samchain/econo-pairs-v1 huggingface dataset:
The Bank of Thailand’s role Ladies and gentlemen, This leads us to the second part of my talk this evening. Although short-term volatility has often caught us by surprise, there is a pressing need to consider longer-term issues. And to support long-term perspective, the Bank of Thailand has set economic and financial environment to support such goal. The Bank of Thailand always attempts to strike the right balance between economic growth and macroeconomic stability. Monetary policy decision via interest rate setting has always been made while taking into consideration growth, inflation and financial stability dimensions. However, there are limitations that monetary policy cannot achieve. A single instrument, namely, the policy interest rate cannot target multiple objectives such as price stability, financial imbalances, exchange rate and capital flow simultaneously. The policy choices inevitably involve trade-offs between different objectives. Policymakers will have to weigh carefully the costs and benefits of a policy decision. 2  BIS central bankers’ speeches  Although exchange rate is not the Bank of Thailand’s main policy tool, or an intermediate policy target, sharp exchange rate volatility can have significant impact on exporters and small businesses with less capacity to adjust. The Bank of Thailand, therefore, constantly monitors the impact of baht movement on the overall economy and stands ready to use policy instruments to prevent and manage dysfunctional market conditions and excessive speculation. Nevertheless, in the long-run, exchange rate should be determined by market mechanism and serve as an important price signal and catalyst for structural changes.

The world, in my view, is now obsessed with just a few things. I would like to highlight them in turn. First, the prospect of QE tapering is having wide implications for financial markets. We have already seen a sell-off of emerging market debts and equities, and a reversal of foreign capital flows that had rushed into the region earlier this year. With uncertainty in the amount of global liquidity provided by major central banks like the Fed, we will likely see more volatile capital flows, exchange rate and commodity prices going forward. Second, financial markets are watching closely Abe’s plan to revive the Japanese economy. Its effectiveness, especially of its third-arrowed plan of structural reform, will be significant for global outlook and the degree of risk aversion in general. If the third arrow has failed before it even properly began, the economic momentum running by the previous arrows – monetary and fiscal stimulus – would be weakened. Third, signs of Chinese economy and emerging markets slowdown have already started to affect world growth. With prolonged recovery in G3 countries, the last hope for global recovery seems fading. China’s aim to tame its real estate boom and inflation resulted in the economy slowing more quickly than initially hoped. So the slowdown of China will undoubtedly be a key risk to the global economy. Consequences for the Thai economy Along with weaker global outlook, the Thai economy this year started out with much moderation.
The evolution of employment and real wages, which have slowed down in annual terms in the last year, implies slower growth in the wage mass. This, coupled with still low household expectations, is consistent with positive, yet moderate, growth in consumption (figure 6). 2  BIS central bankers’ speeches  Turning to the world economy, as I said, international financial markets have been marked by two situations. One, the US monetary policy normalization process, and two, the Chinese policy makers’ efforts to achieve their growth and financial stability objectives. Early in the quarter the market assumed that the Fed would take things extremely gradually and that the Chinese authorities had figured out the policy mix that would allow them to keep growth in line with its objectives. Thus, the calm of financial markets that had begun at the close of the last Report was prolonged. Capital flows returned to the emerging world, stock markets recovered, interest rates dropped and so did spreads, the dollar weakened and commodity prices improved. Nonetheless, the increasing doubts about the Chinese financial system and the perception that the US monetary policy will soon implement its adjustments – a still uncertain development – have tended to reverse these trajectories in recent weeks. This has been particularly visible in the depreciation of emerging currencies (figure 7).

Norges Bank therefore attaches substantial importance to what seems to have become a fairly broad consensus on a long-term anchor for fiscal policy that takes into account possible fluctuations in oil prices from one year to the next. The rule would appear to be credible as well since it is robust in relation to various scenarios for oil prices and oil production. The Government was of the view that a clearer anchor was required to reinforce monetary policy’s role in underpinning stable economic developments. This is why Norges Bank was given a new operational mandate for monetary policy. Norges Bank shall set the key rate with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent. The new mandate for monetary policy is in line with international practice. Sweden and the UK have an inflation target. These countries generally have a positive track record, but this may also be ascribable to a situation that was conducive to low inflation after the downturn in many countries in the early 1990s. In our view, there has been a reasonable degree of confidence in monetary policy over the past decade. Inflation has been low and stable. By quantifying an inflation target, the Government may nevertheless have made it easier to understand Norwegian monetary policy. With the revision of monetary policy, the Government has also, in our view, recognised low inflation as a benefit in itself.
Some forecasts have shown a slight slowdown in growth in the euro area. How could that become a problem for the inflation target? Less than six months ago, some said that inflation would be below 1% in February or March, and growth forecasts were less than half of what they are now. All the indicators point to economic growth in Europe continuing, because, for example, both capacity utilisation and labour utilisation point to a continued need for further investment and capacity extension. Supply-side expansion is increasing potential growth and allowing for more labour utilisation and higher incomes. To conclude on a more personal note, what are your plans for December 2020? I couldn’t even tell you where I will be spending Christmas 2020, and I have not given it any thought. Indeed, I still enjoy my work. But the older you get, the more you are unable to make plans which are 50 years ahead. 1 The Commission de Surveillance du Secteur Financier is the supervisory authority of the Luxembourg financial  sector. 5/5  BIS central bankers' speeches

