samchain/econo-pairs-v1 huggingface dataset:
Today I intend to take up a couple of questions that I consider relevant to both the debate in Sweden and the international debate. The first question is what role monetary policy should play with regard to promoting financial stability. This is a question that is still raised as one of the most important ones in the international discussions on possible changes in the inflationtargeting framework, although in many countries this has been overshadowed by the recent low inflation figures. A second question that, for natural reasons, is always topical when discussing whether the inflation-targeting policy needs to be modified is whether the level of the central banks’ current inflation targets – usually around 2 per cent – needs to be changed. This is also something that has been discussed quite a lot by academics and in various policy forums since the financial crisis. Internationally, the discussions have focused  BIS central bankers’ speeches  1  on the question of whether the target should be raised, while in Sweden the focus has instead been on whether the target has been set too high. I intend to address the arguments for both points of view and to give my own views on the subject. Should monetary policy take financial imbalances into account? But let me begin with the question of monetary policy and financial stability. One lesson from the financial crisis is that price stability is not sufficient to ensure financial stability in the economy.

They say that it is not merely that the world has suffered an unusually large financial crisis and is now having to deal with the repercussions. Moreover, there is an underlying structural development that has meant that large parts of the world have entered a state of so-called secular stagnation. What this normally means, expressed simply, is that the neutral, or natural interest rate – the interest rate that has neither an expansionary nor a contractionary effect on the economy – has fallen and become very low, perhaps even negative. It may be difficult for monetary policy to stimulate the economy sufficiently in this type of situation, as it requires that the real interest rate – the nominal interest rate minus inflation – to be lower than the neutral one. Achieving this becomes more difficult when the nominal interest rate is at the “near zero lower bound” and when inflation is low and falling, which keeps the real interest rate up. 16 If the neutral interest rate is persistently low, monetary policy will more often hit the “near zero lower bound”. 17 However, it is an open question whether the world is suffering from the prolonged but nevertheless transitory after-effects of an unusually widespread crisis or is caught in a more lasting state of secular stagnation. 18 The difference between introducing a target and changing it The arguments in favour of raising the inflation target may appear fairly convincing on paper. But there are considerable practical objections.
As already announced, the remaining denominations in the series will be issued at half-yearly or yearly intervals, with the next one being the 10-franc note. The appearance, design elements and other information relating to this denomination will be communicated on 11 October 2017, and issuance will begin a week later, on 18 October. I’d like to thank everyone who helped prepare the ground for the successful launch of the new 20-franc note – as well as those involved at all other stages of the process – for their hard work. Page 3/3

Recently some funds have invested in “alternative” assets such as hedge funds, private equity and infrastructure, and structured credit. Shares in closed-end funds are traded like other equities. The funds may issue their own debt to obtain leverage. They may also issue different classes of shares with different entitlements to income or capital receipts from the underlying investments. CP (Commercial paper) conduit. A SPV that issues CP backed by financial assets originated by one or more sellers. They are generally supported by liquidity facilities provided by their sponsor or a third-party bank. DPC: Derivative product company. A bankruptcy-remote structure that houses credit risk from long-dated derivative transactions. They are typically wholly-owned subsidiaries of financial services companies. In general, DPCs sit between their sponsor and an external counterparty in derivative transactions and protect the counterparty from the potential default of the derivative seller (the sponsor). Monoline insurance companies. Monoline insurance companies provide protection against a specific type of risk (typically credit risk). Originally developed in the 1970s to provide US municipal bond holders with credit guarantees (or  BIS Review 44/2007  7  “wraps”), over the past few decades they have diversified into the ABS and CDO markets (particularly the highly-rated senior tranches). SIV: Structured Investment Vehicle. A SPV that funds a diversified portfolio of highly rated assets by issuing short-term commercial paper, medium-term notes etc. In general, there is a maturity mismatch between their assets and liabilities. They aim to generate a positive spread between their return on assets and funding costs.
What then is the role of central banks in this new financial landscape, where institutional investors and other nonbank financial institutions hold a larger share of assets and a larger share BIS Review 108/1998  –3–  of credit risk than they ever have before – and where an increasing share of conventional credit risk is intermediated through the capital markets? I would argue that the role of a central bank in this new environment is very much in keeping with its traditional responsibilities. Central banks in all countries fundamentally care about the flow of credit in their economies, whether this credit flows from banks, nonbank financial institutions, or institutional investors. Why is this so? The answer is simple. It is because the credit intermediation process is ultimately what determines how well our economies function and therefore how well our economies are able to grow and allow their citizens to prosper. When the credit intermediation process does not work well, when there are disruptions to the supply of credit to the economy, as history has amply shown, the costs for our businesses and our people can be enormous in terms of lower output and fewer jobs. A well-functioning credit intermediation process is, in short, critical to the sustainability of any economy’s success. It is for these reasons that central bankers are interested in the flows of credit from the global securities markets, just as we have needed to know about the flows of credit from the banks whose operations we are charged with overseeing.

