samchain/econo-pairs-v1 huggingface dataset:
Paul Tucker: A few remarks on current monetary policy in a rebalancing economy Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at The Joint 1900/City Club Lunch, London, 22 November 2011. *  *  *  The outlook for economic activity has deteriorated over the past few months. The MPC has responded with a further round of quantitative easing to underpin demand, and so reduce the chance of inflation undershooting our target in the medium term. Monetary credibility: accommodating the price level shocks Our ability to provide and sustain that stimulus depends absolutely on the credibility of our commitment to the 2% inflation target. If our credibility were to slip and medium-term inflation expectations were to rise, we would have to run with a tighter monetary stance than otherwise in order to put the genie back into the bottle. The Committee’s most important judgment over the past year or so has, accordingly, been that the elevated rate of inflation, now about 5%, is temporary. We have had conviction in that judgment because of the observable upward impulses to the price level from sterling’s depreciation, the VAT increase, and the rise in commodity prices. There is occasionally a rather odd debate about whether the MPC could have avoided the consequent increase in inflation. Big picture, the answer is that we could have done, but we chose not to. We have, in effect, accommodated something like half of the cumulative impulse to the price level.

I do not think it is coincidence that arguably the two most significant monetary policy decisions taken over the past year – the decision to reduce Bank Rate by 1.5 percentage points in November and the announcement in February that the Committee had sought approval to use the Asset Purchase Facility to conduct large scale asset purchases – occurred in months when the Inflation Report was published. The quarterly forecast round provides an opportunity for the Committee to reassess thoroughly its view of the economic outlook. This view is then explained and communicated via the Inflation Report and in particular through the projections for GDP growth and inflation contained in the Report. In both November and February, the judgement of the Committee was that, without further substantial easing in monetary policy, there was a significant risk of a large and persistent undershoot of the inflation target. Given the transparency of these judgements and the clarity of the target, it would have been courageous not to have taken the decisions we did. The inflation target is symmetric. Likewise, the discipline it imposes on the MPC is symmetric. The inflation target has been instrumental in ensuring that monetary policy has responded boldly and decisively to the events that have unfolded since the autumn. And, when the time comes, the clarity and transparency of the inflation targeting framework will ensure that the Committee takes the right decisions on the way back up, however courageous or unpopular those decisions might appear.
Is Germany imposing its conditions on the rest of Europe? The ECB has a range of tools to ensure price stability and the proper functioning of the market. It can remedy market disruptions. It has done so several times in recent years to avoid a “credit crunch” by greatly increasing its provision of liquidity to the banking system and by lengthening the maturity of refinancing operations. Still within our mandate, we are able to take quite significant non-standard measures and we have done this on several occasions. The mandate of the ECB is also to ensure the solidity of the euro. But the ECB cannot replace governments, nor spare them from making the necessary efforts to control their debt and restore the competitiveness of their economy. The credibility of  BIS central bankers’ speeches  1  governments cannot rest on the central bank. And yet, the former must demonstrate their determination to improve their fiscal position. But under Germany’s pressure, the ECB is not using all the instruments at its disposal. How is this justifiable when huge efforts are required of Spain and Italy? The ECB is being unfairly accused. No central bank in the world – neither the Fed nor the Bank of England – directly funds governments or purchases sovereign debt on the primary market to finance their deficits. However, it is possible on the secondary market. We have done so in the past. There are no differences of opinion between the French, the Germans and the European Commission.

