samchain/econo-pairs-v1 huggingface dataset:
I shall be returning to these questions in my final section and try to paint a picture of how they will be handled in the European Union in the coming years. Before doing so, however, it may be in place to look in somewhat more detail at the structure for economic policy decisions in EU/EMU. 2. Functions EMU is a historically unique construction, with a common central bank that is to conduct monetary policy across national boundaries. At the same time, however, eleven elected governments are to conduct fiscal policies with eleven different budgets, besides making many other decisions that affect the functioning of their national economies, not least their labour markets. Monetary policy In a monetary union, monetary and exchange rate policy is, by definition, a common concern. The monetary policy objective is price stability; without prejudice to this objective, monetary policy is to support the general economic policies in the Community. The more budget policies focus on stability - and wages stay in line with productivity - the greater will be the room to manoeuvre in monetary policy. BIS Review 50/1998  -3-  The ECB’s basic tasks will be to define and implement the single monetary policy, conduct foreign exchange transactions, hold and manage the official foreign reserves of the Member States, and promote the smooth operation of payment systems. The national central banks (NCBs) will be able to have an active influence on policy, participate in its practical implementation and, perhaps not least, communicate it in their respective countries.

Structural questions have been brought to the fore during the British Presidency and there have been somewhat more concrete discussions in various committees about how to get Member States in step here as well. One approach involves finding good examples in different fields, just as in the case of employment, and analysing the structural problems of each country. This process generates what the British call peer pressure, which can also contribute to the desired national changes coming about. Once again, however, the decisions in this field largely have to be made at national level. But to perhaps an even greater extent than with fiscal policy, the major benefits of a successful national policy will accrue to the country in question. By itself, this seems hopeful and should facilitate changes. At the same time, the political resistance in most EU countries is strong. Some believe that the very fact of monetary union will generate desired reforms in labour markets. Possibly but not necessarily - when high unemployment rates in recent decades in many EU countries have failed to produce changes, why, it may be asked, would monetary union be more successful? In conclusion, I consider that much work at EU level will be invested in political education and a search for methods to gain support for changes in this field. But I do not foresee the same pressure in the joint processes as in the case of fiscal policy; there is less need of a common approach.
For Sweden the Riksbank hopes that the changeover can be arranged in an appreciably shorter time than the allotted six months. It should be underscored, finally, that EMU is likely to bring about notable changes in the financial landscape. Some products will simply disappear: currencies, as well as forward and option instruments derived from them. With a single monetary policy and no exchange risk, interest rate differentials between national treasury papers will arise only from credit risk. The market for Swedish treasury paper will be more or less integrated in a market for treasury paper in euro. Provided the debt situation in the countries concerned is under control and reasonably similar, national T-bonds will become close substitutes. That will also do away with a number of national forward and option products. Certainly there will be new financial products; there has been no lack of creativity in this field in the past decade. There will clearly be increased competition between financial institutions as well as between financial markets in different locations. There is nothing new about the globalisation and integration of the world’s financial markets but it is reasonable to suppose that EMU will accelerate the process. BIS Review 14/1997  -7-  Summary and conclusions Today it looks for the most part as though economic and monetary union will start as planned on 1st January 1999. For Sweden the question is whether we are to participate from the start, wait a while or try to remain outside for ever.

However, in recent years, I have seen that there has been an increasing interest in this matter and in other issues, once considered exotic for central banking. Let me give you two examples. First. A few years ago, at a Central Banks’ Governors’ Club of the Central Asia, Black Sea Region and Balkan countries meeting in Shanghai, there was a presentation about the role the central banks could play in reducing pollution. Second. Early this year, in Bruges, within the IMF Dutch-Belgian Constituency, the National Bank of Belgium gathered central bankers to discuss policy challenges related to doing business in the digital era. So, it is not a real wonder that we talk today about Artificial Intelligence here, in Bucharest, at the National Bank of Romania. It is good for central banks to review from time to time what they are doing. As Agustin Carstens, the head of the Bank for International Settlements, has recently said that central banks are ‘acutely aware of the need to adapt’ their frameworks. That opens the way to new ideas, such as allowing inflation to temporarily overshoot to compensate for past years of weak price growth. I will not go into detail regarding inflation and all the variables that allow us to acknowledge and deal with it. Deputy governor Liviu Voinea thoroughly addressed the inflation puzzle and the present whereabouts of Phillips Curve, during dinner last night.
I find it helpful to distinguish between two aspects of uncertainty, both of which are relevant to setting policy. First, the balance of risks around the central projection, and second the general level of uncertainty. The Committee regularly comments on the extent to which it believes the risks around the central projection are skewed – that is, tilted to the upside or the downside. And it has sometimes explained changes in interest rates by reference to changes in the balance of risk rather than changes in the central projection. In the latest Inflation Report, we commented that risks on our latest inflation forecasts were balanced, but those around the forecast for output were tilted to the downside. The width of the fan chart is an indication of the MPC’s level of uncertainty about the outlook. It’s significant that the MPC widened the GDP fan charts in November, and the CPI fan charts further out, and maintained these wider fans in February. Another way of presenting the same information is this bar chart (conditioned on market interest rates as in the February Inflation Report). This brings out the significant probabilities ascribed to outcomes which are some way away from the central projections. So, for example, there is a less than a one-in-three chance that GDP growth will be in the range containing the Committee’s central projection – between 2 and 3% – in two years’ time. We see a greater probability – around two-in-five – that growth will be somewhere below 2%.

