samchain/econo-pairs-v1 huggingface dataset:
10  20  25  Figure 9 Net capital flows (percentage of GDP, average for each period) 9 8 7 6 5 4 3 2 1 0 -1  Brazil  Chile  1996-1997  Colombia 2007-2008  Mexico 2009  Peru 2010 (f)  (f) Forecast. Considers actual data through second quarter 2010 and estimates for second half 2010, based on the share in net capital flows to Latin America in 2009 and forecast for 2010 from WEO, October 2010. Source: Central Bank of Chile based on IMF figures. Figure 10 Monetary policy interest rate (*) (percentage) 12  10,8  10 7,3  8  3,0  3,2  3,4  Advanced commodity exp. Emerging Asia  4,8  5,3  Brazil  BRIC  Latin America  1,0 Emerging Europe  0,5  Eurozone  0,3  U.K.  0  0,1  U.S.  2  Japan  4  Chile  6  (*) Simple averages by region. Emerging Asia includes: China, the Philippines, Hong Kong, Indonesia, India, Malaysia, South Korea, Thailand and Taiwan. Emerging Europe includes: Hungary, Poland, the Czech Rep. Romania and Russia. Advanced commodity exporters includes: Australia, Canada, Norway, New Zealand, and South Africa. Source: Bloomberg. 11  Figure 11 Financial accounts' flows (millions of dollars) 12.000  12.000  8.000  8.000  4.000  4.000 0  0 -4.000  -4.000  -8.000  -8.000  -12.000  06  07 Liabilities  Source: Central Bank of Chile.

In emerging Asia, the acceleration of spending and increased inflationary pressures appreciate the real exchange rate. Eventually, the foreign exchange regime affects the real exchange rate’s behavior only temporarily, and the adjustment arrives sooner or later by other ways, some times at a greater cost. Improved terms of trade Another factor influencing the exchange rate’s behavior has been the improvement of our terms of trade. Along the past ten years, the ratio between the price of our exports and imports, i.e., the terms of trade, has almost doubled. As of the third quarter of 2010, the terms of trade exceeded the average for the last two decades by more than 60%. Underlying this increment are the higher prices of copper, iron, wood pulp and other commodities relative to manufactured goods, partly attenuated by the oil price increases (figure 3). Improved of trade lead to an increase in the real national income – the sum of wages, profits and taxes – faster than the expansion of our productive capacity. To the extent that this higher national income is perceived as permanent by policy-makers and private agents, it stimulates expenditure and puts pressure on the installed capacity, the domestic interest rate and, ultimately, the real exchange rate. 2  In the case of fiscal earnings, for over twenty years our country has implemented a responsible, prudential fiscal policy, generating fiscal surpluses for most of the period.
As regards updating pensions, many countries have ceased to take wage growth as a reference and have instead used price indices, as in Spain. In this case, potential reform options might address the possibility of compensation for differences between forecast and actual inflation acting both in favour of and against pensioners. On the revenue side of the system, there appears to be no headroom for increasing social contributions, since that might greatly impair employment. However, accelerating the process of separation of funding sources should be considered so that social contributions cease to cover the portion of top-ups to minimum pensions that they currently finance, as should earmarking the entire Social Security surplus (and not only a portion as to date) to the reserve fund. Significantly, all these reforms can be made without having to alter the current pay-as-you-go system, through changes in its parameters. Some countries have opted to frame these changes within a single, large-scale change, at least in formal terms. Sweden and other Central and Eastern European countries have set up a system of notional accounts. Under this system, the model remains on a pay-as-you-go basis, but a virtual account is set up for each individual which reflects the individual contributions of each pension scheme contributor and the notional returns that these contributions generate throughout working life, returns that are calculated according to a notional rate linked to some macroeconomic variable. This system provides for a closer relationship between individual contributions and pensions.

