samchain/econo-pairs-v1 huggingface dataset:
It is now urgent to make concrete progress on substance, and to move up a gear, by triggering four accelerators of the Economic Union: - A macro accelerator: the French President, Mr. Macron, in his speech about Europe ten days ago at the Sorbonne, started by talking about the “coordination of economic policies”. In this widely-discussed speech, I believe that this was not sufficiently remarked upon. In my opinion – as an independent central banker – we should aim to achieve a genuine collective economic strategy; a mutual commitment between the Member States of the euro area, for more reforms in countries where they are required, and more fiscal support in countries with leeway for this. This collective strategy could be prepared and adopted as of 2018. It could be supplemented by the creation of a common stabilisation fund, aimed at supporting, through lending, Member States facing asymmetric shocks. This could be part of a European Monetary Fund, provided that its scope of action is extended beyond the current European Stability Mechanism. - A micro accelerator: i.e. a Financing Union for Investment and Innovation. The aim is to mobilise the EUR 350 billion savings surplus of the euro area, notably to shore up equity which is the key to an innovation economy, and also to foster synergies, thanks to an integrated steering mechanism, between the Juncker investment Plan, the Capital Markets Union and Banking Union. Here too, progress could be rapid.

As a consequence, the proportion of CHAPS payments made by direct members on their own account is set to increase from around 40% in 2007 to approaching 70%, substantively addressing the tiering risks that had previously existed in the wholesale sterling markets. In relation to the retail systems, we have also sought to address latent contagion risks by reforming the arrangements covering member default in two of our largest retail payment schemes (Bacs and Faster Payments). As currently structured, these default arrangements contain a heavy “survivors pay” element, where the other members of the payment scheme assume a portion of a failing member’s payment obligations (either temporarily, a liquidity risk, or permanently, a credit risk). This creates a clear contagion risk. Recently, the schemes have agreed to move to a full “defaulter pays” model, where all obligations are fully collateralised in advance, in cash, segregated in each bank’s account with us. The move from survivors to defaulter pays will take place in the next year or so. Separately, but driven by the same philosophy, we have sought to reduce the operational risks that we ourselves run as the core infrastructure provider within the sterling system. The Bank of England currently runs the UK’s RTGS infrastructure from twin operational sites so we can continue to provide RTGS settlement in the event of a problem at either. While this is a highly resilient arrangement, it would be vulnerable to a catastrophic failure which took out both sites simultaneously.
The existing criteria and selection process are undergoing a rigorous review to strengthen the current assessment process and uplift the quality of audits so that auditors are also abreast with the emerging risks and implications of the Basel III framework and the new accounting standards that are to be enforced within the next few years. With a view of facilitating risk management of emerging technologies and to encourage further digitalisation of banking operations, several policies will be introduced to define regulatory expectations on use of cloud computing and define minimum regulations on the use of relevant fintech solutions. Further, a comprehensive technology risk assessment programme would be conducted to assess and improve the technology risk resilience of banks. Over the last five years, while the banking sector has grown approximately by 15 per cent annually, the non-bank financial institutions sector has grown approximately by 20 per cent. Although the sector accounts for a comparatively small share of around 8 per cent of the total assets of the financial system, the rapid growth and broad outreach of the sector necessitate proactive supervision and regulatory guidance. While several regulations have been introduced to strengthen these institutions, some licensed finance companies have shown signs of stress, while the rapid expansion of certain others have been curtailed due to their lack of compliance with regulatory requirements. This reiterates the need for continued strengthening of the existing regulatory framework of non-bank financial institutions to ensure the soundness of the sector and contain its spillover effects on the whole system.

