samchain/econo-pairs-v1 huggingface dataset:
William C Dudley: US economic policy in a global context Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Foreign Policy Association Corporate Dinner, New York, 7 June 2011. *  *  *  It is a pleasure to have the opportunity to speak here this evening and I would like to thank the Foreign Policy Association for inviting me. The Association has served for decades as a catalyst for developing awareness and understanding of global issues and for providing nonpartisan forums for informed discussion. Your mission is clearly a worthy one – now more than ever. In this discussion I will highlight how the recent financial crisis and its aftermath have accelerated the shift in the relative importance of the so-called developed and emerging market economies. I will then discuss how the global economic system needs to adapt in light of the growing relative importance of the EMEs in the global economy. I will explore the implications of these changes for U.S. economic policy and I will also touch on some of the challenges the EMEs face as they seek to consolidate their gains and sustain their success. I will argue that the developed countries and the EMEs need to adjust in mutually supportive ways. In my view, the current relationship between the EMEs and the United States is not sustainable for either side.

More recently, the disinflationary tailwind in traded manufactured goods imported from China may have come to an end, at least for a period, as more of the increase in productivity there is captured in wage gains. Meanwhile, growing prosperity and urbanization in highly populous countries such as China and India has been the principal driver of a major, multiyear upward shift in the relative price of commodities. This move – a negative terms of trade hit for the United States – has pushed up the overall rate of inflation, at least temporarily. 6  BIS central bankers’ speeches  There are good reasons to believe that commodity prices will not continue to increase at the explosive rate of recent months. Households and businesses will adjust their activities in response to higher prices, and there will be a supply response to higher prices that will gradually build over time. In any event, a shift in relative prices, even if spread out over a number of years, should not to be confused with the onset of an ongoing inflation problem. But the uncertain future path of commodity prices does make the task of the central banker harder. It is the job of central bankers to ensure that changes in relative prices do not infect the general trend in prices. In the United States – unlike in many EMEs that are appropriately tightening policy – a large amount of slack and low unit labor cost increases provide a disinflationary counterbalance to commodity price gains.
Svein Gjedrem: Financial stability, asset prices and monetary policy Address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics/Norwegian School of Management, 3 June 2003. The address is based on previous speeches and newspaper articles. An assessment of some new aspects of economic developments is also presented. Please note that the text below may differ slightly from the actual presentation. The Charts in pdf can be found on the Norges Bank’s website. *  *  *  Introduction Developments in equity and bond prices, house prices, credit and debt may have an impact on inflation and are important information for central banks when they set interest rates. Asset prices may also be indicators of future developments in output and demand. Sharp changes in asset prices have often occurred when there are considerable imbalances in the economy. There have been episodes where bubbles have accumulated in the form of sharp increases in asset prices in the equity and housing markets while inflation has been low. Higher asset prices and increased optimism often contribute to high debt growth. Increased access to credit pushes up asset prices further. There is therefore an interaction between developments in debt and asset prices. When the bubbles burst, the result may be an economic downturn and deflation. In this way, developments in asset prices may give rise to an unstable inflation environment. Developments of this kind may also threaten the stability of the financial system, cf.

