samchain/econo-pairs-v1 huggingface dataset:
The challenges facing the European economy are considerable and set in an institutional context that has been disrupted by the “no” votes in the recently held French and Dutch referendums on the ratification of the Constitutional Treaty. The difficulties of entrenching growth that is sufficient and consistent with the European model and with the general public’s expectations may have influenced the disappointing results returned by these referendums. But this is something which is closely related to the difficulties at the national level in pushing through the necessary reforms and explaining them convincingly. The significance and implications of these results should not be underestimated. But they need not check European integration. Rather, they should act as a spur to further integration by means of European and national policies that respond to the demands of the public. In any event, European integration has not been a linear process in the past and I am fully confident that the European Union will be capable of overcoming these difficulties just as it always has when obstacles have stood in its way. On the plus side in the current circumstances is the fact that it has a currency shared by a large number of countries and a federally organised central bank which are a focal point of stability and exemplify Europeans’ ability to embark on and co-ordinate ambitious undertakings that contribute effectively to the collective well-being.

Thus in 2004 Spanish credit institutions again achieved very high levels of profitability, whether measured as growth on the previous year or as ROE, which was more than 14% higher than the average reported by their international competitors. The high business volumes, which more than offset the negative effects of low interest rates on net interest income, and the tight control over operating expenses, which enabled the efficiency ratio to be further improved, are the two basic factors behind this favourable performance. Moreover, business activity has been stepped up precisely through instruments that provide institutions with collateralised assets, specifically mortgage loans, which are characterised by lower default rates. Finally, this favourable earnings performance is also a result of the diversification of income sources, with significant growth of those associated with the provision of collection, payment and non-banking product services. Solvency remains at levels comfortably above the minimum regulatory requirements, although the strong growth of business, and therefore of capital requirements, meant that the bank solvency ratio decreased slightly in 2004 with respect to 2003. In the case of Spain, this solvency was strengthened by a rigorous bad debt provisioning policy. That said, the more optimistic and favourable the central scenario, the greater the need to pay careful attention to potential fragilities.
For example, argued Stack, they like to deliver something they regard as perfect straight away, and they do not like it when their boss finds fault with what they deliver and firmly believe is perfect from the very beginning. They are essentially very disciplined, and that is the gospel truth. As an American, Mr Stack had an unbiased view and a great eye and feel for this sort of thing. And he was in many aspects right and revealed what was hidden to many of us. I can confirm that these similarities between Czechs and Austrians are particularly visible in Central European and international teams. I have been reminded of them on many occasions. The last time was fairly recently, when we were negotiating the new position of our countries in the mighty International Monetary Fund with colleagues and friends from the Austrian central bank. This year we achieved an incredible outcome: Austria, the Czech Republic and Hungary will have the right to appoint an executive director – one of the 24 executive directors in the IMF – each country for a fixed term. As a group of Central European countries we will therefore have the same representation as far larger and more populous  BIS central bankers’ speeches  1  countries.

2 This line of reasoning was so widespread, propagated by the media (and not just the AngloSaxon media), that anyone making different choices was subject to criticism. The European Central Bank (ECB), which had refused to cut interest rates to the same level as the Federal Reserve, keeping them at 2% (compared with the Federal Reserve’s 1%), was for a long time the subject of criticism. 3 Not just academics, commentators and market analysts, but also Heads of State and Government were moved to call upon the ECB to ease monetary policy. It was as if the only criterion when deciding on interest rates were not the underlying economic conditions, from a medium-term perspective, but the need to act at all costs, in a single direction, in imitation of what had been done on the other side of the Atlantic. Some even called on the ECB to intervene in the exchange rate markets to establish parity between the euro and the dollar. If this had been done, the speculative bubble would have been larger and the effects of it bursting even more devastating, particularly for Europe. When the ECB decided in December 2005 to raise interest rates, it again met with a flood of criticism. Many observers thought that the decision would hinder economic recovery. 4 With hindsight, the policy followed by the ECB, with a more medium-term orientation, clearly turned out to be appropriate.
The second caveat is that central banks have been buying government bonds, which stimulate the economy by pushing down term premia and so longer-term real rates. But while QE has contributed to lower term premia and bond yields, much of the decline in the trend real rate pre-dates QE, and the crisis more generally, as both real expected policy rates and term premia fell. And it’s worth noting that the decline in long rates has also been seen in countries where there hasn’t been QE, such as Canada and Australia, although this in part probably reflects international financial market flows following falls in yields elsewhere. Finally, this analysis of the trend real rate does not consider the possibility that trend real rates can be moved around by long financial cycles and the impact of the associated leveraging and deleveraging on interest rates. These effects could well have acted to push up on trend real rates in the long buildup of leverage before the financial crisis and to have pushed down on rates during the protracted deleveraging that followed the bust. Some of these effects will be shorter lived and are best thought of as part of the natural rate cycle to which I will return in a moment. But to the extent that these effects are longer lived they may well have pushed down the trend real rate. And of course there is a broader caveat here.

