samchain/econo-pairs-v1 huggingface dataset:
Of course, risk management should help us reduce the frequency and size of negative events and then recover more quickly and effectively when negative events occur. But, risk management, in my view, should also help the right things happen by giving us tools to work more effectively.2 Innovation is an essential tool to manage risks, because not changing can be riskier than changing. For example, an incredibly powerful risk management activity is to transform a slow, manual process that often fails into a fast, efficient, automated process that can self-correct when there is a problem. Clearly, it is just as important to understand the risk of not doing something as it is to understand the risk of doing something. And, when we understand our risk appetite and our risks, we can comfortably conduct controlled experiments, learn faster, and innovate. We're no longer driving in the dark; we're getting where we want to go with headlights on, and we can stay inside the guardrails and not skid off the road. Second, risk management could be misunderstood as primarily the responsibility of risk management specialists. Actually, effective risk management is a way for everyone in an organization to help things go right. From the economic analysts to the cash processing operators to the software engineers, we can make better plans, decisions, and actions when we are prepared for change and have the capacity to adapt to surprises.

The shifts in demand during the pandemic – which are geographical as well as sectoral – may have introduced a degree of dislocation between the two. Another is that the sheer speed of the recovery has thrown some sand in the wheels of the labour market. It’s usual for actual hiring to lag changes in vacancies and, so rapid has been that increase in vacancies, there was bound to be a bit of friction in the process of filling them (see Chart 15). These aren’t mutually exclusive, but the latter would be slightly more benign because it would need only time for things to improve. Once those wheels start to turn, and jobs get allocated, one would expect some of this pressure to abate. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  Whether that’s the case remains to be seen, however. And, in the meantime, the result is continuing upward pressure on pay. Chart 14 included a survey index of wage growth for new  Chart 19. Wage growth stronger than usual, given the rate of unemployment Annual nominal wage growth, per cent 5 2021  4  employees. Chart 19 plots official numbers for average wage (AWE) growth across the economy as a whole, in the years since the financial crisis,  3 2013-19 2  against the rate of unemployment. Unfortunately, labour market data have been subject to significant distortions during the pandemic.
I spoke about this at length in a recent speech in Hong Kong, and I refer you to that speech if you need a sleeping aid this evening.1 The advent of the dots The intense focus on when we are likely to raise the overnight rate is understandable. I was a banker in my previous life, before migrating to portfolio management; I spent 20 years in both professions before going into public service so as to “pay it back.” As a banker and market operator, I naturally wanted to eliminate uncertainty as much as possible. The adage “don’t fight the Fed,” was prevalent then, as it is now, so I would garner as much knowledge as possible about future Federal Reserve intentions and moves in order to position my book. Then, we had little information. The FOMC under Paul Volcker did not even announce its decisions, and the market was left to discover them on its own. Later, under Alan Greenspan, the FOMC began the process of releasing information about decisions taken, but any clues as to future intentions required one to divine some signal from the chairman’s almost mystical pronouncements and oracular circumlocution. Chairman Ben Bernanke worked with the FOMC to instill greater transparency under the assumption that providing as much information as we can enlightens markets so as to modulate the possible disruption of surprises and allows decision-makers – from consumers to businesses to bankers and investors – to plan forward.

