samchain/econo-pairs-v1 huggingface dataset:
Moreover, the possible contribution of the resolution fund in substitution of other creditors may not exceed 5% of the bank’s total liabilities. The draft Directive is, in general terms, satisfactory. Firstly, it establishes a relatively harmonised resolution framework which has been non-existent to date. Secondly, while it was necessary to introduce the above-mentioned “element of flexibility” in order to reach agreement, the room for manoeuvre will be limited. Thirdly, the 8% of total liabilities that will  BIS central bankers’ speeches  3  be subject initially to the bail-in, is liable to be covered relatively comfortably by capital and subordinated debt. Finally, the agreement affords security to deposits. Deposits of over € would only be subject to bail-in once they reach 13% of a bank’s total liabilities and, even then, they might not be affected, given the possibility of funding by the European Stability Mechanism envisaged in the draft Directive. In short, along with the Single Supervisory Mechanism, this greater harmonisation of national resolution regimes is one of the fundamental pillars of the future European Banking Union. To conclude on the treatment of global systemic banks, it will be necessary to create, for each of them, Crisis Management Groups. It is envisaged that these Groups will conduct before 2014 an initial review of the viability of the resolution plans of the systemic banks included in the November 2011 list.

deposits of less than € secured liabilities, such as covered bonds; and liabilities arising from participation in payment systems, along with interbank liabilities with an original maturity of less than seven days. The draft Directive further requires Member States to set up ex-ante resolution funds. These funds will be used to temporarily support banks under resolution by means of loans, guarantees, asset purchases or capital for bridge banks. They will also be used to fund what may be called an “element of flexibility” of the Directive, which I shall refer to in a moment. Over the next 10 years these funds must be built up to a volume equivalent to at least 0.8% of the insured deposits of the country’s credit institutions. In this connection, banks must make annual contributions based on their liabilities. The draft Directive leaves to the discretion of the Member States the matter of whether resolution funds and deposit guarantee funds are merged or kept separate. Finally, as I said earlier, the Ecofin agreement introduces an “element of flexibility” so that national resolution authorities, in certain exceptional cases and subject to strict criteria, may fully or partially exclude any category of liabilities from the bail-in, and use the resolution fund to finance this exclusion. However, as a general rule, they may only resort to such flexibility after losses have been imposed on shareholders and creditors for a minimum amount of 8% of the total liabilities of the bank subject to resolution.
The real sector is showing signs of constant recovery, corroborated by some positive developments in the external economy. I would like to underline that a clearer prospect of the political and economic situation in Greece will have a positive impact over the upcoming period. The Bank of Albania has been continuously monitoring the developments in our Southern neighbour, aware of the various risks that could spill over in the Albanian economy. But, thanks to the precise and duly interventions, especially in the banking sector, these risks never materialised. BIS central bankers’ speeches  1  The constant easing of the monetary policy seems to be reflected especially in investment indicators, with the domestic and foreign ones showing significant improvement over the first half of the year. On our side, we are happy that these investments were not only due to public sector interventions. There was also a substantial component by the private sector. This makes us believe that well-studied projects by the investors, coupled with an increasingly sound and pro-investment business climate, will serve as main drivers for the economy towards not only higher but also more sustainable growth in the near future. In accordance with the best contemporary practices, the Bank of Albania has endeavoured to enhance the transparency in its communication with the public, not only about the actual decisions but also about our forecasts. The Bank of Albania has constantly conveyed to the economic agents the idea that the monetary policy will remain accommodative and will sustain the revitalisation of the economy.

