samchain/econo-pairs-v1 huggingface dataset:
Price stability vs. financial stability  NATIONAL BANK ACT Article 5: Tasks 1 The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure price stability. In so doing, it shall take due account of economic developments. Interest rate reduction  Credit growth  More investment & consumption  2 Within this framework, it shall have the following tasks:  … e. It shall contribute to the stability of the financial system.

Why do so many economic agents take excessive risks at the same time? Thus, the correction of excesses on the credit market leads not just to economic downturns but also often to sustained loss of growth potential. For this reason, all economic agents should have a strong interest in avoiding any excesses which could end in a crisis. Nevertheless, historical evidence shows that periods of excessive risk-taking by individuals, banks, companies or governments occur with quite alarming regularity. Why do we learn so little from experience? Let me say from the outset, there is no one single reason for the repeated excesses on the credit market. A number of closely related factors all play a role. In the following, I will be looking in more detail at three of these factors (cf. slide 10). First, a favourable macroeconomic environment drives the supply and demand of loans. Second, the rational reaction of individual lenders and borrowers to the favourable environment can lead to a build-up of systemic risks. And, third, distorted expectations of economic agents also play a role. 12 To illustrate these factors, I will use the example of the Swiss housing boom of the 1980s. Interestingly, analogous developments can be found in the lead-up to virtually every debt crisis. 13 Economic upturn, low interest rates and rising asset prices  Initially then, the macroeconomic environment plays a major role. Increased lending is often associated with an economic upturn.
Ardian Fullani: Financial policy issues of deposit insurance schemes in SouthEast Europe Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the regional technical seminar on “Financial Policy Issues of Deposit Insurance Schemes in South-East Europe”, Tirana, 30 May 2006. *  *  *  Distinguished participants, Ladies and Gentlemen, It is my pleasure to open the proceedings of this regional seminar on “Financial Policy Issues of Deposit Insurance Schemes in South-East Europe”. I thank the Convergence Program of the World Bank and the Deposit Insurance Agency for the cooperation. I am convinced that this seminar will be valuable for exchanging new experience and ideas in fulfilling the missions of your institutions. First of all allow me to emphasize that the banking system is important not only for being an integral part of the financial system but also for the stability it brings to a country, moving its economy forwards and leading to economic growth. The Bank of Albania, as the country’s central bank, has the main target to maintain price stability. Along with this target, the Bank of Albania is exclusively responsible for licensing and supervising commercial banks and some other non-bank institutions involved mainly in micro-credit and in foreign exchange business. The legal and regulatory ground of banking supervision is already complete and we are constantly working for its improvement. Also, the supervisory practice complies with best standards in this direction, aiming at being oriented according to banking activity risk, being efficient and proactive.

Nevertheless, efforts are made constantly for fulfilling the necessary legal framework and procedures, covering all possible directions of its activity. Simultaneously, there is worked in terms of organizing the structure, increasing the institution’s staff number and training. Emphasis is laid on the DIA’s cooperation with the Bank of Albania, the supervisory authority, so that the DIA carries out its functions effectively. At the same time, the relation with the Ministry of Finance is taken into consideration in organizing the Deposit Insurance Agency’s structure, so as to have the solid presence of the state in it. The forms of this cooperation are numerous, but all of them should be first consolidated under normal conditions of the banking system activity. The main elements of this cooperation are: •  Exchange of information on supervisory practices and observance of regulatory requirements by the insured entities;  •  Organization of joint trainings in getting acquainted with respective functions;  •  Acquaintance with and discussion on manuals and procedures requiring the commitment of both institutions in certain cases, and the testing of these procedures. The Bank of Albania and the Deposit Insurance Agency are working for enhancing this cooperation constantly. 2/3  A number of legal and regulatory alterations that are being prepared in parallel by both our institutions, and the exchange of information, as well as more frequent contacts between both institutions serve this purpose.
So when nominal interest rates change, the real interest rates that determine real consumption and investment decisions change with them. And markets may operate with ‘excess supply’ or ‘excess demand’ for as long as it takes wages and prices to adjust to shifts in either demand or supply. Rather, it is over longer stretches of time that monetary policy is indeed ‘neutral’, and that we can think of the level of economic activity as being driven entirely by supply. By facilitating low and stable inflation, monetary policy helps create conditions conducive to economic growth. But other forces will ultimately determine the growth path of the economy. Economic growth – and with it the prospects for our real national income – will be determined by technological progress, investment and innovation, and by skills and trends in the population. Equally, both the structure of the economy and the distribution of real national income are beyond the realm of monetary policy. Yes, monetary policy affects asset prices and unemployment over the near term. And yes, excess demand or supply may give rise to sectoral imbalances. But over the longer term, these features of our national economy will be driven by real factors and by structural policies rather than monetary policy. Over time, even the level of interest rates is determined by such structural factors. While monetary policy steers market interest rates here and now, we do not set Bank Rate in a vacuum.

