samchain/econo-pairs-v1 huggingface dataset:
Near-term developments in nominal and real interest rate will be determined by economic developments and the inflation outlook. The MPC attempts at all times to keep interest rates no higher than they must be in order to hold inflation at target over the medium term. Based on these considerations and assuming that there are no major unforeseen changes in the current situation, the scope for further reductions in nominal interest rates could develop in the near future. The Government has initiated a review of the monetary policy framework. The Central Bank of Iceland supports this process and will participate actively in it. It is important both to take into account what monetary policy can achieve and to acknowledge what it cannot do. It is also important to bear in mind that significant changes have already been made in monetary policy conduct since the pre-crisis period, as I have discussed in detail in this setting in the past. Nevertheless, various additional changes need to be considered, and the Central Bank cannot change the most important element of the equation: that monetary policy, fiscal policy, other economic policy, and decisions taken in the labour market must pull together to the maximum extent possible. I would also like to emphasise the importance of preserving the monetary policy achievements that I have discussed. 6  Honoured guests: The Central Bank’s foreign exchange reserves totalled over 810 b.kr. or 7½ billion US dollars, at the end of February. This is equivalent to about one-third of GDP.

In this context, it gives cause for concern that the fiscal stance in terms of the cyclically adjusted primary balance has eased over the past two years and appears likely to do so again this year. It is also possible to address the currency appreciation at its source by applying what some representatives of the tourism sector have appropriately referred to as “access restrictions and pricing”. In the recent past, numerous observers have expressed the opinion that the Central Bank’s key interest rate is too high under current conditions. As grounds for their arguments, they cite much lower interest rates in trading partner countries, the fact that inflation in Iceland has been at or below target for three years, and the Central Bank’s overforecast of inflation in recent years. Discussing whether the monetary stance is in line with the Bank’s objectives and current economic developments and prospects is normal and appropriate. Opinion varies, sometimes even within the Monetary Policy Committee itself, because reliable data on current and recent developments become available with a time lag and the future is always uncertain. 5  The Bank’s key nominal interest rate is now 5%, and the corresponding real rate is about 2½%. In view of the business cycle position and the fact that inflation is below target, this implies an equilibrium real rate of 1½%, which must be considered low, given that long-run growth potential is significantly higher. Current nominal and real interest rates are not high in historical terms, although they are high in current international context.
Good governance underpins any successful business model and it is of utmost importance that DFIs follow best practices that promote integrity, transparency and accountability. To achieve this, DFIs should strive to strengthen behaviour and risk culture within the organisation. Strong governance entails crafting well-defined mandates that will insulate the organisation from undue external interference. Focus should also be given to foster a culture that welcomes active debates and critical thinking at all levels of the organisation to guard against groupthink. Last but not least, to sustain effective and high performance, continuous upskilling of the board, senior management and staff is crucial to be able to seize opportunities and overcome challenges as they arise. While the DFIs of today have grown in size and outreach, there remain opportunities for them to maximise their full potential. Innovation is lacking in developing diversified financial products that are tailored to meet the specific needs of targeted sectors. This is compounded by their limited capacity and capability to manage the potential risks arising from financing high risk sectors due to information asymmetries. DFIs should aim to become the centre of reference for new growth sectors and emerging markets and develop expertise in risk assessment and management of high risk projects in those sectors. Underlying the strategies for a good business model is the need for DFIs to strengthen research and analytical capabilities to address their lending capacity by developing innovative solutions.

Given the digitalisation of finance and proliferation of technology in financial services, DFIs need to remain at the frontier of these developments. This could include leveraging on big data and forging partnerships with technology firms to develop digital solutions at lower cost and increased efficiency. At the broader level, the development finance architecture should also shift to be more effective in channelling resources and catalysing private investment to developmental oriented projects and initiatives. Whilst most DFIs have been self-sustainable for the past few years, DFIs will need to diversify their sources of funding and ensure that the structure of liabilities is appropriate for the assets that they hold to be sustainable in the long run. DFIs cannot be dependent on fiscal support to carry out their mandates. DFIs should aim to have strong competitive position on new growth sectors supported by a sustainable strategy and management execution capabilities. Last but not least, DFIs are required to continuously review their institutional fit and business models to increase their development impact while remaining financially sustainable. Effective DFIs should also be able to act as catalysts to promote private sector investments and support economic growth. One example of a financially sustainable business model is demonstrated by the experience of Nacional Financiera (NAFIN) as an enabler to Mexico’s aspiration to combat climate change through the Renewable Energy Financing Facility, or REFF.
This package included a reduction in Bank Rate to a new low of 0.25%, and the launch of a Term Funding Scheme to reinforce the pass-through of this cut, alongside a £ increase in our stock of UK government bonds and the purchase of up to £ of investment grade non-financial corporate bonds. As central bankers and money market enthusiasts know, the issue of pass-through is of utmost importance. The paper begins with the premise that a necessary condition for competitive money markets is that any change in the Fed’s policy rate is passed through, one for one, to all market transaction rates. In truth, one can make the much broader statement that the very efficacy of monetary policy and its usefulness as a tool for influencing the economy is premised on the pass-through of changes in policy rates to money market rates. And that’s why some of us have endless appetite to discuss any wedge between them. With that in mind, I’d like to pick up on two of the central themes of Darell and Arvind’s paper. •  The first is the impact of regulation – in particular the leverage ratio – on money market function. I will restate the case for having a leverage ratio, but will also argue that it can be much improved by the exclusion of central bank reserves from the exposure measure. •  The second is the role of central banks in money markets.

