samchain/econo-pairs-v1 huggingface dataset:
Cecilia Skingsley: A new playing field for monetary policy – what can a small, open economy expect? Speech by Ms Cecilia Skingsley, Deputy Governor of the Sveriges Riksbank, at Kammarkollegiet capital market day, Stockholm, 19 May 2016. *  *  *  I would like to thank Mikael Apel for his help in writing this speech, Goran Katinic for help with the diagrams and Claes Berg, Hans Dellmo, Gabriela Guibourg, Ulf Söderström and Anders Vredin for useful comments. Any remaining errors are strictly my own responsibility. As difficult as it is to believe today, it was only ten years ago that monetary policy was considered to be a relatively straightforward and uncomplicated business. It was assumed that essentially all that the central bank needed to do was to set the policy rate so that inflation ended up close to the target at the same time as production and employment developed in a satisfactory manner. There was a widespread perception that the central banks had finally gotten a grasp of how monetary policy should best be conducted, and this, it was assumed in turn, was an important explanation for the “Great Moderation” – the fairly long period of unusual macroeconomic stability that preceded the financial crisis. How different the situation is today. Conducting monetary policy is now rightly seen as anything but easy by both central bank representatives and economic analysts in general.

Both opinions have high-profile advocates. As yet, we do not know who is closer to the truth and it will probably be some time until it will be possible to say with any great certainty. 9 The global level of interest rates will probably remain low for a long time Regardless of how the sluggish recovery from the financial crisis can best be explained, a central issue is that of how long the level of interest rates will be low. If the global interest rate were to start to rise fairly soon, this would increase scope for monetary policy – the problem would “solve itself”, so to say. However, empirical estimates suggest that the forces that pushed the global interest rate down will be relatively persistent and that the level of  9  One further hypothesis is that growth is being restrained by a decrease of productivity-enhancing innovations combined with various restraining forces (‘headwinds’) (see Gordon, 2102, 2015). Like secular stagnation, this is expected to affect the economy for a long time to come. However, unlike secular stagnation, there is no chronic deficit in the aggregate demand (no negative output gap), as it is the growth of potential output that is assumed to have slowed down. BIS central bankers’ speeches  7  interest rates will remain low for a fairly long time to come. 10 For example, Rachel and Smith (2015) estimate that the global real interest rate will be about or just below 1 per cent in the medium to long term.
In turn, higher real interest rates tend to depress economic activity and bring even lower inflation. This is the kind of spiral, possibly leading to deflation that monetary policy must seek to control and avoid. The process may become even more self-sustaining if it negatively affects inflation expectations. Over the last months, inflation expectations in the euro area have dropped to 1.2% at a one-year horizon and 1.5% at a two-year horizon. More worrisome, long-term expectations – up to now extremely well-anchored around 2% – have been drifting downward. Markets currently expect an inflation rate of 1.8% on average between 2019 and 2024 in the Eurozone. Monetary policy therefore must aim at influencing both nominal interest rates and inflation expectations. This is exactly what we are currently doing in the Eurosystem. Let me explain how. First, on nominal interest rates: Policy rates are now close to zero (%). Negative interest rates have been imposed on the deposit facility. Forward guidance has been used to signal that rates will stay at those levels for a very lengthy period of time. A new liquidity facility, the “targeted very long term refinancing operation (TLTRO)” has been created, with a four-year maturity and, for the first time, a guaranteed fixed rate. Basically, banks are able to get a four-year funding for a 0.15% fixed interest rate. Most recently, the ECB Governing Council has decided a program of private asset purchases, for both covered bonds and ABS.

