samchain/econo-pairs-v1 huggingface dataset:
As you know, the Governing Council of the ECB raised the rate of its main refinancing operation, and that of the deposit facility and the marginal lending facility by 0.5 percentage points to 4.25%, 3.25% and 5.25% respectively on 8 June. This decision was based on the conclusion that both pillars of the monetary policy strategy pointed to upward risks to price stability in the euro area in the medium term. Let me elaborate on this. With regard to monetary developments, M3 growth has deviated from its reference value since the beginning of 1999. This deviation has increased further since the beginning of 2000. Thus, the three-month average of the annual growth rates of M3, covering the period from February to April 2000, increased from 5.9% in the preceding three-month period, to 6.3%. As a consequence, the deviation of M3 growth from the reference value of 4½% rose to almost 2 percentage points. The assessment of there being ample liquidity in the euro area was further supported by the continuing rapid expansion of lending to the private sector. The annual growth rate of lending to the private sector stood at a very high level throughout 1999 and in the first few months of 2000. Important determinants underlying this development are strong economic activity in the euro area and very favourable industrial and consumer confidence.

Macro Week 2023, Peterson Institute for International Economics – Washington, 12 April 2023 How central banks should face instability and fragmentation Speech by François Villeroy de Galhau, Governor of the Banque de France  Press contact: Mark Deen (mark.deen@banque-france.fr), Déborah Guedj (deborah.guedj@banquefrance.fr)  Page 1 sur 7 Ladies and Gentlemen, I am delighted to be here in person at the Peterson Institute for International Economics. I would like to warmly thank Adam Posen for the invitation to speak at this edition of Macro Week. Two years ago, I had the opportunity to discuss (online) “how to revisit central banking and financial stability”. Some of my remarks will no doubt echo these thoughts, however in a quite different context: shifting geopolitics, reignited inflation and some turmoil in the banking sector have since entered the arena. Today, I would like to provide a European perspective on both risks of instability and fragmentation, starting first with the conduct of monetary policy in this unstable economic landscape (I), before turning to the roads forward on a fragmented international stage (II). I. Monetary policy facing the risk of price and financial instability A. The ECB shows resolve in bringing inflation back to target Against the backdrop of the invasion of Ukraine, inflation in Europe accelerated sharply last year due to soaring energy and commodity prices. There has partly been a symmetric phenomenon: easing energy prices have led to a decline in headline inflation over the last few months, from a peak of 10.6% in October to 6.9% in March.
First, the slower pace of GDP this year is expected to close the positive output gap. In recent years, GDP was growing faster than potential. Second, the fall in global oil prices in Q4 2018 and the deregulation of the electricity distribution market have exerted a dampening effect on inflation. Third, the two rounds of monetary policy tightening last year by MAS will continue to have a restraining effect on inflation. CPI-All Items inflation for the year is projected to be between 0.5 and 1.5%. Private road transport costs could pick up slightly from 2018 with higher car prices more than offsetting lower petrol prices. Accommodation costs are likely to decline, but at a slower pace this year. Overall inflation in Singapore remains well below the historical average. MAS’ monetary policy stance remains appropriate against the backdrop of subdued inflation and weakening growth prospects. Last year, MAS began the process of monetary policy normalisation by exiting from the zero percent appreciation path of the nominal effective exchange rate $ policy band. MAS increased slightly the slope of the policy band in April 2018 and again in October 2018, against the backdrop of healthy economic growth and gradually rising inflation. In April this year, with inflationary pressures stabilising and the output gap beginning to narrow, MAS kept the policy stance unchanged. Our current stance of a modest and gradual appreciation path of the $ policy band will help to keep the economy close to potential and ensure medium-term price stability.

