samchain/econo-pairs-v1 huggingface dataset:
1  We give money to insurance companies trusting that they will make good on their promise to us, in the event that an insured risk crystallises. ‘Trust’ is the key word here, as many people cannot reliably assess whether an insurer will be able to fulfil its financial promise if the need ever arises. It can be very expensive to switch insurers and so people can find themselves ‘locked in’ with the same insurer. And depending on the nature of the contract and claim, it may be months or years before a claim either arises or is fully settled. Even if they do have the right information, it would be unreasonable to expect individuals to be able to exert a strong disciplining effect on insurers. Even the best-informed retail policyholder would not be able to make sure that an insurer holds adequate reserves to pay claims, that it does not grow excessively by taking on too much risk, or that it does not under-price in an unsustainable manner to attract new business. We have seen the significant human cost that can be associated with insurance failures. A prominent example is the fate of over a million policyholders when Equitable Life came to the brink of collapse in 2000. Equitable was forced to close to new business, after it found it could no longer honour its promises on offering guaranteed annuity rates on its products.

François Villeroy de Galhau: What responses to terms of trade shocks in poor and vulnerable countries? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Bank of France-FERDI (Fondation pour les Etudes et Recherches sur le Développement International) conference, Paris, 24 January 2017. * * * Good morning and welcome to all in the auditorium of the Banque de France. It is a great pleasure to welcome you here with Patrick Guillaumont, President of FERDI and coorganiser of this conference, to whom I extend my warmest greetings. I would also like to welcome Jan Gunning, Professor Emeritus at the Free University of Amsterdam, as well as all the speakers who honour us with their presence. The Banque de France has established research partnerships with several foundations and universities: the Paris School of Economics, the Toulouse School of Economics and the Fondation nationale des Sciences politiques. The partnership with FERDI (Fondation pour les études et recherches sur le développement international), which we are pleased about, focuses on extending and enriching discussions and research on monetary and financial issues related to development, including: the financing of development, in particular the mobilisation of domestic and international savings, the competitiveness of African countries and exchange regimes and strategies, regional integration in Africa, which was the theme of our first conference in 2014, the “curse” of commodities in low-income countries, and the management of the Dutch syndrome and the terms of trade cycles, i.e.
Those dangers are often linked to excessive risk-taking in the credit or asset markets leading to episodes of financial instability. In that situation, it may be difficult for monetary policy to meet its objectives since the relationship between certain key variables and interest rates becomes unstable. Moreover, as market volatility increases, the ability of central banks to affect the relevant interest rates becomes more uncertain. The conduct of monetary policy then becomes much like steering a boat in the middle of a dark stormy night. Even if the likelihood of such episodes of macroeconomic distress is low, the considerable implications in the economy and in terms of welfare have led to increasing concern among central banks and much discussion and research on what the monetary policy response to this kind of underlying risk could and should be. There is now a broad consensus among central bankers that they should not directly target asset prices, and I must include myself among those who share this view. Detecting unsustainable patterns of asset prices or indebtedness ratios in real time is a complex task in practice. But even if central banks were able to do so, there would still be a lot of uncertainty as to how those financial imbalances would react to a specific change in monetary policy.

Past episodes of persistent negative price growth, such as those seen in Japan over the last decade, have shown us that in those conditions monetary policy loses much of its potential to exert a decisive influence on the price path and on the level of output. In that regard, most central banks, such as the ECB, recognise that their price stability objective should be made compatible with a low probability of deflation. Moreover, in the current setting of low inflation and interest rates, we have witnessed episodes of rapid increases in some asset prices that have led analysts to suspect important deviations between fundamental and observed values. Some notorious recent examples include the overvaluation in the real-estate sector in several East Asian countries in the 90s, and the surge and subsequent correction of the wave of excessive optimism in some equity markets around the turn of the millennium. Currently, the extreme increases in housing prices and households’ level of indebtedness witnessed in some western countries is attracting some attention and concern in view of the potentially adverse consequences on the stability of the whole economy. Looking back, one can indeed find in unbalanced developments in asset and debt markets the seeds of some of the major financial crises that ultimately led to persistent negative output and price growth. Therefore, conditions such as low inflation and interest rates may sometimes conceal risks capable of bringing a phase of price and economic stability to its end.
They all kick off with the same unwelcome economic conditions, presumably caused by some prior, off-stage shock to costs: inflation is 2% points above the target, output’s 1% point below potential and official interest rates are at (what is assumed to be) their “neutral” rate, which is assumed not to change. All three simulations also have inflation back at target two years later. But each involves a very different means of getting there. In the first, the policymaker – call it Committee A – hikes Bank rate immediately and aggressively, by 2% points. This rapidly pushes the economy into recession, making the output gap even larger. But it does at least succeed in bringing inflation back to target pretty promptly, well within the two-year point. Indeed, inflation then falls somewhat below target thereafter, and interest rates fall back sharply, to a level below where they started. Perhaps “A” stands for “austere”, or (hyper) “activist”. Committee B – “balanced”, maybe? – is a little gentler in its approach. Recognising that a significant existing output gap will do some of the work in reducing inflation it raises rates only a touch. Inflation therefore takes longer to come back to target. But it just about gets there by the two-year point and, in the interim, the real side of the economy suffers less and interest rates are less volatile. Finally, just for effect, I’ve added a Comedy MPC (Committee C).

