samchain/econo-pairs-v1 huggingface dataset:
Krzysztof Rybinski: Globalisation - opportunities, threats and implications for the economic policy Speech by Mr Krzysztof Rybinski, Deputy President of the National Bank of Poland, at a meeting with entrepreneurs who have participated in the economic climate survey carried out by the National Bank of Poland, Rzeszow, 10 March 2006. *  *  *  Ladies and Gentlemen, Welcome to the meeting in the regional branch of the National Bank of Poland in Rzeszow. First of all, I would like to thank very much the management of the branch for their efforts to organise this meeting. Since 1998 the National Bank of Poland has carried out quarterly and annual economic climate surveys of enterprises. Results of this survey allow a better assessment of the state of the economy and the outlook for inflation. They also constitute a vital element of the economic analyses carried out by the NBP. Therefore, I would like to thank all of you for your contribution to the accumulation of knowledge at the NBP about the current processes in the Polish economy. Such knowledge, gained from people who create jobs, make investments and face domestic and foreign competition on a daily basis, is particularly important in the environment of the changing structure of the economy. Structural changes may bias results derived from econometric models used by central banks.

An increase in capital flows in the form of foreign direct investments (and especially the establishment of branches of multinational corporations) and international trade liberalisation favour fragmentation of the production process, consisting in its division into parts located in different countries. Fragmentation of production is also enabled by enhanced transport and information transfer as well as their lower costs (i.e. the decrease in transaction costs). The fragmentation of production is grounded in international differences in the endowments of factors of production and - as a result - in prices of these factors. Multinational corporations divide their production among many different countries in order to minimise costs and make use of advantages of local markets, such as inexpensive labour force or a favourable location. Research and development, on the other hand, and the part of the production process that requires the use of the most advanced technologies and with the highest value added, are often located in the home country, also due to poor protection of the proprietary rights in developing countries. Such a conduct allows the company to benefit from comparative advantages related to different production locations. Moreover, it enables the use of international differences in exchange rates, interest rates, and government subsidies supporting selected types of economic activity, as well as of different structures of customs tariff rates and varying features of internal markets in particular countries, for the purpose of maximising profits. Research 22  17  Based on the data of UNCTAD.
Some observers - including, perhaps, a few in this room - have noted that the effort to incorporate greater risk-sensitivity into the framework inevitably introduces procyclicality into our standards. That is, the capital requirements for loans to troubled borrowers will tend to increase at just the point when such trouble is becoming apparent. This is an important point, and one that we at the Committee are working to address. It is my view that the global financial system needs to move toward addressing potential credit problems preemptively - before these problems have time to grow from minor disturbances into major disruptions. To best accomplish this objective, any supplements to regulatory capital should be incremental or graduated, rather than a sudden ratcheting that could potentially reinforce a cyclical downturn. The second pillar in the proposed new capital adequacy framework has to do with the supervisory review of capital - a critical complement to minimum capital requirements. The Consultative Paper BIS Review 27/2000  8  proposes that supervisors should ensure that each bank has sound internal processes in place to assess the adequacy of its capital based on a thorough evaluation of its risks. In evaluating the strengths and weaknesses of a bank’s internal allocation process, supervisors would draw on, among other things, their knowledge of best practices across institutions. I want to stress that this proposed approach in no way intends to replace the judgment and expertise of bank management, or to shift responsibility for capital adequacy to supervisors.

