samchain/econo-pairs-v1 huggingface dataset:
Opening remarks at OeNB monetary policy panel by Andrew Bailey Given at Oesterreichische Nationalbank, Annual Economic Conference, Vienna  Published on 23 May 2022  Remarks This is a time of very large economic shocks, and particularly very large external shocks, most recently from Russia’s invasion of Ukraine. I say that as someone who wholeheartedly supports the cause of Ukraine and the assistance we must give. We are in a period of rapidly rising energy, goods and some food prices. These are the most visible prices too. This is by far the main cause of high inflation, and is painful, particularly for those less well off. What can and should monetary policy do? There is a very important distinction between: whether monetary policy can anticipate and stop the effects on inflation of shocks; and, if not, whether it should respond when they happen? With shocks such as pandemics and wars, the answer to the first question is more likely to be “no”. But the answer to the second is very much “yes, monetary policymakers can and must take the actions needed to return inflation to target over a period that avoids unnecessary volatility in the economy”. It is domestic actions that have to get us back to price stability. For monetary policy, the choice of policy actions is influenced by the nature of the shock we are facing. In the UK we are facing a very big negative impact on real incomes caused by the rise in prices of things we import, notably energy.

The contributions to the FSR show that most commitments have been materialized in a regulatory framework that is currently being finalized: in particular, at the international level, in April 2012 the CPSS (Committee on Payment and Settlement Systems) and the IOSCO (International Organization of Securities Commissions) published the “Principles for Financial Market Infrastructures” that update, strengthen and broaden the former standards applicable in the different jurisdictions. BIS central bankers’ speeches  1  I will pay a particular tribute to the leadership of the US lawmakers in this field of regulation and the personal action and involvement of Senator Dodd, with the law named after him and his colleague Senator Frank. European Union legislation with EMIR (European Market Infrastructures Regulation) has also marked a decisive step to address the need for further security and transparency on OTC derivatives markets. But the contributions to the Financial Stability Review, also show that reforms must be pursued. Before we get to the discussion, let me briefly give you some personal thoughts on this. Efforts in the reforms should tend to establish a comprehensive, adequately calibrated and consistent regulatory framework. 1. There is a need for a comprehensive framework. This means that we have to extend and complete security and transparency. •  First, pay a close attention to the regulation of OTC derivatives that will remain noncleared.
•  Have refined our rules to allow less complex ETFs which make limited use of derivatives to be reclassified as Excluded Investment Products (EIP) – these can be sold more easily to retail investors. 50. 80% of AUM of SGX-listed ETFs are now classified as EIP ETFs that investors can purchase as easily as they buy individual stocks. Third consumer initiative: spur competitive pricing for life insurance products 51. MAS worked with industry and CASE to create a new online portal, compareFIRST. BIS central bankers’ speeches  7  •  Will enable retail consumers to easily compare key features of life insurance products offered by various insurance companies  •  Since its launch in Apr, compareFIRST has registered healthy interest, with over 180,000 visits to portal and more than 110,000 product summaries downloaded. •  Consumers and industry have provided positive feedback on convenience and ease of use of compareFIRST. 52. (DPI). MAS has also worked with industry to make available Direct Purchase Insurance  •  DPI offers consumers access to selected term life and whole life insurance products sold without commissions or financial advice  •  More than 200 DPI policies have been sold in first three months of launch, with a further 100 applications pending approval by insurers. 53. compareFIRST and DPI have spurred more competitive pricing for life insurance products. •  Some insurers have lowered prices of both their DPI and non-DPI insurance products, since introduction of these initiatives. Fourth consumer initiative: enhance financial education 54.

