samchain/econo-pairs-v1 huggingface dataset:
Risk on/risk off is precisely such a popular narrative.4 The effect of popular narratives is to increase psychological contagion in financial markets. Simple stories generate market mood swings. The greater the uncertainty, the more compelling the simple story and the greater the amplitude of these mood swings. These  2  Reinhart and Rogoff (2010). 3  For example, Tversky and Kahneman (1974). 4  For example, Akerlof and Shiller (2009), Tuckett (2011)  4  BIS central bankers’ speeches  swings in turn result in a detachment of risk perceptions, and hence asset prices, from reality. Financial trauma, like personal trauma, can increase this detachment from fundamentals. For those who lived through it, the Great Depression had a lasting effect on financial risk-taking. “Depression Babies” have been shown to seek less risky capital structures and to avoid financial stocks.5 The scarring effects of the Great Depression on risk attitudes help explain the excess premium demanded by equity investors during the previous century.6 The Great Depression left risk-taking scars that lasted a lifetime. The Great Depression has now been lost from most investors’ experience sample. Indeed, that fact might help explain another popular narrative from the past – the Great Moderation. But the Great Depression has recently been replaced in investors’ experience sample by the Great Recession. Whether this will spawn an era of “Recession Babies”, with a permanently lower appetite for financial risk-taking, remains to be seen.

Jean-Pierre Roth: Prospects for the Swiss franc in the heart of the euro area Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Associazione Carlo Cattaneo, Lugano, 9 March 2005. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  The launch of the euro in January 1999 fundamentally transformed the international monetary order. Switzerland, a small country that strongly depends on exports and capital transactions, suddenly found itself surrounded by a market with almost 300 million people sharing a single currency. What were the monetary consequences of this development, and what are the prospects for the Swiss franc, which is traditionally considered a "success product"? The role of the Swiss franc in commercial and financial transactions has certainly diminished. Although the euro is only rarely used as a means of payment in the Swiss market, billing within the euro area is increasingly taking place in the single currency only – a fact to which Swiss companies have to adjust. In the financial markets, the euro now acts as a counterweight to the dollar. The Swiss franc has thus lost some of its significance as a safe-haven currency and has performed more in line with its fundamentals. The introduction of the euro has, however, not affected our monetary autonomy or the Swiss interest rate advantage. The Swiss National Bank has been able to respond with flexibility and determination to the recent economic slowdown.
It is important to note that no specific values have been defined for significant changes, such as the fluctuation margins of 2¼ per cent, 6 per cent and 15 per cent used by the EU countries in their exchange rate regime. Significant must be given an economic content. A reasonable interpretation is that exchange rate movements must not influence expectations concerning price and cost inflation to the extent that changes in the exchange rate become self-reinforcing. The expressions with a view to, over time, aimed at and based on also show that Norges Bank has considerable scope for exercising discretion. Exercising discretion In exercising this discretion, Norges Bank places emphasis on the fundamental conditions for achieving exchange rate stability over time. Price and cost inflation must be brought down to the level aimed at by the euro countries. At the same time, monetary policy must not in itself contribute to a deflationary recession. The regulation’s requirement with regard to returning the exchange rate to its initial range * may – if stretched – imply an element of “parity policy” . For example, in a scenario with a sharp and prolonged fall in oil prices, the krone exchange rate may remain outside the initial range for a longer period. If Norges Bank responds by raising interest rates in order to force the krone back to its initial range, monetary policy could lead to a recession that will undermine confidence in the krone.

