samchain/econo-pairs-v1 huggingface dataset:
Jon Cunliffe: Macroprudential policy – from Tiberius to Crockett and beyond Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at TheCityUK, London, 28 July 2015. *  *  *  Historians still argue about the exact causes of the financial crash of AD 33 that rocked the Roman Empire. The commentators of the day did not unfortunately have, let alone record, the vast amounts of data that we have become used to today. But in a world still painfully extricating itself from the crash of 2008, the key features look eerily familiar, as a number of modern day commentators have observed. An extension of credit across the empire, a sudden deleveraging, debtors failing and bank closures in a number of Roman provinces, the total drying up of liquidity in the financial system and widespread panic. The remedies look familiar too. The Emperor Tiberius was not able to rely on a modern independent central bank with the ability to print money to staunch the crisis. But notwithstanding that immense shortcoming, Tiberius took effective action, injecting into the system a huge amount of liquidity stored in coin in his treasury, setting interest rates at zero for a three year period – an early example of forward guidance – and doubling loan to value requirements for property loans. He also executed those he thought most responsible: though some might advocate that today, I think in that respect at least we have moved on from AD 33.

Strong sustainable growth requires not only a strong and vibrant financial system; it requires the controls and safety buffers to ensure that the  3  For more information on UK-owned banks’ overseas exposures see Broadbent, B (2012) ‘Deleveraging’, speech at Market News International, 15 March. 4  The Chancellor has recently asked the Governor of the Bank of England, working with HM Treasury, to initiate research to create better measurement of ‘finance for productive investment’ covering all asset classes and all stages of finance, with a view to publishing the data on a regular basis. See “Fixing the foundations: creating a more prosperous nation”, HM Treasury, July 2015. 8  BIS central bankers’ speeches  dynamics of the system do not generate periods of illusory growth and prosperity followed by periods of destruction of the same. The financial system has come a long way since the time of Emperor Tiberius. While we have relearned some familiar lessons in recent years, we have also learned some new ones. We have had to develop a new regulatory framework, macroprudential institutions like the FPC and new policy approaches. Over the next few years we will certainly need to refine all of these. The implementation of the detailed reforms will inevitably throw up unforeseen effects in particular places and where it is justified we will need to revisit issues. But we should be careful about talking about turning back the overall regulatory dial or trying to trade off the risk of financial instability for short term growth.
Historical overview One of the more dramatic developments in the final decades of the last century was the sharp fall in inflation worldwide. This remarkable phenomenon brought inflation almost everywhere to levels not seen for the best part of fifty years. Set against the long sweep of history, it is the 1970s and 1980s that now stand out - as a major, but time limited, episode of high global inflation.2 In the UK, the period since 1992 has seen a shift to low and stable inflation combined with sustained economic growth, and steadily falling unemployment. Slightly miraculous as these developments may still seem to the generation that came of age during the Great Inflation of the 1970s - remember ‘stagflation’? - the happy fact is that for anyone in their mid-thirties, low inflation, steady growth and low interest rates are the norm. Success has many parents, and the trend to low inflation is no exception. But there is a broad consensus that better monetary policies run by more independent and more open central banks can claim a significant share of the credit. The Short History of Twentieth Century Monetary Policy goes roughly as follows. For the first time since the collapse of Bretton Woods - arguably since the Gold Standard - after decades of unhappy experiments with fine tuning, incomes policies and monetary targets, buffeted by the explosive growth of financial markets and often misled by economic dogma, governments have finally found an approach to monetary policy that seems to work.

