samchain/econo-pairs-v1 huggingface dataset:
So let me present what is perhaps a simplified background to some of the ideas and theories that explain the behaviour of financial markets. What governs share yields? Much of the time-honoured advice that is now disseminated to optimise share investment is based on what Harry Markowitz arrived at half a century ago as a 25-year-old graduate student at Chicago  2  BIS Review 5/2001  1  University. Share investment involves risks that can be reduced by not putting all the eggs in one basket. Buying one particular share entails risks of two types; one to do with conditions pertaining to the company in question, the other with the economy in general, that is, factors affecting the stock market as a whole. Markowitz showed that with a portfolio made up of shares in a sufficient variety of companies and industries, the company-specific risks virtually cancel out. The risk inherent in the stock market’s overall fluctuations remains but the aggregate risk is reduced. This insight was soon followed by the efficient-market hypothesis, which became a central tenet in the 2 literature and has far-reaching implications. It implies, for example, that consistently beating the market, so that the return exceeds the average for all shares, is out of the question. As the market always knows best, active management or even individual analysis by the ordinary share investor is pointless. The optimum is invariably a passive portfolio that mirrors the market. In this way, the amateur can achieve just as good a return as the professional.

Given a well-established measure of this kind (with a status equivalent to that of the consumer price index, for instance), financial products ranging from forward traded instruments to loan agreements with terms based on a real-estate index, would enable households, for a reasonable sum, to reduce exposure to the risk of a large fall in property prices. This process is already under way. Banks have made varying progress in their customer orientation. Independent financial consultants have also begun to some extent. Increasingly composite financial products are being constructed and distributed. The range of mutual funds offered by banks includes funds owned by others. So perhaps one can say that the development towards more consumer orientation has already begun but the decisive steps still lie ahead. Re-regulations of the financial system, perhaps accompanied by amended tax regulations, may be needed, of course, to produce the course Merton points out but there is also a need for new structures in the financial system. Another requirement is appreciably more knowledge about how, for example, the systems’ productive components can identify and spread the risks that may have to be taken. Still, I am sure you will agree that this opens up new and truly interesting perspectives for the future in many fields of the life cycle as well as for the development of the financial system. Such a development might also lead to some savings finding their way back to the financial institutions and to markets being dominated by more professional players.
Over 145 million euros are earmarked in 2012 for this so-called direct contribution by Government by way of a grant to the private sector in terms of the Social Security Act of 1987. The total top up for both public and private sector employees comes to just over 191 million euros. This amount is in addition to the national insurance contribution by the government in its capacity as an employer. To put these numbers into perspective, one must keep in mind that the deficit in the consolidated fund for the same year is projected at roughly 145 million euros. The size of these outlays should be of concern for two reasons. The shortfall is certainly not arising from pension benefits that are too generous. Secondly the amount of the welfare gap as identified in the Estimates is going to rise rapidly as people live longer and the population ages. One suggestion for alternative financing would involve a multi-year programme that would reduce the government’s matching contribution gradually over an extended period of time, ideally through a tripartite consensus at the MCESD. This programme would be financed from productivity growth. During times of economic growth, when the growth rate exceeds a particular threshold, the revenue from a marginal increase in income tax or national insurance rates would be earmarked to reduce the subvention. The increase in rates would automatically be suspended during times of slower growth.

