samchain/econo-pairs-v1 huggingface dataset:
For a while, modern macroeconomics tried to get around this more or less intractable situation by picking just one out of a wide set of stories, often treating it as if it were immutable in time and space. And when reality deviated from that story for an extended period, it opportunistically explained it away as bad luck in the form of a series of unpredictable adverse shocks. A persistent challenge for inflation-targeting central banks is the phenomenon of inflation itself. We recognise that the CPI or some similar inflation measure, which lies at the heart of this monetary policy framework, may not be an ideal representation of what is meant by inflation in traditional monetary theory. Personally, I still adhere to the monetarist definition that inflation means a steady and continuous rise in the price level, that is, a situation where different price categories and nominal variables generally show a similar trend. CPI inflation does not quite fit this definition, and it is not always desirable to regard its short-term fluctuations as genuine inflation or deflation. This is partly because CPI inflation tends to change quite frequently as a result of shocks of a non-macroeconomic and non-monetary nature. If the central bank were to try to slavishly keep CPI inflation at a certain target level at all times, it would have to change interest rates or other instruments frequently and significantly, and would probably not be successful in doing so.

For the next year, we are more optimistic, and in our projections we expect credit growth of up to 9 percent. In July, the National Bank of the Republic of Macedonia made changes in the reserve requirement and also reduced the key interest rate to 3.25 percent, which is the historically lowest level. When do you expect the effects? We made some changes, so that we reduced the reserve requirement ratio for denar deposits and we increased that for the foreign currency deposits. Our goal is to stimulate denar saving at the expense of the saving in foreign currency, which in this way will become more expensive, while saving in denars will become cheaper. Shortly after that, we reduced the key interest rate to 3.25 percent, thus sending a signal to the banks that there is room for greater lending activity. Even that small amount of loans does not go to the companies, but mainly to the citizens. Why is that so and when will it change? In 2009, soon after the outbreak of the global economic crisis, banks here immediately stopped lending to households, while they continued to lend to companies. It allowed banks to clean the loan portfolio of the households, i.e. to eliminate the bad loans in the meantime. Therefore, now they have room to re-start lending to the households, and they are doing it. The process of cleaning the credit portfolios of the companies, however, was left out at that point, so it began more intensively last year, and continued this year.
In fact, it has been estimated that one half of the dramatic increase in European unemployment from the golden days of full employment in the 1960s to the high and persistent unemployment levels of the mid-1990s can be explained by institutional factors (Nickell et al., 2002). Which “institutions” are particularly relevant? Let me mention three of them: first and foremost, employment protection legislation. Second, tax-benefit-systems, which determine the so-called tax wedge between workers’ gross and net incomes, the transfers to the unemployed, and the tax burden on the employed. Third, wage bargaining structures and procedures and the role of trade unions. Let us consider employment protection legislation. Workers can be protected against unemployment in various ways: either by strict regulations against layoffs, or through unemployment benefits, or a combination of both. The two are interrelated: in theory, employment protection legislation need not be very restrictive if an unemployed worker can rely on generous benefits, and vice versa. What does the empirical evidence tell us? Generous protection of “insiders”, i.e. those who have a job, seems to have a negative impact on overall employment, since it affects the probability of employment of the “outsiders”, especially women, the young and the long-term unemployed.3 The validity of this proposition is illustrated in Chart 6 on the basis of the evidence from European countries. The lower job turnover and hiring also increases both the duration of unemployment and the proportion of long-term unemployed.

