samchain/econo-pairs-v1 huggingface dataset:
Building on the paper’s analysis of the Fed’s Reverse Repo Facility (RRP), I will make the case that central banks are now more proactive in: the influencing of market rates; the provision of liquidity insurance, and the design of market infrastructure. Finally, I’d like to say a few words about pass-through beyond the money markets. As interest rates decline toward zero, it becomes more difficult for banks to pass through changes in policy rates to those rates faced by households and businesses – hampering the transmission of monetary policy. The Term Funding Scheme is designed to mitigate this impact, and hence re-inforce pass-through to the real economy. So I’ll end by briefly outlining how that works. BIS central bankers’ speeches  1  The impact of regulation on money market function Let me start with the impact of regulation on money market function. Darell and Arvind’s analysis of the dispersion of money market rates offers evidence of the impact of regulation on behaviour and pricing. Their index of money market rate dispersion has risen since the introduction of the Supplementary Leverage Ratio, and has a tendency to increase around key regulatory reporting dates (Chart 1). It is difficult to dispute the idea that regulation has had an impact on how markets function globally. The decline in repo market activity has actually been larger in the UK than in the US and is around 20% below its 2013 level (Chart 2).

This process of reducing unintended consequences is made easier by close co-ordination of different policymakers, which at the Bank of England is facilitated by having monetary, macro- and micro-prudential policy all under one roof. The role of central banks in money markets Let me turn to the role of central banks as a participant in money markets. Just as private market participants have grappled with new challenges in the post-crisis world, so too have central banks. And we have responded in three ways. First, we have become more flexible in the way we implement changes in the policy rate. The frameworks we use to influence market rates need to recognise the fact that there are a lot more reserves in the system than before, and that regulation has reduced the incentive to arbitrage small differences in money market rates. As the paper sets out, the Fed’s RRP is a good example of adapting to this new reality. The facility improves pass-through efficiency by offering a risk-free asset to a broad range of counterparties that extends beyond banks, thus strengthening the floor on money market rates more generally. The counterpart to this facility in the UK is our ability to issue Bank of England bills, though thus far we haven’t had the need to do so: since we began paying Bank Rate on all reserves in 2009 the wedge between overnight unsecured money market rates and Bank rate has averaged 4bps, and the standard deviation also been 4bps (Chart 6).
Even now, four or five months into recovery, recession is out-Googling recovery by a factor of 15 to one, above its pre-Covid level. The prevailing popular narrative on the economy has remained recessionary. Chart 5: Ratio of Google Trends topic searches for the term recession vs economic recovery  Ratio of searches for recession:economic recovery  Economic growth  200 Monthly GDP  Q2 GDP  released showing growth  release  180 160 140 120 100 80 60 40 20 0  Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20  Jul-20 Aug-20  Source: Google Trends  A particularly revealing episode is associated with the notable spike in the pessimism ratio on the 12 August. This was when the Office for National Statistics published second quarter GDP figures for the UK. These showed a huge fall of over 20% in GDP, the largest quarterly fall on record by far. This, understandably, was one of the top three new stories on the day. Here are some of the headlines that accompanied it:  8  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  8  Yet the irony is that the only news in this release was GDP growth for the month of June, the final month of the quarter. This saw an almost 9% rise in activity, by far the largest rise in any month ever and above market expectations. Yet negative media headlines outnumbered positives by many multiples. Positive economic news was media-filtered into an extreme negative event.

A central authority and a national repository can significantly improve the ability to better distribute, monitor and manage the supply-demand imbalances. Developing a thriving rental market should also be on the agenda to temper the nation’s fixation on home ownership. Another issue that banks should be concerned with is the sizable surplus in commercial property. In contrast to affordable housing, the office and retail markets are in oversupply. In 2016, the vacancy rate for prime office space in the Klang Valley stood at 21.8%, outstripping the regional average of 6.2%1. Monthly rentals of prime office space in Kuala Lumpur are the lowest among regional cities. Over the next few years, the significant incoming supply of large projects is likely to aggravate supply conditions in this segment. Signs of oversupply are also emerging in the retail segment in major urban centres in Malaysia. This can be traced to the abundance of shopping malls. You may be surprised to learn that there are as many as twenty shopping malls just along the 40km stretch of the LDP highway. It is equally astonishing that the prime retail space per capita in cities like Johor, Penang and Kuala Lumpur is actually higher than regional megacities such as Shanghai and Beijing, and also higher income cities such as Singapore and Hong Kong. A significant increase in vacancy rates, and the ensuing price corrections, are risks that the Bank has highlighted as far back as 2013.
So to avoid such an outcome, they may decide not to invest in the first place. These self-protective reactions on the part of the clearing banks and the investors can cause the tri-party funding mechanism to rapidly unravel. This dynamic explains the speed with which Bear Stearns lost funding as tri-party repo investors pulled away quickly. Despite the strains created by the collapse of Bear Stearns, the “rivets” of the tri-party repo system held for several reasons. First, Bear Sterns did not fail; instead it was acquired by JPMorgan Chase with assistance from the Federal Reserve. Second, the Federal Reserve stepped in to support the tri-party repo system by implementing the Primary Dealer Credit Facility (PDCF). The PDCF essentially placed the Fed in the role of the tri-party repo investor of last resort thereby significantly reducing the risk to the clearing banks that they might be stuck with the collateral. As a consequence, the PDCF reassured end investors that they could safely keep investing.

