samchain/econo-pairs-v1 huggingface dataset:
Earlier in the program, we ended up purchasing a large concentration of off-the-run securities, including bonds that were issued 15 to 25 years ago. Given their age, these bonds are generally less liquid and less valuable to market participants, and hence dealers were willing to sell them to us at cheaper prices relative to other securities. At more recent operations, however, we have received a greater share of offers to sell more recently issued Treasury securities, including on-the-run issues, and our purchases have shifted accordingly. This suggests that older, off-the-run securities may have become harder for dealers to obtain, and that they have increasingly found it appealing to offer more recent issues, which are available in greater supply and are generally more liquid. Our procedure allows this shift to take place, as long as the more recent issues are offered to us on generally favorable terms. Overall, the Desk has endeavored to implement the FOMC’s policy decisions in a manner that ensures competitive and appropriate prices for the securities obtained and that maintains the efficient functioning of financial markets. I believe that we have managed to accomplish these objectives with our operations to date. Market developments during the purchase programs Of course, the operational objectives discussed above do not speak to the broader policy objectives of the asset purchase programs.

In November, the FOMC announced that it intended to expand the SOMA portfolio by purchasing an additional $ billion of longer-term Treasury securities through the end of the second quarter of 2011, bringing the intended level of domestic securities holdings to $ trillion. Those decisions were aimed at providing more monetary policy stimulus to the economy. The FOMC saw the additional stimulus as warranted because it viewed the progress toward its mandated objectives of full employment and price stability as disappointingly slow. 1 In effect, the Committee was using the size and composition of its balance sheet as a policy instrument, given that it had already employed its traditional means of easing monetary policy – decreasing short-term interest rates – to the fullest extent possible. Federal Reserve Chairman Bernanke has noted that the intention of asset purchases is similar to that associated with changes in short-term interest rates, in that they are meant to affect economic activity by influencing broader financial conditions. 2 But while the intention of the recent policy decisions may be similar to traditional monetary policy adjustments, the implementation of them is not. These policy decisions involve what are presumably some of the largest and most rapid portfolio adjustments that have ever taken place by any single financial market participant. To put it in perspective, note that these recent policy decisions involve the Federal Reserve purchasing, over an eight-month period, more Treasury securities than the amount currently held by the entire U.S. commercial banking system.
But systemic risk will depend on both the vulnerabilities that accumulate internally in the banking system and the sources of risk outside the banking system. The interest rate may only have a dampening effect on the build-up along some of these dimensions. In the March issue of the Monetary Policy Report, we wrote that the consideration of guarding against the risk of future financial imbalances that may disturb activity and inflation somewhat further ahead suggest that key policy rate should be increased in the near future. The consideration with regard to financial imbalances is thus part of the basis for setting the interest rate. At the same time, there are limits as to how many considerations the interest rate can bear. The interest rate also has effects on other assets prices, such as the krone exchange rate. A monetary policy that aims at bringing down the value of domestic assets can easily push the value of the krone in the opposite direction. In interest rate setting we can never lose sight of the primary objective of monetary policy, which is low and stable inflation. In assessing the different considerations, monetary policy must adhere to the operational mandate – low and stable inflation. Without results that show that the inflation target is actually attained over time, there is a risk that monetary policy will lose credibility. We therefore need more targeted instruments to dampen the build-up of risk in the financial system.

