samchain/econo-pairs-v1 huggingface dataset:
The focus of discussion to-date has been on whether and how monetary policy can be used alongside regulatory policy to address financial stability risks. •  An interesting question is: can regulatory policy be used alongside monetary policy to help achieve macroeconomic stability? Macroprudential tools aimed at stabilising asset markets could have positive spillovers in moderating inflation. •  In fact, in Singapore, we employed macroprudential measures quite deliberately to help address inflation concerns as well, not just financial stability. During 2010–2012, Singapore’s inflation rate averaged about 4%, more than twice as high as our historical average. About half of this inflation was attributable to rapidly rising housing costs and car prices. •  Housing costs, represented by actual rentals and imputed rentals on owneroccupied housing, makes up a significant share of Singapore’s consumer price index. •  Car prices, while making for a much smaller share of the CPI, rose by double digits as exuberant buyers auctioned for the fixed number of permits that the government issues for buying cars. •  Low interest rates and abundant liquidity – reflecting easy monetary conditions globally – helped to fuel strong demand for both houses and cars. Monetary policy – in the form of an appreciating exchange rate – reduced imported inflation to close to zero but was not as effective in curbing price pressures in the two asset markets: houses and cars.

•  The interconnectedness among institutions propagates and magnifies shocks across the system. •  The stability of the parts does not equate the stability of the whole. But eight years after the outbreak of the crisis, as the latest BIS annual report points out “macroeconomic stability and financial stability remain uncomfortable bedfellows.” 1 •  The interactions between macroeconomic stability and financial stability are not well understood. •  Monetary policy and regulatory policy have tended to be conducted independently. We need to get a better handle on financial instability: what causes it and how can it be avoided? There are a few emerging propositions. First, credit cycles have strong implications for financial stability. •  Moritz Schularick and Alan Taylor describe financial crises as “credit booms gone wrong.” 2 Both the level and growth of credit matter for financial stability. •  Claudio Borio and Piti Disyatat argue that both the amplitude and duration of credit cycles exceed those of business cycles due to what they call “excess financial elasticity.” 3 Debt and financial imbalances build up over successive business cycles until they reach a breaking point. •  Frederic Mishkin points to how excessive credit can fuel asset price bubbles, whose eventual bursting can lead to damaging episodes of financial instability. Second, monetary policy has an influence on the credit cycle and hence on financial stability.
The experience of continuing stability may have sowed the seeds of its own destruction. That idea has been explored recently in an interesting new book by Nassim Taleb. 18 He argues that the opposite of fragility is not resilience or robustness, but “antifragility”, that is a state in which people or institutions thrive on volatility, shocks to the system and risk. We go to the gym to stress our muscles in order to strengthen them; occasional seismic activity may prevent a more damaging earthquake. Frequent exposure to shocks and surprises may improve the way people learn about and manage risks. In a complex world, we are “better at doing than we are at thinking”, in Taleb’s words. Unless we train and practice at coping with bad outcomes we may fail to respond in the right way to adverse shocks when they come. “Antifragility” does not imply that it might be desirable to engineer small recessions in order to head off a deep depression. We know far too little about the economy to attempt any such strategy, and in a world of intrinsic uncertainty we rely on heuristics – simplified rules of thumb – to guide our behaviour. But it offers a warning of the dangers of believing that the role of monetary policy is to offset all shocks.

