samchain/econo-pairs-v1 huggingface dataset:
John C Williams: Inflation targeting - securing the anchor Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Bank of England Research Workshop on "The Future of Inflation Targeting", London, 9 January 2020. * * * As prepared for delivery  Introduction Good afternoon, and happy new year. Monetary policy frameworks are complex, technical, and rarely make it into the public consciousness. But they are of vital importance to economic prosperity. And as we stand on the brink of a new decade, it is critically important that we understand how the frameworks central banks choose influence economic outcomes, both today and in the future. When Andy Haldane invited me to be on the panel, he posed the provocative question: What will monetary policy frameworks look like 30 years from now? As a policymaker, I try to avoid making predictions for the future. But given that I will assuredly be an ex-central banker in the year 2050, I think I’m safe to have free rein! That said, I should still give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System. In my remarks today, I’ll discuss how the monetary policy landscape has evolved, and what that means for inflation targeting in 2020, 2050, and beyond.

Eddie Yue: How Hong Kong is prepared for macro-economic challenges on the horizon in 2019 Opening remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong-Paris Financial Seminar, co-organised by the Hong Kong Monetary Authority and Paris Europlace, Hong Kong, 16 January 2019. * * * Denis (Beau), Arnaud (de Bresson), distinguished guests, ladies and gentlemen, 1. Good morning. Let me extend a very warm welcome to you all for attending today’s Hong Kong-Paris Financial Seminar, co-organised by the HKMA and Paris EUROPLACE. And a special welcome to our guests from France. 2. Hong Kong and France have always had strong ties. We are home to more than 20,000 French people and about 800 French companies. Apart from food and beverage and luxury goods that people are familiar with, French companies are also actively engaging in different industries in Hong Kong, ranging from finance, construction and infrastructure. About 170 of the French companies use Hong Kong as the regional headquarters. Given the existing strong ties, it is particularly good to have forums like today’s seminar to talk about how Hong Kong and France can further strengthen their relationship through financial collaboration. 3. Before I talk about the opportunities for further collaboration, let me spend a few minutes to talk about the risks and the rather challenging macro environment that we are facing.
So-called soft data, such as surveys and sentiment indicators, and market signals do not always align with hard official statistics which are generally known with some delay. Statistical techniques exist to try to combine these sources together into a “nowcast” but the error bands around these central estimates are still quite wide. They also cannot deal with one of the most difficult problems: what to make of so-called “idiosyncratic factors”? For instance, to what extent is the recent stutter in the German economy due to the car industry and to the new emissions standards or to the low level of the Rhine and possibly climate change? These are very hard judgements to make. Second, “Future path” uncertainty If we are unsure about where we are, we are even less certain about where we are going, most obviously because of shocks that we cannot precisely predict. A potential slowdown in China or different choices over Brexit – which you will discuss today – are two such examples. Economic dynamics are also driven by underlying momentum that is very difficult to gauge. Is the recent growth slowdown temporary or will it persist? A temporary slowdown is, as you know, the base case for the ECB, which recently revised down its staff macroeconomic projections for real GDP growth substantially in 2019 but only slightly in 2020. Third, “Strategic” uncertainty In some cases, the uncertainty we face is about what other policy makers will do. This is particularly pernicious when unpredictability is considered a source of strategic advantage.

In the longer term, an unbalanced fiscal policy has a negative effect on economic efficiency and on price developments. It increases the strains on the monetary policy and, in a monetary union, there may be significant adverse spillover effects on other euro area countries. An institutional framework that guarantees sound government finances is an important contribution to macroeconomic stability and is conducive to sustained output growth and employment. It also helps to underpin the monetary policy. The implementation of the Stability and Growth Pact provides sufficient scope in the medium term for a stabilising role for fiscal policy in Monetary Union. While, on the one hand, an unbalanced fiscal position creates difficulties for the economy concerned, if the government debt level is reduced to a reasonable level and fiscal deficits are close to zero or in surplus, this creates room for manoeuvre in economic downturns for fiscal policy to act as an automatic stabiliser. But this should then also apply if the ecomony grows rapidly or inflation is relatively high. Windfalls occurring in such cases should then lead to lower deficits. Of course, in making this remark I am not addressing one country in particular. Fortunately, however, the Dutch language gives me the opportunity to say: “If the shoe fits, wear it”. Concluding remarks To summarise, national differences in growth and inflation observed in the euro area in the recent past do not appear to be unusual either in a longer-term perspective, nor compared with that which has been seen in the United States.
If this second statement is correct, I see it as the Riksbank's obligation to investigate the possibilities of issuing an e-krona that can fulfil approximately the same role as cash previously did. If the Riksbank does not offer an electronic alternative, this also means, in practice, that all of our payments will have to go through banks or other financial institutions. Since the payment market has the imperfections it does, as I have described earlier, it is likely that monopoly situations, inefficient for the economy as a whole, would arise if the private market was allowed to act freely with no central government involvement. This problem could possibly be managed with the use of regulations, but it can be difficult to effectively regulate a monopoly. As long as a public alternative exists, this puts certain natural restrictions on the private players. Historically, cash has been this alternative. There are various possibilities for creating a technical platform for the e-krona. One possibility is to connect it to the existing infrastructure. Another alternative could be to develop a new system that could act as backup for other payment systems. This would give us an alternative independent platform that can build upon other technology, which would reduce vulnerability in comparison with only having one system. This could be particularly important if we decide to utilise the ECB’s system so that the main payment infrastructure becomes located beyond Sweden’s borders. 28 The Riksbank’s e-krona project. Report 1. September 2017. See also Bjerg, O.

