samchain/econo-pairs-v1 huggingface dataset:
Thus, there are similarities between the strategies of these central banks and inflation targeting regimes. If the differences are greater rhetorically than in practice, it is therefore difficult to establish that one of the arrangements has performed better or worse than the others. Diagram 2 presents the variations in growth and inflation for a number of industrialised countries in two periods. One is the years from 1970 to 1990, when central bank policy – except in Germany and Switzerland – tended to concentrate excessively on stabilising employment and demand instead of aiming to maintain price stability in the medium term. In a majority of these countries the transition to a stability-oriented monetary policy had at least not been completed. By the time of the other period, 1995–2000, in a number of countries the transition to price stability had been successfully completed. The choice of periods and countries as well as methods is, of course, debatable but in all the countries it looks as though the situation had become considerably more stable in the more recent period compared with the earlier. That conclusion applies to Sweden, where much hard work has been devoted to making the new regime credible. What I have in mind is, course, the ambitious consolidation of the government finances and the Riksbank’s own efforts to generate confidence in the new and initially fragile regime with an explicit inflation target. The Swedish economy appears to have become more stable with the new regime.

The point I want to make is that our monetary policy strategy provides for such a contingency. Forecasting is difficult So far I have been discussing advantages of the Riksbank’s current monetary policy arrangements and the drawbacks alternative strategies may have. In doing so I hope I have indicated that the alternatives also have some advantages, too. But I still consider that the advantages with the Riksbank’s way of conducting monetary policy outweigh the disadvantages. But something should also be said about what is perhaps the current regime’s greatest drawback, namely the difficulty in forecasting future inflation, not least in such a comparatively distant perspective as one to two years ahead. Completely reliable forecasts of future inflation presuppose success in two respects. One is managing to predict how shocks in the current situation will spread successively through the economy and affect the future rate of inflation. The other is managing to predict the shocks that subsequently occur in the forecast period and generate a future increase or decrease in the rate of inflation. While the first task is certainly difficult but maybe not completely out of the question, given that the course of events stays reasonably close to historical patterns, the second is virtually impossible. In other words, forecasts can err and we must bear that in mind. So I want to make it particularly clear that even though forecasting errors occur, I still consider that most things indicate that our present forecast-based inflation targeting regime functions satisfactorily.
This also includes those parts that may not be under the regulatory capture. Financial stress in a specific segment may no longer be confined to that segment but may rapidly be transmitted to the rest of the financial system. Thus, a piecemeal policy response would not be sufficient. It would require a comprehensive response to ensure that such stressed conditions does not evolve into a major financial crisis. Secondly, the build-up of risks to financial stability need to be identified early. Pre-emptive action would reduce the cost of the crisis on the financial system and the economy. Third, the regulatory authorities need to be accorded the necessary powers to manage the risks to financial stability. Fourth, the optimal policy mix may not only include policy actions to address immediate term issues but would also need to simultaneously address the underlying structural problems. Fifth, is to give recognition to the importance of enabling conditions that will render the implemented policies to yield the desired outcomes. Finally, to facilitate effective policy decision making there needs to be a platform and governance process for policy coordination across agencies within an economy and for this to be extended for regional and international collective action. Following the recent global financial crisis, the policy response at the national level has been extensive and on an unprecedented scale.

Our model captures the spirit of these dynamics, with short-run risk-taking to preserve reputation and boost returns (a credit boom) in time giving way to longer-term collective costs when the music ceases (a credit crunch). Chart 1 Price to book ratios for UK, US and European institutions(a)  Sources: Bloomberg, Thomson Datastream and Bank calculations  2.1  (a)  Chart shows the ratio of share price to book value per share. Simple averages of the ratio in each peer group are used. The chart plots the three month rolling average. (b)  Excludes Nationwide and Britannia from Major UK Banks peer group. The set up  We develop a simple framework, in the spirit of Rajan (1994), to capture these collective action failures. Rajan’s (op.cit.) model generates multiple equilibria. We use a version of the Morris and Shin (2003) “global games” framework to pin down a unique equilibrium for the coordination game among banks, which then allows an evaluation of policy options. 3  3  For other applications of the “global games” framework to banking, see inter alia, Rochet and Vives (2004) and Goldstein and Pauzner (2005). Broadly speaking, these models use the framework to pin down uniqueness in the coordination game played by the depositors of fragile banks, a la Diamond and  BIS Review 168/2010  3  The set up is as follows. Each period there is a continuum of agents, indexed by , all of whom work as financial intermediaries for a single period.
From this consumer credit panel data, we conclude that between 2004 and 2006, households were increasing their cash flow by over $ billion a year by borrowing against their housing equity collateral. They supplemented that with another $ billion through non-mortgage borrowing. So, at the height of the boom, annual consumption was being supplemented by around $ billion in cash flow from debt, much of it collateralized by housing. As we now know, homeowners were mistaken in viewing the home price increases during the boom as permanent. Things turned quickly as housing supply increased, home prices softened and mortgage underwriting standards tightened sharply as credit losses on residential mortgage lending climbed. The rise and fall of mortgage securitization activity marked by tranching mortgage cash flows into collateralized debt obligations (CDOs) exacerbated the downturn. Home values began to fall in mid-2006. By 2008, we saw a massive reversal in the way people used their housing equity to finance consumption. People went from borrowing hundreds of billions of dollars per year and increasing their mortgage debt, to paying back hundreds of billions dollars and reducing their mortgage debt. Households deleveraged even apart from the decline in household debt associated with the charge-offs from foreclosures. Instead of $ billion in net cash flow from increased borrowing, this net cash flow sharply reversed to negative $ billion by 2010, with increased residential mortgage debt pay-down being the main source.

