samchain/econo-pairs-v1 huggingface dataset:
In the UK, I don’t think we saw a major prudential failure of capital and liquidity which did not have a governance and management story at is root, and we had a system which was very poor at creating the right incentives for good outcomes. Here I want to put the emphasis on creating the right incentives. In my experience supervision is in part about creating and overseeing those incentives. The critical distinction here is that supervision is not just about doing things to firms, it is also about creating the conditions for firms to do this right thing in the first place. Let me give three examples of what we are doing. 2  BIS central bankers’ speeches  First, we have been much more active in remuneration policy and practice. I have no interest in regulating the level of pay, but we are interested to ensure that remuneration is compatible with meeting capital requirements (so it can be varied to do so) and that variable remuneration is deferred and can be withdrawn, and is thus compatible with creating the right incentives by putting that remuneration at risk if the firm fails to conform with the objectives of safety, soundness and good conduct of business. I am not in favour of limiting variable pay in the way European legislation has done through the so-called bonus cap because it reduces the opportunity to create the right incentives. We then supervise firms to ensure those incentives remain in place.

It contains a commitment, for example, to reduce the burden of public sector expenditure on the productive areas of the economy, and targets a 6 percent reduction this year. It also provides new incentives for investment in R&D by the private sector and more generous allocations for the development of industrial areas. As far as the labour market is concerned, new training and placement programmes are envisaged for persons who lack skills and for the long-term unemployed, especially those interested in setting up their own business. There are also plans to establish a register for those seeking part-time employment, along with incentives that should encourage a greater take up of temporary employment as well as labour market participation after pension age. In the education sector, a wide range of measures are envisaged aimed at improving the quality of education. There are also plans to offer land to international educational institutions interested in developing campuses in Malta. This year will also see a record amount of funds allocated for higher education, including for the creation of an ICT faculty, the modernisation of science and engineering laboratories and additional investment in e-learning facilities. In this same area, a new ICT strategy has been launched which aims to establish Malta among the top ten Smart Islands by 2010. The strategy aims at improving further the ICT infrastructure, the diffusion of next generation applications and at creating the right environment for large projects that are in the pipeline, including the Smart City by Tecom Investments of Dubai.
Another reason is that the Executive Board of the Riksbank is what is usually known as an individualistic committee.4 Put simply, this means that the members of the Executive Board act as individuals, both in the communication of monetary policy and when deciding on the interest rate. They can thus make their own assessments of which measure or measures of developments in the real economy they consider should be the focus of monetary policy. I will return shortly to the consequences of our being a group that makes such decisions. The second variable in the loss function, inflation, is not as problematic as it can be measured in a much better way than resource utilisation. But it is not entirely clear which measure of inflation should be used. Although the inflation target is worded in terms of the CPI, when the repo rate changes a lot, as it did during the crisis, it will have a large direct impact on the CPI through households’ mortgage expenditure. It may then be more appropriate to focus on an inflation measure that excludes these direct effects of interest rate changes. This is what the Riksbank has done recently, focussing primarily on CPIF inflation. However, it is largely a question of judgement which measure of inflation one should focus on. For instance, it is possible that one might sometimes want to disregard other components of the CPI, for instance, the direct effects of oil price increases.

This could mean that the central bank chooses a repo rate path that, while it does not give the lowest squared deviations over the three-year forecast period, is nevertheless judged preferable from a longer-term perspective. For instance, the bank may hold the policy rate higher to try to prevent a credit boom that is feared would cause problems – with large squared deviations – beyond the forecast horizon. A closely-related reason is that the central bank under certain circumstances gives consideration to specific risks when setting interest rates. This is something I personally find to be one of the most important factors missing in the simple analytical framework. This could also be expressed as the central bank holding the policy rate at a higher level to reduce the risk – within or beyond the forecast horizon – that, for instance, a credit boom would continue too long and cause problems. The central bank might also wish to hold the policy rate at a higher level to reduce the risk of inflation expectations rising too high, which could also be problematic. The higher policy rate could give larger deviations during the forecast period, but may nevertheless be preferable as it reduces the risk of a really poor outcome. Framework more difficult to apply with an Executive Board Another circumstance that I perceive as complicating matters with regard to putting the theoretical approach into practice is the fact that there are six of us making the monetary policy decisions.
But the case for a merger is still being made – one still hears the argument that the two policymaking committees should be collapsed into one – and if the arguments against are worthwhile they probably bear the odd repetition. Here, at any rate, is the plan for this talk: I’ll begin with a very brief account of the development of macroprudential policy frameworks since the crisis; I’ll then explain why I think interaction with monetary policy, and therefore the gains from formal co-ordination of the two, are often overstated, particularly in more open economies with floating exchange rates. (One relevant observation here is that some countries had a much worse experience than others during the financial crisis – the UK versus Australia is an example – despite having somewhat lower inflation. This suggests that, at least in open economies, financial stability depends much more on prudential policy than on monetary policy.) Hoping you’ll forgive the clumsy word, I’ll then make some remarks about the difference in the “measurability” of the performance of the two policies. There’s a short concluding section at the end. I: Macro-prudential policy, monetary  Chart 1: UK Banks now much better capitalised  policy and the limited costs of separation The global financial crisis prompted a radical overhaul of financial regulation. Much of this involved the rules for individual institutions, most obviously minimum levels of capital for banks. In the UK, banks’ equity is now around 5% of their unweighted assets, around 14½% on a riskweighted basis.

