samchain/econo-pairs-v1 huggingface dataset:
Lessons from the crisis The high equity share, the capacity to increase the risk level in certain periods and the need for diversification are derived from the Fund’s characteristics. Let me now review some of the lessons from the financial crisis that have also shaped the development of the Fund’s strategy. These changes are closer to the centre of the European debt crisis. The risk tolerance of the Fund is to a large degree defined by the strategic equity share, which, as I mentioned, is 60 per cent. Since the Fund is heavily exposed to risk by virtue of its relatively high equity share, the function of government bonds is in essence to reduce the overall volatility of the portfolio. From this perspective, the most important role for government bonds is to hedge the equity portfolio. The hedge is best achieved by holding liquid government bonds with high credit quality. Typically, this entails an overweight of the safest, low-yield government bonds. Conversely, high-yield government bonds are more volatile, and thus they do not serve the overall purpose as a hedge in a global portfolio. 4  BIS central bankers’ speeches  Slide 14: Fixed income: new benchmark The Fund’s benchmark index for bonds is divided into 70 percent public and 30 percent corporate debt. Previously, the allocation in the bond portfolio was based on market weights, and thus the portfolio was allocated in proportion to volume of the sovereign debt issued by each country.

Also, the IMF assumes solid growth of the Macedonian economy of 3.2% in 2014, which is higher than the growth projected for the regional countries and wider, and provides a clear vision that there is potential for achieving the economic growth. As the central bank, for us, it is extremely important that the surveyed companies largely expect increase in the exports. Thus the larger export potential, the higher foreign exchange inflows, i.e. narrowed trade imbalance. After all, in 2013 we witnessed trade deficit narrowing in the trade of goods that equaled about Euro 190 million, annually, given the increase in the exports (of 3.2%/3.9% in services) and a decrease in imports (of 1.5%/0.9% in services). This improvement in the trade is closely linked to the increase in the production capacity of the economy, i.e. the increase in the export potential. The policies that were applied in the previous period, which were aimed at attracting foreign investors in the tradable goods sector, which meant export diversification, proved as a good pillar for reducing the foreign trade imbalance. The export growth capacity of TIDZs plans indicated that the foreign exchange rate is not a barrier to exports, i.e. that it is not overvalued. On the contrary, the stability of the Denar exchange rate, in the past against the Deutsche Mark, and today against the Euro, is an important pillar of all business decisions.
At that point, a bank under duress had to either close its doors or quickly sell assets. Of course, either action worked to intensify the panic and to increase the stress on the economy. The Federal Reserve was established so that there would be a lender of last resort that could lend against high-quality collateral and provide a reliable and elastic currency. 2 The knowledge that such a lender of last resort existed reduced considerably the incentives for depositors to race to their banks to make withdrawals at the first sign of trouble. 3 At that time, the provision of an elastic currency was especially important because the agricultural sector represented a significant proportion of the U.S. economy. As a result, the demand for credit increased significantly each fall when farmers incurred the costs associated with harvesting their crops. Prior to the establishment of the Federal Reserve, accommodating this seasonal demand necessitated a flow of currency and credit from the major financial markets such as New York and Chicago that put upward pressure on interest rates. With its ability to provide an elastic currency, the Federal Reserve would be able to dampen such seasonal swings in interest rates. At its inception, the Federal Reserve differed from central banks in Europe in that it was decentralized. The design reflected long-standing concerns in our country about the concentration of power in a single authority. These concerns are reflected in the federated system established by the Constitution in 1787.

