samchain/econo-pairs-v1 huggingface dataset:
The point is that while I feel the most important role for a central banker is to maintain price stability – and I am always on watch, hawk-like, on the inflationary front – I share with equal intensity the concern of my FOMC colleagues about the employment picture and the overall fragility of our economy. I am keen on finding ways to close the income and output gaps depicted in these two slides and restore economic momentum. I find the last employment report and the recent Federal Reserve Bank surveys of activity, including the Dallas Fed’s, to be discouraging in this regard. When people are frightened, they understandably look for a “fix.” Yet, my colleagues and I are professionally beholden to beware of short-term fixes that might contradict, or place in jeopardy, the long-term duty and credibility of the central bank. I am wary of adopting any policy that might have the unintended consequence of becoming a veterinary fix rather than a more salutary repairing of the ability to propagate jobs. It is no secret that I thought the second round of quantitative easing (QE2) ran that risk. I could not support it when it was proposed because I saw no analytically sound justification that its purported benefits would outweigh its likely costs.

I am pleased that Dick Berner, a former NABE president now at Treasury, running the Office of Financial Research, is here. I believe it was Dick who, during a round of golf at Jackson Hole [Wyo.] long ago, told me the bad joke about the fellow who suggested that a moose crossing sign be moved because “there is too much auto traffic where the sign is currently located.” I also see Bill Dunkelberg, another former NABE president, who has been most generous in sharing with me and my staff his understanding of the whys and wherefores of small business, an important input into the way we look at things at the Dallas Fed. There are many others here today whom I would acknowledge if time permitted, but I ask their forbearance so that we can get down to business. As learned economists, you are fully aware of the nation’s predicament. Chairman [Ben] Bernanke reviewed it concisely in his speech at Jackson Hole and again, just last week, in Minneapolis. Knowing that most of you read those speeches, my guess is that you are looking to me for two things today. The first, given that you are in Dallas and the nation is in the throes of a presidential election season with two Texas contenders for their party’s nomination, would be the Dallas Fed’s perspective on the much-discussed Texas economy.
Underlying these challenges is the fact that the world is becoming more interconnected and interdependent. Conferences such as today’s forum will present useful meeting grounds to exchange information, establish new networks and to lay the foundations for regional cooperation and mutual learning. On this note, I wish you a successful conference. Thank you. BIS Review 60/2008  3

The rotation from the asset purchase programme to forward guidance on rates At our June monetary policy meeting, we initiated a rotation of our policy instruments from the asset purchase programme towards more conventional instruments of monetary policy – the policy interest rates and forward guidance on their likely evolution. We expressed our anticipation of a gradual winding-down of net asset purchases, subject to incoming data confirming our outlook for inflation. And we updated and enhanced our forward guidance on the path for interest rates, which is now expressed in terms of the expectation that key ECB interest rates will remain at their present levels “at least through the summer of 2019 and, in any case, for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term”. In addition, we re-affirmed our intention to reinvest principal payments from maturing securities purchased under the APP “for an extended period of time after the end of our net asset purchases and, in any case, for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation”. This combination of policy measures aimed to preserve the degree of monetary accommodation that is necessary to ensure sustained convergence of inflation towards our aim. Clearly, the end of net asset purchases is not tantamount to a withdrawal of monetary policy accommodation.
The development of risk-based capital ratios has helped to strengthen capital standards in the more than 100 countries that adopted the Accord. In recent years, however, the Accord has exhibited serious shortcoming. One significant weakness is that the Accord’s broad brush structure may provide banks with an unintended incentive to take on higher risk exposures without requiring them to hold a commensurate amount of capital. It also has not kept pace with innovations in the way that banks measure, manage and mitigate risk. With these concerns in mind, in June of 1999 the Basel Committee released a Consultative Paper for a new capital adequacy framework. While we knew this paper would not represent a perfect framework for all banks, our aim was to release a credible package that would serve as a basis for discussion. We actively sought feedback from the industry worldwide during the formal comment period that ended on 31 March of this year, and we are continuing this dialogue. I should note that we are very pleased and encouraged by the more than 200 comments received from a variety of sources, including financial institutions, central banks and supervisors, non-G10 countries and other market participants. The respondents on the whole have sent us a strong endorsement of our overall goal of developing a capital framework comprised of three pillars – minimum capital standards, supervisory review and market discipline – that is more risk reflective and appropriate to banks of varying levels of sophistication.

