samchain/econo-pairs-v1 huggingface dataset:
In shaping the macroprudential policy framework, six aspects can be identified as guiding principles: First, macroprudential policy should be pre-emptive and strongly counter-cyclical. Early identification of risks is an essential first step in the policy-setting process supported by early warning indicators and models to predict potential sources of systemic risk. Macroprudential policy should then act forcefully to smoothen the financial cycle avoiding that it reaches a dangerous peak. Second, and relating to the first, macroprudential policy should rely on the concept of the financial cycle in order to assess the position of the economy, predict its development and appropriately calibrate the use of macroprudential instruments. The concept of a financial cycle is therefore crucial for the rationale of macroprudential policy, justifying the need for dedicated policy instruments. To effectively tame the financial cycle, a time-varying dimension is crucial in the design of policy instruments – that is, the instruments must be adjustable over the cycle. Counter-cyclical capital and liquidity requirements are thus important tools. Third, the real estate component in the financial cycle is of paramount importance. This implies that instruments in the macroprudential policy toolkit should contain borrowerside tools to influence the demand for credit, in addition to capital-related measures conditioning bank credit supply. Financial asset prices are admittedly difficult to tame with targeted policy intervention.

Christine Lagarde joined the French government in June 2005 as Minister for Foreign Trade. In June 2007 she became Minister of Economy and Finance, being the first woman to hold the position of Finance Minister of a G-7 country. From July to December 2008, she also chaired the ECOFIN Council. In 2009, Financial Times ranked her as the best Minister of Finance in the Eurozone, considering both her excellent work within the French government and her involvement in the management of the financial crisis. Madame Lagarde acted with diplomacy as Chairman of the G-20 when France took over its presidency for the year 2011. All these achievements in her current position led Forbes Magazine this year to rank her among the most powerful and influential women in the world. Besides her contribution to official matters, Madame Lagarde has broader interests and is involved in various fields of expertise as well as global issues. For example, she has signaled the major risk in not addressing climate change saying with humor: “Our kids will be grilled, fried, toasted and roasted.” She also militates for encouraging women to seek education and enabling them to be more independent and provide for themselves and for their children. Christine Lagarde is Chevalier de la Légion d’honneur since July 2000, and Commander of the Order of Mérite agricole. She has an Honorary doctorate from Katholieke Universiteit Leuven (Belgium). Madame Lagarde will address you today on a thought-provoking topic: Eastern Europe and Romania: The Path to Prosperity.
Fritz Zurbrügg: Challenges posed by the growth in the SNB’s foreign exchange reserves Speech by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the Money Market Event, Geneva, 8 November 2012. *  *  *  I would like to thank Pierre Monnin for his support in the preparation of this presentation. I am also indebted to Erich Gmür, Marco Huwiler, Peter Kuster and Sandro Streit for their insightful comments. Ladies and Gentlemen, It is my pleasure to welcome you here today at our traditional Money Market Event, which takes place every year here in Geneva. This occasion is particularly important for me, as it is the first time that I have the opportunity to meet you in such a setting. Since our previous Money Market Event last November, the situation on financial markets has continued to be a cause for concern to the Swiss National Bank (SNB). To mention but a few of the main factors: financial market uncertainty is still high, the global economic outlook has worsened considerably, and the situation on bond markets in peripheral Europe is still highly uncertain. Against this background, central banks have adopted a number of measures to address the challenges they face. These measures have increased the size of their balance sheets significantly. In Switzerland, the SNB has seen its foreign exchange reserves grow substantially. Managing these reserves is currently a major challenge, and has become the subject of much scrutiny by both the media and SNB watchers.

