samchain/econo-pairs-v1 huggingface dataset:
To be even more explicit; when we formulate our policy we have on several occasions deliberately chosen to allow deviations from the inflation target for short or long periods of time. When the consequences of the deviations have been lower interest rates than would have been the case with a stricter interpretation, there has been practically no criticism. However, it has been rather different with regard to deviations in the other direction. Neither the Riksbank nor any other central bank using inflation targeting can be described as an “inflation nutter”, to borrow a famous phrase from Mervyn King, now Governor of the Bank of England. That is, we do not focus solely on stabilising inflation; we also take into consideration the real economy – conducting what is usually termed flexible rather than strict inflation targeting policy. This is also entirely in line with our task as laid down in law. There are also other types of consideration that need to be made in monetary policy. One that is immediately apparent is how financial stability will be affected by the interest rate decisions. Over the past year, and also on a few earlier occasions, there has been extensive discussion of developments in the credit market at our monetary policy meetings. We have relatively short experience of how credit cycles affect the economy; up until the 1980s the financial markets were strictly regulated. Our knowledge of the risks entailed in a rapid increase in indebtedness and asset prices is thus limited.

On the regulatory side, thc adoption of a risk-focused supervisory framework entails a shift away from a rigid, rules based approach to regulation and towards more “incentive compatible” prudential standards. By “incentive compatible”, I am referring to broad, principles based standards that encourage banks to develop and continuously update their internal risk management systems to ensure that it is commcnsurate with the scope and complexity of its operations. While the benefits are obvious, there are also some consequences for the supervisory side of our business that may not be readily transparent. First, an emphasis an broad prudential standards - while useful rot fostering sound risk management practices - will inevitably create significant challenges for front-line supervisors. This is because they will need to rely much more on sound professional judgment and critical analysis, and less on rules-based compliance criteria, in order to make proper risk assessments. This in turn, will require supervisory staff members to have a fundamental grasp of risk-based supervisory concepts and how it is applied in the field. The challenge for every emerging market supervisory authority is to equip our front line supervisors with the requisite knowledge, skills, and abilities, in order to help make their transition to a risk-based framework as smooth as possible. At the Bank of Thailand, we have placed greater reliance an this risk-based philosophy during the past several years.
The combination of the Riksbank now publishing its own interest rate forecast and at the same time continuing to report how we think has the potential to change the discussion outside of the Bank. It could to a greater extent concern how new information should affect  2  BIS Review 111/2007  expectations of interest rate developments rather than exactly what formulations are used in for example speeches and press releases. Interest rates are by definition always uncertain Let me take up some issues that are important to keep in mind when formulating forecasts for the repo rate. Firstly, the interest rate path we present is a forecast and forecasts are, as we know, very uncertain. To illustrate this, the Riksbank publishes uncertainty intervals, known as fan charts, around its interest rate forecasts and also its inflation and GDP forecasts (Figure 8). As you see, the uncertainty interval increases considerably in relation to the length of the time horizon. Put simply, the probability of unexpected shocks arising in the economy that would lead to developments deviating from the forecasts increases when the time horizon is longer. In other words, it is not easy to make accurate forecasts of the development of the interest rate in the longer term. One means of illustrating this is to see how the implied forward rates have changed over time. Figure 9 shows implied forward rates measured on a quarterly rate. Expectations of the development of the repo rate have varied substantially over time when measured in this way.

