samchain/econo-pairs-v1 huggingface dataset:
Timothy F Geithner: Perspectives on monetary policy and central banking Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Central Bank of Brazil, Brasilia, 30 March 2005. *  *  *  I am delighted to be here to celebrate the 40th anniversary of the Central Bank of Brazil. You deserve great admiration for what you have accomplished, particularly over the last several years, in laying the foundation for stronger economic performance and more rapid growth in real incomes. This is a good time to be a central banker. Over the last 20 years inflation has significantly declined throughout the world. In the industrialized economies, inflation dropped from about nine percent between 1980 and 1984 to less than two percent between 2000 and 2004. Even more remarkable has been the performance in the less developed economies where the average inflation rate over the same years has fallen from about 30 percent to about six percent. The global scope of this phenomenon, the magnitude of the reductions in inflation, and the durability of the gains to date have provoked a substantial amount of reflection on the sources of these improvements in macroeconomic outcomes.

In many economies where central banks are not yet independent, there is substantial support for independence and tangible progress toward making that happen. Alongside this evolution, central banks have become more transparent about their objectives and about the framework they use to conduct policy. Despite the substantial degree of convergence in the prevailing model of a modern central bank, the Fed still is different in a number of respects from the institutional arrangements produced by the latest wave of reforms in central bank arrangements in many of the major economies. Two things in particular distinguish the Fed in this respect: the first relates to the scope of the responsibilities we have for financial stability and the second to our monetary policy regime. The central bank of the United States, unlike the model now prevalent in the other major economies, integrates in one institution responsibility for the principal instruments relevant to financial stability – monetary policy, the lender of last resort responsibility, supervision of the major bank-centered financial institutions, and oversight of the payment system. This was true at the inception of the Fed. Then, as now, the rationale for this model rests on two important judgments. One is that monetary policy decisions will be wiser and the conduct of monetary policy more effective if informed by the direct knowledge of the financial system and the economy that comes from responsibility for bank supervision and market and payment system oversight.
An important insight is that it is not possible to describe the strategy for monetary policy in terms of a simple policy rule - for instance, that the interest rate will be raised now if the inflation forecast two years ahead shows inflation above target level. This type of interpretation assumes that the forecast is based on an assumption that the interest rate will not change during the forecast period. With the new assumption, the inflation forecast is instead based on a whole series of future interest rate adjustments. The Riksbank’s forecasts currently assume that the series of interest rate changes will follow market expectations (diagram 5). I have recently raised the question of possibly going one stage further and instead reporting the Riksbank’s own forecast of interest rate developments. For my part, I consider it natural to make forecasts of future interest rates in the same way that we make forecasts for a number of other variables. Nor do I see any drama in this type of transition, as we already express opinions about one interest rate path. However, this is something we will discuss among the Executive Board members. Regardless of which alternative we choose, it is important to point out that the interest rate development we publish should not be regarded as written in stone. The future development of the economy is uncertain and interest rate developments are therefore also uncertain. The Riksbank is therefore unable to tie monetary policy to a particular sequence of future interest rate raises in advance.

On the contrary, the economic upturn accelerated in 2004 and growth was even stronger than expected. Last year the economy also continued to grow at a good rate. To understand the low inflation it is necessary to find other explanations than weak demand in the economy. The reasons should mainly be sought in the positive changes on the supply side of the economy, which I have already mentioned, namely high productivity growth and low import prices. High productivity growth has held down cost pressures in the economy more than expected. Production has been able to increase without any particularly high increase in companies’ labour costs per unit produced (diagram 7). During 2003 and 2004 unit labour costs in the business sector actually fell. At the beginning of an economic upturn it is normal to have a period when production increases at a more rapid rate through companies using existing labour force more intensively rather than through new recruitment. However, even taking into account the business cycle, productivity growth has been high in recent years. 4  BIS Review 12/2006  This indicates that productivity growth has increased in a more lasting manner. The Riksbank has also gradually increased its forecast for the productivity growth trend in recent years. Despite this, productivity has continued to be higher than forecast up to 2005. One difficulty in the forecasting work is that productivity growth usually fluctuates considerably even taking into account changes in economic activity. For instance, productivity growth fell heavily in 2001.
And there is now a new puzzle: why, despite this rapid fall in unemployment to 6%, have we seen such weak pay growth in the official data? On the average weekly earnings measure, annual private sector pay growth is running at just 1%, still below the rate of inflation. Had the MPC been told last November that unemployment would fall to just 6%, we would have expected pay growth to have been very considerably stronger. What has happened to what, hitherto in the UK, has been a relatively stable relationship between pay and unemployment? Part of the explanation for the weak growth in pay is surely the very low increase in productivity – if workers are producing less output per hour, there is less scope for pay rises. But even adjusting for low productivity by looking at pay relative to the output of the average employee, we find a very weak picture. Growth in “unit labour costs” has been negative over the past year. Not only have we been producing more but with relatively more people and hence lower productivity. We are also paying less labour cost per unit of output than we were before. There are, as always, possible seasonal and one-off factors: some patterns of pay seem to have been distorted by the change in income tax rates in April last year, which cloud annual comparisons.

