samchain/econo-pairs-v1 huggingface dataset:
The amplification of spillovers by the IMFS matters less when the global expansions are relatively synchronised or when the US economy is relatively weak. But when US conditions warrant tighter policy there than elsewhere, the strains in the system become evident. These conditions emerged last year. US fiscal policy had boosted growth at a time when the US economy was near full employment. US monetary policy had to tighten consistent with the Fed’s dual mandate. The resulting dollar strength and financial spillovers tightened financial conditions in most other economies by more than was warranted by their domestic conditions (two thirds of the global economy was growing at below potential rates at the start of 2019, and that proportion has since risen to five sixths). More recently, the dramatic increase in trade tensions (Chart 1) has reinforced their effects by increasing risk premia. Today, the combination of heightened economic policy uncertainty (Chart 2), outright protectionism and concerns that further, negative shocks could not be adequately offset because of limited policy space is exacerbating the disinflationary bias in the global economy. What then must be done? In the short term, central bankers must play the cards they have been dealt as best they can. That means using the full flexibility in flexible inflation targeting. To retain the essential credibility of their frameworks, this is best done transparently with central bankers explaining their reasons for targeting specific trade-offs between price stability and output volatility.

Thus, payments enabled by new providers have just started to take off, but it looks promising to become a new normal as they are expected to improve the user experience. How fast this segment of the financial system in the EU is developing can be witnessed by the approximately 300 new providers operating by midSeptember this year, which is just two years since the application of the new regulation-relevant regulatory technical standards under the PSD2 (Open Banking Report, 20212). Most of the companies that offer these innovative services are fintechs, but open banking also 3 1/3  BIS central bankers' speeches  offers a possibility for traditional banks. In fact the survey conducted by Accenture3 finds that three quarters (75%) of the banks see payments modernization as being driven by changes in the national payments infrastructure and regulation, which include improving bank-to-bank payments systems, new industry standards and open banking. The rapid move to digital payments has put additional pressure on banks, with three-quarters (75%) of bank executives saying that the pandemic has increased the urgency of their plans to modernize payment systems. Pressures are felt by the central banks as well. In response to changes in consumer payments preferences, the need to further increase efficiency of payments, as well as the disruption caused by COVID-19, the interest in central bank digital currency (CBDC) has also increased. In fact, last year was the launch of the first “live” digital currency in the Bahamas.
To counteract this, there is discussion of alternatives such as using stress tests to a greater extent, making dynamic reservations and reducing the possibility to utilise an overly rapid increase in the value of an asset as collateral for a loan. The connections between a central bank's two objectives are thus many and complex. There is a pressing need to increase our knowledge of these mechanisms. Interest in financial stability has also increased in recent years. The Riksbank has published regular reports on the financial stability of the banking system for several years now. Many have followed our example, which shows that a large number of us realise the importance of maintaining stability in the financial system. Other economic policy implications In most of the financial crises that have occurred, the shaping of economic policy has played an important role both for the build-up of financial imbalances prior to the crisis and in triggering the crisis. The bank crisis in Sweden at the beginning of the 1990s can be seen as an example. It was preceded by deregulation of the financial markets, a tax system that favoured borrowers, an overly expansionary fiscal policy given the fixed exchange rate regime, and a monetary policy that could not be utilised to reduce overheating, credit booms or the rise in property prices. At the same time, the banks were unused to managing credit risk and the supervisory authorities were not prepared for operating on deregulated financial markets.

