samchain/econo-pairs-v1 huggingface dataset:
Mr. King examines the impact of the recent turbulence in international financial markets on the UK economy Speech by Mr. Mervyn King, a Deputy Governor of the Bank of England, to the National Council of Building Material Producers in London on 21/10/98. Few industries have suffered more from volatility of the British economy than yours, and the past few months have been more volatile than most. “The times they are a-changing” would be an appropriate theme tune for all of us. What has changed the economic climate over the past two to three months? Here at home the most obvious sign has been a sudden decline in business and consumer confidence. The fall in the CBI’s measure of business optimism over the last two quarters is the largest seen since the early 1980s. The level of consumer confidence appears more robust, but it too has also fallen since the middle of this year. What has changed the economic climate over the past two to three months? Here at home the most obvious sign has been a sudden decline in business and consumer confidence. The fall in the CBI’s measure of business optimism over the past two quarters is the largest since the early 1980s. The level of consumer confidence appears more robust, but it too has fallen since the middle of this year. Away from home, the major development has been increased fragility in the international economy.

They are estimates which are often revised as new information becomes available. But what is striking about the recent revisions is that the changes do not result from any new information about earnings, but simply from a change in the procedures used to weight together the earnings in different firms and industries. It may be that this change has made it more difficult to make comparisons of earnings over time, and hence to measure underlying earnings growth. Whatever the explanation, there has certainly been a change in the estimated profile of earnings growth over the past two years. The revised data suggest that instead of rising steadily BIS Review 86/1998  -4-  throughout last year, as the economy grew at above-trend rates and the labour market tightened, the rate of growth of earnings actually fell. From a peak of 5.3% in February last year, earnings growth is now estimated to have slowed consistently until March of this year, when it reached a level of 3.9%. This deceleration in earnings growth coincided with a period in which, according to the Labour Force Survey, the labour market tightened considerably: employment rose by 360,000 unemployment fell by 320,000 and the unemployment rate fell from 7.8% to 6.5%. Over the same period wage settlements accelerated. And the revised data imply that since March of this year, as the pace of economic growth has slowed, earnings growth has accelerated, from 3.9% in March to 5.2% in June.
6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  Chart 2: ECB forward guidance has helped to anchor forward interest rates through the euro area recovery Introduced rates guidance  Linked forward guidance to APP  Euro Fwd 1y rate Euro Deposit Facility Rate  Per cent  Extended by 6 months to end 2019 Date based guidance to summer 2019  0.6  Extended by 6 months to first half of 2020  0.4 0.2 0.0 -0.2 -0.4 -0.6  2013  2014  2015  2016  2017  2018  2019  2020  The ECB has also innovated with guidance on its asset purchase programme. In the September 2014 press conference the President said that the aim of policy was to steer the balance sheet towards its size at the beginning of 2012. This guidance was important to dispel any doubts about the ECB’s ability to deliver. The Bank of England introduced guidance in 2013 in order to secure the nascent recovery while granting the MPC the flexibility to learn more about the rapidly changing supply capacity of the economy. When the longawaited UK recovery began to take hold, even though inflation had been persistently above target, there remained a significant but highly uncertain margin of spare capacity in the economy and it was unclear whether productivity growth would pick up. We felt that guidance was essential to help clarify our reaction function so that stakeholders could learn alongside the MPC.

In exceptional circumstances, like Brexit, when the economy is facing profound structural change, the MPC can extend the horizon over which it returns inflation to target from above in order to balance the effects on jobs and activity. After all, even though monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU, it can influence how this hit to incomes is distributed between job losses and price rises. This flexibility cannot be used without limit of course, and the MPC has set out its framework for managing the trade-off including guidance for its tolerance of the overshoot of inflation.3 Developments in monetary policy In response to the challenging post-crisis environment, the conduct of monetary policy has made important advances that have helped to shape the expectations of both market participants and the public we serve. 2  The ECB also has flexibility to pursue its inflation target, but given the absence of trade-off inducing shocks has not yet had cause to use it. The ECB General Council adopted a quantitative definition of price stability in 1998 as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%; and from 2003, they clarified that this objective was to maintain inflation rates below, but close to, 2% over the medium term. 3 See Carney M (2017), Lambda, speech given at the London School of Economics, 16 January 2017.
The results of our decisions can be measured. Hence the government authorities can evaluate our performance. The interest rate differential against other countries has widened  Central banks in several countries have reduced interest rates earlier this year with a view to countering an economic turnaround. The Federal Reserve has cut the federal funds target rate by a total of 2½ percentage points since the beginning of the year. The Bank of England and the European Central Bank have recently cut rates. There is a also a tendency towards a more expansionary fiscal stance in many countries. In the US, fiscal policy has become somewhat more expansionary after many years of relatively tight budgets. Many European countries have also taken a pause in the consolidation of state finances. Norges Bank increased the sight deposit rate – which is our key rate – by a total of 1½ percentage points last year. So far this year, the key rate has remained unchanged. As a result, the difference between short-term rates in Norway and other countries has increased. Money market rates are about 3 percentage points higher than among our trading partners. Money market rates are 3½ percentage points lower in Sweden than in Norway. The wider interest rate differential implies, in isolation, a somewhat tighter monetary policy. The krone becomes a more attractive investment currency, and this may have contributed to strengthening the krone. Investments in the NOK market are now generating a return of 7 per cent.

