samchain/econo-pairs-v1 huggingface dataset:
Christian Noyer: Europe – a financial crisis, not a monetary one Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Paris Europlace Financial Forum, Singapore, 30 November 2011. *  *  *  The situation in Europe and the world has significantly worsened over the past few weeks. Market stress has intensified. Bond markets in the euro area are not functioning normally. Economies outside the euro area are feeling the effects of increased uncertainty, lower growth prospects and capital repatriation. In these conditions, it is important to clarify the mechanisms at work and identify the underlying causes. I will also discuss possible policy responses, from a Eurosystem perspective. The true nature of the crisis I will start with a paradox. Looking at fundamentals, the euro area today seems in a position of strength when compared to other developed economies. Growth has been stronger than in the UK and Japan since 2007. External accounts are in balance. Even the fiscal position is favorable. On aggregate, the euro area deficit (at 4% of GDP) is the smallest of all, less than half of that in the US, Japan or the UK. This remains true even for some peripheral countries. For instance, the Spanish fiscal deficit, at 6.1% of GDP, is much smaller than that in the US, the UK and Japan. Total gross public debt, at 67% of GDP, is amongst the lowest in the OECD.

This circularity creates powerful feedback loops which may lead to absolute market freeze. Finally, banks form a closely interconnected network. Interbank relationships are key to the smooth functioning of financial intermediation. They have been severely disrupted during the current turmoil. It is important to note – and accept – that counterparty risk between financial intermediaries depends as much on perception as on reality. It was enough for European banks to be perceived as vulnerable, even if that was unjustified, to experience tensions on funding. A case in point is the significant retrenchment by US money market mutual funds from European banks on the basis of their exposure to peripheral sovereign risk. What we have seen in the last three weeks is the simultaneous interaction between these three dynamics: solvency and liquidity; banks and sovereigns; and inside the banking sector itself. All sovereigns have been impacted. This includes, most recently, all triple A countries, even Germany. I draw three conclusions from this analysis First, the essential weakness of Europe does not primarily lie in the fragility of any of its components. Europe’s fragility comes from its difficulty to organize and manage, in times of crisis, the complex interactions occurring at the heart of its financial system. Second, we are facing a financial crisis, not a monetary one. There are huge differences. Confidence in the currency remains as strong as ever. Gross capital inflows in the euro area remain unaffected.
I might equally have talked about cyber risk or the impact of a credit correction in China. It is of course the job of policymakers like me to assess and address potential vulnerabilities like these, and we report on them regularly. But to me the bigger point is that at some point, in some way a correction will be triggered when the future, for whatever reason, does not match up to expectations of those who have lent and borrowed and bought assets. Our fundamental task is to ensure that when that happens, the correction can be absorbed and does not lead to a ‘great crisis’, as it did 10 years ago, with all the social and economic loss that entails. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13  References Aikman, D, Nelson, B, and Tanaka, M (2015), ‘Reputation, risk-taking, and macroprudential policy’, Journal of Banking and Finance, Vol. 50. https://doi.org/10.1016/j.jbankfin.2014.06.014 Aliber, R and Kindleberger, C (2005), ‘Manias, Panics, and Crashes’, Wiley Bank of England (2014), Financial Stability Report June 2014 Bank of England (2016), The Financial Policy Committee’s approach to setting the countercyclical capital buffer: a policy statement Bank of England (2017), Financial Stability Report November 2017 Bank of England (2019), Stress testing the UK banking system: key elements of the 2019 annual cyclical scenario Bernanke, B (1983), ‘Nonmonetary effects of the financial crisis in the propagation of the Great Depression’, American Economic Review, Vol. 73, No.