Large exchange rate movements have at times been a source of instability. In Norway, the household, banking and corporate sectors as a whole take on currency risk to a limited extent. Furthermore, government finances are solid, and fiscal policy is not affected to any great extent by short-term exchange rate movements. This allows the exchange rate to play an important role in absorbing shocks to the economy. We have thus been able to reap the benefits of an efficient international capital market without having to deal with its challenges. 1/3  BIS central bankers' speeches  At the same time, in a world of high capital mobility and extensive trade, monetary policy’s room for manoeuvre is constrained by the exchange rate channel. In a small open economy with a floating exchange rate, the domestic interest rate can differ from interest rates abroad. However, an interest rate differential that becomes too wide can lead to considerable exchange rate volatility, which will in turn feed through to inflation, output and employment. Thus, the domestic interest rate cannot be set without regard to the level of external interest rates. The room for manoeuvre in monetary policy is further constrained in periods when external interest rates are close to or below zero. Although the financial crisis in 2008 had a marked impact on Norway, our economy was affected to a lesser extent than most other advanced economies. There are a number of reasons for this. The Norwegian economy was in an upturn when the crisis hit.
Short-term interest rates Per cent  8  8 US  6  6 Euro area  4 2  4 2  0 1999  2000  2001  2002  2003  0 2004  Source: Norges Bank  The international upturn came to a halt in 2000. The bubbles in the equity markets burst. Many years of high investment and rising unemployment led to excess capacity. The terrorist attacks on 11 September 2001 put a new damper on economic activity. From the summer of 2002 to the spring of 2003, a highly extraordinary accumulation of negative events in the global community - accounting scandals, fear of terror, war and disease - put a brake on growth. US interest rates, which were sharply reduced at the beginning of the downturn, have subsequently been reduced further. Interest rates have also remained low in the euro area. There are now clear signs that the global economy has passed the trough. However, while the outlook is brighter, price inflation is still low and interest rates are being kept unusually low. Economic growth is high again in the US. Employment is rising, but there is still excess production capacity and very low  10  BIS Review 11/2004  inflation. It may take some time before interest rates are increased substantially in the US. Growth in Asia is solid, but a global rise in interest rates is unlikely to start there.

Inflation is higher in the euro area than in the US and approximately in line with the objective defined by the European Central Bank. In the euro area, however, capacity utilisation is very low, unemployment high and the outlook for growth is weaker. Against this background, it will probably also take time before interest rates rise markedly in the euro area. Chart 14. USD/EUR and the US current account balance as a percentage of GDP 0.8  0 USD/EUR (left-hand scale)  1  -2  1.2  -4 Current account balance (right-hand scale)  1.4 1999  2000  2001  2002  2003  -6 2004  Sources: OECD and Norges Bank  The imbalances in world trade represent a particular risk. The US is running a substantial trade deficit, which was financed for a number of years by private capital flows to the US business sector. The flows have subsided and led to a sharp fall in the US dollar at the same time as the euro has appreciated. Through purchases of US government securities, Asian countries have thus far kept their currencies stable against the US dollar. The US federal budget deficit is an important source of the imbalances in world trade. It appears that it will take time before the deficit is reduced to a considerable extent. This entails a risk that the dollar will depreciate further and that US long-term government bond yields will move up.
In recent months, inflation has brought important surprises, which have been driven by the impact of high global cost pressures resulting from higher commodity, energy and food prices, triggered largely by the Russian invasion of Ukraine. This has occurred in a context in which difficulties in global supply chains are still present, and even worsened as a result of the confinements in China, the peso remains depreciated and the activity gap remains positive. The short-term inflation outlook is risen sharply in response to this combination of factors. In the scenario I will present in a few moments, the maximum level to which we project inflation could reach is close to 13% annually in the third quarter of this year. As for activity, in line with expectations, it started to adjust in the first quarter of this year. However, the composition of demand shows that private consumption remains high, while investment is weakening. In the medium term, the adjustment of macroeconomic imbalances remains the central element for inflation to converge to 3% within the two-year horizon. The high level of inflation and the higher persistence associated with its main fundamentals have required a more contractionary monetary policy to achieve such convergence. This has driven us to raise the MPR to 9% and we estimate that new adjustments of a smaller magnitude will be needed to ensure inflation convergence to 3% in two years' time. Risks remain high, particularly because of the level and persistence of inflation I just mentioned.

I will now describe our assessment of the economic outlook and associated risks. 1  The macroeconomic scenario and projections As I said before, inflation is still on the rise, and now stands significantly above our estimates in the March MP Report. With the CPI figure that was released this morning, a monthly variation of 1.2%, the y-o-y increment of the CPI rose to 11.5% in May. The core CPI -which excludes volatile items- posted an annual change of 9%. This figure has remained mainly linked to the sustained rise in the prices of goods, but has recently also shown a higher contribution from its food and services components, consistent with the dynamism of consumption during the first quarter of the year and with the adjustments of indexed prices and utility rates that normally take place in March (figure 1). The excessive increase in domestic demand in 2021 continues to push inflation up over the past year. In any case, its recent behavior has been more strongly affected by external cost pressures coming from price hikes in foods and commodities, plus the persistent difficulties in production chains and supply at the global level. All this in a context of very volatile exchange rate in the past several weeks, which is now above its March figure, and a still high activity gap. Unlike previous quarters, most of the inflationary surprise of recent months is related to the prices of foods and volatile items.
Whether the academic and central banking community has its analysis of those channels correct is open to question, but the voluminous literature on the impact of QE on yields is testament to an absence of neglect, even if we are still working towards definitive answers on many fronts. Page 7  But the first two dangers remain relevant. In pursuing our inflation target at the Bank of England, our core modelling framework employs what is essentially a real framework to model the transmission mechanism of monetary policy. This is founded in the canonical new Keynesian model: prices are set as a mark-up over marginal cost, with that mark-up varying cyclically. The main policy implication is straightforward: in order to stabilise inflation at target, keep aggregate demand in line with aggregate supply. This framework assumes longer-term inflation expectations are, and will remain, well-anchored. That is certainly the ambition of the MPC. Monetary policy actions are always aimed at ensuring so: following its June meeting, the MPC stated that monetary policy is acting to ensure that longer-term inflation expectations are anchored at the 2% target. But we cannot rely on our forecasts of inflation returning to target to reassure ourselves that inflation expectations are well-anchored, since such anchoring is one of the assumptions underlying those forecasts. That would be circular reasoning. Ensuring the institutional and analytical framework for monetary policy is robust to potential shifts in inflation expectations is key.

