samchain/econo-pairs-v1 huggingface dataset:
It is an irrefutable empirical fact that inflation variability rises with the level of inflation, which in turn increases uncertainty for investors and long-term interest rates through a rise in the inflation risk premium. A permanent increase in inflation curtails, rather than stimulates, long-term growth. A considerable body of empirical research finds that the Phillips curve has a negative bent in the long run: inflation and inflation volatility penalise capital formation and thus detract from the economy’s growth potential. Empirical evidence confirms this negative relationship, with a 100 basis point permanent increase in inflation being associated with a 10–30 basis point decrease in trend output  2  BIS Review 22/2010  growth. Hence, if this is applied to the euro area, a 4% inflation target would shave no less than half a percentage point per year off trend growth! As for using monetary policy to manage macroeconomic risk, it should be recognised that this would introduce harmful asymmetries. It avoids policy restriction when positive supplyside shocks reduce inflation, fuelling asset price booms; and when the asset price boom finally turns into a bust, it leads central banks to overreact to negative demand-side shocks. So, financial instability meets two formidable multipliers, the first being a pro-cyclical monetary response to expansionary disinflations in good times and the second being moral hazard in financial markets, namely the expectation that the central bank will aggressively protect the markets from “tail events” in bad times. These expectations encourage markets to tend towards risky strategies, over-exposures and exuberance.

The first shortcoming of this paradigm is its inability to explain and recognise the importance of financial frictions and the role of money. Money is at best ignored – and at worst derided – as a redundant and unnecessary complication. This has to do with the fragile theoretical foundations of the mechanisms which – in this paradigm – account for the connection between the real economy, financial imbalances, and the state of confidence and inflation. This disregarding of money goes hand-in-hand with the assumption of the absence of risk. The mainstream model excludes default. If assets are formulated at all, they all net out. No risk generated in the financial sector can affect the real economy. The financial crisis has clearly exposed the flaws in this assumption. It has led to a misapprehension of the root causes of the crisis and its propagation mechanism. Liquidity and money are key for the ECB’s monetary policy strategy. Far from showing that the ECB’s strategy lacks theoretical foundations, the crisis has borne out our broad-based approach and exposed the incompleteness of the transmission mechanism in the reference model. The second shortcoming of this paradigm is its undue focus on small economic fluctuations around benign states of the economy. This left economists unprepared in terms of being able to predict the crisis and its impact. Third, the paradigm rests on the built-in assumption that the announcement of an inflation target automatically yields credibility.
It concludes that there is some concern that the deteriorating performance of sub-prime RMBS could affect the broader market for structured credit instruments, due to the fact that the concentration of sub-prime mortgage loans as collateral for collateralised debt obligations (CDOs) is very high. It cannot be ruled out that further poor performance of this type of collateral could trigger rating downgrades of CDO tranches themselves and lead to a reassessment of risk in other segments of structured credit markets. Financial market liquidity An overarching theme, pertaining to several sources of risk and vulnerability in the financial markets, is the abundant liquidity characterising global markets. Indeed, there appears to be a consensus among market participants that market liquidity has reached unprecedented levels. Financial market liquidity is a measure of the ability of market participants to undertake securities transactions without triggering large changes in their prices. The concept of financial market liquidity is distinct from the concept of monetary liquidity, but there can be links between the two. Although the measurement of market liquidity is rather complex, symptoms of the abundance of liquidity include high leverage, low yields, low market volatility, narrow credit spreads, and high market turnover. Overall, abundant liquidity seems to be intertwined with the “search for yield” which has been discussed in past issues of the FSR and it appears to be dependent on confidence remaining in the smooth functioning of the market.

