samchain/econo-pairs-v1 huggingface dataset:
Advantages and disadvantages of a higher inflation target The most obvious advantage of raising the inflation target to, say, 3 or 4 per cent would be that this increases the possibilities to stimulate the economy in future deep recessions and to bring up demand and inflation. The experience of the financial crisis shows that the risk of very deep and prolonged recessions has previously been underestimated. Prior to the financial crisis the risks of deep economic crises were assessed on the basis of experiences during the post-war period, when cyclical fluctuations were small and it was thus easy to underestimate the risks. If one studies economic data extending much further back in time, one can see that large downturns have been much more common. At the same time, there are several factors that make raising the inflation target problematic, not least how the actual transition to a new inflation target would be implemented. For instance, the credibility of a new target would be weakened if it were announced in a situation where inflation was far from the old target. It could also be problematic to introduce a new, higher inflation target in Sweden in isolation, if other important central banks around the world stood firm by a target of 2 per cent. Swedish competitiveness could be weakened, for instance, if inflation and wage increases in Sweden were higher than those abroad. In theory, the Swedish krona should weaken in this situation, so that competitiveness would be restored.

But there are many factors affecting the  7  See Karabarbounis & Neiman (2014) and Bengtsson & Waldenström (2015). 8  See, for example, Ball (2014). 9  See Kryvtsov and Mendes (2015). BIS central bankers’ speeches  5  exchange rate and an adjustment could take a long time. And during this time Swedish competitiveness could deteriorate. There is also a risk that inflation could vary more if we had a higher target. This could mean that it became more difficult for economic agents to distinguish upturns in the general price level from relative price changes and thus more difficult to make good financial decisions. I have thus described the two factors that determine the nominal interest rate in the longer term. It is now time to put them together. The nominal interest rate in the long run Low interest rates for a long time... The fall in the global real interest rate naturally has consequences for monetary policy. Many central banks have cut their policy rates to historically low levels to stimulate demand and get inflation to rise. In Sweden, the Riksbank emphasises that nominal interest rates will be low for a long time to come. The Riksbank’s forecasts extend two or three years ahead. Figure 2 shows the repo-rate path the Executive Board of the Riksbank decided on at the monetary policy meeting in February.
10-15  16  17  18  90  90 13  14  15  16  17  18  (*) For comparison effects with the new 2013 Benchmark Compilation, the ToT of previous Reports are adjusted to 100 for 2013. Source: Central Bank of Chile. 4. On the domestic front, inflation has been consistent with what was expected in December. The annual variation of the CPI fell to 2.7% in March, a significant drop compared to the 4.5% figure of a year ago. The behavior of the nominal exchange rate, which has appreciated relative to its level one year ago, has been a fundamental driver of these dynamics. The appreciation has had a greater impact in the decline of the goods component of the CPIEFE index (our core inflation measure). In fact, the goods component of core inflation dropped from nearly 5% at the beginning of 2016 to 0.3% in March. The services component has been stickier, and has dropped from the same levels the first few month of last year to 3.3% in March. Approximately ¾ of the prices included in this component are managed or indexed prices, which enhances their inertia and, as such, makes them less sensitive to exchange rate fluctuations (Figure 2).

On the structural side, globalisation may have reduced the responsiveness of inflation to domestic cyclical conditions but empirical evidence for the euro area is not clear-cut.3 Other potential factors include demographic trends or changes in behaviour triggered by technological developments, which may contain price pressures, for instance through increased price transparency. However, even if these factors are somewhat more persistent, they should still not exert a permanent impact on inflation. Overall, the analysis indicates that the relationship between growth and inflation remains largely intact, even if it has temporarily weakened in recent years to the extent that the speed of adjustment in inflation towards our aim has been affected. Looking ahead, we anticipate that headline inflation will resume its gradual upward adjustment, supported by our monetary policy measures. At the same time, uncertainties continue to prevail. In particular, the recent volatility in financial markets, notably also in the exchange rate, deserves close monitoring with regard to its possible implications for the medium-term outlook for price stability. Therefore, while the strong momentum of the euro area economy has clearly strengthened our confidence in the inflation outlook, patience and persistence with regard to monetary policy is still needed for inflation to sustainably return to levels of below, but close to, 2%.
BIS Review 149/2010  3  Role of financial systems Distinguished Ladies and Gentlemen, in development finance it is recognised that economic development is partially dependent on the financial system to help mediate the transfer of money to areas of the economy that need it most. The financial system has a number of key functions, which help facilitate these shifts in money that are important for sustainable economic growth. The most important of these are:   Savings;    Loans;    Investments;    Business Growth and    Government Expenditure  Responding to international capital flows Distinguished Ladies and Gentlemen, I would like to discuss, though briefly, the role international capital flows and their effects on our economies. Many of the same principles that apply in domestic capital markets also apply in international capital markets. The probability of default is essential to understanding international capital flows and exchange rate movements. Asymmetric information, for instance between foreign and domestic investors, can have important consequences. And, as in domestic markets, there is no presumption that the market, left to itself, is efficient. Today, developing countries are more vulnerable to international capital flows than ever before. What would have been a mistake with minor consequences in a closed economy can become magnified into a major crisis in an open economy. This is the lesson many people draw from the recent crisis which struck a number of economies in the world.

