samchain/econo-pairs-v1 huggingface dataset:
Pain, N., I. Koske and M. Sollie (2006), “Globalisation and inflation in the OECD economies”, OECD Economics Department Working Paper No 52, Pula, G. and F. Skudelny (2007), “The impact of rising imports from low-cost countries on euro area prices and labour markets – some preliminary findings”, paper presented at the ECB conference on “Globalisation and the macroeconomy”, July. Reichlin, L. (2006), Panel remarks at the Thirteenth International Conference “Financial Markets and the Real Economy in a Low Interest Rate Environment” Bank of Japan, Tokyo. Rajan, R. (2005), “Has Financial Development Made the World Riskier?” NBER Working Paper No. 11728. Rajan, R. (2006), “Monetary Policy and Incentives”, in Fernández de Lis, S. and Restoy, F., Central Banks in the 21st Century, Proceedings of an international conference sponsored by the Banco de España; Madrid, Banco de España. Rogoff, K. (2004), “Globalization and Global Disinflation”, International Monetary Fund, paper prepared for the Federal Reserve Bank of Kansas City conference on “Monetary Policy and Uncertainty: Adapting to a Changing Economy”, Jackson Hole, Wyoming, 28-30 August 2003. Rogoff, K. (2006), “Impact of Globalization on Monetary Policy”, Harvard University, paper prepared for the Federal Reserve Bank of Kansas City conference on “The New Economic Geography: Effects and Policy Implications” Jackson Hole, Wyoming, 24-26 August. Woodford, M. (2007), “Globalization and Monetary Control”, Colombia University (prepared for the NBER conference on International Dimensions of Monetary Policy, Barcelona, Spain, June 11-13, 2007).

The jury is still out concerning the final verdict as to which of the two views is right. In my opinion, however, one general conclusion is valid: a monetary policy strategy which carefully monitors money and credit developments is likely to contribute to the detection of potentially destabilising financial imbalances is likely to help detect potentially destabilising financial imbalances at an early stage. V.  Conclusions  Our discussion on how to manage globalisation comes at a difficult moment in time, a challenging period for financial markets and institutions worldwide, and a period of heightened uncertainty about the potential impact of the ongoing reappraisal of risk on the real economy. This makes this joint intellectual effort to understand the underlying mechanisms and forces of globalisation even more topical, and our joint quest to identify ways to manage globalisation even more valuable. In my contribution, focusing on the central banker’s perspective, I argued, first, that globalisation does not fundamentally undermine the effectiveness of monetary policy in preserving price stability. Although the channels through which monetary policy affects economic variables are certainly influenced by globalisation, the respective effects are  22  See Borio and Lowe (2002). 23  See ECB (2007a), Box 9 for an elaboration of the measurement of financial market liquidity. 24  See Rajan (2005, 2006). 25  Adalid and Detken (2007). BIS Review 9/2008  11  estimated to be small.
But uncertainties arise not just because there will always be unexpected events, changes of technology and taste. We also continually review and update our views on the underlying relationships between countries, firms and people. And of course we are constantly learning more about the past not least as the statistics get revised. We try to emphasise those uncertainties by always publishing our forecasts in the form of fan charts which show not just a central projection but a probability distribution around it. If you go back a year to May 2006, our central projections for Q2 2007 were for growth of about 3% and inflation of around 2%. But we also showed about a one in four chance that growth would be a percentage point or more away and that inflation would be half a percentage point from the central projections (Chart 2). It follows that there is also a range of uncertainty around the right path for interest rates. The story of the last year has been that growth has been stable (between 0.7 and 0.8% each quarter) and kept quite close to that central projection but only on the basis of substantially higher interest rates than our forecasts were based on; inflation has been higher than we projected again despite the successive rises in rates. You might expect this range of uncertainty to be reflected in a range of independent forecasts, but you would be disappointed. Most forecasters operate models much like ours and, of course, they use the same data.

