samchain/econo-pairs-v1 huggingface dataset:
Mr Latter takes a central banker’s look at new challenges in a rapidly changing environment  Speech given by Mr Tony Latter, Deputy Chief Executive of the Hong Kong Monetary Authority, at The Asian Treasury Forum 2000, held in Hong Kong on 22-23 February 2000. *  *  *  There was a time, many years - or more likely decades - ago, when it seemed that the main role of the company treasurer, if indeed there was any such identifiable position in the company, was to make sure that enough money had been transferred from time deposits to current account before each month’s pay day; and it seemed that the main, possibly the only, function of a company’s finance director was to make sure that the accounts were compiled, audited and filed on time. How times have changed. Not only has there been a ceaseless escalation in the range and complexity of financial instruments available to us all, and in the sophistication of accounting, but there has also been an inexorable rise in the expectations which others, such as shareholders or executive boards, have as to what can be delivered from the financial side of a business.

As history bears witness, such strategies are as good, but only as good, as the assumptions that are programmed in, be they about economic forecasts, covariances between various events, or whatever. But even if we felt that these particular strategies were foolproof, there are a myriad of other financial transactions which can only really be consummated by a conscious human decision. The home buyer faced with a choice between taking a mortgage from bank A or bank B is unlikely to have a sophisticated and reliable mathematical model with which to compare the offers and determine conclusively his choice. But the culture nowadays, bred at least in part by the technological feasibilities of the IT era, is one which is likely to place the home buyer under much greater pressure to reach a quick decision than his parents would have been a generation ago, or even his brother five years ago, for fear of losing the best offer - if only he could assess which was the best. There is less time to reflect; less time to seek out disinterested advice. There are of course some areas of finance which appear relatively untouched as yet by this revolution. In the realm of corporate finance, in every jurisdiction so far as I am aware, the documents seeking shareholder support for a merger, for example, are still required to be sent by post, and with a reasonable minimum notice period for response.
Developments over the past 40 years illustrate that the most important contribution monetary policy can make to sound economic developments in the long term is low and stable inflation. This provides the economy with a nominal anchor. Low and stable inflation makes it easier for economic agents to distinguish changes in relative prices from changes in the general price level. Prices become a more accurate information vehicle. Through the 1990s, inflation generally remained in the interval 1½ – 3½ per cent. When there is confidence in the inflation target, monetary policy can also contribute to stabilising output and employment. Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment in interest-rate setting. In order to make forecasts for inflation and output, we must also judge how interest rates will develop in the future. If inflation deviates substantially from the target for a period, the interest rate will be set with a view to returning it gradually to the target, so that we avoid substantial variations in output and employment. This chart illustrates the judgement as published in the latest Inflation Report. Past experience indicates that expectations as to future inflation remain stable even if inflation varies somewhat as long as the interest rate is used actively to curb the effects. Monetary policy cannot finetune economic developments, but it can prevent the largest effects from occurring when the economy is exposed to disturbances.

At the outset of the Conference, it has been clearly articulated by our EU speakers that the enlargement of the EU and the economic and monetary integration of acceding countries will not only strengthen the role of the EU as a global player in the long term, but also make a sustainable contribution to global stability and prosperity. On the developments and prospects for ASEAN, our ASEAN speakers have more than stressed that the overall economic and financial transformation that has occurred in ASEAN since the Asian financial crisis has resulted in an ASEAN that is a mutually reinforcing region of growth; an ASEAN that has an increasing role in the creation of wealth; and an ASEAN that will remain as an important region in promoting and supporting global stability and growth. This Conference has revealed to us that both our regions are currently at the confluence of favourable factors; factors that have led to a marked expansion in the base of opportunities that we can offer each other. It is imperative that our discussions on taking advantage of the emerging opportunities be translated into concrete actions. We are of course aware that implementing these actions will demand decision and leadership from both ASEAN and the EU. From the proceedings of the Conference, it seems to me that there may be a need to develop a more entrenched mechanism to leverage further on our respective core capabilities and which seeks to find simpler, faster and more effective ways that would enhance our joint endeavours.
For example, there is a high level of employment protection legislation in Norway, Sweden, and Finland but not in Denmark. In Denmark, agreements between the social partners can stipulate firing rules. The negotiating position that employment protection offers employees can induce companies to go farther in safeguarding employees' interests in the event of restructuring. The social safety net – unemployment benefits and the more permanent benefit schemes – probably also make it easier to gain support for rationalisation. But this safety net has also become a pretext for not addressing the problems at hand. The increased use of our welfare schemes is increasingly becoming the Achilles’ heel of the Norwegian economy. Sickness absence has risen sharply in Norway and a steadily higher share of the working-age population is on disability benefit or rehabilitation schemes. Many choose to retire under contractual early retirement schemes at the age of 62, and these numbers will probably increase ahead. In Norway, close to 600 000 persons among the working-age population are outside the labour force and on benefit and retirement schemes. This accounts for 25 per cent of the labour force. Sweden has seen a similar development. BIS Review 15/2007  17  The sharp increase in benefits cannot be explained by the population’s state of health, which is steadily improving.

