samchain/econo-pairs-v1 huggingface dataset:
Under the most realistic case, in which the monetary authority only possesses noisy information on the presence of unsustainable patterns, the remedy could be worse than the illness, since one can never be certain that a true illness is the case. Yet this is not to say that there is nothing left to be done by monetary policy to deal with low-probability high-impact events, such as an asset market collapse and/or a deflationary spiral. As we have moved towards a scenario of price stability and lax credit conditions, some leading central bankers have been inclined to consider more prevention-oriented policies. To the extent that monetary decisions may be a useful tool for reducing the likelihood of a major financial disruption, or for mitigating the effects of a really adverse shock on the entire system (full deflation, for instance), it might be desirable to pursue a monetary strategy that pays due attention to these unlikely crisis scenarios if the associated impact is disproportionately high. This idea is at the root of what Chairman Greenspan refers to as the risk-management approach to monetary policy. Martin Feldstein has described the essence of this approach in a very insightful and simple way: “A prudent man carries an umbrella even when the forecast says there is only a small chance of rain. If there is no rain, he suffers the small inconvenience of carrying the umbrella. But if he does not bring the umbrella and it does rain, he may suffer the much larger inconvenience of being caught by a downpour”.

Recent data releases and survey information provide further indications that economic activity over the remainder of this year is likely to remain weak but should decline less strongly than was the case in the first quarter of 2009. This assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive  2  BIS Review 83/2009  quarterly growth rates is expected by mid-2010. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check of the outcome of the economic analysis with that of the monetary analysis corroborates the assessment of low inflationary pressure, as money and credit indicators continue to be weak. Against this background, we expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households. As the transmission of monetary policy works with lags, our policy action should progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy will provide ongoing support for households and corporations.
It also appears to have grown in the second half of the 20th century. 39 Evidence from the US over the period since 1880 suggests a similar pattern. Stock market evidence suggests that agents may be undervaluing cash flows by up to 40% each year. Or, put differently, if cash flows six months ahead are undervalued by 20%, those occurring 5 years ahead may be undervalued by up to 90%. The stock market appears to be a quite defective Pigouvian telescope. Patience and jobs If impatience is part nature, part nurture, it ought to have implications beyond finance. So take another key inter-temporal decision – the choice of job. Like financial assets, the market in employment is likely to have become more liquid and information-efficient over time, facilitated by the growth of job search services. But as with finance, information and liquidity has the potential to cause over-trading. Consider, for example, the market for CEOs. Their positions are likely to be particularly at risk from short-term performance evaluation in capital markets. And as with holding periods for financial investments, CEO tenure patterns have changed strikingly over recent decades. In 1995, the mean duration of departing CEOs from the world’s largest 2,500 companies was just less than a decade. 40 Since then, it has declined. By 2000, it had fallen to just over 8 years. By 2009, it had fallen to around 6 years. This pattern is replicated across regions, but is marked in North America and non-Japan Asia.

