samchain/econo-pairs-v1 huggingface dataset:
Institutional autonomy should be seen as a factor that, rather than isolating the Bank from the rest of the country, makes it particularly responsible for being proactive in responding to its needs. What is important is for the Bank's response to the new challenges to be timely, well planned and effective, drawing on feedback, coordination and cooperation with other players. In this process the Senate plays a key role. It is through this Honorable House that we account for our management. Dialogue with the Senate is essential as feedback of our work and as a source of new challenges. The ongoing changes will add new opportunities to strengthen this link. In particular, the adjustments to the monetary policy process will transform the current presentation of the MP Report to the Finance Committee or to this plenary in a session where the senators will have more time to formulate their questions and comments. We expect, likewise, to develop mechanisms for a more comprehensive account of our management, covering all the issues under the responsibility of the Bank. My sincere thanks for your attention and I am available for any inquiries that the honorable senators may wish to make.

The terms of trade have improved, with copper prices above $ per pound in recent weeks. This, in a context in which the price of oil, with fluctuations and considering the Brent - WTI average, is slightly below those at the cutoff date of the previous Report. The copper price rise has coincided with a well-stocked market despite supply-side problems, in the context of a weak dollar. China's low interest rates and better performance lend support to higher prices in the short term. In any case, although its price is not expected to remain stable, it is projected to average more than June's estimates. In our baseline scenario, the pound of copper should trade at an average of $ in 20172018, and at $ in 2019. Stronger economic growth in the developed world has also consolidated. The United States, like it did several quarters ago, shows a good performance of consumption and a dynamic labor market. Europe has seen a strong recovery in its growth rates, all across the economies making up the group, beyond the differences that persist among them in variables such as the size of the gap and the unemployment rate. Growth in Japan surprised positively, and expectations have been revised upwards. Meanwhile, inflation has tended to subside and the monetary authorities of the developed world have made no big changes to their monetary policy strategies.
* = Assumes the 2016Q3 growth rate is achieved through the average contributions to growth made by consumption and non-consumption (“other”) expenditure components over 1955-2007. 2016Q1  2015Q2  2014Q3  2013Q4  2013Q1  2012Q2  2011Q3  2010Q4  2010Q1  2009Q2  2008Q3  2007Q4  0 2007Q1  2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 1955-2007*  -0.5  Source: ONS and Bank calculations. Ultimately, the tension between consumer strength on the one hand and the more pessimistic expectations of markets on the other will be resolved. In the MPC’s November projections, this resolution is expected to occur as imported inflation begins to weigh on people’s real incomes, slowing consumption growth. This moderation in household spending reinforces the cumulative effects of a pick-up in uncertainty on investment. As a consequence, growth is expected to remain below past averages for the next few years. One corroborating sign of this potential deceleration is that the UK expansion is increasingly consumption-led (Chart 17). The saving rate has fallen towards historic lows (Chart 18), and borrowing has resumed. Evidence from the past quarter century across a range of countries suggests episodes of consumption-led growth tends to be both slower and less durable. xxxi  This is because consumption growth eventually  outpaces earnings growth, increasing debt and making demand more sensitive to changes in employment and income.

xxi  Chart 11: The UK bond-equity correlation has turned negative for the first time ever Correlation 0.8  0.6  0.4  0.2  0.0  -0.2  -0.4 1759  1809  1859  1909  1959  2009  Source: Thomas and Dimsdale (ibid.) and Bank calculations. Line shows ten-year trailing correlation of monthly returns on UK equities and consols. See also Roberts-Sklar, M. (2016), “250 years of the bond-equity correlation”, Bank Underground, 20th October. This unprecedented desire for safety has helped to drive down the equilibrium interest rate – the interest rate central banks must deliver in order to balance demand with supply and so achieve stable inflation. In this sense, low policy interest rates are not the caprice of central bankers, but rather the consequence of powerful global forces, including debt, demographics and distribution. xxii  9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  Those same forces are contributing to deficits in defined-benefit pensions. The value of these schemes’ investments in equities and real estate are low relative to the level of interest rates because investors are valuing safety much more than they are expecting faster growth. Said differently, since pensions are future claims on the economy, there isn’t a parallel universe of higher interest rates, higher growth and equity prices, and lower pension deficits. That is, there isn’t without real structural reform. Blaming monetary policy avoids these hard truths.
Judging by the fact that controls are more efficient provided they are in place before the resumption in large capital inflows, should we use them from the very start  1  A recent classification of control instruments is provided in Qureshi, M., Ostry, J., Ghosh, A., Chamon, M. (2011). BIS central bankers’ speeches  5  of a wave of capital inflows, before resorting to macroeconomic policies? I don’t think so. And what would be the best choice for emerging countries that are members of economic areas based on free capital movement, such as the European Union? Any scheme indicating where controls should be positioned in the policy toolkit of emerging countries needs to be based on a clear-cut distinction between risks associated with large capital inflows and the actual quantities (flows). Controls have a direct impact on quantities. But macroeconomic policies can have an indirect influence on quantities. Once the exchange rate has appreciated enough to near its equilibrium level and foreign reserves have reached a point beyond which any further purchases are suboptimal, changes in macroeconomic policies may go on. We may move from a deficit position to public budget surplus. The lesson that can be drawn from recent experience is that policymakers’ hesitations in this regard may prove costly. Monetary policy has room to lower interest rates just as long as this does not jeopardize the inflation target objectives. From that point on, fiscal policy is the only macroeconomic policy left in the fight against capital inflows.