With our unique advantages and strengths – including the common law system and world2/4  BIS central bankers' speeches  class financial regulations and market practices – Hong Kong will remain the leading portal for international investors seeking opportunities on the Mainland. 21. T he second trend that is creating opportunity in – and for – Hong Kong is fintech development. We already have a thriving ecosystem for finance and technology businesses here. This has been bolstered by the HKMA’s Smart Banking initiatives, which have catalysed digitalisation in the banking sector, driving faster and more efficient services for customers. I’m sure many of you are finding banking and payments much more convenient than before. 22. We will continue to work with the banking industry to apply technology to enhancing finance for customers in Hong Kong. We will explore greater use of artificial intelligence and data analytics in banking operations. We will also explore improvements to Hong Kong’s data infrastructure so that bank customers, particularly small businesses, can make better use of their own digital footprint to enhance their access to finance. And we will adopt the latest technologies for cross-border applications, such as international payments and trade finance. Our vision for Hong Kong to become a leading global fintech hub will create a wealth of opportunities for local and international players. 23. The third trend driving opportunity is green finance. Hong Kong is already at the forefront of promoting the role of finance in driving the transition to a more sustainable economy.
Princeton, NJ: Princeton University Press Rey, H. (2013), “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, Paper for a symposium sponsored by the Federal Reserve Bank of Kansas City, at Jackson Hole, Wyoming, on August 21-23, 2013 Schularick, M and Taylor, A (2012), “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008”, American Economic Review 102(2): 1029-1061  16  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  16  Thing Global, Act Local  Speech given by Minouche Shafik, Deputy Governor for Markets and Banking On the 24th October 2016 At the joint Bank of England, IMF & Hong Kong Monetary Authority conference on  Monetary, Financial and Prudential Policy Interactions in the Post-Crisis World, Hong Kong  Chart 1 Greater capital openness has facilitated an increase in gross external liabilities of advanced and emerging economies  Source: Hoggarth et al (forthcoming), IMF International Financial Statistics, IMF World Economic Outlook and Bank of England calculations. Chart 2 Correlation of credit growth across countries has increased in recent decades  Source: Cesa-Bianchi et al. (forthcoming). Note: Bars show average correlation of each country’s domestic credit growth with the average of domestic credit growth in the rest of the world. Chart 3 Reciprocity allows countries to reduce the probability of a crisis by more than if they were acting alone  Source: Aikman et al (forthcoming) and Bank of England calculations.

The first is that although cross-border bank flows have plateaued, in many other ways the global financial system is as interconnected as ever, and that we need to be mindful of spillovers from elsewhere when setting policy. The second is that by acting in their domestic best interest, policymakers can often improve the global outcome. In short, we need to think globally, act locally. The need to think globally Let me start with some context. Evidence of a ‘global financial cycle’, which drives co-movements in asset prices, and pro-cyclical gross capital flows, has been well documented, for example by Helene Rey (2013) and by my colleague Kristin Forbes (2016). Global financial markets have become more correlated and common shocks play an important role. According to the IMF, around three-quarters of equity and foreign exchange returns in both advanced and emerging market economies are now attributable to international 3  factors. We have also observed an increase in the co-movement of domestic credit growth across countries over the last two decades (Chart 2). Elevated domestic credit growth has been found to be the best single predictor of banking crises (Drehmann et al (2011), Schularick and Taylor, 2012). However, banking crises come “in waves” (Reinhart and Rogoff, 2009; Laeven and Valencia, 2013), which, together with signs of greater correlation of credit growth across countries, suggests a role for external determinants and/or direct contagion.
The overall risk, including climate risk, has been reduced. The Norwegian economy is also exposed to abrupt changes in operating parameters for oil and gas production through spillovers from offshore activities to the wider economy. We have long known that Norway’s offshore petroleum activities would be gradually reduced. If global climate policy proves to be stricter than currently expected, the decline in offshore activity may occur sooner and more rapidly than previously assumed. This will have consequences for Norway’s industry structure. Even though it is likely that the biggest changes in oil-related industries lie some years ahead, climate risk may also have an effect on the oil sector in the short term. There are perhaps signs of this effect in recent years’ oil stock prices. Chart: Valuation of oil stocks The price-to-book (P/B) ratio is lower for international oil companies than the average P/B ratio in the stock market, and this gap has widened in recent years. There may be several reasons for this, but we know that investors’ climate risk awareness has increased in the same period. Measures to influence industry structure are not within Norges Bank’s remit. However, if the decline in the oil-related sector were to occur abruptly, the spillovers to the wider economy could be considerable. Monetary policy is adjusted to changes in output, employment and inflation and can therefore support overall activity and employment in a period of restructuring. The responsibility for the restructuring itself lies elsewhere, not least with the business sector.

