samchain/econo-pairs-v1 huggingface dataset:
The inflation gap is defined as the deviation from the central banks’ target: 𝛱𝑔𝑎𝑝 𝑇𝑛 = 𝛱𝑇𝑛 − 𝛱𝑇∗𝑛 where 𝛱𝑔𝑎𝑝 𝑇𝑛 is the inflation gap at time Tn, 𝛱𝑇𝑛 is the inflation rate at time Tn, and 𝛱𝑇∗𝑛 is the central banks’ target at time Tn, or, in the absence of that, an average of long-time inflation. A theoretical graphical representation of the inflation gap for a six-period model can be observed in the attached figure. At time T0, at the peak value of real wage, we assume that inflation rate is above the central bank’s inflation target, given the inflationary pressures caused by high wages. Therefore, inflation gap at time T0 is positive. However, the relationship is valid even when this assumption does not hold. As wages enter an adjustment phase, inflationary pressures fade away and inflation rate declines. Inflation gap turns negative and reaches a minimum at time T3, the same as the cumulative real wage gap. In the next stage, as wages resume growth, inflation rate starts rising, but it remains subdued, below the central bank’s inflation target, until time T5, when the cumulative real wage gap is closed. Afterwards, wages continue to increase and the wage gap widens in the positive territory. Consequently, inflationary pressures strengthen, pushing up the inflation rate above the central bank’s inflation target at time T6.

In my view, given the evidence that reforms have been halted in many countries after entering the eurozone, these measures should be taken before the euro area accession. The last twenty years have been unusually good for the global economy. Growth was high and less volatile, inflation fell to low levels in both developed economies and in emerging markets. Real returns enjoyed by investors in bond and equity markets were higher than ever in the post-war history. There are however signs that this “Great moderation” era may be coming to an end. If this is the case then the coming years may prove truly challenging for the central banks in EMU-graduation zone. Let me explain in some detail several factors that justify such claim. 1. Agflation, is the rise of inflation due to increase of food prices. In recent months we have witnessed a significant increase of food prices, grain and oilseeds being the leaders. Prices of food products on international markets has risen by almost 40 per cent within last two years and prices of grain and oil seeds has almost doubled within this period. Many forecasters suggest that this trend will not end in the nearest future. There are several explanations of such situation. Firstly, rising oil prices increase demand for alternative sources of energy, biofuels being high on the agenda in many regions. In effect industrial demand for food commodities will further rise. By the way, it is worth to mention what may be the ecological consequences of growing biofuels production.
The reason is because a child engages in so-called “divergent” thinking – that is to say, thinking untethered by convention and education. It is too late for anyone in this room to recreate their childhood brain, I’m afraid. But we could all do the next best thing, which is to create “divergent thinking” within and across our organisations. That means building teams rich and diverse in their backgrounds, personalities and thought processes – if you like, creating your very own mini-Medici effect. This is very much the ethos in some of the world’s most innovative companies. The benefits of diversity do not end with innovation and creativity. Diversity has also been shown to make organisations more resilient to stresses and strains, including the frailties of human decision-making. Human decisions are riddled with biases like hubris and groupthink. These impair judgement and make for  6  Haldane (2016), ‘The Sneetches’ sets this out in greater detail. 3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  sub-optimal decision-making. And we do not need to look far for examples. Hubris was the reason some banks failed in 2008. But groupthink was the reason most banks (as well as many regulators, central banks 7  and academics) failed in 2008. As lack of diversity was the cause of these failures, greater diversity can be the antidote to them recurring in future. Plato argued that necessity is the mother of all invention. The evidence, accumulated over the centuries since, suggests Plato may have been only half right.