Some of you may already be aware that the HKMA has begun researching retail CBDCs (rCBDCs). We have been working with the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre on Project Aurum, which will focus on the technical aspect of issuing r-CBDCs and the possible architectural designs. 24. Similar to the majority of central banks, we see that a lot of issues need to be thought through before issuing r-CBDC. For instance, how should we strike a right balance between privacy and traceability? How do we mitigate cybersecurity risks? How will it affect the effectiveness of monetary transmission? These are important questions that need to be answered before reaching a conclusion. 25. Against this backdrop, the HKMA will soon begin a comprehensive study on e-HKD to understand its use cases, benefits, and related risks. This is to increase our technical readiness so that we are prepared for all kinds of circumstances in the future, including the potential for Hong Kong to issue e-HKD. We have already established an internal crossdepartmental working group within the HKMA to study the relevant technical, policy and legal issues, and we hope to offer our initial thought on this complex matter in 12 months’ time. 26. Needless to say, CBDC will remain one of the most important topics among the global central banking community in the months or years to come. The HKMA will continue to work with the BIS and other international institutions to prepare Hong Kong for the evolving landscape. Creating the next-generation Data infrastructure 27.
As the data to be collected and metrics that are relevant for each sector can differ greatly, there will be a need to take a sectoral approach to this. For example, an asset manager looking to invest in the agriculture sector will not find raw data such as temperature and rainfall levels, proximity of the farmland to conservation areas, or the education levels of the farm owners meaningful. These must be converted into an accurate assessment of the environmental and credit risks of the agricultural assets so that the asset manager can adjust its investment decisions accordingly. The financial sector has an important role to play in determining these frameworks, to ensure that capital is channelled effectively towards sustainable business practices. MAS is keen to work with the industry, academia and international organisations to develop these sector-specific frameworks, for example, for maritime, agriculture, logistics, and others. As an international financial centre, Singapore is committed to channelling financial flows towards sustainability and transition efforts in Asia and globally. We are developing green finance solutions and markets that can support a sustainable economy. We are strengthening the financial sector’s resilience to environmental risks through providing guidelines on environmental risk management and stepping up disclosure expectations. We are working closely with the private sector to develop a taxonomy prioritising transition activities. We are actively exploring how technology and innovation can be leveraged to drive the financial sector’s sustainability agenda. We must harness technology and data to drive effective climate action.

The transition to a netzero economy can only be achieved with a committed and concerted effort across the public and private sector. I wish all of you a fruitful discussion ahead. 3/3  BIS central bankers' speeches
Research conducted here at the New York Fed has shown that these lower interest payments resulted in large declines in these borrowers’ default probabilities 3. And two papers presented in our academic sessions yesterday found evidence that these borrowers responded by increasing their consumption of durable goods 4. All this implies that a higher share of ARMs at the start of the financial crisis would likely have enhanced the effectiveness of monetary easing in reducing foreclosures and stimulating the macroeconomy. More generally, the pass-through of monetary policy is likely to be stronger if a high share of mortgage debt has an adjustable interest rate, both in easing and tightening phases of the economic cycle. 5 As a result, the amplitude of interest rate adjustments by the central bank may not need to be quite as large to have the same economic effect. This may be a particularly important consideration when the economy is at or close to the zero-lower bound on interest rates, as the U.S. and many other economies are today. 3  See Tracy and Wright, 2012, Payment Changed and Default Risk: The Impact of Refinancing on Expected Credit Losses, Federal Reserve Bank of New York Staff Report No. 562; and Fuster and Willen, 2012, Payment Size, Negative Equity, and Mortgage Default Federal Reserve Bank of New York Staff Report No. 582. 4  See Keys, Piskorski, Seru and Yao, 2015, Mortgage Rates, Household Balance Sheets, and the Real Economy, and Di Maggio, Kermani and Ramcharan, 2015, Monetary Pass-Through: Household Consumption and Voluntary Deleveraging.

12  4  Kung, 2015, discusses the equilibrium implications of such “shared appreciation mortgages”: http://www.newyorkfed.org/research/conference/2015/mortgage_design/Kung_Edward_housingstructural_052 015.pdf. BIS central bankers’ speeches  BIS central bankers’ speeches  5
As I mentioned before, food expenditures in developing countries constitute a larger share in the basket of consumer prices than those on developed countries. It is as low as 15 percent in the U.S., as high as 60 percent in India. Moreover, income elasticity of food is also significantly higher in less developed countries. In Bangladesh, one percent increase in household income leads to 0.73 percent increase in food demand. In the U.S., however, a typical household who receives one extra dollar spends only 10 cents more on food. What does it mean? It means that as long as rapid growth rates in developing countries continue, the food demand is also likely to rise rapidly. In the post war period, we did not observe a similar surge in food demand, because the engine of world economy at that time was mainly advanced economies. Today, we face a different picture. Emerging market countries are growing fast. Their share in world consumption is three times higher than what it was in early 80s. More importantly, these countries, like China, India, and Indonesia have huge populations. According to our estimates at the Central Bank of Turkey, the contribution of only two countries (China and India) on food demand growth in the world reached almost 50 percent in 2007 – up from 10 percent in 1980. The growth in global food demand is estimated to exceed the growth in global food supply since early 2000s and it is likely to stay that way in the near future.

