samchain/econo-pairs-v1 huggingface dataset:
Richard W Fisher: Comments on tailored regulation and forward guidance (with reference to Dr Seuss, Strother Martin in Cool Hand Luke and other serious economists) Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Louisiana Bankers Association 114th Annual Convention and Expo, New Orleans, Louisiana, 9 May 2014. *  *  *  The views expressed by the author do not necessarily reflect official positions of the Federal Reserve System. Thank you, Drake (Mills). Your service as president of the Federal Reserve Board’s Community Depository Institutions Advisory Council is greatly appreciated. You are kind to have a Texan come speak to you and your fellow Louisiana bankers, though this is not without precedent: The great blues guitarist and singer Clarence Garlow may have been born in Louisiana, but he had long lived in Texas before he recorded “Bon Ton Roula” in 1949 and gave New Orleans the reputation of the American city where les bon temps rouler. It would be hard to say that the good times are rolling for community bankers, though the pace and rhythm of the economies of the U.S. and Louisiana and your next-door neighbor, Texas, are getting stronger daily. I have been outspoken as to why our community banks feel besieged. Everyone in this room and their sister or brother knows what I preach about the continuing problem of banks considered “too big to fail” and the witches’ brew that was concocted by Congress, known as Dodd-Frank.

The Federal Open Market Committee (FOMC) is in the process of winding down its massive purchases of Treasuries and mortgage-backed securities. At our last meeting, in recognition that the economy is improving and acknowledging that we have generated massive amounts of excess reserves among depository institutions operating in the U.S., we voted to reduce our purchases to a combined $ billion per month, on the path to eliminating them at the earliest practicable date. Speaking only for myself as a voting member, barring some destabilizing development in the real economy that comes out of left field, I will continue to vote for the pace of reduction we have undertaken, reducing by $ billion per meeting our purchases and eliminating them entirely at the October meeting with a final reduction of $ billion. I was not for this program, popularly known as QE3, to begin with. I doubted its efficacy and was convinced that the financial system already had sufficient liquidity to finance recovery without providing tinder for future inflation. But I lost that argument in the fall of 2012, and I am just happy that we will be rid of the program soon enough. I am often asked why I do not support a more rapid deceleration of our purchases, given my agnosticism about their effectiveness and my concern that they might well be leading to froth in certain segments of the financial markets.
Mr Gjedrem focuses on the issue of financial stability: experiences and challenges  Speech given by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at the annual meeting of the Norwegian Savings Banks Association, held in Sandefjord on 21 October 1999. (Shortened version) 1. Introduction  Every day around NOK150–200 billion change hands through the banks’ accounts in Norges Bank. In the course of a week, payments corresponding to our gross national product for an entire year have passed through Norges Bank’s settlement system. These payments involve all types of transaction, from a 10 kroner ice cream purchase to securities transactions where a single transaction may involve billions of kroner. The banks play a pivotal role in the payment system. Deposits are now the predominant means of payment. Payment settlement is the banks’ most important function besides channelling funds from savers to borrowers. In other countries, securities markets are of growing importance. They are taking over an increasing share of banks’ credit intermediation. This may also occur in Norway. Securities are also increasingly serving as collateral in payment settlement. These three elements - payment and settlement systems, banks and other financial institutions, and securities markets - make up the financial system. Every day we experience how dependent a developed economy is on the smooth functioning of this system, i.e. on financial stability. The volume of foreign payments is substantial and on the rise. Banks and securities markets are becoming ever more closely integrated.