Trichet: What we must achieve first, are sound and rigorously implemented adjustment programmes fully in line with the commitment of Governments to take all measures needed  BIS Review 67/2010  1  to meet their fiscal targets this year and the years ahead in line with excessive deficit procedures and to accelerate fiscal consolidation and ensure the sustainability of their public finances. HB: Do you see any risks for European taxpayers? Trichet: Our message from the very outset has been that risks for European taxpayers will not materialise if all governments concerned are faithful to all their commitments. They must keep to the rules and commitments. They must behave themselves properly and alert their peers, the other Governments, to also behave properly. Mutual surveillance is essential. HB: Do you now start the same what the central banks in the United States and the United Kingdom have already been doing for a while? Trichet: That is not comparable. What the Federal Reserve and the Bank of England have done was “quantitative easing”. They were injecting liquidity into the markets and that with the explicit goal of augmenting the overall liquidity. As I said already what we are doing through the Securities Market Programme is not quantitative easing. HB: Is the ECB violating the spirit of the Treaty of Maastricht? Trichet: No, not at all. We cannot imagine doing anything that would violate the Treaty – not even for a moment. What we are doing is of course in conformity with the Treaty’s letter.
Being a senior manager in finance now brings the responsibility and accountability that befits what the best in the industry have long recognised: finance is a true profession. The Bank of England’s role in markets has been comprehensively overhauled. We’re replacing constructive ambiguity with open for business when we provide liquidity to markets. We’re working with others as One Bank to develop markets that support financial stability and the real economy. We’ve revamped our governance and we’re holding ourselves to the highest standards of accountability, including the Senior Managers Regime on top of parliamentary and public scrutiny. So a huge amount has already been completed to make markets fairer, more resilient, accountable and effective. These reforms are essential for the UK to remain the leading international financial centre. BIS central bankers’ speeches  3  They are essential not least because the size of the UK-based market-based financial system could increase from six to nearly 15 times UK GDP by 2050. But the journey isn’t finished. Today is a chance to take stock and reflect: not just on our achievements but on what we might have missed, overdone, or simply got wrong. Given the complexity and scale of financial reform, it would be remarkable if every measure were perfectly constructed. Or if they all fit seamlessly into a totally coherent, self-reinforcing whole. Authorities must have the courage to listen, the honesty to admit our mistakes and the confidence to set them right.

In the same vein, allow me, on behalf of the Bank of Zambia and indeed on my own behalf, to wish the Government, and people of the Republic of Zambia a happy 50th birth year which we will be celebrating on 24th October 2014, and one which has been attained under a tranquil environment and economic progress. Fellow Staff and Invited Guests, I would most likely be in breach of all moral standing if I did not, at this stage, emphasize the Bank of Zambia’s deep commitment to the welfare and well-being of our employees. I implore all of us to aim at leaving a legacy of professionalism and excellence in all that we do. I further encourage all the sportsmen and women participating in today’s events not to despair should they not emerge victorious for one reason or another. Rather, I strongly urge you all to walk away after the games feeling immensely proud that you have been an integral part of a truly momentous and historic occasion. Remember, one can only turn 50 years of age once! Ladies and Gentlemen, allow me to further extend my sincere gratitude to the commercial banks that have sent their representatives to come and attend this event. The support we have received to date has been unflinching throughout the years. We shall continue to work together in order to ensure that the levels of service delivery to our customers is raised and maintained at high standards. Distinguished Guests, this really, is not an occasion for long-winded speeches.
Interest rates on longer-term loans between the banks; interbank rates, have been much higher than normal. The demand for safe assets, such as treasury bills, has been very high at the same time as the demand for mortgage bonds and high-risk assets has been very weak. Many interest rates, for instance, households’ mortgage rates, have risen much more than would normally be motivated by the Riksbank’s interest rate and forecasts of the future development of the repo rate. This means in practice that access to credit for households and companies is tightened even without the Riksbank having raised the interest rate. The fact that it is more expensive and more difficult to borrow affects economic activity. 2  BIS Review 138/2008  In a situation where the markets are affected by uncertainty, it is also possible that the interest rates faced by the general public do not follow suit when the Riksbank cuts the repo rate. One can say that the repo rate then becomes a blunter instrument than normal and that its impact is weaker. Such a situation could therefore require more powerful adjustments to the interest rate than would otherwise have been necessary. Measures to ensure the financial system functions more normally It is thus very important from several aspects that the financial system functions well. And it is the Riksbank’s task, as written in law “to promote a safe and efficient payment system”. This means in practice that the Riksbank regularly analyses risks and threats to the stability of the Swedish financial system.

