samchain/econo-pairs-v1 huggingface dataset:
Niklaus Blattner: System stability and monetary policy Summary of a speech by Mr Niklaus Blattner, Vice-Chairman of the Governing Board of the Swiss National Bank, at the University of Berne, Berne, 31 January 2006. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  For a number of years the Swiss National Bank (SNB) has been devoting considerable attention to the interaction between system stability and monetary policy. The aim is to arrive at an assessment of the current situation. The results obtained so far have been very useful, but there is still work to be done in implementing them and developing them further. Our point of departure is an analysis comparable to that presented in the 2005 Annual Report of the Bank for International Settlements (BIS). From basic research papers published by the BIS we can conclude that, where financial systems are liberalised, a monetary policy that responds exclusively to short-term risks to price stability will promote the elasticity of economic systems. Only if monetary policy also responds to cumulative disequilibria in financial markets can this elasticity be limited. A monetary policy response of this kind can be achieved through coordination with macroprudential and microprudential instruments. With this in mind, we turn to the activities of the SNB. The primary objective of the National Bank’s monetary policy and its contribution to the stability of the financial system is to supply the economy with liquidity.

These two elements are interlocked, thereby taking account of the insights reached in international discussion in this area. The SNB supplies the economy with liquidity first and foremost through money market operations, but also, under certain circumstances, through its function as lender of last resort. Emergency liquidity assistance is only provided if the stability of the system is severely jeopardised. The SNB guards against this situation by helping to ensure a well-functioning liquidity supply. It facilitates and secures the operation of cashless payment systems, regulates and monitors both the payment and the securities settlement systems and works to ensure that these systems are crisis-proof. In addition, it continually oversees and analyses developments in the financial system and collaborates closely with the Swiss Federal Banking Commission (SFBC), the banking supervisory body. Currently, there are three questions that direct the SNB’s use of information on the stability of the financial system when it makes monetary policy decisions. The first question is whether monetary policy – as an instrument for ensuring price stability – can be improved by including information on banking system stability? The second question works the other way round: Can monetary policy influence the stability of the banking industry? And – if the answer to this second question is yes – the third (normative) question is whether monetary policy should be used to increase stability in the banking industry. While the answers to the first two questions are in the affirmative, the response to the third is negative.
1 This scarcity produced a considerable volume of trading between banks; toward the end of the trading day, banks with more reserves than necessary would have an incentive to trade with banks that had too few reserves. 2 After three rounds of large scale asset purchases, aimed at stimulating the real economy, the level of reserves in the United States is about $ trillion today, orders of magnitude larger than the level before the crisis, as can be seen in Figure 1. 3 With such a large amount of reserves, very few banks ever need to borrow reserves to meet their requirements, and interbank trading has almost completely disappeared from the fed funds market. Instead, the market is now predominantly composed of trades between governmentsponsored enterprises – specifically, Federal Home Loan Banks – and banks. 4 In that respect, the fed funds market has come to resemble other segments of the U.S. unsecured money markets, such as the Eurodollar market, where nonbanks lend to banks. 5 This change in money market activity would clearly have been problematic if it had resulted in a loss of control over the policy rate, but there is no evidence that it has, as can be seen in Figure 2. So, to evaluate the consequences of this change, we are led to ask ourselves questions such as: Is the interbank market special? Ulrich suggests reasons why we might think that it is, but the answer is not clear to me, and further research would be welcome.