Chart 5: Population ageing is expected to continue Age distribution in the adult (16+) UK population (a)  (a) Dashed line and hashed bars are calculated using the ONS 2020-based interim national population projections: year ending June 2022 estimated international migration variant. Sources: ONS and Bank calculations. Chart 5 shows the age distribution for the United Kingdom. The share of the adult population aged 20-59 has fallen below 65% in the past decade, and it is set to decline further in the coming years. This population ageing has been driven by a decline in birth rates relative to the high levels seen in the years that followed the Second World War – as well as by the happier news that people now live for longer. As people accumulate savings over their working life to fund their retirement, wealth in the economy increases as the age distribution shifts towards older cohorts (indicated in this chart by bars in different colours). So ageing households have sought to lend more at a time when less productive firms have sought to borrow less. The only way to establish an equilibrium between the supply and demand in the market for investable funds – that is, to incentivise firms to invest this  Bank of England  Page 9  additional wealth into productive capital – has been for the price of those funds, the real interest rate, to fall. The trend equilibrium rate, R*, is like a long-term anchor for monetary policy.
But uncertainties arise not just because there will always be unexpected events, changes of technology and taste. We also continually review and update our views on the underlying relationships between countries, firms and people. And of course we are constantly learning more about the past not least as the statistics get revised. We try to emphasise those uncertainties by always publishing our forecasts in the form of fan charts which show not just a central projection but a probability distribution around it. If you go back a year to May 2006, our central projections for Q2 2007 were for growth of about 3% and inflation of around 2%. But we also showed about a one in four chance that growth would be a percentage point or more away and that inflation would be half a percentage point from the central projections (Chart 2). It follows that there is also a range of uncertainty around the right path for interest rates. The story of the last year has been that growth has been stable (between 0.7 and 0.8% each quarter) and kept quite close to that central projection but only on the basis of substantially higher interest rates than our forecasts were based on; inflation has been higher than we projected again despite the successive rises in rates. You might expect this range of uncertainty to be reflected in a range of independent forecasts, but you would be disappointed. Most forecasters operate models much like ours and, of course, they use the same data.

Christine Lagarde: ECB press conference - introductory statement Introductory statement by Ms Christine Lagarde, President of the European Central Bank, and Mr Luis de Guindos, Vice-President of the European Central Bank, Frankfurt am Main, 15 June 2023. *** Good afternoon, the Vice-President and I welcome you to our press conference. Inflation has been coming down but is projected to remain too high for too long. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner. The Governing Council therefore today decided to raise the three key ECB interest rates by 25 basis points. The rate increase today reflects our updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. According to the June macroeconomic projections, Eurosystem staff expect headline inflation to average 5.4 per cent in 2023, 3.0 per cent in 2024 and 2.2 per cent in 2025. Indicators of underlying price pressures remain strong, although some show tentative signs of softening. Staff have revised up their projections for inflation excluding energy and food, especially for this year and next year, owing to past upward surprises and the implications of the robust labour market for the speed of disinflation. They now see it reaching 5.1 per cent in 2023, before it declines to 3.0 per cent in 2024 and 2.3 per cent in 2025. Staff have slightly lowered their economic growth projections for this year and next year.
Therefore, the Central Bank holds foreign exchange buying auctions to build up reserves at times where foreign exchange supply increases relative to the foreign exchange demand. As meticulous in minimizing the impact on supply and demand conditions in the foreign exchange market, the Central Bank has been buying foreign exchange via transparent foreign exchange buying auctions with pre-announced terms and conditions. Although the aim is to run auctions according to the pre-announced program, in case of unexpected significant developments pertaining to the foreign exchange supply, amendments to the auction programs can be made with prior notice. 1  Dates of Monetary Policy Committee Meetings and the schedule of the release of the Inflation Report and the Financial Stability Report can be found in the Annex. BIS Review 3/2009  7  Accordingly; (i)  The maximum amount to be purchased in daily foreign exchange buying auctions was set as USD 90 million for 2008, with USD 30 million for the auction amount and USD 60 million for the optional selling amount. (ii)  However, as a result of the increased exchange rate volatility in our foreign exchange market parallel to the increased expectations of a possible stagnation in developed economies, the maximum daily amount to be purchased was reduced to USD 45 million, with USD 15 million for the auction amount and USD 30 million for the optional selling amount, as of 10 March 2008.

