samchain/econo-pairs-v1 huggingface dataset:
The present Committee contains only one member (the present Governor) who has been there from the outset, and some of the early members served short terms. Might the latter day tendency towards changing rates only after a forecast reflect a generally less activist approach to setting rates? Table 1 provides an unscientific guide to Committee members’ degree of activism: it is arranged with the most ‘activist members’ (identified as those voting proportionately most frequently for a rate change) at the top.9 If personal preferences played no role, we might expect to see a relationship between activism and ‘MPC vintage’ – if MPC members responded to the same shocks, or their behaviour was affected by some other common factor, there would be clusters. Keen MPC watchers will no doubt find some support for the view that personality matters. But, in general, the members who voted for the most rate changes are associated with the earlier years of the Committee, consistent with the idea that the MPC may have needed to respond more frequently during that period.10  9  We have excluded the first 7 months of the MPC’s existence to allow for the possibility that the first rate changes were reflecting necessary adjustments to reach what the MPC thought was the right level of interest rates. 10  There are, of course, also other possible explanations, e.g.

This is very much work in progress, with the aim of helping the MPC to form judgements both about the most likely outturns and the uncertainty surrounding them. Handling uncertainty and disagreement Even armed with a range of economic models to aid structured discussion and enforce a degree of intellectual discipline, how is it possible for a group of nine individually accountable economists to reach sufficient agreement to publish a forecast which is described as reflecting their best collective judgement? An important part of the answer lies in the use of formal techniques to capture uncertainty and risk. These antedate the MPC. The Bank of England started publishing fan charts for its inflation projections in February 1996, following an early experiment with what might be called ‘trumpet charts’.7 The motivation was purely to illustrate the uncertainty inherent in all economic projections. While trumpets consisted of a single shaded area around a central projection, corresponding to average absolute forecast errors (see Chart 1), fan charts (see Chart 2) were graduated to show the full distribution of possible outcomes.8 Chart 1. November 1995 RPIX inflation projection – symmetric error bands  Chart 2. February 1996 projection – fan chart  RPIX  inflation  6  Ashley, J, Driver, R, Hayes S and Jeffrey, C (2005) ‘Dealing with data uncertainty’ Bank of England Quarterly Bulletin Winter 2005, published on 14 March 2005. 7  I am indebted to Mark Allan and James Bell for this nice descriptor.
We should get well prepared or would lose the momentum quickly. 3. Exit by the U.S. Fed from its unconventional monetary policies is one of the most important external challenges that the region will face in the next year or two. A timely and orderly normalisation of monetary policy in the US should help to slow credit growth and contain asset price inflation in the region. However, a disorderly normalisation process could lead to significant outflows of capital, abrupt tightening of financial conditions and a severe re-pricing of assets. This can result in financial instability and even a sharp slowdown of economic growth in the region, particularly in those economies with weaker fundamentals and higher reliance on external financing. Yet, there is a lively debate about the size of the labour market slack in the US, which could complicate the judgment about inflation risks and the conduct of monetary policy. Indeed, the path of exit is not necessarily smooth, and interest rate volatility could be higher than currently anticipated. 4. While monetary policy normalisation may reflect a pick-up in the growth momentum in the US which should help support Asia’s exports, the strength of this support is subject to some uncertainty. We also need to be aware that economic integration has increased within the region. As identified by the IMF in the REO, the increase in trade and financial integration have strengthened the propagation of growth shocks between regional partners. 5. So, what are our major policy challenges?

