samchain/econo-pairs-v1 huggingface dataset:
Needless to say, Paul Volcker perfectly knows that it is low and stable inflation and not any inflation that inflation targeters are trying to achieve. Yet, if we know that low inflation is our objective then what is the most suitable monetary policy? How low should the inflation target be, which price index to target, what about stabilizing output or preventing asset bubbles, should we be strict or flexible inflation targeters, how to communicate our policies? All central bankers, both those beginning the IT adventure and those more advanced with it, have to address these questions. I hope this meeting will provide an opportunity to do it. *  *  *  Since 1990, when the pioneering Reserve Bank of New Zealand first introduced IT, over twenty countries have followed its example. The National Bank of Poland along with the Czech National Bank were among the first emerging market countries’ to adopt IT. From the very beginning IT has been practiced in very diverse economies, from the UK and Peru to Korea and Ghana. Many other and more diverse countries consider following the fashion, just to mention Botswana or China. IT attracts growing interest both in developing countries, some of which are still struggling with high inflation, and countries with relatively long history of macroeconomic stability such as the United States or Japan. It is widely known that Alan Greenspan’s successor Ben Bernanke is a strong advocate of IT 2 and this makes Fed’s adoption of IT quite probable.

This is why some wholesale banking activity lends itself more naturally to the branch structure which allows funds to flow more freely across borders. This requires regulators to work together to manage cross-border challenges to financial stability – implementing common minimum standards, sharing information and 9  building confidence in how each other will behave when things go wrong . There has been a complementary effort to make it easier to resolve international banks via a ‘single point of entry’ (SPE). Overseen in its home jurisdiction, a SPE resolution would sweep up a group’s losses from around the world and bail in its creditors at the top. The group is recapitalised and does not go into disorderly failure. 7  See Woods, Sam: Contingency planning for the UK’s withdrawal from the European Union; 7 April 2017: “…the PRA will expect those EEA bank branches which have significant retail/SME transactional deposits to discuss with it whether they need to establish a subsidiary, if they plan to continue that activity in the UK after its withdrawal from the EU”. 8 See Bailey, Andrew; Free Trade in Financial Services matters; 29 September 2017. 9 See Carney, Mark; The high road to a responsible, open financial system; 7 April 2017. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  EMBARGO: not for release before 19:30 on Wednesday 4 October 2017  Against this grain, recently the European Commission proposed that non-EU groups above a certain size or systemic importance must establish a common ‘intermediate parent undertaking’.
Our foreign currency investments used to be primarily government bonds until we added the corporate bonds in 2004, and then equities in 2005. The equity portfolio today accounts for 20% of the foreign exchange reserves (cf. chart 6). For the long-term value preservation of currency reserves, the return on assets is also a key criterion. It is important to achieve an adequate return in local currency, particularly in view of potential currency losses in the case of Swiss franc appreciation. The SNB’s investment policy therefore aims for an appropriate security/return ratio, while still taking into account the criterion of liquidity. Page 5/10  What does this actually mean for the implementation of our investment policy? The Governing Board sets specific bandwidths for the various currencies and investment categories employed in the management of bonds. Working within these bandwidths, our portfolio managers aim to ensure the best allocation of bonds according to current market conditions. The equity portfolio, by contrast, is managed as neutrally and passively as possible. We buy and hold equities of a particular company in proportion to its weighting in the country’s stock index. In this way, we ensure that our activities have as small an impact as possible on the relative share prices of individual companies or sectors. Equally, this prevents specific biases towards or against certain companies or sectors from influencing our investment policy. In order to guarantee this neutral approach as fully as possible, we are very wary of making any exceptions.

