samchain/econo-pairs-v1 huggingface dataset:
Conversely, the Financial Policy Committee will – and already has – drawn on briefings from the supervisors as well as the Bank’s existing staff. In other words, this is going to be about making connections, pulling together a varied range of inputs. A measure of the Bank’s success when prudential supervision transfers will be how well we knit them together. The Court of the Bank will play an important role in ensuring that the executive of the Bank delivers on this. What all this amounts to is framing microprudential regulation and supervision to deliver macroprudential objectives. Experience around the world demonstrates that it is hard to keep supervisors focused on the stability of the system as a whole. The UK’s Financial Policy Committee is designed to achieve that. By creating a new institution within the Bank of England, the government is ensuring that stability does not fall by the wayside, into the gap between monetary policy at one end of the spectrum and the regulation of firms at the other. As the Governor of the Bank said recently at the Mansion House, an important part of the FPC’s role will be to steer, to orient the work of the microsupervisors in the light of the assessment of short-term and longer-term risks to stability. That was in evidence at the FPC’s very first meeting, a fortnight ago. The Financial Policy Committee’s first decisions The decision and Record of that meeting were published last week.

It has to equip firms with capability to move toward higher  BIS central bankers’ speeches  3  product sophistication and flexibility to cater to changing global consumer demand. It has to nurture innovation, given that meaningful growth spurt tends to come from either new products or new ways of producing and delivering them. The strategic focus is thus to create the right environment and give the right incentive for firms to invest and innovate. Physical infrastructure is where we lack behind and suits to be the starting point. Hightech, capital-intensive industries tend to benefit greatly from knowledge spillovers and concentration of economic activities. Therefore, more specialized hubs and clusters – in the spirit of, for instance, Singapore’s Biopolis and Japan’s Tsukaba Science City – are needed. For industries with lower capital intensity, establishing industrial hubs and zonings of related industries would be beneficial, so that these industries can reap localized benefits such as the availability of specific inputs and better labor market pooling. Supporting these less capital- intensive industries will also serve toward the agenda of inclusive growth, for these industries contribute significantly to employment in rural areas. Last but not least, wellintegrated and cost-efficient logistics systems are called for, in order to ensure connectivity and efficiency of domestic production chains. Along with physical infrastructure upgrading, “soft” infrastructure has to be upgraded. In addition to educational reforms that I talked about earlier, improvements on the legal front are also needed.
Christian Noyer: Evolution of the regulation in Europe and in the United States – convergence or divergence? Keynote address by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, to the Paris-Europlace Financial Forum, New York, 18 April 2011. *  *  *  Strengthening financial regulation has been high on the agenda of the G20 since Pittsburgh in October 2008. Much has already been achieved both at the international level especially through the Basel Committee for Banking Supervision but also on national level with the Dodd-Frank Act in the US and the pending regulation for market infrastructures in the European Union. It is fair to say that the evolution of the regulation in Europe and in the United States has not always followed the same path in the past. At a time when our regulations are completely revisited and when many restructurations are taking place in the finance industry, rigorous consistency on both sides of the Atlantic is clearly needed if we want to avoid regulatory arbitrages and uneven level playing field which would be the seeds for inefficiencies and future disappointments. In my remarks today, I will briefly discuss the achievements on reforms of financial regulation. Then I will highlight some existing discrepancies between European and US regulatory frameworks that should be addressed. I. Regarding achievements in financial regulation: What has been completed so far?

