samchain/econo-pairs-v1 huggingface dataset:
Sixth, financial conditions have become increasingly accommodative, as monetary easing has passed through to a broad range of financial asset prices. Credit spreads have narrowed and the U.S. equity market has risen sharply (Exhibit 7). The price and availability of some types of consumer loans, notably auto loans, has also improved. So why isn’t the U.S. economy growing more quickly? The fact that fiscal policy has turned significantly more restrictive is the most important reason. The impulse from state and local governments that subtracted from growth earlier in the recovery has gone from negative to close to neutral. But this has been overwhelmed by the sharp shift in federal fiscal policy from mild restraint in 2012 to much greater restraint in 2013 (Exhibit 8). The increase in payroll tax rates, the rise in high income tax rates, the increase in taxes associated with the Affordable Care Act, and now the sequester – if sustained – will result in fiscal drag of about 1 3/4 percentage points of GDP in 2013.2 I view this as an unfortunate outcome. While the U.S. must put its public finances on a sustainable footing, this should be done in a manner that best achieves both our near-term and long-term objectives. In my opinion, a U.S. fiscal policy well-suited for the current set of circumstances would start with a very mild degree of restraint in the near-term that would credibly build to substantial consolidation over the next several decades.

Of course, it is for Congress to judge what combination of tax increases and spending cuts should be undertaken to achieve this. Nevertheless, the aging of our population and simple math suggest that entitlement reform would need to be part of such a plan. Also, in an ideal world, fiscal policy would have broad-based bipartisan support. That would reduce uncertainty and reassure households and businesses that the U.S. was on a sustainable long-term path. Instead, we have nearly the opposite: significant retrenchment in the near-term, but no credible action over the long-term, with partisan divisions and significant uncertainty about what will happen next. Will the sequester, for example, be sustained or not? Economic outlook Looking at the outlook for 2013, I believe that growth in the first half will be sluggish as the fiscal contraction blunts the economy’s forward advance. While first quarter GDP growth will likely rebound to a 2 to 3 percent annualized rate following the dip in the fourth quarter, this will be due in large part to temporary factors.3  2  Before taking into account fiscal multipliers. 3  This includes a modest boost from inventory investment following the substantial drag of the prior quarter, a recovery in farm output following last year’s drought, and less drag from defense outlays following the steep plunge of the fourth quarter. Rebuilding following the devastation from Superstorm Sandy may also provide some temporary lift this quarter. 2  BIS central bankers’ speeches  I’d also emphasize that there remains considerable uncertainty about the outlook.
Sterling has fallen a further 3% since the May Inflation Report, largely the result of political events. Mechanically, that fall would add around 0.2% to the level of GDP and around 0.2 percentage points to inflation at the two and three year horizon. Inflation was already expected to lie above the Bank’s target, and to be rising, at the year three horizon in the May Inflation Report. Fifth, despite all of these positives, the sterling yield curve has overall tended to be fairly unresponsive, both to data news and to MPC communications. Estimates of the responsiveness of the UK yield curve to macro-economic news have been below their longer-term averages throughout much of the past 18 months  24  See Evans (2011), for example. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  (Chart 18). Perhaps the lesson from US experience, where interest rates have been more responsive to data news and FOMC communications, is that it is policy actions, rather than words, that matter. Sixth and finally, any tightening in policy needs to be put in context. The first 25 basis point rise in UK interest rates for 10 years seems like a momentous step. But it would still leave monetary policy highly accommodative by any historical metric. A 25 basis point rise would do no more than remove a proportion – according to our GDP ready-reckoners, around a quarter – of the incremental stimulus the MPC provided last August.