John Gieve: Financial system risks in the UK – issues and challenges Speech by Sir John Gieve, Deputy Governor of the Bank of England, at a Centre for the Study of Financial Innovation Roundtable, London, 25 July 2006. *  *  *  The Bank and financial stability The Bank of England’s central position in the economy owes a great deal to the development of its role in managing financial crises. The need for a central bank to provide liquidity to the market was identified as early as 1802, when Henry Thornton said: “…if the Bank of England, in future seasons of alarm, should be disposed to extend its discounts in a greater degree than heretofore, then the threatened calamity may be averted through the generosity of that institution.” 1 It took until the 1870s for that role to be institutionalised. The arrangement to request a letter from the Chancellor permitting the Bank to issue notes not backed by gold at a time of crisis was important to the remarkable financial stability that ensued. Indeed, some academics suggest that a true financial panic has not taken place in the UK since Overend Gurney & Company collapsed in 1866. 2 Of course a lot has changed since then but maintaining financial stability remains one of the Bank’s two core purposes. The current institutional arrangements are spelt out in a Memorandum of Understanding (MoU) between the Bank, the Treasury, and the FSA.
The fact that the allocation of responsibility between countries in the event of cross-border crises is in principle unregulated leads to at least two serious problems. Firstly, it lays the foundation for the conflict of interests I just described. Even if the responsibility for crisis management is formally unregulated, it will unavoidably fall to the country whose economy is to a large degree dependent on the bank that is in distress. This country is not necessarily the same country that has the responsibility for supervision of the bank. One consequence could thus be that a country which is substantially influenced by foreign banks could be forced to pay the bill for unsatisfactory supervision exercised by another country. The lack of a formal link between responsibility for supervision and crisis management is in this case an evident problem. Secondly, the unregulated allocation of responsibility for crisis management means that each country that is involved in a cross-border crisis is thrown upon its own national crisis management and on the goodwill of the other affected countries in contributing to efficient crisis management. It is far from certain that this will lead to the optimal solutions. Without uniform regulations, forms for cooperation or mechanisms for joint decision-making, there is a considerable risk that we will find ourselves in “gamelike situations” where the countries involved act in various ways to avoid paying the crisis “bill”. In this type of situation there is a clear risk that all parties involved will be the losers.

More than 40 European bank groups have a substantial part of their operations in more than three European countries. Names such as Unicredit, Barclays, Fortis and ING are all examples of banks in the forefront of this development. The internationally-active banks are moreover increasingly offering services to households and smaller companies. The integration process has been particularly evident in our own neighbourhood. Nordea and Danske Bank have substantial market shares outside of their respective home countries. With the exception of Iceland, it is in Nordea’s case a question of market shares of more than 10 per cent in all of the Nordic countries. Swedbank and SEB are dominant actors in the Baltic region. But financial integration is now also increasing rapidly in other parts of Europe. The timing of my speech could hardly be more appropriate. Only in recent weeks the media has reported on farreaching plans for a merger between British Barclays and Dutch ABN Amro, two banks which together would become one of the world's largest players in this sector. Parallel to this cross-border integration process there is also another type of integration within the banks. It is becoming increasingly common for these groups to organise themselves so that they in practice function as one bank instead of a number of independent bank companies. What drives the banks to change their organisation is the efficiency gains obtained through greater centralisation and specialisation.
Since I will essentially concentrate on the first possibility, i.e. incentives, let me recall, by a way of contrast, a recent study by Fahlenbrach and Stulz (2011). These authors show that the losses of the banks whose managers’ incentives were most closely aligned with the long-term interests of the firm they managed were at least as large, in the last crisis, as those at the financial institutions where governance was more obviously lacking. This suggests that wrong incentives were not the only factor in the behaviour and decisions that led to the crisis. Knowledge and competence were also at play. ... or a misalignment of incentives? Incentives are an important component in risk and risk-taking. If there is an important lesson in economics and finance that has not been invalidated by the financial crisis, it is that incentives really do matter. The excessive risk-taking that was observed prior to the financial crisis is likely to have been – among other things – the result of the fact that key decisionmakers were not provided with the right incentives to carefully analyse and balance the possible consequences of the risks they agreed to take. Let us take a bank as an example. The main relevant stakeholders are the depositors, the shareholders, the managers and the bondholders.

