samchain/econo-pairs-v1 huggingface dataset:
Indeed, many of today’s macro models used in policy making embody an assumption that risk premia are either constant or do not exist; and that therefore asset prices, and so wealth and the cost of capital, are influenced only by changes in the expected path of the risk-free rate and in the cash flows expected from investments. For anyone who has spent time in markets, that seems at odds with their experience. It is, therefore, of some moment that some recent research has suggested that, for all major asset classes, the principal drivers of fluctuations in asset returns are shifts in risk premia rather than in expected cash flows19 (ie dividend growth for stocks; the path of monetary policy rates for low-risk bonds; default incidence for bonds carrying credit risk; rental growth for house prices etc). Furthermore, some empirical research now suggests that shifts in risk premia are key factors in macroeconomic fluctuations.20 This is a big deal. We have seen massive shifts in risk premia over the past ten years (Chart 7) – first a compression and then a blow out. Those shifts seem to be associated with capital flows, channelled through banks and shadow banks, that led to an expansion of Global Liquidity. Balance sheets were left at first fragile and then, when the balloon burst, enfeebled. In the case of continental Europe, for example, banks had increasingly borrowed short-term from US money funds, only to suffer a slow-motion run when their capital adequacy came to be questioned.

These are: whether the UK economy has achieved sustainable convergence with the economies of the single currency; whether there is sufficient flexibility in the UK economy to adapt to change and other unexpected economic events; whether joining the single currency would create better conditions for businesses to make long-term decisions to invest in the UK; the impact membership would have on the UK financial services industry; and ultimately whether joining the single currency would be good for employment. It would then submit a favourable decision to Parliament, and the British people in a referendum. The Chancellor recognised that it was unrealistic to think that a decision could be reached during the lifetime of the present Parliament, which runs to May 2002 at the latest. But he stressed that in the meantime the UK should nevertheless prepare - not only for introduction of the euro on the Continent on 1 January 1999 - which we of course did very effectively - but also for our own eventual participation. The Chancellor’s statement was the first by a British Government to accept the principle of monetary union. It recognised that the single currency will affect us whether we are in fact in or out - and that it is clearly in our own national interest to do all that we can to ensure that the euro is successful.
The financial structures that we thought were in place to assess, absorb and neutralise risk were either dysfunctional, or worked – perversely – to magnify volatility. This is how financial risk was created, transmitted to the real economy and eventually became systemic. Key factors in creating this risk were opaque financial structures, particularly vulnerability to contagion and domino effects, and pro-cyclicality in financial markets. The lack of transparency in many financial instruments meant that market participants did not know who was exposed to what kind of risk. In this state of incomplete knowledge, some market players could exploit – for their own, private benefit – information that was not generally available. 2  Neil Wallace (1981) has an early theorem on the ineffectiveness of open market operations. Gauti Eggertson and Mike Woodford (2003) prove the irrelevance of liquidity measures at times of zero interest rates. See Wallace (1981), “A Modigliani-Miller Theorem for Open Market Operations”, The American Economic Review, Vol. 71 No 3, pp. 267–274, and Eggertson, G. and M. Woodford (2003), “The Zero Bound on Interest Rates and Optimal Monetary Policy”, Brookings Papers on Economic Activity, 1, pp. 212–219. 2  BIS Review 29/2010  Pro-cyclicality acts as a formidable accelerator of financial trends. Demand for finance increases and declines in tandem with the cycle. But the supply of finance does not simply accommodate demand: it often amplifies the cycle. Where does pro-cyclicality stem from? To my mind, distorted incentives and herd behaviour are key explanatory factors.