In particular, to quote Solvency II directly, “the Matching Adjustment must not include the Fundamental 9  Spread, reflecting the risk retained by the insurance or reinsurance undertaking” . Since the credit rating is the main driver of the Fundamental Spread, this means the credit rating must reflect the risk retained by the insurer. One key characteristic of illiquid assets is that they are not usually externally rated. Instead, Solvency II permits insurers to use internal ratings to determine the Fundamental Spread. Since illiquid assets will often not have market valuations, insurers will often also base the asset valuation on the internal rating by mapping to equivalent traded assets of the same rating. The internal rating may therefore drive both determinants of the Matching Adjustment: the spread over risk-free rates and the Fundamental Spread. Getting it right is important! The PRA set out its views on this subject in a supervisory statement (SS 3/17) last year. 10  We said that  internal ratings must lie within a plausible range of the ratings that would be given by external rating agencies. Individual ratings may vary, depending on credit judgements, but there should be no overall upward bias in internal compared to external ratings. Supervisors are reviewing insurers’ internal ratings and may seek greater assurance where assets have spreads that look large for the rating, leading to a large matching adjustment in absolute or relative terms. We will also consider the complexity of the assets and their materiality to the overall solvency position of the insurer.
Terrence J Checki: Observations on the global economy and financial system Remarks by Mr Terrence J Checki, Executive Vice President of the Emerging Markets and International Affairs Group of the Federal Reserve Bank of New York, at the IIF Annual Meeting of Latin America Chief Executives, Santiago, Chile, 6 March 2013. *  *  *  Good afternoon. Thank you, Tim (Adams), for the kind introduction. Let me take this opportunity to congratulate you and wish you well as you take the helm of the IIF (Institute of International Finance). It is a pleasure to be here in Santiago, and to see so many old friends among the distinguished participants. Having spent much of my early career in this part of the world during difficult times, it is gratifying to be reminded first hand of the progress the region has made. That progress is especially evident here in Chile. In my remarks this afternoon, I thought I would offer a few reflections on the current state of the global economy and financial system, and some of the challenges going forward. Let me note, for the record, that my comments this afternoon are personal, and should not be taken as reflecting the views of the Federal Reserve Bank of New York, or the Federal Reserve System. As we all know, the mood in global markets has improved quite a bit since the middle of last year: stocks are up, spreads are down, volatility is lower, and capital market activity has picked up.

This progress is the result of policy improvements that have reduced the imbalances and fragilities that fed past boom-bust cycles; greater openness to international trade and deeper economic and financial integration; and, for commodity exporters, some good fortune in the form of strong prices. Nonetheless, while trend growth in the emerging market economies has substantially outpaced that in the mature economies, the emerging market economies generally continue to accelerate and decelerate in step with the mature economies. So much for decoupling. This continuing close correlation reflects the fact that stronger emerging market growth has been built upon deeper economic and financial integration with the mature economies...as well as with each other. Against that backdrop, spillovers from the mature economies clearly played a part in the recent slowdown across the emerging world. But something more appears to be going on as well. As a general matter, the emerging market economies appear to be operating closer to capacity than the mature economies. Emerging market economy labor markets generally look somewhat tight by historical standards, and while emerging market inflation is down, it is still an issue for a number of countries. This suggests that capacity constraints and structural issues have been playing a role in the recent sluggishness, and that somewhat slower growth may be part of the new normal for the emerging market economies as well. How much slower will in part depend on policy choices in the emerging market economies.
Jeremy Stein at the Federal Reserve's Board of Governors has expressed it as the advantage of monetary policy being that it "gets in all of the cracks”.27 It is also worth pointing out that in countries such as Norway and Canada they are fairly explicit in saying that the policy rate has a role to play in this context – and this is despite the fact that they have come further in the macroprudential field than we have.28 It remains to be seen where we eventually will end up when it comes to this issue. My own opinion is that we will probably not be able to have a completely strict division of labour between monetary policy and macroprudential policy and that the policy rate cannot be ruled out as a tool for counteracting financial imbalances. There will probably always be situations where macroprudential policy needs the support of a monetary policy that at least to some extent “leans against the wind”. But we still do not have any certain answers and I believe it is wise to keep all doors open. A formative stage Let me round off. There is no doubt that we are internationally in what one might call a formative stage with regard to macroeconomic policy in general and monetary policy in particular.

