samchain/econo-pairs-v1 huggingface dataset:
Quoting Michael Woodford 5 , “For successful monetary policy is not so much a matter of effective control of overnight interest rates as it is of shaping market expectations of the way in which interest rates, inflation, and income are likely to evolve over the coming year and later”. I believe it is the expectations that form a bridge between short-term interest rates and long-term interest rates. The more the expectations converge to the targets, the greater the likelihood of the success of the policies. Also, the less volatile the expectations are, the more stable and predictable the effect of monetary policy on the economy is. However, when it comes to emerging market economies, the functioning of expectations differs from developed countries. To be more precise, expectations affect the economy more heavily than other channels in many emerging market countries with a high inflationary past 6 . We at the Central Bank of Turkey are also familiar with this experience. The impact of short-term interest rate decisions is observed within a much shorter period of time through the expectations channel, which has made this channel the most effective one in Turkey so far. In this context, what I find particularly critical to my experience is that the high inflationary history of emerging market countries stands as a real challenge to expectations management in several respects. One of the reasons is the lack of credibility resulted from the high and chronic inflation period in emerging economies.

The focus here is on maturity transformation and affordability risk in mortgage lending. In the short term, this may allow banks to increase their profitability, but the flip side is that this also makes them more vulnerable to interest rate shocks and corrections on the mortgage and residential real estate markets. Domestically focused banks would be particularly exposed to a major interest rate shock. As we explain in our Financial Stability Report, in the event of a normalisation of interest rates, banks would initially benefit from the restoration of the liability margin. However, a major interest rate shock would cause net interest income to fall significantly at many banks, potentially resulting in losses. The greater a bank’s maturity transformation is, the higher these losses will be. Even if the current low interest rate period were to continue and interest rates were only to rise very gradually, the possibility of a major interest rate shock should not be ruled out. Experience has shown that interest rate corrections can sometimes be sudden and sharp. It should also be borne in mind that interest rates on the money and capital markets are currently more than 300 basis points lower than at the beginning of 2008. In other words,  2  BIS central bankers’ speeches  even if interest rates were to return to levels previously considered normal, this would still constitute a major correction.
But while nearly all markets are subject to regulation, relatively little thought has been given over the past decade to how different markets matter to stability and, hence, about the role of the authorities in this area. 1  On that, see the Bank of England/FSA paper released last week on how banking supervision is being reformed in the UK in preparation for the establishment of the new Prudential Regulatory Authority. 2  See Tucker P M W “Macroprudential Policy: Building Financial Stability Institutions”, 2011 for a discussion of macroprudential regimes. 3  Bank of England Annual Report and Accounts 2010 pp 26–27. BIS central bankers’ speeches  1  Markets matter to stability in different ways As a provisional attempt at this, I think it might be helpful to distinguish between three types of market: infrastructural markets, intra-financial-system markets, and end-user markets. The first type is those markets that provide essential, quasi-infrastructural support to banking. The obvious example is the overnight wholesale money markets. They are effectively part of the payments system infrastructure. Banking, which is integral to the provision of all three core financial services, simply could not operate without these markets. They have long been, and will remain, of concern to central banks. I will not return to them today. The second category is intra-financial system markets (a slightly broader concept than inter-dealer markets). These markets determine the interlinkages amongst financial firms.