This problem was significantly mitigated with the FX swap lines that the US Fed negotiated with the ECB and other major central banks, especially after these became uncapped in some cases. But the problem was not confined to currency pairs involving the US dollar, and a similar kind of dynamic played out for smaller currencies in Europe vis-à-vis the euro, especially where banking systems had significant short-term foreign refinancing needs, or what can also be called rollover risk in terms of foreign currency. In some cases, FX swap lines were granted vis-à-vis the dollar, the euro and the yen, and in some cases not. Where swap lines were granted, it helped. And for some of the smaller players, it might not have mattered terribly much which of the major international currencies they hooked on to in this sense, especially after the uncapped swap lines had been established. What we observed during this peak of the crisis was thus a run on cross-border banking operations. We know how to solve such problems domestically by letting central banks lend to markets and/or institutions through their almost unlimited short-run capacity to expand their domestic balance sheet. However, when it comes to foreign currency, a central bank’s capacity to help banks to refinance the foreign liquidity denied them on the market is limited by the size of its reserves or the willingness of its big neighbours to help. This is what did the Icelandic banks in.
In developing a regime tailored to insurance we will also have to consider the particular skills and roles that matter. This includes the central role of actuaries, which is one of the important  4  BIS central bankers’ speeches  functions specifically recognised by Solvency II. In 18th century London, the title “actuary” was often interchangeable with that of Chief Executive. It’s your role in backing entrepreneurship with science; in ensuring premiums, reserves and capital are prudent; and in scanning the horizon for new risks and opportunities, that means we are minded to include both life and general insurance actuaries within the scope of our updated fit and proper regime for individuals in insurance. By including your profession in the new regime, we recognise the importance of your skills, the range of your contributions, and your personal propriety. Later this year we will consult on a regime that includes the most senior actuaries – alongside CEOs, Chairmen and Chief Financial and Risk Officers – in our senior managers regime, making them directly accountable for how a firm is run, for their decisions, and for their actions. These senior persons will be expected to prove their fitness to regulators before they take up a role, and the onus will be on them to ensure risks are understood, measured and properly considered.

When the Referendum was being held, the global economy was emerging from a long period of financial repair and lacklustre growth. Over the subsequent two years, a widespread and increasingly vigorous global expansion took hold. For the first time since the financial crisis, business investment and foreign trade grew strongly across all major regions. Economic uncertainty diminished, and consumer and business confidence firmed. In economies close to full employment, real wages finally began to grow. A new beginning seemed possible. In the past few quarters, however, these trends have largely reversed. After peaking a year ago around 4%, global momentum is now weakening in all major regions and downside risks have intensified. The proportion of the global economy growing above trend has fallen from four-fifths to one-third. Trade growth has slowed and the export outlook has dimmed. Capital goods orders are stagnating, investment growth has become more tepid, and business confidence is diminished (Chart 1). Chart 1: Global momentum is weakening Index, amplitude adjusted, Long-term average=100 102  Percentage change, 3 months on 12 months ago 20 15  OECD Business confidence 101  10  World trade in goods  5 100  0  US & EA capital goods orders 99 2010  -5 -10  2011  2012  2013  2014  2015  2016  2017  2018  Sources: ECB, Conference Board, CPB, OECD, and Markit Economics and Bank calculations.
These 70 years, the National Bank has gone through various stages of transformation and evolutionary development. It has operated in various systems of social and political order. Over the years, it changed both its name and address. It has gradually acquired competencies and built its functions. With the constitution of independent Macedonia and the declaration of monetary autonomy, it established itself as an institution – carrier of the functions of a modern central bank. Today, I can proudly say that the National Bank has grown into a modern and highly professional institution, enjoying credibility domestically, and appreciated and recognized internationally. The National Bank has been maintaining price stability in the Macedonian economy for 20 years through a stable exchange rate. The inflation rate in the past 20 years has averaged about 2%, which is a level comparable to developed countries, placing us among the most successful economies in transition. The financial stability has been successfully maintained by promoting sound, safe and competitive banking sector that successfully defy risks and delivers robust credit growth. By achieving these two legally delegated objectives, the National Bank creates the best conditions for sustainable economic growth and therewith, serve the well-being of the Macedonian society. Yet, besides its primary activity, the National Bank has vigorously built capacities in other areas.

