samchain/econo-pairs-v1 huggingface dataset:
For instance, in 2007 total foreign reserves held by African countries amounted to $ billion translating into an average of 9.2 months of import cover for each country. In the same year the African Development Bank (AfDB) raised funding from international capital markets amounting to UA724 million $ million) at a weighted average cost of 6-month US Dollar LIBOR minus 32 basis points. 2 The amount raised by the AfDB accounted for a mere 0.3% of the total reserves for African countries as at 2007. Hence, an allocation of some of African countries’ foreign reserves to fund African development institutions in which most of the countries are members would greatly enhance  2  2  African Development Bank Annual Report, 2007. BIS Review 126/2009  the capacity of these institutions in the provision of development finance, thereby assist the continent’s development programmes and poverty reduction efforts. In summary, it is important for African countries to consider alternative ways of making use of foreign reserves in the financing of development using resources that are already available, including the direct use of foreign reserves in financing development and making available part of the reserves to African multilateral development institutions to augment the resources available in the financing of African development. (b)  Pension funds  African countries need stable sources of development finance and as long-term investment vehicles, pension funds seem intuitively to be one potentially good source of domestically generated financial resources.

This may be easier said than done as leveraging can bring transient prosperity and euphoria to everyone. To avoid committing such mistakes and the pains of de-leveraging in the future, we must stay alert and discipline ourselves not to over-spend;  (b)  Beware of wrong signals resulting from market failures, which may induce borrowers to wrongly believe that access to low-cost funds will never be cut off and prosperity and affluence funded by borrowing is legitimate and sustainable;  (c)  Strengthen market regulation to reduce the risk of market failures. Major reforms to be introduced include enhancing the policy functions for maintaining financial stability; implementing appropriate counter-cyclical regulatory measures when necessary; strengthening bank capital and liquidity requirements (Basel III); and increasing the regulation of credit rating agencies. Most of these reforms are still at various stages of implementation and may not be ready remedies for the current debt crisis in the US and Europe;  (d)  Understand and accept that there is no clever or easy way out of the trap of excessive leverage. While innovative financial derivatives may facilitate borrowing and leverage, or even conceal them, no financial engineering can reduce debt and achieve de-leveraging without the required reduction in public spending and the economic and social pains that the de-leveraging process generates. (e)  While the government should step in to help if the financial system or the whole economy gets into trouble, this is feasible only if the government has the fiscal headroom to foot the bill.
Within limits, it has tolerated periods of above-target inflation in order to support the real economy, while at all times respecting the primacy of the inflation target. That said, it is important not to over-interpret these results. Specifically, the MPC’s average revealed lambda in the past does not reveal a simple monetary rule that can govern decisions regarding inflation control in all scenarios in the future. I stress this point because some have suggested monetary policy ought to follow, or be evaluated against, a simple rule, such as a Taylor (1993) rule. 21  But it is important to recall that, while such rules were estimates  of actual stances of past policy – positive descriptions of central bank behaviour – they have been reinterpreted as guides for what the central bank should do in all circumstances – normative prescriptions. Taking the past as a strict guide to the future is to assume that the nature shocks does not change and that the structure of the economy remains constant. Such stability is hard to square in an era of financial crises; deep, variable technological change; and potentially large shifts in openness. In a changing world, monetary policy decisions would more properly emerge from optimal control approaches to monetary policy, which respect the different nature of shocks and circumstances which the monetary authority must weigh in setting its strategy.

