samchain/econo-pairs-v1 huggingface dataset:
the overnight interest rate (of which a euro area average, the EONIA, is computed and published every day by the ECB), is influenced by expectations of the cost of Eurosystem credit – the so-called MRO rate – at the next weekly monetary policy operation. A short-term inter-temporal arbitrage calculus anchors the overnight interest rate applied on the credit transaction between banks that need liquidity and banks that have a liquidity surplus. 3 The second dimension of the inter-temporal calculus has a longer horizon and a wider scope of application across asset classes. Banks can borrow short in the money market or from the Eurosystem and decide to engage in term lending to other banks or to their customers. Bank customers, in turn, can use bank liquidity to finance consumption or the acquisition of capital. It is important to note that all of these money transactions in the broader economy involve traders weighing the costs of their borrowing against the return opportunities on their asset acquisition at different points in time, where the horizon is typically longer than a week. But, again, as banks borrowing from the Eurosystem are the source of this liquidity propagation pattern, and banks’ financial calculus is based on their anticipations of the interest rate settings by the Eurosystem in the future, such anticipations anchor the pricing of credit in the broader economy. We call this “the interest rate channel” of monetary policy decisions.

For the first time in two years the median price for houses has fallen, according to Swedbank’s Boindex. Moreover, the rate of increase in household borrowing from mortgage institutions is now slightly lower than it was in the spring. Of course, it is impossible to draw any far-reaching conclusions solely on the basis of these observations. However, we will make a thorough assessment of the situation later in the autumn when we publish our twice-yearly Financial Stability Report. Summary and conclusion Let me briefly summarise my message today. •  We have raised the repo rate four times this year and my assessment is that it is reasonable to assume that further increases will be necessary. This will ensure that inflation is close to the target and that developments in the real economy are balanced. •  Our focus is on the inflation target and the central aim is, as before, to anchor inflation expectations in the economy around this target. When we formulate our monetary policy we also give consideration to the way the rest of the economy is developing. You can read more about this in our recently published strategy document “Monetary policy in Sweden”, which can be ordered from our Communications Secretariat. It can also be downloaded from our website and is available in both Swedish and English. •  The social partners can sign new agreements based on the assumption that the Riksbank’s inflation target stands firm.
The European Central Bank, meanwhile, indicated towards the end of the year that further extensive monetary policy easing measures would be necessary in the euro area. Against this background, the US dollar began to appreciate and the euro came under strong downward pressure. Because of the minimum exchange rate, the Swiss franc also depreciated against the US dollar. This caused pressure on the minimum exchange rate against the euro to rise very substantially and made increasingly large interventions necessary. Instead of broad-based Swiss franc strength, we were faced – to an ever greater degree – with pronounced euro weakness. In this fundamentally changed environment, the minimum exchange rate was no longer sustainable. Had the SNB attempted to maintain the minimum exchange rate, it would have lost control of its balance sheet and, with it, monetary conditions in Switzerland, because of the increasing magnitude of the interventions. Consequently, on 15 January 2015, the SNB discontinued the minimum exchange rate. To cushion the upward pressure, the SNB simultaneously lowered the interest rate on sight deposits to –0.75%. It also stressed that it was willing to intervene in the foreign exchange market as necessary. These were no empty words, as can be seen from our foreign currency purchases, which amounted to more than CHF 86 billion last year. A large portion of these occurred during the period immediately before and after the discontinuation of the minimum exchange rate. The Swiss franc initially shot up after the discontinuation, but then stabilised. Since May 2015, it has weakened again slightly.

