samchain/econo-pairs-v1 huggingface dataset:
Mr Trichet presents the Annual Report of the Bank of France Address by Jean-Claude Trichet, Governor of the Bank of France before the President of the French Republic, Senate and National Assembly on the occasion of the presentation of the Annual Report, in Paris on 21/5/99. I am honoured to present you with the report on the operations of the Banque de France, monetary policy and the prospects for it, as required by law. As is the custom, I also submit herewith the Monetary Policy Council’s comments on the events of the past year, which was marked by the choice of the European Union Member States authorized to participate in Monetary Union and by the creation on 1 June 1998 of the European System of Central Banks. The upturn in growth that started in 1997 accelerated in 1998. Annual average GDP growth stood at 3.2%, after 2.3% in 1997 and 1.6% in 1996. In 1998, the expansion was fuelled by vigorous domestic demand, particularly household consumption. Furthermore, total investment, which had stagnated in 1997, posted a dynamic increase in 1998. By contrast, foreign trade made a negative contribution to GDP growth owing to the deterioration in the international environment. Although France was comparatively less severely hit by the spread of the emerging country crisis, the economy was affected by weaker demand from our main European trading partners. Thanks to faster growth, the French economy created 300,000 jobs in the non-farm market sector in 1998, compared with 196,000 in 1997.

Turning first to the issue of measuring the impact of TIPS issuance on the government’s funding costs, this could be done simply by comparing the ex-post costs of a program of TIPS issuance to the costs of a comparable program of nominal Treasury issuance. Studies 1 of this sort have typically shown that TIPS issuance has resulted in a higher net cost to the Treasury. Unfortunately, although this methodology is attractive in its simplicity, it has some flaws that undercut its usefulness in reaching conclusions about the attractiveness of the TIPS program. The problem with an ex-post analysis is that it depends critically upon the performance of inflation over the period in question. If inflation turns out to have been meaningfully different than what was expected at the time of TIPS issuance, then this difference – the so-called “inflation surprise” – can be important in affecting the relative costs of TIPS versus nominal Treasury issuance. If inflation turns out to be higher than expected, then TIPS issuance will likely look to have been more expensive than nominal Treasury issuance. If inflation turns out lower, an ex-post analysis will likely show a savings from the TIPS program. Over the long run – and I mean the very long run – there should be roughly as many downward surprises in inflation performance as upward surprises. But within any relatively short period, such as the last decade, this certainly does not need to be the case.
Although the jury is still out on this question, last month’s Summary of Economic Projections, or SEP, is instructive.5 Most FOMC participants—including me—have the unemployment rate moving considerably below their estimate of NAIRU by 2020, with inflation climbing slightly above 2 percent and the federal funds rate moving above their estimates of its likely long-run value. Thus, the March SEP implies that most FOMC participants expect that monetary policy will need to become slightly restrictive in the years ahead. Recent fiscal and trade policy developments are likely to increase the uncertainty around the distance to a neutral monetary policy stance and the possibility that the FOMC will have to move to a restrictive stance. The shift in fiscal policy toward stimulus is somewhat challenging because of its timing—it is unusual to move fiscal policy sharply in a stimulative direction at a mature stage of a business cycle—and because the shift puts the nation’s fiscal path on an unsustainable trajectory. According to the projections released earlier this month from the Congressional Budget Office, or CBO, the federal budget deficit is anticipated to exceed 4½ percent of GDP in 2019, well above the level that would be needed to keep the federal debt-toGDP ratio from rising.6 Moreover, the CBO expects that the pressures on the budget will be substantial over the next decade, with deficit projections ranging between 4½ and 5½ percent of GDP throughout the period.