In essence what is needed is to settle the question of ‘who pays’ unambiguously and in advance. We need to pre-position a specific type of creditor who can absorb loss if the bank fails. Clearly, getting a creditor to accept this in advance has a cost; there will be a premium for carrying such an explicit risk. That cost is, however, simply the counterpart of the hidden subsidy being given to banks by the implicit taxpayer guarantee that applies if they cannot be resolved in an orderly way. We now have international agreement on the minimum amount and nature of this type of loss absorbing instrument – which goes under the unlovely name of ‘TLAC’ – that the largest, globally systemic banks should issue.11 And in the EU, under the Banking Recovery and Resolution Directive (BRRD), resolution authorities will need to set in advance, for each firm, the overall amount and nature of the resources that can absorb loss both when the firm is a going concern and when it can no longer operate – this goes under the equally unlovely name of MREL. (v) International co-operation The final plank is international cooperation. The hardest challenge in ending too big to fail is dealing with the failure of systemically important banks that operate in a number of jurisdictions. The crisis proved beyond doubt that we did not have the international machinery to handle this.
This maturity mismatch between assets and liabilities is an essential part of the banking business model and large unexpected shocks can leave even well-run banks short of liquidity. And the degree of spill-over to the system as a whole is particularly elevated in the banking system. 1  See Fisher (2010), “Managing Liquidity in the System: The Bank’s Liquidity http://www.bankofengland.co.uk/publications/Documents/speeches/2010/speech450.pdf. 2  In this speech, references to commercial banks should be taken to include building societies. BIS central bankers’ speeches  Insurance  Operations”,  1  By way of contrast, if a car manufacturer fails, people will buy other cars. If a bank fails, it can cause a loss of confidence and hence a run on other banks. Commercial banks can self-insure against liquidity risk by holding buffers of liquid assets which they can readily exchange for cash in the money markets. It is obvious in hindsight that the banks’ collective holdings of liquid assets prior to 2007 were insufficient to cope with the ensuing crisis and that they should hold more – although precisely how much more is still being debated in international regulatory circles. Nonetheless, liquid asset buffers can only go so far – one can always conceive some event which renders a bank’s self insurance buffer insufficient. Such scenarios could range from short-term IT malfunctions which prevent payments being received, through to full-blown global financial crises. That is why the central bank needs to stand ready as lender of last resort.

Note that a precondition for receiving financing from the ESM is to have fully ratified the fiscal compact, which creates a link between crisis prevention and resolution schemes. The involvement of the IMF in the financing schemes is not strictly required but is still highly desirable, also in view of the Fund’s analytical expertise in crisis resolution. I would also like to emphasise that the range of tools available to the ESM compares favourably with those available to the International Monetary Fund (IMF). Hence with the ESM the euro area has equipped itself with a state of the art and permanent crisis resolution scheme, a key missing piece in the initial design of EMU. Conclusions  As Asia knows very well from its own crisis in 1997/1998, a crisis can be an opportunity for reform and renewed growth. This is embodied by the character ji, which in Classical Chinese means at the same time “danger/crisis” (weiji in today’s language), as well as “chance/opportunity” (jihui to use today’s term). In this sense the Asian crisis experience is a useful lesson for the euro area, which – I am convinced – will emerge more integrated and stronger from the current challenge. Perhaps the greatest challenge at this point in time is to keep up the reform momentum even if hopefully the most severe manifestations of the crisis abate and financial market conditions, including financial integration within the euro area, come back to more normal  8  BIS central bankers’ speeches  conditions.
In some situations, it may be appropriate to hedge against particularly unfavourable developments. In the baseline scenario, the interest rate is gradually raised to a more normal level. Norges Bank continuously assesses the effects of interest rate changes and other new information concerning economic developments. BIS Review 92/2006  5  6  BIS Review 92/2006  BIS Review 92/2006  7  8  BIS Review 92/2006  BIS Review 92/2006  9  10  BIS Review 92/2006  BIS Review 92/2006  11  12  BIS Review 92/2006  BIS Review 92/2006  13  14  BIS Review 92/2006  BIS Review 92/2006  15  16  BIS Review 92/2006  BIS Review 92/2006  17  18  BIS Review 92/2006

