samchain/econo-pairs-v1 huggingface dataset:
The bulk of the medium-term impact from the asset purchases should come from the stock of purchases not the flow. There will be approximately £ extra money stimulus in the system, until the MPC decides to withdraw it (or to increase it). When the time does come to unwind the purchases, the MPC will face a number of difficult decisions. First, it will have to decide at what point monetary policy should be tightened. That decision will, as with any decision to expand the purchases further, be judged on a month-bymonth basis, taking into consideration developments in the economy, and the outlook for our mandated target, CPI inflation. As the Governor said in June 13 , when the MPC does want to tighten policy, it is most likely to raise interest rates first. Gilt sales would be started later and conducted in an orderly programme over a period of time. That would leave Bank Rate as the active or “marginal” instrument of monetary policy. Second, the MPC will have to decide how fast to sell the gilts. Again, that would depend on the outlook for inflation at the time, so we cannot commit now to any particular scale or pace. But it is not in the interests of the UK economy to generate unnecessary volatility in the gilt market.

In this respect, it is important to emphasise that monetary policy considerations always take precedence over those regarding the SNB’s balance sheet risks. It is therefore worth repeating that there is a very high level of uncertainty in the international environment. An appreciation of the Swiss franc would again expose the Swiss economy to considerable risks and, once more, endanger both price stability and economic situation. Given this state of affairs, the SNB will continue to enforce the minimum exchange rate with utmost determination and, should the economic outlook and the threat of deflation require, is prepared to take further measures at any time. Concluding remarks In closing, I would like to summarise my message. The unconventional measures the SNB and several other central banks continue to implement are tailored responses to exceptional circumstances. Their impact should nevertheless not be overestimated, and the associated risks must be recognised. Central banks are the guardians of price stability. Taking the broad economic situation into consideration, they can promote conditions that are conducive to growth. But central banks are not almighty. Monetary policy does not create wealth in and of itself, only financial and economic actors can harness the very best of their innovative, technological and creative talents to generate value and promote sustainable growth. References Gurria, Angel, OECD Secretary-General. 2012. “Policy priorities for a stronger, cleaner and fairer Swiss economy.” Remarks delivered at the launch of the 2012 OECD Economic Survey of Switzerland. 24 January 2012. International Monetary Fund. 2012.
In addition, as part of the Bank’s desire to ensure that commercial banks are adequately incentivised to seek their own liquidity insurance, the cost of borrowing increases with the size of the draw. The resulting matrix of fees is summarised in Table 1. Table 1 Fee table for DWF drawings of gilts Fees (bps) % of sterling eligible liabilities  0-10%  Collateral Type Level A  Level B  Level C  Level D  (e.g. high quality  (e.g. liquid and  (e.g. illiquid  (e.g. own-name  sovereign debt)  high quality  transferable  securitisations  mortgage and  securitised loans  and covered  corporate bonds)  and mortgages)  bonds, and loans)  50  75  125  200  75  125  200  300  100  175  275  400  10-20% 20-30% >30%  At the Bank’s discretion  There is one further important point to make regarding the policy decisions underpinning the design of the DWF. It relates to the challenges associated with providing liquidity support while not compromising the Bank of England’s ability to conduct monetary policy. To implement interest rate decisions, the Bank must, through its market operations, adjust the supply of central bank money in response to changes in the demand for banknotes and reserves, given the MPC’s policy rate (Bank Rate).

Portfolios of loans can be easier for the Bank to assess from a risk perspective, as they do not embed the complex structures sometimes present in securitised assets. And securitising loans into asset backed securities – such as RMBS – is both complex and expensive for the firms, and generally only available to those large enough to have an existing securitisation programme. The ability to accept raw loan collateral means that smaller counterparties, without securitisation platforms, are not disadvantaged when positioning collateral at the DWF. Since financial instability can start with smaller banks just as easily as larger ones, expanding the universe of possible Discount Window counterparties could lead to significant financial stability benefits. Alongside the expansion of eligible collateral to loan portfolios, we have been encouraging banks to “pre-position” their collateral. Pre-positioning involves the commercial banks identifying, and the Bank of England assessing, various types of collateral ex ante, so that it need not be assessed at short notice in the event of a sudden and unexpected need to borrow at the Discount Window. Assessing varied pools of illiquid collateral can be extremely complex and time consuming. The Bank may not be able to lend much, if at all, against collateral where it has not had time to conduct sufficient due diligence. As a result, it is vital that such collateral is pre-positioned well ahead of any need to draw. One of the benefits from having a more public and transparent facility is that such due diligence is much easier to carry out.
We addressed the first issue through increasing information sharing and facilitating the dialogue between the monetary policy and the financial stability and supervision of the Bank. Normally, the foresight of monetary policy is from the trough to the pick of the business cycle because it is mandated with smoothing the fluctuation in economy or prices. However, the duration of financial gaps and excesses might be very different and usually much longer. Therefore monetary policy by design has the potential to forget about financial stability; therefore we were potentially missing important information regarding the effects that decision making on monetary policy could have on the sustainability of agent’s budgets. That is why I believe was important to have guardians of financial stability in the monetary policy decision making process. With this reasoning we have brought the director of supervision and the director of financial stability in the monetary policy advisory committee. In this respect our monetary policy did not focus only in the discussion of macro effects but also in the discussion of the micro effects of decision making. This resulted in policy coordination within the central bank. I believe that this is the first line of defense that we had in our philosophy. This helped us to strike the correct balance between all policies. The second issue was addressed through tightening macro-prudential regulations and policies and strengthening the on-site supervision of banks.

