samchain/econo-pairs-v1 huggingface dataset:
If the Fed were to raise its rates, it would be a sign that growth and employment indicators are robust in the United States. This, essentially, would be good news for Europe. Despite all of the ECB’s efforts to inject liquidity, large companies in the euro area are sitting on mountains of cash and not investing… Monetary policy is supporting the recovery in demand and has removed a key obstacle to investment – financing. But obstacles remain on the supply side. Weak investment, even though financing costs are low, shows that there is a dearth of projects that are sufficiently profitable in the long term. This reveals a lack of productivity and innovation. The ECB cannot do much about that. On top of this, there are external risks: slowing global growth, particularly in large emerging economies. In other words, it’s pointless to expect that an eventual increase in quantitative easing will be enough to stimulate investment… Quantitative easing, by pushing back the horizon for monetary policy action, removed the financing obstacle. Lending rates to enterprises have fallen significantly, including in the stressed euro area countries. What we can do, what we must do, is maintain confidence in inflation returning towards our objective of 2%. The ECB, within its mandate, cannot accept inflation stabilising in the vicinity of 1%. You regularly underline the risks of inflation and growth being too low. But there are always risks – the sky could fall in!

In an attempt to protect their own real income from the unavoidable impact of higher external prices, the longer that firms try to maintain real profit margins and employees try to maintain real wages at pre-energy price shock levels, the more likely it is that domestically-generated inflation will achieve its own self-sustaining momentum even as the external impulse to UK inflation recedes. Monetary policy cannot prevent the loss of real national income stemming from the deterioration of the terms of trade. That is a real shock, with real consequences that ultimately monetary policy cannot offset. Nor can or should monetary policy seek to influence the distributional impact of the terms of trade shock on specific sectors or regions. As a relatively blunt instrument, monetary policy is not well suited to such a task, which would any way extend beyond its established mandate. [8] What the Bank can do – and indeed must do, if it is to achieve its price stability mandate – is ensure that any self-sustaining momentum in inflation at rates above the 2% target is squeezed out of the system by constraining demand relative to supply as necessary. ‘Multiplicative effects’ and Says’ Law This naturally leads back to where I started: while pricing power in tight goods and labour markets can be analysed as a source of inflationary pressure distinct from energy price rises, these two factors can – and do – interact with one another.
If high productivity growth and low import prices were instead to lead to inflation being well below two per cent, it might be possible to correct the problem quickly by cutting the interest rate. However, this would risk stimulating the economy in a way that would not always be desirable. By bringing inflation back on target at a slower rate, the real economy will develop in a more stable manner. We can thus contribute to stability, although monetary policy cannot affect the long-term growth rate in the economy. It is not stated in the law that the Riksbank should take developments in the real economy into account in addition to the price stability target. On the other hand, it was stated in the preparatory works for the Sveriges Riksbank Act that the Riksbank, without prejudice to the price stability target, should support the goals of general economic policy with a view to maintaining a sustainable level of growth and employment. Not having the ambition of bringing inflation back on target as quickly as possible thus creates flexibility in formulating monetary policy that provides scope to take into account developments in the real economy. At the same time, it is important that this flexibility should not give rise to doubts about maintaining the inflation target in the long term. This is why we have chosen to specify a time horizon, which states that monetary policy should normally be aimed at achieving the inflation target within two years.

Caleb M Fundanga: An appeal to the Zambian microfinance industry to offer affordable financial services Opening speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 8th Annual General Meeting of the Association of Microfinance Institutions of Zambia, Lusaka, 7 July 2006. *  *  *  •  The Chairperson;  •  Senior Government Officials present;  •  His Excellencies, member of the diplomatic corps present;  •  Members of the Association of Microfinance Institutions of Zambia (AMIZ);  •  Distinguished Ladies and Gentlemen  It gives me great pleasure and gratitude to be amongst you this afternoon to officiate at the 8th Annual General Meeting of the Association of Microfinance Institutions in Zambia. Mr Chairperson, as you are aware, micro-lenders are credit providers to people with limited or no access to traditional credit sources. It follows therefore that the primary impact of microfinance in Zambia has been the broadening of access to formalised financial services particularly to many people both in urban and peri-urban areas. The microfinance sector in Zambia has grown rapidly in recent years in terms of the number of service providers as well as outreach which is currently estimated at over 60,000 persons.
It is also worth mentioning that during the property crisis at the beginning of the 1990s, it was not the households that caused problems for the banks. As I mentioned earlier, the Riksbank, like many other central banks, conducts a flexible inflation-targeting policy. In addition to taking account of price stability, monetary policy may in certain cases wish to take into account developments in the real economy as a whole. This can mean, for instance, conducting a less aggressive interest rate policy and thereby allowing inflation to return to the target gradually after a disturbance to avoid excessive fluctuations in production and employment. In connection with the build-up of household debt and price trends in housing, there could be a situation where households may have based their decisions on incorrect expectations and the trend may have proved unsustainable, or that we see a tangible risk of this situation arising. This could lead to an adjustment process, where house prices fell heavily and there was a decline in the real economy as a whole. We explained in a clarification of monetary policy published in 1999 that, if we choose to take these considerations into account, we will clearly motivate our decision. If flexible inflation targeting functions well, it leads to smaller fluctuations in production, without this causing average inflation to rise. The scope for conducting such a policy is determined by households’ and companies’ confidence in monetary policy.