  Banks become dependent on optimal market functioning at all times and on the confidence of market participants. BIS central bankers’ speeches  1  If this process goes too far, an external shock could turn a situation of vulnerability into a crisis. This is what is referred to as systemic risk – the risk that shocks will weaken the functioning of the financial system, rendering it unable to provide funding, execute payments or redistribute risk effectively. Systemic risk can build up over time through a rapid rise in asset prices and debt and in the form of increasing interdependence among institutions. Or systemic risk can build up when many institutions are exposed to the same risk factor, for example on the funding side. Vulnerability also in Norway A financial crisis can be triggered by domestic conditions or it can be triggered by external factors. This time, the crisis came to Norway through external channels. International funding channels dried up, creating a liquidity crisis in the Norwegian banking sector. We can never fully insulate the financial system from shocks. But we can increase our resilience. One of the ways we can do this is by keeping our own house in order – by preventing major imbalances from building up in the economy or in the financial system, and by ensuring that the financial system in general is robust. We will then also be capable of withstanding disturbances generated by external conditions.
There are many other considerations and trade-offs, but let me wrap up by saying that to make sure we learn the right lessons from the experience of the last few years, we surely benefit from drawing on a wide range of perspectives, including those of academics, current and former central bankers, and market participants – people like you, who “live and breathe”  9  4  See, for example, V.V. Acharya and D. Skeie, “A Model of Liquidity Hoarding and Term Premia in Interbank Markets,” Journal of Monetary Economics 58, no. 5 (July 2011): 436–47. Proceedings of Normalizing Central Bank Practice in Light of the Credit Turmoil, Carnegie-Rochester Conference on Public Policy. BIS central bankers’ speeches  this somewhat technical topic. It is also valuable to share the findings more broadly to enhance discourse on the subject. I hope that you will be frank in your assessment of the things that worked well or did not work well in the Federal Reserve’s framework, and perhaps in other systems. There is much to learn from a robust discussion of our different experiences. These lessons will be an input into our thinking as we examine the long-run framework. BIS central bankers’ speeches  5

Under Basel  BIS Review 81/2005  1  II, standardized approach, it is possible that sovereign debt is assigned a risk weight between 0% to 150%, most likely 100% since it falls under unrated category. This means that banking system in Albania may have to increase capital allocation to comply with the minimum level of the capital adequacy ratio. An important intention of Basel II is to strengthen market discipline by developing a set of information disclosure requirements. In our countries there is plenty of room for improvement in this respect to allow market participants to assess key information on risk exposure, risk assessment process, and hence capital adequacy. This is important since it increases public pressure on banks to have a better performance in assessing and monitoring risk. However, in short run information disclosure might also have some adverse implication, say in Albania. Let me explain myself better on this issue. Public is usually more sensitive to bad news than positive developments. In countries like Albania, reactions between good or bad news are even more asymmetric than in mature market economies. Public in Albania is particularly over-reactive toward grim news on banking sector or on a certain bank while tend to ignore what falls in the positive side. This could be due to both historical factors, e.g. the crisis of financial system in 1997, and culture factors e.g. low level of bank business understanding, e.g. the overreaction of public to the introduction of the Deposit Insurance Law in 2002.
13  It may appear to be a problem that the lower repo-rate path gives a level of CPIF inflation of around 2.5 per cent at the end of the forecast period. The CPIF forecasts in these simulations in the Riksbank’s model Ramses have, however, been calculated under a standard assumption of a sustainable rate of unemployment of approximately 6.5 per cent, which I believe is too high. A lower sustainable unemployment rate gives lower inflationary pressures at the end of the forecast period and shifts down the CPIF forecasts somewhat, which would increase the advantage of the lower repo-rate path. 14  Ministry of Finance (2011). 8  BIS central bankers’ speeches  monetary policy can be improved by making the operational measures of inflation, resource utilisation and their stability more precise. For several reasons, I think that only one operational measure of inflation and only one operational measure of resource utilisation should be used. The inflation target is formulated in terms of the CPI, but I believe that the most appropriate operational measure of inflation is the CPIF. This would entail the stabilisation of the CPI in the slightly longer term. I also believe that the unemployment gap between the actual rate of unemployment and the sustainable rate of unemployment is the most appropriate measure of resource utilisation. Moreover, I believe that the mean squared gap is the most appropriate measure of the stability of inflation and resource utilisation.