Since I will essentially concentrate on the first possibility, i.e. incentives, let me recall, by a way of contrast, a recent study by Fahlenbrach and Stulz (2011). These authors show that the losses of the banks whose managers’ incentives were most closely aligned with the long-term interests of the firm they managed were at least as large, in the last crisis, as those at the financial institutions where governance was more obviously lacking. This suggests that wrong incentives were not the only factor in the behaviour and decisions that led to the crisis. Knowledge and competence were also at play. ... or a misalignment of incentives? Incentives are an important component in risk and risk-taking. If there is an important lesson in economics and finance that has not been invalidated by the financial crisis, it is that incentives really do matter. The excessive risk-taking that was observed prior to the financial crisis is likely to have been – among other things – the result of the fact that key decisionmakers were not provided with the right incentives to carefully analyse and balance the possible consequences of the risks they agreed to take. Let us take a bank as an example. The main relevant stakeholders are the depositors, the shareholders, the managers and the bondholders.
And there is some corroborative evidence in the rise in output price inflation relative to costs, and in anecdote of some firms being able to pass on cost increases (Chart 17). Given a tight labour market, how does that fit with earnings inflation having been relatively subdued? One possibility is that as aggregate demand has picked up, firms have in the first place increased output by making greater use of their existing workforce and capital. That would be consistent with anecdotal evidence of firms having held on to labour during the earlier slowdown in aggregate demand; and with the pick up in private sector productivity growth over the past year or so (Chart 18). Looking ahead, it would also suggest a degree of upwards pressure on earnings growth. As reflected in the Inflation Report published a couple of weeks ago, conditions of excess demand, combined with the likelihood of stronger import prices, point to inflation gradually rising back towards and through the 2% target over the next two years or so. There are many risks around that central outlook but, taken together, compared with November I judge them to be slightly less to the downside over the medium term. The recent rise in CPI inflation suggests, for example, that we were not stuck  9  Nickell, S. (2005), ‘Why Has Inflation Been So Low Since 1999?’, Bank of England . BIS Review 16/2005  5  materially below the inflation target.

The main risk is that inflation expectations stay elevated for a long time. The longer the price growth rate remains high, even if fuelled by temporary factors, the more considerable this risk is. We could already observe this over the recent three months. As regards external conditions, proinflationary risks persist as well. In the first place, they are associated with prices for energy commodities and other commodities. The damper mechanisms protect the domestic market against fluctuations of global prices for commodities. However, an increase in foreign producers’ costs might also affect inflation in Russia. For instance, this happens when we import foreign equipment and vehicles made of more expensive metals. Disinflationary risks are mostly associated with the fact that producer costs might decrease as fast as they have risen. We have recently observed a multifold increase in prices for container shipments. This has pushed up cargo delivery costs worldwide. However, this growth has stopped by the moment. Possibly, even if prices do not decline to pre-pandemic levels, they might adjust downwards considerably closer to their initial level of this year, and later on this will translate into product prices. Another important disinflationary factor is still recovery prospects in outbound tourism. I should focus on the anti-pandemic restrictions that are currently introduced. Last spring, we believed that restrictions would cause a slump in demand, that is, provoke disinflationary risks. This is exactly what happened in the second quarter of 2020.
Events like this conference can prove of great help for the purpose of defining more precisely those gaps and to show the way forward. Thanks very much for your attention. 8  BIS Review 143/2007

Svein Gjedrem: Monetary policy and the outlook for the Norwegian economy Address by Mr Svein Gjedrem, Governor of the Norges Bank, at the Wage Bargaining Conference of the Electricians and IT Workers' Union in Vestfold and Telemark counties, Drangedal, 24 August 2001. *  *  *  The objective of monetary policy In spring this year, the Norwegian Government and the Storting (Norwegian parliament) laid down new guidelines for economic policy. The Government has announced that it will use the expected real return on petroleum revenues in the Government Petroleum Fund over the central government budget. The Government stresses that it will nevertheless use fiscal policy to smooth fluctuations in employment and activity levels. At the same time, Norges Bank was given a new operational mandate for monetary policy. Norges Bank shall set the key rate with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent. Low and stable inflation is the best contribution monetary policy can make to growth and prosperity. High and varying inflation weakens growth potential. The function of prices as a vehicle for information is impaired. Many choices will be based on a false foundation. Pay increases may be cancelled out by high price inflation. With high and varying inflation, it is difficult to determine whether higher house prices, for example, entail a real increase in the value of property, or whether the rise in prices is mainly due to a decrease in the value of money.
This is an idea I have considerable sympathy for in principle, and I shall try to explain why in my speech today. Lessons from the crisis: price stability is not enough to prevent financial imbalances The foundation for the monetary policy strategy we use today is the changeover in monetary policy in the early 1990s, when some central banks began to switch to explicit inflation targets. This turned out to be an effective way of anchoring inflation expectations and in this way attaining price stability. Inflation targeting became the standard for central banks. The way the policy was implemented could differ slightly, but on the whole there was agreement on the fundamental principles. A credible inflation target also creates some scope for monetary policy to stabilise the real economy. Monetary policy could therefore be flexible and focus on attaining a good balance between on the one hand price stability and on the other hand the stability of the real economy, a couple of years ahead. There was also a consensus – sometimes referred to as the “Jackson Hole consensus” – that monetary policy would not try to counteract rapid increases in asset prices or credit growth.2 I shall return to this shortly. The long period of relatively stable inflation and robust growth – “the Great Moderation” – that preceded the financial crisis was considered to be proof that the chosen monetary policy strategy functioned well.