However, the most notorious movements in the exchange rate have originated in its fundamentals (figure 7). The recent appreciation of the peso is largely responsible for the lower inflation that will prevail in the short term.2 In our Report’s baseline scenario, CPI inflation will be around 2% annually until early next year, returning to near 3% by the end of 2019. Meanwhile, core inflation, as measured by the Consumer Price Index excluding Food and Energy (CPIEFE), will be close to 1.5% by the middle of this year. At the same time, we estimate that once these pressures ease and the effects of the narrowing activity gap are more notorious—it is expected to close faster than we thought before—inflation will converge to the policy target during next year (figure 8). In this context, the Board will maintain the current monetary impulse until inflation shows clear signs of converging towards the target. This translates into a similar trajectory to the one that can be deduced from the surveys, that is, an MPR hovering around its current levels for several more months, but that by the turn of 2019 will have already begun a gradual normalization. Such normalization is likely to be completed beyond the monetary policy horizon of 24 months (figure 9). These projections, as always, are subjected to various risks. On the external front, in terms of its impact on local activity, the risk balance is downwards biased. The main risk is the possibility of a sharp deterioration of global financial conditions facing emerging economies.
Shortly after we joined the EU it was almost a shared view among the prevailing part of the elite in our country that the sooner we join the better and that the euro was the best club imaginable and a sure-fire recipe for success. The public never accepted this view. However, it was still very difficult to argue against it, like I and some others did ten years ago. The lesson learned is: no worries, the media and politicians can change their minds. If you believe in your case, do not change yours. They will change theirs. Ladies and gentlemen, I very much believe in reasonable European cooperation. But I also believe in reasonable competition among countries and their economic models. So I do not take it lightly when some integration projects divide us rather than unite us. I think that next time around we should be much more careful when some start selling us a project as indisputable and irrefutable. At that moment we should all be far more circumspect and far less credulous. Thank you for your attention. 3/3  BIS central bankers' speeches

Yet there is no equivalent of a World Trade Organisation to deal effectively with the problems that inevitably would spring up, even though the degree of complexity and time criticality of international finance far exceed that of international trade. There is, of course, the IMF, and the Bank for International Settlements (BIS). They perform useful roles respectively in providing assistance to individual economies in difficulty, and in setting international regulatory and supervisory standards, and they have done a good job in these areas. But, as very much part of the international financial architecture, they need to evolve to cope with the rapidly changing nature of international finance. They need to ensure that they are able to play the roles required of them in prudently managing the risks, and limiting the destabilising impact, of the increasing freedom of international finance. There is much catching up to do, and much international effort has been devoted to this task. But, presumably because of the difference of opinion on what exactly needs to be done, we now have a rather confusing picture of where all this effort might lead us to. There have been many new international forums created to look at the relevant issues and, together with the existing forums, everybody seem to be involved in this work - G3, G7, G10, G22, G26, APEC, EMEAP, etc., with multiples of working groups formed under each. More recently, there is the more authoritative Financial Stability Forum formed, in which the HKMA participates.
The imbalances in the Icelandic economy in the years leading up to the crisis were in many ways enormous. The clearest manifestation is perhaps the current account deficit that averaged over 17% of GDP during the years 2005–2008. Both it and the large positive output gap were bound to correct – a process that was likely to be associated with a significant slowing of growth, if not an outright recession. As a matter of fact, the Central Bank of Iceland predicted more or less consistently from 2007 onwards that there would be a recession in Iceland in 2009. This projection had nothing to do with the collapse of the banks but everything to do with the known investment profile of big projects in the energy and aluminium sectors and the accumulating signs of a grossly overheated economy. This belies the common statement that forecasters never predict recessions! The shocks that hit Iceland in 2008 and the imminent correction of unsustainable balances shaped macroeconomic developments in Iceland in the years that followed. But so did the policy responses, which took two main forms. The first was the crisis management regarding the failing banks, which I have already mentioned. The second was the economic programme developed by the Icelandic authorities in co-operation with the IMF. The IMF programme had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector.

Már Guðmundsson: Iceland’s crisis and recovery – facts, comparisons, and the lessons learned Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the Institute of International and European Affairs, Dublin, 27 April 2015. *  *  *  Accompanying charts can be found at the end of the speech. Chairman, Ladies and Gentlemen, It gives me great pleasure to speak here at the Institute of International and European Affairs in Dublin about Iceland’s crisis and recovery and some of the lessons that could be learned from this experience. This is not least because of our historical bonds and the affinity that I feel exists between our people, to which we can now add the common experience of being hard hit by the Great Financial Crisis. It is well known that Iceland was the first advanced country to experience a full-scale banking crisis during the autumn of 2008, when its three big cross-border banks failed. It was also the first advanced country to go on an IMF programme. What is probably less well known is that at that point, Iceland was already on its way into a recession after an unsustainable boom and serious overheating during 2005–2007 and a currency crisis in the first half of 2008. The banking collapse and the associated wealth loss and further currency depreciation made the recession significantly worse, of course, as did the recession that hit the global economy in the fourth quarter of 2008.
4  Recently, a group of economists agreed to and published a “consensus narrative” of the causes of the eurozone financial crisis, focusing on the external imbalances across countries within the eurozone, which led to a sudden stop in lending, and the flow of capital, across those countries. See http://www.voxeu.org/article/ez-crisisconsensus-narrative and http://www.voxeu.org/content/eurozone-crisis-consensus-view-causes-and-fewpossible-solutions. 2  BIS central bankers’ speeches  1)  Significant signs of financial distress in the banking system (as indicated by significant bank runs, losses in the banking system, and/or bank liquidations)  2)  Significant banking policy intervention measures in response to significant losses in the banking system. To be clear, and to apply this definition to the U.S. crisis in 2007–09, I’ll expand it from the banking system to the financial system more broadly, as many financial firms that experienced distress during the most recent crisis weren’t licensed as banks. It may seem odd to include policy interventions to be counted as a sign of a financial crisis, but when deposit insurance and lender of last resort services are available, a crisis may not kick off a bank run. That means the government must intervene to keep the stress from worsening, and so extraordinary action by the government can itself be a gauge of the severity of a crisis. Laeven and Valencia review the frequency of financial crises around the world and count 147 crises since 1970. What problems are caused by a financial crisis?

