samchain/econo-pairs-v1 huggingface dataset:
But for this to occur, it will be important for market participants to appropriately discriminate across countries, rather than treating EMEs as a single group. The good news is that many EMEs generally appear to be better equipped today to handle the Fed’s prospective exit from its exceptional policy accommodation than they were during past tightening cycles. This reflects the fundamental reforms that EMEs have put in place over the past 15 years, as well as the hard lessons learned from past periods of market stress. Among the positives are: •  The absence of pegged exchange rate regimes that often came undone violently during periods of acute stress;  •  Improved debt service ratios and generally moderate external debt levels;  •  Larger foreign exchange reserve cushions;  •  Clearer and more coherent monetary policy frameworks, supporting what are now generally low to moderate inflation rates;  •  Generally improved fiscal discipline; and  •  Better capitalized banking systems, supported by strengthened regulatory and supervisory frameworks. Of course, progress has not been uniform across EMEs, and more work remains to further strengthen institutional structures in some countries. In particular, vulnerabilities remain in several important EMEs, and some have been hit by the sharp adverse turn in their terms of trade due to the recent fall in global commodity prices. Still, the fundamental improvements I’ve cited leave many EMEs better positioned than in the past to weather those times in the cycle when the external environment becomes more difficult.

William C Dudley: The global implications of diverging monetary policy settings in advanced economies Panel remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Sixth High Level Conference on the International Monetary System: Monetary Policy Challenges in a Changing World, Zurich, Switzerland, 12 May 2015. *  *  *  It is a pleasure to have the opportunity to participate in today’s conference. In keeping with this session’s mandate, I will focus my remarks on the global implications of U.S. monetary policy normalization – paying particular attention to the potential implications for emerging market economies (EMEs). I put the focus here because these economies were greatly affected in 2013 during the so-called “taper tantrum” and many of these economies have been under stress from the weakness in global commodity prices. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve. But before I get to the implications for EMEs and what the Fed should do or not do to mitigate the impact, a few words on the timing of normalization. To be as direct as possible: I don’t know when this will occur. The timing of lift-off will depend on how the economic outlook evolves. Since the economic outlook is uncertain, this means the timing of liftoff must also be uncertain.
Among major economies worldwide, the euro area has the lowest interest rates, be they nominal or real, short or long-term. And the ECB has developed a wide range of tools. Quantitative Easing was not created in Europe, but corporate bond purchases, the wide range of eligible collateral, TLTRO or negative rates were developed here. In calibrating our decisions, we look of course at both the stance (based on our desired effect on future inflation) and the effective transmission of monetary policy (is the stance having the intended effect for economic agents, including SMEs and households?). These two considerations are evident in our recent decisions about the PEPP. The purpose of the PEPP is to preserve favourable financing conditions for all borrowers during the crisis phase of the pandemic and thereby prevent inflation from falling even further below our objective. From  Page 4 sur 9 the start in March 2020 and still more since December, we have included the possibility to buy flexibly across time, jurisdictions and asset classes, to ensure that all borrowers benefit from favourable financing conditions. The recent evolution of long-term sovereign rates illustrates our consistency. In January and February, long-term sovereign bond yields in the euro area began to increase, largely reflecting transatlantic spillovers from US monetary and fiscal policies. So we decided in our Governing council on March 11th to conduct our purchases “at a significantly higher pace”, which was implemented promptly and efficiently and limited the rates increase. From mid-April nevertheless, our action has been hampered by unwarranted tapering fears.