On 1 January 1999, a new Riksbank Act came into force. It states that the goal for the Riksbank’s activity is to maintain stable prices. The Riksbank shall also be responsible for a secure, efficient payment system. In the preparatory legal material on the Act, it is also further stated that the Riksbank, without setting aside the price stability target, shall also support the objectives of general economic policy with a view to achieving sustainable growth and high employment. The price stability goal has then been confirmed by law. The Riksbank’s Executive Board is responsible for making the price stability goal operational and designing the framework for monetary policy. Among other things, this means that the Executive Board decides on how the price stability goal is to be defined and over what period price stability is to be maintained. The Executive Board of the Riksbank has decided that price stability shall be defined as an annual increase in the consumer price index of 2% with a tolerance interval of plus/minus one percentage point. If the consumer price index is affected by factors that are considered to only have a temporary effect on CPI, the Executive Board has agreed that we shall be able to disregard this. The reason is that monetary policy otherwise risks leading to unnecessary fluctuations in employment and production. A lot has been achieved although some things remain to be done Economic policy has been very successful in many areas during recent years.
Financial cycles have longer frequencies than business cycles, and the two cycles tend to diverge. The interest rate appropriate for price and output stability may therefore not be consistent with financial stability. This has been the case in Asia in recent years. 23 When Asian economies recovered fairly quickly from the Global Financial Crisis, their central banks raised interest rates. This was, by a happy coincidence, congruent with the need to stem rapid credit growth that was being fuelled by improved economic prospects domestically and easy monetary conditions globally. 24 But subsequently, economic activity in Asia started slowing down, following the Eurozone debt crisis and other domestic shocks. It became untenable for Asian central banks to raise interest rates further. However, risk-seeking capital flows continued washing into the region, inducing further increases in credit and asset prices. The business cycle and financial cycle began to diverge. 25 A second constraint on the effectiveness of monetary policy to deal with domestic financial stresses is the prominent role played by international liquidity in fuelling these stresses. •  Philip Lane has detailed the strong inter-linkages between global liquidity conditions, international debt flows, and domestic credit conditions. •  Hélène Rey has observed that global liquidity conditions determined by advanced economies’ monetary policies, can, at times, override domestic monetary policy even with exchange rate flexibility. •  Maurice Obstfeld, who will speak on this subject in a few minutes, takes a less extreme view.

Examples are the recent evolution of demand, which coupled with the signs of a tight labor market suggest that output gaps are fairly limited. Another example are the terms of trade, which take place in an environment where the likelihood of more catastrophic external  4  BIS central bankers’ speeches  scenarios seems to have diminished. In March, private expectations point to a growth in GDP close to 4.5% this year, having been in the range of 4% at the end of 2011. At the same time that some risks have diminished, others appear. An important matter for us is the widening of the current account deficit, explained by the dynamics of spending. In spite of the high level of our terms of trade, and following current account surpluses in 2009 and 2010, we estimate that in 2011 we had a small current account deficit and in 2012 it could expand further. This matter needs to be analyzed in depth. On the other hand, a lower deceleration of domestic demand, in the context of narrow output gaps, could give rise to inflation pressures. During the last months core inflation measures converged towards 3% at a speed higher than forecast. Although this evolution may well be a lagged adjustment of core inflation, after it remained persistently at low levels during several months, its path must be carefully monitored, more so in the light of a narrowing of capacity gaps and a tightening of the labor market.
6 FSF has urged the global hedge fund industry to review and enhance existing practices. In order to meet this challenge, a working group has been formed by private initiative, the Hedge Fund Working Group. Most of the members of the working group are based in London, but Swedish agents are also represented. The work of the group has resulted in recommendations for the hedge fund market. They focus on areas such as transparency, but also on valuation, accounting and risk management and they give recommendations for the hedge fund market. The final report  6  4  See the Update of the FSF’s Report on Highly Leveraged Institutions (May 2007). BIS Review 11/2008  was presented last week. Although this report does not have any official legal status, it will be an important starting point for further discussion on the subject. Insight in Sweden is relatively good I have for some time now kept to the international arena. Let me now say a few words about Swedish conditions. In Sweden, too, the market for hedge funds has grown rapidly. In this context, Sweden is an advanced market with some 70 funds that manage close to 5 per cent of the total assets managed by funds in Sweden. This makes Sweden the most developed market in the Nordic region. Swedish hedge funds were also affected by market conditions during the summer, but recovered during the autumn. In Sweden we do not have the same problems with transparency as in other parts of the world.