Indeed, the notable reduction in business activity further to the restrictions associated with the state of alert prompted a much sharper decline in non-financial corporations’ operating revenue than that in the payments they must meet. The latest Central Balance Sheet Data Office figures give an idea of the severity of this shock to firms’ liquidity. There was a strongly adverse impact on these agents’ profits already in Q1, despite the fact that the sharp contractions in activity and operating revenue associated with the declaration of the state of alert only affected the last two weeks of this quarter. The reduction in the return on assets for the overall sample of firms was so significant that it pushed ROA below the cost of borrowing, a development not seen since 2014. The information on bank lending shows firms resorting to this source of financing to cover a large portion of these liquidity requirements. Specifically, the outstanding balance of bank financing granted to Spanish non-financial corporations rose to 8.7% in May after having shrunk by 1.1% year-on-year in February. And the preliminary data for June would suggest that this trajectory has been holding in the most recent period. Yet for financial institutions to have been able to meet such a notable increase in firms’ applications for credit, the contribution of the support measures launched at both the European and national levels has been decisive.
There were eventually enormous information problems in assessing the risks of extremely complex asset-backed securities, and there was a huge underestimation of the potential for correlated systemic risks. None of these causes had anything to do with monetary policy, except that monetary policy may have contributed to the Great Moderation. Regarding the role of Federal Reserve monetary policy in the crisis, there are two relevant questions. First, was the low interest rate reasonable given the information available at the time? Second, could a different monetary policy with higher interest rates have prevented the crisis? The first question, whether the low interest rate was reasonable given the available information, is the relevant one when evaluating monetary policy. It is more relevant to evaluate policy taking into account the information available ex ante to the policymaker rather than information ex post that was unknown to the policymaker at the time (see Svensson, 2009a, on evaluating monetary policy ex ante and ex post). 7 During the period in question, given the information available, there was a genuine and well-motivated fear of the U.S. falling into a Japanese-style deflationary liquidity trap, and the optimal policy in such a situation is a very expansionary monetary policy. 8 It may be that, in retrospect, the risk of deflation was exaggerated, but there was no way to know this ex ante. Hence, I consider the expansionary policy very appropriate. Adding some ex post evaluation, one can note that it did not lead ex post to very high inflation or an overheated economy.

Andrew Bailey: Bank capital – debating again Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at Barclays’ 2016 Financial Conference, London, 9 March 2016. *  *  *  Bank capital has been in the news again recently, or at least parts of the news – there are some other things going on. There are probably two reasons for this “news”: first, because we have entered another phase of highly uncertain conditions in financial markets, which has had a strong impact on the market value of banks; and second, as authorities we are pushing on with implementing the post-crisis reforms to capital standards, and in doing so we have reached a point where some of the important building blocks are now being put into place. Today, I am going to reflect on and draw some conclusions for what I would call the bigger picture, namely what sort of banking system are we seeking to create, what are we not doing, and why not. I will draw on the detail, and there is no shortage of that, but this is not a talk about the detail of bank capital, you can find that in plenty of other places. Another objective is to tackle some urban myths of today.
Within the framework of its supervisory and oversight functions over the insurance sector, SAMA considered many files of insurance companies. By the end of 2013, SAMA licensed 35 insurance and reinsurance companies. Besides, SAMA approved 194 offices to provide insurance related services. SAMA issued a number of regulations and rules to regulate the activities of the financing sector in the Kingdom, improve its services, promote governance and transparency, protect the rights of its beneficiaries and create a competitive environment to contribute to provision of better financing services to meet the needs of the market and beneficiaries at competitive prices. Up to the end of July 2014, SAMA licensed 12 banks and 4 companies to conduct the activity of real estate finance and financial leasing, and 4 companies to carry out other  BIS central bankers’ speeches  1  financing activities. SAMA also granted initial approvals on 11 applications for licensing pending the completion of the legal requirements of the Ministry of Commerce and Industry. At the international level, the Kingdom holds a prominent position. It is an active member of the G20 since its establishment and of several international financial organizations. SAMA represents the Kingdom in a number of international forums and institutions, such as the Bank for International Settlements, the Financial Stability Board, Basel Committee, the International Association of Insurance Supervisors, the Islamic Financial Services Board and the Gulf Monetary Council. Currently, SAMA is participating in more than 25 committees, working groups and sub-committees in international commissions and organizations.

