samchain/econo-pairs-v1 huggingface dataset:
In a second-best situation, without appropriate supervision and regulation, if the policy rate is the only available tool and there is a trade-off between its effect on the monetary-policy objectives and financial stability, that trade-off should be taken into account. Normally, however, the policy rate is not the only available tool, and much better instruments are available for affecting financial stability. Monetary policy should be the last line of defence of financial stability, not the first line.4 In discussions of monetary policy and financial stability, there have been many references to the “risk-taking channel” (Borio and Zhu 2008), according to which leverage and risk in the financial sector increase with lower policy rates. However, the general discussion on and the existing models for policy rates, the risk-taking channel, and so on consistently seem to suffer from confusion between nominal policy rates and the general level of real interest rates. Models such as those of Adrian and Shin (2011) and Diamond and Rajan (2011) include a short real rate but no nominal policy rate and no explicit monetary policy. Furthermore, there is no distinction between the short real rate and the neutral real rate. What monetary policy in the real world can do by setting a short nominal policy rate is only to temporarily make the short real interest rate deviate from the neutral real interest rate, which in turn is beyond the control of monetary policy.

That said, there are some nascent signs that the economy may be doing better. For example, based on the first estimate, which is subject to revision, real GDP increased at a 2.8 percent annual rate in the third quarter of 2013, above the trend of the past four years. And the most recent payroll employment report showed a pickup in the monthly pace of job gains. The 3-month moving average rose back above a 200,000 pace after slowing to about 150,000 as of July of this year. I hope that this marks a turning point for the economy. But before we rush to this conclusion, a few more cautionary comments are appropriate. With respect to GDP growth, it turns out that inventory investment contributed ¾ of a percentage point to that overall growth rate. Thus, because this impetus from inventories will  BIS central bankers’ speeches  1  likely reverse this quarter, the real GDP growth rate is likely to slow to around a 2 percent annual rate or a bit less in the fourth quarter. With respect to payroll employment, we have seen such bursts in payroll growth before over the past few years and have been disappointed when the pickups proved temporary and did not lead to a rise in the overall growth rate. But, I have to admit that I am getting more hopeful.
Singapore’s first Prime Minister, Mr Lee Kuan Yew, had said in 1957 that the idea of an independent Singapore was a “political, economic, and geographical absurdity”. It is not hard to see why. •  An island of 580 squares kilometres at low tide, Singapore in 1965 had no natural resources, no hinterland, no industry. •  It depended on the outside world not just for food and energy, but even water. •  Industrial strife was common. Unemployment was close to 9%. Singapore’s birth pangs were traumatic. •  Separation from Malaysia meant the loss of not just a common market but a hinterland. •  Indonesia’s Confrontasi cut off Singapore’s southern hinterland, further undermining the fledgling nation’s traditional role as an entrepot trading post for the region. •  In 1968, the British government announced a withdrawal of its troops from Singapore, which left thousands of workers without a job and as much as a fifth of the economy at risk of coming to a halt. Surviving as a nation and creating a better life for the people were thus the over-riding priorities. And economic growth was seen as the principal means to help achieve this. The government made two strategic decisions – both sharply at odds with the conventional economic wisdom of the time. •  The first was to shift away from import-substitution in favour of export-led industrialisation. 2  BIS central bankers’ speeches  •  The second was to attract global multinational corporations as vehicles to achieve industrial growth.

