samchain/econo-pairs-v1 huggingface dataset:
Properly structured, this creates investment opportunities for British savers, reinforces trading ties for UK firms and improves access to credit for the real economy  13  14  15  6  See the FSB’s “Policy Framework for Strengthening Oversight and Regulation of Shadow Banking Entities”, http://www.financialstabilityboard.org/publications/r_130829c.htm. Nevertheless, there can sometimes be a case for such action, and the Bank will be considering what it should stand ready to do and in what circumstances. Clearly the Bank should not support any market that would otherwise be unviable. But we have, for example, intervened in the corporate bond market, buying and selling bonds to maintain the market during the crisis until it again became self-sustaining. See http://www.bankofengland.co.uk/publications/Pages/speeches/2013/687.aspx. BIS central bankers’ speeches  across this country. London’s international markets in turn provide a valuable service to the global economy. These benefits, on both sides, will be greatest as part of an open, integrated global financial system. The Bank of England’s task is to ensure that the UK can host a large and expanding financial sector in a way that promotes financial stability. Only then can it be both a global good and a national asset. To those ends, we are working to complete the jobs of making banks more resilient and tackling too big to fail. We are making markets more robust in order to turn the shadow banking system from a source of risk to a pillar of resilience. And we are changing how we backstop private firms’ liquidity management.

It is set out in a revised Sterling Monetary Framework (SMF), published today.11 The new framework builds on the lessons learned throughout the financial crisis and draws on the recommendations made by Bill Winters in his review of our system.12 Five simple words describe our approach: we are open for business. Our facilities are not ornamental. They are there to be used by banks to access money and high-quality collateral. We are offering money and collateral for longer terms. The range of assets we will accept in exchange will be wider, extending to raw loans and, in fact, any asset of which we are capable of assessing the risks. And using our facilities will be cheaper. In some cases the fees are being more than halved. Banks can be confident that, when they want to use our facilities, they will be allowed to access them. Because we are both the supervisor and the central bank, the strong presumption is now that, if a bank meets the supervisory threshold conditions to operate and has signed up to our framework, it will be able to use our facilities. Our Discount Window will be open every day for those firms requiring a bespoke facility with lagged disclosure. Its price will be lower. We will hold monthly repo auctions to provide predictable and regular access to high-quality collateral in exchange for a very broad range of collateral. And in times of actual or prospective stressed conditions we stand ready to provide cheap, plentiful money through more frequent auctions.
The first one is of a general nature, while the second lies in differences in the relationship between the size of the financial sector and the size of the real economy in the most developed economies and the emerging ones. As to the general difficulty, I strongly believe that the world is becoming more fundamentally uncertain. Alignment and coordination of regulatory tools and policies can only take us so far. There is no guarantee that rules and harmonisation will produce the right outcome, that the new rules will be significantly better than previous ones, or that in the fundamentally highly uncertain world the “right” set of rules exists at all. Therefore, it is surprising to me that we are so focused on the design of the, hopefully, right set of rules and often also on limiting the space for their diversification. After all, diversification is a tried and tested strategy for dealing with fundamental uncertainties. The push for harmonisation at the expense of space for diversification is leading individual sovereigns to take a different approach, namely, that of insulation and buffering. This itself is not such a bad thing. After all, taking as a benchmark the maritime world, in which the rules of shipbuilding are fundamentally clearer, more certain and more effective than the current rules of financial market regulation, big ships are constructed with watertight compartments to contain any flooding if the hull is breached.

