samchain/econo-pairs-v1 huggingface dataset:
The costs of departing from price stability - either inflation or deflation - depend upon whether it is expected or comes as a surprise. In his 1992 lecture, Lord Kingsdown distinguished three costs of unanticipated inflation and four of anticipated inflation. I shall focus on the former, commenting on the latter only briefly. Although none of the ideas are new, research since 1992 has thrown new light on both the theoretical and the empirical relevance of the costs of inflation. The main costs of unanticipated inflation are:  (i)  Distortions to production and investment resulting from mistakes in distinguishing between relative and absolute price changes  The crucial link between price stability and production and investment is that high inflation is associated with more volatile and uncertain inflation. I showed earlier that as inflation has fallen in Britain, so too has its variability. The same link can be seen in cross-section data. Chart 4 shows the relationship between average inflation and its variability, measured by its coefficient of variation, over different time horizons for a sample of 144 countries. In all cases it is clear that inflation uncertainty increases with the average inflation rate. But does this link between inflation and its volatility mean that higher inflation results in greater variability of relative prices? Chart 5 provides the answer for the UK.

If uncertainty about inflation creates an option value to waiting, then it will reduce investment. And there is growing  8  BIS Review 68/2002  empirical evidence that inflation is a key explanatory variable for cross-country differences in 5 investment to output ratios. (ii)  Redistribution of wealth between debtors and creditors. Unexpected changes in the price level - the standard of value used to define contracts - produce arbitrary redistributions of wealth. As Keynes wrote in his powerful advocacy of price stability in A Tract on Monetary Reform, “We leave saving to the private investor. We leave the responsibility for setting production to the business man. These arrangements have great advantages. But they cannot work properly if the money, which they assume as a stable measuring-rod, is undependable. Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the profiteer - all proceed, in large measure, from the instability of the standard of value”. Or, as Lenin remarked, the best way to destroy capitalism is to debauch the currency. It is arguable as to whether it is high inflation or serious deflation which results in the greater economic damage. In Europe in the 1920s hyperinflation undermined economic and social arrangements, as it has done more recently in Latin America. But deflation has proved just as unpopular as inflation. In 274 A.D. the Roman Emperor Aurelian tried to restore the integrity of the coinage which had been adulterated by workmen in the Mint.
And yet – or maybe precisely because of this – there is still much heated debate over its scope and over what exactly it should be called. In order to better understand it, we need to rid ourselves of two mindsets: first, one of irrational fear, as non-bank finance also enables the financing of growth and innovation; and, in contrast, an over-idealised or “angelic” vision of the sector, as shadow banking does indeed carry risks and regulators have a role to play in mitigating them. 1. Overcoming our irrational fears: the benefits of market-based financing To overcome our irrational fears of non-bank finance, the words we use to describe it matter. Is it “shadow banking", with all the negative connotations this implies, or rather, as some regard it, “market-based finance” or “non-bank credit intermediation"? For the title of this FSR, we have chosen the term “non-bank finance” in its broadest sense. The work carried out by the FSB enables us to better determine its scope: the higher measure, which is entity-based [Other Financial Intermediaries or OFIs], puts the total at USD 99 trillion. However, those activities liable to pose a risk to financial stability, that is “narrow shadow banking",only account for USD 45 trillion, in other words a little under 30% of total non-bank finance. Market-based finance is still not very widespread in the euro area: [slide 3] it accounts for just 20% of total non-financial corporation debt, with the remaining 80% taking the form of bank lending. In the United States, these proportions are reversed.

