samchain/econo-pairs-v1 huggingface dataset:
Monetary policy is always adjusted with the aim of achieving the 2 per cent objective. Occasionally the argument has been presented that the Riksbank should accept that inflation has risen to the upper range of the interval around the objective. This argument is difficult to reconcile with the conduct of monetary policy in general. To begin with, it is clear that if the Riksbank did so, inflation would more often be outside the tolerance interval. In the second place the rate of inflation would on average be higher than 2 per cent unless the Riksbank had the same tolerance for inflation staying at the lower edge of the band in an economic downturn. However such a policy would instead reinforce the real swings in the economy, in contrast to a policy that is always focused on the objective. In upswings the Riksbank would allow more growth and inflation and in downturns we would do the opposite. There is not any asymmetry in monetary policy and there should not be any either. One of the purposes of a clearly formulated objective is simply to inform what the policy aims at. In such a way the inflation objective may anchor the price expectations in the economy. The Riksbank should be evaluated in light of this objective. If the Riksbank systematically aimed below the objective or always overestimated the risks of inflation, it would be manifested over time by too low inflation on average.

CLS Bank, which has its headquarters in New York, serves as a platform to eliminate the so-called Herstatt risk, i.e. the settlement risk inherent in foreign exchange deals. Previously, the two legs of a foreign exchange transaction were settled at different times. If US dollars were bought against Swiss francs, the franc amount was to be paid during European trading time. The corresponding amount in US dollars, however, was credited only a few hours later – during US trading time. In the few intervening hours, a credit risk existed. If a bank had been closed down during this time period, its counterparties might possibly have lost huge amounts of US dollar receivables. CLS Bank now makes it possible to settle foreign exchange transactions in the major currencies based on the «payment versus payment» principle, thereby eliminating the settlement risk for these transactions. Currently, 42 financial institutions are directly linked to the system (Settlement Members) and settle their foreign exchange payments via CLS in seven different currencies. One of these settlement currencies is the Swiss franc. Three Swiss banks – UBS, CS and Zürcher Kantonalbank – participate in CLS. Apart from these three Swiss banks, two other financial institutions – HSBC and Bank of America – effect foreign exchange transactions in Swiss francs via CLS. Every day, these five institutions together enter around 1,400 payments in the amount of almost Sfr 20 billion into CLS. Settlement takes place via a direct link between the Swiss Interbank Clearing System (SIC) and CLS Bank.
They are not new topics: they were postponed due to the pandemic and now we are returning to them. I’m talking about systemically important banks transitioning to an advanced approach and regulation of concentration risk. First, I’ll touch on the transition to an advanced approach. This approach 3/5  BIS central bankers' speeches  is voluntary, two banks have transitioned to it, and one more bank is on its way. We believe that over time, this approach, the advanced approach, should be mandatory for major banks. It must be said that in the USA, Europe (the European Union), all systemically important banks have already switched to advanced approaches. This approach allows banks to more accurately assess capital and improve their own risk management system. And the greatest savings in capital will then be enjoyed by banks with a high-quality loan portfolio. We have also prepared an advisory report on this topic and will publish it shortly. We will then be ready to discuss it in detail with the banking community. Now let’s look at the concentration risk for systemically important banks. This is a sensitive topic for our banking sector if we look at the history of it. It is objectively due to the fact that our largest corporate borrowers and enterprises are larger than our largest banks. And in conditions where syndicated lending is not developed, an accumulation of risks for individual large borrowers can create vulnerabilities and risks for banks’ stability.