Similarly, after an appreciation a situation may arise whereby a movement of the exchange rate back to the initial range may require that interest rates be reduced to such a low level that this results in higher inflation. However, this would weaken the basis for exchange rate stability over time. Hence, Norges Bank cannot with open eyes orient its policy instruments towards triggering higher inflation or a deflationary recession. If a situation arises whereby Norges Bank is not able to return the exchange rate to  BIS Review 51/1999  2  its initial range without such consequences, the Bank will inform the government authorities that measures other than those available to the central bank are required. The present exchange rate range has more or less prevailed for more than ten years. On the basis of its analyses, Norges Bank does not find grounds to maintain that this range is not the appropriate one. Interplay between policy areas There are considerable differences between Norway and other industrial countries in the structure of the economy, the organisation of decision-making processes and the formulation of economic policy. In Norway, income and wage determination is fairly centralised; a number of fora to foster cooperation between the social partners have been established, as has special legislation which makes it easier to resolve labour conflicts than in many other countries. The central government budget is used more actively to stabilise economic developments, partly because the Norwegian state has substantially greater economic leeway than other countries.
On the one hand, the global economy has continued and is expected to expand robustly, driven mainly by strong growth in the euro area and the emerging market economies, particularly China and India. Financial stability has, on the other hand, become more vulnerable than a few years ago. Recent developments in the US economy and sub-prime credit markets may indeed be an early wake-up call for policymakers and market players worldwide. The US sub-prime related problem has prompted a retrenchment from risky assets and de-leveraging, causing wider credit spreads for riskier assets classes and higher volatilities in bond and equity markets  BIS Review 104/2007  1  around the world. The unwinding of carry-trade and flight to quality of international capital have also been observed. Importantly, the resulting disruption has already required extraordinary liquidity injections by a number of central banks to smooth market fluctuations. Beside the financial sector, turmoil in the sub-prime markets also posed negative impact on the real sector, denting US growth prospects going forward. I would like to digress briefly to tell you that the direct exposures of Thai financial institutions in collateralized debt obligations (CDOs) are relatively minimal, in terms of shares of their total assets. I also like to reassure you that we are keeping vigilance on potential indirect repercussion that may arise further from the impacts of US sub-prime markets to the global economy and financial markets, as the adjustment process is likely to be protracted.

Though such deterioration in  2  BIS Review 104/2007  price competitiveness has been expected for some times, we have not seen real sector adjustments keeping up with the pace of changes in financial environment. For those waiting to hear about the exchange rate trend, I will have to disappoint you as always. I would just like to say that, given the current inflation targeting framework, monetary policy can take care of exchange rate as long as there is no conflict with inflation. And, we have no target level for the Thai baht in mind. Foreign exchange market is intervened when there is too much volatility in the market. The objective is to smooth the country’s adjustment during the transitional period. Looking forward, the baht movement would depend largely on external developments which I have already discussed. Moreover, there are also internal drivers: large surplus in current and capital accounts. The Thai stock market remains one of the most popular destinations in emerging markets for foreign investors, given its relatively low P/E ratio. During the first 7 months of this year, foreign investors became net buy about 4 billion US dollar. Such inflows together with foreign direct investments have also added pressure on the currency. Ladies and Gentlemen, I would like to turn to the third and final part of my talk today, which is Thailand’s approach in coping with the risks and challenges posed by globalization. Indeed, the challenges of globalization are constantly changing.
The forces that have kept down inflation thus appear to some extent to have been common to other small, open economies in our region. One such common denominator is probably that prices of imported goods have developed weakly. The ongoing globalisation process is one reason for this. Low-cost countries, in particular China, have taken on an increasingly large role in the world economy and we have begun to import more and more goods from these countries. If one looks at price developments for consumer goods - a category that contains many imported goods - prices have actually fallen in recent years, both in Sweden and our Nordic neighbours (Figure 4). Another factor that has held back inflation in Sweden, and has probably been even more important, is that productivity growth has been unexpectedly strong. This has kept down production costs in companies and subdued price increases on domestically-produced goods and services. As imported goods are processed and distributed in the country before being sold to consumers, productivity growth has also held back price increases on imported products (Figure 5). It is not entirely clear why productivity improvements have been so rapid in recent years. One possibility is that the major investments in information technology made at the end of the 1990s have now begun to show results. It is also conceivable that the higher productivity growth is a result of companies in many sectors perceiving increased competition, not least as a consequence of globalisation.