This is Statutory Instrument 32 now revised and re-named SI 55 on the Monitoring of Balance of Payments. Ladies and Gentlemen, as the name of the SI suggests, the aim is to “monitor” and not to “control”. There has been much public debate on this subject matter which seems to suggest a public misunderstanding of the intentions of the SI. Some quarters have gone so far as to link the issuance of SI 55 to the earlier issued SI33 as amended through SI78 (Currency Regulations) and concluded that Government is introducing exchange controls. BIS central bankers’ speeches  1  Managing Director, Distinguished invited Guests, Ladies and Gentlemen, allow me to clarify that SI33 was issued with the primary intention of reinforcing the use of Kwacha, which legal tender, for all domestic transactions. This is in line with practice in most countries around the world. The SI has is no way intended to stifle business. The initial Monitoring of Balance of Payments regulations were initially issued under SI 32. When the Government issued SI 32, Bank of Zambia embarked on an exercise to seek the views of the financial system players, the business community and the public at large. Arising from these stakeholder engagements, it became clear that some of the provisions of SI 32 would impede the smooth flow of business. It was also evident that the timeframe within which stakeholders were supposed to prepare for the implementation of the SI was not adequate.
If the relationship between  4  In practice, so-called inflation-targeting central banks also tend to take into account employment and other aspects of the real economy; hence, their approach is often referred to as “flexible inflation targeting.”  5  More formally, a Taylor Rule can be represented as: FFR = r* + π + a(π-π*) + b[100(Y-Y*)/Y*] where: FFR = federal funds rate r* = neutral real federal funds rate π = rate of inflation π* = target inflation rate Y = output Y* = output at full employment a = weight put on inflation gap b = weight put on output gap  2  BIS central bankers’ speeches  monetary policy and the real economy were stable over time, following a relatively simple and unchanging policy rule would likely generate acceptable results. However, if the linkage between monetary policy and the real economy is more variable, as I believe it is, then an approach that is more pragmatic and updates the policy setting in a clear and systematic manner based upon what the FOMC learns over time will be more effective. In particular, a simple policy rule can generate poor macroeconomic outcomes when either the structure of the economy or the transmission mechanism of monetary policy changes in a significant way (whether the change is temporary or permanent).

Before I go any further I’ll give the usual Fed disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Dual mandate Apart from a stint running a pizza shop, I’ve worked in the Federal Reserve System for my whole career, nearly 25 years. And I’m not alone. When you ask people at a Federal Reserve Bank how long they’ve worked there, their response is often measured in decades, not years. What makes them stay? Working for a mission-driven institution. And speaking of our mission, the Federal Reserve has two goals: maximum employment and price stability. We want our economy to reach its potential in terms of jobs and growth and we want low, stable inflation. While these two goals are critically important, they are broad and highlevel. The monetary policy decisions we make have important effects on the overall number of jobs and wages, but they don’t determine what economic growth looks like across communities, or who benefits from it. That’s why our outreach and community-based work is a key priority. It’s an opportunity for us to take all of the data, all of the things we know about the economy, and help one another as we tackle the very real issues that shape the everyday lives of Americans. Equitable Growth We’re closing in on the longest economic expansion on record, unemployment is at historically low levels, and inflation is close to our 2 percent target.
Let me proceed, then, by showing you what has been happening in the world and in Chile and how we can observe the increase in uncertainty in agents’ expectations and its propagation around the globe. The global crisis of confidence I will start by listing the main aspects I will be focusing on: •  The synchrony of this crisis is unprecedented. The drop in output made no distinction among economies’ strengths or weaknesses. •  Global uncertainty and distrust were particularly acute towards the end of last year. •  The severe drop in demand was concentrated largely in durable goods. Investment and consumption of these products collapsed by the end of 2008. To contextualize this episode, I will begin by recalling that a debate about the accumulation of strong global imbalances had been going on for several years, focusing on their implications and ways to correct them. The Central Bank of Chile identified them as a significant risk in many of its Monetary Policy Reports. Meanwhile, the world proceeded with very unusual dynamism. World GDP grew by an annual average of nearly 5 percent between 2004 and 2007, while commodity prices increased manifold. Copper, for instance, went from selling at about $ per pound in late 2003 to approaching and even briefly surpassing $ during April and July 2008. Oil went from trading at around 30 to 35 dollars per barrel in late 2003 to close to 150 dollars last July.

