samchain/econo-pairs-v1 huggingface dataset:
Particularly prominent among them are the indirect and second-round effects on inflation that may stem from the latest price increases. Indirect effects occur when, in an attempt to maintain profit margins, firms pass higher energy costs through to the price of their products. To a certain extent, the spreading of inflationary pressures beyond the energy component is already a reflection of this effect. Profit margin indicators point to a recovery in the euro area in 2021, after the sharp fall in 2020. Margins in Spain appear to have been less buoyant and, according to several (still partial) sources, even declined in the last stretch of 2021 and the first quarter of 2022. Second-round effects arise when, in an attempt to preserve their purchasing power, workers demand wage increases in line with inflation, driving up labour costs and putting additional pressures on final prices. On the latest evidence, significant second-round and indirect 9  effects are not yet materialising in the euro area. Indeed, the latest data on wage settlements point to employees bearing a considerable loss of purchasing power in recent quarters. The limited pass-through of prices to wages could partly be the result of the relatively scant prevalence of indexation clauses, after a long period of low and stable inflation. The percentage of euro area private sector workers covered by this type of clauses in 2021 was the lowest in recent decades.

They should also be designed to avoid significant distortions to price signals, which is particularly important to avert any feedback into the inflationary process. This is a further reason to avoid both an across-the-board fiscal impulse and a very widespread use of automatic indexation clauses in expenditure items. Forgoing such clauses should be part of the incomes agreement, which is the second ingredient of the economic policy response to the war that I would like to mention. An incomes agreement The priority objective of the incomes agreement that we have been advocating in recent months at the Banco de España is to avoid triggering an inflationary spiral that would only exacerbate the harmful effects of higher energy prices. It would consist of an agreement between firms and workers, under the framework of social dialogue, to share the inevitable loss of national income that higher commodity import prices entail. These are goods which we do not have, but which we need for domestic production and consumption. What are the features that should characterise such an agreement? First, it should address the asymmetric impact of the shocks, combining the necessary coordination at national level with mechanisms to adapt the agreement to the existing differences in productivity and activity across firms and sectors. If there are segments of households whose standard of living has been hit particularly hard by rising inflation, the incomes agreement should also seek to mitigate their straitened circumstances.
For example, it is fairly easy to assess adherence to the best practice recommendation to implement a fails charge when a seller fails to deliver a Treasury security, or to use a payment-versus-payment settlement mechanism for FX transactions. In contrast, best practices that propose broad principles can be implemented differently across institutions and have outcomes that do not lend themselves to easy measurement. For instance, it is difficult to gauge the extent to which an individual market participant behaves in a manner that supports market liquidity or whether market participants as a group apply this recommendation consistently. Nonetheless, such principle-based best practices can be quite powerful in motivating market participants to think carefully about their internal policies and procedures and consider whether they are consistent with broader principles. Both types of best practices are important. Successful best practices are almost always developed using a collaborative and inclusive approach. Ideally, with respect to financial markets, the process should include a wide range of market participants, including dealers, banks, buy-side firms, and market infrastructures, representing different areas of expertise, including the core business lines, legal, compliance, operations, technology, and custody. A public consultation process may be helpful in further enhancing the development process.

Jean-Pierre Roth: Switzerland as an industrial location and National Bank policy Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Europa Forum Lucerne, Lucerne, 27 October 2003. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  In a high-wage country such as Switzerland enterprises can only maintain their position in the face of international competition by a process of ongoing innovation. The resulting structural change in the direction of highly technological and increasingly productive economic sectors is also a prerequisite for strong economic growth. In an international comparison, however, Switzerland’s growth is poor. This weak perfomance in terms of growth highlights the need for action in economic policy. Monetary policy cannot, however, fulfil this role. The primary task of monetary policy is to ensure price stability. Price stability is an important locational advantage that Switzerland has to offer. Moreover, monetary policy can also contribute to stabilising the economy and warding off undesirable exchange rate shocks. It is, however, not in a position to bring about a sustained improvement in economic growth. The result of such an attempt would merely be economic overheating with the threat of a subsequent slide of the economy into recession. Lasting effects on economic growth may, by contrast, emanate from education policy, research policy, policy on foreigners and fiscal policy.
26 May 2022  Keynote Speech at ASIFMA China Capital Markets Conference Edmond Lau, Deputy Chief Executive, Hong Kong Monetary Authority Onshore Market Development 1. Good morning. I’m delighted to join you virtually at this year’s China Capital Markets Conference. First of all, let me take this opportunity to thank ASIFMA for organising this event and inviting me to speak. 2. Today’s agenda focuses on onshore market developments. I would like to share my thoughts on the significance of recent developments in onshore capital markets, as well as the opportunities for international investors. 3. Mainland capital markets are experiencing a period of significant growth, with onshore equity and fixed income markets currently the second largest in the world. However, international investors’ exposure to China’s capital markets remains relatively small. Only around 4% of onshore equities and 3% of onshore bonds are owned by foreign investors, which is low by international standards and far smaller than China’s weight in the global economy. 4. We are pleased to see the Mainland’s continued commitment to open up onshore capital markets in recent years. The latest developments to facilitate foreign investors’ access to the onshore markets and adopt international standards have been encouraging and welcomed by the industry. Let me highlight a few of them here. 5. First, with the removal of foreign ownership limits, global financial institutions are able to further expand their footprint in China by taking majority or full ownership in their onshore subsidiaries.

