samchain/econo-pairs-v1 huggingface dataset:
Thomas Jordan: Monetary policy and government debt – different perspectives Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the 13th Zermatter Symposium, Zermatt, 28 August 2007. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The effects of fiscal and monetary policy overlap. Fiscal policy can have a cyclical effect, while monetary policy can also generate income for the government. However, theory and practise have shown that, first and foremost, monetary policy must be used to ensure price stability and – to a limited extent – to dampen economic fluctuations. The principal aim of fiscal policy, however, must be to ensure that the national budget is financed as efficiently as possible. When government debt levels are high and budget deficits get out of hand, they pose a significant threat to a monetary policy that is geared to stability. Misusing monetary policy as an instrument of fiscal policy inevitably leads to a loss of purchasing power. Many episodes of high inflation have come about, ultimately, as the result of funding requirements on the part of the state. Nowadays, the independence of many central banks shields them – to a large extent – from the fiscal greed of politicians. Nevertheless, time and time again, when government finances have fallen into disarray, central banks have been seen to come under political pressure. From a monetary viewpoint, however, government debt is not entirely unwelcome.

Oil prices have fallen much lower than what we had anticipated during our last round of economic forecast in July which had headline inflation projection in the range of 7.5-8.8% for the year. The fall in oil prices adds on top of the temporary favorable price impact from the government’s six-months-six-measures program which was not included in time for the forecast and will together be a major factor in our October forecast round. The fall in oil prices is also expected to have a significant impact on economic growth which was forecasted to be in the range of 4.8%-5.8% for this year. Unfortunately, the impact of the escalated political tension was also something we had not anticipated. In particular, the damage it has inflicted on the tourism sector will significantly shave off one significant source of external revenue the economy has relied on. Still, we see the economy’s growth momentum to remain in tact. Here I am not alone in believing so. The latest SET’s CEO Survey released last week showed that the majority of listed companies’ CEOs remained confident in the growth prospect of the Thai economy. Obviously, this is a difficult time for the economy. But you have to remember that we are no strangers to difficult challenges, some much worse than what we are facing. Most importantly, as I repeatedly said on different occasions, Thailand possesses strong economic fundamentals and room for maneuvering the right policy mix that makes us resilient against economic shocks. Allow me to elaborate on some of these.
It will be interesting to see how this story plays out in coming years. Thank you very much! 10  I have discussed the potential implications of the foreign currency surplus for the international monetary system in: “The implications of cross-border banking and foreign currency swap lines for the international monetary system”, in O. Blanchard, D. Romer, M. Spence and J. Stiglitz (eds), In the Wake of the Crisis, MIT Press, 2012. 11  See Flemming and Klagges (2010), op. cit. BIS central bankers’ speeches  5

Clearly, those retail banks with little or no tradition in issuing capital and other securities in capital markets will have particular difficulties coping with the enhanced regulatory framework. Admittedly, though, the corporate structure of many retail banks -particularly those which are not yet regular corporations listed in capital markets - may face less immediate pressure to restore higher profitability levels. That may allow them to buy some time. 3/5  Yet, low sustained profitability is often a symptom of vulnerability and, certainly, of inefficient allocation of the resources employed in the banking business. There is therefore a need to reflect on the best way to strengthen retail banks, to make them better able to cope with the new macroeconomic and regulatory conditions without damaging the social benefits associated with their activity. It would be unsound to try to establish specific strategies with the pretention to be unconditionally applied in all circumstances. However, I see some difficulties for numerous retail banks in adapting to the low-profitability and tighter regulatory environment if they are not able to increase their ability to compete with banking corporations in terms of costefficiency, business diversification and access to capital markets. Some transformation of the retail and, in particular, the saving banking sector therefore seems unavoidable in order to meet the target. We, in Spain, have already taken some steps in that direction.
Productivity during different economic expansions in the US USA: Non-farm productivity growth 5  4,5  annual increase in percent  4  3,5  3  2,5  2  1,5  1  0,5  0  1961-69 first 2 years  1982-90 year 3-4  year 5-6  1991-99 year 7 and thereafter  Source: Federal Reserve, Board of Governors. The background to this scepticism regarding the effects of IT on the rest of the economy lies in the “Solow paradox”. Nobel prizewinner Robert Solow stated in 1987 that “we see computers everywhere but not in the productivity statistics”. This was true until the mid-1990s. 3. Productivity by factor, USA 1980-99 3  average annual increase in percent  2 ,5  2  1 ,5  1  0 ,5  0  C a p ita l d e e p e nin g  La b o u r q ua lity  TF P  Source: Federal Reserve, Board of Governors. Now, however, the effects of computers are beginning to show in the statistics and this paradox could be dismissed. Stephen Oliner and Daniel Sichel at the Federal Reserve in Washington3 have made an in-depth analysis. This is based on the fact that the productivity trend has increased by just over 1 percentage point during the latter part of the 1990s and they conclude that IT actually accounts for most of the growth in productivity. Just under half of the total increase results from investments in IT.

