samchain/econo-pairs-v1 huggingface dataset:
It also pursued a forward guidance strategy, aimed at conveying its intention to maintain monetary expansion for a prolonged period. BIS central bankers’ speeches  1  In May last year, given the evident improvement in the economic situation, the Federal Reserve communicated its intention to begin tapering, or gradually reducing the intensity of its expansionary impulses through cutting its monthly volumes of securities purchases. Following a period of some confusion around the month of May 2013 (which impacted the markets to some extent), this strategy has progressively taken root. The challenge the Federal Reserve faces in these circumstances is no longer that of a change in monetary tack, but how to trim its expansionary monetary stance, in line with the improvement in the economy’s cyclical position, without endangering economic recovery, which is still not perceived as sufficiently firm. This is a complex challenge that fuels market uncertainty and affects the margin for manoeuvre of other central banks. The monetary policy of the Bank of England The situation of the Bank of England is somewhat different. Like the Federal Reserve, it also exhausted its scope for conventional measures and likewise resorted intensely to securities purchase programmes and to forward guidance. Furthermore, the Bank of England pioneered the implementation of measures aimed directly at boosting lending to specific sectors through its Funding for Lending programme. In short, this programme enabled the institutions most active in specific credit market segments to obtain financing at the central bank at a lower cost.

The latest programme – introduced and promoted by Prime Minister Abe – included among its three pillars an ambitious monetary expansion plan which, with official interest rates close to zero, is being implemented through growth of the monetary base. Although the latest data show an incipient return to positive rates of growth and inflation, evidently monetary policy in Japan is still far removed from the threshold marking not only a change of cycle, but also a move towards a less expansionary stance, in contrast to the cases of the Federal Reserve and the Bank of England. The monetary policy of the European Central Bank The specific characteristics of current euro area monetary circumstances stem from the complexity and depth of the crisis and the slow pace at which the euro area is emerging from 2  BIS central bankers’ speeches  the crisis in comparison with other areas. Following the negative data of 2012 and 2013, the projections published by the ECB last June indicate that the euro area will not recoup precrisis levels of GDP until the end of next year. However, the recovery in employment in the euro area as a whole will not be completed in 2015. Since end-2011 the inflation rate has moved on a declining trend. It stands at an all-time low and the available projections indicate that it will remain, for the foreseeable time horizon, far from the benchmark of 2% which, in the medium term, marks the price stability target governing the ECB’s actions.
The crisis was triggered in the United States on the market for mortgages to households with a poor ability to pay, what are known as subprime loans. Hedge funds have played a limited role in the development of the crisis. Instead it is highly leveraged institutions that have been central to the sequence of events, where some of the lending has been outside of the banks’ balance sheets. My main messages today are that so far Sweden has been able to handle the problems that the global financial crisis has caused for the financial system, although the negative consequences for the Swedish economy will be considerable over the next two years. And that there is a need to reform the global financial system in order to reduce the likelihood of new financial crises. I have divided my speech into three sections. I shall begin with the financial crisis in an international perspective: the course of events, the causes of the crisis and the handling of the crisis. Then I shall discuss how Sweden has been affected by the crisis: Sweden's dependence on the outside world, measures to counter the crisis and our experience of previous financial crises. I shall conclude with a section on the current economic situation and monetary policy, where I shall comment on new statistics without making any new assessment of monetary policy.

