samchain/econo-pairs-v1 huggingface dataset:
Guidance, Contingencies and Brexit Speech given by Mark Carney, Governor of the Bank of England  Society of Professional Economists 24 May 2018  I am grateful to James Benford and Clare Macallan for their assistance in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  Introduction This evening I would like to discuss potential paths for monetary policy during the next, critical phase of the Brexit process. Note the conditionality of the phrase “potential paths.” The actual path for policy will depend on the outlook for the economy which in turn will depend very much on how the Brexit negotiations evolve. Monetary policy is always contingent on the economic outlook. This is broader than it being data dependent. In order to achieve the inflation target, monetary policy needs to adjust not only to news about current 1  conditions but also to any changes in likely future circumstances. While it may be the MPC that sets interest rates, it is ultimately the economy that determines them. Monetary policy will be most effective if agents can anticipate how policymakers will react to changing conditions. But the predictability of monetary policy can break down when there are large structural changes in: -  Supply capacity;  -  Equilibrium interest rates; or  -  Trading relationships. In such circumstances, forward guidance can help anchor expectations and improve the effectiveness of monetary policy.

15  All speeches are available online at www.bankofengland.co.uk/speeches  15  Chart 10: With no monetary policy tightening, excess demand builds significantly and inflation remains above target May 2018 Inflation Report projections for inflation and growth Per cent / Per cent of potential GDP 4.0 3.5 Inflation projection market conditioning path  Inflation projection constant rate path  3.0 2.5 2.0  2% inflation target  Excess supply / demand projection - constant rate path  1.5 1.0 0.5 0.0  Excess supply / demand projection - market conditioning path 2012  2013  2014  2015  2016  2017  -0.5 -1.0 2018  2019  2020  2021  Of course, as the Committee has made clear before, its guidance about the likely gentle path of rate increases depends on the economy evolving broadly as expected – in particular, whether growth in demand exceeds that of supply. That might not happen. For example, the weakness in demand at the start of the year could reflect a worsening of the underlying economic climate, not the temporary effects of adverse weather as the Committee currently assesses. In particular, there is somewhat greater uncertainty about the near-term momentum in consumer spending at present, given recent weakness in consumer credit and the housing market across a range of indicators. Growth in consumer credit, particularly credit cards, slowed sharply in March. Retail sales volumes have been falling and profit warnings in the retail sector rising.
–  Or should it be deposited in a bank or lent through another channel? Even before discovering oil, the state had long been a substantial direct owner of Norwegian companies. The value of state investment in Norwegian companies is more than NOK 600 billion. 15 The state owns more shares in Norway than in the US where the oil fund has its largest investments. 16 But will substantial investment in one’s own business – or one’s own nation – guarantee growth and prosperity? Many OPEC countries received enormous income after the oil price shocks in the 1970s. They later not only experienced low growth, but negative growth. 17 Professor Ragnar Torvik writes that one of the main reasons behind the decline was that such a large portion of the additional income was invested domestically. Politicians invested in projects that may have brought political gains – but resulted in economic loss. 18 We can also draw on Norway’s historical experience. In the post-war period, the Norwegian economy was to be reconstructed through a large-scale investment programme. 15  Report no. 13 to the Storting (2010–2011) Aktivt eierskap – norsk statlig eierskap i en global økonomi [Active ownership – Norwegian state ownership in a global economy], Ministry of Trade and Industry (in Norwegian only): http://www.regjeringen.no/pages/16193771/PDFS/STM201020110013000DDDPDFS.pdf) and the annual reports of the Government Pension Fund Norway and the Government Pension Fund Global.

In my speech today, I will  1  Alf Collet (1915): Familien Collett og Christianialiv i gamle dage (The Collett family and life in Christiania in olden days), Cappelen, Kristiania. 2  See Facts 2011 – The Norwegian petroleum sector, Ministry of Petroleum and Energy: http://www.npd.no/en/ Publications/Facts/Facts-2011/  3  Report to the Storting on Long-Term Perspectives for the Norwegian Economy, Section 4.5: http://www.regjeringen.no/en/dep/fin/press-center/press-releases/2009/long-term-perspectives-for-thenorwegian.html?id=542381  BIS central bankers’ speeches  1  discuss in particular what sound management entails from an economic viewpoint. I will also touch upon how we practice oil wealth management in Norges Bank. Intergenerational saving The first question that must be answered is: Who owns the oil wealth? Does it belong to the present generation of Norwegians? Does it also belong to future generations? 4 Even though I will be speaking from an economic vantage point, I will borrow a point made by the philosopher Henrik Syse. He asks whether we have the right in the course of a single generation to expend resources that it has taken nature millions of years to produce. But there are also counter arguments. The next generations are likely to be wealthier than us in any case. Should we save for them? Saving for the future can also be supported with vicarious arguments by those who are worried about their own upcoming pension payments. Today’s pension obligations are underfunded but can be more easily met if oil revenues are saved.
if a member has views which are consistently adrift of the rest of the Committee, leading them to believe that rates are significantly too low/high, then they may repeatedly – and unsuccessfully – vote for a change without being ‘activist’ in the sense of wanting to change rates frequently in response to news.