Conclusion In conclusion, my goal here today was to leave you with several things we need from you to help us achieve a stronger supervisory framework for foreign banks operating in the U.S. and also recognize that there are things that supervisors need to continue to work on to strengthen our oversight of global firms. We want to ensure we are doing everything we can to be an effective host supervisor, including ensuring consistency and equivalence in how we approach all global firms. We also have a responsibility to facilitate, to the greatest extent possible, the job of the home country supervisor, and we expect the same from our supervisory colleagues around the world who are our eyes and ears on the ground in those other jurisdictions. While this is very important in our routine day-to-day operations, it becomes even more important in effectively dealing with crisis situations. We have a common interest – a safe and stable global financial system. In pursuing this common interest, there are three fairly simple – yet important – things we need you to do: •  ensure robust communication with host supervisors;  •  continue to build out your risk reporting and broader MIS capabilities; and  4  BIS central bankers’ speeches  •  encourage deeper and more intensive dialogue among your senior leaders and directors with key host supervisors.
A series of measures are eliminating toxic forms of shadow banking like these ‘constant net asset value’ money market funds.18  As a result, markets are safer to navigate. Shadow banking of old is transforming to more resilient market-based finance of today. So what need is there to dive into liquidity mismatch in investment funds? It’s certainly the case that any remaining risks are much smaller and more subtle than those around money market funds. Since the crisis, funds have flowed into open-ended investment funds that make no promise of redemption value: the investor bears the risk from the outset. They have few of the problems of the crisis money market funds. But these funds are increasingly invested in less liquid assets while continuing to offer next day redemption to investors. The share of corporate bonds held in open-ended funds in the UK and the Euro Area has increased by 70% since the crisis (slide 13). And their structure may create incentives for their investors to redeem in a stress, forcing fire sales of illiquid assets. I emphasise ‘may’ because we have not seen this on large scale in the past. Nevertheless, our duty is to ask whether we could see it in the future. The possibility at least arises because the price offered to redeeming investors is the ‘net asset value’ of the fund, calculated from quoted market prices of the assets they hold. Such quotes normally reflect standard trade sizes and prevailing market conditions.

Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic - FEDERAL RESERVE BANK of NEW YORK  SPEECH  Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic "Supervisory and Regulatory Action to Support the Economy and Protect Consumers" April 23, 2020 Posted April 24, 2020 Kevin Stiroh, Executive Vice President As prepared for delivery  Good afternoon. Thank you for your critical work and for participating in this important forum on "The Fed and Main Street during the Coronavirus Pandemic." The COVID-19 pandemic is impacting all of us – first and foremost from a health perspective, but clearly in terms of social and economic impacts. As has been discussed extensively today, this impact has fallen heavily on low- and moderate-income and minority communities across all three dimensions. I'll speak about what the Federal Reserve is doing to support the economy and to protect consumers and small businesses through supervisory and regulatory actions. I'll note that these action are focused on supervised banks and do not address the significant challenges faced by those households and businesses outside of the traditional banking sector and served by socially responsible capital providers such as community development financial institutions (CDFIs), non-profits, foundations, and impact investors. Before proceeding, let me emphasize that I am speaking for myself and that these view do not necessarily reflect those of the Federal Reserve System or the Federal Reserve Bank of New York.
But you can I think see a broad-brush correspondence between these high-level developments and the more specific trends in the UK’s clothing and textile sector. Until the early to mid-1970s import penetration was roughly stable and real clothes prices fell at the relatively gentle pace of 1% or so a year (Charts 3 and 4). We’ve seen the same broad stability, in both trade and prices, in the years since the financial crisis, during which global trade growth has also slowed. But the years in between saw a marked rise in import penetration and very rapid declines in real UK clothes prices, particularly over the second half of that period. 2  Tariffs began to fall in the 1950s, container ships, which materially reduced shipping costs, were first developed later that decade, and the first regional trade agreements (notably the EEC) were made in the 1960s. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Chart 3: Import penetration started growing in  Chart 4: Real UK clothes prices fell steeply  1970s, rose strongly in 90s, stable post-crisis  between mid-1970s and the crisis  35  clothing and textile imports, % of consumption  30 25 20 15 10 1965 1970 1975 1980 1985 1990 1995 2000 Source: ONS and UN Comtrade Database  Source: ONS  Cumulatively, those declines were pretty spectacular. Even in nominal terms, clothes in the UK were on average cheaper in 2008 than they had been in 1975 (Chart 5).