The most recent study also includes financial crises in emerging economies.5 Here they point to three common features. Firstly, house and share prices fall substantially and over a long period of time. For house prices the average fall in real terms is 35 per cent extended over six years and for shares it is 55 per cent over three and a half years. Secondly, production and employment fall. On average, GDP per capita falls by 9 per cent over two years and unemployment rises by an average of 7 percentage points over four years. Thirdly, central government debt almost doubles, not as a result of the costs of recapitalising the financial system, but due to falling tax revenues and fiscal policy stimulation measures. How relevant are these comparisons in analysing the current crisis? Reinhart and Rogoff themselves point out on the one hand that the monetary policy frameworks are now more flexible and that the central banks have acted more aggressively than before. On the other hand, the crisis in question is a global financial crisis, which makes it more difficult to grow  3  The countries that have suffered these crises are Finland, Japan, Norway, Spain and Sweden. 4  Carmen M. Reinhart, and Kenneth S. Rogoff. “Is the 2007 U.S. Subprime Crisis So Different? An International Historical Comparison.” American Economic Review Vol. 98 No. 2: 339-344. (2008). 5  Carmen M. Reinhart, and Kenneth S. Rogoff.
First, it generates an attitude of caution when making major decisions – moving house or job or making an investment. People will tend to look before they leap, to think twice before diving in. It creates the mind-set of the glass being half empty. Second, insecurity generates an asymmetric response to news flow. Good news will be banked or used to strengthen balance sheets. Roofs get repaired during the sunshine. But when bad news strikes, the response is immediate and defensive. There is a hunkering down, with cuts in spending and risk-taking. The exact opposite psychological traits are, of course, exhibited during a boom. Then, good news is spent and bad news borrowed against. Roof repairs are deferred, whatever the weather. The glass is half full. There is a wealth of experimental evidence documenting these psychological swings and asymmetries. Despite the recovery, evidence continues to suggest a “half-empty” mind-set. World growth has, since 2010, averaged less than 4%. Forecasts have been consistently over-optimistic by ½ percentage point per year. The evidence so far during 2015 suggests this pattern may continue. Caution is a plausible explanation for this dragging anchor. BIS central bankers’ speeches  7  The household sector has undertaken significant balance sheet repair since the crisis, dragging on spending. 8 This can be seen in the proportionately greater belt-tightening exhibited among highly-indebted consumers (Chart 15)). These debt-induced adjustments in spending have also been important among US consumers (Mian and Sufi (2014)).

Nonetheless, Table 1 suggests that the average cycle has typically been in the range 3 to 5 percentage points – towards the upper end in the period since 1970, towards the lower end in the period since 1994. Fairly sizeable degrees of interest rate headroom have been necessary in the past. An interesting thought-experiment is to assess the likelihood of future interest rates having risen sufficiently to give monetary policy the headroom necessary to cushion a recession. Chart 13 plots a set of cumulative probabilities of official interest rates exceeding a set of interest rate thresholds – 2% (the “John Bull threshold”), 3% (the average loosening cycle since the 1990s) and 5% (the average loosening cycle since the 1970s). 7 With yield curves currently low across the major advanced economies, the probabilities of interest rates exceeding these thresholds are modest. Even at a ten-year horizon, the probability of UK rates exceeding 2% is only around 50%, 3% around 40% and 5% around 20%. If financial markets’ guesses about interest rates are realistic, it is odds-against there being sufficient monetary policy headroom to cushion a typical recession. If we now compare the probabilities of interest rates being at these thresholds with the probabilities of recession, a striking conclusion emerges. Recession probabilities exceed interest rate threshold probabilities by a factor of anywhere between 1.5 and 4 (Chart 13). For example, a conservative estimate of the probability of recession over a ten-year horizon is around 80%.
Challenges to turn this framework operational Let me now move on to challenges for this framework to become operational. We have been working since the end of 2012, on the preparation of the Single Supervisory Mechanism. Now that the Regulation has finally been approved by the European Council, the challenge is to turn this new framework operational before the ECB assumes its supervisory tasks. This poses, first, a logistical challenge as a new institution has to be created and numerous professionals have to be recruited. But most importantly, a complete set-up has to be developed to underpin the supervisory decision-making process, keeping it properly separated from the monetary policy structures at the ECB. And last but not least, before the SSM is fully operational by November next year, a comprehensive assessment of the European banking system will be performed by the ECB. 2  BIS central bankers’ speeches  From domestic to joint supervision The transfer of responsibilities from the National Authorities to the ECB should be a smooth process. The National Authorities have the expertise in the supervision of credit institutions. We will have to provide information, knowledge and staff, and we should not preclude the possibility of running certain processes in parallel for a while. Both the ECB and the National Authorities should seek to attain mutual confidence and understanding. The ECB supervisory powers will cover all tasks relating to the prudential supervision of all credit institutions. This entails supervising over 6,000 institutions.

