samchain/econo-pairs-v1 huggingface dataset:
The longer inflation is deliberately allowed to deviate from 2 per cent, the greater the risk that one begins to question what target the bank really has. We have seen elements of this in the recent debate on monetary policy in Sweden. This could also have significance for how the central banks’ principals perceive the way monetary policy is conducted, which can ultimately affect the banks’ mandate and position. The Riksbank has a mandate to work independently to maintain price stability and, without prejudice to this, to support the goals of general economic policy. On the one hand, this means that it is up to the Riksbank to determine which risks are relevant for its decisions. But on the other hand, the Riksbank is accountable to the Riksdag, which determines the Riksbank’s mandate. The Riksbank therefore needs to be able to show in a convincing manner that the trade-offs it makes are anchored in its mandate. And given the current mandate, it may be a problem if one accepts deviations from the inflation target over a long period of time. If the trade-offs in monetary policy are not clear and concrete, it will be difficult to assess whether it has been conducted in a reasonable manner and within the mandate. The costs are clear, but what have we gained?

Karolina Ekholm: Why Swedish monetary policy needs to be more expansionary Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, at Almega (employer and trade organisation for the Swedish service sector), Stockholm, 15 November 2013. *  *  *  The views expressed in this speech are my own and are not necessarily shared by the other members of the Executive Board of the Riksbank. I would like to thank Björn Andersson who has helped in writing the speech. Accompanying charts can be found at the end of the speech. Interest in central banks and monetary policy has been greater than normal since the financial crisis. Here in Sweden, much of this interest has concerned the disagreement among the Executive Board on the level of the interest rate, where I have been one of those who has consistently voted for a more expansionary monetary policy. I have mostly voted for a repo rate that is 0.25 percentage points lower and a repo-rate path that rises more slowly. One might of course think that the difference between this and the repo rate and repo-rate path decided on is so slight that it would not have any effect on the outcome. However, behind this apparently marginal difference in the view of what the repo rate should be is a fundamental difference in the view of the role of the central bank and the route monetary policy should take in the new economic landscape emerging in the wake of the financial crisis.
This should not be surprising as the global FX market has become much bigger, with the average daily turnover in 2013 (USD 5.3 trillion 3) three times bigger than in 2004. Challenging times 15. As close partners, we have also faced significant challenges during difficult times in the past decade. 16. We all remembered vividly how a large part of the financial markets had almost come to a standstill after the collapse of Lehman Brothers in September 2008. Yet, the foreign exchange market continued to operate smoothly. Many market players had attributed the market stability to the support provided by CLS. 17. I also believe that our linkage with CLS has also provided the functional resilience and, importantly, confidence, that our market players needed in those critical moments. 18. This is certainly the case post Lehman’s collapse, as Hong Kong’s companies and individuals liquidated overseas assets and repatriated $ billion back into Hong Kong to tide themselves over the liquidity and credit squeeze. Looking forward 19. It is no exaggeration to say that CLS is now one of the most important pieces of infrastructure supporting the global financial market. The creation of the CLS Bank is also a shining example that demonstrates the power of private sector-public sector collaboration. The HKMA is proud to be part of that success story. 2  CLS reports both sides of an FX transaction.

Does that imply that consumers would shrug off a downturn in the housing market? Not necessarily. The rise in house prices has meant that households have taken on a lot of debt, and higher interest rates will mean they have less money to spend on other things. While there are few signs of obvious financial stress at current interest rates, given the strength of the current jobs market and the current housing market, this could change, especially if several of these factors weakened at the same time and the economic climate deteriorated sharply. That’s a long way from our central forecast, but uncertainty about how consumers might react to higher interest rates has been an important reason for tightening policy gradually since last November. We have also avoided springing surprises. I think that’s important: people are more likely to believe what we say, if our behaviour is reasonably predictable. But we wouldn’t be doing our job if we didn’t constantly revise our views in the light of new information and new research. That is why every month has to be a fresh decision. And why I can honestly say that I don’t know, any more than anyone else, where rates will be in a year’s time. Compared with a year ago, interest rates have risen from 3.5% to 4.5%. But the international outlook is clearly stronger now, the domestic economy is buoyant, and inflation remains low.
1/3  First, the greater role of hedge funds and other unregulated entities in our financial system today requires more attention by the major banks and investment banks to counterparty risk management. The greater diversity of participants in risk intermediation is probably on balance a positive thing for our financial system. Hedge funds, private equity funds and other kinds of investment vehicles help to disperse risk and add liquidity. Their greater prominence in our markets, however, means that banks and investment banks face a heightened challenge in managing the risks involved in their exposure to these firms and in understanding the firms’ ability to weather conditions of stress and their impact on market conditions in those circumstances. The degree of the systemic risk presented by the growth in the leveraged, unregulated financial institutions depends in part on how well the major dealers manage these challenges. Market practice in these areas has improved significantly since 1998, but progress has been uneven across the dealer community, and competitive pressures have caused some erosion in counterparty discipline relative to the risks in exposures.

