samchain/econo-pairs-v1 huggingface dataset:
This was an overnight 7  devaluation of the basic exchange rate by 120 per cent! The rupee was then allowed to float under a managed exchange rate regime. Accordingly, compared to the end 1976 exchange rate of Rs. 8.83 per US dollar, the exchange rate was recorded at Rs. 15.56 at end 1977. This sharp devaluation addressed the overvaluation of the rupee observed under the fixed regime. The subsequent managed exchange rate regime allowed some flexibility to determine the value of currency largely on the basis of market demand and supply, while attempting to prevent the overvaluation of the rupee by maintaining the real value of the rupee against movements of a basket of major currencies. The Aftermath of the Managed Float The introduction of the managed floating exchange rate was a welcome move from the perspective of a liberal macroeconomist. However, this resulted in new challenges to the conduct of monetary policy, particularly as the exchange rate was no longer available to anchor inflation expectations like in the past. The Central Bank also had to face a new challenge, as the government started to run extremely large fiscal deficits funded mainly by concessional external funding to develop public infrastructure such as the accelerated Mahaweli scheme. Annual fiscal deficits averaged 13.3 per cent of GDP between 1978 and 1983, External current account deficits averaged 10.8 per cent of GDP between 1979 and 1983. Year-on-year inflation averaged 15.6 per cent during February 1978 and January 1985, with a peak of 32.5 per cent in August 1980.

Australia has an inflation target of 2-3 per cent, and in New Zealand it is 1-3 per cent. Within emerging market and developing economies, the targets are slightly higher. The Philippines and Chile target 2-4 per cent, Indonesia 2.5-4.5 per cent, Brazil 4.5 per cent, South Africa 3-6 per cent, while India targets 2-6 per cent of inflation. It must be noted here that a central bank could only effectively control demand driven inflation. Central banks could do little to address short-term disruptions to prices due to adverse domestic supply developments or unexpected international commodity price movements. However, central bank responses will be required to contain demand driven inflation, usually identified by movements in core inflation indices. 3  Monetary Policy Frameworks In order to maintain low and stable, single digit inflation, central banks around the world are entrusted with the task of conducting monetary policy with varying degrees of independence. Central banks use various monetary policy frameworks, as there needs to be a mechanism to operationalise the achievement of the end objective of price stability using the policy tools given to central banks to fulfil this task. Monetary policy frameworks differ across countries depending on country-specific circumstances such as the level of financial market sophistication, openness of the economy, strengths, capacities and independence of institutions, etc. For example, monetary policy frameworks in some countries are based on currency board arrangements where the value of domestic currency is strictly pegged to an international currency.
This is the way we have tried to work so far, and we will continue to do so as long as necessary. When I come here to the Committee on Finance hearing to answer questions on monetary policy, that subject is usually what my introductory speech concerns. Today it will be slightly different. Recent developments clearly show how closely our main tasks, financial stability and monetary policy, are linked. I would therefore like to begin by talking about those points of contact and various measures we have taken to ensure that certain financial markets will function more normally. With this as a base, I will then move on to the interest rate decisions and the financial turbulence from a monetary policy point of view. Finally, I would also like to make a brief comment on our own experiences of earlier crises and the future of the global financial system. Monetary policy and financial stability – why is the system so important? One can say that the payment system and to some extent the financial markets are the circulatory system of our economy. What is usually referred to as financial stability concerns, to put it simply, working in various ways to ensure the financial system is stable and functions efficiently. For example, individuals, companies and organisations must be able to make and receive payments in an efficient manner.

