samchain/econo-pairs-v1 huggingface dataset:
A year ago there were grounds for hoping that the external storms were beginning to abate, but those hopes were deferred - by the after-effects of corporate governance and accounting failures in the US and by uncertainty associated with the war in Iraq. There nevertheless remain reasonable grounds for  BIS Review 29/2003  1  thinking that the external environment will now gradually improve as we move through the second half of this year into next, and that this will help to offset the gradual moderation we are beginning to see in the growth of consumer spending. That would open the way to continued relatively steady and better balanced growth - at or above trend, with inflation remaining close to target. But there are certainly short-term risks on either side, and given those risks - including the risk of slow growth in the Eurozone, particularly in Germany - I agree with your assessment that the economic case for euro-entry has not yet been made. More generally on that subject, I very much welcome the Treasury’s exhausting - I mean exhaustive - broader assessment of the longer-term pros and cons which I hope, when people have had time to digest it properly, will result in a better balanced - less polarised - debate on the economics of the euro question. I confess that I had hoped that we would by now be further along the narrow channel I have described on past occasions between the Charybdis of external weakness and Scylla of unsustainable consumer demand.

And I’m sorry in this respect to be jumping ship at this particular point. But I’m convinced that calmer waters lie not too far ahead. And I’ve every confidence that Mervyn King - who has in effect been our Chief Navigating Officer for much of the past decade, and who will take over as skipper at the end of the month, with an outstanding MPC and Bank crew to support him - will find the way through. I certainly wish them safe passage! My Lord Mayor, if the harsh international climate made life difficult for us on the macro-economic front, the associated, sustained, fall, in global equity markets in particular, made it an unusually tough time for many financial institutions here in the City. Happily, here too, there are more recent signs of improvement. Perhaps the truly remarkable thing about that is that the financial system as a whole withstood the pressures as well as it did. But over a longer time horizon the City’s financial institutions have responded remarkably well to sustained market pressure for change, and we have been outstandingly successful in fulfilling the City’s vital economic, and social, function of promoting growth and employment both in this country and across the globe. One can think of lots of reasons for that success - I pick out two in particular. First, we have managed over time to maintain a reasonable balance between creative market dynamics on the one hand and official intervention and regulation on the other.
All told, we spoke to firms accounting for about three-quarters of current reserves balances. What did we find? Unsurprisingly, different firms thought about their reserves holdings in quite different ways – and no-one used the term ‘demand curve’! Nevertheless, we can build up a picture of demand for reserves by understanding three core drivers of demand, common to all firms. First, at the most basic level, firms hold reserves to meet both expected and unexpected sterling payments during each day. The shape of this demand depends on firms’ business models. Calendar effects are important for retail banks, for example; whereas wholesale banks and gilt-edged market makers are more affected by the ebb and flow of capital markets activity. And access to (and efficiency of) payment and settlement systems can have important implications for the reserves that firms need to hold. So innovations such as the Bank’s RTGS renewal programme14 have the potential to transform demand levels. Second, reserves are an important form of insurance against liquidity outflows over short, but multi-day, horizons. Regulatory rules require firms to hold liquid assets to cover projected outflows over a  14  https://www.bankofengland.co.uk/payment-and-settlement/rtgs-renewal-programme 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  thirty day period. This doesn’t have to mean reserves – firms could instead hold liquid government bonds, mortgage backed securities or even equities. But, unlike reserves, such assets have to be liquidated in the market before they can be used to meet outflows.