By locating the duties related to the execution of monetary policy at the New York Fed, the System gains a number of benefits. These include the New York Fed’s ability to develop expertise in and understanding of the broad spectrum of financial markets and institutions, and its access to a deep pool of specialized financial talent in the place where it is most concentrated. The New York Fed’s institutional knowledge and experience in financial markets and its related disciplines are a critical input at all times, but never more so than during periods of duress. This was evidenced during the financial crisis, when the New York Fed’s unique insights and expertise helped the Federal Reserve respond quickly and effectively to unfolding events. The authors who crafted the Federal Reserve Act such as Carter Glass – assisted by H. Parker Willis – deliberately created a central bank structure that fits the U.S. political system, with a series of important checks and balances – between Washington and the rest of the country, between Washington and New York, and with respect to the role of the federal government versus the private sector. These checks and balances exist to ensure that the central bank acts in the broadest interests of the nation, and is appropriately insulated from short-term political pressures and considerations. In this construction, New York does have a special role, but one that stems from where it sits, in New York City, the nation’s most important financial center.
Progress of the chongqing connectivity initiative Against this strong economic relationship between our two countries, the Chongqing Connectivity Initiative (CCI) has made remarkable progress. Trade between Chongqing and Singapore has been growing at a healthy annual average of 5.2% in the last five years. Annual direct investment between our two cities has more than doubled during this period, from RMB 7.4 billion to RMB 22.2 billion $ billion to $ billion). The financial co-operation pillar of the CCI has helped Chongqing corporates to raise offshore financing from Singapore’s financial centre. As of end-2016, 39 cross-border financing deals amounting to RMB 22 billion have been completed. The average financing cost for these deals in 2016 was about 4.86%, a good 70 basis points lower than the average interest rate for one- to three-year RMB loans in Chongqing. The savings in financing costs amounted to RMB 152 million. Chongqing companies have expanded into Asia, with the support of Singapore financial institutions. The China Chongqing International Economic and Technical Cooperation Group (CICET), is the first Chongqing state-owned enterprise to set up in Singapore. United Overseas Bank (China) supported this significant move. Collaboration through the CCI is starting to unlock financing channels for small and mediumsized enterprises in Chongqing. OCBC Bank Limited and Chongqing Rural Commercial Bank are working on innovative solutions to provide cross-border funding to small and medium-sized enterprises in Chongqing. One of our panel sessions later will be discussing this topic in greater depth. The CCI has become the major artery that connects Singapore to Chongqing financially.

Third, as regards the euro area and the sovereign debt crisis, of which the euro area is currently the epicentre, the euro area central banks, and the ECB in particular, have been permanently calling for sound economic policy management, in particular in the fiscal domain, for structural reforms and for reinforced economic governance. As independent institutions that are devoted to stability and that are medium- to long-term oriented, we are an anchor of stability and confidence. This is especially valuable in the turbulent market environment that we are witnessing and that is characterised by acute tensions of some sovereign signatures which are causing negative spillovers on others. Only a few weeks ago, the central bankers were all meeting in the BIS headquarters in Basel in our Global Economy Meeting. Reporting to the press afterwards, I stressed that we were all very closely “united in purpose”: each of us in our own economy, with its different features and challenges, striving to solidly anchor inflation expectations, preserve stability and consolidate confidence. Meeting here in Washington, authorities have the opportunity to display the same unity in purpose to address their economic challenges at home, prevent negative spillovers for the global economy and consolidate confidence in the world recovery.
In my opinion, there could be a possibility that the increasingly skewed distribution of income that has arisen over the past 20 years, particularly in the United States, but also in Europe and in ‘emerging markets, has led to total demand being excessively weak from a global perspective. However, to the extent that the present low price pressure is due to good productivity growth and the increased supply of cheap goods and services from China and India, it can thus be termed “good deflation”. These positive supply shocks, combined with the declining rate of inflation, have led to an increasing number of analysts, including Fed Governor Ben Bernanke, recently drawing attention to the risk that the negative output gap could be larger than anticipated. This would mean that disinflation is more pronounced than we are currently assuming. The structural changes may have made it even more difficult to assess the economies’ long-term growth potential and consequently to estimate total resource utilisation. It is, of course, a complicating circumstance that factors a central bank has difficulty in identifying and controlling are important to inflation trends, in both the short term and in a longer perspective. However, there is at the same time a lot a central bank can do to prevent excessively low price increases and to parry the increased complexity following in the wake of globalisation. Here I would in particular like to emphasise the importance of having a symmetric inflation target that functions as a clear, credible target for participants in the economy.

