samchain/econo-pairs-v1 huggingface dataset:
A report submitted by an Ad-hoc Group chaired by Jean-Pierre Landau. BIS central bankers’ speeches  5  increase in risk appetite. It is not far fetched to ask whether excess Global Liquidity can result.16 We thus have two broad stories of what kicked off a period of pronounced credit growth and asset price appreciation. First, a fall in the world safe real rate, due to excess savings in the East. Second, increasing Global Liquidity, transmitted through expansive cross-border lending, kicked off by prolonged accommodative monetary policy. These stories are not at all mutually exclusive.17 And, most probably, both contributed to exuberance. But it is not my purpose this evening to revisit how asset-price appreciations that are initially fundamentally warranted can get out of control through the “Minsky” mechanisms of extrapolation of past returns into future targets, herding and myopia18 – the last no doubt aided by exaggerated market beliefs of what monetary policy can achieve following years of uninterrupted growth. Rather, it is important to my purpose this evening that both stories involve shifts in risk premia driven by changes in the supply and demand for financial assets. Shifts in risk premia, gross capital flows, and balance sheet strains That story would hardly have interested most macroeconomists a few years ago. Financial asset prices were regarded as providing useful information because they are forward-looking and available at high frequencies, but no more; they were not seen as actors.

During 2008–09, the Bank of Albania started the revision of the regulatory and operational procedures to make them more comprehensive and solid with a view to tackle extraordinary financial situations. In this context, the FSVC has assisted us with expertise to amend and upgrade the relevant manuals. In 2010, the assistance of FSVC was requested to perfect operational risk supervision and assess IT infrastructure adequacy. In addition, during the same year, assistance was received as regards revising the credit risk manual. In 2011, cooperation between the Bank of Albania and the FSVC focused on boosting banking risk assessment, this time around on liquidity and market risks assessment. Moreover, the assistance of FSVC has proven very useful for the regulatory and operational empowerment of the Albanian Deposit Insurance Agency (ADIA). I would like to underscore the appreciation of the ADIA and the Bank of Albania, as its supervisory authority, for the invaluable contribution of FSVC experts on drafting ADIA’s Strategic Development Plan 2002–05; preparation of payment procedures in the compensation process during 2008; drafting of amendments to the law “On deposit insurance” in 2009, and; identification of further legal and regulatory improvements to enhance ADIA’s capacities on insurance of liquidities. I would also like to point out that the FSVC’s assistance has been evident and effective. It has always been adapted to the Bank of Albania and ADIA’s concrete needs and provided swiftly. The deployed experts were professionals with considerable financial and legal experience in key institutions such as the Federal Insurance Deposit Corporation.
If I am right and a new leaf is being turned, then Occupy will have played a key role in this fledgling financial reformation. You have put the arguments. You have helped win the debate. And policymakers, like me, will need your continuing support in delivering that radical change. References Cecchetti, S G and Kharroubi, E (2012), “Reassessing the impact of finance on growth”, Bank for International Settlements. Galbraith, James K. (2012), “Inequality and instability: a study of the world economy before the great crisis”, Oxford University Press. Haldane (2011), “Control rights (and wrongs)”, Wincott Annual Memorial Lecture, London, available at http://www.bankofengland.co.uk/publications/Documents/speeches/2011/ speech525.pdf Philippon, T and Reshef, A (2009), “Wages and Human Capital in the U.S. Financial Industry: 1909–2006”, NBER Working Paper 14644, National Bureau of Economic Research, Inc. Rajan, Raghuram G. (2010), “Fault Lines: how hidden fractures still threaten the world economy”, Princeton University Press. BIS central bankers’ speeches  7