I believe that these fears and concerns are unfounded and that Thailand will persevere. Our outlook for the Thai economy in the medium term is positive. Our forecasts show the Thai economy growing by 4-5 percent in 2007 and by 4-5.5 percent in 2008. These are respectable growth estimates for Thailand in light of the challenges and our focus on growth with stability. In the rest of my talk, I will address in detail the challenges and prospects for the Thai economy going forward. This brings me to the first of my three key points. The first key point is that the Thai economy is no stranger to difficult challenges. And we have always persevered in each instance. In 1997, we had the Asian crisis and undertook painful reforms; in 2001, the global economic downturn adversely impacted the Thai economy; and in the past two years, we had the Tsunami, SARS, the avian flu, southern unrest, political uncertainty, and the recent oil shock. The recent oil shock in particular proved to be a difficult test for the Bank of Thailand. High oil prices have two adverse effects: pressure on prices and a drag on economic growth. Tightening interest rates is the Bank of Thailand's primary defense against inflation. However, high interest rates would burden firms and households already trying to cope with high oil prices. Domestic demand would be adversely affected. There was no clear or easy choice to make.
This will go a long way in enabling your customers not only access affordable funds to finance their investment activities, but also make it easier for them to pay back their loans and on time. The key intermediation role of the banking sector in providing finances will remain compromised if the costs of banking remain high. Distinguished Ladies and Gentlemen, as already mentioned, Zambia is currently going through challenging times when commodity prices remain subdued as result of uncertain demand for our main export product, copper. The visible effects of the economic global crisis have been volatilities in the exchange rate and job losses in the mining sector. The Second round effects, if not managed properly, could have devastating effects in our banking industry, especially through some notable deterioration in the personal loans category of the banks’ loan book. It is my expectation that Stanbic Bank Zambia Limited and other banks’ will enhance prudence in their lending activities and strengthen their risk management systems as a way of minimising further deterioration of the banking industry’s loan portfolio. It is also my firm belief that banks will continue to conduct safe and sound practices even under challenging times and therefore help to mitigate the risks that the financial system is currently facing from the adverse developments in the global economy and the global financial system in particular.

From 1990 to the end of 2001 the ratio of foreign exchange deposits to total deposits increased from the level of 25.5 percent to 57.6 percent; the share of foreign exchange deposits in broad money supply went from 19.7 percent to 55  6  Arteta, C. O. (2002); “Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?” International Finance Discussion Papers 738; Board of Governors of the Federal Reserve System. 7  Frankel J.; Schmukler S.L. ; Serven L. (2004); “Global transmission of interest rates: monetary independence and currency regime”; Journal of International Money and Finance; Vol.23 p.701-733. 8  Cowan, K.; Quy-Toan Do. (2003); ”Financial Dollarization and Central Bank Credibility”; World Bank Policy Research Working Paper No.3082. BIS Review 124/2006  3  percent. Similarly as of 2001, the share of foreign currency loans in the total loans of the banking sector reached to 47.2 percent, while the share of foreign currency denominated and indexed debt of the government in its total domestic debt increased to 36 percent 9 . As of 2001 Turkey became one of the most dollarized economies in the world. Distinguished Guests, Dollarization process in Turkey has two striking characteristics. First of all, dollarization rose significantly even the real rates of return on foreign exchange deposits were lower than that on the Turkish currency deposits. This indicates the fact that the political and macroeconomic instability in the country, particularly high inflation and inflation uncertainty, had played the major role in the dollarization process.
Indeed, most of the time, central bankers avoid public remarks on issues like Too Big To Fail; Emergency Liquidity Assistance; flaws in insolvency regimes; burden sharing between national authorities, and so on. But surrounded as we are by failed banks, it is not only possible to talk about bank failures without scaring the horses; it would be irresponsible not to do so. And as central bankers and regulators free themselves from that mental strait-jacket, new and perhaps far reaching ideas are emerging. They amount to redrawing the third element of the Social Contract between the authorities and the banks. To recap, the third element has been that the banking system should bear the cost of insuring retail depositors with banks against loss. The lessons go, narrowly, to the construction of such insurance; but also to a broader reformulation in which deposit insurance is just one component of the overall package. Deposit insurance: risk-based premia and pre-funding For most of the past thirty years, deposit insurance in the UK applied to modest amounts, and provided less than 100% cover of the insured amount. The element of “co-insurance” was intended to leave retail depositors with an incentive to take care where they deposited  1  Blunden G, “Supervision and Central Banking”, Bank of England Quarterly Bulletin, August 1987. Since the Turner Report was published, Adair Turner has himself added this point to the FSA’s list of conclusions.