Lars Heikensten: The krona, Sweden and EMU Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, at the Öhman Fondkommission, Stockholm, 13 November 2002. *  *  *  During the past six the months the issue of Sweden's full participation in EMU has again come to the fore. It now looks as though a referendum on EMU participation will be held some time next year. This in turn has revived the discussion both about the economic policy that would be appropriate if Sweden adopts the euro and about what may happen in the meantime. In these contexts the Riksbank plays a central role, making it natural that we discuss as openly as possible the matters we shall have occasion to consider in the coming years. In that way we can hopefully contribute to a better understanding of the challenges that we and others involved in economic policy face. Today I intend to concentrate on three matters in particular. First I shall be saying something about the decision-making process in connection with the possibility of participation in ERM2. Then I shall talk about the matters that should be considered before deciding on an appropriate exchange rate at EMR2 entry. Finally I shall talk a bit about my view of economic policy in ERM2. Participation in ERM2 The next step now is for the party leaders to get together and consider a date for an EMU referendum. Their meeting is scheduled for November 29.
Although there are no candidates at present, it would be open to other non-bank issuers to go down the same route – in which case, if we received an application, we would want to be sure that the issuer was financially sound and that the card scheme itself is sound in terms of chip security and risk management policies and procedures surrounding it. When it comes to electronic banking channels, our regulatory approach is, at this stage, less specific in nature. The first step is to know what the banks are actually up to in areas such as internet banking. We therefore issued a letter to authorised institutions in 1997 saying that while banks do not need to  BIS Review 108/1999  4  seek formal approval from the HKMA to offer their services through the internet, they should discuss with us in advance their plans to do so. This is to enable the HKMA to assess whether the institution’s proposed internet banking system is sound and the service provided through the internet will have adequate security. Note that we are not looking for absolute security. This does not exist in either the electronic or physical world of banking. However, the level of security should be “fit for purpose”, i.e. appropriate to the type of transactions to be conducted. The important thing is for the banks to undertake a rigorous analysis of what their security needs are in the context of the particular service that they are planning to offer.

In parallel, the reduction by 5.6 percentage points of the interest rate on lek credit compared to 2011 – when the monetary policy easing started – helps Albanian firms and households to save around ALL 15 billion per year. Third, the accommodative monetary policy has supported Albania’s financial stability. Growth of demand for goods and services and reduction of debt costs led to the improvement of the solvency of firms and households, and has encouraged loan restructuring. Also, the orientation of lending toward lek credit has reduced the exposure of the economy and of the financial system against exchange rate volatilities. Monetary policy-related measures undertaken by the Bank of Albania have contributed to the expansion of aggregate demand and boosting economic growth. Our assessments suggest that the accommodative monetary policy stance has contributed positively, on average by 0.5 percentage point, to economic growth in the last two years. Also the accommodative monetary policy stance has contributed to the stability of the domestic currency. Both transmission channels have contributed and will continue to contribute to price stability in Albania. The current trends in the development of the economy and our projections suggest that inflation will converge toward the target within a two-year horizon. Banking supervision and financial stability The main aspects of our work for safeguarding financial stability were strengthening the stability of the banking system, enhancing its resilience to shocks, adopting international standards on supervision and regulation, and administration of consolidation processes in the banking sector.
The medium and longterm inflationary threat of this large amount of liquidity is limited because we will be able to absorb it rapidly, by slowing our lending or by issuing SNB Bills, as soon as confidence returns to the markets. However, liquidity accumulated by the banks could give rise to excessive creation of money through a massive expansion of bank credit. In May, growth in the narrow monetary aggregates, which are very sensitive to changes in the rate of interest, exceeded 40% for M1 and 30% for M2. In essence, this strong rate of growth reflects a preference on the part of the general public for the most liquid monetary assets over time deposits, due to financial uncertainty and the fall in interest rates. The M3 aggregate, which is not affected by these substitution effects, continued growing at a more moderate rate of 4.2% in May, which shows that, at present, created central bank money is confined at the interbank level and has not been transmitted to the rest of the economy. Monetary policy needs to ensure that the level of the monetary aggregates does not become excessive over a longer period. The indicators we are monitoring show that this is not currently the case. Inflation and inflation risks Inflation developed in line with our expectations. In the first quarter it was zero, while we were anticipating 0.1%. Overall, our forecasts are unchanged for the current year, with inflation remaining negative for the rest of 2009.