Following a strong 2021, foreign equity and bond inflows into onshore markets softened this year on the back of geopolitical uncertainty, Covid lockdowns, and the China-US monetary policy divergence leading to a reversal of onshore bonds’ yield premium. 10. Notwithstanding this, the scale of the decline in foreign purchases and holdings has moderated recently and is relatively small compared to global investors’ total holdings in onshore equities and bonds. We believe that these short-term fluctuations will not reverse the long-term trend of foreign investment in Mainland capital markets. 11. In fact, several key drivers will continue to strengthen interest in diversification into RMB assets over the medium term. These include (i) continued inclusion of onshore equities and bonds into major global indices; (ii) China’s long-term economic growth prospects; (iii) RMB being a stable currency that is increasingly recognised as a reserve currency; and (iv) lower correlation of RMB assets with other global financial market assets. 12. These factors are paving the way for a structural shift which will motivate global investors to think more strategically about their exposure to China. This, in turn, will spur demand for RMB assets and facilitate the further opening up of the onshore capital markets. 13. In the remaining time, I would like to highlight in more detail a few upcoming developments which will be of interest to international investors seeking access to Mainland capital markets. 14.
We nevertheless view the continued existence of our own independent currency, which can be freely traded on world markets, as an important asset for Switzerland in general, and for its financial sector in particular. e)  Efficient supervision  To be sure, no financial centre can survive without credible guarantees as to its soundness and robustness. As we know, financial institutions are different from other firms. Due to the complex ties that exist between them, and given that the very institution of money is built on trust, fragile elements can destabilise the entire industry. They can have devastating effects on the other players, including on fundamentally healthy institutions. A prerequisite for a successful financial centre is therefore a strong banking supervisory authority. f)  Integrity  All the ingredients mentioned so far are important building blocks of a flourishing financial centre. One should not forget, however, that the most significant factor for a successful banking system is the assurance that the public, and the bank customers in particular, be honestly and fairly treated. In short, without trust there can be no lasting successful financial centre. This is more than wishful thinking on the part of a central banker. It is obvious that it is in the selfinterest of any financial centre, of its lawmakers, its supervisory authorities and of its private agents and their associations to set and implement rules and codes of conduct that match the highest standards.

And default itself amplifies losses in the network, most obviously through direct bankruptcy costs, but also through fire sales of the sort already discussed. Moreover, when entities are highly leveraged, they will have only limited capacity to absorb losses, making such a cascade of defaults more prone to occur. A similar network dynamic can occur when institutions are hit by a payment shock, such as the drying up of wholesale funding that occurred at the start of the crisis and again around the time of the collapse of Lehman’s. The analysis of the behaviour of such financial networks is still very much in its infancy 9 . But a key point material to regulatory design is that some types of network will be inherently more stable than others, depending on both the nature of the network and the obligations on its members. For instance, a network where all institutions are of similar importance and exposures are evenly spread is likely to be relatively stable, as the consequences of an adverse shock to any one institution will be spread widely and thinly. In contrast, as we saw with the collapse of Lehman’s, networks in which there are a relatively small number of key players are potentially very susceptible to the failure of a key player. By the same token, a network in which exposures are collateralised or can be netted across the system will be  9  For more discussion of this issue, see Haldane (2009).
The second argument is that there is no evidence that conflicts of interest between the parts of our Swedish banks conducting investment banking activities and the traditional lending activities have led to abuse. One can, of course, speculate as to why abuse of this type of conflict of interest does not occur in Sweden in the same way as in the United States. I have no clear answer to that. However, there are a couple of institutional differences. Share issues in Sweden have rarely been guaranteed or syndicated in the same way as they are in the United States. The role of the Swedish investment banks in share issues has therefore often been less comprehensive than that of their US counterparts. This may have limited the problem. Another institutional difference is that the bank market is more concentrated in Sweden. This may make the banks more anxious of their credibility than US banks are. If a Swedish bank were to pass on its own credit risks to investors in a share issue, there is a greater risk that this would seriously damage the bank’s credibility. The number of large Swedish investors is fairly small and it would quickly become known if anyone felt they had been cheated. The incentives to exploit a conflict of interest have quite simply been much lower here than in the United States.