The reduction of the liability margin was offset by an increase in the asset margin, and by taking on greater interest rate risk. Third, domestically focused banks were able to maintain their level of resilience compared to the previous year, despite the increased risk exposure. Overall, their capitalisation is well above regulatory minimum requirements, and is also adequate according to SNB stress tests. The currently available capital surpluses at most banks would be sufficient to cover the losses projected in these stress tests. Given the level of prevailing risks, this is positive. However, the risks to financial stability could increase further. As we saw in 2015, even a lower momentum on the Swiss mortgage and residential real estate markets can cause imbalances on these markets to increase. This can happen, for instance, when combined with comparatively weaker developments in fundamentals such as GDP growth. Moreover, in a sustained period of low interest rates, real estate prices will remain subject to upward pressure. Another rise in prices or decline in yields could occur particularly in the residential investment property segment. This would increase the risk of a substantial correction in the event of an interest rate rise, which would put pressure both on leveraged investors and on the banks who finance their investments. At the same time, in an environment of persistently low interest rates, the pressure on interest rate margins would continue. Such pressure creates powerful incentives for banks to take on more risks.
The greater the independence of the central bank, the lower the average level of inflation and the less volatile the inflation rate. These gains in inflation performance by independent central banks were not achieved at the expense of greater stability in output. Or to put in differently, lower inflation did not bring about higher output volatility. Credibility, where underpinned by independence, should reduce uncertainty, reduce the probability of a sustained rise in inflation, and therefore reduce output volatility. Central bank independence is a necessary condition for effective monetary policy, but it’s not a sufficient condition. Also important are the nature of the mandate given the central bank and the combination of flexibility and constraints that the mandate provides, the quality of the decisions made by the central bank over time in pursuing that mandate, and how the central bank communicates about policy. The experience of the Federal Reserve System in the United States provides an interesting prism through which to look at these dimensions of central banking. Since the establishment of the central bank of the United States in 1914, we’ve had remarkable stability in the basic structure of the central bank, but of course U.S. inflation performance varied significantly over these nine decades. The Fed was established with a substantial degree of formal, legal independence at a time when that was relatively rare. The initial mandate was very broad. Our predecessors were charged with the responsibility of furnishing an “elastic currency . .

Muhammad bin Ibrahim: Pilot platform for cross-border investment and settlement of debt securities Remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the press conference for the launch of the pilot platform for cross-border investment and settlement of debt securities, jointly with the Hong Kong Monetary Authority and Euroclear Bank, Hong Kong, 13 March 2012. *  *  *  The world as we know is changing. Many aspects of how the global financial landscape will change have been discussed. One key area of focus has been the uneven growth momentum across the world, which is expected to persist for some time, and this development will have an impact on the trends and direction of the flows of trade and capital across the world. In essence, the nature of trade and capital flows will be significantly different from what we have experienced in the past decades; gross capital flows from across the globe between the east and the west, the north and the south, will be larger in size and more robust, going forward. These developments may pose risk in particular, to open economies like Malaysia and Hong Kong. A key safeguard to manage the risks that may arise from this transformation would be by strengthening our financial systems, to further develop the capital markets and to strengthen the regulatory and supervisory frameworks. In the Asian region, accentuating this global transformation are the rapid regional economic and financial integration and the expansion of domestic demand.
Funds flow to emerging economies because they are able to generate better return for savers in the developed economies. On the one hand, the emerging markets have to do their homework and preparation. But on the other hand, when things get temporarily out of balance, shouldn’t there be tools and safeguards to help them deal with situations better? The good news is there could, if all the countries here want to! BIS Review 52/2002  3

A primary focus of the new Prudential Regulation Authority will be on determining whether the business models, governance and systems and controls of firms will enable them to satisfy the public interest in financial stability in future states of the world. That requires both a macro and micro prudential view, and for the two to come together to reach forward-looking judgements on whether financial stability is likely to be preserved in a range of plausible future outcomes. This range of outcomes is important, and it also underlines the need to build up the role of stress testing. Such testing is an important mechanism for describing the forward-looking view though it should continue to evolve from a binary pass-fail world into one where it is a toolkit to test a range of possible future states of the world and thereby judge the wider resilience of firms. The PRA will exercise judgement in the supervisory actions it takes, so that firms are likely to be able to meet its objectives, policies and rules over the medium term horizon. Firms will need to demonstrate to the PRA that they are robust to a variety of states of the world, including unanticipated stress scenarios. However, since it is not possible for any forecast to cover all possible outcomes, there will always be some probability of firms failing.
If markets can better anticipate the behaviour of a central bank and the effects of monetary policy, there should be less scope for monetary policy surprises, better anchored inflation expectations, less monetary policy-induced volatility in asset prices and ultimately less macroeconomic volatility. Less volatility should translate into a lower risk premium and may thus promote investment and positively affect economic growth. Lower risk premiums also lead to higher asset prices. Indeed, throughout the world and for most asset classes, there seems to be a trend in recent years to higher valuations. These higher valuations can probably partly be attributed to the reduction of the risk premium due to lower expected volatility. To the extent that market participants correctly gauge a reduction in the risk premium, higher asset valuations can be expected to endure and represent lasting wealth creation. There is a third reason why central bank transparency has become pertinent. With the world's capital stock growing faster than the world's economies, real effects attributable to asset prices are becoming more important. 4 On the one hand, this is good news, as it creates wealth and strengthens the transmission process of monetary policy. On the other hand, a sudden increase in asset price volatility could have more adverse consequences for the real economy than what we might infer from past experience. If that is so, central banks clearly have an incentive to avoid becoming the source of unnecessary asset price volatility.