Mr. McDonough discusses the importance of sound financial systems Remarks by the President of the Federal Reserve Bank of New York, Mr. William J. McDonough, at a presentation in Mexico City, Mexico on 22/7/98. Introduction I am delighted to be here today in my second-favorite country in the world to address you on the very timely subject of the importance of sound financial systems. Having worked closely with my friends in the public and private sectors here over the years, I know the importance of these issues to them. Judging by the attendance here today, this interest appears very broad indeed, a positive sign for the continued revitalization and strengthening of Mexico’s banking sector. My remarks today, necessarily, reflect my perspective as president of the Federal Reserve Bank of New York, which supervises the majority of domestic and foreign bank assets in the United States, and as Chairman of the Basle Committee on Banking Supervision, a position I accepted last month. These positions allow me a front-row seat on the wide range of developments taking place in international banking and banking supervision, a perspective which I hope to share with you today. To understand the importance of sound financial systems, one need only look at the impact of financial system breakdowns, of which, unfortunately, there are many recent examples. Indeed, prior to the onset of the Asian crisis, the IMF had estimated that fully three-quarters of its member countries had experienced significant banking sector problems since 1980.
Most of the time, they are driven by rapid inflows and outflows of capital. We still vividly remember the crises in Mexico, Asia, Russia and Argentina. Obviously, these crises have not been restricted to the financial sector, but have had a profound impact on the real economy as well. The lifting of restrictions to cross-border holding and trading of financial assets has unleashed massive capital flows. According to World Bank figures, global debt and equity flows (excluding foreign direct 2 investment) expanded by more than five times since 1991, from USD 794 billion to USD 4.3 trillion . Without doubt, this development reflects a long-term trend. More and more investors decide globally and on the basis of risk-adjusted expected returns. Taking place in a system of increasingly integrated capital markets, capital allocation has become more efficient. The other side of the coin, however, is the increased volatility on financial markets. Indeed, portfolio investments, in particular those in markets with relatively high liquidity, have become more erratic, as fund injections and withdrawals respond very quickly to new information. According to the IMF, assets managed by institutional investors on mature markets are estimated at about USD 30 trillion in 1998. Thus, any shift in such a huge portfolio is very likely to exacerbate economic cycles and will possibly lead to contagion among financial markets. The impact of portfolio re-balancing will be all the more powerful as macroeconomic policies seem to be unsustainable and as financial institutions show fundamental weaknesses, often with regard to financial strength, supervision and transparency.

