samchain/econo-pairs-v1 huggingface dataset:
Koh Yong Guan: The economic outlook and monetary policy in Singapore  Statement by Mr Koh Yong Guan, Managing Director of the Monetary Authority of Singapore, delivered at the MAS Annual Report 1999/2000 Media Conference in Singapore on 27 July 2000. *  *  *  Introduction We have had an eventful year as we supported Singapore’s recovery from the Asian crisis and persisted in our efforts to liberalise the financial sector. The economy turned in an impressive performance in 1999 compared with the year before, showing clear signals that we have emerged from the crisis. Having weathered the crisis, the economy is now more resilient and better prepared for external shocks. Let me first highlight some pertinent points on our outlook for the domestic economy as well as our monetary policy stance. The economic outlook and monetary policy In July last year, MAS had noted that the Singapore economy was picking up faster than expected, although recovery had not extended to all sectors. Manufacturing had posted strong growth in the first half of 1999, but construction, commerce, and most financial services remained weak. The economy was still operating below potential, and the inflation outlook was benign. MAS therefore took a neutral exchange rate policy stance, to reinforce the government’s cost reduction measures and facilitate economic recovery. The trade-weighted $ remained roughly unchanged over the past year, fluctuating within its usual band, although the $ bilateral exchange rates varied significantly against individual major currencies on account of volatility in the global currency markets.

Inflationary pressures have been held down by greater competition in several segments of the economy, particularly in the supermarkets and telecommunications industry. Strong productivity growth has also helped neutralise the inflationary effects of increases in nominal earnings and the partial restoration of the employers’ CPF contribution rate. 1  BIS Review 62/2000  Looking ahead, we expect the growth momentum to be sustained for the rest of 2000 and to moderate only slightly next year. This is underpinned by the favourable outlook for the external economic environment. Economic activity will be led by steady growth in the manufacturing sector and a strong pick-up in the services sectors. Domestic spending is also expected to remain strong. We expect the remaining slack in the economy to be taken up within the next 12 months. As the labour market tightens further, wage pressures will begin to emerge. Imported CPI will also rise, as higher commodity prices filter through to higher import prices of consumption goods. We expect CPI inflation to edge up slightly, to about 1-2% in 2000 and 2001. MAS is, therefore, prepared to allow a gradual and modest appreciation of the Sing dollar on a trade weighted basis in the coming year, in line with the strengthening of economic fundamentals. This would contain any incipient inflationary tendencies without exerting undue pressure on our competitiveness, bearing in mind the tightening labour market and the progressive restoration of employer CPF contributions.
8 [30]  Well, the Silicon Valley Bank run resulted in the US authorities deciding to guarantee all deposits in the two worst affected banks. They felt they had to do this to prevent the problems from spreading. The bank run in the United States also happened very fast. Technological developments allow depositors to move their deposits with a few keystrokes, to other banks, to money market funds or to crypto-assets. Social media also makes the information spread faster than before. All this raises the very fundamental question of whether the deposit guarantee scheme actually fulfils its purpose of providing security to depositors, reducing the risk of bank runs and, on the other hand, reducing the problems of moral hazard. These are difficult trade-offs and need to be carefully analysed. Ways forward? So how should we proceed now? I note that when large price changes occur in the stock market, for example, so-called "circuit breakers" are introduced, i.e. trading is shut down for a short time to allow traders the opportunity to reassess the situation. I am not convinced that this approach can be applied to banks, but perhaps it would work if a larger proportion of deposits were fixed in time so that depositors do not have the right to withdraw them until at maturity. A larger interest rate difference between regular deposit accounts and accounts with a fixed maturity might lead more depositors to choose the latter option.