As a result, they have been forced to rationalise and make their operations more efficient. This could also explain why employment has developed so weakly. More efficient production processes have enabled companies to meet rising demand without needing to recruit new staff to the same extent as in previous economic upturns. The fact that inflation has been below target for a good three years indicates that this was a development the Riksbank had not succeeded in predicting, although we did assume that inflation would fall when the previously rapid upturn in energy prices rebounded. Had we been able to foresee that inflation would be as low as it has been, we would possibly have maintained a lower interest rate than we did. However, we were far from the only ones to make inaccurate forecasts (Figure 6). On the whole, in recent years, analysts of the Swedish economy appear to have been surprised by both the strong growth and low inflation. For example, it was not until some way into 2005 that most analysts began to assume that inflation for the year would be below the Riksbank’s tolerated deviation interval. Of course, all analysts were aware that the economy was affected by, for instance, globalisation and the rapid developments in information technology. But it is a long step from there to being able to predict exactly how great the impact of these forces will be on, for instance, productivity and prices.
[4] If the trend continues, it could eventually entirely disappear. Since cash is the only source of public, risk-free money available to everyone, we see the need to adapt to people's preferences by offering a public version of money in this growing digital sphere. While doing this, we do not want to replace cash but to complement it with a widely usable, inclusive, free-for-basic use and convenient form of money. The other important reason for embarking on this digital journey is related to something we call "strategic autonomy". As I mentioned at the beginning, current geopolitical tensions show us how fragile our world is. Dependence on external sources and external suppliers for the basic needs of our population brings risks, and we must ensure these risks do not materialize, particularly in times of crisis. It is our duty to support the smooth functioning of the payment system or, to put it more bluntly - to ensure payment services continuity in unexpected scenarios. And this is precisely where the digital euro fits in. Built on its own infrastructure and further developed in cooperation with domestic payment service providers, we must ensure this option will work when all others fail regardless of the cause of the disruption, be it a cyberattack, technical glitch or something else. We must ensure the digital euro is there when you need it the most. PRIVACY Now let's mention privacy. This is very important for us, and I want to emphasize this aspect.

The Times They Are A'Changin' CBDC Lately, central bankers have rapidly started to tinker with something called the central bank digital currency or, shortly, the CBDC. Even though the idea seems new, it dates back to 1987 when the Nobel laureate James Tobin proposed the concept of a "deposited currency", or "a medium with the convenience of deposits and the safety of currency", to enhance payments and reduce the reliance on deposit insurance. [1] It was only 16 years later that the first CBDC came into production. Then, it was the Avant card, a stored-value card created by the Bank of Finland in 1993 capable of offline payments using a custom-made card reader device. A similar attempt ensued two years later in the UK called Mondex. However, none ever caught on due to costs and the fact that debit and credit card networks had become more efficient. [2] [3]  Or, maybe the times haven't changed enough to accept these changes. The environment needed to be more mature. But before I continue, let me move one step back. To understand the CBDC, we must remind ourselves how the current payment system works. Central banks provide the monetary base – cash for individuals and CB deposits for banks –both often referred to as "public money". The private sector has its own payment solutions - cards or mobile banking apps issued against the deposits, called "private money".
1/ At this stage, I can see three different – but not mutually exclusive – objectives for digitalising central bank currency. The first relates to the desire, in countries such as Sweden where cash use is declining rapidly, to guarantee all citizens access to central bank money. A CBDC would help to preserve the trust in the financial system that stems in part from being able to exchange assets for legal tender. The second argument relates to the efficiency gains, reduced intermediation costs and resilience that would potentially result from the “tokenisation” of a central bank currency, especially in settlement and post-trade activities (which is also one of the objectives of JP Morgan’s JPM Coin project). The third and final reason – and the most important one for political authorities, including in France and Europe – is that creating a CBDC would give us a powerful lever with which to assert our sovereignty in the face of private-sector initiatives such as Libra. This is also one of the concerns highlighted by the People’s Bank of China with its Digital Currency Electronic Payment (DCEP) project. In this context, what form should our CBDC take? Public expectations on this differ significantly from those of financial institutions.

