samchain/econo-pairs-v1 huggingface dataset:
Interest rates and exchange rates Percentage points and index, 18 November 1992=100, quarterly average 4  130 Interest rate differential (left scale) KIX index (right scale)  3  125 Weaker krona  2  120  1  115  0  110  -1  105  Stronger krona  -2  100 95  97  99  01  03  05  07  09  11  13  Sources: National sources and the Riksbank  4  BIS central bankers’ speeches  The effect on the krona has thus arisen when expectations of the repo rate have changed, rather than when repo-rate decisions have been made. The expectations have probably been affected gradually, as the significance of the indebtedness for the decisions has become clearer. Moreover, exchange rates are at the same time affected by several factors that are connected with both expectations and market functioning. This makes it difficult to see with the naked eye how a particular monetary policy stance will affect the krona rate – unless it entails a large, sudden and unexpected deviation from earlier patterns. But nevertheless, consideration to household indebtedness and developments on the housing market have entailed a larger interest rate differential in relation to other countries, and thus probably a stronger krona, than we would have had otherwise. Between spring 2010 and autumn 2013, the interest rate differential in relation to other countries measured in terms of the KIX9 index increased by around one percentage point.

The advantages and disadvantages of this type of monetary policy stance have been discussed at length, both in academic circles and among central bank representatives, particularly after the global financial crisis. Some say that the experiences from the financial crisis provide support for a monetary policy that is adjusted so that it counteracts financial imbalances such as price bubbles and excessive indebtedness, while others say that monetary policy is normally unsuitable for these purposes and should instead focus entirely on inflation and resource utilisation.3 My own opinion is closer to the latter perception than the former. I believe that while of course there may be situations in which it is justified to try to dampen a general credit boom, it is better to use other tools than monetary policy to influence indebtedness among households and developments on a specific market, such as the housing market. In the case of Sweden, one can claim that the repo rate has for several years been set higher than is strictly justified by inflation and resource utilisation.4 But household indebtedness was not explicitly mentioned as a reason until the repo-rate decision in October 2012. The repo rate had then been gradually cut from 2 per cent at the end of 2011 to 1.25 per cent in September 2012. In October 2012, the repo rate was then held unchanged and household debt was for the first time treated as a factor in the monetary policy deliberations, both in the Monetary Policy Report and the press release on the repo-rate decision.
To make my job a little bit easier - and pull the topic a little closer to my “home turf” - I have taken the liberty to change the title of the lecture. I have also turned it into a question: “Should we have faith in central banks?” I should admit from the start that I do not have an obvious and clear-cut answer for you. If there was a simple answer it would not have been an interesting question to ask ... and it would have been a very brief Millennium Lecture. So I will try to approach this question a bit in the spirit of how I presume that Cambridge undergraduates might tackle their weekly essay questions, but hopefully - given my lack of practice - I will not be graded quite as harshly. 1. A look at the dictionary  Should we have faith in central banks? My answer to this question depends on what is meant by “faith”. A natural starting point is to take a look at the dictionary. The term “faith” is used in a religious context as well as in everyday language. From the Concise Oxford Dictionary - if you allow me to make reference to “the other place” here - I take away three main uses of the term “faith”. These different meanings are also reflected in the history of philosophical approaches to faith and belief.

They have translated into a substantial easing in borrowing conditions for euro area companies. Since June 2014, the cost of borrowing for businesses has fallen by 80 basis points. Without non-standard measures, we estimate that we would have had to lower key rates by around 100 basis points in June 2014 to achieve a similar effect on bank interest rates. This has also helped to stimulate lending to the real economy: in the euro area, outstanding loans to businesses have gone from a contraction of -2.5% in June 2014 to growth of 0.6% in January 2016. The impact is even more marked in France, where outstanding business lending grew by 4.8% year-on-year in the first month of 2016 - the highest pace of growth in the euro area and, what’s more, with the lowest rates of interest. Convergent estimates from the ECB and the Eurosystem indicate that, all other things being equal, the measures introduced since June 2014 should add 1 percentage point to inflation over the period 2015-2017, with a similar impact on growth. In France, they helped to boost 2015 growth by 0.3 percentage point, and estimates from INSEE even put the  BIS central bankers’ speeches  3  impact slightly higher at +0.4 pp. That represents about 80,000 additional jobs for the economy - although only structural reforms can generate lasting gains for a country’s growth and employment.
On the other hand, since the inflation forecast is not only an important internal decision-making tool, but also a crucial communication device, market participants have a good knowledge of the central bank’s forecast and can compare their own view on the economy with the central bank’s one. This implies that both the central bank and the market are well informed about each other’s forecast. It is clear that a huge portion of uncertainty is inherent to any practical forecasting. Moreover, from the monetary policy perspective this uncertainty is complicated by the fact that the results of today’s monetary policy action will be effective with a significant lag. On top of that, from the economic theory we know not only that today’s monetary policy decision is important, but also that the expectation about future monetary policy has an important impact. With a certain degree of simplification we can state that in general any future value of inflation depends on three main factors. These are the current state of the economy and its underlying inflationary pressures, current and future monetary policy actions and, of course, future economic shocks. Consequently, the surrounding uncertainty can also be divided into similar parts. Let me first shortly address the last point, something we can call the “shocks” uncertainty. It is necessary to admit that both today’s central bank forecast and today’s central bankers’ decision are deterministic from this point of view.