The potential for money to play a role as ‘nominal anchor’ to the economy, outside the standard forecasting framework – as it often has in the face of elevated levels of inflation, such as during the experiments with monetary targetry from the late 1970s – remains an open and challenging question. Monetarism revisited Before addressing these questions, it is worth recalling the central tenets of the monetarist approach to monetary policy. Foremost among these are: First, a focus on price stability as the objective of monetary policy, reflecting the ‘classical dichotomy’ at the heart of most macroeconomic models. In the long run, money and monetary policy are neutral: they have no influence over real variables, such as output and employment, but pin down the evolution of the price level. Second, a preference for using rules rather than discretion to direct monetary policy. Policy decisions need to be credible and consistent if they are to be effective. Assigning responsibility for monetary policy to an independent central bank, largely insulated from short-term political pressures and given the freedom to employ judgment flexibly as necessary, supports this systematic approach to policymaking. Third, a medium-term orientation of monetary policy, recognising the famous long, variable and less-than-fully predictable lags in the transmission of monetary policy to price developments. Owing to these lags, monetary policy cannot control high frequency inflation developments on (say) a month-to-month basis.
Then, the collapse of a major financial player mid-September 2008 transformed a large-scale crisis of confidence into a global financial panic. Financial intermediaries scrambled to restore liquidity buffers, shed risk and tightened lending conditions. Collectively, they engaged in a large-scale process of “deleveraging”. Credit spreads surged and trading activity in a large number of markets collapsed. In these unprecedented circumstances, the ECB’s primary mission was to preserve price stability, in line with our definition – below 2% but close to 2% – and therefore contribute to financial stability. As the inflationary pressures seen over the summer of 2008 receded, we swiftly reduced our policy interest rate in a tight series of steps down to 1%. This interest rate level has not been experienced in the countries of the euro area at any time in recent history. In parallel, we had to tackle the paralysis of inter-bank transactions in the money market. As you know, the flow of credit is primarily channelled by banks in the euro area. A complete breakdown in the funding relationships that constitute the money market would have derailed the bank lending channel altogether. The interruption of the bank lending channel would have made our policy action ineffective. It could have turned the financial crisis into a profound depression. This is what motivated the second tier of our approach to crisis management: what we refer to as our policy of “enhanced credit support”.

But when interest rates soared from 1980 onwards, the payments to service this debt began to cripple the economy. At the same time, the projects these investments went into failed to deliver the expected returns. It all ended in a severe debt crisis that set back Latin America by at least a decade. Essentially, a mispricing of capital resulted in cheap funding and overinvestment. 11. Developed economies are equally prone to the risks of mispriced capital. The subprime mortgage crisis, which precipitated the global financial crisis less than three years ago, is another example of mispriced capital leading to excessive risk taking and leverage. Low interest rates in the US fuelled both a housing and a credit bubble that eventually burst, dragging down investors and intermediaries alike. 12. In emerging Asia, today, high levels of domestic savings coupled with large capital inflows pose the risk of unproductive investments and asset bubbles. When capital inflows slow down, as they inevitably must, the consequent unwinding will be rapid and possibly unpleasant. Asian policymakers have been responding to the situation in various ways 13. First, they have allowed the price of capital to rise – either through exchange rates or interest rates or both. Second, they have regulated the demand for capital through fiscal tools, such as transaction taxes and stamp duties. Third, they have regulated the supply of capital through administrative tools, ranging from restrictions on bank lending to selective capital controls. 14. The most effective way is to price capital correctly.
In addition, we have seen surges in demand for certain goods that have outstripped available supply. The clearest example is used cars, which are in very high demand, reflecting factors such as the needs of a remote workforce, stimulus payments, and demand from rental car companies. At the same time, the supply of vehicles has been held back by earlier production cutbacks and shortages of semiconductor chips. This imbalance in supply and demand has caused used car prices to soar. Looking forward, supply will slowly come back online, and I therefore expect car prices to stabilize and then decline over time to more normal levels. 2/3  BIS central bankers' speeches  We have already seen this type of dynamic play out in some sectors. The latest data show growth in wholesale used car prices slowing in the first half of June.4 And lumber prices, which soared during the pandemic as housing demand surged and supply struggled to keep up, have declined sharply in recent weeks. I expect that as price reversals and short-run imbalances from the economy reopening play out, inflation will come down from around 3 percent this year to close to 2 percent next year and in 2023. It goes without saying that there is a great deal of uncertainty about the inflation outlook, and I will be watching the data closely. The Fed’s Policy Response It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good.

