samchain/econo-pairs-v1 huggingface dataset:
I believe that in the euro area R* can be estimated as below or close to 2% in nominal terms, and we could be there by the end of the year. Until then, we definitely have to act, in a determined but orderly way. Doing so is normalisation, only beyond R* would tightening begin if needed. The US is obviously closer to tightening: due to several differences in the nature of inflation across the Atlantic, the monetary answer must have its differences too. But in both cases, it’s not only a legal duty, it’s also an ethical commitment: ensuring price stability is our responsibility; our will and our capacity to deliver on our mandate cannot be subject to any doubt whatsoever. 3. Accountability Turning to the third corner of the golden triangle of trust, accountability, you remember that famous sentence by Alan Greenspan: “I know you think you  Page 6 sur 10 understand what you thought I said but I'm not sure you realize that what you heard is not what I meant”. This provocative sentence certainly captured the difficulty for central banks to account for their monetary policy, but let's be clear, it belongs – or must belong - to a bygone era. No matter how complex, it is central banks’ duty to account for their monetary policy decisions in a comprehensible manner; accountability is the natural counterpart for independence. This necessary change has both a cyclical and a structural component.

On the other hand, in line with my comments above, this objective could be made more symmetric, by clarifying that the degree of tolerance of above-target inflation deviations is the same as for below-target deviations.13 Also, in the current low inflation environment, with interest rates close to their lower bound, the inflation target should take into account the need for a sufficiently large buffer above zero, to provide more scope for conventional interest-rate policy. Irrespective of the final outcome, I am sure that the result of this review will strengthen the effectiveness of monetary policy in the euro area and its capacity to achieve its aims in the macroeconomic environment of the coming decade. I should like to conclude with a final reflection on the interaction between monetary and fiscal policy going forward. Experience in recent years suggests that appropriate interaction between these policies may decisively contribute to each of them achieving their objectives more efficiently. As I have attempted to emphasise, the ECB’s monetary policy action in response to the economic consequences of the pandemic has been rapid and decisive. Moreover, we are prepared to add further monetary stimulus, if necessary. Fiscal policy action has also been forceful. It is important that this action be maintained during the recovery, in a more focused way, and, if necessary, even increased.
Even though the Committee is communicating a monthly pace and composition of purchases, the predominant effect of those purchases on interest rates likely still comes from the expectations of the total stock of risk that will be removed from private investors and the length of time that the Federal Reserve will hold this risk. One feature of the current program  4  For more information about Treasury market liquidity, see Fleming (2002) and Fleming (2000). 5  For example, see Li and Wei (2012), Gagnon et al (2010), Krishnamurthy and Vissing-Jørgensen (2011), Wright (2012), and Hancock and Passmore (2011). 2  BIS central bankers’ speeches  is that market participants’ expectations of the total amount and composition of securities that the Desk will purchase – and thus, the amount of monetary policy accommodation – will evolve over time, along with incoming information about the economy, as well as considerations about policy efficacy and costs. The Desk’s most recent Survey of Primary Dealers indicates that the median respondent expects the FOMC to purchase about $ trillion in securities, roughly equally split between Treasuries and agency MBS, over the course of 2013 and early 2014.

Vickery, James and Joshua Wright (2013). “TBA Trading and Liquidity in the Agency MBS Market.” Federal Reserve Bank of New York Economic Policy Review, Forthcoming. Wright, Jonathan H. (2012). “What Does Monetary Policy Do to Long-Term Interest Rates at the Zero Lower Bound?” NBER Working Paper Series 17154. Cambridge, Mass. : National Bureau of Economic Research, June. 6  BIS central bankers’ speeches
How LIBOR worked in practice Now that I have described how LIBOR was intended to work in concept, how did it work in practice? It turns out that unappreciated design weaknesses and incentive structures at certain large submitting banks, in combination with the phenomenal success of reference rates, undermined the system. Conflicts and problems emerged both at the bank level and at the individual submitter level. Investigations are on-going to determine the scale and full extent of these problems, but I would like to discuss a few of the well-documented problems. Let’s start at the level of banks that submit estimates. The enforcement actions and investigations into potential LIBOR manipulation have shown that, at times, individual institutions faced incentives to understate their hypothetical borrowing rates in order to avoid the perception that they might have higher counterparty credit risk. Some of the reported misdeeds occurred during the heart of the financial crisis when market participants faced considerable uncertainty about the health of particular institutions. This uncertainty was manifest in a wide range of financial market prices for financial institutions – low and volatile equity prices, record CDS spreads and greater variation in borrowing costs across different LIBOR-submitting banks. At that time, the BBA was publishing firm-specific contributions to LIBOR from submitting banks. Given this publication process, some of the submitting banks reportedly became concerned about reporting a rate that would suggest that they were being treated by the market as a greater counterparty credit risk than their peers.