To this end, we now release copious amounts of information, including the forecasts of economic activity and the year-end level at which we see the rate on overnight money trading, as foreseen by each individual FOMC participant under his or her assessment of appropriate monetary policy. We call this exercise the Summary of Economic Projections, or SEP for short. We release it quarterly. I draw your attention to it because it has become something of a phenomenon among analysts preoccupied with the entrails of policymaking and has taken on a life of its own. You read about it in the papers and get analysis of it from market soothsayers. Yet, I want to caution you against becoming overly preoccupied with the FOMC’s SEP. In my less than humble opinion, it is a flawed tool. Let me explain why. Here is what the last SEP release for the fed funds rate looked like. It provided the FOMC participants’ projections for the overnight rate at year-end for the next three years and beyond to the “longer run,” as foreseen from March 19:  1  4  See “Forward Guidance,” by Richard W. Fisher, remarks before the Asia Society Hong Kong Center, Hong Kong, April 4, 2014, www.dallasfed.org/news/speeches/fisher/2014/fs140404.cfm.
With growth slowing sharply, the crux of the debate right now is whether the slowdown is temporary, reflecting one-off negative shocks, or long-lasting, as the initial growth spurt from undertaking “low-hanging fruit” reforms dissipate and the transition towards a more sophisticated growth model not yet accomplished. I will not argue for or against either of these views. Rather, let me put on my economist’s hat and say that “it depends”. But don’t worry, I will not spend the next 10 minutes boring you by spelling out all the arguments on each side or listing all the strengths and weaknesses of emerging market countries. Instead, I will highlight what I see as the critical steps needed to successfully see these countries through the current transition. This leads me to a focus on domestic factors. Ultimately, growth depends primarily on what happens at home. External conditions alternately provide headwinds or tailwinds, but the ability to counter or take advantage of these shifts is determined by domestic capabilities. Now some of you may think of endowment of resources, such as land and labour, as the most fundamental domestic factor. And you are right. Factor endowments do give some countries a head-start over others. Oil exporting countries are a prime example. But the long-run prosperity of nations is not bound by their endowments. Times magazine recently ran an article on the fact that Holland is Europe’s largest tomato exporter. One of the most critical ingredients in growing tomatoes is sunshine. Holland is cold and gets little sunshine.

Many analysts actually believe that several emerging market countries are already at this point. As such, moving forward will be possible only with further institutional reforms. Such a sentiment is echoed in former premier Wen Jiabao’s description of China’s impressive growth performance as “unstable, unbalanced, uncoordinated, and unsustainable”. So we know, by and large, what is needed. Indeed, economists have done a very good job at explaining the importance of institutions for growth. But how do we achieve institutional change? Why do some countries manage to improve their fundamental capabilities while others languish? This is the heart of the matter. It is not hard to spot bad institutions when we see it and propose changes that would seemingly yield large benefits. It is another issue entirely how to make the change happen. In this regard, policy prescriptions that call for “growth enhancing structural reforms” or “strong institutions” alone is partial at best. That’s like saying that if you want to get fit, you should exercise. Good advice, but not very useful. A practical reform strategy must be based on a ground-level perspective of how institutional change happens. Policy can then be tailored to maximize the chance of success. So how does institutional change happen? The answer seems to be a mixture of history, will power, and luck. It relates to the complex power dynamics in a country. Structural reforms create winners and losers. The winners are often diffused and dispersed. Conversely, the losers are often easily identifiable, powerful and well-organised.
I believe that, whilst liberalisation is important, the RMB becoming an international currency to a large extent is not a matter of policy alone – it is also subject to market forces. In other words, it would come from non-resident corporations and financial institutions deciding that the RMB served them well as a unit of account, means of payment and store of value for their international transactions. I’m not sure any of us are in a position to predict if and when this will happen. However, I feel that we can say with some confidence that the landscape of the offshore RMB market will change in two respects. First, we are likely to see the increasing maturity of the offshore RMB market, both in terms of the depth and breadth of the market and the efficiency of price-setting and allocation of RMB funds. In more granular terms, this means we will see an expansion and greater diversity of RMB financial activities:   Up till now, the intermediation of RMB funds has been primarily about placement of bank deposits by personal and corporate customers. In future, it will move more towards issuance and investment of bonds and a wider range of other financial instrument and products.   At the same time, I would expect that in future there will be more active borrowing and lending of RMB funds among banks. If so, this would lead to the emergence of a RMB interbank funding market.