The same holds true for public debt, which amounts to 85% in the euro area while it will soon cross the 100% mark in the US. Many Countries are improving their fundamentals. The primary deficit of Spain for 2011 will be around 4.7%, half that of the US and the UK. Italy will be one of the very few advanced economies to have a primary surplus, around 0.5%. The IMF has recently acknowledged, and even praized, these efforts and commitments. In short, if good fundamentals are an absolute necessity, it is not a sufficient condition. Now can we let liquidity spirals lock a country, just like a financial institution, into a bad equilibrium? We faced that question in 2009 when dealing with financial institutions. We are now facing the same question regarding sovereign risk. Our answer is twofold. First, get the fundamentals right. For European countries, it means reverting to a sustainable fiscal position which requires a significant primary surplus. And second, there is a need for a liquidity backstop to ensure that bad equilibria will not develop. Where that backstop is coming from is a key question. Unconventional monetary policies have led many central banks to purchase significant amounts of Government debt: those purchases amount to 51% of the total debt issued since 2009 in the UK, 21% in the US versus 7.5% in the euro area – where they were fully sterilized. These policy stances have contributed to giving markets an insurance against a potential dry-up in liquidity.
Given the array of tools at our disposal, I am confident that the FOMC can adjust and control short-term interest rates as needed to foster its objectives of maximum employment and price stability. The configuration of rates during normalization The Committee’s normalization principles and plans do not detail the manner in which IOER as a primary tool would be combined with supplementary tools such as ON RRPs to move the fed funds rate into the target range. However, as reflected in the minutes to the July FOMC meeting, most Committee participants anticipate that, at least initially, the IOER rate could be set at the top of the target range for the funds rate, and the ON RRP rate could be set at the bottom of that range. This is also consistent with the views of many market participants as reflected in surveys conducted by the Desk. 12 I’d like to take a moment to explain why I believe such a regime would be a sensible way to implement policy during the first stages of normalization, when reserve balances will be in such ample supply. Most importantly, it’s a regime in which the Desk should achieve the target for the fed funds rate set by the FOMC. As IOER is raised, its magnetic force will pull the fed funds rate higher. At the same time, the high level of reserve balances in the system should lead the effective rate to print below the IOER rate, at least initially during normalization.

While these frictions may vary over time, they should generally do so only slowly. 7 The pull of IOER should also be affected by the quantity of reserves in the system. An increase in bank reserves that increases bank assets makes regulatory leverage ratios more binding, raising the shadow marginal cost of bank balance sheets. It also accentuates the competitive frictions I described above, and reduces individual bank demand for additional reserves. 8 As a result, as the level of reserves declines during normalization, marginal balance sheet costs should fall, competitive frictions should lessen, and the demand for additional reserves from individual banks should increase. These factors should strengthen the magnetic attraction of IOER and pull the fed funds rate and other market rates up toward – and at some point equal to or above – the IOER rate. However, excess reserves will remain plentiful for some time, and while that’s the case the FOMC intends to use an ON RRP facility and other tools as needed to complement IOER in controlling the fed funds rate. 9 When the Desk conducts ON RRPs, as in its current testing program, it sells Treasury securities held in the SOMA with an agreement to buy them back the next business day at a pre-determined price. This leaves the size of the SOMA portfolio unchanged, but shifts some of the liabilities on the Fed’s balance sheet from bank reserves to reverse repos.
The survey suggests that while there has been underinvestment and while financial constraints appear to have played a role, other financial and non-financial constraints like crowding out, uncertainty and risk aversion have probably been equally important. Unfortunately there seems to be no silver bullet. The survey suggests that any policy initiative to address underinvestment would need to address a wider agenda than just constraints on external financing. Rates of return  I have concentrated so far on the firms who believe they had invested too little and the reasons they gave for this underinvestment. The survey however also shed light on the approach used by all firms to decide whether to take an investment opportunity. The results reinforce other evidence that suggests that investment projects may now face a stiffer test than pre-crisis because firms are implicitly applying a higher risk premium in their decision making. The survey asked firms about the average rates of return on the investments they had made over the past five years and how they assessed investment opportunities. The responses indicate that the rate of return on past investments has averaged 12%. This is squarely in line with the top down ONS estimate of the annual net return on capital in the private non-financial corporate sector as a whole – an estimate that has been remarkably stable at around 12% since the turn of the century.