Have they been transformed into new puzzles and uncertainties? And what does it all mean for policy going forward? The good news is that the recovery has remained strong. Indeed, after the revisions to the past data in this year’s blue book we now know the economy passed its pre-crisis size in the third quarter of 2013. We can talk now of an expansion rather than a recovery. On the latest data, growth in the four quarters to September now stands at 3% – a little stronger than expected back last November. Growth was particularly strong in the first half of the year and the business surveys suggest that may well be revised upwards. In the latest quarter of this year, growth is reported to have fallen back to 0.7%. The burst of pent up demand that propelled the initial recovery was a little stronger and lasted a little longer than we had been expecting last November. But it does now seem to be fading. Moreover, growth has become more broadly based due to the marked pick up in business investment. The shift of the balance of growth towards business investment that the surveys were pointing to last November, has I am pleased to say come through more strongly than expected. Business investment now looks to have driven around a third of the increase in GDP we have seen over the past year. That has made the recovery more broadly based and more sustainable.
Indeed there have been many comparisons to the Great Depression. Yet, compared to the 1930s, an importance difference today is that news spread across the globe far more rapidly. Even rural households in China and India can now access this stream of bad news, real-time, through satellite televisions and the internet. The hyperefficiency of information flows has in itself introduced new uncertainties as sentiment shifts rapidly and abrupt loss of confidence becomes self-reinforcing. Crisis response: decisive action needed How do we deal with this crisis? Despite its scale and unprecedented nature, it may be instructive to study the pattern of responses in previous crises. In past crises, the responses typically go through several overlapping phases. Initially, there is a lack of appreciation of the scale and severity of the problem. This then gives way to fear and panic as the problem becomes stark. Next, anger sets in, and a hunt for culprits begins. As the financial and  2  BIS Review 30/2009  economic stresses take root, pessimism sets in. If remedial actions are seen to be tentative and lacking in conviction, recovery is delayed and interrupted by bouts of renewed panic. It may take some time before the hard realities are accepted, and a level-headed search for viable solutions sets the path for recovery. Elements of these have been played out in the current crisis. Initially, the "subprime" issue was regarded as a manageable problem, confined to a small segment of the US housing market. Then it triggered seizure in the wider credit markets.

The  BIS Review 30/2009  1  combined effect now is a painful deleveraging process that drives down asset prices, shrinks balance sheets, and feeds straight into the real economy in the form of credit contraction. Adverse feedback loops between the financial system and real economy have become entrenched. The Eurozone, which accounts for the second largest share of global GDP, has deep financial linkages with the US. Through these linkages, financial stresses were transmitted across the Atlantic rapidly. Many banks in Europe, as well as other financial institutions such as insurance companies and asset managers had large exposures to US assets. Many were over-leveraged and dependent on benign conditions for liquidity to continue flowing. So they got sucked into this vortex. We have a similar story of credit evaporating and strains being felt in the real economy. Over in Japan, recovery from a decade of economic growth stagnation has been derailed by the collapse of external demand with serious knock-on effects on domestic activity. Japan’s capacity to support the growth of other advanced and emerging economies is now diminished. So a global recession is now upon us. The three economic giants – the US, Europe and Japan – together accounted for just over 50% of global GDP in 2007. All three cylinders are sputtering. The impact has already been felt worldwide. How long and how deep this recession will be is still an unknown, though many economists are predicting a long L-shaped trajectory.
We forecast that the rate of inflation will decline rapidly in 2009 and this will probably mean that people will continue to talk about deflation. If so, it is important to remember why inflation is falling. A large part of the explanation comprises falling energy prices and falling interest expenditure; that is factors that are favourable to growth. And it is also important to remember that a temporary fall in the rate of inflation towards zero, or even below zero, should not be confused with a prolonged process with falling prices that affects long-term inflation expectations. In the latter case, consumption and demand may come to a halt, which could further reduce inflation expectations and thus affect demand in an ongoing negative spiral. Our forecasts, and those of most other experts, indicate that growth will recover in 2010 and that inflation will then increase. Expectations of generally falling prices over a long period of time should not thrive in such an environment. We expect the financial crisis to peter out during the course of the year that has just begun. However, the analysis of what has happened and of what needs to be done in terms of regulation will continue. The discussion of the consequences for monetary policy and the monetary policy framework will also continue. One question that will probably arise again is whether, and if so how, central banks should take the development of credit and asset values  BIS Review 2/2008  7  such as property prices into account.