With the US rate hike cycle drawing nearer, the window for the region to get prepared for a tightening in financial conditions is getting smaller. It is therefore important for policy makers to contain further build-up of leverage, and to ensure banks will properly manage interest rate and exchange rate risks, and can withstand any potential deterioration in loan quality. It is encouraging to see that policymakers in many economies in the region have taken pre-emptive policy actions to lower credit growth and slow house price inflation. The biggest challenge now is when and how to relax these measures when market conditions reverse. 6. Second, policymakers will need to have sufficient backstop to mitigate systemic risk in the financial system in the event of a disorderly exit of US monetary policy. In this regard, the ASEAN+3 Chiang Mai Initiative Multilateralisation Arrangement, the regional financial safety net, could help to mitigate the risk of financial contagion by providing financial resources to members in the event of short-term liquidity difficulties. BIS central bankers’ speeches  1  7. Third, structural reforms remain the best way to reduce vulnerabilities and achieve sustainable growth over the long-term. We have been moving forward on this front through a deepening of intraregional trade, strengthening private and public-sector balance sheets and improving market infrastructure. But a lot more needs to be done. There is still ample scope to tackle structural impediments to growth and stability such as further capital market development, product and labour market reforms and service-sector reforms.
Arnór Sighvatsson: Shedding the shackles of capital controls Speech by Mr Arnór Sighvatsson, Deputy Governor of the Central Bank of Iceland, at the breakfast meeting of Icelandic Securities Ltd, Reykjavík, 7 October 2010. *  *  *  Restrictions on movement of capital to and from Iceland are in contravention of Iceland’s international obligations, including the European Economic Area Agreement. Such controls distort economic incentives, lead to lost business opportunities, discourage foreign investment, are costly and inconvenient for the public and private sector alike, and are a breeding ground for illegal activity aimed at circumvention. There is also the risk that a capital controls regime will be progressively more difficult to enforce over time. Moreover, there is good reason to believe that, in the long run, Iceland’s pension system would benefit from diversifying risk by investing abroad. Indeed, this has become abundantly clear in the current financial crisis. In sum, there are a host of reasons not to impose capital controls, and to lift them as soon as possible if they do exist. In spite of these arguments to the contrary, capital controls were imposed after the Icelandic financial system collapsed, and removing them has taken longer than originally anticipated. It is useful to review the reasons for imposing the controls, as those reasons are the key to understanding what conditions must be met before the controls can be lifted. Why capital controls?

Had this happened, the króna would probably have plunged in the meantime and not recovered before prices and wages had adjusted. But the problem was not restricted to non-residents. Residents, including Iceland’s pension funds, allocate substantial funds that must be invested on a continuous basis. With the economy paralysed and the Treasury’s ability to fund a large deficit over the next few years uncertain, domestic institutional investors also became reluctant to invest in domestic assets. Under these conditions, central government financing would have been extremely challenging, which would have undermined exchange rate stability still further. The third reason for the capital controls was the shaky balance sheets of the newly established financial institutions and the other financial firms that survived the onslaught, however briefly. Their balance sheets were fraught with uncertainty and potentially unstable. BIS Review 138/2010  1  A considerable share of their deposits could prove unstable as well. The balance sheets of households and businesses were likewise in a state of disarray. In the absence of exchange rate stability, it would be extremely difficult to restructure the finances of Iceland’s households, corporations, and banks. Prerequisites for capital account liberalisation The foregoing discussion should make it clear that the capital controls will not be lifted in full until confidence has been restored to the extent that their removal will not cause prolonged instability.
Figure 8 Monetary policy rates (percent) Eurozone Brazil Mexico  15 12  Canada Chile Colombia  U.K. EE.UU. Peru  9 6 3 0 18  19  20  Source: Bloomberg. 14  21  22  Figure 9 Financial conditions (1) (2) (3) Currencies  Stock markets  (index, 3.Jan.22=100)  (index, 3.Jan.22=100)  U.S.  Eurozone  Nominal 10-year bond interest rates (difference with respect to 3.Jan.22, basis points)  Chile  200  130  120 115  LatAm  120 150  110 110  105  100  100  100 95  90 50  90 80  85 80 Jan.22  Mar.22  May.22  70 Jan.22  0 Jan.22  Mar.22 May.22  Mar.22  May.22  (1) Dashed vertical lines mark the March 2022 Report statistical close. (2) Moving 7-day average of each index. (3) For LatAm, it considers simple average between Brazil, Mexico, Colombia, and Peru. Source: Bloomberg. Figure 10  Inflation forecast (*) (annual change, percent) Headline inflation 14  Core inflation (without volatiles) 14  CPI  12  Jun.22 Report  10  Core CPI  12  Mar.22 Report  Mar.22 Report Jun.22 Report  10  8  8  6  6  4  4  2  2 0  0 19  20  21  22  23  19  24  (*) Gray area, as from the second quarter of 2022, shows forecast.

