samchain/econo-pairs-v1 huggingface dataset:
In our experimental surveys, we instead administered the follow-up to everyone. We found that if we administered the follow-up question only to those giving responses over 5 percent, then the median long-term expectation would be 4.3 percent instead of 3.7 percent in our test sample. Thus, we have reasons to believe that the 5 percent follow-up question in the Michigan Survey leads to a systematic overestimation of actual average responses. 19  In contrast, for the Survey of Primary Dealers discussed later, we added a question in 2007 that directly elicited uncertainty over CPI inflation from 5 to 10 years ahead. See Potter (2011, 2012). 6  BIS central bankers’ speeches  as food or gasoline.20 In related research, we have shown that respondents tend to express more extreme inflation expectations when they are prompted to think of specific prices in answering the question rather than overall inflation.21 In the SCE, we therefore ask directly for expectations about the rate of inflation or deflation.22 Probabilistic questions on the SCE As I noted earlier, a key feature of our survey is its use of probabilistic questions. Following the current practice in the literature for the elicitation of expectations about continuous variables, we tested questions that elicited density forecasts by asking respondents to assign the percent chance that the value of interest would fall within different pre-specified ranges or “bins.” For instance, for inflation, we ask for the subjective probability distribution over a range of possible future inflation outcomes.

The findings from these surveys have provided new insights into consumer behavior, such as the impact of subjective earnings uncertainty on precautionary saving.1 The Bank of Italy was also a pioneer in using probabilistic questioning to elicit expectations from businesses in its 1993 Italian Survey of Investment in Manufacturing. Data from this survey have been used to analyze the impact of uncertainty about future product demand on the investment decisions of Italian manufacturing firms.2 As always, the views expressed are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or of the Federal Reserve System. Why are expectations data useful? The importance of compiling high-quality data on the expectations held by economic agents has been increasingly recognized in both academic research and policymaking. Most economic decisions involve uncertainty, and are therefore determined not only by preferences but also by expectations for future outcomes. Typically, neither preferences nor expectations are directly observed – a condition that poses a significant challenge to understanding economic behavior. Although different combinations of preferences and expectations may be consistent with the same observed behavior, they could result in different responses to shocks or to alternative policies and could therefore have different implications for public policy.3 The standard way to address this problem within economic models has been to assume rational expectations – that is, expectations that are consistent with equilibrium behavior in the model.
Otherwise it would hardly have been possible to obtain political support for the public funds needed. The unwillingness to adopt an equally strict approach in many Asian countries has presumably been a major factor behind the difficulties in dealing with the problems there. The central bank’s primary function in this context is to provide emergency lending for acute needs in order to avoid a systemic crisis and aid the work of the new authority. The experience from bank crises clearly demonstrates the importance of incorporating such emergency lending in the general structure for crisis management instead of treating it as a separate measure. This has to do with the great difficulty in practice of distinguishing between liquidity support and support motivated by problems with solvency. At the Riksbank we have made very concrete preparations in this field. We have, for example, produced manuals specifying who is to do what and how in various conceivable crisis situations. Before turning to monetary policy, permit me finally to underscore that I am well aware of the difficulties of various kinds, not least of an institutional and political nature, that exist at the European level when it comes to composing a clear set of rules of this type. At the same time this conference has strengthened my belief that a development towards a more integrated European banking system can be swift. The least we can do is to prepare ourselves on the national level. It will probably help us managing a crisis at the European level if one would emerge.