So one may ask whether monetary policy will be as successful in the post crisis era as it has been during the crisis; and whether it will manage to avoid the perils of persistently low inflation. I will concentrate my remarks on the euro area, taking advantage of being in Tokyo to draw some lessons from the Japanese experience, and, I should say in the presence of Deputy Governor Nakaso, from the deep expertise of the Bank of Japan. One may harbor doubts about the power of monetary policy for two reasons. The transmission mechanism may be impaired; and the equilibrium interest rate may be so low (or even negative) that it becomes impossible to reach. The first point speaks for itself. The Eurozone has suffered from acute segmentation and severe impairment in its money and credit markets. Those failures have been addressed aggressively through a set of measures I will detail in a moment. Results have been significant. The so-called Target 2 balances have been reduced by half, which means that banks across the Euro area do not rely, to the same extent, on the network of central banks to intermediate their operations. We have now completed with success and credibility the first Asset Quality Review in our banking system, and the new Single Supervisory Mechanism has been made operational last week. Those measures will be essential in restoring a well functioning credit channel and eliminating the remaining differences in financial conditions across the Eurozone.
In a downturn, capital absorbs losses that could otherwise cause banks to restrict lending to households and businesses and make the downturn worse. If a bank fails, capital reduces disruption to the wider economy. And the market is more likely to continue funding adequately capitalised banks. For these reasons, higher bank capital requirements reduce both the likelihood and severity of future downturns, and so reduce GDPat-risk in the steady state. On the other hand, capital is relatively costly for banks to hold, which has a knock-on to the everyday cost of borrowing for households and businesses. So higher capital requirements also permanently dampen investment, productivity, and output. 23  All speeches are available online at www.bankofengland.co.uk/news/speeches  23  The FPC’s 2015 Medium Term Capital Framework24 calibrated the optimal structural (non-time-varying) capital requirement for the UK banking system by estimating the level of capital where the difference between these benefits and costs are maximised in the steady state. Chart 16 shows conceptually that this is where the marginal benefit of capital (smaller GDP-at-risk) is equal to the marginal cost of capital (lower investment and output). Chart 16: Optimal capital ratio where marginal benefits equal to marginal costs*  *Diagram is stylised. The ‘gross benefits’ curve in this analysis was estimated based on the historical relationship between banking system leverage and GDP-at-risk using a dataset for 840 advanced economy banks since 1980.

The manner in which the MPC optimises these trade-offs can be represented in “linear-quadratic” form – a set of linear constraints describing the behaviour of the economy, and quadratic preferences that penalise deviations of inflation from its target and output from its potential. The relative weight the policymaker places on output stabilisation, relative to inflation stabilisation, is often denoted 𝜆 – or ‘lambda’. The policymaker’s objective function can be described as the following “loss function”: 𝐻 ∗ )2 ]} min ℒ𝑡 ≡ 𝐸𝑡 {∑ 𝛽 𝑖 [(𝜋𝑡+𝑖 − 𝜋 ∗ )2 + λ(𝑦𝑡+𝑖 − 𝑦𝑡+𝑖  {𝑟𝑡+𝑖 }𝑇 𝑖=0  𝑖=𝑜  where 𝜋𝑡 is inflation, 𝜋 ∗ is the inflation target, 𝑦𝑡 is output and 𝑦𝑡∗ is ‘trend’ output, so that 𝑦𝑡 − 𝑦𝑡∗ is the output gap, 𝑟𝑡 is the nominal interest rate – the policy instrument, 𝛽 is the discount factor and 𝑡 subscripts denote time periods. 𝐻 is 3-5 years after which the monetary policy transmission mechanism fades. The policymaker’s objective is to minimise the discounted sum of losses over time. In this formulation, a lambda of zero would imply no weight on the stabilisation of real activity – so-called “inflation nutter” preferences. When lambda is positive, the policymaker is willing to strike some trade-off between output and inflation stabilisation, as directed by the MPC remit. This objective function is optimised subject to the constraints implied by the aggregate behaviour of the economy, including the relationship between interest rates and activity; and the relationship between activity and inflation – the Phillips curve.
8  BIS Review 149/2007  It cannot be ruled out that, for a while, the M4L growth rate may deceive as to the underlying pace of credit expansion in the economy. That is important because, in a nutshell, the turmoil in financial markets is not just a “City” event. How potent it will be macroeconomically will depend on how long current conditions persist, and the feedback loop between the financial economy and the real economy. As to its persistence, necessary conditions for an alleviation of the current strains in credit markets are probably at least twofold. First, that the US housing and household debt markets stabilise. Second, that banks and other financial intermediaries recognise impairments to asset values, so that uncertainties about counterparty credit risks begin to reduce. On the financial-real economy interaction, we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other. A variety of policy responses are possible. The announcement yesterday by central banks of co-ordinated action via term auctions to alleviate pressure in financing markets is directed at that. Second, regulatory authorities around the world are monitoring banks’ liquidity and capital positions, including in the context of Basel II. And, thirdly, monetary policy also can in principle play a role, through what is effectively a “financial accelerator” working through bank balance sheets, where that is consistent with maintaining stable inflation in the medium term.

