samchain/econo-pairs-v1 huggingface dataset:
OMTs will be conducive to the monetary authority restoring its power to control credit conditions in the euro area and, through that channel, inflation in the medium term. It thus creates the conditions for a transition from a regime of undisciplined fiscal policies – from a “non-Ricardian” or “active” fiscal policy, using the terminology of the economic literature referred to above – to a regime where fiscal policy respects its inter-temporal obligations – it becomes “Ricardian”, or “passive”. This means that monetary policy has regained its pre-eminence in determining credit conditions and inflation. This renewed assignment of tasks pushes back fiscal dominance and affirms monetary dominance. The second concern can be formulated in terms of the question: will OMTs bring large risks to the central bank’s balance sheet? The answer again is: no. OMTs establish a second type of interaction: between the central bank, real money investors and households and firms,  BIS central bankers’ speeches  7  which save and borrow to finance real economic activity. To the extent that break-up and reversibility premia are squeezed out of bond pricing, real money investors will return to the euro area securities market, and the prices of securities will again better reflect the fundamentals. Households and firms will benefit from restored credit conditions. And the associated widespread reassessment of risks will make market portfolios and the central bank portfolios grow in value. Ultimately, strict and effective conditionality could be seen as acting as a credit enhancement of all euro area portfolios.

Fernando Restoy: European reform – challenges for the Spanish banking sector Presentation by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, of Issue no 137 of Papeles de Economía Española “Constructing a Banking Union”, Fundación de las Cajas de Ahorros (FUNCAS), Madrid, 11 November 2013. *  *  *  Good evening. Thank you, José María, for your introduction. I am delighted to be here on the occasion of the publication of Issue no. 137 of Papeles de Economía Española, under the title “Constructing a banking union”. I understand it contains articles of great quality and interest, which is no surprise considering the calibre of the contributing authors. During the seminar this evening, I imagine you will have dealt in depth with the main elements of the Banking Union project. Allow me to add my own thoughts on the significance of this process and its consequences for the banking industry. I believe the history of European integration categorically illustrates how this process has been subject to diverse and complex forces that reiteratedly test its ability to move forward. These destabilising forces usually arise from the interaction between exogenous shocks and internal structural deficiencies. During the most recent bout of instability, this has again been the case: the international financial crisis has revealed substantial structural flaws within the monetary union, allowing marked imbalances to emerge in national economies and making their correction difficult without upsetting the stability of the common monetary area.
BIS central bankers’ speeches  Monetary policy The task of evolving our liquidity insurance framework will not end, but given the substantial reforms made to it over recent years, it is likely that the focus will shift to monetary policy implementation, as and when the MPC decides to move policy away from its current settings. As the head of the Markets Directorate it is not my role to speculate when the policy setting might change, but it is my job to ensure that decisions of the MPC are implemented effectively. That involves, in particular, ensuring that we have the tools needed for effective monetary control; that is, keeping overnight market interest rates in line with Bank Rate. The Bank’s current approach is to pay Bank Rate on the full balances held in reserves accounts. This is known as the “floor” system. As set out in the SMF Annual Report, this approach remained successful at keeping sterling overnight market rates close to Bank Rate during 2014–15, with the “wedge” between policy rates and market rates relatively small over the past year. But over the year, activity in the sterling money markets remained low as the floor system, alongside a large-scale injection of reserves through QE, reduced the need for banks to transact in money markets. In the near-term, I expect that this system will remain effective at moving market rates in line with any change made to policy rates by the MPC.