Not all of them disappeared though, for example, Charlemagne capital bought four regional banks and consolidated them into a single bank. Cleaning up the market, by removing inefficient banks, laid foundations for a healthier banking system, resistant to macroeconomic disturbances and improved risk management. Moreover, these two crises made us attentive to emerging risks, such as rapid credit growth or lax risk management practices and generated political support required to provide us with the toolkit needed to prevent future disruptions in the financial sector with large spillovers to the real economy and potentially huge costs to the budget. Since then, we continued cleaning up the system with no threat to either the financial stability or the budget. Navigating the Boom and the Bust The resumption of growth and resolution of weak banks eventually stabilized the banking system, setting the stage for the period of rapid international integration and financial deepening of the 2000's. After the first clean-up at the turn of the century, the number of banks has fallen to slightly above 40, and consolidated institutions started to compete strongly. In their pursuit of higher market shares, banks turned to foreign sources of financing, facilitated by extremely favourable financing conditions and high liquidity at the global level. At the surface, the financial sector supported the story of economic growth and convergence. However, experiences from the 1990s provided an optics needed to spot risks emerging underneath.
It also emphasized the need to collectively think how, as a supervisor and a central bank, we should deal with risks and avoid the build-up of new vulnerabilities (e.g. helping to enhance the financing shift towards low-carbon sectors). Those reflections gave birth to the Network for Greening the Financial System in December 2017. As a continuation of this work and also in the spirit of bringing our contribution to the reflections of the NGFS, the ACPR surveyed both main French banking and insurance  companies in 2018 to take stock of progress they have achieved in dealing with climate change-related financial risks. The main takeaways from both surveys have been published last April 10th 2018 in two reports1. The report dedicated to the banking sector2 includes three main observations:  There is a shift in the governance of climate change-related risks from a “Coporate and Social Responsability-only” perspective towards a two-pronged approach which integrates traditional risk departments. This trend is nevertheless mainly observable in the biggest and most internationally active institutions and the operational implementation could be improved significantly (lack of metrics, specification of strategic orientations at the business-line level…).

The development of risk analysis tools is mainly focused on transition risks as related exposures represent a potentially much larger share of their balance sheet (net credit exposure to the most carbon-intensive sectors indeed averaged 12.2% of total exposures in 2017 among 6 of the 7 main French banks) compared to physical risk-related exposures (as most of assets are located in countries displaying a low vulnerability to climate change e.g. Western Europe). A wide variety of tools have  been reported but each of them has still important drawbacks arguing for further refinement and more data collection with certainly a need for support from supervisors. 1/2  BIS central bankers' speeches  Finally, liability risk is not viewed as a material one at this stage despite a growing number of climate change-related litigation cases. Therefore, there is ample room for progress leading the ACPR to lay-out recommendations directed to institutions on the one hand and to regulators and the supervisors on the other hand. In particular, as a supervisor we should be able to quickly come up with a prudential reporting of exposures to unsustainable activities. From this point of view, the forthcoming taxonomy from the European Commission will certainly be useful but not enough to achieve this as a taxonomy of unsustainable activities is needed. We should also anchor expectations of financial institutions about climate-related risks by publishing strategic roadmap about the way the supervisor intends to scale-up the supervision of these risks along the different regulatory pillars.
True, there are other external factors that generate what is occasionally unwarranted mistrust of the Kingdom of Spain. Undoubtedly, factors such as market irrationality, herding or procyclicality are significant, but they will not foreseeably change. There are also other factors, such as the mistakes made by European Union Member States when attempting to resolve their problems, that are no doubt also responsible for this higher cost, and the proof is that the sense of incapacity being conveyed to the markets does not only affect our country, as shown by the abnormally high level of most euro area countries’ CDSs. But it must also be accepted that the possibility of improving economic governance in Europe is in the hands of many other countries and not only Spain. This is why we should focus on easing the concerns of the markets, which do largely depend on us. These concerns are those that I have mentioned: there are doubts as to whether we will be capable of seeing through the fiscal adjustment, concluding the restructuring of savings banks and changing the institutional framework in a way conducive to job creation in Spain. As to the fiscal adjustment and to financial restructuring, I believe the means and the schedule set by Parliament are correct, and now it’s a question of complying.

4  BIS central bankers’ speeches  Given the importance of the matter, I cannot conclude without referring to our level of educational attainment and, specifically, to secondary education. Unfortunately, the measures that raise educational attainment pose a problem; unlike the reforms we have looked at today, the effects of potential improvements in education are very slow and this explains why the attention the subject requires is continuously put off. But this slowness in bearing fruit is precisely what justifies the need to undertake this task as soon as possible and, while waiting, we should reiterate that education is the most important problem facing our society and our economy in the medium term. Thank you very much. BIS central bankers’ speeches  5
But, for today’s purposes, I shall take as my starting point a speech given by the previous Governor to the RICS in Paris in October 1989. You will recall that everything in the garden then seemed rosy. Cranes were everywhere on the horizon; there was an expectation that rents and capital values could only move upwards. Banks were developing innovative financing techniques and competing fiercely with one another to finance all this activity. Income returns were not out of the ordinary but the market was underpinned by the prospect of capital gain. 4 Yet some participants and commentators were beginning to have concerns about the scale of development. The Governor questioned whether there would be sufficient demand for the supply coming on stream. He noted too the banks’ rapidly growing exposure to the sector. The sector was quite simply heading for overcapacity and overgearing. Why did the lenders not see it coming? Perhaps inability or unwillingness to see the big picture was one reason - but more of that later. We have been asked quite often why we as the supervisor of banks did not stop them overlending. The answer remains the same. The banks have to be responsible for their own commercial decisions. We are there to protect their depositors, not their shareholders. But we can usefully draw their attention to gathering clouds - and that is what we did. 5 As we all know, the required level of demand did not materialise.