But the interest rate should also contribute to equilibrium in the market for real capital in the long run. To achieve this, the real interest rate must not over time deviate too much from the return on real capital. Substantial deviations can give rise to undesirable fluctuations in the markets for real capital that have no basis in economic fundamentals. In Norway, both short- and long-term real interest rates are at the moment at a low level, compared to the past few decades. This is also the case in many other countries. How large the deviations from the neutral and the equilibrium rates are, on the other hand, is less clear. Neither the neutral rate nor the equilibrium rate are variables that can be observed. Economic theory can contribute insight into the factors that determine the equilibrium rate, but attempts to quantify it based on theory yield an uncomfortably broad interval. An alternative is to use historical average interest rates on the basis of an assumption that actual real interest rates will vary around the equilibrium rate. This method also poses problems, however. 2  BIS Review 22/2006  Throughout the period 1870-2005, the average long-term real interest rate in Norway has remained close to the average in the UK and the US: Norway 2.2 per cent, the UK 2.0 per cent and the US 2.8 per cent. In all countries, fluctuations in real interest rates have been substantial in periods. The real interest rate has fallen markedly since the beginning of the 1990s.
To step back, the Federal Reserve’s set of unconventional monetary policies has consisted of three major components: •  Forward guidance with respect to the path of the federal funds rate target. •  Large-scale asset purchases of longer-term Treasury securities and agency mortgage-backed securities (MBS). 1  However, it is important to note that some of those interventions did indeed result in tighter limits on the central bank’s authority as a lender of last resort. For example, the Fed’s scope to provide liquidity to troubled firms in unusual and exigent circumstances – under Section 13(3) of the Federal Reserve Ac – was curtailed somewhat by the Dodd-Frank Act. This underscores the fact that central bank actions can have consequences with respect to independence. BIS central bankers’ speeches  1  •  A maturity extension program in which shorter-dated Treasuries were sold and the proceeds used to purchase longer-dated Treasuries. With respect to forward guidance, it is important to distinguish between two specific forms that this guidance may take. In the first form the central bank provides its forecast for the future path of the policy rate and, possibly, some sense of the degree of uncertainty around this path. In the second, the central bank pre-commits to a specific future path for its policy rate.

One of the first accomplishments of the Basle Committee was a study of banks’ capital adequacy. Issued in 1988, under the title ”International Convergence of Capital Measurement and Capital Standards,” this report was soon endorsed by many countries. Also known as the ”Basle Capital Accord,” the study took BIS Review 41/1999  2  account of credit risk. Although the variety of risks in the international markets is increasing, credit risk is still the most significant risk category for banks. Credit risk means the probability of defaulting on one’s obligation to the other party in any transaction. As I already mentioned, the growth of competitiveness in the international credit markets in recent years, the active participation of non-bank financial institutions in these markets, and borrowers’ resort to the capital markets for loans at lower cost, have all brought about a considerable narrowing of profit margins in credit transactions. This has forced the banks to make more loans in order to have a competitive edge. But they have encountered credit problems due to adverse developments in the economic and financial conditions. All these developments have resulted in the design of new methods for more effectively evaluating the risks and yields of credit transactions. Besides creating credit rating models for use within banks, these efforts have produced analytical methods calling for intensive data analysis such as retrospective analysis of credit losses, models of bankruptcy probabilities, and stress tests.
However, there remain two causes for concern: - one is the natural difficulty in moving to an entirely new set of price references – and it may take a number of years before this switch is fully made by the public at large. - and the second, probably related to the first one, is the feeling in the public that there have been excessive price increases linked to the cash changeover. Indeed, the public’s attention has focused on  1  On average, central banks of industrialised countries changed their policy rates every 5 months both in the 1980s and the 1990s, which is close to the actual frequency of the ECB interest rate’s changes (4,8 months). (Source Clerc et Yates (1999): “Interest rate stepping: some puzzles and facts”, mimeo Bank of England). BIS Review 4/2006  7  a small number of goods and services in which abnormal increases occurred at the time of this event, leading to a misperception of the real rate of inflation. This gap between perceived inflation and real inflation has however been narrowing progressively and should hopefully disappear in the near future. Concluding remarks To conclude, let me emphasise that seven years after its adoption, the euro has lived up to all of our expectations. After the unprecedented challenge of a continent-wide cash changeover, the euro almost instantly replaced the legacy currencies without any disruptions.

