samchain/econo-pairs-v1 huggingface dataset:
Brunnermeier et al (2009) use this framework to motivate levying a tax – a “Pigouvian tax” – on institutions posing systemic risk externalities. This tax would be set at levels which offset the effects of the bank’s actions on wider society. A number of academics have since proposed measures along broadly Pigouvian lines (Archarya et al (2010)). Rather remarkably, policy reforms in practice have followed closely in the spirit of these proposals. In 2010, the FSB announced its intention to introduce a “systemic surcharge” of additional capital on the world’s largest banks. In July 2011, the Basel Committee published a methodology for measuring systemic importance based on indicators of bank size, connectivity and complexity, with additional capital of up to 2.5% depending on this score. In November 2011, the FSB endorsed this methodology and announced the 29 systemicallyimportant entities to which it would apply. This framework will be finalised this year, before being phased-in from 2016. Legislation is already in place, or is being drawn up, to implement the systemic surcharge in the United States and Europe. These proposals are clearly a practical step in the right direction. By boosting levels of capital in the system, the probability of big bank failure will be reduced. You would have got good odds back in 2007 that something as seemingly elliptical as a Pigouvian tax on systemic risk would have found its way onto the regulatory statute books. Now we have it. “We are all Pigouvians now”, even if most of us cannot spell it.

14 The Riksbank has communicated that the interval of 3.5 – 4.5 per cent is a reasonable assumption for the level of the long-term normal repo rate (Sveriges Riksbank, 2010). There is a great deal to suggest, however, that the normal level of interest rates has fallen (see, for instance, Armelius et al., 2014, and Holston, Laubach and Williams, 2016). For example, members of the US central bank’s monetary policy committee, the FOMC, have recently lowered their assessment of the level of the long-term US policy rate from just over 4 per cent to just under 3 per cent. 7 [12]  Chart 5. Yield in accordance with the forward curve but funding at the repo rate Per cent 4  4 Repo rate Forward curve  3  3  2  2  1  1  0  0  -1  -1 12  14  16  18  20  22  24  26  Note. Projection of the repo rate extended from the forecast in the Monetary Policy Report in Oc tober 2016. The forward curve is estimated on 26 October 2016. Source: The Riksbank  Changed interest rate environment directly impacts the Riksbank’s profit and dividend Up to now, the bond purchases have thus been profitable for the Riksbank. There are, however, good reasons to anticipate counteracting losses in the period ahead, but it is still unclear what the total effects on the Riksbank’s financial position will be.
European firms were lagging behind US firms in terms of foreign direct investment and they are now catching up. European firms have entered a “globalisation process” whereby they aim to reach a global size through acquisitions. BIS Review 61/2000  6  Conclusion Allow me to conclude. The euro area has adopted a sound macroeconomic policy and has embarked upon a fairly comprehensive programme of structural reforms. These reforms will still take time to be fully completed. But they are well underway and have already boosted economic growth, job creation and corporate restructuring. This move has been triggered by the creation of a monetary union and a vast unified financial market. I am impressed by what has been achieved during the past years and the National Central Banks as well as the ECB are strongly encouraging governments and businesses to foster structural reforms in the future. The euro exchange rate is clearly misaligned relative to euro area fundamentals (robust domestic growth, steady implementation of the single market, abundant domestic savings, healthy external accounts). This is the reason why we consider that the euro has a strong potential for appreciation. The Eurosystem, which is the guardian of the euro on behalf of the people of Europe, knows that our fellow citizens want the single currency to be at least as solid as their previous national currencies. In France, to give but one example, 96% of the population want the euro to be at least as solid as the franc.

