samchain/econo-pairs-v1 huggingface dataset:
Real short interest rates are much higher in Sweden than in the euro area, the United Kingdom and the United States from 2010 onwards, despite the fact that inflation in Sweden is significantly lower than in these economies and it is now well below the target at the same time as unemployment is as high as, or higher than, in the United Kingdom and the United States. The cost of the tight monetary policy in terms of unemployment is high, both in a short and long-run perspective. In practice, monetary policy has to some extent neglected the price stability objective and led to unnecessarily high unemployment. According to extensive theoretical and empirical research, monetary policy normally has little effect in the short run on housing prices and household indebtedness, compared with its effects on inflation and unemployment, and when inflation is low and stable, it has no longrun effects on housing prices and indebtedness. A tight monetary policy aimed at limiting household indebtedness then leads to inflation being too low and unemployment too high, without having a tangible effect on potential risks arising from household indebtedness. Monetary policy should therefore not be used to try to influence housing prices and indebtedness. Against this background, it is remarkable that monetary policy in Sweden nevertheless appears to have been aimed at influencing household indebtedness in the short and long run, resulting in large costs to the real economy, despite the lack of support for this stance in both scientific research and previous experience.

This means that a more expansionary monetary policy, with 65,000 fewer people unemployed, would have increased the debt ratio by about 65,000/25,000 = 2.6 per cent. That is, the debt ratio would have increased in the space of a few years from about 170 per cent of disposable income by about 4 percentage points to about 174 per cent.14 It is difficult to believe that this would have increased potential risks related to household indebtedness to an extent that is worth more than 65,000 jobs. And as I said, in the longer run the debt ratio is not affected at all, and thus there is no effect on potential risks. Moreover, as unemployment is so high to start with, I would like to have seen monetary policy become so expansionary that inflation temporarily overshot the target. An even higher rate of inflation would by now have reduced unemployment by even more than 65,000 people.15 The long-run sustainable rate of unemployment depends on how the labour market works and on structural conditions If we are to stabilise unemployment around a long-run sustainable rate, we must have a view of what this rate is. However, the long-run sustainable rate of unemployment is a concept and a quantity that cannot be measured directly; it must be estimated in different ways. The long-run sustainable rate of unemployment refers to the unemployment rate when the economy is in what is referred to by economists as a “steady state”.
Shock absorbers adequate and risk sensitive. Third, I have already mentioned that no bank can maintain public trust for long if it lacks sufficient capital. One of the fundamental tenets of risk management is that banks need to create provisions to absorb expected losses and to have sufficient capital to absorb unexpected losses. Accordingly, capital and provisions are an essential part of any supervisory framework. I believe Basel II reinforces the need to implement sound policies in both areas. I will just add in this point that given the unique positions of banks at the crossroads of businesses and consumers in every economy – and their special role as intermediaries of credit to both – nothing threatens financial stability more than the presence of poorly managed and poorly capitalised and provisioned banking institutions. Appropriate time horizon and counter-cyclical elements. Stress testing Fourth, the solid and stable functioning of banks requires an additional consideration, a macro perspective. Namely, risk management decisions, capital and provisioning policies should be set with an appropriate time horizon that allows at least a full business cycle to be considered and avoids excessive emphasis on the short term when assessing risks. The aim is not to promote the uniformity of time horizons, but to encourage managers to consider how risk determinants alter over the cycle and in conditions of stress. The need for capital in a full range of economic scenarios has resulted in a requirement that banks consider stress scenarios when assessing capital adequacy.