In order to work on these issues, central banks and financial supervisory authorities have formed the Central Banks and Supervisors Network for Greening the Financial System (NGFS). Norway is represented by Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway). The aims of the network include building knowledge and sharing best practices on climate risk management within the financial system. Climate change, the macroeconomy and monetary policy Natural disasters and extreme weather have an adverse impact on the production of goods and services. The agricultural sector is particularly vulnerable. But extreme weather events have also disrupted infrastructure and production chains. In the years ahead, climate change will lead to an increase in the frequency and intensity of weather events that have a negative impact on output. In Norway, monetary policy is the first line of defence against economic shocks. When Norges Bank sets the policy rate, most weight is usually given to the outlook for the Norwegian economy over the next few years. Thus, there could be implications for monetary policy if extreme weather events occur that affect inflation and output prospects within this horizon. Economists refer to events that unexpectedly reduce output as negative supply shocks. Such shocks typically push up the price of the affected goods. There are many examples worldwide of spikes in food prices following extreme weather events or long periods of drought. Electricity prices vary considerably in Norway depending on the amount of precipitation.
Total mainland activity increased by 1 percent between 2014 and 2015. This is the lowest pace of economic growth since 2009. Growth may edge down even further this year before gradually picking up again. Growth is being restrained by the marked fall in petroleum investment and weak growth in other business investment, while it is being supported by household consumption, exports of traditional goods and public demand. The depreciation of the krone is also supporting inflation. The rise in prices for imported goods has increased over the past year, and the year-on-year rise in the consumer price index has been just over 3 percent in recent months. Inflation may be dampened ahead by the decline in wage growth and as the effects of the krone depreciation unwind. Chart: Key policy rate The key policy rate was lowered to 0.5 percent at the March monetary policy meeting. According to the Executive Board’s assessment of the outlook in March, the key policy rate may be reduced further in the course of the year. The key policy rate was kept unchanged at the monetary policy meeting in May. There is no crisis in the Norwegian economy, but we are facing restructuring. Restructuring must start in the business sector. Activity in the oil sector will be reduced to a considerably lower level. Other industries must emerge and provide the basis for new jobs. Economic policy can only facilitate this process. Restructuring takes time. Monetary policy is the first line of defence in managing the economy.

These two forms of action are equivalent insofar as their main effects are concerned, because in SIPs (which are agreements containing clauses to ensure stability) the capacity to define key strategies and policies is transferred to a central entity and the participating credit institutions largely share their net assets and their liquidity, as well as pooling a high proportion of their profits. 4  BIS Review 92/2010  The FROB has a second mandate: to participate in the restructuring of unviable credit institutions, acting in this case secondarily to the traditional deposit guarantee funds (DGFs). This dual nature of the FROB and the consequent possibility that a distressed institution not involved in a merger or SIP process may undergo a crisis requiring the Fund to intervene (replacing directors and selling the credit institution or transferring its business to a third party) are an implicit incentive for financial institutions to seek partners with which to conclude merger or SIP agreements. The FROB has € billion in capital and € billion of funds from a debt issue and, if needed, it could raise up to € billion of funds from third parties. Since the FROB was set up, a period of 12 months has practically elapsed. The end of this period is marked by the deadline of 30 June 2010 set by the European Commission notification of 28 January 2010 on how to apply the general framework envisaged in it.
This reassessment, therefore, is important and will provide a useful starting point for a better deliberation of monetary policy going forward. For this morning, I want to focus my remarks on three issues: first the lessons we can learn from the crisis; second how to move forward to strengthen monetary policy framework in light of the crisis to ensure long-term price and financial stability; and third the relevance of inflation-targeting as a monetary policy framework in the post-crisis era. From the crisis, there are a number of important lessons that can be drawn. The first is that monetary policy remains the right instrument to maintain a low inflation environment which is crucial for sustainable growth. But the most important lesson from the crisis is that low and stable inflation alone is not sufficient for ensuring financial stability. This is because the risk to financial stability can come from many sources other than domestic inflation. In the current crisis, it was the housing bubble and excessive risk-taking by the financial institutions that precipitated the crisis in the environment of stable prices. Therefore, to maintain economic and financial stability, in addition to price stability, attention must be paid to all the key sources of risk and imbalance that can have systemic implications for the economy’s growth and stability. This is the first lesson. The second lesson is the inadequacy of the current approach in monetary policy analysis that focuses over-extensively on macroeconomic analysis and models.