So we are not required to raise  1  This estimate is taken from the Bank of England Financial Stability Report, October 2007, Box 1 (Mapping the financial system). It comprises the estimates of total global securities markets, less bank deposits. BIS Review 22/2008  3  interest rates sharply to counteract the rise in inflation which we expect over the next few months. We can decide what is appropriate in the light of all the circumstances. And the purpose of the Open Letter regime is to give us an opportunity to explain how we propose to use our discretion. Over the years the MPC has explained that it seeks to achieve its inflation objective in the medium term by varying interest rates to steer overall demand relative to supply. If price and wage setters do recognise that the imminent pick-up in inflation will be short-lived, then the implications of the spike for monetary policy, and for the necessary balance of demand versus supply, should be limited. But if price and wage setters start to expect higher inflation to persist, then the Committee will need to restrain demand, and so generate some slack in the economy, in order to bring inflation expectations, and inflation itself, back down. Clearly therefore it is a matter of intense interest to understand how people form and revise their expectations. Unfortunately our understanding is very incomplete.
Macro Week 2023, Peterson Institute for International Economics – Washington, 12 April 2023 How central banks should face instability and fragmentation Speech by François Villeroy de Galhau, Governor of the Banque de France  Press contact: Mark Deen (mark.deen@banque-france.fr), Déborah Guedj (deborah.guedj@banquefrance.fr)  Page 1 sur 7 Ladies and Gentlemen, I am delighted to be here in person at the Peterson Institute for International Economics. I would like to warmly thank Adam Posen for the invitation to speak at this edition of Macro Week. Two years ago, I had the opportunity to discuss (online) “how to revisit central banking and financial stability”. Some of my remarks will no doubt echo these thoughts, however in a quite different context: shifting geopolitics, reignited inflation and some turmoil in the banking sector have since entered the arena. Today, I would like to provide a European perspective on both risks of instability and fragmentation, starting first with the conduct of monetary policy in this unstable economic landscape (I), before turning to the roads forward on a fragmented international stage (II). I. Monetary policy facing the risk of price and financial instability A. The ECB shows resolve in bringing inflation back to target Against the backdrop of the invasion of Ukraine, inflation in Europe accelerated sharply last year due to soaring energy and commodity prices. There has partly been a symmetric phenomenon: easing energy prices have led to a decline in headline inflation over the last few months, from a peak of 10.6% in October to 6.9% in March.

To prevent further financial fragmentation, let us start by reducing payments fragmentation for our fellow citizens *** In these times of navigation and travel in stormy international and financial conditions, let me conclude with this famous quote from Jack Kerouac’s even more famous novel, On the road: “Our battered suitcases were piled on the sidewalk again; we had longer ways to go. But no matter, the road is life”. It is in our very essence as public authorities to carry on, no matter what, for the sake of global public good. Rest assured that we central banks will do our part. Thank you for your attention. F. Villeroy de Galhau, How monetary policy will defeat inflation: channels and locks, Speech, 17 February 2023. For an overview on minilateralism see for instance E. Moret (2016), Brief_17_Minilateralism.pdf (europa.eu) iii See for instance P. Lamy (2020) (Polylateralism as the way forward, a conversation with Pascal Lamy - Groupe d'études géopolitiques (geopolitique.eu)) and Answering the crisis of multilateralism with polylateralism Groupe d'études géopolitiques (geopolitique.eu) iv IMF, Geoeconomic Fragmentation and the Future of Multilateralism, Staff Discussion Notes, 15 January 2023. v F. Villeroy de Galhau, Ethics of currency: a possible guide for central bankers?, Speech, 14 September 2022. vi Boileau, Art of Poetry, 1674. i  ii
For instance, we now have a far more stringent and more harmonized definition of regulatory capital. The need for common and internationally harmonized capital and liquidity requirements has been broadly recognized and will be made operational in the near term. Basel 3 represents therefore an ambitious goal. At the same time, it has been set in a cautious way in order not to impact the financing of the economy and the global growth. Those latter points are the reasons for the rather long phasing in, that has been put in place by the Basel Committee. This phasing in period should also enable countries that did not move to Basel 2 – namely the US –, to implement Basel 3 at the same pace than European banks. As a matter of fact, I consider it essential that implementation of this new framework both in Europe and in the US be concomitant – and exhaustive and I am far from being the only one. As a matter of fact, experience shows that if a reform is not implemented globally, weaknesses remain. The American administration is very positive and determined about it, so I trust that can be done. Failure to implement Basel 3 in a globally consistent way would lead to a competitive race to the bottom and may thus plant the seeds for another crisis. 1.3 Last but not least, another area in which significant progress has been made since the crisis is the accounting framework.

