samchain/econo-pairs-v1 huggingface dataset:
And it is precisely my role here today to encourage people to read them. I would therefore prefer to share some broad reflections with you, having experienced this crisis from my vantage points on the FSB, the ECB Governing Council and at the Banco de España. Further, given the key juncture at which we stand, I shall add further remarks as to what we must do in Spain to emerge from a crisis in which, after four years, we remain immersed. My first suggestion is that we cease to refer to the “crisis” in the singular and start talking about “crises” in the plural. This is because the far-reaching shock the Spanish economy and its banking system have undergone has not been caused by a single crisis but by the extraordinary overlapping of three economic/financial crises. Spain had never experienced such an occurrence in its history, a fact which should be borne in mind when deciding on the best exit therapies. The impact of the first of the three crises, the so-called international financial crisis, came about in a context in which the banking system was reasonably wellsupervised and focused on the traditional retail business. But, as was noted at the time, neither the economy nor its credit institutions would prove immune to its consequences, in particular to the global recession and to the seizing-up of the regularly used external funding mechanisms.

The second response to the crisis drives us to equip ourselves with new tools that mitigate the effects of future crises, because experience tells us that, even assuming that all the preventive measures conceivable today are adopted, it will never be possible to do away once and for all with economic crises. The third response to a crisis does not involve preventing or adopting tools to manage future crises, but looking for the right way to manage the current crisis from which, need I remind you, we have not yet emerged. I make this distinction between the three types of response that an economic crisis always elicits so that my following remarks may be better understood. Firstly, I think that most of the huge efforts deployed to date at the global and European level in response to the crisis have focused on avoiding or mitigating future crises. Yet much less time and imagination has been used in designing and agreeing on measures to emerge from where we are. I am certain that we are now much better prepared to prevent the recurrence of a crisis such as the present one, but the problem is that we still do not know how to exit from it.
BIS central bankers’ speeches  11  But if inflation expectations are anchored to the target at the same time as average inflation is deviating from the target, this means that the long-run Phillips curve is no longer vertical, but sloping downwards. This relationship is supported by data and shown in Figure 3. The red circles show the outcome for unemployment and the gap between CPI inflation and the target of 2 per cent from the first quarter of 1998 and up to the end of the fourth quarter of 2011. The black line is an estimated long-run Phillips curve. If the average inflation rate would deviate substantially from the target, it is hardly likely that inflation expectations would still remain anchored to the target. The estimated long-run Phillips curve is therefore reasonably only relevant in moderate deviations from the target. It is thus marked as a dashed line for average inflation that deviates more than 1 percentage point from the target. That the long-run Phillips curve is no longer vertical for inflation expectations anchored to the target has been noted for the United States in the period 2000–2011 by Jeffrey Fuhrer (2011) at the Federal Reserve Bank of Boston. 12  BIS central bankers’ speeches  Higher average unemployment when average inflation undershoots the target The right-hand square on the long-run Phillips curve in Figure 3 shows an average inflation rate that is 0.6 percentage points below the target, which thus corresponds to the deviation in Sweden during the period 1997–2011.

2  BIS Review 33/2010  One indicator of this recovery in confidence is the performance of stock markets, reflecting an improving assessment of business prospects. As Chart 2 shows, equity markets in the UK and US have recovered by around 60% from their troughs about a year ago. Alongside this improvement in financial market confidence, business survey indicators have also been improving across the global economy. Chart 3 shows a composite measure of surveys of purchasing managers from the major world economies. The very negative readings of around a year ago have given way to responses which are consistent with rising activity and the expectation of future growth. BIS Review 33/2010  3  The natural momentum of a recovery is that, as growth continues and memories of the recession fade, both consumer and business confidence will continue to build. Over time, cutbacks in investment by firms and the deferral of major consumer purchases will begin to reverse. As a result, we should expect both consumer and investment demand to gradually strengthen as long as new shocks to confidence do not emerge. Growth in Asia and emerging markets Alongside this general recovery in confidence, a key engine of the world recovery has been a strong rebound in Asia and many other emerging market economies.
How can we make regulation conducive to FinTech innovation, while still ensuring that the system remains stable, key players are sound, and consumer interests are safeguarded? This requires a keen understanding of emerging technologies and new business models, and being alert to potential risks, while taking care not to stifle innovation. Easier said than done! Let me give a few examples of how MAS has tried to strike the right balance. Take for example virtual currencies, or commonly known as crypto-currencies. MAS does not regulate virtual currencies; in fact, we welcome them as an innovation that can potentially reduce the cost of financial transactions. But we regulate the activities that surround virtual currencies if these activities pose specific risks. First, virtual currency transactions could potentially be exploited for money laundering or terrorism financing due to the anonymous nature of the transactions. And so intermediaries in virtual currency services will be subject to anti-money laundering requirements. Second, virtual currencies can go beyond being a means of payment to representing ownership of assets, as we see in many Initial Coin Offerings or ICOs. This makes them look very much like a share or bond certificate. So, if the digital token is structured like a security, then the ICO must meet the requirements of the Securities and Futures Act. This is to protect investors. FinTech developments are forcing regulators to review the way regulation is done. If FinTech is unbundling the financial services value chain, then regulators may have to “unbundle” their regulations too.