It is difficult to give an exact answer to these questions, but recent research conducted by the staff at the Central Bank of Turkey may give us some ideas. Empirical analysis of food prices in Turkey showed that external factors are quite dominant in food inflation. It was estimated that severe drought in Turkey and skyrocketing world food prices were responsible for almost 70 percent of annual inflation in processed food prices in 2007. It was less than 10 percent in 2006. It was also found that aggregate demand conditions, which are mostly within the domain of monetary policy, had a negligible contribution in processed food inflation. These findings show, on balance, that the recent climb in processed food prices was mainly fueled by supply shocks and external factors. Dear Guests, In recent months there are signs of some relief in food inflation. Inflationary pressures triggered by severe drought and related crop losses have been waning for some time around the world, including Turkey. Early forecasts for 2008 suggest that the weather will be more accommodating than 2007. As measured by current indicators, grain production will particularly rebound from its year-ago levels. The rate of increase in food prices is likely to decelerate during the second half of 2008. Yet, despite better prospects on the supply side, food prices are expected to stay elevated in the near future in the medium term as long as the demand pressure from rapidly-growing developing countries continues. Let me give you a few numbers and explain my reasoning.
The CCAR is a significant supervisory innovation intended to ensure that large, complex bank holding companies have robust internal capital planning processes and sufficient capital to withstand stressed economic conditions and to continue to be viable financial intermediaries. Importantly, the CCAR takes a forward-looking perspective in assessing a bank’s capital adequacy, including ensuring that its internal stress testing processes address its unique vulnerabilities and exposures. The CCAR should push banks to proactively manage their capital so as to be well prepared for the type of market stresses that could cause significant declines in income and capital. Other steps could be taken to complement the CCAR. One approach would be to implement a long-term debt requirement in a way that further enhances market discipline and provides incentives for regulators to promptly intervene if necessary. Another might be to structure compensation practices to strengthen senior bank managers’ incentives to proactively manage risk. For example, imagine how incentives would change if a significant portion of senior bank management’s compensation each year were deferred to be available to cover future capital losses. I suspect that over time this would meaningfully alter management’s risk tolerance. Also, in addition to the quantity of the deferred compensation, the form it takes could also affect incentives. If most of the deferred compensation were in the form of debt rather than equity, I suspect this would also affect management’s risk tolerance and the appetite to cut dividend payments, reduce share repurchases or raise more capital more promptly when the firm began to become stressed.

After all, collectively these enhancements to our current regime may not solve another important problem evident within some large financial institutions – the apparent lack of respect for law,  6  BIS central bankers’ speeches  regulation and the public trust. There is evidence of deep-seated cultural and ethical failures at many large financial institutions. Whether this is due to size and complexity, bad incentives or some other issues is difficult to judge, but it is another critical problem that needs to be addressed. Tough enforcement and high penalties will certainly help focus management’s attention on this issue. But I am also hopeful that ending too big to fail and shifting the emphasis to longer-term sustainability will encourage the needed cultural shift necessary to restore public trust in the industry. One alternative strategy for dealing with too big to fail is to reduce the size of large banks by imposing size limits. While I understand the motivation, it is important to recognize that imposing size limitations might not be a very efficient means of making the financial system more stable. First, it could sacrifice some socially beneficial economies of scale and scope, especially to the global clients of large financial institutions, depending on how the size limits were implemented. Second, the resulting benefits in terms of reducing systemic risk might be quite small.
By linking public investment and growth-enhancing reforms, it will help ensure a stronger and more uniform recovery across the euro area and accelerate the green and digital transitions. Euro area banking sector developments and financial stability issues The improving economic environment has contributed to a decline in near-term financial stability risks. Continued fiscal support helped the corporate sector recover from the pandemic, although the situation continues to vary across industries and firms. With corporate insolvencies remaining subdued, bank loan performance turned out to be more resilient than initially feared, although it is still too early to assess the full impact of the pandemic. Positive asset quality and financial market developments supported the return of bank profitability to pre-pandemic levels, and the ECB’s stress test results published in July showed that the euro area banking system would be resilient to adverse economic developments. Amid reduced uncertainty, the Supervisory Board of the ECB decided not to extend its systemwide recommendation on banks’ capital distributions. Instead, it returned to the previous supervisory practice of discussing capital trajectories and dividend or share buy-back plans with each bank in the context of the normal supervisory cycle. The ECB reminded banks to remain prudent when deciding on distributions and not to underestimate the risk that additional losses may later have an impact on their capital trajectories. As the economic recovery takes hold, financial vulnerabilities associated with an upswing are building up.

