samchain/econo-pairs-v1 huggingface dataset:
2  BIS Review 40/2004  The phenomenon I just described was, in fact, demonstrated in the recent mid-May episode of Asian stock market correction and the associated volatility in response to the reported withdrawal of foreign funds from the Asian market. This was a moderate episode that presented some threat to financial stability, and the markets were well able to take it. If the various measures introduced to strengthen financial systems after the Asian financial crisis had not been in place, and if Asian economies had not been in a recovery phase at this time, the impact of this volatility in fund flows could well have threatened monetary and financial stability in the region. Given the structural trends that I have described, and the market dynamics associated with them, even with benign conditions and stronger financial systems, there is a danger that, as this recycling pattern grows larger, the risks to stability will increase. One way to address the above problems is to develop a regional bond market that is capable of recycling regional wealth in a more efficient and healthier manner, thus reducing the probability and the destabilising impact of any reversal of fund flows on the domestic financial markets. Fostering regional bond market development That, briefly, is the case for a regional bond market. Indeed, it is more than a case for just having a regional bond market. It is also a case for developing such a market, and taking quite vigorous measures to stimulate development.

Market capitalisation of domestic bond markets more than doubled over the past nine years - from an average of 20% of combined GDP in 1995 to 47% in 2003. During the same period, the combined share of bond markets in total financing grew from 11% to 19%. Bond markets are, therefore, a growth industry. Quite apart from the considerable initiatives by the private sector, bond market development has been a particular target of initiatives by governments and multilateral agencies. There are good reasons for this. My intention in this short address is to set out briefly these reasons - to put the case for an Asian bond market - and then to examine some of the work that is in progress in this field, particularly from the point of view of the central banks. The need for an Asian bond market The underdeveloped state of the Asian bond market - compared with the bond markets in the industrialised economies - has been well documented in recent years. Despite the impressive growth of the size of the Asian bond market that I have just mentioned, it still lags behind the developed economies in terms of breadth and depth. For example, the market capitalisation of the domestic bond market in the US, the UK and Japan is equivalent to over 150% of the GDP compared with just 47% in ex-Japan Asia. Activity in the secondary market is also relatively low.
8  The Herfindahl-Hirschman Index (HHI) is defined as the sum of the squares of the market shares of all firms within the industry, where the market shares are expressed as fractions. As a general rule, an HHI below 1,000 signals low concentration, while an index above 1,800 signals high concentration. For values between 1,000 and 1,800, an industry is considered to be moderately concentrated. See ECB Banking Structures Report, October 2014. BIS central bankers’ speeches  5  during the crisis, with negative spillovers to credit. Thus, there would be macroeconomic benefits not only to within-country consolidation, but also to cross-border consolidation. In a single market, we would expect the private sector to drive such a rationalisation process, especially given the efficiency gains that can be reaped from cross-border M&A in terms of, among of things, information technology and corporate overhead costs. 9 There are several explanations for why this has not happened, but part of the reason seems to be the effect of a fragmented supervisory and resolution regime, which raises the costs of entry for crossborder banks and reduces the economic synergies of integration. For example, industry surveys suggest that an important factor in low cross-border M&A before the crisis was opaque supervisory approval procedures. The high compliance costs created by different sets of national rules and interacting with several different authorities also affected the deal economics.

