samchain/econo-pairs-v1 huggingface dataset:
BIS central bankers’ speeches  7  In a speech last month, I set out the reasons why this might be the case.6 First, the relationship between spare capacity and inflationary pressures may be much more complex than the simple model suggests – particularly in the services sector which now dominates the UK economy. Second, the very accommodative policies we pursued in the depths of the recession allowed companies to pass through cost increases and may have encouraged companies to believe they have more pricing power than in the past. We have seen further evidence of this today in the very strong price expectations which are continuing to be registered by manufacturers in the CBI survey. And, third, the UK is a very open international economy. Global price pressures and the value of the pound appear to be having a greater impact on our inflation rate than the domestic margin of spare capacity. There are other criticisms which can be made of the “output gap” view of the world. Measures of the “output gap” are frequently revised, partly because of GDP data revisions and partly because of changes in our view of where the trend or capacity level of output truly lies. For both these reasons, the “output gap” is notoriously difficult to measure in real time.7 Indeed, there have been quite significant revisions to the GDP profile of the early 1990s recession from the initial estimates.

But now that we have passed the worst phase of that crisis, a reassessment of policy is needed. I have been arguing for some time that we should be gradually removing some of the monetary stimulus provided in the depths of the recession by raising interest rates to reflect the improvement in the economy at home and abroad and to counter the rather worrying tendency of inflation to run significantly above the 2% target set by the government. In recent months, however, there have been concerns about the sustainability of the UK economic recovery which might seem to weaken this case for higher interest rates. The GDP data for the final quarter of last year were disappointing, even allowing for the impact of the snow, and there are worries about the impact of fiscal tightening as it begins to have an impact through public spending restraint and higher VAT. There are also concerns about volatility on the international scene, with political instability in the Middle East and North Africa and the effects of the earthquake and tsunami on Japan, the world’s third largest economy. In today’s speech I want to discuss the growth of the UK economy over the current recovery and how it should be reflected in the MPC’s decisions on monetary policy.
Third, given the lingering monetary accommodation, policy space has narrowed, thus constraining the room for reaction if severe shocks occur. In this note, we will make an effort to transpose these challenges to the countries of the CESEE region and asses how relevant these global matters are for them. Policy rates in advanced economies, in the US and the euro area in particular have remained low. The monetary policy normalisation was rolled-back in the US, with the new cycle of lowering the policy rate being opened. In the euro area, the accommodative stance of the ECB was strengthened, by further cutting the interest rates and relaunching the QE programme. These moves enabled for the already easy financing conditions to remain in place, and further easing to be expected as well. This environment in the global context has been conducive for behaviour of yield searching, thus potentially encouraging excessive risk-taking and building up of financial vulnerabilities. Conditioned on the specifics of the region/country, financial vulnerabilities are assessed to be located in different sectors across different countries. According to the financial vulnerability map of the IMF published in the Global Financial Stability Report, October 2019 it seems that the risks stemming for sovereigns are still visible across the board. Similar inference can be made by observing assessed vulnerabilities in nonbank financial sector and nonfinancial corporates, while the picture on households and banks is rather mixed. 2  Chart 1: Financial vulnerabilities – heat map across sectors and group of countries  Source: Global financial stability report, IMF 2019.

In some countries, such as Slovenia, Serbia, Montenegro and Croatia, the shift was markedly above the average, with debt levels reaching between 70%-83% of GDP. After 2015, the debt level started to adjust, with a cumulative contraction of around 6 p.p. of GDP, visible in almost all countries in the region. The adjustment was supported through the cyclical recovery of the economies in the region, as well as fiscal discretionary measures, which allowed for fiscal consolidation and precluded further debt accumulation. Though public debt sustainability and vulnerability is a much more complex issue rather than  3  a simple comparison with a benchmark criterion, still even the latter can provide certain guideline on the issues. Chart 2 General Government Debt as % of GDP 90.00 80.00  25.0  70.00 60.00 50.00  20.0  60.5  55.8  52.5  52.4  49.1  46.3  15.0  50.3  10.0 36.1 37.9  40.00 30.00  General Government Debt, change in p.p 30.0  79.3  29.7  28.3  27.7  20.00  14.5  10.00  9.3  5.0 25.4  0.0 -5.0  Region  CEE  SEE  Baltics  -10.0 -15.0  0.00 Region  CEE 2000  SEE 2007  2015  Baltics  -20.0  2019  2015/2007  2019/2015  2024/2019  *Region refers to all the countries in the sample from CEE, SEE and the Baltics. Source: World Economic Outlook, October 2019.
The shift may be in the order of one-half of a percentage point. This is the change that lies behind the common, but not entirely certain, estimate that nowadays the Swedish economy can maintain an annual growth rate between 2% and 2.5%. But Swedish data do not yet provide any definite evidence of an improvement in productivity, and hence in potential growth, that corresponds to what has happened in America. It does seem likely, however, that the rapid advances in information technology will also have a major impact on future production and distribution processes in Sweden. Sweden is well to the fore in Internet applications. Still, when and to what extent these factors will affect growth in general is not yet clear. But even though appreciable general economic consequences cannot be discerned at present, the tendencies are worth considering. Some parallels can perhaps be drawn with the situation over a century ago, when Sweden was being transformed fairly rapidly from a poor European country into a dynamic and strongly expanding industrialised economy. There are also lessons to be learned from developments in recent decades. Monetary policy’s task well defined The current monetary policy conclusion is unequivocal and there seems to be broad agreement about the task that monetary policy faces. So today I should like to discuss developments in the Swedish economy in a wider perspective that is not an immediate concern for monetary policy but may have to be considered some time after the turn of the millennium.

