samchain/econo-pairs-v1 huggingface dataset:
Michael C Bonello: Population ageing - a major challenge for policymakers Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the opening session of two workshops on pension reform, organised in Floriana, Malta, by the World Bank Institute, 9 June 2003. *  *  *  I should first of all like to thank the World Bank Institute for choosing Malta as the venue for this Workshop and to welcome you all to our country. Your presence here continues a centuries-old tradition whereby Malta exploits its location at the centre of the Mediterranean and its reputation for hospitality to bring people and ideas together. Malta is currently undergoing a rapid transformation in a bid to seize the opportunities arising from accession to the European Union and from the further consolidation of its trading relationship with its Southern and Eastern neighbours. The economy, albeit small, has a number of vibrant sectors ranging from high-tech manufacturing to world-class conference tourism. As in the case with many other countries, however, the long-term prospects for economic development in Malta will be inevitably affected by the impact of population ageing. Given that the population support ratio, defined as the number of persons of working age to those of pension age, is expected to halve over the next 25 years to just over 2, this impact is likely to be significant. The global and regional dimensions of population ageing Malta is by no means an exception in this regard.

This will no doubt involve making difficult choices, some of which may have painful consequences in the short run, but which are essential for sustained economic development. The economic consequences of population ageing This is the case because population ageing is expected to have wide-ranging and long-lasting economic effects, involving not just government revenue and expenditure but also national saving and investment ratios as well as the labour market. The main issue that comes to mind when mentioning population ageing is its impact on government finances. Most countries, including Malta, presently operate pay-as-you-go pension systems. The ageing phenomenon undermines the financial viability of pay-as-you go systems by reducing the number of contributors relative to beneficiaries. Ageing also entails increased government expenditure on health, and especially on the care of the elderly. The challenge to public finances is even greater if, as is the case in Malta, the budget is already in deficit. Changes in the age distribution of the population are also likely to affect a country’s private consumption and saving patterns. The ‘life-cycle hypothesis’ suggests that individuals tend to even out consumption outlays over their lifetime, such that a person saves during the working years in order to  BIS Review 29/2003  1  finance consumption during retirement. A rising trend in the proportion of elderly people, therefore, tends to be accompanied by a decline in the national saving ratio.
But one has to remember that there was no obvious alternative. Inflation targeting was new and untried and not many people were even aware of its existence. Moreover, it was far from obvious that it would succeed where the fixed exchange-rate policy had failed – in establishing an anchor for price setting and wage formation. We now know that it did succeed and moreover that it did so fairly quickly. If I were to choose what I think is the most important contribution of inflation targeting, and indeed its overall main merit, it would be this – that is provides a nominal anchor for the economy.2 It is quite  2  The same conclusion is drawn by Ben S. Bernanke, Thomas Laubach, Frederic S. Mishkin and Adam S. Posen (1999), Inflation Targeting – Lessons from the International Experience, Princeton University Press. 2  BIS central bankers’ speeches  clear from a Swedish point of view that inflation targeting has helped “to put the house in order” by providing such an anchor, and it is probably an important explanation as to why the Swedish economy has developed so well since the crisis in the 1990s. Has the Riksbank systematically set the repo rate too high? But, as I noted, inflation targeting has nevertheless been criticised, particularly in recent years, so let me now move on to this criticism. One criticism is that the Riksbank has an inbuilt tendency to set the repo rate too high.