 My point is that the analysis would benefit from having a broader perspective. We should look beyond the household stretch to household strain, which encompasses more structural factors.  I would refer to two dimensions of the household strain: quality of living and inequality of income, savings, and access to credit.  1. Quality of living: - overcrowding – CEE countries have the highest concentration of dependent children, and the lowest number of rooms per person (Figure 4 and 5); - poor living conditions – CEE countries have the largest share of population living in poor conditions (Figure 6); - high risk of poverty or social exclusion (Figure 7) – despite having high ownership rates, CEE countries have high shares of people at risk of poverty or social exclusion (slightly declining after EU integration); 2  - To partially compensate for the low quality of living, and given the social pressure of a high ownership rate, property taxes are relatively low in CEE countries (Figure 8); - Low quality of living creates pressure for new housing, despite financial difficulties to service new loans. It also creates pressure for migration, with longterm implications for financial stability.  2. Inequality: - Income inequality: Romania, Bulgaria and Czech Republic have the highest Gini coefficient in the EU (Figure 9); -  Housing cost overburden: If we adjust for rent-related costs (as CEE countries  have high ownership), many CEE countries are on top.
He is supposed to explain both what is happening and what would happen if such and such an action were taken.” 10 However, as he also points out: “The purpose is not that he should reach a conclusion of the type: this is how you should act now! … Any economically important decision must also be based on a number of human, ultimately political, assessments that the expert, the economic scientist, is by no means more qualified to decide on than other good citizens.”10 It can often be difficult to distinguish the object, ie exercise objectivity, from the perception of that object, ie subjectivity. Ragnar Frisch discusses this too. In an article written in 1936, he draws a line from the natural sciences through to the social sciences, where “… the difficulties of arriving at such unconditionally valid results become greater and greater. The reason for this is first and foremost that the whole system of ideas on which the natural sciences are based becomes increasingly more diffuse as one approaches the social sciences.”10 When I was a student here at the University of Oslo at the beginning of the 1970s, there was a fairly broad consensus that the problem of unemployment had been solved once and for all. The belief was that the economy could be fine-tuned through government management, control and regulation. A similar optimism prevailed with respect to economics in the years prior to the financial crisis.

But we can likely manage these risks by designing the retail CBDC with sensible safeguards, such as stock and flow caps on the amount of digital Singapore dollars that anyone is allowed to place with MAS. On balance, the case for a retail CBDC in Singapore is not urgent. • For a subject that has attracted much attention, there are neither strong reasons for or against a retail CBDC in Singapore. Why do I say that? • Physical cash is likely to be with us for quite some time more and so the need for a digital version of cash is moot at this point. • The financial inclusion benefits of a digital Singapore dollar are not compelling. A high proportion of Singaporeans have bank accounts and electronic payments in Singapore are pervasive, highly efficient, and competitive. • Possible currency substitution by foreign digital currencies is a remote tail risk at this point. The issuance of a retail CBDC is ultimately a socio-economic rather than a monetary consideration. Moving to a fully cashless society with all money in the form of bank deposits will not make a significant difference to the conduct of monetary policy. The question is whether the public is comfortable with holding only bank deposits and whether there is public demand for a state-issued currency that is as safe as cash but in digital form. So for now, there is no strong case for a retail CBDC.
As a small, open economy, Sweden must in principle accept the international real interest rate as a given. Monetary policy is not able to affect the real interest rate to any great extent in the longer run, but it affects inflation and inflation expectations. In recent years, the IMF and other forecasters have revised down their forecasts for GDP on several occasions. If one looks at real interest rates, these began to fall even before the financial crisis and real interest rates have also fallen during periods of higher growth. Opinions differ with regard to the causes of this slowdown. The more pessimistic line talk about secular stagnation, where savings have increased and willingness to invest has declined as a result, for instance, of the composition of the population, of growing income gaps and weak technological innovations. This has in turn pushed down the interest rate level compatible with normal resource utilisation. The other more optimistic line say that remaining effects from the global financial crisis, such as deleveraging and increased political uncertainty, explain the slowdown but that these effects are transitory. 1  1  See Deputy Governor Henry Ohlsson’s speech on 18 March 2016 “Decision today, consequences far into the future”, for a longer review. BIS central bankers’ speeches  1  Lower real interest rates and inflation But it is not merely real interest rates that have fallen. In recent years, inflation has also shown a downward trend.