Some temporary retrenchment is probably not undesirable at this point, as cross-border banking – and perhaps financial globalisation more generally – far outpaced developments in public frameworks. The issue of global liquidity provision to banks needs further exploration. And finally, if countries are increasingly taking unilateral action to protect themselves, someone – probably the IMF – must monitor the process. Going forward, some ground rules might have to be considered so that we are not faced with too serious unintended consequences for the global system. Thank you very much. BIS central bankers’ speeches  5
Second, “tilting” the CSPP also serves the ECB’s secondary objective of supporting the general economic policies in the Union. “Tilting” its corporate bond reinvestments towards “greener” companies enables the ECB to align these reinvestments with the objectives set out in the Climate Law, which form part of those economic policies. This action was assessed as also being conducive, and not prejudicial, to price stability. More generally, this measure ensures that the CSPP complies fully with the ECB’s obligations under Article 11 TFEU by integrating the objectives of the Climate Law into the definition and implementation of the ECB’s policies and activities. This is one of the first steps in the ECB’s climate action plan, but the ECB is also looking into other ways to take climate-neutrality objectives into account in its monetary policy – for example, through the collateral that we ask when providing liquidity to banks. For banking supervision, there are several dimensions that I will briefly discuss. Again, we do not directly apply the Climate Law. The Climate Law does not directly relate to our tasks as a banking supervisor nor does it relate to prudential supervision. Therefore the ECB does not impose an obligation on banks to take the necessary measures to contribute to the achievement of the objectives of the Climate Law. However, we cannot ignore it. Not only because we need to integrate environmental obligations into our policies due  to Article 11 TFEU, but also since the law will have prudential implications.

Three factors of uncertainty come into the picture: -  first, there is by essence a high degree of uncertainty surrounding the assessment of misalignments, related to their equilibrium prices and the channels of transmission to the real economy;  -  second, central banks have to keep in mind the balance of risks facing the economy: a monetary policy action that would reduce the risk of a large loss in the future might be very costly for the economy in the short run;  -  third, the effects of monetary policy decisions on asset prices are very uncertain. •  The announcement of a systematic reaction could therefore lead to moral hazard and undermine the central bank’s anti-inflationist credibility, which is its most precious asset. Moreover, the single interest rate policy cannot be geared simultaneously towards two potentially conflicting objectives. c.  Be aggressive or experiment  There may be two cases where gradualism is not the systematic guideline. •  Worst-case outcomes may best be prevented by following policy rules that are rather aggressive in responding to inflation deviations from target. •  A more aggressive policy rule may generate more information, which would improve the learning of the central bank and thereby future policy performance. But the learning process might be costly since it could generate increased volatility. 2. Some approaches to address uncertainty  a. Rely on monetary policy rules  •  Simple monetary policy rules (like the Taylor rule) may perform well in many different models.
The effective exchange rate index measures how the currency relates to a basket of other currencies that are weighted in terms of their relative importance to trade. The real index is also adjusted for relative differences in the CPI. A downward movement in the figure entails a strengthening of the exchange rate. Source: Reuters EcoWin  This put some emerging economies with a floating exchange rate in an awkward position as they did not want to lose too much competitiveness in relation to China while at the same time large capital inflows tended to strengthen their exchange rates. The G20 has now agreed that in certain situations it may be justified to introduce temporary capital regulations to protect against volatile capital flows. The view is that in normal cases a country should use monetary or fiscal policy, or tools for macro prudential supervision, but that in exceptional cases it may be appropriate to introduce measures to control capital. Work is underway to set up common guidelines. 15 Why does Sweden have such a large current account surplus? Prior to the crisis of the 1990s, it was usual for Sweden to have current account deficits for long periods of time (see Figure 4). After the crisis the krona weakened substantially at the same time as the deficit became a surplus. Since then, Sweden has not only had a surplus, it has had a very substantial and, to a certain extent, a growing surplus.

