samchain/econo-pairs-v1 huggingface dataset:
Minouche Shafik: “Passthrough Efficiency in the Fed’s new Monetary Policy Setting” Remarks by Ms Minouche Shafik, Deputy Governor for Markets and Banking of the Bank of England, as a discussant of “Passthrough Efficiency in the Fed’s new Monetary Policy Setting” by Mr Darell Duffie and Mr Arvind Krishnamurthy, at the Federal Reserve Bank of Kansas City Economic Symposium “Designing resilient monetary policy frameworks for the future”, Jackson Hole, Wyoming, 26 August 2016. *  *  *  Accompanying charts can be found at the end of the speech or on the Bank of England’s website. I would like to thank Grellan McGrath for assistance in preparing these remarks. Introduction Thank you for the opportunity to discuss this paper, which brings together many of the themes of this timely and important conference. Interest in the pass-through of central banks’ policy rates has enjoyed something of a resurgence in recent times, as the Federal Reserve begins to tighten policy in the presence of a vast amount of reserves created by quantitative easing, and as other central banks loosen further by moving their policy rates to new record lows. Of course the Bank of England is in the latter camp. This month the Monetary Policy Committee (MPC) – of which I am a member – voted to introduce a package of measures to support the necessary adjustments of the UK economy as it responds to the decision to leave the European Union.

As a result, in order to protect their margins banks may not reduce the rate they charge on lending, thus dampening the transmission of monetary policy. The MPC was acutely aware of this when it decided at the beginning of this month to reduce Bank Rate to 0.25%. In order to reinforce the transmission of this change we also launched a Term Funding Scheme (TFS) through which central bank reserves will be lent to banks and building societies for four years. Should they maintain their lending to the real economy, the rate they will pay over this period will be Bank Rate. For each 1% that net lending by an institution falls, the cost of TFS funding will rise by 5bps to a maximum of 25bps. By tethering banks’ term funding costs more closely to our official policy rate, this should create the capacity for them to pass the reduction in that rate through to households and businesses, thus strengthening the transmission to the real economy. Since the MPC’s decision we have published further documentation, technical detail and guidelines for firms considering using this facility. We are now open to applications, and the scheme will be available to be drawn upon from the middle of September. Conclusion Let me summarise. Darell and Arvind’s paper draws attention to some very important issues, namely the decrease in competitive forces and increase in frictions in money markets, which work to reduce the pass-through efficiency of the Federal Reserve’s monetary policy setting.
Five years later, many of the world’s central banks are now working on issuing digital central bank money to the public in the form of so-called Central Bank Digital Currencies (CBDCs). At the Riksbank, we have now taken a further step in our investigation by turning to the technical aspects of an e-krona. In practice, in 2020 we started a project, the e-krona pilot, to learn more about how a technical solution for the e-krona could work.9 Besides, the Riksbank is involved in extensive international work on the subject and participates in, and leads, a number of international working groups.10  9 See https://www.riksbank.se/en-gb/payments--cash/e-krona/ for more about the e-krona project. 10 See for instance the recently published reports by a group of seven central banks (besides the Riksbank, Bank  of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve and Swiss National Bank) and the Bank for International Settlements on various aspects of CBDCs that can be found at: https://www.bis.org/publ/othp42.htm  13 [15]  Why an e-krona? For hundreds of years, the Riksbank has ensured that the Swedish public has access to a means of payment issued by the state. The public’s access to central bank money is the anchor of a unified national currency that includes both private and government money, and where the exchange rate between government and private entities becomes one-to-one. Learning from history, I think we must ensure that this uniformity of money continues.