That was my starting point for our December meeting, the minutes of which will be published next week. Summary and conclusions Let me try to pull together some of my central themes. 21  “…households have increased their debt….more debt unavoidably leaves them more vulnerable to bad luck, eg adverse economic shocks”, Tucker, P. M. W. (2003), “Credit conditions and monetary policy”, speech at the Leeds Financial Services Initiative, Bank of England Quarterly Bulletin, Autumn 2003, p. 373. BIS Review 149/2007  9  I have stressed that we should take care to avoid talking about money when we mean credit. In a similar spirit, we should be clear when we mean total credit and when bank lending, but without assuming the two are divorced. I have also stressed the need for attention to the underlying drivers of credit conditions throughout the economic cycle. In today’s financial system, we may well need richer data on credit quantities and flows outside the banking sector, perhaps along the lines of the US Flow of Funds statistics. The Bank’s new Credit Conditions Survey is also designed to give us better qualitative information to put alongside the quantity and price data. Even so, as with asset prices more generally, we will sometimes find it hard to distinguish between changes in credit conditions warranted by fundamentals and those that are not. Failure to recognise fundamentally warranted and sustainable shifts would deplete welfare.
Hamad Al-Sayari: Financing a changing world Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, at the Euromoney Saudi Arabia Conference 2007: Financing a Changing World, Riyadh, 8-9 May 2007. *  *  *  I am pleased to be here today at this international gathering of experts who share a common interest in the economic development of Saudi Arabia. The theme of this Conference is "Financing a Changing World" and I intend to share with you my views on the role that the Saudi Banks and the Capital Market are playing in this regard. This gives me an opportunity to recap the important contribution of our banks and our growing capital market in channeling the financial flows to and from the Kingdom. I will also outline the future direction and challenges in this regard. In recent years, international fund flows have been affected by different phenomenon, including rising imbalances in trade balances originating from the export dominated economies in Asia, the pace of economic growth in developed economies in Europe and North America, and the volatile energy and commodity prices affecting all countries. Addressing the impact of these global phenomenon are causing significant challenges to the economies of all countries. For the Gulf region including Saudi Arabia, a major challenge is to ensure that the increased financial flows into the region are channeled efficiently to the most productive sectors of the economy and to profitable enterprises and projects.

Shorter transaction chains: Expanding direct access to non-bank PSPs, FMIs and foreign banks will reduce the number of intermediaries involved in a cross-border transaction, thereby making payments quicker and more transparent. 2. Enhanced competition and lower cost: Expanding access can level the playing field between banks and other PSPs and foster greater competition and innovation to give customers a greater choice of services and potentially lower prices. 3. Improved financial stability due to reduced tiering risk: The risk of spillovers of a direct participant’s default due to the transactions of indirect participants decreases. Page 5  These benefits needs to be balanced against risks such as additional counterparty credit risk and operational risk that central banks needs to be aware of and safeguard against when considering expanding access. The report discusses how these can be mitigated, for example setting minimum standards of resilience and security, and how to overcome potential barriers such as national legislation. How extending RTGS operating hours across jurisdictions can help improve cross-border payments The Building block 12 report examines RTGS operating hours. Limited RTGS operating hours across jurisdictions can lead to a delay in cross-border settlement, especially between countries with significant time zone differences. The report identifies the current “global settlement window”, between 06:00 to 11:00 (UK time) when the highest number of RTGS systems across jurisdictions are concurrently open allowing cross-border transactions to settle across those jurisdictions without delays.
More than 40 European bank groups have a substantial part of their operations in more than three European countries. Names such as Unicredit, Barclays, Fortis and ING are all examples of banks in the forefront of this development. The internationally-active banks are moreover increasingly offering services to households and smaller companies. The integration process has been particularly evident in our own neighbourhood. Nordea and Danske Bank have substantial market shares outside of their respective home countries. With the exception of Iceland, it is in Nordea’s case a question of market shares of more than 10 per cent in all of the Nordic countries. Swedbank and SEB are dominant actors in the Baltic region. But financial integration is now also increasing rapidly in other parts of Europe. The timing of my speech could hardly be more appropriate. Only in recent weeks the media has reported on farreaching plans for a merger between British Barclays and Dutch ABN Amro, two banks which together would become one of the world's largest players in this sector. Parallel to this cross-border integration process there is also another type of integration within the banks. It is becoming increasingly common for these groups to organise themselves so that they in practice function as one bank instead of a number of independent bank companies. What drives the banks to change their organisation is the efficiency gains obtained through greater centralisation and specialisation.

