samchain/econo-pairs-v1 huggingface dataset:
As I have discussed here, this is a multifaceted issue that must consider crisis predictability, management, and the role of research in providing rigorous frameworks – albeit incomplete ones – with which to analyze reality. Nonetheless, that macroeconomic theory has failed is an overstatement. In particular, the comparatively better performance of emerging economies – with the exception of a few cases such as Eastern Europe that remind us of our mistakes of the past – demonstrate that economic research has taught us something. In particular, the majority of macroeconomic policies have sought not to replicate past mistakes. Now it is necessary to analyze more carefully the role of financial markets, their virtues and, of utmost importance, their vulnerabilities. This crisis is an admonishment to professional arrogance. We must recognize that the real world is much more complex than what our models can explain. This is why so-called  6  BIS Review 112/2009  professional orthodoxy is discredited. However, we must also avoid the arrogance that comes from ignorance, which leads to abandoning all we have learned about the fundamentals of good macroeconomic policies. References Berg, A., E. Borensztein and C. Pattillo (2004), “Assessing Early Warning Systems,” IMF Working Paper, 04/52. Bernanke, B. (1983), “Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression,” American Economic Review 73(3): 257-76. Bernanke, B. and H. James (1991), “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison,” in G. Hubbard (ed. ), Financial Markets and Financial Crisis, Chicago: Chicago University Press.

He said: “I have come around to agreeing with the HKMA that it could not simply stand by idly and BIS Review 85/1998  -6-  watch the speculators and hedge funds create a vicious circle involving the stock market, the currency and interest rates. ... When the hedge funds become a pack and attack a country the way they attacked Hong Kong, they are engaged in destabilizing and essentially immoral activity. They are intent only on making profits for themselves at the expense of The People. The speculators cannot be allowed to rule the world, and the State must use the weapons it has against them when they attack.” May I also leave you with this question: if the authorities of the freest market in the world are pushed into controversial market intervention action, could it be that there is something seriously wrong with the international financial architecture? Paul Krugman in one of his articles in a recent issue of the Fortune magazine provides some insight into this question. He said that “speculative conspiracies against companies are effectively regulated; those against countries are not... Capital markets are global, but the institutions that support and regulate them - that allow them to work - remain national. It’s hard to imagine how truly global institutions could come into existence - how we could, for example, prosecute American traders working in London for manipulating some market in China.
This reflected a steadily falling male employment rate, the lowest female employment rate in the EU, a declining rate among older workers and the lowest average exit age in the EU of workers from the labour market. Apart from such supply-side considerations, there are other factors which may hinder the ability of the economy to generate sustainable growth. For instance, despite the widespread recognition that exports should be the engine of growth in a small open economy like Malta’s, insufficient attention has been devoted to the fact that between 2005 and 2008 GDP growth was largely driven by domestic demand. The average level of combined private and public consumption was around 85% of GDP during this period, against 78% in the EU. Consumption at this level cannot be sustained unless substantially more resources are allocated to investment and to other growth-enhancing activities. At this point it is necessary to extend the analysis to two important dimensions of membership of a monetary union, namely the role of price and cost competitiveness and fiscal policy. Persistently faster increases in prices and costs in Malta relative to the euro area average lead inevitably to a loss of competitiveness. Since the interest rate and exchange rate policy tools are not available to euro area members, the necessary adjustments have to take place through domestic price and wage levels or in real variables such as output and employment. It is, therefore, important to avoid any such divergencies.

