samchain/econo-pairs-v1 huggingface dataset:
The economic environment we live in today is inherently dynamic and continuously evolving. We therefore need to be aware of both old and new challenges to inflation targeting as a monetary policy framework. Some observers have cautioned that Thailand’s inflation targeting regime has not been truly tested. In particular, there has not been an incident that gives rise to a severe tension between inflation stabilization and other objectives. For example, Thailand has not experienced sharp exchange rate movements that come into conflict with the inflation objective. Nor has the country been in a situation where persistent supply shocks lead to a significant slowdown of the economy amidst rising prices. Operationally, there are also issues on how far we should push transparency. A few inflation targeting central banks now put forecasts of policy rates in their inflation reports. Should Thailand follow these practices? Should we publish our MPC minutes as the FOMC does? And should we announce the weight we put on output gap stabilization relative to inflation stabilization explicitly in the inflation report. In the past, we only mentioned these weights occasionally in passing. All these questions will sooner or later have to be tackled when our inflation-targeting regime gains maturity. Ladies and gentlemen, The issues I have mentioned, as well as other challenges confronting the conduct of inflation targeting in emerging economies, are the main focus of this international symposium.

Tarisa Watanagase: Inflation targeting – a reflection on Thailand’s experience Opening remarks by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Bank of Thailand’s International Symposium on “Challenges to Inflation Targeting in Emerging Market Countries,” Bangkok, 13 November 2006. *  *  *  Honorable Guests, Distinguished Participants, Ladies and Gentlemen, First, I would like to extend a very warm welcome to all of you here today. This is the second time that the Bank of Thailand organizes a symposium at an international level. Our first international symposium, “Practical Experiences on Inflation Targeting,” was held in October 2000, a few months after we had adopted inflation targeting as a new monetary policy framework for Thailand. But this symposium today is the first one that brings together central bank governors, senior central bank executives, world-renowned academics and policy experts from leading international organizations. Many of you have extremely tight schedules and some have to travel a very long distance. I would like to express our great appreciation for your presence and very much hope that what we will learn together in this symposium is beneficial to all of us. Ladies and Gentlemen, Thailand formally adopted inflation targeting as a monetary policy framework on May 23, 2000. The change in policy regime was a result of our search for an appropriate nominal anchor after the floating of the Thai baht in July 1997. In the interim period, we used monetary aggregates as our policy target.
So let me move forward 50 years to the events of 2008, and describe the nature of the financial crisis, the steps that governments and central banks have taken to deal with it, and, most important, the implications of recent events for the UK and world economies. Since August 2007, the industrialised world has been engulfed by financial turmoil. And, following the failure of Lehman Brothers on 15 September, an extraordinary, almost unimaginable, sequence of events began which culminated a week or so ago in the announcements around the world of a recapitalisation of the banking system. It is difficult to exaggerate the severity and importance of those events. Not since the beginning of the First World War has our banking system been so close to collapse. In the second half of September, companies and non-bank financial institutions accelerated their withdrawal from even short-term funding of banks, and banks increasingly lost confidence in the safety of lending to each other. Funding costs rose sharply and for many institutions it was possible to borrow only overnight. Credit to the real economy almost stopped flowing. In financial markets, confidence in others fell to a point where investors sought refuge in government instruments such as US Treasury Bills, which at one point yielded a negative return. Central banks around the world were providing enormous amounts of liquidity to some institutions while at the same time taking large deposits from others. Eventually, on 6 and 7 October even overnight funding started to dry up.

