samchain/econo-pairs-v1 huggingface dataset:
01.10.2020  The role of the European Central Bank’s monetary policy in the COVID-19 crisis Deusto Business Alumni Meeting Pablo Hernández de Cos Governor  Good morning, ladies and gentlemen. It is a pleasure for me to be able to participate in this meeting organised by Deusto Business Alumni. I would like to take this opportunity to share firstly with you some thoughts on how money monetary policy has helped stave off some of the more serious consequences, at least from the economic standpoint, of the COVID-19 crisis. In the second part of my speech, I would also like to reflect on certain challenges that the gradual reduction in the so-called “natural interest rate” poses for monetary policy conduct in advanced economies. This is an issue which will be particularly significant in the context of the monetary policy review initiated at the European Central Bank (ECB). The monetary policy reaction during the crisis The outbreak of COVID-19 in Europe in late February and early March was a shock of great magnitude which triggered an unprecedented economic impact due to the reduction in both the supply and demand for goods and services. The serious, temporary and global nature of the shock initially required powerful economic policy actions. The objective of this “shock therapy” was to avoid a temporary shock from generating effects which persist over time.

Andres Lipstok: Estonia’s economic environment and central bank activities Speech by Mr Andres Lipstok, Governor of the Bank of Estonia (Eesti Pank), at the the presentation of Bank of Estonia’s 2008 Annual Report to the Riigikogu, Tallinn, 11 June 2009. *  *  *  Dear Riigikogu, Thank you for the possibility to present you Eesti Pank's 2008 Annual Report. I am going to start with a brief retrospect of the Estonian economic environment and then address issues concerning the activities of Eesti Pank. The Estonian economic environment in 2008 and 2009 2008 was an exceptional year in the world economy. Developed economies have not faced the risk that banking and financial markets could collapse and the global financial system stop functioning since the beginning 1930s. But the financial crisis, which was caused by previous years' incorrect decisions, made this a very likely scenario. In the final months of the past year major banks were too afraid to lend money to each other and trading with privatesector bonds nearly ceased. Loss of confidence in financial markets, loan losses amounting to 3-4 billion dollars and a sharp decline in crediting the private sector had an immediate impact on global trade, investment and economic growth. Global trade contracted 17% in the fourth quarter of 2008 and at the beginning of this year. Major central banks and governments have taken unprecedented steps to alleviate the economic situation.
It is hard to see beyond one of two ways of interpreting this statement, 2/4  BIS central bankers' speeches  neither of which stands up to much scrutiny. The first interpretation is that the rules should not change in the future, and to do so would be unwelcome. This is unrealistic, dangerous and inconsistent with practice. As the world around us changes, so must the rules to accommodate these changes. As evidence of this, look at what the authorities have had to do in response to Covid and the shock that created for financial markets. The EU is almost constantly revising, or contemplating revising its own rules, and that’s a good thing. So, I dismiss this argument. The second argument is that UK rules should not change independently of those in the EU. I am being careful to phrase this point. It’s not that UK rules might change independently – the equivalence process provides for re-assessment of such decisions, so this should not be a problem. So, it must be the stronger form that they should not change independently. But that is rule-taking pure and simple. It is not acceptable when UK rules govern a system 10 times the size of the UK GDP and is not the test up to now to assess equivalence. It’s worth considering why we would choose to change the rules. First, it would be rare to say the least if such rules turn out always to work perfectly first time and thus need no amendment.

Andrew Bailey: The case for an open financial system Speech by Mr Andrew Bailey, Governor of the Bank of England, at the Financial and Professional Services Address, Mansion House, London, 10 February 2021. * * * As we look forward – and for so many reasons we must look forward – it is important to focus on the future of financial services, and the important role they play in our economy and internationally. This will be my focus today. I am going to look forward with the benefit of history and context and set out why open financial markets are in the interests of all – home and abroad – and something we should always strive for. I want to start with the Bretton Woods agreement towards the end of the Second World War. This was a fundamental and decisive commitment to an open world economy. This commitment did not come free at the time – the adjustment was hard for this country – and of course the more formal Bretton Woods system broke down in the 1970s. But that breakdown did not compromise the commitment shared broadly across nations to an open world economy. There have been times when the commitment has been sorely tested, but it has not been abandoned. What followed the breakdown was a shift of emphasis, not a free for all.
Private investment and consumption are expected to continue growing at a sustained pace, whereas the impact of slower world economic growth is expected to weigh on exports, with also a transitory impact on inventories. Indeed, economic activity in the euro area is largely determined by domestic factors such as long-term financing costs and disposable income developments, which have remained favourable. Furthermore, the still high rates of capacity utilisation in the manufacturing sector, the ongoing growth in employment and continued declines in unemployment should help maintain positive growth in private investment and consumption. Employment in the euro area is estimated to have increased by 0.6% in the first quarter of 2001, compared with the previous quarter, confirming continued solid job growth creation over the recent months. Notwithstanding sustained reductions in the aggregate unemployment rate and relatively rapid employment growth, wage increases in the euro area have so far remained moderate. Per capita nominal compensation of employees grew by 2.0% in 1999 and by 2.4% in 2000, while unit labour costs increased by 1.3% and 0.9%, respectively. There are a number of factors that help to explain why the increases in oil prices and their impact on inflation have not influenced wage developments in a period of falling unemployment. They include the employers and the general public’s confidence in the capacity of the ECB to ensure price stability. It is crucial that social partners continue the process of wage moderation seen in the past.

