samchain/econo-pairs-v1 huggingface dataset:
Surveillance and crisis prevention  Let first me turn to crisis prevention. I shall start with a general remark. Surveillance is the backbone of crisis prevention. However, for surveillance to be effective, it must not only be correct, it must also be implemented. Implementing stability-oriented policies and efficiently monitoring domestic markets and institutions is the primary responsibility of the member country. The Fund can only help countries that are willing to help themselves. As any Argentinean would say, it takes two to tango. The Fund’s role is limited to providing the best possible objective advice built upon the best possible analytical expertise. This is not to say, of course, that Fund advice is always correct or appropriate. Though Fund staff is highly qualified, it can make mistakes. Indeed, mistakes have been made most often due to a poor understanding of the country-specific circumstances. It is therefore crucial to maintain a high-quality dialogue between authorities and staff at all times. The more the interaction between a country and the Fund is frank, constructive and based on mutual trust, the bigger the chances are of a valuable and usable outcome. Though Switzerland joined the IMF in 1992 only, we can already record some very good experiences in this regard. Most appreciated, for instance, were the discussions that took place between our experts at the Swiss National Bank and Fund staff in the period of the formulation of the new monetary concept that was introduced in 2000.

To translate this back into a Taylor-rule world, we would need to know the so-called “shadow prices”. Of course we don’t know those unobservable prices. But we can, perhaps, get a broadbrush handle on the materiality of the tightening by using estimated equations for credit (and money) demand, holding all other influences constant. 10 There is just huge uncertainty  7  See Tucker, PMWT (2008), “The credit crisis: lessons from a protracted peacetime”, remarks given at the Chatham House conference on “The New Financial Frontiers”. These remarks are also forthcoming in the 2008 Q3 edition of the Bank of England Quarterly Bulletin. 8  See Taylor, JB., (2008) “Monetary Policy and the State of the Economy”, testimony before the Committee on Financial Services, US House of Representatives, February and Mculley, P and Touli, R (2008) “Chasing the Neutral Rate Down: Financial Conditions, Monetary Policy, and the Taylor Rule”, Global Central Bank Focus, PIMCO. 9  Another reason reflected in the Curdia and Woodford (2008) paper is the fact that borrowers and savers have different propensities to consume. Consequently a change in spreads will affect the “average rate” faced by borrowers and savers in a different way from a change in the policy rate. 10  Based, for example, on Brigden, A and Mizen, P (1999) “ Money, credit and investment in the UK corporate sector”, Bank of England Working Paper number 100. BIS Review 112/2008  5  about such estimates but, for what it’s worth, they indicate a material tightening from this source.
Our monetary strategy ensures a continuity from the monetary policies previously conducted by the national central banks, which now belong to the Eurosystem. This strategy has been well received by financial markets and the general public. In particular, the relatively low yields on long-term euro-denominated bonds confirm that the Eurosystem has retained the credibility store it inherited. d)  Lastly, the credibility of the euro also results from the Eurosystem's constant efforts in terms of transparency and communication. I must stress here that the Eurosystem is one of the most transparent central banks in the world. Once a month, immediately after the ECB Governing Council meeting, the President of the ECB holds a press conference which starts with a precise report of the assessment of the Governing Council, and which is made available in real time on the ECB website. The Eurosystem was the first central bank in the world to introduce, on 1 January 1999, the concept of regular, frequent, real-time communication in the domain of monetary policy. Other major central banks have since decided to follow us. Being accountable, for an independent institution in a modern democracy – or, as it is the case for the Eurosystem, in a subtle constellation of democracies like the European Union – means being accountable to public opinion.