Two points are worth mentioning at this stage: - First, due to the scepticism I already mentioned and for credibility reasons, it would have been damaging for the euro not to build on the credibility of the most efficient and successful participating national central banks, that had previously chosen 2% as the ceiling for their definition of price stability; - second, this criticism has abated recently and it is interesting to note that the definition of price stability has converged towards a level close to, if not below, 2%: in December 2003, Gordon Brown announced a new inflation target for the Bank of England, based on the HICP, and set at a level of 2% for the 12-month increase; in the US, Ben Bernanke, recently appointed to take over A. Greenspan at the end of the month, advocated for a quantitative definition of the FED’s price objective comprised between 1 and 2% over the medium-term. 2.2. The Eurosystem’s monetary policy is “medium-term” oriented. What exactly are the implications of the medium-term orientation of the Eurosystem’s monetary policy strategy? The first is that the single monetary policy does not have a fixed horizon, defined once and for all ex ante, but aims, as far as possible, to take account of the “long and variable lags of monetary policy” dear to Milton Friedman.
US Prime MMFs saw large outflows, with net redemptions of 30% from prime MMFs offered to institutional investors over a two week period (President’s Working Group, 2020). This contributed to the effective closure of the market for short-term dollar funding (FSB, 2020). US government MMFs, on the other hand, saw huge inflows over the same period. A similar pattern was also seen in dollar denominated MMFs in Europe. 3/6  BIS central bankers' speeches  The important conclusion I draw from this review of the experience of the dash for cash is that while we can reasonably conclude that the actions taken meant that the immediate problem was tackled, in doing so some serious issues which represent a threat to the stability of the financial system were revealed. Hence, it is right that a very large amount of effort is going towards tackling these issues. Much of the rest of my remarks will set out and assess where we have got to. Reforms to make MMFs more resilient It is clear from experience that money market funds as currently structured may often be perceived as cash-like, but cannot make good on this expectation in a sufficiently wide range of market conditions, and so can contribute to stress in short-term funding markets. The objective must be to improve the resilience and functioning of MMFs to protect the stability of the financial system. In doing so, it is also important to recognise that the reforms after the financial crisis did not tackle this issue conclusively.

As investors realised there was a risk they may not receive their original investment in full, or that their holdings in MMFs may be suspended, a run on other funds followed, contributing to the extreme volatility in money markets and broader financial markets observed at the time. Following the financial crisis, considerable work was undertaken to build the resilience of MMFs. In 2012 the International Organization of Securities Commissions (IOSCO) published policy recommendations for the regulation and management of MMFs. Many of the reforms that were subsequently implemented have helped improve the resilience of MMFs, however it is clear they 1/6  BIS central bankers' speeches  did not go far enough in solving the underlying problems. And in some cases they may have had unintended consequences, such as the introduction of a link between the level of illiquid assets held by a fund and the potential use of tools (such as fees or gates) to manage redemptions during periods of stress. While introduced to manage potentially disruptive outflows, these changes have made funds more sensitive to so-called cliff edge effects – thus increasing an incentive to exit before the gate closes. One of the important, broader changes in the financial system post financial crisis has been the shift in the importance of bank and non-bank finance, with the latter growing relative to the former. This is not accidental: the post crisis reforms meant that there were asset classes which were no longer suitable to hold in large scale on the balance sheet of banks.
If stablecoins are to be widely used as a means of payment, they must have equivalent standards to those that are in place today for other forms of payment types and the forms of money transferred through them. This will ensure that they are safe and resilient and that consumers can use them with confidence. To reiterate, a key principle for payments is that users can be confident that the instrument they use to transfer value can be converted into fiat money at any time. And, in the rare circumstances that the entity that issued that instrument fails, that there are clear rules and protections for the payment recipient and for the consumer. It is this assurance that stabilises the value of the transfer asset so that all parties in the economy can rely on it. Banks achieve this by giving the customer a money claim at par, supported by banks’ access to central bank facilities and extensive regulation of banks’ activities, including a protection scheme for customer deposits up to a certain amount. It is these protections that mean that individual shop owners don’t worry about scrutinising which bank issued your debit card before you tap it to pay. It is these protections that prevent a return to the literal wild-west in which individual banks issued their own private currencies, which were worth different amounts depending on recipient’s assessment of the soundness of the issuing bank.