When economic activity took a downturn, inflation fell, the tax system was altered so that interest costs after tax rose and interest rates were increased to defend the fixed exchange rate, the bank crisis was triggered. The central government debt, which was high at the start of the economic slowdown, soared even further. The fixed exchange rate policy had to be abandoned and was replaced by inflation targeting. A tough period followed, when confidence in the low inflation policy had to be established. This required a consolidation of central government finances, high real interest rates and at the same time, the capital supply from the banks did not function fully as a result of their consolidation requirements. There are many lessons to be learned here. However, to sum up, one can say that the game rules need to be as predictable as possible to reduce the risk of imbalances accumulating over a long period of time. Balanced central government finances and price stability reduce uncertainty regarding  4  BIS Review 43/2002  the future. At the same time, the regulatory system must be designed to prevent overly large differences between what is profitable for society and what is profitable for the private sector. This creates good conditions to make realistic assessments of the future and to take the right decisions regarding investment, consumption and financial investments.
Put another way, since competitiveness is relative, a solution for some cannot be a solution for all. Second, the degree of flexibility is not just an abstract economic choice; it is also a political one that determines the burden of risk sharing between labour, firms, and the state. 19 Third, internal devaluation always forces down nominal incomes for a time, regardless of the degree of price and wage flexibility. 20 In more flexible economies, these reductions are concentrated in wages; in less flexible ones, unemployment. Cumulative nominal GDP growth since the crisis has been no better in Ireland than it has been in Spain. And it is this  16  As President Draghi recently said, EMU is incomplete and there is unfinished business. See Draghi (2014), “Stability and prosperity in monetary union”, speech at the University of Helsinki, Helsinki, 27 November 2014. 17  A truth laid bare by the large flow of people out of the Irish economy, overwhelmingly to economies outside the euro area, since the crisis (Chart 5). 18  The only way to recycle surplus savings in peripheral economies has been to export them. But since peripheral countries are not the average euro area economy, the euro exchange rate has not depreciated as far as would be warranted for them alone. To move to running a current account surplus, they have needed to undergo painful internal devaluation against the core countries of the euro area, by driving down demand, prices and wages.

This may continue to boost mainland output. In the past few years, household demand has been underpinned by low interest rates, high real wage growth and higher asset prices. According to preliminary national accounts figures, private consumption increased by 4.3 per cent last year. House price inflation has slowed somewhat, but remains high. Housing starts in 2004 were at the highest level for several years. Home refurbishment is probably also rising sharply. Overall, the supply of capital to households has increased sharply. Debt accumulation was slightly higher than 11 per cent in 2004 and is now considerably higher than growth in household disposable income. This largely reflects the sharp rise in house prices since the mid-1990s. According to TNS Gallup’s consumer confidence indicator for the first quarter of 2005, households are still highly optimistic with regard to their personal finances and the domestic economy. Our regional network confirms this view with reports of strong growth in companies that provide goods and services to households. On the whole, household consumption and housing investment are projected to show fairly strong growth over the next few quarters. Despite the strong upturn in the mainland economy, the rise in the number of employed has been fairly modest. Productivity rose quite sharply in the first few quarters after economic growth picked up. Normally, strong productivity growth is gradually followed by an increase in employment. The current upturn has lasted about two years.
Many people have recently criticised the Riksbank’s communication for being unclear, with some claiming that it has sometimes been difficult to understand exactly why some decisions have been taken and why they have been judged to be better than the alternatives.1 What I intend to do here today is to provide my view of where the main divisions are and to describe how I came to the conclusions that I hold. I believe and hope that this review of the arguments can straighten out some potential questions and that it will form a good basis for continued discussions. Differences in views regarding monetary policy and what it can achieve Let me start by pointing out that lack of agreement among a monetary policy committee is not a problem in itself. The actual purpose of having a group of individuals decide on monetary policy is to create the right conditions for better decisions; it is namely so that groups tend to make better decisions than individual decision-makers. This is partly because the members’ experiences and skills are pooled and partly because the group acts as an insurance against the particular preferences of one individual being able to govern monetary policy; it means there are ”checks and balances”. The fact that different members make slightly different assessments and reach different conclusions is thus not so remarkable.