In this context, the “triangle of vulnerability”, identified in the December 2006 FSR, connecting the state of the credit cycle, credit derivatives and highly leveraged institutions, could have grown in relevance in the recent period. A shock involving any element of this triangle could have implications for the other two. For example, a sharp turn in the credit cycle could mean that credit risk protectionsellers, such as hedge funds, would have to make payments to banks which are protection-buyers, but hedge funds might not be capable of paying. Although many hedge funds have attempted to extend their investor lock-up periods, their positions are typically marked-to-market, implying that their funding remains vulnerable to any losses suffered because it could significantly impact on the willingness of banks to continue to grant credit. At the same time, a turn in the credit cycle could represent a challenging test for the functioning of the credit derivatives markets. Similarly, if widespread problems were to emerge in hedge funds active in credit risk transfer markets, this could spark a downturn in the credit cycle itself, as it could impair the “originate and distribute” business model upon which large banks have become reliant. 6. Overall assessment of the financial stability outlook  Let me now conclude with the overall assessment of the financial stability outlook.
Borio and Lowe (2002), “Asset Prices, Financial and Monetary Stability: Exploring the Nexus”, Bank for International Settlements Working Papers 114. Borio, C and White, W R (2004), “Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes”, Bank for International Settlements Working Papers 147. Brandt, M and Kang, Q (2004), “On the relationship between the conditional mean and volatility of stock returns: A latent VAR approach”, Journal of Financial Economics, 217–257. Campbell, J and Cochrane, J (1999), “By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behaviour”, Journal of Political Economy, 205–251. Canova, F. (1998), “Detrending and Business Cycle Facts”, Journal of Monetary Economics, 41 475–512. Comin, D and Gertler, M (2006), “Medium Term Business Cycles”, American Economic Review, Vol. 96 No. 3. BIS Review 168/2010  33  Cooper, R. W. (1999), Coordination Games: Complementarities and Macroeconomics, Cambridge University Press. Diamond, D and Dybvig, P (1983), “Bank Runs, Deposit Insurance, and Liquidity”, Journal of Political Economy, 91, 401–419. Fisher, I (1933), “The Debt-Deflation Theory of Great Depressions”, Econometrica 1, pp 337–357. Geanakoplos, J (2010), “The Leverage Cycle”, NBER Macroeconomics Annual 2009 Vol. 24, pp 1–65, University of Chicago Press. Giannitsarou, C and Toxvaerd, F (2007), “Recursive Global Games”, CEPR Discussion Paper 6470. Goldstein, I and Pauzner, A (2005), “Demand-Deposit Contracts and the Probability of Bank Runs”, Journal of Finance, 60, 1293–1327. Gomes, J, Kogan, L and Zhang, L (2003), “Equilibrium Cross Section of Returns”, The Journal of Political Economy, Vol. 111, pp. 693–732, University of Chicago Press.

Nevertheless, the differences between recent developments in the UK and the US are more significant than the similarities. Perhaps the most striking difference between the US and UK economies has been the remarkable resilience of business and consumer confidence in the UK in recent months. Of course, further weakness of the world economy, emanating perhaps in emerging markets, could change the outlook. Nevertheless, Mr President, I am confident that the British economy can withstand the storms and vicissitudes of the international economic weather. But it is in the interests of all of us to work to ensure a prosperous international economy. No country is an island. As John Donne expressed the thought so vividly in his aptly-named Devotions upon Emergent Occasions "all mankind is of one author, and is one volume." BIS Review 16/2001  3
If the compliance regime—inclusive of policies, procedures, testing, monitoring, etc.—is geared toward shielding the compliance function itself from blame or responsibility, then it has failed to serve the institution. It also risks becoming irrelevant. Compliance has to resist adopting a “check the box” mentality—slavishly adhering to formal rules while ignoring standards of suitability, integrity, and fairness. Compliance personnel are professionals. As such, they are entrusted to exercise judgment. They are expected to make conscious choices, not merely to rely on the outcome of a particular process.6 Lawyers are not immune from a similar criticism: permitting the avoidance of legal risk to become a goal in itself, rather than a tool for advancing the purposes of the organization. When an acutely litigious mindset prevents a company from launching a cross-organizational review, or 5/6  BIS central bankers' speeches  writing a self-critical report, the near-term goal of managing discovery has overrun the broader interests of the company in honest self-assessment and improvement. A legal group should not automatically veer toward shutting down self-reflection for the sake of being able to rest easy about litigation. Similarly, compliance cannot rest easy when its processes succeed in building a paper trail, but do little to uncover and resolve problematic behavior. In short, some risks are worth taking. Thank you for listening to my remarks today. I am happy to take any questions. 1 See generally Donald Langevoort, “Behavioral Ethics, Behavioral Compliance,” in Research Handbook on  Corporate Crime and Financial Misdealing (Jennifer Arlen, ed.) (2016).