We call our system PayNow; Thailand calls theirs PromptPay. MAS and the Bank of Thailand have agreed to work together to link PayNow and PromptPay. The aim is to enable someone in Singapore to send money to someone in Thailand, and vice versa, using just their mobile phone numbers – instantly, securely, and at any time of the day. Talent and Research To sustain our FinTech efforts, we need a strong pipeline of talent and research capabilities. We are pleased to announce that MAS and the Massachusetts Institute of Technology (MIT) have agreed to enter an R&D collaboration in FinTech. This will enable our local FinTech talents to work alongside world-class researchers at the MIT Media Lab to come up with technology solutions to real-world use cases. They will run pilots using distributed ledger technology, cryptography, quantum computing and big data, artificial intelligence, and machine learning. One area where we want to make a concerted effort is data analytics and artificial intelligence. MAS is launching a $ million Artificial Intelligence & Data Analytics Grant. This is part of the $ million Financial Sector Technology & Innovation Scheme. The new grant will support the adoption and integration of AI and data analytics in financial institutions. 3/9  BIS central bankers' speeches  Just as important, it will be used to help professionals in the financial sector to up-skill and adapt to the use of these new technologies. Conducive Regulation One of the most critical pieces that we must get right is regulation.
If such compression in expected forward short-term rates were to persist even after the FOMC begins to raise short-term interest rates, then, all else equal, it would be appropriate to choose a more aggressive path of monetary policy normalization as compared to a scenario in which forward short-term rates rose significantly, pushing bond yields significantly higher. In closing, I agree with the authors that it is very much premature to accept the hypothesis that we have entered a sustained period of secular stagnation. That said, however, I do think that the real potential GDP growth rate will be lower over the medium term, held down by much slower growth of labor input and an anticipated continuation of lackluster productivity growth performance. If I am correct, this does have implications for the longer-run value of r*. My point estimate is that the longer-run value of the federal funds rate is 3½ percent, well below its long-run historical level of 4¼ percent. At the same time, I also have little confidence about the accuracy of this specific estimate. So you see that I come out in a very  BIS central bankers’ speeches  3  similar place as the authors of this year’s Monetary Policy Forum paper. They suggest that the long-run equilibrium real federal funds rate might be in the range of 1 to 2 percent. Add on 2 percent inflation, you end up in just about the same place as my current long-term 3½ percent nominal federal funds rate point estimate.

But, if a delay in monetary policy normalization or a very shallow trajectory in normalizing short-term interest rates were to cause inflation expectations to move meaningfully above our 2 percent inflation objective, then an inertial policy would likely become detrimental in achieving the FOMC’s objectives. The third, and related, issue I want to address is the care needed in using rules, such as Taylor 1999, as a guide to policy. As the paper convincingly shows, over time, financial market conditions have become a much more important factor in evaluating the appropriate setting of monetary policy and the level of short-term interest rates. This reflects several factors. First, over the past few decades the U.S. capital markets have grown in size and scope, and our financial system has become much less bank-centric. This has loosened the linkage between the federal funds rate and financial market conditions. Second, the U.S. economy and financial markets have become more interconnected globally. Thus, the impact of U.S. monetary policy has become more diffused, and financial market conditions have come to depend increasingly not only on developments at home, but also on developments abroad. As an example, the current low level of U.S. Treasury bond yields reflects, at least in part, the fact that long-term interest rates in Europe and Japan are much lower. While simple policy rules provide useful benchmarks for policymakers, their very virtue – their simplicity – is also a significant shortcoming.
In this setting, the ECB’s clearly expansionary monetary policy stance, the institutional reforms to the financial governance of the EU, and the cleanup and restructuring of the national financial sector were all pivotal in significantly reducing the degree of financial fragmentation in the euro area between 2010 and 2012. Deleveraging by the non-financial private sector has also notably influenced competitiveness. This ongoing process is very advanced both in the case of non-financial corporations and of households. In the case of companies, for instance, the debt/GDP ratio has fallen by more than 40 pp from its peak, meaning it now stands below the average for euro area firms. This has all contributed to goods exports increasing from having accounted for 15% of GDP in 2009 to approximately 24% in 2019. During this period, export growth has, moreover, been higher in general terms than that of foreign markets. This has enabled the global trade share to be maintained, despite the ever-more influential role of the emerging economies in world trade. In parallel, there have been significant and permanent increases in the Spanish economy’s export base. This is been in terms of the figures both for total export firms and of those for firms that regularly export. As regards the proportion of exporting firms relative to total firms, the attendant growth rates have been very sharp since 2009.

