samchain/econo-pairs-v1 huggingface dataset:
If prices have already fallen below the price level target, a credible price level target will lead to short-term expectations of inflation rising above the long-term average. With an unchanged nominal rate the real interest rate will then fall and the real economy will be stimulated. A credible price level target will thus entail an inherent automatic stabilisation in a situation with a zero interest rate. 7 A price-level target can be seen as an average inflation target for a longer period of time, for instance five years. 8 In a case where there is a risk that inflation will be too low, or even negative, for a couple of years it may be appropriate, in order to avoid the disadvantage with a standard inflation target that I mentioned above, to tighten the inflation target and temporarily interpret it as a target of 2 per cent for average inflation over the next five years, for example. This would mean that the central bank would then compensate for low inflation during the first years with higher inflation in the subsequent years so that the five-year average is on target. The Australian central bank, the Reserve Bank of Australia, actually formulates its target in this  7  For a few years beginning in 1931 the Riksbank had a price level target, after leaving the gold standard. To date, the Riksbank is the only central bank in the world to have had an explicit price level target.

It is possible that the level of inflation can become negative and that we will thus see deflation in some countries. Deflation for a short period is not a major problem. We even had this in Sweden a few years ago. But if deflation is prolonged, and especially if inflation expectations fall and deflation expectations arise, the situation can become very problematic. The combination of very low policy rates, a weak real economy and the risk of deflation has thus revived the debate about how monetary policy can and should be conducted in the event of a zero interest rate bound. In the 1990s, Japan experienced a long period with a zero interest rate, deflation and, compared with previous decades, weak real economic development. The experience gained in Japan has stimulated extensive discussion and a great deal of research at universities and central banks on monetary policy in connection with a zero interest rate bound. At Princeton University, Ben Bernanke, Paul Krugman and I conducted research on this subject. 3 The Japanese experience and the research conducted on monetary policy with a zero interest rate are now topical again. For Sweden, a scenario with deflation and a zero interest rate is as yet not particularly likely. However, at the Riksbank we must of course be prepared for all eventualities and consider what measures would be possible and appropriate in such a situation. We must also think about how we can minimise the risk of ending up in such a situation.
The spot nominal interest rate on a ten-year zero-coupon government bond can be thought of as the average of the short-term interest rates expected to prevail over the ten year period, plus a term premium (which is often thought of as compensating investors for uncertainty around those short-term interest rates). Comparisons between yields on government bonds of different maturities can be used to identify a sequence of forward rates (ie the expected short rates at each point in time plus a forward term premium associated with that maturity). Using the information from the yields on inflation-linked government bonds, expectations of nominal short-term interest rates and forward premia can be broken down further into the expected future inflation rate (and an associated forward inflation term premium) and the expected future real interest rate (together with the associated forward real term premia), equation (1). ftnominal(n) = (Et[rt+n] + RPtReal) + (Et[πt+n] + RPtπ) ; where ftnominal(n) denotes the n-period ahead forward interest rate prevailing at time t; Et[rt+n] and Et[πt+n] the expectations for the real interest rate and the rate of inflation at that point and RPtReal and RPtπ the corresponding forward real and inflation term premia. In principle, then, there are two broad channels through which a decision by monetary policy makers to change their policy rate could affect longer-term interest rates, such as the 10-year government bond yield. First, the decision could change market participants’ expectation of either real interest rates or inflation. It is worth noting two standard bedrocks of monetary economics here.