Investment in the remaining sectors of the economy have also been, to a large extent, selffinanced (44.2% during the period 2004–08) while financial savings of private enterprises and households increased. The share of bank financing, mainly domestic, represented 50.5% while bond issuance covered 5.3% of financing needs. Domestic medium and long term bank loans, which have been substantially increasing over the past 5 years, have been oriented to investments in productive non-oil sectors, notably energy and water sectors where investments have significantly increased. Anchored to relatively stable and sustainable resources, the development of credit allocation has been notable, with credit to the economy increasing by 15.7% in 2007 and 18.6% in 2008. Growth in the credit to the economy in 2009 remained strong (19.4%, twelve months increase by June 2009) at a time where many emerging economies faced bank credit contractions. Credit to private enterprises and households represents a large share of total allocated credit (54 to 55% over the past 3 years). Medium and long term (investment) credit  2  BIS Review 168/2009  increased by 20.9% in 2008 and 12.9% in the first half of 2009, reflecting favorable domestic bank financing conditions. In this favorable financing context, additional measures have been introduced in the Supplementary Budget Law of July 2009, aimed at further promoting credit to small and medium size enterprises (SMEs), including increasing the maximum government guaranteed credit amount. In the same vein, banks are allowed to extend credit to their affiliates up to 25% of their tier 1 capital.
A number of recent efforts have been undertaken to modernize the Poole model by adding interest on reserves and other features of modern money markets. Two notable examples of this are Schulhofer-Wohl and Clouse (2018) and Afonso, Armenter, and Lester (2018). 17 Alternatively, it could be that banks are more efficient in their balance sheet management, which would be consistent with the lower volatility in overnight rates we have seen at recent quarter-ends. Bargaining dynamics within overnight money markets, which exhibit a fairly high degree of concentration of both borrowing and lending, could also have played a role in the rise over time in market rates relative to IOR. 18 For a further discussion of the shape of the demand curve for reserves and its implications for policy implementation, see Logan, “Operational Perspectives on Monetary Policy Implementation: Panel Remarks on The Future of the Central Bank Balance Sheet,” May 4, 2018. 19 In the spring there was an increase in borrowing in the federal funds market above IOR, but volume in the Eurodollar market decreased around the same time. 6  Let me offer some caveats to these observations. Money markets have been and are now changing quickly in response to regulatory, technology and business model incentives. 20 At the same time, reserves in the system have been abundant because of the asset purchase programs— perhaps smoothing through the effects of some of these changes.

This was another step in a long chain of communications about the balance sheet —incremental steps that highlight the evolution of our communication practices. I hope you would agree that we have taken a very measured and careful approach. This process started with the initial release of the Policy Normalization Principles and Plans in September 2014, which indicated that the FOMC planned to reduce securities in a gradual and predictable manner. Related comments followed in the minutes of the July 2015 FOMC meeting and the December 2015 FOMC statement. Subsequently, FOMC participants discussed potential long-run frameworks for monetary policy implementation as detailed in the November 2016 FOMC minutes. Next, the March 2017 FOMC minutes reaffirmed that a change in balance sheet policy would be gradual and predictable, and achieved primarily by changing the reinvestment policy. These minutes also noted that most participants judged a change in reinvestment policy would likely be appropriate this year, should economic data develop as they expected. Then, in the May 2017 minutes, it was noted that nearly all participants had a favorable view of a phased-in, cap approach whereby reinvestments would be decreased gradually. Participants favored this 2/4  BIS central bankers' speeches  strategy because a preannounced schedule would be gradual and predictable, limiting the magnitude of the runoff could help mitigate any adverse market effects, and the strategy would be relatively easy and straightforward to communicate.
I will then discuss the other side of global economic integration, namely the interdependencies between countries and markets. At the end of my remarks, I will offer some thoughts on what is likely to change with regard to monetary policy if global economic integration were to decrease again as a result of the war. Monetary policy in an integrated global economy The world has become increasingly interconnected economically over the past decades. Until a short while ago, we thought these ties would continue to become closer. The US-China trade dispute of recent times had already cast some doubt on the durability of global integration. The coronavirus pandemic has restricted mobility and strained global supply chains. However, the geopolitical confrontation we see today has an entirely different dimension. Russia’s invasion of Ukraine has reopened old rifts in many respects. We therefore have to ask what the consequences would be if the economic fragmentation already caused by the war were to persist, or even increase further? To assess this, I would first like to look briefly at the process of globalisation over the past thirty years or so. At the beginning of the 1990s, the erstwhile closed-off states of the Eastern bloc gradually began to open up, and so too did China and other Asian countries. Since then, economic integration worldwide has been considerable. Today, the value of goods and services traded internationally is three and a half times higher than it was then. Average real per capita income worldwide has increased by two thirds.