Today, however, I would like to focus on another discussion, one that I feel is at least as vital and, at the moment, perhaps even more relevant. This concerns whether the conditions for monetary policy have changed so much in recent years that central banks will be forced to abandon, or at any rate considerably modify, the inflation-targeting policy that has been the dominant monetary policy regime of recent decades. I would like to thank Mikael Apel for help with the text of this speech, Emelie Theobald for help with the slides and Claes Berg, Charlotta Edler, Rebecka Hallerby, Stefan Ingves, Cecilia Skingsley, Marianne Sterner, Ulf Söderström and Anders Vredin for useful suggestions. ∗  1 [20]  International debate on whether inflation targeting has become outdated On one side of the discussion are economists and observers who argue that the inflation process now is so different from before that it is very difficult, perhaps even impossible, for central banks to conduct traditional inflation targeting, at any rate with the targets of around 2 per cent prevailing today. More specifically, they argue that inflation faces such strong ‘headwinds’ in the form, for example, of globalisation and digitalisation that it is doubtful whether central banks can steer inflation in any meaningful way. Instead, it is argued, monetary policy should be focused on dampening financial cycles and maintaining financial stability. 1 On the other side are most central banks, who argue that rumours of inflation targeting’s imminent demise are significantly exaggerated.
3  AAOIFI is Accounting & Auditing Organisation for Islamic Financial Institutions  4  International Organisation of Securities Commissions  5  International Association of Insurance Supervisors  2  BIS central bankers’ speeches  •  Between our two countries, we are seeing Malaysian banks collaborating with Singapore corporates and financial players to structure $ denominated corporate sukuk programmes. And Singapore-listed companies are venturing out to tap the Ringgit sukuk market in Malaysia. These are trends that we are keen to encourage. To repeat therefore, I am optimistic that we can realise the significant growth potential for Islamic finance in the next 10–15 years. Managing the challenge of capital flows in the post-crisis era Let me move on now to say a few things about the challenges that many in the emerging world face in managing capital flows, particularly in the face of the extremely low interest rates being set in the advanced economies (AEs). We are in an unprecedented situation. Interest rates are expected to stay extremely low in the US and much of the advanced world for a few years, reflecting decisions by their central banks to keep monetary conditions highly accommodative until their economies resume normal growth. There is debate among economists on how effective these activist monetary policies, such as the US Fed’s QE3 strategy, will be in reviving entrepreneurial spirits and private investments. If the strategy succeeds and the US economy recovers, it will be a plus for Asia as well.

Fifth, central banks and regulatory authorities in most emerging economies in Asia have the broader mandate that includes a focus on the development of the financial sector as a means not only to enhance the growth and development potential, but also to reinforce a strong foundation for financial stability. In Malaysia, the development and reform of the financial sector in the decade that followed the Asian financial crisis has not only developed the financial sector to better serve the Malaysian economy, but it has also better positioned financial institutions to withstand the destabilising episodes emanating from external shocks. This has included strengthening financial intermediaries, not only in terms of scale but also in their financial positions, risk management and governance practices. This has contributed to more efficient financial intermediation while improving access to financing, particularly for small and medium scale businesses. Efforts to develop a vibrant capital market have meanwhile opened up alternative channels for financing, while mitigating concentration risk in the financial system and enhancing its ability to absorb large and volatile cross-border capital flows. These factors will place Asia on a firm foundation to achieve its growth and development goals. While public policy clearly has an important role, it is as important for the financial industry to align itself with the desired outcomes of sustainable growth within a longer term horizon.
The Board of Governors’ policy statement said the following: “If the decrease does not reverse, it is clear that inflation will rise sharply, and persistent inflation will be imminent if nothing is done, with the accompanying upward spiral of prices, wages, and exchange rates against foreign currencies. The depreciation of the króna in recent weeks is also harmful to the balance sheets of indebted households and companies and undermines the stability of the financial system over the long term. Thus it is critical that the depreciation of the króna be reversed as soon as possible.” The market’s response to the Board of Governors’ decision was favourable, and that is well, but at this point it is not possible to assert whether this decision will generate the results the Board of Governors intended. The next edition of Monetary Bulletin, the Bank’s principal publication on economic issues, is in the final preparatory stages and will be published on April 10. It will include an appraisal and forecasts by the Bank’s experts as regards the current economic climate and the likely developments in the near future. Because this next issue of Monetary Bulletin is forthcoming in such a short time, I have chosen not to discuss current issues at length today, though it was tempting to do so. The media discourse on the size of Iceland’s foreign reserves and the strength of the Central Bank and the Icelandic government is often misleading.