The uncertainties due to commodity price fluctuations also stand out as an important issue for the monetary policy communication and expectations management by the central banks. Structure of the commodity price dynamics is also of great importance for they constitute an input for the monetary policy decisions of the central banks. For example, the sources of the commodity price fluctuations and the nature of the shocks are extremely influential for the determination of the policy responses to these fluctuations. Similarly, not only the level but also the volatility of commodity prices can have a significant effect on the macroeconomic activity. For example, a shock affecting the level of crude oil prices may have a different effect on economy, if it is observed in a period where the volatility of prices is also higher. BIS central bankers’ speeches  1  Inflation  IV  III  Growth  I  II  As I have briefly mentioned before, an increase in the commodity prices creates downward pressure on the growth prospects, and upward pressure on inflation. In Turkey, the investment incentive package that was announced yesterday will support our economic growth through the supply side, and the tighter monetary policy will eliminate the inflation risks. The sessions on each day of the conference will provide platforms for studies which are of very rich content and great potential benefit for policymakers. For example, macroeconomic effects of the commodity price dynamics and possible corresponding policy responses are among the main themes elaborated during the conference.
Second, yields rose globally in the summer on the back of expectations that the US Federal Reserve was about to taper its asset purchase program; more recently they fell back when the Federal Open Market Committee (FOMC) unexpectedly decided not to begin phasing out its asset purchases at its September meeting. Given the relatively high degree of substitutability between UK gilts and US treasuries, and assuming that long-term inflation expectations are anchored in both countries, it is reasonable to expect a high degree of correlation of UK long rates with US long rates. But one might expect the correlation to be less pronounced at the short end of the curve, where differences in cyclical positions – and therefore differences in monetary stances – should come to the fore. Strong co-movement should only be seen if either the shock is common in nature, or the international transmission of a shock from one country to the other is strong. 4  BIS central bankers’ speeches  Now, as it happens, measures of co-movement have generally been high since the start of the financial crisis. In the earlier phase of the crisis, when contagion through financial markets was particularly strong, it was reasonable to believe that what happened in the United States was critical to the outlook here. That seems less plausible now, given the substantial progress in repairing the banking systems in the two countries.

Jean-Pierre Roth: The challenges of an international financial centre: the Swiss case Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, to the British-Swiss Chamber of Commerce, London, 26 February 2002. *  *  *  It gives me great pleasure to have the opportunity to address your distinguished assembly today. Like all the Swiss I know, I always enjoy coming to London. Even though there are considerable differences between our two countries, we have many things in common. We are both proud of our history and of our colourful traditions, we cherish our freedom and our independence. What’s more, in both our countries, the financial industry has been a pillar of our economic strength in recent times. But these days, the most striking parallelism between the United Kingdom and Switzerland can be seen in monetary affairs. Both countries are “outs”: they do not belong to the Euro-zone. In Britain, the currency is still the pound sterling and, in Switzerland, we still have a preference for our franc. We thus both face the same challenge: living next to a large currency area which absorbs most of our foreign trade. This situation is new for both of us. It is of course not up to the Swiss central bank governor to speculate how long this situation will last in the United Kingdom.
But the fact that it retains this role after so long a time also reflects the trust placed in it by financial market participants and the wider public. 1  See Matthews (1921). 2  Cashier’s Department: Drawing Office Customer Account Ledger. The Bank of England Archive, Reference No. C98/4172. BIS central bankers’ speeches  1  Paper ledgers are long gone at the Bank of England. But in their place lies the Real Time Gross Settlement system (RTGS), across which all payments between banks are settled. 3 The amounts involved are immense. On an average day, RTGS settles around £ billion between banks; that is almost a third of the UK’s annual GDP every single day. In turn, those payments back nearly every other payment that matters to all of us on a daily basis – from salaries to company invoices, from car purchases to coffee sales, from pensions to investment flows. So it is no exaggeration to say that RTGS is the beating heart of the UK payment system. Indeed, RTGS is more critical to the UK economy than even these statistics suggest. By hosting the reserves accounts of the banking system, RTGS provides the mechanism through which the Bank provides liquidity for financial stability purposes and implements Monetary Policy Committee (MPC) decisions on Bank Rate. So it is intimately linked to the delivery of every aspect of the Bank’s mission. The Bank’s primary motivation in the provision of a high value payment system has always been to promote stability and resilience.