Banks have responded to the new requirements by increasing interest margins to boost earnings. It can be safely assumed that once they have adapted to the new requirements, interest margins will decrease. The countercyclical capital buffer is not an instrument for managing business cycles. The key policy rate and the buffer are designed to promote different objectives. Monetary policy is geared towards ensuring low and stable inflation and is the first line of defence for managing business cycles. The countercyclical capital buffer is designed to strengthen banks’ capacity to withstand periods of large losses. The simultaneous failure of many banks will paralyse the economy. The payments system and flow of credit for investment will seize up. The downturn could be long-lasting. This is why it is often the case that the authorities ultimately intervene in support of failing banks. This is what transpired during the Christiania crash – and it has occurred many times since then, both in Norway and other countries. It may be necessary to provide support to banks in distress, but it comes with a major drawback: Banks will expect support also in the future, which is a source of moral hazard. In spite of the term, this is not about morals, but about incentives. The banks’ creditors are induced to charge low interest rates on loans to banks. This leads to the underpricing of risk, which may in turn lead to excessive risk-taking in the banking sector. The problem must be nipped in the bud. No bank should be promised life eternal.
This continued period of low headline inflation is a concern, in part, because it could lead to significantly lower inflation expectations. If this drop in inflation expectations were to occur, it would, in turn, tend to depress future inflation. Evidence on the inflation expectations front suggests some cause for concern. In particular, market-based measures of longer-term inflation compensation derived from nominal and inflation-indexed Treasury securities have fallen to very low levels. In addition, some survey measures of household inflation expectations have recently moved lower. 2  BIS central bankers’ speeches  With respect to the market-based measures, there are some reasons to discount the decline. Several term structure models, including those estimated at the New York Fed, attribute most of this decline to a decrease in term premiums – what investors demand for insurance against inflation risks – and not to a decrease in long-term inflation expectations. These models suggest that, over the indicated horizon, investors anticipate that low growth will occur along with low inflation. Still, given the extent to which inflation compensation has fallen since mid2014, I believe that it is prudent to consider the possibility that longer-term inflation expectations of market participants may have declined somewhat. What I find more concerning is the decline in some household survey measures of longer-term inflation expectations.

But the present magnitude of the U.S. external imbalance seems difficult to reconcile with plausible estimates of future productivity and potential output growth. The demographic shifts underway in the major economies seem to have contributed to an increase in demand for longer-dated fixed income assets to fund growing pension liabilities, and these shifts have been reinforced by actual and anticipated changes in the regulations that affect pension fund managers. These changes may have operated to push up the price and lower the yield on longer maturity bonds, but the effect of these changes seems likely to be small in comparison to the changes in the behavior of forward interest rates. The rise in the current account surplus that is the counterpart to the U.S. deficit has focused much attention on the rise in measured savings relative to investment that has emerged in many economies. But the implications of this are ambiguous. If the rise in so-called excess savings principally reflected  2  BIS Review 18/2006  concern about future economic opportunities and weak investment demand, then this might imply a decline in future real interest rates. But the pessimism implied by this view is hard to reconcile with the relatively robust pattern of investment growth, particularly in those countries with some of the larger external surpluses. It is hard to reconcile with the fact that growth in aggregate demand globally has been reasonably strong through this recent period of relatively low forward interest rates.
The effects depend, of course, on how the interest rate develops in the long term. What is clear, however, is that the interest rate risk on our balance sheet has increased substantially. The interest rate risk will also be reflected in major fluctuations in the Riksbank’s profit and its dividends to the government. This is due to the practice of market valuation of the assets on the Riksbank’s balance sheet. 15 I mentioned earlier that the forecast for the dividend-qualifying income for 2015 and 2016 has been transformed from a loss of SEK 14 billion into a profit of SEK 13 billion over the last year or so. A major part of this improvement can be explained by the increase in the market value of the bond portfolio due to interest rates being lower than expected. A back-of-the-envelope calculation shows how interest rate changes now have a considerable impact on the Riksbank’s profits. The bond portfolio has a market value of just under SEK 300 billion and an average maturity of five years. The value of the bonds then increases by about SEK 15 billion if interest rates suddenly fall by one  15 The Riksbank’s dividend-qualifying profit is calculated as the Riksbank’s profit adjusted for changes in the price  of gold and in exchange rates. Changed market prices of Swedish bond holdings hence have an immediate effect on the dividend-qualifying profit. 8 [12]  percentage point on all maturities.