In the two years since, the severe global health and economic crisis faced by the world has brought these trends into even sharper focus. For example, the pandemic has highlighted and deepened long-standing vulnerabilities in Malaysia and many places around the world. These include the fragile state of social protection systems, under-investments in health and infrastructure, and the need to improve our education system. As a result, vulnerable groups bore much of the economic, social and health cost of the pandemic and they continue to be at risk. This will affect economic and social resilience and thus not only our prospects to recover and bounce back from the pandemic, but also to deal with other existential challenges further ahead, like those in the environment and climate. On the bright side, the pandemic has demonstrated the power and potential of finance to address the pressing problems of our time. The financial system has been resilient, with the ability to provide critical support to households and businesses during the difficult times. Digital financial services like electronic payments have made it easy for people and businesses to continue making transactions in a low touch setting, with even greater ease. The financial sector has also stepped up to provide various forms of relief to customers over the last two years, such as by giving borrowers breathing space and helping them get back on their feet while ensuring that depositors’ interests are not jeopardised.
Karolina Ekholm: Why Swedish monetary policy needs to be more expansionary Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, at Almega (employer and trade organisation for the Swedish service sector), Stockholm, 15 November 2013. *  *  *  The views expressed in this speech are my own and are not necessarily shared by the other members of the Executive Board of the Riksbank. I would like to thank Björn Andersson who has helped in writing the speech. Accompanying charts can be found at the end of the speech. Interest in central banks and monetary policy has been greater than normal since the financial crisis. Here in Sweden, much of this interest has concerned the disagreement among the Executive Board on the level of the interest rate, where I have been one of those who has consistently voted for a more expansionary monetary policy. I have mostly voted for a repo rate that is 0.25 percentage points lower and a repo-rate path that rises more slowly. One might of course think that the difference between this and the repo rate and repo-rate path decided on is so slight that it would not have any effect on the outcome. However, behind this apparently marginal difference in the view of what the repo rate should be is a fundamental difference in the view of the role of the central bank and the route monetary policy should take in the new economic landscape emerging in the wake of the financial crisis.

Lending to households and companies Annual percentage change  Note. Lending to households and companies according to financial market statistics. Source: Statistics Sweden. Figure 4. Annual change in the major banks’ lending Per cent and contributions in percentage points 25  25 Swedish mortgages Other lending to Swedish customers  20  20  Lending abroad  15  15  10  10  5  5  0  0  -5  -5  -10  -10 05  06  07  08  09  10  11  12  13 kv 3  Note. The coloured fields show how the different types of lending have changed in relation to the major banks’ total lending to the general public. No consideration is given to change in exchange rates. Sources: Bank reports, Statistics Sweden and the Riksbank. 12  BIS central bankers’ speeches  Figure 5. Inflation expectations one, two and five years ahead, all participants Per cent  Sources: TNS SIFO Prospera and Statistics Sweden. BIS central bankers’ speeches  13
The European Central Bank can also be said to target inflation in practice, without a formal commitment. Broadly speaking, all these central banks have a similar approach. Inflation targeting requires careful preparation of forecasts for economic aggregates – not least inflation – a high degree of central bank transparency and effective instruments and transmission channels for policy measures. Iceland moved onto an inflation target under fairly difficult conditions. The króna had weakened substantially and was close to the lower tolerance limits when the new policy was adopted. It then depreciated rapidly in spring 2001. The consequence was a surge in inflation, which peaked at around 9½% at the beginning of 2002. Subsequently it declined sharply, not least on account of the tight monetary stance, and the 2½% target was attained later the same year. For some time inflation remained below or around target, but since the first half of 2005 it has overshot, and was well above target for a while. The various reasons  BIS Review 111/2007  1  for this development have been described in detail in recent Central Bank publications and I shall not elaborate them upon over and above the causes I have already mentioned. In order to attain its inflation target, the Central Bank has a single instrument: the policy interest rate. The policy rate applies to Central Bank facilities for financial companies and its impact is transmitted through them into the economy.

The Central Bank has pointed out how the small amount of outstanding Treasury bonds in the market hinders policy rate changes from being transmitted with the necessary weight. Price formation in the bond market is imperfect. The Bank has aired the idea that the Treasury should issue bonds with the explicit purpose of maintaining an active bond market. Of course, such a suggestion must be qualified by the fact that the Treasury is on the verge of eliminating its net debt and has no need to borrow. The Central Bank’s standpoint, however, is that given the significance of domestic capital markets, the importance of facilitating the impact of monetary policy measures and long-term strategies for Treasury funding, it is in the Treasury’s interest to maintain a smooth bond market, even though it has no direct funding requirement. One example of Treasury issuance on such principles is Norway, which has had even less need to borrow than the Icelandic government. Claims have been heard that the Central Bank’s monetary policy is either impotent or wrong, and that the Icelandic króna is the root of macroeconomic instability. The Central Bank has pointed out that one consequence of globalisation and Iceland’s integration with global capital markets, coupled with the exceptionally intense upswing experienced in recent years, has been that the transmission mechanism of monetary policy has altered. In this climate, the impact is transmitted with greater force to the exchange rate, and only later to domestic demand, as I mentioned earlier.
12  The new committee for financial stability at the Bank of England will take responsibility for decisions on macrostability, but not traditional supervisory issues, which will also be moved to the Bank of England. The new committee partly consists of the same people as the monetary policy committee. 12  BIS central bankers’ speeches  the krona’s exchange rate if necessary. However, it has not been used for this purpose since 2001, and, when it was used, the results were unfavourable. The financial crisis made abundantly clear that the foreign currency reserve was also needed to provide the banks with liquidity in foreign currency in the event of a crisis. This is a matter of the central bank’s fundamental function as lender of last resort. As I mentioned earlier, it can no longer be seen as only concerning liquidity in kronor. Of the four major banks’ lending to the public of about SEK 7 000 billion, about SEK 2 500 billion was funded with securities issued in foreign currencies, of which about half had times to maturity of less than one year. The Riksbank’s gold and foreign currency reserve was not enough to meet the need for dollars that arose during the crisis. This amounted to about SEK 200 billion and was invested in various currencies and different types of asset. During the autumn of 2008, our lending in dollars peaked at about SEK 250 billion.