The amount due to and due from such overseas banks amounted to RMB 128 billion yuan and RMB 146 billion yuan respectively, a clear indication that banks from around the world are using the robust platform and large liquidity pool to offer RMB services to their customers at home. Looking ahead, we in Hong Kong will seek to broaden and deepen our offshore RMB market further, by enhancing our RMB infrastructure and encouraging participation. In doing so, we will continue to cooperate with other places along the way. From the end of next month, the operating hours of our RMB Real Time Gross Settlement system will be lengthened to 11:30 pm Hong Kong time, giving financial institutions in different parts of the world an extended window to settle offshore RMB payments through the Hong Kong infrastructure. Moreover, the Hong Kong – London Forum for promoting cooperation on the development of offshore RMB business just convened its first meeting yesterday. I am very pleased to note that the group had a very productive discussion, with concrete joint action plans set forth for enhancing offshore RMB market activities in both places. Meanwhile, we at the HKMA will also be continuing our efforts to raise awareness about the developments of offshore RMB businesses and the comprehensive services provided by Hong Kong in this regard.
There is a good reason for this. Disclosure is an incentive for individuals to cast their vote for the policy most likely to hit the government’s inflation target. I have little doubt that the prospect of having to defend one’s voting record in public makes individual members of the MPC well aware of their responsibilities. There can be no hiding BIS Review 53/1998  -4behind the coat-tails of the chairman, nor disowning a decision subsequently by claiming to have argued against a position adopted by consensus. Transparency should improve both the quality of decisions and the accountability of Committee members. But there is an additional point which is fundamental to the role of the Monetary Policy Committee. Its purpose is to take technical decisions about the level of short-term interest rates. When the issue is one of technical judgment it is better to rely on the collective wisdom of nine people than the views of only one individual. I have noticed that the highest in the land often rely on teams of doctors whereas you and I have only one. Of course, it is often tempting to take comfort from the great confidence with which any one doctor proclaims his or her diagnosis. But the evidence suggests that in difficult cases reasonable experts can interpret the evidence in different ways. Rather than take comfort from one self-confident view, which I would find difficult to challenge, I would like to know where the balance of professional opinion lies.

The FPC has recommended that banks should ensure that they take the necessary steps to put our system in a place where it can support the economy without compromising its stability. The Bank of England has taken steps to extend the Funding for Lending Scheme, and within that has acted to provide a clear incentive to stimulate lending by banks to small firms. But banks that are short of capital cannot increase lending. That is why in March the FPC made a series of recommendations to ensure that UK banks are well capitalised, and that banks meet that requirement in a way that does not hinder lending to the economy. You may be assured that we are determined that the newly formed PRA follows through on those recommendations. 2  BIS central bankers’ speeches
23  Various observers have pointed out a number of factors that help to explain the financial crisis: Low key rates in all major countries over several years in the early 2000s, conflicts of interest in important financial institutions such as credit rating agencies and considerable economic differences are just a few of them. 8  BIS central bankers’ speeches  In many ways, central banks are the response the authorities could apply when crises arose. Central banks were established to exercise control over the monetary system, enabling states to issue banknotes people could trust and providing banks with a bank for their own deposits and from which they could, in the last resort, borrow from in times of crisis. Confidence in the monetary unit is the mainstay of our financial system. The following may serve as an illustration: It costs 50 øre to produce a banknote. For every 100-krone banknote Norges Bank issues, we apparently create wealth of NOK 99.50 – out of thin air. But people still sleep soundly in their beds – including those with money under their mattresses – because we are confident that the money can be exchanged for real goods. It is, of course, tempting to take advantage of this confidence. History is full of kings and governments who have attempted to do just that. In 1716, the Scottish economist John Law established a bank that soon assumed the role as the first central bank of France.

