samchain/econo-pairs-v1 huggingface dataset:
Another way to say this is that we probably need to spend as much time discussing the limits of the quantitative outputs of the risk-management process as we do on the estimates produced by the models. Understanding and evaluating “tail events” - low probability, high severity instances of stress - is a principal, and extraordinarily difficult, aspect of risk management. These challenges have likely increased with the complexity of financial instruments, the opacity of some counterparties, the rapidity with which large positions can change, and the potential feedback effects associated with leveraged positions. Stress testing and scenario analysis have become central to the process of risk management, and we have seen substantial progress since 1998. The efficacy of these tools should be judged in part by the extent to which they capture, on a high frequency basis, the full exposure of the firm to a sufficiently broad range of adverse conditions, the aggregate exposure to specific types of different risk factors and types of counterparties, the potential interactions among those factors, the effects of a general loss of liquidity and confidence in markets, and the constraints on the ability of the firm to move to reduce its exposure to further losses. And, of course, the credibility of the risk-management process should be judged not just by the quality of attempts to estimate stress exposure, but also by the impact of these results on the decisions about how much exposure the firm actually takes.

Features of the design and operation of an infrastructure can help to lower risks of this type – for example, by introducing collateralisation and loss-sharing rules, net sender limits and throughput guidelines to promote efficient liquidity recycling – so that failures do not give rise to financial contagion. Again, left to their own devices, users will lack an incentive to take into account fully the costs imposed outside of the system and they again face acoordination challenge in effectively implementing system design or rule changes to reduce such effects. Infrastructure robustness and the changing nature of risks Some of the financial market trends identified earlier have placed additional pressure on potential shortcomings in the financial infrastructure, attracting the interest of the public authorities and, in some cases, prompting targeted intervention. I would like to discuss two of these: financial market innovation; and the global linkages and system interdependencies that arise from the emergence of large cross-border banking groups. Financial market innovation Taking the first of these, over-the-counter (OTC) derivatives markets have grown rapidly in recent years, particularly in the credit sector, driven in part by the shift towards an “originate and distribute” model of banking finance and by greater recourse to credit risk transfer to manage and hedge risks, as well as increasing activity by insurance companies, hedge funds and institutional investors in this sector. The infrastructure for OTC derivatives has, however, lagged behind.
1  4  See the memorandum dated October 9, 2008: Currency swap agreements and attempts to reinforce the foreign exchange reserves. BIS Review 22/2009  As I have mentioned, the Central Bank of Iceland kept close watch on the liquidity of the Icelandic banks throughout 2008, both by compiling data regularly and by meeting with senior executives in the banks. Among other things, the Central Bank tracked the banks’ liquidity virtually on a daily basis and kept abreast of their refinancing efforts and asset sales. It was common knowledge that one of the banks, Glitnir, had a large foreign loan payment coming up in mid-October. Unlike the other banks, Glitnir had not been active in creating a presence in the retail deposit market abroad, having chosen instead to bolster liquidity by selling assets. In mid-September, the Board of Governors of the Central Bank met with the Glitnir management and reviewed the bank’s liquidity outlook once again. At that time, the prospects for funding the October payment were good, and according to information presented to the Central Bank, Glitnir would be able to cover that payment with an asset sale that was virtually complete. It was then that American investment bank Lehman Brothers collapsed, starting a tremor that would shake financial markets all over the globe. In its Quarterly Review in December 2008, the Bank for International Settlements went so far as to say that, after the failure of Lehman Brothers, the global financial markets “seized up and entered a new and deeper state of crisis.