This trend began later than the decline in real interest rates, but Swedish inflation began to fall slightly before that in other western countries such as the United States and the euro area. The most recent downturn in inflation in the euro area can to some extent be explained by the fall in energy prices. However, underlying inflation has also fallen in the wake of both the banking crisis and the euro crisis. It is necessary to take into account the decline in both real interest rates and inflation in the monetary policy deliberations. The fundamental reasoning regarding the stabilisation ability of monetary policy with a floating exchange rate is based on the assessment of a normal nominal interest rate, simply described as an interval for a nominal interest rate that neither speeds up nor slows down the economy. To estimate how high the normal nominal interest rate should be, we look at the real interest rate and add to this the inflation target. If the real interest rate is 2 per cent and the inflation target is 2 per cent, then the nominal interest rate should be around 4 per cent. If the real interest rate rises to 3 per cent, and the inflation target remains unchanged at 2 per cent, the nominal interest rate will be 5 per cent, and so on. But as I have just shown, developments are instead showing a downward trend. Lower real interest rates and lower inflation and inflation expectations are pushing the nominal interest rate downwards.
On the positive side, net financial wealth of households has increased by 15 per cent since 2003 – it was estimated at € billion in June. On average, households have considerably more assets than liabilities, which suggests that household debt is within sustainable levels. So do you disagree with claims that we've started living beyond our means? As long as people can manage their finances, if they do not keep accumulating debt and repay their debts to banks, there does not seem to be a problem at the level of households. BIS Review 152/2008  3  At a national level, the picture is different – we still have a tendency to spend more than we earn as evidenced by the current account of the balance of payments and the fiscal position, which both show a deficit year after year. The prospects for changing this behaviour, at least at this point in time, do not seem very encouraging. These days we are seeing a growing chorus of people calling on the government to run an even larger deficit and to increase the public debt further. During a seminar last June, you said that automatic compensation for inflation, especially at the national level, was counterproductive. The government has calculated its COLA at over € a week. What do you make of it? When you have countries with wage indexation schemes that link wages to past inflation, there is always a danger of the two feeding on themselves and the creation of a wage-price spiral.

The figures for the third quarter are unlikely to be dramatically different from what we have seen so far. Unemployment is still rather stable at a relatively low level. We have, of course, started to see the first signs of a slowdown in our major markets with some companies reducing the number of work days and letting go of some employees. We are a very open economy, we depend on external demand and it is only natural that we will be affected. Has personal debt in Malta increased in the last years? As you would expect in a growing economy, household debt has been rising. It is currently estimated at € billion or 48 per cent of Malta's GDP. It was 31 per cent in 2002, but the ratio remains below the euro average of 60 per cent. The interest burden on Maltese households arising from this debt as a proportion of disposable income is comparable to the euro area average at three per cent. Are we saving more? It is unlikely. There has been a declining trend because habits and cultures change. The existence of a very extensive social safety net has acted as a disincentive to save for one's old age. It is appropriate for households to borrow funds to smooth their consumption patterns as long as this is backed by reasonable income expectations. The number of non-performing loans has been coming down for some years in the household sector though it has risen slightly recently to 2.5 per cent.
The problems we encountered in communicating monetary policy, which arose in conjunction with the substantial rate cuts during the second half of the 1990s, were also a significant reason for the Riksbank's decision in 1999 to publish a clarification of the formulation of policy and the application of the inflation target.1 Among other things the clarification specified the situations in which there may be reason to deviate from the simple rule of aiming policy at meeting the target of 2 per cent CPI inflation one to two years ahead. My discussion today is based on exactly the same line of reasoning as in that clarification. The second example is taken from spring 2001. Higher food and energy prices due to foot and mouth disease and mad cow disease, as well as supply shocks in energy production, caused a sharp rise in CPI inflation. The price increases were judged to be temporary, and the Riksbank decided therefore not to raise the repo rate. As the prices rises were estimated to disappear from CPI inflation relatively quickly, there was no need in this case to depart from the Bank's simple rule of monetary policy. However there was a need in our external communication to illustrate clearly the assessment that it was mainly transitory price increases that had caused CPI inflation to be so high above target.

Indeed, high global liquidity is also the consequence of strong productivity growth, low inflation and improved government savings, especially in the United States, which has resulted in the strongest growth in world trade in decades. 6. With well-behaved inflation, the ample international liquidity has resulted in a global stock market boom in the 1990s, in both Europe and the US, as well as emerging markets in Latin America and Eastern Europe. But this has also caused a global compression of interest rate spreads and record levels of new issuance in both domestic and international bond markets. Such narrowing of spreads did not reflect the potential credit and market risks associated with the emerging markets. So when investors finally realize that the emerging markets are carrying more risks than they have assumed, the risk premium as measured by the yield spreads will widen sharply to reflect this. BIS Review 109/1997  -2-  7. This scenario was complicated by the fact that the flood of global liquidity has been largely channelled to the bond, equity and property markets of East Asia. Buoyed by optimism about the Asian miracle growth of the last decade, both domestic and foreign investors committed the classic “fallacy of composition”. Initially, each individual may perceive a high return and increase their investments in assets, leading in aggregate to excess demand and a market overshoot. A reversal of perception leads to a sharp market correction, which is exactly what is happening not only in Asia, but globally.
Rather monetary policy actions need to be calibrated to impart the  Page 8  appropriate impulse to inflation at the 18-24 month horizon when the lags in policy transmission unwind. Fourth, emphasis of the need for a nominal framework within which to analyse and communicate monetary policy. And fifth, adherence to the view that monetary quantities (i.e. specific safe and liquid liabilities on the balance sheets of the central bank and/or commercial banks) play an important and distinct role in the transmission mechanism of monetary policy actions to the price level. The key assertion here is not that the central bank should use a quantity measure of money as its policy instrument rather than a short-term interest rate – that is something resolved pragmatically through the Poole considerations discussed above. Instead it is the contention that failure to incorporate monetary quantities in models of monetary transmission excludes important channels through which monetary policy works: policy analysis without money is subject to specification bias. Viewed from today’s perspective, the striking thing about this list – in particular, given the doctrinal tensions between monetarist and Keynesian camps of monetary and macro economists in the 1970s – is how many of the monetarist tenets have become mainstream. Any reputable modern monetary policy framework or strategy purports to embrace the first four of these elements, albeit with some of the flexibility needed to turn an academic argument into a policy programme. For sure, how these elements are presented and communicated varies across jurisdictions, reflecting different histories, experiences and contexts.