Jarle Bergo: Will strong growth in the banking industry continue? Views on the balance of risks Speech by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at a banking industry seminar on primary capital certificates, Oslo, 13 September 2007. The text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 15 August, Financial Stability Report 1/07 and on previous speeches. *  *  *  Thank you for inviting me to this seminar on primary capital certificates to give an introductory speech on developments in the banking industry and the balance of risks. As we all know, there is a strong global focus on financial institutions and financial markets at present, with frequent use of words such as "turbulence", "problem" and "crisis". I will spend some time on the background to these developments and try to assess the possibility of similar problems in Norway. I will also point to other risk elements that the industry should bear in mind. First, however, I will give a brief review of the economic situation in Norway and how this has affected the banking industry. The Norwegian economy and the financial sector The Norwegian economy is now in a cyclical upturn. Over the past three years, mainland GDP has grown by approximately 4½ per cent annually, and this high rate of growth has continued in 2007.
Karolina Ekholm: Dealing with cross-border banking without rolling back financial integration Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, at the Bank of Greece, Athens, 11 June 2010. *  *  *  It is an honour for me to have been invited here to the Bank of Greece. Little did I know when I originally planned this visit that Greece would be the country on everyone’s lips by the time I got here, given that it is now at the centre of a fiscal crisis in the European Union. Considering that Sweden is one of the European countries that has previously carried out fiscal consolidation of the same order of magnitude as Greece is planning for the next few years, I might have chosen to talk about fiscal consolidation today. But it appears that there is no lack of good advice from the outside world on this topic. I will therefore talk instead about another issue that the financial crisis has revealed to be of some urgency – how to deal with problems arising from cross-border banking. The global financial crisis and the bailout and failure of several cross-border institutions have raised serious concerns regarding the regulation and supervision of such institutions and crisis management regarding institutions in distress. Possible policy responses to the problems arising from cross-border banking include various ways of limiting banks’ abilities to expand abroad. However, such responses would also reduce the potentially positive effects arising from financial integration.

In the conduct of monetary policy, we assess the objective of stabilising inflation at close to 2½ per cent over time against the objective of stabilising output and employment. Given the low inflation rate, we have decided to keep interest rates at a low level and at times considered an even lower interest rate. However, against the background of solid growth in the Norwegian economy since summer 2003, we have instead decided to use some time to bring inflation back to target. Household debt has risen sharply since the mid-1990s. At the same time, house prices have shown a marked increase. Debt developments through the 1990s can probably be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the 1980s, after many households burned their fingers immediately after the deregulation. At the same time, the credit market has deepened. New loan products have emerged, and it is easier to raise loans. Borrowers can choose their repayment schedule. Credit and housing market liberalisation provides homebuyers with the opportunity to establish a high housing standard early in their adult lives and draw on this capital later in life. In recent years, household income growth has been solid, household confidence regarding the future has been strong and households probably perceive higher income levels as permanent. This may have resulted in a further rise in house prices and debt. In addition, low real interest rates are currently contributing to this.
But, in times of financial turmoil, the growing use of sophisticated risk management techniques by financial intermediaries might have the paradoxical effect of amplifying the initial shock, exhausting liquidity and contributing to contagion phenomena. Regardless of the intrinsic qualities of these risk management tools, we see that their growing use in the same fashion by all market participants may have produced pernicious effects. When market players rely on converging risk evaluations, they tend to take the same decisions at the same time, thus amplifying initial shock to prices and trading volumes. Financial techniques can also reinforce the links between the various market segments. A striking feature of recent developments on financial markets is the quick spreading of disryptions from one market segment to another, especially between equity and credit markets. For example, the short selling of equities is sometimes used to hedge credit risk. The underlying reasoning is that if there is a credit default, the value of the equity will decrease symmetrically, and an equity gain will compensate the lender for the credit loss. As a result, the fall in the equity value, which is triggered by the credit default, is amplified by the short selling operation. Credit risk derivatives constitute another financial innovation which has played an increasingly important role in the last years. It has contributed to avoiding credit institutions to be heavily impacted by the large credit defaults that have occured recently. Credit risk derivatives have also enabled banks to fine-tune the risk-return profile of their loan portfolios.