Alongside this, changes to the incapacity benefits regime may well also have had the effect of bringing more workers into the market. The number of people under the age of 65 who are inactive because of incapacity is down by around 200,000 since mid-2008. For much of the post-war period, there has been in the UK a steady decline in the hours people have wanted to work. As income grew, the trend was to reduce hours and maintain income rather than to maintain hours and increase income. Not surprisingly, the largest fall in real pay since records began has reversed that trend; the evidence suggests that, as the economy has recovered, with lower real pay, many have sought to increase hours to maintain – or recover – income. That of course may well be a temporary effect and as and when real pay rises the pre-crisis trend may reassert itself. But it may be that this effect will last for some time yet. Another explanation for the weakness of pay despite the fall in unemployment might be that the pressure to catch up lost income is much weaker post recession than it has been in the past. Based on previous episodes in the UK, we might have expected a reduction in real incomes to result in increased inflationary pressure from the labour market.
These clearly create opportunities to improve payment services in at least three ways, by:  2/5  BIS central bankers' speeches  Harnessing the underlying blockchain technology to improve or supplement existing processes: the Banque de France is already employing blockchain technology to improve industry processes. For example, we are using a blockchain project called MADRE to assign SEPA Creditor Identifiers, which are needed for creditors to issue direct debits. Helping to remedy market inefficiencies: this could be done in the area of international multi-currency payments, for example, with a view to improving the conditions under which individuals transfer funds abroad. Diversifying project financing methods: a prime example would be ICOs, which have enabled swift and large-scale fundraising in the network technologies sector in the past two years. 3. Yet for all that, can crypto-assets become true currencies that will revolutionise our payment system, providing the decisive innovation that will lead us to the cashless society that some people are predicting and even hoping for? For the time being, this seems unlikely because existing crypto-assets are far from perfect. As many central bankers have pointed out, today’s crypto-assets do not satisfactorily offer the qualities expected of a currency and cannot be considered as such: First, their value fluctuates enormously, preventing them from being used as units of account. As a result, very few prices are denominated in crypto-assets and not many large brick-and-mortar or online retailers accept bitcoin for example, although there are some exceptions [i.e.

These essentially include venues used to exchange digital assets against legal currency, and providers of custody solutions for digital assets. To satisfy anti-laundering obligations, these platforms must be registered. But to address risks relating to security, market integrity and price manipulation, an optional label could be granted at the service provider’s request by the AMF after a more in-depth investigation, in order to provide security for the service offered to users. The regulation of venues used to exchange digital assets for legal currency, in France and elsewhere, is a key issue for obvious reasons, as these platforms are the interface between the virtual and real worlds and hence where risk can spread from the former to the latter. As you are doubtless aware, the authorisation and labelling schemes mentioned in the PACTE Bill are optional. But there is an exception when it comes to anti-money laundering and terrorist financing (AML/TF) mechanisms. European regulators have been firm in their resolve not to compromise in any way on this matter. Accordingly, the Fifth European Anti-Money Laundering Directive makes all participants handling digital assets subject to applicable AML/TF provisions. This is consistent with the system in place since 2014 in France, which states that an exchange of crypto-assets in euro requires a payment services provider authorisation, and, accordingly, compliance with AML/TF rules.
Some of these relate to the characteristics of the individual worker – for example, their number of years in employment, their tenure in post, where they live, their age and their educational qualifications. Other factors relate to the nature of the job itself – whether it is full or part-time, the occupation, sector and job-type. Both factors, individual and job-specific, are likely to be important in explaining pay. Chart 18 shows the Oaxaca-Blinder decomposition of the gender pay gap over the sample, when the average gender pay gap in the UK was close to 22%. From the decomposition, around half of that gap can be accounted for by compositional effects, arising from the different characteristics of either the worker or the job they are carrying out. That leaves around 11 percentage points of the pay gap unaccounted for by these factors. In other words, around half of the gender pay gap is difficult to justify on fundamental grounds, consistent at least with some significant degree of gender pay “bias”. Of those factors explaining the gender pay gap, the most important relate to the characteristics of the job rather than the individual. Occupation, sector, and the full/part-time nature of work are the most important factors accounting for the gender pay gap. It is difficult to know how much these reflect personal choice (workers’ preference for a certain sector or way of working) rather than legacy environmental factors (such as the preponderance of males in certain professions or sectors).