And if disclosure is an issue at the level of individual firms, you can imagine that in aggregate, for the financial system as a whole, the gaps in the data can be large. It is a major challenge for the authorities to keep pace with financial innovation in the collection of financial statistics. The Asian Crisis revealed the importance of derivatives exposures in assessing a country's financial position but these were not included in BIS statistics on cross-border lending, even though derivatives had been a common feature of financial markets for at least fifteen years. My second question is a concern that some participants in this market may not fully understand, or may have differing understandings of, the transactions into which they have entered; and that uncertainties may remain about how the courts in some countries would treat these agreements. This is always an issue in new markets, until market standards and legal precedents are clear. But some aspects of the credit transfer market make it particularly relevant. Purchasers of asset-backed securities and creditors of firms that securitise assets need to take care to assure themselves that this transfer is legally robust - a true sale. An unexpected consolidation of the assets of a securitisation vehicle with those of the original lender could lead to potential losses for either party. Lawyers do, of course, pay great attention to this issue and I am neither questioning their opinions nor suggesting that this is necessarily a problem. But transactions differ and investors must do their own due diligence.
These loans have been provided at longer maturities than normal and with a broader spectrum of collateral. In Europe and other parts of the world, central banks and supervisory authorities have faced many new problems over the last 12 months, not least with regard to banks that have operations in several countries. The experience gained is now the subject of intensive discussion. I am convinced that in the future we will see major changes regarding the supervision and regulation of the banks and other financial operations. But I will gladly speak about this on another occasion. Concluding remarks Over the last 12 months we have experienced a financial crisis that is exceptional in many respects in the sense that it has hit more players, markets and types of asset than any previous crisis. Since the beginning of the summer, the real economy has begun to show signs of stabilisation, although from very low levels. In Asia, and not least in China and India, growth has begun to pick up again and this is having a noticeable effect at those companies that export to these countries. World trade is beginning to stabilise and the fall in GDP has slowed down. The reports of the banks and companies for the second quarter have also been less negative than expected, which has given rise to somewhat greater optimism about the future. There are also signs that the financial markets are working more effectively.

The world’s financial markets have been plunged into turmoil which some say is unprecedented, or at least comparable to the levels experienced in the most severe financial crises of the last century. Notwithstanding this, our financial system has demonstrated a level of stability which to an extent has been derived from the strong capital positions that have characterised the Zambian banking industry in the past few years. However, this turbulence has already resulted in a reduction in projected global economic growth and a decline in demand for Africa’s exports. Notwithstanding this, we remain confident that the banking sector will continue to show resilience and expansion through branch networks, thereby acting as a channel through which services will be extended to the financially excluded. Ladies and Gentlemen, a recent survey established that fewer than 15% of the Zambian adult population have access to the services provided by commercial banks. The key reasons for this low level of access were cited as the distance that needs to be overcome in order to access the services and the cost of these services. It is therefore a welcome development that commercial banks have responded to these challenges by reaching out through new branches. However, banks need to be mindful of the fact that the many of our people who need these services most of all are not able to bear the heavy charges that are sometimes levied, and the goal of inclusion will stand to be compromised if this matter is not addressed.
In the current situation it can actually be claimed that there is no conflict. 1  The designation “inflation nutter”, describing a central bank only working towards stabilising inflation, was coined in a speech held by Mervyn King at a conference at Gerzensee, Switzerland in 1995, later published as King (1997). The designations strict and flexible inflation targeting were first introduced and defined, as far as I know, in a speech I held at a conference at the Banco de Portugal in 1996, later published as Svensson (1999). 2  BIS Review 22/2010  Figure 1 Monetary policy alternatives, February 2010 a. Alternative repo-rate paths 5.0 4.0 3.0 2.0 1.0 0.0 -1.0  d. CPIF 4.0  Per cent, quarterly averages  Annual percentage change  3.0 2.0 1.0 0.0 08  09  10  08  12  11  09  b.

For example, in an assessment of monetary policy, this becomes an issue of whether the central bank attaches a reasonable relative weight to the stabilisation of resource utilisation and whether the central bank is reasonably consistent over time.10 The numerical inflation target has signified great progress for practical monetary policy and made it possible to measure and evaluate the target achievement of monetary policy in a much more effective manner than before. However, the fact that monetary policy is not just directed towards stabilising inflation, but also towards stabilising resource utilisation has, in the absence of quantitative measures of stability in these variables, made it difficult to measure and evaluate target achievement in this stability dimension. However, the quantitative measure implied by the mean squared gaps makes it possible to measure and evaluate this target achievement. Using the mean squared gap may entail a progress similar to the earlier introduction of the numerical inflation target. Following the introduction of published policy rate paths, this is another step towards a better and more effective monetary policy and better opportunities to evaluate monetary policy’s target achievement. 10  According to Bergo (2007) and Holmsen, Qvigstad and Røisland (2007), an optimal policy of  = 0.3 is compatible with the monetary policy forecasts published by Norges Bank (with a discount factor of 0.99 and a weighting in interest rate smoothing of 0.2). The steeper straight line in Figure 3 corresponds to  = 0.3, while the flatter line corresponds to  = 1.
I fear that what I am  15  Report of the Technical Committee of IOSCO on Trading of OTC Derivatives (2011). BIS central bankers’ speeches  7  saying will seem novel. In fact, this emphasis on their role as systemic risk managers was a clear lesson from the very few instances of clearing houses failing over past decades.16 If I may quote from the post-87 crash Report of the Hong Kong Securities Review Committee: “When everything else is stripped away, the most pressing issue is the management of risk. The focus of this is ......increasingly, the central clearing houses – indeed [their] prudent operation is perhaps the single most important objective for the market authorities and regulators.17” What does this mean in practice? My personal view is that, amongst other things, it means that CCPs should not outsource their core risk management functions; they should monitor the robustness of their clearing members; and they should monitor risks from the business that their clearing members are bringing to them as an indication of incipient fragility. Amongst other things, that means collecting and analysing information from clearing members on large positions taken by their customers. In 1987, it was the long positions of a trader that bankrupted the Hong Kong clearing house. Some elements of the clearing house regime are clearly for the authorities to determine.