At the same time, more than 70 percent of total credit was in foreign currency with EURO making the biggest share of the outstanding stock. The tune of that period was the same in the entire region. The overall impression that the financial innovations had reduced the risk and the abundant global liquidity created a very optimistic picture. Despite some truth in this, the pace at which financial intermediation grew annually was frenetically high. In particular there were two main aspects of financial intermediation that were particularly troubling in my opinion. First, economic agents created financial excesses using mostly the financial system. While meeting their needs, the financial system aligns and matches agents’ positions according to length of maturity and liquidity. This holds true under the assumption that all claims and obligation will be fulfilled in timely manner in the same order. Otherwise if they violate this assumption and end up overlapping each other than financial system might become unstable. Our concern was that too many gaps were opening to fast and the Albanian economy seemed to experience some sort of what latter came to be named as risk-taking channel. Second, there appeared to be a general mispricing of risks from the banking sector. High concentration in particular sectors or clients indicated undue risk analysis or risk management from banks, while lending to  2  BIS Review 173/2010  un-hedged borrowers in a flexible exchange rate regime seemed to be a potential moral hazard issue.
The Geithner plan, for example, calls for a range of +/–4%; others say it should be even narrower.10 While these ranges serve as a reference for locomotive countries that should contribute to global absorption, this argument falls flat when a country of 8 million people is asked to adjust and take on such a role. Furthermore, these ranges are arbitrarily defined and are not considered to be flexible over time.11 On a more technical level, it must be borne in mind that current account balances are not free from accounting biases. This is especially true for countries with large net investment assets and large portfolio investments in equity. For these countries – Switzerland included – the current account is overstated because of accounting procedures for the balance of payments. The time-varying bias, which in some years has been estimated at more than 5% of Swiss GDP, stems from the fact that income from foreign direct investment is fully attributed to domestic residents, rather than its corresponding proportion of domestic and foreign shareholders. In short, this accounting bias overstates our external wealth. A further statistical bias that overstates the Swiss current account surplus is cross-border shopping. It is unclear how current account ranges deal with such measurement issues.12 Besides country size and accounting issues, from the investment and savings perspective, too, there are good reasons to run a current account surplus that exceeds some predetermined range. An aging industrialized society, like Switzerland, needs to raise its national savings, perhaps by more than it invests domestically.

