samchain/econo-pairs-v1 huggingface dataset:
The development of new markets and instruments, for example credit derivatives, has also led to a broader risk spread than earlier. The improved diversification of risk is probably one of the reasons that world financial markets have coped with the stock market decline and the accounting scandals with limited damage to the wider economy. This is probably one reason why the downturn following the stock market decline in 2000 was considerably less pronounced than during earlier downturns. The new instruments spread risk, but do not eliminate it. Financial markets have become highly complex. This alone entails an operational risk, which is a challenge to participants and the supervisory authorities. BIS Review 16/2004  1  Increased trade promotes growth and lays a basis for prosperity. A number of Asian countries have experienced strong, export-led growth - Japan from the 1950s and several countries in Southeast Asia from the 1960s. In recent years, China has become an important player in international trade, and is now probably the world’s fourth largest trade nation. The Asian economies and the rest of the world have become more integrated. Technological advances and a sharp fall in prices in the IT and telecommunications sectors have exposed a number of services that were previously sheltered from competition from low-cost countries. EU enlargement this spring, with ten new members, is also influencing the division of labour in Europe. Implications for the Norwegian economy Intensified competition from Japanese and Korean shipyards had serious implications for Norwegian shipbuilding in the 1970s and 1980s.

From taking prompt action to prevent the economy from overheating to acting just as promptly to avoid deterioration. In this dilemma, we have always opted for a medium- to long-run look over the short-term ups and downs, and therefore considered all the risks involved. So far this has allowed us to properly anticipate events and stick to what we believe has been the right monetary policy. The international conjuncture puts us to the test; we have identified many risks in this area. Over the months they have increased in both variety and origins. We know that we are prepared to face them in the best way possible. It is impossible to be immune. In fact, a small open economy like Chile is always subject to the vagaries of the international economy: it could not be otherwise. However, policy makers should be able to overcome them without major setbacks. There are also challenges within our borders, especially doubts about the evolution of a number of variables, such as employment and consumption, among others. It is precisely this medium- to long-term vision what helps us not to make hasty decisions. We have said that we are ready to take action if necessary, but overreacting to one particular event would be tantamount to throwing away the well-earned credibility of the Central Bank, which is a fundamental anchor to achieve our goal of safeguarding the stability of the price level and the financial system.
For example, the Basel Committee published a framework to identify optimal levels of bank capital and used that framework as an input into the calibration of Basel III capital requirements.10 This approach considered how the probability of a financial crisis varies with bank capital, the social costs of banking crisis, the link between bank capital and bank funding costs, and the impact of higher loan spreads on economic activity. Moreover, this efficient frontier is not fixed and is likely to vary over time as technology, official sector tools, and bank business models evolve. For example, technology-driven innovations that rely on bigger datasets and more sophisticated predictive algorithms might change the risk/return opportunities associated with certain intermediation services. Similarly, supervisory innovations like stress testing or more sophisticated horizontal assessments could make official sector oversight more effective. Finally, changes in business strategies like a shift to a more diversified business model might change the overall risk of certain activities. One can think of these changes as shifting the efficient policy frontier where there is more intermediation for a given level of risk. Alternatively, constraints on supervisory authorities or practices could shift the frontier in the opposite direction if use of effective tools is prohibited. Given the complexity of these relationships, it is not surprising that there is a wide range of estimates and theories about the optimal type and level of oversight of financial institutions. Nonetheless, we need to understand better these relationships in order to make policy choices more effective.