These disruptions are also reflected in the monetary, financial and payments spheres – which we scrutinize as central banks and supervisors –, where digitalisation is bringing about a triple revolution – and it is far from over: (i) First, the arrival of new players: new actors born from the tech world – Fintechs and Bigtechs – are challenging historical players with radically new approaches to financial services and at present much less regulation; (ii) Second, the emergence of new assets: crypto-assets from the blockchain universe in the form of tokens: they will not be credible as “crypto-currencies”, but could be used as settlement means – think of stablecoins for instance; (iii) Lastly, the emergence of decentralised market infrastructures: new technologies tend to reduce the use of proven centralised settlement systems. 2/3  BIS central bankers' speeches  These revolutions offer the potential for increased market efficiency while reducing costs and time. But they entail several risks, and they could lead to significant concentration effects among a few dominant private networks: these would in practice “re-intermediate”, but without the trust and regulation associated with the architecture of the monetary and financial edifice that we – public and private players – have built together over a period of decades. In the face of this major challenge, we need to both innovate and regulate.
BIS central bankers’ speeches  17  Appendix Chart 1: GDP per capita since 1750 log GDP per head, 1990 International $  9  8 IT revolution  Industrial revolution  Mass industrialisation  10  7  6  1750  1800  1850  1900  1950  2000  5  Source: DeLong (1998). Chart 2: GDP per capita since 1000 BC GDP per head, 1990 International $  7000 6000 5000 4000 3000 2000 1000  -1000  -750  -500  -250  0  250  500  750  1000  1250  1500  1750  2000  0  Source: DeLong (1998). 18  BIS central bankers’ speeches  Chart 3: Male heights from skeletons in Europe, 1–2000 AD Male height, centimetres  180  Skeletal remains, Europe Sweden  178  USA, native born  176 174 172 170 168 166 164 162  0  500  1000  1500  160 2000  Source: Clark (2009). Chart 4: Social development index Social development points, log linear scale  1000  100  10  -1000 -800 -600 -400 -200  1  200  400  600  800 1000 1200 1400 1600 1800 2000  Year Source: Morris (2010, 2011). Notes: This chart shows the average of “Western” and “Eastern” social development scores reported in Morris (2010, 2011). These scores include energy capture, organisation, war-making capacity and information technology.

More generally, economic distortions and loss of revenue caused by financial crimes can also threaten our growth prospects. While there are many issues that I could speak about on financial crimes today, I would like to focus on what has been at the top of many minds – cybercrimes. Indeed, cybercrimes are a global menace. McAfee reported that cybercrime cost the global economy more than 1 trillion dollars in 2020, or more than 1% of global GDP. Malaysia is not spared from this growing threat. As indicated in the National Risk Assessment 2020, fraud – which includes cybercrimes – is among the country’s top high-risk crimes, with a higher number of cases and losses suffered compared to the previous assessment conducted in 2017. More than 20,000 cybercrimes were reported in 2021 alone, involving losses of RM560 million. Between 2017 to July 2021, Malaysians suffered losses of about RM2.23 billion on account of cybercrimes. As more people switch to mobile phones for online transactions, we are also seeing an increase in online banking fraud incidents involving mobile malware. Although fraud losses remain low as a share of the total value of online banking transactions, they point to ever present and evolving threats as society adapts to new norms of living and doing business. Indeed, criminals are exploiting the rapid dispersion of technology in this recent period. This is not a trend that will reverse. Therefore, strengthening the financial system’s defence against emerging threats and vulnerabilities must remain a top priority.
And, whatever the periodic outcry whenever something goes wrong - as it will from time to time - the demand for these services does not of course exist in a vacuum; it exists because of the very positive contribution that the business services sectors, including financial services, make to growth and employment and rising living standards in the wider economy. That is true nationally, but it is equally true in a global context. Indeed the unique characteristic of the City is its role as the predominant international financial centre. It accounts for a fifth of all international cross-border lending, for example; for a third of global turnover in foreign exchange and OTC derivatives, and as much as two-thirds of issuance and secondary trading in eurobonds, or of global turnover in international equities, with more foreign firms listed on the LSE than on any other exchange. And London has a near-monopoly in exchange-traded short-term euro interest rate derivatives. I will not labour the point further, Mr Chairman. Despite - or perhaps driven by - a continuous stream of shocks and competitive challenges, the City has in fact gone from strength to strength, most recently coming through the global financial turbulence of the last couple of years as well as the advent of the euro at least as strong as before. It is perhaps worth asking why the City is as strong as it is. Certainly it does have to do partly with history.