We saw that impact on a few of the big banks earlier this year. In the securitised markets, the pace can look slower to begin with but then comes in a rush. Chart 7 shows the spreads on different tranches of the ABX index, the main benchmark index for sub prime securities. What is remarkable here first is how slow the spreads were to move at all. Of course, the predicted losses on particular tranches do no move smoothly with rising defaults, but throughout 2006 the economic press was a buzz with worry about the US housing  1  In particular, the High-grade Structured Credit Enhanced Leverage Fund and the Higfh-grade Structured Credit Fund both managed by Bear Stearns Asset Management (BSAM). BIS Review 84/2007  3  market; sentiment changed several times on whether the housing downturn would lead to a general recession. Throughout this period the originators continued to write new sub prime loans and the prices of the ABX scarcely quivered. But since January the story has been quite different with two dramatic hikes in the spreads first of BBB and then of the A-rated index. In total, the spread for BBB has gone from 500 basis points at the turn of the year to over 3000 basis points. Each of these steps has left casualties.
•  We need to substantially simplify and consolidate the regulatory framework, to reduce the opportunity for regulatory arbitrage, not just in the mortgage market, but more broadly. •  We need to make the financial infrastructure more robust, particularly in the derivatives and repo markets, so that the system can better withstand the effects of default by a major participant. •  We need to redesign the set of liquidity facilities that we maintain in normal times, and in extremis, in the United States and across other major central banks. And these changes will have to come with a stronger set of incentives and requirements for the management of liquidity risk by financial institutions with access to central bank liquidity. •  And we need to make sure that the Federal Reserve has the mix of authority and responsibility to respond with adequate speed and force to the prospects of systemic threats to financial stability. Conclusion We look forward to working with the Congress and the Executive Branch to put in place a system of financial sector oversight and crisis management that works well in the context of a 21st-century financial system.

Indeed, while the risks of investing in different types of banks do not differ substantially under low volatility conditions, such as the one that prevailed until recently, the risks from investing in large euro area banks increase considerably when market volatility goes up. Overall, however, forward-looking market indicators provide a positive assessment of the outlook for the euro area banking sector, although the uncertainty surrounding this assessment has increased since the publication of the December 2005 Review. The chart on the right on slide 11 depicts the broadly based contraction of a standard measure of credit risk – the expected default frequency –  4  BIS Review 50/2006  across banks with different levels of risk. Notable in this regard is the substantial improvement in this indicator for the most risky banks. 5.3  Other euro area financial institutions – insurance companies and hedge funds  Allow me now to turn to non-bank financial institutions, focusing on insurance companies and hedge funds, two sectors that have been at the centre of attention during the past year. Despite significant losses incurred by the reinsurance sector following the damage caused by natural catastrophes, the financial performance of the euro area insurance sector as a whole improved in 2005, owing to stronger investment income, improving underwriting income and rising equity prices. Market-based indicators suggest that the outlook for the sector remains favourable in the immediate future. However, there are a number of risks facing the industry in the period ahead.
Going forward, innovations in insurance solutions will also need to take into account the higher regulatory expectations for more transparency, stronger financial buffers against unexpected losses and the requirements to do more to ensure that products offered are suitable to the different customer segments. Regulators will also be applying a much higher level of scrutiny on complex insurance products that increase risks to financial stability. Simplifying insurance products and institutional structures, and creating a strong risk culture in which managing risks is a shared responsibility within institutions, will be important goals to ensure that the risks facing an insurer are well understood and effectively managed. The third point concerns the far reaching implications of climate change for the insurance industry. This also calls for the industry to pursue a different path from what history has shown in determining the growth strategies for the future. Climate change has been described as one of the biggest risks to the insurance industry. The cost of climate change, without action, is estimated to be at least 5% of global GDP each year, not to mention its significant impact on human society. Some of the effects of climate change are already being felt in increased frequency and severity of weather related natural disasters, water scarcity and crop failures. Asia’s exposure to climate change effects is also anticipated to increase. In 2011, Asian countries accounted for 70 percent of 380 billion US dollars in economic losses from natural disasters, however only a quarter of that was insured.