The result is improved fiscal balances and better public debt structure, which is heavy toward longer maturities and domestic-currency denominated. Monetary policy’s first priority is to achieve long-term price stability, and in certain countries, Thailand included, central banks actively pursue explicit inflation targets. To be sure, countries have made efforts to ensure stronger prudential regulation and supervision of banks. The evidence is mixed on this front, but increasingly, more countries are adopting risk-based supervision and international accounting standards, including Basel II and IAS 39. A number of Asian emerging economies have also achieved significant  2  The same is true when comparing relative volatility in growth rates of consumption and income (Kose, Prasad, and Terrones, 2005). While this is a broad characterization of emerging markets, some countries, for example Thailand, have experienced a much less volatile consumption to income ratio. (Aguiar and Gopinath, 2007). 3  From the new External Wealth of Nations Mark II (EWN II) dataset, compiled by Lane and Milesi-Ferretti (2006). The extent of financial integration is measured by the total international assets and liabilities as a percentage of GDP and the degree of trade integration is measured by exports plus imports over GDP. 2  BIS Review 99/2007  consolidation and modernization of their financial institutions. They have built up new legal and information infrastructure to strengthen the foundation for financial system capacity for crisis prevention and resolution. In some countries, new foreclosure laws, bankruptcy laws, debt restructuring mechanisms, and credit bureaus, which were absent before 1997, are now in place.
Systemic financial crises, as this episode shows, are not new. The invention of credit and the development of banking and financial systems have been key to the improvement of human living standards throughout history. But they bring with them the boom and bust extremes of the credit cycle, driven by greed and fear, and the risk of systemic crises which can badly damage the real economy. As financial systems have developed and spread, public authorities, from Tiberius’ administration to the Financial Policy Committee (FPC) of the modern Bank of England today, have had to adapt both to deal with financial crises when they occur and to try to prevent them occurring in the first place. It has often been an unequal struggle. I want today to review a little of that history from the Bank of England’s perspective. I will draw out the development of what – following the great financial crisis of 2008–9 – has become known as “macroprudential” policy. Put simply, this is the regulation and supervision of the financial system as a whole rather than just the “micro” regulation and supervision of the firms and the markets that go to make up the system. In doing so, I want to review the progress of macroprudential policy and the FPC of the Bank, which is the UK macroprudential authority. Have we built a more resilient financial system and one that can provide the financial stability that is essential for sustainable economic growth?

Therefore, it appears that our real problem is not the lack of knowledge, but the lack of interest for knowledge. 1/2  BIS central bankers' speeches  I have to tell you that the National Bank of Romania has established 9 years ago its activity of financial education and last year we created a specialized department for this purpose. This conference is organized under the umbrella of our broader project Academica, meant to stimulate the contacts between the academic world, our central bank experts and the public. With this triangle of knowledge, we hope to become more and more successful in reaching the hearts and minds of citizens, but also of policymakers and company managers. We have a long way to go in both directions. We still see large groups of population that have insufficient or zero knowledge about the economy and the risks to their economic life. The last survey on financial literacy in Romania revealed that only 22% of the adult population could be considered financially literate. This means that the rest of respondents have problems in understanding the perils of inflation or the risks associated with a bank credit. Therefore, it goes without saying that in order to have successful policies, we have not only to integrate more knowledge in our policy design, but also to convince people to integrate more knowledge in their financial decisions. And this is twice as hard to achieve.
Reservations regarding such decisions could have the opposite effect to that desired. Instead of strengthening financial stability, we could weaken it. Despite this, our concrete measures functioned well during the financial crisis. At the Riksbank, we have, in practice, successively moved away from the principle of all six members of the Executive Board needing to be involved in and decide on all issues. Just  10  I know of only two other authorities with several heads: the Swedish National Audit Office has three heads, of whom one is an administrative head, and the Parliamentary Ombudsmen have four heads, of whom one is an administrative head. Like the Riksbank, both of these authorities are under the Riksdag, which does not have any extensive experience of appointing and leading authorities. BIS central bankers’ speeches  11  over ten years ago, the five Deputy Governors were responsible for preparing matters within one or more departments. This was changed even before I came to the Riksbank, six years ago, when they were given preparatory responsibility for certain specific areas. Eventually a management group was formed. This consists of the Heads of Department, with the Head of the General Secretariat as chairman. It took over responsibility for certain strategic issues and responsibility for coordinating many of the daily operational issues which, previously, had largely fallen to the Executive Board to handle. Decision-making responsibility for daily operational issues has been delegated to the Heads of Department.