14 [30]  One lesson to be learned from the post-financial crisis period is that an expansionary monetary policy over a long period of time can entail a conflict between price stability and financial stability. The conflict was exacerbated by the signs that new problems could manifest themselves in the financial markets if the large asset purchases were concluded prematurely. This was called “taper tantrum”.23 There was also a risk that the private sector had become so dependent on central bank liquidity that the effect of reducing the balance sheets could be greater than the stimulus provided by the asset purchases.24  Risk of new conflict between price stability and financial stability after the pandemic When the pandemic broke out at the beginning of 2020, central banks introduced further expansionary monetary policy measures to facilitate access to credit and liquidity, thereby reducing the risk of interest rates rising so strongly that the economic situation worsened. This time, too, there was no conflict between price stability and financial stability. The expansionary monetary policy increased demand – which helped to sustain inflation – while supporting financial markets. A central task for central banks in acute phases of economic crisis is to be the lender of last resort. Recently, the central banks’ task of ensuring that the markets function (market maker of last resort) has also come into focus. If viable and systemically important banks in distress experience temporary liquidity problems, they can apply to the central bank for emergency loans.
Primary market indicators reflect the past three months, to smooth volatility. (Where primary market spreads are not available, mainly affecting the CMBS series in some periods between late 2009 and 2011, primary market indicators are based solely on issuance.) (b) Updated to end-August 2012. Market functioning in 2012 has developed in a rather unexpected way. Despite regular crisis points and the fading of the LTRO effect, we have seen (implied) volatility and skews derived from options prices fall to post-crisis lows across a range of markets (Chart 4). One might have thought that the heightened sense of uncertainty about economic developments would lead to the opposite. What has been going on? I think there are several influences pushing down on market volatility. One is the perception that central banks are on permanent standby to deal with tail risks. Another might be a realisation that certain types of financial protection are not worth having: for example if the counterparty selling the insurance (eg options or CDS) might not survive the tail risk it is selling protection against. And it has been seen as better not to take such risks rather than to try and hedge them. So demand for some types of protection may have fallen for that reason. A further observation is that market participants have to some extent grown accustomed to the perpetual state of crisis and decided that the show – albeit a chaste and less spectacular show – must go on.

Of course, one of the big problems facing a macroeconomic policy maker is the difficulty of setting out ex ante success criteria. We can’t perform controlled experiments on the macro economy. What matters is whether policy makes the outcome better than it would otherwise have been – but that alternative reality – the “counterfactual” in economic speak – is always a matter of conjecture and debate. Nevertheless I believe the scheme provides all the right incentives to increase the supply of credit. A second problem for macroeconomic policy is that we cannot rely on the usual “ceteris paribus” assumption of economic theory – when we make large changes in policy then everything else changes too, including the behaviour and expectations of those very people we are trying to influence. And policy effects which are relatively small can nevertheless be absolutely significant if the policy change is large enough. In fact, the FLS is designed to take advantage of the pressures to change behaviour. The FLS provides strong incentives to banks and building societies themselves – because the more they lend, the more they benefit. Either because of the price effect on those deleveraging and/or quantity effects on those expanding. And we have built in incentives that enhance competitive pressures between the lenders. They cannot afford to miss out on lending opportunities – or their competitors will take advantage. I think this will help answer the second question about whether lending will go to the people who are perceived as most need in need of it.
On the other hand, future financing needs related to “recovery and repair” should be the natural domain of European financial solidarity. B. Our common instruments : combining solidarity and responsibility I believe that an "effective and collective exit strategy" should combine four cornerstones of the European recovery – : (i) an ambitious “recovery plan” to provide European financial solidarity, (ii) a clarification of fiscal rules ensuring the responsibility of Member States, (iii) a Financing Union for Investment and Innovation fostering “private risk-sharing”, and (iv) an accommodative monetary policy, against the backdrop of low inflation. Page 8 sur 10 a/ Regarding the first cornerstone, an ambitious "recovery plan", the discussion so far has focused on its amount – it should be above EUR 1 trillion which is roughly the expected loss of euro area GDP this year – or on its structure: should it take the form of loans or grants? Let me answer clearly: it should combine both. Hence, as agreed by the European Council on 23 April, it will be crucial to combine the recovery fund with the next multiannual financial framework – which should be increased. But let us now discuss the content of the fund. First, it should target investments that generate additional potential growth. Second, it should include a "European value added", with positive cross-border spillover effects. Climate change, digital technologies, research and development are good candidates if we know how to be selective. “Technical” institutions such as the European Investment Bank (EIB) could be entrusted, and possibly “pari-passu” with private money.