While these trends are shaping the evolution of the East Asian insurance industry today, several other factors also need to be taken into account. First is the much faster pace at which these forces of change are taking place in East Asia. Second is the significantly more demanding regulatory environment in which insurers now operate. And third is the impact of climate change. This thus calls for a greater urgency in responding to these developments. Allow me to elaborate on these factors given their potential to have an important bearing on the industry’s focus and priorities in navigating its future growth path in the region. On the first point, the growth trajectory for the demand for insurance products and services in East Asia over the medium term will be much higher than the path that history implies. The global volume of cross-border trade has almost tripled since 2000. In addition, intra-regional trade within Asia is projected to account for an increasingly larger share of this expanding world trade. Further liberalisation and greater regional economic and financial integration in Asia will reinforce this trend. This presents substantial opportunities for East Asian insurers to support the growing trade activities. After decades of strong growth, the Asian region is also now the home to a middle income population of 500 million. This number is projected to increase by more than six-fold to 3 billion by 2030. The OECD also projects that by 2020, Asian consumers will account for 40 percent of global consumption.
With regard to inflation targeting strategies, it has been acknowledged that if financial imbalances accumulate and there is, for example, substantial uncertainty about the sustainability of asset price movements, it is not advisable to strictly pursue an inflation forecast for consumer prices over a horizon of one to two years. In such circumstances, it may be better instead to set interest rates with a view to a time-frame extending well beyond conventional forecast horizons. The ECB’s monetary policy strategy has some features that can become quite useful in this respect: •  First, from the beginning, the ECB has adopted a “medium-term orientation”. This implies that policy is not set for a time horizon of one or two years. Rather, the ECB pays due attention to the need to take into account the entire horizon over which monetary policy and macroeconomic shocks impact on the state of the economy. This lengthening of the policy horizon helps to trace out the likely macroeconomic impact of a financial misalignment. •  Second, the monetary policy strategy of the ECB is broad-based implying that a whole range of several indicators and models are employed and cross-checked, thus making the assessment and policy response to financial imbalances robust. In particular, the commitment to monitor and assess money and credit developments - besides being instrumental in identifying longer-term risks to price stability in general - may help to guard against ignoring asset price bubbles.

An important aspect of the recent developments to strengthen Islamic financial services industry is that this is being undertaken during the stable and good times. This will position Islamic finance to deal with future challenges. A clear indication of that is the growing relevance and importance of the sukuk market. This event in Kuala Lumpur is commemorating the talent, expertise and the successes of the Islamic financial community. BIS Review 95/2010  3
So when one emerging economy encounters difficulties, all neighbouring countries, or countries that share common characteristics, are treated in the same way – regardless of their actual economic and financial situation. The same applies to businesses operating in the same economic sector. Transparency has substantially increased since the Asian crisis thanks to a solid global consensus – let us continue and reinforce these efforts-  BIS Review 49/2001  5  2.2.2  Take into account the medium and long-term perspective of some market participants:  -  Some investors, such as pension funds and insurance companies, have to invest funds in order to enable their customers to build up wealth over the medium and long term, notably in preparation for retirement. Consequently, this type of investor are supposed to behave differently from traders and short-term investors, who are working on a very different time horizon. But at times it seems that they are all pushed to behave in much the same way, on the basis of an overwhelmingly dominant very short-term horizon. -  To preserve, and even restore, their specific investment approach, these particular investors might be more shielded from excessive short-term pressures. This objective raises considerable difficulties, because it touches on the way in which the performances of medium and long-term funds (including pension funds) and life insurance companies are assessed. 2.2.3  Diversify the risk management tools of financial institutions:  -  As I mentioned earlier, even the best techniques can have adverse effects.

But, as Mark Twain would have said, “[we] didn’t know it was impossible so [we] did it.” Today it is a tangible reality. In fact our supervisory practices have been harmonised upwards. Our legal framework is stronger thanks to the single rulebook. And European banks are sounder – the CET1 solvency ratio for major institutions has increased by more than 3 points since 2014 (from 11.3% to 14.6% at the end of last year). Danièle [Nouy], you deserve our congratulations on this achievement! Yet Banking Union’s second pillar, the Single Resolution Mechanism (SRM), is still incomplete. Yes we have already managed our first cases, substantially improving the health of a number of banks, notably in Spain and Italy. But making the SRM fully operational should be our top priority. In my opinion, it is the common backstop to the Single Resolution Fund that is really the key. Experience from abroad is instructive: in most large jurisdictions, in particular the United States and the United Kingdom, the intervention capabilities of resolution funds are backstopped by the fiscal authorities. And they are not a burden on public finances, since any public outlays are generally reimbursed by the private sector. The euro area agreement on the backstop reached on the 29th of June is a crucial first step. It is now urgent to deliver on it by the end of 2018.
Coordinated application of these tools will clearly pose a challenge to the new Spanish macroprudential authority (AMCESFI), which published its first annual report on 31 July. I think it may be inferred from what I have said that the definition of macroprudential policy is currently evolving. In the present decade, we are moving from the drawing board to implementation, that is to say from the theoretical framework to practical application, while attempting to learn from experience in other jurisdictions. 4  One of the issues currently under debate is the usability of these buffers and the possible constraints that may limit it. As I have already mentioned, the amendments to the Basel III microprudential framework also include specific capital buffers, for example, to cover the systemic dimension of some institutions or to conserve capital. Clearly these liquidity and capital buffers are helping in the present situation, but banks are reluctant to use them, given the implications that a reduction in the capital ratio would have on the markets and the fact that it could potentially affect the coupon payments on certain issuances. In this respect, the macro and microprudential authorities need to collaborate to coordinate the measures to be adopted in this context. Evidently, many of the actions taken in response to the crisis have implications for both types of supervision. Some examples would include the recommendations on the use of liquidity and capital buffers, supervisory expectations regarding the timeline and conditions for replenishing buffers and, more recently, recommendations on dividend distributions and variable remuneration payments.

