samchain/econo-pairs-v1 huggingface dataset:
In communications on the level of the neutral real interest rate that pre-date my membership of the MPC, a distinction has been drawn between ‘capital R-star’ – a low frequency concept, which ‘looks through’ the impact of short-term economic shocks – and ‘little r-star’ – a higher frequency concept, which is influenced by shocks. 6. In the recent past, the MPC has assumed trend real GDP growth in the UK of around 1½%pa, albeit with the year-toyear evolution of potential GDP more modest in recent years owing to a series of adverse supply developments associated with inter alia Brexit and the Covid pandemic. Supply trends are of course uncertain and regularly reviewed by the MPC. An updated MPC assessment of those trends is scheduled to be published as part of its February 2023 Monetary Policy Report. 7. By the same token, other countries – notably the US – that are net exporters of natural gas (typically in liquefied form as LNG) have seen a substantial, mirror image improvement in their terms of trade. On this dimension, developments in most Western Europe countries (including the UK) are therefore quite different from those in the US. 8. Abstracting from monetary policy, the textbook optimal response to a (real) terms of trade shock would be to switch the composition of demand away from domestic to external sources while sustaining aggregate demand at levels consistent with the full utilisation of available resources, i.e. an ‘expenditure switching’ rather than ‘expenditure reducing’ response, typically associated with real depreciation.

As ever, we remain in the price stability business. The open question is how we will act in order to achieve the 2% inflation target sustainably, given the substantial challenges of the moment. That is the question on which I hope to shed some light this evening. Before developing this theme, let me start by recognising what a privilege it is to gather with the ‘Money Marketeers’ here in New York tonight. I would particularly like to thank Kris Dawsey for extending the invitation to speak. I understand that the objective of this longstanding group is ‘to foster greater understanding of finance and economics among senior practitioners and developing professionals [so as] to establish greater dialogue between the public and private sector on those substantive issues that move markets’. [1] Meeting that objective is a tall order. Today, I hope to make a modest contribution in support of this collective effort by exploring some of the similarities and differences between the outlook for monetary policy back home in the UK and the outlooks in other jurisdictions.
Periods of low productivity are normally followed by periods when productivity recovers quickly. The labour market and current monetary policy Last week the Executive Board of the Riksbank decided to hold the repo rate unchanged at 0.25 per cent. But at the same time we made it clear that the time for a repo rate increase was not too far off. This could come in the summer or the early autumn. But even with the increases in the repo rate included in our repo rate path, monetary policy will be expansionary for a long period of time. The real repo rate is negative throughout the whole year, and will be below one per cent for the whole of 2011. The underlying CPIF inflation rate, that is, the CPI excluding the effect of changes in mortgage rates, is now relatively high at 2.5 per cent. But our assessment is that inflation will begin to fall, partly as a result of a stronger krona. In addition, slowly rising wages and increasing productivity growth will together mean that companies can produce goods at low cost. As economic activity strengthens the inflation rate will be pushed up and when we look ahead to the end of the forecast period it is close to 2 per cent. The forecast for the CPIF is therefore only marginally changed, compared with the assessment in the February Monetary Policy Report. Resource utilisation is an important variable for monetary policy as it is, for instance, an important indicator of future inflationary pressures.

The paper notably shows how monetary policy affects banks’ lending policies by making their liabilities more expensive. 8  Page 9 of 19  9  Page 10 of 19  This slowdown in credit supply is justified after the sharp rise in private debt ratios in recent years. Interest rates also influence the foreign exchange channel. The past depreciation of the euro has amplified the rise in imported prices, particularly those of commodities which are global and set in dollars. The 16% fall in the euro against the dollar between mid-2021 and mid-2022 would, if it had stayed at this level, have had an estimated impact of roughly +0.6 percentage points on the level of consumer prices over the long term. The monetary policy conducted since then by the Eurosystem has contributed to the recent re-appreciation of around 8% in the euro, which should gradually have the opposite effect. Do I need to say it again? We do not have an exchange rate target, but we closely monitor the effects of the exchange rate on inflation; it is good to see that they have become more favourable again since last summer. 10  Page 11 of 19  II. A few pointers: from the “sprint” to monetary normalisation in 2022 to the “long-distance race” towards monetary stabilisation As of the end of 2021, we responded to the inflationary shock with a rapid and clear shift in monetary policy stance.
Much of the post-crisis reform effort has been aimed at reducing the systemic risks that derivatives can create through the way they interconnect multiple actors in the system and can amplify market shocks. Mandatory margining, central counterparty clearing and trade reporting are all designed to create resilience and to simplify the network and make exposures more transparent. It may be however that widespread and increasing use of derivatives by market-based finance will over time make the opacity and complexity too difficult to manage. What is sensible for risk management at the fund level simply may be too difficult to manage risk at the system level. 18  Hedge funds and banks have different business models, which complicates comparisons of financial leverage. But, in aggregate, hedge funds’ non-derivative liabilities (made up primarily of borrowings through repo and prime brokerage) are roughly the same size as their total net asset value. Banks’ non-derivative exposures are over 15 times greater than their tier 1 capital. However, whilst the hedge funds industry’s financial leverage is lower than banks, some individual hedge funds make extensive use of financial leverage. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Second, and more importantly, given the channel of interconnectedness created by funds’ use of derivatives, to what extent could the failure of a fund or a number of funds create systemic risk? Again, the post crisis reforms around margining and clearing reduce that risk.