BIS Review 159/2010  7  Recent data suggest that the recovery in domestic demand is slightly stronger than expected and that a more moderate growth process was assumed in the second half of the year. Indicators pertaining to private sector demand indicate that private sector consumption and investments continued to rise rapidly in the third quarter in annual terms (Figure 21). Consumption and investment expenditures are likely to accelerate in the final quarter of the year with the support of the counter-cyclical stance of monetary and fiscal policies as well as strengthening capital inflows. The steady rise in credits confirms continuing recovery in economic activity (Figure 22). Another noteworthy point about this period is that credit expansion continues to extend across a greater part of our economy in terms of both sectors and scale. Low interest rates and easing credit risk indicators suggest that credit growth will be strong, and therefore, the credit channel should continue to underpin domestic demand over the forthcoming period. 8  BIS Review 159/2010  As supply-side constraints have widely subsided, we believe that credit realizations rather reflect the dynamics pertaining to credit demand. The Loans Tendency Survey suggests that the borrowing motivation of firms tends to change in the post-crisis period. Firms used to demand credits to facilitate debt rollover or to finance their working capital during the crisis. However, as the effects of the crisis tapered off, loans for rolling over debts decreased while loans for investment purposes increased (Figure 23).
The same applies to the FX income stream facing foreign investors, and then there are risks such as the possible introduction of capital controls, which will not count as defaults as long as debt is serviced on time in the domestic currency of the sovereign without discrimination between domestic and foreign investors. Although it is important to bear all this in mind, it is nothing new. Furthermore, it does not constitute a major problem for the functioning of capital markets as long as the default probabilities of sovereigns seen to be providing so-called risk-free assets are perceived to be so low at the relevant maturities that they can largely be ignored. The question we are faced with is whether this is still the case and what the future will bring in this regard, given that both the market and the rating agencies perceive an increase in sovereign risk. The jury is still out, but my current prediction is that, in the foreseeable future, the supply of risk-free assets according to this definition will be very significantly greater than zero. Advanced countries with grade-A ratings are and will be issuing a lot of debt in the near term, and the high price that the best-perceived sovereign debt is carrying is a reflection of strong demand rather than weak supply. In spite of everything we have gone through, there has been no sovereign default of any advanced country apart from Greece since the interwar period.

But equally I think they can see that when a bank is failing it is in everyone’s interests to resolve the situation quickly and cleanly. I hope that they will be reassured by the extensive safeguards we are now proposing, including the guarantee that no creditor will be made worse off in such a split than they would have been in a conventional insolvency and protection of netting and set-off. Finally, the financial turmoil has also revealed the need for better international crisis management. The experience of Lehmans has shown once again the problems that arise in the insolvency of a large international bank with operations in many countries. We also saw in late September and early October the danger emerging, of the banking equivalent of the old beggar thy neighbour policy on currency depreciation, as individual countries began to guarantee their own banks’ debt. On the other side, recent events have also demonstrated how effective international action can be: the coordinated interest rate cuts on the 8th of October; the provision of dollar liquidity by central banks and the adoption of national measures to support banks at international meetings during the weekend of 11/12 October. International groups such as the Financial Stability Forum (FSF) have already started to take action. It has begun to develop a practical checklist of issues and principles that should guide the management of a distressed cross-border institution.
The estimated interest rate they use in the calculation is on average around 7 per cent, which is some way above a long-term normal level, which can be assumed to be between 4.5 and 6 per cent. 7 Calculations done by the Swedish financial supervisory authority, Finansinspektionen (FI), on a sample of new mortgage holders show that only just over 5 per cent of households have a deficit in their discretionary income calculations if the mortgage rate rises to 7 per cent. 8 There is hence nothing to indicate that the household sector as a whole would encounter significant problems in paying their interest expenses even if interest rates were to rise substantially in relation to their current levels. And, as I said earlier, our forecast indicates extremely limited rate increases in the years to come. But when the rate rises, many households might have to adapt their consumption to cope with the increased interest payments. From a macroeconomic and monetary policy perspective, it is therefore important to understand how household consumption is affected when interest rates change. 7 I have assumed a mark-up on the mortgage rate of 2 percentage points over the interval for the long-term repo rate of 2.5-4 per cent. 8 See Finansinspektionen (2018), “The Swedish mortgage market”.

