samchain/econo-pairs-v1 huggingface dataset:
Marzunisham Omar: Comprehensive approaches to monetary and financial policy making in ASEAN-5 countries Welcome remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the third BNM-IMF Seminar, Kuala Lumpur, 17 July 2019. * * * In his remarks at this seminar last year, Odd Per quoted the book Enchanted; “First time is luck, second time is a coincidence and third time is a tradition.” Here we are gathered today for the third BNM-IMF Seminar to celebrate this “tradition”, a tradition I hope will continue for many years as we can all agree that candid and open dialogue between the IMF and ASEAN-5 central banks is mutually beneficial. Let me take this opportunity to thank the IMF and the team at Bank Negara Malaysia for organising this Seminar and to my colleagues from the region for being highly supportive of this effort. The topic today – “Comprehensive Approaches to Monetary and Financial Policy Making in ASEAN-5 Countries” – is indeed timely given the ongoing work at the IMF on the “Integrated Policy Framework”. I hope today’s Seminar will help shed greater insights on how central banks in ASEAN economies, which are small, open economies, navigate through increasingly complex, interrelated issues in our pursuit of preserving monetary and financial stability. I have no doubt that we in ASEAN will also find today’s Seminar useful in understanding the IMF’s latest thinking on these issues. There are two parts to my brief remarks today.

While rules-based frameworks are easier to enforce and do not require recurring justification of explicit decisions once in place, a purely rule-based framework can be too constraining and rigid. The inherent rigidity reduces policy space for policymakers to maneuver in times of stress. On the other hand, while a discretionary, principle-based framework accords policymakers the necessary flexibility and space to maneuver, there is a risk that policymakers may overstretch this flexibility. Perversely, there is also the risk of inaction by policymakers. I have always viewed policy making as akin to designing an earthquake-proof building, whereby the stability of the building (the economy, in our context) is not achieved by increasing rigidity, but by allowing flexibility. This pertinent question of rules versus discretion is one that we should continue to ask ourselves. Question 3: Dealing with large capital flows: proactive or reactive? Third, in dealing with risks emanating from large capital flows, is it better to be proactive or reactive? Should policymakers pre-emptively lean against the wind to tackle capital inflows 2/3  BIS central bankers' speeches  before it manifests in the build-up of domestic imbalances, or should we take a more reactive stance by tackling domestic vulnerabilities and manage the fall-out from capital inflows? Being reactive may be too late, but pre-emptive measures may be viewed negatively. I recognise that I have raised more questions than answers in my remarks this morning.
However, what they do contains elements of theoretical thinking. We try to set the interest rate so that  4  Woodford, Michael (2003): “Interest and Prices”, Princeton University Press, page 15. BIS Review 4/2005  3  it provides a “reasonable balance” between the objective of stabilising inflation around the target and the objective of stable developments in the real economy. The theoretical framework provides limited concrete and easily communicable guidance. In practice, it may be useful to have some simple points of reference that can help us to evaluate whether an interest rate path seems reasonable in relation to the monetary policy objective. The most important task of monetary policy is to provide an anchor for inflation expectations. Norges Bank sets the interest rate with a view to stabilising inflation at the target within a reasonable time horizon, normally 1-3 years. Therefore, when evaluating the interest rate path, the most important criterion is whether inflation reaches the target within this time horizon and remains there. If we do not reach the target within this time horizon, there may be a risk that inflation expectations will gradually move away from the target. This could weaken confidence in monetary policy and the inflation target as a nominal anchor. For the same reason, inflation should also be moving towards the target well before the end of the three-year period. The inflation gap and the output gap should be in reasonable proportion to each other until closure.