Individuals, therefore, need to be supported to understand the risks associated with using financial products and services that are accessed through digital means so that they can better protect themselves against these risks. Given the rate at which technology evolves, this can be daunting for the average consumer to keep up with which is also precisely why financial education is so critical. 2/4  BIS - Central bankers' speeches  13. One of the more striking results from the 2021 FCI Survey is the low level of digital financial literacy observed, which is deeply concerning. One in three individuals surveyed stated that they would be willing to share their bank account passwords or PIN numbers with close friends. This increases the risk of online fraud, including being used knowingly or unknowingly as 'mule accounts' to perpetrate fraud. Almost twothirds of individuals surveyed do not pay attention to the security features of a website before they perform online transactions (such as to check if the page for making payment is legitimate and can be trusted). As a result, individuals are far more likely to be deceived into providing their banking credentials through a fake website that enables scammers to use their information to commit fraud. Using mobile devices and apps inappropriately has also led individuals to fall victim to fraud such as phishing, hacking, and data theft. 14.
Although it can probably be said that the credit expansion and house price trends have not yet had decisive significance in our interest rate decisions, they are factors that must be included in the equation. It is also important for the Riksbank to try to find a suitable balance between stabilising inflation and the real economy and also taking into account the consequences for financial stability. In the same way, fiscal policy must meet the requirements for long-term stability and sustainability in public finances, with the aid of budgetary targets and expenditure ceilings, which does not exclude consideration of the real economy. This allocation of roles has proved successful and we should therefore proceed with caution as regards making any drastic changes. My reply to the question of how roles should be allocated between fiscal policy and monetary policy is therefore; as they are now. The same conclusion has been reached in many other countries as well as in academic research. What is important in this context is that one realises that the Riksbank takes real consideration when formulating its monetary policy, to the extent it deems this to be wise. It is possible, however, that this is something we need to be clearer about. Can and should monetary policy and fiscal policy develop? In my opinion, one can of course say that both monetary policy and fiscal policy are constantly developing.

Lars Heikensten: The Riksbank and stabilisation policy Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at a discussion seminar of LO (the labour organisation), Stockholm, 24 May 2005. *  *  *  Let me begin by thanking you for the invitation to attend this seminar. I look forward to an interesting and rewarding discussion. The invitation to the seminar contained a list of questions for discussion. I intend to structure my contribution in terms of working my way down the list and giving my views on these questions. Before I do so, however, I would like to take this opportunity to say that I appreciated the section on stabilisation policy’s possibilities and limitations in the LO economists latest “Economic Prospects” report. Although I do not agree with everything – which will become clear later – I perceived the article to be serious and searching in a positive way. Is stabilisation policy important? My answer to this question is (of course): Yes, stabilisation policy is important. One only needs to look at our experiences in the 1970s and 1980s to realise this. What happened then was that the policy conducted could not sustain an adequate balance in the economy. The policy conducted was often too expansionary, which created an environment where it was difficult to keep price and wage increases at a reasonable level. The rapid increases in wages and prices were repeatedly in collision with the fixed exchange rate.
3 In addition, agreements were entered into between central banks so that liquidity in different currencies could be provided across borders. Many banks were particularly in need of US dollar funding. After the failure of Lehman Brothers, the financial system became fully dependent on central bank funding. The situation required new instruments. Central banks supplied liquidity at longer maturities than normal and eased the collateral requirements for central bank loans. Many countries introduced government-guaranteed credit lines and swap lines for lending liquid securities – primarily government securities – against less liquid securities. In a number of countries, central banks have purchased both public and private bonds with longer maturities directly in the market. Private bonds have primarily been purchased with a view to improving liquidity and reducing bond premiums. The Government Bond Fund was also established for that purpose. Government bond purchases can influence long-term government bond yields and indirectly the interest rate on mortgage and corporate bonds and asset prices. Moreover, the Bank of England notes that the purchases increase the money supply, which can contribute to underpinning inflation expectations. It has not been relevant for Norges Bank to buy government bonds in the market. But we have also been highly active. As mentioned, we reduced the key policy rate from 15 September last year. We supplied substantial liquidity to the banks and eased the collateral requirements for loans. We entered into a credit agreement with the Federal Reserve and supplied US dollar liquidity to Norwegian banks.