The preparatory steps that we have decided to take will provide a basis for deciding whether the Riksbank should enter into contractual negotiations with the Eurosystem. In practice, we will analyse thoroughly a number of key issues, ranging from the consequences for monetary policy and financial stability to governancerelated aspects and possible contingency solutions. This entails also further study of potential requirements stemming from the Swedish protective security legislation. Now, this is not something that will happen overnight. A first transaction using Swedish kronor on T2 or T2S is likely to happen perhaps seven or eight years ahead. The work following a decision to proceed – negotiation with the Eurosystem, implementation, testing, etc. – will take several years. Yet, my message to Swedish banks listening to or reading this is, I would like to bring the message across that this is no small task, neither on our side or yours. We will invite for further dialogue around this in due course. Serving society beyond interbank infrastructure In addition to the just mentioned development plans for the next generation of payments systems, we also conduct work that more directly focuses on end-users rather than wholesale payments. E-krona: maintaining the public’s access to central bank money Against the background of declining cash use in society, the Riksbank began work in 2016 on analysing opportunities and challenges associated with issuing a Swedish krona in digital form to the public: an e-krona. When we started this investigative work, we were very much alone.
But we should adopt a longer-term, more nuanced perspective. Southeast Asia’s economic fundamentals remain positive – a sizeable market with a collective population of 500 million people, high savings, abundant natural resources, under-developed consumer appetites and a strong work ethic. The political problems can be overcome, provided governments act swiftly and resolutely to counter terrorism and restore order and confidence. Those countries which do so will regain investor interest, while those investors shrewd enough to discern which countries and projects deserve support will be amply rewarded by the risk premiums. Provided Southeast Asian countries adapt themselves to their new environment, remedy their economic weaknesses, and grasp the new opportunities, this region can once again become a vibrant part of Asia. BIS Review 61/2002  5

I am pleased to now introduce the first President and Dean of the Asia School of Business, Professor Charles Fine. Professor Fine is the Chrysler Leaders for Global Operations Professor of Management, and a Professor of Operations Management and Engineering Systems, at MIT Sloan. He has served as a Professor at MIT Sloan for over 30 years, and has teaching experience as a visiting faculty at the Stanford Business School, the Harvard Business School and the Indian Business School. His research focuses mainly on supply chain strategy and value chain roadmapping. His work has supported the design and improvement of supply chain relationships for companies in the electronics, automotive, aerospace, communications, and consumer products industries. Kindly join me in welcoming Professor Fine. 2  BIS central bankers’ speeches
I must say that I have a preference for the former, even at the risk of inviting further accusations that the HKMA is being interventionist, for I am concerned about the possible disruptions and systemic risks of the latter. But I can assure you that the HKMA has never been, and never will be, in the habit of handing down directives to the banking sector, or of requiring commercial banks to take any actions that go against their own commercial interests. The strong partnership between HKAB and the HKMA is built upon dialogue and realism, on the ability of both sides to appreciate the issues at hand, and on a determination to tackle them in a co-operative spirit without any political fanfare. Long may this strong partnership continue. The Banking Sector Consultancy Study ,QGHHGZRUNLQJFORVHO\WRJHWKHUZHDUHQRZDVZHOOSUHSDUHGDVZHFDQEHIRUWKHQH[WFKDOOHQJH the arrival of the new millennium. In our preparations for the challenges of the new century we have benefited from the cooperation of HKAB in the Banking Sector Consultancy Study. As you are aware, the Consultancy Study was commissioned last year with the aim, among other things, of assessing the regulatory and supervisory changes necessary to enable Hong Kong’s banking sector to address the challenges and opportunities of the coming five years. It is a strategic attempt to enable the banking  1  BIS Review 77/1999  system to manage the forces of globalisation and technological advance in a way that will make banks more efficient, more innovative and more competitive.

When I BIS Review 77/1999  6  addressed this subject in 1994 I pointed out that the establishment of the HKMA, and the placing of both monetary and banking supervision functions under one roof, had given a much more precise institutional focus to the lender of last resort function, and that the amendments to the Exchange Fund Ordinance in 1992 had further helped to clarify the scope of that function. I should like to reiterate that point this evening, more especially in the context of the world-wide debate about the merits of a super-regulator system, under which supervisory functions would be institutionally separate from central bank functions. Quite apart from the question, which still remains to be answered, of whether monolithic super-regulators really provide the efficient, economic, streamlined system they set out to achieve, there are, in my view, strong arguments, in the interests of efficient crisis management, for having the banking regulator as close as possible to the lender of last resort.
A study by Catherine Mann at the Institute for International Economics shows that trade and global production accounted for 10-30 per cent of the price fall on hardware products in the United States during the 1990s. This led to growth being approximately 0.3 percentage points higher each year between 1995 and 2002 than it would otherwise have been. Today, expenditure on software is increasing at twice the rate as on hardware, and this process has scarcely begun in large areas of the economy. If prices for software also begin to fall, thanks to globalisation, the second wave of productivity gains can be even greater than the first, particularly within the services sector, which has the greatest potential. We have seen that globalisation of trade and production patterns has led to more operators, who also have lower costs, participating in the world economy. This has led to international competition becoming stiffer and prices being pushed down. Similarly, the increasing trend towards deregulation and privatisation over the past two decades has contributed to making production more efficient and raising productivity, which in turn has had a subduing effect on price trends. The question of how globalisation and structural changes may affect the future path of inflation will probably attract increasing attention in central bank circles. If, on the one hand globalisation and new  BIS Review 21/2004  3  technology have led to economies having a lower inflation propensity, it may be possible to achieve a higher level of resource utilisation without inflation accelerating.

