samchain/econo-pairs-v1 huggingface dataset:
Ardian Fullani: Recent economic and financial developments in Albania Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the press conference on the Bank of Albania’s Supervisory Council decision on monetary policy, Tirana, 23 February 2011. *  *  *  Today, on 23 February 2011, the Supervisory Council of the Bank of Albania reviewed and approved the monthly Monetary Policy Report. Based on a thorough analysis of Albania’s latest economic and monetary developments and discussions on their performance outlook, the Supervisory Council of the Bank of Albania decided to leave the key interest rate unchanged at 5.00%. The Supervisory Council confirmed that the actual monetary conditions remain appropriate for meeting the medium-term inflation target and for supporting the domestic economic activity. I would like to proceed with a brief overview of economic developments and main issues discussed at today’s meeting of the Supervisory Council. *** Recent data from the global economy confirm the positive underlying momentum of the economic activity in developed and developing economies. Despite the gradual withdrawal of fiscal and monetary stimulus, economic growth has been stable, as a result of the recovery in the private sector demand in developing countries. On the other hand, the higher demand has triggered a price increase in commodities, basic products and food items, thus impacting the shift of the inflationary pressures upward. Nevertheless, globally, consumer price inflation remains still contained, as long as major economies continue to be characterised by below-potential economic growth.

The need to move the goal from merely access to well-informed usage is increasingly recognised in the development community. • The World Bank’s Global Findex Database reports that 20% of bank account owners have not used their accounts in the past 12 months. As any entrepreneur joining us at the Festival would know, user acquisition is easy. It is simply a matter of good price and good marketing. User retention is the true test of the utility that a product provides. This is where the focus needs to shift. In other words, policy, infrastructure, and services aimed at improving financial inclusion need to genuinely make a difference in people’s lives so that inclusion is meaningful and sustained. • Products need to be designed with the end-user in mind, to delight rather than to perplex with technology. What is the role of central banks and regulators in ensuring that financial inclusion initiatives stick, while safeguarding that innovation delivers responsible, stable and inclusive outcomes for those most in need? Let me make two major points in this context. •  First, FinTech must offer interoperable solutions. 1/3  BIS central bankers' speeches  • Second, the solutions must be embedded in the broader context of people’s lives and the daily operations of businesses. Financial products need interoperable rails to reach customers effectively. Let me cite two quick examples: identity and payments. Identity is the starting point in any digital transaction.
These strains in household finances from suddenly excessive debt service burdens are met by households in a variety of ways: through default, foreclosures, and bankruptcy, or renegotiation of the terms of repayment, but also through continued higher principal and interest payments accompanied by much lower consumption than the household had previously planned. As we see in Chart 1 (Employment declined dramatically) job losses in the recent recession were extremely large and prolonged, a problem that resulted, in part, in significant delinquencies in debt repayment. Furthermore, the significant decline in house values imposed a much stricter limit on how much households could borrow if they needed, for example, to adjust to the effects of a temporary loss of income. Recent economic research has examined how the macroeconomy is affected when households suddenly experience reduced borrowing capacity. Eggertsson and Krugman consider the case of households that have borrowed up to some limit and now see their debt limit reduced; these households suddenly find themselves over-indebted and are forced to cut spending.1 If the required cuts in spending are large enough, then even a very active monetary policy will be unable to offset them completely. Other research has also suggested similar mechanisms.

3  See Atif Mian and Amir Sufi (2011), ‘‘House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis,’’ American Economic Review 101, 2132–56, and (2011), ‘‘What Explains High Unemployment? The Aggregate Demand Channel,’’ University of Chicago, unpublished paper. BIS central bankers’ speeches  3  reversal reduced the aggregate wealth of homeowners and, in the worst case, left many “underwater,” meaning that the amount of mortgage debt secured by their home exceeded its current value. This outcome is reflected in the dramatic decline in owners’ equity in household real estate, seen in Chart 3 (Result was a Huge Decline in Owners’ Equity in HH RE). It is interesting to note that while home prices rose during the boom, homeowner’s equity share remained constant. Thus, prior to the end of 2006, on average for each 1 percent increase in home prices, homeowners increased their mortgage debt by 1 percent (through higher balances on first mortgages, cash-out refinances, second mortgages, and home equity lines of credit). When house values began to fall, so did corporate equity values, which depressed household wealth further Chart 4 (Stock Market Wealth also Fell Sharply), limiting households’ options for reducing their debt burdens or sustaining their prior levels of consumption. Consequently, and in line with the logic of the research I discussed earlier, U.S. households decreased the cash flow available for consumption by paying down debt during the recession and early recovery.
In our country, the price growth is more moderate of about 4.4% during this year, but with signs of acceleration. In the entire region and in our country, housing lending is accelerating and the growth rates are more dynamic compared to the growth of consumer loans. It appears that currently in our country the real estate market developments are in accordance with the shifts in the supply and demand, and the price pressure exists, but it is not that pronounced, as it is in the European Union countries. However, this "pandemic syndrome" should be carefully monitored, given that the exposure of the banking system to the real estate market is increasing more and more. Hence, there is a need for enhanced monitoring also of this part of the portfolio and keeping of the banks' capacity to deal with the possible future shocks. 2/3  BIS - Central bankers' speeches  The banking systems in both the region and in our country are passing the test imposed by the pandemic crisis well, and the challenge for maintaining the capacity for credit support and also maintaining stability will remain in the next period. The indicators of solvency, liquidity, profitability of banks and the quality of the credit portfolio remain stable, and some of them further improved. But, the crisis is getting a prolonged dimension and may have lasting consequences and impose a need for restructuring in some of the sectors of the economy.