In its role as the regulator, the Bank of Albania’s vision is to contribute to the future, aiming to establish a highly adequate environment for boosting financial innovations and modernising the financial structure. Our regulatory regime aims at fostering innovation, being a positive catalyser and not a barrier. We aim at being avant-garde for a modern financial infrastructure. But experience shows that technology always is a step ahead and rapidly spreading. Technology has no limits and we, as regulators, should adopt rules and laws that these technologies be used by the consumers, individuals or businesses. At the same time, we should be aware of the risks that accompany these new technologies. Finding a perfect balance between the promotion of new ideas and the regulatory prudence constitutes one of the major challenges in this regard. BIS central bankers’ speeches  1  Bank of Albania has designed a payments regulatory framework, which paved the way for the development and modernisation. This framework provides all banks or other suppliers of financial services with the possibility to access the payment system in an equal and transparent way, thus contributing to the development of a competitive payment industry, without any asymmetry. Bank of Albania welcomes the contribution of innovation and technology in financial services as a support for achieving its strategic objectives for financial inclusion and reduction of cash use in the economy. These objectives serve crucially to both the transmission of the monetary policy and the safeguarding of financial stability.
When the crisis hit and the mood changed, these households radically reduced their consumption back to a more normal level. This has been highlighted as an explanation for the negative link between indebtedness and consumption developments among Danish households (see Figure 7). 8 Substantial falls in housing prices impact households’ balance sheets, in that the relationship between assets and debts rapidly deteriorates. There were clear signs of this in the countries in which housing prices fell heavily in conjunction with the financial crisis. For example, over a short time, the average loan-to-value ratio among US households with mortgages increased from under 60 per cent to over 90 per cent, while the average loan-to-value ratio among households in Denmark increased from under 45 per cent to over 60 per cent (see Figure 8). 8  See Andersen, A.L, Duus C. and Lærkholm Jensen T., “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Copenhagen University, 2015. BIS central bankers’ speeches  7  Figure 8 Households’ loan-to-value ratios in the United States and Denmark Per cent  Sources: Gelain, P, Lansing, K.J., and Mendicino, C., “House Prices, Credit Growth, and Excess Volatility: Implications for Monetary and Macroprudential Policy”, International Journal of Central Banking, 2013, and Andersen, A.L, Duus C. and Lærkholm Jensen T., “Household debt and consumption during the financial crisis: Evidence from Danish micro data”, Working Paper, Danmarks Nationalbank. When debts take up a larger share of the value of housing, consumer demand decreases.

In terms of financial stability – my own focus – it is vital that the risk manager in the CCP, which means the heart of the CCP, should have a clear and independent line to the group board, so that they cannot be lent on by the affiliated exchange to reduce or shade initial margin requirements or collateral terms or portfolio investment policies in order to generate more turnover. This will matter more than ever during a period in which there is likely to be more than one CCP clearing some markets. In the same spirit, the core risk management functions of CCPs should not be outsourced. Regulators have been slow to embrace this. But I am glad to say that it does get some recognition in the EMIR text, perhaps not as unambiguously as is warranted in my view. 2. Global CCPs and access  The efficiencies and risk management advantages of multilateral netting across a variety of products make it likely that the world will have a few global CCPs. There must be broad access to these CCPs, provided always that that can be made consistent with maintaining the integrity of risk management (including default procedures). The benefits of putting over the counter (OTC) derivatives trading through CCPs cannot be confined to a few currencies or markets. That is not what the G20 mandated; and, in any case, it would not be in the interests of global stability.
With these additions, we reaffirm the Board's decision to not only disclose rigorously how the institution is managed, but also use its autonomy to improve the quality and transparency of its processes beyond what it is strictly required by law. The Monetary Policy Report In recent months, inflation and growth were below the estimates in the June Report. However, the main differences were related to factors that we consider to be transitory, in particular supply-side factors that affected the performance of activity and the level of certain prices. For this reason, neither the outlook for the economy for the next two years nor the general orientation of monetary policy, differs much from the projections contained in it. In the baseline scenario I will examine in a moment, core inflation —the CPIEFE— will gradually return to 3% as from mid-2018, after several months around 2%, while headline inflation will rise somewhat faster, as prices of its most volatile components return to their historical patterns and market expectations about the world prices of fuel and foodstuffs are confirmed. We expect GDP growth to pick up beginning in the second half of this year. With this, the activity gap should remain fairly stable for some time, to begin closing gradually towards the second half of 2018.

