samchain/econo-pairs-v1 huggingface dataset:
By transitory effects is meant that some particular factors affect the forecast of inflation one to two years ahead, but that the effects are expected to dissipate without the need for any monetary policy action. By large deviations from the target is meant that inflation has deviated so much from the target that there may be reason to bring it back to target over a longer period than the normal two-year horizon. A faster return to target could give rise to undesired fluctuations in output and employment, for example. In practice this approach has often led us to focus our monetary policy analysis and discussion on the inflation measure UND1X, as there is generally always reason to disregard the effects on inflation of indirect taxes and subsidies as well as of changes in interest rates. In some situations we have also decided to study inflation measures from which other price changes have been excluded, e.g. in spring 2001, when the prices of a number of goods such as electricity, heating oil, petrol, telecommunications and different kinds of food rose; and 2003, when it was primarily fluctuations in electricity prices that had a very sharp impact on inflation for a period. Inflation and inflation expectations in line with the target The result of the Bank’s policy can be illustrated in different ways. Let me begin with the most obvious gauge, the inflation outcome.

However, we now have new data on which to base our decisions and new opportunities for communicating them. Conclusion Let me try to summarise my message here. I believe that most people agree that inflation-targeting has worked well on the whole. We know that since inflation-targeting was introduced, Sweden has gone from being a high-inflation economy to an economy with low inflation and stable wage increases. The lower inflation rate has not led to weaker output growth; GDP growth has on average been higher under the new regime. It also appears that, if anything, the real stability of the economy has improved. Nevertheless, there is always good reason to consider how monetary policy can be developed and improved. To this end, I have discussed how the Riksbank’s monetary policy work can be developed. This has included what could be termed technical improvements; for instance, greater use of other assumptions than an unchanged repo rate and an extended forecast horizon when producing and presenting data. The advantage of using, for example, implied forward rates as a basis is that they can often be a more realistic assumption than an unchanged interest rate. This can in turn allow more and better alternative scenarios, which can illustrate different aspects of monetary policy including the consequences for inflation and resource utilisation over a longer time horizon. It has also included the Riksbank’s communication. Working with a longer time horizon provides a better overview of the effects of temporary influences on inflation.
By contrast, under standard commercial-banking resolution regimes, the “bad bank” goes into an insolvency process as a gone concern, with de facto haircuts applied to its creditors ex post, after realisation of the assets by the liquidator – a process that almost always destroys value. A “going concern” approach would in effect combine features of standard regimes for resolving commercial banks (rapidity, public policy objectives) with some features of the US Chapter 11 for non-financial companies (haircuts for creditors in a continuing business). Of course, the kind of super-special resolution regime I am airing could not be an exact replica of Chapter 11 – if only because the capital structure of a distressed LCFI would have to be restructured very quickly, over a weekend if not overnight, and so could not rely on a negotiated settlement with creditors. For that reason alone, in common with the existing commercial-bank resolution regimes, there would plainly need to be safeguards. 1 Perhaps the most important might be that such  1  For safeguards in the UK SRR, see the Banking Act 2009 (Restrictions of Partial Property Transfers) Order 2009 (SI2009/322). 2  BIS Review 33/2010  super special resolution powers could be applied only where the authorities made a formal determination that the firm’s distress would otherwise seriously threaten systemic stability. The modalities would, I suspect, end up varying according to countries’ particular circumstances.