The financial equivalents include trust and pension funds, Christmas Clubs and pre-nuptial agreements. Some economists have called these “golden egg” investments – investments which cannot be realised quickly, so that temptation is constrained. 44 Pre-commitment can also work for non-financial contracts. For example, job contracts could be based on longduration performance measures. These contracts may require a public policy “nudge”. 45 For example, savings schemes might require people to opt out rather than opt in. (d)  Institutional arrangements, and policy frameworks, are another such pre-commitment device. They are a means of resisting the temptation to place shortover long-term policy objectives. Government’s policy preferences, which are derived from people’s preferences, can be hyperbolic too. That is the essence of the policy time-consistency problem. A solution to that problem is to delegate policy to a patient, low discount rate agent. Because central banks have very long horizons, they fit the bill. Increasingly over the course of the past century, central banks have been chosen to safeguard the long-run objectives of price and financial stability, as a means of leaning against short-termist temptations. 42  The Aspen Institute (2009). 43  For example, Securities and Exchange Commission (2010). 44  Laibson (1997). 45  For example, Thaler and Sunstein (2009). BIS Review 114/2010  13  To illustrate some of the benefits of pre-commitment and long-duration investment, imagine having placed that $ stake in 1967 with an investment firm whose motto was “our favourite holding period is forever”.
Either new capital must be put into the bank before the transfer of assets or it must be injected into the AMC when the real value of its assets becomes obvious to everyone. Putting the money straight into the bank speeds up the restructuring process. 5  BIS Review 66/2000  Consolidated supervisory authorities I mentioned that supervision should be conducted on a consolidated basis, covering activities in different financial and non-financial sectors. Should also the organisation of the supervisory authority be “consolidated”? Several countries, including the UK, Korea, Australia and others have recently moved in the direction of creating an “FSA” which is responsible for the supervision of banks, securities markets and insurance. In Sweden, we have had an FSA since 1990. Is such a consolidation necessary and useful in all countries? In my view, the optimal structure of the supervisory authority depends on the structure of the individual country. In many countries, banks conduct the most important financial activities while securities markets are less important. Here at least bank supervision must be independent, have adequate resources and skilled staff. This is crucial. In many countries, bank supervision is a part of the central bank. This has benefited bank supervision because the central bank usually has legal independence, adequate resources and can attract qualified staff. Combining bank supervision with securities and insurance supervision will probably imply that supervision will move outside the central bank, since securities and insurance supervision is not normally a task of central banks. In this sense, bank supervision may become weaker.

I strongly believe that this is not true. If a proper restructuring is to be done, professional restructuring people without historical relations to the customer should do it. Whenever I have been persuaded otherwise I have later been proved wrong. The second argument for transferring the non-performing assets is related to this. When the management of a bank has a large number of bad credits to take care of, that is exactly what they do. All their capacity is used up taking care of problems and there is no time - and no money - to think about the future. This is disastrous for the whole organisation, which tends to become backward looking and defensive instead of forward looking and offensive. Only when the bad assets are out of the books of the bank, the minds of the management and thus of the employees can become aimed towards the future. Having decided to transfer the bad assets, the next obstacle will be to decide on the prices. The bank usually considers the non-performing assets to be quite valuable, at least in the long run. Selling at what might be considered present market prices will create too big a hole in the balance sheet to make management comfortable. The management of the new AMC quite naturally has a different view. It has no wish to get assets into its balance sheet at values that later turn out to be excessively high.
It should be evident that insurers can and must leverage data and digitisation to strengthen your value proposition to the customer. As one FinTech firm tells me, the battle is won by whoever can provide a more delightful customer experience. At the same time, we should not forget to ‘mind the gap’, or gaps. As insurers delve deeper into the realm of smart tools powered by complex algorithms, artificial intelligence and machine learning, there is also a need to identify and address potential pitfalls of such capabilities. For instance, one particular concern in deep learning models is that the “learning” by the machine is a black box, which could lead to biased “data truths”. This in turn may produce decisions or outcomes that are unexplainable, non- transparent or even unfair. Also, while Big Data enables finer segregation of risk, the concept of insurance is always premised on risk pooling. A careful balance has to be struck between segmentation versus the sharing of risk among policyholders, for insurance to retain its long term societal relevance. We should guard against automatic or blanket financial exclusion or embedded selection bias. There is also a need to safeguard individuals’ right to privacy in the use of personal data. Therefore, an emerging area of focus for MAS will concern the ethical use of data by financial institutions. We will look to provide more guidance on the issues of fairness, ethics, accountability and transparency amidst this technology revolution. Insurers are custodians of very large data sets, including personal information.