The banks were urged to show restraint and downsize, and to follow that up, the Central Bank specifically collected information from them on their downsizing efforts. They realised, of course, that they were in a tight position, and they responded by selling assets and discontinuing selected activities in a number of countries, among other things. Kaupthing Bank’s decision to abandon its plans to acquire NIBC in the Netherlands was very important in this regard, not just for Kaupthing itself but for all of the banks. The Central Bank supported all of these actions wholeheartedly; however, it did not have the statutory authority power to force the banks to change their conduct. It is known that the Central Bank expressed its growing concern over the position of the banks during meetings with governmental authorities. Early last year, the Central Bank’s concern centred not least on the banks’ large near-term refinancing requirement for the coming years, which I have already mentioned, and the opinion, expressed by leaders of a number of international banks, that the global credit crunch was unlikely to ease in the foreseeable future. The Central Bank feared that credit markets could remain closed to Icelandic banks for some time to come. Although various explanations have been given for the swift rise in the Icelandic banks’ CDS spreads, first in early 2008 and again that summer, it is perhaps possible to claim that the most important explanation lay in growing scepticism about the banks’ ability to obtain the medium-term funding they needed for refinancing purposes.
It is against this background that we have, for example, resisted suggestions that we raise the volume of Exchange Fund paper issuance in order merely to satisfy the market’s appetite. We would much prefer to see other issuers coming forward. We are anyway constrained by our currency board arrangements only to increase the outstanding quantity of Exchange Fund paper to reflect interest payments or in response to enduring inflows into Hong Kong. Another aspect of debt market development which merits some discussion is the potential for retail activity. It is worth reminding ourselves that, although in several countries retail investors have historically been loyal direct holders of government or municipal paper, invariably for long-term investment rather than trading, only in the United States has there been much direct retail interest in the corporate paper market. We have been happy in Hong Kong to provide the means for the small investor to access Exchange Fund notes or Mortgage Corporation notes by listing them on the Stock Exchange, but one should acknowledge that bond markets as a whole tend to be dominated by professionals, trading on an over-the-counter basis, and we should not be surprised, therefore, if retail activity is relatively modest. This does not mean, however, that the man in the street has no need in his wealth portfolio for instruments in this section of the risk-reward spectrum.

In other words, at this stage of the Peso incorporation process to CLS, it is imperative to define the participation of local banking entities, as a Settlement Members or Nostro services providers. •  The current projection is that the Peso will go live before the end of the second quarter of 2022. Therefore, and given the necessary actions, investments, and transformations to connect to the system, the banks must join during this budget period to carry out the implementation process during next year. V.  Central Bank actions to incorporate the Peso  •  The CBC must also perform significant actions, investments, and modifications of its current operation to integrate the Peso settlement into the CLS System. •  Several actions that will be detailed later in this workshop, include extending the operating hours of our Realtime Gross Settlement (RTGS)—Sistema LBTR—to coincide with CLS between 00:00 AM and 6:00 AM. •  In this sense, the CBC is willing to take all the necessary steps to incorporate the Peso and to do business as usual with the Peso settlement in CLS. Page 2 of 4  Central Bank of Chile July 2020  VI. Central Bank actions to improve the Peso convertibility  •  Let me emphasize that CLS is an important piece among the actions taken by the CBC to improve the convertibility of the Peso in a safe environment, following our mandate to safeguard the local and foreign payments.
Although the performance of a currency union should be evaluated rather in the light of price stability, which is the principal task of the area’s central banks (and where performance has been strong), than in the light of fiscal performance, which is the responsibility of individual member states, or financial stability, which – unfortunately – is still largely the province of individual member states, it is not unlikely that the problems facing the euro area will affect voters’ choices. The looming financial and sovereign debt crisis in the periphery of the euro area poses a problem for the conduct of the common monetary policy that must be solved. In the event that membership is rejected, it would be appropriate to consider other options. The measures I mentioned earlier could improve performance without radical changes. How successful they are will be determined to a large extent by the strength of political support for the reforms. For example, will those who consider the decisions of the independent Monetary Policy Committee “crazy” agree to place further tools at the disposal of the Central Bank or an independent financial stability committee? The combination of short-sightedness and populism that has long characterised economic and monetary discourse in Iceland is a roadblock to enhanced stability.

