samchain/econo-pairs-v1 huggingface dataset:
Vítor Constâncio: Laudatio for Professor Kenneth Rogoff, recipient of the 2011 Deutsche Bank Prize in Financial Economics Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the Laudatio for Professor Kenneth Rogoff, recipient of the 2011 Deutsche Bank Prize in Financial Economics, Frankfurt am Main, 22 September 2011. *  *  *  Ladies and Gentlemen, It is a great pleasure to address a few words to mark the awarding of the 2011 Deutsche Bank Prize in Financial Economics to Professor Kenneth Rogoff of Harvard University. I will recall some of Professor Rogoff’s outstanding contributions to economics and financial economics, and I will also comment on some of his research in the context of the responses to the current crisis. Let me first emphasise that research plays a crucial role for the Eurosystem – just as it does for other central banks. Indeed, research has provided an essential input to the definition of the ECB’s price-stability monetary policy strategy. I would thus like to express my appreciation to Professor Rogoff for the influential contributions he has made in many fields of special relevance to central bank policymakers, ranging from monetary policy to international finance and financial crises. He merits particular praise for helping us to improve our understanding of some of the main causes and mechanisms behind the links between financial crises and sovereign debt crises.

Sustained buying of government paper by the central bank would only postpone problems and delay the necessary fiscal adjustments, ultimately resulting in a build-up of inflationary pressures. The ECB has never hesitated to reaffirm and remind all Member States, in very concrete terms, that compliance with the principles of budgetary discipline is absolutely fundamental. Naturally, since member states do not control their currency alone, they are vulnerable to liquidity episodes and multiple equilibria. Creditors’ assessments can change, e.g. via contagion effects, even when the fundamentals would not justify it. The high degree of financial integration within EMU means that, if left unchecked, contagion in the banking sector can spread rapidly via cross-border holdings of sovereign debt. For the sovereigns themselves, sudden shifts in market re-pricing of risk can lead to unexpected liquidity challenges. These dynamics underscore the importance of strengthening the mechanisms that prevent such risks – the SGP, surveillance of broader macroeconomic imbalances and stronger financial supervision. However, the liquidity dry-ups and the contagion risks also call for stronger backstop mechanisms, to provide significant, albeit temporary, liquidity assistance. The SMP aims to create a better functioning transmission mechanism of monetary policy to all parts of the monetary union and is therefore in full compliance with the prohibition of monetary financing. Also, we sterilise the impact of the SMP on our total liquidity provision.
Whether a quake seems likely to occur soon has no bearing on this. For resilience in structures, the best indicator of underlying vulnerability is how close the city is to the fault line or plate boundary. On that basis, Apple’s new California HQ uses new earthquake resilient technology. 3  For resilience in the financial system, it is how much debt there is in the economy (or economies) to which it’s exposed. That’s why, when we come to decide how big the banking system’s buffers of loss-absorbing capital should be, we don’t focus on any economic tremors we may feel. We don’t insist on tougher standards just because trade tensions threaten to slow the world economy or changes in sentiment hit financial markets, or because uncertainty is weighing on the domestic economy. Instead we focus on debt – a key driver of how far up the Richter scale economic earthquakes tend to be. 4 Think of a build-up of debt as being the economic equivalent of building close to a fault line. When a quake hits, the impact is greater and more resilience is needed in the structures. This focus means we can appear contrarian. Debt has a habit of increasing in calm periods, when those in the financial system think it’s safe to take more risks. So we can find ourselves demanding tougher standards when risks are thought by many to be low. And we don’t start demanding them when the tremors start, when risks are thought by many to suddenly be high.