As early as November 1973, at the Conference on Managers in a Changing Hong Kong Environment, Sir Philip spoke on, amongst other things, the role of public policy. He said that, “the Government must accept such responsibilities as are necessary to ensure that management decisions are not frustrated by imperfections in the operation of the market mechanism, leading to economic inefficiency or social distress which only the Government can remove.” In September 1979, he talked about interventionism and the adjustment mechanism, amongst other things, in a speech on the Hong Kong Economy in Transition. He said that: “A pragmatic view dictates an admission that interventionism can be relevant to the maintenance of economic stability in Hong Kong even in the general context of a philosophy of positive non-interventionism”. In the same speech he cautioned against taking for granted the “efficiency with which [the] essentially automatic adjustment mechanism operates in restoring equilibrium”. He then went on in the same speech to identify areas that could be collectively referred to as market imperfections which justifies market intervention. BIS Review 67/1998  -2But it was the speech he made to the Federation of Hong Kong Industries in December 1980 (and as Principal Assistant Secretary for Economic Services then it was my honour to have a hand in drafting part of the speech) in which he made abundantly clear his stance on the policy of positive non-interventionism. Here I quote two paragraphs of his speech in full.
As we get greater clarity over the coming year, I will update my assessment of the economic outlook and, with that, my views about the appropriate stance of monetary policy. Monetary and fiscal policy in a low-rate environment I also would like to highlight the limitations of monetary policy. One important factor contributing to such limits is that the real short-term interest rate consistent over the longer run with a neutral monetary policy stance appears to be very low, and is expected to remain so for some time. This has been helping to keep real inflation-adjusted interest rates lower than they have been historically. In part, this reflects anemic productivity growth as well as the slowing of labor force growth due to the aging of the population. An implication of this environment is that there will likely be less scope than there has been historically for the Federal Reserve to cut interest rates when needed in the face of an economic downturn. All else equal, this means a greater risk for short-term interest rates to be pinned at their effective lower bound and for inflation expectations to become unanchored to the downside. Although forward guidance and large scale asset purchase programs have expanded the ways in which the Federal Reserve can provide additional accommodation, these unconventional monetary policy tools also have their own limits. These limits suggest that fiscal policy may need to play a greater role in stabilizing the economy than has been the case in past decades.

Subsequent to the FOMC’s decision, a compromise was reached on extending the Bush tax rates in conjunction with additional fiscal stimulus measures for 2011. The flow of economic data as 2010 came to a close on balance indicated that the economy was in fact regaining its lost momentum. Economists began to mark up their forecasts for 2011 economic growth. This recent improvement in the economic outlook is welcomed news. We should keep in mind, though, that there is considerable uncertainty associated with every economic forecast. There are both upside and downside risks that could cause actual economic growth this year to deviate from the consensus forecast. One important downside risk to the outlook is associated with housing markets. Following the end of the homebuyer tax credits, there was a sharp drop-off in home sales. In addition, the firming of house prices noted earlier has given way to renewed house price declines in many markets (Chart 27). There still remains a significant excess supply of housing that will exert downward pressure on house prices and new construction (Chart 28). Given the very low level of new home construction, the primary driver of this excess supply of housing is the on-going foreclosure process. The foreclosure pipeline continues to grow (Chart 29). How far along are we at resolving the foreclosure  BIS central bankers’ speeches  3  problem?
By the early summer both the MPC and financial markets were contemplating the possibility that we might soon need to act to moderate the growth of domestic demand, if that did not happen of its own accord, in order to accommodate a pick up in external demand. But we had not reckoned with the further nervous breakdown suffered by international equity markets during the summer! This seemed to be largely unconnected with developments in the global economy where a gradual recovery - including a gradual recovery in manufacturing output - seemed to be continuing, even if the pace of recovery was slower than was earlier anticipated. In part it no doubt reflected a belated correction of earlier “irrational exhuberance” but it seemed to be exaggerated by fears of possible further terrorist attacks following on from 9/11, by a series of corporate governance and accounting failures in the US, and by the possible implications of war with Iraq. But whatever the causes, the sharp further falls in equity prices have given rise to concerns about the strength of business and consumer confidence, and to doubts as to the sustainability of the global recovery. Internationally, and here in the UK, both in financial markets and within the MPC, the monetary policy debate has shifted back to the possible need for further monetary stimulus . One helpful consequence of this is that market interest rates have in fact fallen significantly, which will help sustain the recovery.