Over a mediumterm horizon, balance of payments trends remain unchanged. This year’s revision of the estimate for foreign currency reserves from $ billion to $ billion comes a result of higher foreign currency purchase volumes based on the fiscal rule in the context of higher oil prices. In conclusion, I would like to make the following comment. Should the situation unfold according to our baseline forecast, we hold open the prospect of a key rate reduction somewhat sooner than we assumed back in December last year. We do not rule out that this may occur in 2019. The Bank of Russia will make its key rate decisions, as it always does, taking into account inflation and economic dynamics against the forecast as well as risks posed by external conditions and the reaction of financial markets. 3/3  BIS central bankers' speeches
For financial institutions, while cyber threats may have been regarded as a cost of doing business at one point, it is not an exaggeration to say that they are now viewed as potential existential threats, not just for individual firms but also for the broader financial system and critical infrastructures that support it. As central banks with broad mandates for financial stability, this is certainly a concern for us all. We recognize the challenges and complexities in strengthening prevention, detection, and incident response regimes around fraudulent payment instructions. Users of financial messaging services such as SWIFT span the full range of IT sophistication and capacity, and remediating deficiencies in prevention and detection may require a substantial re-orientation of priorities and resources for some institutions. Overcoming these obstacles will be no easy task, but so long as there is a weak link in the cybersecurity chain criminals will seek to exploit it. As we face the common challenges of strengthening our cybersecurity defenses and payment controls, the need for cooperation is greater now than ever. The Federal Reserve stands ready to engage in further dialogue and cooperation with both its foreign official accountholders and fellow central bank service providers in addressing these challenges. 5/8  BIS central bankers' speeches  Conclusion In doing so, we as a community can ensure that the provision of account services among central banks continues to bear the hallmarks of safety, confidentiality, and reliability which are essential to the execution of our public mandates.

When this system broke down in 1973, a currency collaboration was started up between a number of European countries, known as the currency snake, by which the krona was pegged to a currency basket dominated by the German D-mark. In 1977 Sweden left the currency snake and the krona was pegged to a currency basket where the dollar had a double weight in relation to the trade exchange. In 1991 the krona was instead pegged to the European currency unit, the ecu. During the 1970s, Sweden was still applying credit and foreign exchange regulations. The credit regulation limited the banks’ lending and foreign exchange regulation limited the opportunities to move currency, securities and capital across borders. Both types of regulation entailed limiting the opportunities for efficient allocation of capital and they became increasingly difficult to maintain as time went by. The credit market was deregulated in 1985 and the final parts of the foreign exchange regulation were abolished in 1989. The idea behind an exchange rate regime with a fixed exchange rate is that inflation in Sweden will adapt to inflation in other countries. Economists usually call this international inflation functioning as a nominal anchor. However, it did not succeed, as Sweden did not manage to stay even with other countries regarding inflation and cost developments. The economic policy conducted and the way the economy functioned during the 1970s were not compatible with a fixed exchange rate.
In this case, low implied volatilities on interest rates and exchange rates can support cross-border carry trades because the yield pick up looks attractive when you can hedge the worst risks quite cheaply [Chart 11]. The continued smooth financing of global imbalances through these carry-trades in turn leads to low volatility. But this can of course work in reverse. Foreign exchange volatility has jumped up since the US Thanksgiving Day holiday. If this volatility were to persist the perceived risks in the carry trade would increase. The common characteristic of these examples is that low implied volatilities reduce the apparent riskiness of portfolios and can encourage investors to take on more risk. And if implied volatilities are not a good measure of future volatility, they will end up bearing more risk than they expected. Avoiding this pitfall requires diligent risk assessment by investors and other counterparties. That is what is needed for market discipline to do its work. It requires both adequate disclosure of risk-relevant information and its effective use in investment decisions. In the case of the hedge fund sector, for example, it seems likely that greater institutional investor interest will continue to raise the bar on disclosure requirements, particularly for those generating returns using complex products where traditional measures like value-at-risk (VaR) may fail to capture fully the underlying risks. Conclusions To conclude, our overall assessment remains benign. The financial sector is strongly capitalised and well placed to handle even large shocks like Amaranth.