14  It is of course difficult to gauge the probability of a stress event leading to a self-reinforcing downward spiral of redemptions and forced asset sales. The Bank of England has developed simulation models that give an indication of the point at which liquidity would break down and such effects could set off. 15  These are only simulations. But given that we are paid to think about what could happen – what is unlikely but plausible – there is enough here to be of concern to macroprudential authorities. This concern is the backdrop to the FSB’s recommendations on asset managers that IOSCO published in February this year. 16  From the Bank of England’s point of view, the most important recommendations are  around fund liquidity and ensuring that the liquidity offer matches the investment profile of the fund. IOSCO is also taking forward the FSB recommendation to develop better and more consistent leverage metrics for investment funds. The Financial Policy Committee of the Bank of England has also commissioned work on non–bank leverage. 17  Leverage, as we know, is usually somewhere at the bottom of a banking crisis and the last episode was no exception. Leverage is perhaps the core necessary element of the banking business model. But when it gets out of hand it stokes up the boom phase in the financial cycle and can leave banks with insufficient resources to cope with the correction, so amplifying the bust phase of the cycle.
Passporting rights have been well availed of in this sector, too, and the total number of Notifications for European Insurance Undertakings to carry on business in Malta under the Freedom to Provide Services directive now stands at 204. The other reflection I would like to share with you is inspired by an interview given recently by the CEO of Mediterranean Bank to a local economic magazine, in which Malta was referred to as ‘a secure EU jurisdiction’. In this same context it was stated that ‘Malta’s stability is an important part of its appeal as a banking location’. While such accolades are indeed welcome, they do not come entirely as a surprise. For when Malta’s financial legislation was overhauled in 1994, and when EU legislation was later transposed in anticipation of EU membership, an intended by-product was indeed the incorporation of the highest international standards and best practices into Maltese financial laws and regulations. This was accompanied by a strengthening of the institutional framework for the regulation and oversight of the financial system. In 2002 the Malta Financial Services Authority (MFSA) became the single regulator for financial services when it took over the responsibility for the banking sector from  BIS Review 92/2006  1  the Central Bank of Malta (CBM). The Bank then assumed responsibility for ensuring the stability of the entire financial system. A year later Malta volunteered to undergo a Financial Sector Assessment Programme (FSAP) by the IMF and the World Bank.