As the deflationary shocks pass, any dampening effect of inflation on pay should fade, providing inflation expectations remain well anchored. Migration may have  4  4  Emerging market economies now account for 60% of global GDP in purchasing power parity terms and around 53% at market exchange rates. BIS central bankers’ speeches  had some role in restraining wage growth too, though evidence suggests that it has had only a small negative impact on average British wages.5 Third, the economy is facing fiscal headwinds as the Government repairs the damage to the public sector balance sheet from the crisis and the deep recession. This drag on growth will continue for a number of years. In the decade prior to the financial crisis, government spending on average contributed 0.6 percentage points per year to GDP growth – over 2016–2018, the MPC expect it to contribute 0.1 percentage points on average. Fourth, headwinds from weakness in the world economy are also likely to endure. Net trade detracts from growth in every year of the MPC’s forecast for UK growth. Overall, the healing story is for me, the story behind the MPC’s latest forecast to which I subscribe. Growth picks up slowly over the next few years, driven by domestic consumption and business and housing investment. As the deflationary shocks from oil prices and the past strength of sterling wane, the closing of the output gap and consequent domestic cost pressures push inflation slowly back up to target.
data at the level of individual firms, used in micro-prudential analysis. As mentioned before, a range of important data needed for macro-prudential analysis relate to firm-specific data on financial firms. Risk assessment tools for example, such as stress tests to assess the relevance of specific risk scenarios, are labelled macro-stress tests (as opposed to the “micro” tests run by banks individually at the request of the regulator). Nevertheless, the usefulness of these tools depends on the quality and detail of the bank-specific data. The relevance of the results for macro-prudential purposes is, of course, to be found in the aggregated figures (the impact on banking sector capital) and their subsequently interplay with the macro-financial environment, lending activities and overall growth. For stress testing tools, selected supervisory data are important for achieving reliable results. However, for other types of analytical tools and indicators, the use of publicly available information may be sufficient, or even preferable for reasons such as the comparability of  BIS central bankers’ speeches  3  data across financial firms or transparency. In official financial stability publications, for example, it is often considered important that readers and market analysts are able to replicate analyses with information in the public domain. Generally speaking, while it is essential that supervisory data are well protected, there would be merit in distinguishing between different layers of confidentiality and, thereby, to facilitate that selected supervisory information is made available for macro-prudential analysis.

A number of data sets have already been, or are about to be, made available by the ESAs:   banking sector data, collected by the European Banking Authority (EBA) on a quarterly basis, relate to: supervisory data on solvency, credit risk and asset quality, earnings risk and balance sheet structure ( key risk indicators), as well as to data on large exposures, broken down by instrument and by sectoral and geographic counterpart, for samples of EU large banking groups;    insurance sector data collected by the European Insurance and Occupational Pension Funds Authority (EIOPA) on an annual basis and, possibly, at a higher frequency relate to aggregate solvency and profit-and-loss data for large EU insurance groups;    quarterly data provided by the European Securities Markets Authority (ESMA) refer to the number of shares admitted to trading in the European Economic Area (EEA), by country and by market, as well as to the list of EEA markets. 1  Council Regulation (EU) No 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board (Official Journal of the European Union, L 331, 15.12.2010, pp. 162 ff.). 2  BIS central bankers’ speeches  The ECB, in turn, is in the process of making datasets available to the ESRB and the ESAs that meet their requirements.