*********************** We look to history when we chose a new character, but money has a future not just a past. The selection of the new £ note character is not my only announcement today… because as I alluded to earlier, money is evolving. Today, it is much more than polymer. While cash remains invaluable to many, it is now the second most frequent transaction method after debit card payments.1 And innovation is expected to make other electronic forms of payment easier to make and faster to settle. The technological revolution in finance will bring more tailored products, keener pricing, and more diverse sources of credit for households and SMEs. The Bank is embracing fintech and ensuring that it develops in ways that maximise the opportunities and minimise the risks for society. We aim to enable, empower and ensure. 1  Cash transactions made up 37% of all transactions in 2017. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  Enable new technology by developing the right environment for fintech to thrive, such as by upgrading the Bank’s hard infrastructure on which finance relies – such as our large value payments system, RTGS. The Bank is one of the first to allow non-bank payment service providers to directly access its system, something that is lowering the costs of payments across borders. Enabling also means having the right soft infrastructure, such as rules and regulations, to help fintech thrive.
The idea behind the Petroleum Fund is that the revenues from an increase in oil prices of this magnitude shall accrue to the Petroleum Fund and be invested abroad, and that the increase in oil prices shall not influence the rest of the budget. In that case higher revenues will not influence the domestic economy, but be invested abroad through the Petroleum Fund. Structural features of the capital account balance The current account surpluses are related to substantial earnings from oil and gas exports. These revenues accrue to the state and oil companies and the capital paid in provides a basis for exports of capital. In the last five years the central government has exported capital not least through the Petroleum Fund’s investments. BIS Review 67/2000  12  Balance of payment Selected items 1996-1999 In NOK billions  When petroleum revenues are excluded, the current account shows large deficits. In recent years, however, capital outflows from some sectors of the mainland economy have been considerable. Large asset managers such as life insurance companies and securities funds accumulated substantial holdings of foreign equities and bonds in the last half of the 1990s. Portfolio investment abroad reflects a desire to diversify. In the period 1996-May 2000 the capital outflow from the Petroleum Fund, insurance companies and securities funds came to altogether NOK 350 billion. In the same period the current account surplus came to NOK 220 billion. This capital outflow has largely been matched by loans raised abroad by banks and other Norwegian enterprises.

Page 5 says that Croatia and Macedonia have been invited to intensify their efforts to conform with HICP (harmonized index of consumer prices), and that with respect to the monetary and financial statistics, the central banks of the candidate countries (and therefore our central bank), will be legally bound to start with the harmonization, which is necessary to bring the statistics in compliance with those of the ECB, as a legal requirement, once they are admitted to the ECB, and that it is desirable to start earlier to prepare for the membership in the European System of Central Banks. And finally, that the candidate countries have been invited to intensify urgently their efforts in this respect and that the EFC (EconomicFinancial Committee) should keep on directly monitoring the progress on the basis of the annual Progress Report on the Action Plan". Consequently, we and those we want to be with are aware that we should strengthen our endeavors to make our statistics better, and hence, I consider that this workshop will make a positive contribution from this aspect, as well. Thank you for your attention, and once again I wish you a nice day on the premises of the Central Bank. I would conclude here and I would kindly invite Ms. Blagica Novkovska, Manager of the State Statistical Office, to give her address. 2  BIS Review 54/2007
Action by central banks  I would now like to discuss in more detail the ways in which central banks reacted to the financial market crisis. Given that operational frameworks differ from one central bank to another, and given the highly technical nature of the subject, I will restrict myself to some stylised facts relating to the actions taken by central banks in general and those taken by the Swiss National Bank in particular. Central banks responded to the financial market turmoil gradually, by progressively shaping and expanding their instruments. At the outset, central banks tried to counter rising shortterm money market rates by applying their existing instruments in a more flexible way, by adjusting the size, frequency, and the conditions of their discretionary open market operations. For example, in order to react to the fluctuations in the demand for reserves, the SNB now conducts more frequent fine-tuning operations than in the past. Although the enhanced use of fine-tuning operations managed to stabilize overnight rates, term spreads remained high. Central banks felt that it was necessary to address this situation, because it not only reflected an increase in credit risk but was also a sign of a lack of liquidity in these markets. Central banks therefore introduced new facilities with longer maturities and offered exceptional long-term financing operations. For example, in September, the SNB carried out a CHF 5 billion repo auction with a three-month maturity. Until then, the maturity of its daily repo auctions had usually been one week.

Reforms are conducive to wage moderation and to the containment of the inflation rate, with the potential to initially dampen domestic demand owing to lower wages, the increase in the real value of debt and, in some cases, the increase in real interest rates. However, these initial adverse effects could be offset and, as experience shows, exceeded by gains in competitiveness, increases in exports and gains in confidence that positively affect consumption and investment decisions and generate employment and growth. Another matter to be highlighted is that of the synergies between structural reforms and monetary policy. The Spanish economy is a good example of a positive interaction and of the fact that, at least occasionally, reforms and policy are mutually reinforcing. After a period in the euro area with considerable stress combined with very marked segmentation in the credit markets, despite the ECB’s increasingly loose monetary policy, this interaction between structural reforms and a strongly expansionary monetary policy finally began to be felt in late 2013 and, naturally, in 2014, in any event in Spain. Unquestionably, some of the reforms launched in 2012–2013 contributed to relieving stress on the financial markets owing, above all, to their contribution to improving confidence. The improvement in public finances governance in the euro area no doubt played a key role in enhancing confidence.
In addition, the target that has been used to guide monetary policy has rarely been able to signal early enough that imbalances were being built up, regardless of whether monetary policy was aimed at a fixed exchange rate or towards a price stability target. To simplify, one can say that the result of an exaggerated optimism in countries with a fixed exchange rate has been that the build-up of financial imbalances was expressed in rising inflation without any depreciation pressure on the currency. It has not been possible to subdue inflationary pressure through raising interest rates while optimism regarding the country's economy and confidence in the fixed exchange rate regime have remained, as a more stringent monetary policy would have reinforced the nominal exchange rate. At the same time, increases in consumer prices have been kept down by the strong currency, temporary increases in productivity, or by demand being aimed towards, property, shares and land – assets whose prices are not included in the central bank's target function. There has thus been no reason for monetary policy to counteract the emergence of financial imbalances. When the financial bubble has actually burst, the country has often suffered a deep and long-lasting recession caused by adaptations to the imbalances that have been built up. A high level of indebtedness, falling asset prices and unprofitable investments have subdued demand for a long period of time. Households have chosen to increase their savings to reduce their debts.