It should, as planned under the technical enhancement, prepare a “credit scoring” module which will indicate some sort of ranking of borrowers. This would enable the lending institutions to better assess whether the borrower is a willful defaulter from the beginning or whether he has defaulted only on a few instalments. This is how credit bureaux world over provide both positive and negative information of their borrowers. The CRIB would endeavour to accomplish and provide an equitable service through its business plan which will come into effect from the second half of 2006. Accordingly, it intends to engage in a horizontal expansion in collection of information from multiple sources, i.e. credit granters, utility service providers, insurers, public databases and lenders for SMEs and micro sector borrowers in its new database in a phased manner. I hope that the expansion of customer databases to include their payment schedules for other utility services might help the lending institutions to form a better opinion of the borrower. In addition, using the new technology, the CRIB intends to enable customers to have easy access to their own credit profile and apprise the CRIB of erroneous reporting. With the introduction of the new technology, the reporting institutions as well as the CRIB should work together  2  BIS Review 66/2006  to provide positive information of the borrowing clientele, so that their ability to stay in the formal market is made easier.
We need to avoid having ex ante criteria that are so strict that in practice they prevent the ESM from being used preventively. These actions should also be supplemented by a common fiscal capacity: these words are probably less contentious than a common “budget”, but as the President of the ECB wrote last week, we shouldn’t shy away from its stabilisation function. If so, it would support the single monetary policy and price stability. ** I will conclude by quoting President Mário Soares, one of the key actors of Portugal's accession to the European Community: “Recent history has shown that rather than deferring crises we must confront them head on, with a determination to overcome them9”. Let us face the challenges for 2019 with this determined spirit: Brexit and the European elections as well as national domestic elections including in Portugal, and now in Spain. Our role as European central bank is to be faithful to our mandate while remaining totally independent. But we also have to be more attentive than ever to our environment: we have to be ready to react in response to economic uncertainties, and we must plead for a sensible strengthening of European sovereignty. Thank you for your attention. [i] See Article 127 of The Treaty on the Functioning of the European Union. [ii] Hartmann, Philipp, Smets, Frank, “The first twenty years of the European Central Bank: monetary policy”, ECB Working Paper Series, No 2219, December 2018.

And in the US, there is a divergence between weaker soft data like the ISM manufacturing survey index and still rising hard data on industrial production. Hence, restoring confidence should be the priority and it is the responsibility of political leaders: the best antidote to the current slowdown is to reduce geopolitical risks, more than changing economic policies. The French economy has been slowing down but less than in some other European countries, due to increasing purchasing power and resilient domestic demand. In 2019, French growth is expected to be higher than that of Germany and close to the euro area average. Beyond internal demand, the second pillar of European resilience should be the extension of domestic reforms. I would like here to take the example of the Portuguese recovery since 2014, after a severe crisis and courageous adjustment efforts: GDP is now growing at 2.1% in 2018. Ambitious reforms have improved cost competitiveness, boosted export performance and led to a sharp fall in the employment rate, which has more than halved since 2013. This clearly demonstrates that, in Europe, reforms do have a positive impact. 2. Our monetary policy is able to combine clarity and flexibility. Let me turn to the consequences for our monetary policy: to deal with uncertainty, we have to combine clarity and flexibility, as we did in our December’s chained guidance. I will come back to this. In the present context, we should favour state-dependent analysis over time-dependent variables.
The intensification of the process of financial integration and liberalization of the capital transactions as global processes, have set new challenges for the countries in transition, which reflected not only in the balance of payments capital account, but in return in the balance of payments current account, as well as the exchange rate regime. Positive macroeconomic performances of the countries, as well as the fast global growth, low rate of inflation and historically low level of the interest rates in the developed countries are factors that caused high capital inflow in the transition countries and produced significant implications for the conduct of monetary policy in the transition countries. Having in mind that the majority of them are characterized by fixed exchange rate regimes, high capital inflows resulted in appreciation of the real exchange rate and further deepening of the trade deficit, and consequently of the deficit in the balance of payments current account. The process was intensified additionally by the higher productivity growth in the tradable goods through the so-called Balassa Samuelson effect, which according to certain estimates increased the appreciation of the currency on 4 average by 1.5 to 2.5 percentage points . Experiences of more developed transition countries are of special importance for the future challenges of the Republic of Macedonia, as a part of the increasingly intensifying process of EU integration.