The difficult thing about using the unemployment gap as an indicator of resource utilisation is to determine the sustainable rate of unemployment. However, this is not more difficult, in fact it is probably easier, than determining potential output and potential hours worked. On closer inspection, it can be seen that the sustainable rate of unemployment has several advantages compared to other measures of normal resource utilisation. The sustainable rate of unemployment can be expressed as a stable percentage – for example 5.5 or 6 per cent. It changes slowly and lies within a limited range. Estimating potential GDP is, in comparison, like shooting at a moving target. It grows over time, and in the view of many, can be seen as a random process, similar to a so-called random walk with drift. The sustainable rate of unemployment can be determined using several different methods – structural search models similar to those developed by the Nobel prize-winners Diamond, Mortensen and Pissarides, so-called UC-models, DSGE models and NAIRU estimates. The results of these different estimation methods can be compared and their robustness and reliability assessed. We can then calculate the average of the estimates and weight this with the assessed reliability of the various estimates. When estimating the sustainable rate of unemployment it is also important to include the assessed effects of labour-market reforms (Forslund 2008).
Chart 12 10-year euro area GDP-weighted sovereign bond spread versus euro OIS rate  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  8/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (percentages per annum)  Sources: Refinitiv and ECB calculations. Notes: Daily data. The latest observations are for 14 May 2020. This tightening of financial conditions represented a further headwind for the effectiveness of monetary policy. There was an evident risk of adverse liquidity spirals and an overshooting of asset price corrections in many markets, impeding the transmission of monetary policy and endangering financial stability. In the context of a monetary union, the absence of currency risk means that flight-to-safety dynamics have an intrinsic cross-border element, which primarily takes the form of reallocations across sovereign bond markets. In view of the central role of sovereign yields as benchmarks in pricing assets and setting lending rates, non-fundamental volatility in sovereign spreads impairs the transmission of monetary policy. In this context, the PEPP announcement acted as a stabilising force. The announcement of the PEPP has successfully halted the tightening in financial conditions and contributed to a partial reversal in the trend. The embedded flexibility of the PEPP, which allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions, has been a crucial element in fostering its effective market stabilisation function.

I hope to be up to the task of the legacy you are leaving us. My thanks, too, to the members of the Bank’s Executive Commission and Governing Council and, most particularly, to the Deputy Governor, Javier Alonso. Javier, your help and far-reaching knowledge of the Bank are making these first weeks in the job easier for me. But, above all, I should like to thank my colleagues over the course of the years. It would be impossible to list them all; many are here today. The career of a Banco España employee can only fully be understood through the prism of the numerous interactions and discussions between us, which are the bedrock on which we build our knowledge and our particular human capital. It is a privilege to be part of this environment and to participate in such an enriching process. Finally, the most singular thanks are for my family. Without them none of this would have been possible. Let me seize this opportunity to refer briefly to what should, in my view, be the two main objectives of the Banco de España at this juncture and which are related to our relevance and reputation. The first has to do with our insertion into the Eurosystem and into the Single Supervisory Mechanism. Some think this means that the Banco de España has an increasingly diminished role, given that the main functions linked to monetary policy and supervision of the financial system are decided in that framework.
Jaime Caruana: Basel II - emerging market perspectives Keynote remarks by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, for a panel discussion on “Basel II - Emerging Market Perspectives”, Bankers’ Conference 2004, New Delhi, 11 November 2004. *  *  *  Thank you, for your kind introduction and opening thoughts on the significance of the new capital framework in emerging market countries. I would like to thank as well the Indian Bankers Association and our host institution, Punjab National Bank, for inviting me to take part in your conference. It is an honour to be asked to share some of my thoughts on Basel II and its implications for a country such as India. I must confess that it is a still greater privilege for me to hear your thoughts directly on this new standard and the role it may play in a large, rapidly growing dynamic economy. A discussion on India adds the perspective of a country whose banking sector has been undergoing an important period of transition. The scale of that transformation is evident in the global aspirations that Indian banking organisations are now pursuing, as the title of this conference suggests. I would like to continue our discussion of Basel II first by discussing briefly why the Committee felt that the international capital standard needed to be revised and how Basel II addresses the Committee’s goals for it.

I am further informed that ATI has so far this year supported Zambian companies and businesses by offering insurance cover to some very large and essential projects primarily in the energy, mining, manufacturing and agriculture sectors valued at over $ million. The Agency has also continued to assist many African countries by facilitating foreign direct investments with its political risk insurance that protects investors. Ladies and Gentlemen, the role that trade plays in the economic growth and development of a Country cannot be emphasised. There are many regions and countries of the world that have been able to lift their peoples from poverty to prosperity through trade. However, although Africa in general and Zambia in particular has an economy which is characterized by a relatively high degree of openness, trade has not been utilized to an extent of achieving rapid and sustainable economic development necessary to eliminate poverty. This failure for trade to serve as a catalyst for sustainable economic development could be attributed in part to the nature of Africa’s export trade which is heavily concentrated on primary commodities that are characterized by relatively slow growth, price instability and long‐term deterioration of terms of trade. The need for African countries and Zambia in particular to participate in the dynamic sectors of global trade such as manufactures and services cannot be over-emphasised.
I shall explain why. The reason is that the foreign currency reserve needs to be much larger than before, as the banks’ funding in foreign currency has expanded so much over the past ten years. And this means that the traditional funding sources, equity and banknotes and coins, are not enough. How should the Riksbank fund its assets? As I have already described, the Riksbank chose to borrow foreign currency on the international capital market through the Swedish National Debt Office when the foreign currency reserve was strengthened. We assessed that this was the most suitable procedure at the time and it functioned well and is still doing so. Although the Riksbank is able to borrow euros and dollars at a low cost on the capital market through the National Debt Office, the interest expenditure for the currency loans is higher than the return the Riksbank receives on the money when it is invested in safe assets with very low risk. The difference is around 0.2 per cent. This means that the strengthening of the foreign currency reserve of SEK 200 billion costs the Riksbank around SEK 400 million a year. One can regard this cost as a form of insurance premium that the Riksbank considers is worth paying to ensure a good level of preparedness for a crisis. As the Swedish banking  4  See Peter Sellin and Virginia Queijo von Heideken: “The banking system’s liquidity surplus and interest rate formation” in Sveriges Riksbank Economic Review 2014:3.