A little over 350 years ago, Stockholms Banco, which later became the Riksbank, became the first issuer of modern paper banknotes because people wished to avoid having to carry heavy copper coins around. Now we are facing a situation in which we will perhaps be among the first in the world to launch a new kind of central bank money, a kind adapted to today's digital society and the needs that exist there. When market conditions are changing rapidly due to new technical innovations and increased European integration of technical systems, the Riksbank must adjust its range of services. Among other things, we are planning to modernise our range of settlement services. I also think that we should extend the opening hours of RIX and ensure that our systems are technically constructed so that we can offer the possibility of settling instant payments in central bank money so that the market does not start to use alternative, less efficient solutions. There are also interesting possibilities here for an e-krona to cover the need for central bank money for the general public in a digital world. One possible way forward is for us to continue to analyse and develop a pilot version in 2019. There is also reason to review how legislation regarding the legal tender can be adjusted to the new digital reality. How else will the position of the Swedish krona be protected if cash disappears? All of these issues must be managed together with other players such as the market, public authorities and legislators.
The Committee must balance the risk that a prolonged slowdown in domestic demand pulls inflation materially below the target against the risk that today’s high inflation rate becomes embedded in inflation expectations. During the past month, the balance of risks to inflation in the medium term shifted decisively  BIS Review 128/2008  3  to the downside. And the MPC – in an action co-ordinated with six other major central banks – cut Bank Rate by half a percentage point to 4.5%. Looking ahead, the outlook is obviously very uncertain – both for the world as well as our own economy. The MPC cannot simply extrapolate the past into the future. The prospects for oil and other commodity prices are difficult to assess. So too are the period over which bank lending will return to normal and the extent of the damage to business and consumer confidence. Moreover, the credit crunch affects not just demand but also the supply potential of the economy, complicating the assessment of the inflationary impact of changes in the level of demand. The associated shift of resources away from those parts of the economy that have flourished in recent years towards other areas of economic activity will moderate the increase in potential output while that adjustment is taking place. The MPC must monitor carefully all the available evidence about fast-changing patterns of spending, supply and prices. It will act promptly to ensure that inflation remains on track to meet our target.

I think we’ve made real progress on this front. Non-nationals for example, play an important part not just in our commercial life but in the governance of our market institutions. And I very much welcomed the initiative by the Foreign Bankers’ Association to establish the Guild of International Bankers, which itself followed the opening up, to non-nationals, of the City Freedom. It is economic activity - not nationality - that generates employment and income - and even, Chancellor, tax revenue - and that’s something, too, which is now better understood than in many other jurisdictions. It is crucial that these approaches continue - as I have no doubt they will - into the future - whatever that might hold. I have also been impressed, my Lord Mayor, by the increasing commitment among City firms including many firms from overseas - not just to professional, but also to social responsibility. And in this context I have been greatly encouraged by the widespread and very positive response to the  2  BIS Review 29/2003  Heart of the City campaign launched nearly three years ago to encourage and extend City corporate community involvement. I hope that that, too, will continue. So I take the opportunity this evening to express my thanks to all of you represented here who have worked with us at the Bank over the years in so many different ways, through good times and bad, to secure the City’s position as the pre-eminent global financial market place.
And secondly, because the Spanish parliament was prepared to approve some of the harshest and most difficult measures adopted in Europe to rapidly reduce the budget deficit. But the task is by no means complete and, therefore, the responsibility of Spain’s parliamentary forces remains of paramount importance. True, the countries that required financial assistance have more problems to resolve, but in their favour they have precise programmes of measures agreed with the International Monetary Fund and the European Union with which they must unfailingly comply. If they fail to do so, they will be withdrawn. They know perfectly well what they have to do and when they have to do it. In our case the responsibility is greater, since we ourselves must decide on the content and timeframe of the reforms and that means we must be capable of adopting the right measures for exactly as long and as intensely as required, and over a sufficiently short timescale so as to convey to all the firmness of our resolve to overcome the crisis. Let us turn to the most important and pressing tasks facing us: to bring about far-reaching change in the legal and institutional framework for employment, to comply with the deficit-cutting plan and to complete the restructuring of the financial system and the overhaul of savings banks. Nothing is more necessary for improving the well-being of workers and of all Spanish citizens than reducing the unemployment rate and raising productivity so that wages may grow at a higher rate.