In our opinion, this indicates that there is a need for the gradual ending of the anti-crisis program and the development of more targeted preferential programmes. Consumer lending during the pandemic grew at a weaker rate than before that. However, it has now accelerated again and is growing faster than the recovery of households’ income. Thus, we consider it important to monitor risks in order to prevent overheating and dangerous levels of households’ debt burden. The situation with funding is generally calm. The total inflow of customer funds in 2020 was higher than in 2019. But it is obvious that as far as retail and retail liabilities are concerned, the situation is beneficial for the banks. The growth of household deposits in the past year nearly halved compared to 2019. This is the result of an outflow in the spring months, when people, due to the uncertainty of the situation, withdrew and transferred money into cash. It was also due to a steady growth in demand for alternative investments (such as real estate, stock assets) on the back of decreasing deposit rates. In this regard, people can count, and they are right: the weighted average interest rate on ruble deposits dropped at the beginning of last year from 5.5% to 4.2% at the end of the year and remained at this level. We have only just seen a slight rise in rates. The maximum interest rate on deposits at the 10 largest banks is now somewhere close to 5% (4.93%).
Lessons learned Of course, whether and under what circumstances the FOMC would again activate large-scale asset purchases are ultimately decisions for future policymakers. But, to the extent they remain a possible tool for providing additional monetary easing when overnight interest rates fall to the zero lower bound, it is worth considering some lessons about their use. Some personal observations follow. Lesson 1: LSAPs had clear benefits at the zero lower bound Estimates of the magnitude and persistence of the effects of the Fed’s purchase programs vary, as do assessments of the relative importance of the possible channels through which such programs are believed to work. However, research largely provides evidence that the Fed’s asset purchases put downward pressure on longer-term interest rates and eased broader financial conditions, helping to improve macroeconomic outcomes.21 Studies of asset purchase programs conducted by other advanced economy central banks also show positive results.

9 For maturing Treasury securities, the monthly cap is initially $ billion and will increase in steps of $ billion at  three-month intervals over twelve months until it reaches $ billion per month. For agency MBS and agency debt, the initial monthly cap is $ billion and will increase in steps of $ billion at three-month intervals over twelve months until it reaches $ billion per month. The Committee anticipates that the caps will remain in place once they reach their respective maximums. 10 See Transcript of Chair Yellen’s Press Conference, September 20, 2017. 11 The gradually rising caps allow market participants to incrementally absorb additional supply and its attendant  duration and prepayment risk. Leaving the caps in place over the course of the normalization process helps ensure a gradual pace of the portfolio’s runoff, particularly in light of the lumpiness in the Treasury maturity profile and the risk of an increase in pay-downs on agency MBS. I explore these issues in more detail in “Gradual and Predictable: Reducing the Size of the Federal Reserve’s Balance Sheet,” remarks presented at SUERF, the European Money and Finance Forum, New York City, October 11, 2017. 12 Federal Reserve Board staff estimate paths for the term premium effect associated with different balance sheet  scenarios in Brian Bonis, Jane Ihrig, and Min Wei, “Projected Evolution of the SOMA Portfolio and the 10-year Treasury Term Premium Effect,” Board of Governors of the Federal Reserve System FEDS Notes, September 22, 2017.
However, the purchasing managers’ index has fallen more than expected, which indicates that the slowdown may be greater than estimated (see Figure 10). The labour force survey statistics show that the labour market continued to improve in June. Employment rose by just over 2 per cent, compared with the same month last year, and unemployment fell, when seasonally-adjusted, to 7.5 per cent. This was a marginally smaller  2  See Carmen M. Reinhart and Kenneth S. Rogoff, “This time is different: eight centuries of financial folly”, SNS, 2010. BIS central bankers’ speeches  3  improvement than we were counting on in July (unemployment 0.1 of a percentage point higher). CPI inflation was 3.3 per cent in July. CPIF inflation (1.6 per cent) and CPIF inflation excluding energy (1.1 per cent) were much lower. All of these outcomes were marginally (0.1 of a percentage point) lower than expected. I said at the monetary policy meeting in July that there was still a risk that inflation would increase more than we were expecting, particularly in 2012 and 2013. This was partly because inflation had recently been held back extra hard by the strengthening of the krona. I also pointed to the risk of rising energy and commodity prices in the world market, higher wage increases than expected due to pressure in the labour market, and higher inflation and wage expectations due to the high CPI inflation. But so far, inflation has been marginally lower than expected and energy and commodity prices have fallen.