The third flaw in our financial system was the inappropriate corporate regime governing the savings banks, which came to account for almost half the Spanish banking sector. If the crisis has shown us anything it is that, despite the good management performance at numerous savings banks, the former ownership regime of those institutions and, in some cases, their reliance on political power, created risks that hindered their proper management. The successive reform measures taken, and in particular the legislation on savings banks and bank foundations enacted last year, are a key qualitative change, requiring that former savings banks over a certain size be transformed into (ordinary or bank) foundations and that those which maintained  BIS central bankers’ speeches  3  a significant shareholding in a bank have sufficient incentive to waive control of the bank and meet, in any event, certain conditions to ensure they are professionally and independently managed. I take this opportunity to confirm that in the next few days the Banco de España will be issuing, for public consultation, a draft circular which implements the abovementioned legislation and sets out in detail some of the requirements that the bank foundations will have to satisfy. 4. The fourth and last main flaw in the Spanish banking system was its surplus capacity, as a result of the tremendous growth in loan demand during Spain’s long period of economic expansion.
Today, information of all kinds is transmitted easily, inexpensively and instantaneously around the world, providing finger-tip access to anyone with a laptop computer, cellular phone or palm pilot. As but one example, I’d mention that, as of last month, the most popular items on the Federal Reserve’s public web site – including statistical reports on foreign exchange rates, selected interest rates, consumer credit and industrial production, along with press releases and Federal Open Market Committee announcements – are accessible by wireless remote. If information is power, and it surely is, then a profound and irreversible transfer of power is underway in the global financial marketplace – from providers of products and services to consumers. For example, the Internet – something most of us had never heard of five years ago – is changing how consumers shop for financial products and services, the prices they pay, and with which providers they establish relationships. In response, financial institutions, who once viewed technology mainly as a cost center, now see the Internet and other technological capacities as strategic tools for enhancing the value of customer relationship through cross-selling and improved customization. A recent survey of bank managers in the United States reported that, for the first time, investment in Internet technology was cited as the top budgetary priority, ahead of items such as investments in call-centers and brick-and-mortar branches. The growing importance of the Internet as a distribution channel is also eroding traditional barriers between financial service providers and technology firms.

While there might have been an impact on specific service categories in January, overall there is no evidence that the euro cash changeover has had a significant upward effect on the average price level in the euro area or that the declining trend in annual inflation rates has been affected recently. BIS Review 15/2002  1  In the coming months, the effects of past increases in energy and food prices should gradually subside and annual inflation rates should fall to below 2%. The recent behaviour of producer prices also points in this direction. Beyond that horizon, we expect little upward pressure on prices from aggregate demand and, barring unforeseen developments, inflation rates to be in line with price stability. However, the current favourable outlook for inflation fundamentally rests on the assumption of a continuation of wage moderation. As I already noted last month, there is some cause for concern with regard to ongoing wage negotiations. A continuation of wage moderation in the euro area is crucial not only to foster employment growth but also to support monetary policy in its task to maintain price stability. With regard to fiscal policy in the euro area, the Governing Council welcomes the reaffirmed commitments of the governments of euro area countries with fiscal imbalances to adhere to the objective of achieving balanced budgets by 2003-2004. The confirmation of the political will to continue along the path of fiscal consolidation is most appropriate.
Best practice in these areas is defined by several factors, including: •  the capacity of the firm to capture quickly and aggregate exposures across the firm to specific types of risks, and to integrate these into the stress testing process,  •  the use of a range of different approaches to measuring exposures in conditions of stress, what the Counterparty Risk Management Group II calls "a portfolio of analytics,"  •  the quality of the effort applied to understanding how risks interact in conditions of stress, particularly market and credit risk,  •  the degree of attention to how a substantial and prolonged reduction in market liquidity might amplify losses,  •  the balance between the identification of scenarios plausible or realistic enough to more easily capture management attention and those scenarios that may be less plausible but substantially more damaging to the firm,  •  the care given to the particular challenges in measuring exposure in illiquid and complex products,  •  the adequacy of the cushions – in terms of capital and liquidity - maintained against adverse scenarios where uncertainty is highest, and the strength of the connection between the identification of potential losses and changes to exposure limits and the risk profile of the firm, and  •  the attention given to the range of risks presented by greater concentration in some markets, from the implications of the failure of a major institution to the constraints a large firm might  BIS Review 14/2006  3  itself face in its capacity to limit its own losses in adverse conditions without exacerbating those conditions.

Although the risk controls seem to have done a pretty good job of capturing the economic terms of the trades, the assignment problems create uncertainty about the actual size of exposures to individual counterparties that could exacerbate market liquidity problems in the event of stress. What can be done to mitigate these risks? The two general areas that offer the highest potential return in reducing systemic risk are improvements (1) in the sophistication of the risk management process used to generate adequate capital and liquidity cushions against a severe economic or market disruption and (2) in the post trade processing and settlement infrastructure. The frontier of challenges in the risk management process lies principally in the discipline of stress testing and scenario analysis to capture potential losses in adverse conditions in the "tail" of the distribution. This has been and will continue to be a principal focus of our supervisory efforts.
We also recognize the fact that the global business community of Islamic finance needs to grow in order for the broader global community to benefit from its value proposition, as only then can its growth potential be fully harnessed. With this in mind, Malaysia actively engages the global community to develop Islamic finance together by sharing our experience and providing the technical know-how on the industry. Deriving strength from our progress and achievement on the domestic front, Malaysia offers a workable model of development which can be deployed not only in other traditional Muslim countries, but also in other centres seeking to work together in developing a specific segment of the market. Indeed Islamic finance has now entered a new phase of development, where participants and businesses have become more internationalized. Another priority in facilitating global integration of the Islamic financial system which is high on our agenda is in ensuring Malaysia’s continued active and meaningful role in contributing to the development of supporting international Islamic financial infrastructure. Since Malaysia’s involvement in the pioneering group of countries that led to the formation of the Islamic Financial Services Board (IFSB), the international prudential standard-setting body which Malaysia has the honour of hosting, we have continued to support the important work of the IFSB including through our active participation in its various projects.