Between early July and early August alone, the Swiss franc appreciated by roughly 20%.1 With interest rates close to zero and inflation forecasts signaling deflationary risks, the minimum exchange rate helped us avoid a dangerous tightening of monetary conditions, in a situation where we had exhausted the options available under conventional monetary policy. It also provided the foreign exchange market with clear guidance at a time of enormous uncertainty. The rationale for the introduction of the minimum exchange rate is internationally acknowledged. As I have seen over the last two years, particularly central banks and the IMF understand the difficult situation facing Switzerland in 2011. They also recognize that we set the minimum exchange rate at a level where the Swiss franc remains highly valued even today. Over the last few years, exchange rate tensions between the major economies have flared up. In this context, some observers have criticized central banks for influencing exchange rates, either directly through foreign currency purchases, or indirectly through additional monetary easing measures such as the purchase of securities. It is claimed that these types of asset purchases generate spillover effects or constitute a beggar-thy-neighbor policy.2 In recent weeks, it has been suggested that capital flows have again become highly volatile  1  Based on daily data. 2  There are several event studies which show that asset purchases by the Federal Reserve and the Bank of England weakened their domestic currencies.
If that happens, this summer’s crisis will influence the economy – and potentially the interest rates set by the MPC – for some time to come. Energy prices Let me now turn to the second of the global developments I mentioned earlier: higher energy prices. During the past month , the oil price has threatened to breach the $ a barrel. Just last January a barrel of oil cost $ four years ago, it cost less than $ Some of this is due to the weakness of the dollar. But the rise in sterling terms has been pretty spectacular too – from £ a barrel four years ago, to £ last January, to around £ now. At these levels, oil is almost back to its 1979 high, after correcting for inflation 3 . What’s going on? It’s always hard to disentangle underlying demand and supply factors from the speculative froth. It’s possible to point to some short run factors behind the recent surge. Stocks of oil across the OECD economies have been falling, at a time of year when they should be rising. This reflects temporary supply disruptions such as weather-related problems in Mexico and in the North Sea. As production comes back on stream, the market should ease. But short-run influences can only have this kind of leverage over the price because underlying market conditions are so tight. World demand for oil has been boosted by a strong world economy, led by booming emerging markets.

Cyber security The consequences of cyberattacks can be considerable. What we are now witnessing is probably just the beginning. We must find a suitable way to mitigate risk, without making our systems needlessly expensive. Cyber-security challenges are among the most significant challenges to our payment system. Without an efficient defence system, trust in the system can be undermined over time. For its part, Norges Bank is devoting considerable resources to securing its systems, oversight of activities and implementing measures to protect against cyber attacks. As part of oversight and supervision, we will increase our monitoring of cyber-security risks in the payment system. This requires cooperation, both nationally and internationally, to identify and combat cyberattacks. Nationally, this takes place through, for example NorCERT, part of the Norwegian National Security Authority (NSM), and for the financial sector through the Norwegian Financial Sector Cyber Security Center (FinansCERT) under Bits. The Nordic financial sector has established 3/5  BIS central bankers' speeches  Nordic Financial CERT as an extension of the Norwegian FinansCERT. The need for cooperation does not stop at a Nordic level. The challenges are international, and are shared by private financial undertakings, their service providers and subcontractors and authorities in many countries. Measures to promote cyber security are technically complicated and require specialist expertise. But it is management and boards of directors in institutions and companies that have the final responsibility and decide strategy and resource use. This responsibility cannot be delegated or outsourced to others. Owners and managers must be aware of their ultimate responsibility.
Even over the next few years, while there are significant downside risks relating to the fiscal cliff and the eurozone, it is possible that the recovery could turn out stronger than expected. The underlying process of balance sheet repair is considerably advanced, housing is recovering and, as that occurs, our newly recalibrated monetary policy could gain additional traction. Thus, if uncertainties about the U.S. fiscal path and the future of the eurozone were resolved in a constructive manner, growth could pick up more vigorously than anticipated. 5  8  http://www.people-press.org/2011/11/03/section-6-generations-and-entitlements/  BIS central bankers’ speeches  This would be a wonderful outcome. The September FOMC statement noted: the Committee expects “that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the recovery strengthens”. Consistent with this, if we were to see some good news on growth I would not expect us to respond in a hasty manner. Only as we became confident that the recovery was securely established, would I expect our monetary policy stance to evolve to ensure that it remained appropriate to achievement of our objective: maximum sustainable employment in the context of price stability. Thank you for your kind attention. I would welcome a few questions.