The great variety of these investment tools has led to the development of still others, like derivative instruments, aimed at reducing the degree of risk associated with several financial transactions. Derivative instruments are being more and more widely used in the hope of reducing risk in the financial markets, but the losses coming from derivative operations have also begun to increase. The worldwide increase in the supply of loanable funds has also played an important part in the upsurge of financial risks. This surge, in combination with greater uncertainties, has caused much greater losses due to the materialization of financial risks. In the 1990s especially, such losses have frequently resulted  1  BIS Review 41/1999  from financial scandals. The recent collapse of ”Long-Term Capital Management” has clearly shown that not even having Nobel-prize winning managers can always reduce the risk. Finally, one of the principal reasons for the increase in financial risks is to be found in the greater intensity of international competitiveness. Credit risk in particular has become more complicated since the banking sectors of developed and emerging market countries began to compete in the same arena, and since the larger banks began to compete intensively against non-bank financial institutions. Every one of these developments has fundamentally affected national and international banking systems. More effective risk management by banks and other financial institutions has become vital for preserving the financial stability of both domestic and international markets.
Within this overall tightening stance, MAS has allowed a temporary increase in core inflation to accommodate some of the changes in relative prices. This is to signal resource scarcity and stimulate behavioural shifts. Policy should not be so tight as to hinder the ability of firms to restructure. The tight monetary policy stance since April 2010 has been effective in containing inflationary pressures and keeping the economy on an even keel. It has had three important effects. First, the tighter monetary policy stance has successfully restrained imported inflation despite significant price pressures in the external environment during this period. •  In foreign currency terms, wholesale price inflation among Singapore’s major trading partners averaged around 5% per annum from 2010 to 2012. •  In comparison, overall imported inflation in Singapore dollar terms has been fairly benign, averaging slightly less than 2% per annum in this period. Specific examples illustrate well the efficacy of the exchange rate in dampening imported inflation. •  Global oil prices have risen by an average of 16% per year in 2010–2012. However, local petrol pump prices have only increased by 8%. •  Global food prices, as measured by the IMF Food and Beverage Price Index, rose by 9% per annum during this period, but domestic food prices increased by just 2%. Second, the stronger Singapore Dollar has dampened inflation indirectly by moderating the demand for our exports. In turn, this has eased the demand pressure on domestic resources such as labour and industrial space.

