samchain/econo-pairs-v1 huggingface dataset:
More expansionary monetary policy can reduce unemployment Can a less tight monetary policy really reduce unemployment in our present situation? I think it can. Expansionary monetary policy improves matching… It is often said that the matching of jobseekers to job vacancies is not functioning as well now as it did before, and that monetary policy cannot do anything about this.17 The discussion in the Fiscal Policy Council’s report for 2012 (Fiscal Policy Council 2012) is relevant in this context. This shows that matching for both experienced and inexperienced labour is sensitive to demand fluctuations and improves when demand in the labour market improves. It is however more sensitive to economic fluctuations in the case of inexperienced labour. This means that if the demand for labour increases, matching improves most for inexperienced labour. The business cycle, and thus monetary policy, therefore plays a role for the matching process, and a more expansionary monetary policy that leads to a higher demand for labour improves matching most for the vulnerable groups. Monetary policy can thus contribute to improving matching in the labour market. The deficiencies in matching are, in the current economic downturn, an argument in favour of more, not less, expansionary monetary policy.

Of course, this does not prevent differing opinions being held, both within the Riksbank and by external analysts, as to how the repo rate should be managed in order to maintain price stability. Monetary policy is based on how the inflation rate is expected to develop in the near future, primarily 1-2 years ahead. There are two reasons for this. The first is that monetary policy measures make their full impact on inflation during this time horizon. Thus, the Riksbank has little possibility to counteract shocks that affect inflation in the short term, but it can conduct a well-balanced monetary policy to ensure that inflation is maintained around an average rate of 2 per cent a couple of years ahead. The second argument in favour of forward-looking monetary policy is that this provides scope for taking into account developments in the real economy. If the repo rate were to be changed continually to try to bring inflation back to the target level as quickly as possible every time a shock occurred, it could lead to considerable, and undesirable, fluctuations in interest rates, production and employment. During the years that monetary policy has employed an inflation targeting strategy, we have developed a clear analytical framework for our work. The Riksbank has developed a simple rule to make monetary policy more easily comprehensible and to create stability when making monetary policy decisions.
A deep recession, such as the Great recession, can have long lasting effects on potential growth, which are different in nature from the usual consequences of a cyclical downturn. Because of its duration and amplitude, it may damage the available human and physical  BIS central bankers’ speeches  1  capital stock as well as medium-term productivity growth. Monetary policy may alleviate these effects through an appropriate accommodative stance. First, a deep recession may lead to a depreciation of the available human capital stock 1. Long term unemployment reached historical heights during the Great Recession in the United States, Spain, Italy or France, as you can see on this graph. The skills of long-term unemployed’ may then be eroded by lack of practice. Long-term unemployment may also discourage part of the labour force, which may leave definitively the labour market. The structural decline in the labour force participation rate accelerated with the crisis in the United States. This evolution is however not shared by all countries, such as Spain. Indeed, the reverse behaviour may be observed as the unemployment of one member of a household may lead other members of the household to enter the labour market. The two effects can offset or dominate one another, leading to different country paths, as shown on the graph. Finally, a deep recession may lead to sectoral reallocation, with part of the labour force lacking appropriate skills.

All indicators, from the matching process on the labour market to the reallocation of resources among firms, have shown how serious the shocks from the great recession have been, vindicating a large-scale and determined reaction of economic policy across the world. In this global economic policy reaction, it would be hard to argue that central banks have not done their share of the job. At the current juncture, however, all need to do their share. Focusing on the euro area, I am convinced that we would do much better with more growth-enhancing fiscal policies, especially in the member states that have fiscal space, and, at the same time, more ambitious structural reforms, especially in the member states that don’t have fiscal space. Indeed, this is probably the most subtle criticism of the active monetary policy currently undertaken by central banks: has it been an excuse for inaction by other public authorities, in particular structural reforms? Our answer cannot be to stop doing our own job but, drawing on the legitimacy given by our own actions, to strongly invite governments to do more. In particular in my own country, here in Paris, reforms are necessary, as I stressed in my recent Letter to the French President some days ago. But reforms are also possible. Yes, France too, like many of its successful European neighbours, is “reformable”. I thank you for your attention and wish you an excellent dinner. BIS central bankers’ speeches  5
How has the Pact changed? The fiscal problems encountered by some countries during the downturn triggered a change of the Stability and Growth Pact. In my view, changes were necessary and many of the amendments to the Pact go in the right direction. However, some of them make the framework less predictable. The change consists of three parts: better governance, changes in the preventive arm and changes in the corrective arm. Better governance Better governance includes better budgetary discipline at national level, more realistic forecasting and more reliable statistics. National budgets should be complementary to the member states’ commitments under the Stability and Growth Pact. National institutions could play a more prominent role in budgetary surveillance through increased attention to the development of public finances in public opinion. But apart from those general words, the reformed pact does not spell out any guidelines for appropriate developments of national institutions. Within the EU we have now begun to analyse various forms of national regulations. I hope that the continued work will lead to stronger anchoring of fiscal policy among the member states. I will return to this question a little later. More realistic forecasting consists of having some common assumptions, mainly on external developments, in the stability and convergence programmes. The experiences from the first year of the reformed Pact indicate that it has led to more realistic national growth forecasts. More reliable statistics refer to budget data problems ranging from creative accounting via methodological problems to understaffed and non-independent statistical compilers.