I want to bring out that they are, nevertheless, integral to financial stability authorities. Under each of those headings, I shall raise a few points that have not featured prominently in recent debates. To be clear, I shall not attempt to cover all important markets. And I shall not address important questions about the role of securities regulators in crisis management, circuit-breakers, or counter-cyclical policies such as varying minimum margin requirements as conditions change. Moreover, I must stress that I speak only for myself. The issuance and distribution of securities Toxic ABS and CDOs – cash as well as “synthetic” or derivative versions – were at the centre of the crisis. They were not toxic for the financial system because they were risky or, indeed, because many underlying household and business borrowers became overindebted. Markets can price (and ration) risk they comprehend (if appropriate requiring yields that inhibit issuance). They were toxic because they were mispriced; and they were mispriced in part because they were misunderstood. Through the consequent enticements to leverage, that misunderstanding engulfed banks, asset managers, credit insurers and, eventually, the authorities. Both dealer-financing markets and end-user markets closed. BIS central bankers’ speeches  3  Listing authorities and securities regulation And yet all of those securities were issued and/or distributed under the securities laws and policies of developed countries or financial centres with elaborate securities market regulation. Prospectuses or other documentation had to meet regulatory or listing requirements.
Lars Heikensten: Swedish economic policy in the EMU Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, at the Swedish Academy of Engineering Sciences, Stockholm, 23 January 2002. *  *  *  I should like to thank the Academy of Engineering Sciences for inviting me to talk about Swedish economic policy in the event of full participation in the European Monetary Union. I am, of course, particularly pleased to do so as a newly-elected member. Those of you who have visited the Continent since the turn of the year will no doubt have come into physical contact with the euro. Having previously existed only as an electronic means of payment in financial markets, the euro is now also a reality in the purses and wallets of the citizens of twelve of the European Union’s fifteen member countries. In Sweden this has revived the discussion about EMU, which makes it particularly stimulating to have an opportunity to talk about some related issues. Over the years in my present job I have made ten or so EMU speeches, generally in the light of what I have learnt and experienced by working on economic policy in Sweden as well as in the framework of EU cooperation. Interest in the subject has certainly varied but conditions now seem to be good again for a broad discussion about Sweden and the monetary union. This is a discussion that everyone has reason to encourage before the time comes to make the political decisions.

For clarity’s sake I should perhaps add that I am speaking in a personal capacity, not expressing an official position on behalf of the Riksbank. Some new conditions for economic policy If Sweden were to adopt the euro, responsibility for monetary policy would be transferred to the European Central Bank (ECB), which acts, not in the interest of particular countries but for what is appropriate for the euro area as a whole. Thus, Swedish economic policy would no longer have recourse to the short-term interest rate and the exchange rate. Tendencies to overheating and inflation just in Sweden could no longer be countered with the monetary alternative of raising the interest rate here, just as the interest rate could not be lowered to mitigate a marked slowdown in our economy. This is clearly a change in the conditions for economic policy that needs to be analysed and discussed in advance of a decision to adopt the euro. Having said that, the issue should not be seen too dramatically. The set-up for economic policy in a monetary union is much the same as in a country with a fixed exchange rate. In Sweden that was actually the case in 73 of the past 100 years, with results that were excellent in some periods and considerably worse in others. It is important to learn from those experiences. What distinguishes a monetary union is that the exchange rate is locked irrevocably.
The financial soundness of a central bank, the usual lender of last resort in a country, is an important firewall for trouble in the financial system. While a central bank may count with the help of the sovereign, this channel may be a source of concern when sovereign themselves are facing problems, and it also raises some worries about the ability of the central bank to maintain its independence. There are also those who argue that, since the liabilities of central banks can be arbitrarily created, the financial position of a central bank shouldn’t matter. But this argument forgets that doing so may endanger the achievement of the inflation targets that many central banks have taken as their operational goals, affecting their reputation and independence. 2  4  Céspedes et al. 2012. BIS central bankers’ speeches  In 1982, as the debt crisis spread through Latin America, the Chilean financial system, which had channeled substantial foreign-currency-denominated syndicated loans, became largely insolvent. Under these conditions, the government engineered a massive rescue operation through the central bank where several of the most important banks became nationalized and others disappeared, after their assets were absorbed by other institutions. This intervention prevented an even larger collapse of activity than the one we ended up experiencing. The manner in which it was implemented, where shareholder equity was fully diluted and institutions assumed a subordinated debt to the central bank that took a long time to repay, helped maintain the rescue’s moral hazard concerns at bay.