Although quarterly growth rates of GDP may soon turn positive in the United Kingdom, unemployment is likely to remain high. Fortunately, it has not increased to the 10% rate now experienced in both the United States and the euro area. But at just under 8%, it is markedly above the level to which we had become accustomed during the period known as the “Great Stability”. The sharp monetary squeeze resulting from the efforts by banks to contract their balance sheets is still casting a shadow over the future path of output and employment. Over the past year, broad money growth has slowed sharply to a virtual standstill in the United States, and it turned slightly negative in the euro area. In normal circumstances, we might expect annual rates of increase of between 5% and 10%. At home, annual broad money growth has slowed somewhat less sharply, and remains positive. The unprecedented actions of the Monetary Policy Committee to inject £ billion directly into the economy – described by some as “quantitative easing” – have averted a potentially disastrous monetary squeeze. The headline in the Racing Post of 29 December said it all: “Quantitativeasing Maintains Perfect Record”. Its Newbury correspondent reported that “Quantitativeasing started as a red-hot favourite and had little trouble maintaining his unbeaten record. Ridden with plenty of confidence his task was made easier when Tail of the Bank came to grief at the second last. His trainer said ‘I was delighted with the way he went through that testing ground’”.
d) The ‘too big to fail’ issue is especially pronounced in Switzerland  As I’ve mentioned, in Switzerland, too, a package of state support measures for UBS in 2008 was unavoidable. The capital injection of around CHF 6 billion from the Confederation amounted to some 10% of federal receipts, while the distressed assets of up to USD 60 billion that the SNB was willing to take on represented some 10% of GDP. 6 In its 2011 dispatch on the ‘too big to fail’ (TBTF) legislation, the Federal Council noted that this commitment was associated with considerable risks for taxpayers, and that future rescue packages might not be financially sustainable for Switzerland. 7 This is because the ‘too big to fail’ issue is especially pronounced here in Switzerland. The two big banks, UBS and Credit Suisse, have very large balance sheets relative to GDP, owing to their substantial international activities (cf. slide 3). At the same time, they also have a significant market share of domestic lending and deposit business, and are major players in the area of payment transactions. Moreover, in an international comparison, three other banks which have been designated as systemically important by the SNB – PostFinance, Raiffeisen Group and Zürcher Kantonalbank – also have very large balance sheets relative to GDP. For example, Raiffeisen and ZKB relative to Swiss GDP are about double the size of the largest US banks relative to US GDP.

But we must be vigilant towards any significant increase in longer-term inflation expectations. If high inflation gains a foothold, it may prove more costly to bring it down again, as experienced in the 1970s and 1980s. When my predecessor stood here last year, Norges Bank embarked on a gradual normalisation of the policy rate (Chart 7). But when inflation accelerated over spring, it became clear that the policy rate was no longer appropriate for the economic situation in Norway. Over summer and autumn, we raised the policy rate faster and in larger steps than had been the norm. As mentioned, the main driver of the jump in inflation has been higher prices for energy and imported inputs. So why does it help to raise the policy rate in Norway, some might ask. We cannot influence energy and commodity prices. But by softening demand, we can help avoid price increases for those prices spilling over to other prices and wages, and ushering in a period of high inflation. Chart 7 The policy rate was raised rapidly Policy rate. Percent 9 8 7 6 5 4 3 2 1 0 2001  2004  2007  2010  2013  2016  2019  2022  Source: Norges Bank  Norges Bank  Economic perspectives 2023  9  Chart 8 Inflation does not come down on its own Consumer price index subcomponents. Four-quarter change.
I would not wish to speak in such apocalyptic terms. Nor would I go so far as to argue for controls. But I agree that we face a world crisis, and would add that if Hong Kong, with its sound fundamentals and prudent financial management, can be brought to the brink of systemic breakdown by aggressive cross-border speculation, then something must be wrong with the world financial order. The essence of the crisis is this: on the eve of the twenty-first century, as markets continue to open up, as information technology continues to advance, and as investment tools become ever more sophisticated, the global financial system becomes less restrained by distance and national boundaries, less inhibited by information barriers, by time differences or by other physical limitations. Yet the management of the global financial system remains primitive and fragmented. It continues to depend largely on the unaided efforts of individual jurisdictions, which are increasingly handicapped by asymmetric information flows between public and private sectors, and which rely, when they run into problems, more on emergency fire-fighting than on preventive health. In short, the management of our global financial system has become grossly inadequate in coping with the demands of global finance. BIS Review 2/1999  –6–  Solutions So what then are the solutions? I am acutely aware of the fact that a patient suffering from the contagious flu is not really in a good position objectively and dispassionately to prescribe medicine. Let me, nevertheless, put forward my views, for what they are worth.