In general, and certainly if someone’s performance can be easily verified, it helps to offer incentives of this sort1. But if over-simplified targets sufficiently distort an employee’s incentives, because they ignore the less verifiable aspects of a job, it can be better simply to pay a flat wage2. The same analysis can also be used to think about how multiple tasks should be allocated in the first place. In some cases the various aspects of a job are inextricably linked – they can only be done by one person. Those broader parts of a child’s education have to be provided by the same institution – a school – that teaches what’s needed to pass exams. But in other cases the allocation may be a matter of choice. When it is, it turns out that it makes sense – all else equal – to group the more visible objectives together, in one job, and the less verifiable tasks in another. This limits the risk that one dominates the other. I think this insight has some bearing on how central banks, whose responsibilities have been expanded since the crisis, should be organised. Specifically, it’s relevant when deciding whether the newly created “macroprudential” policies should be conducted separately or jointly with monetary policy. Some have argued that, because there are significant interactions between the two, monetary and macroprudential policy should be housed not just in the same institution, but in the same policymaking committee within the central bank. The distinct MPC and FPC should become a single “FMPC”.
In the Bank’s own quarterly Decision Makers’ Panel, around 40% of firms consistently identify Brexit as a major source of uncertainty, with less than 20% viewing it as unimportant (Chart 5). Bank staff analysis of the results points to a drag of between 8  3 and 4% on nominal investment growth since the referendum as a result of this uncertainty . 5  For more detail on these mechanisms, see the Box on “Factors affecting the prospects for long-term supply following the EU referendum” on pages 29-30 of the August Inflation Report. 6 It is also possible that actual or anticipated changes in institutional arrangements due to Brexit might affect the outlook for net migration and therefore population growth. 7 Specifically, it has been at the top of the list for two years, falling back for the first time to second place in Q1, with its place at the top taken by weak UK demand. 8 For more information on the Decision Maker Panel, see Bloom, N. et al (2017), “Tracking the views of British businesses: evidence from the Decision Maker Panel”, Bank of England Quarterly Bulletin, 2017Q2. The Bank’s 2018Q1 Agents’ Summary of Business Conditions includes the latest published results from the survey.

6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Chart 5: Brexit as a source of uncertainty Aug-Sep 2016 Feb-Apr 2017 Aug-Oct 2017 Feb-Apr 2018  9  Share of respondents (per cent) 50 40 30 20 10 0  Not important  One of many sources 2 or 3 top sources  Top source of uncertainty  On the demand side, while Brexit did not lead to an immediate fall in GDP, it is nonetheless exerting a drag. In addition to its effects on investment, it has had a significant impact on real household incomes and therefore on consumption. The main vehicle for this impact has been the fall in the exchange rate, which remains some 15% below its pre-referendum peak. The rise in import prices caused by sterling’s depreciation has had a material and persistent effect on incomes: real household income has only risen by 0.2% in the seven quarters since the referendum, compared with averaged growth of over 1½ % per year in the five years prior to it (Chart 6). Given that slowing in real income growth, you could argue that it’s surprising that households haven’t adjusted consumption even more. Consumption growth has certainly slowed: it has averaged around 0.3% per quarter since the referendum, compared to 0.6% in the previous five years and nearly 0.9% in the pre-crisis decade. But households have also in aggregate reduced their savings – the household saving rate has fallen by some two per cent of income (Chart 7).
To a large extent, the clarification tallies with how monetary period has actually been conducted in the period that the Standing Committee is now appraising. I therefore conclude that when inflation is measured with the CPI, deviations from the inflation target, upwards as well as downwards, in certain periods are something to which we unfortunately will have to grow accustomed. As a target variable, however, the CPI has many advantages, including being familiar and covering a large assortment of goods and services. Deviations from the target may sometimes even be desirable and actually benefit real factors, such as production and employment, as well as financial market stability. This conclusion does of course presuppose that people in general expect that in the medium term inflation will be in line with the target. Inflation in 1996, 1997 and 1998 I now want to look in more detail at the path of inflation in the three years 1996, 1997 and 1998. In the period as a whole, the annual rate of price increases, measured with the CPI, averaged 0.7 per cent. As I just mentioned, however, in each of these years CPI inflation was markedly affected by shocks that are fairly easy to identify and only have transitory direct effects on inflation. Lower interest rates In the course of these years the Riksbank lowered the repo rate from 8.91 to 3.4 per cent, or by more than 5.5 percentage points.