But in the light of rising defaults and falling house prices – first in the United States and then elsewhere – investors reassessed the risks inherent in these securities. Perceived as riskier, their values fell and demand for securitisations dwindled. For the same reason, the value of banks’ mortgage books declined. Banks saw the value of their assets fall while their liabilities remained unchanged. The effect was magnified by the very high levels of borrowing relative to capital (or leverage) with which many banks were operating, and the fact that banks had purchased significant quantities of securitised and more complex financial instruments from each other. Not only were these assets difficult to value, but the distribution of losses across the financial system was uncertain. Banks’ share prices fell. Capital was squeezed. Markets were sending a clear message to banks around the world: they did not have enough capital. At the Annual Meetings of the IMF and World Bank in Washington ten days ago, the message was reinforced by our colleagues from Japan, Sweden and Finland, who, with eloquence and not a little passion, reminded those present of their experience in dealing with a systemic banking failure in the 1990s. Recapitalise and do it now was the lesson. Recapitalisation requires a fiscal response, and that can be done only by governments. Confidence in the banking system had eroded as the weakness of the capital position became more widely appreciated.
It is the Bank of England, through its operations in financial markets, purchasing government securities of a given duration, typically from non-bank financial institutions such as life insurance and pension funds, whose accounts are credited with the proceeds such that the asset purchases are financed through the creation of central bank reserves held on the accounts of commercial banks at the Bank of England”. And that explanation, it was hoped, would provide the general public with the confidence needed to encourage them to spend. You can be the jury in deciding how well this might have been achieved. There was a different explanation, and conversation, with the public that could have been had. It might have gone something like this: Q: “Andy, is QE money-printing?” Andy: “Yes. And when you get some, make sure you spend it.”  10  All speeches are available online at www.bankofengland.co.uk/speeches  10  I fully accept that this would be the wrong side of the over-simplifying line for some people. But if doing so delivers the desired policy outcome – building public confidence to support spending – that may be the better side of the line on which to err. Just saying. (b) Conversation At the Bank’s first Open Forum in 2015, Gillian Guy, Chief Executive of Citizens Advice, said something that has stuck with me. In a panel discussion on the role of finance in society, all panellists agreed on the need for improved public understanding of finance.

CN: What has been designed by various countries – bearing in mind the structure of their economies and the relative importance of the automatic stabilisers – is probably the right balance between what needs to be done to stimulate global demand and the necessity to retain the credibility of the fiscal policy and budgets over time. It is especially important in European countries where we have the feeling that the so-called Ricardian effects can play a role. So if we were to give the impression to citizens that public finances were to deteriorate by too much and for too long consumers might increase their savings ratio to prepare themselves for tax increases in the future that they might regard as inevitable, or the reduction of benefits and pensions. So you have to keep the right balance between long term credibility and immediate stimulation. As far as we can judge, that balance is probably appropriate. That will have to be reviewed according to future economic developments. A related issue is the fact we all agree that a condition for the revival of the global economy is that financial systems everywhere are stabilised and that stabilisation is convincing the markets. I have the impression that we are a little more advanced in that regard in Europe than in the US. It is clear that the US authorities are making every effort to reach that goal, but that is probably as important as the size of the stimulus itself if we want to stabilise the economy.
An illustration One can illustrate the complications that may arise in the actual work with the aid of the type of figure I showed earlier, where one marks the average squared deviations, the mean squared gaps, during the forecast period. For a concrete example of a time when the differences were particularly visible, we can study the forecast from September 2008. In addition to the repo rate path in the main scenario, the Riksbank usually also analyses two alternative repo rate paths; one that is higher than the one in the main scenario and one that is lower. The mean squared gaps for different measures of inflation and resource utilisation generated by these three interest rate paths in September 2008 are shown in Figure 2. 4  4  See, for instance, Blinder, A. S. (2007), “Central Banking by Committee: Why and How?” European Journal of Political Economy vol. 23, pp. 106–123. BIS central bankers’ speeches  Figure 2. Mean squared gaps September 2008  Source: The Riksbank Note: Red dots show the main scenario, blue dots show the alternative with a higher repo rate path and yellow dots show the alternative with a lower repo rate path. If inflation is measured in terms of the CPIF, that is, the CPI excluding direct effects of interest rates, and if resource utilisation is measured with a gap calculated on the number of hours worked in the economy, one obtains the three dots up on the left-hand side of the figure.

This could mean that the central bank chooses a repo rate path that, while it does not give the lowest squared deviations over the three-year forecast period, is nevertheless judged preferable from a longer-term perspective. For instance, the bank may hold the policy rate higher to try to prevent a credit boom that is feared would cause problems – with large squared deviations – beyond the forecast horizon. A closely-related reason is that the central bank under certain circumstances gives consideration to specific risks when setting interest rates. This is something I personally find to be one of the most important factors missing in the simple analytical framework. This could also be expressed as the central bank holding the policy rate at a higher level to reduce the risk – within or beyond the forecast horizon – that, for instance, a credit boom would continue too long and cause problems. The central bank might also wish to hold the policy rate at a higher level to reduce the risk of inflation expectations rising too high, which could also be problematic. The higher policy rate could give larger deviations during the forecast period, but may nevertheless be preferable as it reduces the risk of a really poor outcome. Framework more difficult to apply with an Executive Board Another circumstance that I perceive as complicating matters with regard to putting the theoretical approach into practice is the fact that there are six of us making the monetary policy decisions.
Mark Carney: Inclusive capitalism – creating a sense of the systemic Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Conference on Inclusive Capitalism, London, 27 May 2014. *  *  *  Introduction Inclusive capitalism is fundamentally about delivering a basic social contract comprised of relative equality of outcomes; equality of opportunity; and fairness across generations. Different societies will place different weights on these elements but few would omit any of them. Societies aspire to this trinity of distributive justice, social equity and intergenerational equity for at least three reasons. First, there is growing evidence that relative equality is good for growth. 1 At a minimum, few would disagree that a society that provides opportunity to all of its citizens is more likely to thrive than one which favours an elite, however defined. Second, research suggests that inequality is one of the most important determinants of relative happiness and that a sense of community – itself a form of inclusion – is a critical determinant of well-being. 2 Third, they appeal to a fundamental sense of justice. 3 Who behind a Rawlsian veil of ignorance – not knowing their future talents and circumstances – wouldn’t want to maximise the welfare of the least well off? The problem: the growing exclusivity of capitalism This gathering and similar ones in recent years have been prompted by a sense that this basic social contract is breaking down. That unease is backed up by hard data.