The reason why I attach such a special importance to this subject and put emphasis on this with similar expressions in almost all my speeches is to draw attention to the possible risks that the economic units may confront under the floating rate regime and increase awareness. Otherwise, the deterioration brought about by the mis-management of risk affects the economy as a whole. Dear Guests, When the course of the value of Turkish currency versus foreign currency from 2002 up to now is taken into account, it is observed that as long as tight monetary and fiscal policies are maintained; structural reforms are implemented, political stability is maintained and the decisiveness for macroeconomic stability is sustained; the basic tendency will be in favor of the appreciation of the Turkish currency. This is a process in which the Turkish currency is increasingly preferred for investment as in every robust economy although it is subject to occasional interruptions. Therefore, the value of the Turkish currency emerges as a clear consequence. Determination of the foreign exchange rates under the market conditions as a requisite of the floating exchange rate regime does not imply that the Bank shall not undertake any transactions in the foreign exchange markets. As it was also explained in detail in our announcement called “Monetary and Exchange Rate Policy for 2007”, the Central Bank undertakes transactions in the foreign exchange markets for two objectives.
“The Landlord’s Game” was a brilliant property-based board game which, like other games at the time, had a higher public policy purpose: to educate adults and children on the perils of rising income inequality and wealth concentration. The game was a modest success. In 1935, Charles Darrow sold an adapted version of the game to Parker Brothers under the name “Monopoly”. This was a huge success. It has gone on to sell hundreds of millions of copies worldwide, earning Darrow and Parker Brothers millions of dollars in royalties. Magie earned $ for selling her patent. While the Wright Brothers’ patent will forever be etched in the history books, Magie’s has largely been lost. If nothing else, this episode shows that games can play an important role in public understanding and perhaps even in public policy. Monopoly remains as popular today as it was in the latter half of the 20  th  century. Were it virtual rather than physical, its multi-players measured in millions rather than fingers, its money from an interactive central banker rather than an inanimate piggy-banker, if people swapped stories st  as well as properties, perhaps this game could help address the 21 century’s problems too. (e) Rules and Referenda  It has been suggested by some that rules should play a more central role in the setting of monetary policy. 76  There are a number of possible motivations for doing so. One is that it makes the policy process simpler and more transparent.

