samchain/econo-pairs-v1 huggingface dataset:
Due to this pivotal function, the banking sector plays a crucial part in the transmission of monetary policy. On the other hand, however, it may also be the source of financial shocks that impact on the real economy. Second, the industry is itself a large part of the Swiss economy. The significance of the financial industry and our position as a global financial centre are important contributors to the wealth of our nation. This is especially apparent here in Zurich, where the financial sector generates much employment, wealth and tax revenue. In my remarks, I will first discuss the macroeconomic challenges associated with the banking sector’s key role in the transmission of monetary policy, as well as the risk that it may  BIS central bankers’ speeches  1  propagate financial shocks to the economy. Then, I will discuss the challenges for the industry itself. Lastly, I will address the main implications from the SNB’s point of view. Macroeconomic challenges Let me start by focusing on the macroeconomic challenges associated with the importance of the Swiss financial industry, and, in particular, the banking sector, for the rest of the economy. The main reason why the banking sector is so important for the Swiss economy and the SNB lies in its traditional function as financial intermediary. As banks collect funds and provide financing to firms and households, they are the “life blood” of the economy. Related to this traditional function, there are two distinct aspects I would like to point out.

They responded positively to the Bank’s recommendations, and there was no question that credit growth slowed substantially. However, there are now many indications of a return to the earlier situation, so the Bank must reiterate its words of warning. At the same time as the Central Bank announced its interest rate decision yesterday, it published Monetary Bulletin. This outlines the main assumptions behind the Bank’s decision along with indications about its policy in the near future and the viewpoints it considers important to bear in mind for economic policy. In the current edition, major changes were made to the assumptions behind the baseline forecast, which enhance both the credibility of the forecast and monetary policy transparency. By doing so, the Central Bank of Iceland joined the vanguard of the inflation-targeting central banks. Monetary Bulletin reveals that inflation developments have turned rather more favourable than the Bank’s previous forecast had indicated, and although underlying inflation was somewhat higher in February and March than was hoped, the Bank expects both headline and underlying inflation to decrease rapidly in the next months. By both measures, inflation will be close to target from the middle of 2008. There is no doubt that this outcome is largely thanks to the tight monetary stance, which included raising the policy rate by 3.75 percentage points last year. As usual it should be pointed out – and especially in the current climate – that exchange rate uncertainties can complicate this picture.
According to Smets, all of this indicated that financial stability should be an explicit objective of monetary policy, but that it should be used as a last resort in situations where macroprudential policy and other regulations are not fully successful. The American economist Michael Woodford illustrated in a simple model why monetary policy should in certain situations take account of financial imbalances, even if this  14 See Stock and Watson (2002). In the international economic policy discussion, "the great moderation" or "the  great calm" usually refers to the period from the mid-1980s until 2008. In Sweden, economic development did not become more stable until a little way into the 1990s. See also Hansson, Nessén and Vredin (2018). 15 See Rajan (2005). 16 See Borio and Lowe (2003). 17 See Jonsson and Moran (2014), who show in a model that a positive supply shock can lead to subdued prices, while the output gap and credit gap rise. 18 See Smets (2013) and Woodford (2012). See also the report “Rethinking Monetary Policy” by Eichengreen et al. (2011), which discusses the implications of the financial crisis for central banks. 13 [30]  may mean less favourable target fulfilment for price stability and macroeconomic stability in the short term. Other economists, such as Lars Svensson, argued that monetary policy should continue to focus solely on price stability and macroeconomic stability.19 He said that monetary policy and policies to promote financial stability are distinct and separate policy areas with different objectives, different means and different responsible authorities.