For better or for worse, we are increasingly exposed to developments in other countries. The banking crisis taught us how costly financial crises can be. We brought the crisis on ourselves. Many other countries have experienced similar problems. The root of the crises can be traced back to overly zealous financial market participants with reduced risk awareness. The authorities’ role is to prevent crises in the financial system and - if they still occur - handle them with a view to reducing the adverse effects and the likelihood of their recurring. In view of the globalisation of financial markets, international cooperation in this area is crucial. The financial system is also important with regard to Norges Bank’s conduct of monetary policy. By setting the terms for banks’ deposits/loans in the central bank, Norges Bank influences the level of interest rates. Monetary policy is also dependent on financial stability. However, monetary policy is not the topic today. I will focus on the issue of financial stability. 2. What is financial stability? Financial stability is the absence of financial crises. The root of a crisis is that exuberance, optimism and greed take precedence over risk and return considerations when investment decisions are taken. The price of financial assets and property rises. Bank loans and household and corporate debt increase. As a result, all agents become more vulnerable if the situation is perceived as taking a turn for the worse. This may in turn trigger a plunge in property and equity prices.
The development of risk-based capital ratios has helped to strengthen capital standards in the more than 100 countries that adopted the Accord. In recent years, however, the Accord has exhibited serious shortcoming. One significant weakness is that the Accord’s broad brush structure may provide banks with an unintended incentive to take on higher risk exposures without requiring them to hold a commensurate amount of capital. It also has not kept pace with innovations in the way that banks measure, manage and mitigate risk. With these concerns in mind, in June of 1999 the Basel Committee released a Consultative Paper for a new capital adequacy framework. While we knew this paper would not represent a perfect framework for all banks, our aim was to release a credible package that would serve as a basis for discussion. We actively sought feedback from the industry worldwide during the formal comment period that ended on 31 March of this year, and we are continuing this dialogue. I should note that we are very pleased and encouraged by the more than 200 comments received from a variety of sources, including financial institutions, central banks and supervisors, non-G10 countries and other market participants. The respondents on the whole have sent us a strong endorsement of our overall goal of developing a capital framework comprised of three pillars – minimum capital standards, supervisory review and market discipline – that is more risk reflective and appropriate to banks of varying levels of sophistication.

First, a bank would assign each of its loans or exposures to an internal grade, which reflects the risk associated to lending to each borrower. A bank would do so by using the expert judgment of senior lenders and its own well-defined internal rating scale and criteria. The bank would then assess the likelihood of default of borrowers in each internal grade, based on its own analysis. Many larger banks are doing this now. It is this assessment of the probability of default that is the core of the internal ratings-based approach. The second step is for the bank to assess the severity of loss should a loan default – most often referred to as the Loss Given Default. The Committee currently envisions two internal ratings-based approaches, a foundation approach and an advanced approach with even higher minimum standards. A key distinction is that under the foundation approach, banks would use supervisory estimates of lossgiven-default based on loan characteristics, while under the advanced approach, they could make use of their own analysis. The third step is to derive the bank’s capital requirement. The Committee will set out the risk weights that correspond to different estimated probabilities of default and loss-given-default. These risk weights are being developed by the Committee as a measure of unexpected loss, reflecting the amount of potential credit loss for each loan. A key aspect of the internal ratings-based approach is the development of rigorous supervisory standards for the assignment and quantification of internal ratings.
This is primarily due to the lack of comprehensive and standardised information that is needed for all economic agents to factor in climate risk. I will come back to this need for standardisation later. But more fundamentally, the difficulties in pricing climate risk are due to the very characteristics of these risks, and in particular to what we call "green swans", which generate radical uncertainty and whose consequences can be systemic. vii In this respect, market neutrality – which guides the execution of our market operations – should not put a brake on carbon neutrality. viii Market operations are conducted in a neutral manner as long as they comply with the central banks’ risk control rules. And yet, climate risk is precisely a financial risk that is currently insufficiently measured by markets. ix Another difficulty is often put forward, but it can be overcome: the fact that climate risk is long-term, while many of our risk measures are short- to medium-term. Page 4 sur 8 This is a real technical challenge: the "probability of default" is usually one year; our economic forecasts cover a two to three-year horizon. We must therefore work to "lengthen" our measures, but the fact that a "tragedy of the horizon x" exists is not a call for a status quo. On the contrary! Climate change calls for early and resolute action as the benefits of corrective measures will essentially only be felt in the longer term. II. How should the central bank intervene? How can this be concretely achieved?

We deem that financial sector development should be balanced in all its segments, and this requires the successful completion of the privatisation process and the harmonization of the regulatory and supervisory legislation, in accordance with the best practices of the developed countries. These issues require a continuous attention and cooperative contribution. On this opportunity, I deem appropriate to highlight that Bank of Albania shall be a prompt and open partner, assuming the responsibilities belonging to it, and collaborating with all the actors interested in the economic and financial development of the country. Inflation and monetary policy developments The primary objective of the Bank of Albania, provided in the Law “On the Bank of Albania” is maintaining the price stability. This objective is expressed in the achieving of a low and stable inflation rate, measured as an annual change of Consumer Price Index. For year 2004 inflation rate, according to the Monetary Policy Document, was fixed to be within the two-to-four percent targeted range. According to the actual developments, Bank of Albania has achieved its objective on the inflation control within the two-to-four percent targeted range. The annual inflation rate resulted 2.2 percent by the end of 2004, while the average annual inflation rate was 2.9 percent. Inflation rate remained about 3 percent during the first half of the year and, later on, marked a downward trend during the second half, approximating to the lower limit of the targeted band.
A market economy is the form of economic activity that has proved superior to all other alternatives, such as a planned economy, in almost all situations. When it comes to small, less well-developed countries, it has often been shown that the countries that opened themselves up to competition, imports and exports have developed much better than the countries that tried import substitution, i.e. tried to build up industries for all their own needs. Economic research indicates that this is the case. South Korea, Singapore and now China are examples of more or less open economies that are seeing much better growth now, while India had poor growth for a long time, as it closed its borders. Other countries that have closed themselves in, such as Nigeria, Ukraine and Pakistan, are suffering degrading poverty. Countries that were previously more open with a high standard of living can sink into crises and misery, as is the case with Argentina and Uruguay. Participating in international exchanges provides investment, access to new technology and spreads knowledge of business life and company management. When managed properly, poor countries that open themselves up to the outside world can achieve more rapid growth than the industrialised nations through what economists call "catching up". Sooner or later even the poorest are raised to a higher standard of living with a more even distribution within the country. One example of this type of development is parts of China, after the country began to turn outwards and liberalised its economy.