At last week’s meeting, the FOMC also reaffirmed its view that it likely will be appropriate to maintain the current zero to ¼ percent target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longerterm inflation expectations remain well anchored. Meanwhile, as a matter of prudent planning, the Committee has been deliberating how it should proceed to remove policy accommodation (often called “normalization”), when it believes the appropriate time to do so comes. Although the specific timing of this is not yet known, it’s certain that the level of reserve balances in the banking system will be very high. Assuming no other liabilities are issued, there would be about $ trillion in reserves – mostly in excess reserves – if the Committee ends asset purchases next month and continues reinvestments. In itself, an elevated level of reserve balances need not impede the FOMC’s ability to effectively raise the level of short-term interest rates because of the ability to pay interest on excess reserves. BIS central bankers’ speeches  5  Following last week’s FOMC meeting, the Committee released a revised set of normalization principles and plans (taking into account changes in the SOMA portfolio and enhancements in available tools since it originally issued such principles in June 2011) that it intends to implement when it becomes appropriate to begin normalizing the stance of monetary policy.
At a deeper level, secular trends in globalization and demographics that have hitherto created a powerful tailwind, expanding production possibilities and generating persistent disinflationary pressures, may also be turning. Increasing fragmentation  1/4  BIS - Central bankers' speeches  and ageing populations, along with the necessary but costly green transition will likely exert supply headwinds and upward price pressures going forward. In a nutshell, the economic backdrop facing central banks has shifted from one of insufficient demand to insufficient supply. The challenge of inflation being too low has turned to inflation being too high. For monetary policy, the constraint on achieving inflation targets has shifted from the zero-lower-bound to the inability to influence inelastic supply. Calibrating and communicating policy under this new landscape will be very different than before, as we have already seen. In parallel, the financial system is also evolving, and with it the risks and pressure points that central banks need to address. The greater prominence of the financial cycle, both domestically and globally, has transformed the nature of economic fluctuations, linking them more to swings in funding conditions, asset prices and risktaking. The increased role of non-bank financial intermediaries (NBFIs) has also created new potential vulnerabilities, not least because regulation of NBFIs has lagged behind those of banks. Indeed strains in the NBFI sector were at the heart of financial stress during the Covid-19 crisis, as well as recent tensions in sovereign debt markets.

Sethaput Suthiwartnarueput: Central banking amidst shifting ground Welcome remarks by Dr Sethaput Suthiwartnarueput, Governor of the Bank of Thailand, at the BIS-BOT conference on "Central banking amidst shifting ground", Bangkok, 2 December 2022. *** Governors, distinguished guests, ladies and gentlemen. It is a pleasure and great honor for me to be welcoming so many distinguished members of the central bank community to Thailand. Thank you for making the journey here from near and afar. Let me also extend a warm welcome to speakers and panelists joining us on-line today. We truly appreciate your participation in the conference. I would like to also express my sincere appreciation to the BIS for helping usorganize and host this event. During a period where the world is grappling with challenges that threaten to pull us apart, the BIS has continued to serve as a cornerstone of central bank and regulatory cooperation acting to pull us together. Indeed we are all here together in large part due to the convening powers of the BIS. This year marks the 80th anniversary of the Bank of Thailand. This conference is an opportune moment for us to take stock and reflect on how far we have come and chart the way forward. In light of the rapid and seismic changes we have experienced, such reflection is needed more so now than ever.
The crisis in Asia spread to Russia, where the decline in commodity prices led to an even further deterioration in government finances. The announcement that Russia could no longer service its debt was met with strong reactions in global financial markets in August and September. There were growing fears that the world economy would be caught in a financial crash. Many investors withdrew from small and risky markets, particularly in Latin America. The Brazilian currency came under pressure. It was difficult to raise loan capital even in the most advanced markets. As financial institutions throughout the world experienced growing losses, fears of a world economic depression intensified. Reductions in interest rates in the US and Europe facilitated access to credit and prevented a market collapse. Measures perceived as credible were finally implemented to resolve the Japanese banking crisis. Additional capital was allocated to the International Monetary Fund. There are still many challenges ahead. Brazil and Russia are running government budget deficits and are having problems establishing a credible monetary policy. China is bearing substantial costs as a result of the crisis in surrounding countries and may experience difficulties of its own. Other countries may also feel the contagion effect. However, even though the outlook points to lower growth in the global economy this year than forecast earlier, fears of a worldwide depression have receded. This is by no means the first time we have experienced an international financial crisis.