For example, we successfully dealt with three major attacks on the Denar exchange rate, in the spring of 2001, in the autumn of 2004 and in the spring of 2009, although these attacks were caused by quite different reasons. With this action we justified the confidence of citizens, the confidence that is the greatest treasure, the greatest reserve of the National Bank. Also, the careful study of economic theory leads to the perception that the conditions under which the weakening of the domestic currency would lead to improved net exports are not at all present in the Republic of Macedonia. The increased sales of Macedonian goods and services abroad, but at lower prices expressed in Euros, would not lead to foreign exchange inflows, which could offset the more expensive imports of energy and machinery. In the imports of the latter, we depend almost exclusively on the world rather than on the domestic prices of production, so the result could be even worsening, instead of improving the balance of goods and services. To the same end are the different, but more emphasized arguments based on empirical studies: the competitiveness of the Macedonian economy is not reduced and the research of the effective exchange rates continuously shows their adequacy. This policy of stable exchange rate has caused the inflation in the Republic of Macedonia in the last fifteen years to average 2.1 percent, versus 1.9 percent in the countries of the Eurozone.
But the political leadership, and eventually the younger economists who started at the Ministry, had other plans.5 The economy was to be managed. Keynes’ idea that the budget should be used actively to manage demand and output over an economic cycle was to them an obvious truth. In a Kuhnian sense, the older civil servants had to go for the new thinking to gain ground. The legal experts at the Ministry had to give way to the young economists. The new regulatory regime was enthusiastically implemented after the war, and crowned with success. The contrast between the blight of the interwar years and the postwar boom was stunning. The ambition was not only to keep unemployment low. Which industry sectors should be allowed to invest? What type of dwellings should we build? Who should be able to buy a car and have a telephone installed? In the 1950s and 1960s, these were questions in respect of which the central government had firm views. Keynes, regulation and planning were predominant truths in the former government building for several decades. Yet neither did these truths remain eternal. In the 1970s, deficits ballooned when the government used countercyclical policies to “build a bridge” over the global downturn. But it was a bridge to nowhere. Inflation took off and government finances were strained to breaking point. The policy of micro-managing the economy had gone too far. Wage and price controls at the end of the 1970s, the last gasp of the postwar paradigm, did little to help.

While simple rules produce answers quickly, these answers may not be a proper response to the question we want to know the answer to. An analogy to this is substituting the fundamental question, “Am I driving safely?” with “Am I obeying the speed limit?”  20  Most countries have balanced budgets as a long-term strategy. However, the long-term intention of a balanced budget is often abandoned in practice. This is another example of the time inconsistency problem. Today, many European countries are forced to pursue fiscal austerity, even if their current economic situation makes such a policy undesirable. The most rational option would be if governments were able to approve credible tightening measures that cut spending and raised taxes in the medium term, but that had negligible short-term austerity effects. Pension reform would be such a measure. The problem is that investors, who will be lending money to governments in the meantime, have little confidence that governments will actually follow through on their plans. History shows that they have good reason for this lack of confidence. Thus, the OECD and the IMF are recommending measures intended to deal with the time inconsistency problem and bolster confidence that long-term plans will actually be implemented. Independent fiscal policy boards that monitor government budgetary policy and that speak up if plans are not followed is one such measure. These boards will also make recommendations for realistic economic forecasting, so that projections of future tax revenues are credible.
While surveys do not suggest that access to finance is the private sector’s main concern, this is probably due to the fact that firms have been able to finance projects through their own funds. Over the last decade, companies shifted to intragroup loans and intercompany lending instead of bank loans as a main source of financing. One, of course, needs to distinguish between intragroup loans (parent to subsidiaries or subsidiaries to other subsidiaries) which we think make up the bulk of “intercompany” lending and other intercompany lending undertaken through factoring, trade credit and loan funds. Also bear in mind that the Financial Institutions Act related companies (within a group) do not need a licence to lend to each other. To give loans outside the group (intercompany) one does need a licence. While it is beneficial to see a diversification of firms’ financing sources, this change raises some issues. Let us start with something we discussed last year. We need to be careful that in the current low interest environment, investors’ search for yield does not stimulate excessive risk-taking. Therefore, we need to complement the rise in corporate bond issuance with a significant effort in improving investors’ education and compel corporates  Page 7 of 10  borrowing from the domestic capital market to provide more information to investors about their creditworthiness.

