samchain/econo-pairs-v1 huggingface dataset:
Therefore, it's critical that we understand how these transformations could affect the economy and the financial system, as well as monetary policy implementation and central bank balance sheets. In addition, we must think carefully about proper regulation to protect consumers and investors and ensure the stability and safety of the financial system.1 So, what are some of the things that the New York Fed should be thinking about? To start, digital transformation could have implications for markets and for our interactions with counterparties, as well as how we carry out monetary policy. Like in the example of music, change is already underway. Take the Fed's overnight reverse repo (ON RRP) facility, for example2. The ON RRP facility has broadened the set of our counterparties and diversified the type of instruments on the liability side of our balance sheet. This facility has supported the control of short-term interest rates according to the FOMC's policy direction. This has had profound effects on the composition of liabilities on our balance sheet. Traditionally, the Fed's liabilities have primarily been paper currency and reserves held by banks at the Fed. For example, a decade ago, paper currency totaled $ trillion and bank reserves $ trillion. But since then, we've seen a dramatic change in the makeup of the liability side of our balance sheet. Today, in addition to $ trillion of currency and $ trillion of bank reserves, there are $ trillion in overnight reverse repos, representing funding from nonbank sources such as money market funds.

We therefore recall the importance for those countries that still have not achieved a balanced budget position to honour their commitments to catch up with the other countries of the euro area by 2003/04. Let me now turn to some other issues raised in the draft resolution on the ECB’s Annual Report. We welcome the draft resolution’s clear support for the ECB’s monetary policy strategy. The draft resolution concludes that short-term movements in monetary aggregates should not be overemphasised and that there should not be any mechanical reaction to deviations of M3 growth from the reference value. This is fully in line with the ECB’s monetary policy strategy and practice. The first pillar of our strategy, which gives a prominent role to the analysis of monetary developments, is based on the empirical evidence of a close and stable relationship between money and prices in the euro area over the medium term. There is no evidence yet to suggest that this link has weakened over time. The ECB is fully aware that monetary developments may be subject to portfolio shifts in the short term, which are not directly related to future spending decisions. Indeed, what matters is to identify and understand the underlying reasons for monetary developments in order to assess the implications for the risks to price stability over the medium term. In this respect, the analysis of monetary developments has provided useful guidance to the ECB’s monetary policy also over the past year.
Fiscal policy had previously often been too expansionary and contributed to high inflation. Now it was subjected to requirements for long-term stability and durability in public finances. With a floating krona the main task of monetary policy was to directly act to ensure that inflation remained at a low and stable rate. In January 1993 the Riksbank specified this task as ensuring that inflation remained at two per cent a year. The target would formally apply with effect from 1995. This created a new norm for monetary policy and Sweden then became one of the first countries in the world to conduct monetary policy with a floating exchange rate and an explicit inflation target. It may be worth mentioning that the Riksbank’s tasks are also stipulated by law. The objective of maintaining price stability and the task of promoting a safe and efficient payment system were introduced into the Sveriges Riksbank Act in 1999. In connection with this the Riksbank was given greater independence. Monetary policy is now formally the Riksbank’s task and the six members of the Executive Board are expressly forbidden to seek or receive instructions when carrying out monetary policy tasks. This is the same model as applied within the ESCB. The period with an inflation target How have the past ten years or so of inflation targeting functioned? Looking back, it is difficult to come to any other conclusion than that the new stabilisation policy regime has lived up to expectations.