But this task has also become a pressing one since, as euro area membership precludes using the devaluation tool, reform of the employment institutional framework is vital for increasing productivity, and thus for restoring competitiveness and raising our growth rate. Lately, those convinced of the importance of this reform have grown in number. But among those showing reluctance, a new argument has now arisen which seeks to play down the need for reform because, they say, it will take time to bear fruit. I have two counter-arguments here. First, Spain has moved so far away from the various employment institutional framework models in the developed countries that a rapid approximation to them could have more immediate effects than in other countries. Admittedly, a reform of this type would not swiftly lower our unemployment rate to the average European level, which is below 10%; but a reduction in the unemployment rate, no matter how modest at first, would have most favourable consequences for domestic and external confidence in the Spanish economy. What’s more, even if it is thought that results will only emerge gradually, slowness in taking effect is no argument for delaying this reform a minute longer; rather, it is an excellent reason to adopt it immediately so as to be able to enjoy its effects as soon as possible. Regarding fiscal consolidation, there is little to say and much to do.
Chart: Price and cost levels relative to trading partners Price and cost levels in Norway relative to trading partners have weakened Norway’s competitive position in recent years. So far this has not been an obstacle to solid growth and near-normal capacity utilisation in the Norwegian economy, partly as a result of high prices for many of our exports. Nevertheless, we should bear in mind that a high cost level makes us vulnerable, particularly in the event of any renewed downturn in the global economy. Chart: Oil price (Brent Blend) The Norwegian economy emerged quickly and fairly painlessly from the global economic downturn partly owing to high prices for oil and other commodities. Norway’s terms of trade have improved further. High commodity prices and strong growth in emerging economies are an advantage for both commodity-based industries and high-technology export firms. Norwegian exports are increasing. Unemployment is slightly lower than expected and it appears that wage growth in 2011 will be somewhat higher than envisaged in the March Monetary Policy Report. Norway has been fortunate, but effective systems for managing high revenues have probably also played a role. 2  BIS central bankers’ speeches  2. A decade of inflation targeting  Chart: Inflation A decade has passed since the inflation targeting regime was introduced. Inflation has varied in this period, although less so than previously, and has generally been close to target. Inflation expectations now seem to be firmly anchored. This shows that monetary policy has been effective.

At the same time, over these ten years, we have gained insight into the functioning of the Norwegian economy under an inflation targeting regime. Inflation targeting is flexible, i.e. when setting the key policy rate, weight is also given to stabilising developments in output and employment. For monetary policy to contribute to stabilising developments in output and employment, there must be confidence that the inflation target will be reached. Inflation will not be at target at all times, but if there is confidence in monetary policy, expected inflation will be close to the inflation target over time, which in itself contributes to stabilising inflation. Norges Bank’s communication of monetary policy aims to stabilise inflation expectations by giving the reasons for and explaining interest rate setting. By publishing its interest rate forecasts and monetary policy strategy, Norges Bank has made it easier for others to understand and evaluate monetary policy. It is my objective to continue and enhance the Bank’s analysis and communication. Since March of this year our monetary policy reports have included a summary of the Executive Board’s discussion of monetary policy prior to the reports. Chart: Surplus liquidity in the banking system To be effective, the key policy rate must have an impact on market rates. Norges Bank supplies liquidity to banks to bring short-term money market rates down closer to the key policy rate. Surplus liquidity in the banking system is kept as sight deposits at Norges Bank. The redistribution of interbank liquidity does not function adequately.
2  BIS central bankers’ speeches  requirements by the end of 2014.4 At the same time, regulators are working on the establishment of resolution and recovery plans. When finalised, these plans should enable the regulators to secure the orderly resolution of a global bank in the event of a severe crisis and, in doing so, to make sure that systemically important functions can be maintained. As an important step towards this goal, FINMA has been authorised, since November 2012, to order a bail-in of creditors to generate the financial means necessary for restructuring a bank. Turning to cyclical risk, in June 2012, the Federal Council announced a set of measures consisting of three elements: (1) a permanent increase in risk weights for high loan-to-value mortgage loans,5 (2) a revision of the banking industry’s self-regulation guidelines for mortgage lending,6 and (3) the legal basis for the activation of a countercyclical capital buffer (CCB), as proposed in the Basel III framework. This instrument allows for a temporary increase in capital requirements when imbalances appear to be building up in the credit markets. It thus aims to increase the resilience of the banking system, and helps to lean against excessive credit growth. In February 2013, following a proposal by the SNB, the Federal Council activated the CCB, requiring banks to hold additional capital amounting to 1% of risk-weighted residential mortgage loan positions. Banks have been obliged to comply with this rule since 30 September 2013.