More data on the granularity of balance-sheet exposures and across types of financial instruments are essential inputs for evaluating propagation effects with contagion and spillover models. Recent initiatives in central bank statistics also address interlinkages beyond the sample of large players – for example, by means of so-called “from whom to whom” information on deposits and loans from financial corporations, or through securities holding statistics with a view to also creating “who to whom” data for various sectors of the economy in the Euro Area Accounts. Dedicated ad hoc surveys, for example in the context of the ESRB’s work at an EU-wide level, should also contribute to shedding light on this topic. Sufficiently granular information would facilitate linking the regulated financial sector with the shadow banking sector. In addition, enhancing information on financial conglomerates – banking groups with substantial activities over and beyond the banking sector – would be essential, as nonbanking activities may be systemically important. In the case of financial conglomerates, contagion and concentration risks can be exacerbated by the increased intra-group complexity and potential conflicts of interest. At the micro-level, improvements to data for characterising interconnectedness are being pushed forward by several initiatives with different objectives and time lines.
Before I discuss Norges Bank’s suite of models in greater detail, I would like to look at a few key macroeconomic variables and their interaction. Studying fundamental statistical relationships provides important insight into the functioning of the economy. Along with the theoretical foundation, such insight is one of the most important building blocks of a good analytical apparatus for implementing monetary policy. Let me begin by taking a look at the relationship between output and inflation. In recent years, consumer price inflation (CPI) has fluctuated between 0 and 3 per cent. Mainland GDP growth has also fluctuated, giving rise to economic cycles. The chart shows developments in the two variables measured as deviations from long-term trend growth, in other words an “inflation gap” and an “output gap”.4 When the output gap is positive, the  4  The gaps express deviations from estimated trends in seasonally adjusted figures for mainland GDP and CPI adjusted for tax changes and excluding energy products (CPI-ATE), respectively. The trends are estimated using a Hodrick Prescott (HP) filter on quarterly data with λ=40000. The output gap in this analysis is a technical estimate and does not fully correspond with the output gap in Norges Bank’s Monetary Policy Report. 6  BIS central bankers’ speeches  economy is usually in an upturn, while the economy is in a downturn when the gap is negative.

Thereafter the model takes over and the interest rate gradually falls back, in line with the model’s estimated reaction pattern. In the course of a couple of years, the interest rate has returned to its starting point.9 As the chart shows, the degree of spread in the results is considerable. If we were to draw a fan chart, or confidence intervals, around each model, it would become clear that the uncertainty is even greater than the spread alone indicates. The results must therefore be interpreted with caution. If we were nevertheless to draw a conclusion on this basis, it must be that an interest rate increase will dampen GDP growth in the course of the subsequent year – all else being equal. Somewhat further ahead, inflation will also recede. As the interest rate returns to normal, GDP growth and inflation will pick up again. Our macroeconomic model NEMO has a more precise theoretical construction than the VAR models. NEMO is a dynamic stochastic general equilibrium (DSGE) model, and has many features that are similar to corresponding models in other central banks. It describes the behaviour of households and firms. Economic agents are forward-looking when making decisions so that expectations are of significance. There are three economic agents: households, firms and a central bank. Households demand goods and supply labour. They assess how much to spend relative to saving and how much they should work subject to their budget constraints.
My observations will be on: (1) the nature of future crises; (2) their implications for the role and the conduct of EWE going forward; and (3) some suggestions on what should constitute the important components of the EWE process. First, on the nature of future crises. One criticism we often hear about EWS in the past is that the system is often good in replicating the last crisis but is less useful in anticipating future crises. This point I believe has been echoed also in today’s seminar. A key reason for this is the way the EWS models have been calibrated to fit the explanation for the last crisis, and hence, becomes less useful for anticipating future crises when circumstances or the risk factor change. Similarly, lessons learned from the previous crisis tend to over-prepare policymakers for a repeat of a similar crisis, thereby leaving them vulnerable to the new cause of the next crisis. Therefore, for EWE to be useful, it must have the ability to anticipate the nature of future crises with certain accuracy. This, of course, is going to be a demanding task, but it is this quality that the EWE process needs to have. This is because without certain degree of accuracy, it will be difficult to persuade policymakers to collectively become engaged in addressing certain risk and vulnerabilities.