Chart 6. NOK bonds issued outside Norway Total outstanding. In billions of NOK 100  100  80  80  60  60  40  40  20  20 0  0 2000  2001  2002  2003  Source: Norges Bank  This is reflected in the international market for bonds issued in NOK. Last year, such bond issues amounted to more than NOK 50 billion. Both foreign and Norwegian companies were issuers and a number of small and large foreign investors and Norwegian companies - primarily life insurance companies - were buyers. The relationships in the foreign exchange market are unstable. New shifts in the world economy may reduce interest in the krone. Chart 7. Relative labour costs Deviation from historical average. Per cent 20  20  31 January 2003  15  15  10  10  5  5  0  0 -5  -5  Common currency  -10  -10 -15  -15 1970  1975  1980  1985  1990  1995  2000  Sources: TRCIS/IMF, Ministry of Finance and Norges Bank  As a result of the strong krone and a high wage level, competitiveness in business and industry is close to 15 per cent weaker than the average for the past 30 years. Historically, following such substantial deviations, competitiveness has always returned to the average fairly rapidly.
For example, extreme weather events – which have been steadily increasing over recent decades3 – can harm borrowers’ ability to repay their debts and thus make the loan portfolios of banks much riskier. These risks can be further heightened if extreme weather events also depreciate the value of the assets used as collateral in those loans. Transition risks, on the other hand, include the financial losses that can directly or indirectly result from the process of adjusting to a low-carbon and more environmentally sustainable economy. This adjustment could be triggered by legislation, such as carbon pricing or the banning of carbon-intensive activities. Even independently from that, consumer preferences could shift towards goods and services that are more climate-friendly. An ECB initial assessment confirms that an abrupt transition to a low-carbon economy would have a severe impact on climatesensitive economic sectors, with consequences for up to one-tenth of banking sector assets if the creditworthiness of the highest carbon emitting firms is reassessed, and affecting more than half of banking sector assets if entire economic sectors are reassessed.4 And preliminary results from our ongoing climate stress test show that without further policy action, companies will face substantially rising costs from extreme weather events. This will greatly raise their probability of default.5 Both physical and transition risks will become increasingly material for banks in the coming years, and ECB Banking Supervision has identified climate change as one of the key risk drivers for the European banking sector.

2  BIS central bankers’ speeches
When all these developments are evaluated altogether, we see that the Monetary Policy Committee preserves its cautious stance. The Bank implements its policies with aim of achieving the inflation target that is determined as 4 percent for the years 2007, 2008 and 2009. Currently, we foresee that the inflation targets can be achieved as long as the cautious stance of the monetary policy and fiscal discipline are maintained and the incomes policy is implemented in accordance with the inflation targets and the expectations are managed effectively. Distinguished Guests, The floating exchange rate regime is the basic element of the inflation targeting regime that we currently implement. The exchange rate regime is determined with the government. The Central Bank is responsible for the design and implementation of the exchange rate policy under this regime. Level of the rates under the floating rate regime is determined by the foreign exchange supply and demand under the market conditions. The short-term value of the Turkish Lira is determined by the developments in the foreign exchange supply and demand, behaviors of the market players and shortterm expectations; whereas that of the long term is determined by the economic fundamentals, course of the structural reforms and medium and long-term expectations. The basic policy instrument of the Central Bank in the inflation targeting regime is the short-term interest rates.

Reforms to remove the defects in the social security system; to prevent unregistered economic activities; to provide the labor market with a more flexible structure via education; to restructure the taxing system; to continue with the reforms in the financial sector incessantly and to increase efficiency in the agricultural sector should be given priority in our country. On the other hand, considering that growth is a dynamic process, it is very important to strengthen the macro reforms with micro measures and being in a search for a strategic approach in accordance with the changing needs and newly emerging structures. The public and private sector should engage in cooperation in this field. 1  Global Competitiveness Report 2006-2007, World Economic Forum. 2  Global Competitiveness Report 2006-2007, World Economic Forum. 3  Indicators of good governance are prevention of corruption, the rule of law, efficiency of the legislation and regulations, quality of the state services, political stability and transparency and accountability. 4  Macedo, J.B. ve Martins, J.O. (2006). “Growth, Reform Indicators and Policy Complementaries”. 6  BIS Review 28/2007  The public sector should assume a supervisory and regulatory role within the scope of the principles of good governance and work towards creating an atmosphere in which the private sector can compete within the international markets under the market conditions and should absolutely prevent the unregistered economic activities.
One of the most important lessons of the financial crisis is the need for macroprudential policy. Important work lies ahead of us here, at the European level and in Sweden. Several important steps have already been taken. The Riksbank’s possibilities to influence factors that are important to financial stability must be improved, and I think there are good reasons why the Riksbank should play a major role in the work with macroprudential policy. New instruments within the framework of macroprudential policy can complement monetary policy and traditional micro supervision in order to promote financial stability. I am really looking forward to continuing to work with monetary policy and financial stability at the Riksbank. BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches  BIS central bankers’ speeches  13  14  BIS central bankers’ speeches  BIS central bankers’ speeches  15