The tide will turn  An orderly reversal of the euro’s exchange rate will take place as a result of a triple narrowing. •  Narrowing of the growth differential between the United States and the euro area. This is because the current extraordinary growth rate of the United States is probably not sustainable in view of the widening of the external deficit. Euro area growth is well balanced, while the US economy is affected by imbalances. This will be progressively taken into account by the markets. •  A narrowing of the interest-rate differential as a consequence of the narrowing of the growth differential. •  Narrowing of the “restructuring differential” between the United States and the euro area economies. It seems to us that although corporate restructuring in Europe was lagging behind the United States a few years ago, we are now observing a catching-up process. This leads me to my last point: the undertaking (and speeding up) of structural reforms is a major condition for the euro to be a complete success. 4. The conditions for the complete success of the euro: sound macroeconomic policies and structural reforms  In this regard, the Lisbon European Council meeting last month can be viewed as a further important step towards the necessary medium-term strategy for structural reforms in the Union. The labour market has become much more flexible in the past few years in Europe.
And they have interacted with the forces unleashed by the Great Recession to challenge the durability of the expansion. The Great Recession led to enormous dislocations in advanced economy labour markets. In many economies unemployment unemployment reached perilous levels. and  underemployment  skyrocketed. Youth  Central banks responded with unprecedented monetary stimulus. That was consistent with their price stability mandates. And it recognised the threat that the recession might permanently scar the workforce. As the recovery in many advanced economies has evolved, central banks are assessing the extent of structural changes in labour markets and are grappling with what they mean for monetary policy. The answer is not uniform across major economies. This is one reason why monetary policy in the US, euro area and the UK can be expected to be less synchronised than in recent years. 1. A tale of three labour markets  Indeed, despite common underlying influences, differences in how the labour markets of major economies responded to the Great Recession have been striking (Chart 1). The US Take the world’s largest economy – the United States – as a benchmark. Unemployment there more than doubled during the recession. While that rate has recently fallen back, that headline is much better than the details. The number of Americans in work has only just returned to where it was before Lehman failed, even though there are now 14 million more people of working age.

It can be argued that such policy instruments should be on the law books by the time the auction of offshore krónur takes place because, if the auction is as successful as we intend, it is possible that confidence in Iceland will grow still further and capital inflows will increase. BIS central bankers’ speeches  3  Why do we need all of these additional tools and contingency measures? An important reason is the risk to financial stability that accompanies excessive and volatile capital movements that are unconnected to economic fundamentals. Another important reason is that in an increasingly financially integrated world, it is more difficult for small countries to deviate too far from the monetary policy pursued in the larger countries that determine global financial conditions. We saw this before the financial crisis, in New Zealand and here in Iceland. And we have seen it more recently, in countries like Switzerland and Sweden. We can better understand why this is so if we consider a situation where cross-border financial integration is nearly perfect, so that capital movements very quickly even out the difference in risk-adjusted real returns on assets in different countries. The interest rate channel of monetary policy transmission then becomes clogged up in small, open, and financially integrated economies, where long-term interest rates are determined by rates in large countries and transmission takes place largely through the exchange rate channel.
There is no growth without credit, and without growth, savings lose their value. Therefore, it is imperative that short-term goals do not prevent the adoption of a strategic and longer-term vision. Banks should invest with a view to developing functions related to financial consultancy services for their clients. They need to persistently seek to explore the market, to identify potential clients – especially households and small enterprises – and, most importantly, to help them design bankable proposals and projects. At this phase, the reduction of concentration and the diversification of credit portfolios are key elements. This requires that you design and set up relevant structures, processes and products, and plan for adequate financial resources. In parallel, you should continuously assess the surrounding environment, which certainly affects your activity. Thus, if there are concrete proposals for additional legal amendments or supervisory practices, I invite you to formulate and submit them officially to us and other relevant public authorities, so that we can, together, make a swift decision on them. In 2/3  BIS central bankers' speeches  this process, the Bank of Albania will always support initiatives that lead to an eventual improvement of financial intermediation levels and safeguard the stability of the banking sector and of the financial system. Second, our ambition should aim higher than the 3, 4 or 5% annual growth rate. The country needs more optimism, which means higher growth rates and more structural reforms. The banking sector has both a direct and an indirect role to play in this regard.

In such a situation the EU member states have a “common interest” in discussing how confidence in economic policy can be enhanced. During the spring there has been a discussion in Sweden about the exchange rate tendency in connection with the move to Stage Three of EMU. What will happen if, for instance, companies adopt the euro as their unit of account? The Riksbank has underscored that it does not see any strong reasons for large currency outflows on account of the monetary union. And if such outflows were to occur and the krona suddenly weakened, we consider that countervailing forces would act in financial markets. The value of a currency is determined by numerous factors, of which the most important is confidence in the country’s economic policy. The general trend towards internationalisation in recent years has entailed relatively large currency outflows due to portfolio diversification among resident investors. But at the same time the krona has displayed an appreciating trend as growing confidence in economic policy generated a compensatory currency inflow. All in all, conditions for a stable exchange rate between the krona and the single currency should be good. There are many indications that the European Central Bank will define a price stability target that resembles Sweden’s. Similar inflation trends, together with confidence in economic policy as a whole, should result not only in stable nominal and real exchange rates between the euro and the krona but also in conditions for a reasonable valuation of the krona.
We generally recommend that banks take a particularly judicious approach to paying dividends as there is continued uncertainty linked to the pandemic and capital may be required in the future to absorb losses. Therefore, before paying dividends, it is vital to assess future capital needs based on conservative estimates. Now about the funding situation. It has also levelled out. In general, over the first seven months of 2020, the funds of legal entities increased by almost 3% (by 2.9%). Concurrently, there was a significant inflow (+27%) of funds of state organisations. Household contributions during this period demonstrated divergent dynamics. At the start of the pandemic, especially in March, there was an outflow of funds (people formed cash reserves at the outset of the lockdown period). However, as early as June—July, the situation had stabilised. On the one hand, this is due to the peak of the epidemic passing and the gradual recovery of people’s income, and, on the other hand, the substantial support provided by the Government’s welfare payments. The active growth of funds in escrow accounts (more than 330 billion rubles since the beginning of the year) lent additional support, and this is noticeable, to deposits, thanks to the development of project financing for housing construction. Therefore, this year deposits have already increased by 514 billion rubles 3/7  BIS central bankers' speeches  in the banking system, or 1.6%. The overall level of liquidity in the system remains high.

