samchain/econo-pairs-v1 huggingface dataset:
Experiences of different monetary policy regimes Countries have long endeavoured in different ways to control inflation, often by trying to fix the nominal exchange rate by one means or another. However, during the post-war period it is only in recent years that we have really understood the long-term costs of high inflation. And it was not until then that there was a serious political ambition to deal with the inflation problem. During the 1960s and 1970s many considered that the cost of bringing down inflation was too high in relation to the advantages it would entail. There was also a belief that by accepting slightly higher inflation it would be possible to achieve a sustainable higher level of employment and lower unemployment. However, in time it became increasingly clear – thanks to both practical experiences and results from academic research – that this reasoning was not viable. At the same time, it is important to remember that during the first decades after the war we were living in a completely different type of economy compared with now, not merely with regard to the view of inflation. Most western world countries had strongly-regulated financial systems. This was partly a consequence of the war, and partly due to the view that access to credit should be steered towards certain tasks. At the same time, many countries had fixed exchange rates and regulated capital movements, initially within the Bretton Woods agreement – the system that was generally based on fixed exchange rates.

Something which in my opinion is quite natural, given the current economic situation, to ensure continued good growth. Developments in household indebtedness and house prices are also factors that are important; however they are not in any way decisive for this interest rate decision. From a monetary policy perspective, one can say that we are on somewhat unfamiliar ground with regard to this type of aspect. We cannot say with certainty what will happen to house prices when the interest rate is increased. We probably have a gentle adjustment ahead of us, with a rate of price increase that cautiously slows down. If house prices and indebtedness were to continue to rise very rapidly, there could be a risk of a more dramatic adjustment further ahead, with effects on the real economy and effects on inflation. With this background, too, the timing of the interest rate rise appears reasonable. The bank raised the repo rate in January. Given the good economic developments, the Executive Board’s assessment was then that a continued gradual increase in the repo rate would be reasonable. The information received since then does not alter this picture, in my opinion. Now the work on producing and discussing a new forecast of inflation begins, so that we can make a decision on 22 February regarding the monetary policy stance. I look forward to seeing the forecasts and participating in the ensuing discussions.
2  BIS Review 94/2008  In addition, regulation can also encourage procyclical risk taking. Basel I, for example, encouraged the growth of securitisation and the “originate to distribute” model of banking because holding the low risk elements of a loan portfolio in the banking book were relatively heavily capital-weighted. Basel II contains more carefully calibrated capital risk-weights and is a considerable improvement over Basel I. But the risk measures are drawn from the market and share some procyclical features. Weights increase as credit risk rises so riskweighted assets will seem relatively low during tranquil economic times and relatively high during periods of stress. While there may be scope within Pillar II to address this, it is too early to know whether that can be used effectively. The combination of these market and regulatory effects have amplified risk taking during the boom and is now constraining risk appetite as financial conditions have deteriorated. Policy responses Since the crisis broke last summer, regulators, governments and central banks have come together in the Financial Stability Forum (FSF) to analyse what has gone wrong and agree an international response.

The second tool that many of us believe really should be considered, and which the Financial Stability Board is likely to urge countries in the G20 to consider seriously, is to be able to write down, or haircut, claims of unsecured, uninsured creditors and impose a partial conversion from debt to equity in conditions of distress while leaving the non-toxic parts of the bank or dealer as an otherwise viable concern. This is a technique sometimes called Bail-in, although that term is also used for a purely contractual route for recapitalising banks which is rather different in some crucial respects (both operationally and in terms of policy). Reduced to its bare essentials, it involves the following. You take the distressed bank or dealer, and examine whether it is rotten all the way through, or whether – as can easily be the case for highly-levered firms – its financial problems are concentrated in specific parts of the business. In other words, is there a viable underlying franchise once the toxic parts are written off? That will sometimes be the case, although by no means always. When it is, you also make an estimate of the firm’s loss. Sometimes that may not be possible due to chaos in the firm or the breadth of its problems. But if you think about the SIFI failures during this financial crisis, there are some instances where supervisors could, perhaps, have made estimates of the losses before the final curtain came down because they were on notice of accumulating stress.
b) The euro is an “all-risks insurance” for all Member States This view appears to be the opposite of the preceding one; in fact it stems from an equally false perception: attributing excessive evils or benefits to the euro. A currency is an essential nominal value; but this alone does not determine the real performance of the economy. In the first part of the 2000s, once it had acquired the collective gain of the euro, France and Italy, like many 3/6  BIS central bankers' speeches  Southern European countries, wrongly believed that it was possible to let up on competitiveness efforts, which are nonetheless an ongoing imperative – “there is no free lunch”. Today we are suffering the consequences: we have lower economic growth and employment than some of our neighbours, such as Germany and Spain, which succeeded in carrying out the reforms necessary for enterprise (corporate sector), employment, education and expenditure reduction (public sector). Contrary to what some say, our lag in growth is not due to excessive fiscal discipline. The government debt to GDP ratio has more than doubled in Italy since 1980, and it has risen fivefold in France. When my generation was 18 years old, debt stood at 20% of GDP in France. For your generation today, it verges on 100% of GDP in France and in Italy stands at over 130%. We have failed when it comes to intergenerational solidarity and sustainable development.