Most economists see this shock as disinflationary and expect it to remain so in the next phase as demand around the world recovers more slowly than supply. The IMF forecasts inflation rates of 0.2% and 1.0% in 2020 and 2021 for the euro area. The European Commission forecasts are roughly the same. Let me remind you that our inflation objective of “below but close to 2%” is both symmetric and mid-  Page 10 sur 10 term: it should not be a ceiling, nor completely ignore past inflation developments. As I said, I fiercely stick to our monetary independence – and oppose fiscal dominance –, and to our mandate focused on price stability. But in the present context, this mandate does not prevent action: in the very name of our mandate, we will probably have to do more, and maintain low interest rates and abundant liquidity for longer. Nor does independence prevent cooperation. On the contrary, the stronger the Economic Union – including its budgetary and financial components – the more effective monetary action will be. Take the example of the Federal Reserve in the United States which can count on a strong fiscal and monetary policy-mix. *** Over the past 20 years, the euro area has essentially forged ahead through crises. Today it is facing another moment of truth. As a golden thread, famously illustrated by Mario Draghi’s “Whatever it takes” in 2012, stands the unlimited commitment of the ECB to the euro.
In this field too, the euro area has made considerable progress over recent years, especially in the countries that had a particularly large competitiveness gap vis-à-vis the rest of the zone and which, as a result, fell deeper into the crisis than their neighbours: •  We have seen a significant improvement in cost competitiveness as measured by unit labour costs (ULC). Between 2008 and 2012, in the three programme countries (Greece, Portugal and Ireland) cumulated ULC growth stood about 12 percentage points below the euro area average. •  The current account balances clearly show a strong correction. In the three programme countries, the current account balances as a percentage of GDP improved by more than 9 percentage points between 2008 and 2012. In Spain, the current account deficit improved by more than 7 percentage points over the same period. Most of the adjustment has been driven by a contraction in domestic demand. However, in Ireland, Spain and Portugal export performance has been very strong compared with the pre-crisis period. 2  BIS central bankers’ speeches  In total, the euro area generated a trade surplus of more than 1% of its GDP in 2012 compared with around zero in previous years. We expect this surplus to continue growing in the coming years. The speed and depth of the reforms underway in euro area economies is unprecedented.

These costs would have had to be included in order to provide a complete overview of society’s total costs related to the payment system. Users’ participation in the production of payment services does not necessarily have a positive impact on society’s overall efficiency in the production of payment services. Increased use of e-invoicing will, however, increase the efficiency of electronic bill payment. The survey does not cover the payees’ costs related to invoicing. BIS Review 66/2002  5  8. Price developments 1993 - 2002 Paper-based services  Electronic services  2001 NOK  4 2001 NOK  40  3.5  35 Giro cash  30  3  Giro at the counter  25  Telephone giro  2.5  20  2  15  1.5  Cheque  10  EFTPOS  PC/Internet giro Direct debits  1 Mail giro  5  0.5  0  '02  20 00  98  96  94  '02  98  20 00  96  94  0  Both developments in the use of payment services and research show that prices affect customers' use of different payment services. Despite the price increase for most paper-based services, the weighted average price per transaction, at constant prices, has fallen since 1994. 9.
The last time petroleum investment showed a strong increase, in 1997/1998, the rise was considerably sharper than had been assumed. At the same time, the rest of the Norwegian economy was experiencing an upturn. The unexpected increase in petroleum investment contributed to substantially stronger-than-projected economic growth. If oil prices rise further or remain at the current high level for a long period, petroleum investment may again reinforce the cyclical upturn more than projected. Monetary policy The analyses in Inflation Report 2/05 are based on a baseline scenario where the key rate shadows forward interest rates up to 2007, and then rises somewhat more rapidly. The krone exchange rate is assumed to shadow the forward exchange rate, which remains broadly unchanged over the next three years. Capacity utilisation in the Norwegian economy is expected to increase this year and next and exceed its normal level. There are prospects that inflation will gradually pick up and be close to 2½ per cent at the three-year horizon. Since the publication of the June Inflation Report, prices for domestically produced consumer goods have risen slightly less than expected. At the same time, oil prices have been somewhat higher than assumed. Energy prices are pushing up consumer price inflation. 4/7  New information since the publication of the June Inflation Report does not provide grounds for changing the assessment of developments in the real economy.

