samchain/econo-pairs-v1 huggingface dataset:
We attribute a greater role to credit in the economy and debt, which our model previously left out. Deputy Governor Eva Zamrazilová also spoke about this at the University of Economics and Business. Deputy Governor Jan Frait also discussed this topic in his lecture at the university in Ostrava in  2/6  BIS - Central bankers' speeches  2023. Credit market developments very well combine our two main objectives – price and financial stability. Because of the transmission lag, the central bank should correctly stop raising rates before inflation peaks. The problem of this academically and practically correct approach is that people can see that inflation is still high and might think that the central bank is not determined to fight inflation because rates have stopped rising. So, I try to explain over and over again that the CNB's interest rates are already at a level that is dampening economic activity. We have the tightest monetary policy in more than twenty years and we want it to remain so for some time. The current data from money flow monitoring are as follows: The volume of new mortgages fell by 64% year on year in January–April 2023. New koruna loans to firms fell by 54% year on year in the same period. However, firms are fleeing to the euro – 47% of new loans to firms are currently in euros. Nevertheless, this channel is also gradually cooling as the ECB raises its rates. The volume of new euro loans to firms fell by 16% in January–April.

For example, it means that you, the banks, should now raise interest rates on all household deposits, even short-term ones, and share a somewhat larger proportion of your profits with your clients (Michl, 2019a). Let's base our economy on savings, not on debt. A month ago I made a speech at the University of Economics and Business in Prague (Michl, 2023). I would like to follow up on the speech here, recap its main ideas and expand on them in the context of new data on the economy. I started the speech at the University of Economics and Business by saying that I had good news for the public: inflation is finally falling. This is being confirmed. Annual headline inflation peaked in September last year, when it reached 18%. We managed to stop it. In line with our expectations, a gradual downward trend in inflation started in February this year. Inflation fell to 16.7% in February and then to 15%. In April, it stood at 12.7%. The inflation figure for May (11.1%) was published on Monday this week. It should fall to below 10% in annual terms within two months. This is not a victory. In the second half of the year, inflation will still be at a level we must not put up with. We must not get used to it. We must not adapt to it. Interest rates will therefore remain high  1/6  BIS - Central bankers' speeches  for longer.
The increase was particularly large for issues with a lower rating. For example, issues with a Baa rating increased by 500%, albeit from a very low level. From a global perspective, the growth in the bond market is contributing to the internationalisation of the euro. In 1999, international bond issues denominated in euro amounted to 40% of total worldwide bond issues. This constitutes an amount comparable with bond issues denominated in US dollars. In the same way, the integration of stock markets is progressing, although they will have to overcome barriers of the same kind as those which I have just mentioned in relation to the bond markets. A notable increase in transactions on the new European indices has been observed. Moreover, the “new  BIS Review 58/2000  6  markets”, with growth figures benefiting greatly from the establishment of the large European market, have expanded considerably. Finally, the announcement of stock exchange alliances and mergers over recent months reflects the logic of stock market integration and will accelerate the process. As I have said, the broadening of the capital markets and their greater integration are contributing to a more efficient allocation of savings. First, this development is leading to lower transaction costs and is increasing the liquidity of the traded instruments. This, in turn, will contribute, all other things being equal, to reducing the absolute level of interest rates. Second, it is multiplying investment opportunities, increasing the range on offer and fuelling competition between issuers.

