samchain/econo-pairs-v1 huggingface dataset:
Moving the fed funds rate into the target range During normalization, the Fed intends to move the fed funds rate into the target range established by the FOMC primarily by adjusting the IOER rate. A key development in the conduct of monetary policy in recent years was the introduction of the Fed’s ability to pay interest on reserve balances held by depository institutions. In the environment of elevated reserve balances that resulted from the Fed’s asset purchases, the payment of IOER – currently at a rate of ¼ percent – has helped to keep the fed funds rate within its target range. 5 The IOER rate is the rate of return on a riskless overnight deposit held at the Fed. As such, it may be thought of as the opportunity cost of making an alternative investment, such as a loan or the purchase of a security. Accordingly, if all money market participants were eligible to earn interest on reserves, money market rates would likely be at least as high as the IOER rate; no institution would want to lend to a private entity at a lower rate. Even without universal access to IOER, in the absence of frictions, competition would be expected to lift money market rates up to the level of the IOER rate, since banks would make an arbitrage profit on any funds they borrow at a lower rate and deposit at the Fed.

In spite of the brisk primary and secondary market activities in a few stock exchanges in the region, capital markets, in particular the bond market, remain rather underdeveloped. There is much more to be done, therefore, to further develop the financial markets by the regional jurisdictions. The second part of the conference title - 'The New Frontier' - also contains an important message. Globalisation and the revolution in information technology have fundamentally altered the dynamics of international finance. Such changing dynamics raise concerns among many of us about the manner in which a sizable portion of gross savings in Asia finds its ways into financial obligations of the developed markets before they are recycled back to Asia. As the capital inflows into the region tend to be more volatile, the recycling process may have implications on monetary and financial stability in the region. Another aspect of the dynamics of international finance is contagion. World interest rates have until recently stayed at record lows. In search of higher yields, hedge funds and other institutional investors have scoured the world for assets generating higher returns, driving up asset prices and driving down credit spreads. As the interest rate outlook has become uncertain, fund managers may be reassessing the risks of emerging market assets, as reflected in the recent correction in world equity and commodity prices. A sudden exit of capital could leave those economies with weaker financial systems even weaker, with spillover effects on other parts of the region.
Another unique feature of Switzerland’s SIC system is that, unlike most RTGS systems, it is not used exclusively to process interbank payments, 5 but also to settle retail payments – the exchange of payments on behalf of households, corporations and public bodies – individually and on a gross basis. Experience with the SIC system has shown that the combination of interbank payments and retail payments is beneficial. First, economies of scale can bring down transaction costs significantly. Second, the fact that retail payments are also settled in central bank money increases security. Moreover, SIC participants can optimise their liquidity management and reduce technical interfaces, since they can use a single system for all of their Swiss franc payments. The transition from net settlement with electronic money to the RTGS system is the last phase in the evolution of payment systems shown on the slide. SIC has proved itself to be an adaptable, secure and cost-effective system. Since the 1980s, payment requirements and the demands placed on payment systems have risen relentlessly. For one thing, the volume of transactions has increased hugely, especially in the retail sector. 6 Equally, new payment instruments, such as e-banking, have emerged over the years. 7 More recently, the ISO 20022 standard was introduced as a basis for the national and international harmonisation of retail payments, and SIC’s operating hours were extended to allow same-day settlement of retail payments. New challenges in the digital age Ladies and gentlemen, digitalisation is bringing a whole new set of changes to payment systems.