Unemployment had fallen since 2009 and we expected it to continue to fall over the coming years as economic activity recovers (see Figure 6). CPI inflation was over 3 per cent prior to the summer. However, CPIF inflation, which excludes the effects of interest rate adjustments on housing costs, was just below 2 per cent and even lower if energy prices are excluded. Our assessment was that underlying inflationary pressures would gradually rise as economic activity strengthens (see Figure 7). Interest rate increases necessary to attain the inflation target Against this background, we raised the repo rate in July from 1.75 to 2 per cent. We also considered that the repo rate increases would need to continue in the coming period. This was to stabilise inflation around the target of 2 per cent and resource utilisation around a normal level. The forecast for the repo rate, the repo rate path, which includes two further interest rate increases in autumn 2011, was therefore held unchanged. As usual, we pointed out that there was considerable uncertainty in the assessment of the future repo rate and that we would need to reconsider the monetary policy stance if conditions were to change significantly (see Figure 8).
Bank of England  Page 5  One of the most striking global trends over the past half century has been an overall decline in the level of risk-free interest rates – risk-free in the sense that they are returns on lending that carries a negligible risk that payment obligations will not be met by the borrower. Chart 1 shows how, when we look at this over a longer period of time, ten-year UK nominal rates have fallen compared to where they were in the 1980s. Both the very low levels of interest rates we have seen in the years leading up to the Covid pandemic, and their recent rise from those levels, must be seen against the backdrop of that downward trend. Chart 1: The UK ten-year nominal rate has fallen over recent decades Ten-year zero coupon yield (spot interest rate) from UK gilts (a) Per cent 15  15  10  10  5  5  0  0  -5 1985  -5 1990  1995  2000  2005  2010  2015  2020  (a) Sources: Bloomberg Finance L.P, Tradeweb and Bank calculations. A good part of this decline can be explained by lower inflation itself. It reflects the success of inflation targeting in delivering low and stable inflation over long periods of time. Under inflation targeting, monetary policy makers act decisively to return inflation to target whenever shocks cause prices to rise or fall by too much.

Spencer Dale: Productivity and monetary policy Speech by Mr Spencer Dale, Executive Director, Monetary Policy, and Chief Economist of the Bank of England, at the South Tyneside Manufacturing Forum, London, 21 September 2011. *  *  *  Thank you for the invitation to speak to you this morning. It is a pleasure to be in the North East and to have the opportunity to speak to a forum of business leaders from the manufacturing sector. As our economy recovers and rebalances towards a more sustainable pattern of growth and demand, manufacturing and the export sector more generally will need to play an increasing role. So I’m really pleased to have the opportunity to speak to a group of companies at the forefront of this process. The topic of my talk today is one that is close to many of your hearts. Indeed, it concerns the life blood of the long-term success of each and every one of your companies. It is also central to the setting of monetary policy. Productivity As you know far better than I, strong, sustained productivity growth is vital for ensuring that your companies remain competitive in the global market place. Productivity is equally important for the long-term health and prosperity of our economy as a whole. To paraphrase one economist “productivity isn’t everything, but in the long-run it is almost everything”. (Krugman 1994). Productivity matters for monetary policy since it plays a crucial role in determining the supply capacity of our economy.
Over a number of years, before the current financial market turmoil, global financial markets were characterised by abundant liquidity which had indeed reached unprecedented levels. Financial market liquidity, a concept distinct from monetary liquidity, is a measure of the ability of market participants to undertake transactions without triggering large changes in asset prices. The abundant financial market liquidity over the period 2003 until the summer of 2007 was associated with very low market volatility, especially in equity and bond markets [chart 11], low risk aversion [chart 12], low corporate bond yield spreads [chart 13] and credit spreads, high leverage and high market turnover. It also reflected the “search for yield” and confidence in the smooth functioning of the market. A composite indicator of financial market liquidity in the euro area equity, bond, credit and foreign exchange markets, 17 constructed at the ECB [chart 14] shows that financial market liquidity had increased significantly since 2001, rose sharply in 2003 and 2004 and remained at high level until the summer of 2007. A similar indicator constructed by the Bank of England for the UK financial market highlights the global dimension of this phenomenon and a similar trend. It has been argued by some that increasing financial market integration –the liberalisation of international capital flows– was a key determinant of this increase in market liquidity and the associated decline in market volatility.