During the crisis 2008–2009, GDP fell from a peak prior to the crisis in the fourth quarter of 2007 to a trough in the first quarter of 2009 by around 7.5 per cent. These falls are thus in the same magnitude as the insurance premium. If the premium and the damage are about the same size, is it a sensible insurance policy? It is actually possible that in certain special situations effects may arise from relatively small increases in the interest rate, when combined with words of warning from the central bank and financial supervisory authorities. As Charles Bean, deputy governor of the Bank of England, said in his paper presented at the Jackson Hole conference in 2010: ”[T]here may be times when a mixture of words and modest interest rate action can be effective in cooling excessive market exuberance[. ]”7 However, as far as I know, no such effect from limited interest rate increases has been actually proved. Moreover, there is hardly anyone who would claim that the Swedish housing and mortgage market is characterised by “excessive market exuberance”. As far as I know, no one has referred to any indicators of exaggerated and unrealistic optimism regarding current developments in housing prices. In his paper, Bean reaches the same conclusion that is supported today by extensive research and practical experience: “[G]enerally speaking, monetary policy seems too weak an instrument reliably to moderate a credit/asset–price boom without inflicting unacceptable collateral damage on activity.
With the surge of the financial crisis, it also became very clear that macroprudential policy needed to complement both monetary policy and microprudential supervision. The European Systemic Risk Board (ESRB) and the European Supervisory Authorities were then established at the beginning of this decade. However, these reforms quickly proved to be insufficient to keep pace with adverse financial sector developments – especially concerning the role of the banking sector in the Monetary Union. In response, the banking union project was launched in the depths of the financial crisis in 2012. But convergence in regulatory and supervisory standards is not enough to spur the development and integration of capital markets that is needed for growth and private-risk sharing. Therefore, efforts in this direction were also undertaken, with the launch of the capital markets 1/9  BIS central bankers' speeches  union (CMU) initiative. In short, the history of EMU is marked by an evolving search for the right institutional embedding of financial markets. And in that search, Europe has to be agile to react to changing circumstances. In doing so it has to find a balance: between markets and regulation, between liability and control, and between the European and national level. However, the crucial question is whether we will achieve a sustainable financial integration that is commensurate with a single currency. Why financial integration is currently insufficient for EMU The crisis made it clear that deep financial integration is essential to prevent EMU going into reverse.

At the same time, we also need to remove the remaining obstacles to further integration within our banking union. Such obstacles are often due to regulatory fragmentation and ring-fencing of national markets. For example, a number of national options and discretions, such as diverging large exposure rules, are hindering the free flow of liquidity and capital in the banking union and should be harmonised further. Turning to other parts of the financial system, we can expect that the CMU will provide further impetus to the growth of market-based finance and may present new challenges to financial stability. Additional steps should be taken to strengthen the ability of European regulators and supervisors to address systemic risks stemming from the non-banking part of the financial sector. This could be achieved by expanding the mandate of relevant authorities and, in the medium run, by creating a single supervisor for the capital markets. Adequate macroprudential instruments need to be envisaged as well, including instruments targeted at market-based finance. Macroprudential tools for this area either still need to be provided to authorities or need to be further clarified in respect of their application. For Securities Financing Transactions (SFT) and derivative markets, macroprudential margins and haircuts have been identified as potentially powerful tools for reducing the excessive build-up of leverage and procyclicality in these markets.10 For alternative investment funds, the existing macroprudential leverage limit needs to be operationalised.
Hence, the adverse developments in the current account can be the outcome of capital inflows. Before I move on, let me sum up the risks of global financial integration as I see them, for this is really where the challenge lies. As a policy maker in an EM economy, living in a globalised financial system characterised by a huge pool of surplus liquidity is like living next to the sea. On a day-to-day basis, the tide comes in, the tide goes out. You learn to live with it. Sometimes, the waves are high and you need to take appropriate precautions. The sea is bountiful and to some borrowers it may appear to offer the opportunity of a cool escape from the searing heat of higher domestic interest rates. Like the call of sirens to ancient mariners, it lures residents and regulators with its enchanting promise of easy liquidity and growing domestic equity and bond markets. However, this vast sea also holds many dangers. It is affected by fierce forces that can create violent and destructive waves. Even when it is calm, beneath that calm surface there are dangerous currents. To the unwary, who wade in too far, it can drag them to financial ruin, be they businesses, individuals, or governments. Beneath its surface are hidden rocks that can drive even successful economies to the bottom of the sea.