Final remarks I would like to finish with some comments on a matter that has concerned me for some time which is, on what subjects a Central Bank board member can talk, and in particular the Governor of the Bank who is the official spokesman. There is no formal restriction, but there is a practical limit which is that no board member would like to spoil his professional and communicational reputation by speaking without well-founded arguments. It is true that the Bank has a limited mission but it also has an excellent group of economists. For example, at the request of the Senate Financial Committee, studies have been carried out at the Bank on the long-term growth of the Chilean economy and both myself and my predecessor have written articles on the same topic (Corbo and Tokman, 2007; De Gregorio, 2008). It is possible to speak and research on relevant topics as long as we do not stray far from our fundamental task. A few weeks ago, Ben Bernanke gave a speech on the challenges of health reform in the United States (Bernanke, 2008) and ten years ago Alan Greenspan gave a speech on income distribution (Greenspan, 1998). 6  BIS Review 92/2008  Just as the Central Bank asks that its autonomy is respected, which is far from not accepting criticism, the Bank must also respect the decisions of other institutions. Here the balance is certainly tenuous.
Also, in some countries retail lending rates have increased markedly, while policy rates have decreased. Since mid-2011, the rate charged by the ECB on its main refinancing operations has decreased by 75 basis points but the composite cost of borrowing has decreased by a similar or greater amount in only 20% of cases. In another 20% of cases, it has even increased by more than 25 basis points. The dispersion of lending rates has risen both across jurisdictions and across categories of enterprises. For example, the cost of short-term borrowing for corporates in France is still around the same level as that recorded at the beginning of 2011; by contrast, in Italy, over the same period of time, the cost of borrowing for corporates has widened by almost 100 basis points. In addition, in countries facing economic and financial distress, bank financing conditions are tightening further for small and medium-sized enterprises. This is particularly problematic not least because of the limited access that small companies have to alternative sources of financing. For example, the spread between rates on small and large-sized loans has widened further in the case of Spain and Italy: in August 2012 it stood at 286 bps in Spain and at 188 bps in Italy, the highest levels for both countries since 2003.

It has come back to a significant degree. Before the crisis, some argued that these patterns could be due to common shocks, convergence of monetary policy frameworks, and increased credibility of those frameworks. However, case studies, comparisons of the pre- and post-  3  crisis periods, and other observations make it more and more plausible that global financial integration is the main driver. The bottom line is that it is becoming more difficult to conduct independent monetary policy in small, open, and financially integrated economies, and although a flexible exchange rate is a necessary condition for doing so, it might not be sufficient, especially when we factor in the financial stability aspects. This, I think, is why we find on occasion that we are closer to facing a dilemma than a trilemma. I think it is still a trilemma, but with trade-offs of variable severity.2 What can individual countries do about this? First, those that have the option can enter a monetary union. That has its own pros and cons, as you all know very well. But for a SOE were the MU constitutes the biggest trading partner, issues of excess exchange rate volatility and domestic currency mismatches become much less pronounced. Second, they can give up on independent monetary policy while maintaining their own currency by either pegging the exchange rate or pegging interest rates to those of global rate setters. The problem with the first is that, as history shows, it can be difficult to maintain with free capital movements.
However, the sectors that have been affected would be in an even tougher position with a lax monetary stance at present, which would leave us facing a much higher rate of inflation and a strong real exchange rate at the end of this expansionary episode. Tightening the monetary stance under such conditions could also provoke problems and shocks for the financial system, with unforeseeable consequences. 2  BIS Review 22/2005  The real exchange rate is heading for a historical high this year which is unlikely to be sustainable for very long. It is important to engineer as soft a landing as possible. In this context I want to mention the study in the latest Monetary Bulletin which shows that the real exchange rate is no more volatile in Iceland than in other countries, for example other inflation-targeting countries with which we often compare our performance. On the other hand, the importance of foreign trade varies from one economy to the next, so exchange fluctuations have a different impact on households and business in different countries. According to the Central Bank Act, one of the Bank’s roles is to promote an efficient and safe financial system, including payment systems domestically and with foreign countries. I shall not dwell on financial stability issues on this occasion. The reason is that the Central Bank will be publishing a separate financial stability report in April which will include its assessment of the position of the financial system.

In addition to the practical issues I have mentioned, behind dynamic provisioning there lied a conviction, resulting from many years of supervisory experience and, more recently, also from empirical evidence, that credit risk appears in bank balance sheets at the time lending is granted. Risk is an ex ante concept, and default is no more than the ex post manifestation of this credit risk. As I just mentioned, banks commit lending policy errors in upturns, when there is excessive optimism and it is believed that the business cycle has disappeared and that recessions are a relic of the past that will not return, and when bankers, caught up in this wave of exuberance, relax their credit granting standards. By contrast, and as we are all experiencing at the moment, a reaction in the opposite direction occurs in recessionary phases. Banks, pressured by high default rates, which impact their income statement and their level of capital, contract credit significantly, granting financing only to those borrowers whose solvency is beyond all doubt. The end result is as follows: an overly expansionary credit cycle during the upswing and, by contrast, overly contractionary credit growth during the downswing. In addition, there may be a perverse effect on institutions’ income statements and levels of capital. During upswings, the failure to recognise risk through loan loss provisions results in very high profits.
It would be unconceivable to think of a financial system and indeed of any financial instrument without a legal system to support it. The keyword for economists in this context is “asymmetric information”: the lender, in particular, does not know if the borrower is trustworthy or not, or whether the investment project the latter is undertaking is worthwhile. A financial asset is ultimately a claim in the form of piece of paper or even, and increasingly so, an account entry. In any credit relationship – and this includes almost any economic transaction beyond simple barter – the possibility of default is always looming and this inherent complication cannot be solved without a precise system of norms that protects both the creditors and the debtors. For the creditor to consider entering in a financial relationship, the legal system must not make it too easy for the debtor to walk away from his obligations. At the same time, the legal system cannot be too taxing for the debtor, as Shakespeare’s Merchant of Venice reminds us. The legal system has thus to develop along a fine line between protecting the rights of the borrowers as well as those of the lenders. No wonder that developing a sound legal system to support financial markets is a very complicated matter and we hope to learn something from today’s conference. 2.