And the auctions are responsive to market conditions, with the amount of liquidity available rising automatically if there is greater demand. Reflecting the improved financial positions of banks and building societies, and the liquidity provided to the market through QE, the Bank’s liquidity insurance facilities saw relatively modest usage over the year covered by the most recent annual report. More recently, however, usage has increased, as banks sought to make use of the liquidity insurance provision on offer by pre-emptively securing term funding ahead of a  BIS central bankers’ speeches  1  period of potential uncertainty around key events, such as the UK general election, and Greece. This pattern of usage is encouraging and welcome, as it demonstrates that banks are prudently managing their liquidity position ahead of potential risks, and that the ILTR is an active part of their liquidity management. Despite the increase, however, demand has remained relatively low, with just over £ billion allocated in the May operation: a high water mark for the expanded ILTR operation. Looking back to 2007, before the crisis, the cumulative changes we have made to the SMF have been transformative. The SMF now has 164 members, more than double the number signed up in 2007, with banks and building society SMF members accounting for 98% of total sterling deposits. The drawable value of collateral delivered to the Bank for actual or potential use in the Bank’s facilities has increased dramatically, and stood at £ billion at endJune 2015.
The inflation target is symmetrical – it is just as important to avoid an inflation rate that is too low as an inflation rate that is too high. The inflation target provides economic agents with an anchor for inflation expectations. Decisions concerning saving and investment can be based on the assumption that inflation in Norway will be around 2½ per cent over time. Norges Bank’s instrument to meet the inflation target is the key policy rate, which is the interest rate on banks’ deposits in Norges Bank. This interest rate forms the basis for banks’ lending and deposit rates. 2  BIS central bankers’ speeches  The Bank’ monetary policy assessments and decisions must be based on knowledge it can obtain on interactions within the Norwegian economy and how the interest rate interacts. But we need a methodical apparatus to structure this knowledge. Like other central banks, Norges Bank uses economic models as an aid in monetary policy analysis. Economic models can help us to interpret historical developments, make forecasts for the future and analyse the effect of the interest rate. For an economic model to be relevant, it must be fit for its intended purpose. A model that is to be used as an aid in making interest rate decisions requires different attributes and is based on different principles than models that for example seek to provide optimal near-term inflation and output forecasts. In this chart, the time axis has been divided into three: short term, medium term and long term.

The blue line in the chart shows that GDP growth was markedly higher than trend growth in the latter half of the 1990s and in the period from 2003 to 2008, but that it has risen somewhat more slowly in the period following the financial crisis. When developments in output are compared with inflation, a pattern emerges. A pickup in GDP growth has consistently occurred 4–5 quarters before a rise in inflation.5 While the chart says nothing about causality, turning points in GDP growth seem to be a fairly reliable leading indicator of turning points in inflation. The path from changes in output to inflation passes through the labour market, among others. We have seen that when economic growth has picked up, unemployment6 has declined one to two quarters thereafter. The relationship between the “output gap” and the “unemployment gap” is fairly strong. This is a useful observation because GDP figures are published with a considerable lag and often subject to revision, while the unemployment data published at the end of each month are not revised. If there is uncertainty about the GDP figures – which there often may be – falling unemployment can be an indication of a recovery in economic growth. Labour market developments, in turn, affect wage growth, as illustrated by the blue line in the chart. High unemployment results in low wage growth, and vice versa. The chart shows that in periods of falling unemployment, wage growth7 moves up fairly rapidly.
As my newsagent told me the other day: “Don’t believe everything you read in the newspapers – they are all in the hands of the media.” The argument for including employment explicitly in the formal remit of the Monetary Policy Committee is often bolstered by reference to the objectives of the Federal Reserve in the United States, which is charged by statute with promoting “the goals of maximum employment, stable prices, and moderate long-term interest rates”. At first sight, this appears to contrast with the remit of the MPC which is: “(a) to maintain price stability and (b) subject to that to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment”. But what matters most is the intellectual framework underlying the behaviour of the central bank. The Federal Reserve’s remit does not make clear if the FOMC is supposed to try to exploit some long-term trade-off between employment and inflation. But the practice is clear. Under Alan Greenspan’s leadership, the FOMC has firmly rejected the notion that by accepting a somewhat higher rate of inflation it is possible to achieve a permanently higher level of employment. It is conventional to express the implications of a vertical long-term Phillips curve in terms of the statement that unemployment can be held below the natural rate only by accepting accelerating inflation – or, to be more precise, an inflation rate higher than anticipated by wage bargainers. Equally, however, the statement can be turned the other way round.