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R1024&from=en 9  See Recitals 7 and 12 and sub-recommendation B3 of “Recommendation of the ERB of 22 December 2011 on the macro-prudential mandate of national authorities” (ESRB/2011/3): https://www.esrb.europa.eu/pub/pdf/recommendations/ESRB_2011_3.en.pdf 10  See Recital 24 of Regulation No 1092/2010 of the European Parliament and of the Council on European Union macroprudential oversight of the financial system and establishing a European Systemic Risk Board: The ECB and the national central banks should have a leading role in macro-prudential oversight because of their expertise and their existing responsibilities in the area of financial stability. National supervisors should be involved in providing their specific expertise. The participation of micro-prudential supervisors in the work of the ESRB is essential to ensure that the assessment of macro-prudential risk is based on complete and accurate information about developments in the financial system. Accordingly, the chairpersons of the ESAs should be members with voting rights. One representative of the competent national supervisory authorities of each Member State should attend meetings of the General Board, without voting rights. In a spirit of openness, 15 independent persons should provide the ESRB with external expertise through the Advisory Scientific Committee. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:C:2016:202:FULL&from=EN  5/9  the banking sector should be activated or deactivated. Accordingly, other sectoral financial regulators are given responsibilities for activating their own tools.
In the UK, the inflation-targeting regime requires the MPC to specify the horizon over which it expects inflation to return to target if it deviates by more than one percentage point. In its Open Letter earlier this year, the MPC stated that it judged it appropriate to set policy so that inflation would likely return to target within two years. That was intended to provide a clear horizon for the MPC’s actions and as an anchor for inflation expectations.16 A third potential source of policy insurance comes from making clear that, were it necessary on inflationary grounds at the two-year horizon, monetary policy could be eased further. If monetary policy were perceived to be constrained to the downside – for example, because of the zero lower bound on interest rates – that could affect agents’ perceptions of the distribution of inflation risk, which would be skewed to the downside. At the time of its Open Letter, the MPC stated that it had a variety of tools available to ease policy, should that prove necessary. That included re-starting asset purchases (Quantitative Easing or QE) and cutting interest rates from their current level of 0.5% towards zero. The latter reflected a re-assessment by the MPC of the relative costs and benefits of a rate cut. Back in 2009, the MPC’s judgement was that the benefits of cutting rates below 0.5% were probably outweighed by their costs, in terms of the negative impact on financial sector resilience and lending.

When making that assessment, we have to take into account that Iceland’s recession was the result  2  BIS central bankers’ speeches  of two stories: the macroeconomic boom-bust cycle in a small, open, and financially integrated economy, and the rise and collapse of three cross-border banks operating on the basis of EU legislation. The first is familiar, and Iceland was already on its way into a recession as a result of it when the banks collapsed. The second was unique at the time, as it occurred during the first international financial crisis since the birth of the EU single market. Iceland lost around 12% of GDP from peak to trough during the recession. But the recovery began in the middle of 2010, and the Central Bank forecast from February is that Iceland’s economy will grow by just over 2% this year. The recovery has already reduced the seasonally adjusted unemployment rate from over 9% at the peak to around 4½%. New banks, smaller and domestically oriented, have been rebuilt. But there are still significant legacy issues and challenges, including capital controls and inflation expectations well above target. Source: Philippon (2008): The Evolution of the US Financial Industry from 1860–2007. Source: Philippon and Reshef (2008): Wages and Human Capital in the US Financial Industry 1909–2006. BIS central bankers’ speeches  3  Before I close, let me expand my scope again and say a few words about possible broad long-term future trends regarding the relative size and importance of the financial sector.
But that is rarely possible in practice, other than perhaps a very short distance ahead. 8  See Woodford (2012). 9  See Carney (2012). 4  BIS central bankers’ speeches  The difficulty of utilising this particular policy channel is probably not a great issue in normal times. But it looms larger when policy is constrained by the zero lower bound on interest rates. In such circumstances – and assuming that alternative policies, such as quantitative easing, are unavailable or ineffective – an ability to exploit this policy-expectations channel becomes much more valuable, as the commitment to hold policy loose in the future feeds back onto aggregate demand today by reducing expected future real interest rates. This comes about both through a low future nominal interest rate and a higher future rate of inflation because policy is held “loose for long”. The intent of such a loose-for-long strategy is in some ways similar to quantitative easing, as both reduce interest rates further down the yield curve. But the former does so by changing the path of risk-free rates at the near end of the yield curve, while the latter operates mainly through variations in the term premium further out along the yield curve brought about by changes in relative asset supplies. Moreover, the loose-for-long approach partly works by raising future inflation, which is not an objective of quantitative easing.