To a large extent, Swiss companies, households and institutional investors would be in a position to call upon the services of international Swiss banks for their asset investments and business operations abroad. Third, the international position of the banking centre is closely related to the growth and expansion of the international business of the big banks, which has forged ahead since the 1990s.7 This expansion was motivated, not least, by the desire to move into new, potentially profitable investment banking areas. Thus, the expansion of the balance sheets of the two  2  Cf. Cihák et al. 2012. 3  Cf. BAKBASEL 2013. These comments here are limited to banks. Apart from banks, the financial industry also includes insurance service providers which, in Switzerland, generate 4–5% of additional value added. 4  In 2012, income from exports of bank services contributed some 20% to Switzerland’s current account surplus. Cf. Swiss National Bank 2013b. 5  Cf. Swiss Bankers Association 2013. In terms of the level of total managed assets, both onshore and offshore, UBS is also currently the leading bank worldwide. 6  Cf. Straumann 2006. 7  Cf., for example, Tille 2010. 2  BIS central bankers’ speeches  big banks in the 15 years before the financial crisis is largely attributable to investment banking.8 Manifold challenges for the Swiss banking centre Since the onset of the financial crisis, however, the international operations of the Swiss banks have come under increased pressure on a number of fronts.
But even if there is substantial disintermediation, it does not mean that banks will cease to be dominant players. My point is just that as euro securities markets develop and deepen, more of the finance banks arrange will be off balance sheet. I’m inclined to think also that we will see further consolidation within the European (and indeed global) banking sectors, though I think that will not primarily be a function of the euro, and is something I will touch on in a minute. Now, all these developments offer opportunities for financial services firms globally. This is not a zero sum game. I expect to see financial centres within the euro zone growing in size over the next few years. But London will grow too, and I think it is significant that many of these potential developments depend on market practices and techniques pioneered in London. BIS Review 43/1999  4  I see London as the engine for growth and innovation in the European capital markets. This is not a narrow parochial point. As I have already emphasised, UK financial services are highly internationalised and many of the UK–based beneficiaries of this process are owned elsewhere – in the US, Europe, Asia and elsewhere. Nor does it reflect complacency.

Such examples are not representative of the modern day insurance companies established since the 19th century. But I include them to illustrate that the principles of insurance were very much alive as far back as our earliest civilisations – and mostly without any controls or regulation around them. So what changed? Enter the state This brings us to my main theme today: the interest of the British state in the affairs of insurance companies. My aim is not to do full justice to this field of history given the rich body of academic literature available, but – in order to see Solvency II in context – to give a flavour of the sorts of philosophies and motivations that seem to me to have guided the British state’s involvement through time. Most textbooks will reference marine risk as one of the earliest forms of insurance in the UK. But evidence of one of the first genuine insurance policies suggests that whilst the first marine contract may well have been written in nearby Lombard Street, the risk was not taken on by British underwriters – instead, it was underwritten by Italian counterparts temporarily resident in London 5. Indeed, throughout this period, there are several mentions of insurance interactions between London and the Italian regions of Lombardy and Tuscany 6 – hence the  3  Lewin (2003). 4  Ibid. 5  Ibid. 6  Ibid.
It will also involve conveying the message that the flexibility, in this case, is not due to the central bank taking account of the development of the real economy, for example, but to monetary policy not being as efficient as many, both in academia and in the central banks, had counted on ten years ago. The way I see it is that central banks will have to create credibility in this kind of flexibility. I feel optimistic about the possibilities, as this has been done before. One parallel that strikes me is with the regime changes in the central banking world in the 1980s and 1990s, when ideas about an independent authority with clear tasks and a mandate for monetary policy became a successful recipe for stabilising the development of inflation and boosting confidence in monetary policy in a large number of countries. To sum up my speech: my message today is that monetary policy has become more complicated than most researchers or central bank representatives had counted on before the financial crisis. The impact of monetary policy on economies may have changed and, if so, in a way that will mean that the exchange rate will have a greater effect than before. The lower global interest rates have squeezed monetary policy’s room for manoeuvre in both small and large economies. And, finally, we need to continue to examine conceivable measures if these global difficulties turn out to be persistent.

The Island has been suffering from a vicious cycle. As employment declines, people move to the mainland to find jobs. Accordingly, economic activity and tax revenues decline, forcing the government to raise taxes and cut spending, which further reduces employment and prompts still more residents to move. At this point, the outlook for anyone who has been living here must be bleak, and it may be hard to imagine this situation turning around anytime soon. And yet, history tells us that a turnaround, though not inevitable, is indeed achievable. Lessons from past crises New York City is probably the most famous example of a municipality that experienced a major fiscal crisis, recovered and is now thriving. New York City’s experience is viewed, in retrospect, as a major success, and some, including myself, have pointed to it as a hopeful example of what 1/4  BIS central bankers' speeches  could come to pass in Puerto Rico. But, there are important caveats to the New York City story and its applicability to the Commonwealth. Like Puerto Rico, New York City experienced a number of years of both political and economic pain as a result of its fiscal crisis in the 1970s. On the political side, New York City residents lost a large measure of their ability to chart their own fiscal direction for several years. Decisions about tax and spending policies were removed from elected city officials.
Ravi Menon: Introducing Agustín Carstens Introductory remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Monetary Authority of Singapore Lecture 2013, Singapore, 5 February 2013. *  *  *  Dr Agustin Carstens, Emeritus Senior Minister Goh Chok Tong, Ambassadors, distinguished guests, friends and colleagues, good morning. 1. Welcome to seventh MAS Lecture. 2. Since its launch in March 2000, MAS Lecture has provided platform for distinguished members of international financial community to offer perspectives on significant economic and financial issues of the day. 3. And today, we are honoured to have as our speaker, Dr Agustin Carstens, Governor of the Banco de Mexico. Dr Carstens has an outstanding record of service and achievement in his country as well as on the international scene. 4. He was a Deputy Managing Director at International Monetary Fund between 2003 and 2006. From 2006 to 2009, he was Mexico’s Minister for Finance. And in 2009, he was appointed Governor of Banco de México, returning to an institution where he had started his career and served with distinction in several key positions. 5. Dr Carstens’ topic today is The Quest for Successful Policy Responses to Sovereign Crises. It is a topic that he is eminently qualified to expound upon. 6. As a former Minister for Finance, he would be familiar with issues related to sovereign debt and fiscal policy. And as a life-long central banker, he has dealt with crises first-hand.