But as yet we do not know exactly where this process will take us, and how central bank operations will look in detail, say, twenty years from now. What we can say with certainty is that the discussion on monetary policy and central bank activities will be intensive over the coming years, both internally in individual countries and internationally. It is important that this discussion is unbiased and modulated and conducted in a good and positive spirit. This will help ensure that it results in wise and sustainable solutions. 12  BIS central bankers’ speeches  References Bank of Canada (2012), Bank of Canada maintains overnight rate target at 1 per cent. Press release 23 October. Bernanke, Ben S. (2010), Letter to the Financial Crisis Inquiry Commission, 21 December. Available at: http://fcic-static.law.stanford.edu/cdn_media/fcic-docs/2010-1221%20B%20Bernanke%20ltr%20to%20Angelides%20and%20Thomas%20re%20FOMC%2 0information.pdf Blanchard, Olivier, Dell’Ariccia, Giovanni and Mauro, Paolo (2013), Rethinking Macro Policy II: Getting Granular. IMF Staff Discussion Note 13/03, International Monetary Fund. Cagliarini, Adam, Kent, Christopher and Stevens, Glenn (2010), Fifty Years of Monetary Policy: What Have We Learned? In Kent, Christopher and Robson, Michael (ed) Reserve Bank of Australia 50th Anniversary Symposium. Proceedings of a conference held in Sydney on 9 February 2010. Reserve Bank of Australia. Carney, Mark (2013), Monetary Policy After the Fall. Speech at the University of Alberta 1 May 2013. Bank of Canada. Committee on International Economic Policy and Reform (2011), Rethinking Central Banking. Brookings Institution, Washington.
At the same time, the resolution authority in the home country, working with the home country lead supervisor, could begin taking the necessary steps to prepare for a possible resolution as a contingency. If the supervisory intervention does not produce a successful private restructuring and recovery, the home country resolution authority leads a coordinated resolution process. Let me elaborate on a couple points. First, I believe that economists can be invaluable in helping financial supervisory and resolution authorities understand more fully where coordinated actions and cooperative solutions improve outcomes and where they do not, something I don't believe we now really know. The potential gains from cooperation will reflect the distribution of asset and liabilities (or net worth) across legal entities, assumptions about the rate of decay in the values of assets and business lines pre-entry and post-entry into insolvency, the length of time spent in each state and any one-time markdown on entering insolvency. With analysis or simulation, various decision rules can be explored about how a lead resolution authority could foster a cooperative, coordinated resolution using  BIS Review 140/2010  5  tools such as bridge banks, transfers of assets and liabilities, sequencing of sales or liquidations and other techniques. An analysis can also explore how sensitive the decision rules are to timing, distribution of net worth across entities and decay or markdown factors.