Specifically, our research indicates that when college tuition rises in a state, it leads to higher levels of student debt and a lower homeownership rate. These factors matter for inequality and social mobility, because increasing home equity is the major form of wealth accumulation for the great majority of American families. Thus, rising tuition and changes in the way that college is financed appear to have diminished the ability of higher education to lift people from poverty into the middle class. Of course, students’ reliance on debt and the returns from graduating vary across educational institutions. Of particular interest here is recent work by Raj Chetty and his co-authors showing that some colleges—some of which can be found in the CUNY and California state systems— appear to be much better at fostering economic mobility than others. In other words, they accept relatively large numbers of lower-income students while also producing large numbers of high earners, which means that these institutions facilitate considerable upward mobility. Learning exactly how they do it and how it can be replicated strikes me as a first-order question for further study. Recent research by Caroline Hoxby to assess differences in productivity across educational institutions makes important progress in that direction. In summary, academic research on the financing, costs, and returns of higher education is more important now than it has ever been. We are pleased to have many of those researchers participating in this conference.
This causes them to turn away from their basic function of intermediation, so essential for the efficient allocation of resources. A system that finances the public sector loses its power. On the other hand, in an environment like that just described and an economy where capital movements have been liberalized, the soundness of banks is especially important. How, then, can banking system soundness be attained? There are four means to this end: 1)  A more efficient and independent supervision system. 2)  Embracing internationally accepted auditing principles. 3)  Improving methods for reducing the financial risks taken by the banks. 4)  The most important is reducing the internal and external imbalances and preserving market stability by creating a sound macroeconomic environment. 5  BIS Review 31/1999  Thus, the most important task for the system belongs to the public. The public authorities have an obligation to prepare the necessary legal regulations immediately and pass them through Parliament. Regulations that are inadequate or not updated only cause problems to accumulate. For these reasons the new banking law has been prepared and submitted to Parliament. The aims of the Draft Law are basically to strengthen supervision and make it more efficient, and to make sure supervision standards remain in line with international standards. The Draft Law was prepared on the basis of the laws and regulations of the European Union and other accepted international practices, and the “25 Core Principles for Effective Banking Supervision” promulgated by the Bank for International Settlements.

As I pointed out in my brief remarks on the financial standing of the banking sector, Turkish banks have reached a level of financial and institutional development that should not be underestimated. But despite all the aforementioned positive aspects, there are also various threats to the wellbeing of the Turkish banking sector which I believe are worth mentioning. Turkish banks, like all the other banks in the world, are exposed to credit risk, liquidity risk, interest rate risk and foreign exchange risk. This is true even in the absence of an environment of global crisis and macroeconomic risks stemming from political uncertainties. These are other issues that merit separate consideration. I will turn now to financial risks. The most important of these is credit risk, which Turkish banks pay the most attention to managing. The Turkish banking sector has become used to accepting and managing credit risk over the years. A credit culture has been developed in which firms, sectors, regions and individuals participate. Increased competition in the sector clearly has implications for the risk-taking process, which requires that the banks restudy their credit strategy. An overall examination of credit risk showed that the banking sector has been able to manage its credit risks by keeping the level of non-performing loans low in spite of an environment of shrinking international financing.
But their number will depend on the basket of deliverables of the futures contracts and how those baskets are defined. The alternative would be for a group of different countries’ bonds to be traded interchangeably, but that seems an unlikely outcome. On the OTC markets, the last 18 months has seen the proliferation of trades based on changing perceptions of the likelihood of convergence for the traditionally high-yielding countries and trades based on the differential yields of French and German government bonds. If I might embark on a regulatory diversion here, just for one moment, we at the Bank expect those banks involved in convergence trading to undertake rigorous stress testing of their portfolios to assess the market risk they are running on open positions. That testing should also shed light on the potential for changes in their credit risk - for example if an OTC contract is moving further in the money due to a market movement, the bank would become more exposed to its counter-party. We believe that the credit exposure implications of stress testing should be taken seriously too and are encouraging banks as best practice to do that. In our view not enough institutions do so yet. After EMU, one would expect to see the elimination of exchange rate risk narrowing yield differentials in the bond markets. With exchange rate risk removed and a single monetary policy in operation, national bond yields will differ principally because of differential default risks and differences in market liquidity.

Benoît Cœuré: Why the euro needs a banking union Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the conference “Bank funding – markets, instruments and implications for corporate lending and the real economy”, Frankfurt am Main, 8 October 2012. *  *  *  I would like to thank Carmelo Salleo for his contribution to the speech. I remain solely responsible for the opinions expressed herein. Introduction Ladies and gentlemen, It is a great pleasure to be here with you this evening as part of this conference. I firmly believe that good research underpins policy choices and, as you know, the European Central Bank (ECB) is very committed to carefully conducted, high-quality analysis as the bedrock of its decision-making. Bank funding has been the focus of policy-makers’ concerns for the past few years, ever since the collapse of Lehman Brothers, which brutally reminded us all of the systemic dimension of liquidity and funding risk. Such a cataclysmic event elicited a host of responses, ranging from central bank interventions to prevent a meltdown of the financial system to the design of new regulations to limit risk-taking by financial institutions. The shock was global – and the response has been global. However, much work still needs to be done, so I welcome opportunities such as this conference to gain a better understanding of the dynamics and determinants of bank funding and of their implications for the financial system and the real economy.
Thus the task has primarily involved controlling the way that developments unfold, and in the Central Bank’s view the worst path would have been if the real exchange rate had been driven up by domestic inflation. We are familiar with such cycles from historical experience and neither businesses nor households benefited from them. The Central Bank’s approach was therefore to raise its policy interest rate, causing a corresponding increase in the nominal exchange rate, in an attempt to prevent the real exchange rate from rising in step with inflation. An easier monetary stance may lead to a lower nominal exchange rate in the short run, but not to a lower real exchange rate in the long run. Lower interest rates would eventually lead to more inflation and wage rises, which in the final analysis would probably move the real exchange rate to broadly the same level as if monetary policy had been kept tight from the outset. The chief difference would simply be a much higher rate of inflation when the inevitable exchange rate adjustment arrived as the aluminium-related investments came to an end. There is no question that the high real exchange rate has squeezed the export and traded goods sectors, but it was known that such difficulties would emerge when the investments peak, so it should not have come as a surprise.