Even with forward-looking inflation targeting, the central bank may need not only tolerate significant deviations of current inflation from the medium-term target but also to exercise a lot of judgment in assessing when deviations in expected inflation originated in the ER justify a change in the policy stance. Tolerance to ER-induced deviations in inflation is easier the higher the credibility of monetary policy. If medium-term inflation expectations remain anchored at the policy target level, the central bank can count on economic agents to help convergence afterwards. Building a record of credibility and reputation has been a product of a coordinated, persistent, and long-term commitment by the Central Bank of Chile to the best practices on transparency and independence. A responsible and countercyclical fiscal stance is an absolute requirement for consistency of the overall macroeconomic framework. Besides from softening cyclical fluctuations, fiscal credibility is an important ingredient of MP credibility, as it alleviates potential concerns of fiscal dominance behind MP decisions. Finally, all of the above may need to rely on substantial financial buffers, like moderate levels of indebtedness by all major economic agents; safe financial assets (sovereign wealth funds); well capitalized banks, and so on. So, building a reliable floating ER regime able to cushion the domestic economy from financial and commodity shocks takes much more than courage and a statutory decision. It should be supported by a sophisticated financial and institutional architecture. This is not easy to capture in attributebased scoring systems.
Benoît Cœuré: Restoring trust in the Economic and Monetary Union Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the Forum Eco Libération ESCP “Reprendre confiance en (l’)Europe”, panel discussion: “L’Euro méfiance, c’est fini?”, Paris, 1 December 2012. *  *  *  It is a great pleasure to participate in this panel that touches on a topic very close to our hearts at the ECB: trust in our common currency, the euro. 1 In any society, the monetary contract fundamentally rests on trust, and I will borrow the explanation from my co-panellist, Michel Aglietta: “Money involves trust because it is a debt between society as a whole and each of its members.” 2 Remember that credit comes from credere and fiduciary comes from fidere, both verbs meaning to trust in Latin. As for trust in a central bank, well, that is secured and reaffirmed by permanent assessment of the central bank’s performance against its mandate and strategy. Such an assessment has become very complicated as a result of the global financial crisis. Communication about the intentions and policy actions of a central bank has long been focused on its decisions on the level of the short-term interest rate and, in the case of some central banks, on the likely direction of that rate. But in a deep financial crisis this channel of policy interventions and communication becomes less significant.

2/4  BIS central bankers' speeches  The Path Forward While the short-term outlook for the economy is highly uncertain, the longer-term picture is more favorable. With the ongoing vaccine rollout, more people will be able to travel, eat out, and shop in person safely. In addition, the fiscal package enacted in December provides much-needed support to households and businesses until vaccinations are more widespread. Moreover, additional measures are currently being discussed in the Congress. Fiscal support, combined with highly favorable financial conditions and steady progress on vaccinations, are all reasons to be optimistic the economy will experience a strong recovery this year. But the speed of the recovery will also depend on the global picture. We are seeing a slower rollout of immunizations in parts of Europe and a more subdued rebound in other parts of the world, which will have an effect on the United States. In addition, the emergence of new strains of the virus could slow the path to a post-COVID world. Our Response Given all the factors I mentioned earlier, in January the FOMC decided to maintain the target range for the federal funds rate at zero to ¼ percent.
There has been much greater openness and vulnerability among work colleagues – and greater vulnerability tends to encourage higher levels of trust. We should all be thinking about how to ensure that we seize the opportunity to “bake in” these positive changes. Conclusions  4/5  BIS central bankers' speeches  To conclude, as we look back on the past eight months and begin building the next normal, I think that the idea of cultural capital will prove to be enduring. The ways in which firms might invest in their culture will undoubtedly change in the new work environment and we’ll learn more about the long-term impact of the pandemic, but the basic ideas that culture influences business outcomes, that firms can build their culture through purposeful investment, and that culture can depreciate if left unattended will likely persist. To better understand this evolution, we should begin by examining each of the factors that determine a firm’s culture, pre-pandemic and post-pandemic, and identify the likelihood of events or practices that have the potential to build or erode their cultural capital. Thank you for your attention. 1 Misconduct Risk, Culture, and Supervision,” Stephanie Chaly, James Hennessy, Lev Menand, Kevin Stiroh, and  Joseph Tracy, Federal Reserve Bank of New York, December 2017. 2 Edgar H. Schein, Organizational Culture and Leadership (2004).

Since March, our world and the financial industry have changed before our eyes. Our workplaces were transformed overnight from offices to our homes. Our office mates now include our spouses, kids, and roommates. And, our colleagues became voices on the other ends of our phones or faces on our screens. What does all of this externally-driven change do to a firm’s culture? In the early days of the pandemic, the financial industry and the official sector responded quickly and forcefully to ensure that the provision of critical financial services continued despite the tragic health crisis, significant economic and financial uncertainty, and substantial operational challenges. Many were focused on solving the immediate problems and figuring out how to work remotely. This proved surprisingly effective, at least in the short run. From the perspective of cultural capital, this sudden and dramatic shift in how we work raises multiple questions. First, how does cultural capital influence outcomes in this new environment? How are we drawing on, or depleting, the cultural capital that already existed? Does this environment pose new challenges regarding behavioral risk? And finally, is it possible to identify new opportunities to build cultural capital in a predominately remote environment?