Of course, the execution of our exit strategy will still present us with a tricky judgement call. We do not want to nip a recovery in the bud prematurely. Equally we will not want to let the inflation genie out of the bottle. But that is the sort of balancing act that monetary policy makers regularly face, even if the scale of the downturn and the size of the policy stimulus that has to be withdrawn are so much larger now. A previous guest at this Feast, Winston Churchill, declared that he “would rather see finance less proud and industry more content”, shortly before he took the fateful decision to return  BIS Review 62/2009  3  the pound to the gold standard at an overvalued rate. Finance has certainly been humbled by the events of the past couple of years and the post-crisis financial world is bound to look very different from the pre-crisis one. But let us also hope that it is a world in which industry is more content. It remains only for me to thank you again for a marvellous meal and to propose a toast. To the Manufacturing Industries of Hallamshire. 4  BIS Review 62/2009
Jean-Pierre Roth: Recent economic and financial developments in Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the half yearly media news conference, Geneva, 19 June 2008. *  *  *  The Swiss National Bank (SNB) is leaving the target range for the Swiss franc three-month Libor unchanged at 2.25-3.25%. It intends to hold the rate in the middle of the target range for the time being. Despite a slowdown in economic activity, the global economy remains robust and the price of oil has continued to climb. This has led to a general increase in inflation. The situation on the financial markets is still uncertain, but less turbulent than it was a few months ago. Although the Swiss economy has also grown at a slower pace, the SNB has not changed its forecast of real GDP growth of between 1.5% and 2% for 2008. However, it has increased its inflation forecast and is now expecting an average rate of 2.7% in 2008. Nevertheless, assuming that the Libor remains unchanged at 2.75%, inflation should edge back down to 1.7% in 2009 and 1.3% in 2010, as a result of the expected economic downturn. Considerable risks are attached to this inflation forecast. Stronger price increases are likely, should energy prices rise again or the Swiss franc depreciate on the foreign exchange market.

Inflation and inflation risks Inflation developed in line with expectations during the first quarter of this year. Our March forecast was 2.4%, whereas actual inflation was 2.5%. Nonetheless – as you can see from the charts – we are forecasting higher and more persistent inflation for the rest of the year. However, it should drop back below the 2% level from the beginning of next year, although there are significant risks attached to this relatively favourable forecast. A more pronounced price surge would clearly be a concern should there be a further increase in the prices of energy and food. In addition, it is possible that movements in the Swiss franc will not contribute to easing upward pressure on import prices. Having said that, we should also not underestimate the potential for movements in the prices of raw materials to reverse, and inflation pressures to abate in the event of a pronounced global economic slowdown, especially as we do not yet know the consequences of the financial market turbulence. Today’s monetary policy decision reflects our assessment of these different risks. Monetary policy decision Inflation has exceeded the 2% mark since December 2007. However, in our view this situation is temporary and the expected slowdown in the economy should have a moderating effect. We are expecting that inflation will already move back below the 2% level in 2009.
Therefore, we devote considerable effort to monitoring and analysis of developments around the world to understand how our actions affect the global economy and indirectly feed back to our own economy. These considerations play an important role in my thinking about the economic outlook and the appropriate path for monetary policy, as well as how we best communicate our perspectives and plans. Moreover, we actively engage with international counterparts in a range of forums, such as today’s. These exchanges help us understand economic and financial conditions affecting our respective regions and provide opportunities to share perspectives and insights. A key lesson about policy-making in an interconnected world is that transparency and open lines of communication are critical to minimizing misunderstanding, market disruption, and volatility that can interfere with our common goals of having strong and stable economies. As I have mentioned a number of times already, effective communication that provides clarity and predictability to our policy actions is a critical component of successful policy-making. Conclusion Monetary policy-making has perhaps never been more challenging than it was following the financial crisis. But, as we move toward more “normal” conduct of monetary policy, we must not rest easy. We will confront our own fair share of future challenges. The most important monetary policy challenge in the United States today is sustaining the long economic expansion 3/4  BIS central bankers' speeches  without allowing risks to grow that ultimately undermine economic prosperity.