But it was not until two hedge funds from Bear Stearns with active exposure in the sub-prime market had almost lost all their capital by June 2007 and when some rating agencies in early July announced that they would downgrade many asset-backed securities (ABSs) and collateralised debt obligations (CDOs) that a significant reassessment of the expected returns of structured finance products took place and AA and AAA-rated assetbacked securities (or ABS) also started falling in value. The following general re-pricing of risk [see Chart 15] and tensions in credit markets (e.g. also the corporate bond market) now affected several countries other than the US (e.g. the corporate bond markets in the US and Europe). Financial market liquidity for most structured credit products started evaporating [Chart 16]. Equity markets have also been affected by the increase in risk aversion and a general flight to quality. 19 As a consequence of inadequate risk management, and in particular liquidity risk management, the interbank money market came under pressure. Due to the complexity of pricing structured credit products and the lack of transparency of banks’ exposures to investment vehicles heavily in need of refinancing their ABS investments (which, at that time, were more or less fully illiquid), an adverse selection problem in the interbank market led to concerns about systemic risk. Banks were reluctant to lend to each other because of concerns about the counterparty’s exposure to sub-prime related assets and also uncertainty about their own liquidity needs.
The Bank of Japan and the Riksbank of Sweden are two cases that fit the requirements. In their case a single board takes both monetary and financial stability related decisions. While both these aspects are still debated and different countries have found different arrangements based on their existing institutional setup, in most jurisdictions, the central bank plays a prominent role either directly or indirectly. This is not surprising considering that central banks, being at the core of a country’s financial system and having a macro perspective, have a privileged position for visualizing systemic financial risks. Our existing framework recognizes the relevance of the central bank’s role, and any further developments in our macroprudential framework also should. 4. Macroprudential policies in Chile  In Chile we have followed prudently from some distance how macroprudential policies have been implemented and used recently around the world. The main reason is pragmatic. Due to good macroeconomic management and adequate regulation and supervision, the Chilean financial system did not suffer a crisis or excessive stress at the height of the global financial crisis and subsequent years. We have not had either the perception of over-expanding credit. Specific developments in the housing market and bond issues abroad have been analyzed and addressed promptly.

It is also relatively accepted that actions taken under this scheme are designed to increase the resilience of the financial system and its participants when dealing with shocks, or the flip side of the coin, to reduce their vulnerabilities. These definitions have also allowed to specify that macroprudential policy is different from monetary policy, since their objectives (price stability versus financial stability), as well as their emphasis and tools, are different. For instance, while monetary policy operates on the  BIS central bankers’ speeches  1  basis of projections of the most likely scenarios for the economy over a given period, macroprudential policy operates based on tail risk scenarios that are therefore less frequent. As for the tools they use, monetary policy is mainly conducted with just the benchmark interest rate, whereas macroprudential policy has been associated with many and varied tools, including limits to leverage or credit users’ financial expenditure, limits to banks’ foreign currency mismatches and the use of some sources of funding, application of reserve requirements and other restrictions to credit growth. About the latter, it is worth noting that, while it is possible to motivate the need for macroprudential policies based on various externalities and market failures, so far its implementation has progressed in an ad-hoc and experimental manner, and the tools used are not necessarily aimed at resolving such externalities at their origin.
A fiscal capacity for the euro area There are many ways a euro area fiscal capacity could be implemented, ranging from simple macro insurance or an unemployment benefit scheme to a fully-fledged euro area budget that could include the provision of public goods. Each of these options entails its own technical and political challenges and opportunities. In the end, the choice as to which option or combination 2  BIS central bankers’ speeches  of options should be adopted will need to be a political one. This is in fact an opportunity to have a debate about Europe’s collective goals; such a debate is more necessary than ever and goes beyond the economic sphere alone. 3 From the perspective of the economist and of the central banker who has a keen interest in making EMU as a whole work better, the crucial question behind the discussion about a fiscal capacity for the euro area is how to maximise its positive effects on the functioning of EMU, while at the same time preserving incentives for sound fiscal policy-making and addressing structural weaknesses at the national level. To start with, we should all be able to agree that the objective of the fiscal capacity should be to make EMU more resilient by increasing the capacity for automatic stabilisation in the euro area. The aim should not be to actively fine-tune national economic cycles or to equalise revenues.

In fact, I would even argue that there is an urgent need to accelerate our efforts to complete the EMU architecture with a fiscal capacity. Although we should acknowledge that this will take time, and that getting it right will require effort and precision, we should act without delay and speed up our work. Thank you for your attention  4  BIS central bankers’ speeches