Briefly, it is because it is important both to have a credible anchor for price and wage formation and for this anchor to be far enough above zero that the policy rate does not hit its lower bound too frequently. BIS central bankers’ speeches  excessively rapid and powerful appreciation of the exchange rate could be problematic – it can be difficult for a central bank in a small, open economy to allow large interest rate differentials towards the rest of the world. The way forward – what can we expect and what kind of preparedness should we maintain? If it has now become more difficult to conduct monetary policy, what can the Riksbank and other central banks do? Now that Swedish inflation is starting to approach the target, it may be time to lift our gazes and start thinking about the conditions for monetary policy over a slightly longer perspective. How should we consider these in the period ahead – what kind of preparedness should we maintain? I intend to focus on the consequences of the low global real interest rate, as I deem these to be potentially the most sweeping. So far, the influence of large central banks on the monetary policy of smaller countries such as Sweden seems not to be something we need to be too concerned about under normal circumstances, as long as we have a floating exchange rate.
The Swiss franc is trading currency number 5, ranging behind the Big Three and Sterling, but well ahead of the currencies of much larger countries like Australia and Canada. Economically more important than the trading volume is - second - the position of a currency held in international portfolios. Relative to the size of our country, the SFR occupies an unusually prominent position in international institutional and private portfolios. This position is the combined result of an above-average stability record, an efficient financial centre and the commitment to an independent monetary policy which lends the SFR special diversification characteristics in global portfolios. This certainly is a sign of strength, a sound basis for value creation, especially in our financial industry. At the same time, its strong position makes the SFR particularly sensitive to global capital movements. Thirdly, due to relatively low interest rates, the Swiss franc - like the yen - periodically plays an important role in the short-term financing of trading positions. Currency and securities traders take short positions in our money market to finance long positions elsewhere. This is a rather volatile game, often reinforced by herd effects, which comes and goes with short-term exchange rate expectations. These so-called carry trades from time to time generate a significant amount of short-term exchange rate volatility. In the recent past, however, such strategies have lost their appeal, probably as a combined consequence of last year's increase in money market rates and the appreciation of the Swiss franc.

The bank can sell its credit risk on the company, entirely or partially, without needing to cancel the loan or to have any discussion at all with the company. At the same time, the buyer of the credit risk (the seller of the credit derivative) does not need to tie up more than a fraction of the capital that would have been required to take over the credit directly. Moreover, the buyer of the credit risk can in turn easily sell the risk to another party, wholly or partially. Reinsurance thus becomes both simpler and cheaper to manage than with regard to traditional credit insurance. Large investors such as mutual fund companies and insurance companies often want to have a particular amount of credit risk in their portfolios. The credits can actually reduce their total risk, as the prices of the credits do not have such large covariation with other prices, for instance, the prices of shares and real estate. A certain share of credits provides a more diversified portfolio, which gives lower risk for a given expected return. Credit derivatives also makes it possible to divide up credit risks into small parts and to trade these parts at a low cost. This is not possible with traditional credit insurances. As the trade is so extensive, the pricing of credit risk becomes much improved. From the economy’s point of view, it is essentially positive that the credit risk is spread to institutions outside of the bank system.
Chart 11: Overall openness and productivity GDP per hour worked 100 90 80 70 60 50 40 R² = 0.4635  30 20 10 0  400  300  200  100  0  Total MGI Connectedness Ranking Sources: McKinsey Global Institute, OECD and Bank calculations. Notes: Data for 2014. GDP per hour worked in $ at constant prices, in 2010 PPPs. UK marked in red. 34  All speeches are available online at www.bankofengland.co.uk/speeches  34  Chart 12: Productivity for exporting and non-exporting firms Density 0.018 Non exporter  0.016  Exporter  0.014 0.012 0.01 0.008 0.006 0.004 0.002 0 -0.002  -50  0  50  100  150  200  250  300  GVA per worker, £ Sources: ONS Research Databases and Bank calculations. Notes: Kernel density estimate; real GVA per worker for 2013 and 2014. Chart 13: Productivity for foreign-owned and domestically-owned firms Density 0.016 Domestic  0.014  Foreign 0.012 0.01 0.008 0.006 0.004 0.002 0 -0.002 -50  0  50  100  150  200  250  300  350  400  GVA per worker, £ Sources: ONS Research Databases and Bank calculations. Notes: Kernel density estimate; real GVA per worker for 2013 and 2014.