The excessive reliance in Asia on short-term financing from overseas lenders through weakly regulated banking systems, and all the turbulence that this has entailed, is a reflection of the lack of deep and diversified debt markets in the region. The essence of the problem is the failure of our financial systems to keep pace with the strong underlying growth in other sectors of the Asian economies: the industrial and trade sectors surge ahead, while the financial sector lags behind. Too large a share of Asia’s financial resources has consequently been recycled through overseas markets, with the inevitable loss of information flows, and a tendency towards the kind BIS Review 2/1999  –9–  of market volatility that has caused us such problems. We need to establish local debt markets that bring both borrowers and lenders into more direct and long-term relationships, and which leaves both sides less exposed in terms of currency and maturity mismatches. Ironically, the underdeveloped state of our debt markets is attributable in part to the traditional absence of large budget deficits in most of the region, which has limited the development of government bond markets. Debt market development needs some official help, since individual issuers are not in a position on their own to create deep and liquid markets. The APEC initiative on bond markets - in which Hong Kong plays a leading role, will provide some impetus.
Under the French presidency, the G20 has been at least as active as the Fund. Of particular relevance is the steady implementation of the Mutual Assessment Process, a new instrument for multilateral cooperation and oversight aimed at promoting economic adjustments worldwide. We will have the privilege of hearing from Minister Lagarde about this important endeavour later during lunch. In today’s conference, we would like to advance from diagnosis to treatment. Last year, the main focus was on the sources of instability and the inadequate asymmetric adjustment mechanisms of the current system. This year, the aim is to progress towards a common  BIS central bankers’ speeches  1  understanding of the role of the Fund and to discuss concrete reform proposals. In doing this, it is important that we stay focused and realistic. The two main tasks of the IMF are crisis prevention and crisis resolution. The main Fund policies for achieving these tasks are surveillance and financial support. Before leaving the floor to our panellists, allow me to reflect very briefly on these two topics. The IMF is mandated to oversee the international monetary system and monitor the economic and financial policies of its member countries. In this way, it helps to ensure the effective operation of the international monetary system, thereby promoting and sustaining sound economic growth. In recent years, much has been done to make surveillance more focused and effective. Attempts to better integrate financial sector issues and spillover effects are all steps in the right direction.

Philipp Hildebrand: The international monetary system Opening remarks by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the High-Level Conference on the International Monetary System, Zurich, 10 May 2011. *  *  *  Good morning, Ladies and Gentlemen. I am pleased to welcome you to the second joint SNB-IMF conference on the international monetary system. It is a privilege for the Swiss National Bank to cooperate with the IMF and contribute to this important debate by yet again bringing together such a distinguished group of policy makers and experts. The IMF Managing Director, Dominique Strauss-Kahn, is once more honouring this event with his participation. The reform of the international monetary system is subject to an ongoing debate. The global financial crisis put a sudden end to a near decade of seemingly healthy growth widely distributed across the globe. The crisis rocked the system to its core. It has brought forth concerns about the stability of an increasingly complex and interconnected global economy. It has also refocused attention on the potentially destabilising effects of unprecedentedly large and, at times, extremely volatile cross-border financial flows. Globalisation has led to dramatic changes. Emerging economies have been steadily moving to the fore of the international scene. It is imperative that the international monetary system adapts itself to these rapid changes. A thorough reassessment and reform of the system have become a priority among policy makers.