Niveaux des ratios de solvabilité et de levier des principales banques européennes et américaines  Ratios Tier 1 des principales banques européennes  Ratios Tier 1 des principales banques américaines  Source : Rapports financiers des banques  Ratios core Tier 1 des principales banques européennes  Ratios common Tier 1 des principales banques américaines  Source : Rapports financiers des banques * Pour BNPP : common Tier 1 ratio ** Pour BBVA : core capital ratio  Si le Tier 1 est défini par la réglementation, le ratio de fonds propre « core » ne l’est pas. Selon les pays et même selon les banques, on parle de core Tier 1 ou de common Tier 1 ou encore de core capital ratio. Ces termes ne recouvrent pas toujours la même définition des fonds propres car il ne s’agit pas d’une mesure réglementaire mais d’un indicateur davantage destiné au marché, sur lequel les banques disposent de plus de liberté pour son calcul et sa communication. A noter que même le core Tier 1 et le common Tier 1 ne sont pas toujours définis de la même manière par les banques. 6  BIS central bankers’ speeches  Levier des principales banques européennes  Levier des principales banques américaines  Source : Rapports financiers des banques (calculs Banque de France - SEMASFI)  2.
The prospects for the world economy are now even weaker than we anticipated at the end of 2008. International trade is contracting markedly, and it will take time before growth rebounds. Our projections for growth among our trading partners have been revised down to -3 per cent in 2009 and ¾ per cent in 2010. Moreover, the Norwegian economy seems to be contracting more sharply than projected around the monetary policy meeting in December. BIS Review 37/2009  1  A wide range of instruments is being used in Norway to counteract the effects of the financial crisis. In order to curb the fall in activity, government expenditure will be increased by over 10 per cent this year. Norges Bank’s bank lending survey shows that banks have been tightening credit standards substantially, particularly for corporate loans. To boost the credit market a separate 1 government fund will buy private bonds. The government has also provided loans and guarantees for exports and expanded lending limits for the Norwegian State Housing Bank and other special vehicles for government 2 financing. Norwegian Banks’ equity capital makes up only 6 per cent of their assets, which is low from a 3 historic perspective, but not low compared with banks in other countries. At present, our banks are financially sound, but they need to strengthen their core capital in order to be able to supply credit as normal. The authorities offer risk capital to the banks, including core Tier 1 capital without voting right through a newly established State Finance Fund.

