samchain/econo-pairs-v1 huggingface dataset:
We know that linking compensation to productivity is efficient, but the devil is in the details. Second, the regulation-making process, as very well discussed in Dr. Reddy’s lecture, was also distorted by comprehensive capture by the financial industry. As he explains, this was not only capture of the regulators, but also capture of public policy relating to the financial system. With a little bit of moral hazard, which is exacerbated by regulatory and policy capture, the result was the creation of a very vulnerable financial system. Finally, there was indifference in policy circles. None of us saw it coming, at least not with the intensity with which it arrived, which still persists. Indeed, it was difficult for those of us from emerging markets to think that this could happen in the advanced world. Whenever we had raised a concern we had been told that “these are developed countries,” as an argument that “this time is different”. There were, of course, calls for prudence, in particular from this institution, but we never thought that the consequences would be so dramatic. Markets should provide enough discipline to balance risk and return, but that was not exactly the case. The market functioned poorly. In addition, we had a sense of security given the “decoupling” that took place in the 2000s, in part due to good macroeconomic management, and which became a recoupling by mid-2008 (Dooley and Hutchison, 2009; Korinek et al., 2010).

José de Gregorio: What does society expect from the financial sector? Panel discussion remarks by Mr José de Gregorio, Universidad de Chile and former Governor of the Central Bank of Chile following the Per Jacobsson Lecture by Dr YV Reddy, 24 June 2012, Basel, Switzerland. *  *  *  I would like to thank the BIS for the invitation to participate in this panel, which makes us look at financial markets from a new perspective. As policymakers, we are used to talking about how the financial system must operate in order to fulfill its goals without threatening financial stability or imposing costs at the aggregate level. In recent years, the discussion has focused on how to avoid excessive procyclicality, contagion, moral hazard, and other important policy concerns. As economists, we have been trying to explain the misbehavior of financial systems, and we are still searching for answers. Although we may have some ideas, the policy implications are not straightforward, but the answers cannot wait. Policy design needs answers as soon as possible, and delays may cause well intentioned policies to be poorly implemented. But what society really demands from financial systems is quite difficult to define. Society is a collection of actors, with different interests and different needs. People want access to the financial system at fair conditions. Therefore it is useful to think of society as everyone who is not related directly to the financial industry or policymaking.
Moreover, the supply of these assets is asymmetrically distributed between regions, with the US providing a large chunk of the total. Hence, there is a structural excess demand for dollar‐denominated securities, which sustains permanent capital inflows from emerging economies into the United States. This approach has deep implications. It shows why, for more than a decade now, capital has been continuously flowing “uphill”, i.e. from poor to rich countries, with current account surpluses in emerging economies reflected in growing deficits in the United States. It also helps to explain why asymmetries in financial development between countries generate both payment imbalances and asset bubbles. To the extent that the US financial system did not generate enough “pure” safe assets, this created an incentive for the financial sector to manufacture such assets through the securitization of lower quality loans, but at the cost of greatly increased (if hidden) financial fragility. This fragility became apparent when the whole architecture of securitization collapsed under the weight of excessive leverage and maturity transformation. The point here is that internal and external financial stability are two sides of the same coin. Domestic financial imperfections, on the one hand and distortions in international capital flows, on the other, interact with each other to create and amplify imbalances. Ultimately, financial instability is a product of this through this interaction. International financial linkages therefore can be a source of increased fragility for many national economies, including the largest ones. International financial stability: does it matter? International financial instability manifests itself through various channels.

It hardwires flexibility, allowing us to adapt as new threats emerge and the system evolves. The second ingredient was to mandate that we must show our handiwork in translating these preferences into operational goals. For each of our powers we must maintain a policy statement, setting out our approach to their use. Our actions must be supported by cost-benefit analysis. And we must report regularly on how our policies contribute to financial stability. This ensures that, when we set targets for how resilient each part of the system should be, we can be held to account for following the preferences we’ve been told to follow. And the third ingredient is a process to challenge our handiwork and force us to act on that challenge. If the targets don’t look to be delivering Parliament’s preferences, as enshrined in law, we can be called out transparently. The Government may at any time make public recommendations to us about our financial stability objectives but must do so at least annually. 7  Details of the FPC’s objectives and primary responsibilities are set out in section 9C of the Bank of England Act 1998.
It has taken us several years to become convinced that we should see the exchange rate primarily as one of several inflation indicators. I think we have every reason to keep to this approach. Closing comments Finally, let me give some general reflections on clarity and flexibility. It is sometimes asserted, with quite varying overtones, that the Riksbank is much too restricted by principles. We should act more pragmatically. This is maintained by those who think we should have a higher interest rate and who point to the ECB variant of pragmatism, as well as by those who think the interest rate should be lower and who see the Fed's pragmatism as their ideal. This is a debate which in essence is based on misunderstandings. The constraints within which the Riksbank works, allow a monetary policy which is both flexible and pragmatic. We can certainly extend our target horizon, monitor risks of problems in the financial sector or act early in order to avoid major subsidence in the economy further ahead. But this places requirements on us to motivate our actions clearly and substantially. It is, therefore, in this context – by setting very high standards as regards clarity and openness – that we beg to differ. In essence, I think that demands made on us that we should be more pragmatic in some general way – and not keep to our way of reasoning with a target, with guidelines, etc. – are meaningless.