Faced with such swings in sentiment, I want even more to stress today two ideas that are constant and consistent: (A) the ECB has been an innovative and efficient inflation-targeter, including in the Covid-crisis; (B) beyond Covid, the ECB has a powerful “quartet of tools” to keep its monetary policy as accommodative, and for as long as necessary. A. The ECB as an innovative and efficient inflation targeter In the first part of my remarks, let me try to answer three questions: is the ECB clear in its objective? is it consistent in its instruments? and is it efficient in its results? Page 2 sur 9 I. Is the ECB clear in its objective? For the ECB, like all other major central banks, our inflation objective is our lodestar. That means our definition of price stability should be simple, symmetric, and medium-term oriented. However, not everyone may perceive it this way. Hence, in the context of the Strategy Review launched by Christine Lagarde, we are currently reflecting on whether it can be communicated more clearly. To make it even simpler, we should reexamine the overly sophisticated qualifiers attached to the 2 % figure (“close to but below”). There is no benefit in appearing ambiguous about what we are aiming at. “Symmetric” refers to the fact that our objective is a target and cannot be a ceiling. Looking backwards, a central bank that has been successful in achieving its target on average will have had roughly as many episodes of inflation above its target as below.
This trend is envisaged, notwithstanding rising financial disruptions and ebbing confidence in the US and across the world as regards the global economic prospects, linked to the sub-prime woes in the US. Overall, reflecting the solid fundamentals and the resiliency of the Thai economy, the Monetary Policy Committee expects that the Thai economy will grow by 4.8-6 percent this  BIS Review 54/2008  1  year. However, due to continued high prices of energy and food, headline inflation is expected to be in a range of 4.0-5.0 percent for the whole of 2008. Having said this, the underlying inflationary pressure should be well contained as the core inflation forecast of 1.52.5 percent still remains within the target. During the first two months of this year, private consumption and investment are firming up after recovering during the fourth quarter last year. Clearer political landscape post-election and continued spending by the government have helped revive confidence in private investment and consumption, which constitute almost 70 percent of total demand in Thailand. Indeed, confidence is one of the several factors underpinning private consumption expansion, in addition to fiscal stimulus measures, and agricultural prices. On this note, I should say that the strong growth of farm income has helped maintain consumption momentum especially that of non-durables during periods when confidence was weak. In 2006 and 2007, farm income grew by 32.7 and 16.6 percent, respectively.

Ultimately, the most important measure of success for the reforms that we are now pursuing in the general insurance industry will be how far they contribute towards addressing the protection gap that exists, in turn strengthening our foundations for growth and stability. Today, I would like to talk about how agents have a key role in this process. In a more liberalised environment, insurers will have much greater flexibility in the design and pricing of products based on their respective business and risk strategies. This should encourage pricing that is more aligned to risks (let’s call this point “A”), and place greater power in the hands of consumers to manage the cost of insurance by controlling the risk factors that influence pricing (let’s call this point “B”). This in turn can make insurance more affordable for more people and businesses, especially small businesses. However, interventions by an agent are what effectively connects points “A” and “B”. In a detariffed environment, the number and range of risk factors that determine insurance prices are expected to expand. Consumers will also have more choice on the scope and level of protection that they purchase. Agents, having both direct access to consumers, and intimate knowledge of an insurance provider’s underwriting considerations and products, are best placed to explain the insurance options that are available to the consumer and make recommendations on how to maximize the value of a purchase. A number of things will need to happen for agents to deliver on this expectation.
In the period following the publication of the Inflation Report, market expectations fell in the desired direction, as shown by the broken red line. Market participants did not, however, find any answers in the Report that would enable them to assess whether the new level, in the opinion of Norges Bank, would provide a reasonable balance. The answer did not appear until the following Inflation Report in autumn 2004, when the Bank stated that market interest rates at that time provided a good balance between the various objectives of monetary policy. Against this background, the question might be raised of whether Norges Bank’s guidance to the market in summer 2004 could have been even better. In the first and second issues of the Inflation Report in 2005, the interest rate assumption was based on forward interest rates. However, the curve was adjusted upwards in the last part of the projection period. The Report pointed to extraordinary factors that might imply that forward rates underestimated actual expectations. The adjusted interest rate path – the baseline scenario – was considered to provide a reasonable balance between the different monetary policy objectives. Over time, Norges Bank has chosen different interest rate assumptions. This is partly because the Bank has assessed whether the interest rate assumption is reasonable and has not based its decision on a purely mechanical application of certain technical assumptions. 1  For a more detailed description of how Norges Bank calculates market participants’ interest rate expectations, measured by forward rates, see Kloster, A.