Moreover, it is worth noting that since the MPC’s mandate dictates that we should support growth and employment provided that it does not conflict with achieving the inflation target, we are in any case charged with seeking to eliminate that part of the shortfall in nominal demand that is associated with an output gap, or that can be eliminated without generating inflationary pressure. Second, hard-wiring in higher inflation for a while is not without risk. In many economic models – including the one I used earlier – it is only the real interest rate that matters: it is irrelevant whether a lower real interest rate comes about through a lower nominal interest rate or a higher inflation rate. In the real world, inflation erodes the real value of cash, nominal bonds and fixed-interest debts. In itself, that may reduce the impact on demand of the promise to keep policy loose for long. But it is also apt to breed suspicion of a deliberate attempt to inflate away debt burdens, and may thus lead to inflation expectations becoming de-anchored. This is a serious risk: we should not forget the high levels of unemployment in the 1970s and 1980s associated with bringing inflation expectations back under control. Third, maintaining low interest rates even after the economy has recovered carries financial stability risks. My baseline simulations suggest that the period of very loose policy is already quite extended.
In a turbulent economic situation, we were uncertain whether our model was the right one for the Norwegian economy and wanted to guard against model misspecifications. In an economy where unemployment is around 3 per cent and inflation is on target, setting the interest rate as low as zero was regarded as going too far. A practical approach to model uncertainty is to cross-check using simple monetary policy rules such as the Taylor rule (criterion 5). In addition to the basic Taylor rule, we usually employ a variation of this rule involving external interest rates, and a rule where the output gap is replaced by GDP growth. A mechanical application of the Taylor rule would have resulted in a forecast approximately as indicated by the blue line in the diagram, i.e. considerably higher than the interest rate path that was chosen. A higher interest rate path would also have resulted in more negative output and inflation gaps. Achieving the inflation target would have taken ten years. 2  See Holmsen et al. (2008) for a discussion of the implementation and communication of optimal monetary policy. 2  BIS Review 110/2009  An interval for the interest rate is determined based on the criteria, where optimal policy (with interest rate smoothing) defines the lower boundary and the Taylor rule yields the upper boundary. After an overall assessment, the interest rate forecast indicated by the red line was selected. The interest rate decision, in Norway as elsewhere, is based on discussion by a board.

These new measures led to an average annual growth of 7.5% over the four years, 2010 to 2013 and thus, the vicious cycle was converted into a new virtuous cycle, with inflation in single digits, shrinking debt to GDP ratios, and low interest rates. In 2009, Sri Lanka also faced another major challenge: the threat to its external account. The effect of Global Financial Crisis had impacted Sri Lanka, and large scale overseas bond redemptions had resulted. It was soon clear that some external support was required to stave off this challenge, and Sri Lanka decided to avail itself of the IMF facilities via a stand-by arrangement (SBA). The key  BIS central bankers’ speeches  1  objective of the SBA was for Sri Lanka to build up its foreign reserves to more comfortable levels to meet the uncertain global environment. The issue however was that the IMF, in its conventional wisdom, was insisting that Sri Lanka sharply depreciates its currency in order to curb its trade and current account deficits which, in their view, would help the country to build up reserves. The IMF also held the view that Sri Lanka must significantly increase government revenue by raising taxes. In theory and normal circumstances, IMF’s suggestions may have had merit. However, the Sri Lankan authorities who had a deep practical understanding of the socio-economic challenges facing Sri Lanka, held a different view.