4 For a full discussion of wage growth, see Cunliffe (2017) 3  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  judging the appropriate balance to be struck when faced with a trade-off between returning inflation sustainably to target and supporting jobs and activity, one must pay close attention to any sign that above target inflation is feeding through to ‘second round’ effects in domestic costs. So far that doesn’t seem to be the case. In summary, it is difficult to determine precisely why the supply side of the economy has behaved as it has in the period since the referendum. The weakness in real wage growth, and the subdued nature of domestically generated inflation mean I am not yet ready to discount the idea that labour market flexibility is continuing to intensify. If true it would mean there is a little more room than headline measures of slack suggest for the economy to grow without generating above-target inflation in the medium term. For that reason, in our November meeting I was willing to wait for more evidence on the evolution of wage and domestic cost growth before beginning to withdraw some monetary stimulus. So I voted for no change in Bank Rate. Deliver Once the decision is made, attention turns to the final phase of ‘end to end’ monetary policy: Deliver. A key part of being Deputy Governor for Markets and Banking is responsibility for delivering much of the Bank’s monetary, and indeed financial stability, operations.
The long-term inflation expectations then play an important role. Here we can mainly have an effect by conducting a credible monetary policy. Long-term interest rates are also affected by the economic outlook and by long-term growth. The level of the repo rate is set so that inflation will be close to the target within a couple of years at the same time as inflation and the real economy should not show excessive fluctuations. What is known as the transmission mechanism is often described in terms of the different channels through which the repo rate has an effect on the real economy and inflation; the interest rate channel, the credit channel and the exchange rate channel. According to the “interest rate channel”, higher interest rates normally make it more attractive to save. A higher interest rate also means that it becomes more expensive for companies to finance investments, and for households to borrow for consumption. The “credit channel” describes how monetary policy’s impact on the economy can be reinforced by companies’ and households’ credit ratings declining when interest rates are higher. Households and companies find it more difficult to borrow money. All in all, a higher repo rate dampens household consumption and corporate investment and thereby also total demand in the economy. This in turn means that production growth slackens and resource utilisation is lower. Prices and wages then rise at a slower rate. The “exchange rate channel” describes how monetary policy affects the value of the currency.

2  BIS Review 121/2007  inflation expectations from becoming entrenched below the operational target of 2.5 per cent was one of the main reasons the interest rate was lowered to a very low level in 2003 and 2004, when inflation receded and approached zero. Low interest rates have stimulated demand and output and gradually led to the prospect of higher inflation, which we are addressing by increasing the interest rate. Consumer price inflation is still fairly low, but capacity utilisation is now at such a high level that inflation is projected to move up gradually to 2.5 per cent. Higher interest rates will contribute to a gradual decline in capacity utilisation, thereby preventing inflation from becoming too high. In the long term, monetary policy cannot influence real economic variables such as output and employment; it can only influence nominal variables such as inflation, the nominal interest rate and the nominal exchange rate. When monetary policy serves as an anchor for inflation expectations, it allows the interplay between monetary policy and other components of the economy to function. A good result can be achieved if the social partners take the role of "leader" and the central bank the role of "follower". Wage growth can then be determined in the knowledge of the monetary policy response. Flexible inflation targeting provides a fixed framework for monetary policy and gives a clear indication of how the central bank is to respond in different situations.
[17] We intend to embed both types of tool – limits and tiered remuneration – in the design of a digital euro. Closer to the possible introduction of a digital euro, we will decide how to combine and calibrate them to preserve financial stability and our monetary policy stance and transmission. [18] These choices will need to take into account the economic and financial environment prevailing at that point in time. Our preliminary analyses indicate that keeping total digital euro holdings between one trillion and one and a half trillion euro would avoid negative effects for the financial system and monetary policy. This amount would be comparable with the current holdings of banknotes in circulation. As the population of the euro area is currently around 340 million, this would allow for holdings of around 3,000 to 4,000 digital euro per capita. Two “dynamic” factors must be taken into account when drawing up the initial parameters for limiting or disincentivising holdings of digital euro for investment purposes. First, the adoption of the new digital currency by citizens will be gradual; it would likely take several years before a majority hold digital euro. Second, it may be wise to err on the side of caution when calibrating these tools and then adjust based on experience and the take-up of the digital euro over time. At the same time, when designing the tools, we will aim for simplicity, in terms of both technical implementation and user experience.