This may be a question of paying attention to economic developments in the longer term, beyond the forecast horizon, or risks that are difficult to quantify relating to the financial parts of the economy. The fact is that one of the main aims of having an Executive Board is that its members should have slightly different views on things. When the Executive Board was established in 1999 the more or less explicit aim was that it would consist of people with different backgrounds, experience and knowledge. The idea behind this “diversification” is that committees tend to make better decisions than individual policymakers, as a committee can “pool” its experience and knowledge.19 And in order to have something to “pool”, the people on the committee should of course not be too alike. I believe that everyone who has ever been a member of the Executive Board of the Riksbank agrees with the general wording that the Riksbank should stabilise inflation around 2 per cent and at the same time help to stabilise the real economy. This is also the essence of the Sveriges Riksbank Act and its preparatory works. However, this does not mean that actual monetary policy can be linked to the theoretical description in a simple and very strict way. My impression is that among both the present and former members of the Executive board there is a lot of scepticism towards far-reaching and strict parallels between theory and practice.
The DBU-ACU divide served us well for decades, but has been losing its relevance. There are a number of reasons for this development. First, since 2004, our developmental incentives have no longer been based on the domestic vs offshore distinction. Second, the divide between domestic and offshore banking has in practice become increasingly porous. 19. Third, and most importantly, there have been major global regulatory developments in the last five years, that have resulted in banks’ offshore activities being subject to rules that are broadly similar to those governing the domestic banking business in Singapore. 2  BIS central bankers’ speeches  •  New global rules have increased the amount and quality of capital as well as the liquidity buffers that banks need to hold  •  Global regulators have also agreed on a common framework to control large exposures to a single counterparty  20. These global regulatory reforms have put all banks on a sounder footing. It has also reduced the relevance of MAS rules that distinguish between offshore and domestic banking activities of foreign banks, since home regulators will now be requiring their banks to meet enhanced standards on a group-wide basis. 21. Post-global financial crisis, we have also seen a strengthening of co-ordination among home and host regulators. MAS is an active member of the global Crisis Management Groups of regulators of foreign banks with significant operations in Singapore. This aims to enhance regulators’ preparedness and coordination in crisis management. 22.

At the end of discussions, the Supervisory Council decided to keep the key interest rate unchanged, at 2.75%. This policy will help provide the requisites for complying with the inflation target and is consistent with our projections for inflation rates returning within the target band in the medium term. In this context, I avail myself of this opportunity to underline that the Bank of Albania expects a better response by the banking system with regard to lending. This response should take into account, among others, the positive prospective of economic development in Albania and the stimulating policies applied by the Bank of Albania. Based on the available information, the Bank of Albania deems that expected economic and financial development requires maintaining the easing monetary policy stance in the quarters ahead. 2  BIS central bankers’ speeches
Charles L Evans: Patience is a virtue when normalizing monetary policy Speech by Mr Charles L Evans, President of the Federal Reserve Bank of Chicago, at the Peterson Institute’s Conference on Labor Market Slack, Washington DC, 24 September 2014. *  *  *  Thank you. I would like to thank the Peterson Institute and Adam Posen for organizing this conference focusing on labor market issues. The functioning of the labor market is always of great interest to both academics and policymakers. But today, with the collapse of labor demand during the Great Recession and ongoing structural changes, judging the health and future of labor markets is both especially challenging and important. The work presented at this conference and others like it offers an opportunity to integrate the most recent research with the thinking of policymakers. In keeping with this theme, I will first offer my views on the labor market and how the issues raised here influence my thinking on monetary policy, and I will then discuss my more general strategy for considering when and how we should begin to normalize monetary policy. Before I begin, let me note that the views I express are my own and do not necessarily represent those of my colleagues on the Federal Open Market Committee (FOMC) or within the Federal Reserve System. Introduction and summary Five long years have passed since the trough of the Great Recession, in mid-2009. Late that year the unemployment rate stood at an astonishing 10.0 percent.