In such circumstances, it would be extremely penalizing to give up the possibility of real exchange rate adjustments. This shows that there is no single model of monetary cooperation which could be duplicated around the world. It is up to each group of countries to find their own sustainable path to economic integration. Will monetary union evolve towards closer political union? As you well know, these are difficult times for European political integration. The Treaty creating a Constitution for Europe was not ratified by two founding members of the European Community. As a consequence, the future of political integration is fraught with uncertainties. These raise several important questions for the future. Has the process of political integration stalled or just paused? What is the appropriate institutional framework for an enlarged Europe? These are questions best left for the historians and political scientists to answer. But one question is essential: can monetary union progress and survive without a full fledged political union? Can we – to quote, Otmar Issing, my former colleague in the ECB's Executive Board – have "a currency without a state"? For me, like for Otmar Issing, the answer is clear: yes, we can. From the start, the European project has ventured into unchartered territory. We have created an institutional framework without any historical precedent and model. This is especially true for monetary policy,  BIS Review 43/2007  3  where we have transferred the decision making powers to a supra national entity.
After ten years of low interest rates, a number of countries may now be caught in what could be described as a liquidity trap. Then, monetary policy is no longer able to stabilise the economy. Other measures are needed. In a number of countries, arguments are being made for the use of fiscal policy measures. The discussion about the use of unconventional monetary policy also circles around the dividing lines between monetary and fiscal policy. First, I would like to call your attention to a possible misunderstanding. Although it is true that quantitative easing involves the creation of new money by central banks to pay for their bond purchases, this does not mean that the central bank prints money to fund public finances. Under quantitative easing, the public sector in its widest sense, including the central bank, purchases one form of debt – government bonds – and replaces it with another – central bank reserves. Quantitative easing affects the economy via lower long-term interest rates. Some people nevertheless point out that central bank government bond purchases can seem “quasi-fiscal”.8 Central bank purchases of government bonds in the secondary market can give government authorities an incentive to issue more government debt. The central bank could thus, indirectly, be in the position of contributing to funding government spending. This could blur the distinction between monetary and fiscal policy. A provision that clearly prohibits Norges Bank from extending credit directly to the government is included in Norway’s central bank act with the express purpose of safeguarding this distinction.

In Norway, the government used covered bonds in a swap arrangement that was in operation between November 2008 and October 2009.9 The swap arrangement was a response to banks’ substantially weaker access to long-term funding after the Lehman Brothers bankruptcy. The arrangement dampened the effect of high risk premiums in the market and complemented the policy rate cuts that were made in the same period. Extraordinary loans for banks Providing longer-term loans on extraordinary terms was an instrument commonly used by many central banks at the start of the financial crisis. In the euro area, this instrument remained in use after the turbulence had subsided in the form of the so-called TLTRO programmes. The terms of the loans are intended to spur banks to maintain or increase growth in lending to households and enterprises. Norges Bank regularly lends to banks, but only in the short term in order to regulate liquidity in the banking system. In normal times, when markets are functioning normally, it is not our job to compete with the private investors that fund banks. However, if banks’ funding markets cease to function, as in 2008, the situation is different. In Norway, central bank loans on extraordinary terms are more likely to be provided in order to bring down short-term money market rates, known as Nibor rates, closer to the policy rate. This could be considered in a situation where the policy rate is near its lower bound while short-term market rates are substantially higher.
Under a Single Point of Entry strategy, resolution actions will be taken in a single legal entity that is basically the parent company of the group, which will have to hold sufficient external TLAC. Additionally, a certain amount of loss-absorbing capacity should be pre-positioned in all material subsidiaries. This would ensure that losses are up-streamed to the resolution entity, thus avoiding putting the material subsidiary into resolution. By contrast, under a Multiple Point of Entry strategy, the application of resolution tools to different parts of the group is allowed under the assumption of limited interconnections between them. Therefore, in this model, loss-absorption capacity is primarily located in each resolution entity (subsidiaries and the parent company). This is the resolution model chosen by the global Spanish banks as it is a better fit with their business model. As I said, one of the most complex issues in the design of the TLAC standard was to find the correct balance between taking into account the particularities of each resolution strategy and ensuring consistent treatment between them. In this respect, the Bank of Spain welcomes the inclusion of certain elements that go in the correct direction towards achieving regulatory consistency between resolution strategies. Let me stress, when mentioning  BIS central bankers’ speeches  3  consistency, that it is important that different jurisdictions also strive to achieve this objective when introducing the TLAC standard into their regulations. Crisis Management Groups (CMGs) will also play a crucial role in ensuring consistency.