If these problems materialise, they can have major contagion effects and negative external effect on the economy. Therefore, legislators and authorities need to try to change the current regulations. The aim should be to ensure that banks have sufficient buffers to prevent problems from arising. The aim should also be to limit the channels through which the problems – if they do occur – spread to other banks and financial actors. This means that the regulations need to be reviewed. I have highlighted a few issues here: the deposit guarantee, the resolution framework and banking regulations. I believe that a review of all three is needed. However, it is too early to state today exactly what should be changed and how. It is also important when reviewing regulation that it not only solves "yesterday's" problems but also addresses the incentives for risk-taking in the future. Then, authorities all over the world also have to agree on it. All this makes the review extra complicated. Regardless of what exactly comes out of this work, the review will affect the global regulatory standards and thereby the rules that apply in the EU and thus also in Sweden. I believe that we both need to see changes in the regulations and will see such changes. Central banks have a responsibility for financial stability – not just in times of crisis During the 1970s and 1980s, inflation was high and variable and growth was weak.
I would then like to turn my attention to the subject of gold as part of our currency reserves. But first, let me begin with the key events in monetary policy. Key events in monetary policy in 2012 and 2013 More than 20 months have passed since the SNB introduced the minimum exchange rate against the euro under exceptional circumstances. In summer 2011, the Swiss franc had appreciated to such an extent that we had to take action. It is the SNB’s statutory mandate to ensure price stability, while taking economic developments into account. With money market interest rates already close to zero and conventional monetary policy options exhausted, we would have no longer been able to fulfil this mandate without the introduction of a minimum exchange rate. In taking this step, the SNB averted the threat of adverse developments to price stability and the Swiss economy. The minimum exchange rate provided the foreign exchange market with clear guidance and gave companies a sounder basis for their investment planning. Notwithstanding the minimum exchange rate, conditions for the Swiss economy remained difficult in the past year. Global economic growth weakened, after having already lost momentum the previous year. This slowdown was mostly due to the deterioration in economic activity in emerging economies and to the recession in the euro area. Although the European financial and debt crisis is weighing particularly heavily on the euro area economy, it is also curbing growth in other regions.

How do we see our objectives in the current conditions? Our priority task remains unchanged– it is the price stability. Despite a leap in inflation last year and earlier this year, our medium-term inflation target is still 4%. We estimate it to be achievable. Another important task is to maintain financial stability amid current turbulence. And third, we ultimately aspire to creating balanced macroeconomic conditions to put the economy on the track of sustainable economic growth. We will have to tackle these issues in challenging external conditions. The pace of the global economic growth will not be high; other countries’ monetary policy will keep influencing the Russian economy; the oil market is likely to remain unstable. Therefore, the economy will have to adjust to the new realities when both oil prices and exchange rates fluctuate both upwards and downwards. A few words on the banking industry. Economic developments of the last year could not help but impact banks. Generally, all the economic indicators showed quite good dynamics last 2  BIS central bankers’ speeches  year – assets and lending were on the rise. Profits, though 40% lower than in 2013, were non-negligible at the level of 600 billion rubles. However, the situation certainly began to change. We can see slower lending rates. In some months of the year we have registered losses in the banking system as a whole. Profits in January-May this year amounted to nine billion rubles.
Strategic priorities to further develop the financial advisory industry The Bank has identified a number of strategic priorities to further develop the full potential of the financial advisory industry in delivering better outcomes to consumers and increasing the level of insurance penetration in Malaysia. I should say that we benefitted significantly from our engagements with the industry on the direction that we intend to take and the key issues that need to be addressed moving forward. Today, let me mention four key priorities. Our first priority is to ensure that financial advisers are highly competent and professional when they provide advice. We understand from our engagements with AFA that recruiting the right talent continues to be a major challenge given that financial advisory firms are competing with larger financial institutions for a limited pool of qualified individuals. The Bank will continue to work in close collaboration with AFA to increase the talent pool. This includes reviewing on a regular basis, the programmes and qualifications that meet the minimum standards for financial advisors and working with academia, training providers and accreditation bodies to broaden the qualifications recognized without compromising on quality. There is also a need to lift the competency requirements for financial advisers. The current emphasis has been largely on ensuring that financial advisers have sound product knowledge and the core competencies to understand and analyse their client’s needs.

Importance of sound advice Access to sound financial advice has become even more important today as households face the challenges of managing heavier debt loads, higher costs of healthcare and education, effects of natural calamities that are occurring with greater frequency, and longer life spans. We believe that the responsibility to provide sound advice falls on all insurance intermediaries, whether you are an agent, an insurance broker, a bancassurer, or a financial adviser. This is clear in our Guidelines on Proper Advice which states among other things, that if an intermediary cannot match the needs and requirements of a customer with a life or takaful product within the intermediary’s offerings, the intermediary should not recommend any product to the consumer. However, we are also mindful that sound advice can have different shades which depend on many factors, including the competence of those providing the advice, the solutions that they are permitted or equipped to advise on, and incentive effects which may, either in perception or reality, colour that advice. Financial advisers provide an alternative channel through which consumers can obtain insurance advice, taking into account individual perspectives on these factors. The fundamental principle remains the same – that whichever the channel, and acknowledging the advantages and limitations of different channels, consumers should receive advice that is in their best interests.
Indeed, the data show that, beyond the difficulty of calculating productivity by sector, the negative effect of the decline of mining ore has taking its toll on this industry (figure 12). The evidence from Chile suggests that there are important inefficiencies in resource allocation across firms and that there would be first order gains from measures aimed at improving them, which, unlike the case of human capital, could generate gains sooner. To back this last analysis, the document provides some international comparisons on productivity, microeconomic evidence on how the productivity of firms evolves, and its degree of dispersion. In particular, from a comparative perspective, although Chile's productivity appears to be aligned with its GDP per capita, it is about 60% that of the United States and less than that of the richer OECD countries, which implies that there is great room for improvement (figure 13). In Chile, as in many other economies, there appear to be significant gains from fostering a better allocation of productive resources, helping the more efficient firms to grow and the less efficient to shrink and eventually exit the market. As can be seen in table 3, 9  resource reallocation is an important source of TFP growth. For this, it is essential to have flexible labor markets that allow adjusting the endowment of companies when necessary, developing the financial system to direct resources to where the good ideas are and implement rules that facilitate the creation and dissolution of companies.