With the economy undershooting both our employment and inflation goals, monetary policy does not presently face a conflict in goals; actions that support employment growth also help move inflation up toward our target. Yet, as I look to the future and assess risks, I foresee a time when a policy dilemma might emerge: Namely, we could find ourselves in a situation in which the progress or risks to one of our goals dictate a tightening of policy while the achievement of the other goal calls for maintaining strong accommodation. BIS central bankers’ speeches  1  So what happens when a conflict emerges? In such cases, the FOMC has said that it will follow a “balanced approach” to achieving its policy goals. I will elaborate at length on this later, but let me summarize how I think we should operationalize this approach today. We should keep our focus on our policy goals and should be highly attuned to both the likelihood and the costs of missing those goals. To me, the risks imposed on an economy forced to operate at the zero lower bound on policy rates are paramount. Accordingly, before the Fed raises rates we should have a great deal of confidence that we won’t be forced to backtrack on our moves and face another painful period at the ZLB.
21 In other words, monetary policy decision-making is surrounded by various different types of uncertainty. At the Riksbank we grapple with issues such as: Which shocks are currently the driving force behind the business cycle? Which forecasting model gives the best forecasts? How large is the effect of a change in the interest rate on inflation? What characterises well-balanced monetary policy? How should the risk of low inflation be balanced against increased risks for financial instability? Is the data correct? Should special attention be given to really negative scenarios? Figure 13. The Riksbank's forecasts on labour force participation and GDP growth (a) Labour force participation  (B) GDP growth  Note. Thousands of persons, aged 15-74 and annual percentage change. The figure shows the Riksbank’s forecasts for labour force participation and GDP growth 2013–2019 (February). Sources: Statistics Sweden and the Riksbank  There has been greater interest in how to take into account uncertainty in the monetary policy decision-making process since the financial crisis. This has often been about finding a structured way to take into account the uncertainty in the monetary policy decision. Unfortunately, I must say that the answer to this question is not exactly easy and that it can probably be best summarised as “it depends”. In practice, there are three approaches a policymaker can take with regard to uncertainty. He or she can act more forcefully, more cautiously or as if the uncertainty did not exist.

In order to further enhance banks’ risk management in property mortgage lending and to strengthen borrowers’ resilience to withstand future interest rate hikes, the HKMA has just issued a set of guidelines to banks, requiring them to adopt an increase of 300 bps instead of 200 bps of interest rate when stress-testing the repayment ability of mortgage applicants. This measure is applicable to all types of mortgages, including residential as well as commercial and industrial property mortgages. The risk of overheating in the commercial and industrial property market also continues to rise. Our experience shows that the quality of commercial and industrial property mortgages will deteriorate more significantly than that of residential property mortgages during market downturns. In view of these circumstances, our guidelines have also required banks to lower the maximum LTV ratio of mortgage loans for commercial and industrial properties, whether or not for self-use, by 10 percentage points from the existing applicable levels. For example, for mortgage applicants with income mainly derived from Hong Kong, the maximum LTV ratio will be lowered from 50% to 40%. If the applicant’s income is mainly derived from outside Hong Kong, the maximum LTV ratio will be lowered from the current 40% to 30%. The HKMA has also required banks to standardise the maximum LTV ratio of mortgage loans for all standalone carpark spaces at 40% and the maximum loan tenor at 15 years.
As regards Swiss bank regulations, it is primarily the risks emanating from developments in the real estate and mortgage markets which are presently the focus of public interest. However, the most decisive factor for the long-term importance of the Swiss banking centre is the alleviation of the TBTF issue. Only if this can be done, will it be possible to provide a home to international banks in Switzerland in the long term. Thus, regulatory efforts to contain the TBTF issue convincingly in Switzerland are extremely important. With the Swiss TBTF legislation, which is currently being implemented, we are making good progress in this respect. The package of legislation rests on two pillars. First, systemically important banks are subject to significantly higher capital and liquidity requirements with a progressive component. Second, arrangements must be made to ensure that systemically important banks are resolvable in a crisis, so that it is not necessary to resort to public funds. If these measures are implemented in full, incentives to take on excessive risk will be substantially reduced. This will diminish the likelihood of a crisis, as well as the costs to the taxpayer, should a crisis nevertheless occur. At the same time, the measures help to strengthen domestic competition, because they reduce the implicit subsidies to the TBTF banks. However, we have not yet achieved our objective.