For many firms, including Italian imprenditori, their market naturally expanded from their domestic market to the whole of the euro area. According to empirical studies, the euro has thus led to a 5 to 15% increase in trade between Member States. An internationally recognised currency The economic size of the euro area and the stability of its currency allow the euro to play an international role. Before the euro, in 1995, only the Deutsche Mark was an international reserve 2/6  BIS central bankers' speeches  currency, with a share of 15% of global reserves. Today, our shared currency accounts for 20% of international reserves, in second place behind the dollar. An internationally recognised currency generates economic gains: the financial markets are more attractive for foreign investors, more liquid, and therefore more efficient. But it also carries a political weight: I know that when Mario Draghi speaks at the G7 or at the G20, the whole world listens to Europe attentively. In the global financial arena, which has become turbulent, this union is our greatest chance; none of our countries would have such clout in insolation. Our sovereignty relies necessarily on European sovereignty. * * * The euro makes us more robust, and gives us more confidence in our currency: this is a considerable asset amidst so much uncertainty. The euro has naturally also provided us with a strong symbol of unity among European nations.
It is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. BIS Review 74/2001  3  A change in interest rates is not expected to have an immediate effect on inflation. Our analyses 1 indicate that a substantial share of the effects of a change in interest rates will occur within two years. Two years is thus a reasonable time horizon for achieving the inflation target of 2½ per cent. Hence, the key rate is set with a view to achieving an inflation rate of 2½ per cent two years ahead. In some situations, where unexpected events lead to an inflation rate that is too high, it may be appropriate to apply a longer time horizon than two years. For example, reducing inflation to 2½ per cent within this time horizon may be associated with unnecessary real economic costs. A precondition for applying a longer time horizon is that there is clear evidence of strong confidence in low and stable inflation over time on the part of economic agents. Gradually, as we gain experience with setting interest rates according to an inflation target, the possibilities for placing emphasis on stability in the real economy will probably increase. Low and stable inflation is a necessary precondition for stability in the foreign exchange and financial market and the property market.