Among these the greater interrelatedness of economies, which has been conducive to global value chains being extended, may have led to the international determinants of price- and wage-setting increasing in significance, at the expense of the traditional determinants. Other explanations highlight the influence that the automation of productive processes, the digitalisation of economic relations and the development of electronic trade may be exerting. Beyond the macroeconomic area, the expansion opens a window of opportunity to continue entrenching the foundations of the monetary union project, completing the banking union and taking the first steps towards a fiscal union that enables adjustment costs to be reduced when the economy faces an adverse situation. Further, the negotiations in the coming months on trading and financial arrangements with the United Kingdom also pose another major challenge to the functioning of the single market. Situation of the Spanish economy Let me now move on to the Spanish economy. The strength of the recovery is proving notable. On the latest estimates, our GDP is estimated to have grown by around 3.1% in 2017, that is to say, similar growth to that in 2015 and 2016; for the third year running, the growth of our economy is expected to have clearly exceeded that observed for the euro area as a whole. Indeed, last year we regained the level, in real terms, of our pre-crisis GDP. There are two key features of this recovery. Firstly, it is proving to be most job creationintensive.
Climate change – Plotting our course to Net Zero Speech given by Sarah Breeden, Executive Sponsor Climate Change and Executive Director, UK Deposit Takers Supervision  University of Edinburgh and Environmental Association for Universities and Colleges – Webinar  18 May 2021  I am hugely grateful to Ryan Barrett for his assistance in preparing these remarks; to Chris Faint, Zane Jamal, Theresa Löber and Edo Schets for their comments; and to all those involved in the NGFS work on climate scenarios. Introduction  Good afternoon everybody. Thank you for the kind introduction Peter and to the University of Edinburgh and the Environmental Association for Universities and Colleges for hosting this event. Making sustainability a core part of education is essential for inspiring the leaders of tomorrow and initiating the research and innovation that is needed for the momentous task ahead of us. I am honoured to be here today. Over the past year, we have seen scientists and academics, universities, pharmaceutical companies and governments work together at unprecedented speed in a race to develop Covid-19 vaccines. A task that was seen as nigh on impossible back in March 2020 has been achieved through urgency, innovation, and collective action. We must bring that same urgency to tackling climate change.

The scenarios the NGFS have produced pull together, for the first time, both transition risks and physical risks, and their economic and financial consequences, in a coherent way. As a result, they are decision-useful, reflecting the totality of risks we will face. A guiding principle has been to try to shine a light on some of the uncertainties that exist. We have focused on multiple scenarios and multiple models to highlight the range of potential outcomes. Since modelling these impacts is subject to significant uncertainty and extensive academic debate, our work is open source and we seek your expertise and challenge. 4  The NGFS was founded by 8 central banks and supervisors including the Bank of England in 2017. Members are committed to sharing best practices, contributing to the development of climate and environment-related risk management in the financial sector and mobilising mainstream finance to support the transition towards a sustainable economy. It is currently comprised of 90 members and 14 observers. The first iteration of these scenarios, published in June 2020, drew from the existing work on mitigation pathways, climate change and adaptation that supported the Intergovernmental Panel on Climate Chance (IPCC) Special Report on Global Warming of 1.5°C.5 The NGFS will next month release an update, which will include bespoke scenarios, detailed macroeconomic modelling and a new online portal that can be used to explore physical risks. Insights from the design of the NGFS climate scenarios I would like to share some of the insights I’ve gleaned from this work.
Similar risk reduction processed largely worked for traditional corporate credit risk, but proved disastrous in the  3  See Haldane and Webber, July 2008, “Risk reallocation”, Risk, for a wider discussion of the problems in pricing tail risk and Shleifer, Gennaioli, Vishny, 2011, “Neglected Risks, Financial Innovation and Financial Fragility”, Journal of Financial Economics for the possible consequences. 4  See, for example, Haldane, April 2009, “Re-thinking the Financial Network”, speech delivered at the Financial Student Association, Amsterdam, for a discussion on the inter-connectedness of the financial system. 5  See the Quarterly Bulletin, 2010 Q2, Vol 50, p 81. BIS central bankers’ speeches  3  case of super-senior risk backed by US sub-prime mortgages. Insurance by the monolines proved practically worthless as they successively failed. And reinsurance with AIG would have proved worthless if AIG had not been rescued by the US Government. The problems affected other securities in unexpected ways – at one point, US municipal debt wrapped by monolines was trading at a discount to the same debt without the wrap. Once a default event has occurred, the correlation problems with such contracts become obvious. The question is why they are not apparent ex ante. The normal motivation for insurance is risk aversion to large losses arising through tail events. If such an insurance contract is worth having, one must be able to envision the tail event happening and what the circumstances might be.