To harness the full benefits of ISO20022, Bank Negara Malaysia will undertake an industry-wide consultation to develop a holistic migration strategy covering both domestic and cross-border payments. The third element is flexibility and openness. Open APIs can pave the way for businesses to scale and offer value-added products and services. They enable rich and diverse ecosystems that deliver more personalised and wider range of services to customers. While this may be a shift from banks’ traditional approach of managing customer engagement through their own channels, it could be crucial to maintain long-term business agility. In this area, Bank Negara Malaysia has supported the formation of the industry’s Open API Implementation Group to identify and develop standardized open APIs for high-impact use cases. In this regard, the Implementation Group has developed standardized specifications for open APIs on product information of financial institutions. Moving forward, Bank Negara Malaysia will undertake further work on secure methods for allowing trusted third parties to access a broader range of banking information through open APIs, with the customer’s consent. Last but not least, is payment ecosystem resilience. While interoperable, standardised and open systems may facilitate enhanced efficiency and competition, it may also introduce new risks in such systems due to the increased interlinkages. All future-proofing efforts must therefore be anchored on enhancing operational resilience, including cyber resilience, in a rapidly evolving risk and threat landscape. To this end, the Bank had recently issued its policy on Risk Management in Technology (RMIT).
Over the last five years, inflation has stayed broadly in line with the price stability objective set by the European Central Bank, i.e. inflation below but close to 2% over the medium-term. Gone are the days when European citizens had to worry about the purchasing power of their savings. This stability goes beyond the behaviour of prices. Inflation expectations themselves have been remarkably stable, including during the recent period when oil prices jumped to levels no one could have expected only a year ago. This, by itself, illustrates the credibility achieved by the Eurosystem of Central Banks, after only six years of existence. Second, European households and companies are reaping the benefits of that credibility. Long term interest rates stand at a historically low level, around 100 basis points below the level in the United States. So, even after the recent increases in short term rates, monetary and financial conditions remain extremely favourable for investment and growth. And indeed, we might be witnessing in Europe the start of period of sustained and stable growth, at least if current projections and surveys are proven to be right in the coming months. A third benefit of the Euro is the boost it gives to financial integration in Europe. In many segments, European financial markets have reached the depth and liquidity which, up to now, were the preserve of dollar markets. This stimulates productive investment, helps in restructuring (as witnessed by the current wave of M&As) and, more generally, allows a better allocation of savings and sharing of risks.

With respect to money market developments, commercial banks lending rates have been declining but not at the rate as inflation or treasury bill rates. Commercial banks nominal average lending rate declined from 33.9% in December 2005 to 27.6% in December 2006 and stood slightly lower at 27.3% in February 2007. This is still on the high side for most entrepreneurs. However, there are positive indications from commercial banks due to the growing confidence in the economy and lower lending rates are therefore expected given the current environment of low inflation. Mr. Chairman, in the Non-Bank Financial Institutions (NBFIs) sector, institutional growth has continued to be a challenge. The number of NBFIs supervised by the Bank of Zambia has increased in the last 6 years, by 15% from 52 in 2001 when a specialized NBFIs department was established, to 60 today. The establishment of this specialised department was in response to: •  2  the expansion of the NBFIs sector;  BIS Review 150/2007  •  the increased innovation in the sector; and  •  the increase in the number of NBFIs supervised by BoZ after amendments to the Banking and Financial Services Act (BFSA) in 2000. The increase in the number of new entrants in the NBFI sector has been due to the stability in the macro-economic environment in general and the financial sector in particular. To illustrate this further the BOZ receives on average about 7 applications per quarter, mainly from bureaux de change.