As to firms, the reduction was more marked in the case of small and medium-sized enterprises (SMEs), whose access to other financing sources is generally more limited. This fall-off in credit should be viewed set against the correction of the excess debt built up by Spanish households and firms during the expansionary phase that ended in 2008. Deleveraging has been necessary both on the part of lenders and of borrowers. But this credit contraction should also be viewed in relation to the end of the – what was unsustainable – expansion of the real estate development and construction sectors. And of no little importance, moreover, has been the re-drawing of the map of Spanish credit institutions – I refer here to the disappearance or transformation of many savings banks – which has, in a good number of cases, necessitated the re-configuration of relations between lenders and borrowers and has no doubt had a bearing on the funding difficulties experienced by viable firms with sound expansion projects. For credit to flow normally again, two essential conditions must be met: economic growth must increase and the restructuring and recapitalisation of our banking system must – as is indeed under way – be completed. A strong, healthy banking system that acts transparently and offers full guarantees to depositors, borrowers and investors is an absolutely crucial condition for sustained economic growth and, therefore, for the correction of our very serious unemployment problem.
-20 -30 -40 -50 -60 -70 1995  1996  1997  1998  1999  2000  2001  2002  21  The legislative and regulatory framework has been already harmonized with the EU requirements. Special missions of experts from the EU countries have confirmed this in all of the new member states. However, the acqui communautaire are still developing and improving. This represents additional challenge for the new member states, since they must first adopt the existing rules, and also get ready for the coming changes. The new member states are ready for application of Single Passport policy [it basically means that any bank from any EU country could provide services in the whole EU without additional licensing requirements.]. Since the domestic banking markets in the new member countries are competitive enough and have already a strong presence of foreign institutions, this should not lead to dramatic changes in lending in these countries. Being a part of larger economic area, with banking sectors dominated by foreign institutions, will represent a new challenge for bank supervisors. The need for greater and more efficient cross-border cooperation will probably lead to changes in focus of the supervisory agencies. After their accession to the EU, I do not expect any contagion effect among the Central European countries in case of difficulties of one of them. The institutional investors do not any longer view these countries as very coherent group. This assertion can be illustrated on developments of the exchange rate over the past two years.

3 15 0,4 2  3 2  9 8  * Market shares of Controlled banks multiplied by their capital share, end of 2002  BIS Review 53/2003  Romania  7 1 0,6 6  7,5 1,2 2,3 5,9 2,2 1,5 4,3 6 3,3 3,9  Bulgaria  15  Croatia  5 1 3 3 16 9  18 4 9  3  CEEC 5- Total  Slovakia  15 0,2  Slovenia  7 9 8 6 5 3 3 3  Poland  KBC Bank Bayerische Landesbank Intesa Bci HVB Group Raiffeisen GE Capital Citibank Erste Bank Societe Generale UniCredito  Czech republic  Hungary  Role of Foreign Banks  0,1 14 6 7  7 4  2 4 3  7 27  5 19  8 0,5  20  5  As said above, the economic transformation had a large negative impact on balance sheets. Banks tended to lend to previously existing companies undergoing privatization that were faced with a sudden loss of foreign demand (mainly from Soviet Union) and had to restructure themselves by laying off a big part of their workforce. This proved to be a recipe for financial disaster. Financing of newly established companies with no track record, with business plans based more often on good intentions than on thorough analysis was no better. In addition, the political elite, who saw bank financing as the quintessential source of economic growth, encouraged this lending boom. Existing risks were widely disregarded.
Since it takes time – we allow for a time horizon of one to two years before the transmission mechanism has worked through the economic system – we have to form an opinion of the state of the economy in the long run. Predicting the future is difficult for many reasons, not just due to statistical shortcomings but also because the economy is changing all the time. The economy can be hit by different kinds of shocks, e.g. the increased electricity prices when there was a shortage of water in Sweden’s reservoirs, and  BIS Review 10/2005  3  the price of meat and other food when cows in Europe were affected by a number of diseases. It is difficult to determine early on what changes in the economy are temporary and what are permanent. Another factor complicating the picture is that inflation expectations in society greatly influence price and wage formation, and thereby inflation. In other words the car – to continue with the analogy – has a fogged windscreen, a speedometer that is very difficult to read and pedals that sometimes are sluggish and sometimes easy to push down. How can we make the economy go at an appropriate speed?