Broken lines refer to the Riksbank’s forecasts  Sources: The IM F, Statistics Sweden and the Riksbank  Lower employment Thousands, seasonally-adjusted data, 3-month moving average  80  24 New vacant jobs Unfilled vacant jobs  70  21  Redundancy notices (right scale)  60  18  50  15  40  12  30  9  20  6  10  3  0  0 80  85  90  95  00  05  10  Note. Redundancies include outcomes for October  Source: Swedish Public Employment Service  BIS Review 138/2008  17  Lower inflation CPI, annual percentage change 5  5 M PR 2008:3 M PU September 2008  4  4  3  3  2  2  1  1  0  0  -1  -1 00  01  02  03  04  05  06  07  08  09  10  11  Note. Broken lines refer to Riksbank’s forecasts  Sources: Statistics Sweden and the Riksbank  Lower repo rate Per cent, quarterly average  6  6 MPR 2008:3 MPU September 2008  5  5  4  4  3  3  2  2  1  1  0  0 00  01  02  03  04  05  06  Note.
Central banks can help reduce the negative effects of an excess of credit growth if they apply a monetary policy that is oriented to maintain price stability in an horizon long enough as to account for this cyclical behaviour of debt, thereby ensuring that the effects of the crisis are not so devastating for households and firms. Indeed, this should be of particular concern since we know that a monetary policy successful in containing inflation can also contribute to increase household and corporate leverage. A successful inflation fighting monetary policy manages to anchor agents' inflation expectations. In such a setting, the demand-side excesses that tend to be generated during cyclical upturns do not translate – or do so only very slowly – into inflationary pressures. Consequently, central bankers do not consider it necessary to tighten monetary policy, so that interest rates remain very low and continue to fuel the cycle and the consequent expansion of credit and debt. White (Weiβ in German), which is not only a type of wine but also the name of the chief economist of the BIS who retired last summer, has been calling in recent years for the introduction of financial stability considerations into monetary policy design and implementation. And we should acknowledge that the latest events have shown the validity of his proposals. In short, he recommends that central banks act against the build-up of financial imbalances even in the absence of inflationary pressures at the usual reference horizons.

Miguel Fernández Ordóñez: Weiß und Rot – the cycle, central bankers and supervisors Address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the “World Currency Regime – to Float or not to Float” session, 18th Frankfurt European Banking Congress, Frankfurt am Main, 20 November 2008. *  *  *  Let me begin by thanking the organisers of this edition of the Annual European Banking Congress for the opportunity to address such a distinguished audience on the subject of the cycle, central bankers and supervisors. I will be talking about “Weiβ und Rot” and not exactly about wines. *** Numerous factors have played an important role in triggering the current crisis: the subprime mortgages, the highly complex securitisation structures, the originate-to-distribute model, the over-reliance on rating agencies, risk valuation models that few could understand, etc. Many of these mistakes have been identified over the past 15 months by the authorities and by financial institutions themselves. Some regulatory reforms are already under way in the EU and overseas, while the financial entities themselves are reviewing their risk management. We can be sure that the next crisis will not be like the current one. But it is naive to believe there will be no further expansions and slowdowns. For 5,000 years now, since the Pharaoh asked Joseph about the meaning of a dream in which he saw seven fat and seven lean cows, we have known that the economy is unequivocally cyclical.
The Joint Staff Report on the Treasury flash event, the Treasury Department’s subsequent request for information, and the work that has followed identified a number of changes that have reshaped the Treasury market over the last decade. These include the increased electronification of trading, the changing nature of intermediation and liquidity, and the entry of new market participants. In light of these changes, the Joint Staff Report highlighted four important priority areas for additional work. In taking these efforts forward, we have benefited from ongoing engagement with market participants and other members of the public. The first priority is gatherings like this one, where both private and official sector participants come together to study and share views on what the market’s evolution means for its structure and liquidity. Understanding how the Treasury market is evolving can enable us to be good stewards of its trajectory. A second priority is improving the availability of data on activities in the cash market. After the historic volatility that occurred on October 15, 2014, the official sector had limited access to transaction data. This resulted in a months-long lag in the process to gather and analyze data from the event. The introduction this year of transaction data reporting by broker-dealers to the official sector is thus a critical step forward. While closing this data gap for the official sector is an important milestone, work remains to ensure that the scope of collection is sufficiently complete and dynamic to maintain coverage of relevant firms, as intermediaries and liquidity providers evolve.

We need to work together to ensure that the longstanding confidence in the Treasury market is sustained in the future. This conference provides an excellent opportunity to continue this discussion and work on these issues. Thank you for coming. I look forward to today’s dialogue and the ongoing engagement between the Joint Member Staffs and the public. 3/3  BIS central bankers' speeches
First, the Committee is still undershooting both its employment and inflation objectives. Unemployment is too high and inflation is too low. Thus, monetary policy needs to be very accommodative in order to close these gaps relative to the Committee’s objectives. Second, when interest rates are at the zero lower bound, the risks of tightening a bit too early seem considerably greater than the risks of tightening a bit too late. A premature tightening might lead to financial conditions that are too tight, resulting in a weaker economy and an aborted lift-off. This would be problematic in that it would harm the Fed’s credibility and, more importantly, would be difficult to rectify. The U.S. experience during the Great Depression and the Japanese experience over the past two decades illustrate the risks of raising interest rates too soon, especially when inflation is running below the central bank’s objective. Finally, given the still high level of long-term unemployment, there could be a significant benefit to allowing the economy to run “slightly hot” for a while in order to get these people employed again. If they are not employed relatively soon, their job skills will erode further,  BIS central bankers’ speeches  3  reducing their long-term prospects for employment and, therefore, the productive capacity of the U.S. economy. All that said, I hope the economic outlook evolves so that it will be appropriate to begin to raise interest rates sometime next year.