Moreover, an enabling environment for the effective use of local currencies will bring about greater cost efficiency and stability for businesses and increase demand for local currency financial products. That will, in turn, be the impetus to strengthen regional financial markets’ development. 1/2  BIS central bankers' speeches  I am pleased that the event today is made possible by all three central banks, mutually agreeing to grant regulatory flexibilities to the appointed banks under these Frameworks, enabling them to provide a wider range of financial services under their respective jurisdictions. Taking this opportunity, I wish to introduce the appointed banks in Malaysia for these Frameworks, namely, Maybank Berhad, CIMB Berhad, RHB Berhad, Public Bank Berhad, Hong Leong Bank Berhad, Bangkok Bank Berhad, United Overseas Bank (UOB) Berhad and Bank of Tokyo-Mitsubishi (BTMU) Berhad. The implementation of these Frameworks will complement our existing close partnership and cooperation as neighbors, with common objectives and shared aspirations. On this note, I look forward to witness the growth in the use Indonesian rupiah, Thai baht and Malaysian ringgit for cross-border settlement of trade between Indonesia and Malaysia, and Thailand and Malaysia, respectively. 2/2  BIS central bankers' speeches
Dec 19  Jun 20  Dec 20  80 Jun 21  Sources: OECD Quarterly National Accounts, IMF World Economic Outlook and Bank calculations. Across the advanced economies in aggregate, spending on services in first quarter of the year was 5% lower than at the end of 2019; spending on goods was 5% higher (Chart 7). Shifts in demand happen all the time and, as long as supply can shift in response, they needn’t have any impact at the macro-economic level. But this one was far larger, more widespread and occurred much faster than most. And, far from shifting in response, and meeting that extra demand, the pandemic meant the global supply of goods was actively impaired. Local lockdowns affected production in many Asian countries and effective capacity in shipping and other forms of transport was also hit. Earlier this year my own guess was that these things would visibly start to reverse by the end of it. Because they were caused by the pandemic it was reasonable to expect the shifts in demand to reverse, and the problems in supply chains to abate, as vaccinations took effect. As yet it’s clear that hasn’t happened to the degree that I, at least, expected. Shipping costs remained very high throughout the autumn; as we’ve seen, energy (and particularly gas) prices took a huge lurch upwards; at the retail level there is no sign yet of any deceleration in goods prices.

This is in the nature of what’s called a “trade-off-inducing” shock, one that pushes the primary objective of policy (stabilising inflation) in one direction, the secondary objective (stabilising demand and employment) in the other. These things crop up all the time, to one degree or another. Prices of imports (especially energy) are volatile; slowdowns in productivity growth, which are common enough, can sometimes have the same effect10; so can rises in excise duties or VAT. But, in reality, these things rarely have much of a bearing on policy because, very often, their impact on inflation doesn’t last long enough. Changes in interest rates take time to work. And if a shock to inflation is gone before monetary policy could do anything to offset it there’s not much point in taking action. This hasn’t always been the case. After the Brexit referendum, for example, the MPC judged that the inflationary consequences of the big drop in sterling’s exchange rate probably would last long enough to matter at the “policy horizon” (as had been the case after the financial crisis). The Committee therefore had to balance this effect against the fact that, for much of that period, the economy was operating with a degree of space capacity. There’s a good chance that this shock too, larger though it is, will have dissipated by the time a policy decision taken now could take effect. Indeed it’s quite possible that, in a couple of years, some of these tradable goods prices will be falling, pulling down on inflation.
Moreover, new estimates of the public finances indicate that public consumption this year may be somewhat weaker than assumed in December. This is mainly due to the financial situation of municipalities. The municipal sector as a whole is running a deficit, which must be redressed in the years ahead. One issue that has been debated recently is the effects on the Swedish economy of the weaker dollar. It is true that the dollar’s performance has been weak, but this is not the whole picture. In tradeweighted terms (TCW), the krona has not strengthened recently. This is mainly because the krona quite contrary to what many had expected - rather has weakened slightly against the euro. So for foreign trade as a whole, the currency developments should not constitute any great problem. Another issue of course is if the weaker dollar, primarily in relation to the euro, could jeopardise the revival in the world economy. Neither does this appear likely as long as the adjustment is fairly orderly. As I mentioned earlier, it is probable that growth in Europe will be slowed down somewhat, but on the other hand it is likely to be more robust in the US. Moreover, the most recent data for the National Accounts and foreign trade indicate that we so far rather have been slightly too pessimistic about Swedish exports. The most palpable concern is the labour market, where growth has been weaker than expected particularly towards the end of 2003.

This must be taken in the light of all the information that is available at the time. For my part, I will also look forward with great interest to what my colleagues have to say. Thank you. BIS Review 6/2004  5