Mr Bäckström covers monetary policy in Sweden from 1996 to 1998 Opening remarks by Mr Urban Bäckström, Governor of Sveriges Riksbank, the Swedish central bank, before the Standing Committee on Finance in Stockholm on 18 May 1999. Introduction In the period 1996–98 the annual rates of inflation, measured with the CPI, were 0.8, 0.9 and 0.4 per cent, respectively. This means that in each of these years the change in the CPI not only deviated from monetary policy’s 2 per cent target for price stability but was also outside the lower tolerance limit of 1 per cent inflation. The Riksbank has indeed made assessments that subsequently proved to be a bit off the mark. As a result we have also made decisions that, looking back when the outcome was known, could have been somewhat different. But on the whole, the result of monetary policy in this period seems to be acceptable. In my opening remarks I intend to give this appraisal more substance. One major reason why CPI inflation has been low in the past three years is that the price trend has been affected by some specific price movements that monetary policy neither can nor should aim to counter fully. If the Riksbank attempts to counter such price movements, the result might be unnecessarily costly for the economy, that is, exaggerated fluctuations in economic activity as well as in the financial markets. It was against this background that the new Executive Board of the Riksbank clarified the inflation target earlier this spring.
The new method, where one follows the prices on a top list for books sold, probably gives greater variations than the old method where one followed the prices on a number of indicator books. The top list changes every month, while the indicator list changed less often. Sales are now captured to a greater extent than before. 27 Foreign air travel was not included in Table 1, but a new method of measuring prices has contributed to a new seasonal pattern with a higher volatility in recent years. 14 [19]  Underlying measures and actual monetary policy The different measures of underlying inflation give us the opportunity to approach the existing data and view it from different angles. But in the next step, the measures will be used by policymakers responsible for monetary policy. Here a conflict arises between on the one hand bringing forward various underlying measures and on the other hand being clear and transparent about the objective of monetary policy. The conflict become particularly clear if one chooses to use measures of underlying inflation that systematically deviate from the actual rate of inflation. Or, in other words, the poorer the measure of underlying measure of inflation, the greater the communication challenges. I would say that we have seen clear examples of this conflict in recent years: In June 2018, analysts at Handelsbanken Capital Markets considered it necessary to deny that the Riksbank had changed its target variable in a newsletter.

And at the same time, the average for the groups with low price volatility is also higher than the actual rate of inflation; 2.2 per cent compared with 1.6 per cent. It is common to divide the CPIF into separate indices for goods, services, energy and food. The prices of these large groups can have different determinants, which motivates sometimes wanting to distinguish between the price increases. 23 Service prices have the greatest weight among the components with the lowest volatility (Table 2). 24 There is more of a mixture among prices with high volatility, but all energy prices are included there. There are fewer services prices in the group with high volatility. 22 The fact that the average for other prices is so low is largely due to the inclusion of the component “home electronics”. It has an average rate of increase of -14 per cent during the period. 23 Consumer prices for energy and food are highly affected by the development of commodity prices on the world market, which justifies wanting to study these sub-groups separately from time to time. Costs also develop differently in different sectors. Costs normally increase more rapidly in service sectors than in goods sectors as wage increases are roughly the same in the different sectors while productivity increases more slowly in the service sector. 24 Their weight amounts to a good 70 per cent of the total weight of prices in Table 2. 13 [19]  It is not the same prices that are volatile all the time.
The potential for Islamic banks to progressively chart into this new territory would need to be supported by a state of readiness in terms of the capabilities of the industry to venture into a  2  BIS central bankers’ speeches  diversification into such business offerings. In preparing for a business landscape with different complexities, talent development in Islamic finance will need to be accorded with an even greater priority. Existing talent needs to be equipped with the necessary skills to support the expansion into areas of specialisation that include investment intermediation. Stronger knowledge in the value propositions of the investment instruments require a greater understanding on the risks associated with business ventures in the respective growth areas, including in the non-traditional markets. This would require determining the viability of such business and investment proposals. Additionally, at the management level, and the directors and Shariah scholars of Islamic financial institutions need to be adequately equipped with the necessary knowledge so as to have an understanding important for steering the business to the new directions of the industry. To realise the vision of a highly competent and high performing workforce in the Islamic financial sector, of equal importance is the standards of quality of the education programmes in Islamic finance and to raise the level of professionalism of Islamic finance practitioners. The Finance Accreditation Agency, an international and independent quality assurance and accreditation body for the financial services industry that was established in Malaysia in 2012, has raised the bar for Islamic finance talent and professionals.