The closer a country’s trade relations were with Ukraine and Russia, the stronger are the direct adverse effects now on growth, of course. However, owing to global interconnectedness, the war is also throwing sand in the gears of countries with few trade links in the region. All of this slows the economy, also here in Switzerland. For the current year, we anticipate that Swiss GDP will grow by 2.5%. This is half a percentage point lower than we expected before the war broke out. Inflationary pressure has risen in Switzerland, too, albeit comparatively moderately thus far. Annual average inflation for 2021 was still at 0.6%; in March 2022 it stood at 2.4%. We define price stability as a situation in which inflation lies between 0% and 2% over the medium term. At our most recent monetary policy assessment in March, we decided to leave our policy rate unchanged at −0.75%, and to maintain our willingness to intervene in the foreign exchange market as necessary. However, we had already stressed in December that we would allow the Swiss franc to appreciate to a certain extent. So how do we put our current monetary policy in context? We intervene in the foreign exchange market when strong upward pressure on the Swiss franc would lead to persistently negative inflation and weigh heavily on the economy. However, we do not react mechanically to every instance of upward pressure.
I would like to discuss some of these and the extent to which they may have contributed to lower prices and wages and a flatter Phillips curve. Moreover, I shall discuss the increasing migration and demographical developments with an ageing population and what economic effects this may have. Another structural change concerns the declining trend in real interest rates around the world. This is a change that has been under way for a long time and has also affected Swedish interest rates. Sweden is a small open economy with free movement of capital and our interest rates therefore adapt to international interest rates. This adjustment does not always need to be perfect, which is another thing I intend to take up. In conclusion, I shall discuss how different types of uncertainty, including uncertainty over long-term trends, can affect monetary policy decisions. Long-term trends and monetary policy Economic developments are driven by different types of technological innovations. At present, there is a lot of talk about the rapid digitalisation, automation and globalisation that can have major significance for how different markets function and for the economy as a whole. With regard to monetary policy, the financial markets and the labour market are particularly important in this context. This is because two long-term levels – the long-term real interest rate and the longterm sustainable level of resource utilisation – are determined on these two markets.

Looking at the region as a whole, after some very difficult years, inflation has come down dramatically from very high levels at the beginning of transition to single-digit levels today. Long-term interest rates have also fallen substantially, reflecting the gradual anchoring of inflation expectations. The countries of the region have also made remarkable progress in terms of institutional and structural convergence. In particular, we have witnessed the building of appropriate institutions, increased trade integration with the euro area and improvements in the business environment. Naturally, this progress has been reflected in per capita income convergence. Over the last 20 years, per capita income has risen to an average of 63% of the EU average if adjusted in terms of Purchasing Power Parity (PPP). But combining low inflation with real convergence has posed a serious challenge in many countries. Let me elaborate on this. The very process of real convergence entails upward pressures on prices, which can be hard to avoid in terms of both relative prices and the overall price level. Among other things, these pressures stem from high productivity growth as well as the processes of price liberalization and tax harmonization. Price increases related to productivity growth are usually referred to as the BalassaSamuelson effect. But most studies have found this effect to be relatively limited.1 Convergence in price levels, which stood on average at two thirds of the EU average in 2010, seems to have surpassed convergence in income levels in all countries of the region.