It requires clear objectives, extensive decision-making delegation, strong control systems, open and transparent reporting and a realistic appreciation of the constraints faced. If conducted properly, openly and successfully it will greatly strengthen the public’s respect for and confidence in official policy, and make a material contribution to successful macroeconomic management. When we speak about reserve management strategy, we face the challenges of the new low yield environment, but at the same time, one should have in mind the constrains set by the country-specific factors like the foreign exchange regime, the domestic capital markets size and depth, the reserve volume and the currency of the country's liabilities. In that regard, main building block in the reserve management process is naturally the strategic asset allocation, set in a manner that ensures achievment of the key goals of the reserves management, that is: capital preservation, liquidity and at the end - return. In respect to the last goal of the reserve management process, as we are in the middle of the second decade of 21st century, competition for return has intensified, reaching new levels, as the global economy enters increasingly challenging times. In that regard, operational functions of the reserve management can contribute as well, having in mind that like never before the most important goal of operational conduct of the transaction is to deliver the most value at the lowest cost in the least amount of time.
A key past case is the boom in issuance of Collateralised Mortgage Obligations (CMOs) in the run up to the 1994 mini-crisis, an episode that I tried – too timidly – to highlight in 2006.3 Of many examples from the run up to the recent bust , a great one is the late-cycle CPDOs – constant proportion debt obligations – which were rated AAA, paid around 200bp over money market rates, and had a big exposure to tail risk.4 And on the great awakening, Shleifer himself gives the example of a realisation about ABCP, ABS and so on in mid-2007 after subprime delinquencies had risen and faith – note, faith – in rating agency ratings of structured finance securities had evaporated. This exactly chimes with the market intelligence that the Bank was picking up in August 2007. I well remember Stuart Gulliver, now CEO of HSBC, saying to me very early on something to the effect of “anything with “ABS” or “securitisation” in the label is now toxic”. Indeed, Shleifer’s story, and the broader one told by Adair this evening, fits with the thrust of the Bank of England’s strategy towards Market Intelligence, framed in around 2002/03. This amounted to saying that we needed to think about markets somewhat differently when we are doing monetary policy and financial stability. For monetary policy, in most circumstances a reasonable default assumption is that core markets are more or less efficient most of the time.

Only last week, ECB Banking Supervision communicated to banks that climate-related risks have been identified as being among the key risk drivers affecting the euro area banking system. And, of course, the Central Banks and Supervisors Network for Greening the Financial System published its first progress report just a few weeks ago, reasserting that climate-related risks fall squarely within the supervisory and financial stability mandates of central banks and supervisors. An area that has received less attention though, both in policy and in academia, is the impact of climate change on the conduct of monetary policy. Today I would like to contribute to this debate and offer a way of thinking about how climate change fits into our current monetary policy framework – the way we react to shocks and the way we think policy propagates through the economy – and how it may affect our monetary policy implementation. I will argue that climate change can be expected to affect monetary policy one way or the other. That is, if left unchecked, it may further complicate the correct identification of shocks relevant for the medium-term inflation outlook, it may increase the likelihood of extreme events and hence erode central banks’ conventional policy space more often, and it may raise the number of occasions on which central banks face a trade-off forcing them to prioritise stable prices over output.
This led to a downward movement of the implied forward rate, which we stated that we considered reasonable in the press release in connection with the interest rate decision. At present, the implied forward rate is slightly higher than it appeared immediately after publication of the unexpectedly weak CPI outcome for January. However, in the short term the differences are marginal. The current implied forward rate path entails the repo rate remaining unchanged until summer and then subsequently being increased gradually. We Executive Board members will thus take a stance with regard to which monetary policy conclusions can be drawn from the information received since the end of February at our meeting on 27 April. Let me say a few words here on my own view of the situation. The February Inflation Report contained the forecast that international economic activity would remain relatively stable over the coming years. Since the Report was published, the oil price has risen by almost 10 dollars per barrel which is clearly higher than the forecast in the Report. The forward prices for oil have risen, which indicates that there may also be reason to expect a higher oil price for some time to come. Experiences from recent years are that the international upturn in economic activity has been surprisingly resilient to increases in the oil price. Revised national accounts for the United States have been received, which show that growth was marginally stronger at the end of 2005 than was indicated by preliminary figures.