Importantly, growth was driven by a pick up in labour productivity and by faster employment growth. Closer economic integration with the EU led to increased business cycle synchronization, which meant that Malta was better placed to benefit from the common monetary policy of the ECB. Between 2005 and 2008, economic activity displayed an average bilateral correlation of over 82% with the euro area, up from 45% in the previous four years. 2 While EU funds also played an important role, economic expansion since 2005 has been largely driven by foreign direct investment (FDI), as the economy shifted towards higher value-added activities and exploited new niche markets opened up by EU membership. As a proportion of gross fixed capital formation, FDI inflows increased from an average of 56% in the period 2001-2004 to 93% during 2005-2007. Meanwhile, the stock of FDI stood at around 100% of GDP, an increase of more than half since 2003. 2  Business cycle synchronization is measured by the contemporaneous correlation of de-trended GDP levels in Malta and the euro area. The data were obtained from Eurostat and de-trended using the Hodrick-Prescott filter on quarterly statistics that were seasonally adjusted and adjusted by working days. 2  BIS Review 60/2009  At the same time, industry became increasingly oriented towards more capital intensive activities, such as generic pharmaceuticals, while the share of labour intensive operations such as textiles continued to decrease.
New regulations may simply do more harm in the present situation. But the players in international financial markets do need to review their systems for evaluating risks. Risk assessments based on historically determined correlations between different assets may be inadequate when earlier patterns are broken and the supply of liquidity changes. In the short run the problems in the global economy must be solved at their origins. Via the International Monetary Fund, in certain situations the international community can contribute liquidity if the countries in question are prepared to take measures. It is, indeed, an enigma that the world’s second biggest economy, Japan, has not managed, year after year, to tackle the problems in its banking system. Economic development in Japan is highly important, not least for other countries in the region. All observers are agreed that the problems in the banking sector must be rectified. Fiscal measures are also called for. Nor would I rule out the introduction, as part of a stability programme, of a numerical inflation target that might help to modify the negative expectations. It is my hope that the current signals about future measures will be fulfilled. The US Federal Reserve is also strongly focused on the problems in the global economy. In Europe the action of central banks will be determined by the extent to which Europe is affected by what is now happening. To date, however, it looks as though Europe is moving in the right direction.

Matters to do with world economic development and what should be done - not just to mitigate the short-run effects but also to construct systems and institutions so that similar events can be avoided in the future - have been high on the agenda for economic policy discussions in various fora this autumn. The latest instance is the 1998 Annual Meeting of the International Monetary Fund in Washington D.C. earlier this week. In connection with that meeting, finance ministers and central bank governors from all over the world assembled in various groups to discuss the situation. Background to the global economic problems Just a year or so ago, many observers foresaw a golden future for the world economy. There was talk in some places of a new economic era, with strong growth and permanently low inflation, at least in the United States. Today, the discussion has shifted in general to deliberations about the risks of a world economic slowdown. The challenges the global economy is facing at present are a combined result of several factors. One of these factors is, of course, the situation in Japan, where the economic problems, as I just said, have been at work throughout this decade. The inability to take sufficiently resolute action has led the Japanese economy into a serious decline. Japan has the world’s second largest economy and is of primary importance for the outlook in Asia as a whole. A crisis in other Asian countries then materialised almost a year ago.
On average, the other new member States have fiscal positions ranging from close to balance to deficits of around 7% of GDP. Malta’s deficit is close to the latter figure and thus acts as a drag on the productive use of resources, and hence also on economic growth. 4  BIS Review 50/2003  Other new member States on average spend 0.8% of their GDP on innovation, research and development. This compares with almost 2% for the present EU members and with a target of 3% to be achieved by 2010. The comparable figure for Malta is not yet known, but preliminary indications suggest that the research and development expenditure undertaken here is even lower than the average for the other new members. And Malta is only now preparing to adopt a specific innovation policy as part of its programme of economic reform. Business investment in the other new member States amounts to almost 20% of GDP. The comparable figure for Malta is not available, but it is known that the combined public and private investment to GDP ratio in 2002 was 21%. This suggests that the ratio of business investment to GDP in Malta is significantly lower than that in other countries. On the other hand, Malta compares relatively well in terms of its educational expenditure which, at almost 5% of GDP, is equivalent to that in other new members and indeed in the EU member countries.

There is an argument that such uncertainty is helpful to the insurer because the promise to the policyholder is cautious in terms of accrued income and gains, and the insurer is in control of the investment strategy for the asset pool. The issue with uncertainty around contractual terms is therefore arguably more of a conduct issue to do with fairness in the operation of the contract, but to be clear it will have prudential consequences if the scale of the fairness problem is large enough, as Equitable demonstrated. Compare this with the newer life insurance products in some jurisdictions which contain much more definitive promises, for example that at each valuation point the policyholder has a commitment such that if their asset-pool is valued higher than the previous guaranteed amount, this new amount will feature in the minimum guaranteed return. This reduces uncertainty in one sense relative to With Profits but increases financial risk for the insurer – which is further increased where policyholders can switch instruments at each 6  BIS central bankers’ speeches  valuation point and thus select against the insurer on the basis of a more definitive promise they have made on future returns. The insurer thus risks adverse selection against them. The risks in this type of contract are therefore more clearly prudential. Globally the scale of all of these promises is very large – the full extent is not clear, but it could be well over $ trillion.
The possibility of adjusting central rates through "realignments" to be agreed by the ministers and governors of the participating Member States added to the resilience of the system. Second, arrangements for regular consultations among all parties to the system were used, including mechanisms for monitoring economic, monetary and financial developments and for assessing policy responses. In Europe, peer reviews of domestic policies became increasingly demanding over time. As a result, the provision of mutual financial assistance was increasingly subordinated to compliance with the policy recommendations made in such reviews or in the context of "realignments". Third, the operational framework made it possible to achieve exchange rate and monetary cooperation among countries with different levels of economic development. Nominal convergence proved to be consistent with real convergence, as the countries engaged in the catching-up process were committed to implementing the necessary structural reforms in addition to macroeconomic stabilisation measures and their economic weight was small compared with that of the so-called "core" countries. 4. Conclusions A few conclusions of direct relevance to our Asian partners may be drawn. As experience with the implementation of the ASEAN and APEC arrangements shows, Asian countries are developing their own way of strengthening regional integration. This is the right avenue to follow. Indeed, Asian countries will succeed only if they set realistic objectives in line with their own regional conditions and the corresponding level of political commitment. This is what Europeans have done over the last 50 years.