These calculations indicate that the bond purchases and other unconventional monetary policy in recent years have reduced the government’s borrowing costs quite considerably, compared to a monetary policy that had not kept interest rates down and avoided excessively low inflation in the same way. But the calculations should be taken with a large pinch of salt as they take a very narrow perspective on government finances. They ignore, for example, the fact that the government has other assets and liabilities, as well as other commitments, that are also affected by the development of nominal and real interest rates. The calculations also ignore the fact that bond purchases also stimulate GDP growth and employment in the short term and that by strengthening confidence in the inflation target, also contribute to healthy, long -term growth. This benefits Swedish households and strengthens public finances by boosting tax revenues and reducing expenditure. The Riksbank’s finances are strong but sensitive to interest rate changes, and dividends will be lower Concern has sometimes been expressed over the fact that bond purchases are expensive and lead to losses for the Riksbank. 19 This concern is hardly unwarranted, even though it is not certain that the purchases actually do lead to losses. The Riksbank’s balance sheet, profit and equity are now being affected more by interest rate adjustments than before purchases began. Dividends will therefore fluctuate considerably more year on year in the future than they have done in recent decades.
The decision was intended to streamline the UK regulatory framework and, recognising that the distinction between different types of financial firms had begun to blur, to bring together financial regulation in a single organisation and under a single piece of legislation, the Financial Services and Markets Act. In a world crowded with acronyms, this gave an opportunity for something of a cull, consigning the numerous self-regulatory organisations or SROs - like SFA, IMRO and PIA to history! However, while you may be able to take financial supervisors (quite literally) out of a central bank, you cannot remove all responsibility from a central bank for the safe-running of the financial 7 system. The Bank stands at the heart of the financial system not only in the implementation of monetary policy, monitoring the financial intermediaries that make up the transmission mechanism for policy changes, but also operationally, as a market participant: on a daily basis carrying out open market operations or providing final settlement for payment systems across accounts at the Bank; or, in more extreme circumstances, intervening in the market to support the currency or to provide liquidity to a bank in difficulty. Thus, while responsibility for supervision of individual banks has moved to Canary Wharf, the Bank has retained responsibility for maintaining the stability of the financial system as a whole.

The state, as the ultimate backstop, was then forced to step in to bail out a number of banks, not just to ensure the means of providing credit in the economy but also, crucially, to back up the claims that these banks had issued as money to a large part of the population. Banks responsible for close to half of the UK’s personal current accounts6, holding some £ were rescued by the state.7  There has as a result been a major programme to tighten the prudential controls on deposit taking banks and to increase the size of the deposit guarantee that is paid for by the industry, which has reinforced further the reliability of commercial bank money and shifted the burden of backstopping that reliability from the state towards the private sector. Looking to the future  The shift towards transacting in private commercial bank money has accelerated greatly in recent years, driven by technology and by changes in the way we live. It is not possible to transact in central bank money over the internet or by using one’s smartphone. As a result, cash use is declining fast in the UK. In 2008,  4  The 1844 Bank Charter Act gave the Bank of England a monopoly on the issuance of Bank notes in England and Wales. It followed a number of failures of ‘country banks’, who had issued their own notes.
From a broader perspective, the introduction of the PEPP – and the subsequent increase of its initial envelope in early June – led to a period of gradual easing of financial conditions in the euro area, not only for sovereign debt, but also other market segments such as corporate debt. In addition, according to analysis by the Banco de España, the PEPP is having a markedly favourable impact on GDP growth and inflation in the euro area.1 Against the current backdrop of uncertainty surrounding the pandemic’s severity and duration, the best contribution that economic policy can make is to instil confidence and certainty. When it comes to monetary policy, this means ensuring accommodative financial conditions for all economic agents for as long as necessary. In view of how the pandemic 1  See Aguilar et al. (2020). 4  is unfolding and its economic effects, we clearly need more time (and the attendant volume) now than we projected just a few months ago (as you know, the PEPP runs until June 2021). Further, as was true of the first wave, it is highly likely that the second wave’s economic impact will be uneven across the various euro area countries, aside from the fact that the general government fiscal position is also very different. Therefore, retaining the PEPP’s flexibility is essential to head off problems of financial fragmentation that hinder the transmission of our monetary policy. In addition to the PEPP, another instrument that may be recalibrated in the near term are our TLTROs.