In particular, downside risks to the achievement of our employment and inflation goals amid very low interest rates were compelling arguments for a relatively cautious and predictable approach to policy. This proved its worth: The U.S. economy continued to expand at a healthy pace even as the Fed raised rates numerous times. For those who follow the Fed closely, you’ve noticed that the FOMC has been slimming down its statements of late and using less forward guidance about the future path of policy. In this vein, the FOMC in its recent statement removed language indicating that monetary policy remains accommodative.3 Let me make clear, these more concise statements do not signify a shift in our monetary policy approach. Instead, they represent the natural evolution of the language describing the factors influencing our policy decisions in the context of the strength of the economic outlook and inflation being near our 2 percent longer-run goal. These changes in our communication of policy views are a sign that we are nearing the end of the process of normalizing monetary policy and are inching closer to conducting normal monetary policy. Arguably, it’s been a long time since monetary policy was normal, so it’s worth describing what “normal” looks like in some detail. At its most basic level, monetary policy-making will remain the same: The path of interest rates will continue to be guided strategically by our dual mandate objectives and shaped tactically by the data and their implications for the economic outlook.
There is nothing easy about this activity, and the lessons of the pre-crisis and crisis periods demonstrate the dangers of encouraging broader attitudes which act to discourage the work of supervision in favour of a light touch approach in which the risks in the system build up and are praised as contributors to stability and prosperity, until that is the crash comes. Supervision is a continuous activity which needs to benefit from constant public attitudes towards it, and in turn supervisors need to be accountable and explain what they do. We have made big strides forward on these fronts in recent years. When we talk about banks, solvency and capital is at the heart of effective prudential supervision. The capital regime that is being put in place is stronger not just in terms of the quantity and quality of capital that is funding banks, but also because of the incentives that are being embedded in the regime. To end, I don’t believe that we can ignore the risk in banks, and the consequence if it crystallises. This helps to explain why the exercise of judgement is such an important part of the supervision of banks. Therefore we have to create a system of rules, we have to supervise banks and have the scope and freedom to apply those rules in ways that create the right incentives for banks to maintain safety and soundness, and to guard against the time when something does go wrong we must be confident that our resolution regimes will work.

We went through the crisis without properly functioning bank resolution regimes in many countries including the UK, with the consequence that the response was a combination of using public money and improvisation to create resolutions where possible. But now we are well on the way to having properly functioning resolution regimes in place. So, what is the argument for why they will be ineffective? This is a crucial piece of the story, because it is a fundamental principle of the big equity school of thought that they reject resolution as a usable solution. The argument seems often to come down to doubting the will of the authorities to enact resolution 5. True, in the past it was much harder to enact resolution in the absence of the means to do it, but that will not be so in the future. It is also true that resolution necessarily involves changing the property rights of investors which is a big thing. Will the authorities have the nerve? My view is that we must, because the alternative is much worse. We are making huge strides in resolution as a technical matter. Last year’s agreement on TLAC in the G20 was a landmark. But alongside that is a vast amount of work to get to grips with what it takes to resolve a major bank. If you are involved in that work, as I am, you can see that there is no lack of commitment and progress.