samchain/econo-pairs-v1 huggingface dataset:
David Clementi: Maintaining financial stability in a rapidly changing world some threats and opportunities Speech by Mr David Clementi, Deputy Governor of the Bank of England, at the launch of the Oxford Centre for Computational Finance, University of Oxford, 10 October 2001. *  *  *  Introduction It is a great pleasure to be here this evening, and to be part of the launch of the Oxford Centre for Computational Finance. Responding to new types of risk demands an increasingly sophisticated combination of technology and intellectual thought, and I can think of few places as well suited to this exciting and challenging task as Oxford. As an honorary Fellow at Lincoln College, I know that the drive for excellence remains as high as ever, and I have to say that I look back at my time here as an undergraduate with great affection. That was some time ago, of course - back in the 1960s, when a photocopier or calculator was pretty high tech - and if you knew the current prices of equities on the exchange you had a five minute information jump on most of the market. The world today of course is much more complex and the risks correspondingly more difficult to analyse. What I'd like to do tonight is to cover three main topics. First, I want to explain the Bank of England's role in financial stability issues, and discuss some of the threats to that stability which have emerged recently.

We believe, rightly, that the banks entrusted with our life savings are prudent. When we transfer money, we don’t worry about whether the payment system will get the funds to where we want them to go. We also expect that the currency we hold will be stable – and that we will not wake up one day to find that our purchasing power has been eroded overnight. 1/4  BIS central bankers' speeches  9. In Hong Kong, you and I expect all of this to run like clockwork. And it does. But it’s only when the smooth operation of our monetary and banking systems is put under test by severe external shocks that we will see a reflection of true resilience. 10. We all know the challenges Hong Kong has faced over the past year, including social events, COVID-19, and the China-US tensions. Despite all these challenges for our economy, Hong Kong’s financial system has remained remarkably stable. 11. The value of the Hong Kong dollar has stayed close to the strong side of its trading band for most of this year. There have been strong inflows to the local currency, partly because of substantial demand for Hong Kong equities, including some large IPOs, and partly because of the very strong market confidence in the Linked Exchange Rate System. 12. There have been talks about capital flowing out of Hong Kong, especially during the peak of the social events last year.
36 If the financial markets come to the view that the investment risk premium for American debt securities has increased, the outflow of capital from this market – or even decreased capital inflows – may lead to a fall in bond prices, i.e. to a sharp increase in long-term interest rates, a slowdown on the housing market, depreciation of the dollar and, as a result, stagnation or even recession, which may be observed globally. In order to mitigate the probability of such a scenario, structural reforms should be implemented in many countries. The US should substantially reduce its budget deficit and – via a reform of the pension system and the healthcare system – increase the household savings rate. In the EU and Japan a series of structural reforms should be accelerated to raise the flexibility and competitiveness of the labour market and the market of goods and services. In the Asian countries, and first of all in China, the exchange rate regime needs to be made more flexible, which should be preceded by the reforms that would strengthen the financial system, also via a greater openness to foreign capital inflows. At present, it is difficult to assess the likelihood of the scenario involving a serious slowdown in the global growth; nevertheless, implementation of necessary reforms proceeds slowly. Should monetary policy take into account speculative bubbles? The globalization process is a great challenge for central banks and financial market regulators.