At the end of the month, your term of office comes to an end and you will step down after years as President of the ECB. What headline would you like to read over your period in office? Despite successive oil shocks and the global crisis, the ECB Governing Council has delivered greater price stability than in the previous 50 years to 332 million fellow citizens. Do you already know what you are going to do with your spare time in future? I have not made any specific plans, because I am concentrating fully on my last weeks in office. My greatest privilege will surely be that I will have more time for reading, for meditating on the present history of Europe and to spend with my four granddaughters: Eléonore, Diane, Anna and Marie. 4  BIS central bankers’ speeches
On our part and, as I mentioned earlier, we have initiated an intensive process to project our work and the best way to fulfill our objectives and functions within a changing economic, political, and social scenario. This process is aimed at developing our Strategic Plan for the period 2023-2027 that, building on the great progress achieved in the Plan still in effect for the years 2018-2022, will allow us to focus on the challenges of today and the future. Going forward, the focus of the new strategic plan will be to continue building trust in the technical area in order to contribute to the well-being of society in terms of financial stability, market evolution, technological development and innovation, changes in payment systems and business development, so as to explore adjustments to the regulatory framework. We also believe in the importance of preserving stability beyond the current advances in new technologies, integrating the systemic risk of each activity into the regulation and supervising the activities that pose the most risk to the system. Of course, all this involves a major challenge for our institution and those of us who work in it. At the center must continue to be our staff and our credibility. This can only be nurtured by excellence, service vocation, ethical and transparent action, respect for our autonomy, and the technical response at the service of our country's welfare. Honorable Senators, we are facing an enormous challenge.

Nor can it be ruled out that the external scenario will see a reduction in global cost pressures and inflation easing in most 6  economies, including Chile. In this case, the Fed's monetary policy response would be less restrictive than in the central scenario, which would give way to better financial conditions, a less appreciated dollar globally, and lower external inflationary pressures (figure 14). The central scenario projects that the pace of price increases will decrease in the coming months and that annual inflation will begin to decline. However, the risk of a much more persistent inflationary phenomenon is a concern for the Board. If materialized, it could lead to further monetary tightening, outside the upper limit of the MPR corridor. This risk is especially important in a context where inflation has been unexpectedly high for several quarters and inflationary expectations remain above 3% in the two-year horizon. Quickly recovering macroeconomic balances will help reduce this risk, while allowing the Chilean economy to appropriately address a further deterioration of the external scenario. Final remarks Our country is facing many important challenges. One of the most relevant macroeconomically is to reduce inflation, a problem that is putting a heavy burden on all of us. For more than two decades, inflation was not a matter of public concern and there were generations to whom it may have seemed an unknown issue. But in recent quarters it has become a complex issue, which is at the heart of our responsibility as an institution.
Inflation expectations  Inflation expectations cannot be observed directly, but approximate measures can be derived indirectly in three different ways: asking a sample of consumers, surveying professional forecasters and extracting information from financial markets. Let me elaborate. The European Commission conducts a poll every month in which it seeks consumers’ opinions on inflation developments in the euro area, in particular their perceptions of current inflation developments and their expectations for the next 12 months. These two measures are plotted in Chart 10, together with actual inflation. Consumers’ expectations have declined strongly in recent months, reaching a record low in May (the survey started in 1985). Most respondents thought that prices would either remain unchanged or fall in the next 12 months. But this is not really the same as expecting deflation. The second way of measuring inflation expectations is via the ECB’s Survey of Professional Forecasters. It suggests that most respondents regard deflation as unlikely. In the second quarter of 2009, none of the 50 participants reported a negative point estimate for 2009, and two participants reported a point estimate below zero for 2010. Together with point estimates, participants are also asked to assess the likelihood of future inflation falling within given ranges. Averaging the individual responses provides a summary of their assessment. As Chart 11 shows, in the most recent survey, respondents assigned an overall 18% probability that annual inflation will be negative in 2009 (left side of the chart), which is significantly higher than in previous rounds.

I am pleased to see that the recent euro barometer showed a steady progression in the satisfaction of the Maltese with the adoption of the euro (from 40% in September 2005 to 64% in June 2007). Let me hand over the euro star to Governor Bonello to symbolically flag that the Central Bank of Malta will join the Eurosystem on 1 January 2008. We look forward to welcoming you wholeheartedly into the euro area. Thank you very much for your attention. BIS Review 110/2007  1
In a groundbreaking study Rose (2000) estimated that joining a currency union may boost cross-country trade by over 200%. Most economists have agreed with the direction and mechanism behind this – the single currency eliminates the uncertainty related to exchange rate movements and thus diminishes the risk related to foreign trade. However, the estimated scale seems to be much exaggerated. One problematic issue is related to the fact that before the eurozone, we did not have examples of currency unions between developed countries. So the Rose study was based on data on currency unions involving poor and/ or small countries. As noted by Micco, Stein and Ordonez (2003), “one does not need to be a eurosceptic to wonder whether such findings are directly applicable to Europe’s single currency”. Follow-up studies (e.g. Rose and Wincoop (2001), Kenen (2002), Persson (2001)) attempted to correct the Rose’s estimates but arrived, rather inconclusively, at anything between a 50% and 150% growth of bilateral trade. Recently, the first studies based on euro area data have emerged. These show that the trade creation effect of the euro has been substantial, although (until now) by an order of magnitude smaller that the original Rose’s estimate (e.g. Micco, Stein and Ordonez (2003)). Our knowledge about trade creation effects of the euro is still far from complete and we will probably have to wait another 10+ years to have enough data to draw firm conclusions about its magnitude in the eurozone. Now let me move to the cost side.