Indeed, global custodians not only rely on a worldwide network of sub-custodians offering easy access to all markets, but they also develop in-house clearing and settlement procedures with very competitive costs. Without any doubt, financial market infrastructures are facing great challenges in terms of higher technical requirements, the necessity to achieve efficiency gains, and higher competitive stakes. I believe that market forces - rather than political pressure - should drive the consolidation process. The 4  4  The Giovannini Group (2001): Cross-Border Clearing and Settlement Arrangements in the European Union, Brussels. BIS Review 37/2002  many changes taking place also challenge oversight authorities. It is their task to analyse the systemic implications of what goes on particularly at the cross-border level, and to make sure that these changes will enhance, and not endanger, the soundness of the financial system. Let me address these issues in the concluding part. Implications for oversight authorities I begin by quoting Alexandre Lamfalussy, Chairman of the Committee of the Wise Men, which, more 5 than a year ago, published the famous report on securities regulation within the EU . Lamfalussy was 6 very clear when he asserted that “the current [securities] regulatory system is not working” . Indeed, unclear and sometimes even contradictory regulations or inconsistent implementation of regulations among countries impair the creation of a single capital market within the European Union.
More recently, we also notice an upward trend in mortgage loans to homebuyers who search for rental yield and capital gain, driven partly by high LTV ratio for mortgage loans offered by the intense competition in the financial sector. Furthermore, mortgage loan NPLs, especially among second- and third-home buyers have continued to rise. Ladies and gentlemen, I have outlined for you the four sources of risk that we are currently facing. Even though I talk about them separately, the interplay between these risk factors make it so that the slightest change in circumstances could have a huge effect on an economy. The latest market turbulence in Turkey speaks volume about how markets can sometimes overreact, leading to a sell-off in a general risk-off mood. Closer to home, we have seen some of our Southeast Asian neighbors faced with difficult financial market conditions despite their robust economic growth. Lastly, in addition to the four risks I mentioned, there are other developments that could at some point become one of the key risk factors, such as the rapid technological advancement that could disrupt traditional business models, or the effects of climate change that are projected to intensify in the coming years. With all these risks in mind, there comes a question: where does Thailand stand amidst these risks? If we look back over the past few years, we would notice that Thailand’s growth was filled with imbalances.

The general trend in the market has been to charge SMEs with high interest rates relative to the large scale corporate sector because of the perceived high risk they are supposed to present. Distinguished Invited Guests, my view is that this presumed high risk profile associated with SMEs can be effectively managed by banks if they make the necessary effort to understand the sector and build expertise in dealing with its unique characteristics. I trust that you will double up your effort in building the expertise necessary for your bank to be a major lender to the SME sector. The issue of interest rates is of particular concern to us at the central bank. In response to the current situation, the Bank of Zambia recently took measures aimed at facilitating the reduction in commercial banks’ lending rates with the view to increasing access to credit by private individuals and business entities. Some progress has been made in this area and we are monitoring the situation in the market to ensure that borrowers are enjoying a reduction in their effective lending rates. We do not want the reduction in the base lending rates to be cosmetic, but should be reflected in lower effective lending rates for measures taken so far to be meaningful. Furthermore, with the reduction in the corporate tax rate for banks recently announced by the Minister of Finance in his 2012 Budget, the expectation is for a further reduction in lending rates by commercial banks going forward.
Consumption growth is also expected to moderate in the years ahead. Wide fluctuations in asset prices may be a potential source of instability in demand and output in the somewhat longer run. House prices and household debt have risen sharply since the mid-1990s. Developments in the 1990s can probably be viewed to some extent as a delayed adaptation to the deregulation of the housing and credit markets in the 1980s, after many households burned their fingers immediately after deregulation. In recent years, household income growth has been solid, household confidence regarding the future has been strong and households probably perceive higher  4  BIS Review 35/2006  income levels as permanent. This may have resulted in a further rise in house prices and debt. In addition, low real interest rates are currently making a contribution. In countries whose credit markets have been liberalised for a long period, for example Denmark, where credit markets were liberalised over a hundred years ago, the debt-to-income ratio for households is higher than in other countries. Monetary policy assessments Since last summer, interest-rate setting has been oriented towards a gradual increase in the interest rate – in small, not too frequent steps – towards a more normal level. According to the assessment in the March Inflation Report, higher growth in the economy could, in isolation, warrant a faster rise in the key rate ahead. This would reduce the risk of bottlenecks in the economy, with rising cost inflation and continued debt build-up.