The (lagged) effects of this rise in consumer prices are unlikely to have fully materialised as yet. In the context of the aforementioned prospects for strong economic growth in the euro area, the protracted rise in import price inflation in the past few months clearly gave rise to a greater danger of a spillover to domestic sources of inflation, such as, for instance, firms aiming at raising or restoring profit margins. These risks had to be counteracted. With our monetary policy we are contributing to the conditions for high, sustained, non-inflationary growth. Since November of last year, the Governing Council of the ECB has decided to raise interest rates by a total of 175 basis points. Admittedly, this is not negligible. Given the strong economic data, the continuously high level of confidence and the continued strong growth of money and credit, the increase in interest rates does not mean that the ECB has put the brakes on growth. Economic expansion in the euro area is now strong enough not to be hurt by a gradual adjustment of the monetary policy stance. The interest rate moves are providing a clear signal to market participants, social partners and policymakers that the ECB is determined to counter inflationary dangers in a timely fashion, and that the prospects for price stability in the euro area remain good. This is also of great importance for the longer-term potential of the euro.
Janet Yellen, who’s the Chair of the Federal Reserve, has talked about the headwinds that have been slowing down the U.S. economy. One of those headwinds is exactly what you’re talking about, the fact that people are locked into homes because their homes are either underwater, the value of the homes are less than the value of their mortgages, or because their credit-rating was damaged during the Financial Crisis because people lost their jobs, and so their credit-rating was impaired. And so that’s really the reason why we’ve been so delicate and so slow in actually raising interest rates. It’s partly exactly what you’re talking about. Dr. Olajide Oladipo: Thank you. Audience Member: Good morning. Thank you for being here. One of the things that we’ve been looking at here in Southeast Queens is the establishment of CDFIs, additional CDFIs to support the growth and the access to capital of small businesses. Would you comment a little bit about what do you see as the future of CDFIs going forward in this economic climate, and any suggestions that you would have to support us in doing that? Thank you. 11 / 15  BIS central bankers' speeches  President Dudley: Well, I guess I sort of think of CDFIs as doing God’s work in some ways because the hardest thing for someone with a really good idea and starting a small business is to get that initial bit of capital to establish a track record.

Now it includes 38 of 91 eligible funds inspected by the Bank of Russia. Many funds had to improve the quality of their assets to enter the system. Furthermore, actuarial industry has been launched in compliance with the law; today we have a bit more than 100 actuaries. They are active and it is an important segment of the financial market established last year. We have almost stamped out unscrupulous depositories which provided bogus excerpts on available securities. We implemented our function of a megaregulator which allowed us to make cross-checks and reveal such situations immediately. We took measures under the project “Clean Register”. BIS central bankers’ speeches  3  We have developed and are implementing the road map on electronic communication in the financial market. Electronic communication decreases companies’ costs and ultimately the price of services for consumers, provides adequate financial inclusion to avoid having dependence on actual branches. New digital technologies quickly transform the financial sector. We have established a special technology and innovation task force at the Bank of Russia which is to study technological trends in the field of finance, and to timely reveal the areas requiring regulatory and supervisory changes. We seek to avoid hampering the development of new, more efficient and userfriendly technological solutions, but prevent accumulation of risks capable of mitigating consumer right protection. Last year we established a Centre for Cyber-attack Monitoring and Response in the Financial Sector (FinCERT), which provides, among other things, methodological assistance in ensuring the highest possible cyber-protection to market participants.
This has fuelled a debate as to whether monetary policy should give weight to developments in property and credit markets beyond their impact on consumer price inflation, and react in a precautionary manner to prevent an excessive surge in asset prices. Surely, expansionary monetary policies have contributed to the rise in property prices and debt accumulation. Asset prices generally will react to changes in short-term interest rates, but one would expect such movements to more or less even out over the cycle. But more fundamental forces have also been at play. First, the neutral real interest rate has probably fallen substantially over the past 5-10 years, maybe as much as 2 percentage points. Such a fall in the discount factor should have a large impact on asset prices like property and land. Second, Norway has recently experienced very strong, positive income shocks. For capital and labour that flow freely across borders, prices primarily reflect global growth and competitive conditions. The price of fixed capital, such as land, however, will be influenced by expected future income in a country. In periods with sharp increases in income and income expectations we would therefore expect land prices to rise at a faster pace than other prices. This is a real economic effect, which monetary policy over time cannot eliminate. It is very difficult to establish whether rapidly increasing asset and house prices are bubbles, or whether the price increases are driven primarily by economic fundamentals.