In this connection, it is worth offering some figures illustrating the scale of this change. Specifically, the Spanish economy’s current account balance has improved by more than 11 percentage points (pp) of GDP since the start of the crisis, turning from a deficit of 9.4% of GDP in 2007 to a surplus of around 2% in 2019. In terms of components, while all captions have contributed positively to this adjustment, of most note has been the correction of the net balance of non-energy goods and of the primary and secondary income balance. The contributions of the latter to the improvement in the total balance in this period were almost 6 pp and 3 pp, respectively. But the energy goods, tourism and non-tourist services balances have also each contributed about 1 pp. As suggested, among the key factors behind this correction of the external balance are the gains in competitiveness achieved in these past ten years. These are estimated to have contributed both to the increase in the structural level of exports and to their geographical diversification towards markets with greater growth potential, thereby resulting in a favourable market-share performance. At the same time, imports have been seen to be flatter in relation to the rise in final demand, despite the momentum of exports in firms and sectors with a high import content. That likewise points to an improvement in the competitiveness of the resident productive sector compared with foreign competitors.
Swedbank has released detailed data to explain why they are closing branches, and they show that the branches being closed were used by only 13% of the clients registered there prior to closure, and that the number of cash transactions in those branches has halved in five years. The larger commercial banks in Estonia now provide services more efficiently, and one consequence has been the closure of branches and cash machines in rural areas. A comparison with Sweden can be useful here, as that is where the parent banks of our largest banks are based. At the end of 2013 there were 1655 bank branches in Sweden, and a little over half of them were cash-free, which is more than twice the proportion in Estonia, where only 23% are cash-free. 2  BIS central bankers’ speeches  At the start of June I wrote to the leaders of the local government in Läänemaa that Eesti Pank finds that having a single network of cash machines for all the banks would not improve access to banking services in rural areas. This is because it would not be possible for any commercial bank to differentiate its services from those of other banks by offering higher quality if there were a single network. Furthermore, a single network dilutes the responsibility of each individual bank, making it harder for clients or the public to affect the decisions taken by the banks.

The Decree requires that the four largest banks in Estonia restore their normal services to 70% of their normal operational level within 12 hours in the event of an emergency. How the banks restore their services is up to them, but they must describe their recovery plan to Eesti Pank, who then passes the information on to the Ministry of the Interior. As I understand it, the purpose of the Emergency Act is to see that vital services are restored in the event of an emergency. It is not intended to cover cases where some  BIS central bankers’ speeches  1  people do not have day to day access to some important services. Neither is it intended for the purpose of guiding trends in urbanisation and marginalisation. That is an issue for regional policy, not one that requires solving under emergency powers. Regional policy lies within the domain of the Riigikogu, the government and local authorities. That said, cash circulation is an issue of importance for Eesti Pank, and we wish to be fully engaged in setting policy for cash circulation. This brings me on to the second question in the interpellation, and the position of Eesti Pank on the accessibility of cash and payment services across Estonia. Eesti Pank’s goals for cash are to supply the commercial banks with sufficient cash resources and to ensure the quality of the cash.
3/5  BIS central bankers' speeches  The public message is quite clear. Are there more discreet messages in private? No, none. I say the same thing in public that I do in private. Have the ECB’s non-standard measures run their course? No. We can still increase bond purchases or lower interest rates further, which means that we still have the same tools available. What is happening is that the secondary effects are becoming more tangible . And each measure has less of a return. I look at the effects, and these can vary greatly. I am worried by risk taking in the asset management sector against the background of low interest rates. It is a matter of concern for me. Banks are now better capitalised, they have more liquidity, and they are much safer than they were. But they face low profitability, which is a problem. Supervision is centralised and is more suitable than when it was the remit of national authorities. But in the area of asset management and investment funds, what we see is that, in a low interest rate environment, their investment strategy always moves towards increased risk, in the sense of assets with potentially greater returns and greater risks but that are less liquid. And there is also more leveraging, not to the extent seen in the United States, but still more than before. And the supervision in this sector is not comparable with that in the banking sector. There is a risk.