Diligent observers reading the minutes of the Executive Board meetings have also been able to see that assessments have varied somewhat between the different members of the Executive Board. 1. Deregulation  The first question concerns how monetary policy should deal with the effects on inflation caused by deregulation and by other changes in price developments, which can be considered to be of a temporary nature. The background to this debate was that during the latter part of the 1990s and also during last year, Sweden had a very low inflation rate. This was partly the result of deregulation and increased international competition. Added to this was the fact that import prices fell strongly in the wake of the Asian crisis. The question is, therefore, whether deregulation hid excess inflation in other areas, and whether monetary policy was too passive. This is not a simple question to answer, either in practice or in theory. The effects of deregulation and other structural changes on inflation are difficult to assess in retrospect. Nevertheless the Riksbank 1  Minutes of the Executive Board meeting on 4 February 1999. The clarification is also presented in Heikensten, L. (1999), The Riksbank's inflation target - clarifications and evaluation, Quarterly Review 1, Sveriges Riksbank. 2  Heikensten, L. Six monetary policy issues. Speech at Umeå School of Business and Economics, 7 November 2000. BIS Review 38/2001  1  must make assessments, which are presented in its Inflation Reports.
And from tomorrow, the Riksbank will also publish average rates based on SWESTR. Initially, we will provide average rates for one week and one month periods. Average rates for longer periods will begin to be published gradually, until 1 March next year. In addition, we will provide an index for SWESTR that makes it easier to calculate the average rate for a period between any two business days. Backward-looking reference rates can serve the same purpose as forward-looking ones The backward-looking average rates are structured differently to the current forward-looking interbank rates. The forward-looking rate is known at the beginning of the period, while the backward-looking interest rate cannot be calculated until the end of the period. And the forward-looking rate includes a larger risk premium element. 6 [8]  In spite of these differences, my view is that backward-looking average rates will in many situations still function as an adequate substitute for STIBOR’s longer maturities, because I believe that predictability and the larger risk premium are in many cases not essential properties for reference rate users. Why, for example, is STIBOR 3 months a normal reference rate when a municipality issues a bond at a maturity of 5 years with a "variable" interest rate? The amount of interest payments during the term of the loan is unknown regardless of whether the reference rate is backward- or forward-looking. If the municipality (and the creditors) had wanted predictable interest flows, a fixed interest rate would have worked better.

Yet, not only has there been no depreciation pressure on the Hong Kong dollar: it has in fact strengthened following capital inflows into Hong Kong since the outbreak of the crisis in midSeptember last year. Consistent with the principles of the Currency Board, the Hong Kong Monetary Authority (HKMA) has bought a total of $ billion, injecting $ billion into the local money market. The inflow of funds to the Hong Kong dollar was a welcome development, paving the way for monetary easing, which was fortuitously the appropriate monetary policy stance to support the economy. The reasons put forward for the inflow have not been a cause for concern for they did not seem to relate to exchange-rate speculation. Market consensus about the  BIS Review 19/2009  1  causes pointed to the unwinding of carry trades and the repatriation of funds by corporates to finance operations in Hong Kong. It is also likely that there have been some inflows to position for investment in Hong Kong, in light of the better economic prospects of the region, and in particular, China. The second factor in the resilience of Hong Kong’s financial markets is our robust banking system. One of the lessons from this experience is that the stability and effectiveness of the banking system becomes even more essential when financial crisis shuts down the two other financial intermediation channels: the bond market and the stock market.
They thus implemented economic policies aimed at returning economic activity to levels consistent with growth potential prior to the crisis. 11 This resulted in the Great Inflation of the second half of the 1970s, the correction of which required drastic policies which led to the global recession of 1981-82. The experience of the past decade should lead to reflection with regard to the motives which led certain societies, such as the United States, to overestimate their income growth potential. One must ask in particular what are the factors which in the past 20 years resulted in the progressive misalignment between potential economic growth and the target considered to be sustainable, but which clearly was not. It was not a drastic shock as experienced in the 1970s, but a more complex phenomenon, which operated gradually. One theory, which was suggested a few years ago, is that the growth sustained by emerging economies tends to suppress the potential of advanced economies. This theory was rejected, perhaps too hastily, because it is not in line with the neoclassical theory of international trade, based on comparative advantages, which holds that when a country grows at an elevated rate, it benefits not only the country in question but also others. Higher disposable income makes it possible to increase imports from other countries, thus fostering production and growth in those countries too. The theory of mutual benefit is based on certain specific assumptions, which are not always reflected in reality.