On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances. With regard to price developments, euro area annual HICP inflation was 2.4% in January 2011, according to Eurostat’s flash estimate, after 2.2% in December. This further increase was broadly anticipated and largely reflects higher energy prices. Looking ahead to the next  BIS central bankers’ speeches  1  few months, inflation rates could temporarily increase further and are likely to stay slightly above 2% for most of 2011, before moderating again around the turn of the year. Overall, we continue to see evidence of short-term upward pressure on overall inflation, mainly owing to energy and commodity prices. Such pressure is also discernible in the earlier stages of the production process. These developments have not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted.
In Hong Kong, China, for instance, SMEs account for 98% of business establishments and employ nearly half of the total workforce. They provide a broad range of employment opportunities and play an important role in reducing urban poverty. It is no exaggeration to say that when SMEs thrive, the economy prospers. This is also true vice versa. SMEs are particularly vulnerable to economic downturns, as banks often reduce their lending to the SME sector due to credit concerns. The exceptional severity of the credit crunch during the global financial crisis has therefore posed great challenges to the SMEs. In response, the Government of Hong Kong, China swiftly rolled out a temporary $ bn Special Loan Guarantee Scheme (SLGS) in December 2008 to alleviate the difficulty of SMEs in obtaining bank finance and the potential surge in unemployment due to the closing down of SMEs. Together with other short-term government stimulus measures, the SLGS has been successful in supporting the SMEs to sail through this once-in-a-century crisis and limit the potential knock-on impact on the economy. Unemployment rate increased by a modest 2.3 percentage point to peak at 5.5% in September 2009. This compares with the 4.3 percentage-point increase during the Asian financial crisis when no such temporary SME support measures were available. The economy contracted briefly by 2.7% in 2009 and rebounded strongly the following year to achieve 6.8% growth. As economic conditions improved and market liquidity normalised, the Government exited from this emergency measure and ceased to receive new applications of SLGS after end2010.

Some have seen a challenge to Hong Kong’s future in the turbulence we have faced. But I would argue that successfully weathering another storm has only reinforced Hong Kong’s unique value – to China and to the rest of the world. 16. Another key feature of Hong Kong’s ecosystem is our broad-based financial leadership. This city is strong not only in one or two areas but across the full spectrum of products: commercial banking, investment banking, equities, fixed income, asset and wealth management, foreign exchange and more. This is important because it means we can provide holistic solutions to the specific financial needs of firms and individuals. 17. This array of financial services is supported by world-class professional services. Hong Kong has top-notch capabilities in law, accountancy, tax, risk management and compliance. 18. And we have an outstanding talent pool. Hong Kong has a well-educated local workforce. But we are also a welcoming city that attracts top professionals from around the world, creating a deep and diversified bench of talent. 19. And let’s not forget the legal system and regulatory environment. Hong Kong is renowned for its unique bilingual common law system. We have a highly-regarded, independent judiciary – as well as an internationally-recognised, forward-looking regulatory environment. That means we offer a fair and predictable marketplace in which all financial institutions can operate and prosper. 20. Each of the above is a great asset in its own right.
10 Fortunately, not all recessions are balance sheet recessions – most of them are more normal recessions without any debt overhang and where demand recovers fairly quickly. For example, households’ balance sheets in the United States have only shown prolonged and severe weakening during the most recent two of the past six recessions. 11 The recovery in the economy as a whole has thus also been slower on these two occasions than following earlier recessions. Households and companies as important as the financial sector Balance sheet recessions have several important implications. One is, of course, that as they tend to be particularly long drawn out, one should try to avoid them. Another implication is that the banks and the financial system need not be the reason why the economy is slow to recover from a financial crisis. The reason may instead be that households or companies need time to pay off their debts and put their balance sheets in order. Another conclusion I draw is that a balance sheet recession, or in any case a very weak economy resulting from balance sheet adjustments, may arise without there being problems in the banks that cause a threat to financial stability. For instance, one can imagine that a sharp fall in house prices could trigger a process where households begin to save and amortise their mortgages, without the banking sector experiencing any difficulties.