As supervisors we do not think in terms of countries, but of banks’ business and risk profiles. Each bank operates differently and therefore has to face different problems; it would be unwise not to see them individually. BIS central bankers’ speeches  3
11. According to a market knowledge study called the ‘FinScope Demand – Side Survey’ which was conducted in 2005 to review the inclusiveness of the Zambian financial system, two thirds (or 66.3%) of the Zambian adult population do not have access to financial services and only one third (or 33.7%) use banks, other formal and informal financial services and products (such as those offered by microfinance and savings clubs). Furthermore, only 15% of the adult population access commercial bank services. A huge market therefore exists to tap if transaction costs are reduced. 12. Finally, Honourable Guest of Honour, let me congratulate NATSAVE for its participation in addressing the issue of increased access to financial services for the people of Lukulu despite the challenges of physical access and resultant higher transaction costs. I thank you. 2  BIS Review 69/2009

The criterion of security covers primarily the reduction of risks such as market, credit and concentration risks. In addition, it is important for us to maintain the real value of the foreign exchange reserves in the long term. Consequently, the long-term return on investment must match the average rate of inflation. If the criteria of security and liquidity are fulfilled, our investment policy aims to achieve an additional return over and above the real maintenance of value. The return on foreign exchange reserves is made up of current income plus changes in the value of the investments. The income takes the form of interest and dividend payments on the bonds and shareholdings. In view of the current low interest rate environment, these amount to only around 2% of foreign exchange reserves per year. Just like investments that fall due, income is generally reinvested. Therefore, foreign exchange reserves tend to rise even when we do not need to purchase additional foreign exchange. The other component of returns is changes in the value of foreign exchange reserves. We value all investments at market prices and in Swiss francs. Consequently, changes in the prices of interest-bearing paper and shares as well as exchange rate movements have a direct impact on the net result for investment. If the Swiss franc strengthens against the investment currencies, this results in a valuation loss on the foreign exchange reserves.
Third, as regards the euro area and the sovereign debt crisis, of which the euro area is currently the epicentre, the euro area central banks, and the ECB in particular, have been permanently calling for sound economic policy management, in particular in the fiscal domain, for structural reforms and for reinforced economic governance. As independent institutions that are devoted to stability and that are medium- to long-term oriented, we are an anchor of stability and confidence. This is especially valuable in the turbulent market environment that we are witnessing and that is characterised by acute tensions of some sovereign signatures which are causing negative spillovers on others. Only a few weeks ago, the central bankers were all meeting in the BIS headquarters in Basel in our Global Economy Meeting. Reporting to the press afterwards, I stressed that we were all very closely “united in purpose”: each of us in our own economy, with its different features and challenges, striving to solidly anchor inflation expectations, preserve stability and consolidate confidence. Meeting here in Washington, authorities have the opportunity to display the same unity in purpose to address their economic challenges at home, prevent negative spillovers for the global economy and consolidate confidence in the world recovery.

the real interest rate consistent with inflation stability and output at its natural level) is now at historically low, possibly negative, levels. Some possible explanatory factors are of a transitory nature (such as the still-ongoing deleveraging processes), while others are more structural ( i.e. low productivity growth and demographic factors). We have to deepen our analysis further in order to have a full grasp of this “new normal” reality. Implications for monetary policy:  New conventional? The question that arises is whether the “new normal” should lead to a “new conventional” for monetary policy. Indeed, inflation and real interest rates are likely to persist at a low level in the future, and therefore nominal interest rates will also be lower and hence closer to their effective lower bound, limiting their effectiveness as a monetary policy instrument, which will possibly lead to balance sheet management as a permanent policy. There are still no conclusive debates about balance sheet management, including on its marginal effectiveness, the optimal size of the balance sheet and the repercussions it could involve in terms of financial stability. Again, in this area, we need further analysis. 4/6   Once the conditions for it are met, the exit strategy from the accommodative policies will require gradualism and predictability. As the recovery gathers speed, and as long as this translates into a sustained adjustment in inflation towards its objective, the need for monetary policy support will tend to diminish.
In Japan alone, ESG assets quadrupled from 2016 to 2018 to reach $ trillion. As the transition gains traction, it is likely that both ESG and mainstream investors will increasingly focus on companies’ strategic resilience to climate change.12 95% of users found TCFD information on strategic resilience useful, but three quarters want more information on the financial impacts.13 This year’s report to the Osaka G20 Summit found that, while firms were starting to consider strategic resilience, only about 50% systematically conducted scenario analysis and of those that did, two fifths did not disclose the information.14 Almost 80% considered the assessment of strategic resilience somewhat or very difficult, identifying a lack of relevant and granular data, the difficulty in determining scenarios to use, and the quantification of climate risks and opportunities as the biggest hurdles.15 This is not surprising – scenario analysis is a new and complex practice. And most of the off-the-shelf climate scenarios (such as the IEA and IPCC publications) are intended for policy or research, not business analysis. Improvements will be best achieved with collective force. For some companies, scenario analysis is already part of their business planning and risk management.