Either the fixed exchange rate would hold firm and then investors in Swedish kronor would break even, or else the central bank would devaluate. An investor who, for instance, borrowed Swedish kronor and used them to buy dollars, would then, following a devaluation, have a debt in devaluated kronor and assets in dollars. The actual speculation is aimed at causing a devaluation that will lead to this type of profit. However, what encourages speculators to act in this way is an economy that is out of balance, e.g. with a large central government debt, poor public finances or poor competitiveness as a result of high costs. There is a long list of examples, where speculation has made it impossible to retain a fixed exchange rate. As I said, Sweden was forced to abandon its defence of the krona in 1992; the ERM co-operation within the EU with a narrow band for fluctuation broke down in August 1993; Mexico was affected in 1994-95, South East Asia in 1997, Russia in 1998, Brazil in 1999, Turkey in 2001 and Argentina this year. All of these crises have at least one thing in common: the countries concerned had a fixed exchange rate. There are both technical and economic reasons for the large deregulation that occurred in Sweden and other countries. For instance, the advent of the new technology -- IT, electronic money and new financial instruments -- made it more difficult to retain currency regulations and capital market regulations. The "leaks" became increasingly large.
However, retail sales were quite weak in March, suggesting that the tax increases that occurred at the start of the year may be beginning to have a material effect. After a long period of being a drag on the economy, the housing market is now providing lift to economic activity, with upward trends evident in housing starts, home sales, and home prices. To see why this is so important, in 2009 residential investment exerted a  BIS central bankers’ speeches  3  0.4 percentage point drag on GDP growth, while in 2013 it is likely to provide a boost to growth on the order of 0.5 percentage point – a swing of nearly a full percentage point. In addition, rising home prices can create positive spillovers to the rest of the economy as higher home prices lift household wealth and reduce the number of homeowners with negative equity. Business investment in equipment and software, another component of private final demand, strengthened in the fourth quarter, and shipments and orders for nondefense capital goods suggest further growth in the first quarter. Moreover, indicators of the U.S. manufacturing sector, including the ISM manufacturing index and most Federal Reserve regional manufacturing indexes, point to continued moderate growth in the sector. So why isn’t the U.S. economy growing more quickly? The most important reason is the sharp shift in federal fiscal policy from mild restraint in 2012 to much greater restraint in 2013.

The Custodian of the Two Holy Mosques has taken a broad range of decisions and measures aiming at restructuring and regulating the economy, updating regulations and legislation to enhance the efficiency and competitiveness of the economy and support the optimal operation of production factors, apart from providing an advanced regulatory and administrative framework and an attractive environment for domestic and foreign investments to achieve diversity in the economic and productive environment in order to continue creating job opportunities for the sons and daughters of the Kingdom. Fortunately, oil prices have constantly improved, helping to accomplish many of the development objectives. As a result, the private sector during the period from 2005 up to the end of 2011 achieved a real annual growth rate averaging 5.5 percent. The balance of payments (BOP) recorded a surplus of Rls 2.5 trillion. The actual expenditure of the public finance stood at Rls 3.8 trillion, of which Rls 1.0 trillion were for capital expenditures. Moreover, the ratio of public debt to GDP declined from 39.2 percent in 2005 to 6.3 percent in 2011. The banking sector recorded strong and constant growth during that period, surpassing significantly the repercussions of the global financial crisis, and total assets of banks rose by more than two fold. Many development projects have been approved for enhancing and modernizing the infrastructure, including roads, airports, telecommunications, water & electricity, health & educational services and the Custodian of the Two Holy Mosques’ Foreign Scholarship Program, which is considered as a long-term investment of human resources .
If market participants expect prices to continue to fall, the real interest rate may be high since the nominal interest rate cannot fall below zero. Households and enterprises may then find it profitable to increase saving pending a decline in prices, which leads to further fall in demand. The real debt burden increases as a result of the fall in prices. This curbs demand. Deflation is often accompanied by a decline in asset prices. This reduces banks’ collateral value for loans and may reduce banks’ total lending. Deflation can be spread across countries. Even though Norway is not experiencing deflation, we see that increased imports from low-cost countries are curbing inflation in Norway. Inflation in Norway is now low. It is primarily developments in prices for imported consumer goods that have pushed down the rise in consumer prices adjusted for tax changes and excluding energy products (CPI-ATE). The low rise in prices reflects the appreciation of the krone through 2002 and the low rate of inflation abroad. The rise in prices for domestically produced goods and services has also slowed, particularly prices for goods influenced by world market prices. As a result of the fall in inflation rates globally, key monetary policy rates are now low in the major economies. Monetary policy has also been eased considerably in the US and the euro area over the past few years as a result of the economic downturn. Norway’s monetary policy must be adapted to a global economy that is marked by unusually low interest rates.