Although the central bank is acting in an apparently natural manner, in accordance with an inflation targeting policy, it may unintentionally contribute to a future crisis. The risk-taking channel can thus be said to form a link between monetary policy and financial stability. …that consists of different sub-channels The risk-taking channel actually consists of several sub-channels. One channel is that low interest rates can create incentives for investors to seek higher risk investments with a higher expected rate of return – what is known as a “search for yield”. This could involve, for instance, abandoning government bonds in favour of more risky, but higher-yield commercial paper during periods when the interest rate is particularly low. One reason may be the hope of attaining the same nominal yield as in earlier periods with higher interest rates. Another, more indirect channel is linked to low interest rates contributing to raising, for instance, the value of assets and collateral, as well as income and profits. This can in turn affect the banks’ assessments of, and tolerance to, risk. 4 Low interest rates could mean, for  1  Paul Krugman and Robin Wells, “The Slump Goes On: Why?” The New York Review of Books, September 2010. 2  See, for instance, John B. Taylor, “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong”, NBER Working Paper Series No. 14631, 2009.
The bond market measure has risen somewhat in recent months, although this reflects unusually low real yields on indexlinked debt following the introduction of the minimum funding requirement for UK pension funds. Does this fall in inflation expectations matter? The simple answer is yes. If the MPC can anchor inflation expectations on the target, then unexpected movements in inflation will not immediately lead wage bargainers or price-setters to change their view of where inflation is headed and hence will help make less likely the inflationary spirals of the past. Both inflation and output should be less volatile as a result. 3  BIS Review 63/1999  But there is also another, albeit one-off, benefit from the new-found credibility of policy and the subsequent reduction in inflation expectations. Over the past two years, inflation has been close to 2.5%. If inflation expectations had not themselves converged on the target, then inflation would have been lower than expected. Why does this matter? Suppose wage bargains are struck on the assumption that inflation will be 3 per cent, but prices in fact rise by 2.5 per cent. Real wages will be higher than either employers and employees expect, and employment – the demand for labour – will fall. An unexpected fall in inflation lowers both output and employment. So by bringing inflation expectations down towards actual inflation, the new monetary policy framework has probably led to higher output and lower unemployment than might otherwise have occurred. We might call these benefits a “credibility windfall”.

Following the recent review of data on average earnings, it has been decided to put the relationship between the Bank and the Office for National Statistics on a more formal basis with a Service Level Agreement between the two organisations. Good progress has been made on drafting that Agreement. But the MPC cannot live by official statistics alone, nor even on a diet of business and household surveys. In addition, the Bank has a network of twelve Regional Agents. Their main task is to ask local people how they view the current state of the economy. Each year the Bank’s Agents make, in total, around 7,000 visits to business contacts across the country. The attraction of this information is that it is timely and focussed on the Committee’s needs. Other data are often published with a considerable lag. And there are frequently gaps and puzzles in those data which the Agents can help to resolve. Each month the MPC decides on a “question of the month” which the Agents then put to their contacts. Recent questions have covered trends in employment, the behaviour of earnings, the reaction of exports to the rise in sterling, and the likely effects of the Millennium on investment expenditure. Within a couple of weeks, the responses from a sample of about 150 companies are available to the MPC.
10 Alternative Reference Rates Committee, Best Practices for Completing Transition from LIBOR, as of  September 3, 2020. 11 Treasury Market Practice Group Financial Benchmarks, as of May 2021. By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement.

See also box in Inflation Report 2000/3, pages 16-17. Mussa, M (2000): “Monetary policy to Resist Excessive Depreciation” in Bisignano, J R, Hunter, W C and Kaufman, G G (eds.) “Global Financial Crises: Lessons From Recent Events”, Bank for International Settlements and Federal Reserve Bank of Chicago, Kluwer Academic Publishers. Rødseth, Asbjørn (1987): “Stabiliseringspolitikk på godt og vondt” (Stabilisation policy for better or worse), in Full sysselsetting og økonomisk vekst? Festskrift til Eivind Erichsen (Full employment and economic growth? Festschrift for Eivind Erichsen), Tano forlag. Stiglitz, J E (2000): “Lessons from the Global Financial Crises” in Bisignano, J R, Hunter, W C and Kaufman, G G (eds. ): “Global Financial Crises: Lessons From Recent Events”, Bank for International Settlements and Federal Reserve Bank of Chicago, Kluwer Academic Publishers. 11  BIS Review 92/2000