samchain/econo-pairs-v1 huggingface dataset:
One could expect that easing regulations and fostering competition would lead to higher labour productivity growth in the industries concerned, as has happened, for example, in the telecommunications sector. Yet, over the past decade the euro area as a whole has experienced a decline in trend labour productivity growth. A number of other effects of integration on trade should also be looked at: for instance, whether labour regulations and taxation that hamper technological innovation could lead to a decline in exports within the euro area, as well as resulting in lower exports from the euro area to the rest of the world. As regards the latter effect, it appears that the product composition of euro area exports might involve risks for the future export performance of the euro area, if the under-specialisation in fast-growing high-tech sectors is not adequately addressed. Richard Baldwin’s paper offers a very useful and comprehensive treatment of the issues related to the euro’s trade effects. And what he found – or did not find – should certainly provide fertile ground for a fruitful discussion in the first session. Inflation and growth divergences in the euro area and policy implications The existence of divergences in growth rates and inflation in the euro area, and the associated challenges posed for economic policy in general, and the single monetary policy in particular, are issues that have been debated extensively and intensively since the creation of the euro.

Lucas Papademos: What effects is EMU having on the euro area and its member countries (opening remarks) Opening remarks by Mr Lucas Papademos, Vice-President of the European Central Bank, at the ECB Workshop “What effects is EMU having on the euro area and its member countries?”, Frankfurt, 16 June 2005. *  *  *  Introduction When the ECB started organising this workshop a year ago, we thought that addressing the question of the workshop’s title would provide a necessary stocktaking and useful analysis of the effects of EMU on the euro area and its member countries, 6½ years after the introduction of the single currency. Recent developments and debates have shown that the impact of EMU on the euro area countries is a very topical issue indeed. Officials, economists and commentators have sought to analyse the pertinent issues and tried to answer the question of this conference. And some of them have come to conclusions which my colleagues in the Governing Council have called “absurd”, “nonsensical” or implying “economic suicide” – and rightly so. This debate has sometimes risked being fairly long on polemics and rather short on arguments. With this workshop, to which I would like to welcome you all, we can bring to this discussion some solid facts, sound arguments and a better understanding of the manifold issues involved. The debate on these issues has often been couched in terms of two key concepts, “convergence” and “heterogeneity” (which do, however, need clearer definitions), and the relationship between the two.
Some improvement in the euro area Developments in the euro area have been relatively calm over the summer, despite some political uncertainty in Portugal, Spain and Italy. Moreover, there have been assessments of Ireland and Greece, for instance, that indicate the on-going reform work is progressing well. The reform work in both countries has been approved, which has paved the way for continuing aid payments. But the problems remain, and during the summer both Italy and France had their credit ratings downgraded because of poor growth prospects. Perhaps the most important thing is that new statistics show that the euro area GDP has begun to grow again. After being negative for six quarters in a row, GDP growth was 1.1 per cent in the second quarter of this year, according to preliminary figures and calculated as an annual rate. In Germany, which is very important to Swedish exports, GDP growth was clearly above the average for the euro area as a whole. At the same time, indicators for the  6  BIS central bankers’ speeches  start of the third quarter point to a continued improvement. The aggregate purchasing managers’ index rose in July to just over 50, for the first time since the start of 2012, and consumer confidence also began to rise. New labour market statistics also show that unemployment in the region has stabilised, albeit at a very high level. All in all, the new information confirms the picture that the recovery in the euro area has begun.