5  The current account mainly consists of the difference between exports and imports of goods and services. Net capital income and various charges paid to and received from abroad are also included, but these components usually account for a much smaller part of the total than net exports. 6  For a more detailed discussion, see Lane, 2010. 2  BIS central bankers’ speeches  Figure 1 Current accounts, private net capital and GDP in eastern and central Europe Percentage of GDP and annual percentage change 15  15 GDP Current account Private capital  10  10  5  5  0  0  -5  -5  -10  -10 80  82  84  86  89  91  93  95  97  99  01  04  06  08  10  Note. Private capital is made up of direct private investment (net), private portfolio flows (net) and other private capital (net flows), expressed here as a share of GDP. Source: The IMF  Global imbalances have increased since the deregulation of the capital markets at the end of the 1980s. One of the reasons for this is that countries with surpluses, such as China, have grown more rapidly than other countries. The higher rate of growth means that China’s savings surplus (the difference between saving and investment) has increased as a percentage of global GDP.
These highlevel governance reform changes will also filter down to the corporate level, especially at the level of financial institutions, affecting also borrowers and lenders across the economy. BIS central bankers’ speeches  5

This is why the sovereign has been able to tap international capital markets twice so far since the crisis struck, and why its five-year CDS spread is currently below 180 points. Why did the Government give a verbal blanket guarantee for domestic deposits only and not for deposits in the banks’ foreign branches? After all, this distinction probably added fuel to the fire of the so-called Icesave dispute about the settlement of deposit guarantees in Landsbanki’s Dutch and British branches. The short answer is that such a guarantee would never have been credible. As a result, it would not have stopped the run on these deposits and, if attempted, might have bankrupted the Government. At the time, the Central Bank of Iceland’s FX reserves amounted to 2½ billion euros, while the foreign currency deposits in Landsbanki’s Dutch and British branches totalled 11½ billion euros and payment of the EU minimum deposit insurance would have required 4½ billion euros. The sovereign was completely closed off from foreign capital markets at that point. Furthermore, in economic terms, given that these deposits were used to a significant degree to finance illiquid assets in these same countries, such a payment, if possible, would have amounted to a net transfer of resources from Iceland to these countries at a time when Iceland was going through its deepest financial and economic crisis in the post-war period! That made no sense.
This is essential in order to map out the way forward for the European Monetary Union, which I will now briefly sketch. III. The way forward  The way forward for the euro area and the EU requires a number of initiatives in key areas in order to guarantee the public authorities’ ability to continue delivering macroeconomic and financial stability. In my view, the building blocks of any comprehensive plan of reform for Europe are the following:   implementing fiscal consolidation and securing the sustainability of public finances;    promoting sustainable growth and job creation;    enhancing the crisis management framework;    improving economic governance;    strengthening the financial sector.   Let me briefly elaborate on these points. III. (a)  Implementing fiscal consolidation and securing the sustainability of public finances  The financial and economic crisis has led to a very considerable deterioration in the fiscal positions of euro area countries, in terms of both large budget deficits and rising government debt. However, the economic recession amplified imbalances in fiscal policies that had built up gradually long before the crisis, reflecting the failure by many countries to implement sound fiscal policies during past periods of strong economic growth. On the institutional side, the EU’s fiscal framework, which is embedded in the Stability and Growth Pact (and that had been watered down in 2005), proved to be too weak to enforce fiscal discipline and was not implemented with sufficient rigour.

the young workers), that, as a result, carry extremely large economic and social costs. This is socially unfair and economically inefficient. European countries must made more efforts to resolutely pursue – and with far greater urgency than in the past – the necessary structural reforms in product markets, labour markets, pension systems and so on. In this respect, a key contribution to the strengthening of the euro area’s long-term economic prospects will come from the thorough implementation of the Europe 2020 strategy, with its focus on key areas such as: (i) education, research and innovation; (ii) resource efficiency; and (iii) high levels of employment and social cohesion. III. (c)  Enhancing the crisis management framework  In response to the sovereign debt crisis, the euro area has recently armed itself with an important tool to safeguard area-wide financial stability. At the European Council meeting of 24 and 25 March 2011 the Heads of State or Government of the EU agreed to establish a permanent European Stability Mechanism (ESM) based on the existing temporary European Financial Stability Facility (which will remain in place until June 2013). The ESM will grant financial assistance to countries in distress in the form of credit, with the assistance provided under strict conditionality and on the basis of a strict analysis – conducted by the European Commission and the IMF, in liaison with the ECB – of the sustainability of the relevant country’s debts. The establishment of the ESM represents an important addition to the institutional fabric of EMU.
Primary market indicators reflect the past three months, to smooth volatility. (Where primary market spreads are not available, mainly affecting the CMBS series in some periods between late 2009 and 2011, primary market indicators are based solely on issuance.) (b) Updated to end-August 2012. Market functioning in 2012 has developed in a rather unexpected way. Despite regular crisis points and the fading of the LTRO effect, we have seen (implied) volatility and skews derived from options prices fall to post-crisis lows across a range of markets (Chart 4). One might have thought that the heightened sense of uncertainty about economic developments would lead to the opposite. What has been going on? I think there are several influences pushing down on market volatility. One is the perception that central banks are on permanent standby to deal with tail risks. Another might be a realisation that certain types of financial protection are not worth having: for example if the counterparty selling the insurance (eg options or CDS) might not survive the tail risk it is selling protection against. And it has been seen as better not to take such risks rather than to try and hedge them. So demand for some types of protection may have fallen for that reason. A further observation is that market participants have to some extent grown accustomed to the perpetual state of crisis and decided that the show – albeit a chaste and less spectacular show – must go on.