As it happens the projections in the February Inflation Report do project a pick up in supply over the next few years, but that reflects improved labour availability rather an assumption that there is an ICT led productivity miracle in the making. But we could easily be wrong. Given recent experience, there is clearly some risk of undue pessimism, though it has to be said that past policy errors have more often been the result of too much optimism. One thing is for sure: we can’t afford to sit back and wait for the data to tell us the answer. By the time we have that degree of certainty policy will have moved on. So productivity will remain a key issue for us over the coming years. Conclusion Which brings me to my final challenge for policy makers: how to handle uncertainty in taking and presenting policy decisions. The MPC has met this challenge head on from the beginning. Within the discipline imposed by a shared inflation target, the Committee has been very open both about uncertainty and about the disagreement that is likely to go with it. Published MPC forecasts have explored rather than glossed over risks and uncertainties. The individual accountability of MPC members reduces the incentive to search for consensus.
Having started with Mark Twain I want to finish with another quote this time from Santayana: “A man’s memory may …become the art of continually varying and misrepresenting his past, according to his interests in the present.” 1 One lesson from recent events is the need for rigour, balance and transparency in policy making and risk assessment. I hope that the Bank can play a part in that in future as it has in the past. 1  “Reasons and places”, George Santayana. BIS Review 132/2008  5  Chart 1: Financial market liquidity  Chart 2: Household consumption growth: what happened to the boom? Liquidity index 1.0  Percentage changes on a year earlier 10 1973 Q3 1980 Q1 1990 Q3 2008 Q3  0.5 + 0.0  8 6 4  0.5 2  1.0  0  1.5  -2  2.0  -4 -6  2.5 92  94  96  98  00  02  04  06  08  -16  -12  -8  -4  0  4  8  12  16  Quarters  Sources: Bank of England.

And many market participants were also expecting a correction at some point; but they generally felt they were well placed to handle it. In fact the severity and breadth of the downswing has surprised markets, commentators, and policymakers alike. In the light of subsequent developments, a number of commentators have concluded that the problem was simply a lack of attention and short memories. I don’t think it was quite as simple as that. I am with Mark Twain who said "History doesn't repeat itself, but it does rhyme." While the current crisis has some similarities to previous downswings – in the early 90s or of the 70s for example – there are some significant differences too. For example the last three recessions in the UK (in the 70s, 80s and early 90s) were preceded by sharp rises in consumption and activity and earnings to well above sustainable rates. As Chart 2 shows that was not true of the last few years when consumption, output and earnings all seemed unusually stable. Again in previous recessions, stress in the banking sector has tended to follow on from defaults and losses on domestic loans as interest rates rise and the economy slows down. But this time the downturn started in the banking sector – last summer when losses in the US property market not only led to losses in UK banks trading and treasury books but closed important sources of finance to them. The downturn in the housing market and then the wider economy followed.
Of course, digitalisation would not work without good internet connections. We, therefore, engaged Malaysian Communications and Multimedia Commission (MCMC) on possibility of boosting internet connections in the areas where we held the Greenback activities. With digitalisation, migrants can now send money home anywhere, anytime. This eliminates the need to travel great distance to the nearest town, which 1/3  BIS central bankers' speeches  can be costly and risky at times. The Project team experienced first-hand the numerous logistical challenges just to get into the plantations. A single journey can take about a 3-hour drive from town. Today, I am happy to note that Project Greenback in Sabah has produced encouraging results. We have sensitised close to 5,000 individuals. More than 1,600 of them have registered to use e-remittance channels. A total of RM6.9 million equivalent worth of remittances were sent from Sabah using echannels. The most encouraging result is that average remittance cost in Sabah has reduced significantly, to below 3%. 8 months ago, it was much higher. Although there is much to be done to increase the numbers, the outcomes are testament that our hard work and perseverance have paid off. We have reached an important milestone and this tells us that technology can be the gateway to financial inclusion. Technology has the potential to be a game changer.

Old-style central bank balance-sheet expansion coupled to ever higher risk-taking, operations that were considered unthinkable until a decade ago, have become almost a 1/4  BIS central bankers' speeches  mainstream instruments. The pandemic has tested the resilience of the Albanian economy and of our banking system. It has put an immense social and financial strain on households and businesses and has forced the authorities to act swiftly to address the health crisis and to introduce major policy initiatives in order to contain its impact. The Bank of Albania has used a wide range of policies to support financial activity and aggregate demand. We reduced the policy rate to a historical low of 0.5% and increased the amount of liquidity injected into the system. These actions were aimed at reducing the debt servicing costs across the economy and at supporting continued financial intermediation. In addition, in close consultation with the banking industry, we applied targeted – though temporary – regulatory reliefs, designed to encourage both the temporary deferral of loan installments and the consensual restructuring of loans for borrowers in difficulties, but with sound business prospects. Finally, we took both macro and micro prudential measures in order to strengthen the banks’ balance sheets and preserve their lending capacity. On the fiscal side, the Albanian government delivered fiscal accommodation through: Allocating additional funds to support the health sector; Increasing social transfers to compensate for the households’ loss of income; Offering temporary tax relief to businesses and introducing sovereign credit guarantee schemes to improve their access to finance.
Models and assessments complement one another Let me briefly describe the forecasting process at the Riksbank. 4 The Riksbank uses both models and expert assessments in its forecasting work. The picture of the forecasting process that I had before I came to the Riksbank was one where data are fed into complex models which then spit out forecasts. This is of course incorrect. The Riksbank works hard to spread the impressions we gain at the many international meetings we regularly attend. We also carry out our own company interviews to try to capture development tendencies before they become visible in the statistics. Models are necessary to put together the whole picture of the analysis and are often used to simulate what various risk scenarios might entail for inflation and monetary policy. But they do have their limitations and the analysis must also take into account information beyond what the models can handle. One model that is known outside of the Riksbank is Ramses, which is a variant of the dynamic stochastic general equilibrium models that have become popular in the central bank world. 5 Ramses is an internally consistent model of how the economy as a whole fits  3  By risk I mean here the weighing together of the probability that something will occur and the consequences of its occurrence. 4  For a more detailed description of the forecasting process, see the speech entitled “The monetary policy decision-making process” by Irma Rosenberg, June 2008.