In addition, imbalances risk being aggravated in economic upswings, which means that some measures need to be implemented in situations where there is probably a general resistance to them – what is usually compared to “taking away the punchbowl just as the party gets going”.16 Thus, the measures may also be politically difficult to implement in some cases. The extent to which this affects macroprudential policy in practice will of course depend on the institutional set-up chosen. Difficult target to define and assess The inherent difficulty in defining concrete targets for macroprudential policy may affect the ability to implement various measures. A common formulation for the objective of macroprudential policy is “to counteract risks to the financial system as a whole”, or something similar. Regardless of the exact formulation, it is difficult to specify what the target actually entails in practice. When has it been attained? Let us say that macroprudential measures are implemented over a couple of years and that no problems arise in the financial system. Have the measures then been justified or unnecessary? The only thing the general public can observe is a lack of problems, and there could thus be a risk that the need for macroprudential measures is questioned.17 Measures could be circumvented It could also prove difficult to design a system for macroprudential policy that functions efficiently enough, and which inventive market participants are not able to circumvent. In this situation, monetary policy may need to support macroprudential policy.
Through the JC3, financial regulators are working together with the stock exchange, financial institutions, institutional investors, NGOs and the Government. We started the JC3 with a narrow focus – acting as a network for sharing of experiences and coordinating actions. But within two years of its establishment, the JC3 has evolved to become a focal point for collective climate actions within the financial sector. Correspondingly, it has expanded beyond networking and coordination, to providing content, stewardship and advocacy. With financial regulators working alongside each other, the outreach of actions extends throughout the key components within the financial sector. The increasing breadth and depth of the work undertaken by its four sub-committees have supported a number of key initiatives to advance climate risk management and climate-related disclosures. This includes the issuance of the Climate Change and Principle-based Taxonomy that was piloted by selected JC3 members and phased adoption of the Taskforce on ClimateRelated Financial Disclosures (TCFD). The JC3 is also taking on an increasingly important role in developing practical tools and solutions for financial institutions and to address barriers to green financing and investments. For example, the Bank is working with the industry via the JC3 platform to develop Guidance Documents on Climate Risk Management and Scenario Analysis. The guides underscore the need to manage climate-related risks as a financial risk within the broader enterprise risk management frameworks, while addressing the unique characteristics of climate risk such as its long-term horizon and non-linear features.

First, macroeconomic policies need to be adjusted pragmatically and where appropriate, swiftly. We do not simply mean that policy must be loosened but rather authorities ought to consider carefully their full range of options, giving due regard to the circumstances they find themselves in. For instance, in an environment where credit markets have ceased to function, monetary policy alone cannot do the heavy lifting needed to stabilize economic conditions. Second, swift action to clean up the balance sheets of financial institutions is very important to allow the financial system to resume its key intermediation role. Third, reforms, be they structural, legal, regulatory or accounting, should be an important part of the medium-term agenda, as they would serve affected countries well going forward. Not only should regulators be alert and vigilant in systemically important markets, they also need to keep up with the rapid pace of innovation. Finally, there needs to be a multilateral effort to improve transparency, standards and the quality of regulation. We welcome the work being undertaken by all parties in the Financial Stability Forum, of which the Fund is a key member, and expect the results will prove illuminating. 7. In drawing these conclusions, we must remember that we cannot entirely exempt ourselves from the booms and busts in credit markets, but instead recognize that sound regulations and prudent capital market practices can play a role in alleviating these cycles.
My view is that the risks linked to developments in the credit and housing markets have been given an increasing amount of attention in the media and in the general economic debate recently, which appears to be confirmed in Figure 4. Despite the relatively good developments in Sweden in recent years, and the fact that the repo rate is still low, the policy conducted by the Riksbank has given rise to considerable debate. Some arguments in this debate have been understandable and natural. The size of the risks linked to household debt and developments in the housing market is, for instance, one question that certainly can and should be discussed. This is something that is inherently  1  This was something that also affected policy to some extent before the crisis, see for instance Nyberg (2005), Ingves (2007) and Heikensten (2008). 2  BIS central bankers’ speeches  difficult to quantify and the analysis and discussion of this topic needs to continue. Here I can fully understand that the assessments may differ – which has also been the case in the Riksbank’s Executive Board. A crisis rate for four years is no realistic comparison However, there have been elements in the debate that I, at least, have found more difficult to understand. One such argument has been that one can basically disregard these risks altogether and that the repo rate therefore did not need to be raised at all after the crisis.