The euro is now used worldwide, with around 15 billion notes in circulation worth over 900 billion euros in all. That’s broadly comparable to the total value of the US dollar bills, no mean feat in just 12 years. Today is also a chance to highlight the importance of maintaining people’s trust in the euro. One of the main reasons for introducing a new series of notes is to ensure that everyone who uses them can continue to do so with complete confidence. That’s why we have drawn on a number of new technologies to modernise the security features, making the notes even more resistant to counterfeiting. In addition, the new banknotes have an innovative coating that makes them more durable than the first series. The five euro and ten euro notes are not always treated kindly. By protecting them better, we can prolong their service life and reduce their environmental impact. The new ten is the second note in the Europa series and follows the new five, which started circulating in May last year. As I’m sure you’ll agree, the note you’re going to see is instantly recognisable as a ten. It certainly resembles the ten euro notes you have in your pockets, with its distinctive Romanesque architecture. However, perhaps it will have more of a visual impact, as the images are larger and more defined, the colours are stronger and the bridge has added depth.
Disaster risk reduction and disaster management has thus become a focus of Governments to effectively reduce financial and economic losses. In an industry that is exposed to risks both natural and man-made, this Convention’s theme of “Today’s Risks, Tomorrow’s Claims” is highly relevant especially with regards to the challenges of insurance claims. There are three pertinent challenges that I can think of this morning. Let me briefly share my thoughts on these challenges with you. Firstly, the critical role of insurers in the various aspects of the claims management value chain, that is, claims intimidation, fraud detection and prevention, claim assessment and settlement, and complaint resolution are areas requiring close monitoring by insurers and,  BIS Review 53/2010  1  where necessary, timely intervention to detect and prevent leakages. Insurers have to assess their vulnerability and address the risk of fraud efficiently to reinforce a positive image of the industry to the public. Customers must be kept informed of the progress of their claims and be given clear explanation when a claim is rejected or not settled in full. Any delay or perceived delay in claims processing, particularly for claimants in urgent need of compensation, may be misconstrued as a deliberate attempt to delay claims settlement resulting in bad publicity and ill repute for the insurance industry. Each insurer’s claims management philosophy should therefore set out the broad principles for providing high quality service standards.

In conclusion, allow me to reiterate the importance of the effective participation of all stakeholders involved in each stage of claims management to ensure high claims service standards and fair treatment of customers. Both insurers and loss adjusters must play their respective roles in value-adding to the claims management process for the effective functioning and positive image of the insurance industry in the long term. 2  BIS Review 53/2010
Greater openness for a change in monetary policy strategy abroad While in Sweden one seems to assume that the answers are given, the attitude in the international debate is less “dead certain”, at least this is my experience from meetings and conferences and from the discussions pursued on economic blogs and in academic research. Although no clear majority has emerged in favour of any of Smets’ views, my impression is nevertheless that many economists who study monetary policy issues have increasingly moved toward the view that a monetary policy that leans against the wind may be justified. Smets himself, for instance, reaches this conclusion and economists at policyoriented institutions such as the IMF, the OECD and the Bank for International Settlements (BIS) have also expressed support for this point of view.24 The argument in favour of monetary policy possibly needing to counteract financial imbalances has also made an impact on other central banks. Unsurprisingly, the most obvious examples of this can be found in countries struggling with roughly the same problems with indebtedness and the housing market that we have in Sweden. The exact formulations differ somewhat of course, but there are clear similarities.

Per Jansson: The Riksbank’s monetary policy strategy – in tune or out of tune with the rest of the world? Speech by Mr Per Jansson, Deputy Governor of the Sveriges Riksbank, at a meeting at SEB, Stockholm, 2 June 2014. *  *  *  Was the strategy for monetary policy that was formulated in the decades before the global financial crisis – and which long appeared so successful – actually too narrow? Does monetary policy need to put greater effort into preventing financial imbalances from arising? The crisis turned many things upside down and forced both central banks and researchers around the world to rethink their arguments and theories.1 Today I intend to talk about the rather lively discussion conducted among central banks and in the academic world on this issue. This is a discussion that is both interesting and important, but which I feel has made very little impact on the debate in Sweden. While the discussion here in Sweden for the most part is based on the answer being already given, the attitude in the international debate is much more open and inquiring. Most people agree that macroprudential policy should be the first line of defence against financial imbalances. But an increasing number have also begun to take the view that monetary policy may need to give macroprudential policy support by, as it is often called, “leaning against the wind”.
Retail activity, which was buoyant in May, fell back in June partly due to poor weather conditions. In aggregate, activity was up over the last two months. The construction and civil engineering sector1 recovered in the second quarter of 1997 primarily as a result of seasonal factors. Employment levels held steady in industry, except for the automobile sector, where there was a further contraction, and the building, retail and market services sectors. Wherever possible, companies sought to enhance workforce flexibility via temporary staff and overtime, in order to cope with fluctuating demand and organize themselves for the summer vacation period. __________________ 1  Unadjusted data. BIS Review 70/1997