AXA estimates that its assets are currently consistent with a 3.7 degree path, and it has developed an innovative climate VaR model to measure the opportunities as well as risks from the climaterelated exposures of its investments.19 With our citizens—led by the young—demanding climate action, it is becoming essential for asset owners to disclose the extent to which their clients’ money is being invested in line with their values. Conclusion The TCFD provides the necessary foundation for the financial sector’s role in the transition to net zero that our planet needs and our citizens demand. 18  With the growth of different ESG measurement approaches, scores have been shown to vary greatly between providers. Barclays found positive but low correlations across all three ESG dimensions (14% for governance and 13% for environment) when comparing MSCI and Sustainalytics. Similarly, State Street Global Advisors found a correlation of 0.53 for constituents of the MSCI World Index. 19 See Axa 2019 Climate Report, available on: https://www-axa-com.cdn.axa-contento-118412.eu/www-axa-com%2F308285a0-f2094b04-9a3e-41d8df848445_axa2019_ra_en_climate_report_19_07_2019_pdf_mel.pdf. 11  All speeches are available online at www.bankofengland.co.uk/news/speeches  11  So whether the TCFD is used to manage the growing physical and transition risks from climate change or to finance the enormous opportunities to develop more resilient and sustainable economies, your work to develop the TCFD and spread its adoption is literally vital. 12  All speeches are available online at www.bankofengland.co.uk/news/speeches  12
It is an important precedent, which shows that when needed the euro area can take important decisions and cooperate swiftly. The Eurogroup probably won't need to meet regularly in this format – as this would risk overshadowing the finance ministers’ meetings – but now at least it is an option, a feasible one. Let me give you another example of ongoing political integration. The current crisis has shown the need to strengthen prudential supervision and, in particular, its links with central banking. This is a recommendation contained in various documents and reports, in particular that of the Financial Stability Forum’s to the G7 Ministers and central bank governors. Several countries will be moving in this direction. In the US the Federal Reserve will receive  4  BIS Review 20/2009  greater responsibilities for macro-prudential supervision. The euro area has a centralised decision-making process for monetary policy but a de-centralised system of supervision. The conclusion is obvious: cooperation between supervisors needs to be much stronger within the euro area. This also implies that the ECB, which conducts the monetary policy for the euro area, should be entrusted with greater supervisory powers, in particular concerning macro-prudential supervision. There should be a broad consensus on such a proposal among euro area members. However, this can be implemented only by activating article 105.6 of the EU Treaty, which requires unanimity of the EU member states. Will some noneuro area members oppose this? A final word on political union.

that monetary union was a political endeavour, and that the final goal was political union, albeit a different union from those we are used to studying in textbooks. Creating the euro, adopting it or not adopting it, are not mere technical decisions but key political choices, and have profound political implications, which are quite different from being a member of the European Union. This might not have been fully realised by all. Let me give an example. No opt-out clause was offered to the Member States which joined in 2004, even though some of them might have been less enthusiastic about joining the euro area than joining the EU itself. A formalistic reading of the Treaty reveals that all countries except the UK and Denmark are committed to converging as soon as possible to the single currency, even in those countries where popular support for it seems to be still limited. A strict interpretation of the Treaty indicates that Sweden should not have had a referendum on the euro in 2003. Indeed, by ratifying the Maastricht Treaty, Sweden committed itself to joining the euro as soon as possible. In practice, nobody complains that the letter of the Treaty is being ignored, because a country cannot be forced into the euro if it is politically unready to join. Being part of a monetary union binds its members at different political levels, not all of which are easily visible. Take fiscal policy.