In parallel, it amended the regulatory and supervisory framework to adapt it to the new financial conditions and approximate it with the new international standards. With regard to the latter, we have worked to gradually transfer the supervisory practices from Basel I to Basel II system. 4  BIS central bankers’ speeches  In view of integrating the Albanian banking system with the European one, we have intensified the cooperation with counterparts in other countries. Bank of Albania’s membership into Vienna Initiative 2.0 Steering Committee was particularly important in this regard. This initiative is a platform of cooperation, which brings together the European Commission and other institutions of the European Union, international banking groups that operate in Central, Eastern and South-eastern Europe, as well as authorities from home and host countries. Its main objective is to promote coordination between home and host country authorities, to avoid disorderly deleveraging. Given that the Albanian banking system is dominated by cross-border banking groups, decisions from the Vienna Initiative 2.0 have considerable effects on it. Therefore, our participation in the decision-making process is very significant. Albania is the only non-EU member country participating in Vienna 2.0. As such, it also represents the interests of other non-EU countries that are not represented in the Steering Committee. For all these reasons, I believe the involvement of the Bank of Albania in Vienna Initiative 2.0 is an important institutional achievement.
While in many other countries the policy rate is an overnight rate, the SNB has an operating target for the 3month Swiss franc LIBOR (London Interbank Offered Rate). Without going into detail, I would like to stress two important points with respect to the transmission from the monetary policy instrument to the economy. First, monetary policy works primarily through financial markets. By setting the policy rate, monetary policy affects exchange rates, interest rates, risk premia and asset prices in general, and is thus  1  This is due, first, to uncertainties about the current state of the economy and its future evolution, and second, to long and variable lags in the transmission from monetary policy to the real economy. Therefore, monetary policy can and should only react to large and persistent deviations from equilibrium. Attempts at fine-tuning the economic cycle may even be counterproductive, in that they are procyclical. 2  Obviously, central banks also have some long-term influence on financial stability, first because of moral hazard induced by actual or expected central bank action, second, by affecting asset prices, and third, due to the involvement of central banks in banking regulation and banking supervision. Furthermore, one can also argue that price stability and economic stability are also conducive to financial stability. 3  To the best of my knowledge, this idea was first put forward by J. Niehans (1978), The Theory of Money, chapter 12, and was designated the “three frequency approach to monetary policy”.

As a central banker, I would date the outbreak of the financial market crisis to the beginning of August, when overnight interbank rates increased sharply. The first central banks to react were the ECB and the SNB on 9 August, when both banks conducted extraordinary finetuning operations. Soon afterwards, other central banks followed suit, also injecting additional liquidity. 4  For a discussion of the transmission of monetary policy to financial markets see Ph. Hildebrand (2006), “Monetary Policy and Financial Markets”, speech given to the Annual Conference of the Swiss Society for Financial Market Research, 7 April 2006, or Th. J. Jordan (2007), “Globalisierung und Finanzmärkte: Herausforderungen und Chancen”, speech given at the ETH Zurich, 13 November 2007. 5  Of course, to retain credibility, the central bank must refrain from deceiving the markets, i.e. from announcing future action without actually intending to act. 6  As measured by the Case Shiller Composite Index. BIS Review 71/2008  3  So far, there have been three waves of money market strains. After subsiding somewhat in late September, the strains increased again in November, exacerbated by year-end pressures. The third wave started in March. The worst peak of the financial market crisis so far was attained in mid-March, when Bear Stearns was taken over by JPMorgan. The takeover, which was facilitated by the Federal Reserve, resulted in a calming of markets. Since mid-March, financial markets have improved somewhat, with the exception of money markets, which are still rather tense. 4.