Monetary policy cannot simply wait until we have a clearer understanding of whether we are correctly measuring employment, whether the Phillips curve has shifted down, tilted or both – or whether there is a better framework for understanding the relationship between supply, demand and inflation. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13  But we are almost certainly going through a period of heightened change at present. The current level of uncertainty around the key assumptions on which we model and understand the economy is, in my view, different in kind to uncertainties about the data or signals we receive which are always mixed. Some of the relationships between economic variables that we depended on in the past appear to have gone on a longish leave of absence, but we are not sure why, or whether this is a temporary or more persistent departure. Against that background – and although it makes forward looking monetary policy more difficult – I tend to put more weight on the evidence we can or cannot see in the data and a little less on the un-observables and on how we think the economy works. In any event, monetary policy makers have a personal reason to be careful of complaining too much about the burden of uncertainty. It is not just that it is one of the things that makes the job challenging and worth doing. It is also why it cannot be done by a rule – or, at least as yet, by a robot.
The Bank of Albania deems that though the cautious consumer behaviour has not made any direct impact on economic growth over this period, it has helped keep risk premia on track and has led to low long-term interest rates, thus contributing to boosting private investments. Looking forward, we deem that the fiscal policy should retain its orientation toward fiscal indicators sustainability, supporting Albania’s economic and monetary stability and being an important pre-requisite for a stable and long-term growth. BIS central bankers’ speeches  1  Foreign demand continued to support the growth of exports and economic activity throughout 2012. Trade deficit narrowed by 7.9% in the third quarter, reflecting mainly the good performance of exports. The latter increased by 17% in the third quarter, retaining the previous quarters’ positive trend. On the other hand, imports performed poorly, reflecting the low demand for consumption and investment. In the third quarter, imports recorded positive annual growth of only 0.7%. Performance of monetary indicators attests to moderate pressures on monetary inflation. The annualised broad money growth rate decelerated to 6.8% in September. Reflecting the sluggish domestic demand, economic agents’ demand for money has been low. The weak demand for money has been associated with a constantly falling contribution of funding from public and private sectors to increasing the monetary supply throughout 2012. Private sector’s contribution continued to slow during this month; its annual growth rate reached 4.2%, recording one of the lowest historical levels.

On the other hand, preliminary information suggests that the fiscal stimulus may be upward in the next year, complementing the foreign demand as a short-term contributor to next year’s economic growth. However, the overall effect of fiscal stimulus will depend on the response by the private sector and financial markets. At the same time, its long-term effect will depend on additional costs that it will bring about on the budget. The Bank of Albania deems that the aggregate demand will not exert upward pressures on inflation. Against the backdrop of a stable monetary environment, well-anchored inflation expectations and moderate impact from import prices and exchange rate, inflation is expected to remain within the Bank of Albania’s target over the period ahead. Under these circumstances, our monetary policy is expected to retain its stimulating nature in the medium term. *** Concluding the discussions, the Supervisory Council decided to keep the key interest rate unchanged, at 4.0%. 2  BIS central bankers’ speeches
It is in this context that Fund surveillance could help members to be more informed of the implications of such risks, and to assist members, through Fund policy advice, on how best to prepare. In this respect, I have a view that the Fund could do more in three areas. First, it should step up its surveillance of the major economies by providing frank and independent assessments. Also, the briefings, papers, and analyses that the Fund prepares on G7 economies and meetings could be shared more widely with other Fund members. Second, in the area of financial markets surveillance, a few things could also be done. The Fund could produce and circulate monthly report on global financial markets to members focusing on the key financial flows to keep members informed of what the Fund sees as the current trends and risks in financial markets. Important in this context is the monitoring of activities or position-takings of large institutional players and hedge funds. Also, it would be useful for members if the Fund could develop its own in-house view of a benchmark risk scenario which then can be used, or shared with members, in stress-testing the vulnerabilities of economies to capital flow reversals. And third, in addition to the debt sustainability framework, the central focus of the Fund’s surveillance in emerging markets should be the analyses of capital flows and capital account sustainability.