To combat and address the consequences of climate change, we should all work together in supporting the transition to a low-carbon economy, and factoring in these climate-related risks in our business strategies and investment processes. On this, we are delighted to see that the momentum of sustainable finance has been gaining traction in the past few years, which has also brought about new opportunities in this fast-growing space. Green bond issuance 14. One of the HKMA’s priorities in recent years is to continue to strengthen Hong Kong’s position as a regional green and sustainable finance hub. With that in mind, we have put in substantial efforts and resources in this area, and actively reached out to potential green bond issuers to grow the market. On this front, we are pleased to note that the green and sustainable bond issuance amount in H1 2021 has already exceeded the whole year of 20201. More recently, the Shenzhen Municipal Government has successfully issued a total of RMB5.0 billion of offshore bonds in Hong Kong, RMB3.9 billion of which were green bonds. It was the first time for a Mainland local government to issue offshore bonds in Hong Kong. We hope that this would attract other Mainland local entities to follow suit and make use of Hong Kong’s platform to issue green bonds, thereby enhancing Hong Kong’s role as a major green finance hub for the Mainland, in particular the GBA. 15.
The EMU is an event with far-reaching consequences; in one way or the other all countries will be affected by it. Unlike the effect of a currency area, a customs union or a free trade area, a monetary union can affect in various degrees all countries, irrespective of whether they are in or out. This general fact, together with the signing a Customs Union (CU) Agreement with the EU, make EMU even more important for Turkey than for other countries outside the EMU. Therefore, I believe that the Turkish Central Bank has a predominant role to play in informing and educating all Turkish entities about the choices and implications of EMU. As you all know, Turkey is one of the potential countries to join the EU. I would say that our country’s ultimate aim is to become a full member of the EU; therefore first we need to adapt to European standards in many areas. The steps Turkey took on the way to the CU are also steps taken to ensure full integration in EMU. After these general remarks I would like to look at the issue from Turkey’s perspective. So far, the measures taken to support the independence of the Central Bank of Turkey (CBT) are remarkable. Recently, the Central Bank Law was amended and now limits have been set on the so-called “short-term advances” which the Treasury is legally entitled to obtain from the Central Bank.