Solow, R (2015), ‘The Future Of Work: Why Wages Aren’t Keeping Up’, article in the Pacific Standard. Thomas, R and Dimsdale, N (2017), ‘A millennium of macroeconomic data’, Bank of England OBRA dataset, http://www.bankofengland.co.uk/research/Pages/datasets/default.aspx  27  All speeches are available online at www.bankofengland.co.uk/speeches  27
Authorities see the distinct benefits of central clearing and wish to set proper market incentives for participants to move away from bilateral trading and into the centrally cleared world. Mandatory central clearing allows risks to be pooled, monitored and properly  3  See CPMI-IOSCO, Recovery of Financial Market Infrastructures, October 2014. 4  See FSB, Key Attributes of Effective Resolution Regimes for Financial Institutions, FMI Annex, October 2014. 5  See CPMI-IOSCO, Disclosure Framework and Assessment Methodology, December 2012. 6  See CPMI-IOSCO, Public Quantitative Disclosure Standards for Central Counterparties, February 2015. 7  See FSB, Eighth Progress Report on Implementation of OTC Derivatives Market Reforms, November 2014. 2  BIS central bankers’ speeches  managed. However, pushing more complex products towards mandatory central clearing makes risk management more challenging, and therefore may increase the risks to which CCPs and clearing members are exposed. Authorities may need to assess whether overly complex products should really be submitted to central clearing, so as to ensure CCPs can continue pooling risks in a safe and efficient way. In recent months, concerns have been expressed regarding the adequacy and consistency of the level of risk management across the CCP landscape. At this stage, it is too early to say whether current regulations are insufficient. New requirements may well prove necessary but the impact and coverage of the existing regulatory framework should first be comprehensively assessed.

Should additional pre-funded capital or liquidity resources be needed for cases of resolution, this will have to be shared in a fair way among all relevant stakeholders. Global coordination and consistency is therefore important in order to ensure a level playing field. Looking beyond the debate on CCP loss-absorbing resources, we should keep in mind that there are other key questions regarding resolution. Indeed, the success of a resolution process will not only depend on whether the CCP has adequate resources, but also on whether it is actually resolvable (for instance, whether its viable activities can be separated from its non-viable ones and transferred to another CCP). This will depend to a large extent on the operation and design of the CCP being resolved – e.g. whether its viable clearing activities are insulated from losses from the non-viable ones through separated default management silos. It will also depend on whether or not positions from the CCP which undergo resolution can be successfully transferred to another entity in a safe and timely manner, via an interoperability link or some other means. Further analysis will probably be required regarding the means to facilitate the porting of positions in a resolution scenario, in order to guarantee substitutability across CCPs.
In particular, access to a cheap source of manufactured goods as result of the rapid development of China and other emerging market economies created a terms of trade gain for the advanced countries and a beneficial “tailwind”, which only mutated into a “headwind” towards the end of the period as rapid global growth put upward pressure on oil and other commodity prices. Second, changes in the structure of the economy could have meant that similar sized shocks had smaller macroeconomic effects. Candidate structural changes included the shift from manufacturing to services, tighter control of inventories leading to an attenuation of the inventory cycle, increased competition in product and labour markets, and innovation in financial markets that facilitated the greater spreading of risk and an enhanced ability to smooth spending in the face of shocks to income or wealth. A final possibility is that better macroeconomic policies, including improved policy frameworks, had moved economies closer to the eponymous Taylor frontier which traces out the lowest achievable inflation volatility for a given volatility of the output gap. In particular, earlier periods were bedevilled by monetary policies that had failed to anchor inflation expectations. But the pursuit of inflation targets and similar stability-oriented monetary policies by independent central banks seemed to have been more successful in anchoring inflation expectations. Now if the Great Moderation was down to “good luck”, then improved macroeconomic performance was more likely to be ephemeral. But if it was down to structural changes or better policy, there was more chance of it proving permanent.

Essentially, investors switched from believing that returns behaved according to a tight and well-behaved distribution to one in which they had very little idea about the likely distribution of returns – a state of virtual Knightian uncertainty (Caballero and Krishnamurthy, 2008). There was also a higher-order information problem arising out of the interconnected nature of the financial system. Banks, when they appear at all in economic models, just exist to transfer funds from savers to borrowers and to monitor the latter. But the reality is a high degree of exposure of financial institutions to each other as a result of interbank loans, holdings of CDSs written by other parties, holdings of securities issued by other parties, and so on. In normal times, one does not need to know much about a counterparties’ risk exposure. But when there are doubts about solvency of a major institution, one needs to know not only one’s own exposure to that institution, but also about the exposure of one’s other counterparties. The collapse of Lehman Brothers was particularly critical in that, prior to that and particularly in the light of the rescue of Bear Stearns, such an institution was probably viewed as being too big and interconnected to fail. But the failure of the US authorities to put together a viable rescue plan, together with growing doubts about the likely effectiveness of the Troubled  6  As it turned out, those willing to carry the risk were not always those best placed to bear it.
Model use and misuse Speech given by David Rule, Executive Director of Insurance Supervision  Association of British Insurers Prudential Regulation Seminar 14 May 2019  I am grateful to the following for contributions to this speech: Liam Clarke, Chintan Patel, Paul Collins, Amanda Istari, Brian Howell, Sarah O’Sullivan, Anu Ralhan, Peter McIntyre and David Phillips. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  I would like to start by thanking the ABI for the invitation to make this keynote address. Today I want to talk about insurance models and the growing importance of model risk management. In doing so, I will describe some recent findings from the PRA’s work to guard against weakening over time of capital requirements calculated from internal models or ‘model drift’. A model applies theories, techniques and assumptions to process input data into quantitative estimates for a particular purpose.1 Make that purpose providing insurance and it is close to a definition of what insurers do. No surprise therefore that insurers are big users of models. But models can go wrong. They might have fundamental errors. Probably more commonly, they can be misused: for example, because management do not understand the limitations of a model. In insurance, a model going wrong might mean under-pricing of products, under-reserving against risks or treating certain customer groups unfairly. In the particular case of internal models used to calculate regulatory capital requirements, it could result in insufficient capital to protect policyholders. Insurance Capital Models  Let us start with capital models.