In a speech two weeks ago, British Prime Minister Gordon Brown proposed a new role for the IMF: “…its role should be to prevent crises and not simply manage or resolve them as in the past. And in a wider role the IMF, working with the global financial stability forum, should be at the heart of what we need – an early warning system involving regulators and supervisors in all countries for financial turbulence affecting the global economy.” 4  3  Financial Times January 26, 2008. 4  Speech at the Chamber of Commence in Delhi, 21 January 2008. BIS Review 14/2008  3  Obviously, there are pipelines that are not on our present maps. Also, our knowledge of what flows through the known ones is scarce. But would it help us if we knew? Would we be able to predict a looming crisis and thus prevent it? I do not have the answer to this, but I think it is fair to raise the question. We must expect turmoil in financial markets to occur from time to time. There will always be stupidity and greed, fear and euphoria (and some scoundrels). Accidents will happen. Authorities should strive to establish regulatory frameworks that give the right incentives for prudent behaviour. It is important to avoid overregulation that severely restricts markets and stifles innovation. We must of course make sure that obvious shortcomings in existing regulations are corrected.
In such situations, the central bank needs, in both word and deed, to put inflation first, in the same way as the Riksbank needed to do when the inflation target had recently been introduced at the start of the 1990s and confidence in the target needed to be built up. Of course, back then, the situation was the reverse – what was needed was to restrain inflation, not make it increase. So, to summarise my comments so far. A number of factors have led to the scope for monetary policy now seeming to be more limited than it was ten or so years ago. The most obvious of these is that the global real interest rate, that has long shown a decreasing trend, has now reached very low levels. There is also an ongoing debate on whether the actions of large, dominant central banks place clear restrictions on which monetary policy can be conducted in small countries. The main line of inquiry so far, at least for industrialised countries with floating exchange rates, is that a sufficient degree of monetary policy autonomy exists in normal cases. But under certain circumstances – such as when an  8  6  I am not going to discuss in any more detail why it is important to defend the inflation target. This has been discussed in depth elsewhere, both by me and by other representatives of the Riksbank, for example in Skingsley (2015) and Flodén (2015).

Consumer interest groups and business associations also need to be proactive in updating and disseminating information on the availability of financing options such as guarantees, special schemes, and other forms of alternative financing. There are many micro enterprises that still rely on personal loans to finance business operations due to the lack of information and awareness on the existence of such financing options in the market. As a result, these enterprises are required to pay high interest rates to settle personal debts taken, while more cost-effective financing facilities remain underutilised. Business associations should strengthen their role by deepening understanding on the underlying causes before raising issues on access to funding. More often than not, the issues raised by business associations are channeled in the form of general complaints that have yet to be studied thoroughly or specifically. This compounds the difficulty of resolving the issues given 2/4  BIS central bankers' speeches  the lack of supporting details. In addition, business associations can act as an important point of reference in advising members on matters concerning efficiency and competitiveness, the use of technology and the adoption of electronic payments to achieve greater security and cost efficiencies. For consumers, priority should be placed on taking charge of their financial futures and ensuring that the financing options available are utilised responsibly. This can be achieved by conducting due diligence and research on the features of a potential financial product, which will lead to better understanding to facilitate informed decision-making.
There are I think three reasons for this. First, it is in the nature of the shock – Covid itself does not destroy economic capacity over the longer term in the same way as a war, although of course the number of lives lost has been tragic. Second, the evidence here and in other countries indicates that the economic impact of Covid has attenuated with each successive wave – we are all by nature adaptive in our behaviour. For that reason, both in the UK and in a number of other countries, GDP releases during more recent periods of restrictions have typically surprised to the upside, relative to our expectations based on the effect of previous lockdowns. Third, the economic policy response has been designed to ensure that the longer term damage – often termed scarring – has been as small as can be. This has involved both monetary and fiscal policy pursuing their own independent objectives in a consistent and complementary manner. And just to be very clear on this point, when we use the tools of policy 1/5  BIS central bankers' speeches  consistently, and the objectives of policy are consistent, there is no compromise of independence whatsoever. So, we find ourselves now in a situation where there is an output gap, or slack as it is also called, but it is nowhere near as large as would be implied by the fall in demand if this was a normal recession.