But we do also need to consider whether there might be costs to such an approach. For those policy issues to reach closure, we need to know the way forward on resolution. (ii)  Pure universalism  What of the other end of the spectrum? In principle, an alternative approach would be to shift to a more universal approach. A pure form of universalism would rule out separate resolution or insolvency proceedings, ring-fencing and, therefore, a race for assets. It might encourage  2  Basel committee on Banking Supervision (1992). “The insolvency liquidation of a multinational bank”, Bank for International Settlements. Its key conclusions were: (1) when closing a multinational bank, supervisors should pay attention to the nature and timing of communications among themselves and of their communications with creditors, shareholders and management; (2) the nature of liquidation rules may be relevant to the manner in which multinational banks are supervised; (3) differences in liquidation rules across jurisdictions in a windingup can affect returns to depositors and other creditors and the operations of deposit protection schemes; and (4) coordination and cooperation between liquidators can affect the returns to creditors in a liquidation and can be affected by the role of supervisors in a liquidation. 3  See the Bank’s recently published paper: “The role of macroprudential policy: A discussion paper” and Tucker P M W (2009e), “The debate on financial system resilience: Macroprudential instruments” at the Barclays Annual Lecture in London. 4  BIS Review 33/2010  a more cooperative approach to cross-border resolution.
That, however, was to prove a big drawback for the banks once the financial crisis hit for real in 2007 and 2008, as the sell-off of structured products pulled Icelandic bank shares with it and sent CDS spreads through the ceiling. The fact that the Icelandic banking system was based on EU legislation was conducive to cross-border expansion. However, in spite of all its merits, there were fatal flaws in this system. The basic problem was that, although banking and regulation was European, both supervision and the safety net of deposit insurance and lender of last resort were national. The same applied to a significant degree to crisis management. There was an inherent vulnerability and risk associated with this setup, especially for small countries outside the euro area. This proved fatal for Iceland, in part because it made the mistake of taking European regulatory directives as mostly binding, but not as a minimum. However, the biggest design failure was in the case of deposit insurance, because not only did it violate the principle of matching international private action with international public measures, but it also violated the insurance principle of pooling. European banks need European deposit insurance. That is how it is. Crisis management and resolution Let me say a few words about crisis management and resolution in the case of the Icelandic banks. During the height of the crisis, its management left a great deal to be desired, especially the cross-border part: •  There was lack of information sharing and co-operation across affected jurisdictions.

The High-Level Group on Financial Supervision in the EU, Brussels, 25 February 2009. Financial Services Authority, (2009). The Turner Review: A regulatory response to the global banking crisis, March 2009  12  This apt phrase is attributed to Mervin King, the Governor of the Bank of England. 13  Gudmundsson, Óskar (2009). Snorri – ævisaga Snorra Sturlusonar 1179–1241 (e. Snorri – the biography of Snorri Sturluson 1179–1241). Forlagið – JPV útgáfa, ISBN-13: 978-9935-11-074-9. BIS Review 9/2010  11
In a corresponding manner, one can imagine a hypothetical situation where one or more Swedish banks chooses to invest a surplus in kronor in the Riksbank at the deposit rate rather than lending the money to other banks. Those banks that cannot find financing on the interbank market are then forced to use the Riksbank's lending facility. Firstly, loans in the Riksbank are more expensive and secondly, they require collateral. To avoid the interbank rate rising, the Riksbank has recourse to a number of different measures. In certain strained situations, we have previously chosen to increase the supply of loans at the monetary policy determined interest rate via our normal operations. If a bank should choose to invest its surplus in the Riksbank instead of providing loans on the interbank market, where loans are normally offered without collateral, the Riksbank might choose to offer the corresponding credit volume on the interbank market at the rate we are aiming for. The condition is that a bank borrowing from the Riksbank can offer eligible assets as collateral. At the start of the new millennium when, as some of you might remember, there was great unease over a possible liquidity shortage arising, the Riksbank extended its list of eligible collateral. In our system this can be said to mean that we increased the liquidity in the banking system, as this measure increased the possibilities for borrowing from the Riksbank.

So if anyone asks why the banks are special, I could reply in the same way as John Dillinger, designated by the FBI in the 1930s as public enemy number one, when asked why he robbed banks: “Because that’s where the money is.” At the same time, problems that arise in one bank can easily spread to other banks. This spread can occur in different ways. Firstly, there can be a direct spread, through the exposures the banks have to one another in the payment systems and in connection with foreign exchange and securities trading. Severe chain effects can arise if the customers of a bank suffering problems have their means of payment tied up in the bank. This makes it difficult to make payments to other households and companies. It can lead to liquidity problems that can in turn give rise to loan losses and payment problems for these customers’ banks. Secondly, the banks are often exposed to the same sorts of risk. This increases the probability that, for instance, a macroeconomic shock may affect more than one bank. The spread of problems between banks can thus also arise as an indirect effect, through expectations that other banks may suffer similar problems to the one first affects, or via more well-founded suspicions of the banks' exposures to one another. The contagion risks mean that problems in one bank can easily lead to problems for the entire bank system. The costs to society of a crisis affecting the entire bank system can be substantial.
Because they use more or less similar parameters and suffer from the same weaknesses – for example, they took inadequate account of market liquidity at the time of the 1998 crisis –, such tools might tend to give converging signals to those that use them. They thus encourage the mimetic behaviour that I discussed previously. •  Of course, the fact that some market participants are more sophisticated than the average is a guarantee that standardisation will remain limited, since they will develop techniques that are little used by others. •  However, supervisors might help, and obviously are already helping to spread the idea that financial institutions should round out their current range of risk management tools to include extensive use of stress testing. This technique offers a better reflection of the varying situations of institutions and of the diverse perceptions that institutions have of exceptional events. The application of stress testing techniques and their results are thus inherently more diversified than those resulting from methods based on the value-at-risk approach. These are only examples of possible options to help improve the functioning of the financial cycles and smooth their interaction with the business cycles. There is probably some merit to embark in an overall review of regulatory, accounting and tax rules and regulations, as well as of codes of good conduct and good practices and of structural developments of markets themselves, to identify possible amendments and improvements that could help, protect and enhance the behavorial and conceptual diversity of modern financial markets.