They show the observed intraday frequency of certain fluctuations in yield on US or Japanese government bonds for the period since 2001. Fluctuations of the magnitude described here are extremely rare events. Such episodes prompted fears that market distortions of this kind could recur at any time. What do these changes in market liquidity mean for the SNB? At the operational portfolio management level, we are affected by the deterioration in corporate bond liquidity. The greatest difficulty stems from the fact that trading is increasingly focused on a comparatively small section of the corporate bonds outstanding. This has meant that large purchases or sales are more difficult, and more expensive, than before the financial crisis. This, in turn, has necessitated some adjustments in the way corporate bond portfolios are managed. The SNB is now more active in the primary sales market than before, and has also expanded its counterparty base. In addition, depending on the liquidity situation, transactions are having to be split into smaller tranches. Overall, therefore, the management of corporate bond portfolios has become more complex and more demanding. By contrast, the markets for highly rated government bonds continue to be very liquid. Shortterm price fluctuations do not place any limitations on the management of the government bonds in our portfolio. As I have already mentioned, we have a very long investment horizon. We hold our investments for at least one full economic cycle and we are not obliged to sell, even in periods of stress.
On both sides of the Atlantic, many are so-called Constant Net Asset Value (CNAV) funds. 3 Stripping through the detail, this means that they promise to return to savers, on demand, at least as much as they invest. Just like a bank. And just like a bank, they are subject to runs. If I, an investor, lodge notice of redemption one day, typically I expect to be paid the following day. If my withdrawal is large, the fund may have to sell assets to meet the redemption. If investors know or fear that a lot of their peers will also be redeeming, then they have an  3  See Baba N, McCauley R and Ramaswamy S (2009), “US dollar money market funds and non-US banks”, BIS Quarterly Review, March 2009. 2  BIS Review 6/2010  incentive to (try to) get in first, in order to avoid the depletion in the value of the fund likely to flow from the forced asset sales. And, if a Constant-NAV fund’s value goes just a few basis points below par (100p in the £ they effectively have to close, fuelling the incentive to run. If this sounds like a bank, it is because it is just like a bank. The money fund industry is a major supplier of short-term funding to banks. So its own maturity mismatch masks the true liquidity position of the banking sector, and injects extra fragility into the financial system as a whole. This is no longer theoretical.

7  Losses in AIG’s securities lending business were reported in the firm’s 2008 10-K submission to the SEC, pp 166–167. 8  This issue may now be on the agenda of insurance regulators. See the recent Joint Forum report, “Review of the Differentiated Nature and Scope of Financial Regulation”, January 2010. BIS Review 6/2010  5  Report Committee provides one forum for the different parts of the market and authorities to debate these issues. 9 RMBS, repo and shadow banking Perhaps the market that has been most discussed in the wake of the crisis has been the RMBS market. Right now, most of the discussion is about how to revive the mortgage-bond market, and the securitisation markets more generally, given their potential significance for the financing of households and firms. That eagerness is hardly surprising given the likely strain on the Western world’s banking system if, over the coming few years, it had to reintermediate flows of credit that had previously gone through the ABS markets. Some have suggested that asset-backed-securities are yet another form of shadow banking. At one level, this seems obvious. Take Northern Rock. When it ran out of money, the authorised bank had a balance sheet of around £ virtually all mortgages. The same management team was running the “Granite” securitisation vehicle; also with a balance sheet of about £ and also all mortgages. Granite held surplus liquidity with its sister bank, which was not immaterial to Northern Rock’s funding.
Norman T L Chan: Reform and liberalisation in China – the positioning and future of Hong Kong Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Economic Summit 2015, Hong Kong, 1 December 2014. *  *  *  Ladies and Gentlemen, Hong Kong’s success story – borrowed time and borrowed place? 1. I am glad to be invited to address the Economic Summit 2015. This year’s theme is “Connectivity Breeds Opportunities” and “Breaking New Grounds for Economic and Trade Development”. I would like to share with you my views on Hong Kong’s positioning and prospect amidst the reform and opening up of Mainland China. I always believe that Hong Kong will be all the more prosperous as Mainland China continues to deepen its reform and open up further to the world. I do not subscribe to the view that our prosperity is built on borrowed time in a borrowed place. 2. There are some who think that time has changed and Hong Kong’s golden years are behind us. With China’s rise, Hong Kong will decline in its relative importance and relevance to the Mainland. Some also think that the Central Government will trigger a Plan B in favour of other Mainland cities to replace Hong Kong as its international financial centre if Hong Kong becomes unstable or is no longer reliable for whatever reasons.