The development towards a more equity-based financial system where risk-sharing takes place reduces the over-reliance on debt funding, thus avoiding excessive debt and speculation and thus financial system fragility. In Islamic finance, this is further reinforced by Shariah principles that strongly discourage excessive debt given its detrimental effects on society. The use of risk-sharing transactions and undertakings under participatory finance models in Islamic finance thus offers the potential to reinforce the links between finance and the real economy. The contractual arrangements between the financier and the entrepreneur place  2  BIS central bankers’ speeches  strong emphasis on the value creation and economic viability of the enterprise. This results in a close link between the growth of the financial sector and real sector activities in which the expansion or contraction of credit is dependent on developments in the real sector. This would provide a restraint on financial engineering and innovation as financial transactions need to be supported by real assets, thus aligning innovation to productive economic activities. As a result, the dangers of unbridled innovation are also substantially reduced. The move to embrace the risk-sharing dimension of Islamic finance also presents new opportunities for financial management. The profit sharing and risk-sharing characteristics of Islamic financial transactions strengthen the incentives for Islamic financial institutions to undertake the appropriate due diligence on the transactions to ensure that the profits are commensurate with the risks assumed.
As a general rule, the forward price of a currency comprises the spot price plus the interest rate differential between the two currencies. However, for some time now, this rule has only applied to a limited extent for most major currencies. There are several possible explanations for this distortion: on the one hand, a greater need on the part of investors to hedge currency risk; on the other, a decline in bank arbitrage options resulting from more stringent regulations. 3 As chart 6 shows, this has created a situation in which it has become more expensive for foreign issuers to raise Swiss franc capital on a hedged basis. 4  1 2  3 4  Excluding mortgage loans to corporations. If mortgages were included, bank loans would account for an even larger share of corporations’ external financing. Following the introduction of negative interest, capital market rates once again fell much more strongly than bank lending rates. Despite the fall in capital market rates, the banks did not lower – or only partially lowered – their deposit rates to prevent customers from withdrawing their deposits; customer deposits are a stable source of financing. Equally, banks could not simply cut their lending rates in an effort to head off a decline in their interest margin. Cf. Zurbrügg, Fritz (2016), ‘Negative interest rates: necessary from a monetary policy perspective – but with what risks for the banks?’, speech held at Volkswirtschaftliche Gesellschaft des Kantons Bern on 24 November 2016. Cf. Borio, Claudio et al.

(2016), ‘The failure of covered interest parity. FX hedging demand and costly balance sheets’, BIS Working Papers No. 590, October 2016. Take, for example, a US borrower who issues a bond in Swiss francs. He proceeds to convert the francs he has raised into US dollars on the spot market. Then, in order to hedge his exchange rate risk, he buys francs forward against US dollars. Given current distortions, actual hedging costs in the forward market are thus higher than those based on explicit interest rate differentials. Seite 4/7  Since 2008, this phenomenon is more pronounced for issuers from the US dollar area than from the euro area. Overall, we may conclude that the volume of bond issues has not risen substantially despite the low interest rate environment. While some sectors have, as anticipated, responded to low interest rates with higher issuance, special factors, such as the development of the federal budget and the reduced financing needs of European banks, have had a dampening effect. Swiss franc investments have become less attractive, especially for foreign investors Overall, Swiss franc bonds have become less attractive to investors, not least because of the negative interest rate and the SNB’s foreign currency purchases. Switzerland’s bond market is small and illiquid by international standards, making it relatively unappealing for many investors. Thus, for a long time now, the share of foreign investors in the Swiss franc bond market has been extremely low.