Zeti Akhtar Aziz: The global Islamic financial market today – challenges and way forward Luncheon address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the annual “The Asset Triple A Awards for Islamic Finance”, Kuala Lumpur, 6 July 2010. *  *  *  It is my great pleasure to be here this afternoon on this occasion of the Annual “The Asset Triple A Awards for Islamic Finance” by the Asset Publishing and Research, to deliver some remarks on the key challenges and way forward for Islamic finance in the international financial system. Islamic finance has experienced its most rapid pace of development in this decade demonstrating its competitiveness and resilience as a form of financial intermediation. While the Islamic assets are now more than $ trillion, it is estimated that the global Islamic finance industry will reach the $ trillion mark in the next three to five years. The sukuk market has become the most significant and vibrant segment in the international Islamic financial system. Issuers are seeing the sukuk instrument as an attractive alternative means for raising capital, whilst investors are increasingly seeing it as a new asset class in their investment universe. This has generated significant cross-border flows as funds are raised from beyond domestic financial markets and as investors diversify their portfolios into assets from other jurisdictions. The sukuk market currently stands at almost $ billion, with a growth rate of about 40 percent annually.
To get to this point, the Trading Desk at the New York Fed has so far conducted 126 discrete operations to purchase Treasury and agency debt, and has managed 292 trading days on which either it or its investment managers have acquired MBS. My view is that the purchase programs have helped to hold down longer-term interest rates, thereby supporting economic activity. With the conclusion of the programs approaching, the Desk has been tapering the pace of its purchases of agency debt and MBS. However, even as the pace of our purchases has slowed, longer-term interest rates have remained low, and MBS spreads over Treasury yields have remained tight. This pattern suggests that the  2  BIS Review 39/2010  effects of the purchases have been primarily associated with the stock of the Fed’s holdings rather than with the flow of its purchases. In that case, the market effects of the purchase program will only slowly unwind as the balance sheet shrinks gradually over time. 3 In my previous speech back in December, I discussed in detail the channels through which these market effects may arise. By removing large amounts of duration and prepayment risk from the market, the Fed’s asset purchases reduced the volume of risk that the market had to hold, which lowered the risk premia on those assets. Put differently, the purchases bid up the prices of those assets and hence lowered their yields.

Luis M Linde: Stability and recovery in the euro area Speech by Mr Luis M Linde, Governor of the Bank of Spain, at the opening of the Global Forum on Engineering and Public Works, organised by the Fundación Caminos (Association of Civil Engineers), Santander, 6 July 2016. *  *  *  I would first like to thank the Association of Civil Engineers, the Fundación Caminos and its Chairman for kindly inviting me to take part in the opening of this Global Forum on Engineering and Public Works. You are about to spend two days debating various issues relating to a sector of activity as important, or even as decisive, for economic activity and growth as that of investment in public works and infrastructure, this being all the more so given the current state of the European economy. The result of the recent referendum in the United Kingdom illustrates the complexity of the present situation for the European Union and the euro area. Before this referendum, the macroeconomic outlook for the euro area was for stabilisation of economic growth at around 1.6% in 2016 and 1.7% in 2017 and 2018. The balance of risks, although holding on a downward trend given the existence of various contingencies (including the UK referendum), also showed a somewhat better balance in anticipation of a pick-up in the growth and inflation outlook on the back of the latest monetary policy measures.
The aim is to assess whether the interviewee understands: (i) that money loses purchasing power when prices rise; (ii) that the changes in an amount saved in an account over five years depend not only on the annual interest rate applied to the amount saved the first year, but also on the interest accumulated thereafter; and iii) that the risk of investing in equities diminishes if a broad range of shares is acquired instead of only one type. The replies, obtained from a broad sample of randomly selected individuals representing Spanish territory as a whole and each of its regions, and provided by INE, reveal, inter alia, 3/7  the following results: (i) 58% of interviewees understand what inflation is; (ii) 46% understand the concept of compound interest; (iii) 49% understand the concept of risk diversification; and (iv) the percentage of correct replies increases with educational level and household income level. Given that the Survey includes questions from an international project to measure financial competences, it is possible to compare these results with those obtained in other countries, in particular with OECD countries and EU countries that have information available in this connection. The comparison shows that the percentage of correct replies in Spain regarding the concepts of inflation and risk diversification is below the average, particularly in the case of risk diversification, in which the averages for the OECD and EU countries stand at 62% in both groups (compared with 49% in Spain).