Our challenge, therefore, is to evolve successfully in the face of this shift and it is a philosophy that the HKMA has been actively pursuing in the past few years – exploring new policy headroom, improving our financial infrastructure, promoting Hong Kong’s offshore renminbi business in overseas markets in collaboration with the financial industry, and co-operating with other places, such as London, Paris, Australia, Malaysia and Thailand in developing renminbi business. A competition of soft power among international financial centres 11. As I have emphasised on many occasions, the competition among international financial centres is essentially a battle of soft power. That is not to say hard power is not important. Quite the opposite, the building of hard infrastructure such as airports, transportation system, telecommunications, and efficient offices, is a prerequisite for entering the race. Yet it can only go so far. Funds, especially at the wholesale level, tend to flow to and aggregate in the more efficient and safe financial centres. Therefore, the race ultimately depends on soft power, which is made up of a wide range of qualities and strengths that are difficult to quantify. They include, the most important of all, the rule of law, protection of property rights and intellectual property, the taxation regime, the soundness of financial institutions, the robustness of supervisory frameworks, the competency and integrity of professionals, such as financial practitioners, accountants and lawyers, the free flow of information, the free and convenient movement of people, and a favourable business environment.
2  4  Of course, if the economy were to weaken, we still have plenty of tools. Not only could we cut short-term interest rates, but we also could extend the maturity of our Treasury and agency MBS portfolio, purchase additional Treasury and agency mortgage-backed securities and engage in forward guidance with respect to the future path of short-term interest rates. BIS central bankers’ speeches  It’s a two-way street The U.S. economy plays a large role in the global economy. Most significantly, the U.S. economy represents a sizable share of world GDP – roughly 25 percent at current exchange rates – and the U.S. dollar is the most important international reserve currency. More than 60 percent of central bank reserve assets are denominated in dollars, and that share has been stable to rising in recent years. Most foreign trade is denominated in dollars and most of the foreign currency debt issued by corporations abroad is denominated in dollars. Thus, what happens to the U.S. economy, U.S. financial asset prices and the exchange value of the dollar has important implications for the global economy. At the same time, prosperity is very much a two-way street. Developments outside the United States affect our domestic economic outlook through their impact on trade and financial market conditions, and we have to take such developments into consideration in our monetary policy decision-making. In many ways, international linkages have become more important over time.

If economic circumstances change, then monetary policy needs to change too. Otherwise, we will not be able to achieve our objectives. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches  7
The concept of macro-prudential supervision is new and is often interpreted very differently by different people, depending on their background. An important task for the ESRB will therefore be to make this concept more precise. What should a macro-prudential mandate look like? How should we define macro-prudential tools? What institutions should use the different tools, and how should these be held responsible for using (or not using) them? These are important questions that are being discussed in many countries, not only in Europe. One important instrument that has been discussed widely in the Basel framework is  6  BIS central bankers’ speeches  the countercyclical capital buffer. This instrument has clear cross-border effects and we should, in the ESRB, be able to discuss the principles for setting these buffers. – to gain credibility As the ESRB does not have any binding powers, it needs to earn credibility if the principle of “comply or explain” is to work in practice. As I see it, this can be done in three ways. Firstly, the ESRB’s risk assessments and recommendations to act upon them need to be of high quality and to be presented in a timely manner. In doing this, the ESRB should take advantage of its unique composition of representatives from the EU institutions, as well as national central banks and financial supervisory authorities. This institutional set-up gives the ESRB a great opportunity to gather relevant information from all key players in the EU financial system.

Christian Noyer: Interview in Handelsblatt – “A government bond buying programme can only be implemented if the majority of bonds continue to be held by private investors” Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Handelsblatt, conducted by Mr Thomas Hanke and Mr Daniel Schafer, published 13 January 2015. *  *  *  The Governor of the Banque de France discusses the impact of the forthcoming Greek elections on the ECB’s government bond buying programme, the terrorist attacks and the overly slow rate of reforms in France. This interview with Christian Noyer, member of the Governing Council of the ECB, took place two days after the terrorist attack on the newspaper Charlie Hebdo. Mr Noyer, the French people’s reactions to the terrorist attacks have impressed all of us Europeans. What could be the political and economic consequences of this new threat? Christian Noyer This was clearly seen as an attack on freedom. The strong reactions remind all of us, European citizens, that we have a long-term project for Europe based on common values. These common values are much more important than the difficulties we sometimes have to agree on regarding the proper technical way to achieve this or that.
For example, since the beginning of April the euro has appreciated by around 13% against the US dollar and 7% in nominal effective terms. Textbook economics would suggest that such sizeable changes ought to lower the prices of imported goods and thereby put downward pressure on producer and consumer prices. 1 / 14  BIS central bankers' speeches  On the left-hand side of slide 1 you can see that there is indeed a strong correlation between annual changes in the euro’s nominal effective exchange rate and annual extra-euro area import price inflation, here shown for consumer goods excluding food, beverages and tobacco. Simple eyeballing would suggest a pass-through of around 40%, at least following depreciations, a point I will return to later. On the right-hand side you can see that the correlation is already much weaker in the case of the pass-through to producer and consumer prices. No discernible pattern emerges over the past seven years or so. Of course, the reduced responsiveness at higher stages of the pricing chain in part reflects the fact that imports only account for a fraction of both producers’ overall input costs and final consumption. But the seemingly stubborn resilience of consumer and producer price inflation to the sharp depreciation of the euro in 2014, and the subsequent appreciation in 2015, is nevertheless surprising.