For example, Charts 8A and 8B focus on the topic of the “labour market” in the MPC’s minutes. They suggest the fraction of time spent discussing this topic picked up in 2013, the year that the MPC issued forward guidance linked to the unemployment rate. 37  Charts 9A and 9B do the same for the FOMC’s deliberations, focussing on groups of words from FOMC transcripts related to “recession”. With individual FOMC transcripts, we can also track how much time each individual FOMC member devoted to this topic, shown in the range. The median FOMC member started talking more about recessions at the point the US downturn took hold, although there was a significant variation in the time different FOMC members devoted to this topic. Taking this literature together, it suggests the great strides forward in central bank transparency over recent years have delivered some significant stabilisation benefits, most notably for financial markets, inflation expectations, macro-economic forecasts and, to some degree, media reporting. So what the missing links when assessing the potential benefits of central bank communications? Three stand out. First, the vast majority of studies have focussed on the ex-ante informational benefits of central bank transparency. There is far less evidence assessing whether openness initiatives have affected central bank legitimacy – the ex-post accountability benefits. In other words, empirical evidence has focussed on the role of central bank transparency in fostering understanding rather than trust.
Such new applications need to be reviewed as to how they will contribute towards improving product and services delivery, aid in risk management activities, and enhance management capability. Opportunities from regional integration Ladies and Gentlemen: Another important development that is taking place is the growing regional integration, driven by increasing intra-regional trade and investment flows. Asia has seen a rising pattern of intra-regional trade and investment where trade between countries in the region now accounts for almost half of Asia’s trade from just a fifth over a decade ago. Malaysia’s share of trade with ASEAN member countries now accounts for 24% of our total trade reflecting higher intra-regional trade (notably, increased imports from lower-cost suppliers such as Thailand, Indonesia and the Philippines) and better economic performance of ASEAN countries. In 2003, Malaysia recorded strong growth in exports of 29.6% to China and 26.7% to Hong Kong. Large businesses and corporations have begun to review their business architecture more aggressively and have moved to relocate their business operations. Such structural shifts driven by new demand patterns and new ways of organising production have led to increased specialisation and complementarity within the region. ASEAN alone offers a huge growing market of 500 million people. Therein lies the opportunities for the domestic banking institutions, opportunities to support Malaysian businesses and investors who are venturing abroad and opportunities to diversify across geographical sectors and across product range. The role of banking institutions needs to extend beyond the traditional role of being a financier, to manager of financial relationships.

First, large Malaysian banks with nationwide and regional and international presence that are able to compete with global financial players;  b. Second, banking institutions with nationwide presence that are able to offer a broad range of financial products and services; and  c.  Third, specialist niche players delivering specialised value added products and services for specific segments of the market. Ladies and Gentlemen: The financial services industry has evolved considerably over the recent period. New emerging trends have provided us with new opportunities in our quest to create a dynamic financial system that will best serve our economy. In striving towards high performance and world-class standards in the industry, we look forward to working with you in this dynamic and challenging environment to achieve this common goal. Let me now conclude and wish you a most productive Summit. 6  BIS Review 28/2004
Numerous pundits explained that the euro would not come into being, then, that it would not be launched on schedule and, finally, that it would not work. A year and a half after the introduction of the single currency, it is worth assessing the results and the prospects of this major change in Europe. A. The euro is already a great technical and operational success  •  A successful launch  The changeover to the euro was an enormous technical challenge. It proved to be a total success. From the early morning of the very first day, everything went smoothly: the euro money market, the decentralised implementation of the Eurosystem’s monetary policy and the functioning of the large-value payment systems. •  A clear, efficient and flexible operational framework  The Eurosystem’s monetary policy is based on robust arrangements, mainly involving the use of three instruments: –  weekly tenders (or “main refinancing operations”);  –  overnight marginal lending and deposit standing facilities;  –  sizeable amounts (more than  billion) of interest bearing minimum reserves which exert a stabilising effect. This well-designed framework has in practice confirmed its efficiency and flexibility to accommodate various market situations and liquidity configurations. •  A successfully decentralised implementation of the single monetary policy  The Eurosystem’s operational framework is based on decentralisation. The decision-making power is held by the ECB’s governing bodies, while monetary policy is implemented in a decentralised manner by the National Central Banks (NCB).

And yet, if you ask ten economists what precisely macroprudential policy is, you’re likely to get ten different answers. 1  So the time has come to take stock. I want to lay out what I believe to be five guiding principles for macroprudential policy. My aim in doing so is twofold: first, to help to build a common understanding of what it is and how it works; and second, to engage the finest minds – you – in partnership to push the frontiers of knowledge in ways that can make it better. 1) “It’s the real economy, stupid”  2  The first of my five principles is the one that motivates the whole exercise of macroprudential policy. For all that macroprudential policy may seem to be about regulating finance and the financial system, its ultimate objective – borrowing from James Carville’s famous election campaign advice – is: the real economy, stupid. 3  It is captured more precisely by Eric Rosengren (President of the Federal Reserve Bank of Boston) as avoiding circumstances in which “problems (or concerns about potential problems) within institutions, markets, payments systems, or the financial system in general …substantially impact the expected path of real economic activity.”  4  2  All speeches are available online at www.bankofengland.co.uk/speeches  2  These problems typically arise when the financial system is overwhelmed by events in the economy; when it doesn’t have the resilience to absorb them and so amplifies them as:  Credit dries up. Lenders are not matched with borrowers.