Indeed, this became the norm across the income statement. Thus, ordinary profit rose by more than 30%8 year-on-year in the first quarter, with increases of 9% both in net interest income and fee and commission income. Meanwhile, impairment losses fell by 12.5% compared with March 2021. It must be noted, however, that the full economic and financial impact of the war in Ukraine did not materialise in the first quarter of the year. As regards the cost of bank funding, the average cost of liabilities9 has fallen since the onset of the pandemic, down to 0.5% at end-2021. The latest data available point to a change in trend, albeit with these costs holding below pre-pandemic levels (slightly above 1%) for now. In particular, wholesale market funding costs rose in the initial months of 2022. Indeed, expectations of interest rate rises have fed through to wholesale market interest rates on long-term bank debt (a measure of funding costs) more robustly than to the Overnight Index Swap (OIS) rate.10 Thus, banks’ credit risk spread has widened. Banks stepped up their debt issuance in 2021 to comply with prudential and resolution requirements, with issuances of Tier 2 instruments and contingent convertible bonds  8  By contrast, in 2022 Q1 net profit fell by 30% compared with the same period a year earlier, but this was due to the almost € billion recorded in extraordinary gains in March 2021 as a result of the merger at CaixaBank.
William C Dudley: Conducting monetary policy – rules, learning and risk management Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the C Peter McColough Series on International Economics, Council on Foreign Relations, New York, 24 May 2012. *  *  *  It is a great pleasure to have the opportunity to speak here today. My remarks will focus on how I think about monetary policy in today’s challenging economic environment. As part of this, I will discuss how simple policy rules might appropriately be used as a guide to decisionmaking. I do this not because policy rules play a dominant role in my own thinking, but because the use of these tools is widespread, with many framing their arguments this way. To start with the punch line, although I believe simple policy rules can provide useful input into the policymaking process, it would be unwise to rely on them mechanically. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. Policy must strive to promote the dual mandate objectives of maximum employment and price stability given to the Federal Reserve by Congress. I believe that this should be done in a transparent and systematic manner because this will help us to achieve our objectives.

Thus, the linkage between the policy setting and the economy can be affected by changes in the relationships between policy and financial conditions or between financial conditions and the economy. Let’s consider the linkage between the policy setting and financial conditions first. In my view, the major components of financial conditions include: 1) the value of the equity market; 2) the level of real interest rates across the yield curve; 3) the level of credit spreads; 4) the availability of credit; and 5) the exchange value of the dollar. There are certainly others, but these are probably the most important ones. If we look at these financial indicators as a set, financial conditions do not appear to be unusually tight or easy in aggregate:   For the equity market, the evidence is mixed (Figure 10).   On one hand, the equity risk premium actually appears to be quite elevated relative to historical levels and price/earnings ratios based on current year expected earnings are not unusually high. On the other hand, based on valuation measures using trailing 10-year earnings, the U.S. stock market valuation may be more stretched.   For interest rates, conditions are accommodative. Real rates are unusually low (Figure 11).   For credit spreads, the level is well within normal ranges – neither as narrow as in 2005 or 2006 nor as wide as during 2008 and 2009 (Figure 12).
As in the case of many historic crises, the underlying problem was that credit losses in the financial sector turned out to be much larger than anticipated. However, as the crisis has evolved over the last one and half years, the problems have come to be less about credit risks and more about the adverse consequences of a global financial industry experiencing a quite substantial deleveraging process. The huge credit expansion and financial asset growth that preceded the crisis was facilitated by that many financial institutions were assuming high levels of debt, in many cases obviously at unsustainable levels. These institutions are now trying to decrease their leverage either by injecting more capital – or if that is not possible – by shrinking in size. To shrink institutions simply must sell off assets. This is currently being done on a huge scale by institutions all over the world and explains why financial markets are so strained at the moment. On the supply side there are a lot of sellers trying to get rid of assets, but on the demand side – due to low credit supply and high risk aversion – there are hardly any buyers. As a result, pricing is disrupted and liquidity drastically decreased, which in turn implies falling asset values and further losses in the financial industry. The fact that the problems to a large extent have been driven by financial markets breaking down, rather than by individual institutions credit risk exposures, explains the unprecedented international impact of the crisis.