In other words, if we want to see if policy works or not, or if the economy has become less sensitive to changes in interest rates, then we should examine the slope of the IS curve, and not only of the Phillips curve.11 Empirical research on the IS curve is scarce, however. And the few studies available are generally not encouraging from a monetary policy perspective. They typically find that output does not respond, in a statistically significant way, to the real interest rate. 12 Often they even find a positive relationship between real interest rates and output. These findings are at best disturbing given that much of mainstream monetary thinking is built on the idea that firms and households take the level of the interest rate into account when making economic decisions. 8 / 14  BIS central bankers' speeches  To illustrate the empirical failure of the IS curve, slide 7, column 1, shows the estimated coefficients of a regression of the euro area output gap on its own lag and a measure of the real “interest rate gap”, i.e. the difference between the real ex ante interest rate and the time-varying natural rate.
It also permits appropriate account to be taken of the endemic pro-cyclical characteristics of the financial system and of boom-bust cycles in asset prices, and to consider under very specific, exceptional circumstances a policy of carefully leaning against the wind, despite the wellknown intrinsic difficulties of identifying misalignments in real time. The role of forecasts in policy making Inflation forecasts are at the centre of inflation targeting strategies. Policy discussion and communication are organised around the forecast process, and decisions are often explained on the basis of deviations of the inflation forecast from an inflation target at a  5  See, for instance, W.R White (2006): “Is Price Stability Enough?” BIS Working Paper, No 205. 6  Remarks at the Conference on Central Banks in the 21st Century, Banco de España, 8-9 June 2006. 4  BIS Review 132/2007  specific time horizon. The numbers, including the baseline scenario and risks, are owned by the policy-setting committee. The Eurosystem also produces macroeconomic projections. These are based on a combination of models and experts’ technical judgments and are owned by staff, rather than by the Governing Council. Twice a year, in June and December, projections are produced by the staff of the Eurosystem under the responsibility of the Monetary Policy Committee, which is one of the Eurosystem Committees composed of senior staff from the ECB and the national central banks.

Low interest rates and high inflation benefit those who already have debt, that is borrowers and owners of real 2/4  BIS central bankers' speeches  assets, properties, shares, etc. A consistent monetary policy ensuring price stability will in fact also strike a reasonable balance of interests of these groups. However, monetary policy ultimately safeguards the interests of the most vulnerable households most affected by high inflation. Currently, we can see that lending to individuals and businesses is ongoing. Mortgage lending, our top priority, is growing at a record pace. Lending rates throughout last year and in the first half of this year were influenced by the Government’s subsidised mortgage programme. The Government’s support for housing lending has by now become more targeted. It has to be targeted for us to avoid a situation where accelerated growth of property prices (their growth in the primary market was accelerated precisely by the subsidised programmes) will continue to reduce housing affordability for households. Mortgage rates are slightly higher now than at the time of the subsidised programme, but their growth over the same period is still below inflation. This is due to the fact that long-term rates are primarily shaped by inflation rather than a current key rate. Banks are aware that we will return inflation to target, which is exactly what they are guided by when formulating their interest rate policy. Therefore, there is no contradiction between the affordability of mortgage loans and the tightening of monetary policy currently needed and that we are implementing.