Experiences of different monetary policy regimes Countries have long endeavoured in different ways to control inflation, often by trying to fix the nominal exchange rate by one means or another. However, during the post-war period it is only in recent years that we have really understood the long-term costs of high inflation. And it was not until then that there was a serious political ambition to deal with the inflation problem. During the 1960s and 1970s many considered that the cost of bringing down inflation was too high in relation to the advantages it would entail. There was also a belief that by accepting slightly higher inflation it would be possible to achieve a sustainable higher level of employment and lower unemployment. However, in time it became increasingly clear – thanks to both practical experiences and results from academic research – that this reasoning was not viable. At the same time, it is important to remember that during the first decades after the war we were living in a completely different type of economy compared with now, not merely with regard to the view of inflation. Most western world countries had strongly-regulated financial systems. This was partly a consequence of the war, and partly due to the view that access to credit should be steered towards certain tasks. At the same time, many countries had fixed exchange rates and regulated capital movements, initially within the Bretton Woods agreement – the system that was generally based on fixed exchange rates.
1)  𝑦1 = 𝐸1𝑃𝑆 𝑦2 − 𝜎(𝑖1 − 𝐸1𝑃𝑆 𝜋2 + 𝜔𝑠1 )  IS curve  2)  𝜋1 = 𝜅𝑦1 + 𝐸1𝑃𝑆 𝜋2 + 𝜈𝑠1  Phillips curve  3)  𝑠1 = 𝜓𝑘1  Banking sector credit spreads  4)  𝐵1𝐵 = 𝜙0 + 𝜙𝑖 𝑖1 + 𝜙𝑠𝐵 𝑠1 + 𝜉1𝐵  Banking sector real credit growth  5)  𝐵1𝑀 = 𝜙0 + 𝜙𝑖 𝑖1 + 𝜙𝑠𝑀 𝑠1 + 𝜉1𝑀  Market based sector real credit growth  6)  𝛾1𝐵 = (1 + (𝑒𝑥𝑝(ℎ0 + ℎ𝐵 𝐵1𝐵 + ℎ𝑘 𝑘1 ))−1 )−1  Banking sector crisis probability  7)  𝛾1𝑀 = (1 + (𝑒𝑥𝑝(ℎ0 + ℎ𝐵 𝐵1𝑀 ))−1 )−1  Market-based sector crisis probability  8)  𝛾1 = 𝑏𝛾1𝐵 + (1 − 𝑏)𝛾1𝑀  Total crisis probability  The IS and Phillips curves determine, respectively, output (𝑦1 ) and inflation (𝜋1 ), as functions of current and expected future output and inflation  17  and the policy interest rate (𝑖1 ). Output and inflation also depend on  banking sector credit spreads (𝑠1 ). Spreads push down on aggregate demand in the IS curve by increasing the interest facing borrowers in the economy. They also have a negative near-term effect on aggregate supply, raising inflation for a given level of output via an endogenous cost-push mechanism in the Phillips Curve.

Many more have also made inquiries which I am very glad to see. Ladies and gentlemen, Let me now turn to the concluding part of my talk tonight. Amid the volatile global financial climate, Thailand’s strong external positions will serve as buffers against financial shocks. The private sector’s prudent financial management and policymakers’ credible policy will allow us to successfully ride with the global tides. In the real sector, the Thai economy is expected to maintain its gradual recovery path, driven mainly by government spending and tourism. Exports of goods, on the other hand, is subject to a slowdown in trading partners’ economies and structural constraints of the Thai industries. Inflationary pressure remains subdued, but the headline inflation will gradually rise in line with a recent pick up in oil prices. Against this backdrop, monetary policy stance will remain adequately accommodative to support economic activities, while safeguarding financial stability. Over a longer horizon, the Bank of Thailand is committed to creating financial infrastructure and nurturing the financial eco-system to help lift up growth potentials of the Thai economy. We aim to promote financial innovation, financial inclusion and  4  BIS central bankers’ speeches  financial literacy, as strong foundations for sustainable economic development. With regard to the payment systems, the new infrastructures are being built to support the transition towards the digital economy. Rules and regulations on exchange-rate management are to be relaxed further for greater flexibility of investors and multinational companies.
This is a very dramatic assumption and it matters a lot because, as we all know, debt dynamics are extremely sensitive to forecasts about future growth. Some of the implicit assumptions underlying current negative judgments seem to me to be seriously misguided. Recall what I pointed out at the start of my talk. We have recently been pleasantly surprised by growth dynamics in the euro area. Consumer confidence is almost back to pre-crisis levels; PMIs are at an all time high and GDP growth will almost certainly be above potential, on average, for the year 2011. These developments take place at a time when drastic fiscal consolidation programmes are being implemented in all countries. Positive confidence effects in the private sector are outweighing the negative impact of reductions in public expenditure. What about countries in the periphery? The Spanish growth rate swung from –3.7% in 2009 to –0.1% in 2010, despite the fact that a major austerity plan was being implemented. Spanish exports are booming, with an increase of 10% within the euro area and 19% outside the euro area in 2010. This compares very favourably with performances of other countries both inside and outside the euro area. Let me also remind you that real convergence is at play in the euro area. This process will continue and support growth in the future, contrary to over simplistic descriptions. One overlooked fact is the very fast productivity catch-up in the periphery of the euro area.