A few years later, a group of researchers: Rafael Anes, Carlos Fernández Pulgar, Diego Mateo del Peral, Pedro Tedde and Gabriel Tortella, undertook a far-reaching project on the history of the Spanish banking system. The result was La banca española en la Restauración, published in 1974. Since then, a number of books have been published by the Bank of Spain, sometimes in collaboration with commercial editors. To mention just two of these books: El Servicio de Estudios del Banco de España, 1930-2000; and Un siglo de historia del sistema financiero español (in Spanish and English). Moreover, the early history of the Bank has been covered by three volumes written by Tedde de Lorca: El Banco de San Carlos (1782-1829); El Banco Español de San Fernando, 1829-1856; and El Banco de España y el Estado liberal, 1847-1874. The Banco de España has also shown its interest in Spanish economic history through its annual research grants programme, financing the collection of Estudios de Historia Económica (or, in Banco de España parlance, “the red books”). There are now 72 of these studies, the first ones dating back to 1980. The aim of the Banco de España with this collection is to disseminate economic history papers written by its own staff or by researchers to whom it has awarded grants, in order “to enhance knowledge of Spanish economic history, paying particular attention to quantitative aspects”.
As a result, by issuing securities in a segmented TIPS market, the Treasury may keep realized yields on bill and nominal coupon securities lower than they otherwise would have been. The last noteworthy fiscal benefit from TIPS issuance is the fact that it reduces risk to the U.S. government in terms of the variability of its net financial position. The rate of inflation influences both the cost of TIPS and the government’s tax receipts. Thus, some level of TIPS issuance may reduce the variability of the government’s net financial position. This, in turn, should lead to a more regular and predictable pattern of issuance, which should help minimize interest costs. In summary, our analysis of the ex-ante costs of the TIPS program and the more difficult-tomeasure benefits suggests that TIPS issuance provides at least a modest net benefit to the Treasury. So, now I want to turn to a related question: Are there ways to increase the benefits? 6  See Fleming (2002), Krishnamurthy (2002), Laubach (2003). BIS Review 14/2009  5  I would be willing to make two modest suggestions here. First, it may make sense to emphasize longer-dated TIPS issuance rather than shorter-dated issuance. Analytically, the logic goes as follows. Inflation uncertainty is likely to increase at longer time horizons. Thus, investors are likely to pay a greater premium for inflation protection at longer-time horizons. This implies that the cost savings associated with TIPS are likely to be greater for longer maturities rather than shorter maturities.

In other words, over such a short period, the outcome of an ex-post analysis can be heavily influenced by which of the two sides – the Treasury or investors – was the lucky recipient of the net inflation surprise that occurred over the period in question. For example, in countries such as the United Kingdom, where inflation declined following the inception of an inflationlinked debt program, ex-post studies generally suggest that these programs have reduced financing costs for these countries. The fact that the Treasury saved or lost money ex-post is thus not a very reliable guide as to whether the strategic decision to implement a TIPS program has been a good idea. The relevant question is whether the Treasury obtained the financing it needed at a lower ex-ante cost. If the experiment were to be run thousands of times drawing from the underlying distribution of possible inflation outcomes, would Treasury’s costs have been lower, on average, with TIPS or with nominal Treasuries? To conclude on the basis of one coin flip or roll of the dice as ex-post analysis essentially does surely is not the best way to evaluate the respective costs of TIPS issuance versus nominal Treasuries. Thus, we need to focus on the underlying factors that determine the ex-ante difference in costs. 1  2  See Sack and Elsasser (2004), Roush (2008).
José De Gregorio: The monetary policy report and the financial stability report Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 16 December 2009. *  *  *  Introduction Ms President of the Finance Committee, senator Evelyn Matthei, senators. Thank you for your invitation to the Board of the Central Bank of Chile to share our vision of the recent macroeconomic and financial developments and their implications for monetary policy making. These topics make up the contents of our Monetary Policy Report of December 2009 and our Financial Stability Report of the second half of 2009. As of this issue, the publication of our Monetary Policy Report is beginning a new frequency, changing from three to four times per year. In addition, the publication of the Reports of December and June will now coincide with our two Financial Stability Reports, which will continue to be released twice yearly. The purpose of this change is to share more often our vision on the economy and the rationale of and prospects for our policy decisions, a key element to deliver a more effective and credible monetary policy. The year that we are leaving behind will be recorded in economic history as the one where the world economy was on the verge of collapse.

The causes and consequences of the recent Asian financial crises are still vivid in our minds and we from our part, as professional bankers, must endeavor to ensure that they are not repeated. The Central Banks can use both preventive measures and corrective action to maintain financial stability. A constant and continuous monitoring of risks is a preventive measure. Crisis resolution is a corrective action. A strong regulatory regime would ensure the former and a financial safety net is an essential component of the latter. The two supplement each other. The cooperation of all parties concerned in both these actions is of paramount importance in maintaining financial system stability. In Sri Lanka, as in most emerging economies, we have a bank dominated financial system. Therefore, ensuring banking soundness will inevitably lead to financial system soundness. The recent initiatives taken in this regard are significant – we have enhanced capital requirements to reflect the increased leverage in the industry. Even regulatory capital is at a comfortable margin above the international norm but is still only 10% of risk assets which is the absolute minimum should these risks materialize. Therefore, increasing the minimum capital requirements would provide a healthy platform for growth and expansion of banking business. However, capital is the last line of defence. The more immediate needs are good corporate governance and good risk management which will steer the banking system towards good financial health. A sound corporate governance regime would seek to promote the highest standards of professional behaviour and integrity.
My time at the IMF gave me an insight into the fantastic quality of its staff and the political constraints they often operated under. As for Tim, I often wonder what he went on to do next. On return to London I produced another book, on the design of the international financial system.15 This too failed to make the bestsellers’ list. In the period since, fault-lines in the international financial system have continued, periodically, to cause global tremors. They will continue to do so until the international financial architecture is strengthened. With hindsight, I think Stan Fischer was right on the need for a better-resourced IMF, alongside the international equivalent of a resolution authority for nation states. Alas, it may take another bout of emerging market crises to instigate this change. Back in London, I was reassigned to lead a Division working on domestic rather than international financial stability issues. This was something of an anti-climax. The domestic financial system was, by comparison with the violent seas of emerging markets, a millpond of tranquillity at the time. Moreover, the prevailing consensus was that this tranquillity was set to last. In response, the Bank slimmed the resources it devoted to financial stability by around half. The timing was unfortunate. The financial system was riding a credit wave as banks’ balance sheets and leverage ballooned. Every major financial crisis in the past has been presaged by credit waves of this type.16 But this time, it was said, was different.