In March 2000, the group issued a sobering reminder: institutions that provide leverage to HLIs must improve their counterparty risk management and hedge funds need to enhance their disclosures. Along with these developments, or some say in spite of them, the hedge fund industry has continued to grow from strength to strength. There are now about 6,000 hedge funds worldwide, managing more than $ billion. In 2001, some $ billion of new capital was invested into hedge funds. By 1 comparison, the entire industry was only $ billion in 1990 . While high net worth individuals remain the main source of capital, hedge funds are becoming more popular among institutional and retail investors. Funds of hedge funds and other hedge fund-linked 2 products are increasingly being marketed to the retail market . For example, ABN Amro launched the first retail fund of hedge funds in Singapore last month. There are a number of factors behind the meteoric rise in demand for hedge funds. The unprecedented bull run in the US equity markets during the 1990s swelled investment portfolios. This led both fund managers and investors to become more keenly aware of the need for diversification. Hedge funds are seen as a natural “hedge” for controlling downside risk because they employ exotic investment strategies believed to generate returns that are uncorrelated to traditional asset classes.
Rates used are as follows: Short rates: 1694–1717 – Bank of England Discount rate;1717–1823 rate on 6 month East India bonds; 1824–1919 rate on 3 month prime or first class bills; 1919–1996 rate on 4–6 month prime US commercial paper ; 1997–2014 rate on 3month AA US commercial paper to non-financials. Long rates: 1702–1919 – rate on long-term government UK annuities and consols; 1919–1953, yield on long-term US government bond yields; 1954–2014 yield on 10 year US treasuries. 24  BIS central bankers’ speeches  Chart 13: Long run real rates in Advanced and Emerging Economies Percent 6 5 4 3 2 1 0  1990  1993  1996  1999  Emerging Economies  2002  2005  2008  Advanced Economies  2011  2014  -1  'World' Real Rate  Source: King and Low (2014); Bank Calculations. Notes: The “World” real rate (black line) is taken from King and Low (2014) and is based on the average 10-year yield of inflation-linked bonds in the G7 countries (excluding Italy). UK rates have been adjusted to take account of the RPI-CPI wedge. Data availability means that US yields are only included from 1997 so the UK provides most of the historical back-run. Chart 14: Forward real interest rate yield curves Percent  1.0 0.5 0.0 -0.5 -1.0 -1.5  United Kingdom  -2.0  Germany / Euro area 0  5  10  15  20  25  30  -2.5  Horizon (years) Sources: Bloomberg and Bank calculations.

But unlike its predecessors, and almost by definition, it would be near-impossible for the human brain to imagine where the machine brain would take innovation, and hence growth, next. The world would be one of blissful ignorance. The excitement of the optimists would be fully warranted. Let me now take the other side of the argument. What secular forces could retard growth? Technology, by itself, was arguably insufficient to explain growth in the past. It may also be insufficient to secure growth in the future. The sociological roots of growth also matter. Some of those sociological roots are less well planted than in the past. Indeed, in some cases technology may have contributed to an uprooting. Take social capital. While violent crime and war are hopefully in secular decline, other measures of social capital are depreciating. One diagnostic is rising levels of social inequality. 52 The income share of the top 1% of earners has doubled in the UK and US since 1980. Patterns of wealth inequality are, if anything, even more striking. 53 Recent evidence suggests such a depreciation of social capital, through rising inequality, slows growth. Cross-country studies by the IMF and OECD have found a significant and sustained drag from inequality on growth. 54 The IMF study estimates that a one percentage point rise in a country’s Gini coefficient – a measure income distribution – lowers growth by around 0.1 percentage point. Let’s apply that to some real data. The Gini coefficient in the US has risen by eight percentage points since 1980.