We find ourselves nevertheless - not for the first time - in something of a quandary. The key questions confronting us then are: First - To what extent do we expect the gradual global recovery - which is critical for our manufacturing sector - to be sustained? 2  BIS Review 59/2002  Secondly - Depending on the answer to that, to what extent do we expect the consumption growth, that we have recently been relying upon to keep overall, aggregate, demand increasing, in line with our underlying supply capacity, to continue to sustain our overall economy of its own accord? and Thirdly - Depending on the answer to that, how much risk - of an abrupt retrenchment by consumers, and a significant shortfall on our inflation target, further ahead - would we be taking, and should we take, by cutting interest rates further now, to sustain consumer demand at the expense of a further build up of household debt and continuing increases in house prices, in order to maintain the growth of the overall economy? These are all difficult questions of degree. But you can be sure that my colleagues on the MPC will continue to monitor both the global and the domestic situation with their usual vigilance - and with an open mind. There’s no doubt that these are challenging times for all of us.
However, this should not lead to sustained higher inflation rates, as long as the unions do not use the higher energy prices as grounds to demand additional wage increases. The monetary aggregate M3 rose in July by 5.6% compared with 5.3% in June. The money supply figures have recently been revised upwards and we still need to examine the factors responsible for these revisions carefully. Measured by the moving average over the last three months, i.e. May, June, and July, M3 growth has moved further away from the reference value of 4.5% announced by the Governing Council of the ECB at the beginning of this year to 5.4%. This increase is largely attributable to the low opportunity costs of holding money. However, the gradual improvement in the economic outlook has probably also played a role. Similarly, the development in lending to the private sector is not restrictive at present. Annualised growth rates of just over 10% do not, in any case, indicate that the conditions for lending are currently unfavourable. As previously explained, the money supply development of M3 plays a prominent role in our strategy. However, short-term fluctuations in the money supply should be viewed cautiously, not least because of the uncertainties associated with the brief existence of Monetary Union and the recent statistical revisions to the money supply figures. However, the most recent figures suggest increased growth. At the same time, the prospects for an economic recovery in Europe starting this year and continuing into next year have clearly improved in the meantime.

Caleb M Fundanga: Financial sector challenges and progress in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Information Exchange Forum on Sources of Finance, Lusaka, 10 December 2007. *  *  *  • Mr Chairman • Representatives of International Financial Institutions • Chief Executives and representatives of Financial Institutions • Distinguished ladies and gentlemen I am greatly honoured to be given an opportunity to make some remarks at this forum. I wish to extend a warm welcome to all participants gathered here today, particularly those who have travelled from outside the country. I hope that you will not only have fruitful deliberations but also find time to explore the beautiful scenery and experience the warm hospitality that Zambia has to offer. Mr Chairman, Ladies and Gentlemen, this forum is more than timely as Zambia is working tirelessly towards financial deepening, wealth creation and reducing the levels of unemployment. In order to achieve this, affordable financial services should be available to the majority of businesses. In fact, the forum has come at an opportune time when the economy has shown signs of macroeconomic stability and growth. The financial sector in Zambia is considered relatively under developed. In spite of this status, post independence governments have always recognised the importance of the financial sector to national economic development. This is the reason why the activities of the sector had up until 1992 been controlled by the state.
These resources comprise first the margin collateral of the defaulting member, then some of the CCPs’ own capital (their ‘skin in the game’) and then the mutualised loss absorbing capacity of the default funds to which all members contribute. These resources are considerable. In 2017, in addition to the £ billion of initial margin, default funds held by UK CCPs totalled around £ billion. As a very broad comparison, at the height of the financial crisis the UK Government had to make an initial injection of £ billion of public funds into RBS and Lloyds. As I noted at the outset, in the Lehman case, the margin held by CCPs was sufficient to enable the CCP to liquidate, auction or transfer all of the defaulted contracts in a few weeks. We would need to go much further into the tail of the probability distribution of very bad events to exhaust a CCP’s prefunded resources against default than would be necessary to exhaust a bank’s capital. If bank  6  The largest cross-border banks are considerably stronger than during prior episodes of market stress. Common equity requirements are seven times the pre-crisis standard for most banks. For global systemically important banks (G-SIBs), they are more than ten times higher.