Moreover, proposals are presented both for the repo rate decision at the next monetary policy meeting and for the forecasted repo rate path. These proposals normally reflect the stance the Executive Board usually takes with regard to inflation and resource utilisation. They are thus based on historical relationships between the Executive Board’s decisions and the development of the economy. 7  6  However, one should bear in mind that forecasting work is actually a continuous process. Even between the forecasting rounds, we often analyse the international economy and the Swedish economy for reasons other than to make forecasts. For instance, background reports are written prior to Executive Board members taking part in international meetings, in which both economic activity and economic policy are discussed. 7  The reason for the proposal being based on the Executive Board’s historical behaviour rather than on the staff’s perception of what constitutes a well-balanced monetary policy is discussed by Hallsten and Tägtström in the article “The decision-making process – how the Executive Board of the Riksbank decides on the repo rate” in Sveriges Riksbank Economic Review no. 1 2009 (p. 78). 4  BIS Review 65/2010  If we members of the Executive Board consider that there are any special risks that should be examined, then simulations and sensitivity calculations are made for alternative scenarios. Simulations are also regularly made with regard to illustrating the effects of conducting an alternative monetary policy.
In 2006, the name was changed to the Government Pension Fund – Global. In spite of the name change, the Fund is more similar to an endowment than to a pension fund. Since the first transfer of some USD 400 million was made in 1996, the Fund has grown rapidly in size. Its assets are currently valued at around USD 400 billion. One third of the portfolio, about USD 130 billion is invested here in North America. The Fund is expected to grow rapidly in coming years, and may double in 5-10 years. The Fund was established as a tool to support prudent management of Norway’s petroleum wealth. One purpose is to shield the non-oil economy from price fluctuations (see Chart 3). The Fund is also a long-term savings instrument. It will help to cope with future financial commitments linked to an ageing population. Accumulation of capital in the Fund reflects the depletion of a non-renewable resource, which is exchanged for financial assets through the Fund’s investments. By setting up the Fund, it became possible to establish a path for production of oil and gas that is independent of the profile for petroleum revenue spending. Furthermore, to effectively shield the non-oil economy, and to make sure that private sector investment decisions could be made independently of the public sector’s saving of petroleum wealth, the Fund is only invested abroad. This also enhances the expected return on government wealth and reduces the risk.