And its calibration is subject to uncertainty which, combined with its size and the quantity and importance of the services that it underpins – retirement income and long-term investments – mean that we have to maintain a very high confidence that its calibration is suitably prudent. 4/5  BIS central bankers' speeches  The increasing role played by illiquid assets – whilst wholly consistent with the advantage that insurers have as investors in this space – is a growing source of uncertainty and makes it essential that the calibration be set at a level appropriate to the assets that firms actually hold. I am sympathetic to calls to look again at breadth of eligibility and process improvements for the MA to remove barriers to investment – in infrastructure for example. But we should be cautious about calls for the MA to be made any more generous, both for prudential reasons and because the very existence and current level of the MA may already crowd out investment by insurers in anything that is not eligible. Another important area is the role of internal models in the regime. My colleague Charlotte Gerken has spoken recently about our concerns over excessive reliance on internal models and some potential responses to it.
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.

That shared vision has been the platform that has helped the two institutions to achieve “goal congruence” in the recent past, and there is also no doubt that the resulting harmonization has been the powerful driving force behind our steady progress. 12  BIS central bankers’ speeches  In the meantime, we must also appreciate that a large segment of our economic activities are carried out by the private sector, to which many of you belong. Your contribution then, has also been a vital factor in maintaining the momentum and thrust of our economy. Therefore, let me acknowledge today that, no amount of harmonization of Monetary and Fiscal policies could ever be a substitute for the commitment and dedication of a vast number of entrepreneurs who take risks, as well as burn the mid-night oil, to deliver value in our economy. A future role for the accountancy profession Where do we go from here? In my view, Sri Lanka has only just begun an exciting and adventurous journey, and we are steadily moving towards a $ 100 billion economy that would be more diversified and more stable. Needless to say, the success of our journey would depend to a great extent on harmonized policies, clarity of communication, quick implementation, and the maintenance of a vibrant momentum on a continuous basis. In that context, I see the accounting profession playing an increasingly significant role.
But falls in oil and commodity prices can have a more lasting impact on inflation – and hence become relevant for monetary policy – if they feed into core inflation. That can happen under two circumstances. The first is if price falls are symptomatic of weakening global demand, rather than a boost to global supply. Then, lower oil prices might be accompanied by declining net exports, which could in turn cause firms to cut back on investment and drag down core inflation. This blunts the growth-bolstering effect of lower commodity prices. Imported inflation might also be depressed as foreign producers cut prices in reaction to weakening global growth. The second circumstance is if there is a succession of supply shocks that keep inflation low for a long period and cause firms and households to revise down their inflation expectations. In that situation, low oil and commodity prices can have “second round effects” as lower expectations feed into wage bargaining and price setting, thereby affecting core inflation. Then, the effect of supply shocks becomes more similar to demand shocks. In both cases, central banks end up facing a situation not of a benign supply shock, but rather of an adverse demand shock that, if left unaddressed, could derail price stability over the medium-term. That would call for a more forceful monetary policy response. Importantly, there were signs in the past that such circumstances were present in the euro area.

Inflation would likely have been negative this year were it not for our measures. And according to the staff assessment, in the absence of our measures, it would be at least half of a percentage point lower next year and between 1/4 and 1/3 of a percentage point lower in 2017. So in assessing how to respond to the risks to price stability, the question we faced was not whether our tools worked – indeed, they are probably the dominant force spurring the recovery we see today. It was whether, in light of the evolution of those risks, the calibration of our policy was still sufficient. This is the question that the Governing Council addressed yesterday. On the real side of the economy, our assessment was that the recovery is ongoing and the economy remains resilient to volatility in the global economy. Domestic demand is replacing foreign demand as the engine of growth, and our outlook for the coming years is broadly unchanged. On the nominal side, however, we perceived that the downside risks to the inflation outlook had increased, especially given continued declines in oil prices and a large output gap. Without further monetary policy action, the date when inflation returns to our objective would once more have been pushed back. The Governing Council therefore decided that, to secure the path of inflation back towards 2%, the calibration of our existing monetary policy measures needed to be adjusted.