If one were to use SARON in such cases, interest payments would theoretically have to be made daily, which is impractical. The NWG has recommended using average SARON values (‘compounding approach’), and has proposed several possible options. Market participants are currently working on implementing this recommendation. Let me conclude this section by emphasising that SARON is establishing itself as the leading reference rate for financial products. It is the responsibility of market participants to systematically complete the remaining transition work and prepare themselves for the postLibor era. As they do so, they can draw on the recommendations of the NWG, whose activities the SNB supports. The faster SARON is integrated into financial products, the smoother the replacement of Libor will be. The creation of a liquid, SARON-based yield curve is fundamental as it will enable our money and capital markets to continue running efficiently. This is very important not only for our country’s financial system but also for the transmission of the SNB’s monetary policy. SNB joins network dedicated to ‘greening the financial system’  To conclude, I would like to say a few words about our decision to join the Central Banks and Supervisors Network for Greening the Financial System (NGFS). As climate change is a global phenomenon, institutional and technical knowledge must be analysed and exchanged globally. The SNB joined the NGFS, which now comprises 36 central banks and supervisors, in April 2019. The network provides a forum in which members can conduct in-depth analysis and seek answers to some key questions.
Determining appropriate capital adequacy standards for the shadow banking system will indeed be a key challenge in an effective redesign of the regulatory system. A related challenge is to ensure that tighter capital standards for banks and other highly regulated entities do not result in their simply shifting activity to less regulated areas, including off-balance-sheet activities such as structured investment vehicles. This would simply encourage more risk taking and raise systemic risk as well, since many off-balancesheet activities could end up being effectively on-balance sheet at times of crises. However, the truth is that we are far from completely figuring out how to control these institutions and types of transactions and it is unlikely that there will be an approach clever enough to provide the same level of systemic protection in regard to shadow banks as there will be for highly regulated entities. Conclusion When scrutinizing the impact of the regulatory changes on the EE’s, there are no doubts that the reform process is an important qualitative step forward for the overall financial industry and its implementation will mean more stable financial sector, lower probability of financial crisis and less “headaches” for the authorities responsible for macroeconomic and financial policies. Yet, apparently, there are many angles within the new regulation which should be further well screened and assessed in terms of their potential adverse impact, especially in emerging markets due to different challenges.

Regarding the tighter liquidity requirements (modeled as a 25% increase in the holding of liquid assets, combined with an extension of the maturity of banks’ wholesale liabilities) MAG’s estimations point to a median increase in lending spreads of 14 basis points and a fall in lending volumes of 3.2% after four and a half years. This is estimated to be associated with a median decline in GDP in the order of 0.08% relative to the baseline trend. An IMF study dating as of February 2012, reports similar results to MAG’s research, finding that in the absence of any monetary policy response, a permanent synchronized global increase in capital requirements for all banks by  1  For instance the EBA requirements and the Volcker Rule, within the Dodd-Frank Law in US. 2  Banco Bilbao Vizcaya Argentaria. 4  BIS central bankers’ speeches  1 percentage point would cause a peak reduction in GDP of around 0.5 percentage points, of which around 0.1 percentage point would result from international spillovers. Their findings show somewhat higher losses in EMEs as compared to AEs (0.74 percentage point loss in GDP in EMEs as compared to 0.46 percentage points in AEs) due to higher estimated spillover effects. The third point of transmission relates to development of financial markets EE’s. The development of deep domestic financial markets can improve the economy’s ability to absorb shocks and manage financial risks.
4  BIS central bankers’ speeches  Figure 2 Monetary policy rates around the world (1) (percent) 9  9  7  7  5  5  8  8  6  6  4  4  2  2  3  3  1  1  0  0 06  07 Chile  08 09 Developed econ. (2)  10 11 Emerging eco. (3)  (1) Corresponds to a simple average of the reference rates for each group of countries. (2) Includes Euro area, Japan, United Kingdom, and United States. (3) Includes Brazil, Czech Republic, China, Colombia, Hungary, South Korea, Mexico, Peru, Poland, and South Africa. Sources: Central Bank of Chile and Bloomberg. Figure 3 U.S multilateral nominal exchange rate (*) (index, March 1973=100) 160  160  140  140  120  120  100  100  80  80  60  60 73  79  85  91  97  03  09  (*) An increase indicates a depreciation of the dollar against main trading partners. Sources: Bloomberg and U.S. Federal Reserve.

This has partly been a matter of supply shocks that do not normally have lasting effects on the rate of inflation. There is therefore reason to believe that when the increased price levels drop out of the twelve-month change figures from next spring onwards, inflation will fall back from the relatively high rates at present. The picture of inflation does, however, include other features that probably have to do with the high resource utilisation during the latest upward phase. The fact that domestic inflation has moved up even though economic activity is slowing could point to some underestimation of resource utilisation or to a relationship between growth and inflation in a wide sense that for other reasons is less favourable than assumed earlier. Recovery with prospective inflation in line with the target In the Inflation Report that now lies on the table we have opted for a main scenario where growth in the rest of the world is lower than we foresaw in the previous Report in May. The situation is particularly complicated in that the usual difficulties in determining exactly when activity is likely to turn upwards are compounded by the occurrence of a structural adjustment of saving and investment, above all in the United States, at the same time as economic policy there is undergoing a marked expansionary realignment. A further major complication is the future security policy situation, which is naturally hard to assess with traditional economic tools.