However, there may be reason for some upward revision to the inflation forecast made in May, and perhaps even to the one made in August. One factor which could indicate a higher inflation rate, at least in the short term, is the high oil prices. Resource utilisation may also be slightly higher than anticipated in the coming years. One reason is the strong figures for Swedish growth that we have seen over the summer. Another is that fiscal policy will probably become more expansionary  BIS Review 51/2004  5  now. Inflation can nevertheless be expected to be in line with the Riksbank's target two years from now. This is also the picture painted in a speech by Riksbank Governor Lars Heikensten in London today. Conclusion Let me summarise what I have said this evening. Despite stock market fluctuations and a periodically weak economic climate, both household indebtedness and house prices have increased substantially, on a national level, in recent years. There have been similar developments in many countries, and households’ debts and interest payments as a percentage of disposable income are not remarkably high in Sweden. Although the debt ratio is approaching the high level prior to the financial crisis at the beginning of the 1990s, the low interest rates have meant at the same time that households' interest expenditure as a percentage of income has largely been halved since then.
We also learnt that we must ensure clear responsibilities and limits to delegation. The fund is a long-term savings plan and capable of riding out large market swings. This is the very foundation of the investment strategy with its high allocation to equities. Our ability to adhere to this strategy in a critical phase – even if this should last some time – is crucial if the Fund is to deliver the returns we expect in the longer term. Norges Bank’s Executive Board has reinforced its oversight of the Bank’s investment management. It has issued a new mandate that delegates investment management responsibility and introduces additional limits in the risk profile for investment management. As with the Fund’s long-term investment strategy based on active management and active ownership, the results of our operational management of the Fund need to be measured over time. To that extent, we need to maintain an incentive structure in order to retain and build long-term competence. We also need to ensure the quality of the investment management. In our view, the search for excess return has had a strong disciplinary effect on the organisation. 6  BIS Review 58/2009  I am confident that the operation we have built up will deliver good results in the long term. Thank you for your attention!

Le Lab is a genuine Open Innovation laboratory: its goal is to bring new practices and technologies into our activities, and to that end experiment where necessary within short and flexible cycles. To do so, it works in close collaboration with innovative firms. An example of this work is to use artificial intelligence to improve our scoring of businesses. Scoring is something that Banque de France has been doing for a very long time: its branch network all over France gives quotations of companies based on analysis of financial data but also on-site visits (more than 250.000 last year). These quotations are then provided to banks and other institutions, in order to facilitate access to financing and therefore financial inclusion for many SMEs. This is why we are working, in collaboration with start-ups, on how to improve our data analysis and include learning algorithms in our scoring process. Of course, this is not easy – the integration in existing processes is complex, in particular the role of expert judgment. And we are 3/5  BIS central bankers' speeches  also part of a larger experiment led by the French government called “signaux faibles” (low signals). It aims at bringing together data from various French public authorities and developing AI analysis capacity to identify businesses showing signs of vulnerability, in order to better target public support towards them. A second way is by revisiting some of our policies and adapting them.
This implied an economic framework built around price stability, competition regulation and budgetary discipline – in Eucken’s words, the perfect “economic constitution”.2 This thinking had a strong influence on the design of the post-war social market economy in Germany, and is seen by some as the foundation for German economic success in that period. Interestingly, as many developing countries transitioned from planned to market economies in the 1980s and 1990s, there was something of a large-scale social experiment of the ordoliberals’ views outside of Germany. Several transition economies followed the macroeconomic policy recommendations of the so-called Washington Consensus, which emphasised the laissez-faire side of liberalism – decentralization, deregulation and privatization – while downplaying the legal and institutional underpinnings of a wellfunctioning market economy. The “poster boy” for this approach was Chile in the 1980s under the influence Augusto Pinochet and German immigrants connected to his regime, together with the so-called “Chicago Boys.”3 While quite striking results were achieved initially, leading Milton Friedman to refer to “the miracle of Chile”, financial speculation and foreign debt quickly built up behind the scenes. Moreover, privatisation allowed formerly public monopolies to become private monopolies – precisely what market-oriented reforms were supposed to avoid. The speculation bubble then burst in 1982, after which economic policy changed track. A similar pattern was observable in other transition economies. Russia, for example, privatised and liberalised extensively following the collapse of the U.S.S.R.

