samchain/econo-pairs-v1 huggingface dataset:
In the monetary policy analysis, however, the focus is often on what will happen in the period in-between, or on developments two to three years ahead. It is generally accepted that it is at this time horizon that monetary policy has its greatest effect. As I said earlier, monetary policy aims to make monetary policy decisions that provide as good a target attainment as possible and the models are important in this context because they make it possible for us to evaluate different monetary policy alternatives in forecast terms. Models are on the whole very useful when we want to evaluate alternative scenarios in which development takes a different course than predicted in the main scenario. However, the analysis of alternative  4  BIS central bankers’ speeches  scenarios must not be reduced to a purely model exercise and it is important that such analyses are also complemented by assessments.4 Let me conclude the discussion of model forecasts by saying that they are sometimes described as being in some way at odds with forecasts that are based on assessments. In my opinion there is no such opposition between them. A forecast is always an assessment. We develop models so that they can help us to make better assessments. A good and wellfounded forecast is often produced in a structured interaction between models and assessments by experts. Forecasting, extreme scenarios and the financial crisis In normal circumstances, a forecast path can be described as a probability-weighted average of different reasonable scenarios.

Positive and negative risks can have different costs There are also other cases where it may be a mistake to let monetary policy be guided by forecasts alone. A forecast-based monetary policy is good if it is believed that the costs of negative deviations from the target are the same as for positive deviations, but this is not always the case. Greater importance should be attached to a scenario in which the collapse of an asset bubble leads to a state of deflation that is difficult to escape from than to a scenario with high inflation, assuming that the inflation target still has credibility. Experience from Japan in the 1990s illustrates this. During the financial crisis, there were discussions in the Executive Board9 about temporarily allowing inflation to be relatively high with the aim of pushing up inflation expectations, which would lead to lower real interest rates and a wellneeded stimulation of the economy. Stimulating the economy with lower nominal interest rates was not possible as the Riksbank had already reduced the repo rate as far as was considered possible. I was doubtful about experimenting with our monetary policy framework in this way during an ongoing crisis. I admit, however, that there is a certain logic in the argument that underlines the fact that it is sometimes more costly for inflation to become too low than for it to become too high. However, if the credibility of the inflation target is threatened by high inflation then the reverse may also be true.
In the worst case scenario, it is even conceivable that the funds needed to provide such support would exceed our country’s financial resources. The lion’s share of the burden from the measures taken to stabilise the Swiss financial centre was borne by the SNB. For this reason, it has been a staunch advocate of addressing and remedying the “too big to fail” issue. The SNB has always stressed the need for a political decision in this regard. In November 2009, the Federal Council appointed a commission of experts, whose mandate is to formulate possible approaches for resolving the “too big to fail” issue. The SNB is represented by its Vice President, Thomas Jordan. The commission published its interim report last week. The report proposes measures in the areas of capital, liquidity, risk diversification and organisational structure. These measures are designed, first, to be preventative, reducing the likelihood of failure by a systemically important institution. Second, they should minimise the cost to the economy as a whole, in the event that a failure nevertheless occurs. The aim is to remove the need for renewed state intervention in the event of a crisis. The report by the commission of experts represents an important milestone in the “too big to fail” debate. The SNB supports the direction proposed by the commission. It shares the commission’s view that it is necessary to establish a legal basis which will allow special requirements to be imposed on systemically important banks.