To sustain this trend, further in-depth applied research is needed to develop more financial products that create closer links between Islamic finance and real economic activity, in terms of its operating models, risk management and supporting infrastructure. This includes more innovative risk sharing products and to evolve from the common structures of Islamic financial products to the more unique structures with greater growth opportunities. This trend is already apparent in the sukuk market. There has been the issuance of several new and innovative structures in this segment, with unique underlying features that has drawn significant global attention. This includes the recent issuance of the first Renminbi (RMB) 1 billion sukuk with airtime vouchers as its underlying assets and the debut issuance of a “green” sukuk by France. Another high-potential segment is the Islamic fund industry. Its recent growth momentum has spanned more than 36 countries, including markets that are relatively new to Islamic finance, such as Australia and Ireland. The second imperative is for the outreach of Islamic finance to be inclusive and to be accessible to all, particularly the lower income groups and small businesses. An important agenda in the global economy is to achieve a more balanced growth with reduced income disparities. Financial services has a tremendous role in contributing towards a more equitable economic growth and a more sustainable development. In relation to this, Islamic financial institutions need to strive to enhance the access of their financial services to all segments of society.
The contribution of the core inflation and food and energy prices to the overall inflation rate in the countries of the CESEE region in the last six years on average is generally balanced, with core inflation weighing slightly more. In the euro area, 76% of the average inflation dynamics was driven by the core inflation, and the rest by the more volatile prices. Compared to the 2002-2012 period, on average, in the last couple of years, the importance of core inflation for the dynamics of the headline inflation is much more pronounced, both in the region and the euro area. It either indicates that demand pressures and cost-push factors are becoming more prevalent, or that the pressures from the global commodities prices are becoming lesser. 13  Chart 15: CESEE and euro area headline inflation and core inflation developments 8.0  Chart 16: Contribution of core inflation and food and energy component to headline inflation in CESEE and Euro area (in p.p.) 6.0  CESEE inflation, %  7.0  5.0  CESEE core inflation, %  6.0  Euro area inflation, %  4.0  5.0  Euro area core inflation, %  3.0  4.0  2.0  3.0  1.0  2.0  0.0 2002-2008  1.0  2015-2019  2002-2008  Euro Area  2009-2014  2015-2019  CESEE  Core inflation, average (contribution to inflation, in p.p.) 2018  Source: IMF WEO Database, Eurostat and National Statistics.

Third, given the lingering monetary accommodation, policy space has narrowed, thus constraining the room for reaction if severe shocks occur. In this note, we will make an effort to transpose these challenges to the countries of the CESEE region and asses how relevant these global matters are for them. Policy rates in advanced economies, in the US and the euro area in particular have remained low. The monetary policy normalisation was rolled-back in the US, with the new cycle of lowering the policy rate being opened. In the euro area, the accommodative stance of the ECB was strengthened, by further cutting the interest rates and relaunching the QE programme. These moves enabled for the already easy financing conditions to remain in place, and further easing to be expected as well. This environment in the global context has been conducive for behaviour of yield searching, thus potentially encouraging excessive risk-taking and building up of financial vulnerabilities. Conditioned on the specifics of the region/country, financial vulnerabilities are assessed to be located in different sectors across different countries. According to the financial vulnerability map of the IMF published in the Global Financial Stability Report, October 2019 it seems that the risks stemming for sovereigns are still visible across the board. Similar inference can be made by observing assessed vulnerabilities in nonbank financial sector and nonfinancial corporates, while the picture on households and banks is rather mixed. 2  Chart 1: Financial vulnerabilities – heat map across sectors and group of countries  Source: Global financial stability report, IMF 2019.