In particular, in many cases the expected share price would be higher without dilution even admitting the possibility of a “bad state of the world” scenario. The problem with this approach was that each individual bank’s decision not to raise capital to protect against the “bad state of the world” scenario increased the likelihood of the “bad state of the world” scenario. There was an important externality. If a bank raises additional capital, it doesn’t just make its own bank stronger, it also makes the entire banking system more stable. Yet it reaps only a portion of these benefits. This was the collective action problem that the SCAP was designed to remedy. Perhaps, I can best illustrate the problem via two figures. In Figure 1, banks have sufficient capital. The mean value of capital is well above zero, the distribution is narrow, and none of the distribution falls below zero – everyone believes the bank is solvent. In Figure 2, losses push the distribution of capital to the left and uncertainty about the value of the assets widens the distribution. Thus, unlike the case in Figure 1, a portion of the distribution falls below zero. The bank may be insolvent. Thus, the bank is likely to encounter funding difficulties. The point of the SCAP was to push the probability distribution back to the right by adding capital – and to narrow it by creating more certainty about how much capital the banks need.
However, it is not entirely clear what we mean by resource utilisation. We use a broad approach to describe resource utilisation and make an overall assessment based on a number of different measures. Some measures are based on GDP, employment, the number of hours worked and unemployment related to a normal or sustainable level. For example, GDP is related to potential GDP and unemployment to a sustainable level. Other measures are based on business tendency surveys and other high-frequency data. But no forecasts are made for these. Uncertainty is not reported for any of these measures in the same way as for GDP growth and inflation, either at the starting point or during the forecast period. We should be clearer about what we mean by resource utilisation. As things stand now, there is no unanimous agreement among the Executive Board regarding how to define resource utilisation as a target variable. Of course, it is an undesirable situation that something as important as a target variable for monetary policy is not clearly defined. It should not be a question for individual Executive Board members to determine the objective for monetary policy; it should be a question for the Riksbank as an institution, or even for the Government and Parliament. I believe that we should use the GDP gap as the main measure of resource utilisation.

We have also seen some peaks in transaction volumes as well as more frequent and higher margin calls. Furthermore, many infrastructures have had to cope with the default of a major participant, notably in the context of the demise of Lehman Brothers in September 2008 and the corresponding spill-over effects on its subsidiaries. Fortunately, EU market infrastructures were able effectively to overcome these challenges without any major operational disruptions. In particular, the Eurosystem’s TARGET system – which is not only the backbone of the large-value payment infrastructure for the euro, but also plays a central role in providing settlement services for 36 retail payment systems and 33 securities settlement systems that are connected as ancillary systems – has proven to be  BIS Review 74/2009  1  stable and resilient. Nonetheless, I would like to mention three key stylised facts which illustrate the impact of the current turmoil: First, the values processed in TARGET in the last quarter of 2008 showed an unusually high increase of 13% compared to the first three quarters (see Chart 1). When looking at the average values settled in different time bands during the day, the main difference between the third and the fourth quarter of 2008 relates to the values settled in the last hour of operations.
This is particularly true in comparison with other European countries, as shown in Figure 1. But, it is a problem that monetary policy has not been expansionary enough to keep inflation at a rate of around 2 per cent and to bring unemployment down to a long-run sustainable rate. 11 Why hasn’t monetary policy been expansionary enough? One reason is that to a certain extent we overestimated the strength and duration of the temporary recovery in the Swedish economy in 2010 and therefore also overestimated inflationary pressures. Another reason is the fear that a more expansionary monetary policy would increase the risks associated with household indebtedness. Here, it is once again the events in other countries during the financial crisis that have given rise to such fears. In several countries with a high level of household indebtedness and high housing prices, substantial falls in housing prices have led to a fall in consumption demand, which in turn has weakened the development of the real economy. In some areas, this has also led to higher loan losses and risks to financial stability. Risks associated with household indebtedness Personally, however, I do not believe that the risks associated with household indebtedness have represented a weighty argument against conducting a more expansionary monetary policy recently. There is of course every reason to avoid a situation in which housing prices fall dramatically. However, I find it difficult to see that current developments regarding housing prices and loans to households in Sweden are such that they justify further measures.

One explanation of the relatively low level of overall investment in Sweden, which is one of the factors behind the current account surplus, is in fact the low level of investment in housing (see Figure 10). There are thus no signs that the credit growth we have experienced has financed a building boom or that it is associated with a low level of domestic saving. In recent years, the number of new-builds in the housing sector in Sweden has been around 20 000 per year, which a low figure in historical terms.13 The low level of new housing construction is thus an important factor behind rising house prices.14  12  When all of these three factors deviated significantly from their normal patterns at the same time, there was a 56 per cent probability of a substantial fall in housing prices. See IMF (2009), World Economic Outlook, October. 13  This is a level that over the last 50 years has only been lower for a few years during the 1990s (Statistics Sweden, 2012 “Housing construction low for a long time”, SCB Economic Indicator, no. 2012:92). 14  Peter Englund, among others, points to the low level of housing construction in Sweden as one of the reasons for the sharp increase in prices; see Englund, Peter (2011), “Swedish house prices in an international perspective”, Chapter I.1 in The Riksbank’s inquiry into risks in the Swedish housing market. BIS central bankers’ speeches  11  Figure 10.
They will help economies to reap the full benefits of belonging to the Single Market and to the Economic and Monetary Union. They will help societies to sustain social models which would otherwise be debased by the permanent output loss caused by the crisis, and the related loss of tax revenues.16 I should add that there is a need for reforms in all euro area countries, including the larger ones, albeit to varying degrees and in different areas. Even if a euro area country doesn’t feel the pressure of financial markets and programme conditionality, its government should take seriously the responsibility to carry out necessary reforms that will ultimately support growth elsewhere in the region. And it is the responsibility of all euro area governments, jointly, to advance the reforms outlined last December by the President of the European Council that will give stable foundations to the single currency. The Single Supervisory Mechanism is an important first step, to be complemented as soon as possible by a Single Resolution Authority and Fund; further steps towards an economic, fiscal and political union should follow, completing our Economic and Monetary Union. If there is a lesson to be learnt for all euro area countries, it will be to make sure that in the future they make the necessary changes pro-actively and not in response to a crisis. Thank you for your attention. 15  A coordinated reduction of mark-ups would lead to a similar impact on GDP growth in the adjusting countries.