This means that he is also included in the Steering Committee that prepares the General Board’s meetings and monitors the ESRB’s current work, and in the Advisory Scientific Committee, which is the other advisory body. BIS central bankers’ speeches  7  continued financial stability work is formed by stress tests of the banks. During the financial crisis, both the US and European authorities implemented and reported such stress tests. Their aims were to increase transparency concerning the banks’ risks, to increase confidence in the sector, and to push the banks into increasing their capital bases. The next European stress test will be reported this June. The Swedish regulations for the financial sector need to be strengthened The Swedish regulations for the financial sector also need to be strengthened. Consequently, the Executive Board and General Council of the Riksbank have, in a communication to the Riksdag, urged the Riksdag to assign the government to carry out a thorough review of the regulations.7 The starting point for this is that we need a cohesive and effective regulatory framework that allows us to better prevent and manage crises in the future. Firstly, the mandates and roles of the authorities involved are unclear. As the regulations are currently written, responsibility for financial stability is shared by the government, Finansinspektionen, the Riksbank and the Swedish National Debt Office. But it is not specified sufficiently clearly who is to do what or how the exchange of information and knowledge is to take place.
But it would gradually be brought back to low levels, so that we were equipped for the next war. A big question in the modern world is what level of government debt/GDP would be needed by countries in economic peacetime if societies wished them to be able to offset economic disasters. The immediate focus is on addressing “structural” budget deficits, with a view to stabilising debt/GDP. But there will be longer-term choices about the level of the debt itself. Those are choices for decades rather than for a Parliament. And they are not choices for central bankers. But I would say this from my own vantage point. The higher the steady-state level of debt society chooses, the more resilient our financial system would need to be. 13  For example, see Bean C R (2009), “Some Lessons for Monetary Policy from the Recent Financial Turmoil”, remarks at Conference on Globalisation, Inflation and Monetary Policy, Istanbul, 22 November, 2009 and Tucker P M W (2006), “Reflections on operating inflation targeting”, at the Graduate School of Business, University of Chicago, 25 May, 2006, pp. 4. BIS Review 21/2010  9  Conclusion The title I was given for my remarks today was “Inflation, growth and stability: balancing the Bank of England’s economic priorities”. Our priority as central bankers remains the same: stability. Price stability, as encapsulated in our inflation target, is a necessary precondition for sustainable growth in output and for maintaining “full employment”. That is no less true today than before the current downturn.