1/4  BIS central bankers' speeches  Despite all these headwinds we’ve been discussing, the ECB still plans to exit QE by the end of this year. What could derail these plans? That’s clearly what we anticipate. Now, that said, it will be data dependent – as with everything we do. But as we speak, in mid-July, I see no reason to change our expectations. There has been some confusion among investors about the ECB keeping rates on hold until “at least through the summer of 2019”; can you explain to us again what this means? “At least through the summer” means “at least through the summer”. It is date-based guidance, which so far we haven’t done, so it’s a step forward in enhancing our forward guidance. At the same time, it gives us enough flexibility to adjust depending on the data flow. Does that mean we could see a decision on rates as soon as September 2019? That’s not something I can comment on today, by definition; we did not discuss it in Riga. Could this actually come before the summer of 2019? Could we see any change of policies before then, depending on the risk we are currently seeing? The expectation is that rates will remain low, at the current level, at least through the summer of 2019. The ECB wants to keep this guidance quite vague at the moment? It’s not vague; it’s precise enough to anchor, to pin down money market rates. It has been, by the way, very effective.
Let me now spend a few words on the OMT programme in particular. It is important to emphasise that the design of the Outright Monetary Transactions programme creates the right incentives for governments to improve their performance with respect to fiscal prudence and structural reforms. In fact, OMTs will only be activated in cases where the beneficiary country has signed up to strict and effective conditionality  BIS central bankers’ speeches  3  attached to an appropriate EU/IMF lending programme. They can also be considered for Member States currently under a macroeconomic adjustment programme, but only once they have regained bond market access. Moreover, the design of OMTs entails interventions only in the relatively short end of the government bond market – up to three years’ time to maturity – and they will be fully sterilised, meaning that the Eurosystem would absorb all amounts of liquidity injected by OMTs. Since the announcement of the OMT programme, financial market conditions in the euro area have improved significantly, sovereign spreads have declined substantially and there are some signs that the process of financial fragmentation in the euro area is being reversed. It is important to recognise that the role of policies other than monetary policy being implemented in the meanwhile, at both national and euro area or EU level, have also materially contributed to restoring confidence in the euro area. 3.

I will structure my observations around four points: •  First, the factors that have led to the crisis and in particular how the euro area became engulfed first in the global financial crisis and then in the sovereign debt crisis;  •  Second, the crisis response in the euro area, including both monetary policy as well as other policies;  •  Third, the key lessons we have learned from the global financial crisis in the euro area and in particular the institutional weaknesses that were uncovered during the crisis;  •  Finally, I will touch on institutional reforms at the level of the euro area and the European Union at large, which have also contributed, in my view, to an improvement of the foundation of our monetary union which is, we hope at least, the harbinger for a better performance in future. Work in this area is still in progress, and for that reason I will then conclude by sketching the challenges that still lie ahead of us. 1. The factors leading to the crisis  As I have argued on previous occasions, it might be useful to think about the development of the global financial crisis and subsequently the euro debt crisis in the last five and a half years as the gradual discovery of an iceberg. As you probably already know, because the density of ice is lower than the density of sea water, normally only one-ninth of the volume of an iceberg is above water.
We are firm in the belief that economic equality is a critical component for social justice and that we will never have the truly inclusive and strong economy we seek until access to health, education, safety, and justice knows no racial or other boundaries. We are dedicated to understanding and finding solutions to the numerous forms of inequality that communities of color experience and working with communities in our District to address deep-seated inequities. We are steadfast in our commitment to work for a more equitable economy and society for all, and will redouble our efforts in pursuit of this essential mission. The pandemic painfully demonstrates the need for us to redouble our efforts in working with stakeholders from the community, business, nonprofits, and governments to build a stronger, more equitable foundation for our economy’s future. This makes conversations like the ones we are having today so important for us to listen to and learn from. Our shared commitment to an equitable recovery is needed now more than ever. 1 Coronavirus in African Americans and Other People of Color, Johns Hopkins Medicine, April 20, 2020. 2 Claire Kramer Mills and Jessica Battisto, Double Jeopardy: COVID-19’s Concentrated Health and Wealth Effects  in Black Communities, Federal Reserve Bank of New York, August 2020. 3 Economic Inequality & Equitable Growth, Federal Reserve Bank of New York. 4 Heterogeneity: A Multi-Part Research Series on Liberty Street Economics, Federal Reserve Bank of New York,  accessed August 8, 2020.