And the latest bank lending survey saw banks report a further easing of overall credit standards. Second, the Comprehensive Assessment, which we concluded just a few weeks ago, has encouraged banks to frontload their balance sheet repair and recapitalisation efforts. The  1  The figures are adjusted for sales and securitisation. BIS central bankers’ speeches  1  exercise has also identified € in capital shortfalls and imposed important prudential requirements on banks. Taken together, these actions increase transparency and confidence in the banking sector, which is a pre-condition for stronger recovery in credit. Third, against that background, we expect the monetary policy initiatives we adopted in June and September to gain pace in the coming months, thus incentivising lending to the real economy and ultimately bringing inflation closer to 2%. As evident from the latest bank lending survey, participation in the Targeted Long-Term Refinancing Operations (TLTROs) is likely to pick up in December and beyond; the covered bond purchase programme has begun; and the operational preconditions to start asset-backed securities (ABS) purchases are now met. Indeed, reflecting this progress in implementing the June and September packages, we have already observed a considerable easing of the effective monetary policy stance – although the liquidity injections via the TLTROs and purchase programmes are only starting to accumulate. These measures will have a sizeable impact on the Eurosystem’s balance sheet, which is expected to move towards the dimensions it had at the beginning of 2012.
13 [17]  References Auclert, Adrien, Hannes Malmberg, Frederic Mertenet and Matthew Rognlie (2021), “Demographics, wealth, and global imbalances in the twenty-first century”, NBER Working Paper 29161. Blanchard, Olivier (2019), “Public Debt and Low Interest Rates”, American Economic Review 109(4), pp. 1197–1229. Calmfors, Lars (2021), “Det är kanske dags att ompröva det finanspolitiska ramverket” [It may be time to review the fiscal policy framework], article in Dagens Nyheter, 21 October (in Swedish). ECB (2021), “The ECB’s monetary policy strategy statement”, https://www.ecb.europa.eu/home/search/review/html/ecb.strategyreview_monpol_strategy_statement.en.html Economic Commission (1993), Nya villkor för ekonomi och politik [New conditions for the economy and politics], Economic Commission’s proposal, SOU 1993:16 (in Swedish). Government (1997), Government Bill 1996/97:150, 1997 Spring Bill (in Swedish). Government (2021), Statement of Government Policy, 30 November. Jansson, Per (2019), “Considerations of an interest rate dove and an inflation hawk”, speech at Danske Bank, 3 December. Jansson, Per (2020), “Thoughts on the need for changes to inflation targeting”, speech at Handelsbanken, 16 December. Lane, Philip R. (2021), “The future of the EU fiscal governance framework: a macroeconomic perspective”, address at the European Commission’s webinar on “The future of the EU fiscal governance framework”, 12 November. Lagerwall, Björn (2019), “Fiscal policy in a monetary policy perspective”, Economic Commentaries No. 5, 2019, Sveriges Riksbank. Leeper, Eric M. (2018), “Sweden’s fiscal framework and monetary policy”, Economic Review 2018:2, Sveriges Riksbank.

In this way, fiscal policy’s stabilisation of public debt supports the tightening of monetary policy – fiscal policy and monetary policy are pulling in the same direction. Greater dependence than we usually think... But if the budget process works poorly and higher public expenditure is routinely financed by the government raising even more loans, then the economic agents will not expect a tighter fiscal policy, at least not until the government, at some point in the future, will perhaps find itself absolutely forced to pursue such a policy. This, in turn, helps to keep demand up and it becomes more difficult for the central bank to use rate increases to counteract the rise in inflation, as fiscal policy and monetary policy are pulling in different directions.10 Framed in this way, the relationship between monetary policy and fiscal policy is straightforward and intuitive. However, the mechanisms actually also work in about the same way when policies move in the opposite direction, and that is something that I believe we may need to pay more attention to and discuss more. If inflation is low for a period, the central bank’s policy rate will also be low. In the same way as before, therefore, government interest expenditure will be affected. But in this case, it will decrease, which means that public finances will improve. If the task of fiscal policy is to keep public debt stable, there is thus room to pursue a more expansionary fiscal policy than would otherwise be the case.
At this meeting we will make a collective assessment of events since the previous forecasts were made. The monetary policy strategy Many may wonder why we increase the interest rate despite the fact that inflation is currently slightly below target and there is still spare capacity in the labour market. What must be remembered in order to understand why monetary policy needs to be brought gradually onto a less expansionary path is that it takes time for the economy to adjust to changes in the repo rate. This means, for instance, that we have not yet seen the full effect of the expansionary monetary policy we have conducted in recent years. It also means that interest rate decisions must be based on an assessment of how the economy will look a few years from now. Let me describe how we usually reason when making interest rate decisions. This is also something described in greater detail in the document on monetary policy that we published last week. The objective of monetary policy is to maintain price stability. This was established in the changes to the Sveriges Riksbank Act, which came into force in 1999. The Riksbank has specified this in the form of an inflation target, whereby the rate of change in the CPI should be 2 per cent with a tolerance interval of +/- 1 percentage point. Stable prices are thus the objective of monetary policy in Sweden, as in all other countries in the industrialised world.