It is no longer really about protecting depositors, as the vast majority are wholly protected by the insurance scheme. From a micro perspective, it is essentially about minimising risks to, and losses at, the deposit insurer, the UK Financial Services Compensation Scheme. Second, it also potentially alters the dynamics of the market place. It makes it easier for banks to pay up for deposits; the signal that a bank will take greater risk than otherwise, as it would have to, does not matter to the depositors. They are covered, and so simply enjoy the higher returns on their deposits. If the bank succeeds, the rewards are reaped by shareholders and management; if it fails, retail creditors get repaid in full. This doesn’t feel like a stable regime. And it is worth remembering that President Roosevelt seriously hesitated before introducing the equivalent FDIC scheme in the US in the 1930s for precisely that reason. One way of addressing these risks – and the approach eventually being tried in the US – would be to make such risk-taking banks pay a higher levy into the insurance scheme. Riskbased premia would help to offset the incentives otherwise created. And, of course, any such insurance scheme must be pre-funded; it is no good trying to collect levies from riskier banks after they have gone bust. That is why the Bank has advocated this course.
Then, I will discuss the current and possible future roles that the Eurosystem’s central banks can play in that field. 1. Key issues in the field of payment infrastructures today  The three main issues I see as regards payment infrastructures today in Europe could be summarised as follows : (1) which role for payment infrastructures to support the European financial integration? (2) Which place to give to technological progress in the field of payment systems? (3) How to ensure business continuity of payment systems? 1.1. Supporting the European financial integration  The share of payment systems in money transfers between financial intermediaries is nearly 80%, versus 20% for the traditional correspondent banking arrangements. So, payment systems are essential for the financial sector as a whole and, therefore, can be considered as a key enabler in the process of the European financial integration. Such contribution of payment systems to the financial integration is embodied in the TARGET2 and SEPA projects. Both projects aim at the harmonisation and consolidation of the European “network” of payment infrastructures. While large-value payment systems have already attained a high level of integration and will further progress with the launch of TARGET2, retail payment systems are still very fragmented. In the segment of large-value payment systems, the degree of integration has increased very quickly. The rationale for setting up the two European-wide payment systems that currently exist, i.e. TARGET and EURO 1, was clearly to face the challenge of the EMU.

TARGET2, which is due to go live at the end of 2007, will further improve the degree of integration of wholesale payment infrastructures and will represent a major step forward in their consolidation. It will provide to its users fully harmonised settlement services and prices across Europe, supported by a single shared platform. An important issue which is now under consideration is how TARGET2, as “backbone” of the euro market infrastructure of the euro, can best contribute to the integration and consolidation of the securities settlement systems with which it is going to interact. Should TARGET2, as announced by the Eurosystem and implemented in the system’s specifications, support a wide range of interaction  BIS Review 53/2006  1  modes in order to foster competition between systems and let market forces select the most efficient one (i.e. the so-called no prohibition no compulsion principle) ? Or should TARGET2 influence that selection process by limiting the interaction modes to only one in a long-term perspective? It goes without saying that in the latter case the Eurosystem, given its statutory responsibilities, can only select the most efficient interaction model, namely a model of settlement of cash and securities, which is in real time as it is the case in the US for instance, and which is integrated in a single platform. In the segment of retail payment systems, the situation is quite different. Retail infrastructures are still separated by national borders and characterized by a high degree of diversity.
If quality of institutions is proxied by the World Bank's Worldwide Governance Indicator (which includes six broad dimensions of governance: Government Effectiveness, Regulatory Quality, Rule of Law, Control of Corruption, Voice and Accountability, and Political Stability and Absence of Violence/Terrorism), there has hardly been any convergence of the CEE region towards Germany. Notable exception are the Baltic countries where we have seen positive developments also in the aftermath of the global financial crisis. A very similar conclusion can be drawn when looking at the human capital quality, not only that the CESEE countries lag substantially behind the EU countries that achieve the best results in PISA tests in Math and Science (Finland, Sweden, Austria, and Germany), but the developments over time are also not encouraging as in many countries the results actually worsened during the last decade. So, one can raise the question of how did we manage to  6  converge at a relatively high pace before the crisis, or why convergence continues, with such institutions and human capital? On one side, such developments are worrisome, but, on the other, they give us the opportunity to streamline reforms. Gains from reforms can be substantial. The European Commission estimated that structural reforms that close only half the gap with best performers in different areas (market competition and regulation, R&D expenditure, skill structure, tax structure, labour market participation, unemployment benefit ‘generosity’ and active labour market policies), which is not overambitious, could have significant macroeconomic effects.