5 About the New York Fed: Announcements, Federal Reserve Bank of New York, June 12, 2020. 2/2  BIS central bankers' speeches
On the securities side, we are in the process of introducing a series of reform measures to lessen the potential for market dislocation. I am happy to say that our actions have been successful. There has been no indication of further market manipulation since the end of August. We have seen substantial unwinding of the short positions in our currency by the hedge funds, with considerable losses. And with the stock market having recovered substantially from the level at which we entered the market in the middle of August, more considerable losses were incurred also in their short positions in the stock index futures. Much of the interest rate premium of the Hong Kong dollar over the US dollar has disappeared, clearly reflecting with hindsight the extent of the excessive pain that had been so mercilessly inflicted on the community by the manipulative plays. I hope you are now more sympathetic towards the controversial actions that we have taken. But in case you still have doubts, let me specifically address four accusations that have been hurled at us. The first accusation is that we were trying to jack up the market against trends dictated by fundamentals. Alan Greenspan used those words. But this is simply not true. We do not mind where the level of the market is, if that is what the adjustment process demands. No official view on the “right” market level has been taken and there never will be such a view.

Today, only a few central banks, including Fed Reserve is still responsible for bank supervision. Others have handed this job to a separate agency. In the 1960’s the conventional economic wisdom was that monetary policy could reduce unemployment and directly promote economic growth. The theoretical basis for this was provided by the famous Phillips curve, which depicted an inverse relationship between inflation and unemployment in Britain; when unemployment was high inflation was low and vice versa. This appeared to have suggested that central banks could permanently reduce unemployment by tolerating a bit more inflation. In fact, many countries attempted to do so. We all have our experience in attempting to directly promote economic activities by releasing high powered money through various credit schemes and direct involvement in development activities. However, at the end we had more inflation, either visible or hidden, without an appreciable reduction in unemployment or improvement in growth. In fact, the rate of inflation associated with a given level of unemployment had risen through the 1970’s and policy makers had to abandon the Philip curve. This in fact was predicted by Milton Friedman and Edmund Phelps who challenged the Phillip curve. As they pointed out, the trade off between inflation and unemployment was only short term. As soon as people come to expect higher inflation they would demand higher wages, and unemployment would rise again . There is no trade off between inflation and unemployment. In the long run, monetary policy  BIS Review 52/2007  1  could influence only inflation.
Ultimately, the outlook for business investment, like the outlook for the economy more generally over the forecast period, depends largely on how households and businesses react to Brexit and on the process that accompanies it. The central case outcome in the February Inflation Report is that the economy will gently slow as higher inflation squeezes households' real earnings. But that's not the only conceivable scenario. There are, however, both upside and downside risks. So as the Committee has made clear, we will be looking closely at the incoming evidence, particularly on pay growth, labour market slack, household consumption, inflation expectations and the impact of the lower level of sterling on consumer prices. Conclusion  I want to conclude by saying a little about why all of this matters to the Bank and our role in issues surrounding investment and productive finance. As I noted at the outset, it was the great financial crisis of 1825 – when the country, according to one contemporary commentator, was within 24 hours of returning to barter and a run on the Bank of England was only halted by a last minute shipment of gold by Nathan Rothschild – that led to the establishment of Bank of England branches in Birmingham and elsewhere. That crisis was due in part to the constraints on the UK’s under-developed banking system.

Average annual growth in business investment in the decade before the crisis was 2.4% and in the 15 years before the crisis it was 3.6%. 2  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  One reason for this weak investment since the crisis has been weak demand. Over a run of years, the rate of investment should adjust to maintain the capital stock at a particular level relative to GDP. If GDP grows more slowly, less investment is required to maintain the capital stock at a desired level relative to GDP. This can lead to a vicious circle in which weak demand leads to lower investment that in turn impairs the productive capacity of the economy. This in turn impairs demand as households and businesses revise down their expectations for future income and profits and so on. So what starts as a demand shock can end up as a supply shock. According to the IMF, this effect probably accounts for some of the weakness in investment in advanced economies. 3  But this is unlikely to be the whole story behind the weakness of investment post crisis. One common and repeated candidate explanation is the lack of finance for productive investment. This is not a new issue; it has very deep roots in the UK. The role of banks in providing finance to businesses for investment has been examined many times since Charles Geach’s day.