Both create uncertainty, misallocate resources, discourage productive investment, and ultimately drag down economic growth. Third, asset prices have important feedback loops with consumer prices. Rapidly rising asset prices raise general inflation expectations and also directly affect rentals and accommodations costs that go into the consumer price index. Fourth, asset purchases financed by excessive borrowing on the expectation of future capital gains undermine financial prudence. If households or corporates build up leverage during periods of low interest rates, they will be vulnerable when interest rates normalise. What can central banks or governments do about asset bubbles or the leverage cycle? An oft-cited reason for not doing anything is that we cannot reliably determine whether asset prices have overshot fundamentals or whether leverage has reached unsustainable levels. But the issue is not whether we can establish if there is an asset bubble or not. The issue is whether the rise in asset prices is creating negative spillover effects on the economy or whether a future sharp reduction in asset prices will lead to instability or serious dislocations. If the assessment is that it would, we have to act proactively to moderate prices now. And  6  BIS central bankers’ speeches  this has indeed been the approach taken by MAS and the government with respect to property prices. How macroprudential policies have been applied Singapore applied macroprudential tools as early as 1996, to help cool an overheated property market.
Let me therefore comment one at a time on what I regard as the four major causes of concern with regard to the credit derivatives market. 1. Operational and legal risks  The most concrete source of concern is how the trade is conducted in practice. The existing infrastructure in the market has not managed to keep up with the rapid development. Because of the explosive increase in the number of contracts, routines and handling procedures have lagged behind. The back-office functions at the largest counterparties have not been able to confirm all of the deals in time. This has entailed a risk of problems if "large” credit events were to suddenly occur. In these situations there could be confusion as to which deals have been completed and which positions are actually held, and these paves the way for legal disputes. The large number of outstanding contracts also makes the settlement process particularly sensitive. If many contracts have to be settled at the same time, there may be disruptions. The credit risk in one and the same bond may have been resold through a large number of derivative contracts. Problems can arise in this type of chain, particularly if the underlying bonds need to be delivered physically. But much has already been done to reduce the problems in this area. The market participants have themselves made large investments to reduce the number of confirmations ending up in a queue. Today there are automatic systems for confirmations and these now process most contracts.

Let me share with you another observation from Preet Bharara. A common element in many of the frauds his office has prosecuted is the failure of colleagues to call out bad conduct by raising their hands. This is so telling of a culture that condones or promotes misconduct. People see something, but do not say something. And, it is so shortsighted. It prevents problems from being addressed while they are small. By not raising their hands, these colleagues are “quietly adding risk to your books [and] invisibly enlarging your liabilities.”8 They are also tacitly encouraging bad conduct by skewing incentives. There may be many reasons for choosing silence over raising your hand. You may face a conflict of loyalties. It’s uncomfortable to tell on a colleague. You may think that the problem will just go away, or that calling attention to a problem will harm the firm. Raising your hand is difficult. But, it is also absolutely necessary. As rising leaders in the industry, you need to lead by 4/6  BIS central bankers' speeches  example. In doing so, you will make it easier for others to follow your lead. My final message is a request that each of you commit to a candid assessment of yourselves, your firms and your industry. For Adam Smith, candid observation was a cornerstone of economic behavior: “We suppose ourselves the spectators of our own behavior, and endeavor to imagine what effect it would, in this light, produce upon us.
Here we must show ability to take action, and I shall return to this at the end of my speech here today. Some of the difficult considerations to be made concern when and how quickly central banks, governments and other public authorities around the world will withdraw the strong economic stimulus they have been providing during the crisis. Now that the financial markets are more stable and the recovery in the economies has begun, it is time to move towards a more normal situation, not least with regard to monetary policy. We must make the transition from monetary policy during a crisis to monetary policy in an economic downturn. For the Riksbank and many other central banks, the question of when to begin raising the policy rate, and how quickly, is a fairly difficult balancing act. BIS Review 25/2010  1  I intend to begin by talking about the considerations behind our most recent policy rate decision and our forecast – the policy we consider necessary for inflation to be close to the target of 2 per cent, at the same time as providing support for production and employment. Transition from crisis interest rate to monetary policy in an economic downturn At the most recent monetary policy meeting three weeks ago the Executive Board decided to hold the repo rate unchanged at the historically-low figure of 0.25 per cent.

Settlement risks  BIS Review 46/1999  2  with repo transactions, however, are significantly lower because in our system, collateral must only be transferred between accounts by the central securities depository. This is a simple and straightforward process which - if necessary - could even be implemented manually. Consequently, we encourage banks to pay special attention to their holdings of repo collateral when engaging in their liquidity planning. Furthermore, we will considerably expand our repo basket by including selected foreign currency securities. This step which is primarily motivated by our intention to transact also with counterparties abroad obviously produces a useful sideeffect on collateral availability over year-end. It is our clear commitment to provide liquidity sufficient to smooth market developments before and at the transition. Of course, all banks, especially those which do not engage in repo transactions, can avail themselves of significantly increased lombard limits just for the year-end, if they wish so. As regards the distribution and the available stock of banknotes, we have made the necessary provisions. After having put a new banknote series into circulation recently, our inventories are more abundant than they would have to be even in a worst-case scenario. Final remarks Let me conclude by making two final remarks. Firstly, the need for successful active and reactive communication can hardly be overestimated. The millennium has an almost magical fascination which may stimulate crisis fantasies and is perfectly capable of triggering herd effects.
The first objective is to obtain the securities at competitive and appropriate prices for the Federal Reserve, as doing so will ultimately benefit the U.S. taxpayer. The second objective is to minimize any negative effects that the purchases might have on the functioning of financial markets. As I noted in a speech in October 2010, the liquidity and efficiency of the Treasury market provide tremendous benefits to our economy, and the Desk was intent on designing a purchase program that would not diminish those benefits in any meaningful way. 3 To achieve these objectives, the Desk relies on a system in which it purchases securities through reverse auctions with a set of established counterparties called the primary dealers. 4 The securities that are eligible for each operation and an indication of the total size of the operation are announced in advance. 5 Dealers then submit offers to sell those securities, either for their own accounts or on behalf of their customers, over a 45-minute period on the morning of the operation. Those offers are assessed by the Desk based on two criteria: their proximity to market prices at that time, and an internal methodology for comparing the relative value of the securities at the offered prices. 6 This process occurs over a proprietary trading system called Fedtrade under the oversight of Desk staff, and the results are typically finalized and published within a few minutes of the close of the operation.