Rightfully so, as these issues have been threatening the very existence of the euro area and maybe even the future of the EU. While we are still not entirely out of the woods, great progress has been achieved in these areas. Government deficits have been substantially reduced and in most of the EU Member States public debt has been put on a downward path. Equally important, as Guntram was saying this morning, we now have the mechanisms in place to try to prevent or to deal with the next crisis more efficiently. The 1  Stability and Growth Pact has been strengthened, the SSM and the SRM as the first two pillars of the banking union are now in place and ESM has been established and financially loaded. With a number of other institutions (EBA, ESRB, ...) that creates ramifications of what he labelled EMU2.0 Somewhere along the way when these big issues have been resolved people have noticed that the convergence of CEE countries towards the income levels of their Western peers has, on average, slowed down. The question is why, and what can be done about that. Potential rates of growth are lower and with ageing populations, significant emigration and decreasing investment rates, focus has turned to structural reforms and institutional quality. Labour and product market liberalisation, or business friendly environments almost became mantras of central bankers in their communication with governments and the broader public. European institutions have started to stress the importance of the quality of the institutions.
On matters of vital interest to the state, however, it must be recognized that even in the absence of some such formula as the British or the Australian, it would be impossible for the Central Bank to adopt a policy or pursue a course of action contrary to the policy of the Government of the day. No agency which is a creature of the Government can be entirely independent of the Government. While the Government may be prepared to give an independent regulatory agency rather wide discretion in a field such as that of money, there is no gain-saying that in the last analysis the Government must assume responsibility for monetary policy as for other policies. The Governor and the appointed member of the Monetary Board cannot help being acutely conscious of the fact that, since no Parliament can bind its successors, their independence and tenure in office under the proposed legislation is limited by the ultimate power of the Government to change the law. The exact degree and independence of the Central Bank is likely to vary from time to time. For example, central banks can ordinarily act more independently in stable, peace-time economic conditions than in time of war or other national emergency. They also tend to take stronger stands on issues which are primarily monetary in character than on related issues which may simply have monetary repercussions.

To be clear, though, we are not opposed to use of longevity reinsurance, including to non-UK counterparties, provided risks are properly managed. We set out our expectations in a Director’s letter more than a year ago. It asked insurers to pre-notify the PRA of new longevity risk transfer and hedging arrangements, including the insurer’s proposed approach to risk management. We consulted on the content of the letter and 3  published Supervisory Statement 18/16 on ‘Solvency II: longevity risk transfers’ . This allowed us to track activity and has been a source of useful information to supervisors. Our supervisory approach has not changed since. Through a programme of in-depth supervisory reviews, we are gaining assurance on insurers’ risk management. We will then review our expectation to be notified ahead of transactions. With insurers transferring more longevity risk and the associated returns, the profitability of writing annuities depends increasingly on the mix of assets chosen to back them. Yields on government bonds are low and spreads on corporate bonds narrow. Insurers are therefore searching for yield in less liquid, direct investments. These include equity release mortgages, commercial property and infrastructure financing. Based on supervisory information, around 25% of annuities are backed by such direct investments currently. But insurers have plans for that proportion to increase to 40% by 2020. These assets can be a good match for long-term annuity liabilities. Moreover, increasing investment in real assets may have wider economic benefits. However, they often lack observable market prices and external credit ratings.