The projections are based on the assumption that interest rates in Norway and abroad will rise somewhat faster than may be implied by today’s forward rates. Since the previous Inflation Report, the upward movement in Norwegian and international long-term interest rates has become more pronounced. Exchange rate movements are difficult to project. In Inflation Report 1/06, the path for the interest rate in Norway and abroad was assessed to be consistent with an approximately unchanged krone exchange rate. The high rate of economic growth implies that price and cost inflation will edge up after a period. Inflation measured by the CPI-ATE is projected to increase from today’s level of around 1¼ per cent, up to almost 2 per cent at the end of 2007. There are prospects that inflation will increase further and be close to the target of 2.5 per cent three years ahead. With a gradual reduction in unemployment, Norges Bank expects wage growth to edge up. At the same time, it will probably be easier for enterprises to pass on cost increases to prices in pace with the rise in demand and capacity utilisation. Capacity utilisation is now projected to be somewaht higher than its normal level. Mainland GDP is still growing strongly in 2006. Capacity utilisation in the economy is expected to rise over the next two years. Even though a gradual increase in the interest rate will result in somewhat weaker growth impulses after a period, monetary policy will still be expansionary.
However, these numbers are estimates given that almost all of the repo transactions are conducted over the counter. See also IMF (2010), Global Financial Stability Report, October 2010. 2  BIS central bankers’ speeches  there is no new information but only the application of the existing and published criteria. Compared to many other central banks, the definition of eligible collateral is unusually open in the sense that the SNB is rare among central banks in accepting securities denominated in foreign currencies and not only in its home currency, the Swiss franc. The quid-pro-quo of this multi-currency policy is that securities eligible for SNB repo transactions must satisfy stringent quality requirements: these requirements concern their credit ratings and liquidity properties. This policy is coherent – open but strict! – and it has substantial advantages. First, no initial margin or haircut is applied during standardised repo transactions, making the system more capital efficient.8 Second, it allows a broad range of financial institutions to participate, including many international banks. Third, it creates incentives for banks to hold high-quality, liquid assets in their balance sheets. Finally, as already suggested, this highly credible collateral policy has resulted in SNB eligible collateral becoming the standard for the secured interbank money market in Swiss francs. This, in turn, has made an essential contribution to creating a robust secured interbank market and thereby keeping interbank credit lines open at all times during the crisis. II.

29 Requirements in terms of liquidity may differ across the national central banks of the Eurosystem. 30 See, for example, Matikainen, S., E. Campiglio and D. Zenghelis (2017), “The climate impact of quantitative  easing”, Policy Paper, Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science. 31 For details of the corporate sector purchase programme, see ECB (2017), “The ECB’s corporate sector  purchase programme: its implementation and impact”, Economic Bulletin, Issue 4, p. 40–45. 32 See ECB (2018), “Purchases of green bonds under the Eurosystem’s asset purchase programme”, Economic  Bulletin, Issue 7. 9/9  BIS central bankers' speeches
It is important to note that each country has its own characteristics and every country has to design the policy framework according to its own needs. From the Turkish perspective, financial stability risks under the current conditions are most evident as the rapidly increasing current account deficit fueled by short-term capital inflows. The divergence between domestic and foreign demand growth coupled with a rapid credit expansion is increasing the current account deficit, thereby raising financial stability concerns. Moreover, the recent developments and related policy decisions in the European and US economies have been exacerbating these risks, necessitating a different domestic policy mix than we have implemented in the past. BIS central bankers’ speeches  1  What do we mean by policy mix? When the external and internal equilibrium requires different interest rates, monetary policy has to use more than one instrument. In our case we utilized two more instruments to limit the macro-financial risks associated with short term capital inflows coupled with appreciating currency and rising current account deficit. Let me explain these extra tools in turn. In order to curb the domestic demand and widening current account deficit, our first aim was to control the rapid credit expansion. Therefore, we have made it clear that one of the goals of our current policy mix should be reducing the pace of credit growth. To this end, we stated that reserve requirement ratios should be used as an active monetary policy tool.

Durmuş Yilmaz: In search of an appropriate policy mix for emerging economies – monetary policy in Turkey in the aftermath of the global financial crisis Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the Euromoney Central and Eastern European Forum, Vienna, 18 January 2010. *  *  *  Dear Guests, During the global financial crisis, almost all countries focused on containing potential adverse effects of the crisis on domestic economy; Turkey was not an exception. Following the intensification of the crisis, the Central Bank of Turkey (CBT) delivered sizeable and frontloaded cuts in policy rates, reaching 1025 basis points from November 2008 to November 2009. During this period the CBT not only cut policy rates rapidly, but also pursued a counter-cyclical liquidity policy to support the functioning of money and credit markets, thereby strengthen the impact of the rate reductions on economic activity. These efforts were successful in bringing back Turkey on a strong recovery track. The healthy household balance sheets and solid banking system allowed a rapid rebound in domestic demand. Starting from mid-2009, the Turkish economy has been facing a domestic demand driven rapid recovery. Meanwhile, strengthening capital inflows has further exacerbated the divergence between the domestic and external demand, creating new policy challenges. Rapidly widening current account deficit coupled with short term capital inflows and exchange rate appreciation called for a different approach to monetary policy.