Our forecast is that unemployment will rise to just over 9 per cent during the latter part of 2010. Both the number of persons employed and the number of hours worked will fall. Labour productivity has been weak over a long period of time; it has even fallen, but in 2009 GDP is expected to grow more quickly than the number of hours worked. Productivity will thus increase again, albeit weakly to start with. We are expecting productivity growth to average at just under 3 per cent in 2010 and 2011. …but brighter prospects await after the decline The picture I have now painted is certainly not very cheerful. But global growth is expected to bottom out this year. Developments do look brighter for most countries as early as the beginning of 2010. As with all economic downturns, sooner or later there will be an upturn, although it may take time. It is necessary to adjust to the new conditions and it may take some time before households and companies have the confidence to begin consuming and investing again. But once the adjustment has come, when consumption and investment have picked up, the wheels of the economy will begin to turn more quickly. The stimulation from  4  BIS Review 23/2009  monetary policy, fiscal policy and other measures around the world will also contribute to dampening the decline and speeding up the recovery that is waiting around the corner. As I said, growth here at home has weakened rapidly as well.
But sound fiscal policies are also needed to complement the effectiveness of our policy. It is critical that public debt does not become a problem and threaten to drag the recovery process. Fiscal responsibility and discipline are thus keys, and I am extremely glad to see that the government has taken the first step towards fiscal sustainability by consolidating its budget this fiscal year. Underlying all these frameworks, however, efforts must also be made to ensure that domestic saving mobilization is adequate to finance our economic development in a sustainable fashion. As the Thai economy regains full strength, our current account is likely to be in deficit again and we need to ascertain that the savings-investment gap is kept at an appropriate level. Ladies and Gentlemen, In closing, allow me to reconfirm that Thailand has certainly come a long way since the crisis. To make it last, we do need a bit of luck on the global economic development while ensuring that we get all the fundamentals right. Some of these reform measures are tough and social support is needed to ensure that we continue to move in the right direction. If we manage to get all of these real, financial, governance, and macroeconomic frameworks in place, I do believe that Thailand would be well on a sustainable road to development. With these in mind, allow me to wish this conference every success in its endeavor.

Thailand’s better performance this year, notwithstanding a lackluster global economy, has been supported by the strong momentum in both domestic demand and exports. Front-loaded fiscal measure sparked up the initial momentum in domestic demand, while private consumption and investment are now adding firmly to the growth process. As the regional economies began to recover in the last five months, export growth has also provided an additional impetus to the recovery. Along with this recovery, inflation remains subdued, credit growth has turned positive, and business profits are improving, encouraging firms to expand their capacities through new investment. These broad movements are indicative of a positive dynamic linked to the current recovery. The most significant improvement since the crisis, however, has been the strengthening of external stability. Continued current account surpluses have allowed external debt to run down in concomitant with a build-up of international reserves. The coverage ratio of reserve to short-term debt has risen to 290% in July 2002, four times the ratio at the end of 1997. Ladies and Gentlemen, Although I share the view that the worst may now be behind us, I believe Thailand still has some way to go. The key question is how can we make it last, especially now that the global economic recovery  BIS Review 62/2002  1  may be somewhat slower than earlier anticipated? The answer to this question probably lies in the answers to yet another important question: what have we learnt from the recent crisis?
In the intensely competitive environment you can’t afford to be left behind, but will, or can, everyone still make profits? I pose these as questions, but I’m afraid I don’t have any conclusive answers. Yet I suspect that we may continue to be pleasantly surprised by the fruits which this ongoing revolution can bear. While it is certainly clear that finance is by and large a hugely competitive business, we observe that many of the participant institutions are enormously successful and profitable. At the same time, however, those of us with responsibilities for regulation, whether for purposes of consumer protection or in order to ensure systemic stability, are surely justified in imposing capital and liquidity requirements designed BIS Review 15/2000  2  to make the institutions proof against the sort of setbacks which too intense competition may eventually bring to some. Of course, the scare story of impending diminishing returns and so on has been told many times before. What, if anything, is new, as we set off into the new millennium? I believe there are two new ingredients, both concerning the internet. They are access and speed. They are of course related. We can all now enjoy direct access to almost anyone and anything, anywhere, without having to go through intermediaries - other than electronic ones. We are all aware that a degree of caution is required here.

We ought not to feel embarrassed to confess confusion, to seek advice or indeed to pay for advice. So, we live in a very challenging and pressurised environment. I am in no doubt in my own mind that the revolution which has swept through finance in the past quarter century has been beneficial to institutions and customers alike. We have, I think, now entered a phase where the basic margins may be narrower, where temptations may be greater and more varied, where the pressures to move quickly may be much stronger, and where of course the risks may therefore be rather greater. We all need to exercise skilful discernment and judgement, and I am sure this is as true for corporate treasurers and finance directors as for the rest of us. But it is not my intention to be a killjoy; as I have suggested, there will continue to be exciting new opportunities to explore; and I wish you all a fruitful couple of days here doing just that. BIS Review 15/2000  4