With interest rates close to zero, the SNB created additional Swiss franc liquidity through foreign exchange market interventions. This prevented the rise in the value of the Swiss franc from leading to what at the time would have been an undesirable tightening of monetary conditions. The foreign exchange reserves therefore surged from around CHF 50 billion at the end of 2008 to a good CHF 200 billion by the end of 2010. A direct consequence of our much larger balance sheet is the increase in the financial risks associated with our foreign exchange reserves. These risks have materialised in the last 12 months, and have led to significant losses for the SNB. They hold the potential for further losses. Just as the increase in our foreign exchange reserves was determined by the demands of monetary policy under the exceptional circumstances that prevailed in 2009 and 2010, monetary policy considerations will continue to dictate our actions in the future. This means, in particular, that selling our foreign exchange reserves (and buying Swiss francs) is not an option at the moment. Monetary policy also dictates that our currency risks not be hedged. In effect, hedging the exchange rate risk using derivatives would be equivalent to buying Swiss francs against foreign exchange for forward delivery. The effect of hedging on the market is thus comparable to the direct sale of foreign currency.
The financial markets have been affected more noticeably The international markets where the banks obtain funding by taking out bond loans have been functioning poorly. Borrowing has become more expensive and more difficult. Normally the financial market participants trade with one another and thus contribute to the smooth functioning of the market. However, recently above all mutual distrust has meant that they are more wary of lending money to one another. One can say that this has “thrown sand in the wheels”. Many central banks and other government agencies are trying to counteract this, as I will discuss shortly. This has also affected the Swedish banks, although the problems have been less serious here than in many other parts of the world. We can observe that short-term interest rates have now risen substantially in Sweden, too. This applies, for instance, to the interbank market, which is the market where the banks borrow money from one another to cover their short-term liquidity needs. However, in this context it is worth pointing out that the overnight market has functioned as usual and that the overnight rate, the shortest interest rate in the economy, has remained stable around the repo rate. In this way the Riksbank’s system for steering the interest rate functions well, which is of course important not least for monetary policy. The market for mortgage bonds has also functioned less efficiently than normal.

Also, the global financial system currently provides ample liquidity, and since global markets have increasing access to more information on the productive and financial structure and the functioning of the economies of the region, they are more willing to provide tailored financing at good rates of return. Against this backdrop, we believe that the economies of the region have a good opportunity for building a new relationship with the Fund, which should be based rather on a collaborative dialogue about how global financial development could contribute to the final objective of achieving high and sustainable growth rates in the medium-term, than on meeting a certain set of stringent conditions associated to the lending programs as has been so far. Should the weight of emerging economies in the decision-making process of the Fund be increased, all these necessary efforts to which I have referred to above would produce better outcomes. Chile, as the rest of South America, did not support the proposed resolution on the quota reform in September, although it did fully support the search for an integral solution. The reasons for our vote are well known and it is not is my intention to reiterate our arguments in this occasion. We still believe that an increase in emerging country quotas would lead to more active and committed involvement of emerging economies in the Fund’s decisions that definitely would increase the Fund’s legitimacy in the region.
It would boost the incomes of those in employment and is an essential part of improving the UK’s competitiveness. Moreover, in such a scenario, you would know to expect interest rates to stay lower for longer, encouraging household spending and business investment. Our forward guidance is a stabiliser – securing the scale and duration of recovery that is needed to bring unemployment down. The prospect that interest rates might stay at their low level for longer will not be welcome for savers. I have tremendous sympathy for them – after all they have done the right thing, set money aside, and now they are earning returns that are substantially below what they would have expected. But raising interest rates now is not the answer – instead what savers need is a stronger economy. That will mean higher asset prices, and will allow interest rates to return to normal levels in a sustainable way. A strong economy is in all of our interests, as it will deliver better job prospects for our friends, neighbours, children and grandchildren. The last thing savers want is for the UK to follow Japan by raising interest rates before recovery is secured, only to find that we are condemned to decades more of low interest rates and lost opportunities. Our forward guidance is about setting the path of inflation to return to target Let me reassure you that our mandate to deliver price stability has not changed. Our inflation target of 2% was reconfirmed in our remit from the Chancellor in March.