There is a risk that the structural changes brought about by the crisis may result in persistently lower productivity growth. It appears that inflation will remain considerably lower in the years ahead than we expected in December. Both the objective of stabilising inflation around the target and the objective of ensuring stable developments in the real economy suggest that the interest rate should be low. Interest rate setting can also be assessed using simple monetary policy rules that prescribe an interest rate path based on actual inflation and output. The calculations are based on projections for inflation and output in the current Monetary Policy Report. The different rules yield somewhat divergent results, but all of them indicate a decline in the interest rate. Rules do not capture possible restrictions in the supply of credit that may affect the monetary policy transmission mechanism. 12  BIS Review 37/2009  Norges Bank has estimated a simple interest rate rule based on the Bank’s previous interest rate setting. 5 The rule includes developments in inflation, wage growth, mainland GDP and central bank key rates abroad. The interest rate in the previous period is also important. The key rate is now below the lower end of the interval projected. Norges Bank has given weight to staving off particularly adverse outcomes and therefore brought forward the decrease in the key policy rate last autumn.
In retrospect, my first two terms on the MPC were periods which now look like the small change of monetary policy – small changes in Bank Rate aimed at adjusting for relatively small anticipated deviations of inflation from target. As I suggested at the start, it may however also have been the period in which a large error was made in allowing the belief to become established that policymakers had solved the issue of economic instability. As Jean-Claude Trichet recently commented: “...remedial action has often been triggered as soon as the financial firestorm has threatened the stability of the economic system. But such action risks raising expectations that macroeconomic policy will always insure against tail risks, no matter how large.” 13 Even when policymakers have added robust macroprudential instruments to their armoury, it will be important to be clear that there will still be sources of macroeconomic instability. This may not be easy during any prolonged period without such a shock, unless policymakers are prepared to be a little less assiduous about fine tuning. More recently policy has certainly not felt like fine tuning. In this talk, I have tried to suggest some ways in which policy might be approached a little differently, but without moving away from the month-by-month decision-taking which has served the UK well. There is presently much uncertainty about the size of the output gap, partly as it is not easy to reconcile a large negative output gap with recent upward surprises on inflation.

It may be that firms have been responding more than expected to the rise in unit labour costs, in which case as growth resumes inflation pressure might diminish. But there are other possible explanations for higher inflation. One suggestion might be that the MPC could consider using a range of different plausible estimates of the output gap and its effect on inflation as a part of the methodology of constructing the growth and inflation fan charts. It might also be useful to reconsider the merits of looking to inflation prospects beyond the normal forecast horizon, to ensure any future risks to economic stability are taken fully into account. With the benefit of hindsight, this approach might have been helpful in the period before the financial crisis. 13  8  Trichet (2009). BIS Review 27/2010  Since the summer of 2007, life on the MPC has certainly felt very challenging. It may well be some time before all the lessons for the conduct of monetary policy can be fully appreciated. However, the MPC’s framework has overall proved to be resilient during the crisis and capable of making substantial responses to events. I am sure that this will remain true. References Bank of England (2000), Economic Models at the Bank of England, September 2000 update. Barker, K (2003), “Adjusting to low inflation – issues for policy”, Speech at the Manchester Statistical Society. Bean, C (2003), “Asset prices, financial imbalances and monetary policy: are inflation targets enough?”, Speech at the Bank for International Settlements, Basel.
However, this is not an easy task by any mean. Rating agencies should satisfy several criteria in order to be eligible. These criteria, as you might already be aware of comprise experience, freedom from external influence, publicly available assessments, requirements to disclose assessment models and approaches, sufficient resources and finally validation or recognition by supervisory authorities in our countries. Third but certainly not the least, the new system poses a challenge to all banks to improve their capacities in order to comply with the new framework to successfully compete and survive. Banks should start adopting a more dynamic and forward looking approach to the evaluation of risk and  provisions since under a risk sensitive approach there is always the risk of pro-cyclicality1, which means bank capital ratios are likely to fluctuate more over the course of business cycles. In spite of the above challenges, in Albania we have already started addressing some of these issues. First, by making sure that we have consolidated the achievements of our supervisory function by completing the requirements of Basel I. We are glad that the good progress has been confirmed also by the FSAP assessment during their mission in February-March, this year. Certain recommendations related with requirements about consolidated supervision, will be followed very attentively; Second, we have been pushing already our supervisory process and the banks, toward a more risk oriented attitude.

Bearing in mind there is a high degree of standardization in the risk management practices of a banking group - which is, same risk management techniques being applied uniformly throughout the group - the host country banking supervision might choose to rely entirely on the validation conducted by the home country supervision, provided that the adequacy of the model fits local conditions. If this is not the case, the host country supervision will probably have to rely on its own assessment of Internal Ratings Based (IRB) models. However, the latter raises two other sensitive issues. First, the feasibility of IRB application is complicated by the lack of reliable data on at least a full business cycle. Second, it requires training and preparation of banking supervisors with new rules, and thereby to improve their ability to examine and evaluate IRB approaches for consistency, integrity and accuracy in order to properly measure risk, otherwise, the whole capital allocation system could become faulty. On the other hand, this new environment calls for better cooperation and coordination across countries’ banking supervision in order to avoid over regulating banks and to save resources. The second challenge relates to the need of developing our own domestic rating industry for assessing borrowers. This is indispensable to gain the potential cost reduction of intermediation out of the implementation of the new system. It will make possible for some borrowers to obtain better ratings and consequently better risk weights compared to the actual 100% unrated system.