On the one hand, over the past two years total output, or GDP, has been much weaker than expected. In fact, output has been broadly flat over that period. And the zig-zag pattern of quarterly growth rates of GDP that we have seen this year is likely to continue, as we may see on Thursday when figures for the third quarter are released. On the other hand, there are other more encouraging signs. First, the labour market gives a very different picture to that conveyed by the output data. In the private sector, more new jobs have been created than over any other two-year period since the mid-1990s. And in the past year, unemployment has been falling, and falling faster in Wales than in the United Kingdom as a whole. Second, inflation has now fallen back to 2.2%, close to our 2% target. Although recent increases in domestic energy and food prices are likely to leave it a little above target well into next year, the fall in inflation means that the squeeze on real takehome pay, which accounted for much of the weakness in consumer spending over the past two years, has eased somewhat. And retail sales figures are consistent with a pickup in consumer spending. The disparity between weak output growth and a buoyant labour market is not easy to explain. It is not the product of a switch from full-time to part-time jobs because total hours worked have risen at the same rate as employment.
The implication is the need to cross-check the information on inflationary pressures and risks to price stability; this cross-checking implies that we bring together and compare different analytical strategies and that we use systematically all the information relevant to decision-making. Of course, monetary policy does not react mechanically to monetary developments, but rather responds to the information in monetary aggregates that is relevant for maintaining price stability over the medium term. This is the rationale behind the definition of "a reference value" for monetary aggregates. The monetary pillar supports a risk management approach to monetary policy. It allows for an early assessment and detection of potential imbalances. It sheds light on those risks at a longer time horizon than the one usually contemplated by monetary policy, but still relevant for the ultimate objective of price stability. This is of special significance and importance when financial imbalances build up in the economy, which are fueled by excess money or liquidity growth. Unwinding of those imbalances can be brutal and discontinuous – the so called non linear reaction – and, as such, very destabilizing. Empirical evidence suggests that asset booms have typically occurred when money and credit growth were above their long-term average. Whatever the loss function and ultimate objectives of Central Bankers, all would agree that monetary policy should not willingly contribute to the formation of such credit and asset booms.

Christian Noyer: Does money matter? A European perspective Speech by Mr Christian Noyer, Governor of the Bank of France, at the 4th ECB Central Banking Conference “The role of money: money and monetary policy in the twenty-first century”, Frankfurt am Main, 9 November 2006. *  *  *  It is a great pleasure and honour for me to take part in this Central Banking Conference. My communication will be organised as follows: I will first review some stylized facts about money and inflation that show that money still matters; second, I will relate these stylised facts to the two-pillar monetary policy strategy of the Eurosystem. I will conclude my presentation by addressing some interesting challenges we face in implementing our monetary analysis. Some stylized facts about money and inflation Let me start with a well known paradox which can be articulated in three propositions: first, price stability is the objective of all Central Banks; second, as Milton Friedman put it "inflation is always and everywhere a monetary phenomenon"; and third, nevertheless, in most countries, money has little or no part in the design or implementation of monetary policy. There is, of course, one noticeable exception: the euro area. Before getting into more details about our approach, I would like to mention two reasons why I think money, as such, remains an essential component for the design and implementation of monetary policy. •  First, money is still of direct relevance to monetary policy in exceptional circumstances: either strong (or hyper) inflation or deflation.
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 fulfilment in this stability dimension. This makes it difficult to decide which policy-rate path best stabilizes both inflation and resource utilization. My suggestion is to use mean squared gaps for the inflation forecast and for the resourceutilization forecast as measures of the stability of inflation and resource utilization. 3 Figure 1 provides an example, using graphs from Norges Bank’s Inflation Report of June 2005. Figure 1 Monetary policy with mean squared gaps (Norges Bank, June 2005)  In figure 1, the top left panel shows three alternative policy-rate paths, the main path chosen by Norges Bank at the time and two alternative paths, a lower and a higher path. The top right panel shows the corresponding forecast of inflation according to the index CPI-ATE, the consumer price index adjusted for tax changes and excluding energy products. The bottom right panel shows the corresponding forecasts of the output gap, the gap between output and potential output. These three panels are shown in the June 2005 Inflation Report. We see that there is a tradeoff between stabilizing inflation and resource utilization, measured as the output gap. The lower (higher) policy-rate path stabilizes inflation better (worse) around the  3  See Svensson (2010a, c) for details.