BIS Review 76/2009  11  Figure 9 Durable goods sales (index, average January 1996 - April 2009=100) 230  230  190  190  150  150  110  110  70  70  30  30  96  97  98  99  00  01  02  03  New automobiles' sales (units)  04  05  06  07  08  09  Capital goods imports (nominal)  Sources: Asociación Nacional Automotriz de Chile (ANAC) and Central Bank of Chile. Figure 10 Economic perception  (diffusion indexes, percent) Business confidence (1)  Consumers' confidence (2)  70  140  120  60  60  120  100  50  50  100  80  40  40  80  60  30  30  60  40  20  20  40  20  10  07 Brazil U.S. Japan  Jul. 08  China Mexico Eurozone  Jul. 09 S. Korea  07 Brazil China U.S. Mexico  Jul. 08  Jul. 09  S. Korea Japan Eurozone  (1) S. Korea is anchored in 100. (2) Series of Japan, Eurozone and S. Korea anchored in 50. The rest of the series are indexes with base January 2007=100. Source: Bloomberg. 12  BIS Review 76/2009  Figure 11 Stock market indicators (*) (Index 01/03/2005 =100) 400  Subprime crisis erupts  350  Bear Stearns  400  Lehman, AIG, etc.
Over the past ten years, revisions to services output have accounted for more than half of the average revision to GDP growth; and around four-fifths of the variance of GDP revisions can be attributed to revisions to service sector growth. Indeed, research by Bank staff has indicated that the private-sector business surveys may give a better guide to the ONS’s estimate of service sector output growth two years or more after the event than do the ONS’s own early estimates. (In contrast, the ONS’s early estimates of manufacturing output growth clearly outperform the business surveys as a guide to later estimates.) The ONS is well aware of this imbalance. In fact, it has been at the forefront of developing and improving measures of service sector output: within the OECD only the UK and Korea produce a monthly Index of Services production, the counterpart to the well-established monthly Index of Production for the industrial sector. The Allsopp Report should give further welcome impetus to this work. The third focus of the Allsopp Report is the capacity of the ONS to identify and respond to structural change in the economy. The make-up of UK economic activity is constantly changing. Fifty years ago, the manufacturing industry accounted for about one-third of UK output. The service sector made up less than one-half. Today, the corresponding shares are less than 16% for manufacturing, and over 70% for services. Responding to this sort of change is challenging.

When operational, such distributions should help guide judgements on how overall financial system vulnerability is changing. But the approach should also provide considerable additional information on pressure points within the system and on the channels of transmission and potential contagion. 14 I believe that this broad approach offers an important step forwards in the development of an analytically and empirically robust framework for financial stability work. Of course it is analytically hugely challenging – modelling non-linear tail events with endogenous strategic interactions is always going to be tough! The results will inevitably be subject to major uncertainty. But the approach does start to provide a consistent and coherent framework which should substantially improve the value of top-down stress tests and of risk assessment work. 15 A particular “operational” aim is to use the results to help improve the focus of risk reduction work and crisis management planning, for example through the identification of  BIS Review 81/2007  7  “weak points” in the financial system and through improved assessment of the impact of policy interventions. An important element of risk reduction work is to influence the behaviour of financial firms. “Bottom-up” or firm-level stress-testing practices have developed rapidly in recent years. But one challenge is that, as for the authorities, it is hard for individual firms to gauge the likely “systemic impact” of particular shocks, which takes into account macro and financial system interactions and feedback effects.
The effect is not assessed as very large; 1 percentage point. But together with the 0.2 percentage points that are due to price changes in the housing stock, this means that the rate of increase in the CPIX will be lower than the rate of increase in the CPI by 0.3 percentage points. There will thus be a long-term difference between the CPI and the CPIX which is due to other things than the Riksbank adjusting the interest rate. The CPIX is not up to standard and will be phased out Let me pause a minute and summarise before I move on. In addition to our target variable, the CPI, the CPIX is the measure that is emphasised the most. But as I have described here, there are several reasons why the CPIX should no longer hold this position. The most important reason is that the average rate of increase in the CPI and the CPIX will differ substantially in the future. In addition, there are some problems in the method used when calculating the CPIX. Hence, one of the measures of inflation we have used the most will be discarded from our box of tools. But this does not mean that we will stop illustrating how temporary shocks affect inflation or that we will give less consideration to different alternative measures. As our analysis methods become more honed we will probably use more alternative measures of inflation in our regular work.