  as precaution against possible abrupt capital outflows (the “sudden stop” syndrome)    and, finally, to provide liquidity to domestic financial institutions. (Obstfeld et al. 2009). That use of foreign exchange reserves was especially apparent in 2008 when Central Banks in many emerging (and some industrialized) countries put those reserves at work to ease domestic tensions created by dollar liquidity shortages. The costs of holding reserves are also well identified:   intermediation of national savings by a public entity is never neutral. By nature, those entities don’t have the same risk appetite and liquidity preference as private agents. A significant part of national savings (up to 30% in some countries) might find itself subject to a “directed” allocation towards liquid instruments denominated in foreign currency.   as a consequence, there is a direct opportunity cost because foreign exchange reserves’ risk / return profile may be lower than for other, alternative, investments.   finally, as reserves accumulate, countries are getting increasingly exposed to exchange rate risk and face the possibility of significant valuation losses. This kind of cost / benefit analysis seems less and less able, however, to account for the true behavior of reserve holders. First there may be immeasurable, but very powerful, benefits such as increased security, lower external interest rates and lower exchange rate variability over the long run. Second, part of the costs may be borne by the system itself and not fully internalized by each individual country.
And a number of other cases, from the failure of the Icelandic banks to Fortis, Dexia and IKB, have shown how difficult it is to manage failures of international banks . Yet the fact is that most of the key players in the world’s financial markets have developed into large and complex multinational firms. Their business is not separated into national units. Some core functions – such as risk-management and liquidity management – will be centralised, and performed at the head-office. Activity at each hub cannot be viewed in isolation: a multinational may raise deposits in one country to fund loans in another. And the ultimate buffer against unexpected losses – capital – is fluid across borders in pursuit of profit. One response is to call for global regulators to deal with global institutions. That of course means pooling national sovereignty over a key issue of economic policy. And it could also require a global fiscal authority with deep pockets to whom the regulator could turn should one of these institutions fall into distress. The task of persuading the US and China to hand  6  BIS Review 21/2009  over the regulation of their largest banks to a supranational regulator would make even the greatest diplomat quail. Another conclusion is that such multinationals pose too great a risk to stability and should be subject to greater control by host authorities in each jurisdiction with the creation of separate pools of capital and liquidity in each country.

As with bank deposits prior to deposit insurance, this created an incentive for investors to be the first to get out whenever there was any uncertainty over the underlying value of the assets in the fund. By being first in line, they could exit while the fund could still repay at par, leaving others to bear any losses. The longer the investor waited, the greater the risk that the fund would be forced into the fire sale of assets to meet redemptions and end up breaking the buck. As the crisis unfolded, the Federal Reserve, the U.S. Treasury and others took a series of actions to contain the spiral of funding runs and asset fire sales. First, the traditional lender of last resort function was strengthened through the introduction of the Term Auction Facility (TAF) and foreign exchange swaps with foreign central banks. Then, as the crisis intensified, the lender of last resort liquidity provision was extended to directly backstop key wholesale funding markets and made available to certain nonbank firms. The Federal Reserve created a direct backstop to the tri-party repo system through the Primary Dealer Credit Facility (PDCF). When the Reserve Fund broke the buck after the failure of Lehman Brothers, precipitating a run on money market mutual funds, the Treasury guaranteed money market fund assets and the Fed introduced the Asset-Backed Commercial Paper Money Market Fund Liquidation Facility (AMLF).
Many new technologies intelligently used can help to reduce risk. Take for example DLS. •  Decentralisation reduces concentration risk. A cyber attack cannot bring down the entire system because every player has a copy of the ledger. •  Speed of transaction verification reduces counterparty risk. This could potentially translate to lower collateral requirements, better capital optimisation. •  Imagine clearing and settlement in seconds rather than days. •  But mind you, these are still at proof-of-concept stage. There is still no scalable market-wide solution in place. But contrary to what DLS advocates proclaim, it is not without risk and may even introduce new ones. •  The public DLS is susceptible to malwares being uploaded into the system. Blockchains are not hack-proof. •  And as all data are replicated to very node in the system, there is a risk of compromise of privacy. So, each technology must be evaluated on its own merits. •  And we must also consider which financial activity it is being applied to –  blockchains in clearing and settlement systems are very different from blockchains in trade finance or e-KYC. Second – adopt a risk-based approach to FinTech innovation in the unregulated sector. Regulation must not front-run innovation. •  Introducing regulation prematurely may stifle innovation and potentially derail the adoption of useful technology  MAS applies a materiality and proportionality test. •  This means when the risk posed by new technology becomes material, then regulation comes in.