From an investor protection standpoint, one may have drawn a sigh of relief, as any potential issues about misrepresented risk profile disappeared, but from a financial stability perspective, it was obviously disturbing. In a short space of time, billions of assets showed up on already over-extended bank balance sheets. One may think it somewhat surprising that (almost) all the banks decided to absorb their SIVs, especially since it must have seemed likely that the SIV structure would not come back any time quickly as a viable funding structure. We believe that the main reason for doing this was that not doing so would have sent a distress signal to the market. In other words, if a bank chose not to absorb this problem, the perception would be that they simply could not afford to do it, thus telling the market that they were in even worse shape than previously feared. There may also have been an element of “repeat game”. If one lets one’s investors take the pain, then they may not return for future transactions. It seems plausible that if the SIV crisis had transpired during a time when most other markets had remained functioning, the decision making process might have been very different. “Signalling” is at its most powerful when the level of uncertainty in the system is highest.11  10  The one notable exception was Standard Chartered, which let its “Whistlejacket” SIV unwind. 11  The issues arising from ABCP conduits were similar, although the structures were slightly different.
It depends on the timing of such an episode. By then, I hope that fiscal policy can become more active in reacting to such a development. It will be very important to have more fiscal space, and to use it. And that’s related to some of the reforms that are needed for monetary union to work better. Presumably, interest rates by then would not be sufficiently high for a reduction in rates to be a sufficient response. Other monetary policy tools, then, would have to be used. I think one possibility would be to go into yield curve control, meaning targeting specifically some interest rates for longer term maturities. That would require lower amounts of purchases to be achieved than we have at the moment under our asset purchase programme. It would work because it could lower medium to long-term interest rates, which are the relevant ones for expenditure decisions. Yield curve control is being used already in Japan – and it works. It has not distorted markets. [Former Chair of the US Federal Reserve Ben] Bernanke has a good answer to this issue of distorting the markets, which is to say that purchases by the central bank of government securities with different maturities have exactly the same impact as a change in maturities done by the Treasury itself. The public sector always impacts the yield curve, one way or the other.

How have you seen the relationship with markets and with banks change during your 34 years in central banking? Back when I began, the European financial system was much more bank-based than it is now. That was true everywhere, but it was particularly true in Europe. Monetary policy was totally directed towards bank’s behaviour. In 1973 in the United Kingdom, you had limits to deposits, which was a new attempt to put some limit on banks’ ability to expand their balance sheets. Many other European had credit ceilings. Italy, France, Portugal, Spain all had ceilings, some up to the end of the 1980s. It was only after that that more market-based monetary policy instruments started to become more significant. The growing importance of markets and the liberalisation of the controls exerted by central banks on the activity of banks started to change monetary policy in Europe completely, especially since the 1990s. We’ve ended up with the present inflation targeting regimes, using interest rates as the main tool to control the spectrum of market interest rates. The importance of banks in financing the economy has continued to decline and this requires a change in approach in the future. All these new fields beyond banking require some degree of regulation that is still not there, and this in my view will become more and more clear as marketbased finance continues to grow to a huge size. The approach will need to become much more intrusive, and will be a return to the past in that respect.
Moving the fed funds rate into the target range During normalization, the Fed intends to move the fed funds rate into the target range established by the FOMC primarily by adjusting the IOER rate. A key development in the conduct of monetary policy in recent years was the introduction of the Fed’s ability to pay interest on reserve balances held by depository institutions. In the environment of elevated reserve balances that resulted from the Fed’s asset purchases, the payment of IOER – currently at a rate of ¼ percent – has helped to keep the fed funds rate within its target range. 5 The IOER rate is the rate of return on a riskless overnight deposit held at the Fed. As such, it may be thought of as the opportunity cost of making an alternative investment, such as a loan or the purchase of a security. Accordingly, if all money market participants were eligible to earn interest on reserves, money market rates would likely be at least as high as the IOER rate; no institution would want to lend to a private entity at a lower rate. Even without universal access to IOER, in the absence of frictions, competition would be expected to lift money market rates up to the level of the IOER rate, since banks would make an arbitrage profit on any funds they borrow at a lower rate and deposit at the Fed.