As a recent paper by IMF staff stresses, a branch model for internationalization may be cheaper than one based on subsidiaries. However, it may also be riskier, both for the host and the home markets. Although nobody expects that these banks will need to be liquidated, we have seen sufficient black swans in recent years to show us that we need to hope for the best but be prepared for the worst. And if liquidation were needed, a stand-alone subsidiary model would have important advantages over a branch model, especially if there is substantial deposit taking activity at the local level. I am not saying that the liquidation of a global bank organized through subsidiaries would be an easy task. What I mean is that it would be much easier than for global banks which are deeply interconnected across countries through branches. 2  BIS central bankers’ speeches  The stand-alone subsidiaries model has an additional advantage, from the perspective of the supervisor. It is far more symmetric for the local supervisor than the alternative model, allowing them to really supervise the institution. And as a home supervisor, if a foreign bank has a significant share of a domestic market, I would rather have the domestic supervisor deeply involved in the monitoring of that bank. Our experience has taught us that local supervisors usually have a deeper knowledge and more accurate information on developments in their home banking sectors than distant parent company supervisors.
These productivity gains – the result of innovation and adaptation – have been accompanied by rising average wages in manufacturing. Like the rest of the country, our job losses have been heavily concentrated in lower-skill positions, resulting in a leaner and more skilled manufacturing industry. The manufacturing sector and its structural job-wage dynamics are particularly important in upstate New York. Upstate (especially in its rural areas) manufacturing workers tend to earn higher wages than the average in their region, and the sector employs a larger share of the workforce there than it does nationally. 2  BIS Review 100/2010  Outlook How will the current recovery in manufacturing employment play out? Nationally, the growth in manufacturing output over the past year has occurred in a variety of industries, including autos, machinery, and computers and other electronic equipment. This growth reflects a combination of the restocking of inventories, domestic demand growth (particularly in investment goods), and higher exports. The concentration of these industries in parts of our region meant that those areas were poised to take advantage of this growth. The region has seen some increase in factory jobs in recent months, which undoubtedly reflects the expansion of production that has occurred nationally in these industries. A number of indicators suggest that the inventory cycle may be largely complete – that is, the recent restocking has brought inventories into a better balance with sales. If so, we will lose restocking as an impetus for growth.

First, when I read commentaries which go something like: “You wouldn’t believe how low Bank X’s modelled risk weights on, say, mortgages are”. I do note that the commentator can only observe the Pillar 1 capital requirement. They are not observing the judgmental overlay in in Pillar 2 which, as you can tell from the numbers I quoted, has gone up. The trouble is, this tends to suggest that Pillar 3 transparency is not working as it should do. This is all I am going to say today on models and RWAs, I will save that for another day. The second point on Pillar 2 is that, having built it up, we think that we can allow a relatively small part to be used to support the second objective of the FPC. Now, in terms of how we justify this, given the hierarchy of objectives that I described earlier, I believe that it is important to look at the interaction of resilience and lending as I set out. I think it is reasonable to conclude, and the FPC supported this action, that a reduction in the risk arising from this new lending caused by an improvement in credit conditions should help to offset the risk from lower capital buffers. In other words, if such extra lending boosts economic growth, it will enhance resilience in the financial system.
In recent months, there have been increasing evidence of strong gains, a rebound in the financial markets with renewed interest in emerging market, active capitalization by banks, and the reopening of wholesale funding markets. While the Malaysian financial system has fared relatively well throughout this global crisis and remaining financially sound, well capitalised and able to withstand the current challenging global financial environment, there are however, many lessons that we can learn from the current international financial crisis to ensure the sustainability of this resilience. The development of Islamic finance in Malaysia that operates in parallel with conventional finance for almost three decades now has demonstrated its sustainability as a form of financial intermediation. Today, the Islamic banking system has emerged as a vibrant financial system with Islamic banking assets currently accounting for 18.8% of the total banking assets of the Malaysian financial system. The product range has now expanded into an extensive range of innovative instruments while in the Islamic capital market, the sukuk market has surpassed the conventional market in terms of market share. An important aspect that has contributed to financial stability in the overall financial system is the conscious policy to develop a more diversified financial system that allows for the diversification of risks. Potential of Islamic finance in contributing to global financial stability This current global financial crisis has prompted a search for an enduring solution to ensure the stability of financial systems.

The bottom line is that the long-term sustainability of public debt should be ensured by credible but flexible fiscal rules. In parallel, we could maintain the possibility of responding to large shocks through a permanent common fiscal capacity; in this respect, the Next Generation EU package is a positive breakthrough, and could be made permanent, although with more limited amounts. A few days ago, Mario Draghi, speaking at the Italian Senate in his current capacity as Prime minister, rightly backed “an increasingly integrated European Union that will arrive at a common public budget capable of supporting countries in times of recession.” In addition, a fully-fledged capital markets union is more necessary than ever, in order to supplement public risk sharing with private risk sharing across the euro area. In conclusion, let me say a few words on chamber music. Many of you have already heard the famous Piano Trio Number 2 by Franz Schubert. The harmony of the three instruments has charmed generations of music lovers, including Stanley Kubrick in “Barry Lindon”. In this piece, none of the instruments should be the only game in its own town. And none of them should be dominated by any of the other two, otherwise the harmony is broken. Quite the contrary, we can hear each instrument and the beauty of the piece comes from the response of each instrument to the others. The same applies to the three macroeconomic policies: monetary, macroprudential and fiscal.