However, I personally thought there were a number of factors in the global economy that made the forecast unusually uncertain. Prior to the meeting in July, there had been considerable fluctuations in the financial markets, which were largely due to the uncertainty over when the Federal Reserve will begin phasing out its quantitative easing. There was also uncertainty over what effects the problems in the Chinese banking sector would have on the Chinese economy and also, as has been the case for a long time now, over developments in the euro area. Economic developments in the euro area are still marked by the need for the private and public sectors to reduce their debt, which is a process that will of course take a long time. However, compared with one year ago, developments had been in the right direction in most of the problem countries and a number of measures had been taken that led to interest rates  BIS central bankers’ speeches  1  falling to lower levels. Our assessment in July was based on the assumption that the reform process would continue and the forecast was that GDP growth in the euro area would remain weak but gradually increase. However, the slow recovery means that GDP will not reach the same level as prior to the decline in 2009 until 2015.
10  Alsterlind et al. (2015) describe the signalling and portfolio balance channels in more detail. 11  12  In Sweden, the effect on rates with short maturities is probably more important than the effect on rates with long maturities. This is because most lending to household and  15 [16]  companies is done at variable interest rates. According to Statistics Sweden’s Financial Market Statistics, 73 per cent of lending to households and non-financial corporations had a remaining interest-rate fixation period of 3 months or less in February 2018. The primary purpose of repo rate forecasts has so far been to influence market rates, and periodically there have been major differences between the Riksbank’s forecasts and market expectations (see Sveriges Riksbank 2017b). 13  14  See Sveriges Riksbank (2012). 15  See Rachel and Smith (2015) and Holston et al. (2017). See, for instance, Duffie and Krishnamurthy (2016), Bernanke (2016) and Constancio (2017). 16  The Riksbank could reduce the liquidity surplus further by selling other assets, i.e. gold and foreign exchange reserves. But such a change of its asset holdings is not likely; the Riksbank has in the last decade instead enhanced its foreign exchange reserves by more than SEK 200 billion financed by loans in foreign currency. 17  18  See Greenwood et al. (2016), Constancio (2017) and Krishnamurthy (2018). This is still a simplified description of the Riksbank’s operational framework. See the references in footnote 6 for a more complete description.

We also recognized that the central bank's credibility is crucial in assuring the public on the smooth operation of our economy. The Bank of Thailand decided to adopt inflation targeting as the framework for our monetary policy. Inflation targeting is not simply setting an inflation target. It is instead an approach that emphasizes (a) a forward looking economic forecasts using the most reliable economic models, (b) transparency in communicating to the public the reasoning for policy stance, and (c) accountability to ensure that promises of price stability are upheld. BIS Review 81/2001  1  We have chosen to target core inflation, a measure which excludes volatile components, namely raw food and energy prices. Our target range has been set between 0 to 3.5 percent until 2002. When I stepped in as a Governor in June, bearing in mind that our current account surplus was decreasing (due to a reduction of external demand) and international reserves may be affected, a review of the monetary policy was made. It was however agreed that inflation targeting framework should remain for price stability is still very important to prevent the economy from another crisis. However additional attention was emphasized on certain elements. International reserves which seem to be treated as exogenous factor under the framework have been brought into consideration, with the belief that healthy reserves are needed to maintain investor's confidence amidst the current slowdown of world economy.
The persistence due to inflation's dependence on its past trends is often called “intrinsic persistence”, while the persistence produced by the expectation of inflation is called “expectation-based”. See Altissimo, F., M. Ehrmann and F. Smets (2006), Inflation Persistence and Price-Setting Behaviour in the Euro Area, ECB Occasional Paper No 46. 10  Regarding the importance of a commitment to pursuing the primary goal of price stability and transparency in connection with the quantitative definition of price stability, see Orphanides, A. and J. C. Williams (2006), Inflation Targeting Under Imperfect Knowledge, Chilean Central Bank Working Paper No 398. 11  See Sahuc and Smets (op. cit.) as well as Christiano, Motto and Ristagno (op. cit.). BIS Review 135/2008  5  However, we should not overstate the differences in the conduct of monetary policy between the euro area and the United States. On the one hand, the US central bank, too, assigns primary importance to price stability, as has been stressed on more than one occasion by the Federal Reserve’s most recent chairmen. For instance, the current Federal Reserve chairman himself argued (and I quote): “ Experience shows that low and stable inflation and inflation expectations are also associated with greater short-term stability in output and employment, perhaps in part because they give the central bank greater latitude to counter transitory disturbances to the economy.