In addition, the indices of business activity and household confidence has clearly turned upward again, even if they remain at historically low levels. The combined effect of all these developments leads us to modify our risk assessment but does not substantially affect our scenario for the global economy. We still believe that positive growth could set in within the US in the second half of the year and in Europe at the beginning of next year. We continue to expect a modest global recovery, so that the considerable under-utilisation of production capacities will not be eliminated in the next few quarters. Consequently, unemployment is likely to increase further in the developed countries as a whole. BIS Review 77/2009  1  Swiss economic outlook As expected, the Swiss economic situation continued to deteriorate in the first months of the year. In the first quarter, GDP contracted by 3.2% in annualised terms. However, this figure obscures a much sharper drop in final demand. As in the preceding quarter, part of production was, in effect, absorbed by an increase in stocks. External demand again plummeted and the level of capacity utilisation fell substantially in the manufacturing sector. Final domestic demand by private entities stagnated, and is most likely to weaken in the months ahead, since companies will reduce their equipment investment and household expenditure will be checked by growing uncertainty in the labour market.
Beyond the comparison of this current terms-of-trade shock across countries, it is also instructive to compare this shock for a country like France with the period to which the present situation is often compared: the 1970s oil crisis. Page 5 of 14  The terms of trade shock in France this year is expected to be the second largest since 1974, the first oil price shock. In 2022, for the whole year, the shock would amount to -1.4 GDP percentage point versus -2.8 GDP percentage points in 1974 during the first oil shock. Our estimate for 2022 is in line with other estimates published by Insee and the Ministry of Finance of around -1.5 GDP percentage point. The shock related to import prices is of similar magnitude in 2022 and 1974 but there are some differences in the composition of the shocks. In 2022 it is not only the price of energy that increases but also the prices of many other imported goods (non-energy commodities, intermediate goods etc.). At the same time export prices rose more in 2022, reflecting the more widespread diffusion of price increases to globally traded goods. In addition, the price of services, especially transport services, also partially offsets the negative shock to goods prices resulting from the surge in energy prices. There are many uncertainties regarding 2023. If the levelling off of world commodity prices is confirmed and the global economic slowdown also weighs on imports, the terms of trade shock will diminish in 2023.