A major reason for this is the debt brake, which is extremely important for monetary policy and contributes to safeguarding an independent monetary policy. By pursuing a monetary and fiscal policy oriented towards stability, the negative impact of the crisis on the Swiss economy could be mitigated. As the events of the last two years have brought into focus, the monetary policy of a small open economy must also be able to rely on healthy fiscal policies in other countries. The debt crisis and the way the markets perceived it have considerably impaired the conduct of monetary policy in Switzerland. To fulfil its mandate, the Swiss National Bank has had to take far-reaching measures, such as setting a minimum exchange rate against the euro. BIS central bankers’ speeches  1
In other words, the Riksbank would not just keep inflation low and stable, but also help to solve the unemployment problem. Today, it is generally accepted that a central bank cannot lastingly increase growth and employment by conducting a systematically expansionary monetary policy. A risk with a statutory, numerical dual mandate is also that politically uncomfortable reforms, that actually could lastingly increase employment, are not implemented on the grounds that employment is the Riksbank’s responsibility. The dual mandate would in this case do more harm than good. The evaluations made of the Riksbank on behalf of the Riksdag have so far argued against the introduction of an explicit, numerical employment target for monetary policy. At the same time, it has been taken for granted that the policy should be flexible insofar as it, in addition to the inflation target, should also try to stabilise fluctuations in employment. 27 The current arrangement with an inflation target and other reasoning in the preparatory works feel about right for me. Greater consensus on consideration for financial stability Another issue is whether flexible inflation targeting should also include taking the degree of financial stability into consideration. 28 This issue has sometimes been perceived as very controversial, but I think I see greater consensus among experts. I think it is obvious that there are close links between monetary policy and financial stability. The degree of financial stability affects how monetary policy measures spread to inflation and employment (the socalled transmission mechanism).

With a higher inflation target, say 3 per cent, the nominal interest rate would be higher, which in turn would create greater scope for stimulating the economy in the event of future recessions and prevent the policy rate’s effective lower bound becoming binding. This is very much an ongoing discussion and it remains to be seen how it will end. The target level is not set in stone but a change should not be made lightly. There may be reason to wait until a reasonable degree of consensus has been reached among central banks and in the research community. This would probably increase confidence in a change to the target level. This is an example of how the scope for an individual central bank to take action entirely on its own is restricted. I will return to this issue anon. But there are parameters in our framework other than the target level that are perhaps more in need of adjustment. Which target variable is best? Ever since the Riksbank introduced inflation targeting, the inflation target has been expressed in terms of the CPI. The reason for choosing the CPI as the target index is not only because it is a broad price index that represents normal purchases, but also because CPI statistics are of good quality, not normally revised and published shortly after the end of the month.
But we need to be careful not to expect too much from this new set of policy instruments, especially at the outset as the newly formed Financial Policy Committee learns about the use and effectiveness of its policy tools. Just as monetary policy does not attempt to eradicate the business cycle, so macroprudential policy is unlikely to be able to eradicate fully credit cycles. The creation of the Financial Policy Committee with the responsibility for conducting macroprudential policy represents a major advance in responding to the missing instrument problem. Ensuring the stability of our banking system will contribute greatly to our future prosperity. But macroprudential policy is not – nor is it intended to be – the solution to all problems associated with financial markets and the international monetary system. Unless or until effective instruments can be found to manage these other issues, vulnerabilities will remain, to which monetary policy will need to stay vigilant. Monetary policy So what does all this imply for monetary policy? The job of the Monetary Policy Committee is to hit the 2% inflation target. Judged against that objective, we might not appear to have done a very good job recently. CPI Inflation stood at 3.2% in October. Over the past 4 years, inflation has been above target for 39 of the 48 months and has averaged almost 3%. And inflation is likely to remain above target throughout 2011, elevated by the increase in VAT to 20% at the beginning of next year.

I will return to the monetary policy implications of this growth outlook in a while. The missing instrument problem But before doing so, I want to report on the progress that has been made in strengthening the macroeconomic policy framework in the UK in response to some of the fault lines exposed by the financial crisis. Much analysis and soul searching has been conducted in the aftermath of the crisis, and the lessons and implications for different aspects of economic, financial and other areas of public policy are wide ranging. In terms of the lessons to be learnt for monetary policy, many commentators and policymakers – myself included – told a variant of what could be termed the missing instrument problem. 3 This analysis argues that the case for an inflation targeting framework remains sound: the focus on a clear numerical target for monetary policy has served our  3  4  Dale (2009). BIS Review 161/2010  economy well, and low and stable inflation remains a cornerstone of our long-term prosperity. However, it acknowledges that control of short-term interest rates – the main tool of monetary policy – is a relatively blunt instrument best deployed maintaining a broad balance between nominal demand and supply. In particular, movements in short-term interest rates are not well suited to managing risks from credit cycles and other imbalances within the financial sector.