For instance, now in 2019 Germany is going to be one of the countries with a lower growth rate. And yet it was the euro area’s growth engine two or three years ago. There is not an accumulation of divergences, but situations change. Some countries that were underperforming are now overperforming, and vice versa. And this is not going to depend on monetary policy. Monetary policy has to take care of price stability and some real factors that can explain inflation levels across the euro area. But it’s exactly the same in the 3/4  BIS central bankers' speeches  United States. Do you think a single currency area can work in the long term without having a single budget to address shocks, banking problems or competiveness issues? I think the institutional architecture of the euro area has not been finalised at all. We have made some progress with the creation of the European Stability Mechanism, and we have launched the banking union, but this project is not complete. We have to finish the European Deposit Insurance Scheme (EDIS) and we need to complete the capital markets union. I am fully in favour of having an instrument with a stabilisation capacity. It can take different forms. Of the kind French president Emmanuel Macron is proposing? If you look at what was agreed in the European Council, it was a first step in the right direction. But that should not be the steady state of the instrument.
Given their exceptional nature, these measures will have to be unwound once conditions return to normal. Of course, we designed technically the measures with their exit in mind, and today’s conference provides an opportunity for me to outline the overall exit strategy from the set of measures. To be clear, in this context, I would like to stress that, firstly, the term “exit strategy” should be understood as the framework and set of principles guiding our approach to unwinding the various non-standard measures. It does not include considerations about interest policy. Secondly, the discussion of the exit strategy should not be confused with its implementation. As I said, it would be premature to declare the crisis over. Now is not the time to exit. But I would like to make it clear that the ECB has an exit strategy, and we stand ready to put it into action when the appropriate time comes. My colleague Jürgen Stark, who will be on the first panel on the programme today, will go into more detail as regards issues related to timing. II. Exit from what? – Enhanced credit support  Let me start by taking up things from where I left them a year ago. When I addressed this conference at the beginning of September 2008, I reflected on the direction in which the economy was headed. I looked back over the preceding 12 months of financial turbulence, noting that this had marked the end of “a long phase of heightened risk tolerance”.

We wish you another equally successful decade – and look forward to another decade of working successfully together. BIS central bankers’ speeches  3
They highlight the role an impaired banking system may have played in contributing to the weakness in productivity. And to evidence that suggests that a failure to reallocate resources from less to more productive firms has had a pronounced effect on productivity growth. Such factors may persist even as demand recovers, suggesting that any rebound in productivity growth may be more muted.4 Both sets of arguments are very plausible. Indeed, it is likely that both played some role in the weakness of productivity. The challenge for the Committee is weighing up the relative importance of these different factors. And this judgement is central to the setting of policy. Too optimistic and we risk stoking up excessive demand that will feed through into higher inflation and a potential loss of credibility. Too pessimistic and our nation’s resources will remain underutilised for an even longer period, with potentially damaging effects on the longrun health of our economy. The design of the forward guidance – in particular the combination of the unemployment threshold and the knockouts – makes the setting of monetary policy more robust to this uncertainty, allowing the Committee to learn about the responsiveness of supply as the economy recovers, without needing to work out the precise cause of the productivity weakness up front.5 Let me explain.

When Bank Negara Malaysia and the Bank of Thailand first operationalized this arrangement between our central banks in March 2016, we saw the potential and benefits for local currencies to play a more important role in enhancing regional trade linkages. The expansion of the arrangement today to include our close trade partner, Indonesia, underscores this potential. The signing of this MoU between Bank Indonesia and Bank Negara Malaysia represents another important milestone in the move to strengthen the relationship between Malaysia and Indonesia. Following the conclusion of the ASEAN Banking Integration Framework, we are confident financial institutions in both countries will be able to collaborate towards realizing the objective of facilitating greater cross-border trade and investments. Both Thailand and Indonesia share important links with Malaysia, forged through a long history of trade and investment activities, and close cooperation between our central banks. This occasion reflects how far we have come in this process. The cooperation arrangements between our central banks have now expanded to include clearly defined protocols and operational frameworks in a broad range of areas, including financial market development, supervision, surveillance, payment arrangements and crisis management. Bank Negara Malaysia has long been a strong supporter of financial and economic integration in both ASEAN and broader Asia – to unlock the region’s growth potential and support a stronger, more resilient economic community.