At the micro-supervisory level, the PRA Board will need to explain some of its remedial measures using the published stress tests. This can make for a richer public discussion of prudential supervision, as well as encouraging firms to address latent vulnerabilities promptly. That brings me back to resolution. Occasionally a firm will be revealed to be so feeble that major surgery is needed. Sometimes recovery measures, overseen by the supervisors, will suffice. Sometimes they will not, with a firm having to go into resolution instead. A sensible stress-testing regime – indeed effective supervision in general – cannot work without a welldesigned resolution regime. That should not be a surprise, but is in fact one of the great lessons of the crisis. Conclusion Over past decades, banking, and banking supervision, somehow got detached from the most essential truth: that banks can fail. Thus, we have banks using brands that do not represent any legal entity, as if banks were simply trying to sell something, not running a business in borrowing and lending. We have an international regime that encourages but does not require adequate loss-absorbency in each and every entity within a banking group. We have had a regime that is focused on the capital needed in a going concern, but not on the organisational and capital structures that would help the authorities to contain disorder in the face of chronic distress. All those issues are now, I believe, in the open. There is a clear way forward on resolution.
What I have in mind here is putting in place stronger, more robust automatic fiscal stabilizers that would provide income support during economic downturns. By reducing fluctuations in disposable incomes, these types of fiscal actions would stabilize aggregate demand, thereby limiting the risk of monetary policy getting pinned at the zero lower bound for an extended period and the need for extraordinary monetary policy measures. I favor automatic, rather than discretionary, fiscal actions because they would typically go into effect more quickly and would be better anticipated. Expectations matter greatly in affecting economic behavior. For example, if the economy were to weaken, the anticipation that strong fiscal stabilizers would kick in to support incomes should lead workers to be less fearful about losing their jobs, and businesses to be less concerned that demand for their products might fall precipitously. This, in turn, would make workers more confident that they could sustain their spending, and would make businesses more confident that they could keep workers on their payrolls. What type of fiscal stabilizers would be most effective? I would turn first to those that Congress has implemented on a discretionary basis during past economic downturns, such as extensions of unemployment compensation and cuts in payroll taxes. For example, when the unemployment rate climbs, extensions of the duration of eligibility for unemployment compensation could be triggered automatically, helping to stabilize household income.

The improvement in trade seems to have been driven mainly by weakness in imports, particularly for capital goods, and by some one-off factors, such as the surge in soybean exports last quarter—both of which are unlikely to continue. With respect to inflation, we are making progress in pushing toward our 2 percent objective. In particular, headline inflation has risen this year as the earlier declines in energy prices have dropped out of the year-over-year figures. And, core inflation has remained broadly steady, running at 1.7 percent over the past year—as measured by the personal consumption expenditures deflator that excludes food and energy. This stability is noteworthy, because one might have anticipated that lower energy prices and a firmer dollar would have pushed core inflation a bit lower. Also, household inflation expectations—which at times in 2015 appeared to be at risk of becoming unanchored to the downside—have been broadly stable. The University of Michigan long-term inflation expectations measure has generally remained in the 2.5-2.8 percent range of recent years. In addition, the New York Fed’s Survey of Consumer Expectations measure of 3-year median inflation expectations has stabilized in 2016 in a range of 2.5-2.8 percent, after declining modestly over the course of 2014 and 2015. Implications for monetary policy If the economy grows at a pace slightly above its sustainable long-term rate, as I expect, the labor market should gradually tighten further, and the resulting pressure on resources should help push inflation toward our 2 percent objective over the next year or two.
And the Bank now has a comprehensive set of market wide and bilateral facilities. These developments give the Bank tremendous flexibility to support financial institutions during periods of stress. As you will see from the FPC’s published record, it was in that context that the Bank decided to announce two additional ILTR operations in the event of a “yes” vote in the referendum on Scottish Independence, as a precautionary measure to backstop sterling market liquidity. As part of its contingency planning, the Bank assessed its ability to provide liquidity support to the banking system should it become necessary and concluded that the range of tools within the existing framework offered sufficient flexibility to respond. But the Bank is not standing still; we are continuing to develop our liquidity insurance framework to ensure that it can react to a wide range of liquidity challenges. First, as part of the strategy to broaden liquidity provision, the Bank has committed to consider the feasibility of offering Shari’ah compliant facilities. All banks must hold an adequate stock of liquid assets to meet prudential regulations and, as the most liquid assets in the economy are the reserves held by banks and building societies on account at the Bank, it would be beneficial to Shari’ah compliant banks to have access to our balance sheet. There are significant challenges to this work: for example, in designing a Shar’iah compliant deposit account which has similar economic properties to interest-paying reserve accounts and in identifying sufficient Shari’ah compliant collateral to support lending facilities.