We only need to think of robotics, artificial intelligence, blockchains, and smart phones with 5G Wi-Fi to realize the extent of the changes that lie ahead for financial services. New technologies also bring opportunities. The Austrian economist, Finance Minister, and banker Joseph Schumpeter demonstrated in the 1920s that successive waves of technological change raise productivity, income, and living standards. However, we know from long experience that technological change often results in costs involving new risks that must be addressed in order to optimise the net benefit. So while FinTech  will broaden consumers’ range of choices in financial intermediation, it also brings new risks, both to the security of transactions and to privacy. To maintain financial stability and real economic activity, we need payment and settlement systems that are secure. As a result, cybersecurity has moved from being a technical issue to a central bank issue. That is why the Nordic central banks have set up this forum for discussion and cooperation so as to foster closer cooperation on cyber resilience and cybersecurity. Today the focus is on financial market infrastructure. One of the questions being asked in this section of the conference is, “What challenges are likely to emerge with new operating models and new actors in the financial sector?” As I said before, the FinTech snowstorm is already here. The newest challenge with respect to cybersecurity is the emergence of new players offering financial services, some of whom have not provided financial services before. The question therefore becomes: What technology are they using?
Over the last four years, our experience has been very different: inflation has been better behaved, and growth much steadier. There are several reasons for that, including major changes to the energy intensity and flexibility of the UK economy. But one important difference has been monetary policy. Unlike in the 1970s, the MPC’s focus has very clearly been on controlling inflation. Today, higher energy prices are an important influence on interest rate decisions. That is because they have an immediate impact on inflation, which has the potential to fuel inflationary expectations. And they may also affect the balance between overall demand and supply, though it is hard to judge the timing and size of this effect. Soaring oil prices were an important reason why some members of the MPC, including myself, were reluctant to cut interest rates when the economy slowed in 2005. The policy dilemma Today, in 2007, global developments – in financial and oil markets – are posing downside risks to output as well as upside risks to inflation. That’s a very difficult combination. So how well placed is the UK economy to weather these headwinds? As far as output goes, we start from a strong position. The latest official figures show annual growth still above its average rate, as it has been for more than a year, reflecting robust domestic spending by households and businesses as well as a buoyant world economy. But in the last month, the businesses surveys have started to weaken – a few quite sharply.

The MPC’s remit is to keep inflation at its 2% target, so the key issue for us is how far the financial crisis will affect the wider economy. That will depend on the answer to three broad questions. First, in the short term, how far will the severe liquidity squeeze that has already happened turn in to a full scale credit crunch – by which I mean a sharp tightening in the price and availability of credit to households and firms. Second, how well placed are households and firms to weather any such change in credit conditions? And third, in the longer term, will there be a significant lasting impact on credit conditions, for any given level of Bank Rate? It is too early to answer these questions with any great confidence, especially the last. But we do have some early evidence. There are signs that credit conditions facing firms have already tightened. The terms on corporate bank borrowing are often directly linked to the rates that banks charge each other. These rates have risen and remained high. Our latest intelligence suggests that the main lenders have tightened the terms on which they are willing to lend to businesses, and they plan to tighten them further. UK firms’ financial position is currently pretty healthy, on average, and large corporate borrowers in particular may have good alternatives to bank borrowing. But smaller and more highly geared firms may be more adversely affected.
32 A number of disadvantages of having a nominal growth target have also been put forward. One fairly major problem is that nominal GDP is published with a long time lag and revised substantially and often. The fact that the data revisions are substantial is illustrated in Figure 2, where you can see that outcome adjustments on a quarterly basis can often be around 1 percentage point and in some cases a lot more than this. In the US data the revisions appear to be somewhat smaller, but even here it is a question of substantial differences between preliminary and adjusted figures. This naturally creates major difficulties for a monetary policy that has a target expressed in this way. Another problem is that inflation expectations risk being poorly anchored with a nominal growth target. Inflation will probably vary quite substantially and there is no explicit quantified level of inflation that helps to anchor expectations. There is ultimately a risk that this will prompt a deterioration in the conditions for pricesetting and wage formation. This is an important argument, especially in a country like Sweden, where instability in wage formation was previously a major problem. Finally, some argue that it would be much more difficult to communicate what a target for nominal GDP growth actually entails than it is to communicate a target for inflation.

Between 1999 and 2007, the ratio of public sector debt to GDP in EMU declined on average by around 6 percentage points – while the ratio of private sector debt to GDP increased by almost 27 percentage points. To give just one example, in Spain the ratio of private sector debt to GDP increased by around 75 per cent, while the ratio of public debt to GDP fell by around 35 per cent. The key point for this discussion was that all of these private flows were being intermediated by the banking sector, which had become much more integrated as a result of monetary union. Hence the official bodies best placed to identify these growing risks, and act to prevent them, were national bank supervisors both in lending and borrowing countries. However, they lacked both the cross-border perspective and also the instruments to do so. After all, their mandates were national and did not extend to systemic risks building up for the euro area as a whole. European financial integration went far ahead any European oversight and financial stability and as a result financial stability was unwittingly sacrificed.3 How would Banking Union have helped? By moving supervision and other national financial policies to the European level, the problem can be solved. Supervisors can take a euro areawide view of financial developments, identify early the build-up of systemic risks, and use appropriate macro-prudential tools to counteract them.
exchange rate fluctuations between $ and major currencies. •  When $ appreciates against major currencies, there is translation loss when assets are reported in $  •  Likewise, when $ depreciates, there is translation gain  •  But these gains and losses mean little for international purchasing power of our OFR which is denominated in foreign currencies. 32. Focusing on overall profit figure therefore misses larger point about MAS’ underlying investment performance. 33. Investment gains on MAS’ foreign assets have in fact remained relatively stable for last five financial years. •  Holding $ exchange rate constant to strip out translation effects, foreign investment gains amounted to $ billion in FY2014/15, comparable to foreign investment gains of $ billion in FY 2013/14. Helping Singaporeans manage their finances 34. A key area of focus for MAS in last two years has been to help Singaporeans better manage their finances. A multi-pronged effort: •  Encourage prudent borrowing  •  Facilitate retail access to simple, low-cost investment products  •  Spur competitive pricing for life insurance products  •  Educate consumers on financial matters  Let me elaborate on each. First, MAS has put in place various measures to encourage prudent borrowing 35. Many safeguards already exist. BIS central bankers’ speeches  5  •  Amount of unsecured credit that FI can extend is limited to four times monthly income of borrower. •  Limits on both loan-to-value and loan tenure for both housing and motor vehicle loans extended by FIs.