Many observers of the SNB’s activities have expressed a desire that this proportion be larger. Yet such an increase is not without risk. While the inclusion of equities in a portfolio can reduce the risk profile as a result of the diversification effect, this is only true up to a certain level. We estimate this level of equities to be between zero and 5% of the portfolio. While a higher share would naturally translate into a higher return on the portfolio, it would also mean incurring greater risk. Any increase in the proportion of equities must therefore be analysed from two vantage points: return and risk. Additional risk can run contrary to the criterion of security that the SNB applies to its investments. Let me now turn to the fifth and last challenge: Managing exchange rate risk. The return on foreign exchange reserves essentially fluctuates in line with changes in local currency returns versus Swiss franc returns. This exposure to exchange rate risk is the result of the SNB’s monetary policy. It thus forms, so to speak, part the DNA of a central bank’s activities in a small open economy such as ours. Eliminating this risk would go against monetary policy, which remains the SNB’s priority. We therefore have to live with this risk and try to reduce it without getting rid of it completely. To this end, the Governing Board pursues a strategy of maximum diversification across the currencies at its disposal.
This fact, highlighted many years ago by Steve Davis and John Haltiwanger in the US, was no less apparent during the great recession in the UK. Employment fell by over half a million between 2008 and 2010. But even over that period there were over nine million new jobs created, over ten million if you include job-to-job flows. On average, over the past 10 years, gross inflows and outflows into and out of employment have run at an annualised rate of around one sixth of the stock (Chart 1). As I say, this has been long understood. Nor should it be forgotten that, whatever the complicated texture underneath, the aggregate economic data still exhibit significant empirical regularities over the business cycle. Chart 2 is one example. Using annual data during the inflation targeting period, the black line plots annual growth in average earnings, less inflation expectations, against the rate of unemployment. At least until the past couple of years, when AWE growth appeared unusually weak, the fit was pretty good. Higher unemployment has gone hand-in-hand with lower real wage growth. Uncannily, the regression line was pretty much exactly the same as that identified by A.W. Phillips, using data from the classical gold standard period (1870–1913), in the 1958 paper that gave the relationship its name (that regression line is in blue). Yet, from time to time, what happens under the surface has material effects and can distort these aggregate relationships. Today I want to describe one such example, involving compositional shifts in the labour market.

Caleb M Fundanga: Financial market progress in Zambia Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Equity Capital Resources Unit Trust, Lusaka, 21 April 2008. *  *  *  Chairperson Distinguished Ladies and Gentlemen, Let me at the onset express my gratitude to Equity Capital Resources Plc for inviting me to come and officially launch its collective investment scheme which I understand will be called “Equity Capital Resources Unit Trust” or ECRUT in short. This indeed is gratifying to everyone who is anxious to see our financial markets progress. As many of you gathered here already know, the Bank of Zambia in consultation with various stakeholders initiated and developed the Financial Sector Development Plan (FSDP) in 2004. The vision of this Plan is to have a stable, sound and market-based financial system that supports an efficient mobilisation and allocation of resources. It is therefore pleasing that the introduction of ECRUT takes us closer to fulfilling the vision of the FSDP. Ladies and Gentlemen, am sure you will agree with me that collective investment schemes are an indispensable part of market development with several benefits. One of the primary benefits of collective investment schemes is that small investors can have access to professional investment management. Many of our people are not conversant with financial investment matters, yet they are eager to enhance their wealth. Many simply do not have the capacity to identify and manage investments that are appropriate to their risk-return appetite.
Moreover, these institutions might be in a stronger position to cope with a cyclical downturn in Norway or a crisis situation than banks concentrated in Norway. At the beginning of the recession at the end of the 1980s, the Norwegian financial system plunged into a deep crisis. The debt consolidation that was necessary in the business and household sectors contributed to a sharp and prolonged downturn. In the long term our financial system may, in my opinion, suffer in the absence of restructuring and growth capabilities. However, the overall picture is that we are better prepared this time. Households are not grappling with the same debt burden and our financial industry is in better balance. An oil-dependent economy The fall in oil prices has resulted in a substantial loss of revenues in Norway. Since 1997 this has resulted in a decline in export earnings corresponding to about 5.5% of total national income. This represents the same decline in our disposable income as between 1985 and 1986, when oil prices fell by close to 50% over a few months. This time, however, the current account balance has deteriorated by a smaller margin. Growth in imports has been slower than 12 years ago. The value of non-oil exports has increased this time, while it fell in 1986. But the effect on the external account has been substantial this time as well. BIS Review 20/1999  6  The fall in oil prices has weakened Norway’s terms of trade.