Open market operations are merely a means to an end – tools for implementing the FOMC’s decisions.1 In designing these operational tools, the Desk aims to effectively and efficiently implement the FOMC’s directives.2 Of course, Desk operations don’t take place in a vacuum. We  1  Additional policy tools related to depository institutions, such as the discount window, interest on reserves, and the Term Deposit Facility, are overseen by the Board of Governors of the Federal Reserve System and implemented by the Federal Reserve Banks. 2  The FOMC issues a “directive” to the New York Fed after each of its meetings. The directive outlines the approach to monetary policy that the FOMC considers appropriate for the time period between its policy meetings (for example, its target fed funds rate or range, or an amount of long-term securities to purchase) and authorizes the Desk to conduct transactions in the SOMA in furtherance of it. BIS central bankers’ speeches  1  operate in the open market, conducting transactions with a range of private market participants who are motivated by their own business needs, balance sheet constraints, regulatory incentives or disincentives, and individual perceptions of current and future economic conditions and risks. We rely on both internal and external infrastructure and systems to trade, settle, and clear our transactions.
I will focus on what is happening in the banking sector in response to the crisis, and also from a broader strategic perspective. The banks entered the current crisis well-prepared thanks to what has been done in recent years. I will only mention the unprecedented in their scale and depth asset quality review and stress tests conducted in the banks by the BNB and the European Central Bank. One of their main objectives was to get the banks prepared for the most adverse macroeconomic scenarios which many, at the time, considered to be impossible to materialise. Now that we are going through these ‘impossible’ scenarios, we see that the banks are responding adequately and they continue to be in good shape. This good preparation helped us, at the very beginning of the crisis, to take additional measures and reinforce the banks’ capital position and liquidity. Among the measures were the full capitalisation of all the profits in this sector, strong reduction in foreign exposures, and also cancellation of the planned additional capital requirements associated with cyclical risks. This package of measures ensured an additional resource of BGN 9.3 billion in the banking system. The package of measures has not been launched only and exclusively for banks. It has rather been designed to ensure that banks are able to take steps and cushion the effects of the crisis for businesses and households. The main tool that was used to this purpose and is still in place is the so-called ‘private moratorium’ on loan payments.

Dimitar Radev: The banks entered the current crisis well-prepared thanks to what has been done in recent years Speech by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the opening of the jubilee academic year at the UNWE, Sofia, 14 September 2020. * * * Dear Colleagues, Dear Guests, Thank you most sincerely for this opportunity to take part in the opening of the new academic year at the University of National and World Economy (UNW E). This academic year coincides with the remarkable 100th anniversary of our university. This is a good opportunity to once again express our gratitude to the generations of professors, students, administrators, and to all those who helped the UNW E become what it is today – the biggest, the oldest and the most respectable business university in Southeast Europe. This year is unique and not for very positive reasons, including the health crisis which turned into an economic one, and the complicated political situation. Due to these developments we are faced with very difficult challenges, the true response to which must be institutional. In this sense, today’s situation is a test of the institutions. When speaking about institutions, I mean the entire spectrum – from politics, the healthcare and educational sectors and the economy, to public finances and banks. The healthier the institutions are, the stronger the response will be. If we are unable to give an adequate institutional response, the effects could be disastrous.
The development also reflects a dawning maturity in the eurodominated bond market and shows that the market can function as a savings alternative when the stock market bubble has burst. The positive development has been most obvious in the trade in euro-denominated corporate bonds. The upturn here began in 1999 and has continued ever since. It has largely concerned a relatively limited number of very large new issues within a small number of sectors. Behind a number of expensive structural deals lies the single market and general trends such as deregulation and technological developments, but the genesis of a large bond market in the domestic currency has contributed to easier financing in these forms. During the past year the large European telecom companies' need to finance their tenders for UMTS licenses has also made a contribution. Instead of using the stock markets, these companies have turned to the rapidly growing euro bonds market. However, although there is reason to be pleased with the positive development in corporate bonds, I personally believe it is too early to draw any far-reaching conclusions on the continuing strength of this market. The successes over the past year have been achieved in a situation that was very favourable for bonds, with severe falls on stock markets around the world and a large demand for other investment forms. The expansion in the euro-denominated corporate bonds market has coincided with, and to some extent benefited from, the other major trend on the bond market, namely the declining supply of treasury bonds.

This applies at any rate to interest-bearing assets, while for equities uncertainty over the future real value is only very slightly connected to the currency in which the share is issued. Basically, the earnings are determined by where the company has its production and sales and by the competitive situation. It is the profits that increase equity and thus shareholders' net wealth and real purchasing power. The choice of basic currency is not self-evident for multinational companies with owners, production and sales spread throughout the world. Essentially, it should be the shareholders' country of domicile that determines the currency. When this question was discussed prior to the introduction of the euro in 1999, the focus was on the size of the portfolio effects if several large multinational companies domiciled in Sweden were to convert to regarding the euro or another currency as their domestic currency. The connection was then made to the possibility of denominating and accounting in a currency other than the krona. There were considerable difficulties in assessing the possible size in portfolio shifts, but the illustrative examples then produced showed large shifts in portfolios. It was also assumed that demand for the krona on the futures market would decline significantly, as companies would not try to counteract uncertainty in profit forecasts by hedging expected net income in foreign currency against krona. Investments of liquid funds and profits accumulated over the year in krona would also decline for the same reason.
In other words, it does not seem as though we can expect monetary policy scope to increase that way very soon. It is primarily for this reason that I believe we need to think about how we will be able to conduct monetary policy over the next ten to fifteen years or so. I would like to stress that my discussion is general and looks forward over a relatively long perspective. It should not be interpreted as dealing with contemporary policies. As regards such policies, my conviction is that we will succeed in bringing Swedish inflation up to target and in anchoring the long-term expectations – as I’m sure you know, we are almost there. Preparedness for a different monetary policy playing field But at the same time, we must be prepared for it perhaps not being possible, in the future, to conduct monetary policy in the way and with the impact we have previously been accustomed to. For example, we should include in the calculation that the policy rate will probably be unusually low when the next recession occurs. A recession is certainly not on the cards at the moment, but we know that, sooner or later, one will inevitably arrive. When the financial crisis broke out, we were able to cut the repo rate from a level of almost 5 per cent. The Riksbank’s latest forecast indicates that, in the middle of 2019, the repo rate will be 0.7 per cent.