So inflation expectations play a key role for monetary policy and for that reason we keep a close eye on how they are developing.3 Perhaps the most important task of monetary policy is to influence inflation expectations since it is via market rates, and not the repo rate itself, that demand in the economy is affected. That is why communication and credibility are so significant. If we can get our message across we increase the chances of a successful monetary policy. Monetary policy in a low-inflation economy The Riksbank’s rule of action, which says that the policy rate should be adjusted when inflation is above or below target one to two years ahead, is not at all as mechanical as is sometimes perceived. The Executive Board’s clarification in 1999 made it clear that the practical formulation of monetary policy takes account of developments in the real economy. According to the clarification there may be reason for the Riksbank to deviate from the target if inflation is being affected by a temporary shock that will not fully dissipate during the coming two-year period but that is nonetheless not deemed to have any lasting influence on inflation developments. Another reason is when a bigger shock makes a return to the target one to two years ahead associated with excessive undesirable effects on the real economy. There are many examples in recent years of when we have taken such factors into account. At the turn of the year 2002-2003, for example, rising energy prices were pushing up inflation quickly.
One of the standard assumptions behind the forecast is an unchanged exchange rate from the forecasting day, and it should be borne in mind that it did not take into account the interest rate cut which was announced on February 10. The impact of the cut will be a marginally higher rate of inflation than was assumed in the forecast. It should also be mentioned that Monetary Bulletin contains an announcement about pending changes to rules on required reserves aimed at harmonising the operating conditions of Icelandic credit institutions with those of comparable institutions in EMU. To be implemented in phases this year, the new rules involve a considerable reduction in the credit institutions’ required reserve from the present levels, thus entailing some easing of the monetary stance. Broadly speaking, the Central Bank’s assessment and forecasts entail a fairly moderate rate of economic growth this year, unemployment of around 3½% this year (excluding the effects of new government measures in this area) but falling somewhat next year, a minor current account deficit this year and next year – in particular caused by imports connected with the construction programmes in east Iceland – and a very moderate rate of inflation. Thus it can be said that the outlook is for good macroeconomic balance. As I mentioned earlier, Monetary Bulletin includes an in-depth assessment by the Bank of the proposed power-intensive industrial projects in east Iceland and conceivable economic policy responses to them.

The policy rate is currently 5.3%. The exchange rate of the króna was fairly stable from last spring and until the winter, then strengthened again towards the end of the year and in the beginning of this year, to reach its highest point for two years. Undoubtedly the expected power-intensive industrial project in east Iceland is a contributing factor. The new monetary policy framework was introduced in a fairly tough climate of a sliding exchange rate and mounting inflation. It is fair to say that the tight monetary stance is the main reason that inflation went back down so quickly. Experience has shown that the monetary policy passed its initial test with flying colours and no one should have any doubts now about the value of monetary policy in the Icelandic economy. It works in Iceland, just as it does everywhere else. On February 10 the Central Bank published its quarterly Monetary Bulletin. As usual, this contains a new inflation forecast along with the Bank’s latest national economic forecast and a new assessment  of economic and monetary developments and prospects. The bulletin also contains an evaluation of the impact of the proposed power-intensive industry and hydropower development projects in east Iceland, which were incorporated into the inflation forecast and national economic forecast. The forecast assumes that inflation will be below the Bank’s target over the next two years. On the basis of this and the new economic forecast, the Governors announced a cut of 0.5 percentage points in the Bank’s policy rate last Monday.
And they have overcome both technical and juridical barriers so as to operate on a global basis. You cannot label them in the historical categories: - are they banks? Are they securities firms? Are they insurers? Of course you can categorise them by their historical roots. The large so-called broker-dealers such as Morgan Stanley and Goldman Sachs come from the securities side. The big banks - Citigroup and HSBC - come from the banking side. But today they are all involved in convergent thought processes and operations, even if their precise legal structures, and in many cases regulatory arrangements, may differ. They are all involved in considering in real time whether they are comfortable with the  4  BIS Review 5/2004  balance sheet of assets and liabilities that they have. And they all are involved in risk transfer techniques to adjust to a desired proprietary outcome. Their scope is multifunctional and multinational. This enables them to maximise opportunities for return. But it can also create challenges for the markets, and for the authorities. With global firms if there should be a failure, then who will oversee its resolution, and will there be any safety net to counter what could be significant economic and social costs globally? Which set of taxpayers in which countries will be prepared to share the burden to support such LCFIs? This highlights a real tension in the globalised world. The markets have globalised, and so have the firms. But, to a large measure, the oversight apparatus remains nationally based.

Sir Andrew Large: Financial stability oversight - past and present Speech by Sir Andrew Large, Deputy Governor of the Bank of England, at the London School of Economics, London, 22 January 2004. * 1. *  *  Introduction: Globalisation and the Financial World  The financial system has been in the vanguard of globalisation of economic activities. The past 30 years or so have seen a transformation of the financial scene. Just as the financial world has become significantly more complex with an ever more inter-connected global network across firms and countries, so too has the challenge been transformed for those involved in financial stability oversight. That is my theme tonight. Much of what I am about to say may be familiar. But what I have tried to do tonight is to tie these subjects together - to provide a picture of the whole area we grapple with. So I may have exchanged some depth for breadth in the interest of getting home tonight. I would like first to consider what financial stability oversight is and why it is important. Then, what has changed in the financial market place and the challenges that this has brought. And finally the response of the public authorities to these challenges. 2. What is financial stability oversight? Unquestionably financial stability is a critical ingredient in a high performing market economy, although its definition has been an elusive subject of endless fascination to generations of commentators.
It is no longer really about protecting depositors, as the vast majority are wholly protected by the insurance scheme. From a micro perspective, it is essentially about minimising risks to, and losses at, the deposit insurer, the UK Financial Services Compensation Scheme. Second, it also potentially alters the dynamics of the market place. It makes it easier for banks to pay up for deposits; the signal that a bank will take greater risk than otherwise, as it would have to, does not matter to the depositors. They are covered, and so simply enjoy the higher returns on their deposits. If the bank succeeds, the rewards are reaped by shareholders and management; if it fails, retail creditors get repaid in full. This doesn’t feel like a stable regime. And it is worth remembering that President Roosevelt seriously hesitated before introducing the equivalent FDIC scheme in the US in the 1930s for precisely that reason. One way of addressing these risks – and the approach eventually being tried in the US – would be to make such risk-taking banks pay a higher levy into the insurance scheme. Riskbased premia would help to offset the incentives otherwise created. And, of course, any such insurance scheme must be pre-funded; it is no good trying to collect levies from riskier banks after they have gone bust. That is why the Bank has advocated this course.