The risk of such a contraction stemmed mainly from two factors: on one hand, the possibility that money markets would deteriorate to the point of compromising banks’ access to them; and, on the other, the possible reluctance of banks to take on fresh risks in the form of loans against a background of enormous economic uncertainty. To address the first of these risks, the ECB launched a series of longer-term refinancing operations (LTROs). These provided banks with “bridge financing” under advantageous conditions until late July, for when a substantial tender I shall now refer to was scheduled. That stabilised funding costs for the banking sector at a juncture, as I stated, of great uncertainty. As to the second risk, namely banks’ reluctance to extend new loans in such a complex economic environment, the ECB already had an instrument to encourage banks to provide credit: the so-called “targeted longer-term refinancing operations” (TLTRO-III). This programme affords banks financing under particularly advantageous conditions, provided they meet certain lending targets to households and firms (excluding, in the former case, lending for house purchases). With the onset of the pandemic, this programme was modified to make it more attractive to banks, enabling them to obtain funding temporarily at an interest rates as low as -1%, under the condition of not reducing their eligible volume of credit. To obtain liquidity in the Eurosystem’s refinancing operations, including TLTRO-III, participating banks must nevertheless pledge collateral in order to protect the Eurosystem from potential bank failures.
Basle Report Findings As you know, I chair the Basle Committee on Banking Supervision, comprised of bank supervisors from the G-10 countries who coordinate supervisory policy for internationally active banks. While the Committee does not have formal legal enforcement powers, its conclusions and recommendations are widely implemented, both in G-10 countries and many others. In late January, the Committee issued a report dealing with the relationship between 1  BIS Review 27/1999  banks and highly-leveraged institutions, or “HLIs”. The Committee’ s report provides a framework for addressing the broader issues raised by the LTCM episode, the policy responses of supervisors, and some key risk management challenges for the banking industry going forward. In the United States, the Federal Reserve System, the New York State Banking Department, and the Office of the Comptroller of the Currency have conducted target reviews of a number of large-bank dealings with hedge funds. These reviews contributed to the Committee’ s work, to the Federal Reserve System’ s issuance on February 1 of new guidance to financial examiners and banks, and to similar guidance from the Comptroller of the Currency issued in January. These new standards emphasize the need for improvements in the credit risk management process at banks. The new standards will likely be complemented by a study of the implications of the LTCM episode by the President’ s Working Group on Financial Markets.

In such a disastrous situation, it was very important that people could perceive the security, at least in the financial aspect, regarding their deposits with banks and continuous access to their funds to meet their basic needs. Under these circumstances, not only did all banks generously contribute to recovering from earthquake consequences, but they also supported their clients in alleviating their pain and offering adequate solution, while ensuring continued operations and activities. Beyond this event, overall, the Albanian economy in 2019 performed in positive terms. Its growth pace continued to trend upward, employment increased, internal and external balances strengthened, and main indicators of the banking sector’s soundness have been improving. All the above reasons boost the optimism on the outlook of economic growth in the medium-term horizon. Among others, Albania has reached an important milestone on its path to development and integration: the expected opening of accession negotiations with the European Union. These negotiations should be definitely considered as an important development anchor and an additional guarantee for both domestic and foreign investors. Year 2019, as I stated above, affirmed the stability of the Albanian banking system. All structural changes that started in 2018 were successfully completed in 2019, driving to the targeted consolidation of the banking system. The activity of the banking sector grew in terms of the volume of assets and deposits. Meanwhile, the quality of the credit portfolio improved by around 3 percentage points during 2019 (the NPL fell from 11.1% to historical low 8.36%).
The firming in economic activity, in short, is due both to natural healing and past and present policy support. 2  BIS central bankers’ speeches  In this regard, it important to emphasize that we did expect growth to strengthen. We provided additional monetary policy stimulus via the asset purchase program in order to help ensure the recovery did regain momentum. A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course. We also have to be careful not to be overly optimistic about the growth outlook. The coast is not completely clear – the healing process in the aftermath of the crisis takes time and there are still several areas of vulnerability and weakness. In particular, housing activity remains unusually weak and home prices have begun to soften again in many parts of the country (Chart 15 and Chart 16). State and local government finances remain under stress, and this is likely to lead to further fiscal consolidation and job losses in this sector that will offset at least a part of the federal fiscal stimulus (Chart 17). And we cannot rule out the possibility of further shocks from abroad, whether in the form of stress in sovereign debt markets or geopolitical events. Higher oil prices act as a tax on disposable income, and the situation in the Middle East remains uncertain and dynamic.