The case of Europe is comparable, and that is why the euro has also depreciated against other currencies, not only the peso. In order for growth of developed countries to improve and the overall world economy to pick up, the domestic demand of countries in a strong cyclical position needs to be redirected to imports, while at the same time those countries with weak domestic demand increase their exports. The second factor advocated to intervene the forex market is the need to hoard international reserves. This, for protection against a further worsening of the external scenario. Over the past several years, the Central Bank has increased its level of reserves significantly. The interventions of 2008 and 2011 increased the reserves by nearly 18 billion dollars, to twice the level of December 2007. Thus, at July this year, our reserves amounted to close to 15% of GDP. Certainly, there are benefits associated with hoarding international reserves. An economy with a higher level of international reserves reduces the probability of sudden changes in its external credit conditions, moderates its effects and provides room for policy makers to take offsetting measures. By the same token, it is important that the level and management of international reserves are such that they can be readily available whenever it is deemed necessary. Still, the gains obtained in the margin are lower the greater the amount accumulated.
Immediately after the inflation target was introduced in 1993 the Riksbank’s rhetoric and probably the actual policy were most strongly focussed on the development of inflation. The underlying factor behind this was probably concern over credibility problems. However, from the mid-1990s stabilisation of the real economy has increased in scope and the Riksbank has in various ways made clear that we give consideration to developments in the real economy. This was, for instance, one of the main points in the brochure "Monetary Policy in Sweden”, which we published in May 5 . 3  See Lars Heikensten’s speech, ”Thoughts on how to develop the Riksbank’s monetary policy work”, at the Swedish Economics Association on 22 February 2005. 4  See, for example, Apel, M. et al, (1999), ”Different ways of conducting inflation targeting – theory and practice”, Sveriges Riksbank Quarterly Review, 1999:4, 13-42, Svensson, L. (1997), ”Inflation forecast targeting: Implementing and monitoring inflation targets”, European Economic Review, 41, 1111-1146, and Batini, N., and E. Nelson, (2001), ”Optimal horizons for inflation targeting”, Journal of Economic Dynamics & Control, 25, 891-910. 5  See footnote 2 for details. ”Monetary Policy in Sweden” replaces the clarification of monetary policy published in 1999, see Heikensten, L. (1999), ”The Riksbank’s inflation target – clarifications and evaluation”, Sveriges Riksbank Quarterly Review, 1999:1, 5-17. 4  BIS Review 111/2006  In this context, let me also mention something about risks. More specifically, the risks connected to rising asset prices and credit expansions.