It may reshape the mechanisms for making secured payments: instead of settlement occurring across the books of a single central authority (such as a central bank, clearing house or custodian), strong cryptographic and verification algorithms allow everyone in a DLT network to have a copy of the ledger, and give distributed authority for managing and updating that ledger to a much wider group of agents. The Bank is undertaking work to understand the implications of new digital or e-monies and new methods of payments and financial intermediation as part of the One Bank Research initiative 6. Machine learning also promises to transform financial services and widen the potential players in payments. Banks will increasingly be able to automate interaction with customers. As ever more data is analysed and algorithms that “learn” replace rules-based programming, a number of areas such as credit assessment, risk management, fraud detection and product personalisation will increasingly rely on technology. Many banks are already embracing these changes, but many non-bank players with ready-made access to a wide range of customers and their data are well positioned to compete. Alongside the potential opportunities offered by changes in technology, there are also potential risks. For example, the demand for real-time retail payments can make it harder to implement effective defences against money laundering, terrorist financing, identity theft or other forms of fraud. More connected, IT-intensive networks provide more channels for cyber attackers to target and greater risks of contagion.
1  The Fed’s policy objectives, as stated in Section 2A of the Federal Reserve Act, are that “the Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” See www.federalreserve.gov/aboutthefed/section2a.htm. 2  See “The Fed’s Evenhanded Policy”, by Randall W. Forsyth, Barron’s, Aug. 23, 2014. 3  For the latest reading of the Dallas Fed’s alternative measure of trimmed mean PCE inflation, see www.dallasfed.org/research/pce/index.cfm. 6  BIS central bankers’ speeches  And this, indeed, is happening. U.S. companies have used this bond market and borrowing rate hiatus from normalcy to pile up cheap, nearly cost-free balances. This cheap and abundant monetary fuel, with the proper incentives from the fiscal and regulatory authorities, can be deployed to the benefit of company stakeholders (shareholders and employees) to enrich and grow the economy. In this sense, we are unique in the world. Mr. Ambassador, American businesses are rich and muscular. And those muscles are being flexed. For example, just two days ago, the Institute for Supply Management (ISM) released its Purchasing Managers Index. The data surprised most all forecasters to the upside. Activity was broad based: 17 of 18 industries surveyed reported growth in August, and new orders reached a 10-year high.

Today, the ISM released its nonmanufacturing index, which registered the highest level in nine years. These reports echo a string of others – including the Beige Book survey of regional economic conditions released yesterday by the Federal Reserve – that underscore the healing that is taking place in the U.S. economy despite our having what is, in truth, a dysfunctional and counterproductive fiscal and regulatory environment. All we need now is for the fiscal and regulatory authorities – Congress and the executive branch – to unleash the animal spirit of business that is well nourished with the feed of cash and ready to roll. Wodehouse’s perspective I happen to share a common bond with Indians: I have long been a reader of P.G. Wodehouse.4 In his book, Big Money, published in 1931, he has a wonderful passage in which a young lad nicknamed Biscuit describes the woman he has fallen in love with: “… when I think that a girl can be such a ripper and at the same time so dashed rich, it restores my faith in the Providence which looks after good men.” Be it Providence or the Fed, the American business community is at present a “ripper” – it looks darned good – and is “dashed rich”. We are poised for a healthy, sustainable expansion. The men and women in this room see it in Texas. I trust they will see it in the whole of the United States.
The figures for other countries are:  In Canada: 28% of the population answer the three questions correctly. The percentage is 23% for youths aged 18-34. Gap 18-34/total: 82%  In The Netherlands: 34% of the population answer the three questions correctly. The percentage is 26% for youths aged 1834. Gap 18-34/total: 76%.  In the United Kingdom: 14% of the population answer the three questions correctly. The percentage is 11% for youths aged 18-34. Gap 18-34/total: 78%. 4  6  In terms of the specific questions, those showing the biggest differences are that on inflation (compared with 58% of correct answers in the total population, 49.5% of individuals aged 18-34 reply correctly) and that on risk diversification (compared with 49% of correct answers in the total population, 43% of individuals aged 18-34 reply correctly). 7 Specifically, individuals are defined as delegating when, in the Survey, they have answered “No” to the following question: "We wish to know whether you are familiar with your household’s finances. We refer not only to whether you are familiar with the household’s properties, financial products and debts, but also the reasons for specific spending and investment decisions.”  5/8  population, 6% of individuals state they are not familiar with their household’s finances, while this figure triples for youths aged 18-35. These results might be influenced by the high percentage of Spanish youths that live with their parents compared with other developed countries.

To answer correctly the question on compound interest rates, the interviewee must understand that the changes in an amount saved in an account depends not only on the annual interest rate applied to the amount saved the first year, but also on the interest accumulated thereafter. 54% of interviewees do not manage to correctly answer this question. The question on risk diversification measures whether the interviewee understands that the risk associated with investing in variable income diminishes if a broad range of shares is purchased instead of a single type of share. In this case, 51% of interviewees are unable to answer this question correctly. Even if analysis is confined solely to the one-third of the population that holds some type of financial asset (which, in Spain’s case, usually involves investment funds, pension schemes, shares and bonds), the percentage of incorrect replies to this question is still 40%. This result would be indicative of the fact that a high number of financial market participants appear not to be aware of the advantages of a fundamental aspect for reducing risk in financial decision-making, namely diversified investment.