The TARGET system processes today around EUR 1500 billion per day, 50% more than the average in 1999 and an estimated three times the amount that all the large-value payment 11 systems in the 12 euro area countries processed together in 1990. –  Thirdly, a large currency area means deeper and more liquid financial markets. This allows market participants to diversify their risks on a wider basis; moreover, as currency risk is eliminated, they can focus on the analysis of credit risk. A large currency area also provides more scope for specialised institutions to develop. All in all, market efficiency and liquidity 12 help to cushion external shocks. 2.3  Taking into account these benefits, one could question why financial stability issues are still important in the euro area. In my view financial stability issues need to be re-visited today against the backdrop of the farreaching changes observed on the financial markets in the last decade, and taking into account the succession of market instability episodes. Just to name a few, the Asian crisis, the Russian/LTCM crisis in 1998, the “Tech-bubble” as of 2000. These episodes were characterised by situations of liquidity stress, market volatility, and the late discovery of risks that had spread widely through complex hedging and financial innovation devices. In this respect the complex relationship between volatility, financial innovation and financial stability deserves attention. Clearly, volatility levels primarily reflects the degree of uncertainty of market participants.
Now, suppose, through a miracle, the money endowment of people doubles to 200 units, while the number of coconuts remains unchanged at 10. Then, the price of coconuts in terms of money rises to 20 units from the earlier 10 units. What has happened here is that when the amount of money doubled, while the production of coconuts had remained unchanged, the prices too have doubled. What would happen to the price level, if the number of coconuts too doubled along with the doubling of money? Then, 20 coconuts would be exchanged for 200 units of money. Hence, the price level would remain unchanged at 10 units of money per coconut. Now, suppose that the number of coconuts doubles to 20, while the amount of money remains at 100 units. In this case, the price level has to fall from 10 units of money to 5 units of money. Let’s consider one more possibility. Suppose that there has been a merciful hurricane and it destroys exactly a half of the original number of coconuts, leaving the balance half intact for use by people. Now, in this economy, there are only 5 coconuts against 100 units of money. It is not difficult to discern that the prices would rise to 20 units of money per coconut. What would happen if the amount of money too is raised to 200 units in this scenario? Then, the price of coconut would skyrocket to 40 units of money.

These projects are: •  a review of the standardised (credit and operational risk) approaches to capital adequacy, which need to be re-examined in light of calls for greater simplicity and comparability in the regulatory framework as well as the desire to reduce the reliance on credit rating agencies if possible; and  •  an examination of the need for a capital framework for interest rate risk in the banking book, particularly given the desire to limit arbitrage opportunities between the trading and banking books. These last two projects are still at an embryonic stage, so I cannot say too much about what they might entail at this point in time, but they will be the last pieces in what has essentially been a complete overhaul of the regulatory framework since the financial crisis. Monitoring and reinforcing implementation of Basel regulatory standards As I have already said, the establishment of the implementation monitoring programme has been a high priority for the Committee; it is critical to the successful delivery of the benefits of the agreed reforms. Starting from scratch at the beginning of 2012, a comprehensive assessment framework has been developed that is growing in its acceptance and credibility, and I am pleased to report that the Committee now has dedicated capacity in the area of implementation work. The implementation framework is being continuously strengthened through a lessonslearned process.
The short-term interest rate in turn affects other interest rates, and thereby activity and prices in the economy. The Executive Board of the Riksbank decides on the repo rate at its monetary policy meetings. This shows the level at which the Riksbank wants the short-term interest rate to lie. The repo rate has a direct impact on other interest rates in the economy. I shall now describe how this works in practice and how it is reflected in the balance sheet. To counteract the deep recession the Riksbank has rapidly cut the repo rate to 0.25 per cent and announced that it will remain at this low level until next autumn (Figure 4). In normal circumstances the Riksbank can steer the short market rates without any tangible effect on its balance sheet. This is because the banks usually turn to one another directly to smooth deficits and surpluses in liquidity instead of turning to the Riksbank. They then pay an interest rate that is the same as the repo rate. The repo rate thus has a direct impact on the interbank rate and through this on short-term interest rates paid by companies and households.

Within this view, some members put more emphasis on the continuing shortfall in the level of GDP relative to pre-Covid, while others emphasised the continuing direction of travel towards closing that gap and the evidence of cost pressures accompanying the closing. But all of this group were of the view that the stimulus to monetary policy enacted in response to Covid would need to start to unwind at some point, that unwind should be enacted by an increase in Bank Rate, and if appropriate would not need to wait for the end of the current asset purchase programme. The other view places more weight on current evidence of cost and price increases and accompanying signs of labour market and capacity pressures, leading to more persistent excess demand and higher inflation. Moreover, a policy change now would contribute to ensuring medium-term inflation expectations remain well anchored. From this, I would draw out a number of important points. The great strength of the MPC process is that nine reasonable and I would say well informed people can differ on these interpretations, and we do so transparently. But, all of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainably over the medium-term. Recent evidence appears to have strengthened that case, but there remain substantial uncertainties and we are monitoring the situation closely. Let me finish with a thought which builds on the whole area of supply shocks.