In sum, on Eurostat's current population projections, prepared in 2008, the dependency ratio (the over65s as a proportion of the working-age population) might more than double between 2008 and 2050 from 24% to almost 59%. Everybody is aware of the consequences of these population developments for the sustainability of our pay-as-you-go pension system. Growing pressure would build up on pension spending, meaning that the models currently available, including those devised by the Economy and Finance and Labour and Social Security Ministries which incorporate all the legislative amendments approved in recent years, show that this public spending item would double over the time period referred to above. As a result, the system could run a rising deficit as from 2025. It should also be highlighted that the latest demographic developments, in particular the heightened migrant inflows into Spain, do not resolve the problem. At best, the inflow of working-age immigrants holds back the increase in the dependency ratio derived from population ageing and, therefore, delays the emergence of the problems. But the full scale of these problems will persist. How can we tackle the challenge that demographics pose for our pension system? The scale of the problem calls for a three-pronged strategy. First, the strategy should be far-reaching, i.e. blending measures on different fronts. Specifically, the measures should pursue healthy public finances, implement structural reforms in the economy and seek to reform the pension system, as I shall now expand upon. Second, discussion of these measures should not stretch out over time.
However, long periods of low interest rates unavoidably create incentives for risk taking and “search for yield”. That dilemma can, in principle, be solved through proper macroprudential policies. I will return later to challenges we face in that specific area. The meaning of price stability Let me start with a crucial point. Central banks have a strong mandate to preserve and achieve price stability. Strict adherence to this mandate – and the clear willingness to fulfil it – is their main protection against the dangers created by the zero lower bound. As we all know, inflation is ultimately driven by expectations. Inflation expectations were remarkably stable during the whole first decade of the euro. Today, the major risk in the euro area is a downward drift that would durably set long-run inflation expectations at a level below our objective of price stability. We do not know much about how expectations are formed. However, I have no doubt  BIS central bankers’ speeches  1  that the perceived reaction function of the central bank plays a major role in anchoring price stability. Second, symmetry is of the essence. For a significant period of time, we have been well below our definition of price stability in the euro area, both in terms of effective inflation and long-term expectations. There is a temptation to take a benign view of this situation and consider that low inflation is beneficial per se, irrespective of its level.

In addition, with the cooperation of local and international authorities an early warning system should be constructed so that the fragilities in the international financial system would be identified and necessary and sufficient measures to fix them would be taken beforehand. In this context I believe that effective and efficient risk management and re-regulation will be the cornerstones of the new global financial architecture where the financial intermediation should not let the direct relationship between lender and borrower to be cut completely under various forms of effective risk diversification and securitization. Sound domestic policies for a healthy banking sector are necessary but not sufficient for addressing contemporary challenges of the global world. In this respect, improving policy coordination at the regional and international level is a must. Only then, we would be able to attain the optimal level of international financial regulatory rules and guidelines together with adequate tools that would match the complex nature of the international financial markets. With this consensus in mind, G-20 leaders at their summit in mid November, agreed upon an important set of principles on reforming the international financial architecture. We strongly support the promotion of these principles that include strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions. We must lay the foundation for reform altogether to ensure that a global crisis, such as this one, does not occur again. Thank you. 2  BIS Review 153/2008
Some of the impact may be alleviated through a judicious mix of government spending and revenue options so as to reduce the depth and duration of the slowdown. For example, an increased recourse to EU cohesion and solidarity funds may help alleviate the structural adjustment necessary and make the economy of the programme countries more competitive at the same time. Given the extent of the downturn is some member states, this option is likely to require a strengthening of the EU budget which in turn needs to be financed. However, not all member states are in a stressed environment, and it may be possible to consider other financing options, especially where bond interest rates in some member states are rather low, even below the inflation rate. EU level solidarity and cohesion assistance may prove a crucial catalyst to the required structural changes. One has to also keep in mind that governments are increasingly accountable not only to their parliaments and electorates, but also to investors in the financial markets, and pressure from the financial markets becomes more acute when a country is in financial distress.4 In addition, financial markets take a very comprehensive view in their scrutiny of the sustainability of a country’s finances. Even compliance with the Maastricht criteria may not be enough as there could be other imbalances that would undermine market confidence. For example, in the case of Ireland prior to the financial crisis, the country was doing well according to the Maastricht criteria.