To the extent that this may be the case, then a clearer picture on liquidity conditions may only emerge as monetary policy is normalized. What factors could influence liquidity provision? Clearly many factors could affect liquidity provision. On the regulatory side, capital and liquidity requirements are probably the most important factors. Dealers have been an important provider of liquidity. Higher capital requirements reduce dealers’ returns on equity for a given level of intermediation activity and margin. At the same time, liquidity requirements increase the cost of holding less liquid assets. To compensate for the higher capital and liquidity requirements, dealers can shrink their activity in lower margin businesses and raise the price for the liquidity services they provide. Presumably, both adjustments occur in most markets with the ease of entry, the degree of economies of scale, business model and overall client profitability influencing whether the adjustment occurs more through a resizing of the activity or a change in unit trading margins. For the U.S Treasury market, the most important change in regulatory requirements is probably the introduction of the supplementary leverage ratio (SLR) in the United States. The SLR limits how leveraged a dealer balance sheet can be. Because in the SLR all assets require regulatory capital, the SLR is much tougher on low risk assets compared to the riskbased capital measures it complements.
As indicated on several occasions, the overall aim of the comprehensive assessment of banks is two-pronged: on one hand, the exercise seeks to offer a high degree of transparency concerning the situation of banks whose supervision will be conducted by the single supervisory mechanism as from November; on the other, it intends to promote the recapitalisation of those viable institutions that show insufficient levels of solvency. Both  2  BIS central bankers’ speeches  avenues will help reinforce the credibility of European banks ahead of the transfer of the supervisory function to the new authority. I should emphasise that it would be mistaken to quantify the value of the stress test in terms of the capital requirements it brings to light; and even more mistaken to measure its success on the basis of the proximity of the final result to the relatively sizeable estimates in the analyses published so far which, often, have been lacking in information and rigour. Experience shows that, beyond the size of the capital shortfall identified, these analyses are only credible if they manage to provide rigorous and consistent information on banks’ real situation and their ability to withstand adverse scenarios. Accordingly, the strategy to pursue can be none other than to ensure the methodological soundness and consistency of the exercise, and to provide the market with sufficiently accurate information on the results obtained and the process followed. In this respect, what should reasonably be expected from the comprehensive assessment under way?

Inflation expectation indicators also remain low over all horizons, far from the ECB’s 2% benchmark. 2  BIS central bankers’ speeches  However, it must be emphasised that monetary policy’s ability to address the challenges posed by a situation such as that we face today is not without limits. Laying the foundations for a sound and long-lasting recovery in activity, investment and employment requires an approach in concert with other economic policies, especially fiscal policy, along with institutional reform, labour and product market reforms and strengthened European governance. Thus, according to their individual circumstances, euro area countries should use the room for manoeuvre provided for in the Stability and Growth Pact to bolster aggregate demand and growth in activity. Admittedly, in many cases, the precarious state of public finances leaves little room for stimulus measures, such as tax cuts or higher public spending, especially because the countries with most spare capacity are also those with the highest levels of public debt. However, fiscal policy’s contribution to growth is not only determined by revenue and expenditure levels, but also by their composition. In that respect, there is some scope (broader in some countries than in others) for a shift in the tax structure towards taxes that are less distortionary and more favourable to growth. A further objective is to make public expenditure more efficient and direct it to those components that are more favourable to growth.
Indeed, with a strong impulse from the G20 and the French Presidency, we have embarked into an ambitious financial reform agenda whose explicit objective is to prevent any recurrence of such intense episodes of financial turbulence and instability. On the other hand, growth cannot occur without efficient and developed financial systems to allocate savings, redistribute risks, and provide liquidity to the economy. There is ample evidence that financially repressed economies are penalized in terms of investment and economic growth. The challenge, therefore, is to find the right balance, as suggested by the title of our session. Looking at our achievements to date, my sense is that we are definitely moving in the right direction. But, of course, this is still work in progress: regulators and policymakers are constantly looking for additional evidence and insights on how to best reconcile stability and efficiency in the developments of our financial systems. The thrust of our efforts has been to increase the robustness of financial institutions and infrastructures. It is not in our power to eliminate financial shocks and volatility. It is our duty to make sure that they can be absorbed without undue consequences for the institutions themselves and the whole economy. Building up appropriate cushions was therefore a priority and a necessity to protect tax payers from the consequences of future turbulences. First and foremost, a robust system needs strongly capitalized banks. Basel 3 will make essential contributions in this regard, by increasing both the quantity and quality of banks’ capital.