But mindful of the old Chinese proverb that ‘He who lives by the crystal ball will die from eating broken glass’ I will stick to interpreting what’s happening in the economy right now. I’ll focus on two issues: first, what’s happening to inflation? And second, why has unemployment risen? Over the past couple of years, the headline rate of inflation has been pushed about by sharp movements in energy prices. Back in the autumn of 2004, CPI inflation was closer to 1% than the 2% target. A year later it had risen to 2.5%. It then fell back below target until the spring of this year, when it moved back up to around its present level of just below 2.5%. The first spike in inflation above the target – in the autumn of 2005 - corresponds with the very sharp rise in petrol prices around the time of hurricane Katrina. The second upward movement corresponds with the big jump in domestic gas and electricity prices this spring. This autumn petrol prices have fallen back sharply from their August peak. But CPI inflation has scarcely changed. Why? The simplest explanation is that the recorded inflation rate is still being boosted by high utility prices, and the effect of lower petrol prices has been partly offset by high seasonal food prices and the introduction of university tuition fees. Any broader-based pick up in inflation has been relatively small. Of course, life is not quite that simple.
The bulk of credit growth in the economy as a whole was taking place within the financial sector. And the complexity of the products being created made it hard to evaluate the underlying risks. Why did banks change so much and take risks which eventually led to some spectacular downfalls? Ultimately, the main factor was an inability to perceive the true nature of the risks involved. In this they were not alone. John Maynard Keynes took pains to distinguish between risk, where probabilities or frequencies could be calculated, and uncertainty, where there is no scientific basis on which to form any probability estimates. Keynes went on, in an article published in 1937, to spell out exactly how we tend to behave in the face of such ignorance. It explains a great deal of recent behaviour in financial markets. Keynes argued that uncertainty affects our behaviour in three ways: “(1) We assume that the present is a much more serviceable guide to the future than a candid examination of past experience would show it to have been hitherto. In other words we largely ignore the prospect of future changes about the actual character of which we know nothing. (2) We assume that the existing state of opinion as expressed in prices and the character of existing output is based on a correct summing up of future prospects, so that we can accept it as such unless and until something new and relevant comes into the picture.

What is needed is an additional instrument, or possibly a set of instruments, to provide the authorities with the ability to control the growth of the financial sector and its interactions with the wider economy. A set of counter-cyclical policy instruments is the right response to the dilemma of trying to use Bank Rate to control both inflation and excessive expansion of the financial sector. It provides the “top-down” judgement for prudential supervision that I described earlier, but detailed work is needed to flesh out that general principle. How should we deal with the present crisis? I have spoken so far about the long-term lessons of the crisis for the structure of banking and its regulation. But the immediate need is to deal with the extraordinarily steep and simultaneous downturn in so many economies around the world, and to stabilise the banking system in those countries where it has failed. That should be the main priority at the forthcoming G20 Summit. There are three parts to the required policy response. First, there is an urgent need for a collective commitment by all the countries in the G20 to restore confidence. Second, in those countries where the banking system has failed, there must be a credible promise that banks will be restructured and recapitalised so that they can resume their normal functions and support the flow of credit to their own and other economies.