samchain/econo-pairs-v1 huggingface dataset:
This is what I intend to talk about today. What should we consider when we evaluate monetary policy? What are the principles for a good  1  The evaluation of monetary policy in New Zealand and Norges Bank Watch 2002 are available on my website: www.larseosvensson.net. BIS Review 29/2009  1  evaluation of monetary policy and what is practically possible? How can principles and practice be developed compared with how evaluations are carried out today? Here I present a number of preliminary proposals for such development. Why not just examine whether inflation deviates from the target? An increasing number of central banks focus their monetary policy on achieving an inflation target. My discussion today will therefore be about evaluations of monetary policy with an inflation target. Given this, you may ask why an evaluation of monetary policy should be so complicated. When there is an inflation target, is it not simply enough to compare the actual outcome for inflation with the inflation target; that is to evaluate monetary policy after the fact? There are at least two circumstances that make such an evaluation inadequate. Unforeseen shocks affect outcomes First, monetary policy does not provide complete control over inflation. A central bank is therefore unable to ensure that inflation will be exactly on target at every point in time. In actual fact, monetary policy is conducted under conditions of great uncertainty.

Within this area, the IMF has its main competence and can contribute most. At the same time, the world has changed a lot since the IMF was set up at Bretton Woods in the forties, and it is natural for the organisation to expand its involvement in financial issues and, in particular, with respect to how private flows of capital are to operate within a good regulatory framework. The annual meetings in Prague The coming annual meetings in Prague are to some extent a continuation of this discussion. In Prague, the ministers of finance and governors of central banks from the member countries will meet to discuss the IMF’s future agenda and share views on the work that has been done since the meetings in Washington in the spring. Most of the issues that I have mentioned will be taken up at these meetings. They will discuss trends in the world economy and future risks and opportunities. They will discuss the increased role of private flows of capital and how they affect the IMF’s provision of advice and loans. They will also discuss how the IMF can obtain a more constructive collaboration with private financiers. The experiences of standards within different areas will be analysed as well as the poorest countries’ debt situation, and not least how the debt relief is to be financed. BIS Review 78/2000  6  The IMF has accordingly a key role in what we somewhat carelessly call globalisation.
This over-indebtedness was moreover accompanied by a strong bias towards the construction and real estate development sector and, inevitably in an economy as strongly banked as Spain, this also led to excessive growth in bank lending and excesses in banks’ risk concentration. The relative ease with which these debts built up and their subsequent effects on activity, employment and financial stability were not, in any event, an exclusively Spanish phenomenon. Indeed, these and other similar developments have given rise to widespread initiatives at the international level to strengthen the economic policy tool box, with a new instrument – namely macroprudential supervision – being incorporated to head off this type of situation. In any event, the losses in competitiveness and excessive debt led to a large-scale imbalance in our foreign trade, resulting in a deficit of 10% of GDP in 2007 and requiring the resort to large volumes of external saving to ensure trade financing. But other elements of fragility emerged with the crisis. The worsening macroeconomic scenario and, in particular, the collapse in employment had a most adverse influence on public finances. The characteristics of labour market regulation meant that the effects of the adjustment to the sudden change in the business cycle fell basically on employment, and hardly on wage conditions or on greater hiring flexibility. In turn, the marked deterioration in public finances revealed weaknesses in the institutional workings of the public sector; in particular, the insufficiency of the disciplinary framework in place to ensure compliance with budget targets.

First, the growth outlook for the euro area continues to point to moderate increases in activity in the coming quarters, likewise subject to downside risks. Moreover, further headway in fiscal consolidation will be inevitable, which does not allow expansionary budgetary policies to be applied in the short term. In these circumstances, it is of great importance that any tax reform should prove conducive to economic efficiency and growth. With regard to private debt, credit may not be expected to recover at the aggregate level until economic growth has done so. Meanwhile, the necessary deleveraging should continue to be compatible with the positive restructuring of credit, as attested to by the latest developments. In conclusion, I would say that economists and, even more so, those of us who work in the monetary and financial field, tend to focus on the short or very short term. But I would like to close my address with a reflection on the medium and long term. The twin engines of economic growth are demographic growth and increased productivity. Our worrying population trend responds to complex economic, social and cultural factors that cannot be rapidly changed. But that does not mean that action should not be taken, as far as possible, to improve this trend. Productivity growth is directly related to capital formation, which is in turn connected to saving.
While financial liberalisation and international financial integration bring unquestionable benefits, they can also be subject to episodes of excessive risk-taking. In recent years, there does seem to have been imprudent lending, and not just to emerging market economies but also to borrowers within the industrial world. In part this has been spurred by competitive forces. That such forces will diminish as financial restructuring accelerates seems unlikely. However, the potential of public safety nets to distort incentives and breed complacency can also be discerned and these structures should be re-evaluated. It is important that all investors are held accountable for their decisions. The international community should also ensure that all investors and lenders play their part in the resolution of any future financial crisis and, to this end, should implement, inter alia, changes to international bond covenants that would facilitate debt restructuring should this become necessary. The events of the past decade have made it clear that greater efforts are needed to strengthen the functioning of markets. Information asymmetries lie at the heart of market failure, and the market’s way of resolving them can give rise to unpredictable outcomes. Ensuring that markets have adequate information about national economies, the strength of financial systems, aggregate positions and the financial standing of counterparties is important. Equally, if not more, important is to ensure that market participants’ approach to risk management reflects the full balance of costs and rewards implied in their decisions.

For example, there are five FOMC meetings remaining this year, so the “most likely” meeting could be one with 21 percent probability. In the SPD and SMP, we are careful to elicit the probabilities of the full range of possible outcomes. For example, the current mean probability that the next change in the fed funds target will be an increase is around two-thirds. BIS central bankers’ speeches  11  Probability versus point forecasts For many policy relevant variables, both the SPD and the SMP elicit respondents’ views on the entire distribution of future outcomes, and not only on their modal projections.42 Slide 10 provides a striking example of why this is important. The figure shows the projections for the federal funds rate at the end of 2017 (top panels) and 2018 (bottom panels) at three different times: December 2015, January 2016, and March 2016. For each panel, we show the point forecast (red vertical line) averaged across respondents in both the SPD and SMP. This point forecast likely corresponds to the modal path for the federal funds rate at the end of each year.43 The green lines depict the density forecasts, averaged across respondents, and the blue vertical lines show the mean projections implied by these density forecasts, which I will refer to as the “pdf-implied mean” in the remainder of this talk.44 Note that the average modal path is usually close to, but does not match, the average mode of the marginal distributions for the policy rate.
Perhaps it would go away eventually, maybe dying of loneliness, or perhaps it would stagger on for a small range of transactions—but in any event it would cease to be a problem. While this work was underway, new regulations brought the production of LIBOR under the supervision of the UK Financial Conduct Authority (FCA) and introduced minimum requirements for benchmarks used in the EU. In 2017, Andrew Bailey, the head of the FCA, spotlighted the possibility that LIBOR itself might cease to exist altogether. 13 Bailey announced that the FCA had been exerting an increasing amount of persuasion to get panel banks to keep submitting quotes, and had gotten their commitment to continue until the end of 2021. But he warned that the FCA could not ensure that LIBOR would be published at all after that. Suddenly, instead of just the general threat that LIBOR could cease to be produced someday, there was a specific expiration date on the horizon. The challenge to the market was no longer to gradually start writing new contracts on alternative rates like SOFR instead of LIBOR, but to prepare for the risk that LIBOR could entirely cease to exist within a fairly short time frame. That was a much bigger job, because when you looked at the underlying contracts that used LIBOR, they didn’t provide very well for LIBOR simply disappearing. I blame the lawyers, and our congenital lack of imagination.

9 The ARRC Selects a Broad Repo Rate as its Preferred Alternative Reference Rate 10 Information about SOFR can be found at apps.newyorkfed.org/markets/autorates/sofr. 11 In addition to the London Interbank Offered Rates, the other major interbank offered rates (IBORs) are the Euro  Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR).
Inflation expectations are based therefore on forecasts for the development of the real demand, how many unused resources there are in the economy initially, assessments of the productivity trend and the long-term trend level of production. However, consumer prices can be affected by factors that are not related to resource use in the Swedish economy. Inflation measured by CPI is also affected, for instance, by changes in supply and other factors that temporarily affect inflation. When CPI is affected by temporary factors of this kind  1  BIS Review 72/2000  that are unrelated to resource use, inflation diverges, in the simplified model, from the target even when the output gap is closed. UND1X is a measure that makes adjustments for some of these effects although far from all of them. The rule of conduct The Executive Board of the Riksbank has decided to formulate a decision rule that states that if inflation, measured as the annual change in CPI, is expected to rise about the target of 2% during the nearest one to two years, then the interest rate should normally be increased and vice versa. The choice of time horizon is justified by our assessment that an interest rate change has the greatest effect on price developments during this period. However, interest rate changes also affect inflation in the shorter and longer term, so that there are reasons for giving some consideration to the inflation forecast for the coming year and for the time beyond two years.

As you all know, the Joint Staff Report concluded that further work is necessary in light of the evolving structure of the Treasury market, and it also highlighted a series of additional steps that the official sector will take to evaluate its approach to this market. I remain very supportive of these efforts. In fact, this conference is among the first of those next steps, and presents a perfect opportunity to have a rich debate on the market’s evolving structure and the actions that may be appropriate in response. Thank you once again for coming here today. I look forward to our engagement and discussion. 4  The TMPG has since expanded its mandate to include the agency debt and agency mortgage-backed securities (MBS) markets. 5  A more recent and equally successful practice has also been instituted for the MBS market. 2  BIS central bankers’ speeches
But these banks have been hit by a series of powerful shocks. (i) Monetary policy The first is the shift from centralised control of the economy to a market-based system. Instead of directing money to meet enterprises’ deficits - a job which required a large branch network and hordes of bureaucrats - the aim is to influence the behaviour of the economy by using indirect instruments of monetary policy to guide interest rates and the exchange rate, and to conduct the prudential supervision of the new commercial banks. But many of the bureaucrats find it difficult to work out which bits of information they need and how often, and prefer instead to demand a substantial volume of data without prioritisation. Some of the staff of eastern European central banks, used to passing on raw data which can be checked against enterprises’ targets, find it difficult to analyse information with the aim of learning something about the behaviour of markets, consumers or firms. The simple questions, “Why are we doing this?”, “What does this mean?” can be too hard to ask. New goals, however well-enshrined in the constitution and law, do not change culture overnight. BIS Review 33/1997  -5-  The second culture shock has been the move from a monobank to a two-tier banking system. The old system had two separate monetary circuits - one for cash (used mainly by individuals) and the other in transfers between bank accounts (used by enterprises).

Zdeněk Tůma: Forecasting at the Czech National Bank Speech by Mr Zdeněk Tůma, Governor of the Czech National Bank, at the Bank’s Forecasting Dinner, Prague, 18 February 2010. *  *  *  Ladies and gentlemen, dear colleagues, Over the last seven years I have had the privilege to welcome you here at the premises of the CNB and open the Forecasting Dinner with my thoughts on forecasting and related issues. Unsurprisingly tonight it won’t be any different. However, as it is almost certain that this is my last chance to speak to such distinguished audience still as the governor of the Czech National Bank, I would like to use this opportunity and discuss the forecasting process in the Czech National Bank from a little bit broader perspective. Those of you who were expecting exact inflation and GDP growth numbers I will kindly ask to refer to our latest Inflation Report that was published last Friday. As many of you well know it is generally recognised that central bank policies must be forward-looking. As emphasised by Milton Friedman, for example, there are long lags between monetary policy actions and their impact on the economy.
To put it somewhat differently, but with the essence more or less the same, the rule means that monetary policy should normally be aimed at meeting the inflation target of 2 per cent CPI inflation one to two years ahead. BIS Review 26/2004  1  The fact that we use primarily the inflation forecast one to two years ahead as a kind of intermediate goal for the real target of 2 per cent actual inflation means that temporary shocks that only have an impact on inflation in the coming year do not generally affect our rate setting. It is conceivable that drastic changes in interest rates could bring inflation back to the target faster than over one to two years. But such a policy would probably result in sharp, undesired fluctuations in both the real and financial economy. Against this backdrop it could be said that we normally deliberately tolerate the target deviations that result from temporary shocks to inflation and that arise and diminish over the next year. However, sometimes temporary effects on inflation arise that do not subside during the subsequent year. These effects then show up in the inflation forecast, measured in terms of the CPI, one to two years ahead. But if the effects are expected to disappear quite soon afterwards, there may be cause not to counter them through repo rate adjustments.

It is an essential competency for individuals to navigate the increasingly complex financial landscape. At a global level, in recent years, we have seen a significant increase in the complexity of financial products and services, making it more difficult for individuals to make informed decisions that safeguard their financial well-being. What is alarming is the fact that the level of financial literacy globally is very low. International research finds that, only 1 in 3 adults worldwide are financially literate. This is worrisome not only because of the negative repercussions at the individual level, but also, because of the potential impact it may have at the broader level of a country's economy, including financial resilience and stability. For instance, there are studies indicating that poor financial decision-making, including excessive risk-taking by individuals, preceded financial crises in the past. This phenomenon appears to be accentuated when the preceding prosperous periods have a longer duration than usual, as described by Minsky's Financial Instability Hypothesis. Examples include the Global Financial crisis, where  1/5  BIS - Central bankers' speeches  many people became over-indebted to purchase real estate, as prices appeared, at least to them, to be ever-increasing. When the bubble eventually burst, they were unable to cope with their financial obligations creating a domino of bankruptcies thus, raising further financial stability risks. The negative repercussions of financial illiteracy and of other shortcomings of financial markets, especially on financial stability, can be addressed by enhancing the efficiency of financial regulation.
It appears, the reforms jointly developed and implemented by regulators in the major countries after the global financial crisis truly bolstered the financial system. The very structure of the global financial markets has undergone dramatic changes over the past decade. The role of global banks and cross-border lending by banks has taken a downward turn. Moreover, capital raising markets (stock markets) saw stagnation and even company delisting. The role of market lending (bond markets) and asset managers, i.e. the markets impacted by regulatory reforms to a lesser extent, has increased. These markets could potentially become more volatile, however. In broad terms, what does all this mean for global growth? In our view, it will not be stable. Average growth rates will be lower than in the early 2000s. The main trend we will see in the coming years will be slow economic recovery and the leading central banks taking a tighter policy stance. This will include increased interest rates and curtailed balances. For financial markets, these dynamics bring about two contradictory trends. On the one hand, economic growth has a positive impact on financial markets and risk appetite. On the other hand, increased interest rates are cooling the markets. Therefore, despite the overall stabilisation, there is a high probability of financial market volatility. What does all this mean for the Russian economy? Our economy will be bolstered by external demand to a lesser extent and will be sensitive to external volatility.

Norman T L Chan: Removal of RMB conversion limit for Hong Kong residents Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, Hong Kong, 12 November 2014. *  *  *  I am glad to announce that the RMB conversion limit for Hong Kong residents of RMB20,000 per day will no longer be applicable with effect from 17 November 2014. Under the new arrangement, banks will square their positions arising from RMB conversions conducted with Hong Kong residents in the offshore market instead of the onshore market. As a result, the prevailing conversion and other relevant restrictions for onshore conversion will hence be no longer applicable. The HKMA has just issued a circular to banks setting out the detailed arrangements. The HKMA has had many rounds of discussions with the banking industry and Mainland authorities on relaxing the restrictions on RMB currency conversions by Hong Kong residents. We consider that the best option is for RMB conversions by Hong Kong residents to be done in the offshore market instead of the onshore market. With the size of the offshore RMB liquidity pool in Hong Kong exceeding RMB 1 trillion, and considering the scale and depth of the RMB foreign exchange market, we do not foresee any problem for banks to square their positions for Hong Kong residents’ RMB conversions in the offshore market.
The direction of travel, over time, probably needs to be towards somewhat clearer constraints, and somewhat more circumscribed discretion, if macroprudential regimes are to be effective, robust and transparent. (g) Political Economy of Financial Regulation: The scope and range of regulatory responsibilities assigned to central banks and regulators have expanded materially during the course of the crisis. Accompanying that, some of the new regulatory requirements and practices put in place are quite discretionary in nature, including stress-testing and some other macroprudential measures. A number involve regulators making overtly distributional choices, for example around access to credit. This takes central banks and reguIators more explicitly into the political-economy realm than at any time in their recent (and perhaps distant) history. It has probably also contributed to some people questioning the appropriate scope of central banking, its degree of independence from the political process and from wider society and appropriate accountability mechanisms. There is a debate to be had, an analytical debate, about the appropriate degree of discretion to confer on regulators, to ensure they retain the flexibility they need to respond to events while ensuring 38  All speeches are available online at www.bankofengland.co.uk/speeches  38  their decisions are clear, transparent and unpolluted by behavioural biases and time-inconsistency problems. There are also interesting issues to explore about how regulators explain and account for their decisions to wider society, particularly when they have strongly distributional consequences. This is clearly unfinished business.

Market-based Capital Ratio = Market Capitalisation/Risk Weighted Assets  Chart 12: Estimates of implicit subsidy Value of implicit subsidy, £  Notches of ratings uplift 4 3 2 1 0 2010  2011  2012  2013  Quantity of implicit subsidy (RHS)  2014  2015  50 45 40 35 30 25 20 15 10 5 0  2016  Average ratings uplift (LHS)  Sources: Moody’s, Bank of America and Bank calculations. Notes: Includes Barclays, HSBC, LBG and RBS. Calculated by multiplying the spread between indicative bonds at standalone and supported credit ratings by the volume of ratings-sensitive liabilities; end-year data. Published in: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/capital-andresolution/written/69208.pdf  46  All speeches are available online at www.bankofengland.co.uk/speeches  46  Chart 13: Long-run UK and US leverage ratios Per cent 25 (d)  (c)  United States(a)  20 15 10  United Kingdom(b)  5 0  1880  1900  1920  1940  1960  1980  2000  Sources: United States: Berger, A, Herring, R and Szegö, G (1995), 'The role of capital in financial institutions', Journal of Banking and Finance, Vol 19(3-4), pages 393-430; SNL and Bank calculations.