But as we strengthen international regulation, we must not lower our guard in terms of ethics. Ten years later, this would generate the opposite imbalance to that of 2007–08. In other words, there's a risk that the pendulum could swing back the other way. 2. Ethics must permeate the day-to-day practices and culture of financial institutions. Over and above the good intentions, declarations and codes of conduct, which did nothing to prevent the excesses that caused the 2008 crisis, the challenge now is for all actors from the bottom to the top of these organisations to adopt an ethical approach. As the "Banking Conduct and Culture" report of the Group of Thirty, which brought together private and central bankers and academics, asserted, the "tone from the top" must have an "echo from the bottom". This begins with the Boards of Directors and the management teams, who must always be exemplary, and who need to realise that their behaviour is scrutinised at all times for indications of what is acceptable and what is not, irrespective of their declarations of intent. Actions speak louder than words. It then requires employees to be trained and informed on ethical standards on a regular basis and not only on their first day on the job. Situations change; new developments can be an opportunity to reconsider existing practices; stakeholder expectations evolve. Ethics – just like technical issues – must be subject to constant communication and ongoing training. And this is no easy task.
Mr George takes a look at recent developments in the UK economy against the background of global influences in the international financial environment  Speech given by The Rt Hon Eddie George, Governor of the Bank of England, at the City Council Dinner hosted by the Glasgow Chamber of Commerce on 18 January 2000. *  *  *  Mr Chairman, my Lord Provost, Ladies and Gentlemen, I always enjoy my visits to Scotland. And I’ve been particularly looking forward to this visit since I read a Business Comment headline, in one of your newspapers on Friday, referring to the warm welcome I could expect on this occasion - following last week’s decision by the Monetary Policy Committee to put up interest rates! It has to be said that some of the rest of the article, and some other press comment on Friday was less welcoming! We - the MPC - were variously accused of “ignoring the pain suffered by firms north of the Border”, of “being willing to sacrifice Scotland’s economy just to cool the overheated London property market”; and of causing the Scottish economy once again to suffer because South-East England is overheating. Well I’m a great believer in free speech, but let me give you some relevant facts. The MPC sets interest rates to achieve the Government’s target for retail price inflation in the UK economy as a whole consistently over time. Those are our marching orders.

These trends, and the extraordinary efforts of UK businesses themselves to cope with the hostile international environment, are already resulting in a stronger net external trade performance. That in turn is contributing to the recovery, particularly in manufacturing output growth and to the more encouraging news in some recent surveys. To the extent that this improvement in external demand persists, it will help to ease the exceptional pressures on the most internationally-exposed sectors, and contribute to a better balance within the UK economy. But it needs, of course, to be accompanied by corresponding moderation of the growth of domestic demand - after the offsetting stimulus of a year ago - if we are to maintain overall stability. That essentially is why interest rates have had to rise since last autumn. Mr Chairman, most people, as I say, accept in principle that sustained monetary stability is good for the economy as a whole in the longer term - though it is accepted with varying degrees of enthusiasm by adversely affected sectors at any particular time. But there is, nevertheless plenty of room for debate about the operation of monetary policy in practice. Specifically at present the MPC is often accused of being overzealous - and it is suggested that we don’t in fact need to raise interest rates at this point in order to achieve the inflation target. That is a more technical question. Changes in interest rates take time to have their full effect, so our decisions have to be forward looking.
Credit denominated in ALL maintained the average annual increase rate, by about 28-30 percent, but the slowdown of lending denominated in foreign currency has led to the decline of credit growth pace. The open market operations of the Bank of Albania met the liquidity needs of the banking system. Bank of Albania has injected all liquidity demanded from commercial banks, by preserving at the same time an accurate time structure of this injection. Notwithstanding the improved liquidity situation, yields rates in primary market have persuaded the increasing tendency of the current months. The increase of risk evaluation from banks is mainly reflected in the determination of long-term yields that is confirmed by the rise of 2 and 5-year bonds yields. The performance of new deposits interest rates denominated in Euro and ALL appears stable during July. New credits interests’ rates denominated in ALL have persuaded the decline in July, while this month recorded a tightening of new loan cost denominated in Euro. At the conclusion, by framing the forecasts for a relaxed inflation and within the target set out by the Bank of Albania for the future, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged. This movement is a continuance of the careful monetary policy pursued by the Bank of Albania during the year 2009, a policy which has aimed the transmission of controlled monetary stimulus and the keeping of inflationary expectations close to the targeted band of the Bank of Albania.