And it is supported by a very strong tradition of technical training and education through the various financial institutes, a tradition which I hope may soon be bolstered by the development of a coherent set of professional qualifications across the different financial market sectors. But how far we remain successful will depend importantly, too, on how far we are able to maintain what I have described as the ethos of the competitive market place in a rapidly changing environment and that will represent a considerable challenge to public policy. Given market self-discipline, I have every confidence, Mr Chairman, that the various competent authorities will remain constructive and impartial in their approach to defining and applying the rules of the game, and open to innovation and wide participation, so that the City retains its position as an attractive location for the provision of financial and business services. So, Mr Chairman, I look to the future of the City with very considerable confidence. On recent form it has little to fear and great opportunities to look forward to. But I don’t say that it will be easy. BIS Review 134/1999  4
Banks must hold up to 25 percent of the value of operational deposits in high-quality liquid assets, in order to withstand a 30-day stress environment. The liquidity requirement for non-operational deposits is less favorable—up to 100 percent—making it more expensive for banks to hold such deposits. 12 12 The Federal Reserve has also increased its supervisory focus on the liquidity of large banks in particular with  the Comprehensive Liquidity Analysis and Review. 13 See Marco Cipriani, Gabriele La Spada, and Philip Mulder, “Investors’ Appetite for Money-Like Assets: The  Money Market Fund Industry after the 2014 Regulatory Reform,” Federal Reserve Bank of New York Staff Reports, no. 816, June 2017. 14 MMFs are open-ended mutual funds that invest in money market instruments. Unlike other mutual funds, MMFs  have traditionally allowed their investors to redeem shares at a fixed net asset value (NAV) of $ per share under most circumstances. This characteristic makes MMF shares very similar to bank deposits (although they are not insured). MMFs are regulated by the Investment Company Act of 1940, which restricts their holdings to shortterm, high-quality debt. The industry can be divided into two main segments: i) government MMFs invest in 8 / 10  BIS central bankers' speeches  Treasuries and agency debt and can only lend to the private sector through repos collateralized by Treasuries or agency debt; ii) prime MMFs can also invest in private unsecured debt. Tax-exempt funds represent an additional, smaller segment, which invest mainly in municipal and local authorities’ debt.

2 For instance, a long-term U.S. government bond can be a safe investment for a life insurance company  (because the security carries no credit risk and matches the duration of the life insurance company’s liabilities), but it is not money. 3 See, for instance, Thomas Eisenbach and Sebastian Infante, “What Makes a Safe Asset Safe?,” Federal  Reserve Bank of New York Liberty Street Economics (blog), November 27, 2017. 4 See Benjamin Lester, Andrew Postlewaite, and Randall Wright, “Information and Liquidity,” Journal of Money,  Credit and Banking 43 (s2), October 2011 and “Information, Liquidity, Asset Prices, and Monetary Policy,” Review of Economic Studies 79 (3), 2012; and Bengt Holmstrom, “Understanding the Role of Debt in the Financial System,” Bank for International Settlements Working Papers no. 479, January 2015. 5 For the purpose of these remarks, I assume that, as is largely the case in developed economies, the monetary  authority is able to keep prices stable; I therefore disregard the difference between nominal and real future payoffs. 6 Assets accepted as collateral are assigned a lendable value deemed appropriate by the central bank, taking  into account a haircut that reflects an assessment of credit risk, historical volatility, and market liquidity. However, the assets (and associated risks) remain on the balance sheet of the borrower. 7 Previously, the Federal Reserve had sterilized its liquidity provision by running down its Treasury portfolio.
Chart 10 offers support for the latter hypothesis. It suggests a positive relationship between bank size and pre-crisis expectations of official sector support. 33 Size matters. Historically, the safety net was perceived to be fur-lined for those above a certain size. This evidence is discouraging from a systemic risk perspective. It suggests incentives to generate and propagate risks may have been strongest among those posing greatest systemic threat. Basel vaccinated the naturally immune at the expense of the contagious: the celebate were inoculated, the promiscuous intoxicated. Latterly, this defect has begun to be addressed. For example, the US and Swiss authorities have announced plans to introduce tighter regulatory requirements for systemic institutions. There is further to go internationally. Work is needed to give systemic regulation practical effect. A number of calibration devices have been proposed. 34 With richer data on network topology, calibrated simulation models could help gauge financial institutions’ marginal contribution to systemic risk. This is standard practice in management of the electricity grid and eco-systems. Finance needs to catch up. (c)  Restructuring the network  In Herbert Simon’s The Architecture of Complexity, he tells the parable of two watchmakers, Hora and Tempus. 35 Both produce watches composed of 1000 parts. Both watches are, in this sense, equally complex. They are also of equal quality and sell at the same price. But Hora’s business prospers, while Tempus’s founders. Why? 32  For example, Pikitch et al (2004). 33  Proxied by Fitch ratings agency’s support ratings for institutions.