It would boost the incomes of those in employment and is an essential part of improving the UK’s competitiveness. Moreover, in such a scenario, you would know to expect interest rates to stay lower for longer, encouraging household spending and business investment. Our forward guidance is a stabiliser – securing the scale and duration of recovery that is needed to bring unemployment down. The prospect that interest rates might stay at their low level for longer will not be welcome for savers. I have tremendous sympathy for them – after all they have done the right thing, set money aside, and now they are earning returns that are substantially below what they would have expected. But raising interest rates now is not the answer – instead what savers need is a stronger economy. That will mean higher asset prices, and will allow interest rates to return to normal levels in a sustainable way. A strong economy is in all of our interests, as it will deliver better job prospects for our friends, neighbours, children and grandchildren. The last thing savers want is for the UK to follow Japan by raising interest rates before recovery is secured, only to find that we are condemned to decades more of low interest rates and lost opportunities. Our forward guidance is about setting the path of inflation to return to target Let me reassure you that our mandate to deliver price stability has not changed. Our inflation target of 2% was reconfirmed in our remit from the Chancellor in March.
In the area of monetary policy, central bank independence  5  Cf. Summers (2007). 6  Cf. IMF (2008). 7  Cf. Feld and Kirchgässner (2008) and Poterba (1994). 4  BIS central bankers’ speeches  plays an important role. It has been empirically demonstrated that a higher degree of independence goes hand in hand with lower inflation rates. 8 To retain its independence, the central bank must show good performance, and acquire credibility and respect. This is the only way to make politicians and the public acknowledge the value of independence. Tension during a crisis The financial and economic crisis provided an impressive demonstration of how important it is for fiscal and monetary policy to remain focused on their mandate and on sustainability. If public finances are already running a high level of indebtedness in good times, fiscal policy’s room for manoeuvre will be severely curtailed (or very quickly used up) in a crisis. In this situation, the central bank faces growing pressure from both politicians and the public to stimulate the economy with monetary policy measures. 9 If the central bank gives in to this pressure, it endangers its own independence and thereby its credibility. With an unsustainable fiscal policy, a stable monetary policy is no longer possible over the long term, even if the central bank is independent and not under pressure to stabilise the economy. A glance at economic history shows that high inflation rates have very often been accompanied by high levels of public debt.

That may be asking a lot, especially if the secular stagnation hypothesis is to be believed. Indeed, as I pointed out in a recent speech in Berkeley, export-led strategies risk a fallacy of composition: they may be relevant for one economy, but in the aggregate they risk leading the global economy into a high saving, low real interest rate trap. It is vital that all major economic areas contribute to global growth to avoid a descent into beggar-thy-neighbour policies.15 The alternative risk is that, if adjustment in the euro area is too asymmetric, it may ultimately stall in crisis-hit countries. Pre-crisis imbalances would then not be fully reversed. That might contribute to a reduction in the euro area current account surplus, but at the cost of creating new risks down the line. That is neither in the interest of the euro area nor the global economy. Conclusion Let me conclude. Euro area countries have made substantial progress with rebalancing in recent years. But many still have a way to go to make rebalancing sustainable. Doing so is not only essential for their own stability and growth. It is also key to creating the conditions for completing monetary union in a way that will prevent imbalances from emerging again. The full potential of using the Macroeconomic Imbalance Procedure to strengthen euro area surveillance has so far not been realised, neither for preventing nor for correcting imbalances.
In the absence of a conceptual framework, EME central banks facing large capital flows have had to experiment with the tools at their disposal – such as foreign exchange intervention, macroprudential policies, and capital flow management measures. There is now a rich body of policy experiences, especially in emerging Asia, crying for a theoretical framework. We need a framework that provides coherence not only across these various policy tools but also with traditional monetary and fiscal policies. There is an active research agenda at the BIS on such an integrated policy framework. As a practitioner of some of these policies, MAS is delighted and honoured to organise this conference together with the BIS. What is the Big Deal with Capital Flows? When central bankers from advanced economies meet, they discuss quantitative easing and r-star (the natural rate of interest). When EME central bankers meet, they talk about capital flows. What’s the big deal with capital flows? First, capital flows to EMEs have become quite large. Annual gross portfolio inflows have grown to an average 1.3% of EMEs’ GDP in the eight years following the global financial crisis, compared to an average 0.7% during the eight years prior. [1] A key driver of the surge in cross-border capital flows has been the prolonged period of nearzero interest rates and highly expansionary monetary policies in the advanced economies. There is empirical evidence that quantitative easing policies in the US have made capital flows to EMEs more procyclical [2] . Second, capital flows have become more volatile.