We would also have had to try to understand why the zigzag profile of the new Average Earnings Index was not visible in other measures – shown in chart 4 – of nominal earnings growth, such as wage settlements and private surveys. As I have said BIS Review 103/1998  –8–  elsewhere, trying to reconcile the new earnings series with other labour market data is far from easy. The Chancellor wrote to Giles Radice, the Chairman of the Treasury Select Committee, on 23 October announcing that he had asked Sir Andrew Turnbull and myself to conduct a review of the revisions to the average earnings figures. The review, which is considering both methodological and managerial issues, is being carried out by Martin Weale of the National Institute, supported by Peter Sedgwick of the Treasury. Martin and Peter have made an enormous effort over the last month or so to finish the review as quickly as possible. However, exactly when the Report will be finished and what it will conclude are, I am afraid, still not known. As a result, the ONS has yet to decide when to resume publication of the average earnings series. All I can say today is watch this space. The labour market and the objectives of monetary policy In the final part of my talk, I want to turn to the question of what this analysis of the labour market implies for monetary policy.
And we face a number of important challenges in making sure our system is as strong as it can to be. But the substantial competition from a diverse set of financial institutions, including a strong presence by foreign financial institutions, is an integral part of what makes our financial system work well. Our system would not be as efficient or as innovative, and our financial institutions would not be as strong, if we were less open or less committed to giving all institutions similar national treatment and equality of opportunity. I thought I would give you a brief overview of the some of the key challenges we face as supervisors and those that confront the risk management community. The fundamentals of the present U.S. expansion seem relatively strong, with confidence in its sustainability increasing. As the balance of risks to the outlook have evolved, and the financial markets have built in expectations of a move to less accommodative financial conditions, this is a good time to assess how well the U.S. financial system is positioned to deal with this transition, and to withstand the effects of future stress, if that were to materialize. From our perspective, the U.S. financial system is in reasonably strong shape. Risk adjusted capital ratios are strong, and earnings have been robust. Non-performing loan ratios are very low - at about one percent on average across the banking industry. The financial markets are pricing risk in exposure to financial institutions at what are still relatively low levels.

Timothy F Geithner: The changing face of risk management Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Institute of International Bankers, New York, 9 June 2004 *  *  *  It is a pleasure to join you today for this meeting of the Institute of International Bankers. The financial institutions you represent play a major role in our financial system. The IIB has played an important part in shaping financial policy in the United States, by reminding us with force and persistence of the impact of our actions on the standards of fairness and equality of opportunity that we strive to maintain. The U.S. financial system has a number of features that help to make it attractive to participants from all around the world. The structure of our financial system is characterized by a diversity of channels for financial intermediation, with a relatively larger role for the capital markets and a smaller role for banks, than is true in most other major economies. And we have preserved, despite substantial consolidation, a system that comfortably accommodates the largest globally-active financial institutions side by side with a competitive and diverse array of regional and community banking organizations. We are very open to the presence of foreign financial institutions, and perhaps as important, have traditionally been very open to attracting non-U.S. financial talent to work in our markets.
The labour market is tightening in Sweden, Poland and the Baltic counties, which may mean that labour flows from this source may not increase as rapidly ahead. When the cyclical upturn is in a mature phase, productivity growth will normally drop back somewhat. Capacity utilisation is now very high in most industries. The network of private and public enterprises with which Norges Bank has continuous contact report little spare capacity in most industries and regions, and labour shortages in almost all occupational categories. There are shortages of drivers, pre-school teachers, supervisors, engineers, carpenters, architects, auditors, accountants, IT personnel and health workers. In some regions, enterprises report that the number of vacancies is now higher than the number of job-seekers. There are also reports of shortages of other factor inputs. It has probably not been since the 1970s that we find such widespread reports of purely physical production constraints, for example now in the form of shortages of rigs and other equipment in the petroleum industry or shortages of plank, concrete, insulation and scaffolding in the construction industry. There are also long delivery times for capital equipment such as industrial machinery and road haulage vehicles. 2  The analysis is based on national accounts figures. There is considerable uncertainty associated with the variable real capital in this statistics. BIS Review 47/2007  7  When so many enterprises are faced with capacity constraints, we can probably expect higher inflation. A rising number of enterprises in our regional network expect a faster rise in selling prices ahead.

Prices for imported consumer goods showed a considerable smaller decline than in the three preceding years. Our inflation projections were revised downwards in the light of actual developments through 2006. Underlying inflation has recently picked up somewhat and is more closely in line with that expected one year ago. At the same time as inflation has been low, growth in the mainland economy has been strong, and stronger than expected. The Norwegian economy is booming, after a strong upturn since summer 2003. The upturn followed a period of slow growth from 1998 and a mild recession in 2002 and into 2003. Growth has been stronger and occurred earlier than in the cyclical upturn in the mid-1990s. When Norges Bank reduced the key policy rate in 2003, demand and output rapidly recovered. Strong productivity growth supported the upturn, which was reflected in exports, petroleum investment and  BIS Review 47/2007  3  after a period in general government demand. So far in this cyclical upturn, the mainland economy has grown by an average of a little more than 4 per cent annually. The upturn is now in a mature phase. Even though production increased rapidly, it took a long time for employment to pick up. Employment growth was lower for a long period compared with the upturns in the 1980s and 1990s. Moreover, high growth in labour productivity partly reflected a marked fall in sickness absence in 2004.
22 In addition to making asset purchases, these central banks also developed programs targeting bank lending  channels, given that their capital markets are smaller relative to the banking system compared to the United States. 23 For example, 5-year Fannie Mae debt securities, which had traded, on average, 42 basis points above similar-  maturity Treasury securities in 2007, traded as high as 159 basis points above Treasury securities in November 2008. Similarly, current coupon agency MBS spreads averaged 137 basis points above similar-maturity Treasury securities in 2007; that spread was as high as 288 basis points in November 2008. Both of these spread levels in November 2008 were at or near the highest spread levels in many decades of available data. 24 On November 25, 2008, the FOMC announced purchases of $ billion in agency debt and $ billion in  agency MBS. On March 18, 2009, this program was modified to include a total of $ billion in agency debt and $ billion in agency MBS, as well as $ billion in longer-term Treasury securities. 25 Federal Reserve Board of Governors press release, November 25, 2008. 26 See Hancock and Passmore (2011) 27 See Gagnon, Raskin, Remache and Sack (2010). 28 Note that at that time the Federal Reserve was already in the middle of the maturity extension program (MEP)  which was selling shorter-maturity Treasury securities and purchasing longer-maturity Treasury securities. When the MEP expired in December, purchases of $ billion per month in Treasury securities were added to the LSAP.