The impact of the depreciation of sterling on future inflation has increased the salience of such a trade-off for the MPC. As the Committee has made clear, there are limits to the extent to which above-target inflation can be tolerated. These limits depend inter alia on what is driving the inflation overshoot, on the impact on inflation expectations and on the scale of the output gap. The exchange rate shock has made it more difficult for policy to follow the natural rate. And finally, I have discussed the implications of a low natural rate and low real trend rate for central banks. But the implications of course go much wider than that. A secular period of very low underlying interest rates would pose many challenges. If, as I have suggested, the forces pushing down on interest rates might be less cyclical than we had thought and more secular, authorities with a longer policy horizon and with instruments more enduring in impact than monetary policy are best placed to address such challenges. A key and well recognised challenge in this respect is to raise the growth rate of productivity in advanced economies which will in turn raise the return on investment and hence the trend real rate of interest. Another might be to address the imbalance in the supply of savings and the demand for investment that appears to have pushed the trend real rate down.
Clarity of responsibility is I hope unobjectionable. But this is not clarity in the sense of facilitating witch hunts. Rather, I see clarity as an appropriate allocation of responsibility, as important to creating the right incentives for behaviour and leadership, and of course in areas like remuneration. In the Senior Managers Regime, responsibility at the highest level covers both executives and non-executives. But, of course, they are different and always will be. There is much commentary, that the response to the crisis has muddied the responsibilities of executives and non-executives, with the burden on the latter increasing. I think there is no doubt that a greater formality is emerging around roles and responsibilities, and I’m afraid the burden of work for non-executives has risen, we can’t hide from that. An effective board is at the heart of good governance, ensuring that the appropriate policies are in place in respect of safety and soundness and good conduct. We at the PRA have a strong interest in supporting good governance and the work of board members to deliver it. An effective board is one which understands the business, establishes a clear strategy, articulates a clear risk appetite to support that strategy, oversees an effective risk control framework, and collectively has the skills, the experience and the confidence to hold executive management rigorously to account for delivering that strategy and managing within that risk appetite.

We are watching again very carefully, and I can assure you that as prudential regulator we want to see sensible outcomes that balance the objectives of all parties and ensure that we maintain a stable financial system that can support the activity of today’s customers. Nobody wants to see a world where ex-post enforcement weakens the capacity to support economic activity, and that means we must return as soon as possible to a world where the emphasis is on strong risk management, governance and forward-looking supervision. This review of risks covers much of our work programme for the year. Two other points I would note. First, we are reviewing the Sourcebook which since the beginning of April has been called a Supervisory Statement. The Sourcebook was first introduced in 2010 as a response to the crisis. We will consult on changes later this year and have already had two very useful pre-consultation meetings with the BSA and a number of societies. Let me assure you that this review is not the beginning of a major agenda to change how we supervise societies. Rather, a lot has happened since 2010, and we think a stocktake is in order. Second, recovery and resolution is an important focus of activity following the enactment of the EU Directive (the BRRD). Our objective is to ensure that orderly resolution is possible should it be needed, and thus to support our general approach that we are not a regulator that adopts a policy of no failures.
This means buying assets or accepting collateral with higher levels of risk than those normally found on their balance sheets. Traditionally, central banks have preferred highly liquid and short-term investments, choices that have been clearly visible in the way international reserves are usually invested. Accordingly, from the standpoint of balance sheet risk management, central banks today face great challenges. This has created the need to develop tools and strategies that allow them to manage larger balance sheets and, therefore, higher absolute risks; all this in a context of less liquid financial markets and higher levels of volatility and credit risk. This fourth meeting has been organized bearing in mind these circumstances, and with the purpose in mind of giving continuity to the fruitful experiences of the previous ones. This meeting will open with a general framework of central banks' financial management, and will then address key risk-management considerations when designing and managing a strategic asset allocation model. The focus will be on (i) how central banks define their objectives, constraints and risk tolerance criteria when managing a strategic asset allocation framework, (ii) how portfolio optimization methods  2/3  BIS - Central bankers' speeches  can incorporate risk management considerations, and (iii) what are the guiding rules and organizational aspects of such strategic asset allocation within the risk management framework.