The relationship between the Bank and banking sector was no longer one of equals, though the Bank’s approach did not alter course overnight. The Bank of England Act 1946 subsequently granted the Bank a range of powers, including the ability to issue directions to firms. A further legislative development – the Companies Act 1948 – conferred privileged status on some institutions (recognised banks or discount companies) which resulted in the Bank granting 7  exemptions to these institutions by virtue of their status as a bank . For the first time, we see evidence of some differentiation of treatment between banks and regular companies. 8  Meanwhile, the Accepting Houses Committee – a collection of merchant banks with accounts at the Bank – had by this point grown in stature as an association that represented banks of good standing with the implicit 9  backing of the central bank . During the 1950s, and in exchange for the extension of this privileged status, the banks accepted a measure of consultation in order to reassure the Bank that their name was still good. This often took the form of a monthly meeting with the Governor to discuss the firm’s balance sheet, and it was in this setting that the Bank formed an idea of the level of hidden reserves (or excess capital in modern parlance), something that would otherwise go undisclosed in the firm’s public accounts.
Meanwhile, although a weaker domestic economy could amplify capacity gaps and ease inflationary pressures, we cannot rule out that its effects on the exchange rate may offset the price effects, at least temporarily, thus delaying the convergence of inflation. Let me now share with you some concluding thoughts. Final thoughts Domestic output and demand have been weaker, and more persistently so, than we expected a few months back. The sharper fall in investment coupled with a more marked deceleration of private consumption, so we lowered our growth forecast for this year below the range we projected in June. Annual inflation, on the contrary, has been in line with expectations and we continue to see its present high level as temporary. As from June, the Bank has cut the monetary policy rate by 50 basis points, taking it to 3.5 percent, and has reiterated that it will consider the possibility of making further reductions to the MPR in line with the evolution of domestic and external macroeconomic conditions and its implications on the inflationary outlook. No doubt the results and projections presented today show a weak performance of the Chilean economy. We have made significant corrections to our output forecast that respond to the combination of external and internal factors, some of them foreseen, some unexpected. Within the latter, it is obvious that the widespread deterioration of private sector expectations has played a major role. The true magnitude of such role is difficult to determine, but it is certainly big, particularly when it comes to projections.

To quote Mr David Bailey, “data and Regtech go hand-in-hand and data must be at the heart of any Regtech conversation”. Good quality data means Regtech can be used to build effective models and generate decision-making insights. It is vital to build trust with your customers if you want to acquire sufficient quality data. You then need to store and transform that data according to a solid set of data governance rules, identify data which is relevant, and use it in an intelligent and responsible way. Third, proper risk management remains as important as ever. In Hong Kong, we are proud of our banks with their long histories, but we recognise that their legacy infrastructure can potentially hold back Regtech adoption. One key takeaway from today is the reminder that Rome was not built in a day. Banks can start on a small scale, for example by conducting a Proof of Concept (PoC) in a business unit or implementing Regtech in a Cloud-based environment in a newly established part of their business. As a regulator, I must point out that when navigating technologies and determining how to put Regtech to use, it is essential that banks adopt a robust risk assessment framework to evaluate and manage the associated risks. This resonates with Ms Jane Fraser’s suggestions that banks should be mindful of risks such as data security and third-party operational risks that come with new technologies, and that the sandbox provides a valuable means to test new Regtech solutions.
Since Singapore’s economy was small and open, “financing budget deficits through Central Bank credit creation appeared to us as an invitation to disaster” (Prudence at the Helm, p 33). About 25 years before Singapore used this wisdom, Exter argued that, given the underlying domestic production capacity, deficit financing would be an efficacious policy in developed countries that were largely dependent on foreign trade. But, it would not be the case with a developing economy. Hence, the Exter Report highlighted that, “this should serve as a warning to those who might hope that some of the policies growing out of Keynesian economics can be uncritically adapted to Ceylon”. As a safeguard, a provision was included in the Monetary Law Act prohibiting the Central Bank to engage in trade or otherwise have a direct investment in any commercial, industrial or other undertaking. In Exter’s opinion, such interests would lead to money creation, generate conflicts of interest and prevent making investment decisions based on hard-core economic principles. As such, the Central Bank’s involvement in economic activities was considered sub-optimal. It would be useful to examine whether Exter indeed proposed the necessary legal provisions in the draft bill to facilitate the new central bank to carry on business as per the advice given  4  BIS Review 92/2007  above.