The European Central Bank, for instance, continued to place great value on the usefulness of a monetary pillar. And, as discussed below, there were some who believed that central banks should also use their constrained discretion to lean against incipient asset-price bubbles and credit growth. But the set of beliefs above were, we believe, held sufficiently widely in policymaking and academic circles to be described as a consensus. In the rest of this paper, we re-visit some aspects of this consensus in the light of the crisis. It is not possible to cover all the elements of the consensus, though we shall offer some more wide-ranging observations at the end. In particular, we focus on: whether the experience with unorthodox policies during the crisis has changed our view of the appropriate policy instruments in normal times; whether the target rate of inflation should be increased or a shift to price-level targeting is warranted; and what the experience of the crisis has taught us about how monetary policy should respond to credit/asset-price booms. 1 As a precursor to  1  2  Some of these themes already figured in the contributions to the conference held here eleven years ago. BIS Review 111/2010  that discussion, however, we ask whether monetary policy decisions contributed materially to the crisis. 2. Monetary policy and the crisis  It is worth stressing at the outset that a multitude of factors, both microeconomic and macroeconomic, played into the crisis.
In my mind, the term umpire conjures up a portly old gentleman in a white coat and straw boater. Surely the modern IMF should have a more dynamic and up to date image? But it turns out that even cricket has moved on. I am not referring to the recent abandonment of the England Pakistan match, for the first time ever, after a heated disagreement between an umpire and players. No, what I have in mind is the advanced computer technology which I gather now exists, aptly named Hawk-Eye, which could assist umpires in making the most difficult calls – those about which the players of the game are most likely to disagree. So we should think of the IMF as the cricket umpire of the future, with Hawk-Eye in her toolkit – where the Fund’s Hawk-Eye will be its impartial analysis, assessment and advice, enabling it to dissect the most difficult policy issues in the global economy. Reforming the Fund’s surveillance If that is the vision, the relevant questions are whether the Fund’s current surveillance activities are well designed to meet the need; and if not, what can be done to improve matters? BIS Review 103/2006  3  The answer to the first question is clearly no. Despite many reviews, the underpinning Surveillance Decision, agreed three decades ago, has never been revised. And over that time Fund surveillance has drifted a long way from its original – narrowly defined – purpose. Fortunately, there is now broad agreement about the main problems that need addressing.

In short, what is now needed is a new decision which will provide a comprehensive framework for surveillance; which will approach members’ obligations explicitly from the perspective of external stability; and which will do so in terms which can readily be made operational. And it must be written in clear and unambiguous language. This is a tall order I know – so here are some suggestions. One very simple way of keeping surveillance focused would be to include a ‘selectivity principle’ in a new Decision. This would say that the scope of all surveillance activities should be based on their relevance to external stability: and that what matters is how a member’s policies could affect the rest of the world. The most difficult challenge will be to state members’ commitments in terms that are both general enough to take account of their very different economic circumstances, and specific enough to provide a clear focus for IMF surveillance. Striking the right balance is essential if a new framework is to provide a useful basis for assessing industrialised countries, emerging markets, and developing countries alike in a way that will be accepted as even handed. A good way of meeting this challenge would be to ground surveillance in a more structured analysis of the policy frameworks which countries themselves choose to adopt. The Fund could then focus on identifying areas where a member’s policy frameworks might be unsustainable or inconsistent with external stability, and then offer policy recommendations tailored to the circumstances of the country or countries concerned.