Jean-Pierre Roth: Central bank communication policies and the challenges posed by the financial crisis Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the presentation of the “BZ-Preis für Lokaljournalismus”, Berne, 27 November 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  The financial crisis has prompted a rekindling of press interest in central bank operations, following a long period in which monetary authorities scarcely attracted any media attention. Our communication policy has thus been faced with new challenges in recent months. Today, central banks operate with the market, rather than “against the market”, as in the past. Financial market participants are therefore able to foresee central bank actions. Since the early 2000s, our communication policy has focused on transparency, and our experience with this has been positive. Thus, transparency increases the effectiveness of monetary policy. Yet, in the recent financial turbulence, transparency in monetary policy operations also turned out to be a double-edged sword, as communication problems arose. Indeed, there is a risk that operations to provide extraordinary liquidity assistance will impair the reputation of the recipient organisations, and thereby destabilise the market. There are a number of possible solutions with which a balance can be achieved between transparency and stability. BIS Review 147/2008  1
CLS Bank, which has its headquarters in New York, serves as a platform to eliminate the so-called Herstatt risk, i.e. the settlement risk inherent in foreign exchange deals. Previously, the two legs of a foreign exchange transaction were settled at different times. If US dollars were bought against Swiss francs, the franc amount was to be paid during European trading time. The corresponding amount in US dollars, however, was credited only a few hours later – during US trading time. In the few intervening hours, a credit risk existed. If a bank had been closed down during this time period, its counterparties might possibly have lost huge amounts of US dollar receivables. CLS Bank now makes it possible to settle foreign exchange transactions in the major currencies based on the «payment versus payment» principle, thereby eliminating the settlement risk for these transactions. Currently, 42 financial institutions are directly linked to the system (Settlement Members) and settle their foreign exchange payments via CLS in seven different currencies. One of these settlement currencies is the Swiss franc. Three Swiss banks – UBS, CS and Zürcher Kantonalbank – participate in CLS. Apart from these three Swiss banks, two other financial institutions – HSBC and Bank of America – effect foreign exchange transactions in Swiss francs via CLS. Every day, these five institutions together enter around 1,400 payments in the amount of almost Sfr 20 billion into CLS. Settlement takes place via a direct link between the Swiss Interbank Clearing System (SIC) and CLS Bank.

It also takes into account Malaysia’s aspirations to become a high valueadded, high income economy. Within the global economic landscape, emerging economies will assume a more significant role. While emerging economies will continue to be affected by global developments, most are able to demonstrate resilience and are expected to remain on a growth trajectory. By 2030, emerging economies are projected to account for 60% of total world output, from the current 40%. At the same time, the economies and financial markets in the global economy and international financial system have become more interconnected as a result of greater crossborder trade and financial flows. The continued development and deepening of our financial markets and increased financial liberalisation in emerging economies will reinforce this trend towards greater interconnectivity. More recently, the financial sector has been the target of a renewed focus and priority by the international community. Wide ranging financial reform measures have been introduced in the aftermath of the global financial crisis to address the weaknesses that have surfaced during the crisis. Several changes are also transforming the domestic environment. New domestic sources of growth, the greater role of the private sector in the economy, demographic changes, rising incomes and a growing middle class, and the accelerated pace of urbanisation cumulatively will significantly change the demands on the financial sector.
The first is how to deal with the cost and the constraint of coping with capital inflows. The second is the challenge in finding a set of tools that can help assess the potential build-up of financial vulnerabilities. And the third is how best to complement monetary policy with prudential measures to help prevent potential financial instability. On the first decision, for those under a managed float regime, lowering interest rates to reduce the relative attractiveness of the country to capital inflows may be an appropriate way to ensure price stability. But concerns of fast appreciation may not subside as exchange rates tend to behave more like asset prices than relative goods prices in practice. That means the nominal effective exchange rate can appreciate for a while in the short run, even after central banks repeatedly cut interest rates. This is an element of the well-known exchange rate disconnect puzzle. The risk is that a central bank may cut interest rate by too much, and at the same time sowing the seeds for inflation and an asset price boom down the road. An obvious important technical challenge to emerging market central banks, then, is to improve its ability to forecast inflation and output and be more precise about the range of possible natural rates of interest, which vary through time. Resisting the appreciating momentum of the exchange rate through interest rates alone may not be sufficient. A widely adopted practice that is assumed to be effective in the short run is through sterilized intervention.