A Background Note of the Financial Stability Board.”  22  The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Systems’, Pew Centre of The States, April 2011. 10  BIS central bankers’ speeches  Summary and conclusions The international reform agenda to make firms more resilient, and especially to address the Too Big To Fail problem, is absolutely essential, the number one priority. But we should take care not to neglect the importance of the rules of the game for capital markets. Once upon a time banks extended and held illiquid loans, overseen by banking supervisors. And in a largely separate universe, securities regulators policed the integrity of individual transactions and offerings on public exchanges served by specialist intermediaries. The growth of private markets, over the counter markets, derivatives, securitization, and banks as intermediaries in capital markets has changed all that, as the crisis cruelly exposed. Banking supervisors are having to recover their historic mission for systemic stability, but this time round that calls for greater attention to markets and, in particular, not simply assuming that what’s in a bank’s trading portfolio and warehouse must be liquid. Securities regulators are having to look well beyond their roots, accepting that their rules and policies influence the resilience of the system. And financial stability authorities, including central banks, have to become as comfortable debating the (hard and soft) infrastructure of core capital markets as they are with, say, the intricacies of the capital structure of banks.
Other important events that affected Zambia’s economic development in her early stages of nationhood included: (i)  The pronouncement of the Unilateral Declaration of Independence (UDI) by the Ian Smith regime in the then Southern Rhodesia (now Zimbabwe). The declaration of UDI had both positive and negative impacts on the Zambian economy, although the negative effects outweighed the positive gains. The positive gains relate, mainly, to the relocation of industries from Southern Rhodesia (now Zimbabwe) to Zambia to avoid being affected by the sanctions imposed by the International Community, as a result of the declaration of UDI in 1965. This contributed to the growth of the Zambian manufacturing sector and the increase in employment levels. However, the declaration of UDI had serious adverse effects on the blossoming Zambian economy. As you may recall, at independence, the economies of Southern Rhodesia (now  BIS Review 5/2005  1  Zimbabwe) and our economy were intertwined. Southern Rhodesia was Zambia’s biggest trading partner as well as the main supply route to the sea. The severing of trading, commercial and transportation relations with Southern Rhodesia on account of UDI therefore, meant that Zambia had to invest heavily in her own transportation infrastructure, which finally led to the construction of the TAZAMA oil pipeline, Indeni refinery, TAZARA, the Great North Road (which used to be known as the Hell Run), etc., in order to transport her essential imports and exports. These were huge projects whose construction required enormous borrowing from countries like China, Italy, France, etc.

This never happened! Hence, during the 1980s, policymakers realised that economic reforms were needed as a lasting solution to Zambia’s economic woes. For instance, between 1985 and 1987, Zambia undertook an IMF/World Bank-sponsored adjustment programme. This led to a partial decontrol of interest rates and the introduction of a Dutch Foreign Exchange System as a way of allocating scarce foreign exchange through a quasi-market system. It also entailed the removal of some subsidies as a remedy to the persistent fiscal deficits. The reforms proved to be highly unpopular and culminated in public protests and abandonment of the IMF supported reform programme in May 1987. Instead, the Government pursued an indigenous programme called ‘New Economic Recovery Programme’ (NERP) whose theme was “Growth from Own Resources”. Although this programme was successful in some respects, it suffered major setbacks, such as the overvaluation of the Kwacha, soaring inflation, lack of external financing, among others, that made the programme unsustainable, thus prompting the Government to go back to the IMF and agreed on a new IMF supported programme in 1989.
Before one has managed to gain experience of the effects of a particular package of measures within the framework of the Swedish financial system, it is difficult to assess to what extent it affects monetary policy. Managing uncertainty in monetary-policy decision-making My impression is that we are now in a situation where the conditions for monetary policy are perhaps even more uncertain than usual. However, monetary policy decisions must nevertheless be made, and I therefore want to discuss my views on how this uncertainty should be managed and how it has affected by own stance recently. An obvious measure that I have already mentioned is to try to acquire more knowledge of the sources of uncertainty and in this way reduce the uncertainty we are facing. We of course follow international developments closely and rely on both our own and other analysts’ assessments of what they may entail. With regard to inflationary pressures in Sweden, as I mentioned earlier, we have put a good deal of energy into analysing the available statistics and into gathering new information from companies regarding their pricing behaviour. On the question of household indebtedness, we are currently calculating what effects an amortisation requirement would have. At the same time, we are developing our analysis of how monetary policy and indebtedness will affect the risks in the Swedish economy in the coming period. I think that when making the actual decision, one must be sensitive to the difficulty of quantifying everything that needs to be taken into account. Models cannot capture everything.

The book has been the first one to include a full set of statistical and historical data showing key indicators in the economic and monetary areas for the countries in South-East Europe, starting from the establishment of central banks in the 19th century to the end of World War II. The book has proven ever since its value and utility. Last year in Vienna, there was a proposal regarding further research work based on the information contained within the balance sheets of the central banks. Looking closer at the structure and the evolution of these balance sheets over time provides experts with useful insight as to how monetary policies have changed and have been implemented, how the main 1/2  BIS central bankers' speeches  operations have evolved, what profit the central banks have made and to what extent central banks have been able to secure and preserve their independence. I trust that the South-East European Monetary History Network could further capitalise on both the researchers’ experience of compiling the statistical and historical data series and the cooperation among central banks. The National Bank of Romania has always shown interest in monetary and banking history. In that respect, we are currently re-organising/redesigning the NBR Museum – which you are going to visit after lunch – aiming to bring to the visitors’ attention both pieces of history and the role of the central bank in shaping the economy, thus shaping history.
At times, markets have also overreacted to national news and to the political debate at euro area level, with yields subsequently displaying little mean reversion. Fragmentation of credit market across national borders The second dimension of the debt crisis has been a fragmentation of credit markets across national borders, affecting both banks and the private non-financial sector – in addition to the fragmentation experienced in government debt markets. The tight link between sovereign and bank creditworthiness is clearly visible in the high degree of correlation between sovereign CDS premia and bank CDS premia within the same jurisdiction (see slide 8). Causality runs both ways: banks’ rising funding costs reflect the risk associated with banks’ holdings of bonds issued by their own sovereign; and sovereign risk is exacerbated by the contingent liabilities coming from the perception that the government will have to intervene to rescue the domestic financial system. This creates a self-reinforcing loop between bank and sovereign risks, with doubts about the solvency of the sovereigns feeding doubts about the solvency of the banks, and vice versa. Such dynamics are much weaker in euro area countries considered by markets as financially solid. In the US – an example of a well-integrated fiscal and financial union, with a shock-absorbing capacity at the federal level, credible discipline at state level and a centralised mechanism to supervise and resolve banks – there is no correlation between bank and sovereign CDS premia.

As far as impairments to banks’ funding are concerned, the ECB addressed banks’ funding uncertainty by fully accommodating liquidity needs at a fixed interest rate (the ECB main refinancing rate), while simultaneously lengthening the maturity of refinancing operations: from three to six months and twelve months, and more recently two operations with a three-year maturity. This has allowed an alleviation of the funding constraints of the banking system. In this way, a substantial change in the term structure of liquidity has taken place. While before the crisis about three-quarters of outstanding liquidity had a maturity of one  4  See Holmström, B. and Tirole, J., (2011), Inside and Outside Liquidity, MIT Press. BIS central bankers’ speeches  3  week and the rest three months (i.e. an average maturity of 15–20 days), the current average maturity is 28 months (see slide 5). The expansion of the ECB collateralised monetary policy operations, together with the more widespread collateralisation of financial transactions, has raised the fear of encumbrance of bank assets. This risk has not materialised as the list of eligible collateral has been expanded to enable banks to take full advantage of the ECB full-allotment policy, while rigorously applying risk control measures to mitigate liquidity, market and credit risk. But as higher haircuts erode the refinancing power of encumbered assets, there must be an asymptotic limit to the ability of the central bank to provide outside money without endangering its creditworthiness, on which confidence in the currency rests.