In addition, to inject greater impetus for market participants to shift from SOR to SORA, MAS, together with the SC-STS, will outline guidance by October this year, on specific deadlines to cease the usage of SOR in new financial products. It is important to provide forward guidance on this matter, so that banks and endcustomers can move in a concerted way towards achieving a smooth transition. This ensures our financial system is well-prepared ahead of end-2021. The forward guidance also matters from a risk management point of view. With the end-2021 deadline approaching, it is not prudent for banks and end-customers to enter into new SOR contracts that mature beyond end-2021. Doing so only compounds the problem that banks and customers will eventually have to deal with. 19 Third, is the need to build a bridge of clear and effective communication between  banks and end-customers. MAS expects banks to engage customers in a clear, timely and transparent manner. This includes raising customer awareness and providing clear explanations on: the global move towards using overnight near risk-free rates, the shift to SORA in the SGD interest rate market, how this benchmark transition will impact them, and how customer spreads over the loan reference rate may have to be adjusted to account for the economic differences between SOR and SORA, given that SORA is an overnight rate that lacks a term and credit risk premium. 20 When engaging customers on benchmark transition, banks should take into account MAS’ Fair Dealing Guidelines.
As a result of these various failings globally and domestically the financial system acted as an amplifier, intensifying the UK economic downturn at great economic and fiscal cost. Budget 2009 detailed the largest fall in UK GDP since the Second World War and forecast a near doubling in the fiscal debt ratio in just four years, from 36% of GDP in 2006-07 to 69% in 2010-11. In order to underpin the UK’s economic and fiscal position, the Government took the unusual step, at least in public finance terms as I am sure this expert audience would appreciate, of making, what amounted to, a provision of up to £ or 3½% of GDP, for expected losses on its many and various interventions in the UK banking system.3  Clearly, the options authorities had to manage the failure of financial firms were insufficient, which led to some difficult and disruptive choices. The lack of a credible resolution framework is self-evident in the scale of taxpayer bailout. Of course, in the absence of the counterfactual, it is impossible to precisely quantify the impact of the lack of a credible regime. But I agree with my colleague, Jon Cunliffe, that the negative impact was likely to be considerable.4  Transparency around what is likely to happen if a bank fails is a fundamental complement to a credible resolution regime. Authorities previously relied upon it being ‘constructively ambiguous’ as to whether or not they would bail out a failing bank.

With the 2021 Budget just around the corner I want to take you back to the April 2009 Budget, just under twelve years ago, when, in my role as Chief Economic Adviser to the Treasury, I had to advise on the consequences of the deficiencies in the global and UK pre-crisis regulatory framework. By spring 2009, what had started in the summer of 2007 as a liquidity crisis in global financial markets turned into a solvency crisis for a number of global and UK firms, resulting in the UK government bailing out banks and injecting public  1  For more information see the Bank of England’s written evidence submitted to the TSC’S 2017 capital inquiry 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  money to the tune of £ to stabilise the financial sector2. The contingent liabilities that the UK government had taken on to support bank funding or to underpin some major banks’ balance sheets dwarfed that sum. At that time, we saw the very serious consequences of the lack of appropriate focus on the safety and soundness of individual banks and the financial system as a whole, including the absence of a credible resolution regime – by which I mean a regime that sets out our aims, to manage the orderly failure of institutions, accompanied with the tools to deliver them.
And, the Committee made a conscious decision to signal that in view of the likely path of growth and inflation further tightening of monetary policy was necessary and could be achieved at a relatively gradual pace. We are now in the process of emerging from this rather exceptional period, and this provides us with an interesting context in which to reflect on uncertainty and how it affects the conduct of monetary policy and communications about monetary policy. The degree of confidence in the sign and shape of the near-term path of the fed funds rate we've seen in recent years is unlikely to be a common feature of monetary policy in the United States or in other countries. The simple reason for this is that the economic circumstances that precipitated the policy were also not typical. There are likely to be times when incoming data deviates substantially and persistently from our forecasts. In those situations, policymakers have to examine whether they have significantly misestimated certain fundamental features of the economy, such as the NAIRU or the trend productivity growth rate, that might alter the appropriate course of monetary policy. Central banks everywhere conduct policy in a state of limited knowledge about the economy and how best to achieve their objectives. The sources of uncertainty they confront are many and varied. Sometimes, what we think we know about how the economy works turns out to be wrong, either because certain features of the economy have changed, or because our understanding was not right in the first place.

The mainstay of our economic growth, the other 77%, came from growth in productivity. Since 2013 only 9% of our annual economic growth has come from productivity improvement. The remaining 91% has come from the increase in the total hours worked As a result, employment in the UK is now around its highest rate since comparable records began in 1971. Over 73% of people aged 16–64 are working. There are now over 31 million people in work in the UK. 1  2  See Jones C I (2015) ‘The Facts of Economic Growth’, NBER Working Paper No.21142. BIS central bankers’ speeches  Unemployment has fallen at among its fastest rate for 40 years and is now very close to its pre-crisis level – over the past two years over 1 million jobs have been created. The benefits of this are clear. Perhaps only a proponent of the ‘dismal science’, only an economist would find something here to worry about. But the fact is that we can only go so far down this route. Since 2013, the economy’s output has grown by some 5%. But though we have increased by 5% the amount we have produced, we have increased even more the hours worked to produce it. And as a result the simple arithmetic means our productivity growth has been broadly flat. And the low of productivity that has resulted is one of the main reasons why pay growth has remained so low.