Exchange rate movements are not to be considered as isolated events, neither should monetary policy’s reactions to them be mechanical. If a depreciation stems from an international slowdown, for example, the consequences for monetary policy will differ from a case where the roots lie in a lack of confidence in Sweden’s economic policy. The situation at the beginning of June can serve as an illustration. The problem was not simply that the krona was under-valued. That had been the case, though not so dramatically, for a long time. What led us to conclude that the situation was sufficiently serious to warrant action was a conjunction of several factors. The depreciation occurred very rapidly and we had not received any new information that justified such a marked movement. That meant that the future, relatively optimistic path for the krona on which monetary policy had been formulated now appeared less realistic. The depreciation was, moreover, particularly troublesome in that it coincided with a substantial price rise and accordingly heightened the risk of inflation expectations shifting to a rate of price increases that exceeded the Riksbank’s target. The increase in inflation stemmed both from transitory factors and from persistently high resource utilisation. BIS Review 75/2001  1  Forecasting exchange rates is difficult As I said, it is the exchange rate’s path in the coming two years that is important for monetary policy. So how can one arrive at a picture of the exchange rate several years ahead?
However, it cannot be ruled out that the increase in political and trade uncertainty may ultimately constrain the growth of business investment plans. This is especially the case in certain economies, such as Italy, where some signs of a tightening in financial conditions are already discernible, in a setting in which Italian public debt yields have, since spring last year, held at relatively high levels. The lower rate of growth in the euro area has contributed to delaying the prospect of a pick-up in the core component of euro area inflation somewhat. And compounding this has been the effect of the recent decline in oil prices on overall inflation. In these circumstances, the ECB’s monetary policy maintains a markedly expansionary stance, BANCO DE ESPAÑA  2	 TESTIMONY BY THE GOVERNOR OF THE BANCO DE ESPAÑA BEFORE PARLIAMENT IN RELATION TO THE DRAFT STATE AND SOCIAL SECURITY BUDGET FOR 2019  FORECASTS FOR THE SPANISH ECONOMY: OVERVIEW  TABLE 2  Annual rate of change (%)  December 2018 projections 2017  2018  2019  GDP  3.0  2.5  2.2  Employment  2.9  2.5  1.6  HICP (inﬂation)  2.0  1.8  1.6  SOURCES: INE and Banco de España. Projections cut-off date: 28 November 2018.  aiming to prompt the convergence of inflation, in the medium term, towards rates of increase in prices that are below but close to 2%.