First, I will talk about why the Basel Committee developed the Basel II capital framework and what it intends to accomplish. Second, I will share some thoughts on how prudential banking supervision contributes to the stability of the financial system. Next, I will discuss how I see Basel II contributing to financial system stability. Finally, I will offer some thoughts on steps countries can take in preparation for adopting Basel II. But let me advance the main conclusion of my presentation: In a nutshell, I think that the new capital framework represents a significant step towards achieving a more comprehensive and risk sensitive supervisory approach. Basel II is about much more than just setting better quantitative minimum capital requirements. It is about establishing incentive-based approaches to risk and capital adequacy management, within a comprehensive framework of three mutually-supporting pillars. In my view, the combination of better risk management, a stronger capital structure and improved transparency standards in the banking system can significantly improve financial stability. Why Basel II? Let me begin with an overview of the Basel II capital framework, which was released in June last year. As you may be aware, Basel II has probably attracted more public attention than any other banking supervision reform. While I will not go into the details of the new framework, it is important to spend a few minutes talking about what the Basel Committee hopes to achieve with Basel II.
BIS Review 94/2006  1  fundamental to an understanding of recent movements in inflation and the response to them of the Monetary Policy Committee. Let’s take a closer look at the NICE decade. Two factors were particularly important in delivering stability. First, companies and employees responded flexibly to sharp movements – both up and down – in input costs. That new-found flexibility, unlike in the 1970s, meant that firms absorbed cost pressures partly in profit margins, partly through efficiency improvements, and partly by resisting increases in the prices of other inputs. With a clear commitment by the Bank to meet the inflation target, raising prices (so losing market share) was a less attractive strategy for meeting the challenge of higher input costs than searching for ways of reducing other costs. And employees recognised that the consequences of higher world prices, such as for energy, on living standards could not be avoided by higher money wages. So wages rose more slowly when employers faced higher National Insurance contributions and energy prices than when the costs of imported inputs were falling. Second, monetary policy supported a broadly steady path for total money spending – during the decade 1995-2004, the growth rate of nominal domestic demand fell within a narrow range of between 5¼% and 6¼% in all but one year – so that the new flexibility meant that price rises in some parts of the economy were balanced by price falls elsewhere, leaving inflation overall close to the target.

John C Williams: The gold beneath our feet Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the GARP Global Risk Forum, Federal Reserve Bank of New York, New York City, 7 November 2019. * * * As prepared for delivery When plans for the New York Fed’s headquarters here at 33 Liberty Street were developed in 1921, the building committee compiled 33 pages of requirements for potential architects.1 I can assure you that our appreciation for bureaucracy has endured the test of time! Joking aside, the focus of many of those requirements was specifications for the building’s gold vault. Beneath our feet lies a triple-tiered vault system with 122 separate compartments for storing gold bars. For those of you who are Harry Potter fans, it’s as close to Gringotts Bank as you’ll find anywhere in the world—although for security reasons I am not allowed to confirm or deny that we have a dragon down there. The whole building was constructed around the vault. Engineers had to excavate 117 feet down to the bedrock for a foundation that could support the weight of the construction. Why am going into so much depth about the gold? There is a reason! But before I explain, I should give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System.
In concrete terms, membership of the euro should bring more stability and prosperity. In this respect, the Monetary Union has already taken considerable steps towards integration. But a common internal market and a single monetary policy alone is not enough to achieve this in the long run. With stricter budgetary rules for euro area countries, a stability mechanism and banking union, the Monetary Union is in a considerably better position today that it was at the start of the crisis. But despite these steps towards integration we still can’t speak of a completed Monetary Union. To sit back now, given what has been achieved, would therefore be wrong. Developing the Monetary Union further is a permanent undertaking. As a matter of principle, the prosperity of each individual country in a monetary union always depends on the financial and economic policies of the other Member States. Member States find themselves, as it were, in a community with a shared destiny. All governments are therefore well advised if they take the other Member States into account and coordinate their policies where appropriate. Member States thus not only need a common monetary policy, they also profit when they share more sovereignty in other policy areas. When I talk about “sharing sovereignty”, this in no way means that Member States lose their independent decision-making authority, let alone their national identity. On the contrary, the more sovereignty Member States share, the more influence they can sometimes gain. Let me illustrate this with an example.