Thirdly, with Asia’s relatively strong economic growth and favourable demographics, investible assets from the institutional and private wealth segments are set to grow. In a 2011 report published by Cerulli Associates, institutional investable assets from Asia ex-Japan are expected to triple from $ trillion in 2006 to $ trillion by 2015. Total wealth from the private wealth segment is also expected to increase. In its recent Wealth Report, 6 Julius Baer expects the number of high net worth individuals in Asia to more than double over the  4  Risk Roadmap: Hedge Funds and Investors’ Evolving Approach to Risk (2012). 5  IMF: World Economic Outlook, October 2012. 6  Julius Baer Wealth Report 2012. 2  BIS central bankers’ speeches  next three years to almost 3 million. As Asia grows in wealth, there will be more capital requiring active and customised fund management expertise to take advantage of the investment opportunities in Asia. Asia’s strong fundamentals will support the valuations of Asian assets, which will draw a growing interest from institutional investors around the world looking to diversify and generate returns. According to Preqin, 7 46% of Asia-Pacific hedge fund investors intend to invest opportunistically in Asia-Pacific hedge funds, whilst 31% of Asia-Pacific hedge fund investors are looking to increase their longer-term allocations to Asia-Pacific. Deutsche Bank also noted in its 2012 Alternative Investment Survey that North America and Asia are currently the most sought after investment regions, with investors planning to allocate approximately 26% of assets to Asia.
Yet another ‘G’ - the G20 - is in the process of being established. Hong Kong’s significant voice on the subject means that some of us have to be travelling and attending international meetings all the time. Yet our extensive involvement is necessary if the plight of the small open markets, particularly those that are international financial centres, is to be adequately heard and taken into account in the reform of the international financial architecture. BIS Review 120/1999  4  International reform Our stance in these discussions is that we support the free flow of international capital but that there is a need to limit its destabilising influence on financial markets, particularly those in small open economies. And specifically we point to the two interrelated aspects of excessive volatility and inadequate transparency that need to be addressed. Volatility is largely the result of herding behaviour, which is in turn the result of the lack of information on which market participants can make rational decisions. All this is made a lot worse when, because of the lack of market information, particularly in the case of the over-the-counter markets, market concentration develops, whether consciously or unconsciously. And market concentration has a tendency to lead to market failure and possibly market manipulation. The international solutions we put forward, therefore, are greater disclosure and, where applicable and practicable, enhanced regulation. It is in our reference to market manipulation that I think we touched a few raw nerves, particularly against the background of the controversial action we took last summer.

Figure 4 Domestic market rates in $ and CLP (1) (percent) 14  14  12  12  10  10  8  8  6  6  4  4  2  2  0  0  Jan.08  Jul.08  Jan.09  Time deposits $ (2)  Jul.09  Jan.10  Jul.10  Jan.11  Libor + spread on-shore $  (1) 90 days. (2) Traded on the Chilean Stock Market. Sources: Central Bank of Chile and Bloomberg. BIS central bankers’ speeches  7  Figure 5 Gross domestic product (percent) 9  9  6  6  3  3  0  0  -3  -3  -6  -6  03  04  05  06  07  08  Annual change  09  10  Quarterly change (*)  (*) Seasonally-adjusted series. Source: Central Bank of Chile. Figure 6 Monetary Policy Rate and expectations (percent) 9 8 7 6 5 4 3 2 1 0  07  08  09  10  11  Forward MP Report Dec.10  FOS 1H Dec.10  Forward 11. Jan.11  MPR  EES Jan.11  12  13  9 8 7 6 5 4 3 2 1 0  FOS 1H Jan.11  Source: Central Bank of Chile.
In that context, both the ECB and the SNB conduct a careful analysis of monetary aggregates partly in an effort to assess the risks of long-term financial imbalances. Moreover, acknowledging the monetary source of long-term inflation helps avoid the build-up of excess liquidity in the first place. In closing, let me therefore repeat that the Fischer et al. paper could benefit from focusing more extensively on the admittedly complex but nonetheless important link between money, asset prices and long-term inflation perspectives. In the  4  For example, Nelson (2003) argues that movements in monetary aggregates provide useful indications regarding different yields usually not incorporated in economic models  5  Baltensperger, Jordan and Savioz (2001), Jordan, Peytrignet and Rich (2001)  6  Reynard (2006)  7  For example, Issing (2002) provides evidence of a close relationship between excess money growth and real asset prices, a relationship that does not appear by looking at a standard Taylor rule as a measure of monetary policy stance. Similarly, Friedman (2005) showed that pre- and post-financial market crash evolutions of stock prices and gross domestic products were strongly related to the pre- and post-market crash evolutions of monetary aggregates. White (2006) pointed to the need of pushing further the frontiers of economic research in the direction of incorporating financial variables to assess longer-term macroeconomic developments.