In the short term monetary policy can influence developments in the real economy. Norges Bank can do this through two channels. First, Norges Bank will proceed gradually when the krone’s value moves outside the initial range and instruments are oriented to returning it to this range. We seek to avoid a situation whereby monetary policy contributes to abrupt shifts in the economy. Second,  13  BIS Review 20/1999  developments in the labour market and product markets influence wage growth and inflation, and thereby the krone exchange rate. Norges Bank takes this into account when evaluating economic developments and when setting interest rates. However, monetary policy is not a suitable instrument for influencing production and employment in the long term. Nor can it be used to influence the size of the internationally exposed sector over time. It is primarily wage and income determination, the use of oil revenues over the government budget, and the adaptability and efficiency of the economy that determines this. Nor is monetary policy an effective tool of incomes policy. Interest rates cannot be used to influence the negotiating climate of the income settlements. This could act as a highly negative constraint on the freedom of manoeuvre. Long-term fiscal policy challenges The fall in oil prices has obvious and immediate implications for monetary policy. But what about long-term balance in the Norwegian economy? What if oil revenues remain low in the longer term as well? Norway’s government finances are sound thanks to the large surpluses of recent years.
In the United States, energy commodities represent 3.5% of the CPI, while total energy is weighted with 7.1%. Traditionally, changes in oil prices fed through to the Swiss CPI slowly. A survey of the data between 1984 and 1996 reveals that oil prices and the CPI were still positively correlated after two years. Since 1997, a change in oil prices seems to affect the CPI more rapidly. The transmission is virtually complete after a mere six to twelve months. While the speed of the pass through from oil prices to the CPI has nearly doubled, the magnitude of the transmission has declined (see Graph 9). Integrated global capital and goods markets have increased competition and led to a generalized reduction in pricing power. In a fiercely competitive environment, producers find it difficult to transfer higher oil prices to consumers. Ongoing competitive pressures and further globalization constitute barriers to incorporating higher oil prices in the price- and wage-setting behavior. A credible central bank with a long-term record of price stability is an additional key parameter ensuring that higher oil prices do not spill over into elevated longer-term inflation expectations. Given the rapid pass through from changes in the price of oil to the CPI, headline inflation figures are subject to frequent base effect related distortions. As a result, various core inflation measures become more important. These reflect the longer-term price dynamics in an economy.

CPI and PPI core inflation rates remain contained and wage growth is moderate, both in the U.S. as well as in Europe. Moreover, despite near-record global economic growth in 2004, there are substantial unutilized capacities in the U.S., Japan, and Europe. As a result, despite record oil prices a few weeks ago, global inflation expectations appear to be well anchored. The growth outlook for Switzerland remains constructive, supported by an expansionary monetary policy stance. The rise in oil prices has, however, dampened domestic demand. Weakness in Germany and, more recently, in France are exacerbating the situation. Economic growth is unlikely to accelerate into 2005. Upward pressure on the exchange rate may exert additional unwelcome downward pressure on aggregate demand. Some slack in Swiss labor and product markets is likely to prevail. The output gap will close in 2006 at the earliest. In such an environment, it will take time for the unemployment rate to decline from the current 3.7%. Real wage growth is well contained with growth rates fluctuating around 1% per year since 2001. Core inflation rates remain moderate at around 1%. Despite substantially higher oil price related CPI and PPI inflation since August of this year, longer-term inflation expectations remain firmly anchored as swap spreads and consensus  4  BIS Review 69/2004  forecasts confirm. The growth rates of Swiss monetary aggregates and the development of credit confirm the overall picture of a moderate inflation outlook.
For some years before the turmoil erupted, we have been puzzled by how low risk was priced in most credit markets. Again, with slight exaggeration, the case can be made that mispricing of risk occurred because extreme events – i.e. tail risks – were systematically ignored. At a general level, complexity and opacity in the originate and distribute model made it difficult to understand the "true " nature of risk i.e. the probability distribution attached to specific instruments. More subtly, I wonder whether the slicing and tranching process – which gave rise to structured products – has, intentionally or not, both created additional tail risk and contributed to conceal it. Most managers, for instance, have been caught by surprise by the fast downgrading of AAA CDO tranches, which triggered massive write downs. With hindsight, we know that those tranches had lower average probability of default than the underlying loans – which provided the rationale for the AAA rating – but also possessed a much higher exposure to tail risk. That latest characteristic was not apparent from the rating. As a consequence, tail risk was clearly not priced in, which made those securities both very attractive and absolutely lethal. Tail risk was not only deeply concealed in the complex structure of the instrument. It was also, to some extent, "created" by the instrument itself. As a result of the tranching process, an underlying portfolio with normal risk distribution was transformed into a different set of instruments. Some (equity tranches) had a with very high average default probability.