In the aftermath of the crisis, the configuration of the world economy will be transformed as changes in the pattern of global demand take place, as demands for greater efficiency and lower costs occur, as actions are taken for a reduced role of government in the economy, as new regulatory regimes are being introduced, and as efforts are being undertaken to enhance our capacity to manage systemic financial crisis. Many of these changes will involve cross border arrangements and collaboration. We are all stakeholders with interest in what the post-recovery world will look like. Indeed, the issue of new economic models in the context of these developments is relevant not just to Asia but also for other parts of the world. We have seen how within the short period of less than a decade, the rapid escalation of debt-driven consumption in North America led to chronic financial and economic imbalances that has resulted in a significant economic dislocation on a global scale. Several lessons can be drawn from these developments. The Asian economic model for the future needs to be redefined if the economic progress is to be sustained, taking into account the global changes that are taking place. Asia's success which has been described as a “miracle” has been well documented. It has been acknowledged that “the miracle” is not the result of any one single factor but rather, a confluence of factors. Structural change and pro-growth policies were coalesced synergistically with hard work ethics.
In addition, they find that the rate of involuntary part-time employment, which is still very high, also has a substantial influence on wage growth. 13 Putting it all together, their estimates say that if labor market conditions were at their 2005–07 levels, average real wage growth would be roughly 1/2 to 1 percentage point higher over the past year – another sign of the cyclical shortfall in labor market health. To sum up, with many important measures of labor market activity still well short of our estimates of cyclical norms, I believe it is a bit premature to say that we are close to our full employment target – the labor market is not yet calling for business-as-usual monetary policy That said, while it has taken longer than anyone would like, our progress has been good. Indeed, there is good reason to anticipate that we will achieve full employment and price stability within the FOMC’s current forecast horizon. Notably, in the Committee’s Summary of Economic Projections released a week and a half ago, most participants anticipated that the unemployment rate would return to its long-run neutral level by the end of 2016 and that inflation then would be in the range of 1-3/4 to 2 percent. A balanced approach to monetary policy Now let me turn to my views on monetary policy. I can’t speak to my FOMC colleagues’ forecasts and how they interact with their views regarding appropriate policy.

In this scenario, the FOMC could misjudge the presence and magnitude of economic impediments and misread the recent progress we have made as evidence of sounder economic trends. If we were to presume prematurely that the U.S. economy has returned to a more business-as-usual position and reduce monetary accommodation too soon, we could find ourselves in the very uncomfortable position of falling back into the ZLB environment. Such an outcome could be a serious setback to the timely attainment of our dual mandate policy objectives. This risk consideration means that the decision to lift the funds rate from zero should be made only when we have a great deal of confidence that growth has enough momentum to reach full employment and that inflation will return to a sustainable 2 percent rate. We should also proceed cautiously and keep the path of rate increases relatively shallow for some time after we begin to raise rates. This approach will allow us time to assess how the economy is performing under less accommodative financial conditions and reduce the odds of overaggressive rate hikes choking off progress toward our policy goals. History Shows That Premature Exit Is a Risk  15  See National Association for Business Economics (2014a). 16  See, for example, Kocherlakota (2013). 6  BIS central bankers’ speeches  Great depression Past experience with the ZLB also counsels patience. History has not looked kindly on attempts to prematurely remove monetary accommodation from economies that are in or near a liquidity trap.
In this environment, macroprudential policies that slow the build-up of household leverage ex-ante can be  32  All speeches are available online at www.bankofengland.co.uk/speeches  32  welfare-improving in avoiding this outcome. Farhi and Werning (2016) also offer a model of macroprudential policy in the face of aggregate demand externalities. Another strand of the literature emphasises behavioural sources of pro-cyclicality. For example, powerful narratives, such as a collective belief in a ‘new paradigm’, might manifest themselves in over-exuberance in the financial system (Tuckett (2011), Shiller (2017)). Myopia about risk might also drive excessive risk-taking, especially as memories of past financial crises fade (Guttentag and Herring (1986), Herring (1998), Haldane (2009b), Gennaioli, Schleifer and Vishny (2012)). And such behaviour might be amplified by contracts that reward short-term performance excessively and by herding in financial markets (Avery and Zemsky (1998), Lakonishok et al (1992), Bikhchandani and Sharma (2001)). Aikman, Nelson and Tanaka (2015) show how reputational concerns and peer benchmarking can drive credit cycles. The case for macroprudential interventions to address build-ups in leverage also has empirical support. Mian and Sufi (2010) argue that the persistence of the decline in US GDP after the crisis was caused by excessive household leverage. Jordà et al (2013) report that credit booms not only increase the likelihood and severity of financial crises, but also make normal recessions more painful.