The stress tests of the banking sector against unfavourable potential developments – economic and financial ones – indicate that the banking system is capable of coping with them. Banking activity performance during this period has reflected the overall performance of the economy. During the last two years, albeit a negative output gap, the country’s economy has continued its positive growth in the range of 3.5–4.5 per cent. Other macroeconomic indicators have ranged within admissible and expectable values. We believe that this financial and macroeconomic stability reflects the commitment and coordination of core economic policies, the monetary and fiscal policies, over the time. They will continue to support the solid economic growth further on, in light of the world’s economy resurgence. Dear participants, ladies and gentlemen, The world’s financial system faced an extraordinary crisis. Equally extraordinary were the measures that were taken. Naturally, its effects will continue to be present in the global economy, while decisionmakers, experts and scholars will continue to analyse the causes and lessons that may be drawn from it. Taking advantage of being present in this panel of supervisors, I would like to list some of our conclusions:   Macroprudential supervision policies constitute an essential argument of recent discussions. The role of the central bank is a part of them, especially in terms of its  2  BIS central bankers’ speeches  preventive role.
A useful framework for thinking about the determinants of technological diffusion has been provided by economists Diego Comin and Marti Mestieri. 25  Drawing on evidence from a wide range of countries and  technologies over many centuries, they highlight four structural factors which are crucial for technological trickle-down within and across economies. I shall consider the UK evidence on each in turn. (a)  External Openness  Over recent decades, globalisation has resulted in secular rises in cross-borders flows of good and services, capital, people and information. One of the key potential benefits of this sweeping globalisation and 19  Cornell University, INSEAD and WIPO (2017). Which currently stands at 12th, but just you wait… 21 Between 2013 and 2017, the UK fell from 18th to 38th in the global ranking for knowledge diffusion. Since 2012, England have fallen from 6th to 12th in the FIFA world rankings. 22 Department for Business, Energy & Industrial Strategy (2017). 23 Department for Business, Energy & Industrial Strategy (2017). According to Rhodes (2017), the UK is estimated to have had 5.7 million private sector businesses. 24 European Commission (2018). 25 Comin and Mestieri (2013). We use a slight variant of Comin and Mestieri’s organising framework. For example, we do not consider the influence of demand expectations on innovation and diffusion - a shorter-term cyclical factor affecting firms’ investment plans and capital-deepening. Tenreyro (2018) discusses the contribution of reduced capital-deepening to the UK’s post-crisis productivity performance.

Cross-border flows of goods and services, money, people and especially information have all risen to their highest levels, in some cases, ever. Yet at the same time, levels of productivity across countries have tended to diverge. So too, as a result, have levels of GDP per head. Technological trickle-down and GDP catch-up has gone into reverse gear at the same time external openness has switched up a gear. How do we explain this? (b)  Technology Transfer  To begin doing so, it is useful to recognise that two distinct forces are at work when technology is transferring across countries or companies. 31  First, there is technological adoption – the time it takes a new technology  to first reach a country or company. Second, there is technological penetration – the extent to which technology then reshapes processes and products in a company or country. 32  Economists often refer to the first of these as the extensive margin, the second as the intensive margin. In principle, we might expect these two aspects of technology transfer to move in lockstep. The two dimensions to diffusion should be complementary. In practice, international evidence seems to suggest a puzzling divergence in the two dimensions of technology transfer across countries. Average adoption lags for new technologies have tended to fall over time, consistent with rising cross-border flows of ideas, capital, goods and services and people.