Prevailing academic consensus requires this sustainability to be anchored in simple and effective policy rules, such as an inflation targeting regime and some kind of fiscal sustainability law. Furthermore, sustainability is mutually reinforcing: inflation expectations can only be anchored if the fiscal policy does not rise destabilizing fears while, at the same time, the fiscal policy can be more sustainable if it is not burdened by excessively high interest rates, fueled by a not so credible monetary policy;  –  Policy credibility: monetary and fiscal policies need to be credible. Policy credibility arises from a combination of a clear and sustainable policy framework, the right structure of incentives, as well as a positive track record;  –  Policy awareness: in other words, the recognition of different goals, different transmission channels and different time frames, informing and constraining monetary and fiscal policies. In the long run, a balanced policy mix would minimize demand volatility, enhance the allocation of resources, and promote long-term growth. Effective policy coordination would limit the fiscal deficit to a level that can be financed via capital markets, without recourse to monetary financing, without distorting the allocation of resources, and without unsustainable external borrowing. Effective policy coordination would also bind monetary policy towards achieving its price stability mandate, thus reducing long-term risk premia and supporting financial stability. As a corollary to all what I mentioned, a weak stance in one policy area burdens the other policy area with excessive demands.
But since the end of 2008, the BNB focused on the capital and liquidity relief for banks while also allowing them to ease lending. As a result of these conservative and countercyclical policies of the BNB, and the rather prudent behaviour of the banks themselves, today Bulgaria manifests a very stable banking sector, with outstanding capital adequacy and liquidity ratios. Four years after the Lehman Brothers collapse, the banking system of Bulgaria remains one of the few in the EU where no single bank needed to be rescued or supported with taxpayers’ or central bank money. Merging the monetary and macropdudential mandates (including banking supervision) under the auspices of the central banks is currently being implemented in some of the “older” EU Member States. The macroprudential oversight of the financial system is being introduced only recently at the EU level. While these new concepts are now being embraced by central bankers and politicians worldwide, the simultaneous pursuit of both monetary and banking stability, from a true macroprudential perspective, has been the order of the day for the BNB for more than a decade now. Through our own painful experience with a crisis in 1996–1997, we became fully aware of the systemic importance of the financial system. Thus a key element behind the success of the overall policy mix in Bulgaria is that our central bank is entrusted with the tasks and responsibilities to regulate and supervise the banks in the country, with the goal of ensuring the stability of the banking system.

This is an opportunity for us to discuss the success of Bulgaria’s monetary policy regime in the broader context of the lessons from the current crisis. The speakers and discussants from the BNB today and tomorrow will share the knowledge we have acquired, based on our rich institutional experience. The experience of the Bulgarian central bank is unique. We are one of very few central banks in the world which have both practiced “conventional” monetary policy (involving setting of policy rates and conducting open market operations) and then operated a currency board after that. We have had a track record, during the last two decades, of monetary policy under two remarkably contrasting regimes. Thus our legacy is very different from that of the other similar monetary policy regimes in Europe (such as Estonia, Lithuania, or Bosnia and Herzegovina), where the currency boards were adopted by newly-established central banks in newly-independent states as a means of bringing confidence in a new national currency, promoting political emancipation and national identity. That was not our case, however. The currency board arrangements were introduced in Bulgaria exactly 15 years ago with the very same motivation that stays behind the current reform agenda in the euro area. We did it in order to achieve a much more efficient macroeconomic management and to bring in credibility in the whole policymaking process. Furthermore, the case of Bulgaria demonstrates the importance of maintaining wide consensus among politicians and the society at large, on the key principles of economic policy.