interest rates adjusted for inflation) have been exceptionally low for a long time, and in all likelihood will continue to be so for some considerable time. Monetary policy cannot influence global real interest rates but must relate to the developments we see. The lower global interest rates are, the lower the policy rate must be to have the same expansionary effect on the economy. Another circumstance that has changed the monetary policy landscape – and which I will address later – is that households are more affected by interest rate adjustments than previously. What happens to the bond holdings? As you may know, in addition to lowering the interest rate to negative levels, we have also purchased significant volumes of Swedish government bonds to a nominal value of approximately SEK 350 billion – to make monetary policy even more expansionary. There is much talk about interest rates rising in the future, but many may not be so aware of how adjustments to the repo rate going forward relate to our bond  2  See “Monetary policy in a new environment”, speech by Stefan Ingves on 5 March 2018. 5 [13]  holdings. The figure shown in Figure 5 has been taken from the article we published in December 2017. 3 The shaded parts of the figure show roughly what has happened since then. Figure 5. The Riksbank’s overall normalisation plan for monetary policy  New purchases of bonds were discontinued in December 2017, which also signified the end of phase 1 in Figure 5.
By making firms safer, it is possible that the required risk premia in bank capital and funding instruments will be lower, and hence the effect on the overall cost of funding is uncertain. In addition CRDIV also makes changes to rules on corporate governance, including remuneration, and introduces standardised EU regulatory reporting. These reporting requirements will specify the information firms must report to supervisors in areas such as own funds, large exposures and financial information. CRDIV will take until 2019 to be fully implemented. In addition to CRDIV, there are a number of other reviews and developments affecting the banking capital framework. The PRA has been undertaking a review of its approach and application of Pillar 2A requirements to ensure consistency of application across firms. That will be complete in 2016H1. The BCBS is also continuing its work including reviews of the capital held against the trading book, sovereign risk, and securitisation, and more generally reviewing the use of models and Pillar III disclosures. Leverage The capital requirements for a bank are generally calculated by first weighting together the assets of a firm, reflecting the underlying risks of each type of asset. Hence the key metric is the capital held relative to “risk weighted assets” or RWAs. Whilst the general approach of being risk sensitive is widely accepted, it does raise issues around consistency.

As always, the thoughts I offer today are my own, and should not be interpreted as representing the position of the FOMC or the Federal Reserve System. First, what we may see in terms of market strains and macroeconomic adjustment during this normalization process will not be new. Changes in Fed policy, and especially the tightening of monetary policy, have often created challenges for countries abroad, especially in EMEs. Second, these countries, as a group, are better equipped today to handle those challenges than at perhaps any time in the past. This reflects the fundamental improvements and stronger policy frameworks that many EMEs have put in place over the past 15 years. Third, given the dollar’s role as the global reserve currency, the Federal Reserve has a special responsibility to manage U.S. monetary policy in a way that helps promote global financial stability. Like other central banks, our monetary policy mandate has a domestic focus. But, our actions often have global implications that feed back into the U.S. economy and financial markets, and we need to always keep this in mind. For most of us, the market volatility that we saw during the so-called “taper tantrum” in the spring and summer of 2013 still remains fresh in our minds. EME financial markets were hit hardest, with declines in equity prices, a widening in sovereign debt spreads and a sharp increase in foreign exchange rate volatility.
Lars E O Svensson: Monetary policy after the financial crisis Speech by Mr Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the Second International Journal of Central Banking (IJCB) Fall Conference, Tokyo, 17 September 2010. *  *  *  I thank Claes Berg, Marianne Nessén, Staffan Viotti and Barbro Wickman-Parak for comments on this speech. The views expressed here are my own and not necessarily those of other members of the Riks-bank’s Executive Board or of the Riksbank’s staff. Gabriela Guibourg of the Riksbank’s staff has contrib-uted to this speech. As the world economy recovers from the recent financial crisis and the Great Recession that followed, a debate is going on regarding the causes behind the crisis and how to reduce the risk of future crises. The role of monetary policy and its relation to financial stability are also under debate and some argue that there is a need to modify the framework of flexible inflation targeting and give a greater role to financial-stability considerations. Some blame too expansionary monetary policy by the Federal Reserve after 2001 for laying the foundation for the crisis. My view is that the crisis was largely caused by factors that had very little to do with monetary policy.