There are some different potential solutions. I have already observed that the market itself is often capable of solving the problems. This can be achieved, for instance, by customers making demands for information on various conflicts of interest. However, the collection and distribution of information is not free. And as information contains a strain of public goods, there is a risk that the market solution will generate too little information. It may therefore be necessary in certain contexts to have regulations stipulating that information on conflicts of interest must be made public. Regulations concerning greater insight into various persons’ incentives may limit the effects of different conflicts of interest. It would help outsiders to assess the quality of the information provided. A more drastic solution would be to require that activities exposed to conflicts of interest should be managed by different companies, or even different groups. The Glass Steagall Act in the United States, for instance, required that investment banks and commercial banks must be legally separated. However, there are clear disadvantages with forcing a separation of different activities through legislation. All regulation also entails costs - both explicit and implicit costs. It is important from society’s point of view that these costs do not exceed the usefulness of the regulation. One cost of separating various activities is that it makes it difficult, or impossible, for financial intermediaries to benefit from synergies and economies of scale.
For my family, it was real. For many communities and regions it was a blight, social every bit as much as economic. Across the country, it depressed the everyday lives of millions of adults, some of whose sons and daughters I knew as friends. And it was a blight that affected not one generation, but many. It was that experience as a teenager that led me to commit to economics, and to public service, as a way to understand, and perhaps try and correct, that economic and social blight. And more than thirty years on, those are the same reasons I remain committed to better understanding, and perhaps hoping to improve a fraction, the functioning of the economy to this day. Those wrenching developments in the UK labour market in the early 1980s have been repeated throughout history, since at least the Industrial Revolution. The cycles and shifts in  BIS central bankers’ speeches  1  jobs and wages, and attempts to moderate them, are as old as civilisation itself. Today’s cycles and shifts in the labour market are, in some respects, an echo of that past. As in the past, technology is changing the quantum and nature of work, displacing some jobs while creating others. As I will discuss, through each of the Industrial Revolutions innovation has disrupted the number and nature of jobs. Often, it has led to a so-called “hollowing out” of mid-skilled workers and a widening wage gap across the economy. Yet, in other respects, this time may be different.

GROUNDED LIKE EARTH – TRUSTED SUSTAINABILITY DATA (PROJECT GREENPRINT) The fifth desired outcome is trusted sustainability data. Good data is foundational to driving the green and transition finance agenda. Financial institutions and corporates need good data on their customers' and suppliers' carbon footprints and compliance with their respective transition targets. They also need good data on the climate-related risks their physical assets are vulnerable to. Quality data is key in the fight against greenwashing and in enabling stakeholders to make well-informed ESG-investment decisions. But the ESG data acquisition process is often manual, tedious and costly. Access to good data sources is often fragmented, and data verification is at a nascent stage. FinTech can be a key enabler in addressing these data challenges. In fact, we need FinTech to do in the sustainability space what it is doing today in the inclusion space. We need Green FinTech. Just as Earth provides a firm, steady ground upon which we stand, we want to create a trusted data ecosystem that provides a firm foundation for sustainable finance. To build a Green FinTech data ecosystem, MAS has launched a collaborative effort with the financial industry called Project Greenprint. Project Greenprint seeks to build digital utilities that streamline the collection, access, and use of climate and sustainability data. It aims to help mobilise capital to sustainable projects, monitor the climate commitments made, and measure the impact associated with investments.
However, we must also acknowledge that there may be skill mismatches that prevent reallocation – especially for workers previously employed in low skill sectors such as construction – and these are more challenging to address. At the end of 2012, 18% of workers in the euro area with low education levels were unemployed, compared with only 6% of highly educated workers. This puts a strong onus on active labour market policies and, over the longer term, raising educational attainment. Fixing the financial sector Improving price signals in these ways is necessary for reallocation to take place in catchingup economies – but it is not sufficient. For example, in several such countries profit margins in the tradable sector have increased relative to non-tradables in recent years, yet these signals have not triggered meaningfully higher investment. Research by the European Commission suggests that financing constraints are an important factor limiting capital reallocation in this direction.19 Moreover, there is some evidence that weak bank balance sheets have retarded the process of “churn” between firms that drives resource reallocation. One study found that, in the early phase of the crisis, banks that were lowly capitalised were more likely to maintain credit to less creditworthy borrowers – so-called “ever-greening.20 This type of behaviour inhibits firm exits and reduces the availability of credit for new entrants. Addressing these financing constraints has both a short- and a longer-term dimension.