So, it could be said that the Riksbank conducts a flexible policy of inflation targeting.2 In addition, the Riksbank’s remit includes promoting financial stability. Low inflation but sharp fluctuations in asset prices and credit At the same time as inflation in the world economy has now stabilised at low levels, fluctuations in asset prices have increased. Furthermore, debt levels among households and firms have continued to display large cyclical variations. Rising asset prices and the increase in debt that occurred in many countries at the end of the 1990s, and which has continued as regards house prices and households, has given rise to concerns in many countries over the stability of the economy and inflation in the slightly longer term. That asset prices and debt levels appear to vary more now than ten or fifteen years ago should, at least in part, be due to the deregulation and evolution of the financial markets. Here, credit and liquid secondary markets can quickly create money that can be transferred around the world to investments with the highest expected return. However, so far the low-inflation economy appears to have lessened cyclical fluctuations and changed the cycles’ shape. It seems as though the cycles have been longer and flatter than before, particularly during expansionary phases. Can a build-up of imbalances be prevented through a different monetary policy?
In the eyes of many university students, banking remains a “traditional” industry focusing mainly on selling products and services, with opportunities limited to frontline jobs. That clearly is NOT THE CASE. So we urgently need to clear up such misunderstanding. And we should better connect the young generation with the industry, so that they can form a more accurate idea of what modern banking is about. And they need to get ready at an early stage for the career opportunities in the new era of modern banking, particularly because some specialist portfolios will take years to cultivate the relevant skillsets. 22. With that in mind, we just announced a brand new Banking Graduate Trainee Programme which aims to draw in new blood for the banking industry in a more systematic and targeted manner. Thanks to the strong support of the industry, about 30 participating banks will provide more than 120 entry-level job opportunities focusing on the three fastest growing areas, namely Fintech, Green and Sustainable Finance, as well as the Greater Bay Area business opportunities. The first intake under this Banking Graduate Trainee Programme will commence in September this year. 23. At the same time, we will continue our outreach and promotional efforts to provide students with an up-to-date picture of modern banking.

Therefore, perception mismatch among frontline staff about what really represents “good customer outcome” is something that banks must be careful to avoid. 8. Another interesting observation from the exercise is about perception of performance gauges. An area that banks have been putting a lot of emphasis in the past few years is reducing the weight of financial performance in incentive systems. Nevertheless, our review found that the perception of incentive structure differs greatly among different staff levels. More simply put, while senior management and supervisors think that the incentive systems are more balanced among business targets and non-financial factors such as compliance and customer outcomes, frontline staff generally still take financial  performance and business targets as the highest assessment priority. This possibly reflects that some other forces maybe at work, such as social interaction and recognition among bank staff. 9. The HKMA published the final report of this review last month. We highlighted in the report the above observations and a number of other interesting points which, I think, is definitely worth a read. In the report, we also put forward incentive system design principles and useful practices identified from the review. We are in the meantime collating the observations on individual participating banks, and will communicate the useful findings to them individually. I truly hope that banks will make good use of the review outcome to assist in their ongoing risk culture journey. Mandatory Reference Checking Scheme 10.
Clearly, these estimates are only illustrative and should be understood as a ceiling for the actual effects, as it is probably difficult to achieve such a low non-performing loan ratio in a setting of lower indebtedness and with significant changes in credit portfolio composition. 17/29  And also because part of the increase in banks’ costs are the result of technology investments, which are allowing banks to adapt to the new environment and are therefore essential. They are also indicative of the measures that banks should be prioritising. Fourth, the role that consolidation can play as a mechanism for harnessing economies of scale and improving efficiency and, therefore, for increasing profitability, is regularly discussed. Added to this is the cost pressure associated with the high IT investments being made to address changes in a competitive environment with new competitors. And also the need for banks to have preferential access to international capital markets to be able to respond efficiently to the implementation of the new post-crisis banking regulations and, especially in Europe, to comply with the MREL requirements. In the last decade the Spanish banking sector has already undergone a very significant consolidation process. Specifically, since 2009 the number of banks has fallen by more than 30%. Looking ahead, potential future consolidation processes should be led by the market, in other words, by value creation for shareholders, while we supervisors should ensure that these processes do not undermine financial stability.