The willingness of savers to entrust their money to a bank presupposes that those savers have confidence in the financial integrity of the institution - in other words, that their savings will be BIS Review 27/2000  2  available when they need or want access to them. If that confidence is undermined, society’s ability to collect and deploy its savings will be impaired, and the principal means to economic growth and rising living standards - intermediation by banks - will be short-circuited. With this reality in mind, it must be acknowledged that, in the final analysis, commercial banks have only one asset that really matters public confidence. Sound lending - the key to preserving public confidence The key to maintaining the financial integrity of any banking company - and, therefore, to preserving the all-important asset of public confidence - is the credit process. If credit is extended carelessly, banks are likely to incur losses, which in turn will undermine their ability to honor deposit obligations. And if banks’ ability to honor deposit obligations falls into question, if the public’s confidence is undermined, households and businesses will likely rush to redeploy their savings, raising the specter of a flight to cash and real assets with all the associated implications for inflation and destabilizing runs on banks. The best defense against this serious and very real threat is for banks to extend credit wisely, objectively and impartially.
But other reasons were also given when the surplus target was introduced, namely that good public finances create room for stabilisation policy and that an ageing population entails challenges that need to be addressed.2 The surplus target was thus seen not only as an end in itself, but also as a means of increasing the fiscal room for manoeuvre over time. This was, of course, a wise way of dealing with the problems that the Swedish economy had been struggling with for so long. In order for monetary policy and fiscal policy – and thus macroeconomic policy in general – to be conducted in an efficient manner, some basic conditions must be met. One of these is that they are anchored over the long term, and this, above all, was what Sweden wanted to achieve. 1 The Economic Commission (1993), otherwise known as the Lindbeck Commission’s report, remains perhaps the  best account of the crisis of the 1990s and the developments that preceded it. 2 Swedish Government (1997). 2 [17]  Long-term sustainable finances are the anchor for fiscal policy… For fiscal policy, it is crucial that economic actors have confidence in public finances and see them as sustainable in the long term, or, in other words, that public debt is stable in the long term, expressed as a share of GDP.

This symmetry means that both negative and positive deviations from the target are equally undesirable. The ECB too points out that the marked decline in the equilibrium real interest rate has meant that the effective lower bound for nominal interest rates is likely to limit monetary policy more often. It also emphasises that one consequence of this is that strong or sustained monetary policy measures are needed when the interest rate is close to the lower bound to avoid negative deviations from the inflation target becoming permanent. It also notes that the new strategy may mean that inflation periodically will be above the target, but, unlike the Federal Reserve, it has chosen not to introduce an average target.7  Mutual dependence We have thus seen that a prerequisite for fiscal policy and monetary policy to be effective is that they have a stable long-term foundation. For fiscal policy, there must be confidence that public debt is stable over the long term and, for monetary policy, there must be confidence that the central bank can keep inflation low and stable. In order for monetary policy to be able to use the policy rate to counteract economic downturns and increased unemployment, it is also necessary for average inflation not to be too low.
After the COVID19 outbreak disrupted our usual ways of communication and in-person contacts, this may be among the first international conferences on financial and economic history to take place physically again. To be more precise – almost entirely physically – since some of our speakers have had to deal with last-minute unforeseen circumstances and will present their research remotely. Thus, today we will have the opportunity to appreciate a series of papers and presentations, 1/2  BIS central bankers' speeches  commencing with the keynote speech by Thomas Mayer. He will lay ground by pairing the two main functions of money. On the one hand, money is a means of transaction that stores value over time and space while being a standardised unit of account to record this exchange. On the other hand, the printing or minting of money has been a potent funding instrument and a symbol of the state. Therefore, we expect to hear what motivates sovereign states to choose to adopt a common currency in a monetary union. We have seen in history how newly established states are eager to reaffirm independence in their internal political discourse by creating a national currency, but then resort to pegging to global currencies if, for example, in need to rein inflation or gain overall policy credibility. Sometimes they even adopt a foreign currency as their own unilaterally, as demonstrated by recent examples in close parts of Europe (Kosovo and Montenegro).

For borrowers it has meant lower interest costs, but the other side of the coin is that they will not be able to amortise their debt solely through the effect of inflation. Their loans will take longer to pay off, which could entail the liability side of their balance sheet remaining unchanged while perhaps lower housing prices reduce the value of their assets. Many households also appear to be postponing amortisation of their loans, which seems like a short-term decision. Perhaps some households need to think about taking a longer-term approach in their loan decisions. Estimates of borrowing costs must also hold up when interest rates rise or when the value of the purchased house no longer does. Thank you. Prices of single-family dwellings and lending to households 350  350 Property prices, Index 1986:1 = 100 300  300  Total lending to households, Index 1986:1 = 100  250  250  200  200  150  150  100  100  50  50  0 1986  0 1988  1990  1992  1994  1996  1998  2000  2002  2004  Sources: Statistics Sweden and the Riksbank  4  BIS Review 67/2004  Number of new apartment starts 70 000 60 000 50 000 40 000  Forecast  30 000 20 000 10 000 0 1986  1989  1992  1995  1998  2001  2004  Single-family dwellings  Multi-family dwellings  Source: Statistics Sweden.
But having said this I want to warn against certain practices I have experienced in some countries which I would call “compartmentalization”. This happens when the legislation prescribes unnecessary and ineffective borderlines between the allowed activities of defined banking categories. Usually, the intention is to ensure limited competition and high profits for the various categories. Such restrictions are in effect a subsidy to the banks and they are harmful to the consumers and to the overall economy. The rule-of-thumb should be that any bank should be allowed to conduct any of the generally regulated bank activities if it can prove that it possesses adequate competencies, systems and resources. 2  BIS Review 104/2006  Should there be one set of prudential rules for all institutions conducting bank-like activities or should you differentiate? Could there be “light-touch supervision” for small and non-complex institutions for instance in micro-finance or local credit unions or exchange houses? There is no obvious answer to these issues. On the one hand you want to create a fair level-playing field for all bank activities which call for equal treatment. But on the other hand there is no necessity to burden small institutions with the elaborate regulations intended for large and complex banks. As I noted before, there must be a reasonable relation between the amount of regulation and its cost to the institutions. Consequently, I would accept the case for lighter supervision of small and non-complex institutions, but there must always be adequate supervision to ensure discipline also for those.