For Bank A, not knowing the links in the chain means that judging the default prospects of Bank B becomes a lottery. Indeed, in some ways it is worse than a lottery, whose odds are at least known. In this example, Bank A faces uncertainty in the Knightian sense, as distinct from risk, about the true network structure. Counterparty risk is not just unknown; it is almost unknowable. And the higher the dimensionality of the network, the greater that uncertainty. It is possible to formalise this intuition with some simple numerical examples. 17 Consider two states of the world, pre-crisis and crisis. And consider the impact of network complexity on CDS pricing. Once we introduce Knightian uncertainty, asset prices are no longer determinate; they are defined by a range rather than a point. So the range of equilibrium CDS spreads can be taken as a metric of the uncertainty, and hence distortion, arising from different network structures. Chart 4 plots a pre-crisis world where it is assumed that counterparty default probabilities, and the uncertainty around them, are low. Subject to those assumptions, it illustrates how the range of CDS spreads is affected by Bank B’s number of counterparties. Larger numbers of  17  The following is based on work in progress at the Bank on asset pricing under network Knightian uncertainty, by Sebastiano Daros and Kemal Ercevik. 8  BIS Review 53/2009  counterparties are marginally beneficial. There is a “law of large numbers” benefit.
2  BIS Review 115/2009  The financial crisis and the global economic recession have had a substantial impact on the Norwegian economy, and a range of measures have been implemented to mitigate the effects of the crisis. These measures prevented the liquidity crisis from developing into a solvency crisis in the banking sector and a crisis in the real economy in Norway. Norges Bank has supplied additional liquidity to banks and eased collateral requirements. The Bank has provided loans with longer maturities, used foreign exchange swaps for both USD and EUR to supply krone liquidity and provided loans to Norwegian banks in USD, which Norges Bank can now procure from the Federal Reserve. The key policy rate has been reduced by 4.50 percentage points since 15 October last year to 1.25 per cent. To facilitate banks’ funding, the government has given banks access to liquid government paper in exchange for mortgage-backed securities issued by the banks’ mortgage companies. The Government has also provided increased loans and guarantees to Norwegian export industries, and has raised lending limits for state banks. Folketrygdfondet (the Government Pension Fund – Norway) has also been permitted to increase its purchases of bonds. The authorities have arranged to supply risk capital to Norwegian banks through the Norwegian State Finance Fund to strengthen banks’ solidity. In order to curb the fall in activity in the Norwegian economy, government expenditure will increase by more than 10 per cent in 2009.

Svein Gjedrem: The outlook for the Norwegian economy Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), for Norges Bank’s regional network, Region East, Oslo, 25 September 2009. *  *  *  Please note that the text below may differ slightly from the actual presentation. The speech is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 23 September and Monetary Policy Report 2/09. It has been a year since financial turbulence developed into a full-blown crisis. The result was the most severe downturn in the global economy since the Second World War. Key rates were set at historically low levels both in Norway and abroad. Government spending has increased considerably to support demand for goods and services. Global economic activity is now picking up, albeit from a very low level, and unemployment is high. Financial market conditions have improved, although liquidity remains tight in many markets. The financial crisis eroded confidence in banks, counterparties and contractual partners. Access to export credit came to a halt, international trade slowed sharply and manufacturing sales stalled. With financial markets improving over the past six months and an increase in the credit supply, global trade is now picking up slightly. Manufacturing output has recently increased in the US, the UK, Japan and many emerging economies, while it continues to fall – albeit at a slower pace – in Sweden and the euro area.