As a main rule, the Bank is likely to consider intervening only when we see a clear profit opportunity for the central bank. This may also be appropriate in the event of extensive short-term fluctuations in thin markets. In such situations, the risk of a loss-making game against foreign exchange operators will be limited. Any interventions and the background for them will be clearly communicated to market participants. Evaluation and predictability  Today's inflation rate is partly the result of the interest rate that was set one to two years ago. Current inflation figures do not provide an adequate basis for determining the level at which interest rates should be set today. Monthly figures for the consumer price index are also influenced by random and temporary factors that have little impact on inflation over time. Precipitation levels influence electricity prices. Changes in indirect taxes have an immediate impact on the consumer price index. The direct effects of such factors on inflation will be exhausted after a year. Hence, they will not have any  8  BIS Review 74/2001  significance for the interest rate, which is normally set with a view to maintaining inflation at 2½ per cent two years ahead. However, automatically adjusting inflation figures for the direct effects of one-off factors may be associated with pitfalls. Increases in indirect taxes and energy prices may be sources of rising inflation as a result of spillover effects on other prices and wages.
The last paragraph specifies what Norges Bank is required to do. The first sentence in the mandate refers to the value of the krone. Stability in the internal value of the krone implies that inflation must be low and stable. Low and stable inflation fosters economic growth and stability in financial and property markets. The regulation also states that monetary policy shall be aimed at stability in the Norwegian krone’s external value, contributing to stable expectations concerning exchange rate developments. With open trade with other countries and free capital movements, we do not have the instruments to fine-tune the krone exchange rate. The krone has appreciated when economic activity has been high and there have been expectations of a wide interest rate differential between Norway and other countries. The krone has depreciated when activity has declined and the interest rate differential has narrowed. There is also a strong tendency for the krone to revert to a level that stabilises the price level in Norway relative to our trading partners, measured in a common currency.1 The task of monetary policy is to provide a nominal anchor. The inflation target is such an anchor. The conduct of monetary policy Norges Bank’s operational conduct of monetary policy shall be oriented towards low and stable inflation. Norges Bank operates a flexible inflation targeting regime, so that weight is given to variability in inflation as well as variability in output and employment. Inflation shall be 2½ per cent over time.

The krone depreciated by about 13 per cent from its strongest level in January 2003 up to summer 2003. In autumn 2003, the krone showed a tendency to appreciate against the euro. This partly reflected  BIS Review 34/2004  3  lowered market expectations concerning an interest rate increase abroad and expectations that interest rates might rise earlier in Norway than in other countries. At the same time, the euro appreciated in relation to other currencies. Changes in the krone resulted in an unintended tightening of monetary policy. The krone depreciated again in December, however, owing to low inflation figures and a reduction in interest rates. The interest rate reduction was probably of considerable importance as it eliminated the excess return on NOK investments. The krone has again appreciated since last winter. Parallels can be drawn with the situation towards the end of 2002. The current high oil prices and expectations that oil prices will remain high for a long period may have been important for the appreciation of the krone. When there is considerable uncertainty with regard to future developments in oil prices, market participants may hedge against risk by investing in NOK. As mentioned earlier, the Petroleum Fund acts as a buffer against wide fluctuations in the krone exchange rate as a result of petroleum revenues. An increase in petroleum revenues will normally also result in higher capital outflow from the Petroleum Fund. The market may at times have a tendency to underestimate this stabilisation mechanism.
This has required everyone involved to step up to the plate in a new way. For our senior supervisors, it has meant taking a higher-level and more encompassing view of the potential problems that a firm might encounter and, when necessary, delivering clearer and more timely supervisory messages and guidance to the firm. For directors and senior managers, it has meant a shift toward greater openness and increased candor with supervisors about the condition of the firm, its business strategies and risks, and the issues that they are most concerned about. It has also required devoting more time and attention to their relationship with supervisors. After three years, I can report steady progress from both sides at reaching the “new paradigm” discussed in the G30 Report – but there’s still more to do. As I said a moment ago, much of the focus of the recent G30 reports has been on behaviors and firm cultures. It is right that these topics should be on the top of all our agendas. Five years after the crisis, headlines about bad actors and corrosive corporate environments continue to be all too common. So, my first observation about progress is just that – the topics of culture and behavior are “top of mind” for many senior management teams and boards of directors. It’s an important step to acknowledge that we have an issue.