And this time, confidence in the value of money is not based on a quantity of precious metal, but on the Bank’s ability to ensure that inflation remains low and stable – confidence that the Bank will keep its promise. History has shown that it can be appropriate to delegate responsibility for price stability to a central bank, with its long-term perspective – even in times of turbulence. Another of the lessons learned over the past few years is that monetary policy cannot be put on autopilot. As the central bank, we have a responsibility for economic stability. Long-term objectives must often be weighed against short-term gains. Maintaining the balance can be demanding. A former Chair of the Federal Reserve 4 said that the role of the central bank is to order “the punch bowl removed just when the party [is] really warming up”. This is a role Norges Bank must be prepared to take on. But not tonight. The past year has also shown that the Bank can ease the burden in difficult times. Today’s key policy rate is the lowest in the Bank’s history. When inflation is firmly anchored, monetary  4  4  William McChesney Martin, Jr., (1955): Address before the New York Group of the Investment Bankers Association of America. BIS central bankers’ speeches  policy can be used to stimulate output and employment and thereby to some extent facilitate the demanding restructuring facing the Norwegian economy today.
As Lord Penrose concluded, “the practices of the Society’s management could not have been sustained over a material part of the 1990s had there been in place an appropriate regulatory structure adapted to the requirements of a changing industry that happened to manifest themselves in an extreme form in the case of Equitable Life”. 1  Report of the Equitable Life Enquiry, March 2004. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Solvency II has many key elements in common with the ICAS regime that followed Equitable Life and was subsequently developed by the FSA and PRA. This was no coincidence of course: the UK government, UK regulators and UK firms were heavily involved in the negotiation of Solvency II. Both regimes require firms to value assets at market prices; both require valuation of liabilities on a ‘realistic’ basis; both include the possibility for firms to determine capital requirements using their own group-wide stochastic modelling and scenario testing; and both set the same ‘1 in 200 years’ target calibration for the level of capital an insurer should hold. As an aside, this is very different to banking regulation, which is largely based on the accounting balance 2  sheet, allows a more limited scope for internal modelling of capital requirements , includes a much greater scope for supervisory capital add-ons under Pillar 2, does not allow for diversification between risk types, includes leverage and liquidity requirements and has seen a very significant increase in capital requirements and buffers since the financial crisis.

On the other hand, the global surplus of savings over investments causes the capital to chase the high yield opportunities, thus increasing asset prices in many countries. An exemplary case may be increases in stock exchange indices, bond prices or real property prices in Anglo-Saxon countries and e.g. in Spain. As a logical consequence, a question arises about how the monetary policy should be conducted in these circumstances, and in particular, whether it should respond to the increase in asset prices despite the fact that inflation of consumer goods and services remains low or very low. Another vital question arises about the appropriate level of central bank interest rates when long-term interest rates remain low, possibly as a result of globalisation. A hot debate accompanies the issue, both among the central 26 27 bankers and among academics. The Chairman of the Federal Reserve, Ben Bernanke, in his address 28 last month, presented possible diagnoses regarding the sources of low interest rates on the bond market despite as many as fourteen increases in the central bank references rates. There are at least two explanations of such situation. If the long-term interest rates remain unchanged and the short-term ones increase, this means that either the markets pessimistically assess the perspectives of economic growth or the risk premium related to forward rates decreases; here this may be the inflation risk premium or real interest rates volatility risk premium. Another explanation may be the very effect of global imbalances, i.e.