•  Individuals purchasing property are constrained on their total debt service ratio. 36. MAS announced new unsecured credit rules two years ago. •  FIs will not be allowed to grant further unsecured credit to borrower whose aggregate unsecured debt exceeds borrowing limit for 3 consecutive months. •  This limit has been set at 24 times borrower’s monthly income, and will be lowered to 18 times from 1 Jun 2017 and 12 times from 1 Jun 2019. 37. Vast majority of Singaporeans manage their debt well. •  Less than 2% of unsecured credit users affected by industry-wide borrowing limit. •  Nonetheless, this is about 22,000 borrowers who need help to manage down their debt. There are measures to help unsecured borrowers pay down their debts 38. Banks have worked with Credit Counselling Singapore (CCS) to develop a new Repayment Assistance Scheme (RAS). •  Convenient one-stop solution for borrower to work out centralised repayment solution with creditors. •  Lower interest rate of 5% p.a. over repayment period of 8 years for debt in excess of 12 times a borrower’s monthly income. Second consumer initiative: facilitate retail access to simple, low cost investment products 39. Last year I spoke about how MAS was working to improve savings and investment options for retail consumers. Made progress on three fronts. •  introduced Savings Bonds for flexible risk-free returns  •  facilitated access to $ corporate bonds for stable, long-term returns  •  expanded ETF options for diversified equity returns  40.
V.  Conclusion  This morning, I have shared some of my views on the need for risk management and supervision to evolve together and to reinforce each other. All of us recognise that both areas must keep pace with changes in accounting practices, and I think you would agree that the work we have to undertake in all three areas - risk management, supervision, and accounting - is quite demanding. To develop new ways of thinking about risk and about the techniques for measuring it, we will require hard research and significant resources. We must gather and pour over large amounts of data to sharpen our understanding of various risks and their relationships to each other. We must dedicate our talent, staff, and indeed funds to undertake this work. I would argue that is equally demanding to develop a supervisory structure that capitalises on and further encourages those advances, especially when we are trying to implement a shared framework across many jurisdictions. But the benefits are many. On a microeconomic level, the virtuous circle I have described should help individual firms to improve the quality of their controls in the short run and strengthen their competitiveness in the long run. Yet supervisors are especially motivated by the benefits we expect at the macro level. We believe that, when all financial institutions have the right incentives to pursue profits responsibly, the financial services sector becomes better managed, more resilient, and better able to serve as a source for sustainable growth for the economy.

Their reactions provide economic incentives for banks to strengthen their management of risk and hold at least adequate levels of capital against their risks. One might say that Basel II seeks an “efficient frontier” of policy objectives through the three pillars. Each pillar provides something that the other two cannot. Each is essential to achieving our overall objective of financial stability. I realise that this analogy of the three pillars as a portfolio of policy options is an oversimplification. But it helps us to visualise why we think that the most “efficient frontier” involves a mixture of minimum rules, tempered by supervisory discretion, and supplemented by market-based incentives. IV. Consistency of accounting standards and a three-pillar system  Of course, our three-pillar supervisory system is highly dependent on a firm’s internal measures of risk exposures. “Basel II,” for example, looks at a bank’s own measures of risk in Pillar 1. Supervisors then engage bank managers in a dialogue on their interpretations of those measures - and the steps managers take in response - in Pillar 2. Finally, Pillar 3 is intended to give the market greater insight into those measures of risk exposures and what the bank may do to control them. Because the three pillars are so dependent on the internal measures, neither supervisors nor bankers can ignore the mechanics that define how financial data are recorded and reported. Those mechanics, as you know, are governed by national accounting standards, which is the last topic I would like to address.