And on capital account liberalization, I agree with my ASEAN colleagues that it would be more useful for the Fund to concentrate on managing the process of capital account liberalization of its members instead of discussing whether to make capital account liberalization an explicit purpose or mandate of the Fund. Finally, the third point I want to make today is that I see strong merits in separating lending and surveillance. At present, crisis resolution is done as an extension of surveillance by the area departments using the approach they see fit. Separating these two functions in terms of duties, responsibilities, and decision-making would provide clear accountability within the IMF on role and responsibilities over these two issues. Moreover, since crisis prevention and crisis resolution require different sets of skills and expertise, separating the two would allow the Fund to pool resources and the special skills on a Fund-wide basis, thereby strengthening the overall institution’s capabilities to deal with crisis resolution. Finally, with the work on crisis resolution becoming more centralized, the Fund’s program design could be more uniformly structured to reflect a common set of guiding principles in relation to absolute limits of access to IMF financing, the use of standstills on debt repayment, the role of the Fund in debt restructuring, and the extent of the involvement of the private sector.
The peer group includes Barclays, Cooperative Banking Group, HSBC, Lloyds Banking Group, Nationwide, RBS and Santander UK. (d) From 2018, Basel III Tier 1 capital ratios reflect IFRS 9 transitional arrangements as agreed in European law. (e) Series begins at end-2007. Chart 2: UK banks’ holdings of liquid assets Liquidity Buffer  (a)(b)(c)(d)(e)  LCR HQLA  £ 800 750 700 650 600 550 500 450 400 350 300  2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: PRA regulatory returns (a) UK liquidity consolidation groups for major 7 UK banks. (b) DLG consolidation is applied to Barclays, HSBC, Lloyds, RBS and Santander UK, whilst solo UK entities are shown for Nationwide and Standard Chartered. (c) Liquidity buffer refers to the liquidity held under the ILG regime, which is reported weekly until at least July 2019. (d) LCR HQLA refers to high quality liquid assets under the EU Delegated Act (reported monthly since October 2015). (e) Definition of liquid assets is broader under the LCR. 17  All speeches are available online at www.bankofengland.co.uk/speeches  17  Chart 3: Modelling errors in market risk (10 years of data)  (a)(b)(c)  Variance Squared bias MSPE  4.50E-05 4.00E-05 3.50E-05 3.00E-05 2.50E-05 2.00E-05 1.50E-05 1.00E-05 5.00E-06 0.00E+00 1  2  3  4  5  Past days modelled Source: Hinterschweiger, Neumann, and Saporta (2018), ‘Risk sensitivity and risk shifting in banking regulation’, Bank of England Financial Stability Paper No.44 (a) True model is number 3.

But there have been shafts of light amidst the general gloom - and I prefer to focus on those this evening. In terms of the global economy there are now tentative signs that the worst may soon be over, with the prospect of gradual recovery as we move through this year. That should provide some support for global equity markets. With inflationary pressures subdued, monetary policy generally can, for the time being at least, afford to remain reasonably supportive - though I make no predictions as to what that may mean for interest rates. And crucially, for all of us, the international financial system has so far and I recognise that problems are often slow to surface but it has so far - stood up well to the successive shocks. Much more broadly, I am encouraged that - as with the Asia crisis a few years ago - the recent pressures have not generally called into question the real benefits of the market economy, in terms of growth, and employment, and rising living standards, but have rather contributed to a growing recognition that those benefits can by-pass poor countries, and poor communities within countries, and that it is in our collective interest that those who are excluded, one way or another, should be helped to help themselves to participate in those benefits. In the context of globalisation, that was reflected in the Doha agreement on a new round of world trade negotiations; and development financing will be the theme of the Monterrey Summit next month.
Also, it is foreseen that the weakening of the developed world will have an impact on emerging economies which, in any case, will continue to outperform their developed counterparts. This projected world growth forecast is lower than consensus, which at the closing of this Report probably does not reflect the full effect of current financial turmoil. Nonetheless, incoming reports by investment banks do carry significant downward corrections for these developed economies, in line with the assumptions that make up our baseline scenario. As I said, concerns about an overheating of the emerging world and its consequences on inflation have subsided. Adjustments already made to the monetary policies of several economies, the weakening of the global economy, and the recent drop in commodity prices are behind this assessment. So, several countries have already suspended their cycles of policy rate increases and, in general, market expectations have adjusted to expect a flattened rate. In the developed economies, it is most likely that monetary policy will hold on to – or possibly even intensify – its current degree of expansiveness for some time. The Federal Reserve has just announced its intention to keep the fed funds rate at a minimum at least through mid-2013 (figure 11). All these facts combined will result in that the external impulse that the Chilean economy will be receiving over the coming quarters will be milder than previously estimated. On one hand, the worsened global performance will have a negative impact on our trading partners’ economies.