Imports performance incurred the same development declining by about 8 percent in annual terms. External economy developments are accompanied by the maintenance of high trade deficit rates, which affect the imbalance of the demand to supply ratios for foreign currency in the economy. Nevertheless, the maintaining of the exchange rate flexibility, the correcting tendency of trade deficit and the attraction of savings denominated in ALL, as higher interest rates and of low inflation, serve to relaxed and prudential volatilities of the exchange rate and to a strong position of ALL in the short-term and medium-term period. Monetary indicators of July have reflected the more relaxed dynamic of financial intermediation. External sector highlights of the economy have affected the negative paces of the foreign currency component of money stock. However, banking system carried out the intermediation to increase lending in ALL extended to private and public sector with positive paces. Thus, while monetary supply picked up at slower annual paces, about 4.4 percent, M2 aggregate maintained high paces of the annual growth at 9.7 percent as at July. The slowdown of lending pace to economy in foreign currency and the lower supply of foreign currency inflows from external sector have led to a negative annual pace of deposits growth denominated in foreign currency of the system. Lending to private sector increased by 15.8 percent in real annual terms, relative to 17.9 percent in June. Lending to business provided the main contribution on the monthly growth of credit, a constant phenomenon, which this month appeared particularly more emphasised.
Experience shows that free trade and transformations in the financial field require a great deal from economic policy, its decision-makers and various authorities, as well as extensive cooperation between countries. This is all the more the case in that, with the increasingly integrated financial system, mistakes in one part of the world may quickly lead to economic repercussions elsewhere. Many financial crises in the past decade The financial problems at present in countries in Asia and other parts of the world are in many respects similar to the situation in Mexico a couple of years ago, as well as to the Swedish crisis in the early 1990s. Financial problems arise in an economy essentially as follows. Banking involves accepting deposits from the non-bank public and transforming these short-run savings into loans with longer maturities to households and firms. This transformation of maturities is normally an economic benefit for society as a whole. The banks provide payment services and mediate credits. However, the commercial practice of borrowing short and lending long is associated with risks. If people perceive a bank’s position as uncertain and withdraw their savings, the bank will need to obtain liquidity elsewhere; otherwise it will have to suspend payments and ultimately go bankrupt. In the latter event the bank ceases to contribute to the workings of the economy. If this happens to a single bank, the economic consequences may not be serious. If it involves the whole of the banking system, however, economic activity may be profoundly weakened.

Moreover, in a particular country, even if its economic fundamentals look good, such a situation can give rise to downward pressure on both the BIS Review 81/1998  -5exchange rate and share prices at the same time as interest rates rise. That suggests that certain investors are reducing all types of holding in the country in question, which is a signal to the country’s decisionmakers that more must be done to enhance general economic policy’s credibility. High standard of discipline throughout economic policy While it is obviously important to discuss how a financial crisis, if it occurs, should be managed, it is at least as important to minimise the risks of a crisis ever materialising. This applies in particular when the financial system is undergoing rapid developments. The transformation in Europe in the coming years must therefore be followed closely. One key factor is economic policy in general. An economy characterised by low, stable inflation, sound government finances and good economic policy credibility also provides a generally stable economic environment. This in turn promotes a sound development of the financial domain. By itself, however, this is not enough. Another highly important matter is the appropriate government supervision of the financial sector. Even central banks that are not directly engaged in this supervision must monitor tendencies in the financial field in order to fulfil their primary tasks of ensuring price stability and financial system stability. There are several reasons for this. Monetary policy is implemented through the financial system’s agents.