Following the dramatic 1990s in the USA (and Sweden), with soaring prices on shares and property, many people began to think that perhaps the central banks should keep an eye on asset prices and react to these, even if there were no sign of rising inflation. Overrated share prices and/or property prices lead sooner or later to an adjustment in asset prices. If this adjustment is dramatic, the effect could be an economic downturn, with rising unemployment and a slowdown in prices. The extreme valuing of certain shares in the IT and telecom sectors on the  2  BIS Review 39/2001  American stock exchange, Nasdaq, should perhaps have warranted more stringent monetary policy a few years ago, according to the international debate on monetary policy. One argument put forward as to why the central banks should not merely look to forecasts regarding consumer prices when making decisions on monetary policy, but should also monitor the development of asset prices, is that ownership of shares is much more widespread now. Thus, changes in asset prices probably have much greater significance for household expenditure now than they did before. Deregulation, liberalisation and globalisation have increased the importance of the capital markets for economic developments and made them more volatile. Assets with market prices now comprise a much greater share of households' balance sheets than before. This is thus claimed to be a good reason for monetary policy to take into account developments in asset prices.
Fortunately, here we are not starting from scratch: a major step forward has been made thanks to the "Next Generation EU" (NGEU) programme, which was designed as a means of emerging from the economic crisis caused by the Covid-19 pandemic with a dual objective of recovery and long-term strategic investment. At the moment, our priority is of course to ensure the complete success of the NGEU programme, and even to adjust it to the consequences of the Ukrainian shock. But it would be wise to think in two directions for the future:  We should not aim to turn one-off into recurrent, but into an available instrument. Not a new annual budget, but the capacity of a tool “at hand” that could be activated in the event of shocks, including asymmetric ones,  Page 7 of 9 affecting the EU: we would avoid the spectre of a "European Transfer Union" so feared in Germany, in favour of a capacity that could benefit all.  In terms of objectives, our first economic need is that of economic stabilisation, and therefore of an instrument to be activated at the low point of the cycle. But political consensus could probably only be reached around strategic investments in climate transition, innovation or defence. For the moment, Europe is betting, as NGEU has done, on a form of constructive ambiguity between these two goals: it seems advisable, as we move forward, to better clarify the way in which they are articulated .

•  To avoid possible issues related to a preferred creditor status, securities bought under the OMT will accept the same treatment (pari pasu) as purchases by private or other creditors, in accordance with the terms of such bonds. This ensures that any interventions via the OMT do not impinge on the status of private investors. The aim of the programme is to accompany countries and their sovereign to regain stable access to capital markets. •  The programme focuses mainly on the shorter end of the yield curve and in particular on sovereign bonds with a maturity between one and three years. Steering short-term market rates falls squarely into the realm of monetary policy. The interventions address disorderly market conditions and are aimed at reducing excessive market volatility. •  The Governing Council will monitor the conditions for interventions based on a large set of indicators and will assess their effectiveness to decide on the continuation of interventions. I am convinced that the new elements in sum make the OMT a much better programme than the SMP previously was. This new programme is a clear example of how far the ECB fulfils contemporaneously the role as a stability guardian and as crisis manager. By guarding the stability of the euro in the entire euro area and countering redenomination risks, the ECB plays a central role in managing expectations in the crisis. A question remains: What will be the role of central banks after the crisis?
Looking ahead, one can see potential risk factors. One of them is production clustering. If the recently observed trend for country specialization (e.g. Slovakia specializes in producing cars, India in business process outsourcing) holds on, it may increase the risk of asymmetric shocks in the future (De Grauwe 2003). Another example of a possibly distant future asymmetric “shock” is global warming. A recent report cited by Financial Times (FT, 6 January 2007) shows that the Northern members of the eurozone are likely to profit and the Southern members to suffer from the climate change. Nevertheless, whatever the likelihood of shocks, it remains of crucial importance to maintain a balanced fiscal perspective and flexible labor market which can absorb shocks, should they arise. Now let me move to the possibility of rising micro- and macroeconomic imbalances. They can take the form of lending booms, current account deficits or increasing inflation pressure. Such a set of symptoms in a monetary union member country reveals in most cases one common cause – too low a level of real interest rates. Economists have for a long time argued that each economy has an appropriate, long-run level of the real interest rate called the natural rate of interest (Wicksell 1898). Keeping interest rates at this (unfortunately unobserved) level should guarantee that the economy will remain in equilibrium – output will not exceed production capacity and inflation will remain stable (Woodford 2003). This is what implicitly or explicitly most inflation targeting central banks are trying to achieve.