Risky asset prices such as equities have risen at a rapid pace, and credit spreads and measures of credit availability have continued to ease. These changes have been driven to a large extent by the improvement in the economic outlook and, in turn, will help to promote the economic recovery going forward. The decisions taken in the second half of 2010 affecting the size of the Federal Reserve’s portfolio have provided support to that process. To be sure, economic fundamentals will ultimately exert the strongest force on financial conditions, as can be seen by the rise in Treasury yields even as the Federal Reserve expanded its balance sheet. But the Federal Reserve’s balance sheet actions have helped to make broader financial conditions more accommodative. Characteristics of the SOMA portfolio The set of asset purchase programs launched by the Federal Reserve, including those initiated at the peak of the financial crisis and the more recent actions, have changed some of the basic characteristics of the SOMA portfolio. I thought it would be useful to review those changes and to discuss their implications for the conduct of monetary policy. The most obvious effect of the purchase programs has been on the size of the SOMA portfolio. If the intended asset purchases announced in November are completed, the size of the domestic portfolio will reach approximately $ trillion by mid-year – considerably larger than the $ trillion portfolio that would be in place in the absence of the asset purchase programs.
These surveys provide significant transparency into the finances of those entities, which is invaluable for policymakers and citizens wishing to understand, monitor and exert control and discipline over the fiscal policies of their governments. They may also serve the purpose of increasing investor understanding of how the Commonwealth’s finances compare to other governments. New York City’s experience in the 1970s shows the value of better financial reporting. Prior to the City’s fiscal crisis in 1975 through 1977, New York had relatively poor financial reporting practices. As part of its recovery from that crisis, and a condition of accessing credit, the City’s reporting improved dramatically and has since won several awards. Along with those improvements, the City’s access to credit markets steadily improved. Economic research indicates that more transparent budgets are associated with lower public sector funding costs. A fourth step would be to look for ways to strengthen the performance of public corporations. A major difference between Puerto Rico’s balance sheet and those of the states is the presence of large, heavily indebted, corporate-like entities that continue to lose money and increase borrowing. For any financial reform agenda to be successful, it must confront this issue head on. Key elements of a successful reform strategy might include strengthening the public corporations’ financial standing and controlling the future flow of liabilities. BIS central bankers’ speeches  5  Puerto Rico could also seek out the opportunity to benefit from outside management expertise, including the wide experiences of U.S. mainland states.

Conversely, inflation is a form of confiscation, which primarily affects the least privileged households. In a modern economy, the social contract is based on the confidence that citizens have in their currency. With the euro, French citizens now possess one of the world’s two foremost currencies, whose legitimacy is based on the stability that it bestows on their savings and purchasing power. The French economy In spring 2007, the picture of the French economy is mixed. At first glance, France’s performance is strong. Growth is above 2%, inflation is under control, investment is dynamic and 256,000 jobs have been created over the past year (of which 155,000 in the market economy). In 2006, the fiscal deficit decreased sharply and government debt was cut by 2 GDP percentage points. This assessment is, however, significantly tempered by the two following observations. First, and for the first time for a long time, growth in France is below the euro area average. France is following and benefiting from a European movement that it is not contributing to fuel. This is illustrated in particular by the (negative) growth differential with Germany, which is without precedent over the past 20 years. Second, France records a substantial current account deficit, which deserves particular attention. Thanks to the euro, the French economy is shielded from financial turbulence which would, in the past under such circumstances, have jeopardised the stability of its currency.