The solution was what might be called a shift in stabilisation policy regime, where the tasks of both monetary and fiscal policy were essentially redefined. We were given a clear division of roles in economic policy. Previously, fiscal policy had often been overly expansionary and contributed to high inflation. Now it was subjected to requirements for long-term stability and sustainability in the public finances. A floating krona meant that the main task of monetary policy was to directly act to ensure inflation remained at a low and stable rate. In January 1993 the Riksbank specified this task as ensuring that inflation remained at two per cent a year. This target would formally begin to apply with effect from 1995, but monetary policy would also be aimed at directly steering inflation during the interim period without intermediate goals, such as the money supply. This created a new norm for monetary policy and Sweden then became one of the first countries in the world to conduct monetary policy with a floating exchange rate and a specific inflation target. One interesting fact in this context is that Sweden actually had a specific target for prices during one period in the 1930s - this was the first and as far as I know the only time a country has attempted this.
At the present moment, the current configuration remains complex, with a significant number of national exchanges, clearing houses and central securities depositories. Further consolidation of some of the European infrastructure is advisable. The ECB has a particular interest in an integrated securities infrastructure because it uses it in the context of the collateralisation of its intraday credit operations for payment system purposes and its monetary policy. In addition, a major disruption in a securities settlement system could undermine the stability of financial markets. There are numerous private and public-sector initiatives under way to promote the integration, efficiency, and security of the European securities infrastructure. The “Standards for Securities Clearing and Settlement in the European Union” that have been drawn up jointly by the ESCB and the Committee of European Securities Regulators (CESR) are an important initiative. In its communication on “Clearing and Settlement in the European Union”, the European Commission recently outlined the actions it intends to undertake to improve clearing and settlement arrangements, which are welcomed by the ECB and the Eurosystem. In particular, we agree that the barriers as identified by the “Giovannini Group”, must be eliminated. In addition, we concur that some parts of the clearing and settlement industry deserve careful attention from a competition policy point of view. Finally, in order to ensure the smooth operation of the markets and guarantee financial stability, we share the Commission’s view that a sound regulatory framework is essential.

15  Figure 7 Evolution of 2018 growth outlook (annual change, percent)  3.8  World  3.8  2.2  3.6  3.6  3.4  Developed  Emerging  2.2  5.0  2.0  2.0  4.8  4.8  3.4  1.8  1.8  4.6  4.6  3.2  3.2  1.6  1.6  4.4  4.4  3.0  3.0  1.4  1.4  4.2  4.2  18  18 Apr.17  Oct.16  5.0  18 Oct.17  Source: International Monetary Fund WEO, October 2017. Figure 8 Copper price (1)  Oil price (1) (2)  (dollars per pound)  (dollars per barrel)  3.6  3.6  75  3.2  Dec.17 Report 3.2  65  65  2.8  2.8  55  55  2.4  45  45  2.4  Sep.17 Report  2.0  2.0  35  1.6  1.6  25  15 15 16 16 17 17 18 18 15 Jul. 16 Jul. 17 Jul. 17(f) 18(f)  Dec.17 Report  Sep.17 Report  75  35  25 15 15 16 16 17 17 18 18 15 Jul. 16 Jul. 17 Jul. 17(f) 18(f)  (1) The dots show projected oil and copper price for 2017, 2018 and 2019, respectively. (2) Simple average between Brent and WTI oil. Sources: Central Bank of Chile, Bloomberg and Chilean Copper Corporation (Cochilco).
A concrete example of the merits of financial integration is how the arrival of foreign banks resulted in a rapid development of the banking systems in the Eastern and Central European countries. The citizens and corporations of these countries benefitted substantially from early access to advanced financial services. The second solution – to create an international institution with taxation rights or a system of ex ante burden sharing – is simply not realistic for the foreseeable future. 4  BIS Review 118/2009  Consequently, we are stuck with the geographical mismatch and, as a consequence, crossborder banks pose a real challenge to crisis management. To accommodate this mismatch, national authorities must cooperate more effectively. This is the only feasible option. In order to achieve efficient cooperation, it is vital to build trust between authorities, which explains my third ingredient. In the EU, we have the home country principle as a fix for the geographical mismatch. We have also signed a European Memorandum of Understanding (MoU) aimed at improving cross-border cooperation. However, the home country principle does not solve the dilemma of international banks and national authorities. Tension arises because the home country is responsible for the supervision of branches but the host country is responsible for the financial stability of the country. This tension also persists if the foreign bank operates through subsidiaries. Many cross-border banks centralise different parts of management. There are good economic reasons for such centralisation.