This can in turn give rise to an acute threat to financial stability and ultimately to the economy as a whole – not only in Sweden but also in our neighbouring countries, where Swedish banks have operations. Via FX swaps which have maturities of different lengths. These must be renewed gradually and their prices alter. 6  5 [14]  There is a process consisting of many stages behind the lending for Swedish mortgages and corporate loans. In this process, both the Swedish banks and their counterparties on the foreign exchange market are dependent on the funding in foreign currency functioning constantly. Different currencies in the banks’ balance sheets (a simplified example)  How can we then best manage the banks’ increased liquidity risks in foreign currency? A natural starting point is that the banks – just like other private commercial actors – should manage their liquidity risks themselves. They therefore need to insure themselves by having enough liquidity reserves and sufficiently stable funding in foreign currency. This reduces the risk that the government will have to intervene in the event of a crisis. Hopefully, it also gives the authorities a little more time to take in the whole situation and to find an appropriate solution if problems nevertheless arise. A liquidity buffer can to some extent also be regarded as a “deductible” that can at least on the margin reinforce the banks’ incentives to manage their liquidity risks.
I have developed a few simple rules for selecting variables to keep an eye on:  2  BIS central bankers’ speeches  Over time, governments cannot run an increasing deficit. To prevent the debt level from exploding, the deficit must be kept in line with nominal GDP growth. That figure is around 4 per cent annually, for most Western countries. A fiscal balance can hide important imbalances. If one sector in the economy is far too large, the taxes from this sector can contribute significantly to the fiscal budget. An example is the construction sector in some European countries in the years leading up to the crisis. In normal times, this sector is around 3–5 per cent of GDP in most countries. In Spain, housing construction was 9 per cent in 2006. In Ireland, the contribution was 11 per cent. When problems arose, construction activity decreased and tax income was reduced significantly. Therefore, one should also look at the current account. Inflation above 4 per cent might indicate that price stability is not firmly anchored. If unemployment is above 4 per cent of the labour force, it might signal a labour market out of order. Finally, the risk of running into a crisis seems to increase if the total assets of the banking sector constitute more than 4 times GDP. This table illustrates the 4 per cent rule. Many countries had negative fiscal balances through the last decade despite moderate to high economic growth.

This rule is closely related to our sovereign wealth fund, the Government Pension Fund. Many explanations are offered for the fall of the Roman Empire. Likewise, there are numerous causes behind the financial crisis. Greed, especially in the financial sector, stupidity, low lending standards and low interest rates have all been highlighted, and these arguments are not without merit. Still, two very important and striking features preceding the crisis were the growing imbalances in world trade and capital adequacy ratios in the banking system. The crisis was preceded by a build-up of global imbalances. Large and growing deficits in the US were driven by high consumption and a large appetite for debt among US households. In the US, domestic spending had outpaced domestic production for a long period. Private debt increased in the US, but also in Europe, matched by high saving in Asia – primarily in China. Federal Reserve Governor Ben Bernanke called the imbalances a global savings glut. This glut pushed down real interest rates and hence the return on investments. Low interest rates and compensation to take on risk led to a search for yield, increasing the inherent risk in the system. Global trade imbalances have been reduced somewhat over the past two years, but there is a considerable risk that they will persist. They must be corrected through structural changes in the real economy. This may weaken growth in the world economy in the coming decade. Asian economies, however, have fared well through the crisis.