Stefan Ingves: Norges Bank 200 years Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the celebrations to mark Norges Bank’s (Central Bank of Norway) 200th anniversary, Oslo, 16 June 2016. *  *  *  Sweden and Norway have a lot in common. We understand one another’s languages. We have a common labour market, though it is nowadays mainly Swedes who travel to Norway to work. And we get a little irritated when our ski champions lose to our neighbours. But above all, we have in many respects a common history. Today we are celebrating the 200th anniversary of Norges Bank. However, the monetary history of Norway starts even further back in time, 1000 years earlier, when the Vikings spread fear throughout Europe. Coins first arrived in Nor-way with Vikings returning from raids in England. In 995 AD the first Christian king, Olav Trygvason, came to power in Norway. He is also important in numismatic history since the first known Norwegian coin is a penny attributed to him. Around the same time, the first Swedish coin was minted by Sweden’s first Christian king, Olof Skötkonung. There have been many links between Sweden and Norway throughout the centuries, from the Kalmar Union of Norway, Denmark and Sweden in the late Middle Ages to the union between Sweden and Norway in the 19th century.
Conclusions Free of narrow constraints embedded in traditional investment guidelines, hedge funds have been an important source of innovation in the asset management industry. Lucrative compensation structures have played an important role in attracting talented individuals to the industry. Admittedly, these same financial incentives have encouraged many lesser talents to disguise themselves as hedge fund managers. I suspect, over time, investors will only be willing to pay prevailing hedge fund fees for truly outstanding managers. Hedge funds have rendered financial markets more liquid, more efficient and, ultimately, more flexible. Nonetheless, market observation suggests that in some specific cases, certain segments of the hedge fund industry may have recently had some impact on market volatility, either by accentuating existing market trends or by causing sharp price reversals or gapping price movements. The use of leverage is a central characteristic of the hedge fund industry. Overall industry leverage is extremely difficult to measure. Market and survey evidence suggests that it is currently moderate. However, such leverage estimates must be interpreted with great caution. They are unlikely to capture the real extent of leverage embedded in the hedge fund industry. Leverage matters in a number of ways. One particular concern is that diminishing hedge fund returns in the aftermath of large capital inflows might motivate hedge fund managers to use extreme leverage to generate returns commensurate with the prevailing hedge fund fee structure. Systemic risks could conceivably result from such elevated levels of financial leverage, primarily through large credit risk transfers to the global banking system.

Nevertheless, the market has been incorporating some moderation into its vision of the US monetary policy and some more intensity in that of the Eurozone, which partly explains the global depreciation of the dollar. Emerging currencies have benefited from the weak dollar, the better prices of commodities and increased risk appetite. Comparing the statistical closures of this and the previous Reports, the peso has appreciated by around 4.5%, which, in real terms, translates into a decrease of approximately 3.5% of the real exchange rate. Thus, at the last cutoff date it was fluctuating around 90 in its 1986 = 100 measurement, lower than its averages of the last 15 or 20 years. Moreover, in the days following the statistical closure, the peso has continued to appreciate in both nominal and real terms. As a working assumption, the baseline scenario of this Report assumes a slight depreciation in real terms over the projection horizon (figure 7). 3  Turning to the performance of the emerging economies, in the first half of the year China grew 6.9% annually, exceeding expectations. These figures raise the baseline scenario estimate, although some moderation in activity is assumed for the second half, in line with the latest data on manufacturing output, retail sales and investment (figure 8). In Latin America, the recovery of activity has been slower, with poor performance of investment and sectors unrelated with natural resources.