As Andrew  BIS central bankers’ speeches  1  noted, given the scale of the regulatory effort, that means that the business models pre-crisis are not necessarily going to be very effective now. Let me turn back to trust. Why is trust still so low? My sense from the discussions is that trust remains low for two reasons. First, because of misconduct, and secondly, because of a perceived – and, potentially, actual – lack of adequate client focus. The frequent references to misconduct reinforced in my mind the importance of individual accountability, the focus of the Fair and Effective Markets Review, chaired by Minouche Shafik. It also emphasised the importance of the senior managers’ regime coming into effect in the first quarter of next year, and the importance of applying it to true codes and standards in wholesale markets, in a manner that market practitioners understand. The people at coal-face – junior traders, investors and asset managers – must understand what a true market is and their responsibility to act in a way that is consistent with maintaining true markets. In terms of a perception of a lack of client focus, I took away two gaps that were raised. The first is a financing gap, which I felt came out during the first panel, and which some economic historians in the room compared to the ‘Macmillan gap’ – the distance between finance and industry being too great. People talk today about an excess of savings not finding a home.
To this end, the draft bill maintains its existing inspection and verification powers, although with some changes, such as that requiring the Banco de España to carry out yearly stress tests on supervised institutions to evaluate their solvency. Additionally, in the context of the Banco de España’s prudential supervisory tasks, the draft bill equips it with certain tools envisaged in EU legislation, including the so-called Pillar 2 measures such as additional own funds requirements, limitations on dividend distribution, restriction of certain activities and limitation of variable compensation. The Banco de España will also be empowered to set the “additional capital margins” envisaged in the draft bill. The Banco de España will continue drawing up supervisory guidelines. As a new development, it is envisaged that, if institutions’ conduct does not comply with the guidelines, they will, if required by the supervisor, have to explain the reasons for such non-compliance. In the area of sanctions, the Banco de España retains its current powers, independently from the powers which may at any time be exercised by the European Central Bank within the framework of the Single Supervisory Mechanism. Against this background, significant changes were made which generally strengthen the regime currently in force. Finally, the draft bill endows the Banco de España with supervisory, inspection and sanctioning powers in respect of compliance with obligations to offset, notify and reduce risks associated with the use of OTC derivatives.

Three matters concern us: the elements of the new Basel III capital accord that have not yet been fully finalised; the Financial Stability Board’s work on the regulatory framework for the treatment of systemically important institutions; and the new powers of the Banco de España under the draft bill on the supervision of credit institutions, which will foreseeably be approved in the first quarter of next year. I shall begin with Basel III. The new capital accord improves the comparability and, thereby, the credibility of capital ratios. Basel III increases capital requirements with better-quality instruments, and it seeks consistency and a uniform application across banks and countries. It also adds two new prudential tools: one in the area of liquidity, and the other in that of leverage. First, the inclusion of the leverage ratio, the relationship between Tier 1 capital and exposure both on and off the balance sheet, i.e. the total banking book, without taking into account risk weights. Calculations are made at the consolidated level and, in principle, the level is set at a minimum of 3%. It is scheduled to come into force in 2018, although an earlier date will probably be set for the required disclosure of this figure. This new tool has been designed as a straightforward measure that complements and acts as a floor to the minimum risk-based capital ratio. It aims to provide additional protection against what is known as “model risk”, i.e.
The proper implementation of these programmes, which have been favourably assessed in the European Commission's follow-up of the Lisbon agenda, is vital if the Spanish economy is to leave behind the path of low productivity growth on which it has been moving. Undoubtedly, the high availability of labour is a factor that partly explains the low increases in productivity. But this should not mask the difficulties faced in increasing and modernising productive capital, in properly training labour and in incorporating technological advances, difficulties that must be overcome to improve the competitiveness of the productive system. Market flexibility and efficiency is a vital requirement for sustaining long-term growth in an area of monetary stability. And it is all the more vital if, as in the case of the Spanish economy, the starting point involves a lag in technology and a relatively low level of productivity. This is why it is so important to move forward the Lisbon strategy in our country. The challenge lies, therefore, in translating the programmes designed into effective government action that is capable of mobilising the innovative energy of the private sector and of extending action to other key areas still requiring a liberalising boost, such as the retail trade sector and the land, housing and rentals markets. The financial system During 2005 Spanish deposit institutions operated in a benign domestic and international environment, both from the macroeconomic and financial-market perspective.

Furthermore, looking ahead in monetary policy is hard when the economy is going through major changes that make it difficult to forecast the future path of the economy and inflation. It is quite clear that this demands a great deal of forecasters as well as of those who construct macro models. The forecasts concern inflation one to two years ahead, which calls, for instance, for reasonable precision in the measurement of the output gap and the relationship between the output gap and inflation. It is already evident, for example, that in the 1990s inflation forecasts in many countries were frequently on the high side. I believe that the best we can do, at least at this stage, is to pay close attention to incoming data in the forecasting process, and not mechanically use the results from models that rely too heavily on historical relationships. We have to deal more successfully with the fact that forecasts of economic developments can never be completely accurate and still allow monetary policy to be forward looking. When discussing monetary policy of today, we must remember that we have come a long way. The world economy shows strong growth coupled with low inflation and monetary policy has contributed to this development. However, there are interesting, though somewhat difficult, challenges ahead of us which must be met if we are to preserve this bright picture of the world economy. This conference will contribute to a better understanding of the issues and problems involved. 3  BIS Review 50/2000