Setting to one side the near-term effects of geopolitical developments, the rapid urbanization and industrialization of nations such as China and India could be generating an ongoing secular rise in commodity prices that might not be fully captured in today’s spot and futures market prices. If so, this would undercut the role of core inflation as a good predictor of future headline inflation. Nevertheless, there are important mitigating factors that suggest that it would be unwise for the Federal Reserve to over-react to recent commodity price pressures. First, despite the general uptrend, some of the recent commodity price pressures are likely to be temporary. In particular, much of the most recent rise in food prices is due to a sharp drop in production caused by poor weather rather than a surge in consumption (Chart 26). More typical weather and higher prices should generate a rise in production that should push prices somewhat lower. This is certainly what is anticipated by market participants, as shown in Chart 27. BIS central bankers’ speeches  5  Second, even if commodity price pressures were to prove persistent, the U.S. situation differs markedly from that of many other countries. Relative to most other major economies, the U.S. inflation rate is lower and the amount of slack much greater. Moreover, for the United States, commodities represent a relatively small share of the consumption basket (Chart 28).
Monetary policy is caught between loosening to return output to potential and tightening to return inflation to target. Which wins out depends, crucially, on the relative weight placed on these twin objectives in the policy rule. When inflation deviations are given greatest weight, monetary policy tightens materially. When output deviations are given greatest weight, monetary policy scarcely tightens at all. 16  Unlike Díez et al (2018), we use the reported data on staff costs in our firm-level dataset when calculating the labour share. A recent exception would be the work of Mongey (2018). Burgess et al (2013). 19 Taylor (1993). 17 18  9  All speeches are available online at www.bankofengland.co.uk/speeches  9  With monetary policy facing this trade-off, it follows that an increased prevalence of mark-up shocks would leave policymakers somewhat constrained in their ability to smooth the economy. Put differently, a sequence of trade-off inducing mark-up shocks would tend to worsen the trade-off between output and inflation variability, for a given monetary policy rule. The “Taylor curve” frontier of policy possibilities would be expected to shift outwards. 20  To illustrate that, we can conduct a counterfactual simulation of the effects of mark-up shocks on the course of output, inflation and interest rate variability. Chart 14 shows the variability of inflation and the output gap (the black dot) generated by the model. It also shows the variability of output and inflation when the economy is re-simulated having “switched-off” the shocks to firm mark-ups identified by the model (the red symbols).

The optimal targeting rule for monetary policy is: 𝜆 𝜋𝑡 = − 𝑥𝑡 𝜅  (12)  This “Golden Rule” of monetary policy strategy simply states that the policymaker should let inflation absorb more of the adjustment, after a trade-off inducing shock, either when the relative weight on output in the loss function is high (𝜆) or when the sacrifice ratio is low (𝜅). If 𝜆 is set to its welfare-optimising level, this gives a refinement of the “Golden Rule”: 1 𝜋𝑡 = − 𝑥𝑡 𝜖  (13)  15  All speeches are available online at www.bankofengland.co.uk/speeches  15  This tells us that, once the dust has settled, the degree of market power in steady state is all that matters for monetary policymakers in our simple framework when choosing the optimal trade-off between inflation and the output gap. Specifically, the greater this degree of market power, the steeper the slope of the optimal targeting rule: the policymaker should let inflation absorb more, and the output gap less, of a trade-off inducing shock. The intuition here is simply that market power increases the degree of price flexibility in the model and lowers the sacrifice ratio. This makes it optimal to do a greater amount of (now less costly) output-smoothing in the face of trade-off inducing shocks in the optimal policy rule. It is possible to calibrate this parameter in the optimal targeting rule. Chart 18 plots the relationship between it and mark-ups.
Despite the increased downside risks pertaining to external demand, domestic demand remains strong. Although problems regarding the global economy have the potential to restrain domestic demand through confidence and financing channels, countercyclical monetary policy and the ongoing improvement in employment conditions are likely to support  16  BIS Review 133/2010  the recovery in domestic demand. On the other hand, given the relative improvement in the creditworthiness of Turkey during the post-crisis period, a possible strengthening in capital inflows in the forthcoming period stands out as another factor that may lead to a faster recovery in domestic demand in contrast to external demand. Should the divergence in growth rates between domestic and external demand continue in the forthcoming period, it would be necessary to utilize other policy instruments such as reserve requirement ratios and liquidity management facilities more effectively. Accordingly, if the composition of strong domestic demand and weak external demand continue as envisaged, and if this pattern of growth co-exists with rapid credit expansion and a deterioration in the current account balance, consequently leading to financial stability concerns, then the CBT may bring forward measures outlined in the exit strategy expected to be implemented until the end of 2010. Distinguished guests, The Central Bank of Turkey will continue to monitor fiscal policy developments closely while formulating monetary policy. Since the second half of 2009, economic activity has been stronger than envisaged in the MTP, leading to better-than-expected performance in budget revenues.