Just as a reference: in March 2014, 90 percent of the analysts consulted under our Economic Expectations Survey thought that GDP would grow by 4 percent or more in 2016. Two years on, 90 percent are betting on less than 2.1 percent. What caused this change in the forecast? To begin with, the world economy is undergoing an important process of reconfiguration, which entails deep changes that have proven not only more intense, but also of a much more persistent nature than expected. Among them, it is worth singling out the evolution of the Chinese economy and its major effects on the commodity markets. The effects of this phenomenon have reflected strongly in a sharp reduction in mining investment, of nearly three points of GDP in the past few years, putting a brake in our economy, especially considering that in previous years this sector was an important driver of growth. The situation in China has not only affected the prices of commodities. In addition, the uncertainty surrounding the changes in the Chinese economy has driven up global risks. After all, never had an emerging economy played such an important role in the world economy. Secondly, the global financial crisis of 2008 hit the developed economies harder than we originally thought. The wounds it left have constrained their economic recovery and pushed them to experiment with ultra-expansionary monetary policies. This, coupled with the fragilities of many emerging economies, has led this group of countries to face tighter financial conditions than they did some quarters ago.
There is no scope for any mechanical adjustment of asset prices or bubbles. The central bank's reaction will not be stable but shift with its judgment and, counter to substantial parts of the literature, I do not believe that it is productive to discuss these issues directly in terms of the central bank's reaction function, for instance as modifications of a Taylor rule (Svensson 2003b, 2005). Asset-price movements and asset-price bubbles may directly threaten financial stability and cause the financial-stability constraints on monetary policy to bind. Thus, the central bank may want to respond to asset price developments that increase the risk of financial instability in the future. Again, in many realistic situations, the difficulty in making such judgments will be very great and there will be insufficient information for taking such preemptive action in many cases. Now, is there any reason to modify this view of monetary policy and financial stability given the experience of the financial crisis so far? Let me approach this question by asking what the causes of the financial crisis are, what the role of monetary policy is in causing the crisis and whether a different monetary policy was warranted and could have prevented or reduced the size of the crisis. 4.

This would contribute to both better understanding and greater legitimacy for the policy conducted by the central bank. It should be added here that the Riksbank’ monetary policy is evaluated every year, that is, how the Riksbank has performed its remit. The Riksdag Committee on Finance performs an annual review based on background material such as the “Account of monetary policy”, a report compiled and published by the Riksbank. 15 In addition, the Committee on Finance occasionally hires external experts to review Swedish monetary policy. So far three such reviews have been conducted: By Francesco Giavazzi and Frederic Mishkin for the period 1995-2005, by Charles  14 Advocates of a higher inflation target include Blanchard et al. (2013), Ball (2014), Krugman (2014), Rosengren (2015) and Yates (2019). 15 See Sveriges Riksdag (2018) and Sveriges Riksbank (2018a) for the latest versions of these publications. 9 [21]  Goodhart and Jean-Charles Rochet for the period 2005-2010 and by Marvin Goodfriend and Mervyn King for the period 2010-2015. 16 Although these external reviews have sometimes touched upon issues related to the policy objective, their main purpose has been to evaluate the monetary policy conducted, based on the existing policy objective. These reviews are undoubtedly valuable and fulfil their purpose effectively, but it is something else I have in mind here. Canada has chosen a system with reviews of the central bank’s remit every fifth year. 17 The latest review from 2016 analysed, among other things, whether the level of the inflation target was the most appropriate.
If we instead look at the exchange rate adjusted for inflation differences, the “real” exchange rate, we find some traditional explanations for much of the weakening that has taken place from the 1970s until the mid-1990s. Our terms of trade were weakened, productivity developed more weakly in Sweden than in other countries and during certain periods investors were concerned over a rapidly growing central government debt. However, developments during the latter part of the 1990s were rather different. The growth in productivity and GDP has been better and the inflation rate as low as the average among our main trading partners, while the central government debt has declined, which should have favoured a stronger krona. Nevertheless, the krona has depreciated. 2  A more detailed discussion of the stabilisation policy tools within the EMU can be found in the report “Stability and stabilisation policy in the EMU” (SOU 2001:62), which can be downloaded from http://finans.regeringen.se/propositionermm/sou/index.htm. BIS Review 92/2001  3  A small part of the most recent depreciation can be explained by real economy factors: the terms of trade have deteriorated slightly due to falling prices on telecom products; exports have declined more heavily in Sweden than in many other countries following on from the economic slowdown in the USA; and a falling order intake for exports has created a declining demand for the krona. However, there are also other explanations that are not directly concerned with real economy factors, but have instead been steered by financial flows, i.e.

With the financial reforms by the international community now much in place, the imperative for future finance is not only by becoming stable and resilient but also becoming a deep anchor to its bedrock, the real economy and generating a positive benefit to the greater society. With that, allow me to wish you an engaging and productive forum. Thank you. 4  BIS central bankers’ speeches