In addition, in order to ensure that there is enough recapitalisation capacity in resolution, one-third of the minimum TLAC requirement is expected to be covered with instruments other than CET1 (that is, debt). It is important to bear in mind that the TLAC establishes a common minimum global requirement and that national authorities have the right at any time to apply higher requirements in their jurisdictions. The TLAC is a new prudential requirement that has different objectives than the capital ratio. Regulatory capital is mainly to absorb losses in a going-concern situation, whereas TLAC is meant to ensure loss absorption in gone-concern situations (that is, beyond the point of nonviability). I should add that, in a resolution context, the location of loss absorbing resources becomes very important and, for this reason, the TLAC standard gives guidance on how these resources should be distributed within the banking group. This highlights another important difference between the capital framework and TLAC: the location of resources. While the former is required on a consolidated basis for the group as a whole, TLAC is required where resolution takes effect and where critical functions are performed. One of the most complex issues in the design of the TLAC was the need to ensure consistency between the two main banking resolution strategies: the Single Point of Entry and the Multiple Point of Entry.
But given that inflation is still below the objective, as are marketbased long-term inflation expectations, upside shocks would be more welcome than equivalent downside shocks at present. Let me at this point add some words on negative rates following my remarks Lisbon last February, and state the obvious: we are in March 2019, and no longer in March 2016 when we cut the DFR to –0.40%. This gap in time has two consequences: First, there were, at that time, significant deflationary risks, and we decided accordingly a strong calibration of our monetary answers. As these deflationary risks have now receded, there is obviously no reason to go more negative on interest rates. Second, we have three years more evidence on the combined effects of our various unconventional monetary tools, including negative rates, on financial intermediation and their impact on the transmission of our monetary policy – the combined effects of which might 2/3  BIS central bankers' speeches  have evolved over time. So Mario Draghi rightly stressed that we need to further monitor the bank lending channel and to reflect on possible measures that we can take to preserve the favourable implications of negative rates for the economy, while mitigating their possible side effects. Knightian uncertainty is different situation, for which assigning probabilities is not feasible, and is a concept that anyone trying to forecast the recent outcomes in the House of Commons would instantly recognise.

For instance, a seemingly credible threat by one party to take actions that lead to mutual disadvantage can prompt concessions from the other, (or not). A former American President, 1/3  BIS central bankers' speeches  Richard Nixon, called this his “mad man” theory when applying it to the war in Vietnam and there are echoes of this idea in current international trade disputes. Such behaviour undermines multilateralism which has been an important source of stability and growth over many decades. If strategic uncertainty is a source of unilateral advantage, it will not dissipate but remain a source of latent policy risk. Last, “Structural change and monetary policy” uncertainty There are fundamental structural changes occurring, notably in the euro area economy but also elsewhere, that are poorly understood. The ongoing demographic transition, for example, is changing employment, investment and saving decisions, which will probably lower the natural rate of interest. The monetary policy transmission mechanism also seems to be changing. A sustained period of accommodative monetary policy has boosted growth and employment and is finally showing up in nominal wage growth: this first part of the Phillips curve is at work. But higher nominal wages have not yet been passed through to core inflation. It should eventually, but the more pertinent issues – of when and by how much – are unclear. There is, thus, not a single mechanical relationship between monetary policy instruments and inflation, rather a distribution of likely responses.
Let me briefly outline some of the biases we need to take into account in the context of our economic and financial assessment. For the sake of simplicity, I will distinguish two main categories of biases: technical biases and institutional biases, leaving aside the treatment of risk aversion considerations, which tends to introduce an upward bias in the break-even inflation rate. Technical biases The compound and the convexity biases: the definition of the break-even rate as the difference of the conventional nominal bond yield and the inflation - indexed bond yield is a first order approximation which does not take into account interest rate compounding. Consequently, the break-even rate is an upward biased estimator of expected inflation - provided that inflation expectations are positive4. Interest rate compounding has also another implication as it implies that bond prices will respond in an asymmetric manner to changes in the yield: indeed, bond prices are more sensitive to a fall in yields than to an increase in yield, and therefore, will also rise when the volatility of the yield increases, therefore pushing down the forward rates5. The net convexity adjustment will therefore bias the breakeven inflation rate either upward (the most likely) or downward. The inflation lag: by construction, bond cash flows can not be adjusted instantaneously for actual inflation. This implies that the break-even inflation rate includes another bias reflecting the discrepancy between the lagged and the contemporaneous inflation rate.

