samchain/econo-pairs-v1 huggingface dataset:
Nevertheless, the nature of the price shocks were such that, in my view, there was little that monetary policy should or even could have done to offset them. Rather, given that changes in Bank Rate (or asset purchases) take a long time to have their full effect on the economy, monetary policy needs to be forward looking, focusing on the medium-term outlook for inflation yet to come. Trying to respond to every short-term movement in prices would probably be futile and would certainly involve a lot of unnecessary volatility. The Remit we have from the Government allows for these circumstances: “The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output”.1 To meet our remit we should ideally try to look through one-off price level shocks, in either direction, only responding if there are risks to the rate of inflation expected to prevail in the medium term. That theory is all well and good: but the one thing we know about the future is just how little we know for sure. 1  2  The Remit for 2011 is available at http://www.bankofengland.co.uk/monetarypolicy/pdf/chancellorletter110323.pdf  BIS central bankers’ speeches  Since I joined the Committee in March 2009 – the very week we announced the “quantitative easing” programme, buying gilts in large scale – I have voted with the majority at every meeting.

In this regard it is reassuring that the recently concluded IMF/World Bank FSAP exercise found Malta’s financial system to be healthy and well supervised, with a comprehensive legal framework and strong adherence to most international standards and codes. An issue of special significance for central bankers is the need to preserve the integrity of their institutions. Although the experience of current euro area Member States already provides useful insights into the appropriate exchange rate strategies to be pursued prior to, and during ERM II, the acceding countries will have to arrive at this judgment on the basis of expectations of the future path of the economy. Expectations, however, are just that. This means having to stand ready to give satisfactory accounts of the rationale for the policy choices made, to explain deviations from targets and to ensure that governments introduce corrective measures without undue delay. Unfortunately, however, the information reaching economic operators, and financial markets in particular, is not always accurate. And yet, with only a few months to go to EU accession, the markets will be looking out for indications regarding the strategies we intend to pursue with respect to ERM II and entry in the euro area. It will be important, therefore, to be constantly on guard against any imprecise information which could provoke untoward market reactions. This highlights the importance of an effective communications strategy and of appropriate coordination between central banks and governments. In Malta the joint working committee established to elaborate the strategy for adopting the euro fulfils this role.
This leads to the limiting case of proposals such as Professor Kotlikoff’s idea to introduce what he calls “limited purpose banking” (Kotlikoff, 2010). That would ensure that each pool of investments made by a bank is turned into a mutual fund with no maturity mismatch. There is no possibility of alchemy. It is an idea worthy of further study. Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another, more fundamental, example would be to divorce the payment system from risky lending activity – that is to prevent fractional reserve banking (for example, as proposed by Fisher, 1936, Friedman, 1960, Tobin, 1987 and more recently by Kay, 2009). In essence these proposals recognise that if banks undertake risky activities then it is highly dangerous to allow such “gambling” to take place on the same balance sheet as is used to support the payments system, and other crucial parts of the financial infrastructure. And eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe  8  BIS Review 140/2010  deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets. The advantage of these types of more fundamental proposals is that no tax or capital requirement needs to be calibrated. And if successfully enforced then they certainly would be robust measures.

But a key challenge is to ensure that maturity transformation does not simply migrate outside of the regulated perimeter, and end up benefiting from an implicit public subsidy (Tucker, 2010b). That is difficult because it is the nature of the services – not the institutions – that is the concern. Ultimately, we need a system whereby the suppliers of funds to risky activities, whether intermediated via banks or any other entity, must understand that they will not be protected from loss by taxpayer bailouts. Creditors should know that they will bear losses in the event of failure. We certainly cannot rely on being able to expand the scope of regulation without limit to prevent the migration of maturity mismatch. Regulators will never be able to keep up with the pace and scale of financial innovation. Nor should we want to restrict innovation. But it should be undertaken by investors using their own money not by intermediaries who also provide crucial services to the economy, allowing them to reap an implicit public subsidy. It will not be possible to regulate all parts of the financial system as if they were banks. As Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, has argued, “merely expanding the scope of regulation to chase those firms that extract implicit guarantees by engaging in maturity transformation would be an interminable journey with yet more financial instability in its wake” (Lacker, 2010).
Lively discussions after publication of the interest rate path There have been lively discussions on both occasions when the Riksbank has published an interest rate path. It is good that our forecasts and assessments are discussed. The fact that the Riksbank gives its view of the interest rate over a longer time span encourages this – the longer the time perspective, the greater the scope for differences in assessments. But the discussion that has arisen has often not taken this direction; instead it has focussed on market agents having been taken by surprise by the Riksbank. This is, of course, not the desired effect. The Riksbank aims to be predictable and from this aspect the experiences so far of publishing our own interest rate forecast have been not only positive. My view is that we are at the beginning of a joint learning process. It is unusual for the Riksbank to communicate its own interest rate path and it is unusual for market agents to relate to it. This is something that both parties will become better at as our experience in this field increases. We can also make some comparisons with when the Riksbank began to publish its inflation forecast. When the forecast was changed this sometimes led to a debate. BIS Review 111/2007  3  But after a time, everyone became used to the idea that the inflation path would be revised, and it will probably be the same case with the interest rate path.