Page 3/5  Our country has one of the most solid currencies in the world, namely the Swiss franc. No other currency has retained its value so well since the outbreak of the First World War. Nor has any other country kept average inflation lower than Switzerland. But there is another side to this coin. In times of high uncertainty, the Swiss franc tends to appreciate strongly, putting the economy under pressure and jeopardising price stability. We have witnessed this again recently. As a result, the SNB has been faced with the challenge of using its monetary policy to guarantee price stability in Switzerland. With the negative interest rate and our willingness to intervene in the foreign exchange market as necessary, we are able to counteract the attractiveness of Swiss franc investments. Our goal here is always to ensure appropriate monetary conditions in Switzerland. In general, an overvalued Swiss franc can pose a problem for the financial industry too. This is especially true for the important business of wealth management, where returns mainly accrue in foreign currencies, while costs are generally incurred in Swiss francs. We are, of course, also aware of the challenge that the negative interest rate poses to the financial sector. We have therefore reduced the burden it places on the Swiss banking system to the level necessary for the implementation of monetary policy. Once again, I must also stress that the low interest rate environment is a global phenomenon with structural causes. This is unfortunately not something that Switzerland can escape.
The company continued to experience pressing liquidity needs that necessitated rapid draws on the Fed Facility and concerns that AIG’s needs might well exceed the facility’s capacity. Even greater concerns arose out of the continued downgrade risk. The probability of a ratings downgrade was considered high unless the Federal Reserve took further action because the aggregate size of AIG’s draws on the Fed Facility was greater than rating agency expectations – the rating agencies felt that AIG had too much debt – and AIG’s expected third quarter losses, which were to be announced on November 10, 2008, far exceeded analyst estimates. As discussed in Vice Chairman Kohn’s testimony of March 5, 2009, in early October 2008, the Board of Governors approved an additional credit facility (the Securities Borrowing Facility) that permitted the New York Fed to lend to certain AIG domestic insurance subsidiaries up to $ billion in order to allow them to return the cash collateral they received from their securities borrowing counterparties. Additionally, toward the end of October, four AIG affiliates began participating in the Federal Reserve’s Commercial Paper Funding Facility (CPFF) on the same terms and conditions as other participants. The CPFF is a generally available program that involves the purchase, through a special purpose vehicle with financing from the Federal Reserve, of three-month unsecured and assetbacked commercial paper directly from eligible issuers. Notwithstanding AIG’s access to these additional Federal Reserve credit facilities, AIG remained extremely vulnerable to the ongoing and intensifying financial crisis.

I would like to conclude this brief tribute to Benjamin Franklin by quoting one of his phrases that makes an encouraging link  BIS Review 4/2006  1  between success and risk: “there are many ways not to succeed, but the most certain is not to take risks”. Let me turn now to my main topic which is to provide you with an overview of the Single monetary policy of the Eurosystem that consists of the European Central Bank and the 12 national central banks of euro area member states and of its main features and achievements. Quite paradoxically, - The single currency for a long time met with the scepticism from many observers, who regarded it as unrealistic first to launch a new currency and second to envisage a single monetary policy for a group of countries that, despite rapid convergence, continued to display major differences. Interestingly enough, the assumption made by some observers and market participants that the entry interest rates in the Euro on 1 January 1999 would be some kind of average of the interest rates of the composing currencies proved to be wrong.
Key policy rate is low because inflation is low and because the downturn abroad and a strong krone are dragging down on growth in some sectors in Norway. Very low interest rates abroad and high premiums in money and credit markets reinforce this picture. There are unusually wide differences between various interest rates, reflecting the high level of money  4  BIS central bankers’ speeches  market and credit premiums. Many households are paying up to 4 percent on housing loans and interest rates on corporate loans range between 5 and 6 percent. When setting interest rates, the Bank does not give weight exclusively to bringing inflation back to target. Weight is also given to the effects of the interest rate on output and employment. At the same time, weight is given to the risk that a prolonged period of low interest rates can lead to elevated risk-taking and excessive debt accumulation in the household and business sector. Such imbalances may have spillover effects further ahead, with substantial effects on output and employment. In the March 2012 Monetary Policy Report, Norges Bank clarified how these considerations are expressed in the Bank’s response pattern. In that connection, the Bank adjusted the criteria to which it gives weight in interest rate forecasting. The key policy rate is set so that inflation is brought back to target. At the same time, inflation targeting is flexible, which means that the path for inflation should be weighed against developments in output and employments. Interest rate setting should also be robust.

The United States is in one of the longest phases of rising GDP of the post-war period and, last year, the euro area had the highest growth in ten years. However, it takes time for the strong economic activity to affect inflation. Although the recovery has come far after the years of financial crises and low growth, wage increases have been unexpectedly low in many advanced economies. In large economies such as the United States, Canada, Germany, Australia, as well as in Sweden, unemployment is close to or below levels at which wage growth, historically speaking, tends to pick up. In Sweden, we have had a number of years with a combination of low productivity and low expectations of inflation and wages, which partly explains the low wage demands up to now. Even if Sweden has had a strong employment trend in recent years, technological innovations and international competition will entail a transformation in which jobs will disappear and need to be replaced by new ones. These forces, in combination with long-term stagnation in the euro area after the financial crisis, are also leading to employees becoming more cautious with their demands. 3 It is feasible that the upheaval these forces cause at workplaces may also make it difficult for individuals to assess whether they risk becoming unemployed and, if so, what their position might be on the labour market. Low wage expectations are a global phenomenon and can contribute towards those already in employment becoming less interested in looking for a better-paid job.