Sabine Lautenschläger: Caution should be the life of banking Introductory statement by Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the Single Supervisory Mechanism, at the Association for Financial Markets in Europe (AFME) Board Meeting, Frankfurt am Main, 22 March 2017. * * * Ladies and gentlemen, Taking risks is at the heart of any healthy business, including banks. After all, it is the job of banks to take and allocate risks. But as Walter Bagehot said: “Adventure is the life of commerce, but caution is the life of banking”. I agree with him. Banks are far too important for the economy to indulge in adventures. They enable business by providing loans to companies or by helping them to tap the capital markets. And they also facilitate business by providing services in fields such as payments, mergers and acquisitions, and global trade. Banks help the economy to grow and prosper. But they can also badly hurt it; we saw that in the financial crisis. That’s why banks need to be cautious. In practical terms that requires, among other things, sound risk management. And this sets the scene for my short statement today. The topic is risk management. I will begin with some smaller, or rather bank-specific, risk management topics and end with a few big issues. Sound risk management depends on good data. It also depends on firm-wide risk aggregation and reporting. Those who take decisions must be in the picture.
There were too few left in the business sector to bear the welfare state. The resource curse also increases rent-seeking at the expense of value creation, as the economist Trygve Haavelmo noted. Many countries that have experienced a windfall of wealth have been victims of this curse. The state of Alaska has chosen its own institutional solution to avoid rent-seeking among special-interest groups. Once the real value of Alaska’s oil fund, the Alaska Permanent Fund, is secured, dividends are distributed to the owners. Each resident receives an annual cheque that can be spent as desired 13, providing a strong incentive to protect the capital in the fund. 14 The choice of building up a sovereign wealth fund must also be seen in connection with the state’s substantial pension obligations under Norway’s National Insurance Scheme. For the Norwegian state it would not have made sense to choose a solution like the Alaska fund without also addressing the issue of pension obligations. 11  See for example the obituary “Gunter Sachs”, in The Telegraph, 9 May 2011: http://www.telegraph.co.uk/ news/obituaries/8503379/Gunter-Sachs.html  12  Jeffrey Sachs and Andrew Warner (1995): “Natural Resource Abundance and Economic Growth”, NBER Working Paper 5398. 13  See for example the Alaska Permanent Fund website: http://www.apfc.org/home/Content/dividend/dividend.cfm  14  This would be comparable to using the return on the fund as tax relief.

Nevertheless, there is also scope for financial institutions to develop innovative financing schemes – such as equity finance – to make home ownership more affordable. These include shared ownership schemes where buyers can acquire partial interest in a home, instead of being burdened by an outright purchase. Similarly, we have also observed lease-to-own schemes under Islamic finance arrangements, where tenants have the option to increase their stakes in a home after leasing for a period of time. Bank Negara Malaysia continues to work with the industry to uncover new opportunities, including through financial education, to support firsttime home buyers within their means. Financing therefore is not the issue. More to the point, financing measures have had an important role in tempering house price increases and encouraging an increase in the supply of affordable homes. This alone, however, is insufficient. Public policy can play a bigger role in advancing the affordable housing agenda. Given the structural factors that are shaping the housing market, solutions have to go beyond advocating for the construction of more houses. It is also imperative that we improve the existing ecosystem for affordable housing delivery to respond to both current and new challenges ahead. Let me briefly touch on several key components of such an ecosystem. First is having good data. An integrated database on housing supply and demand is critical – this should provide insights on the needs and preferences of households, their linkages with demographic shifts, as well as housing gaps across different parts of the country.
We have a demographic development towards an increasingly ageing population and a rising dependency ratio. This means that we can have a situation with many old age pensions who push up public expenditure at the same time as fewer individuals of working age contribute to tax revenue, which deteriorates public finances. Increased immigration can in this context be positive for the age composition, as those born abroad have a favourable age structure. Just over 70 per cent of those born abroad are of working age, which can be compared with around 55 per cent of those born in Sweden. A continued inflow of people born  15 [24]  abroad could therefore keep down the dependency ratio going forward, see Figure 11. 19 Figure 11. Total dependency ratio and dependency ratio for Swedish born 1.1  1.1 Dependency ratio, total Dependency ratio, only Swedish born 1  1  0.9  0.9  0.8  0.8  0.7  0.7  0.6 1980  1990  2000  2010  2020  2030  2040  0.6  Note. The dependency ratio refers to the number of children and elderly people in relation to the working age population. Children refers to people in the age range 0-19 and elderly people to those aged 65 or older. Sources: Statistics Sweden and the Riksbank  A rapid population growth generally promotes economic growth. A large population gives increased scope for economies of scale and thereby better capacity to introduce new technology that can make production more efficient.