During its lengthy preparation we held numerous consultations with the Czech Banking Association, individual Czech banks, the FAU, further financial regulators and other parties concerned, so as to transpose the international standards into the Czech practice in an optimal way. The CNB regulation covers all the standard elements of the AML measures I have already mentioned. One of its last paragraphs - but definitely not least - concerns the training of bank staff in AML issues. Given the emphasis on training, let me express the delight that your training course is taking place here in Prague. Given what I have said about the necessity to co-ordinate AML activities internationally, I am also glad to see that those attending the course come from numerous different countries. I hope that you will learn as much as possible here and that you will then have an opportunity to use your new knowledge actively in anti-fraud and AML activities in your home countries. Thank you for your attention. BIS Review 40/2003  3
Given the aim of attaining real convergence over time, accession countries will have to devote significant public resources to funding investment. However, candidate countries’ weighted average public deficit amount to 3.6% of GDP in 2001. The fiscal consolidation currently planned by some accession countries is welcome and likely to require sizeable expenditure cuts or tax increases. Looking ahead, accession countries will have to implement fiscal consolidation very credibly with a view to avoiding the risks associated with the existence of high “twin deficits”, i.e. fiscal and external. –  Fourthly, a sound and efficient banking and financial system is key. Significant progress has been made over the past few years in rehabilitating the banking sector and encouraging foreign ownership. The latter has also contributed to greater integration into the EU financial system. Nevertheless, adapting the legal and regulatory framework is a process entirely in the hands of the accessing countries. The intermediation role of the banking sector remains fundamental for the efficient use of capital and sustained growth. Progress in corporate governance, the enhancement of the legal and supervisory frameworks that support the banking sector, and an efficient fight against money laundering, are also crucial. These improvements are conducive to achieving the macroeconomic objectives of the accession countries. –  Fifthly, central bank independence is of the essence. It is an integral part of the acquis communautaire, which is laid down not only in national legislation but above all in the Maastricht Treaty.

For instance, large fluctuations in asset prices may modify the behaviour of agents by decreasing the level of confidence. Such fluctuations can also expose bank portfolios to a higher risk of losses, inducing banks to compensate for these risks by restricting credit. Let me stress that, although a price stability oriented monetary policy is conducive to financial stability over the long term, episodes of financial instability have been known to take place during periods of low inflation. Price stability must be therefore regarded as a necessary but not sufficient condition. Other parameters influence financial stability, among which financial integration is of particular interest from the point of view of a central bank in the Euro area. 2.2  The relationship between financial integration and financial stability is twofold:  –  First, the liquidity redistribution function has taken on a new dimension as participants in the market are dealing with a wider range of counterparties, and actually trade larger unit amounts. Some bank treasurers in Paris mention that the average face value in euro of single transaction today is equivalent to the face value of a transaction in French franc in 1998, that is, more than six times higher. –  Second, financial market integration is related to the trend towards the greater share of markets in the allocation of assets. At the end of 2000 financial assets in the euro area were 10 split almost equally between intermediated and non-intermediated assets.
Iceland’s sovereign CDS spread is higher than the underlying fundamentals warrant, and positive developments in the next few months could make quite an impact on it. Credit rating agencies and others have given us a clear indication of which factors are most important: reducing uncertainty about domestic financial institutions, resolving the Icesave dispute, and demonstrating signs of economic recovery. But where do we stand? Has the turnaround begun? According to the forecast published by the Central Bank last Wednesday, it has: seasonally adjusted GDP is projected to have grown between the second and third quarters of this year. This assumption is supported by various high-frequency indicators such as groceries turnover and payment card turnover. As the chart shows, we assume that this trend continued in the current quarter, although we expect growth to be somewhat less. In examining the chart, however, the viewer should bear in mind that quarterly GDP figures are quite volatile and measurements can show a small contraction in individual quarters, even though such a dip would not be considered to constitute an economic recession in the conventional sense. But in connection with the economic outlook, it is important to remember that consumer confidence appears to have taken a bit of a dive in the past few weeks (see Chart 2), concurrent with the beginning of the legislative session in early October and the demonstrations that took place at the time.

The court judgments and IMF review were  4  BIS Review 158/2010  in place by the MPC’s September meeting, however, and as a result, the substance of the September statement was different as regards the conditions for liberalisation. But it was conditions that had changed, not the policy. As the chart shows, developments in Government bond yields in August and September have a bubble like pattern that is often described as going down the stairs and coming up on the lift (or vice versa, if one considers price rather than yield). It is likely, then, that factors in addition to the MPC statements were at work here. These could include unusually large leveraged positions, the structure and effectiveness of the market, and a typical bubble phenomenon featuring extreme tension right before the bubble bursts. For its part, the Central Bank will investigate what happened and draw the appropriate lessons from it. But this could be useful for others as well. At all events, if market participants are interested in leveraged speculation on the duration of the capital controls, they are free to engage in it. But if they do, it is their choice and their responsibility. The removal of the capital controls is certainly further off than many observers thought earlier this fall, but a delay of several years is not in line with announced intentions.