This was not the first time that Parliament had concerned itself with the affairs of insurance companies, however. In 1739, Britain entered into a war with Spain. As a consequence, trade with Spain ceased but – perhaps surprisingly – the underwriting of Spanish ships by British underwriters continued unabated. This led to a somewhat perverse situation in which British insurers compensated enemy merchants for shipping losses suffered at the hands of British privateers and squadrons of the Royal Navy. The value of insurance trade was, it seems, considered by many to be too valuable to forfeit voluntarily 10 as Britain entered a period of sustained warfare with Spain and then France. By 1748, attitudes had changed and Parliament passed an Act which banned the insurance of enemy ships by British insurers. Yet the Act was expired just a few months later (after the Seven Years War ended) such that insurers did, in fact, enjoy considerable discretion over which risks to underwrite, including foreign enemy ships. I think that what this example ultimately demonstrates is the importance of trade and competitiveness in shaping the British state’s involvement in the affairs of insurers. The protection of enemy ships was at direct odds with Britain’s foreign policy – but trade was ultimately considered strategically more important. In common with the environment in which our eighteenth-century forebears worked, trade and competitiveness remain important contextual factors in the debate about how we should regulate insurers today.
Improved risk appetite and more effective use of the Reserve Options Mechanism (ROM) have allowed a gradual reduction in the upper bound of the interest corridor since September. Meanwhile, the liquidity provided for the market was further increased, driving overnight market rates close to lower bound of the corridor. Chart 7. Policy Rate and Liquidity Policies (Percent)  Source: ISE, CBRT. Capital inflows accelerated at the year-end upon the surge in global risk appetite coupled with a relative improvement in risk perceptions regarding Turkey. This contributed to a fasterthan-expected credit growth and appreciation pressures on the Turkish lira. I suppose you remember that we stated this as a possible risk scenario in the previous Inflation Report and listed possible measures we could take. Upon the materialization of these risks to a large extent, we launched the strategy we envisaged. In order to contain the risks on financial stability, the appropriate policy response would be to keep interest rates at low levels while sustaining macroprudential measures. In this respect, the policy rate and the corridor have recently been shifted down and a measured tightening has been implemented through reserve requirement policy. Despite the cut in short term interest rates, the CBRT maintained its cautious and flexible stance, which is worth noting. Thus, I would like to reiterate that the impact of the measures taken on credit, domestic demand and inflation expectations will be closely monitored and the amount of the Turkish lira funding will be adjusted in either direction, as needed. Chart 8. Chart 9.

Such an adjustment, never easy, requires unprejudiced, honest assessment of the new realities with clear eyes, unencumbered by the defence of previously held paradigms that have lost any explanatory power. Fifth, we must be aware of the gaps that still remain in our knowledge. Our mainstream macroeconomic models still have little to say, for instance, about the non-linear propagation of shocks, the distributional impacts of policies, or how endogenous firm entry and exit can affect economic performance.15 Policy actions undertaken in the last ten years in monetary policy and in regulation and supervision have made the world more resilient. But we should continue preparing for new challenges. The changes that we have discussed, profound as they are, often hinge on one fundamental idea. A natural question to ask is whether such an idea sprang out as a response to a specific policy problem or was rather conceived previously in an entirely different, unrelated intellectual environment, perhaps addressing a different set of problems. It is a question that is especially relevant in economics, when previously held consensus views change. But it is a question that is unlikely to have a precise answer. Let me rather use the 1939 words of Abraham Flexner, the first director of the Princeton Institute for Advanced Study: “Almost every discovery has a long precarious history. Someone finds a bit here, another a bit there.
It then uses the probabilities of various paths for short-term interest rates, taken from financial markets, to produce a “fan” of outcomes over the next five years. At least if you believe what’s priced into financial markets there is only a one-in-seven chance that mortgage interest payments will return to the pre-crisis (post-inflation-targeting) average by the end of that period.7 7  The equivalent calculation for households’ aggregate interest payments, including on their non-mortgage debt, implies that the odds of getting back to the pre-crisis average are if anything marginally longer than this. This might seem puzzling, given the rise in unsecured debt in Chart 5, to levels well above the pre-crisis average. But what that Chart reveals is that the part of this aggregate whose payments are sensitive to interest rates – the more conventional liabilities in blue – has not risen above the pre-crisis average. Indeed it’s slightly below it. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  This makes it slightly puzzling to read (as one often does) that household debt is “unsustainably” high. This view is ubiquitous. My suspicion is that, at least in some cases, people come to it because they have in the back of their minds an alternative and rather attractive world in which we all have fewer debts but the same assets. In this imagined and happy place we’d all have lower mortgages but own the same houses. Firms too would have fewer liabilities but possess the same productive capital.