Uncertainty over long-term trends – more cautious monetary policy A large part of today’s speech has concerned long-term levels and trends on the labour market and the financial markets. When such trends change, it often takes some time before one notes the change and this can also be difficult to assess. One example of this is our forecasts of labour force participation. Figure 13a shows the forecasts for labour force participation at different points in time, together with actual outcomes. The forecasts do not appear to have succeeded in capturing what appears to be an increasing trend in labour force participation. This is partly because we have underestimated the population increase, which is based on Statistics Sweden's forecasts, and partly because labour force participation has risen as a share of the population. The latter could be due to reforms that have stimulated the labour supply and an increase in labour supply that is not registered in the population database. However, the forecast errors can be smaller 19 [24]  when it is not a question of changes in trends, which can be illustrated by the forecasts of GDP growth, see Figure 13b. One uncertainty factor in the monetary policy decisions is thus the difficulty in detecting changes in trends, but there are also other uncertainty factors to take into account. Alan Greenspan put it like this: “Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape”.
These two objectives contain the same “subject to that” language used in 1997 in the Monetary Policy Committee’s objectives. It means that there is a hierarchy of objectives which the FPC must observe. But, two further points are relevant here. First, resilience and economic growth interact, so they are not fully independent. An economy that displays stable growth is more likely to have a stable financial system, and vice versa. Second, policy is necessarily forward-looking, in that we are concerned with stability and growth in the future, since today’s outcomes are so to speak, “baked in”. This means that, in thinking about the hierarchy of objectives, in my view we have to take a forward-looking assessment of the probability of success, rather than saying we should complete one and then do the other. Financial stability is more complicated than monetary policy in at least one respect, namely that it does not reduce to a single target expressed as a number. Rather, it comes in the form of recommendations, in the plural, expressed as words. You would think that as central bankers and public officials we should love that, spending our time crafting language in a form that only we really understand. Let’s not get carried away here – there is a danger that  BIS central bankers’ speeches  1  by doing so we create uncertainty about our intentions. This danger of creating uncertainty exists because we are finding our way in a new and difficult area of policy.

I want to try to cast more light on the issues here. But, I would note that, in the history of monetary policy, regime changes have had to deal with the challenge of crafting communication that avoids creating more uncertainty. We have two, hierarchical, objectives: simply put, the resilience of the financial system, and the objective of encouraging growth (the counter-cyclical objective). These two can point in opposite directions, for instance in terms of banks’ ratios of capital to assets. The FPC has recommended that banks should strengthen their buffers of capital. What is meant by this? Let me tell you what we have concluded, and what we have not yet concluded. We are in a quite extended transitional phase, whereby the capital buffers of the banks are being increased to the Basel III levels. This process has around six years to run on the transition timetable. The FPC has recently said that it thinks banks should take steps to build up those buffers more rapidly than most firms have done recently under the Basel transition policy. (I say “most” because some firms have already made the transition.) But, we are not defining this objective as requiring banks to reach a level such as a 10% Core Tier One ratio in the next year or so on the new Basel III measure. Why not?
So even a relatively small effect of this sort can have a material impact on the credibility, and therefore the power, of the guidance (the dotted line in Chart 5). The solid blue line presumes that there’s some mechanism – some Odyssean mast to which you could tie yourself – ensuring that the cost of breaking the promise is always greater than the temptation to do so. Chart 5. Commitment policy loses much of its power if it isn’t fully credible  Results from a simulation of a small macroeconomic model under alternative assumptions about monetary policy and the average distance to the lower bound. Macroeconomic volatility is measured using a simple “loss function” that weights the variance of inflation and the output gap. The y-axis shows the square root of the loss function, scaled to 1 for the case of commitment policy with an average distance to the lower bound of 5pp. Sources: See Appendix for further details. In practice, it’s hard to see that there is one. The importance of maintaining reputation obviously helps. There’s a cost to breaking one’s word. But that mightn’t be enough, especially if your promise seeks to constrain not just your future self but your successor as well. That obstacle is all the greater if, as in the UK, policy decisions are made not by collective consensus but by democratic vote. Each member of the MPC member is individually accountable for his or her vote. It’s part of the UK’s constitution that “no parliament can bind its successor”[16].