One possible solution I think is that of making all contracts on AFET U.S. dollar denominated. This way, the arbitrageurs are not exposed to any foreign exchange risk and they can manage their positions across markets with ease. Of all the commodities listed on SICOM, only one contract namely ribbed smoked rubber sheet no. 1 is Singapore dollar-denominated and coincidentally, it is also the least liquid contract on the SICOM. All other contracts are denominated in U.S. dollar. Moreover, commodity prices in the world are generally quoted in U.S. dollar, therefore, corporate buyers and sellers are already aware of their costs and revenues in terms of U.S. dollar. If we aim to establish futures price of, for instance, white rice on the AFET as a benchmark, it is logical for this reference price to be denominated in an international currency such as the U.S. dollar. That way, the price quotations would purely reflect all relevant information relating to demand and supply conditions of the products and are not influenced by exchange rate fluctuations. Some may express concern, however, that by eliminating foreign exchange risk for foreign arbitrageurs, we in turn, expose our local producers and end-users to the very same risk. I feel, on the contrary, that local buyers and sellers are already accustomed to commodity prices being quoted in U.S. dollar in the world market and manage the risk in a proficient manner.
This equilibrium rate has gone down – while in tandem the global economy has had to weather several major shocks, from the Global Financial crisis to the pandemic. Now, low inflation rates are being seen as just as much of a cause for concern and as a result, the target has now been set to 2% – over the medium-term – and the red flags are not only rates above that, but also rates below it. This decision was aimed at the possibility that the persistent low-inflation environment was being exacerbated by ambiguity about the level of the inflation aim and a perception of the aim being asymmetric. This decision was taken after an extensive assessment of the ECB’s unconventional monetary instruments, which looked at which ones were effective in raising output, employment and inflation – as well as how they affected each other. The new symmetric target is straightfoward, clear and unambiguous. This means that it will provide a more solid anchor for longer-term inflation expectations. In practice, it will require especially forceful or persistent monetary policy action in a way to avoid negative deviations from becoming entrenched. There was also discussion during the review with regards to the primary mandate and its context within the Treaty’s requirement to support the general economic and social policies of the European Union. The changes made to the monetary policy strategy will look at both aspects of this spectrum. Of course, the strategy review made other important changes.

Edward Scicluna: Price stability and beyond – understanding the impact of the ECB’s Strategy Review Speech by Mr Edward Scicluna, Governor of the Central Bank of Malta, at the Finance Malta conference, Valletta, 20 July 2021. * * * The European Central Bank (ECB) recently published its new monetary policy strategy, following a year-long review process that encompassed multiple layers of stakeholders – including the public. All the monetary policy instruments and concepts were minutely examined by both the experts and the Governing Council. A number of important changes were made as a result of the review – which was last carried out in 2003. The world has changed since then, and central banks – including the ECB – face numerous new challenges. We need to keep in mind that the ECB’s primary mandate – according to the Treaty on the Functioning of the European Union – is price stability. However, the Treaty does not specify what price stability means. That is where the ECB’s monetary policy strategy comes in, which quantifies price stability and in turn helps to anchor inflation expectations. For some time, the ECB saw high inflation as being the red flag. This is why the target has till now been an inflation rate of ‘close to but below 2%’. What has changed since 2003? Structural developments have lowered the so-called ‘equilibrium real rate of interest’ – the interest rate that is consistent with inflation at its target rate and where the economy is operating at its optimum.
We are a little behind the US where inflation now stands at 5% or the Euro area where it has reached 4% but the gap is expected to continue to narrow. The peak monthly rate will depend on the exact timing of energy price rises but we are expecting inflation to be well over 4% for much of the rest of the year. Of course, not all prices are rising so quickly. The prices of clothing and footwear fell by almost 8% over the past year. And the price of durable goods like plasma TVs has been falling even faster. But it is the rising cost of regularly purchased essential goods, like food and petrol, which attract most attention and probably drive people’s inflation expectations, which have continued to drift up. This increase reflects in large measure a rise in world prices for commodities which we cannot avoid, but we must ensure that it is only a temporary spike and that inflation returns to target when this year’s increases fall out of the index in a year’s time. Above all that means ensuring that the higher rate of inflation does not become embedded in the expectations and behaviour of wage and price setters. The fact is that when their relative prices rise we cannot avoid a transfer to the producers of oil and other commodities, because they are difficult to substitute out of.