In plain language, this means that the bank needs to have sufficient resources at its disposal to be able to carry out its tasks without being governed by subventions from the government. When the Riksbank carries out its tasks, this usually has consequences for the Riksbank’s balance sheet. Most of the instruments the Riksbank uses to steer the interest rate are also items on the balance sheet. The Riksbank currently steers the interest rate through its monopoly on supplying a payment system for transferring money between the banks (including the Riksbank) and above all by determining the conditions for this. It is mainly the conditions for the banks’ deposits and loans with the Riksbank that are used as an instrument to steer interest rates in the economy. Prior to the financial crisis, the transactions in the Riksbank’s different instruments were relatively small, but this changed during the financial crisis. Then we used our balance sheet to supply the banks with liquidity. Up to autumn 2008, the Riksbank’s balance sheet was around SEK 200 billion, but it increased dramatically during the crisis to at most SEK 763 billion in July 2009. The reason the balance sheet more than tripled was that the Riksbank began lending large amounts in US dollars and Swedish krona to the Swedish banks from October 2008. The dollar loans were largely funded by the Riksbank in its turn borrowing dollars from the Federal Reserve.
In that respect, I might mention, since we are in Stockholm and since I have drawn some parallel with the other Nordic Countries, that the Swedish krona fell in broadly similar proportions over a period of time after the exchange rate was floated in late 1992. The depreciation of the Icelandic króna fed into domestic prices and inflation picked up significantly. Late last year, the exchange rate had clearly overshot sharply on the downside. Then expectations turned around again. It was clear, among other things, that the economy was cooling down and that the current account deficit was shrinking fast. Optimism also arose once prospects improved that the inflation spike, which followed the exchange rate depreciation, would subside quickly again. The króna began to appreciate and has by now regained an important part of its earlier value. Inflation has subsided sharply again this year and expectations are that the inflation target of 2½ percent will be achieved before the end of the year. The large current account deficit recorded in the year 2000 also began to shrink rapidly, it fell by more than half in the year 2001 and the outlook is for approximate balance this year. These developments demonstrate the resilience and adaptability of the Icelandic economy; moving from a very large current account deficit to virtual balance in the course of two years and reducing inflation from bordering on a two-digit rate to 2½ percent within one year.

The importance of fisheries as a generator of foreign exchange revenue has diminished in relative terms - to less than a half of the total - while the importance of other sectors has risen, such as manufacturing industry, information technology and tourism. In these developments, Iceland is among other things drawing benefits from globalisation to strengthen the foundations of the economy. Foreign direct investment regulations are liberal with the exception that such investment is not permitted in the fishing sector. Foreign direct investment is most noticeable in power intensive industry, such as the production of aluminium, which is based on Iceland’s abundance of untapped renewable energy resources. Recent changes in corporate taxation in Iceland, lowering corporate taxes to among the lowest to be found, serve to attract foreign business to Iceland and encourage Icelandic companies with international operations to favour Iceland as the base of their operations. 2  BIS Review 51/2002  Direct investment by Icelandic companies abroad has risen rapidly in recent years and in a variety of areas, such as fisheries and fish processing, pharmaceuticals, retail commerce and financial services. These developments also benefit the Icelandic economy in the long run as they integrate Iceland further into the global economy, allow Iceland to draw more easily on the experience of others and bring in dividends.