The second question raised today is: What were the reasons for undertaking steps for financial sector reform? The recent financial crisis served as a reminder that the impaired financial system can have a significant impact on the functioning of the overall economy. Moreover, the 2007–08 financial crises was, to a great extent, a result of the failure of public authorities in the United States and Europe to adequately monitor and address systemic risk. By comparison, Asia and other parts of the world where memories of systemic financial crises were still fresh, had adopted more prudent policies and practices, and were less impacted by the subprimetriggered financial shockwaves. In order to make global finance more stable, the 2009 G20 summits in London and Pittsburg listed commitments on financial regulatory reform, pushing the financial regulation to the forefront of the global economic cooperation agenda at the level of political principles, which had until then, been mainly focused on trade and macroeconomic policy. The items on regulation can themselves be divided into two subgroups. On the one hand, the G20 decided to tighten or strengthen the regulatory framework applying to entities or activities that had already been regulated before the crisis.
429-448. [14] See Ruge-Murcia, F.-J. (2006), “The expectations hypothesis of the term structure when interest rates are close to zero”, Journal of Monetary Economics, 53, pp. 1409-1424. [15] See Lemke, W. and Vladu, A. (2017), “Below the zero lower bound: a shadow-rate term structure model for the euro area”, Working Paper Series, No 1991, ECB; Rostagno, M., Altavilla, C., Carboni, C., Lemke, W., Motto, R., Saint-Guilhem, A., Yiangou, J. (2019), “A Tale of Two Decades: the ECB’s Monetary Policy at 20”, ECB mimeo; and Bottero, M., Minoiu, C., Peydro, J.-L., Polo, A, Presbitero, A., Sette, E. (2019), “Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data”, IMF Working Paper 19/44 and Wu, C., Xia, D., (2018), “Negative Interest Rate Policy and the Yield Curve”, NBER Working Paper W25180. [16] For a summary of the potential complementarities between negative rate policy, forward guidance, asset purchases and TLTROs see the respective matrix in Chapter 6 of Rostagno et al. (2019), op. cit. [17] See, for example, Ryan and Whelan (2019), “Quantitative Easing and the Hot Potato Effect: Evidence from Euro Area Banks”, Research Technical Paper, Central Bank of Ireland, Vol. 2019, No 1 on the hot potato effect. [18] For an overview on the working of TLTRO, see European Central Bank (2017), “The targeted longer-term refinancing operations: an overview of the take-up and their impact on bank Intermediation”, Box in Economic Bulletin, Issue 3.

[17] Finally, the negative interest rate policy also reinforces our targeted long-term refinancing operations (TLTROs). [18] Under the TLTROs, banks can refinance with the ECB at very favourable conditions: under the second and third wave of that programme (TLTRO II and III), borrowing rates in the TLTROs can be as low as the deposit facility rate (which is negative) if lending volume targets are met. Accordingly, the presence of negative rates provides a strong incentive for banks to participate in the TLTROs, which support credit provision to the real economy at attractive conditions. The transmission of asset purchases to the yield curve Let me now turn to large-scale asset purchases, including our own asset purchase programme (APP). There is a wide array of studies quantifying the effects of various forms of asset purchases on financial markets and macroeconomic variables. Results vary regarding the quantitative impact but there is a broad consensus that central bank asset purchases lead to a flattening of the curve, since the yields of longerterm bonds tend to decline by more than those of short-term bonds. A first look at the stylised facts using the same approach that I outlined earlier confirms this pattern for the euro area. Extracting a quantitative easing factor from high-frequency interest rates and other financial market data confirms that news about ECB asset purchases had yield compression and flattening effects on the term structure, as shown in Chart 6.