This latter factor causes the current “premium” observed on electricity prices in France that are expected in the future markets for next winter. The bottom line is that it is not really possible to disentangle domestic and external factors in the rise in electricity prices, and thus to compute the additional “external tax” due to electricity. II. The ex-ante and ex-post distribution of the external tax Let me now turn to the second key issue: the question of the distribution of the external tax, or in other terms the burden sharing of the shock. I will illustrate this issue in the case of France for the energy bill only, for which more data is available at a granular level. Analysing this question involves three logical steps. First, how the increase in the energy bill is distributed “ex-ante” (as economists say) among households, firms and the general government, based on their respective volumes of energy  Page 9 of 14 consumption in the year before the price shock. In a second step, we need to take into account the fiscal measures put in place in 2021 and 2022 by the government in order to limit the energy bill of households and businesses – since they modify the distribution of the external tax. The third step should involve taking into account all the macroeconomic adjustments, in particular the pass-through of cost increases by firms in their sales’ prices and the response of wages to prices.
Third, although supervision has to focus first on the stability of the core of financial institutions, it cannot be indifferent to the scale of leverage and risk outside the regulated institutions. I do not believe it would be desirable or feasible to extend capital requirements to institutions such as hedge funds or private equity firms. But supervision has to ensure that counterpartycredit risk management in the regulated institutions contains the level of overall exposure of the regulated to the unregulated. Prudent counterparty risk management, in turn, will work to limit the risk of a rise in overall leverage outside the regulated institutions that could threaten the stability of the financial system. Supervision has to explicitly focus on inducing higher levels of margin and collateral in normal times against derivatives and secured borrowing to better cover the risk of market illiquidity. Greater product standardization and improved disclosure can also help, as will changes to the accounting rules that govern what risks reside on and off balance sheets. Finally, central banks, governments and supervisors have to look much more carefully at the interaction between accounting, tax, disclosure and capital requirements, and their effects on overall leverage and risk across the financial system. Capital requirements alone are rarely the most important constraint. The President's Working Group on Financial Markets and the Financial Stability Forum has laid out a very detailed list of reforms to begin this process.

I am going outline some broad proposals for reform, focusing on the aspects of our system that are most important to reducing systemic risk. These proposals do not address a myriad of other important aspects of regulatory policy, including consumer protection issues in the mortgage origination business, the future role of government and government-sponsored enterprises in our housing markets, and many others. Any agenda for reform has to deal with three important dimensions of the regulatory system. •  Regulatory policy. These are the incentives and constraints designed to affect the level and concentration of risk-taking across the financial system. You can think of these as a financial analog to imposing speed limits and requiring air bags and antilock brakes in cars, or establishing building codes in earthquake zones. •  Regulatory structure. This is about who is responsible for setting and enforcing those rules. •  Crisis management. This is about when and how we intervene and about the expectations we create for official intervention in crises. Here are a few broad points on each of these. Regulatory policy The objectives of regulatory policy should be to improve the capacity of the financial system to withstand the effects of failure and to reduce the overall vulnerability of the system to the type of funding runs and margin spirals we have seen in this crisis. First, this means looking beyond prudential supervision of the critical institutions to broader oversight of market practices and the market infrastructure that are important to market functioning.
Despite falling premium rates, general insurer profits in the past few years have been sustained by both benign catastrophe experience and levels of prior year reserve releases that are now the highest for thirty years (Chart 2). Natural catastrophes are a major component of many GI firms’ risk profiles. Catastrophe losses returned to more normal levels by historical standards in the first half of this year. But the low incidence of catastrophic events in recent years may have given support to the idea that this component has in some way diminished, whether due to trends in nature or more effective management of risks by policyholders and insurers. I have also heard speculation that some man-made risks may have decreased: for example, if planes and ships are built better than previously, or if companies are better at managing their risks. Mindful of both the impact and the uncertainty involved in considering this, we would expect firms to seek the BIS central bankers’ speeches  1  best available evidence and to take a prudent and comprehensive view to the assessment of risks. Put simply, we would not expect a handful of recent data points to lead to a marked reduction in a firm’s assessment of its best estimate of liabilities nor its “1 in 200” risk.

The three institutions also get together at least monthly, in what we refer to as the 'tripartite Standing Committee', to exchange information and discuss current threats to financial stability. As you might expect, we have met more frequently in recent weeks. If the events of 11 September have had an important effect on monetary policy, they had huge potential implication for financial stability as well. In the immediate aftermath, a key priority was to make sure that markets had adequate liquidity to continue and settle their business. In addition to its extensive operations in the US market, the US Federal Reserve entered into swap arrangements with the ECB, the Bank of England and other central banks to ensure a continued supply of dollar liquidity in other key markets. And the main payment systems extended their opening hours in the US, enabling the huge daily volume of dollar payments to be made. I must say that I was particularly impressed by the speed with which most of the big firms affected in New York were able to switch their operations to their contingency sites. Some of those sites were in New Jersey, but others put increased volumes through their London offices. There are of course a number of lessons which firms based in the UK and elsewhere will want to take from the disaster. But, overall, I salute the US firms and the US authorities for their actions, achieved at a time which for many involved was one of acute personal anxiety.