The most frequently acquired product in Spain is the credit card, followed by personal loans. Here, too, there are significant differences in the acquisition of savings products based on educational level and on the level of income, which are less marked in the case of debt products. Thus, in the case of interviewees with a university education, 32% acquire savings products, while in the case of those with primary schooling, only 8% acquire them. By level of income, 43% of those who live in a household with income of over € acquire savings vehicles while only 8% do so in households with income of up to € Finally, the Survey also enables information to be had on the use of financial products: in particular, on one hand, on whether interviewees have saved over the past 12 months and, if so, using which savings vehicle; and, on the other, whether the household’s spending has exceeded its income over this period and, if so, how they financed it the last time this happened. This information shows that, as regards saving, 61% of interviewees have been saving in the past 12 months. The percentage increases in terms of educational level and level of income. One noteworthy feature is that the second most common method of saving, behind the current account, is cash, even in the highest educational and income segments. In particular, 38% of interviewees who save do so in cash. Only 14% do so via a savings account and 11% via a pension scheme.
The public sector can take a broader view than the private sector because it is able to take a longer-term position with or against its own currency, thereby smoothing out cycles, and profit on the whole arrangement. Australia and other countries have at times used this strategy successfully, in spite of an inflation target. But there is no sense in protecting an unrealistic exchange rate through thick and thin, nor does it make sense to draw a line in the sand vis-à-vis the market. Under those circumstances, it is better to adopt the military strategy of Genghis Khan, who often began by retreating, luring his opponents from their fortresses and then annihilating them out on the steps. At present, foreign exchange market intervention in Iceland aims at mitigating exchange rate volatility and preventing a spiral of currency depreciation and expectations of further depreciation. Since the banks collapsed, the Central Bank’s foreign exchange market intervention has all been in one direction: It has sold foreign currency. In the past few months, however, intervention has been reduced significantly in comparison with, for example, January and February, and then May and June. Nonetheless, 2009 figures year-todate are quite high, at over 80 million euros. Is too much risk being taken? As long as intervention remains modest, I think not. There is no doubt that the equilibrium exchange rate of the króna has fallen sharply after the past years’ accumulation of debt and the ensuing collapse of the banking system.

It would have been tempting to take somewhat greater short-term risk with the exchange rate and direct monetary policy more toward domestic economic conditions and the inflation outlook, but the enormous damage that even a short-lived additional depreciation would have done to private sector balance sheets precluded such an approach. Under conventional circumstances, inflation-targeting monetary policy can be described, albeit in an oversimplified way, as entailing a policy interest rate that takes into account three factors: 1) the desired policy rate when inflation is at target and GDP is at potential; 2) the output gap; and 3) the deviation of inflation from target. In the case of Iceland, the exchange rate must be added to this list, and with a heavy weight. But the weight of the other items is not zero, and the importance of the exchange rate should diminish as the financial crisis relinquishes its grip and we reduce the weight of foreign debt in private sector balance sheets, thereby reducing the impact of the exchange rate on domestic liabilities. One of the Monetary Policy Committee’s many tasks at present is to assess how these various weights should evolve as circumstances change. Indicators presented at the most recent Monetary Policy Committee meeting suggest that foreign-denominated debt may weigh less heavily in corporate sector debt than was previously believed, and that it is currently diminishing in importance for both households and businesses. Before the banks collapsed, an average of 70% of corporate sector debt was denominated in foreign currency. But the distribution is quite skewed.