One is the distance between the “neutral” nominal rate of interest and the lower bound. This is plotted on the x-axis. The larger this gap (i.e. the further you are to the right) the less the lower bound is likely to matter. There may occasionally be shocks that are bad enough to take you there but they obviously become rarer the more distant the average policy rate from its floor. Maybe you can think of this a reasonable description of the 1990s (when the neutral interest rate was comfortably above zero and “forward guidance” was no more than a twinkle in Michael Woodford’s eye). The second is the scope for this committed (“Odyssean”) form of guidance. QE isn’t available to either of the policymakers in Chart 4. But one, at least, has the capacity to commit credibly to particular policies beyond the current date. The average loss in this case is plotted in blue. The red policymaker can’t do this. He takes the lower bound into account when setting current policy, but, unfettered by any sort of prior commitment, he’s free to reset policy each period as he sees fit. This may sound like a good thing (isn’t it better always to have full discretion?) and there are certainly many instances in which the blue policymaker would prefer to be released from his earlier promise.
In order to meet these challenges, it is imperative that this ecosystem transforms to accommodate changes in demand for financial products and services, the increased competition that is driving down profitability and the fast-growing need for operational resilience. In this context, a thriving, creative and efficient FinTech ecosystem may be a key element in the transformation of the financial system towards greater efficiency and resilience to shocks. This is why, as central banker and supervisor in charge of ensuring monetary and financial stability, I feel it is important to support this FinTech ecosystem and facilitate its smooth integration into the broader financial ecosystem. Naturally, I would like to make it clear that this integration does not,in my opinion, mean a convergence of players, a “harmonious” cooperation or a coordinated approach: the various players have different, sometimes even opposing goals, and that is how competition works. However, we should not systematically pit FinTechs against established players: there is a great variety of relationships between these two worlds, as we see every day. The potential for enriching the financial ecosystem and making it more efficient and resilient lies in strengthening the relationships between players and their diversity. What do we want to do and what are we doing at the Banque de France and the ACPR to support this development of the FinTech ecosystem?

I now give the floor to Director Jannecke Ebbesen, who will chair the morning session. Thank you. 2  BIS Review 27/2008
The growth rate after having recovered the initial output level was also different. Considering the first six quarters after having reached this point, in the beginning of 2000, the economy grew at an average annual rate of 4.4%, whereas between the first quarter of 2010 and mid-2011 the economy grew an average annual rate of 6.3%. The behavior of the unemployment rate was totally different as well. After having risen from around 7.5% in mid-2008 to levels close to 11% in mid-2009, it began a period of fast decrease, returning to levels around 7% to 7.5% at the beginning of this year. The policy regime was crucial in this result. Fiscal policy implemented a sizeable economic stimulus package. Monetary policy also added a significant impulse to the economy, as the Bank took the monetary policy interest rate to its minimum and implemented additional measures to ensure the effectiveness of its actions. The effects of the 2008–2009 crisis were very significant, but the resilience of the Chilean economy and the effectiveness of its macroeconomic policies were even stronger. Over time, inflation targeting regimes have evolved to what is now known as flexible inflation target (FIT). In this scheme, the central bank sets an inflation target, which is intended to be achieved in a given time horizon. As shown by Svensson (1997), inflation targeting implies inflation forecast targeting.

The result is a recession or a period of sluggish growth, which, in turn, reduces the wealth of savers and their demand for safe assets.7 Do we have alternative ways of escaping this trap? We require, following my earlier metaphor, an update to our electricity grid. On first thoughts, two ways to expand the set of safe euro-denominated assets spring to mind. On the one hand, euro area countries with a sovereign bond that is not considered sufficiently safe should focus on reducing their idiosyncratic sovereign risk, in particular by implementing credible medium-term fiscal 7  Caballero, Farhi and Gourinchas (2017), “The safe asset shortage conundrum”, Journal of Economic Perspectives, 31(3). 6/8  plans, in order to jump on the safety bandwagon. On the other hand, increases in the amount of current safe instruments could mitigate the safety trap. However, this strategy may not be enough to ensure a sufficiently stable and ample supply of safe assets. First, its success depends on the capacity of the less safe countries to become safe. The sovereign debt crisis has shown that it is not sufficient to start from a low level of debt and a budget surplus, as was the case of Spain in 2007. Second, countries with fiscal space might face restrictions on the amount of debt they can issue. As a consequence, one cannot guarantee that, faced with another negative shock, risk perceptions will not differ nor fragmentation increase.