The FSDP is a comprehensive strategy that is aimed at achieving a financial system that is sound, stable and market-based, that would support efficient resource mobilization necessary for economic diversification and sustainable growth. The weaknesses noted in the financial sector are addressed through a public and private sector partnership. A number of activities have already been undertaken under the FSDP such as the establishment of a Credit Reference Bureau. Similarly policies and the legal and regulatory frameworks have been developed to take into account the fast changing financial environment. These developments have resulted in a considerable increase in the number of banks and other financial service providers in the country. Ladies and Gentlemen, this workshop is therefore timely as it tries to bring together Zambian financial sector players and international financial players who have an interest to see that Zambia takes its rightful place in the world economy. Apart from being a sensitisation platform to the general public, this workshop should diligently explore ways on how entrepreneurs can access venture capital funds in Zambia. Although venture capital organizations in Zambia are not many and evident to the general populace, our expectation is that after this workshop, we shall see the emergence of an interactive and symbiotic alliance between International and Zambia financial institutions. This alliance is expected to provide venture capital funds and financial services that should uplift the well-being of the Zambian people at large.
“Is Price Stability Enough?” BIS Working Paper no. 205. Woodford, Michael. 2005. “Central Bank Communication and Policy Effectiveness.” In The Greenspan Era: Lessons for the Future. Federal Reserve Bank of Kansas City. ww.kansascityfed.org. Woodford, Michael. 2007. “The Case for Forecast Targeting as a Monetary Policy Strategy.” Journal of Economic Perspectives 21, pp. 3–24. Woodford, Michael. 2011. “Inflation Targeting and Financial Stability.” Sveriges Riksbank Economic Review, forthcoming. Yellen, Janet L. 2011. “The Federal Reserve's Asset Purchase Program.” Speech at the Allied Social Science Associations Annual Meeting, Denver. www.federalreserve.gov. 10  BIS central bankers’ speeches

Regulations of Anti Money Laundering (AML) and Know Your Customer (KYC) should be enhanced to prevent such risks. Finally, use of digital services requires better telecommunication infrastructure and internet access in some areas. Central Bank Digital Currencies Central Bank Digital Currencies (CBDC) represent an even more ambitious project that could be developed with a Blockchain/DLT infrastructure. A CBDC could imply several advantages for its users: (i) lower costs and higher speed for the interbank market; (ii) the possibility to implement central bank open market operations in a calendar of 24h/7days and reduce the current overnight transaction risk; (iii) an easier framework to pay interests on central bank currency and avoid restrictions coming from a zero-lower-bound (ZLB), and (iv) separate the current joint roles of credit and money creation by commercial banks, creating a more narrow banking system in which banks and financial institutions work with a 100% equity and no leverage. 12  Central Bank of Chile 29 June, 2017  Allowing a massive access, the balance sheet of the central bank creates almost unsurmountable challenges and risks, though. The main challenge is to move from a few dozens of wholesale partners to thousands or even millions of retail account holders, many of which could massively join as a part of a run on commercial banks.
The negative return reduced the value of the Fund by nearly USD 100 billion. At the same time, new capital of close to USD 60 billion was transferred to the Fund during the year, the largest annual inflow in the Fund’s history. Furthermore, a weaker krone in relation to the currencies in which the Fund is invested increased the Fund’s value by some USD 80 billion. Consequently, in spite of the negative return, the Fund’s market value increased by nearly USD 40 billion during the year. The market value of the Pension Fund was around USD 350 billion (NOK 2 275 billion) at the end of 2008. The financial crisis is having a broad impact, and most forms of investment are falling in value. Other government assets, such as shareholdings in domestic industries and subsea resources in the North Sea have also fallen sharply in value, at market prices. For large investors, there have been few places to hide from the panic that has gripped financial markets. Prices for government bonds, particularly German and US bonds, rose last year, but yields are now very low and will provide little protection when inflation eventually picks up again. For households, housing wealth has also declined since summer of 2007 to the end of 2008. The same probably applies to the value of infrastructure investments. After a little more than 10 years of experience, the Norwegian Fund has not reaped a risk premium in equity market as we had expected.