And the Treasury is also consulting on how investment banking distress should be handled in the light of the problems with the Lehmans insolvency and administration since last autumn. 7 Cross-border resolutions There is also a vital cross-border element to all of this, which absolutely must be recognised and tackled if we are to establish sounder foundations for a world of free, global capital markets. 6  I owe that expression to my colleague Paul Fisher. 7  See, HM Treasury (2009), “Developing effective resolution arrangements for investment banks”, May 2009. 6  BIS Review 83/2009  Around thirty-five years ago the founding document of the rules of the game for international banking was issued: the Basel Concordat for the supervision of internationally active banks. Although updated in the early 1980s to embrace consolidated supervision in the wake of Banco Ambrosiano’s collapse, its essential precepts have remained unchanged. 8 Home supervisors carry the responsibility for consolidated supervision. Broadly, hosts carry little or no responsibility for branches, other than for liquidity, although it is not easy to pin down what that means; but hosts carry somewhat greater responsibility for the soundness of subsidiaries. (Within well-defined regional areas, variants can operate: eg passporting within the EU.) The point of rehearsing all that familiar stuff is that the division of labour for supervision of banks during peacetime absolutely must be consistent with the insolvency and other regimes that would operate in the event of failure or distress.
Boris Vujčić: Macroeconomic developments and structural issues in CEE countries Speech by Mr Boris Vujčić, Governor of the Croatian National Bank, at the Roundtable on Macroeconomic Developments of the 16+1 Economies, Magyar Nemzeti Bank (the central bank of Hungary), Budapest, 9 November 2018. * * * Accompanying slides of the presentation. Economic expansion in the CEE region can be expected to continue in the near term supported by still favourable cyclical conditions. However, in many countries pace of growth might moderate, partly due to supply side constraints and maturing business cycles. Potential growth estimates indicate that in all countries output gaps are positive or have been closed, and unemployment rates are close or below pre-crisis levels, pushing-up the wage growth. While such a positive outlook for future growth is somewhat disturbed by rising risks to the global economy, such as escalation of trade tensions or tightening of financial conditions, CEE countries seem to be in a generally good shape to withstand the impact of negative shocks. Current account positions have improved and in many countries turned into surplus, while international liquidity positions are ample. Also, economic recovery coupled with efforts to push through fiscal adjustment programs led to improvement of general government balance and public debt was put on a declining path. Furthermore, financial systems in most countries remain robust and resilient, as attested by withstanding the shocks emanating from the global financial crisis and the European sovereign debt crisis.

8  All speeches are available online at www.bankofengland.co.uk/speeches  8  I noted above that changes in the world of work have very possibly changed the pricing power of labour and workers’ appetite for risk (i.e. job insecurity). This is in itself a large area of current debate and I do not want here to go into these in great detail. 18  Some of these important changes in the structure of the labour market, such as the rise in self-employment and decline in union membership, predated the financial crisis. Others, like the rise in temporary work and zero hours contracts, are more recent. Technology – and the rise of the gig economy – has further increased what my colleague Andy Haldane has called the ‘divisibility’ of labour. The impact of the financial crisis and subsequent recession itself may also have changed workers appetite for risk. Anecdotally this is certainly true; I have lost count of the number times in the last four years, when the discussion on regional visits has turned to pressure for pay increases that I have heard the explanation that workers were “happy just having a job”. This may well be more than anecdote. There is literature on the Great Depression that identifies the lifetime effects on the so called ‘depression babies’ and their attitude to risk.