Typical management actions might include, for example, an insurer assuming that it can replace reinsurance following the default of a reinsurer or at policy renewal, or a life insurer assuming that it could reduce bonus rates on a with-profits fund if it was in financial distress. Solvency II allows insurers to assume management actions provided it would be reasonable to implement them in stressed market conditions. We found that some insurers, however, were inconsistent and insufficiently rigorous in their approach. Good practice is to bring all future management actions together into a single document that, at least at a high level, the board can review. This plan should quantify each management action and show how it is used in the calculation of reserves, capital requirements or otherwise (for example, in stress testing). 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  Model Risk Management  I have focused so far on models used to help calculate regulatory capital and reserves. Insurers use many other models though, notably for pricing. For many of these models, new technology is bringing rapid change. Processing power continues to increase, including from use of the Cloud. This is enabling development of models that employ artificial intelligence techniques, such as machine learning, to analyse so-called Big Data – larger, more complex information from new sources, some of it structured but a lot of it unstructured.
To August, the central government, Social Security and regional government budget outturn evidenced a deficit of 4.3% of GDP, a 0.3 pp improvement on the same period the previous year. To meet the deficit target requires an improvement of 0.8 pp of GDP over the year as a whole; accordingly, the increase in revenue and/or the containment of spending in the final four months of the year will need to be greater than that recorded between January and August. This greater effort should be concentrated at the regional government level where, on the information available, the risks of slippage are located. For 2015, the Budgetary Plan sets a budget deficit target of 4.2% of GDP, 1.3 pp of GDP below that for 2014. In terms of the different agents, the reduction in net borrowing would amount to 1 pp of GDP in the case of central government and the Social Security system, while the regional governments should adjust their fiscal imbalance by 0.3 pp of GDP and local governments should run a balanced budget. In 2015, the improvement in the cyclical position and the reduction in government debt yields will contribute to enhancing public finances. On the estimates available, meeting the deficit target for the coming year will require a budgetary adjustment drive, measured by the change in the primary structural balance, that is appreciably less than that made in previous years. Overall, what we have is a more favourable macroeconomic scenario for the adjustment than that in place in 2012 and 2013.