In that case, unemployment is likely to fall faster as demand grows, meaning that unemployment will reach the 7% threshold sooner. Then it will be appropriate to tighten policy sooner in this case, as potential output will be lower. The only case where the linkage of policy to unemployment is potentially problematic is where there is scope for productivity to increase as demand recovers, but for some reason firms take on extra labour before the increase in productivity takes place. But this seems rather unlikely to me. In any case, it is important to realise that the 7% threshold does not constitute a trigger for the MPC to raise Bank Rate. Rather it represents a prompt for the Committee to undertake a  1  See Bell, D N F and Blanchflower, D G (2013) ‘Underemployment in the UK revisited’, National Institute Economic Review, No. 224. BIS central bankers’ speeches  3  broad assessment of the prospects for demand, supply and inflation. If it appears that there is still a substantial degree of slack in the economy which can be absorbed without threatening the achievement of the 2% inflation target in the medium term, then there will be scope to maintain the existing stance of monetary policy longer, perhaps re-setting the unemployment threshold to a new lower level at the same time.
The net interest margin of the retail banks in Hong Kong as a whole has substantially declined from over 2.19% in 1997 to an annualised level of 1.67% for the first quarter of 2004. The new sources of income include most notably the sale of investment and insurance products. The key challenge for banks is simply whether they are capable of managing the risk arising from these new intermediary activities. This is particularly so when, encouraged by advanced technology, the range of products being offered to customers expands from plain vanilla types to more complex structured instruments. Furthermore, the awareness of customers about their consumer rights has increased, thus exposing banks to greater compliance, legal and reputation risks when venturing into these new areas of activities. We have seen in recent years an abundance of cases against the misselling of products by banks even in jurisdictions with more developed financial markets. Banks will need to properly equip themselves, including substantially upgrading their compliance and internal audit processes, in order to rise to this challenge. International standards The fifth set of influences affecting the banking industry is the number of key international standards that will be introduced over the next few years. These include regulatory and accounting standards, and Basle II is the standard most prominent in our minds. Another example is the implementation of IAS 39. The adoption of these standards will have profound implications for the operation of banks in Hong Kong.

Time is limited, and this is, after all, a luncheon speech, so I shall not go into detail about these standards. The point to make here is that, as an international financial centre, we have no alternative but to implement these standards as fully as we possibly can and as soon as international agreements have been reached on them. Many of these standards will be, to put it mildly, quite onerous. In this connection, I wish to ensure you all that the HKMA has been adopting a proactive approach in participating in the relevant international standard setting forums and in influencing the standard setting processes in the best interests of Hong Kong. We have also consulted widely in Hong Kong. Insofar as the banks are concerned, there is a clear need for bank management to allocate adequate resources to the process of implementation, which will involve substantial changes to IT systems and compliance arrangements. For Basle II, for example, banks should not be acting under the misapprehension that they can simply sub-contract the implementation processes to third party service vendors, such as their external auditors. Active involvement of bank management is crucial in ensuring that most, if not all of these international standards are properly incorporated into the daily operations of banks, especially since each bank may face different focuses and challenges in the process.
Structural changes generate developments that are often referred to at present as a “new economy”. The marked improvement in productivity maintains profits and keeps prices down. During the transformation, a good circle is created but it is difficult to tell how long it will last. It can be described, if you like, as a period of extensive rationalisation and heightened efficiency. The growth trend is raised for an indefinite period, enabling the economy to expand more rapidly without inflation taking off. It should be born in mind that the adaptation to the new information technology does not occur automatically. It is not the case that one day we suddenly find the new technology has begun to be implemented in ways that are leaving their mark on economic developments in general. The late 19th century provides important lessons about the necessary conditions for this good circle. At the beginning of the 1800s Sweden was still a poor country with an unstable form of government, a chaotic monetary system and a general shortage of credit facilities. Ninety years later the Swedish economy had undergone a dramatic transformation. Inflation was low, with an orderly monetary system. The nation was bursting with vitality in every field. An impressive range of products, many of them world leaders, were being developed on the basis of Swedish inventions. Swedish financial experts were engaged in the exploitation of the inventions at an early stage. Employment was provided for more and more people, living standards rose and growth was among the highest in the world.

It has also to do with CPI being affected by price changes in components that cannot be related to the state of demand. This has been taken into consideration in the design of the main rule and in clarifications and expansions. There has been an endeavour to design the rules in such a way as to avoid unnecessarily large fluctuations in employment and output. However, there must never be any doubt that monetary policy is always governed by the inflation target, although different strategies to achieve this objective in practice can produce different economic costs in the form of fluctuations in output and employment. The fact that the target horizon is normally stated as 1-2 years is justified by the major fluctuations in output that can result from attempts to influence inflation in a shorter time perspective. Interest rates affect inflation with a time lag through effects on demand or the output gap and attain their greatest effect after 1-2 years. In order to reduce inflation in the short term, the interest rate would therefore have to be greatly increased with major negative effects on growth. If CPI is affected by factors that are unrelated to the demand situation, a monetary policy that strictly complies with the main rule can also lead to unnecessary variations in output and employment.