(2) The Norges Bank announced in May 2017 that it will increase the frequency of its meetings from six to eight per year beginning in 2018. Source: Central Bank of Chile based on information from the respective central banks. Table 4 Adjustments to monetary policy process Current Official MPM* communication Brief summary of economic scenario  Official MPM communication  (end of each MPM)  (end of each MPM)  Monetary policy decision  New Main economic background developments Monetary policy decision and explanation Voting outcome  Background minutes (1 day before MPM)  MPM charts (1 day after MPM)  Review of evolution of local and world economy MPM minutes based on public information known since previous MPM (11 bank working days later)  Main charts presented by the staff to the Board at MPM  MPM minutes  Voting outcome  (11 bank working days later)  Options presented by Research Division Summary of discussion  MPM transcript  Detail of opinions of each Board member and the MPM transcript Finance Minister (10 years later)  (reserved)  Main charts presented by the staff to the Board at MPM Review of evolution of local and world economy based on public information known since previous MPM Options examined by the Board Arguments for and against monetary policy options considered  Detail of opinions of each Board member and the Finance Minister  *MPM = monetary policy meeting. Source: Central Bank of Chile. 21
We need to develop a clearer presumptive framework of this kind – no doubt with provision for exceptions where they could be properly justified – before the next crisis hits us, because what debtor countries and their private sector creditors believe they can expect will influence their behaviour in the meantime. BIS Review 36/2001  5  What we all have to recognise is that the exceptional amounts of official funding committed during the Asian crisis are far less likely to be forthcoming in future. And to the extent that official funding is forthcoming, conditions may well be attached to ensure that it is not used simply to re-finance payments of short-term debt to private sector creditors or to fund a resident capital outlflow. Several of the tools which the G7 communiqué identified are designed to have precisely this effect. The last thing that the official international community wants is to get dragged into the micromanagement of relations between debtor countries and their creditors. We would all agree on the desirability of voluntary solutions, which might be easier to achieve if borrowing countries and their major creditors – above all the short-term lenders – were to establish, during the good times but on an on-going basis, arrangements for regular dialogue. Nor would anyone want to insist upon the imposition of constraints on capital outflows.

To continue reducing debt vis-à-vis the rest of the world, sustained external surpluses must be run. And that in turn calls for the maintenance of gains in competitiveness, which throughout the recovery have been based on the moderation of labour and financial costs and which, hereafter, should hinge to a greater extent on productivity gains. Indeed, in the recovery to date, the increases in total factor productivity continue to be smaller than those in other developed economies. That is in response to numerous institutional, regulatory and structural factors that public policy should seek to correct. These factors include certain shortcomings in the labour market – such as excessive turnover and temporary contracts – and in the education system; scant generation and dissemination of technological advances; competition-curbing regulatory elements; and the improvable quality of business management. In this respect, it should be borne in mind that, during the expansionary phase prior to the crisis, the loss of competitiveness in terms of the surplus per unit of output was on a similar scale to that mentioned for ULCs. However, the subsequent correction has been much smaller, which explains why the current level of the value-added deflator has grown 10 pp more in Spain than in the euro area as a whole in cumulative terms since the monetary union began functioning. The design of a regulatory framework more conducive to competition should allow for a greater contribution of business margins to gains in competitiveness visà-vis the euro area.
Well directed investment is a key driver of productivity. The very sharp drop in investment in the crisis and the years immediately afterwards cast a shadow that has certainly damaged productivity growth in the recovery. Again the damage to the banking system will have played a part here. If business investment had continued to grow at its pre 2007 average, capital per worker would now be around 5% higher. Firms’ investment intentions are strong at present and the MPC expects business investment to continue to grow strongly over the forecast period. That should increase capital per worker and therefore productivity, albeit with a lag And lastly, productivity over the last two years is likely to have been held back by changes in the composition of the labour force towards lower-skilled and lower productivity occupations. This has almost certainly had something to do with the very fast draining of the reservoir of labour supply that we have seen over the past few years. The rate of decline in unemployment is slowing noticeably now and the level of participation and hours worked seems to be getting close to their trends. So the headwind to productivity from the change in the composition of the labour force should diminish over the next few years. I have given some of the reasons why we expect productivity growth to pick up over the next few years. To be clear, we are not forecasting a sustained burst of high productivity growth but a rather more modest pick up.