BIS central bankers’ speeches  9  separate policy committees with separate objectives and instruments but, especially given the overlap of some committee members, with full information on which policy is being conducted in each area. This is also natural, as financial stability has a longer cycle and thereby needs less frequent decision-making than monetary policy. The well-functioning relationship between separately conducted monetary policy and fiscal policy in Sweden can, in my opinion, serve as a model for how the relationship between monetary policy and financial-stability policy should be. If one mixes together monetary policy and financial stability, it also becomes more or less impossible to evaluate monetary policy. Then an overly tight monetary policy can be blamed on an endeavour to maintain financial stability. Inflation and unemployment in the longer run Average inflation has undershot the target If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time. Indeed, “without prejudice to the price stability objective” can be seen as making sure that average inflation over a longer period of time is close to 2 per cent. But during the period 1997–2011 average CPI inflation in Sweden was 1.4 per cent, measured using real-time data. 11 One cannot of course expect average inflation to have been exactly on target over the last 15 years.
And then, as a practical matter, once market processes have been stopped, how and when do  BIS Review 35/2001  you get things started again, particularly if needed corrective policies still have not been convincingly and transparently implemented? –  To sum up, I believe the one size fits all disposition inherent in the standstills approach risks making situations much worse than they need to be. The only thing that strikes me as predictable under such an approach would be that market access would be harmed across the board. Just as bail-outs may encourage too much risk taking, efforts to orchestrate preemptive bail-ins may encourage too little. A minimalist approach to payment suspensions This is not to say that payment suspensions always can and should be avoided, or that ever-larger bailouts are desirable or feasible. I would note that in December 1997, we at the New York Fed played an important role in encouraging creditors from around the world to begin working with the Korean authorities to find a solution that complemented the courageous policy actions of the then new government. This effort, which began with commitments to maintain inter-bank credit lines and culminated in a refinancing of these claims, was but one of many times we have helped borrowers and creditors find mutually beneficial solutions.

Public action should instead focus on improving the business climate, which is the only way to promote entrepreneurship in the formal sector and ultimately improve the country’s international attractiveness. Diversification is only sustainable if one avoids the Dutch syndrome, characterised by an excessive appreciation of the real exchange rate, restricting the growth of other export sectors. The accumulation of external savings contributes to this objective. Finally, the third priority concerns the robustness of the financial sector. I will emphasise the importance of measuring, via stress tests, the potential effects of a sharp drop in commodity prices on the solvency of the banking system. These stress tests make it possible to determine the adequate level of bank capital needed to withstand shocks. * * * Allow me to conclude briefly by expressing once again my gratitude to all the speakers and participants who came here today to share their thoughts on these crucial issues. I wish you fruitful exchanges and now give the floor to Patrick Guillaumont. Thank you for your attention. 3/3  BIS central bankers' speeches
The four distinct phases of the recent crisis were as follows:   The initial disruption in money markets in the summer of 2007 – I will call this the “what are these securities worth?” phase;    The abrupt takeover of Bears Stearns by JPMorgan Chase – I will call this the “unusual and exigent” phase;    The 30 days following the bankruptcy of Lehman Brothers – I will call this the “panic” phase; and    The period from mid-November 2008 to early May 2009 – I will call this the “viability of large U.S. banking organizations” phase. One consistent theme that emerges across all these phases is that central banks must have the ability to respond quickly and flexibly in a crisis situation. This ability is crucial in preventing the emergence of an adverse feedback loop between instability in the financial system and weakness in the real economy. Another theme that emerged as these phases played out, however, was that an ability to move with speed and flexibility comes with the challenge of ensuring that accountability and transparency keep pace with the actions being taken. The need for accountability and transparency is especially true when central bank actions are being used to innovatively fill holes in a regulatory and legal framework that has not kept pace with the evolution of the financial system. Phase 1: What are these securities worth?

Tharman Shanmugaratnam: Corporate governance developments in Singapore and the region Speech by Mr Tharman Shanmugaratnam, Deputy Chairman of the Monetary Authority of Singapore, Minister for Education and Second Minister for Finance, at The OECD Asian Corporate Governance Roundtable, Singapore, 27 June 2007. *  *  *  Introduction Good morning and a very warm welcome to Singapore. It gives me great pleasure to be here at the OECD Asian Corporate Governance Roundtable. The last time the Roundtable was held in Singapore was in 2001, and we are happy to be able to host this important international gathering once again. 10 years after the 1997 Asian Financial Crisis, this year’s Roundtable gives us a good opportunity to do a stock-take, to see where we are now and identify the areas where we must continue to move forward in the region. Avoiding complacency in a benign economic environment The macro picture amongst the Asian countries is vastly improved. The Asian economies are by and large showing strong growth, driven in large part by increased trade and investments both within Asia as well as with the rest of the world. Investor confidence is back. Capital inflows are back to the levels that existed before the Asian crisis. And strong inflows of portfolio capital and foreign direct investments have replaced bank lending as a dominant source of capital inflows. Last year, the ASEAN-5 countries, for example, attracted some $ billion of foreign direct investment, significantly greater than the $ billion seen in 1997.