At the same time, there are a few factors that suggest that there is a relatively low likelihood of growth ending up substantially above the forecast. Three considerations seem important for assessing the degree of upside risk to growth. First, the upside from housing is likely limited compared to what one might expect under more normal conditions. We have seen an impressive recovery of multi-family housing starts over the past few years. In contrast, starts of single-family homes remain at low levels despite the fact that home prices have risen substantially over the past two years and mortgage rates have remained low. A contributing factor is that mortgage lenders continue to be extremely risk averse, and mortgage credit to those with lower credit scores is still significantly constrained. There is little on the horizon that would lead me to believe that this situation will change in a material way any time soon. Second, because motor vehicle sales are now close to their pre-recession levels, the future growth impetus from this cyclical sector probably will also be restrained. Finally, growth in the rest of the world has slowed and the dollar has appreciated somewhat. This will limit the growth in U.S. exports, and suggests that the trade  2  2  See Table 1.2 in the U.S. Department of Energy’s Monthly Energy Review, October 2014. BIS central bankers’ speeches  sector is unlikely to be a strong wind at the back of the U.S. economy over the next year or two.
BIS central bankers’ speeches  9  Table 2 Economic growth (annual change, percent) 2008  2009  2010 (f)  2011 (f)  GDP  3.7  -1.5  5.2  5.5-6.5  Domestic demand  7.6  -5.9  16.1  6.6  Domestic demand (w/o inventory changes) Gross fixed capital formation  7.5  -2.8  11.2  8,0  18.6  -15.3  18.9  14.6  Total consumption  4,0  1.8  8.9  5.8  Goods and services exports  3.1  -5.6  1.5  4.9  Goods and services imports  12.2  -14.3  28.5  6.9  Current account (% GDP)  -1.5  2.6  0.3  -1.4  (f) Forecast. Source: Central Bank of Chile. Figure 8 Indicadores de inflación (annual change, percent) 12  12  9  9  6  6  3  3  0  0  -3  -3  06 CPI  07  08  CPIX  CPIX1  09  10  CPI minus foodstuffs and energy  Sources: Central Bank of Chile and National Statistics Institute (INE).

Concluding remarks Let me finish with some short reflections. After several years of heavy turbulences and natural disasters, the Chilean economy is on a very good standing to continue on a path of sustained growth. Price stability has been preserved, preventing inflation from affecting the purchasing power of citizens, especially those with less income and thus less capability to protect themselves against this menace. Growth has consolidated, pushing the rate of job creation to levels we had not seen in years. The contribution of monetary policy to this good performance is unquestionable. It has been flexible enough to be able to be applied when facing sharp changes in the economic environment, with no unnecessary dogma or rigidities. In order for this process to continue over time it needs to be balanced and operate in the context of an inflation rate in line with the target. Otherwise it will become just an unsustainable acceleration calling for drastic adjustments with its related costs in lost output and employment. Evidently, as a country we continue to face challenges, particularly related to maintain sustainable growth rates for long periods and not create tensions on price stability. Guaranteeing low and stable inflation is the best contribution that the Central Bank of Chile can make to prosperity in this new century of independent life that is beginning for our Republic. Thank you.
Strengthen the quality of capital Under the current rules, up to 50 per cent of a bank’s Tier 1 capital can consist of hybrid instruments, which are a combination of debt and equity. The remainder must comprise common equity only. Perpetual capital securities and other hybrid instruments cannot be used as easily as equity capital to absorb losses on a going concern or at liquidation. The possibility of limiting Tier 1 capital to common equity is now being considered. Hybrid instruments make up a large share of Tier 1 capital in many European banks and many banks must strengthen the quality of capital. There is therefore a risk that political processes will prevent any significant increase in the minimum Tier 1 capital requirement. The Norwegian authorities have been restrictive in their approval of hybrid instruments. The Financial Supervisory Authority of Norway – with strong support from the Ministry of Finance during the last 20 years – has ensured that banks have been required to fully consolidate all  BIS Review 131/2009  7  assets when calculating capital requirements. Since established practice in Norway is already strict, the new rules may not in themselves affect banks to any great extent. Capital and macroprudential supervision  A lesson learned from the financial crisis is that regulation of financial institutions should seek to limit risk not only in each bank, but also in the financial system as a whole. Banks’ growth strategies seldom take into account that one bank’s behaviour can affect other banks and the financial system.