BIS central bankers’ speeches  3  While such a decision remains possible, the choice of medium-term operating framework is now a genuinely open question and is likely to be become a key issue for the Bank as it considers the future design of the SMF. Whatever decision the Bank makes about its medium-term monetary policy framework it is likely that the floor system will be retained for some time after Bank Rate is increased from its current level. Conclusion The SMF defines how the Bank interacts with markets, when implementing monetary policy and providing liquidity insurance. It is important that we are open and accountable for the operation of the SMF. The MMLC itself and the new SMF annual review process help us achieve that aim. In recent years we have transformed the SMF, and we believe for the better. But reform of the SMF is an on-going process. As my remarks today have made clear, that process is incomplete: further changes to support liquidity insurance are in the pipeline and the Bank needs to keep under review its tools for implementing monetary policy. The Bank is both open for business and open to outside views, and we always welcome feedback from MMLC members or other interested parties on any aspect of the SMF, including at the forthcoming Open Forum. 4  BIS central bankers’ speeches
These limitations were particularly damaging in a period in which significant innovation in financial instruments and market structure was coupled with relatively stable macroeconomic and financial conditions. Uncertainty about the future, and the greater complexity of leveraged structured products, created a dense fog around estimates of potential loss, making institutions and markets more vulnerable to an adverse surprise when conditions changed, and making it harder to manage the many principal agent problems inherent in the financial business. 2  BIS Review 27/2008  In effect, some major banks and investments banks made the choice to follow the market down as underwriting practices eroded. They took on more exposure to low probability but extremely adverse events, despite the potential consequences of getting caught when the music stopped. And even though the largest firms were able to move quickly to protect themselves as conditions worsened, those actions had significant negative effects on market functioning and liquidity. The current episode has a basic dynamic in common with all past crises. As market participants have moved to reduce exposure to further losses, to step on the brake, the brake became the accelerator, amplifying the shock. Measured risk has increased more quickly than many institutions have been able reduce it, and attempts to reduce it have added to volatility and downward pressure on prices, further increasing measured exposure to risk. Uncertainty about the market value of securities and about counterparty credit risk has increased, and many hedges have not performed as intended.

At the conclusion of discussions, the Supervisory Council concluded that the monetary conditions remain appropriate for meeting the medium-term inflation target and decided to leave the key interest rate unchanged at 5.25 %. 4  BIS central bankers’ speeches
Given the enormous scale of the rise in import prices it would have been surprising to see no impact whatever on domestic inflation, particularly against the backdrop of a very tight labour market. But it’s unavoidable that we are having to learn about these effects, and to respond to them, as they emerge. Unlike the more volatile movements in tradable goods prices, shifts in domestic inflation tend to persist for longer and it will require a period of below-trend growth in demand to bring inflation back towards target-consistent rates. Because they’ve depressed real incomes, that slowing in demand will to some degree follow from the very same rises in import costs that have pushed up headline inflation. But monetary policy needs to be tightened as well. My third point is that the response to a pure demand shock – say from easier fiscal policy – is rather different in this respect. We can be less uncertain about its effects, there’s less reason to wait till they actually come through and one would therefore expect a more immediate reaction. For as long as it’s in place, the government’s Energy Price Guarantee has the effect of limiting headline inflation and, to that extent, any related strengthening of second-round (and more persistent) effects on domestic inflation. By the same token, however, it mitigates the severity of the hit to household incomes and thereby supports domestic demand.

Government support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. In particular, as the energy crisis becomes less acute, it is important to now start rolling these measures back promptly in line with the fall in energy prices and in a concerted manner. Any such measures falling short of these principles are likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, in line with the EU's economic governance framework, fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area's supply capacity, especially in the energy sector, can help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU's economic governance framework should be concluded rapidly. Inflation According to Eurostat's flash estimate, which has been calculated using Eurostat estimates for Germany, inflation was 8.5 per cent in January. This would be 0.7 percentage points lower than the December figure, with the decline owing mainly to a renewed sharp drop in energy prices. Market-based indicators suggest that energy prices over the coming years will be significantly lower than expected at the time of our last meeting.