That day is etched on my memory. I had the incredible good fortune to be sitting on the Bank’s foreign exchange dealing desk that day, watching agog as we lost around £ billion in foreign exchange reserves defending the pound – at the time, real money – despite announcing interest rate rises of 5 percentage points in a single day. How the world has changed. Currently, financial markets expect UK interest rates to rise by an average 5 basis points each six months for the next 10 years. The UK’s exit from the ERM led to a new nominal anchor being needed. And almost immediately, one was adopted – an inflation target. It had one obvious merit: it was the only monetary framework not to have already been tried in the UK. But the track record of inflation-targeting was close to non-existent. At the point the new target was announced, expectations for UK inflation were high (over 5%) and expectations for the framework lasting were low. The collapse in sterling following sterling’s ERM exit, and the expected sharp rise in inflation, meant the wheelie bin beckoned for inflation-targeting. In the event, inflation failed to pick up as much as expected after the ERM debacle. And, behind the scenes at the Bank, the machinery of monetary policy was changing. Data, analysis and models suddenly became more central to judgements on inflation and the appropriate monetary stance. Accompanying this, economics and economists began playing a more central role in formulating the Bank’s judgements.
But they affected most of all those with high public debt levels, a lack of fiscal space, fragile market access and, especially, low growth. Sovereign risk was then transmitted into the domestic banking sector through two channels. The first was through banks’ direct exposures to their own governments’ bonds. Between January 2010 and July 2012, banks in Greece, Italy and Portugal incurred aggregate losses on sovereign bonds of vulnerable countries2 amounting respectively to 161%, 22% and 36% of their Core Tier 1 capital. 3 Regardless of whether these losses directly affected regulatory capital4, they had an adverse effect on perceptions of solvency in those national banking systems. The second channel was via negative confidence effects. Because the public sector makes up roughly half the economy in many euro area countries, and because of credit rating dynamics, the fear of possible sovereign defaults had a dramatic effect on confidence in the domestic private sector. Any distinction between firms and banks, and between banks with and without high sovereign exposures, disappeared. The general loss of confidence in these countries’ prospects reverberated through the banking sector via a further fall in growth.5 In this way, the crisis spread to banks that did not have significant exposures either to US subprime assets or to domestic real estate, and therefore had not until then needed to be bailed out.

But if there are cross-border banks that operate in all parts of the union, they can offset any losses made in the recession-hit region with gains in another, and can continue to provide credit to sound borrowers. In the US, both credit and capital market integration have played an increasingly important role in smoothing local shocks over the past decades.13 For example, following the oil price collapse in the mid-1980s, almost every bank in Texas failed, creating a state-wide credit crunch. One reason for this was that out-of-state banks were banned from the Texas market, so the balance sheets of local banks were completely concentrated on their home state.14 But since then there has been major integration in the retail banking sector, with the number of multi-state banks increasing from around 100 in the early 1990s to more than 700 today. 15 This has significantly weakened the relationship between local capital and local credit supply. 16 And as a result, the volatility of business cycle shocks among US states has become smaller.17 Overall, it is estimated that around 70% of local shocks are smoothed through financial markets in the US, with capital markets absorbing around 45% and credit markets 25%. In the euro area, by contrast, the total figure is just 25%.18 Private risk-sharing of course has its limits. Faced with large common shocks that affect the whole monetary union, the benefits of diversification can break down, as happened to some extent in the US during the crisis.