The point is that, even while capital requirements are fulfilled, losses can reduce banks’ own funds at a time when capital issuance is difficult or costly; in such a juncture, some analysts argue that banks may be led to restrict credit lending during downswings although they are not bound to do so for prudential reasons. I consider that the future capital requirements of the New Accord will significantly improve the situation as regards the risk-sensitivity of capital requirements. Let us now turn to asset price moves. As previously mentioned, financial asset prices may fluctuate widely and sometimes deviate from economic fundamentals for long periods of time. Several factors may be in play when this happens. I shall give a few examples. •  Some market participants may have become more inclined to engage in "short-termism", that is, they are only preoccupied with their short-term results. This trend might result, in particular, from growing pressure to yield high immediate financial results that are not necessarily sustainable. Marking-to-market financial products may also have contributed to this widespread focus on immediate financial performances. This focus on short-term performance can translate into additional volatility in the price discovery process: the shorter the investment horizon of market participants, the bigger the impact of any new information on prices. •  Mimetic behaviour is of course by no means a new phenomenon on financial markets.
Indeed markets are becoming ever more important as individuals bear increasing responsibility for financing their retirements and insuring risks. It is vital markets work well - and are seen to do so. Only real markets can deliver. Real markets are resilient. They don’t collapse when the going gets tough. Real markets are fair. Participants compete on merit rather than collude online. Real markets aren’t ends in themselves but means to much greater ends. Only markets that transparently serve the real economy can retain the trust of society to operate; in other words, only real markets have social licence. The crisis and its aftermath laid bare that many of our markets didn’t live up to these standards. At times, some of the most important Fixed Income, Currencies and Commodities (FICC) markets proved fragile, unfair, ineffective and unaccountable. The twin crises of the solvency and legitimacy of finance undermined trust in market mechanisms and the effectiveness of the financial system. 1  Old and New London by Walter Thornbury ('Guildhall', Old and New London: Volume 1 (1878), pp. 383-396. BIS central bankers’ speeches  1  It is hardly surprising that only a third of people believe markets work in the interests of society.2 The more people see, the less they like. People trust markets less with age. And yet, most people think markets will become ever more important. And they’re right. As I wrote this week to G20 Leaders, the structure of financial system has changed significantly since the crisis.

A key challenge of the Covid-19 crisis for us has been isolating the signal – the increased risk to insurers and their policyholders – from the noise caused by markets finding their way with very sharp but temporary overreactions. 1  https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/insurance-risk-management-in-a-changing-world-speech-by-charlottegerken 2 Category 1 & 2 life and non-life insurers regulated by the PRA 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Solvency II contains several measures that were intended to or have otherwise leant against the pitching and rolling of financial markets. These include the Matching Adjustment (MA) and the transitional measure on technical provisions (TMTP); also the Standard Formula Symmetric Adjustment of the Equity Capital Charge (the symmetric adjustment), the Volatility Adjustment (VA), and the Ladder of Intervention. In addition to benefiting financial stability, these measures have helped to filter out the noise in financial markets, supporting the PRA in assessing that insurers are adequately capitalised for fundamental risks in their business and protecting policyholders. The MA is, for UK life insurers, the most material Solvency II long-term guarantees measure, and has been the most significant in the current crisis. The MA is intended to enable insurers to hold assets to maturity and avoid changes in spread from impacting their solvency. When appropriately cash-flow matched, their locked-in funding means that annuity writers are unlikely to have to sell assets prior to maturity, even in a severe stress.
At its core, the Framework places significant emphasis on product suitability assessments in the delivery of insurance products. These developments that we observe in the offering of investment-linked products have at times been at odds with this emphasis. With more than twothirds of new premiums generated from such products in 2017, and an environment of heightened financial market volatility, a key concern for the Bank has been with the complexity of products offered, and the level of understanding of the investment risk, which is borne entirely by consumers. From our observations, the safeguards in place within insurers over product design, disclosure levels and suitability assessments continue to reveal gaps. 3/4  BIS central bankers' speeches  In this regard, the Bank has consulted the industry on potential enhancements to be made to our requirements on investment-linked insurance businesses to address some of these gaps. We expect to finalise the requirements to the Minimum Allocation Rate (MAR) shortly to protect the account value of consumers; more robust suitability tests to improve policy persistency; and enhancements to sales illustrations. The other key reform has been the Phased Liberalisation of Motor and Fire Tariffs which started in 2016. The Bank is currently assessing the outcomes of the second phase as we prepare to launch into the next phase of liberalisation. We are encouraged to see the positive response from the industry and the positive impact on the diversity of products available to consumers.