12  BIS Review 60/2006  The hypothesis of the existence of an informal Breton Woods 2 says that a system has been established in which it is profitable for the Asian countries to finance the US current account deficit, because it enables them to increase their exports to this market. Thus, it supports the economic growth of the Asian countries and makes it possible for them to create new jobs, which is particularly important in China, where – according to various estimates – each year between 10 and 20 million of jobs must be created, due to migration of the population from rural areas to cities. In order to maintain the competitiveness of their exports, the Asian countries intervene on the FX market, thus preventing appreciation of their currencies. The purchased US dollars are invested in American bonds, and thus the American current account deficit is financed. Another hypothesis that explains the mechanism of occurrence of global imbalances has been formulated by the current Chairman of the Federal Reserve, Ben Bernanke. 29 His major concept is that the large US current account deficit cannot be explained solely by internal factors. In the opinion of Bernanke, external factors, which he has defined as the global savings glut, have played a key role. The hypothesis says that a significant surplus of savings over investments in the Asian countries, in combination with the structurally high savings in Germany and Japan, have caused the global savings glut.
Svein Gjedrem: Interest rates, the exchange rate and the outlook for the Norwegian economy Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), to the Mid-Norway Chamber of Commerce and Industry, Trondheim, 28 November 2007. The text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 31 October and in Monetary Policy Report 3/07. *  *  *  Introduction Monetary policy in Norway is oriented towards low and stable inflation with annual consumer price inflation of close to 2.5 per cent over time. The objective of low and stable inflation provides the economy with a nominal anchor. This means that all economic agents – households and enterprises, whether large or small – can plan ahead on the assumption that inflation will be low and stable. In a small, open and decentralised market economy like Norway, and with our particular industry structure, there will be cyclical fluctuations. When economic agents have confidence that inflation is low and stable over time, the interest rate can also be set with a view to dampening the fluctuations somewhat. Low inflation and solid growth in the Norwegian economy Inflation in Norway decelerated markedly from the late-1980s to the mid-1990s and has since been low and stable, and fairly close to, but somewhat lower than the target of 2.5 per cent, with considerably lower variability than earlier.

Consider the rare example of the shift from sterling to the dollar in the early 20th Century – a shift prompted by changes in trade and reinforced by developments in finance.37 The disruption wrought by the First World War allowed the US to expand its presence in markets previously dominated by European producers. Trade 33  The design of the GFSN is also important. Positive steps have been made in recent years by introducing precautionary liquidity facilities so countries can borrow to prevent crises, as well as mitigate their impact. This should also reduce stigma of drawing on the facilities. But so far, only a few countries have taken them up. It is important to do everything we can to normalise use of these precautionary facilities. 34 World Bank. 35 Taken from The International Role of the Euro June 2019, ECB. 36 Initiatives include trade settlement programs, RMB offshore clearing banks, off-shore RMB denominated bond market in Hong Kong, and a network of central bank RMB swap lines. 37 For more details, see Eichengreen, B J (2008), ‘Globalizing capital: A history of the international monetary system’, Princeton: Princeton University Press; and Eichengreen, B, Mehl, A, and Chiţu, L (2018), ‘How Global Currencies Work: Past, Present, and Future’, Princeton University Press. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches  13  that was priced in sterling switched to being priced in dollars; and demand for dollar-denominated assets followed. In addition, the US became a net creditor, lending to other countries in dollar-denominated bonds.
This illustrates the first question, which is how to solve time inconsistency in fiscal policy. It is easier to follow the prescriptions of Keynes in bad times than in good times. This asymmetry may lead to an increase in budget deficits and sovereign debt over time, also referred to as the fiscal bias. As a result, many countries (PIIGS, UK,) have to tighten policy in a period when the real economy would certainly benefit from further stimulus. The crisis caused fiscal balances to deteriorate by 8–10 percentage points. There is an immense difference between encountering a shock of this magnitude from a positive fiscal balance of 4 per cent and encountering it from a negative fiscal balance of 4 per cent. From a negative balance of 4 per cent, fiscal balances end up at a 12 per cent deficit! Then it is imperative to tighten policy. A similar time inconsistency problem, the inflation bias, has been a much debated issue in monetary policy. The solution has been central bank independence. So the question is, is there something to be learnt from monetary policy? Ragnar Frisch  The fiscal bias is not a new phenomenon. And a number of possible solutions have been tried. As far back as in the early 1930s, the Norwegian economist and Nobel Prize winner Ragnar Frisch had the following suggestion: “It might be an idea to establish a cyclical council to make such decisions, a council that could operate with an independent status similar to that of the Supreme Court.