As you know, a number of policy initiatives have been launched at the global level since the summer, for instance by Financial Stability Forum 5 or by the Porto informal ECOFIN 6 and it is still difficult to anticipate precisely the legal aspects which will be examined more particularly by the various international and European fora and bodies involved in this discussion. However, these initiatives provide an indication of possible legal considerations which might emerge, in particular in the European context. Legal certainty should go hand in hand with transparency. The focus on the transparency of complex financial instruments, of institutions and vehicles and on the appropriate disclosure of information on securitised debt and other structured financial products indicates that there is a need for regulatory and supervisory authorities to have a closer look on the legal frameworks applicable to securitisation transactions and market standards and how special purpose vehicles are currently regulated and supervised in the various EU Member States and at also at the international level. The report of the European Financial Markets Lawyers Group (EFMLG) of May 2007 on legal obstacles to cross-border securitisations in the EU 7 contains recommendations for further convergence of securitisation laws in the EU and invites the Commission to consider the adoption of a EU directive on specific legal aspects of securitisations which would enable Member States to adopt a certain number of principles common to all jurisdictions to ensure a high level of transparency, efficiency and legal certainty with regard to securitisation transactions.
When Iraq then invaded Iran in 1980, the situation deteriorated even further. The price of oil also rose, but very briefly, when Iraq attacked Kuwait in 1990. Figure 2. Real oil price USD/barrel 150  150  Iran-Iraq War  125  125  100  100 Revolution in Iran  Gulf War  75  75  50  50  25  Iraqi invasion of Kuwait  Oil embargo in connection with the Yom Kippur War 0 1965  1970  1975  1980  1985  1990  25  0 1995  Note. Real prices have been computed with the CPI in United States. Souces: U.S. Bureau of Labor Statistics (BLS), U.S. Energy Information Administration and the Riksbank  19 Åsbrink (2019). 8 [14]  However, the policy that was conducted during this period also played a significant role. It became, for various reasons, on average too expansionary or, as it is called, too accommodating. In economic textbooks, this period of high and longterm inflation in the world is known as ‘The Great Inflation’. This usually refers to the period 1965-1982, where ‘the Volcker disinflation’, the tight monetary policy conducted by then head of the Federal Reserve Paul Volcker to curb inflation in the United States, is regarded as the endpoint.20 For Sweden, it is more appropriate to refer to a period that both starts and ends about ten years later. The Swedish economy was wrestling with serious economic problems during this period.

Nevertheless, it is worth noting that, when Romania gave up monetary targeting, Estonia was its only peer among Central and East European countries in terms of longevity of the  2  BIS central bankers’ speeches  monetary policy regime, with its currency board adopted in 1992. Shifts from one end to another of the spectrum of monetary and exchange rate arrangements were common in the region. Specifically, the Czech Republic, Poland and Hungary had various forms of exchange rate pegs during the nineties, before shifting to inflation targeting. As for Romania, the transition between the two regimes was smoother, since the monetary targeting framework included elements such as the disinflationary stance, exchange rate flexibility and, of course, the major role of monetary aggregates, which are also seen in the inflation targeting regime. Amid the never-ending, heated debates on rules versus discretion in monetary policy, which are so time- and energy-consuming in the academic world globally, inflation targeting may be viewed as an attempt to make both ends meet. This strategy has the merit of combining tight constraints in terms of the final objective (the inflation target) with a certain degree of discretion as regards the calibration of monetary policy instruments so as to provide an adequate response to shocks. While theoretical orthodoxy used to claim that inflation targeting needs a free floating currency, in practice, many inflation targeters opted for a light version of the strategy. So did many Marlboro smokers.
A study of his speeches suggested that the concept germinated at the beginning of the eighties, before Margaret Thatcher paid him a visit in 1982 at the Great Hall of the People and raised with him the question of the political future of Hong Kong. The phrase was then used, for the first time in public, by Deng Xiaoping when he received industry and business leaders from Hong Kong in June 1984 1 . Since that occasion, it has become by far the most common formula for summarising the governance arrangements for Hong Kong after the resumption of the exercise of sovereignty. It has, indeed, turned out to be a most effective political expression, capturing succinctly China’s policy towards Hong Kong, emphasising that Hong Kong is to be ruled by Hong Kong people (港人治港) and that there is to be a high degree of autonomy in the governance of Hong Kong (高度自治). The policy has also been most successfully implemented, contributing further to the credibility of the formula and the unique political concept that it encapsulates. Indeed, whenever one hears the phrase "one country, two systems", the immediate context will almost invariably be the political arrangements for the governance for Hong Kong.