The effects are more pronounced among lower income groups and micro- and small businesses that are disproportionately impacted by events such as the death or incapacitation of a breadwinner, or business disruptions. Insurance and takaful therefore play a critical role in reducing inequality. This is key and growing risk can be seen in economies that are becoming more prosperous, and at the same time more divided. A well-developed insurance sector also contributes to wider economic efficiency and resilience. At a time where global developments can have a far greater impact on domestic economic performance, it is important for countries including Malaysia, to continue to develop our growth potential through further diversification into new and higher value-added economic activities. Insurance facilitates this by allowing businesses to take risks, without which we cannot have innovation. It also enhances access to financing. This is possible because insurance has the ability to pool, assess and assume risks that are outside the expertise and capacity of banks or businesses themselves to bear. Such examples would be weather-related crop and property insurance, key people risks or product liabilities. Premiums that are paid for insurance also act as strong incentives for businesses to improve risk management, which in turn, increases business resilience. Of course, insurance also plays a key role in the development and resilience of our financial markets. In these recent episodes of heightened market volatility, insurance and takaful companies, alongside banks, have had an important stabilising effect on markets.
Giving such bonds favourable treatment in debt sustainability assessments could enhance their attractiveness. More work is needed to pin down how such instruments could be implemented in practice. Work by the IMF on introducing flexibility for sovereign debt in distress situations is also worth considering. 12  See Bank of England (2013). 13  See IMF (July 2014). 14  See IMF (April 2013). 15  Brooke et al (2013). 6  BIS central bankers’ speeches  (ii)  Facilitating agreements on a debt restructuring  The Bank has also been a strong supporter of the recent contractual innovations to ease resolvability once default occurs: i) changes to “Collective Action Clauses” (CACs) in bond contracts so that decisions can be taken by a majority of creditors across all bond issuances, without the need for an issuance-by-issuance vote; and ii) reforms to the “pari passu” clause to prevent a repeat of the Argentinian situation. Indeed, the Bank has set an example here by including a new style CAC clause in a recent US Dollar bond issue. The new style contracts have also seen good take-up among emerging market issuers in their foreign-law bonds (the new clause was designed for foreign law bonds, for which the collective action problem tends to be more acute). Since October 2014, 59% of the nominal principal amount of total issuances has included these enhanced CACs for countries such as Mexico, Armenia, Bulgaria, Croatia and Egypt.

International trade and demand for investment in particular continue to be subdued. Inflationary pressure abroad also remains low. Although higher energy prices are currently resulting in a marked increase in inflation, core inflation remains at a low level in a number of countries and central banks are thus maintaining their expansionary monetary policy course. Among advanced economies, the economic cycle has progressed furthest in the US. Thirdquarter GDP growth in the US was again significantly above potential. Private consumption was once more the driving force. The situation on the labour market continued to improve as well; the US economy has now almost reached full employment. This is also reflected in more robust real wage growth. Inflation is now close to the target set by the US Federal Reserve. Against this backdrop, the Federal Reserve decided yesterday to raise its key interest rate by 25 basis points. This move is confirmation that – in the Federal Reserve’s view – the world’s largest economy is gradually emerging from a protracted period of crisis. The other major economic areas also recorded favourable economic activity in the third quarter. The euro area and Japan continued to register moderate growth, while in China, growth remained strong thanks to a variety of fiscal measures. In the UK, the economic impact of the Brexit decision has so far proved less pronounced than originally feared. However, the country’s economic performance is still expected to be impaired by this outcome in the coming quarters.