The impact of deregulation cannot be predicted with certainty but the likely impact will be to increase funding costs and thus squeeze the net interest margin. The banks will therefore have to find ways to generate income through new products and through new charging policies. You can expect fees for the 1  BIS Review 24/2000  various banking services to rise in the deregulated environment. The banks will also be under greater pressure to reduce costs through exploiting new delivery systems, re-engineering their processes and better managing their risks. Technology is at the heart of these issues. It is one of the main forces which is driving increased competition and one of the main weapons that the banks are using to respond to competition. How to harness the power of technology, and how to finance the necessary investment, constitute the main strategic challenge facing banks in the world today. This brings me to the main theme of the importance of corporate governance in banks. It will be the responsibility of the board of directors and senior managers of banks to navigate the way through the strategic challenges that I have described, and they must ensure that they have the capacity to do so. Corporate governance is of course not just important for banks. It is something that needs to be addressed in relation to all companies.
The remaining risk is due primarily to foreign banks’ króna deposits and the old banks’ deposits. However, before the controls on these deposits can be lifted in full, it is necessary to channel as much of this capital as possible into long-term investments and structure the winding-up of the old banks so as not to jeopardise exchange rate stability. Although conditions in the global financial markets are still difficult, they are better overall than they were a year ago, not to mention two years ago. But the fiscal problems faced by Greece, Ireland, Portugal, and Spain have contributed to investor flight to the relative safety of low-yielding markets. The Icelandic Government is faced with the intricate task of demonstrating that Iceland is a better target for investment than other indebted European countries. The progress made under the IMF programme is gradually laying the foundation for enhanced confidence, but the programme will only be successful if we adhere to its objectives. Funds lying in wait in the shelter of low-yielding markets will eventually seek more bountiful shores. When the flight to safety begins to subside and investors begin to seek out better returns, the Icelandic authorities must be ready to direct their attention to Iceland. BIS Review 138/2010  3  The existence of capital controls and their proposed removal represents a problem for both the Monetary Policy Committee and those who trade in the bond market.

That's the way it goes: Times of crisis permit dramatic and rapid changes that would not be implementable, or even thinkable, under normal circumstances. But when the dust settles, it is very difficult to reverse them. All thinking people in the financial sector should want to ensure that the rash solutions adopted in the present bad times, many of which will do little or no good anyway, do not in the long run generate much worse times for the industry, and hence its clients. Putting out a fire is one thing. But improving the fire regulations is quite another. Certainly a large fire can provide inspiration for future fire prevention. But it is by no means wise to fight the fire while simultaneously changing in haste all the fire regulations. The risks of such an approach are considerable, especially if the public – as well as part of the industry itself – increasingly accepts the dogma that the financial sector provides quasipublic or even purely public goods and services. I'm sure that a thoughtful discussion about the causes of the crisis and ways how to prevent them in the future would require much more time, cool-headedness and, above all, more input from academics and trained professionals and less from politicians and European bureaucrats. Maybe I'm a bit skeptical. But I have a very vivid imagination influenced also by the tragic excommunist and state interventionist experience of the Czech Republic. And my imagination allows me to foresee some extreme scenarios.