United Kingdom: Sheppard, D (1971), The growth and role of UK financial institutions 1880-1962, Methuen, London; Billings, M and Capie, F (2007), 'Capital in British banking', 1920-1970, Business History, Vol 49(2), pages 139-162; BBA, published accounts; FPC core indicators and Bank calculations  Notes: (a) US data show equity as a percentage of assets (ratio of aggregate dollar value of bank book equity to aggregate dollar value of bank book assets). SNL data from 1996 on, based on accounting definition of equity. (b) UK data on the capital ratio show equity and reserves over total assets on a time-varying sample of banks, representing the majority of the UK banking system, in terms of assets. Prior to 1970 published accounts understated the true level of banks' capital because they did not include hidden reserves. The solid line adjusts for this. 2009 observation is from H1. Data from 2010 onwards is based on the simple leverage ratio published by the FPC (as of September 2017) as one of its core indicators for the countercyclical capital buffer. (c) Change in UK accounting standards. (d) International Financial Reporting Standards (IFRS) were adopted for the end-2005 accounts. The end-2004 accounts were also restated on an IFRS basis. The switch from UK GAAP to IFRS reduced the capital ratio of the UK banks in the sample by approximately 1 percentage point in 2004.
As is usual in these situations, it’s the downside risk that gives the option of waiting its value. But there’s also a cost to waiting because the firm is forgoing profits in the meantime. This cost increases with the expected duration of the uncertainty: the longer a firm thinks it’s going to have to wait for things to be resolved the greater the profits foregone and the more likely it is that the firm will simply decide to get on with things and make the investment anyway. Conversely, delaying becomes more reasonable if the uncertainty is expected to last only a short time. A firm that has that expectation may as well wait to see how things turn out. One implication of this is that you’d expect the impact of uncertainty on investment to intensify as we get closer to the date of resolution. Broadly speaking I think that’s what we’ve seen in the data. Another is that investment suffers more than it needs to if firms repeatedly expect things to be resolved sooner than they actually are. A repeated series of cliff-edges, each of which is expected to be decisive but in reality just gives way to the next cliff, is more damaging for investment than if it had been clear at the outset that the process will take time. This doesn’t mean that resolving things soon, by any means necessary, is the better course.

These variables also affect the exposures of different entities to various categories of risk. This is very much what we observe in practice, where even imbalances arising in some other sector often create ripple effects throughout the financial system and, where this is not robust enough, in the rest of the economy. Consistently with this view, it can be argued that financial stability is best pursued by implementing a coherent set of policies which respond to the underlying macroeconomic fundamentals. Recent episodes of financial crisis, for example, have shown that through their effects on expectations and on  1  This paper was delivered at a seminar organised by Société Universitaire Européenne de Recherches Financières (SUERF), in conjunction with the Central Bank of Malta on Thursday 27 March 2003. 2  Knight, M. 2002. “The Central Bank’s Role in Fostering Financial System Stability: A Canadian Perspective”, in Financial Risks, Stability, and Globalization; ed. O.E.G. Johnson. Washington, D.C.: International Monetary Fund. pg. 314.  asset prices more generally, unchecked variations in property prices can contribute to precipitating a crisis. Similarly, it is often forgotten that a combination of excessive public deficits with an over reliance on short-term capital flows and an overvalued currency is the perfect recipe for a turnaround in market confidence, and consequently for sudden reversals in capital flows.
But what can be said so far is that we in Sweden have already been in the situation that other countries may be about to enter and have had, for some time, the debate that may be on the horizon there. In this respect, we are, in a sense, ‘ahead of the cycle’, both as regards the development of inflation and the monetary policy debate. It could therefore be worthwhile to summarise our experiences so far. Maybe there will be a few lessons that other countries and central banks may find useful and that have implications for the international debate. So let me start there. When I discuss the lessons that I think we have learned, I would like to divide the period after the global financial crisis into two different sub-periods and discuss them separately: the period of falling inflation 2011–2014 and the period of rising inflation 2015–2017. I would like to emphasise that, as usual, I am expressing my personal opinion. It is possible that my colleagues on the Executive Board have come to the same conclusions as I do here, but it is also conceivable that they have made a different interpretation. See Jansson (2016), where I discuss the criticism of the inflation target in more detail. It should be emphasised that this was one type of criticism that was expressed. In the speech, I also address other types of criticism, with less far-reaching implications. 4 Yellen (2017b). 5 Brainard (2017). 6 Draghi (2017).

It is effects of this type that are referred to in the international debate when arguing that the policy rate is far too blunt an instrument to counter financial imbalances. Sweden's experiences also suggest that the policy rate cannot always be expected to be available for this purpose. Even when a central bank is leaning quite moderately against the wind, such a policy could be in conflict with the task of maintaining confidence in the inflation target. Here too, of course, the question arises of whether it is really so important to maintain confidence in the inflation target. Would it not be possible for monetary 7 [20]  policy instead to just lean against the wind and let inflation develop as it will? Once again, I will return to this shortly. Before continuing, I would like to add that there is a growing amount of research that explicitly attempts to calculate the costs and benefits of using the policy rate to attempt to counteract financial imbalances. The debate is ongoing and the jury is still out. 13 Of course, in this context, the view I present here should only be seen as a country-specific case study. But considering that practical experience of this type of policy is very limited, reflections from someone who has been involved in taking decisions in a country that is ‘ahead in the cycle’ may perhaps be of some value.