Governance structure and management model Now, let me turn to the Fund management model. The governance structure is based on a clear division of responsibilities between the political authorities and the operational management. •  The Ministry of Finance is the owner of the Fund. The Ministry defines the mandate and monitors and evaluates performance. •  The management of the Fund is delegated to Norges Bank. The Bank’s task is to implement the investment strategy and exercise ownership rights. Norges Bank also provides professional advice to the Ministry on investment strategies. The Fund’s investment strategy is to maximise financial return with moderate risk. The longterm strategic allocation is defined in terms of a benchmark portfolio, which consists of equities and fixed income instruments. Equities account for 60 per cent of the Fund's strategic benchmark portfolio. The size of the Fund implies that it currently owns about 1 per cent of listed European equities and ½ per cent of listed equities on a global basis. Fixed income instruments account for 40 per cent. 2  BIS Review 81/2008  Furthermore, the Ministry has recently decided that the Fund should prepare the ground for investing in real estate at 5 per cent of the strategic benchmark portfolio. In time, this will reduce the fixed income share to 35 per cent. Norges Bank has built an organisation with emphasis on investment returns and based on three fundamental principles: Accountability, transparency and professional standards.
A key challenge confronting macroeconomic policy in Thailand is to safeguard the pace of recovery while maintaining macroeconomic stability and financial discipline, and at the same time continuing with the essential reforms. Past records Before moving on to discuss the challenges facing Thai monetary policy, I would like to review some of the notable progress of the last few years. There have been gains that should further be expanded. Macroeconomic and financial stability has been restored. Inflation remains low and stable. Thailand’s international reserve position is healthy. Surpluses in the external current account of these few years have been matched almost entirely by falls in external debt, especially short-term debt. Such reversed flows have been instrumental in avoiding a real currency appreciation and loss of competitiveness. BIS Review 70/2001  1  The surplus on the external current account is expected to continue this year, although at a somewhat lower level. This would allow the debt stock to fall further as scheduled repayments are made. About 50 percent of the existing non-bank private debt stock represents debt contracted after the crisis, including some rollovers which were done under new contract. This means that private sector in Thailand currently has no difficulties in gaining access to the international financial markets. Reflecting this, the spreads of Thai Government bond yields over US Treasuries have narrowed while Thailand’s sovereignty credit ratings remain stable. The financial system has now stabilized, but much work still lies ahead.

·  Going forward, we must improve our financial architecture to raise efficiency and ensure nationwide access to financial services. ·  In term of market competition, the opening up of our banking system has accelerated the transfer of technical knowledge and ensured competition for our domestic financial institutions. ·  In term of market structure, the new Financial Institutions Bill – currently at the Senate and is expected to be passed in the course of this year – will provide a legal and formal framework that accommodates the establishment of financial conglomerates. Financial institutions will be allowed to offer varieties of financial services such as insurance or securities through their subsidiaries. Though this is still a step away from universal banking model where all financial services will be offered under one entity but the draft law is flexible enough to make room for such eventuality, and in the meantime boost competition. ·  Among the major milestone in the law are: consolidated supervision of financial conglomerates, unified legal framework for both banks and finance companies, and prompt corrective actions for weak financial institutions. ·  As for the availability of our financial services and product qualities, our recent survey of financial product availability within Thailand indicated that market participants are keen to expand product range, thus structural impediments obstructing them need to be dealt with.
And the MPC has asked the Bank’s regional Agents to conduct a survey of borrowing conditions faced by businesses around the country in time for the MPC meeting in November. The international situation is, of course, only one of the factors that influence interest rates. In the August Inflation Report, the MPC made clear that it expected - indeed wanted - the growth of domestic demand to continue to slow throughout this year and into next. A slowdown is necessary because, as the restraining effects on retail prices from the rise in sterling start to wear off, domestically generated inflation must fall if the inflation target is to be met. The latest data from the Office for National Statistics show that domestic demand and output have been growing broadly in line with the desired path. But survey data show a markedly weaker picture for output and orders, both over recent months and, more importantly, looking ahead. The lags with which changes in monetary policy affect the economy mean that the MPC can not wait to find out whether the surveys provide an accurate prediction before it sets policy. Each month the MPC balances the information contained in official statistics, surveys, anecdote and the impressions of conditions in industry relayed to us by our network of regional agents. An issue of considerable importance is the state of the labour market. The August Inflation Report argued that the outlook for inflation depended critically upon the labour market and, in particular, on the behaviour of earnings.

That will have consequences for trade balances and activity in both emerging markets and industrialised countries. Second, falls in equity prices around the world have reduced household wealth. And third, the sudden increase in risk aversion in financial markets is changing the balance sheets of financial institutions and some fear that this may lead to a credit crunch. The reduction in capital flows to emerging markets started over a year ago when concerns about the foreign currency exposures of a number of countries led to withdrawals of funds and a liquidity crisis in Asia. That liquidity problem was compounded by macroeconomic and structural problems which varied from country to country. But the net effect was that capital flows to emerging markets in Asia fell from over $ bn in 1996 to only about $ bn in 1997. That retrenchment has continued during 1998. Why does this matter? In the absence of other sources of finance, a reduction in net capital inflows has to be matched by a corresponding improvement in the current accounts of the emerging market economies. To achieve such a rapid turn-round in the current account required significant depreciations of their currencies and deep recessions. The counterpart to the improvement in the current account of the countries affected is a larger trade deficit, or smaller trade surplus, in the rest of the world.