Zdeněk Tůma: EU enlargement and monetary integration Remarks by Mr Zdeněk Tůma, Governor of the Czech National Bank, at the 3rd ECB Central Banking Conference “The New EU Member States: Convergence and Stability”, Frankfurt, 21-22 October 2004. *  *  *  Ladies and gentlemen, It has been only recently since we had become members of the European Union. It is only natural that, once the immediate effects of the enlargement have subsided, policy-makers´ attention should shift towards the next step - monetary integration of the twenty-five current EU member states. The first thing to be considered when discussing European monetary integration is how the different countries will go about adopting the euro. There is no universal strategy that can be used by all new EU member states. The euro may either be adopted rapidly, or after a longer interim period. In the pre-EMU period, the emphasis can be put either on ensuring the low inflation required by the Maastricht Treaty domestically, or on importing it by fixing the exchange rate. The key factors that determine which strategy to adopt are, in my opinion, the size and flexibility of the domestic economy, the current monetary-policy regime and its credibility as well as the state of public finances. Specifically, small countries that have lived with fixed exchange-rate regimes for the last ten years, and have thus developed economies flexible enough to compensate for fixed exchange rates will most likely benefit from faster adoption of the euro.
What might this development then imply? Consider the following three areas: supervision, deposit guarantee systems and crisis management. Supervision. There are good reasons for banks to expand through branches and so be able to slim down their own internal bureaucracy, and have a single point of contact with supervisors and a substantially reduced reporting burden. But would this be accepted by national authorities? Home supervisors would become responsible for banks with in some cases a systemic presence in foreign markets. Host supervisors would find themselves legally limited in supervising even systemically important institutions in their own domestic market. The traditional home-host principle simply does not work for systemically important branches. The fact that we have not yet seen much of cross-border branching indicates there are some “invisible” barriers. One of these barriers probably is scepticism from national supervisors. With a few exceptions banks still expand through subsidiaries, which is costly and makes synergies hard to realise, and thus hampers integration. Can we find a way to secure financial stability without limiting the positive drive for further integration? Deposit Insurance Guarantees. Minimum standards are set by the EU, but in practice the national guarantee systems differ widely. Notwithstanding the existence of limited deposit guarantee systems, for larger banks the government will probably have to pay up the main part in the case of problems, due to lack of funds. This might be politically acceptable as long as depositors are domestic residents. However, cross-border branching extends the government guarantee to deposits of foreign residents.