Christian Noyer: A review of the financial crisis Speech by Mr Christian Noyer, Governor of the Bank of France, at the Hearing before the Finance Commission of the Assemblée nationale, Paris, 7 October 2008 (updated 15 October 2008). * 1. *  *  A number of comments on the developments of the past month  The bankruptcy of the investment bank Lehman Brothers on 15 September 2008 marked a crucial turning point in the crisis. The direct consequences of this failure, involving over USD 600 billion in assets, appear to have been correctly contained and managed up to now. Nevertheless, it exacerbated the crisis of confidence, with the following major repercussions: •  first, interbank markets increasingly seized up, because banks perceived there to be a rise in counterparty risk. Overnight dollar interbank rates rose to particularly high levels of close to 7%;  •  second, significant pressure on other money market segments, in particular the US commercial paper market, where yields on 30-day paper have been climbing since mid-September to reach levels close to those observed at the end of last year;  •  lastly, the deterioration in the financial position of AIG, the largest US insurer, followed by its exceptional bailout. A two-pronged rescue plan was implemented: on the one hand, the Fed made an USD 85 billion loan at a penalty rate of three-month Libor plus 850 basis points and, on the other, the US government took a 79.9% stake in the company.
So, we target some key initiatives specifically to low- and moderate-income groups. Here on Long Island there are pockets that suffered greatly in the recession. In Nassau County, communities in Hempstead, Baldwin, Roosevelt and New Hyde Park have a foreclosure rate over four times the national average. The same holds true for parts of Brentwood, Central Islip and Patchogue, in Suffolk County. We have worked hard to help neighborhoods that face high foreclosure rates. Over the past three years, my staff has come to Long Island to meet with housing counselors and legal services practitioners. We have provided housing advocates with the latest information on mortgage conditions, via mortgage briefs, roundtables, presentations and newsletters. We have now developed an online resource that shows delinquency and foreclosure conditions in neighborhoods each month. We believe that this site will be a useful complement, aiding the work of housing counselors and other parties seeking to help these communities. To share what we learn about our diverse District, we have a website, with detailed information about the region. I invite you to visit newyorkfed.org to explore our highly localized maps and information on small business, credit and housing conditions and even the latest job openings at the New York Fed. Finally, and crucially, in the aftermath of the financial crisis, we are working with our colleagues in Washington, D.C., and at other agencies to help put the nation’s financial system on a firmer footing.

Therefore, the Central Bank must be attentive to steer monetary policy to avoid secondround effects on other prices, wages, or private sector inflation expectations due to supply shocks, that could end up driving inflation persistently away from the 3% target. Of course it also has to foresee the consequences of the business cycle over inflation. It also The efficacy of this monetary policy over the 2000s is evident (Figure 3). BIS Review 97/2007  3  Figure 3: Deviation of inflation from its target  Source: Central Bank of Chile. The international financial turmoil Regarding recent developments in world financial markets, the first thing to do is recognize that the adjustment they are undergoing is part of an overdue normalization process in credit risk spreads for a large variety of securities, and volatility levels of the riskier assets prices (Figure 4). In fact, for some time our Financial Stability and Monetary Policy reports have stated that a correction in risk premiums and an increase in market volatility were to be expected, because the good conditions would not last indefinitely, in particular given the monetary policy normalization period in the main economies that was already prolonging for some years. It is very likely that today we are witnessing precisely that correction in risk valuation and volatility. Figure 4: Sovereign risk premiums and volatility (basis points)  (1) Risk premium on developed market corporate bonds with less than investment grade risk ratings (CCC to BB), according to Standard and Poor’s.
Real GDP expanded at a 3.0 percent annual rate in the fourth quarter of 2011, the fastest growth since the first half of 2010. The average monthly job gain was 212,000 in the first quarter of 2012, up from 164,000 in the fourth quarter. Sales of light-weight motor vehicles were about 14 ½ million at an annual rate in the first quarter, the best quarter in four years. Survey measures of business activity have rebounded from their dips in the middle of last year and are now at levels that typically indicate solid overall growth. Even housing starts have firmed somewhat in the last few months, although they remain at depressed levels. While these developments are certainly encouraging, it is still too soon to conclude that we are out of the woods, as underlined by the March labor market release. To begin with, the economic data looked brighter at this point in 2010 and again in 2011, only to fade later in those years. Moreover, the United States experienced unusually mild weather over the first quarter, with the number of heating degree days more than 20 percent below the average of the preceding five years, which may have pulled forward some economic activity and hiring. In this regard, the somewhat softer March labor market report that was released last Friday may reflect the earlier positive influence of the mild weather on job creation in January and February, although other less sanguine interpretations are also plausible.