This would not be problematic if nominal rates could fall as far as necessary; for example, with expected inflation of 1%, to achieve a real interest rate of, let’s say, -2%, the nominal rate would have to be lowered to -1%. The problem is that nominal interest rates cannot drop as far into negative territory as sometimes would be necessary. Were central banks to set interest rates of -5%, for example, commercial banks would endure negative yields on a large part of their assets, which would adversely affect their profitability and, ultimately, their financial intermediation  2  The concept, determinants and implications for monetary policy of the natural rate of interest are discussed in Galesi et al. (2017). Holston et al. (2017), for example, estimate that in 2016 the natural rate was positive, but very close to zero, in the United States. 4 See, for example, Fiorentini et al. (2018). 3  7  capacity. This would have an attendant negative impact on credit supply, economic activity and inflation. There is therefore a lower bound on nominal interest rates. Should central banks lower interest rates below this bound, the effect on the economy may be contractionary rather than expansionary, owing to the adverse effects on the financial system as a whole.5 The level of this lower bound on interest rates is not directly observable and varies over time based on the financial sector’s situation. In any event, it represents the floor for central bank interest rate cuts.
Such collaborative industry effort in infrastructure sharing would allow the industry to compete directly on product offerings and the quality of services provided, thus providing better value to both consumers and merchants. In this regard, the recent industry-wide initiatives to enhance the payment card infrastructure and to modernise the online bill payments market via JomPAY are commendable and should be sustained. In this respect, I would also like to call upon MyClear and MEPS to jointly embark on payment infrastructure projects and initiatives that would benefit both the industry and the country. Role of MyClear and the industry moving forward Achieving the critical mass in terms of usage and acceptance remains a key priority. In this regard, banks in collaboration with MyClear should take concerted efforts to expand the number of businesses accepting JomPAY, especially among the underpenetrated sectors of SMEs and the federal and state government agencies. This can be done through coordinated media campaigns, workshops, roadshows and other outreach programs. MyClear and the participating banks should target to register 5,000 merchants onto JomPAY by 2020. To educate the public, especially those who are not IT savvy to use JomPAY, MyClear and the banks should also come up with instructional videos and pamphlets to provide the  BIS central bankers’ speeches  3  necessary guidance and assistance.

As part of the global collaborative efforts to enhance the efficiency of Islamic financial institutions in managing liquidity at both national and across borders, a Liquidity Management Task Force has been established by the IFSB and the IDB early this year. This work is being further supplemented by ongoing market initiatives by the International Islamic Financial Market (IIFM) which focus in the advancement and the standardisation for Islamic financial instruments for the Islamic capital and money markets. More recently, Malaysia established the Bursa Suq Al-Sila' under the concept of commodity murabahah. This multi-currency and multi-commodity is an electronic exchange traded platform to facilitate the trading and settlement of commodity using crude palm oil (CPO) for liquidity management between Islamic financial centres. Although Malaysia already has a well functioning Islamic inter-bank money market, this platform provides a further alternative for liquidity management, through which global interlinkages in the international Islamic financial system can also be further enhanced. Integral to the efforts in the development of Islamic finance has been the strengthening of the regulatory and supervisory framework for Islamic finance. In the area of international prudential standards for Islamic finance, the IFSB that was established in 2002 has developed a number of standards ranging from capital adequacy requirements to governance and risk management to assist the Islamic financial institutions in adopting international best practices and standards.