The behaviour of prices in the euro area is also a cause for concern. Against a fragile macroeconomic background, as at present, very low inflation rates entail a danger that consumer and business expectations will stand excessively below the ECB’s medium- term price stability objective of 2% for the euro area as a whole. Contrary to the downside risks surrounding the growth projections for the international economy as a whole, those for inflation are more mixed and have given rise to different responses by various central banks. The US Federal Reserve and the Bank of England have begun to withdraw some of the exceptionally expansionary non-conventional measures they introduced at the height of the crisis. Conversely, the European Central Bank has gone in the opposite direction, deepening the expansionary stance of its monetary policy. The euro area monetary policy stance has taken the form of a series of measures adopted, in the main, at the June and September meetings of the ECB Governing Council, where conventional action has been combined with other exceptional and non-conventional measures. Among the conventional measures, official interest rates have once again been cut. The main refinancing operations rate currently stands at an all-time historical and technical low of 0.05%. The deposit facility rate moved into negative territory in June and was further lowered in September to –0.20%, thus increasing the cost for banks of holding immobilised surplus liquid balances in their accounts with the Eurosystem.
With your leadership, the reform programme is substantially complete, and authorities are now implementing it to maximise its effectiveness. 2  4  Bank of England survey results. Respondents were asked for their views on the statement ‘I believe that financial markets work in the interest of society’. Possible responses were: strongly agree, agree, neutral, disagree, strongly disagree. Only one third agreed or strongly agreed. BIS central bankers’ speeches  But durable financial stability requires more than microprudential standards that bolster the resilience of individual firms. It also requires a macroprudential perspective, with flexibility to respond to shocks wherever they occur; with higher standards for systemically important firms; and to increase levels of resilience when risks increase. The ESRB has been helping Member states fulfil these roles, and it remains alert to emerging vulnerabilities. As President Draghi recently described to this Committee, over the coming year, the ESRB will develop assessments of the macroprudential stances of Member States to complement its existing risk monitoring and focus on the risks of low interest rates on financial stability and an abrupt transition to a low-carbon economy. Thank you for your attention. I look forward to your comments and questions. BIS central bankers’ speeches  5

One means is to fix a system that enables the authorities to take control over the bank and to write down not only capital but also claims in an orderly manner, while extending a guarantee to the new financing needed when the bank is under public control. The payments needed to maintain the stability of the financial system would be effectuated, while other payments could be temporarily stopped. A draft model for such a system was presented by the Banking Law Committee in Sweden in 2000 and the proposal is currently being considered by the Swedish Government. As I understand it, there is also work being done in other countries to bring about solutions that would mean that the authorities could claim in all credibility that it was possible to reduce claims even in more complex cases, where there was a risk to financial stability. Ideas that have been put forward include immediately being able to impose a partial payment stop on certain claims, haircuts, in connection with the authorities taking control over the bank and transferring the assets to a temporary bank, known as a bridge bank. To be effective, all these proposals make considerable demands for having IT systems in place that can quickly distinguish different types of claims. A number of other preparations are also required, for instance to be able to transfer contracts.
The potential for further increases in RMB trade settlement is considerable given that the current volume only accounts for a small fraction of total trade between China and the rest of the world. RMB trade settlement proceeds will represent an important and sustainable source of growth in offshore RMB funds in Hong Kong. 25. The third dimension is RMB wealth management business. The RMB wealth management business in Hong Kong took off this year after the RMB Clearing Agreement was revised in July. The RMB Clearing Agreement lays down the framework for RMB business in Hong Kong. I will not bore you with the details but just to highlight two important changes made in the Agreement. First, the restrictions on the types of institutions that can open RMB bank accounts were lifted. This effectively means that securities firms, asset management companies and insurance companies are now free to open RMB bank accounts. Second, the restrictions on RMB interbank transfers between personal accounts and corporate accounts were also removed. 26. With these relaxations, the key hurdles that had previously limited the development of offshore RMB wealth management business have been eliminated. Market players have been responding to these relaxations quickly with the launch of a wide range of RMB investment products. These include RMB-denominated insurance policies and investment funds. Investor interest in these products has been phenomenal. 27. In developing our offshore RMB business, I have to say that Hong Kong does not have a monopolistic power and we are also facing competition from other financial centres.

Eddie Yue: Hong Kong as an international financial centre – the China factor Introductory remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the “Hong Kong: China’s Global Financial Centre” conference, London, 16 November 2010. *  *  *  Ladies and gentlemen, 1. It is a great pleasure to be here today. This conference is taking place at an exciting time as there is growing interest in the investment and business opportunities in Asia, particularly in Hong Kong and Mainland China. Indeed, we are already seeing more and more asset managers moving from the West to the East, looking to set up their regional operations in Hong Kong to capture these opportunities. I believe what we are seeing today is only the beginning of a period of exceptional growth in Hong Kong’s financial services industry. 2. KC Chan and Martin Wheatley have already set out the key strengths of Hong Kong in serving as a financial hub in Asia. I will not repeat them here. I would like instead to focus on one unique competitive advantage of Hong Kong that is difficult for other financial centres to replicate. And that is the China factor. 3. This China factor is growing in prominence as China continues with its path of very impressive growth: over the past three decades, Mainland China’s GDP has registered an amazing 25-fold increase, from $ billion to $ trillion last year, with an average annual growth rate of 10%.