And the rest is history…  I have dwelt on this story not so much for its intrinsic interest than to illustrate just how far we have come from those origins. For me, three key points stand out:  -  First, the early success of LIBOR led to its widespread adoption well beyond its original application. At first that posed few apparent problems, as bank funding costs moved in line with risk-free rates. But the financial crisis changed that. Market participants using capital instruments apparently unconnected to banks (for example, those issuing bonds, or seeking exposure to risk-free interest rates through derivatives) found themselves nonetheless heavily, and unexpectedly, exposed to variation in bank funding costs (Figure 1). 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Figure 1: Proportion of three-month £ accounted for by bank funding costs and other factors  Note: risk-free rate component based on 3-month OIS rates where available, and on an adjusted Bank Rate prior to 2001. The red area of the chart is influenced by bank funding costs, as well as liquidity and supply/demand conditions. Source: Bloomberg data and Bank calculations  -  Second, LIBOR’s widespread use persisted long after the underlying market on which it was based – the short-term wholesale unsecured funding market – largely ceased to exist. The use of judgment to set term LIBOR rates – once simply a convenient tool to fill in for temporary gaps in an otherwise well-specified curve – became the norm.
For example, while it may capture some important aspects of how asset purchases work it’s not really an accurate representation of how the conventional policy rate is set. That’s fine for today, as I’m focusing more on QE. But one should at least be aware that the monetary authority needn’t vary the supply of reserves in order to change its policy rate[7]. Second, the downward slope of the MD line was often justified, in the textbook account, by the assumption that reserves don’t pay interest. This would mean that any rise in bond yields is bound to make central bank money comparatively less attractive to hold. These days, however, reserves do pay interest (at the official central-bank rate). As a result, central bank money and government debt – the two sides of the QE transaction – are closer substitutes than they otherwise would be. This has the effect of making the downward slope of the MD line less pronounced. Third, the model – the way it was often taught in the textbooks, at least – glosses over the distinction between “narrow” and “broad” money. For the wider economy it’s clearly the second that matters. Firms and households don’t have deposits at the central bank – for them, “money” is  Page 13  what they hold in their commercial bank accounts. But, as conveyed to students, IS-LM elides the two, assuming that the one is just a multiple of the other[8].

This is available from 1997 and projected backwards using aggregate M4 growth before then. Chart 2: Broad money growth slowed significantly after the financial crisis, inflation still close to 2%  Page 5  Sources: ONS, Bank of England and Bank calculations. None of this means that at the margin (holding everything else fixed) QE doesn’t add to broad money or ultimately to the level of prices. Nor does it imply that the quantity measures are never useful or important. It would be as wrong categorically to ignore monetary aggregates as it would to assume that they’re the only thing you need to consider. As far as the theory’s concerned, people can’t always borrow and lend freely. In the presence of these and other “financial frictions” the availability of liquid assets can matter for spending, independently of interest rates. Besides, interest rates themselves matter only relative to some “neutral” rate that cannot be observed directly. So, in practice, monetary policymakers should always pay attention to other – indeed any – indicators of incipient inflationary pressure. And although changes in banks’ deposits have often been driven by shifts in demand there are times when they look more supply-led. Arguably, the surge in broad money in 2020 looks like one such episode. Supported by the furlough scheme, and because their spending was held back by the lockdowns, households accumulated significant deposits during the pandemic (Chart 3). While not literally a “helicopter drop” this came quite close to an exogenous increase in the stock of household (and aggregate) money.
Chart 16 illustrates this for one technology - computing. It shows the percentage of employees in a company using a computer on three dates (2002, 2008, 2015). The good news is that it shows a clear trend towards increased employee computer use over time. 35  European Commission (2018). 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  The distribution of computer use is, however, clearly twin-peaked. There is an upper tail of companies where more than 90% of staff use computers. By 2015, this had increased to a little under half of all companies. But there is also a large, if diminishing, tail of companies where employee use of computers is much more modest. For example, even by 2015 around 40% of companies had fewer than half of their employees using computers. And there were still 20% of companies where fewer than one in five employees used computers. This picture is patchier still for more advanced technologies. Chart 17 looks at the distribution of the proportion of employees in UK companies with access to a portable device with internet access on two dates (2011 and 2015). It, too, is twin-peaked. But the upper peak is now a very modest one, containing only around 10% of firms. And the lower peak, by contrast, is Himalayan. The fraction of companies where 50% or less of employees use portable devices is around 80%. Patterns of technological adoption and penetration among UK companies, then, tell a broadly consistent story.

One consequence is that the credibility of the institution will eventually suffer, and this will negatively affect its efficiency to the detriment of the membership as a whole. The second is that by granting too many resources under too uncertain conditions the financial soundness of the IMF will be jeopardized. The financial soundness of the Fund may well constitute in itself the topic of another speech. Let me just tell you that, although the IMF financial situation remains strong, recent developments in markets and in Fund lending have increased the risks for the institution. Shareholders of the Fund, through the Executive Board, have the responsibility that the Fund takes sensible decisions. They have an equally important responsibility to safeguard the credibility and soundness of the institution. This can best be done by ensuring that, to the extent possible, the game is played according to the rules. To best pursue its mandates, the Fund must not only be competent and financially sound, it must also be able to preserve its own independent judgment. With this caveat, I would have no problem sharing the very widespread belief that if the Fund did not exist, we would have to invent it. 4  BIS Review 69/2004