Page 9 of 10  I believe that the financial services community can and must contribute to change our nation’s mentality. At the interface between our nation’s savings and investment it is best placed to leverage more effectively our current economic success. Thank you. Page 10 of 10
Thus, the three-month euro Libor, which had generally been 1.5% higher than the three-month Swiss franc Libor, saw its spread widen to 2.2% in 2007 and 2.7% in 2008. Our policy of stabilising the three-month Swiss franc Libor therefore enabled us to at least partly shield the Swiss economy from the repercussions of the international financial crisis. Unfortunately, the effect of relaxing monetary conditions since last autumn in order to lower the Libor was largely offset by the continuing appreciation of the Swiss franc against the euro. Between October 2008 and March 2009, our currency rose by nearly 10% vis-à-vis the euro, which was particularly inopportune in a phase of rapidly declining inflation rates and the contraction of global demand. On 12 March, to prevent the ongoing appreciation of the franc from neutralising the impact of our policy of lowering interest rates, we decided to buy foreign currencies on the foreign exchange market in conjunction with a further reduction of the Libor, with the aim of avoiding any further appreciation of the Swiss franc against the euro and injecting additional liquidity into the economy. In view of the risk of deflation, decisive action was called for, and we will continue to pursue this strategy for as long as the risk remains. Therefore, after 15 years of absence, we were obliged to intervene once more in the foreign exchange market. This does not, however, represent any reversal of our traditional strategy, which is to pursue an independent monetary policy aimed at maintaining price stability.

It is simply a case of adapting the implementation of this strategy to an environment characterised by interest rates close to zero and a Swiss franc once again in the role of a safe haven. Contrary to certain reactions aired in the media, the action to counter the rise of the Swiss franc against the euro is not a form of competitive devaluation, which would inevitably work against the interests of our country in the long run. Rather, it is a key operational tool which, under the given circumstances, helps us perform our mandate with regard to price stability, in other words to preserve our economy from both inflation and deflation. The outlook for 2009 The year 2009 will see the steepest decline in Switzerland’s GDP since 1975. Exports, normally the driving force of our economy, will continue to be weak, and the lack of confidence in the corporate sector will weigh on investment demand. Moreover, all signs point to a further slackening of consumption in view of growing uncertainty about households’ purchasing power. All in all, the outlook for the near future is anything but bright. Switzerland does not constitute a special case – all industrialised countries are faced with a similar downturn, especially those with high exposure to foreign trade.
Thus, in an OECD comparison, Chile is in the lower part of this ratio’s distribution (figure 16). Although the current capital levels are sufficient to absorb a possible severe stress scenario, gaps have narrowed. While every bank’s CAR exceeds the 8-percent regulatory minimum in the stress scenario, the share of banks having a CAR above 10 percent in such a scenario has dropped in recent years, to less than half the system’s assets in the latest test (figure 17). Let me conclude with some final thoughts. Concluding thoughts In the past several months the macroeconomic scenario has brought no big surprises, but that does not mean that challenges have been absent. Inflation has dropped in line with expectations, but remains above the tolerance range. Our projections indicate that in a few more months it will return to that range to then decline towards the 3-percent target. If this is so, we will have ended quite a long period during which inflation was at or above 4 percent and monetary policy-making has been particularly complex, as we have had to deal with a significant depreciation of our currency and the ensuing rise in prices, aside from the economic slowdown. Still we have been able to keep inflation expectations over the projection horizon well anchored to the 3-percent target. In the short term, there are obvious inflationary risks, which could again push back this convergence.

Consistently with the volatility we have been seeing and the risks inherent to the international economy, our baseline scenario assumes that in the coming quarters international financial conditions will be, on average, less favorable than they were in the past two months. Our growth outlook for the world economy and our trading partners changes little from March: 3.2 and 3.0 percent, respectively, for the 2016–2017 average. Still, there is a significant revision to expected US growth: 1.9 percent in 2016 (2.3 percent in March). This estimate inputs the low output figure of the first quarter, which has to do both with the drop in energy investment and the weak external sector. In any case, aside from one-time data, services and labor indicators show a recovering trend and the baseline scenario foresees the economy resuming higher growth in 2017. It also estimates that the Chinese economy will be able to carry on with its adjustment process without seriously compromising its growth rates. But this process will not be free of difficulties. The terms of trade will drop again in 2016, although not as sharply as we assumed in the last Report, owing mainly to the evolution of non-copper export prices. Considering its trajectory of the past few months, the baseline scenario assumes that the copper price will average $ and $ per pound in 2016 and 2017, respectively. For oil, our forecast for the same two years is raised to $ and $ per barrel the Brent-WTI average (table 2).