Cooperation can take a variety of forms, including formal arrangements that are organized under memoranda of understandings, specific protocols or other documentation for the exchange of critical information, and informal arrangements for regular and ad hoc communications. Much work is currently underway to establish various forms of effective cooperation, particularly for individual CCPs and trade repositories that are becoming globally important. However, as the work toward meeting the G-20 commitments continues, much more work is needed to design and implement such arrangements for the relevant FMIs. In terms of the issue of access, explicit requirements for FMIs are embedded in the Principles. The Principles establish a framework that covers access by direct participants, indirect participants – i.e., those who trade indirectly through a direct participant, and access and links between FMIs. In terms of the lender of last resort issue, the Principles strengthen the requirements for FMIs in terms of such aspects of financial strength such as capital and liquidity, and operational and business risk. This implies that enforcement of the Principles should significantly mitigate any moral hazard issue that could arise if an FMI were able to obtain credit from a central bank. On resolution, the Principles contain explicit requirements to ensure that all systemically important FMIs have viable recovery plans and, if circumstances ever warrant, could be wound down in an orderly fashion without the disruption of the provision of key services.
8  BIS central bankers’ speeches  New and contradictory statistics and revisions of this type create uncertainty regarding the current economic climate. Personally, I am one of those people who closely scrutinise the statistics to form an opinion of the economic situation and the driving forces behind developments. But my long experience in this field has taught me that it is important not to have blind faith in the accuracy of the measures we use to assess the economic situation. As economic statistics are very uncertain, it is important not to read too much into individual figures and to keep a cool head when sentiment fluctuates after an unexpectedly high or low figure. This slightly conservative approach to forecasting has been, and is, my guiding star as an economic forecaster. Gradual adjustments to the forecast reduce the risk of taking a wrong turn and being forced to repeatedly revise the forecasts. As monetary policy is governed by forecasts, this can lead to fluctuations in the interest-rate policy. This in turn creates uncertainty for participants in the economy when they make their own decisions. I consider that the forecasts we have made in recent years are a good illustration of the gradual changes in the forecasts that I have mentioned. But of course one should always be prepared to make larger adjustments if the circumstances so require. Autumn 2008 is a good example of this.

Thomas Jordan: International money market disruptions, central bank reactions and lessons learnt Introductory remarks by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 13 December 2007. *  *  *  As early as the first half of 2007, turbulence could be observed now and then on international financial markets. However, each event was isolated and short-lived. In the second half of 2007, there was a fundamental change in the situation. The sub-prime mortgage crisis in the US had a substantial impact on international financial markets, the extent of which had never been anticipated. I will cover three areas in my following remarks. First, I will discuss the upheaval on the international money markets. Then I will talk about the reaction of central banks, in particular that of the Swiss National Bank. Finally, I will outline some of the lessons learnt from this crisis to date. Serious disruptions on international money markets At the beginning of August, the US sub-prime mortgage crisis spread like a shock wave into the money markets of the most important currencies. In doing so, it hit the vital nerve of the international financial system. Well functioning money markets are essential in ensuring that financial market participants can adjust their liquidity positions. Ultimately, they are crucial for banks' solvency and long-term commercial viability.
If inflation not only remains below the target but actually falls further, confidence in the inflation target risks being weakened even further. A monetary policy that is not sufficiently expansionary can contribute to inflation expectations becoming permanently low, which in turn makes the target even harder to achieve. This means that instead of the positive self-reinforcing effect through the expectations I spoke about earlier, we end up with a negative self-reinforcing effect which means we then need to fight much harder to meet the inflation target. This would mean that it would be even longer before the repo rate could rise to a more normal level. There is also reason to ask how much higher the critics think the repo rate should be. Should it be at 0, 1 or perhaps 2 per cent? The impression one gets is that the repo rate is assumed to be the main tool for relieving the problem of rising debt and housing prices. However, for this to be possible a repo rate considerably higher than the one we have today would likely be required. And the more the Swedish interest rate exceeds international rates, the more inflation and growth will be dampened, in part via the usual interest rate channel and in part via a stronger krona in the way I have just described. This in turn means a greater risk that inflation will remain below the target and that inflation expectations will become stuck at a level that is too low.

Faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. These policies have been extremely helpful. But there is no denying that they were second-best options; the ZLB had made lowering the fed funds rate, which is our first-best interest rate tool, infeasible. Everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate. But the decision about when to begin to raise rates shouldn’t be made prematurely. Rather, the decision for policy liftoff has to be made for the right reasons – that is, it should be dictated by economic conditions. I have said many times that I agree with Minneapolis Fed President Narayana Kocherlakota: Policy at all times must be goal-oriented. 16 Our experiences since the crisis began and current economic conditions are highly unusual. The FOMC should not simply set its policy instruments by mechanically aligning them with historical norms if those norms are not relevant harbingers for the attainment of both of our dual mandate goals. Rather, our policy instruments should be set to achieve our ultimate goals as efficaciously as possible given current and prospective economic conditions, all the while with an eye on managing against important risks to the outlook. What does that mean now? I believe that the biggest risk we face today is prematurely engineering restrictive monetary conditions.
Moreover, the 5/18  risks associated with a no-deal Brexit persist, and the emergence of fresh protectionist tensions hampering the recovery in global trade cannot be ruled out. Domestically, doubts prevail over the future course of economic policies, both in relation to budgetary policy and structural reforms. We must wait until a government emerges from the results of the latest general elections. The challenges and vulnerabilities of the economy Beyond its expected course in the short and medium term, the Spanish economy continues to face significant challenges and vulnerabilities. Headway in correcting these is needed in order to shore up the economy’s long-term growth capacity. Most notably, I would stress here high public and external debt, progressive population ageing, the high unemployment rate, the strengthening of the banking system and, as I said in my introduction, low productivity. Let us take first high public debt. This stood at end-2018 at around 97% of GDP, over 60 pp up on 2007, and is one of the main vulnerabilities that arose in the wake of the crisis. Also, the budget deficit is still high (2.5% of GDP in 2018) and, on available estimates, still has a significant structural component into which no inroads had practically been made in the past four years. Eliminating this vulnerability of the economy requires resuming the budgetary consolidation process. Cutting the deficit and public debt would, moreover, give fiscal policy greater leeway for countercyclical action in the face of any future negative shocks.

The outcome of these two phenomena is that the Spanish economy has a business sector in which the predominant pattern is one of a large number of small-sized and relatively unproductive firms alongside a relatively small group of large, better positioned corporations, but which also show somewhat lower productivity than their European counterparts. Specifically, the relative productivity of small Spanish firms is 40% lower than that of German, French and Italian companies. This difference progressively diminishes as the 12/18  productivity of large companies is analysed; in any event, however, the negative difference never falls below 10%. Which factors account for these dynamics? According to the economic literature, the various factors that may influence an economy’s productivity growth include most notably the human capital available, the capacity to innovate, access to and allocation of funding, market regulation and the degree of sectoral competition.3 4 Human and technological capital  Turning to human capital, let me first stress the gradual improvement in the Spanish population’s level of educational attainment in recent decades. There will have been further progress in recent years owing to the extension of the formative period for youths during the crisis. Hence, 24% of those aged 60-64 did not complete what now constitutes the first cycle of secondary education, while among those aged 25-29 this figure has dropped to 6%. 3  See Syverson C. (2011): “What determines productivity”, Journal of Economic Literature, 49 (2), pp. 326-365.
It should be recalled that the ECB was the first central bank to adopt such a procedure, which provides a unique opportunity to fully explain and comment monetary decisions immediately. On the other hand, the Governing Council of the ECB has chosen not to publish the minutes of its meetings. The publication of these minutes would indeed present some drawbacks: - first, governing council members may “speak for the minutes” when these are very detailed, while, when they are not detailed, may not convey more information than a plain communiqué; - second, the publication of the minutes might also create more difficulties for moving from initial positions to new ones in the light of the arguments developed; - finally and most importantly, in the case of the euro area, the analysis of the votes could be read and interpreted as reflecting national interests or preoccupations, which would be misleading and could jeopardise both the independence of the members of the Governing Council and the credibility of our decision-making processes. 1.3. The Eurosystem is based on operational decentralisation The third imperative, operational decentralisation, is an essential feature of the Eurosystem. According to this principle, monetary policy decisions taken in a centralised fashion by the Governing Council of the ECB are implemented in a decentralised way by the national central banks.