In most countries central banks play an important role in financial stability. Because of their monetary policy function, central banks have an indepth knowledge of the financial system. They are independent anchors for monetary stability. They also have a clear interest in financial stability because of its beneficial impact on the macroeconomic environment. And, last but not least, central banks are the ultimate source of liquidity. For all these reasons, central banks often have an explicit mandate in the area of financial stability. But typically this mandate is formulated in very general terms, and it would have been written before growing recognition of the key role of macro-prudential oversight. Financial stability is not and cannot be exclusively an issue for central banks, namely the ECB and the European System of Central Banks. It must be shared with micro-prudential supervisors. They have a key role, because stable institutions are an essential and necessary condition for achieving financial stability. This is also the reason why the ESRB and the ESAs will form together a European System of Financial Supervision (ESFS). So in the analysis of systemic risk, the three ESAs will also have an important role to play, both on their own and within the ESRB. In collaboration with the ESRB, they will develop a set of indicators to identify and measure systemic risk. On their own, they will further draw up guidelines and recommendations for individual financial institutions to take account of the systemic risk they pose.
Yesterday we learnt that inflation in May rose to 3.3%. In line with our remit, I sent an open letter to the Chancellor. As I said in my letter, inflation is set to increase further over the next few months. Oil prices have doubled since the beginning of last year, and, in real terms, are now as high as they were in the 1970s. And further sharp increases in domestic gas and electricity prices are probably on their way. So what should the Monetary Policy Committee do in the face of this rise in inflation? The immediate cause of the current pickup in inflation is increases in food and energy prices relative to other prices. They are caused by the pressure of demand on the supply of food and energy in the world as a whole. Part of that pressure may well reflect expansionary monetary policy in the world as a whole. But the rise in commodity prices cannot, by itself, generate sustained inflation in the United Kingdom unless we allow it to. We will not. So although inflation in the UK will rise in the short term, inflation will then fall back. That means that the rate of increase of other prices and domestic costs, notably pay, must remain low. The MPC does not take that for granted. Surveys – including our own – indicate that expectations of inflation have risen, meaning that inflation is likely to have some tendency to persist.

Consequently, this policy can only be effective if the authority responsible for defining and implementing is credible. The conjunction of a clear, overriding objective of price stability (which has been explicitly laid down in the statute of the ECB), with well-established institutional independence ensures the continuity of the monetary policy decisions made by the authorities. •  Secondly, the emergence of a globalised market has quite naturally led to new developments in monetary policy instruments. Interest-rate instruments have gained in importance to the detriment of quantitative and regulatory instruments. Third consequence: renewed set of risks to the stability of financial systems First of all, it is worth noting that financial liberalisation did not eliminate the occurrence of financial crisis. The development of new financial instruments, increasingly mobile and rapid capital flows, and faster reactions on the part of the players have rendered markets more volatile. Moreover, stock market prices and interest rates in the various financial centres have become closely correlated due to increased arbitraging between currencies and financial products and the spread of disintermediated financing.
This is the focus of the related field of “behavioural economics” and the work of the Nobel laureate Robert Schillervi. Page 7 of 14  To respect the mandate entrusted to us under the Treaties, one thing remains certain: in the face of the too-low level of inflation caused by the cooling of the economy since the end of 2018, it is our duty to maintain an accommodative monetary policy to support economic activity. In September last year, the ECB thus announced a package of measures, the most innovative of which is the reinforcement of its forward guidance which gives visibility as to the future path of short-term rates. However, at our December meeting we noted the first signs of an economic stabilisation, consisting in a relative reduction in trade-related uncertainties. If this stabilisation is confirmed, it would need to be followed by a stabilisation in monetary policy. Put another way, the low point observed in growth justifies rates that are “low for longer”, but not, at the present time, “lower for longer”. II. Low rates: what are the effects? 2.1  Effective policies to support inflation and the economy  While these accommodative monetary policies are justified by their causes, are they also effective in terms of their impact? Here too, we need to take stock, both on an overall level and for each category of economic agent. From a macroeconomic perspective, low rates and, more broadly, accommodative policies, have indeed lent support to the economy.

In the near term, the euro area should continue to benefit from a recovery in exports, the significant macroeconomic stimulus under way and the measures taken so far to restore the functioning of the financial system. In addition, the inventory cycle is expected to contribute positively. However, uncertainty remains high and the persistent volatility in incoming data warrants a cautious interpretation of available information. Overall, the recovery is expected to be rather uneven, given the temporary nature of some of the supporting factors and the ongoing balance sheet correction in the financial and non-financial sectors of the economy, both inside and outside the euro area. This assessment is broadly in line with the September 2009 ECB staff macroeconomic projections for the euro area. According to these projections, average annual real GDP growth will range between -4.4% and -3.8% in 2009 and between -0.5% and +0.9% in 2010. Compared with the June 2009 Eurosystem staff macroeconomic projections, this implies an upward revision of the ranges for both 2009 and 2010, reflecting mainly the recent, more  BIS Review 102/2009  1  positive developments and information. Forecasts by international organisations are broadly in line with the September 2009 ECB staff projections. In the view of the Governing Council, the risks to this outlook remain broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken.