samchain/econo-pairs-v1 huggingface dataset:
Central bank responses have also tended to adapt themselves to the structure of the respective financial systems, and to the specific dysfunctions and tensions. For instance, the fact that the banking sector plays a predominant role in channelling credit in the euro area economy — compared with the Anglo-Saxon model which is underpinned to a greater extent by the capital market — was from the outset a distinguishing feature in the design of the ECB’s response. Also, set against the strategies deployed by the Federal Reserve or the Bank of England, based principally on “quantitative easing”, the Eurosystem’s response has been more complex over time, adapting itself to the difficulties that have arisen at the  BIS central bankers’ speeches  1  different stages of the euro area crisis, though seeking always to act on the segments of the transmission monetary policy mechanism that were seen to be most impaired. The perception that the interbank market had ceased to operate as an efficient liquidity distribution mechanism between banks meant that the liquidity-provision policy had to become more flexible. And, when the crisis worsened in September 2008, far-reaching changes had to be made to the monetary policy operational framework, to allow the ECB to meet the system’s gross liquidity needs, with a substantial expansion of the size of its balance sheet.

Central bank measures in the monetary area In the conventional monetary policy domain, since there was no inflationary risk over the relevant horizon owing to the deterioration of the economic outlook, the central banks’ priority has been preventing the disinflationary process in the Western economies from translating into deflation. Back in October 2008, in a concerted move the central banks of the main economics cut interest rates by 50 basis points, and this was followed by further cuts in late 2008 and early 2009. Currently, after an unprecedented monetary impulse, rates stand at one of the lowest points in history. The narrowing of the room for manoeuvre for conventional monetary policy measures gave a leading role to liquidity-provision policies and the implementation of exceptional or non-conventional measures, aimed at ensuring the transmission of interest rate cuts to agents’ financial costs and to facilitating their access to funding. Since the crisis began in August 2007, there have been numerous innovations in monetary policy implementation. These have involved increasing the number of institutions with access to central bank funding; extending the collateral eligible in monetary policy operations; lengthening the maturities at which liquidity was supplied to the market; and public and private asset-purchase programmes (or loans to the private sector for such purchases). As a result, there has been an unprecedented expansion in the balance sheets of the central banks concerned, and a substantial change in the composition of their assets.
As a result, equity capital is eroded by around 3 ½ percentage points of risk-weighted assets. Yet despite this assumed marked worsening in the global economic weather, the FPC judged that UK households and businesses would continue to be supported by our banking system. 2  BIS central bankers’ speeches  2. Financial conditions and macroprudential policy  The improvement in the price and availability of credit is one sign of the normalisation of the UK financial environment. Another is that, after seven years of deleveraging, aggregate credit to the UK private non-financial sector has begun to grow again (Chart 2). This has not been a debt-fuelled recovery. Aggregate private credit growth is modest compared to pre-crisis conditions, and is just now coming into line with nominal GDP growth (Chart 3). Chart 2: Credit growth in the private sector is recovering Private non-financial sector credit growth (oya)  Sample average  25 20  Per cent  15 10 5 0  1967 1968 1970 1972 1973 1975 1977 1978 1980 1982 1983 1985 1987 1988 1990 1992 1993 1995 1997 1998 2000 2002 2003 2005 2007 2008 2010 2012 2013  -5  Source: Bank of England.

Carney, M (2013), “The spirit of the season”, Speech at the Economic Club of New York, December. Carney, M (2015a), “From Lincoln to Lothbury: Magna Carta and the Bank of England”, lecture at Lincoln Cathedral, July. Carney, M (2015b), “Inflation in a globalised world”, remarks given at the Economic Policy Symposium hosted by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. August. Christiano, L, Eichenbaum, M and Evans, C (2005), “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy,” Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1–45, February. Cloyne, J and Hurtgen, P (2014), “The macroeconomic effects of monetary policy: a new measure for the United Kingdom,” Bank of England working papers 493, Bank of England. Gali, J (2011), “The Return Of The Wage Phillips Curve,” Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 436–461, 06. Gilchrist, S, and Zakrajsek, E (2015), “Customer Markets and Financial Frictions: Implications for Inflation Dynamics”, paper prepared for the 2015 Economic Policy Symposium organised by the Federal Reserve Bank of Kansas City at Jackson Hole, Wyoming. August. Greenslade, J, Millard, S and Peacock, C (2008), “How has globalisation affected inflation dynamics in the United Kingdom?”, Bank of England Quarterly Bulletin, Q3. Groen, J and Mumtaz, H (2008), “Investigating the structural stability of the Phillips curve relationship,” Bank of England working papers 350, Bank of England. Leeper, Sims and Zha (1996), “What Does Monetary Policy Do?,” Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol.
Annex Chart 1 Equity indices during crises S&P 500 equity index  FTSE All-share equity index Cumulative decline from peak (per cent)  Cumulative decline from peak (per cent)  0 10  0 10  20  20  30  30  40  40  50  50  60  60  1929 crash  70  1973 oil crisis  80  Current crisis  1929 crash 1973 oil crisis Current crisis  70 80 90  90 0  6  12 18 24 Months from peak  30  36  Sources: Global Financial Data Inc. and Bank calculations. (a) Previous peaks taken as: 1929 crash = 7 September 1929; 1973 oil crisis = 11 January 1973 and current crisis = 9 October 2007. 20  0  6  12 18 24 Months from peak  30  36  Sources: Global Financial Data Inc. and Bank calculations. (a) Previous peaks taken as: 1929 crash = 30 September 1929; 1973 oil crisis = 12 December 1972 and current crisis = 10 October 2007. Kamstra, M and Shiller, R J (2009), “The Case for Trills: Giving People and their Pension Funds a Stake in the Wealth of a Nation”, Cowles Foundation Discussion Paper No.1717.

It was only such an infusion that would allow us to maintain stability, as well as be able to have the much needed funds to keep the infrastructure development effort going. Some financially savvy members of the Opposition too, realized the significance of such a fund infusion into the economy, and tried their utmost to scuttle that effort. But, fortunately, we were able to defeat those endeavours, and raise the all important bond, and tide over the risky period. The infusion of the new funds immediately brought stability to the economy and also acted as an important stimulus for growth, with the new additional resources quickly filtering down into the economy. Hence, as a result of the move, the Fiscal framework was supported with the moderation of interest rates; the monetary framework was facilitated with the stabilization of prices; and exchange rate was supported by the buttressing of international reserves. Mr. Chairman, I believe that, some day when Sri Lanka’s economic history is being written, this 2007 infusion of $ 500 million through the international sovereign bond, would be marked as a major “turning point” in our economic landscape. I also believe that the benefits of this land mark move has been of an enduring and permanent nature, as evidenced by the fact that, over the next 5 ½ years, the Government has been able to raise a further $ ½ billion from international bonds, with the coupon rates tightening considerably each year.
The Central Bank continued to withdraw the excess liquidity in the market mainly via New Turkish Lira deposit transactions in the Interbank Money Market within the CBRT and repo transactions in the Repo and Reverse Repo Market of the Istanbul Stock Exchange, on an overnight basis. However, when the excess liquidity withdrawn via overnight operations increased, the Central Bank has started to issue liquidity bills from July onwards in addition to its overnight operations in order to increase the flexibility and efficiency of liquidity management. Overnight interest rates in the market were generally around the borrowing rate of the Central Bank, depending on the withdrawal of the excess liquidity by the Central Bank via overnight operations. Hence, the borrowing rate of the Central Bank has continued to be an indicator for money markets. BIS Review 4/2008  7  Based on the information currently available, i)  The increase in base money,  ii)  Coupon and principle redemption by the Treasury to the Central Bank,  iii)  Treasury’s being net foreign exchange debt payer,  will have a lowering effect, while; iv)  The Central Bank’s net foreign exchange purchases,  v)  Interest payments to be made by the Central Bank for required reserves and excess liquidity absorbing transactions,  vi)  The decline in Treasury cash accounts within the Central Bank  will have an increasing effect on the level of the liquidity in the market in 2008.

While, it forms a basis for the accountability principle, the law does not specify the size of the deviation from the target that will require such an explanation. In other words, details of accountability mechanism are left to the Central Bank’s own initiative. Therefore, the Central Bank has established an effective and enforceable accountability mechanism by setting a symmetrical uncertainty band of 2 percentage points in both directions around the point target. As stated above, the inflation target has been defined over a very comprehensive CPI index. The CPI index also comprises of price items that are beyond the control of the monetary policy such as food, energy and administered goods. In emerging markets like Turkey, shortterm fluctuations in exchange rates can lead to unpredictable temporary fluctuations in inflation as well. Since a sudden reaction of monetary policy to factors that are beyond its control will increase volatility in macroeconomic variables, inflation-targeting central banks adopt a medium-term approach and allow temporary fluctuations in inflation as long as the expectations are under control. In this framework, the primary objective of setting an uncertainty band is to establish a measurable criterion that will enable to determine to what extent the deviations from the point target will be tolerated with respect to the accountability principle. In view of the above-mentioned factors, it has been decided to keep the uncertainty band at 2 percent for 2008 as well.
Of course, the Banking Union is now an integral part of the Euro project. In fact, like pillars in a building, the BU provides resilience and stability to the whole Euro project. As such, the BU is in its own right one of those transformative developments that have contributed to deepening our level of integration. 2/5  However, unlike the single market or the adoption of the euro, the BU was not the result of a joint vision by EU leaders on the need to enhance banking supervision and resolution across the Eurozone. Instead, it was the outcome of bold and swift defensive reactions to preserve the single currency in the wake of the European financial and sovereign debt crisis. Indeed, it was the crisis that led to the conviction that a common and enhanced framework for banking supervision and resolution was needed to help break the link between banks and sovereigns. This conviction gave rise to the Single Supervisory and the Single Resolution Mechanisms, which, so far, are the key components of the BU. Another important development related to the Single Resolution Mechanism came to fruition last December, when the European Stability Mechanism was recognised as a common backstop to the Single Resolution Fund for both solvency and liquidity support. Today the rationale behind the creation of the SSM and the SRB seems obvious. But, to be fair, before the European sovereign crisis erupted, there had been only a few warnings against the risks that a fragmented banking supervision landscape within the Euro area involved.

On the other hand, the contagious nature of financial turmoil with globalized financial markets is such that the possibility of further attacks on our currency, unsuccessful as they inevitably would turn out to be, could not be dismissed. The banks have therefore been somewhat reluctant to lend longer term money in the interbank market since the October shock, even though they are flushed with liquidity, as reflected by the clearing balance of the banking system being at a high level. This perhaps reflects a lack of depth in the debt market which we have been separately trying to address. As a result, while the short term interest rates of the Hong Kong dollar, for example for overnight money, have fallen to quite low levels, significantly below corresponding US dollar interest rates, the yield curve has become sharply upward sloping, with one-month and longer term money commanding a significant premium over corresponding US dollar interest rates. 25. But I believe the Hong Kong dollar yield curve will in time flatten further, as it has done so after the sharp hike on 23 October 1997. There will, nevertheless, be occasional jumps, as sentiment continued to be affected by events in other economies in the region and possibly beyond.
On the need for clarity in monetary policy-making”, European Central Bank Working Paper No. 26. 47  As cited in Petra M. Geraats (2007): “The Mystique of Central Bank Speak”, in International Journal of Central Banking, March 2007, p. 37. 48  Effective communication to market participants is particularly important. As economists with a university background, we often feel the need to build up a series of arguments and weigh various considerations before arriving at a conclusion. But this can sometimes render communication less effective. Financial market participants prefer to be presented with the conclusion first so that they can respond to it quickly. 10  BIS Review 140/2009  The third criterion for good communication is that it must be honest. I referred earlier to the principle that the external communication should reflect the internal deliberations. It is an honest matter to communicate that decisions are difficult and often made on an uncertain basis. But it is just as important – and more challenging – to explain why it is difficult and which factors have been considered and given weight. Before the rebuilding of Bislett Stadium in 2004, the organisation Bislett Alliansen was to decide where the Bislett Games should be moved. The choice stood between Drammen and Bergen. They chose Bergen. The head of the organisation said to the Norwegian news agency NTB: “I have participated for almost 20 years, and this was the most difficult decision I have been involved in.

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You might recall that in setting out the economic case for membership of the European Union (EU) on this occasion last year, I emphasized that the candidate countries needed to seriously question the way they had managed their economies in the past and to resolve to improve their performance. I warned against underestimating the entity of the task because the necessary changes were pervasive, affecting both institutions and mindsets, policies and work practices, and they also entailed costs. It was this same realization of the difficult challenge implied by EU membership that lay behind the call I made, the day after the referendum result was confirmed at the April general elections, for an early mobilization of all the nation’s resources. It is, therefore, somewhat disappointing that there persists today an insufficient awareness of the profound economic implications of that decision and of the need for all to work hard to secure the benefits of membership. This is all the more surprising given the threat posed by the continuing weakness in our major export markets. The Major Challenges Facing the Maltese Economy It is against this background that I propose to focus attention on four major challenges which I believe must be tackled with urgency if the economy is to return to a higher path of sustainable growth and development.

I do not need to tell you that there is still a lot to be done. You have said so yourselves many times. These good words must be transformed into actions, and soon, because time is running out. It is no good having the right diagnosis if you don’t apply the medicine and cure the disease.”  6  BIS Review 50/2003
Up to a certain amount, banks’ demand for central bank reserves is completely inelastic (due to central bank reserve requirements, internal and external liquidity regulation and other factors). Beyond this amount, however, the decision to hold excess reserves responds to risk-return considerations as for any other asset: if a bank decides to hold a certain amount of excess reserves, it is because their risk-adjusted return dominates that of other assets. As I mentioned earlier, while an individual bank can decide to hold less excess reserves, in the short run the banking system as a whole cannot dispose of excess reserves. Since, in equilibrium, supply must equal demand, if interest rates on central bank deposits (the riskfree remuneration of excess reserves) are at levels such that demand for reserves exceeds supply, banks will be willing to hold on to the excess reserves present in the market. This is likely to be the case in a situation of high risk aversion, where – like today – the risk premia demanded to hold risky assets are so high that their risk-adjusted return is lower than that offered by the deposit rate. If, however, banks become more willing to accept risks, their demand for excess reserves for a given deposit rate will decrease and they will look for more attractive alternative uses for these funds: riskier assets and/or loans.

What can the Federal Reserve bring to the table? First and foremost, we can convene the industry and, as needed, drive toward consensus. We can bring strong research and analysis to the table. We can synthesize the large volume of payments research developed by industry, think tanks, consultants and academics, as we’ve already done for ourselves, as well as provide research by Federal Reserve economists. We can analyze use cases, as we’ve done over the last six months. And to help shape the consensus, we can draw on the basic principles that have guided Federal Reserve provision of payments services over the postwar period: access, efficiency, security and resiliency. Historically, the Federal Reserve’s focus has been on the interbank clearing and settlement of payments, operating efficiency, such as the conversion from paper to electronics, technologies that extend and improve accessibility, and infrastructures and services that are robust to security threats. Moving forward our strategy maintains emphasis on those key areas, but expands our focus to the flow of a payments transaction from end to end, enduser to end-user. The vision is to make sure the core services we provide enable and encourage innovation among payments providers who serve the end-users at the two ends of the payment. The end-to-end view means that payment initiation and delivery of good funds to end-users in the future state need to be timely, cost-effective, safe and easy. When we talk about timeliness and a faster payments system, what exactly does that mean?
The key to solving this policy dilemma is to make sure that firms hold enough liquidity (and capital) in the good times so that, when a downturn hits, supervisors can take a relaxed view about firms using those holdings as buffers to absorb the macro shock. That was not the position post 2008/09 when banks had not been holding enough liquidity or capital in the good times. It is an aim of the new regulatory frameworks put in place post-crisis, that banks should hold bigger liquidity buffers in normal times. The Bank of England’s balance sheet can also be used actively to backstop liquidity for the system as a whole, via the banking system, and the new operating frameworks put in place over the past 5 years will allow that to happen more quickly and easily. How will this all co-ordinate in practice? When the Bank, HMT and FSA took joint action in 2012 to reignite the recovery via the Funding for Lending Scheme – reviewed in my two previous talks to you – the FSA, as predecessor to the PRA and having two members on the interim FPC, contributed by relaxing liquidity requirements and making it clear that liquidity buffers were there to be used. This was a crucial element of the package.

In short, the FPC and PRA have many different, independent policy decisions to make. Ensuring both financial stability and safety and soundness of firms, requires both policy sets. The issue is sometimes raised as to how systemic stability and safety and soundness interact – especially during or after a financial downturn, when defensive actions by financial firms may be pro-cyclical. This is perhaps the period when cooperation and communication between the committees comes to the fore most strikingly, and forward guidance on policy can be most effective and necessary. The FPC and MPC will want to make sure that the regulatory system is not pro-cyclical – they will want to avoid anything that reduces the capacity for credit creation when the wider economy needs most support from its financial sector. One might worry that supervisors would see the general relaxing of requirements – the use of capital and liquidity buffers – as weakening the safety and soundness of their firms. In fact, the PRA also needs to recognise the relevance of the economy-wide situation to its objectives. Weakness in the real economy in a general downturn is one of the biggest threats to the safety and soundness of firms, as it can lead to substantial impairment of asset values. More than this, the consideration of capital and liquidity is more subtle than many people seem to appreciate. It is often asserted that requiring firms to hold more capital automatically reduces the capacity to lend. That is not the case.