There was a constant stream of worries, one thing after another, one disheartening report after another, and minor setbacks were followed by major setbacks. It was reminiscent of an operating theatre. The task was onerous not only because of its proportions, but also because of the oppressive weight of the anxiety that accompanied it.” 2 “The greatest risk lay in the fact that this anxiety had now become pervasive. The very foundations of confidence, the nation’s confidence in its own credit institutions had been shaken … The most important objective was therefore to prevent an avalanche, seek to contain the damage, hang on and hold back. That was the dominant thought, to prevent total collapse, for the danger of this was indeed present… and the general atmosphere of nervousness manifested itself in the most peculiar ways. In the blind panic that ensued, unreasonable attacks were made on institutions that were more than deserving of their depositors’ confidence.” 3 There may have been a similar feeling in many countries last autumn that the “oppressive weight of anxiety had become pervasive”. The recent financial crisis started with problems in the US subprime market. It was difficult to foresee that problems in a small segment of one market could have such dramatic consequences for financial markets the world over. But the financial system had changed. 1  See Knutsen, Sverre and Gunhild J. Ecklund (2000): ”Vern mot kriser? Norsk finanstilsyn gjennom 100 år (Defence against crisis? 100 years of Norwegian financial supervision)”, p.95.
The slowdown in global growth has been more pronounced and spanned a longer period than we had expected. The Norwegian economy has also felt the effects of this. Norges Bank has therefore lowered the sight deposit rate from 7 to 5.5 per cent since 11 December, most recently on 5 March. The interest rate differential has narrowed. Since mid-January, the krone has depreciated, partly reflecting expectations of lower interest rates. Monetary policy has been relaxed. There is uncertainty associated with developments in many of the factors that will influence inflation ahead, among others the exchange rate. This implies a gradual approach to the conduct of monetary policy. Increased spending of petroleum revenues will have implications for Norway’s industry structure. High demand for goods and services that require domestic resources, necessitates higher employment in the sheltered sector. This labour has to be recruited from the exposed sector, or through the natural increase in the labour force finding its way to the sheltered sector. Even if employment and output in Norwegian manufacturing industry fall, developments for Norwegian enterprises may not necessarily be only negative. Some enterprises may be at the cutting edge of technology, and increase their efficiency in pace with the rise in costs in Norway. Others may relocate labour-intensive activities abroad. The scaling back of manufacturing still involves a risk. It makes the economy more vulnerable; the foundation for learning, innovation and development may be undermined when a smaller share of the business sector is exposed to intense international competition.

Also in most ten-year periods, investing in US equities has been profitable, with the exception of the depression in the 1930s and the last half of the 1970s. Equity returns have been negative after ten years only in the years between 1928 and 1938, in other words on equity investments made the year before the 1929 stock market crash. It may also be worth noting that equities purchased during recessions - such as in the mid-1930s and mid-1970s - brought solid returns ten years later. The picture is the same for most other countries. Since short-term fluctuations in equity prices are difficult to predict, it may be a sound strategy to keep the share of equities constant over time. This means buying a relatively large volume of equities when prices are low, and buying a smaller volume - or selling - when prices are high. This is the strategy applied by the Petroleum Fund. Let us now revert to the Norwegian economy and Norwegian economic policy. The revision of economic policy in March 2001 can to some extent be said to be a consequence of our oil economy. The new guidelines have also changed the interaction between the different components of economic policy. Fiscal policy will now have an expansionary effect. In order to prevent pressure from becoming too strong, monetary policy has to be tighter than would otherwise have been the case. Monetary policy has therefore been given a clearer role in stabilising economic developments.