Finally, as I noted earlier, we followed up in our last FOMC meeting with the release of an addendum to our Policy Normalization Principles and Plans that outlined how our balance sheet normalization plan will work when it is implemented. We also said clearly in the FOMC statement that if the economy evolves in line with our expectations, we expect to begin this process this year. In response, market participants have progressively increased the probability assigned to a change in reinvestment policy this year. Yet, Treasury and agency MBS markets have responded little at the time of these announcements—including those undertaken most recently. To me, this suggests that these communications have generally been effective in fostering an orderly adjustment in expectations about how we are likely to normalize our balance sheet. I also agree with Hélène about the important role of financial conditions in influencing economic activity. As I see it, financial conditions are a key transmission channel of monetary policy because they affect households’ and firms’ saving and investment plans and thus influence economic activity and the economic outlook. If the response of financial conditions to changes in short-term interest rates were rigid and predictable, then there would be no need to pay such close attention to financial conditions. But, as we all know, the linkage is in fact quite loose and variable. For example, during the mid-2000s, financial conditions failed to tighten even as the Federal Reserve pushed its federal funds rate target up from 1 percent to 5¼ percent.
Nevertheless, the exchange rate remains an important driver of future inflation in the euro area. Certainly, the appreciation that took place since mid-2012 had an impact on price stability. In the present context, an appreciated exchange rate is a risk to the sustainability of the recovery. Recent monetary policy measures Let me now move to explaining our monetary policy stance. We decided on a number of monetary policy measures in early June. These measures are aimed at providing additional monetary policy accommodation by supporting lending to the real economy. In line with our price stability mandate, these decisions are an essential contribution to bringing inflation rates closer to 2%. They will also contribute to a further strengthening of the recovery. •  Specifically, we lowered all key interest rates further. Our main refinancing rate now stands at 0.15%. Accordingly, our deposit facility rate has been cut to a negative level and now stands at –0.10%. •  We will conduct targeted longer-term refinancing operations (TLTROs) as of September 2014. In these operations, banks will be entitled to borrow from the Eurosystem, conditional on their lending to the private non-financial sector, with loans to households for house purchase being excluded. •  In addition, we are intensifying our work in preparation of possible outright purchases in the market for asset-backed securities (ABSs).

The prolongation of the Spanish economy’s current growth phase over the coming months will essentially be based on the strong pace of expansion of national demand, although the external sector will continue – as seen since 2016 – to maintain its positive contribution. In particular, buoyant employment and the favourable conditions of access to credit are boosting household consumption and the pick-up in spending on residential investment and on equipment. 3/8  In the medium term, there will foreseeably be a gradual convergence towards more moderate growth rates, as a result of the disappearance of certain factors that have contributed to boosting activity. Such factors have been the declines in oil prices, the moderation of financing costs, supported by the ECB’s monetary policy, and the expansionary fiscal policy stance over the two-year period 2015-2016. As in the euro area as a whole, since late last year the year-on-year rate of change of the CPI has been highly volatile; it stood in May at 1.9%, the outcome – as earlier stated – of energy price fluctuations and, also, of the effect of the Easter holiday week in April, given that in 2016 Easter fell in March. These temporary factors will progressively peter out in the coming months, although the average rate for the year is expected to stand at around 2%. In 2018 and 2019, in the absence of further shocks, the rate of increase of the CPI might settle below this reference.
In my remarks today, I will review the performance of this new framework and discuss key insights from those new data collections. Before 2008, bank reserves were scarce, and the Federal Reserve influenced overnight interest rates by making small adjustments in the supply of reserves. The expansion in the Federal Reserve’s balance sheet during and after the financial crisis means that reserves are now abundant, and small adjustments in the quantity of reserves will not have much influence on overnight interest rates. Instead, the Federal Reserve’s new framework is premised on the payment of interest on reserves and on ensuring sufficient competition in money markets so that the rate of interest paid on reserves is passed through to other money market rates and thus to deposit rates offered to households and firms.2 Implementing policy in this new way has required a significant shift in the staff’s analytical focus, toward quantitative, data-driven analysis of money market structure. This work was accomplished by a large roster of highly talented staff at the Board of Governors, the New York Fed, and elsewhere in the Federal Reserve System. Of course, the development of this new framework entailed frequent interaction with the Board of Governors and the Federal Open Market Committee (FOMC), which are responsible for the tools used to implement monetary policy. I’ll focus my remarks on a few key questions. First, what is this new framework and why was it necessary?