If implemented effectively across the financial industry, stress-testing can help curb destabilizing activities and help prepare financial institutions to deal with macroeconomic or financial shocks. Unfortunately, financial institutions and regulators in emerging economies have lagged behind their counterparts in advanced economies on this issue, especially on the credit and liquidity risk stress-testing. A priority for regulators in emerging economies, therefore, is to move faster on stress-testing. To accomplish this, they should push financial institutions to invest in human resource and technology, with the aim of conducting macro stress-testing at least on an annual basis. As regard implementation, regulators and monetary policy makers must increase coordination  6  BIS Review 98/2008  so that macroeconomic and financial stability assessment can be done in an integrated fashion, so as to arrive at a more relevant and convincing macro stress-testing scenario. Finally, the third challenge or decision is the use of prudential measures. While it is unclear how effective domestic monetary policy can be in checking excessive asset price volatility, the threat of financial instability has given rise to a more prominent role for macro-prudential measures to reduce the procyclicality of the credit market. As we see it, the primary challenge in this respect is how best to move forward. Combining the use of prudential measures with monetary policy is a useful policy option, but it is still an unsettling issue because of the concern for efficiency.
Existing customers As I have already mentioned, it is likely that AIs will have to upgrade their due diligence procedures in some respects to comply with changing international standards. Obviously, these enhanced procedures would be applied to new banking relationships. But this begs the question about what should be done in relation to existing customers. To what extent should institutions go back and undertake renewed verification of the identity of existing customers? Our current view is that we should not impose an across the board requirement in this respect, but it would certainly be sensible to review those existing customers who fall into higher risk categories. The six major banks in the UK have just announced that they will undertake a risk-based initiative of this type. I would encourage those AIs with a large customer base to do the same. Other triggers for review of existing records may arise when a customer undertakes a significant transaction and where there is a material change in account operation or customer documentation standards. The way forward These are some, but by no means all, of the current issues we are considering in the context of our revised guideline. We hope to have something ready for consultation with the industry later in the year. While this may impose new obligations on AIs, we will try to ensure that these are of a nature that wellmanaged institutions would adopt of their own accord.

This could weaken public confidence in the sustainability of public finances, with adverse effects on market sentiment, leading to less favourable medium and long-term interest rates. Unsustainable fiscal positions may also complicate the task of our monetary policy to maintain price stability. Communicating credible fiscal exit strategies is therefore crucial in order to anchor expectations. Such strategies need include credible measures, notably on the expenditure side. As agreed by the Ecofin Council last week, governments need to set out concrete and quantifiable adjustment measures that will lead to a sustainable correction of fiscal imbalances. Several countries will have to start consolidation in 2010, and all others in 2011 at the latest. 3. Systemic risk  Let me now turn to the last topic we selected, namely the issue of systemic risk in highly interconnected financial systems and ways to address it. Systemic risk is the risk of a broad-based break-down of the financial system. It results from an impairment of the financial system, generally resulting from the high degree of interplay and interconnectedness within the system. Systemic risk is distinct from the risk that can affect the safety and soundness of individual financial institutions. Furthermore, systemic risk, when it erupts, is to be certain to seriously affect the financial intermediation process to such a degree that there are negative spill-overs to the real economy. The crisis has illustrated that systemic risk may be triggered by the collective behaviour of institutions and the manner in which they interact in financial markets.
Overview Following our exit from the EU, we have been examining the main bit of prudential insurance regulation (Solvency II) to see how it can be tailored to work better for the UK, working with the Treasury. [1] The Treasury has set three objectives for the review, which we support: a competitive insurance sector, investment to support growth and policyholder protection. While the details of the review can appear technical and abstract, the stakes are real. A stable insurance sector backstops the livelihoods of millions of policyholders, in particular current and future pensioners who rely on insurers for their retirement incomes. The insurance sector is also a major part of the wider financial sector, and an important source of finance for the real economy including productive and green investment. Brexit gives us an opportunity to rewrite the insurance regulations we inherited from the EU – and in doing so help drive further investment in the economy. But we need to be clear that this is not a  Page 3  free lunch. If changes simply loosen regulations which were over-cooked by the EU, without tackling other areas where regulations are too weak, then we are putting policyholders at risk. The interests of pensioners and other insurance policyholders can get lost in these debates, but Parliament has given the PRA a primary objective to protect policyholders, and it is a central part of our job to highlight risks and propose ways to deal with them.

The word “expect” is doing more work in this sentence than you might have appreciated. In working out what returns firms should expect to receive from their assets, it is necessary to make assumptions about how many of those assets will go bad – for instance, how likely is it that a company in whose bonds an insurer has invested will go bust and stop paying interest? Or how likely is it that an insurer will get into trouble, be forced to sell its asset for less than it originally paid and recognise a loss? Due to these possibilities it would obviously be wrong to recognise all the returns on assets upfront, because some of them will not materialise – at the very least these need to be deducted. Under the MA this is done in a mechanical way, based on returns and losses experienced in the past. The problem with this approach is simply that expected losses based on averaging the past may or may not be a good guide to the future. [4] There are plenty of examples in finance and elsewhere where the past has not proved a good guide to the future – recent moves in some commodity markets is a topical example, and the performance of subprime US mortgages in the financial crisis is another which illustrates the serious costs that can be incurred when we get this wrong.