Contrary to the US, the use of modern technology and communications has made it possible for market operations not to be concentrated at a single geographical location, but to be carried out simultaneously at all of the National Central Banks. The same type of arrangement applies in other monetary areas (cash management, payment systems, etc.). 1.4. The Eurosystem benefits from an efficient operational framework The operational framework is based on two main guidelines: - a range of monetary policy instruments selected in accordance with the principles of an open market economy, a level playing field, simplicity and transparency: these instruments enable the smooth adjustment of banking liquidity and effective steering of short-term interest rates. - procedures guaranteeing a high level of security for all interbank transactions and large-value payments within the euro area and with other countries in the European Union, with in particular the TARGET system, which played a predominant role in the integration process of the euro money market. BIS Review 4/2006  3  2. The strategic framework also contributes to the efficiency of the single monetary policy From the outset, there was a consensus among the designers of the Eurosystem that the Single monetary policy would require a clear strategic framework. This framework can be characterised by two main principles: a quantitative definition of price stability and a medium-term orientation of monetary policy. 2.1.
Fluctuations in house prices and lending can in this way reinforce fluctuations in production and employment. In short, rising property prices often go hand in hand with an increase in lending. This means that problems in the property market often have greater effects on the financial system and the economy as a whole than do problems in, for instance, the stock market. And it is therefore important to be particularly vigilant with regard to the property market when discussing monetary policy and asset prices. I should also add that it is mainly commercial property, and not residential property, that usually causes this type of problem. “Lean or clean” – act sooner rather than just later? Let us say that property prices and credit volumes are increasing at a rate that does not appear sustainable. How should a central bank react? This is an “old” debate that has been given new life by the recent crisis. And it mainly concerns how the central bank should act when asset prices rise. In these situations it is often difficult to assess whether the current developments are reasonable or whether they are the result of over-optimistic expectations and speculation. It is also difficult to estimate the effects on the real economy and inflation. Moreover, it is difficult to judge when a potential bubble might burst. When property prices fall heavily, the real economy is often weaker and inflation lower. In this type of situation it is more obvious how the central bank should react.

The policy rate is probably not the most effective weapon in this context, but it is more powerful than a pea-shooter. However, the shotgun and the mosquito comparison holds up fairly well. The policy rate is not a precision instrument, it affects the entire economy. This is why the strategy of “leaning against the wind” can have some negative effects in parts of the economy that the central bank does not wish to affect. If one wants to tackle an excessive growth in the property market, there may well be instruments with better precision than the policy rate. I will return to this in a moment. Not “sufficiently” serious consequences? A third counter-argument was, at least earlier, that the negative effects of a bubble bursting need not be so dramatic. Rather, they could be managed fairly easily, for instance through more expansionary monetary policy. But as I recall, this argument was primarily put forward when the IT bubble was the crisis most fresh in our memories. Since then a global crisis has had dramatic effects – much more serious and more widespread than I believe anyone had actually predicted. And this latter point is a nuance in the debate that I would like to highlight. It is not just difficult to estimate the probability of a bubble arising and when it will burst, as I described recently. It is also very difficult to assess how serious the consequences might be after a bubble has burst.
Much headway has been made in the U.S. in developing a Single Point of Entry resolution regime with a layer of total loss-absorbing capacity (TLAC) that would facilitate recapitalization and enable an orderly resolution. However, significant challenges remain, especially on managing resolution on a cross-border basis. Third, bank leaders still have much to do to rebuild the trustworthiness of their industry. Long after the financial crisis, conduct failures have persisted. We need financial firms to foster cultures that are intolerant of bad conduct and that are attentive to incentive structures that may encourage such behaviors. So, let me begin with the good news. The U.S. financial system is much more resilient now than it was a decade ago on the eve of the financial crisis. This progress reflects a number of initiatives―some focused on the ability of firms to absorb shocks, and others oriented at reducing structural vulnerabilities within the financial system that spanned the activities of firms and their counterparties. Changes made to capital and liquidity requirements in the U.S. and globally have made banks more resilient and robust. The major U.S. banking organizations today have much more capital, much higher-quality capital, and much larger liquidity buffers than prior to the crisis. On the capital side, we have taken a belt-and-suspenders approach. The Basel III risk-weighted capital standards framework has been significantly strengthened―a stronger belt―and a supplemental leverage ratio requirement has also been imposed on large banks and bank holding companies to restrain overall leverage―the suspenders.

The subject of this lecture is important as a greater understanding of the origins, the dynamics of financial crisis and the options for resolution is essential not only for its effective management but also for the lessons that can be drawn to prevent such future crisis. Given the severity and far reaching consequences of the current crisis, there has been a greater sense of urgency for the international community to come together to work towards a new international financial architecture that would allow for the more efficient functioning of not only financial intermediation within national economies but also across borders. History has shown that there have been more than 100 distinct banking crises within the span of the recent two decades. While the trigger factors for such financial crisis may be different, for most it involved disruptions in the financial intermediation process, the downward spiral of asset prices and a general loss in confidence. Varying responses at different stages of the crisis have shown wide ranging degrees of success. The objective to be achieved is the restoration of stability in the financial markets, the resumption of credit  BIS Review 87/2009  1  flows and the return of confidence. This would provide the beginning of the recovery of economic activity.