In other words, incoming and outgoing payments were offset against each other, with only the net difference being transferred between banks at the end of the settlement period. In order to facilitate banks’ liquidity management, the SNB allowed them to temporarily overdraw their accounts before the end of the settlement period. This delayed settlement created credit risk for the SNB. These shortcomings prompted banks to seek new solutions. In 1987, a new payment system known as ‘Swiss Interbank Clearing’ (or SIC, for short), entered service. In SIC, payments in Swiss francs are settled between banks in real time and on a gross basis. This type of arrangement is referred to as RTGS. Each payment is settled individually via the sight deposit accounts at the central bank, provided that sufficient funds are available on these accounts. Page 4/9  The advent of RTGS systems was a major milestone in the quest for efficient and secure cashless payments. It is no surprise, then, that RTGS systems have become the standard payment settlement mechanism in recent decades, with more than 100 central banks worldwide now operating them. 4 The SIC system exhibits some specifically Swiss characteristics, not least the close partnership that exists between the banks and the SNB. SIC is owned by the Swiss banks but it is operated by SIX Interbank Clearing Ltd on behalf, and subject to the oversight, of the SNB.
From today’s perspective, these three issues refer – more or less directly – to the basic challenges that will have to be tackled to make the present uneven and unbalanced global recovery sustainable. With this in mind, I will organise my Opening Remarks around these three topics. First, I will deal with global rebalancing and how to achieve it in a context of diverging economic prospects for advanced and emerging market economies. Second, I will address the recent behaviour of global financial flows and the challenges that emerging market economies face in this regard, including the risk of asset price overvaluation. And finally, I will touch briefly upon the need to enhance policy cooperation at the global level, especially as some economies progressively leave the worst of the crisis behind. Let me move now to the first issue: global rebalancing and the world economic outlook. Although global imbalances were considered one of the major risks facing the world economy before the crisis, such risks did not finally materialise in the expected form of a disorderly adjustment of exchange rates, with disruptive effects on global financial stability. Nevertheless, even if large and unsustainable deficits financed by the accumulation of reserves by surplus emerging economies were not the ultimate cause of the global economic and financial crisis, it can still be argued that they provided support for the build-up of the financial excesses that led to it.

10  For instance, the 2nd 2012-2014 Employment and Collective Bargaining Agreement, signed at the start of 2012, set out wage recommendations that excluded the energy component from any wage settlements in the event, as is currently the case, of rising energy prices. makes it possible to estimate how a reaction in other domestic prices and in private wages, in line with the direct impact of higher energy prices on the general price level, might affect activity and employment. If higher energy prices are fully passed through, the overall adverse impact on activity and employment, in terms of the divergence from the current projections, could be around 1.5 pp in 2024. Moreover, real disposable household income would decline, owing to the fall in employment and a further increase in inflation. Conclusions I will end by highlighting three key messages I would like you to take away from my speech at this critical historical juncture in which the attack on Ukraine could represent, as well as an extraordinary human tragedy, a serious threat to the European social and political project. First, in a variety of ways, the war will undermine the gradual post-pandemic recovery under way, though we can for the time being only hazard a guess at the scale of the fallout. As is only to be expected, the impact will depend on the severity and duration of the conflict.
28    Dividend payout puzzle: In practice, there is strong evidence of high and persistent dividend payout ratios, consistent with investors valuing immediate returns (dividends) over future returns (capital gains). 29    Discounting puzzle: The discount rates used to value firms, and to evaluate projects, appear to be consistently higher than can be explained by fundamentals, a finding consistent with short-termism in investment. 30  25  For example, Shiller (1981). 26  For example, Poterba and Summers (1988). 27  For example, Benartzi and Thaler (1995). 28  For example, Laibson (1997), Laibson et al (2001). 29  For example, Black (1976). 30  For example, Miles (1993). 8  BIS Review 114/2010    Fund management puzzle: Actively-managed investment portfolios appear, if anything, to underperform passively managed funds, consistent with the Buffett “snoozing rule” for successful investment. 31  Patience and efficiency If impatience in the financial system is growing, there should be evidence of financial prices having become more volatile and more divorced from fundamentals over time. Excess volatility and misalignment would rise alongside short-termism, with market efficiency the casualty. What does the evidence suggest? Chart 1 plots equity prices in the US back to 1880, relative to a model-based measure of equity market fundamentals based on discounted expected future profit streams.

The patience gene thrives, the impatience gene dies. Natural selection results in a self-improving cycle, as with dieting, happiness and exercise. But there is a second equilibrium where this cycle operates in reverse gear. With a large fraction of momentum traders, prices deviate persistently from fundamentals. Among untested investors, momentum strategies now flourish while long-term fundamentalists fail. The speculative balance of investors rises, increasing the degree of misalignment in prices. The patience gene falls into terminal decline. Natural selection results in a self-destructive cycle, as with drug, alcohol and food addiction. 20  For example, McNamara (2004). 21  Christakis and Fowler (op.cit.). 6  BIS Review 114/2010  These self-destructive dynamics would have been familiar to economist, and some-time investor, John Maynard Keynes. He quipped: “markets can remain irrational for longer than you or I can remain solvent”. In the sketch model, a Keynesian dynamic selection process is at work. Myopic finance bankrupts the long-sighted. This echoes an earlier evolutionary game in finance – Gresham’s Law. Named after English financier Sir Thomas Gresham in the 16th century, this refers to the tendency for bad money to drive out good. The first paper money example of Gresham’s Law pre-dated Gresham. It came from China during the Yuan (1271–1368) period. Then, paper money drove out silver coinage. 22 This bad money dynamic has since been replicated across many monetary economies. China also provided the world with its first example of the reverse phenomenon – a selfimproving cycle of good money driving out bad.
When the crisis hit and the mood changed, these households radically reduced their consumption back to a more normal level. This has been highlighted as an explanation for the negative link between indebtedness and consumption developments among Danish households (see Figure 7). 8 Substantial falls in housing prices impact households’ balance sheets, in that the relationship between assets and debts rapidly deteriorates. There were clear signs of this in the countries in which housing prices fell heavily in conjunction with the financial crisis. For example, over a short time, the average loan-to-value ratio among US households with mortgages increased from under 60 per cent to over 90 per cent, while the average loan-to-value ratio among households in Denmark increased from under 45 per cent to over 60 per cent (see Figure 8). 8  See Andersen, A.L, Duus C. and Lærkholm Jensen T., “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Copenhagen University, 2015. BIS central bankers’ speeches  7  Figure 8 Households’ loan-to-value ratios in the United States and Denmark Per cent  Sources: Gelain, P, Lansing, K.J., and Mendicino, C., “House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy”, International Journal of Central Banking, 2013, and Andersen, A.L, Duus C. and Lærkholm Jensen T., “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Danmarks Nationalbank. When debts take up a larger share of the value of housing, consumer demand decreases.

Figure 9 Ownership of Swedish covered bonds by type of investor Shares in per cent 50  50  45  45  40  40  35  35  30  30  25  25  20  20  15  15  10  10  5  5  0  0 02  04  06  08  10  12  14  16  Swedish banks Swedish funds Svenska insurance companies Public sector including national pension funds Foreign investors  Source: Statistics Sweden. Indirect risks for financial stability and the macro economy An indirect risk, going from the macro economy to financial stability, is that reduced demand from over-indebted households will push the general level of demand in the economy down. This will weaken economic activity, in turn increasing the risks that the banks will incur loan losses in the corporate sector. 11 Earlier, I mentioned that the banks may have problems obtaining funding in the event of a fall in prices on the housing market in Sweden. In such a scenario, it is also conceivable that the banks’ funding problems will lead to higher lending rates to households – and thereby to lower consumer demand. In practice, it is likely that all of these direct and indirect factors will interact so that the consequences of a decline on the housing market may be serious and also difficult to gain an overview of in advance. 11  See Financial Stability Report 2015:1, pp. 13.
This data access will provide new ingredients for innovative banks to create new products or processes which will allow thousands of small and medium-sized enterprises to access bank credit in an easier and cheaper way than before. 45. We’re also looking to apply new technologies to addressing long-standing pain points in banking. Take international remittances for example. The process is currently slow and costly. Along with the Bank of Thailand, the HKMA initiated a central bank digital currency project for cross-border payments that has now been joined by the central banks of the United Arab Emirates and China. This ‘m-CBDC Bridge’ project is exploring the potential of using blockchain technology to facilitate real-time cross-border payments, which could reduce costs and enhance transparency for users. CBDCs have a range of promising applications and, together with our partner central banks, we want to be at the forefront of this development. Enhancing the Platform 46. We understand that a supportive regulatory environment matters a great deal to the providers and users of financial services. That’s why the HKMA and other financial regulators are working closely with the Government to keep enhancing the attractiveness of the Hong Kong platform. We keep our market infrastructure, legal framework, regulatory regime and tax system under constant review to make sure that they are business-friendly, forward-looking and competitive. 47. In recent years, we’ve been undertaking reforms that provide modern legal structures catering to the evolving needs of the asset management industry.

Through Hong Kong, they can enter Chinese markets on a platform that is proven and familiar, using English-language documentation and applying international norms and practices. 30. The opening-up of various channels into China’s domestic markets gives options to international investors. They can choose to have an onshore presence and trade directly in the local market. Or they can continue to use Hong Kong as their base if it makes sense for their strategy and resources. 31. The fact that the majority of foreign investors access the Mainland capital markets using the two Connect schemes speaks volumes about the unique value proposition of the Hong Kong platform. In recent years, that financial connectivity has been boosted by increasing ‘southbound’ traffic from the Mainland to Hong Kong. 32. It is well known that Hong Kong is the leading hub for Mainland enterprises looking to issue equity or debt in the international market. That activity continued to thrive in 2020, thanks to the secondary listings by home-coming Mainland corporates and IPOs by new economy companies. 33. But Hong Kong is much more than a capital-raising gateway for Chinese firms. Today, Mainland institutions and individuals use Hong Kong to put their capital to work. Southbound flows from the Mainland to Hong Kong through the Stock Connect schemes rose by 128 per cent last year. 34. The volume of capital flowing from the Mainland into Hong Kong is set to grow further. Very soon, we will be launching a Wealth Management Connect scheme.
The Swedish debate has also been stormy. Something that I feel is often disregarded in this debate, or at least underestimated, is that the Swedish repo rate is not set in a vacuum. We must take account both of the fact that global real interest rates are very low and that monetary policy abroad is highly expansionary. Both of these factors put restrictions on which monetary policy it is possible to conduct. I shall return to this shortly. Of course, it should also be remembered that the introduction of negative interest rates means a fairly marginal increase of monetary policy scope – when all is said and done, it is hardly possible to cut the rate into negative territory by several percentage points. Many central banks have also attempted to increase scope for monetary policy by purchasing various securities. It seems highly likely that this has contributed towards preventing considerably weaker economic development. But it is still not easy to determine how efficient this kind of policy actually is. Above all, it is uncertain whether it can form an adequate alternative to adjustments of the policy rate if the global level of interest rates should remain very low for an extended period. I will return to the low global level of interest rates soon. Until then, allow me just to observe that this is an important reason for why monetary policy is more difficult to conduct today than it was a decade ago.

This also applies to the temporarily restricted autonomy and flexibility when a central bank must act resolutely in certain situations to maintain confidence in the inflation target. So far, it is my assessment that this is something transitory. Different theories behind the weak recovery from the financial crisis One notable theory for the reasons behind the low interest rates and the sluggish recovery from the financial crisis is the hypothesis of secular stagnation advanced by Summers (2013). The concept here is that a chronic surplus of saving has arisen in the world for various reasons, and that this has pushed the interest rate down. The problem, however, is that not even the current low level of interest rates creates a balance between supply and demand. The result of this is the risk that many countries will become stuck in a situation with too low aggregate demand, resource utilisation below normal and inflation that tends to be much too low. Rogoff (2015) instead argues that growth is being restrained by the world being in an adjustment phase of an unusually large debt cycle, a “debt supercycle”. Even if the level of interest rates is unusually low, this needs not mean that countries are stuck in a situation of chronic demand deficit. Demand and growth will start to pick up when the debt situation again normalises. Unlike a case of secular stagnation, which can be regarded as a structural phenomenon, the problems are thus assumed to be of a basically cyclical, albeit long-term, nature.
Moreover, we will have to wait and see how the US economy responds to the latest rate cut by the Fed. In sum, the external risks facing the Thai economy have been tilted more towards financial volatility rather than growth at this point. Ladies and gentlemen, I have highlighted to you the risks that may likely emanate from the external front. But as recent developments in the Thai economy stemmed also from internal factors, this brings me to the second part of my talk, which is the recent key developments in Thailand and the outlook for 2008. This year, even though Thailand’s growth rate has underperformed those of our peers in the region, I still consider GDP growth of around 4-5 percent, which is expected for the whole of 2007, quite satisfactory. Notwithstanding the baht appreciation, Thai exports have expanded well and remained the main engine of growth this year. Our exporters have also successfully penetrated new markets to compensate the falling demand from the traditional market, namely the US. Much of the extent of growth underperformance in comparison to our regional peers has been accounted for by slower domestic demand. Over a year-long political uncertainty led to weak consumer confidence and an unfavourable investment climate. I am hopeful that once the general election date is scheduled and the cloud of political uncertainty has lifted, consumer confidence would rebound. In line with the consumption recovery, I also expect investment to pick up and play a stronger role as growth driver, to promote a more balanced economy.

Specifically, the  4  BIS Review 104/2007  latter Act will stipulate prompt corrective action and grant the Bank of Thailand power to conduct supervision on a consolidated basis. The current Financial Sector Master Plan (FSMP) will move into its second phase, with an emphasis on increased competition and consideration on potential entry of new players to further enhance financial efficiency and resiliency. Our accession to the Basel II accord will upgrade the risk management of banks to the best standard and will further enhance financial sector stability. Ladies and Gentlemen, To end my talk today, I would like to emphasize that policymakers must avoid misplacing the focus of policies just on short-term issues. They must instead always weigh very carefully between short-term and long-term objectives toward achieving strengthened resiliency of the overall economy. Only with such resiliency, will a small open economy like Thailand be able to sail through the waves of global financial turbulence in the years ahead. BIS Review 104/2007  5