Ravi Menon: FinTech – harnessing its power, managing its risks Panel remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Singapore Forum, Singapore, 2 April 2016. *  *  *  FinTech is fundamentally transforming the financial industry. •  The smartphone is becoming our bank. •  Computer programmes are offering investment advice. •  People can now lend directly to one another online. Technology will replace many jobs in finance but will also create exciting new jobs. •  Calls for new and different skill sets – understanding technology and the ability to work with and harness the power of machines and algorithms  •  As someone in Silicon Valley put it, “the geek shall inherit the earth”. Unregulated FinTech companies are now providing many financial services. They will challenge traditional financial institutions (FIs), disrupt and even displace some of them but will not replace them. •  Banks and insurance companies have something that unregulated entities do not have – trust. Trust based on a track record of performance. •  FIs are not sitting still. –  They are actively harnessing technology to enhance product offerings and improve efficiency. –  They are setting up in-house FinTech units to replicate the start-up mentality. Many global banks have set up “innovation labs” in S’pore: Citibank, StanChart, UBS, HSBC, to name a few. And insurance companies too: Aviva, Aon, AXA, MetLife.
Due to the escalation of trade tensions we are witnessing a significant slowdown in global trade [Slide]: in its latest World Economic Outlook, the IMF expects the slowest global growth since 2008–2009 [Slide]. The loss of global growth due to the trade war could reach up to 0.8% next year, due mainly to its indirect effects, beyond tariffs: fall in business confidence and investment, decrease in productivity. Similarly, the twists and turns of Brexit have created volatility in UK quarterly growth, and weighed on business investment. Despite this gloomy context, the French economy is resilient, with growth at 1.3% close to its potential. Purchasing power per capita should accelerate sharply in 2019 (2.3%), due to the strength of labour income – 1 million jobs have been created over the past four years – and the fiscal stimulus. But – as a whole – the euro area is acutely affected, primarily due to the weight of Germany – with growth of only 0.4% expected this year. Of course Germany is highly specialised in the manufacture of capital goods and “overexposed” to global trade – German exports account for around 50% of GDP. Combined with a radical upheaval of the car industry, these phenomenon nearly constitute an asymmetric shock for the German economy. II. The recent monetary policy controversy is of little interest for the future Over the past few years, monetary policy has played its full part in helping Europe weather the storm.

We now expect rates to remain at their present levels of –0.5%, or lower, until the inflation outlook robustly converges to a level sufficiently close to, but below, 2%, and this convergence has been consistently reflected in underlying inflation dynamics. Besides, this strengthening of our forward guidance implies the consequent prolongation of the reinvestment period for the very important stock of QE assets – 2600 billion euros. The tiering system will help us mitigate the possible side effects that negative rates might have on banks’ profitability, which is crucial to protect the transmission of our monetary policy through the bank-lending channel. The Governing Council’s discussion at the start of September is now behind us; everyone has expressed themselves legitimately – I have explained my own reservations on one part of the package –; but the decisions were taken equally legitimately, and they provide clarity well into the future. Have no doubt: we are committed, and the whole package will be implemented. We must now look resolutely forward, with three strong elements of consensus around Mario Draghi today and Christine Lagarde tomorrow: we have to maintain an accommodative monetary policy in the face of the economic slowdown and low inflation. Second, a review of our monetary policy framework in this environment will be very welcome. And third, it is very desirable that fiscal policy now prolongs this monetary support, wherever that is possible in Europe. It is time to turn the page, and turn to the future. III.
We now have more effective foreclosure law, a credit bureau, and accounting standards such as IAS 39 that conform to international best practices. Moreover, under the Deposit Protection Agency Act which will replace the current blanket deposit guarantee in place since 1997, the establishment of the Deposit Protection Agency should reduce banks’ moral hazard and enhance market discipline. That is by putting pressure on banks to improve financial strengths if they want to attract and retain depositors. As part of Thailand’s efforts to advance reforms, the Bank of Thailand will, under the secondphased financial master plan, focus on improving efficiency and intermediary functions of the financial sector by reducing regulatory costs, enhancing legal and information infrastructure, and increasing the level of competition through further deregulation and liberalisation. Deregulation would potentially involve expanding business scope and enhancing the role of existing players, including banks, non-banks and other niche banks. One of the key factors for deciding the optimal number and type of new players would be the value added that new financial institutions, be they universal banks or niche banks, could bring to the financial system, such as technical expertise and product innovations. Having said this, I wish to emphasize that we will also closely look at the risks from potential concentration of market power and financial instability stemming from disorderly competition and exits. Last but not least is better governance to bring about better risk management.

While the expectation is high, I can assure you that we will strive to fulfill our responsibilities the best we can to ensure that the economy overcomes any difficult challenges that may lie ahead. Thank you. 4  BIS Review 63/2008