4  Van Beers, N., Bijlsma, M. and Zwart, G., “Cross-country insurance mechanisms in currency unions: an empirical assessment”, Bruegel Working Papers, 2014/04, 2014; International Monetary Fund, “Towards a fiscal union for the euro area: technical background notes”, September 2013, available at http://www.imf.org/external/pubs/ft/sdn/2013/sdn1309tn.pdf. BIS central bankers’ speeches  3  The design of a capital markets union – regulatory harmonisation and institutional efficiency The Commission will soon present a first proposal on what a capital markets union could look like in practice. This proposal will then be submitted for public consultation. The details are not yet known, but I would like to share with you some of my ideas about an effective capital markets union. For me, the term “capital markets union” means more than simply tinkering with existing regulation. It means addressing areas that are politically sensitive as well, such as disclosure requirements for companies, supervision of the financial infrastructure, insolvency law and EU-wide harmonisation of capital gains tax regulation. We have already achieved a great deal in the field of payment systems, having broken down barriers and significantly reduced costs for citizens since we introduced the Single Euro Payments Area (SEPA), although the existing legislation now needs to be implemented with full force. We want to do the same in the medium term for the cross-border use of credit cards: in a monetary union, there should be no “roaming” fees when it comes to making payments.
As banks and securities markets become increasingly integrated, new and interesting questions arise with regard to the best means of exercising international supervision and oversight. Plans are also being drafted for the European payment system. The ECB plays a central role in this work. Whether or not we have a place at the decision-making table affects the conditions for the financial sector in Sweden, a sector that currently employs around 80,000 people, which is almost twice as many as, for instance, the forestry-based industries. Even more important here is the broader economic policy decision-making, primarily through the Ecofin Council, where the Ministers of Finance meet regularly. The trend is clear, although the changes have so far been tentative and gradual. An increasing number of the important issues are discussed and decided in practice in the small circle of countries participating in the Eurosystem, what is known as the Euro group. It is not difficult for me to point out issues from recent years where we could probably have exerted greater influence if we had been members. During the early years, when the ECB was being built up, we sat at the decision-making table. When it then became clear that we and the Brits intended to remain on one side, our colleagues quite simply decided to postpone a number of important issues where we had strong views, including the monetary policy framework with inflation targeting, transparency, etc. This also applied to various payment system issues, where our position was weaker on the outside.

Adnan Zaylani Mohamad Zahid: Charting the next financial sector blueprint – digitisation, climate change and resilience Speech by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Financial Market Association of Malaysia's Annual Dinner, Kuala Lumpur, 22 November 2019. * * * It is an honour and a great pleasure to be here and see many familiar faces at tonight’s Financial Market Association of Malaysia’s annual dinner. The last time I attended this dinner was three years ago, when I was the Assistant Governor overseeing the financial markets and the Financial Market Committee chair. I left this role in September of 2017, unable to resist the offer and allure of pursuing a public policy degree. Though we had done much by then to deal with the many challenges following the financial market development measures put in place at the end of 2016, I have to admit that I left with a sense of regret and uncertainty. The regret was from not being able to be part of the team to see things through, and uncertainty from the fact that the stakes were high and any measure of success then was fleeting. These concerns proved to be unwarranted. The FMC continued to play a key role in mobilising the industry and providing a much needed reality check and feedback from the market in terms of intelligence and insight, which helped the Bank navigate through those challenging times.
However, since the beginning the annual excess return on equities has been close to ½ percentage point. We have  2  BIS Review 53/2009  established an equity management strategy that seems to be fairly robust to market fluctuations and that has, as we have seen, generated solid returns viewed over a longer period. Developments in the Fund’s fixed income portfolio have followed a different path. The annual return on the actual portfolio was ½ percentage point lower than the return on the benchmark portfolio. The results were not due to investment in high-risk fixed income instruments. At the end of 2008, as much as 64 per cent of the bonds in the Fund’s fixed income portfolio had the best credit rating, AAA, 20 per cent had the second best, AA, while ten per cent were rated A. Five per cent of bonds were rated BBB, which is the rating the credit rating agency Standard & Poor’s has assigned companies such as Telenor and Statkraft. Only one per cent of the fixed income portfolio has a lower credit rating. Realised losses as a result of bankruptcies have been low. The following table provides a static situation report. As the recession follows its course, and the credit rating agencies continue to respond positively to criticism, ratings will probably be adjusted to a certain extent. The emphasis will nevertheless be on high-quality paper. How then can an excess return become negative from one year to the next?