As I understand, First Capital Bank has plans to increase its foot prints in Zambia and I hope that the bank will open up branches in other districts of BIS central bankers’ speeches  1  Zambia. This will enable it to enhance financial inclusion, which is among the country’s key priorities. Chairperson I have been informed that FCB has initiated the process of acquiring new state of the art banking software, and is in the process of introducing a full range of IT related products like internet banking, mobile banking and visa card. This demonstrates the bank’s strong and longterm commitment to becoming an important player in the development of our financial sector. This is no doubt driven by the confidence FCB has in the Zambian economy. Ladies and gentleman Zambia’s economy has continued to show resilience in the midst of a slowdown in the global economy as a result of the on-going Euro zone debt crisis and the sluggish growth in the United States of America and some leading emerging market countries including the BRICS. Economic performance has been strong with GDP growth in 2012 at 7.3%. Inflation has continued to be in single digits and was 6.9% in October this year. Although the exchange rate of the Kwacha against major international currencies has been under pressure, it has remained relatively stable, while the country has maintained a positive account balance over the last four years.
In 2017, Per Scholas NY enrolled 502 students and 406 graduated, of which a substantial majority reported being placed with an employer with an average starting wage of more than $ an hour.2 Earlier this year, the New York Fed partnered with Per Scholas NY to support our own Diversity & Inclusion efforts focused on career paths in IT, cybersecurity, and data science in the financial services industry. I am proud to say that the New York Fed was recognized by Per Scholas as a Major Partner in its recent 2018 annual update report. I mention these two examples as they reflect the theme of today’s event and the book— workforce development is about investing in work, workers and systems leading to greater employment opportunities for all. Employer Engagement by Community Colleges in New York State Another important issue is the role of employer engagement with community colleges. By working directly with local employers, community colleges can more effectively prepare students for available jobs, and at the same time, help employers find and retain workers with the skills they need. In an effort to better understand the level and types of employer engagement activities taking place in our region, the Federal Reserve Bank of New York recently conducted a survey of all of the community colleges in New York State. Next Wednesday, we will be releasing a report that details our findings. Our report does show that employer engagement by community colleges in New York State has become the norm.

Loan growth in July increased to 11.8 percent while deposits including bill of exchange grew by 1.9 percent. Liquidity in the system remains adequate, with loan/deposit ratio excluding interbank transactions at 90.1 percent in July. On asset quality, gross NPL ratio edged downward to 6.4 percent in June. These numbers show that the performance of the Thai banking sector is quite robust, and is well positioned to support the economy. Fourth, a more difficult picture to assess is the impact of the turmoil on the economy and how this would translate into the impact on the banking sector. So far, notwithstanding the less helpful global environment, the Thai economy has performed relatively well, with growth averaging 5.7 percent in the first half of this year. But going forward, market participants expect the economy to become more affected by the slowing global economy. Our own forecast also sees growth to be less buoyant in the second half of the year, reflecting a more adverse impact on exports. But overall, the momentum of growth should not be too adversely affected given the support that growth could gain from domestic demand which is being supported by high farm income, continued credit availability, and supportive fiscal policy. Moreover, lower oil prices and monetary policy that focuses on inflation should provide a stable price environment conducive to domestic demand and to export competitiveness. Also, continued current account surpluses, lower external indebtedness, and high domestic savings have made the economy’s financial conditions more stable, by reducing its dependency on capital flows.