By lowering the interest rate on sight deposits into negative territory, the SNB restored the traditional interest rate differential to more normal levels, as illustrated by the orange area in the chart. The SNB’s willingness to intervene in foreign exchange markets A higher interest rate differential reduces the relative attractiveness of the Swiss franc. However, financial markets may be exposed to a sudden increase in volatility, which could lead to a sharp rise in the demand for Swiss francs. This is where our willingness to intervene in the foreign exchange market plays a crucial role in stabilising the markets. For example, this summer, when the Greek government announced a referendum on the international bailout programme, we intervened in the forex market at a time of great market volatility and global uncertainty. This willingness to intervene in the forex market as required is a key pillar of our monetary policy. The size of the SNB’s balance sheet reflects our monetary policy measures. One consequence of a larger balance sheet is larger fluctuations in the financial results. In the first three quarters of this year, the SNB incurred a provisional loss of CHF 34 billion, predominantly reflecting valuation effects following the discontinuation of the minimum exchange rate. This is shown in chart 2. It is still too early to draw conclusions for the 2015 year-end result, particularly in the current volatile international environment. Let me be clear, however: It is not the purpose of the SNB to generate and distribute profits.
Mervyn King: Address by Mervyn King to Trades Union Congress Address by Mr Mervyn King, Governor of the Bank of England, to the 2010 Trades Union Congress, Manchester, 15 September 2010. *  *  *  President and Congress I want first to thank you for inviting me to address Congress. Members of your General Council have made a huge contribution to the Bank of England by serving on our board – the Bank’s Court. Carrying on that tradition today is Brendan Barber. By bringing a distinct and important perspective to our discussions, Brendan has helped us through some extremely turbulent times. I am grateful to him. Recent times have indeed been turbulent. After a decade and a half of stability, with rising employment and living standards, came the crisis and recession – the biggest economic upheaval since the Great Depression. Before the crisis, steady growth with low inflation and high employment was in our grasp. We let it slip – we, that is, in the financial sector and as policy-makers – not your members nor the many businesses and organisations around the country which employ them. And although the causes of the crisis may have been rooted in the financial sector, the consequences are affecting everyone, and will continue to do so for years to come. Thankfully, the costs of the crisis have been smaller than those of the Great Depression. But only because we learnt from that experience. An unprecedented degree of policy stimulus, here and abroad, prevented another world slump.

Even so, around a million more people in Britain are out of work than before the crisis. Many, especially the young unemployed, have had their futures blighted. So we cannot just carry on as we are. Unless we reform our economy – rebalance demand, restructure banking, and restore the sustainability of our public finances – we shall not only jeopardise recovery, but also fail the next generation. To my mind, a market economy and its disciplines offer the best way of raising living standards. But a market economy cannot survive on incentives alone. It must align those incentives to the common good. It must command support among the vast majority who do not receive the large rewards that accrue to the successful and the lucky. And it must show a sense of fairness if its efficiency is to yield fruit. There was nothing fair about the financial crisis. It was caused not by problems in the real economy; it came out of the financial sector. But it was the real economy that suffered and the banks that were bailed out. Your members, and indeed the businesses which employ them, are entitled to be angry. But however legitimate, anger will not produce change unless its energy is harnessed to a cool analysis of what happened and why. So I want to discuss the fundamental causes of the crisis before turning to current policy. The fall of the Berlin Wall in 1989 changed both politics and economics.
The significance of these achievements can be demonstrated by the resilience shown by the accession countries to the Asian and Russian crises in 1997-1998 and, more recently, to the adverse developments in Argentina and other emerging market economies. However, a number of important challenges remain. The years to come will be crucial to ensure that the current significant momentum of the accession process is maintained, and that the remaining difficulties are dealt with effectively in order to permit the smooth integration of accession countries into the EU and, later on, into the euro area. The forthcoming enlargement of the EU will, no doubt, increase the diversity and complexity within the Union in an unprecedented way. In economic terms, the discrepancies in real per capita income and price levels between the accession countries and the euro area are of a magnitude that has never been observed in previous enlargement rounds. In this regard, however, it should be borne in mind that the combined GDP of all the accession countries accounts for only around 5% of that of the EU. The enlargement also confronts European policy-makers with enormous challenges in political and institutional terms. The sheer increase in the number of Member States that the current enlargement represents renders the functioning of decision-making bodies more difficult. As we all know, substantial institutional reforms are needed to ensure that the EU can continue to function effectively after enlargement.

Jan. 14  Jul. Jan.  Jul. 15  Sources: Bloomberg and Bank calculations. (a) Average across the 50 largest equity and fixed income ETFs globally by assets. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13