The meeting of the G7 finance ministers and central bank governors (held in London, 21 February 1998) called for a “profound and broad-ranging debate on the lessons of events in Asia and their implications for strengthening the international monetary system, building on the reforms initiated at Halifax”. The G7 identified five main areas where progress had to be made. This is not the place to take stock of the proposals that have been put forward. Let me just air a few remarks on certain measures, which I consider as particularly important. I would like to discuss the proposals addressing imbalances and structural distortions in the crisis countries before considering those concerning the international financial markets and institutions issues. Efforts to strengthen emerging countries financial systems making them more resilient to external shocks The main effort contributing to the strengthening of emerging market economies’ banking systems is the adoption of the set of Core Principles for Effective Banking Supervision which have been widely endorsed by emerging countries authorities. The IMF in coordination with the Basel Committee on Banking Supervision is designing indicators to assess progress in implementation by emerging countries. The adoption of the implementation of the Core Principles as a criterion giving access to the newly created Contingent Credit Line is a strong incentive for members to adopt them effectively. The design of Deposit Insurance Schemes is another important measure contributing to reduce or eliminate implicit government guarantees limiting moral hazard on the lenders as well as on the borrowers side.
However, suppose that, for some reason, the appropriate and effective instruments to ensure financial stability are not available, for instance, because of serious problems with the regulatory and supervisory framework that cannot be remedied in the short run. In such a second-best situation, if there is a threat to financial stability, one may argue that, to the extent that policy rates do have an impact on financial stability, that impact should be taken into consideration when choosing the policy-rate path to best stabilise inflation and resource utilisation. Such considerations could result in a lower or higher policy-rate path than otherwise, in order to trade off less effective stabilisation of inflation and resource utilisation for more financial stability 5. However, so far all of the evidence indicates that in normal times  5  Such considerations could include evidence of the “risk-taking channel” as in Borio and Zhu (2008). Adrian and Shin (forthcoming) and Adrian and Shin (2010) argue, in a model with such a risk-taking channel, that short interest-rate movements may have considerable effects on the leverage of securities broker-dealers in the market-based financial sector outside the commercial-banking sector. If we assume that the risk of a financial crisis increases as this leverage increases, and that policy rates affect leverage, then policy rates would affect the risk of a financial crisis (Woodford 2010b). However, new regulation is likely to limit excess leverage and limit the magnitude of these affects.

Another conclusion is that interest-rate policy is not enough to achieve financial stability. The policy rate is an ineffective instrument for influencing financial stability, and policy rates high enough to have a noticeable effect on credit growth and house prices will have a strong negative effect on inflation and resource utilisation, even in sectors that are not experiencing any speculative activity. The use of the policy rate to prevent an unsustainable boom in house prices and credit growth poses major problems for the timely identification of such an unsustainable development, as well as for the assessment of whether policy-rate adjustment would have any noticeable impact on the development, and of whether, in the longer run, the development of inflation and resource utilisation would be better (Bean et al. 2010, Kohn 2008, 2009). Other instruments like supervision and regulation, including appropriate bank resolution regimes, should be the first choice for financial stability. Preventing a financial crisis requires not only improvements in the supervision of financial institutions, but also a greater emphasis on the supervision of the financial system as a whole. As regards the regulatory framework, generally, to the extent that financial instability depends on specific distortions, good regulation should aim to attack these distortions as close to the source as possible. Macro-  3  See Svensson (2003) for a discussion of policy options before and in a liquidity trap. 4  See Assenmacher-Wesche and Gerlach (2009), Bean (2009), Bean et al. (2010), Bernanke (2010), Dokko et al. (2009), IMF (2009).