Developed countries must make costly, complex, yet unavoidable adjustments. The experience of the developed world confirms the need to safeguard macroeconomic balances, both public and private, as well as a strong, well regulated financial system. The fragility of financial systems and fiscal accounts of some developed economies have caused a recoiling of living standards and could compromise their growth ability for a long while. 6  BIS central bankers’ speeches  Figure 1 Gross domestic product  (index, IV.2007=100, quarterly series) 115  115  110  110  105  105  100  100  95  95  90  90  IV.07  IV.08 Chile  IV.09 U.S.  Eurozone  IV.10 U.K.  Sources: Central Bank of Chile and Bloomberg. Figure 2 Real exchange rates around the world (index, July 1994-July 2011 average = 100)  180  160  160  140  140  120  120  100  100  80  80  60  60 Russia Brazil Czech Rep. Australia Hungary Canada Indonesia Switzerland N. Zealand Poland India Philippines Turkey China Chile Thailand South Africa Israel Norway Mexico Peru Malaysia Eurozone Japan South Korea Sweden U.S. U.K.  180  Range (*)  Spot  Average  (*) The range shows peaks and troughs of the local currency during indicated period. The scale has been adjusted to 180. The peak value for this country was 225. Sources: Central Bank of Chile and Bank for International Settlements (BIS).
That said, we still have not reaped the full benefits of more harmonised regulation and more integrated supervision, and we need to make sure that we consolidate and build on the progress already made. From a regulatory perspective, aside from transposing the Basel Accords into EU law (the CRR 2-CRD 5 package introducing new prudential requirements such as the NSFR and the leverage ratio), we need to advance further on the application of uniform regulations. We also need to pull down all the barriers to euro area banking integration by removing all regulatory obstacles to cross-border transactions – in terms of solvency, liquidity or large exposures – and by adjusting the calculation of capital requirements for systemic institutions. In short, we need to recognise that the euro area must be treated as a single jurisdiction where a single rulebook is enforced. In terms of supervision, the priority now is to bring the largest investment firms within the scope of the SSM. We also need to increase cooperation between national authorities for the oversight of cross-border institutions (home-host relations), and for anti-money laundering and countering the financing of terrorism – the importance of which is recurrently driven home by the news. To complete the Banking Union, we also need to render its second pillar, the Single Resolution Mechanism or SRM, fully operational. The euro area has had a common resolution mechanism in place for banking crises since 2015.

Like the SSM, the SRM is based on a common regulatory framework (the BRRD Directive and the SRM regulation), and is structured around a Single Resolution Board and joint resolution teams. Although the SSM and the SRM have both been successful in managing the first bank liquidations or resolutions (i.e. those concerning the Veneto banks and Banco Popular), the second pillar still has to be finalised. Achieving this goal is essential, both to prevent the contagion of banking crises and to ensure the continuity of critical banking functions. In this regard, France has worked hard for the creation of a common backstop, the main features of which were decided just a few months ago. Three issues still need to be addressed however: the duration of the credit lines provided by the backstop; the creation of a rapid decision-making process in the event of an emergency; and the provision of liquidity to banks in resolution. Once these matters have been resolved, we can hope, and at the Banque de France it is our firm belief, that a pragmatic compromise can be found on the third pillar – the deposit guarantee scheme. c. … and building a Capital Markets Union to create a true Financing Union Evidently, financial integration is not just about achieving banking union. Ensuring the balanced and sustainable financing of the economy also implies deeper integration of capital markets, which fosters greater geographical diversification in savings and meets corporate firms’ financing needs – notably equity financing.