Capital inflows from non-residents are much less important, and in the latter half of the year, when the króna was appreciating the most, carry traderelated inflows were virtually non-existent. Estimating the equilibrium real exchange rate is very uncertain, however, and as a precaution, the Central Bank has leaned against potential overshooting of the exchange rate by buying large amounts of foreign currency. In this light, it is difficult to conclude otherwise than that the appreciation of the króna has been largely benign, in that it is based on economic fundamentals and contributes to a better balanced economy. The Central Bank’s scenario analysis indicates that if the Bank had used policy instruments to halt the currency appreciation in recent years, economic imbalances would have been much greater and inflation considerably higher. It has been a long time since the Central Bank of Iceland could fix the exchange rate unilaterally on a day-to-day basis. The exchange rate is determined in the interbank market and reflects underlying supply and demand for foreign currency. But the Bank can affect the exchange rate through interest rate decisions, foreign exchange transactions, and the application of capital flow management measures such as the one currently in place: the special reserve requirements on certain types of capital inflows. The exchange rate would have been much higher if the Bank had not applied these instruments and bought large amounts of foreign currency.
The darker shades refer to increasing probability densities at any given point. Of the remaining 10 out of every 100 occasions inflation is expected to lie outside the shaded part of the fan altogether. But the distribution of these tail events is not explicitly specified, as to do so would require a spurious degree of precision on the part of the MPC. The fan chart is designed to communicate specific concepts important to policy. Next, we will illustrate these using the February fan chart. But first, let’s briefly recap the recent history of inflation. Here, you can see that over the past couple of years inflation has been volatile, first rising sharply to around 5% and then falling back recently [Slide 2]. Looking ahead, the MPC felt it was likely that inflation would rise again in the first quarter of this year [Slide 3]. You can see that in this projection the entire 90% of the distribution covered by the shaded fan is higher than the last data point. Remember, though, with 10% of the distribution not specified, the MPC were not ruling out the possibility that inflation might have remained unchanged or fallen. Since this projection was published, new data have been released for inflation in January, shown by the green marker [Slide 4]. This showed that inflation had indeed risen. So it now looks even more likely that inflation in the first quarter of 2010 will be close to the middle of the MPC’s fan chart.

We experienced four consecutive quarters of sequential contraction with a cumulative output loss of 9% – our deepest recession since independence. Conversely, with the subsequent recovery in the global economy, Singapore’s GDP rose sharply and now exceeds the level before the crisis. Last year, the economy grew by an estimated 14.7%. 4. Over the course of the crisis in 2008/2009, MAS’ monetary policy responses were deliberately graduated, underpinned by the objective of promoting price stability in the medium term. We did not react to every single development in the economy or the financial markets as this would have introduced unnecessary volatility and uncertainty. Following the significant deterioration in external demand in late 2008, MAS eased policy in October 2008 and April 2009 to provide support to the domestic economy. In early 2010, taking into account the strong recovery path of the economy and rising domestic cost pressures amidst high rates of resource utilisation, MAS shifted to a modest and gradual appreciation of the $ policy band. Subsequently, MAS tightened policy further in October 2010 by increasing slightly the slope of the policy band. 5. Singapore’s financial system experienced some initial strains but otherwise has proven resilient during the crisis. Banks and insurers maintained robust capital and liquidity buffers, and balance sheets were relatively strong. Their prudent risk management allowed them to weather the crisis well. MAS has also remained vigilant through the crisis, with my colleagues working hard to ensure that our regulatory and supervisory efforts remain robust. Challenges ahead 6.