We will provide guidance to central banks and supervisors on how they could potentially address these barriers. The NGFS is working on two blended finance deliverables by COP28. First, a handbook on blended finance. It will draw on key lessons from past case studies on blended finance projects and provide practical guidance on how such projects can be scaled up. Second, demonstrative blended finance projects. The aim is to spotlight projects that have incorporated mechanisms to promote the scaling of blended finance. We will also categorise the key pain points in some of these projects and draw lessons on how they could be addressed. 3/5  BIS - Central bankers' speeches  Transition planning Across the financial industry, the focus is gradually shifting from commitment to action. This means going beyond high-level net zero commitments to designing credible transition plans that will get us there by 2050. Drawing up a credible transition plan requires financial firms to do several things:  baseline their financed emissions; set interim targets based on appropriate science-based sectoral pathways; engage clients on their own corporate transition plans; and monitor portfolio and client progress over time. Transition plans need to be adaptive to changing circumstances while maintaining ambition. There is uncertainty over the path of various decarbonisation technologies as well as climate-related policies such as carbon taxes and emission standards. The assumptions used in transition plans would need to be continually monitored and adjusted as necessary.
But even if there is no such restriction on raising the policy rate, the problems gradually increase the higher the policy rate has to be raised to bring inflation back to the target. It is therefore not a question of whether inflation will be able to reach the target at all, but of how large the cost will be for the Swedish economy in the short term to attain this. The better the interaction, the smoother the slowdown in inflation will be. 10 [15]  If we really see the inflation target as a macroeconomic target that provides favourable prerequisites for a good long-term economic development, such interaction should be both possible and desirable to achieve. References Auclert, Adrien, Hannes Malmberg, Frederic Martenet and Matthew Rognlie (2021), ”Demographics, Wealth, and Global Imbalances in the Twenty-First Century”, NBER Working Paper 29161. Calmfors, Lars, John Hassler and Anna Seim (2022), Samspel för stabilitet – en ESO-rapport om rollfördelningen mellan finans- och penningpolitik, (Interaction for stability – an ESO report on the division of roles between fiscal and monetary policy), report to the Expert Group for Public Economic Studies. Jansson, Per (2020) “Thoughts on the need for changes to inflation targeting”, speech at Handelsbanken, 16 December. Jansson, Per (2021), “Is it time to review the division of roles in macroeconomic policy?” speech at Sveriges Riksbank on 8 December. Obstfeld, Maurice (2022), ”Uncoordinated monetary policies risk a historic global slowdown”, blog post, Peterson Institute for International Economics, https://www.piie.com/blogs/realtime-economic-issues-watch/uncoordinatedmonetary-policies-risk-historic-global-slowdown. 11 [15]  Figure 1.

According to most estimates, it is expected to remain at a historically low level for the foreseeable future. Since it determines what policy rates the central banks can set in the longer term, this means that in a few years’ time, when we have overcome today’s high inflation, we may well be back in a situation where monetary policy once again has to deal with policy rates at the lower bound and inflation that is too low (Figure 3).5 One possible caveat here is linked to the fact that the West has for a long time been dependent on Russian energy and Chinese markets. Not least the pandemic and the war in Ukraine have shown that this dependence has made many companies and business operations vulnerable. It has therefore become increasingly common to think about how the dependence can be reduced and production made more robust. One way of doing this is through so-called reshoring, that is, moving businesses closer to home again. In that case, the globalisation that has contributed to dampening inflation over the last few decades would begin to roll back. This could mean that the ‘headwind’ that inflation has had for a long time is turned into a ‘tailwind’. Although the global real equilibrium rate would remain low in the future, it does not need to become as common as it has been so far that central banks’ policy rates are at the lower bound.