We – at the Riksbank – have been publishing stress tests of individual banks since 2006. With a track record of reasonable stress tests, the credibility of the methodology and the results has continued to increase during the crisis. Building confidence in the long-run: liquidity and capital regulation The financial crisis of the past two years has been very costly. We must ensure that this crisis does not repeat itself. Lawmakers, central banks and financial regulators have a daunting task ahead of them. Regulatory and supervisory reform is needed. I have great hope that we will take this opportunity to create a safer and sounder financial system. In this respect, I would like to bring up two important issues for a safer financial system: liquidity and capital regulation. Liquidity or, rather, illiquidity has been in the centre of this crisis. Banks will always be exposed to liquidity risk due to the maturity mismatch, as this is a central feature of banking. However, in the run up to the crisis, this maturity mismatch increased too much. Banks relied on the misguided perception that short-term financing would be available from liquid markets. A key lesson from the crisis is that a liquid market can very quickly become illiquid. The conclusion is that liquidity must be regulated more firmly. Banks need to hold a buffer of liquid assets large enough to allow them to weather a liquidity shock.
The public debt to GDP ratio currently at 43 percent is projected to stand well below the sustainability ceiling under the ongoing fiscal reform. In coordination with the expansionary fiscal policy, monetary policy remains accommodative to reinforce the economic recovery. The Monetary Policy Committee (MPC) has decided to keep the policy interest rate on hold at a low level since April 2015. Yet the MPC deems that monetary conditions should remain conducive until the economic recovery becomes more broad-based and more robust. For the future, the MPC’s decision on monetary policy will be carefully balanced between accommodating economic recovery and avoiding financial stability risks that could result from an extended period of low interest rates. Ladies and gentlemen, To wrap things up before I move to the second part of my talk, the Thai economic recovery has become more broad-based with a firmer momentum compared with last year while our economy has relatively strong buffers compared to emerging-market peers in the region. Now let me turn to the way forward for the Thai economy. With the short-term trajectory of the Thai economy holding up well thanks to the first two ‘arrows’ as in the Abenomics terms, namely fiscal stimulus and monetary easing, Thailand’s long-term future depends critically on the success of the third arrow of ‘structural reforms’. This brings me to the second part of my talk tonight on the way forward for the Thai economy, and how we and our partners like Japanese businesses may work together towards sustainable economic prosperity.

In the latter part, I will share with you my thoughts on the way the Thai economy is moving forward as well as opportunities for Japanese businesses. Let me start with the first part, by reviewing what we went through last year. I believe you all agree with me that 2016 was full of unexpected events and turns. On the domestic front, we faced with a severe drought early in the year followed by a historic flood in the South around the end of the year, and of course the passing of His Majesty the late King Bhumibol, which caused all Thai people the greatest sorrow. Also, the government’s crackdown of illegal tour operators led to temporary yet significant effects on the tourism industry which had been a major growth driver of the economy in the past few years. On the external front, we saw the Bank of Japan’s adopting a negative interest rate policy in January of last year, an unease  1  over the fate of European financial institutions, the Brexit vote, and the unexpected outcome of the U.S. presidential election. Yet the Thai economy was able to weather these storms, one after another, and ended up with a 3.2 percent growth with all stability intact. The resilience reflected the underlying strength of the economy which owed partly to preemptive policies to create shock absorbers for the economy such as ample international reserves and ample banks’ capital base and loan loss provision.
The interest rate r is set to minimise fluctuations in the economic cycle and inflation E∑  [(  −  ∗  ) +  (  −  ∗  ) ],  while c is set to stabilise the financial cycle E∑  [  −  ∗  ]. A theoretical result is that coordination, that is, alternative A, is in general preferable to separating the two types of policy. The reason is that alternative B is a special case of A. A policy-maker who can choose both r and c to stabilise both economic activity and inflation as well as the financial cycle (or two policy-makers who can fully coordinate their decisions on r and c) always has the possibility to separate the decisions, that is, to go from A to B. A should therefore not reasonably be able to lead to a poorer result than B. This does not necessarily mean that coordination is always a good idea in practice. It may be the case that, in reality, there are costs linked to coordination that can be reduced or avoided if one separates the decisions on monetary policy and macroprudential policy. For instance, it may be more difficult to evaluate and forecast economic policy if different instruments are used at the same time to try to attain different targets.8 A related argument in favour of separating both types of policy concerns the risks of a decline in confidence in monetary policy.

The number of countries that have adopted an inflation target for their monetary policy implementation has increased sharply after New Zealand introduced such a policy in February 1990. In all, 21 countries have now moved onto a formal inflation target, including Canada, the UK, Norway, Sweden, Switzerland and Australia. In most countries this has greatly stimulated discussion of monetary policy; central banking and central bank policies and measures are more in the spotlight and public debate than before, although of course opinions about them are divided as ever. One consequence of this policy is that exchange rate stability is no longer the anchor of monetary policy. This is not because the exchange rate of any currency is a lightweight factor in economic developments; rather, experience has shown that in a climate of unrestricted cross-border capital flows, central bank instruments are inadequate for maintaining a stable exchange rate. When crossborder capital flows are unrestricted, a central bank’s primary instrument is interest rates, which in the long run can only attain a single macroeconomic goal, i.e. ensuring price stability. It has turned out that other countries have benefited from adopting such a framework. It was in light of this international experience that the Central Bank of Iceland’s monetary policy framework was changed two years ago and formal inflation targeting was adopted.