The National Authorities will conduct the exercise at the national level, on the basis of data requirements and centrally developed methodology, and may ask for the support of third parties if they deem it necessary. To ensure consistency in execution across banks and countries, quality assurance processes will be in place at every stage. It is in the interest of all that this exercise be rigorous and transparent, so as to fully restore confidence in the European banking sector. 4  BIS central bankers’ speeches  Conclusions We have in front of us a year “fully loaded” – to use the jargon we all use in connection with of the Regulatory Basel Framework. The European Union is trying to make a big step forward and we will need the intelligence and best cooperation of all for this great design to be carried out. Thanks again to the Official Monetary and Financial Institutions Forum and to his Chairman, David Marsh, and to all the participants. I wish all of our visitors a very good stay in Madrid. BIS central bankers’ speeches  5
These developments, however, have raised various issues related to the requirements for bank openness, customer security, transparency and trust in the payment services market as well as consumer rights protection. Consequently, the regulators have to adopt appropriate legislative framework that supports digitalization, innovation and competition, but also take care of security and protection. In this context, it can be noticed that the European Union is a global leader in this domain. By revising the Payment Services Directive (PSD2), the European Union enables stronger competition and 1/3  BIS central bankers' speeches  innovation by allowing entrance of FinTech payment service providers that will eventually lead to greater choice and better prices for consumers, it will fosters cyber resilience of the payment service providers as well as enhance protection of payment services users. In this way, the European Union created a sound legal framework for digitalized payments landscape that enhances the integration of the single payment. At the same time, it sets an example for other countries around the world how to support digitalization trends by balancing between innovation and competition, on the one hand, and security and protection, on the other hand. The new regulatory framework implies that banks will no longer only be competing against banks, but everyone offering financial services, i.e. the customers will be able to create a set of providers of different financial services instead of relining on one bank for all services.

In this context, the largest retail payment system in the Republic of Macedonia established a Guarantee Scheme in 2017 which is in accordance with the regulation of the National Bank of the Republic of Macedonia that aims to effect the same-day settlement and thus, minimize the liquidity risk in the important payment system in case of a participant default. Furthermore, we also engaged in facilitating cross-  border payments in euro in 2017 by establishing a link between our RTGS payment system MIPS and TARGET2, which relies on the highly appreciated cooperation with Bank of Italy. And we do not stop here. Our recent efforts have been focused on building a Strategy for reducing the cash usage and thus, increasing the digitalization and cashless payments, which 2/3  BIS central bankers' speeches  is a joint project of the central bank, the Ministry of Finance and the banking community. During the following three days, the lecturers will address all the above relevant developments in the payment market. The conference agenda includes a variety of interesting topics, including the European payment landscape and legislation with a special focus on PSD2, instant payments, T2 & T2S consolidation project, collateral management system, recent work of CPMI and latest trends in central bank oversight. This year’s agenda also covers themes related to cryptocurrencies, central bank digital currencies and distributed ledger technology and cyber resilience.
•  International reserves have increased substantially, providing a larger cushion against adversity. Among the largest borrowers, half now hold reserves greater than 150 percent of maturing short- and long-term debt; less than one-sixth had such coverage heading into 1997. •  There have been improvements in fiscal performance, with some notable cases of governments achieving and sustaining large primary surpluses. BIS Review 37/2004  1  •  External balances have improved, with current accounts in most of the emerging world in surplus or modest deficit. Only 2 of the 20 largest borrowers now are running deficits in excess of 3 percent. •  Exchange rate regimes are more resilient and less fragile, as a substantial majority of the largest borrowing countries have moved to flexible regimes, and away from the fixed-butadjustable pegs that proved so dangerous in the crises of the last decade. •  Important progress has been made in building credibility for new monetary policy regimes, and inflation is generally moderate. •  Governments have made major investments in recapitalizing and restructuring their troubled financial systems. For example, in Asia, where some of the most severe problems were encountered, governments have spent over $ billion carving out problem loans and bolstering capital. •  Growth rates have improved with the restoration of domestic stability and recovery in external demand. Indeed, aggregate growth currently is running at its highest rate since the onset of the crisis in 1997.