Thank you. BIS Review 19/2010  3
Naturally, opinion differs on the appropriate monetary stance at any given time, as uncertainty is a permanent feature of economic life – not only uncertainty about the future, but also about the present and the recent past. 6  BIS central bankers’ speeches

However, performing these activities makes banks vulnerable, in particular receiving short-term deposits and transferring them into long-term loans. At worst, banks may fail and destabilize the whole financial sector and even the whole economy. To avoid such calamities from happening, society is willing, under certain specified circumstances, to rescue banks from failure by providing exceptional lending from the central bank or solidity enhancements from the government. Depositors may be protected by a deposit insurance scheme. But the willingness of the authorities to assist the banks and their customers must be matched by regulation and monitoring to ensure that the bank owners and others do not use, or I might say “abuse”, the possibility of public support to further their own purposes. Hence, there must be some regulation and supervision to make sure that banks behave in ways which are consistent with the overarching goals of society, such as financial stability and consumer protection. Regulation must also provide the necessary incentives for banks to act prudently and in fair competition with other banks and other financial institutions. An adequate level of domestic regulation is also necessary if you want your banks to do business internationally or if you allow foreign banks to do business in India. You should welcome foreign institutions but you should not open your markets to unregulated and unsupervised institutions. Ideally, regulation should be limited to what is really necessary to obtain these overarching goals. In practice, authorities have a tendency to over-regulate since they are risk averse.
So too will our work simplifying rules about reporting. [19]  Growth and competition One of the benefits of tailoring rules to UK circumstances is that it helps to facilitate effective competition in markets we regulate. I see connections between that objective, which we already have, and our new competitiveness and growth objective. That’s because an efficient market is one that allocates resources to their best use, including by ensuring that there aren’t parts of the economy struggling to access finance that they should be able to secure. I don’t want to be too simplistic about it – but in general terms what is good for competition is broadly good for growth. [20] The importance of competition means that we need to act when rules that are proportionate for large firms are not proportionate for small ones. Doing so removes barriers to entry. That is why we have invested in the Strong and Simple project to create a simplified regime for small banks and building societies. Today we are publishing our first set of policy proposals for this simpler regime. These are set out in a Consultation Paper proposing simplifications to liquidity, reporting, and disclosure requirements for banks and building societies that are eligible for the simpler regime. [21] In addition, we are also publishing a Consultation Paper proposing simplifications to remuneration rules for smaller firms. [22] These are changes we could not have made whilst we were in the EU.

Since monetary policy primarily affects the economy through long-term real interest rates, and therefore through agents’ expectations for the future paths of the policy rate and of inflation, the end result would be more accommodative policy during the downturn than recommended under the IT regime. 2  BIS central bankers’ speeches  A more modest proposal was to keep the IT regime, but increase the targeted level of inflation. The crisis and the bubbly period that preceded it convinced many that the modern macroeconomy is more prone to shocks that previously believed, and therefore the 2% target level that prevailed in mature economies before the crisis was perhaps too low to keep the economy from repeatedly hitting the zero lower bound. My take on this debate is that, at the end of the day, inflation targeting emerged even stronger from the crisis. No major central banks abandoned inflation targeting, and some central banks that were not inflation-targeters adopted elements of the framework. There are several reasons for the resilience of the IT regime: •  Central banks found that inflation targets were actually helpful in explaining the need and the room for unconventional policy measures to the general public. •  Furthermore, inflation targets helped anchor inflation expectations, keeping deflation at bay despite the large output gaps prevalent at the height of the crisis. •  The proposed new monetary policy regimes suffer from a number of practical deficiencies. They are too complex for the general public to understand and follow.