It’s also easy to understand why. On the whole the mortgage stock grows not because the same people, living in the same property, progressively take out bigger mortgages over time. It does so because, if house prices go up, new entrants and those trading up the market have to  4  Even some of this is not debt as commonly understood. For example, if you use your credit card for retail spending but pay it off every month, never incurring any interest, the rolling balance counts as debt in these statistics. Partly for this reason, and probably because there has also been a rise in “zero-interest” offers on new cards, the share of credit card debt currently paying no interest at all seems to have risen. A simple comparison of actual interest payments on credit cards to quoted interest rates suggests it’s currently around one half, twice what it was a decade ago. 5 Over the past five years, and for every £ of debt, write-downs on mortgages have averaged just under £ per year. The comparable figure for credit cards and consumer loans is over £ This gap is not untypical. 6 This is a repeat of some of the points in Broadbent (2012). 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  borrow more than their predecessors did – those now moving down the market – to buy the same properties.
As a result, smaller firms have had to close and construction labour has moved abroad or gone to other domestic sectors. There are now many indications that construction activity is picking up again, though the rate of the recovery is difficult to assess. But housing demand has grown and there is a large need for new housing as well as for renovation. The Riksbank does not produce independent estimates; the available figures suggest, however, that in the coming decade between 20,000 and 45,000 new dwelling units need to be built each year and between 30,000 and 40,000 units a year need to be renovated. Activity may then grow rapidly in certain regions. Now that construction is recovering, the increased concentration among construction companies and producers of construction materials, as well as the shortages in certain categories of skilled labour, are liable to push costs and wages up. Certain problems with bottlenecks are already discernible; in the business tendency surveys from the National Institute of Economic Research, labour shortages are reported by 7 per cent of construction firms as against 2 per cent in March 1998. These shortages are accompanied by a high overall level of unemployment among construction workers; part of the explanation is that unemployment is high in certain regions and those who are unemployed there are reluctant to move a long way to regions where labour demand is stronger. Bottleneck problems in the construction industry are being studied on behalf of the Government by industry representatives.

Future monetary policy In the main scenario in the December Inflation Report, the 12-month change in the CPI was projected to be 1.2 per cent in December 1999 and 1.4 per cent in December 2000. Inflation’s underlying rate in those months was expected to be 1.7 and 1.8 per cent, respectively. The Riksbank also noted that as the slowdown in international activity could prove to be more marked and more prolonged, the downside risk in the assessment was greater than the upside risk. In recent months the international picture has tended to shift in that direction. Immediate inflationary pressure in Sweden has been lower than the Riksbank counted on in December. The outturn for inflation in December 1998 was 0.3 percentage point below the figure in the Report’s main scenario; around 0.1 percentage point of the difference can be attributed to lower interest expenditure and approximately 0.1 percentage point to lower world market prices for oil. Moreover, underlying inflation has been somewhat weaker than expected. As I mentioned earlier, the Executive Board considered that the prospects for international economic activity and inflation are somewhat more subdued than they were in December and this will probably lead to economic activity and inflation in Sweden being slightly weaker in the next two years than the Riksbank counted on earlier. CPI inflation is accordingly expected to be below the 2 per cent target in one to two years’ time.
Fourth, the use of common assessment and risk management tools by market participants, and finally an excessive and shortsighted focus on “shareholder value” may also amplify swings. Prudential regulations may also occasionally have proven conducive to an excessive emphasis on the short term when assessing risks. What can the authorities do to counter these tendencies? Debate among academics, policymakers and market participants has been intense in recent years, and is far from settled. This is an area particularly open to discussion, where new ideas and new evidence are forthcoming. Indeed, the way monetary stability and financial stability interact with each other seems a particularly complex topic, and the impact of specific measures on both fields is uncertain. As far as monetary policy is concerned, the debate on whether it should react to asset prices has been one of the most interesting of recent years. Insofar as asset prices contain useful information that helps predict future price -and output- developments, they should clearly be included in the set of indicators the central bank uses for decision-making. This is not, however, as easy as it may sound. First, because empirical evidence on the usefulness of asset prices in predicting future price and output developments is not conclusive. And second, because the integration of asset prices in macroeconomic models poses a series of practical difficulties. 2  BIS Review 35/2002  Going one step further, a related question is whether monetary policy should react directly to asset prices, over and above the impact of the latter on inflationary prospects.

Jaime Caruana: Asset price bubbles - implications for monetary, regulatory and international policies Speech by Mr Jaime Caruana, Governor of the Bank of Spain, at the Federal Reserve Bank of Chicago, Chicago, 24 April 2002. *  *  *  One of the central topics of debate among economists has traditionally been the reasons for economic cycles, the factors that may amplify or smooth them, whether the authorities should aim to iron them out and, if so, how this can be done. More recently, the role of the financial sector in the dynamics of economic cycles has emerged as a key question in this debate. I would like to focus today on some problems posed to regulators and policy-makers by asset price bubbles and the credit cycle, and to share with you some thoughts on a regulatory device we have recently introduced in Spain to deal with some of these problems: the so-called forward-looking provisioning, also referred to as the dynamic or statistical provision. The pro-cyclical behaviour of the banking sector, which is now generally accepted in the literature, is receiving increasing attention by academics, policymakers and market participants. There is a growing feeling that the financial sector contributes to the swings in real activity and may even intensify and accelerate them. Feedback effects between credit growth and rises in asset prices are increasingly evident, although not yet well understood. Transmission channels from the financial sector to the real sector are becoming more and more flexible, rapid and complex.