Firms decide how much to produce and set prices to maximise their profits, given expected prices for the input factors labour and capital. These are key mechanisms in microeconomic theory. The long-term growth potential of the economy is determined by technological developments. There is no long-term trade off between inflation and unemployment. As prices and wages respond with some lag, monetary policy can, however, influence demand, output and employment in the short and medium term. In the light of these mechanisms, NEMO can be called a New Keynesian model, with Keynesian properties in the short and medium term and classical properties in the long term. You will learn more about this type of model in your macroeconomics courses and the method for estimating such models in econometrics, although perhaps not until you reach Master’s level. 9  10  Thereafter the interest rate falls slightly below the starting point for a period. BIS central bankers’ speeches  Before I show you how the interest rate works in NEMO and compare the results with the VAR model, I would like to show you how monetary policy is modelled in a model such as NEMO. In the model, the central bank’s objective is to steer inflation. The interest rate is set to stabilise inflation at 2.5 per cent somewhat further ahead and weight is also given to stabilising developments in output. In some cases, a change in the interest rate will enable both objectives to be met at the same time.
The problem, as you may be aware, is that Dr Robertson is not simply a religious leader, he is also a right wing politician with controversial views on a variety of issues, including gay rights. News of the Bank of Scotland’s proposed business link with such a person did not go down very well with gay activists or trade unionists in Scotland or indeed with shareholders and the public generally. Matters were not helped when Dr Robertson was highly critical of moral values in Scotland. The bank was forced to pull out of the deal, to pay compensation to Dr Robertson and to issue a public apology in which it stressed its “long-standing commitment to ethical values”. Despite the apology, the whole episode was widely regarded as a public relations disaster. What lessons can be learned from this episode? The first, I suppose, is that banks need to be careful about business relationships with controversial politicians, whether of the right or left wing variety. The second is the increasing power of the media and social pressure groups to throw the spotlight on what they regard as “unethical” business activities. In the case of banks, such activities might include financing the arms trade or industries that damage the environment. The third is the way in which ethical values change and how they can differ between societies: anti-gay attitudes are no doubt acceptable in the Mid-West of the United States, but they were clearly felt to violate modern notions of fairness, equality and non-discrimination in modern-day Scotland.

François Villeroy de Galhau: New Year wishes to the Paris financial centre New Year wishes to the Paris financial centre by Mr François Villeroy de Galhau, Governor of the Bank of France and Chairman of the Autorité de contrôle prudentiel et de resolution (ACPR), Paris, 4 January 2022. * * * I would like to start by extending, on behalf of the Banque de France and the ACPR, our warmest wishes, to you, our partners in our daily work: elected officials, financial professionals, entrepreneurs, associations and members of the media. May this year be as happy as possible for you and yours, and may your projects be fruitful, despite this Covid ordeal that has lasted too long, and despite all the uncertainties of 2022. My first wish is obviously that we finally overcome this pandemic, and that we escape from the pressure of this emergency and return to the fundamental choices for Europe and our country, in the long term. The 20th anniversary of the euro, which we are currently celebrating, invites us to do so. The euro is without doubt the most concrete success of European integration; it is “Europe in the citizen’s pocket", at the service of the 340 million Europeans who use it across 19 countries. Moreover, the euro enjoys unprecedented popular support: 74% of French citizens and 78% of Europeans are now in favour.
The world has seen different degrees of success of such financing. Critical to their success is the enabling environment of which equal attention has to be accorded. This includes the institutional arrangements, the business model for such financing, the regulation and policies and the supervisory oversight. This will ensure its sustainability as a form of financing. 2  BIS central bankers’ speeches  Another important segment of businesses is the corporate sector. Established corporates will require efficient sources of financing for expansion as well as advisory services to maximise enterprise value. A deep and liquid bond market with good information flow and modern infrastructure will allow for efficient pricing of corporate issuances – from short term commercial papers to support liquidity and working capital, to longer term bonds for project financing. Treasury services are also important to manage the funds of larger corporations to achieve higher returns as well as access to risk management and hedging instruments to manage foreign exchange, commodity price and other forms of market risk. As economies develop, governments will need to increasingly shift from being a driver of growth towards having a facilitating role and to promote the private sector as the driver of growth. Malaysia has leveraged on the comparative advantage of the public and private sectors through Public Private Partnerships for infrastructure projects. The objective is to optimise on the cost efficiency and sustainability of the financing model, so as to enhance the financial viability of the infrastructure project.

We therefore seek to minimize how far employment is from its long run normal level and inflation is from our longer-run goal of 2 percent on the PCE measure. Because monetary policy works with a time lag, we base policy not just on where the economy is today but where we expect it to be in the future. To do this, we make economic forecasts, based on data and insights from a broad range of economic models. We also take into account the balance of risks around our base case outlook. Looking ahead, in the absence of further monetary easing, I concluded that growth would remain too subdued over the next several years to make big inroads into the spare capacity that remains from the Great Recession. As a result, unemployment would remain unacceptably high, with economic risks skewed to the downside. Meanwhile, with substantial slack in labor markets and inflation expectations stable, inflation was likely to remain a bit below our 2 per cent longer-run objective. In this situation, I concluded that our policy framework means that further monetary policy easing was appropriate provided that the benefits of using the tools available outweighed the costs. In my judgment, this standard has been satisfied here. I am confident that the costs are manageable, based in part on the experience we have of using the tools these past four years and that the benefits substantially exceed the costs, recognizing, of course, that our actions are not so powerful that they will instantly transform the economic outlook.