We assess the models banks use to measure risk and the scenarios used to stress test exposures, but the banks have the responsibility for designing and running the risk management infrastructure. By looking across a broad range of world class financial institutions, we have a good sense of the evolving frontier of best practice in risk management which we can then use to help benchmark other institutions and pull common practice closer to that frontier. For a number of reasons, this can’t be the model for the Fund’s relationships with its members. But it provides an interesting prism in thinking about surveillance. The Fund has explored a number of ideas to strengthen the surveillance framework. One of the most promising is to establish a process with more frequent, published staff assessments of performance against a medium-term framework designed by the member country. That assessment could convey a  4  BIS Review 37/2004  clear judgement about the degree of progress being made in reducing vulnerabilities, improving resilience, and strengthening the structural underpinnings of growth. Analysis of public and external debt trends, benchmarked against sustainability and vulnerability thresholds, and stress tests for relevant shocks could play a key role in this process. There are compelling arguments for combining such a framework with contingent access to Fund resources. Surveillance today does not provide a meaningful check on ex ante policies, and resources are only made available when the financial need is acute.
This capacity is in turn dependent on how open a country is to impulses from outside, which is determined by the obstacles to ideas, products, services and production factors moving freely across borders. The capacity to reconsider regulations and institutions so that changes can be adopted is an important part of this openness. The negative experiences of the closed economies during the interwar period led to trade barriers being successively lowered after the Second World War. A gradual increase in free trade stimulated the global economy and this was particularly important for small countries like Sweden. Freedom for savers to choose the country in which to save was also introduced in many countries. The obstacles to ideas, products, services and production factors moving freely across borders has declined further  1  The importance of price and budget stability for productivity growth has been demonstrated, for instance, by William Easterley in “When is stabilisation expansionary”, the World Bank, Dec 1995. 4  BIS Review 37/2003  during the 1990s, partly due to our EU membership and this ought to have had a positive effect on factor productivity. Internationalisation has thus contributed to an increasingly large part of the corporate sector becoming exposed to competition. Increased competition means that companies must become more efficient and cost-conscious, which in turn should have a positive effect on productivity. In addition, a new Competition Act was introduced in Sweden in 1993, containing an express ban on anti-competitive cooperation between companies and a ban on abuse of a dominant position.

Because even if one has prepared the way, changes often mean that all those involved must undergo a period of “learning by doing” before everything falls into place. This applies not least to us, I would like to emphasise. The changes also mean, in particular our own interest rate forecast, that we are now sticking out our necks and opening up for criticism more than before. When we describe our policy it is no longer in the form of a simple, but perhaps slightly misleading policy rule. This was the way things were before when we used the more easily understood, but less realistic, assumption of an unchanged repo rate. Instead we are painting a more complex picture, the way it actually looks to us who make the decisions. Slightly more complicated on the one hand, but on the other hand more realistic and with significantly better opportunities to evaluate our work! The fact that we are publishing our own forecast for the policy rate also means that it will be very clear when we reconsider our view of what interest rate policy will be needed in the future. It also becomes evident when our assessment differs from that of the market, and these differences often cause a debate. But the fact that we are criticised for changing our minds, or for our views being different from the market view, is hardly a reason to refrain from reporting as honestly as possible what we believe.
But it also says that: “If there are signs that financial imbalances are building up, consideration of stable production and employment in some situations may lead to the interest rate being held slightly higher than it otherwise would have been”. 11  Why the Riksbank stopped “leaning against the wind” Up until a few years ago, Sweden conducted a similar policy to Norway. A development that worried us, and that we thought we needed to deal with, was that household debt and housing prices had been rising rather rapidly for some time. Even though the policy we conducted was mainly governed by traditional monetary policy motives, that is, the expected development of economic activity and inflation over the next few years, the risks associated with the development of household debt and housing prices were part of our assessment. To help dampen this development, the repo rate was therefore set slightly higher than would otherwise have been the case. There was thus an element of “leaning against the wind” in the policy, especially during the years after the financial crisis. 12 However, these fears also influenced the policy before the crisis, something I talked about at the conference in Jackson Hole in 2007. 13  For a review of the literature, see, for instance, Adrian and Liang (2018). Examples of studies saying that monetary policy should not “lean against the wind” include the International Monetary Fund (2015), Svensson (2017) and Kockerols and Kok (2019), while Filardo and Rungcharoenkitkul (2016, Gerdrup et al.

Concerning the intensive debate about the Riksbank’s policy, my conclusion was that it can be useful to have a system where the monetary policy remit and policy objective are reviewed at regular intervals, as is currently the case in for example Canada. This would create better understanding and legitimacy for the monetary policy conducted and clarify that the central bank actually only performs the remit it has been given. I also believe it can be a way to counteract the forces that seem to exist in many parts of the world to make central banks less independent. As regards the decline in cash use, there are not so many conclusions to draw as yet. What we can say for certain is that an e-krona would affect the conditions for monetary policy quite substantially, more or less regardless of how it is designed. It is wise that many countries are examining the scope for introducing e-money, as one of the lessons that after all can be learnt from developments in Sweden is that cash use in society can decline very rapidly. These were the experiences and reflections I wanted to share with you. Perhaps the conclusions I draw are not that spectacular. But I would like to believe that the observations and experiences that we practitioners and economic policy decisionmakers make in our day jobs, so to speak, slowly but surely help to enhance the level of our collective knowledge. My hope is that this could at least be a small contribution to this development.