The Federal Reserve stated after its last meeting that the upside and downside risks to the attainment of sustainable growth for the next few quarters were roughly equal. The risk of inflation becoming undesirably low was therefore deemed to be greater than the risk that inflation would move up from its already low level. This is the predominant concern of monetary policy in the period ahead. Monetary policy in the US may therefore remain expansionary for a fairly long period ahead. BIS Review 46/2003  7  In Japan, expectations of a continued fall in prices have held up the real interest rate in spite of low nominal interest rates. In Japan, the key rate has been close to zero since the end of 2001. This limits the central bank’s scope for stimulating demand. In recent years, “untraditional” monetary policy instruments have also been discussed, such as supplying considerable liquidity through purchases of various types of securities, including long-term paper. The Bank of Japan has to a large extent purchased long-term government bonds and, since last summer, asset-backed securities as well. How to respond to financial bubbles Another subject that is being discussed globally is how monetary policy should respond to financial bubbles. Should we try to prevent the bubble from developing or be content with responding afterwards once the bubble has burst and then make the best out of the situation? And what is actually feasible? Financial stability is often defined as the absence of financial instability.
Money was believed to be more controllable than inflation so, during this period, objectives, targets/indicators and instruments tended to be considered together, a monetary target being expected to deliver all three. Ministers were, in consequence, drawn into highly technical debates, rather than focusing primarily on articulating high-level macroeconomic objectives. But both money targeting and, subsequently, exchange-rate targeting failed in the UK. That meant that attempts by politicians to deliver effective monetary policy by binding themselves to a policy rule based on an intermediate target had failed. So attention gradually turned to broader institutional solutions, leading ultimately to “operational independence” for the Bank. In terms of the political economy, there were perhaps two crucial developments during the first half of the 1990s. First, there was much greater transparency. An inflation target was announced by government, making the objective clear and performance in achieving it easy to monitor. The Bank’s analysis of the inflation outlook was published in the quarterly Inflation Report; and its advice to the Chancellor on the level of interest rates was published in the minutes of the “Ken and Eddie Show”. This revolution helped to establish the legitimacy of what the monetary authorities were trying to achieve; helped to demonstrate the Bank’s competence; and showed that differences of view about the level of interest rates could be disclosed without the ceiling coming down.

As well as providing transparency to commentators and the markets who are in the business of forming views about our future actions, the letter has proved a useful focus for public debate, which has almost universally underlined UK society’s continuing commitment to price stability. The “open letter” mechanism is important to the political economy of monetary policy in the UK. A one member/one vote committee The open letter was an instance of the MPC acting as a collective, represented by the Governor. Much of the time, most obviously when reaching our monthly decisions on Bank Rate, we are in one person/one vote mode. Although now well established, a committee that truly adheres to one person/one vote, and at the same time pursues its mandate with dedication and integrity, needs nurturing and skilful maintenance. After all, four of the MPC’s nine members also have executive duties for which they report to the Governor of the day. And the four other, “external” members expect to renew their careers outside central banking after a few years of service to the MPC, and so might be thought to have an interest in maintaining an appropriate profile. But – maybe alone amongst central banks, I’m not sure – no one doubts that the MPC does decide Bank Rate by a free vote. That this should be so owes a great deal to the culture of the Committee itself; a culture engendered by its first Chairman and his successor as Governor, but also by the rest of the membership.