Banks and financial institutions should be more innovative and make arrangements to collect/capture remittances from legal/illegal migrants at the field level and coordinate with the host country’s banking/financial institutions to transfer monies to remitter's home country speedily and at a reduced cost. Informal transfers largely take the form of cash. The absence of an efficient financial infrastructure at the remitter's end as well as receiver's end is also found to be a discouraging factor that contribute to the use of informal channels. In some destinations, there is no access to sophisticated infrastructure in the host countries for cross-border transfers. Migrant workers, therefore, depend heavily on informal systems. In this context, a global attempt should be made to facilitate cross-border remittance transfers as such transfers have a significant impact on the development of many nations. 2  BIS Review 3/2007  Part II - Importance of remittances in Sri Lanka's economy I now proceed to illustrate how dependent Sri Lanka is on worker remittances. Over the last couple of years, worker remittance has been the single largest inflow of foreign exchange after exports in Sri Lanka. Remittances have played a significant role in financing the widening trade deficit and maintaining balance of payment surpluses. During 2005, over 75% of the trade deficit was financed by worker remittances.
However, broad  policy analysis system, which brings  money (M2b) will remain as the key  together information and judgment in a  indicative intermediate variable, which  coherent and logical manner. reflects the broad liquidity conditions in the economy, to guide the conduct of monetary policy of the Central Bank. Under the FPAS, the Central Bank has already finalised the development of the baseline version of a semi-structural  To implement the new framework,  Quarterly Projection Model (QPM) for  macroeconomic projections, including  forecasting and analysing monetary  inflation projections, are currently being  policy. strengthened using short-term as well as medium-term structural forecasting tools and techniques. In this endeavour, continued efforts are being made to  Central Bank of Sri Lanka – ROAD MAP 2017  Meanwhile, the Central Bank is in the process of implementing several organisational changes necessary for the  13  effective implementation of the model. Moreover, we also intend to reintroduce  To this end, a separate Modelling and  the Monetary Policy Consultative  Forecasting Division has been setup in  Committee (MPCC) in 2017, comprising  the Economic Research Department and  eminent academics, professionals as  relevant processes are being developed  well as representatives from the private  while equipping the staff with adequate  sector. We expect to benefit from the  training. views and inputs of the MPCC in better  More importantly, we intend to introduce several changes in the  calibrating the monetary policy decision making process.

A series of home-made disasters have also rocked the sector. The UBS “rogue trader”, the losses at JP Morgan’s Chief Investment Office, LIBOR manipulation at Barclays (with others under investigation) and the mis-selling of PPI. These scandals have not so far been institution-threatening, but coming on top of the financial and macroeconomic crisis to date, they have helped to suck confidence from the financial sector just when it might otherwise have been recovering. Chart 3 shows a “heat map” of markets generated by colleagues in the Financial Stability area of the Bank. This chart uses indicators such as issuance amounts and bid-ask spreads to monitor market conditions. Red indicates a non-functioning market. The process of “healing” since 2008/09 that I referred to a year ago is clear. But then the improvement plateaus and starts to reverse in mid-2011. A year ago it looked like conditions were starting to revert to those of late 2008. As the managers of the UK’s foreign exchange reserves we experienced some of these deteriorating conditions at first hand. (It is a neglected point that the Bank of England is a significant participant in the market on behalf of HM Treasury through reserves management operations, as well as being the monetary authority for sterling markets.)