In itself, a difference in the weight of a small state and a large state may make sense; but if certain EU member states have a much bigger informal impact than others on the positions that the EU takes in international political or economic forums, the big-impact states may be tempted to “nationalise” the voice of the EU. Many attempts at nationalisation of EU positions are due to what might be called the “French complex”: Some leaders of bigger countries still have not fully absorbed the fact that their country is no longer the superpower it used to be and no longer leads the world, so they often try to abuse their EU-wide voice to support their national interests, positions and agenda. When they call for Europe to speak with “one voice”, they often seem to expect that the single voice of 500 million EU citizens will be the voice of their national leaders, articulating their national tastes and priorities. Of course, the agent, the European Commission as an executive arm of the EU, also sometimes has this temptation to define or steal the voice of the EU. Needless to say, the risk that proper integration will be derailed is particularly high when the two effects mentioned above are combined – when the EU administration ceases to behave as an agent of the less powerful principals but remains under the spell of a few very strong principals.
Our accession to the Basel II accord will upgrade the risk management of banks to the best standard and will further enhance financial sector stability Distinguished Guests, I believe that the continued growth momentum for 2008 and strengthening resiliency, which I have mentioned, will create a favourable environment to enhance trade and investment dynamics between Thailand and the United States and Canada. Till this day, the US still tops in terms of market shares for Thai exports, though the market share has been declining as Thai exporters have benefited from new market penetration and the growth of intra-regional trade. Since 2000, the US ranks fourth in terms of the size of foreign direct investment into Thailand. Your investment participation has been mostly through holding companies, trade, as well as real estate. Indeed, US FDI has maintained the momentum, accounting for about 12 percent of total inflows of foreign direct investment annually. Looking forward, the American business community will continue to be an important player in our economy. You can help us build the real sector that adapts to the shifting winds of global competition. And, this cannot happen without the investment in the best technology and capacity to use that technology efficiently. To support real sector development, you also have a role as investors in our financial and capital markets, who provide different views and risk appetites to ensure that our markets and financial system will expand while preserving their health through constant self-correction.

This balanced approach seeks to optimize synergies between monetary policy, foreign exchange intervention, and capital account policy. Allow me to elaborate. Our monetary policy, under the current inflation targeting framework, can take care of exchange rate as long as there is no conflict with inflation. And, foreign exchange market intervention is conducted only to smooth excessive volatility in the market. As for the capital account policy, I firmly believe that key is the right pacing and sequencing of capital account liberalization, with a view to ensuring a more balanced structure of capital flows into and out of Thailand. On the capital inflow side, we are still maintaining the URR or unremunerated reserve requirement for the time being. This capital control measure has proven a useful tool for reducing the chance of prolonged financial misalignment with economic fundamentals, especially on occasions when most market participants are offside in the same direction. As for the outflow side, we have further liberalized our capital account during the last two months. These measures included the relaxation of FX holdings by juristic persons and individuals. In fact, at the beginning of this year, we also expanded the limits of Thai direct investment and portfolio investment abroad. Even though we all agree that financial openness is needed for long-term economic efficiency, going forward, the appropriate degree of opening or pacing through time will remain an issue for controversial debate. Ladies and Gentlemen, The third part of my talk today focuses on “international rules of the game”.