The annual return on the actual portfolio was ½ percentage point lower than the return on the benchmark portfolio. The results were not due to investment in high-risk fixed income instruments. At the end of 2008, as much as 64 per cent of the bonds in the Fund’s fixed income portfolio had the best  BIS Review 58/2009  5  credit rating, AAA, 20 per cent had the second best, AA, while ten per cent were rated A. Five per cent of bonds were rated BBB. Only one per cent of the fixed income portfolio has a lower credit rating. Realised losses as a result of bankruptcies have been low. How then can an excess return become negative from one year to the next? The Fund’s fixed income portfolio is well diversified across different types of bonds and different regions and the active strategies had low correlation in normal markets. However, the financial crisis revealed that these strategies were exposed to more underlying, systematic risk. Correlation was not expected to be high between investments in, for example, Japanese inflation-indexed government bonds, bonds issued by international organisations such as the European Investment Bank, European covered bonds and US mortgage-backed bonds. These experiences and the abrupt turnaround in market liquidity suggest that active management of the fixed income portfolio should be limited and measured on the basis of a number of criteria, as laid down by Norges Bank’s Executive Board. The Fund currently has extensive holdings of bonds that are difficult to trade in today’s market.
And, according to Congressional Budget Office projections, even if remittances drop sharply in future years, cumulative remittances would still likely be higher compared to the counterfactual regime in which the Fed had not expanded its balance sheet (Exhibit 14). In addition, because Fed purchases put downward pressure on long-term interest rates, this  12  Asset Bubbles and the Implications for Central Bank Policy, Economic Club of New York, April 7, 2010. 13  If the Fed’s net income fell below zero in a year it would record a deferred asset that it would redeem with future net income. Paid in capital and surplus would remain positive in a very wide range of scenarios. See The Federal Reserve’s Balance Sheet and Earnings: A primer and projections , Seth B. Carpenter, Jane E. Ihrig, Elizabeth C. Klee, Daniel W. Quinn, and Alexander H. Boote, Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System, 2013-01. See also SOMA annual report (forthcoming). 6  BIS central bankers’ speeches  generates interest savings for the Treasury, and this benefit should be included in the fiscal cost calculations. Finally, and most importantly, to the extent that asset purchases are effective in pushing the trajectory of economic growth above what would otherwise have been the case, this will lead to higher federal government tax revenue and lower safety net spending outlays during the recovery period.

Of course, it is for Congress to judge what combination of tax increases and spending cuts should be undertaken to achieve this. Nevertheless, the aging of our population and simple math suggest that entitlement reform would need to be part of such a plan. Also, in an ideal world, fiscal policy would have broad-based bipartisan support. That would reduce uncertainty and reassure households and businesses that the U.S. was on a sustainable long-term path. Instead, we have nearly the opposite: significant retrenchment in the near-term, but no credible action over the long-term, with partisan divisions and significant uncertainty about what will happen next. Will the sequester, for example, be sustained or not? Economic outlook Looking at the outlook for 2013, I believe that growth in the first half will be sluggish as the fiscal contraction blunts the economy’s forward advance. While first quarter GDP growth will likely rebound to a 2 to 3 percent annualized rate following the dip in the fourth quarter, this will be due in large part to temporary factors.3  2  Before taking into account fiscal multipliers. 3  This includes a modest boost from inventory investment following the substantial drag of the prior quarter, a recovery in farm output following last year’s drought, and less drag from defense outlays following the steep plunge of the fourth quarter. Rebuilding following the devastation from Superstorm Sandy may also provide some temporary lift this quarter. 2  BIS central bankers’ speeches  I’d also emphasize that there remains considerable uncertainty about the outlook.
We can choose to store our savings in the form of cash or in a current account. The price we pay is the return other alternatives would have provided. Bank deposits and bonds are examples of investments that provide a reliable return – interest income. If we choose to store money, we lose this income. But in contrast to bonds, money can be used directly to purchase goods and services. Interest is therefore also the price we pay in order to have liquid holdings. The interest rate is also used as an instrument in economic policy. Setting the interest rate to achieve a monetary policy objective, often price stability or low and stable inflation, is usually the responsibility of the central bank. The central bank sets a very short-term nominal interest rate. In Norway, this is the interest rate on banks’ overnight deposits in Norges Bank, the sight deposit rate. This rate determines the very short interest rates in the money market with maturities from one day upwards, normally up to Norges Bank’s next monetary policy meeting. Longer-term rates are determined by expectations concerning Norges Bank’s use of instruments in the future and by the degree of confidence in monetary policy. The real interest rate, that is the nominal interest rate minus expected inflation, is the rate that influences decisions concerning saving and investment. BIS Review 46/2003  1  The interest rate influences inflation indirectly via domestic demand for goods and services and via its effect on the exchange rate.