However, there is a concern that this approach is judgemental and lacks a coherent framework; i.e., how can we control both the price of credit through monetary policy and the quantity of credit through macroprudential measures. Another unsettling issue is whether monetary policy should lean against the wind of asset price boom and credit expansion at a cost of somewhat weaker growth and lower inflation. On this, I think our default position should be that we should because the cost of getting it wrong by not doing enough can be very costly. Finally, information on money and credit aggregates can be made more useful in the formulation of monetary policy. Up to now, a widely shared so-called “best practice” in monetary policy did not pay enough attention to monetary aggregates partly because of the belief that there exists no stable relationship between quantity of money and economic activity. As a result, prior to the crisis there was no attempt to counteract the rapid credit  2  BIS Review 8/2010  growth even though, in most if not all cases, asset price bubble was a direct result of sustained excessive credit expansion. This issue in my view is most relevant for emerging markets where the financial sector is typically bank-based, with credit being the major source of funding for businesses, and credit risk being the most important risk to banks. Such factors make the credit channel an important transmission mechanism of monetary policy in emerging markets.
All these measures aimed to support bank funding markets and ensure that the flow and pricing of credit to the real economy was in accordance with our intended monetary policy stance. But a question often asked is why we did not resort to large-scale asset purchases at this point, as the Fed was already doing. Bear in mind that inflation developments in the euro area at the time did not suggest a tight stance. Headline inflation was rising steeply from its 2009 trough, exceeding 3% in October 2011, partly driven by an increase in underlying inflation. Inflation expectations were well anchored around our objective. Hence our diagnosis of the problem in this period focused more on monetarytransmission than on the policy stance. Our stance was not being transmitted evenly across all parts of the euro area. And so our measures in this period were specifically designed to remove those impairments in transmission. The main issue we faced was the perverse interaction between the euro area banking sector and institutional incompleteness of our monetary union, which had fundamental implications for our policy in a system of bank-based monetary transmission. While the first phase of the crisis can be interpreted as a severe recession amenable to monetary policy, this second phase was the consequence of institutional challenges that monetary policy could only aim to mitigate, but could not overcome.

The first phase: combating a systemic shock The first phase of the crisis had its origin in the US. In 2006, many experts considered the subprime crisis to be a minor incident with only local impact, but then it escalated into a financial crisis of systemic proportions that propagated to the whole advanced world. Many banks experienced a sudden stop in their access to money markets, and the ensuing liquidity squeeze in interbank markets affected credit provision across the United States and euro area. The effects on the real economy were immediate and large. Both regions went through severe recessions. But the respective central banks and fiscal authorities responded promptly and decisively. The Federal Reserve quickly cut its target for the fed funds rate to close to zero, then embarked on a series of large-scale asset purchases of US government bonds and mortgage-backed securities. Likewise, the ECB cut its main refinancing rate by more than 300 basis points between October 2008 and May 2009. To ease the liquidity constraints of the banking system we altered the mode and maturity of our operations and widened the range of eligible collateral. These responses were, in many ways, an extension of the existing operational frameworks. The asset side of the Fed’s balance sheet traditionally consisted mainly of holdings of US government bonds. By contrast, the ECB, lacking a single fiscal counterpart, injected liquidity mainly through repos with banks. This mode of operation reflected in turn the predominance of bank-based intermediation in the euro area.