Moreover, the first round impacts of the recent hikes in end-user electricity and natural gas prices on end-2008 inflation are expected to be around 0.6 percentage points, which is higher than what we assumed in the previous Inflation Report. Meanwhile, considering the lagged impacts of last year’s drought and elevated prices of agricultural commodities in global markets, we now envisage that the price increases in processed food will persist for a while and the inflation in this item will stay at relatively high levels throughout 2008, albeit a slight decline. Upside revisions on the assumptions for food and energy inflation imply that it may take longer to bring headline inflation to 4 percent than envisaged in our previous Inflation Report. Therefore, in the absence of a significant correction in food inflation, headline inflation will most probably exceed the target level of 4 percent at the end of 2008. Forecast Range*  Medium-term Target  Uncertainty Band for 2008  Output Gap  2009-  2009-III  2009-II  2009-I  2008-  2008-III  2008-II  2008-I  2007-  12 10 8 6 4 2 0 -2 -4 -6 2007-III  Percent  Figure 15: Forecasts for Inflation and Output Gap  *The shaded region indicates the 70 percent confidence interval for forecast.
But since 1970, real gross private capital flows have risen by a factor of more than eight double the growth in world trade and four times the growth in world income. Rising capital flows have delivered huge benefits to the developing countries. Capital liberalisation, like trade liberalisation, has facilitated “catch-up” in the levels of income of these countries. It delivers a permanent, and potentially huge, welfare gain. The experience of the Asian tigers from the 1970s onwards, and before that of Germany and Japan during the 1950s and 1960s, is testimony to that. But large-scale capital flows also bring risks. Capital flows are not just large, but volatile too. The financial crises in Mexico in 1994, across South-East Asia in 1997, in Russia in 1998 and in Brazil last year are the most recent and visible examples. But the incidence of financial crisis has in fact been rising since the early 1980s. And the cost of financial crises are considerable. In the stricken South-East Asian countries, capital flow reversals and output losses were anywhere between 5% and 20% of GDP. In many of these cases, there has been encouraging evidence of a V-shaped recovery in output and asset prices following crisis. But the depth of the V is clear evidence of the potential cost of volatile capital movements. Capital markets have of course been prone to “panics, manias and crashes” for as long as they have existed.

But for those that fall within the mandate of the Basel Committee, we believe that the ideas produced by Basel Committee thinking – translated into the Basel III reforms, and subsequently endorsed by the G20 and Financial Stability Board – provide a substantial foundation on which the banking system can be rebuilt to be much more robust and resilient in the future. Basel III capital requirements are probably well known to all of you, so I do not propose to say much more about them today. What I would instead like to focus on is our thinking in relation to liquidity, and particularly the LCR. As an idea, it is simple: a bank should have enough liquid assets to survive a 30-day period of stress. And perhaps to some, it might seem underwhelming. If you tell your spouse that we have implemented a reform that requires banks to have enough cash to last 30 days, more than likely you will get the same response I did when I tried to explain it to my wife: “what do you mean, only 30 days?” Yet this idea has been one of the most fundamental reforms of the crisis. It also is a classic example of an idea that had been toyed with for a long time, but took a crisis to bring to fruition. A study of Basel Committee history shows liquidity to have been on the agenda almost for the entire existence of the Committee, but we have never come close to an international standard.