On the other hand, its implementation may be a bit too ambitious and a difficult task for our countries. Therefore it is in our interest to find ways to make it more suitable to our needs by following a gradual approach rather than jeopardising its success through an uninformed adoption. 1  According to Basel II, the assessment of the borrower’s credit risk will depend on the performance of the economy, whether it is in a upward or downward trend. In the worst case, when the economy will be wholly swept in recession, banks will have automatically either to increase the level of capital, or shift towards less risky assets, that most intuitively calls for a slow down to provide loans thus engendering credit crunch and further recession.
However, once the economy has significantly improved, both fiscal and monetary policy will need to be much less accommodative. Getting this balance right will be one of the main policy challenges over the next several years. I am confident that the Fed’s Federal Open Market Committee (FOMC) will meet the challenge. Finally, I’d like to note that even with some early signs of economic improvement, a number of risks remain. As I have highlighted today, the housing market remains fragile and is not likely to contribute to economic recovery in its traditional way – and this is part of why I do not expect growth to exceed 4 percent in 2011. Furthermore, in many areas of the country the impaired balance sheets of borrowers, high foreclosures, and high vacancy rates imply a long time before local housing markets normalize. State and local governments remain significantly challenged by the aftershocks of the financial crisis and recession. And many state and local governments continue to have both short-run and long-run fiscal challenges. Finally, the large fiscal deficits of many governments accrued during the recession will need to be addressed. And as Figure 17 shows, financial markets are concerned that many countries will be forced to make very painful fiscal choices – in economies with already significant challenges – or risk default. Yet while risks like these remain, the economy is in a much better place than it was one or two years ago.

Depending on what had happened to sterling’s bilateral exchange rates, the UK would not be immune from spillovers, as the euro area is by far our largest trading partner. For some time, therefore, global imbalances have been a real source of risk to the UK as well as to the global economy. Should I have been voting to cut interest rates to head off those risks? I don’t think so. It would not have made sense to try to anticipate the effects of a shock that had not yet occurred and over which we had effectively no influence. A number of external ‘tail risks’ are rather like that. How does that fit with ‘precautionary’ or ‘insurance’ policy settings. Individual policymakers differ on the usefulness of this concept. I find it quite useful. But on my view of what it means, it has to be subject to some quite stringent conditions in practice. Remembering that we have a highly imperfect line of sight of what is going on in the economy, assume as a thought experiment that some indicators are flashing the possibility that there has been a material shock to demand. For example, imagine that there has been a bit of bad news but that there  15  Harrison et al, 2005, ‘The Bank of England Quarterly Model’, pages 128-132. BIS Review 46/2006  5  are signs that consumer confidence may be ebbing away by more than we would have guessed was proportionate. So maybe spending will fall materially.
But the different national government bonds will tend to trade on essentially the same yield curve, with the focus of the market being concentrated, even more so than at present, on spread relationships. 31. This of course raises the interesting question -- spread over what? Who will provide the benchmark issues? Moreover, the intensified focus on spread may produce two further results. First, there will be even greater incentives than at present for national governments, who will BIS Review 110/1997  -6-  remain responsible for their own debt management, to converge in their techniques for issuing and marketing their debt. It will be interesting to see whether this will generate greater co-ordination amongst debt management authorities in managing their debt programmes, including, for example, their auction timetables. 32. A second effect in this area flowing from the concentration on spreads may be greater interest in developing a diversified, deeper corporate bond market in euro, as has long been present in the United States, but much less so in other countries. If this happens, it could be a considerable boon to corporate borrowers as a whole because it would extend the range of financing opportunities open to them. 33. A second area where financial market activity in the euro is likely to generate new opportunities is in the short-dated money markets. Foreign exchange traders do clearly face some contraction in their activity, as an inevitable consequence of currency unification.

But expansion in these markets is not, on past experience, a zero sum game: it is likely to lead to more, not less, activity in London since London is the major interface with the rest of the world in the European time zone. •  The economics of financial market activity point to concentration, to gain economies of scale and facilitate better management control. That is why many firms have been moving their operations, and even headquarters, to London as the preferred financial centre. Uncertainty about UK participation in the single currency has been with us for some time. But undeterred by that uncertainty, firms have continued to concentrate their trading activities in London. •  London has an unrivalled range of markets and ancillary services; and an associated deep skill base; and an unbureaucratic approach to financial regulation, which has been developed working with the grain of the market. 27. All these advantages and more help to explain why there are more people working in financial services in the City of London -- over 600,000 -- than there are in the entire population of Frankfurt and its surrounding region! 28. None of this gives any grounds for complacency: the financial services industry is an intensely competitive business. But importantly, if we can harness the strengths of the London markets to the opportunity presented by the euro, I believe that will be an important contribution to the success of the single currency. Of course, London will benefit. But London is not just a UK financial centre.