The key question from a financial stability perspective is whether this process will proceed in an orderly manner. A major destination of funds searching for yield, namely emerging market bonds, were particularly exposed to increased volatility over the recent weeks (as shown in the chart on the right on slide 5). While spreads widened, they still remained very narrow. While the longer-term narrowing of spreads on emerging market bonds over the past couple of years has to a considerable extent reflected the improved fundamentals, including substantially reduced indebtedness in emerging market economies, it cannot be excluded that some mis-pricing of risk will be exposed when capital inflows are reversed. The turbulence in March in the Icelandic financial markets, although contained, reminds us that vulnerabilities exist in parts of the world financial system. 4. Euro area macro-financial environment  Let me now turn to the euro area macro-financial environment, focusing on developments in the corporate and household sectors that are of particular relevance for the outlook for financial intermediaries’ credit portfolios. The balance sheet of the euro area non-financial corporate sector has strengthened significantly over recent years following notable improvements in profitability as well as debt restructuring efforts. Looking forward, however, a number of risks could be looming. The chart on the left on slide 6 shows that after several years of decline, corporate sector borrowing in the euro area has picked up considerably over the past year.
Chart 18 plots the distribution of management skills from the survey in the UK, Germany and the United States. The UK distribution has a notably larger lower tail. The UK has around twice as many companies with a  36 37  For example, Davis and Haltiwanger (2014) and Bjelland et al (2011). Bloom and van Reenen (2007), Haldane (2017). 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  management score below 2 than in Germany and the US, consistent with the UK’s longer tail being sourced, at least in part, in weaker management skills. Recent research by Bank colleagues, Saleem Bahaj, Angus Foulis, and Gabor Pinter, suggests this tail may also be explained by skills in corporate board rooms. Using company account data, they are able to assess the degree of “connectivity” of board members to other companies. This connectivity proxies a company’s ability, through its board, to draw on the experience of other companies when learning about and adopting new practices, products and processes. Chart 19 and Table 2 plots this measure of board connectivity across UK companies. It exhibits the same “power-law” distribution as other measures of connectivity, with a small set of companies whose directors are hyper-connected and a large set of firms whose directors are loosely or unconnected. 38  As with Facebook  friends and Twitter followers, there is a very small “in-crowd” of well-connected companies and a large disconnected “out-crowd”.

All in all, if, as we are often emphasizing during this crisis, the post-crisis reforms have mitigated the risks to the sector’s financial stability, the implementation of the resolution framework has contributed to strengthening the banking sector in a crucial manner. Identifying gaps for a more robust resolution framework in the EU Accepting that we have made great advances in this field, we have to acknowledge also that there is still some way to go before we can truly assert our journey is over. First of all, it is important to recall that the European resolution framework is one of the three pillars of the Banking Union and it is essential to develop the third one – the much needed European Deposit Insurance framework – to ensure the resilience and well-functioning of this Banking Union. As this matter goes beyond the scope of this conference, I will rather concentrate on the second pillar of the Banking Union. So, entering into this resolution pillar, there are certain areas on which both policymakers and practitioners should concentrate, and it is precisely some of these gaps that I want to discuss today, namely: -  liquidity in resolution, the resolution approach to small and mid-sized institutions, avoidance of unlevelled playing fields, and the adequate treatment of systemic situations. The first issue to be addressed, as it affects all institutions alike, is the provision of liquidity to a bank in resolution.
With more risk traded in and through markets, the potential knock-on effects from an erosion of liquidity in some segments or for some institutions have multiplied, and we are currently experiencing how unexpected this process can be. Risks have become “mobile”, if I may put it like that, so mobile that we lose sight of their true location. The third and final set of issues relates to global imbalances. The facilitation of crossborder capital flows may have relaxed financing constraints for borrowers, making it possible to finance ever larger current account deficits. In one sense, the contribution of financial globalisation to disconnecting national savings and national investment is a welcome development, to the extent that it allows for a more efficient global allocation of savings. However the differences in the development of financial markets around the world may also have created, or at least facilitated, global imbalances. The ability of countries to produce sound and liquid financial assets is largely disconnected from their level of economic growth : rising revenues in the emerging world need to “find a home” in sound and liquid financial markets. Finally, in any case, the question of sustainability – the resilience of capital flows to the accumulation of imbalances – remains a pressing one. While capital flows tend to move freely across borders, exchange rate regimes remain very diverse in their degrees of flexibility. This leads to asymmetric adjustments depending on the exchange rate regime, not only between currency areas, but also inside the same region, such as in Asia.

Overall, some of the main floating currencies may end up bearing a higher share of the adjustment on their shoulders than they should. Maintaining integrated global capital markets in an environment where such differences persist might not be sustainable over the long term. An orderly unwinding of global imbalances might therefore imply greater flexibility from countries with large current account surpluses and fixed exchange rates. I will conclude on a matter of debate for international financial stability for the future. As I have said, financial systems have become more efficient as a result of globalisation and innovation. But have they become more resilient, that is, more capable of absorbing shocks? None of us has the answer to that question now, but it will be interesting for central banks  BIS Review 140/2007  3  and regulators to monitor financial developments in the coming months, in search of clues. Ladies and gentlemen, thank you for your attention. 4  BIS Review 140/2007