11  Congress granted this authority to the Federal Reserve in the Financial Services Regulatory Relief Act of 2006, with an October 2011 effective date, but accelerated its implementation to October 2008 as part of the legislative response to the financial crisis. A similar tool is critical in the implementation regime of most advanced economy central banks. 12  The FOMC also considered an arrangement under which depository institutions could pledge funds held in a segregated account at the Federal Reserve as collateral in borrowing transactions with private creditors. This approach aimed to reduce credit-related barriers to depository institutions’ borrowing funds in money markets and thereby intensify competition among borrowers. The FOMC decided that these accounts involved operational, regulatory, and policy issues that would have been difficult to resolve in a timely fashion, and it shelved further work. See the minutes to the FOMC’s December 2014 meeting. 13  This approach was discussed in detail in the FOMC’s June 2011 Exit Strategy Principles. 14  The Federal Reserve continues to test its Term Deposit Facility (TDF). In late 2014 and early 2015, the Federal Reserve conducted rounds of testing of the TDF that on two occasions resulted in cumulative take-up of more than $ billion. These operations reportedly had no significant impact on conditions in money markets, suggesting that TDF operations would have to be significantly larger to put upward pressure on rates. 15  This approach has been used heavily, for example, by central banks that have large foreign exchange reserves.
Under the most realistic case, in which the monetary authority only possesses noisy information on the presence of unsustainable patterns, the remedy could be worse than the illness, since one can never be certain that a true illness is the case. Yet this is not to say that there is nothing left to be done by monetary policy to deal with low-probability high-impact events, such as an asset market collapse and/or a deflationary spiral. As we have moved towards a scenario of price stability and lax credit conditions, some leading central bankers have been inclined to consider more prevention-oriented policies. To the extent that monetary decisions may be a useful tool for reducing the likelihood of a major financial disruption, or for mitigating the effects of a really adverse shock on the entire system (full deflation, for instance), it might be desirable to pursue a monetary strategy that pays due attention to these unlikely crisis scenarios if the associated impact is disproportionately high. This idea is at the root of what Chairman Greenspan refers to as the risk-management approach to monetary policy. Martin Feldstein has described the essence of this approach in a very insightful and simple way: “A prudent man carries an umbrella even when the forecast says there is only a small chance of rain. If there is no rain, he suffers the small inconvenience of carrying the umbrella. But if he does not bring the umbrella and it does rain, he may suffer the much larger inconvenience of being caught by a downpour”.

This observation is of special relevance precisely in times of crisis, when some bank managers may be more tempted to pursue “gambling for resurrection” strategies. Likewise, as market participants understand that banks will have stronger motivation to employ better technologies for risk management, one would naturally expect the industry to move to a safer plateau, with its capital, therefore, enjoying a lower risk premium, all other things being equal. To summarise, while I think that a reasonable degree of procyclicality of the supply of loans is a logical feature of the credit market, I sympathise with the idea that all kinds of regulations affecting banks, from accounting to prudential ones, should try to minimise or compensate for the risk of excessive sensitivity of bank lending policy to cyclical conditions. Indeed, the latter would normally appear when banks are poorly capitalised and lending decisions are based on inadequate risk assessments and driven only by current market conditions, a natural terrain for unplanned drastic swings in credit policies. I believe that all investment in technology and human capital, enhanced transparency, and better and pre-emptive risk management based on improved control structures and corporate governance will entail significant improvements not only to the stability and soundness of the financial system, but also to its efficiency in the allocation of resources. This, in my view, should benefit the cyclical behaviour of the banking system and also, it is very likely that it will be around a superior trend. 5.