Because this cost both time and money, it took a while before these changes were implemented. 10  Conclusion – most indications point towards a slowdown Historical averages are usually a fairly good starting point for forecasts of future developments, particularly in the slightly longer term. But in the case of productivity, history gives us different answers. The reason for this is that the trend in productivity growth has varied so substantially over time. The average increase in productivity growth in the business sector was around 4 per cent a year during the past five years, but only around 3 per cent a year if one instead looks at the past fifteen years. If one goes further back in time, one can find both higher and lower rates of increase. During the 1960s the rate of increase was around 6 per cent a year and during the 1980s it was only 2 per cent a year. It is thus not history giving us the answers, but the two parts I mentioned just now – changes in the economic cycle and structure. The cyclical factors indicate a slowdown. Productivity has been unusually strong in recent years during the initial phase of the economic upturn, but will probably be weaker in future when economic activity slows down. The structural factors also indicate a slowdown. While globalisation will continue to contribute to stiff competition and IT will in future contribute to continued rationalisation.
5 [12]  So far, interest rates and the Riksbank’s costs have been lower than expected As the statistical estimates of the term premium are uncertain in many ways and have several possible sources of error, I think we obtain a clearer picture of the effects of bond purchases on the Riksbank’s balance sheet by studying different interest rate scenarios. Let us begin with the situation in February 2015 when we started purchasing bonds. The interest rate on five-year government bonds fell to just under zero after our monetary policy announcement. But Chart 4 shows that those of us on the Executive Board of the Riksbank as well as the money market participants in Prospera’s survey thought at the time that the repo rate would be brought back into positive territory towards the end of 2016 and then continue to increase. One can say that the Riksbank purchased government bonds that gave a return of approximately zero but that were expected to be funded according to the repo rate forecast. The chart shows that the Riksbank therefore expected to make a loss, as the funding costs were expected to be higher than the yield. 11 Chart 4. Actual and expected interest rate developments Per cent 3  3 Repo rate Survey MPR February 2015  2  2  MPR October 2016  1  1  0  0  -1  -1 12  14  16  18  20  Note.

SPEECH DATE:  9 November 2016  SPEAKER:  Martin Flodén  VENUE:  West Sweden Chamber of Commerce, Göteborg  SVER IG ES R IK SB AN K SE-103 37 Stockholm (Brunkebergst org 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn @ riks ban k.se www.riksb ank.s e  The Riksbank’s bond purchases affect government finances Prior to the financial crisis of 2008, the Riksbank could make profits without taking any actual risks. The assets on our balance sheet mainly consisted of foreign debt securities while the main liability items were outstanding banknotes and coins and our equity. The assets generated a reliable return, although their value fluctuated with foreign exchange rates, while the liabilities were interest-free. The Riksbank could therefore easily fund the bank’s operations as well as distribute a surplus to the government. But the current picture of the Riksbank’s financial position and risks is entirely different, something that, in part, can be illustrated by how the balance sheet has grown and changed in nature (see Chart 1). One important change is that the decline in the use of cash and the low interest rates have impaired our earning capacity, something which my colleague Kerstin af Jochnick has previously highlighted. 1 Another important change is that the Riksbank has purchased large volumes of Swedish government bonds since the beginning of 2015. These purchases have increased the risks on our balance sheet and made our profits and dividends more sensitive to interest rate changes.