Famously Alan Greenspan asked “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions..?” There are two good reasons for care. First policy has to be appropriate for the whole economy; the interest rates which would be needed to have a significant effect, say, on the growth of house prices in recent years might have been far too high for other industries. Secondly central bankers have been cautious to put much weight on their own assessments of when an increase in asset prices is becoming unsustainable. If they get the judgement wrong, they risk slowing growth needlessly and bring inflation persistently below target. Even if central bankers put more weight in future on their judgements of excesses in financial markets, it seems highly desirable also to make the regulatory system more counter-cyclical. BIS Review 94/2008  3  A number of proposals have recently been put forward, which would have the effect of directly increasing a bank's capital requirements during an economic upturn and allow room for capital requirements to fall in a downturn. For instance Professors Goodhart and Persaud have put forward a scheme linking a bank's capital to the growth in its assets. Another possibility is to learn from the Spanish system of requiring banks to set aside general provisions against their loan book in good times which can be a cushion against losses in the downturn.
Total new lending to the resident private sector in 2020 was up 5.6% on 2019, although there were contrasting performances for non-financial corporations and sole proprietors (rising 6.6%) and households (down 5.6%).1 These developments were heavily influenced by the credit support programmes, particularly the ICO guarantee programme. Indeed, the volume of credit drawn in transactions linked to the ICO guarantee facilities represented 18% of total new lending granted by deposit institutions in Spain in 2020 and 34% of new lending extended to nonfinancial corporations and sole proprietors. Also notable is the role played by the macro- and microprudential measures. On the evidence available, the authorities’ recommendation to limit dividend distribution appears to have had a positive impact on credit (see Martínez-Miera and Vegas (2021) for an analysis of Spain and Hardy (2021) for an international comparison). Similarly, there is also preliminary evidence that those banks which started out with stronger solvency positions have been able to increase credit to a greater degree during the crisis. And, of course, the European Central Bank’s forceful monetary policy response has been essential in guaranteeing favourable financial conditions for all economic agents during the pandemic. 1  In terms of the stock of lending, bank loans to non-financial corporations grew 9% year-on-year in December 2020, whereas lending to households declined by -0.5%. 3  Second, the adverse effects of the pandemic on economic activity have not, to date, translated into a higher volume of non-performing loans (NPLs).

Christian Noyer: The ECB is ready to fight deflation Opinion piece by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Wall Street Journal, 21 November 2013. *  *  *  There is a lot of talk nowadays about the risk of a “lost decade” in the euro zone, with a conjunction of no growth and deflation. Current forecasts point to very low inflation in the foreseeable future. For the euro area as a whole, inflation is projected to remain at around 1.5% in the coming year. However, low inflation is very different from deflation. Deflation is a cumulative process of decreasing prices, wages and output fueled by negative expectations. Deflation is a pernicious spiral. It increases the burden of debt and creates an incentive to defer consumption and investment. Deflation is especially dangerous because once the process becomes entrenched, it becomes very difficult to stop. At the moment there are no signs of general deflation in the euro area and most indicators point to a very low risk. Inflation expectations in particular remain firmly anchored in positive territory and, for the long term, stand at levels close to the European Central Bank’s definition of price stability. As usual, inflation rates vary in the different economies of the euro area. In some peripheral countries, inflation is particularly low.