May I also again urge governments to implement decisively the structural reform agenda, both within the area of fiscal expenditures and revenues and in labour and product markets. Such action is needed to enhance potential output growth over the medium term. At the same time, the prompt implementation of structural reforms would contribute towards strengthening confidence in the euro area and thereby support economic growth in the short term. We are now at your disposal for questions. 2  BIS Review 64/2002
To be effective in curbing recession risk, that response should have as its objectives, first, speeding-up the process of reskilling by workers (“enabling”) and, second, cushioning the impact of new technologies on displaced companies and their workers (“insuring”). In the face of mounting concern about the societal impact of the rise of the robots, quite a lot has been written recently on the sorts of new insurance mechanism that might be required to smooth this transition. 56  Here, I will focus on two areas where new “enabling institutions” could ease the transition for workers and companies. Both draw on one of the greatest institutional inventions of the past millennium – universities. In 1852, John (later Cardinal) Newman published The Idea of a University, a book that has since assumed classic status as a statement of the principles by which universities should be run and organised. There are many themes to that text. From these, I would highlight two which have particular relevance to the debate about the future role of universities within our societies. First, Newman emphasised universities’ role in providing a liberal education for students, by which he meant access to a range of disciplines. Rigid specialism was to be avoided. The capacity to think was what mattered. Second, the role of the university was to propagate ideas, rather than necessarily generate them. The capacity to diffuse knowledge, rather than generate it, was what mattered. With a twist, both are st  relevant to the Idea of a University in the 21 century.

35  Beyond age 18, there was in parallel a rise in both numbers and attendance at universities. For over six hundred years from 1209, England had only two universities – this one (Oxford) and the other one (Cambridge). It was not until the formation of University College London in 1829 that their duopoly was th  broken. And it was not until the 20 century that some of the other main cities – Manchester, Liverpool, Leeds, Bristol, Birmingham and Sheffield – established their own universities. 36  Today, there are around 130  universities in the UK as a whole. Participation rates in higher education have also undergone a secular rise and, latterly, a revolution. The share of young people attending university has increased from just over 3% in 1950 to over 8% in 1970, over 19% in 1990, 33% in 2000 and 49% by 2016. 37  Having been less than 5,000 in 1920, the number of first  degrees obtained at UK universities had increased to over 365,000 by 2016. 38  Through the rapid rise in school and university attendance, there was a revolution in cognitive skills in the workforce. That provided the human capital necessary to turn new technologies and machines into higher levels of productivity among companies, higher wages among workers and, ultimately, higher living standards among societies. Put differently, higher cognitive skills reduced the odds of a lengthy recessionary period of technological unemployment for many individuals and societies.
While important reforms have been introduced in a number of euro area countries, all in all there is still a long way to go in this respect. This emerges quite clearly from a comparison of the costs and procedures associated with the creation of new businesses, to mention just one example. There is a wide diversity in regulatory arrangements across countries and sectors in the euro area. This diversity emerges quite clearly when looking at product markets. Whereas the integration of goods markets is relatively advanced, major shortcomings exist with regard to the full integration of service industries. Most of the barriers to trade in services appear to be due to national regulations, for example administrative procedures for setting up subsidiaries in other euro area countries. Regulatory barriers along these lines reduce competition in services, thus keeping the respective prices above the level that would be expected in a fully integrated market. Much of the recent discussion on structural reforms in product markets has focused on regulatory reform in network industries, in particular telecommunications, electricity and gas. Following a number of important reforms in the 1990s, market opening in the telecommunications market has made considerable progress, while reforms in other network industries have generally remained more limited. The initiatives in the telecommunications sector show how reforms that succeed in increasing competition in previously sheltered sectors, considerably enhance productivity, lower relative prices and lead to new and better products, thereby increasing consumer welfare and job opportunities.

From an economic point of view, the relevant question is whether the political and institutional framework which governs the euro area is designed in such a way as to ensure bright long-term prospects for the euro area in terms of employment, real growth and, more generally, living standards of its citizens? In this respect, while I see an urgent need for further structural reforms in the euro area, let me emphasise at the outset that I am rather optimistic as concerns the long-term growth and employment prospects of the euro area. Not least as the euro, together with healthy competition among differing policy designs of national authorities, will act as a catalyst for further reform and integration. In my presentation today, I will first briefly address the political and institutional structure underlying the euro area. Secondly, I will discuss some features of the ECB, the institution responsible for an area in which full integration has been achieved, namely monetary policy. Thirdly, I will discuss some of the challenges which need to be addressed to fully grasp the opportunities offered by the single currency, thereby further improving the economic prospects of the euro area. Finally, I shall argue that the unique institutional choice for the euro area brings many advantages and opportunities and thus, if properly handled and carefully further developed, is a very solid fundament for a substantially more dynamic long-term development of the euro area than most observers currently appear to expect.