The Malaysian Government has also focused its efforts towards strengthening its position as an international takaful and retakaful centre, with particular emphasis on widening and deepening the retakaful sector so as to effectively complement the growth and expansion of the takaful industry. In this regard, I wish to invite strong and qualified applicants to make Malaysia as their centre for retakaful activities. Foreign applicants with strong credentials are certainly welcome to conduct retakaful business in Malaysia. The changing global investment climate continues to pose challenges for life insurers in respect of their life fund investment. The recent sub-prime crisis in the US has induced greater fluctuations of the yield curve as well as higher volatility in the equity markets. Given the increased proliferation of innovative products with investment guarantees, insurers' remain very vulnerable to the movements of the capital markets. As for traditional noninvestment linked business, asset-liability management and duration mismatch continue to pose a challenge, and insurers must seek new long term investment avenues to minimize the risk of mismatches. The occurrence of global warming and climate change is of particular significance to the insurance industry which, has had to bear the brunt of severe losses arising from weatherrelated catastrophes. Between the 1960s and 1990s the number of natural catastrophes has doubled while insured losses increased nearly seven-fold, most of them weather-related.
Should we note a deviation from this path, we will use every instrument within our mandate, including unconventional ones, in order to cope effectively with risks of a too prolonged period of low inflation. 3. Outlook for the French economy  I would like to end my speech by taking a closer look at the situation in France. Our growth is expected to be close to the euro area average in 2014, at around 1%. France has some major strengths for competing in a global economy: dynamic demographics, a well-trained labour force, expertise in strategic or high-tech sectors such as mathematics, aeronautics and nuclear engineering, and excellent infrastructure. We also have the advantage of an efficient financial system which has always managed to play its role in financing the economy. French banks have made the necessary efforts to meet the Basel 3 solvency requirements, and are also improving their liquidity levels in a highly favourable monetary policy environment. But our economy has two main handicaps: first, taxes and social security contributions are too much of a burden, particularly for companies, because of our excessively high level of public spending; and second, our labour market and goods and services markets are overregulated and excessively rigid. As far as I can see, France’s main priority today is to ensure that it can take full advantage of its strengths by implementing structural reforms that reduce the burden of taxation and simplify administrative formalities.

I’m sure that at this time, and perhaps even at this conference, his voice would have been heard and he’d have been offering us imaginative insights into the coronavirus crisis. Michal, we miss you. Ladies and gentlemen, thank you for listening. I hope you find the conference interesting and inspiring. 7/7  BIS central bankers' speeches
We have been stimulating the economy with historically extreme levels of monetary policy for a long time and a variety of headwinds (including the problems in the euro area, a tightening of credit conditions, the drag on activity from fiscal consolidation, and a squeeze in household real incomes resulting from the fall in productivity and higher energy and commodity prices) have all contributed to limit the effect of that stimulus. What seems to have happened in 2013 is that at least some of those headwinds were perceived to have diminished, allowing the policy stimulus to come through and the resulting growth has generated the renewed consumer and business confidence which reinforces demand. We are very conscious that the headwinds have not gone away: much of Europe and some other parts of the world continue to struggle for sustained growth; fiscal consolidation in the UK (and elsewhere) is likely to continue for a while to come; and the financial sector still needs some rebuilding. Indeed, the official production and construction data released earlier this month were rather disappointing, reminding us that strong growth from here on is by no means guaranteed. But to varying degrees perhaps the very worst of the storms may be behind us. Just a tailing off in some of their negative impacts may have been sufficient to allow the economy to start growing again. Interest rates and forward guidance So why aren’t we moving to tighten policy straight away, why did we issue forward guidance around monetary policy?

That guidance should help to give confidence to businesses and households and help to support demand growth. By reducing uncertainty about our reaction function, guidance should also have helped to counteract the pressure in financial markets to price in the chance of a rapid increase in Bank Rate. We chose unemployment as the threshold indicator not because it was ideal – far from it – but because other indicators were all less attractive. Of course, no sooner had we announced a policy linked to the unemployment rate than it began to fall unusually precipitously. But what is there not to like about sharply falling unemployment? After all, getting the economy back to a medium-term path quickly, allowing policy to normalise, would be a good thing? Right? Well, falling unemployment is undoubtedly a good thing for the individuals who are back in work and on many other social counts. It could only be a purveyor of the dismal science who found rapidly falling unemployment disappointing! Yet, in order to see rising living standards on average, it is crucial to see rising output per head (i.e. rising productivity) – which ultimately drives real national income per head and hence how well off we are as a country. So we need to see rising employment accompanied by even faster growth in output.