We also developed carbon intensity metrics for the equities portfolio, which we extended to cover corporate bonds last year. We then set out the portfolio actions we will take to reduce the carbon intensity of our equities portfolio by up to 50% by FY2030. These included: defining the stewardship principles for our external fund managers to engage their portfolio companies on climate-related risk issues; launching a climate transition programme to mitigate the impact of climate transition risk; and excluding investments in companies that derive more than 10% of their revenues from thermal coal mining and oil sands activities. Let me provide an update on our climate scenario analysis, climate portfolio actions, and stewardship efforts. We have examined the possible impact of climate change on our long-term investment returns under four scenarios. The best-case scenario is a Paris-aligned orderly transition where global warming is capped at 1.5-degrees Celsius. Early and ambitious policy measures drive the adoption of low carbon technologies and result in quick reduction in global greenhouse gas emissions. The worst-case scenario is a failed transition with temperatures rising to 4-degrees Emissions continue to rise and the world is faced with catastrophic and irreversible climate change. A first middle scenario is a delayed disorderly transition that keeps temperature rise within 2-degrees. But this is at the cost of disruptive policy actions in response to an alarming spike in extreme weather events around the globe happening at the same time. A second middle scenario is a too-little-too-late transition that results in a temperature rise close to 2.6-degrees.
There is therefore a common feature of banking and insurance in terms of continuity of access to critical financial services. The PRA has the general objective of ensuring the safety and soundness of the firms under its regulation. Safety and soundness is defined in terms of the resilience of the financial system, which in itself is closely linked to the access of users to critical financial services on a continuous basis. But for insurance we have a second objective, namely the protection of policyholders. Why do we have a second objective for insurance? For me, the reason is that continuity of insurance protection – of risk transfer and long-term savings products – requires a greater assurance that the policyholder has access to their contract – in other words, it is quite contract specific, and in some cases those contracts are long-term in nature. For banks, depositors want continuity of access to funds, but they have less need of access to the exact contract – deposits can be moved. Put another way, most of the underlying risks to banks arise from their assets, whereas for insurers they arise from liabilities and assets. So, we need somewhat different objectives for prudential supervision. The traditional model of supervision has been quite industry specific. The FSA regime introduced in 1997 created a single authority, but within the FSA the framework of rules  BIS central bankers’ speeches  1  applied to insurance supervision was unique to the industry.

Our use of early warning indicators is precisely because we have learned the hard way with banks that excessive reliance on modelled capital requirements lends itself to cutting capital levels too low. In banking supervision we are playing catch-up by working to raise capital levels from ones that were too low. We can avoid that outcome for insurance by acting now to introduce sensible backstops. Turning finally to the broader global environment, the financial crisis has led to a great deal of debate around whether insurers contribute to systemic risk in the financial system. The IAIS has been considering whether there are insurers which can be classed as Globally Systemically Important. In doing so, it has developed a methodology to identify insurers whose distress or disorderly failure, because of their size, interconnectedness, and the nature of their activities would cause significant disruption to the global financial system and economic activity. This work is at an advanced stage and we should hear shortly from the Financial Stability Board on a list of global systemically important insurers. The implications for being labelled as a GSII will then need to be considered. The PRA recognises that insurers are not systemic in the same way as banks. However, we strongly believe that failure of some insurers could have the potential to pose risks to the stability of the financial system or to directly disrupt economic activity through the availability of risk transfer.
Challenges for the next decade  I want to devote the remainder of this lecture to the challenges facing the Monetary Policy Committee over the next ten years. That is not because I see major fault lines in the present arrangements. On the contrary, the careful institutional design that lay behind the construction of the MPC has proved its worth. Nor is it because I share some commentators’ boredom with a system that has remained largely unchanged for a decade. After all, in the area of macroeconomic policy, boredom is a good thing. Rather, it is a conviction that to remain successful the MPC must always be engaged in a process of continuous improvement. The anchoring of inflation expectations has been central to the stability enjoyed by the UK economy over the past decade. The key lesson from economic theory is not to take those expectations for granted – they depend on the actions of the MPC. Inflation expectations have been anchored because the MPC has responded to events that have pushed the outlook for inflation away from target, and households, businesses and financial markets have understood and anticipated our responses. So the main challenge facing the MPC is to keep doing whatever is necessary to keep inflation on track to meet the target. In modern models of inflation, monetary policy is represented by a “reaction function” that is sufficient, in that model, to pin down inflation and, therefore, inflation expectations. But that just assumes away the challenge facing us.

Since many of those rates are unobservable by the MPC, money, credit and asset prices may contain valuable information about the likely outlook for spending.15 As chart 10 shows, there are times when monetary developments have represented shocks that have affected the supply of money and proved a warning sign of inflationary risks. At other times, its movements have been dominated by changes in the demand for money. In 1973, for example, broad money growth had picked up sharply but inflation was subdued. Yields on gilts provided no indication that a rise in inflation was expected by financial markets. But the rise in money growth, which looked at first to be another instance of a change in the demand for money, was in fact an increase in supply and led to faster expansion of spending in the economy and, by 1975, higher inflation. The 1980s illustrate shocks to both money demand and supply. The first part of the decade was a period of large structural change in financial markets. The demand for money rose sharply relative to spending in the economy so, for a time, broad money growth was rapid and inflation was falling. That structural change probably continued into the second half of the decade. But it now seems that there was also some unwarranted expansion of the supply of money. For a time, that shock was disguised as further structural change in the demand for money but, in 1988, inflation began to rise. It is easy to be wise after the event.