While ULC went up sharply before the crisis for unproductive firms, highly productive firms did not experience significant ULC growth.17 This implies, first, that there is substantial potential to boost productivity by reallocating resources both across sectors and within sectors towards the most productive firms; and second, that reallocation is not dependent on further ULC adjustment among those firms, as the most productive firms did not experience a significant competitiveness loss. In other words, productivity gains can be realised in the short- to medium-term independent of necessary longer term processes such as improving innovation or adopting new technology – or indeed, completing internal devaluation. Achieving these gains in the euro area today requires reforms that address both price signals and credit allocation that hinder the pace of reallocation. In terms of price signals, I have discussed how before the crisis excessive rents in sheltered sectors distorted profit signals and encouraged capital misallocation. Hence, ensuring that capital now flows towards higher TFP firms must involve deepening the single market and strengthening competitive forces in the non-tradable/services sector. Greater competition will also support TFP growth through various static and dynamic channels: a recent empirical  16  For an explanation of this phenomenon in the US context see Bernanke, B (2005), “Productivity”, remarks at the C. Peter McColough Roundtable Series on International Economics, January 2005. 17  Di Mauro, F. (2014), “Firm-level data: Who said that they are too difficult to use for policy?”, VoxEU 11 March 2014.
I think our track record is good here so far, but there is more to be done. The UK does not yet have a resolution authority for insurers, as recommended in the FSB’s key attributes. Assessing firms’ preparedness for exiting the market in an orderly manner, and working with boards to make improvements where needed, will be an increasing focus of our supervision in the next few years. Nor is there generally an inherent conflict between prudential and other government objectives, as is sometimes suggested. For example, take the government’s three objectives for the review of Solvency II:  2/5  BIS central bankers' speeches  to spur a vibrant, innovative, and internationally competitive insurance sector; to protect policyholders and ensure the safety and soundness of firms; and to support insurance firms to provide long-term capital to support growth. These are consistent and mutually supportive objectives. Safety and soundness underpin the other two: the sector can only be internationally competitive if it operates within a robust and reliable infrastructure, which includes the prudential regime as well as things like the legal system; and only a financially sound insurance sector can make a sustainable contribution to long-term investment. Likewise, an innovative sector, in which business models adapt to changes in circumstances, is ultimately a sounder one. In this context I am wary of calls to encourage specific forms of investment with prudential regulatory incentives, which is usually polite code for lowering capital requirements.

First, globally it is not normal for prudential regulators to have an actual competitiveness objective – to my knowledge there is only one example amongst 3/5  BIS central bankers' speeches  the main prudential regulators. I worry therefore that having such an objective might be seen by others as an intention to weaken regulation in the UK, and thus undercut our authority in international bodies. I also think it’s a bit of a red herring. A robust prudential regime focussed on objectives of safety and soundness and policyholder protection is part of the national infrastructure that underpins the attractiveness of UK firms as counterparties. Second, it is wise not to give regulators too many objectives and have regards. Loading something up with ever more objects is an excellent way to decorate your Christmas tree but it’s not the best way to create an effective regulator. Solvency II Review So much for theory. What about practice? In particular the main event of this year: you may think it is defeating Covid, but of course it is in fact the review of Solvency II. I don’t want to bore this audience (any more than I have already) with a discussion of detailed measures. But I have a few brief points to make about the review itself. Perhaps most importantly, the review will stay true to the basic principles of Solvency II.