We expect to enter the next phase over the coming years when GDP growth will slow down. This indicates a lower rate of increase in productivity. Another factor that indicates a lower rate of increase for productivity is the composition of the labour force. The rapid increase in employment means that an unusually large number of new job-seekers are entering the labour market. It is reasonable to expect that those who now obtain jobs have a slightly lower productivity than those who already have jobs. In addition, employment is mainly increasing in the service sector, which also indicates a lower rate of increase in the future. Structural factors also indicate a slowdown It is more difficult to assess how globalisation, deregulation, IT investments and other structural changes will contribute to productivity growth in the future. Some structural changes are of a one-off nature while others are ongoing processes without any clear ending. And even if these changes are of a one-off nature, such as the fact that Sweden joined the EU, they may have significance for a long period of time. Globalisation is a factor that will probably continue to be a driving force behind productivity for a long time to come. Integration within the EU is deepening. The countries in eastern and central Europe who  6  4  Greenwood & Krusell (2007)  BIS Review 61/2007  have moved away from planned economies have many years of rapid development ahead of them before they reach levels corresponding to those in western Europe.
26  All speeches are available online at www.bankofengland.co.uk/speeches  26  Chart 21: Impact of QE, across the income distribution  Chart 22: Impact of monetary policy on welfare, across the income distribution  Impact as of 2012-14 (% of annual income)  Utility Total income  50 House prices Inflation effects Financial asset prices Macro effects on labour income Total  0.035  Total wealth 0.03  Unemployment effect  40  Total  0.025  30 0.02 20 0.015 10  0.01  0  0.005 0  -10 1  2  3  4 5 6 7 8 9 Income decile in 2012-14  10  1  All  2  3  4  5  6  7  8  9  10  All  Income decile in 2012-14  Sources: ONS and Bank calculations Note: Chart shows average cumulative real impact of QE since 2007 as of 2012-14 as a percentage of annual income.

Conclusion  A detailed, disaggregated analysis of household balance sheets suggests the material loosening in UK monetary policy after the financial crisis did not have significant adverse distributional consequences. To the contrary, a detailed household-level analysis suggests that the majority of cohorts across the economy were significant gainers from this loosening, in financial and welfare terms. The channels through which monetary policy has affected people’s lives are often neither easy to observe nor well-understood, giving rise to a large perception gap on the part of the public about the true impact of monetary policy on them. This is not a failing on the part of the public. Nor is it a failing in the effectiveness of policy. Rather it reflects the difficulty of capturing the often subtle ways in which monetary policy affects people, in a way that is clear and relevant to them. While difficult, this is not an impossible objective, as other domains of public policy have demonstrated. A disaggregated analysis can be used to help decompose the ways and means and amounts by which different sets of households have been affected by monetary policy. Some illustrative and tentative examples of these personal “monetary policy scorecards” have been shown. 46  As discussed in Haldane (2017), the Bank already has various initiatives in train to support an increase in public understanding of the economy, such as layered communication, outreach initiatives and educational materials for schools.
Overall, the June 2013 Eurosystem staff macroeconomic projections for the euro area foresee annual real GDP declining by 0.6% in 2013 and increasing by 1.1% in 2014 thanks to three main drivers: export growth, accommodative monetary policy and low inflation. BIS central bankers’ speeches  1  2. How can we boost growth further in the euro area? A strong fiscal stimulus obviously appears unfeasible, given the necessity to rebalance public finances. I want to stress two things here: •  The euro area has very rapidly and efficiently set to work to cure its fiscal weaknesses and can today boast some of the best results among the major developed economic regions: its public deficit has been reduced from 6.3% of GDP in 2009 to approximately 3% today; by the end of 2013, the euro area should show a positive primary balance;  •  While the commitment to progressively achieve sustainable levels of public debt and deficit has to be achieved; the measures need to be designed in such a way as to limit the negative side-effects on growth. For instance, efforts need to be focused on non-productive spending. In fact, there is only one way to durably raise the growth potential of our economies, and that is by structural reforms that enhance competitiveness. It is clear that the euro area is well equipped to confront the challenges of the 21st century. With 370 million consumers and high purchasing power, it remains the biggest market in the world.

The euro area economies were badly affected by the crisis (first financial, then economic, then sovereign debt), and the fiscal adjustment that became necessary to overcome it has had a negative impact on growth as well. ECB projections see a gradual recovery taking shape later this year. A number of elements support this view: •  Our accommodative monetary policy stance – which will remain so for as long as necessary – should contribute to underpinning this recovery;  •  Recent developments in economic sentiment survey data have shown some improvement from their low levels;  •  Looking ahead to later in the year and to 2014, euro area export growth should benefit from a recovery in global demand, while domestic demand should be supported by our accommodative monetary policy stance and by the recent real income gains due to lower oil prices and lower overall inflation. •  Furthermore, the significant improvements in financial markets seen since last summer boost confidence and generate wealth effects and should work their way through to the real economy, as should the progress made in fiscal consolidation. Nevertheless, the Governing Council continues to see downside risks surrounding the economic outlook for the euro area. They include the possibility of weaker-than-expected domestic and global demand and the slow or insufficient implementation of structural reforms in euro area countries.