the students who have shown such initiative in creating this event. My only regret is that the ‘#BeastFromTheEast’ has prevented me from joining you in person, though given my topic, there is something appropriate about joining you virtually. ………………………………………..…  This £ note is significant. Figure 1: a £ banknote  Significant because it honours Adam Smith, the great moral philosopher and hero of the Scottish Enlightenment. Significant because it is a significant amount of money, enough to buy you a burger and a few pints at the Pear Tree pub this evening, or if you fancy a quieter but highly stimulating night in, copies of Smith’s Wealth of Nations and The Theory of Moral Sentiments at Blackwell’s. Significant because without money the decentralised exchange of Smith’s invisible hand could not operate.

We participate in the process of making the most important decisions regarding the banking sector in the euro area, i.e. not only the Bulgarian banks but the European banks. In making all these decisions, our vote matters as much  2/5  BIS - Central bankers' speeches  as the vote of Germany, France, Italy, Spain, or any one of the other euro area Member States. So, instead of waiting for the relevant decisions to be sent to us for implementation, we actively take part in the process of making these decisions. I must assure you that there is a big difference. Financial implications are another important aspect of our membership. You can probably recall some observers' concerns as to how our membership in the Banking Union would burden the Bulgarian banks with unbearable fees. Indeed, the Bulgarian banks pay fees related to Banking Union membership, but the financial benefits are considerably greater. The Single Resolution Mechanism alone saves the Bulgarian banks not less than BGN 160 million a year which, in turn, improves their financial result. Or, if we use the terminology of insurance, the Bulgarian banks get a much greater protection for a much lower premium. As regards the BNB which, as I said, is already a part of the euro area in terms of its key activities, at this stage the preparedness for full accession is related most of all with technical and logistic issues. Organisation has been set up for monthly reporting on the progress and the outstanding challenges.
The deviation between market expectations and the actual interest rate has been substantial in periods. There is no reason to believe that Norges Bank will not also have to reassess its interest rate forecasts as new information emerges about economic developments. According to the monetary policy strategy in Inflation Report 2/06, the sight deposit rate should be in the interval 2¾ - 3¾ per cent in the period to the publication of the next Inflation Report on 1 November, conditional on economic developments that are broadly in line with projections. Monetary policy is oriented towards a gradual increase in the interest rate - in small, not too frequent steps towards a more normal level. The analyses in Inflation Report 2/06 were based on a gradual increase in the interest rate towards a more normal level. In the first six months of 2006, the key rate was increased in two increments of 0.25 percentage point. There were prospects that the interest rate would rise further at about the same pace. At the meeting on 27 September, Norges Bank’s Executive Board decided to leave the key rate, sight deposit rate, unchanged at 3.00 per cent. The background for the decision was formulated as follows: "There is now little slack in the Norwegian economy. A steadily rising share of enterprises lacks the capacity to accommodate increased demand, largely because of labour shortages. The labour market has grown considerably tighter, and there are several signs that wage growth is picking up.

The challenge to monetary policy is how the interest rate should be set ahead in order to prevent disturbances both to inflation and economic growth. As a general rule, central banks influence the shortest money market rates via the policy rate. However, economic agents’ consumption and investment decisions depend more on their interest rate expectations. Hence, monetary policy functions primarily by influencing expectations regarding future interest rates. Economic agents therefore need to understand the central bank’s intentions in its interest-rate setting. In the November 2005 Inflation Report, Norges Bank published its own forecast for the interest rate for the first time. The aim is to enhance the predictability of monetary policy. With a predictable monetary policy, market participants can react to new information in a way that contributes to stabilising developments in output and inflation. Norges Bank’s interest rate forecast is based on seeking to achieve an interest rate path that provides a reasonable balance between the objective of stabilising inflation at target and the objective of stabilising developments in output and employment within a reasonable time horizon, normally 1 - 3 years. Interest-rate setting is also assessed in the light of developments in property prices and credit. Norges Bank forecasts inflation, output and the interest rate simultaneously. There is considerable uncertainty associated with the estimates of capacity utilisation in the economy (the output gap), and there is no simple relationship between developments in capacity utilisation and developments in inflation.
As a number of you are aware, between July 2013 and December 2015, the New York Fed conducted two counterparty pilot programs with small firms, the first focused on treasury operations and the second on mortgage operations. As we announced at the time, we initiated these programs to explore ways to broaden access to open market operations and to determine the extent to which firms beyond the existing primary dealer community could augment the New York Fed’s operational capacity and resiliency in its monetary policy operations. We very much appreciate the NASP’s efforts to encourage eligible firms to participate. The experience gained through these programs informed changes in the New York Fed’s eligibility criteria for primary dealers, which were announced in November 2016. At that time, the minimum net regulatory capital (NRC) threshold for broker dealers was reduced from $ million to $ million. And to better align the capital threshold for banks with the new NRC thresholds, the minimum Tier 1 capital threshold for banks was raised from $ million to $ billion. At the same time, a 0.25 percent minimum Treasury market share threshold was introduced to more directly quantify the business capabilities of firms expressing interest in becoming a primary dealer.

3 6/7  BIS central bankers' speeches  3 Potter, Gradual and Predictable: Reducing the Size of the Federal Reserve’s Balance Sheet, October 11, 2017. 4 See Potter, Implementing Policy with the Balance Sheet, November 6, 2017, for further discussion of lessons  from experience with balance sheet policy. 5 The maturity structure of the balance sheet was only loosely incorporated into the purchase plan. Purchases of  Treasury securities were targeted at maturity sectors; within each sector, specific issues were selected for purchase using a relative-value approach based on a spline fitted to market prices. Sack, Implementing the Federal Reserve’s Asset Purchase Program, February 9, 2011. Treasury securities acquired through reinvestment are purchased in proportion to issuance. Agency MBS purchases are distributed across instruments roughly in proportion to anticipated gross issuance of those securities at the time. Potter, The Implementation of Current Asset Purchases, March 27, 2013. 6 Early FOMC discussions of balance sheet normalization, then referred to as an “exit strategy,” were predicated  on an intention to return to, as put in the January 28, 2009, meeting transcript, “a more normal framework for conducting monetary policy,” which meant a return to an asset and liability structure closely resembling that which prevailed before the financial crisis. Normalization-related matters were discussed in the minutes to most of the FOMC’s 2009 meetings.