Although annual inflation may rise during the second quarter of 2011 amid very low base effects from food inflation, inflation is expected to fall gradually in subsequent periods to stabilize at around 5 percent by early 2012. I think analyzing the forecasts by comparing the latest data with the previous Report period would help to better understand the changes in forecasts. As I have mentioned earlier, we revised our output gap estimates slightly downwards compared to the April Inflation Report, owing to the anticipated impacts of the problems in the euro area on aggregate demand (Figure 34). However, there is no significant revision in the pace of the recovery, as the downward revision in the monetary policy stance is expected to partially compensate for the adverse impact of weaker external demand. In this respect, we based our assumptions on an outlook, in which there would not be a remarkable change in the pace of the recovery in economic activity. Accordingly, there has been no significant revision in the inflation forecasts for 2011 and onwards (Figure 34). BIS Review 133/2010  15  Any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, I would like to underline once more that the assumptions regarding the future policy rates underlying the inflation forecast should not be perceived as a commitment on behalf of the CBT. 4.
The arguments for establishing a committee for monetary policy and financial stability are weaker, in Norges Bank’s view, if the GPFG is separated from Norges Bank. Without responsibility for the GPFG, the Board’s range of responsibilities will be substantially reduced. In addition, dividing responsibility for central banking matters between the two bodies will pose challenges, particularly with regard to the division of work and reporting. The central bank’s core functions are closely intertwined and must be viewed as a whole, as experienced during the financial crisis. A solution where responsibility must be transferred from the board to the committee in critical situations, as proposed by the Commission, could give rise to a lack of clarity and conflicts of competence. An important point in this context is that in the implementation of the committee’s tasks, the Governor will not be responsible to the board, but will report directly to the Ministry of Finance on central banking matters. If the management of the GPFG is removed from the aegis of Norges Bank, the Bank’s function will be to exercise authority with regard to monetary policy, financial stability and the payment system. A board with broadly the same composition as at present would then function well. Combining responsibility for central banking matters and administrative matters in this board will place responsibility with the same body in both normal and crisis times. The consideration of central bank independence also points towards this solution.

It naturally follows that the objectives set out in the first paragraph of the objects clause are primary objectives for the Bank and fully in line with the principles on which the Bank already bases its activities. 1/8  BIS central bankers' speeches  Trust in the stability of the value of money is the very foundation of the monetary system. In addition, households and businesses must be confident that the payment system will allow them to conduct transactions securely at all times. An efficient and stable interbank payment and settlement system also provides a necessary basis for the stability of the financial system. With financial system stability, investors can channel available capital to investments offering the highest return. Norges Bank also has a key role in the management of crises in the financial system. In a crisis, the Bank can supply liquidity both to influence market interest rates and to stabilise the financial system. Flexible inflation targeting The purpose of “maintaining monetary stability” sets a long-term objective for monetary policy. The day-to-day conduct of monetary policy requires a more operational target. Most countries set this target in the form of a regulation or a more time-limited mandate issued by the government. The operational target is set to meet the primary objective, but is also a means of holding the central bank accountable. Chart: Emergence of inflation targeting The objective of monetary stability is compatible with a range of operational targets.
“Excess liquidity” (defined as the difference between outstanding open market operations and the liquidity needs from autonomous factors and reserve requirements) currently stands at around € billion and is expected to remain at roughly this level at least until the end of January 2013, when banks will be able to exercise the option of early repayment on the first three-year LTRO. The leeway for a reduction in outstanding refinancing operations before that date currently amounts to around € billion, and the scale on which banks will exercise early repayment options is difficult to anticipate at the current juncture. As a consequence, the balance sheet of the Eurosystem has grown to € trillion. This large increase is a symptom of malfunctioning money markets and reflects the fact that the Eurosystem has replaced much interbank activity. When the situation stabilises and money markets go back to functioning normally, the balance sheet of the Eurosystem will also go back to its normal size. To this respect, the Eurosystem is often compared with other major central banks. Such comparisons however disregard the initial size of balance sheets, as the Eurosystem holds a large volume of assets that have nothing to do with monetary policy. In early March, the ratio of monetary policy instruments to regional GDP was 15% for the Eurosystem, 19% for the Federal Reserve System and 21% for the Bank of England. This large amount of excess liquidity has drawn criticism of two different kinds.

In addition, the ECB has the right to issue debt certificates, and, if necessary, we could also decide to increase banks’ reserve requirements again. Reverting to the 2% reserve requirement ratio that prevailed until December 2011 would reduce excess reserves by approximately 100 billion euros. So, we are well equipped to cope with any issues arising from excess liquidity. There is a third concern which I would like to touch upon, and which I consider to be a serious one: the risk of moral hazard behaviour triggered by the non-standard measures. The large liquidity injections have avoided so far a disorderly deleveraging of the banking sector in the euro area as well as a dangerous credit crunch, but they have not removed the underlying causes of the turmoil. If governments and banks would stop or slow down their consolidation efforts and structural reforms, this would undermine the positive effects of the liquidity operations. Following the signs of improvement in the financial environment, it is therefore essential for banks to strengthen their resilience further, even by retaining earnings. The soundness of banks’ balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy. Very low interest rates and ample liquidity conditions may be disincentives for banks to avoid recognising the loss by rolling over loans extended to borrowers who are unable to pay back the principal (the so-called “evergreening” of loans).