We must always have knowledge about what is driving prices in order to make good interest rate decisions. The recent developments in the commodities markets are one example of this. And it is then important to analyse measures that illustrate these effects. 4  BIS Review 73/2008  A better way of showing the effects of interest rate changes There will also be a need to look at measures that adjust for the direct effects of our interest rate changes in the future. One can argue that this is particularly important these days, now that we make forecasts based on the fact that the interest rate can change. As opposed to the period when we assumed that the interest rate would remain unchanged during the forecast period, the forecasts for the CPI are nowadays directly affected by our policy. However, the CPIX is not the most appropriate measure of adjusting for our own interest rate changes. As I have pointed out, the CPIX excludes many more items than just interest rate changes – including changes in indirect taxes and the effects on mortgage interest costs for home-owners arising from the rising house prices. A better method is to see how the CPI would develop if we merely exclude the part of the change in the interest rate cost arising from the interest rate index. The Riksbank will use this type of measure of “CPI with a fixed interest rate” more actively in the future. This will be published in the next Monetary Policy Report.
Inflation is predicted to fall back to the target around the middle of next year, although this will depend on exchange rate developments. 6  BIS central bankers’ speeches  The second relates to deleveraging, or reduction of debt levels. Public and private debt levels are on a declining path, as can be seen from Figure 8. In the case of businesses in particular, a significant part of this takes the form of debt restructuring and write-downs. That, along with the resolution process of the failed banks, will reduce Iceland’s net external debt to a sustainable level over time (see Figure 9). This is a good thing, of course, but the deleveraging process has two short- to medium-term side effects that must be managed. The first one relates the negative effect of deleveraging on domestic demand. The second relates to its negative effect on the exchange rate, as economic entities with foreign debt, little or no foreign-currency income, and no access to foreign credit are forced to repay foreign debt faster than is optimal for them and the economy. This is part of our balance of payments problem. BIS central bankers’ speeches  7  That brings me to the third challenge, which is to break out of Iceland’s balance of payments crisis and lift the capital controls. Through fiscal consolidation and reinforcement of its FX reserves (see Figure 10a), Iceland has seen a steep drop in the perceived risk of the sovereign as reflected in CDS spreads.

Let me conclude by saying that Iceland has made great strides since the autumn of 2008. The next major task is to re-integrate Iceland financially into the global economy, but hopefully in a safer way this time. Thank you very much. BIS central bankers’ speeches  9
Crisis management  Analyses of the Norwegian banking crisis provide a positive assessment of how the crisis was managed. The IMF relies to a large extent on the solutions applied to the banking crises in the Nordic countries as a model for its proposals for resolving the current banking crises in Asia. The division of banking crisis management into three elements has gained general acceptance in Norway. The first element is that the banks’ earnings and capital shall serve as the first line of defence. This limits moral hazard. The second line of defence is the collective guarantee system for the banking industry. The third line consists of government resources that will be made available should the collective guarantee schemes fail to resolve the crisis. Liquidity support from Norges Bank is part of the third-line defence. I would like to underscore the importance of the conditions that were attached to the capital injected by the government. The banks’ share capital was written down to zero. A change in management was required and the banks’ operations were subject to strict criteria. The approach was transparent and won broad political support. The Bank Guarantee Act provides the private guarantee funds with a remit that extends far beyond paying guarantee amounts. It also provides for support measures to ensure that a member is able to honour its obligations and continue operations, and if necessary to transfer its activity to another bank.

And if and when there were a serious co-ordination challenge – if, for example, one body became concerned about its ability to meet its primary objective, without enlisting the assistance of the other – then I think the current system in the UK would allow that to happen. Equally, there are also clear advantages in a degree of separation. One – something I haven’t gone into today but which still matters a great deal – concerns specialised skills. The two committees at the Bank profit greatly from having external members steeped in particular experience, whether that’s monetary experts on the MPC or financial experts on the FPC. Another, the topic of this talk, is a matter of accountability and focus. I think there would be risks in asking the central bank to meet a wide range of objectives with no distinctive accounting for the use of its various tools. Thank you. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14  References Aikman, D., Giese, J., Kapadia, S., & McLeay, M. (forthcoming), “Targeting Financial Stability: Macroprudential or Monetary Policy?”. Baskaya, Y., di Giovanni, J., Kalemli-Özca, S. Peydro, J., Ulu, M. F. (2017), “Capital flows and the international credit channel”, Journal of International Economics, Vol. 108, Supplement 1. Bianchi, F. and Melosi L. (2018), “Constrained Discretion and Central Bank Transparency”, Review of Economics and Statistics, Vol. 100, No. 1, pp. 187-202. Bean, C. (2010), “Monetary policy after the fall”, Speech given at Federal Reserve Bank of Kansas City Annual Conference Jackson Hole, available at https://www.bankofengland.co.uk/speech/2010/monetarypolicy-after-the-fall-speech-by-charles-bean.