The White House believes that the commercial and technological environment is changing far too rapidly for it to be able to develop policy that is both timely and appropriate. In the near term, therefore, the White House is calling for case-by-case monitoring of electronic payments experiments. In keeping with the spirit of the White House Framework, Federal bank supervisors in the United States have expressed a clear willingness to listen to what the private sector has to say on issues involving emerging electronic payments. For example, in 1996 the Board of Governors issued proposed regulations concerning the applicability of Regulation E to stored-value cards. As part of that proposed rule making, the Board requested comments from the public as to whether part or all of Regulation E should apply to electronic money or value residing on a computer system or personal-computer hard drive. Similarly, the FDIC requested public comment on the application of Federal deposit-insurance coverage to electronic value represented on computer systems. This openness, combined with an increasing willingness to let the banking industry partner with technology and other industries, reflects a commitment on the part of bank supervisors in the United States to allow the private sector to direct the future of electronic commerce and payments. From a longer term perspective, however, the market-place and industry self-regulation alone may not fully address all of the issues associated with e-money.
Inflation in many countries - including virtually all the industrial countries but not confined to them - is now consistently lower than it has been for ages. That in itself has contributed to lower interest rates and to the lower nominal bond yields that I have described. But, in addition to that, fiscal consolidation, which has lowered the combined government deficits of the G7 countries from around $ billion in 1994 to around $ billion last year, has helped to reduce real yields, notwithstanding the continuing demand for capital from the developing world. And the really good news is that this macro-economic discipline has been accompanied by sustained economic expansion, with world GDP as a whole growing at an annual rate of some 3½ - 4%. Now of course there have been quite marked differences in the performance of individual countries within this overall picture. Some of the transition economies have seen a brutal contraction of output which is only now beginning to stabilise. And there have been marked fluctuations in the growth rates of some of the emerging countries. Growth in parts of Asia, for example, is now moderating, cyclically, to a more sustainable pace, while parts of Latin America continue to recover from the set-back they suffered two years ago. Among the industrial countries, too, economic developments have diverged over the past two years.

Lars Heikensten: Thoughts on how to develop the Riksbank’s monetary policy work Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at the Swedish Economics Association, Stockholm, 22 February 2005. *  *  *  Introduction Allow me to begin by thanking you for the invitation to once again visit the Economics Association and speak about monetary policy. Since I was here a year ago there has been a relatively lively debate, by Swedish standards, on monetary policy. Some commentators have focused on the currently low inflation rate, but what has really added fuel to the debate is the rise in unemployment that has occurred despite record-low interest rates and strong growth. Other participants have centred on the low interest rates, voicing concerns over their implications for credit growth, household debt and the housing market. I don’t intend to enter into this discussion today, however. Instead, I would like to take advantage of the opportunity to have a more fundamental discussion about the Riksbank’s monetary policy framework, its monetary policy analysis and the possibilities to improve the material underpinning our decisions. I shall describe the changes that we are planning to make to our methods. At the same time I should stress that it is not a question of changing the Bank’s monetary policy strategy.
The situation with regard to monetary policy is also quite different from during the early 1990s. The inflation target and the current regulations regarding monetary and fiscal policy together with sound public finances provide a stable base on which to stand and meet the coming economic downturn. Even if the Swedish banks are affected by current events, they have good capital buffers and good earnings, and are therefore well-equipped to meet the turmoil in the financial markets. The biggest problem for the banks at present is to borrow at longer durations. The Riksbank, together with other government agencies and central banks, has taken measures to improve the situation. We are also prepared to take further measures if necessary. BIS Review 119/2008  7

I think that what I just said constitutes the essence of our contribution to the future: Let us do our best to make the economy move naturally towards a new equilibrium. All the institutions, policy-makers, administrators should be committed seriously to setting-up this new hotbed for our economy, so that as the years go by, it becomes attractive, competitive and profitable for every economic agent, either domestic or foreign. Getting away from the pressure exercised by the crisis whirlpool requires much optimism, energy and financial resources. At national level, ensuring steady foreign currency inflows, particularly in the form of foreign direct investments, remains a major priority. I think that the banking system has a prior role to play in this regard. It should be active in identification, promotion and financial backup. Thus the multiplier effect of foreign investments would gain a new dimension. Bailing the country out of the crisis spillovers requires not only energies, but also joint efforts. The irreversible path towards a democratic system of market economy requires financial architecture perfection and the country’s steady economic development in the long run. To this end, the drafting and implementation of wise development policies should be a constant, real and forward-looking priority, in full accordance with the European convergence framework. Only in this way we will harvest all comparative advantages that our country and the region and beyond provide to foreign investors. Let me finally emphasise once more that a well-capitalised banking system is a long-awaited development.