Jon Cunliffe: Pay and productivity – the next phase Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the Automative Fellowship International dinner, Luton, 22 June 2015. *  *  *  Between 2000 and 2007, the average worker in the UK automotive manufacturing industry produced 7.7 vehicles a year. Over the past seven years he/she averaged 9.8 vehicles a year. Productivity – output per worker – in car manufacturing has increased by 30% since the onset of the great financial crisis. Britain has become the fourth-biggest vehicle maker in the EU and is more efficient than bigger producers such as Germany and France. It has not all been plain sailing. In the recession, productivity in the car industry fell as firms cut back production and held on to workers. But productivity in the industry recovered quickly. If productivity in the UK economy as a whole had grown in the same way as in the car industry, and employment generally had grown as it did, the economy would now be 30% or £ trillion larger than it is today. Annual GDP per person would be about £ higher than it is. Unfortunately productivity in the UK has not followed the lead of the car industry. Indeed, the opposite is true. In 2014 labour productivity in the UK was actually slightly lower than its 2007 level. In the seven years between 2000 and 2007 labour productivity grew at an average annual rate of about 2% a year.
Page 14/16  Bibliography Assenmacher-Wesche, K. and S. Gerlach (2008), Financial structure and the impact of monetary policy on asset prices, SNB Working Papers, 2008–16, September. BCBS (2010), Basel III: a global regulatory framework for more resilient banks and banking systems, Bank for International Settlements, December. Bean, C. et al. (2010), Monetary policy after the fall, presented at the Federal Reserve Bank of Kansas City’s Symposium on Macroeconomic Challenges: The Decade Ahead, Jackson Hole, Wyoming, 26–28 August. Beck, T. (2011), The role of finance in economic development: benefits, risks, and politics, CentER Discussion Paper, 2011–141. Boissay, F. et al. (2016), Booms and banking crises, BIS Working Papers, 545, February. Buttiglione, L. et al. (2014), Deleveraging? What deleveraging?, Geneva Reports on the World Economy, 16, International Center for Monetary and Banking Studies. Cecchetti, S.G. et al. (2011), The real effect of debt, BIS Working Papers, 352, September. Danthine, J.-P. (2013), Causes and consequences of low interest rates, Speech held at the Swisscanto Market Outlook 2014, Lausanne, 14 November. Ferguson, N. (2009), The ascent of money: a financial history of the world, Penguin Books. Friedman, M. (1957), The permanent income hypothesis, In: Friedman, M., A theory of the consumption function, Princeton University Press, pp. 20–37. Graeber, D. (2011), Debt: the first 5000 years, First Melville House Printing. Grossman, R.S. (2010), Unsettled account: the evolution of banking in the industrialized world since 1800, Princeton University Press. IMF (2017), Global Financial Stability Report, October. Jorda, Ò. et al.

Should they raise interest rates, even if this would not be appropriate from the perspective of price stability and economic activity (cf. slide 22)? There are three reasons for not doing so. First, we have the rule postulated by Tinbergen in the 1950s (cf. slide 23), which states that for each economic policy target there needs to be a separate policy instrument. 22 This reduces potential conflicts of interest when using instruments and contributes to the efficient achievement of each individual target. The Tinbergen rule is also justified in our case. If central banks were to use the interest rate tool for the purposes of financial stability, they might have to accept departures from the objective of price stability. Such an approach, though, would call into question the credibility of the central bank’s avowed pursuit of price stability. In the long term this would have a negative impact on trust in the central bank and limit its ability to ensure the goal of price stability. Second, the crucial question is how effectively interest rate rises actually influence overheating in the credit market. I have already explained how the interest rate environment affects the behaviour of economic agents in the credit market. Higher interest rates, then, should have a dampening effect on credit growth. Yet various analyses indicate that it often takes a very sharp interest rate rise to significantly counteract excesses in the credit market.