This is why the Basel Committee has devoted so much effort to developing the so-called Basel II capital framework, which was released in June 2004. The new capital framework is built on three mutually reinforcing pillars. The first pillar aligns minimum capital requirements more closely with banks’ actual underlying risks. The menu-based approach means that qualifying banks may also rely partly on their own measures of those risks, which will help to create economic incentives to improve those measures. In concept the first pillar is similar to the existing “Basel I” capital framework in that it provides a measure of capital relative to risk. What is new are the second and third pillars. The second pillar – supervisory review – allows supervisors to evaluate a bank’s assessment of its own risks and determine whether that assessment seems reasonable. It is not enough for a bank or its supervisors to rely on the calculation of minimum capital under the first pillar. Supervisors should provide an extra set of eyes to verify that the bank understands its risk profile and is sufficiently capitalised against its risks. BIS Review 45/2006  1  The third pillar – market discipline – ensures that the market provides yet another set of eyes. The third pillar is intended to strengthen incentives for prudent risk management. Greater transparency in banks’ financial reporting should allow marketplace participants to better reward well-managed banks and penalise poorly-managed ones.
Similarly, although it is not possible to completely eliminate inflationary pressures stemming from rising world oil prices, efforts are nonetheless needed to moderate their impact on the economy. To this end, such efforts as conserving the use of petroleum products can go a long way in reducing the attendant inflationary pressures. Allow me now to turn to the issue of interest rates. As you may be aware, interest rates refer to the price of money. Over the last few years the general trend in commercial banks’ weighted average lending rates has been largely downwards. As at end-June 2005, the weighted average base lending rate had reduced to 28.6% from 36.2% in January 2004. The fall in lending rates has in large part been induced by a fall in yield rates on Government securities as banks in Zambia have tended to use yield rates as anchors. BIS Review 53/2005  1  However, at the current levels, lending interest rates are too high to contribute to sustainable productive investment. This calls for concerted efforts among other key stakeholders, namely, the Government, commercial banks and the borrowing private sector to continue playing their respective roles effectively to bring about a further reduction in the lending interest rates. It has also to be appreciated that inflation is another major contributing factor to high interest rates as banks set their lending interest rates above the rate of inflation thus the need to reduce the high inflation that has characterised the economy.

Caleb M Fundanga: Monetary policy issues and the process of foreign payments Presentation by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambian Heads of Missions Briefing Seminar, Lusaka, 19 July 2005. *  *  *  The Hon. Minister of Foreign Affairs, Lt. Gen. Ronnie Shikapwasha, MP Hon. Deputy Minister of Foreign Affairs Permanent Secretaries Your Excellencies, High Commissioners and Ambassadors Senior Government Officials Distinguished Invited Guests Ladies and Gentlemen It is an honour for me to be here this morning to talk to you on the topic of “Monetary Policy Issues and the Process of Foreign Payments”. This topic provides me with an opportunity to explain the role of the Bank of Zambia in the economy and the process of foreign payments which has been a topical issue. As you may be aware, the Bank of Zambia’s mission is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. However, in line with the topic above, my presentation this morning will focus on the first aspect of the mission of the Bank, namely, price stability. There are generally three prices of major concern to the Bank of Zambia. These are general prices of goods and services, interest rates and the exchange rate of the kwacha against major foreign currencies. I will now deal with each of these in turn. The central bank deals with general prices of goods and services in the context of inflation.