We will present the results in the spring of next year. Page 2/2
10.05.2022  The Spanish banking industry and the economic challenges ahead* 17th Banking Industry Meeting - IESE Pablo Hernández de Cos Governor *iEnglish translation from the original in Spanish  Introduction Good morning. I wish to begin by thanking the IESE for the invitation to this meeting, which gives me the opportunity to address the main challenges for, and developments in, the Spanish banking industry. The Russian invasion of Ukraine is a new shock for the world economy, just two years after the pandemic triggered a shock to economic activity unprecedented in recent history. The long-term consequences of the war in Ukraine are difficult to predict, but they will foreseeably be severe, not only from a geopolitical standpoint but also from an economic one. In the short and medium term, the Russian invasion and the western world’s response, imposing unprecedented sanctions, have significantly stepped up the uncertainty. This has had adverse consequences for economic activity and has given rise to further inflationary pressure. All this, in a setting in which the Spanish economy was gradually recovering from the economic effects of the health crisis. Yet this recovery was still incomplete and uneven across economic sectors, and it continued to be affected by the course of the pandemic and by the sharp increase in inflation which began in the second half of 2021. When this new shock emerged, the Spanish banking sector’s resilience remained generally high and it had returned to pre-pandemic profitability levels. But the war introduces new risks for financial stability.

And, given the depressed level of household and business confidence and the fragility evident in financial markets, I also conclude that there remain significant downside risks. It is worth elaborating on these points. First, what are the temporary factors that slowed growth in early 2011? Of the items noted by the FOMC, two bear special mention:   Energy and commodity prices rose sharply over the six-month period ending in May 2011. This sapped households’ real purchasing power here and abroad, so they responded by both consuming less and cutting savings.   April’s tragic earthquake in Japan disrupted many global supply chains. Many goods assembled here contain Japanese-made parts. When Japan was unable to produce parts, U.S. production and sales slowed. I am certain that parts shortages affected many sectors here and abroad. These temporary factors are now waning. Nonetheless, four factors are preventing a more vigorous recovery:   First, problems in the housing market are a serious impediment to a stronger economic recovery. Residential construction – which typically boosts economic activity during a recovery – is at a standstill. Moreover, many homeowners are now  2  BIS central bankers’ speeches  consuming less because the decline in house prices reduced their wealth and they are concerned that the decline in home values and wealth may not be over. Mortgage rates are at record lows and house prices no longer appear overvalued on affordability measures.
The costs increased, but none of the banks dared take the initiative to debit customers for these costs. There were concerns that Swedes regarded payments by cheque as an inherited right and would, therefore, vocally protest. But this was not the case. When, at the beginning of the 1990s, one of the banks decided to charge a fee of SEK 15 per cheque (and the others followed suit) the majority of cheque payments disappeared over just a few years – and moreover without political convulsions. The reason for this was that there were excellent substitutes that were free of charge and which were marketed by the banks, primarily cards and credit transfers. When consumers discovered this, their grief over the death of the cheque abated. The United States has always been the promised land of the cheque. By tradition, US consumers have sent cheques in the post when they pay their electricity or telephone bills, for instance. The company receiving the cheque has then forwarded it to the bank, which has then transferred the money and returned the cheque to the consumer. In this manner, tons of cheques have crossed the American continent daily. But even in the United States cheque usage has begun to fall. Giro transfers, other credit transfers and direct debit are used for the larger payment flows.

In addition, the reduction in the interest rate has probably contributed to holding up expectations of future inflation even when inflation is low. If there is confidence in monetary policy, economic agents will expect inflation to be close to target over time. Companies will draw up their budgets on this basis. This will then contribute to stabilising inflation. Many companies change their prices only once or twice a year. When they change prices, they probably take into account the expected rise in other prices. It has been important to prevent inflation expectations from falling and becoming entrenched at a low level. Surveys of inflation expectations nevertheless indicate that expectations are well anchored around the inflation target in the long term. The first signs of the effects of the interest rate cuts appeared in the foreign exchange market. The interest rate differential against other countries narrowed. It became more attractive to borrow and less profitable to invest in the Norwegian krone. The movement in the krone exchange rate was reversed and the krone depreciated through 2003 and into 2004. However, the impact on the krone exchange  2  BIS Review 27/2005  rate has been considerably dampened because external interest rates have remained low. High prices for oil and gas and other export goods also contributed to an appreciation of the krone last year. The depreciation of the krone in 2003 contributed to restraining the fall in prices for imported goods. The effect occurred gradually.