Various monetary policy regimes As long as capital markets have been in existence, the interest rate has had the key role of creating equilibrium within and between the various markets. The interest rate’s role as a monetary policy instrument used to influence inflation, however, is a more recent phenomenon. The gold standard was introduced in Norway as the basis of the Norwegian monetary system by the Act of 4 July 1873 relating to the Monetary System. Norway’s monetary system was largely based on the gold standard until its international collapse in 1929, when the Norwegian krone was pegged to the pound sterling. Up to the mid-1980s, the focus of monetary policy was, first, to stabilise the exchange rate by means of interventions and regulation of international capital movements. Second, credit developments were governed by regulations on borrowing. The interest rate was primarily used to provide cheap credit for some sectors. Many other countries have followed a similar path of development. Many of the changes in international monetary policy over the past 25 år can be viewed as a response to the problems of stagflation in the 1970s and to financial innovations and deregulation of financial markets in the 1980s. In many countries, the authorities have increasingly focused on price stability as the long-term objective of monetary policy, with the interest rate as the most important policy instrument.
The FSA has also been able to lower micro prudential liquidity requirements because of the extra liquidity backstop being provided by the Bank of England – in particular the ECTR and the Funding for Lending Scheme. This example may be important in a wider sense. One of the challenges facing macroprudential policy is that the instruments may not be symmetric in their impact. Put crudely, we can make firms hold more capital and liquidity when the going is good. We can’t force them to use those buffers when the going is bad, even if the rules are relaxed. Taking away the stick isn’t the same as offering a carrot. Vegetable metaphors are not always welcomed but I think it’s acceptable to suggest that the FLS may be seen as a carrot! And the FPC recommendations are perhaps a first example of macro prudential policy being used in a co-ordinated way (with central bank actions) to support the resilience of the UK financial system, by being counter-cyclical in approach. This ability to co-ordinate may also demonstrate the benefits of some shared membership across the FPC and MPC. 6  BIS central bankers’ speeches  I want to turn now to the Funding for Lending Scheme in the context of our announcements this morning of the first banks and building societies to have signed up and their stock of sterling lending to UK firms and households at end-June 2012 (Table 1) that will be used as a reference point.

2  BIS central bankers’ speeches  Chart 3 Market functioning “heat map” based on issuance and spreads data(a)(b) Corporate bonds P R I M A R Y  S E C O N D A R Y  US UK Euro area Bank bonds, unsecured US UK Euro area RMBS US UK Euro area CMBS US UK Euro area Corporate bonds US UK Euro area Bank bonds, unsecured US UK Euro area RMBS US UK Euro area CMBS (b) US Euro area  N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N NN NN NN N N N N N N N N N N N N N N N N N N N N N N N N N N NNNNNNN  07  08  09  10  11  12  Funding conditions compared with historical averages Very loose Lack of spreads data  Loose  Normal  Tight  Very tight  No issuance  Sources: Bloomberg, Dealogic, JP Morgan Chase & Co., Bank of America Merrill Lynch and Bank calculations. (a) Shading is based on a score that reflects gross issuance (relative to GDP) and spreads in primary markets, and spreads in secondary markets, expressed as a number of deviations from historical averages, using as much data as available from January 1998.