samchain/econo-pairs-v1 huggingface dataset:
Companies, households, trade unions and financial market participants can see that we change interest rates in response to news about the inflation outlook. That anchors inflation expectations. In the jargon of economists, people understand that we have a “reaction function” – we react to the economic data in order to keep inflation on track to meet the target. If the economics profession could agree on a model which described exactly how the economy behaved, then it would be possible to set up a Royal Commission of the country’s leading economists to determine the optimal “reaction function” for the Bank of England to follow. It would specify how interest rates should respond to the unfolding of economic data. It could even be implemented by a computer without any need for a Monetary Policy Committee at all. That sounds quite attractive (especially when you’ve attended 120 meetings!). So why don’t we set up a Royal Commission? As members of the SBE know only too well, none of us knows the true structure of the economy or all the shocks that might occur. How long do you think it would be before some other economists would argue, undoubtedly persuasively, that their own research had made the findings of the Royal Commission redundant? Who would have thought in 1997 that monetary policy would have to respond to the challenges posed by the largest inflow of migrant labour and the fastest fall in import prices since Harold Macmillan was Prime Minister? Uncertainty is at the heart of practical monetary policy making.

At times when there is a broad consensus this may not be a problem but if there is a difference of views the reports do not always clearly convey the extent of this difference and how many people are in the various camps”. Such comments reflect the inherent difficulty of communications by a committee with individual voting. It is important that everyone understands the distinction between those forms of communication which focus on individual views, such as the minutes, and those which present a collective viewpoint explaining decisions of the Committee as a whole, such as the Inflation Report. As I said in my lecture to this Society five years ago, “it should be clear that there are both benefits and costs to a group decision-making process. The transparency and accountability of individual views helps to make better decisions. But it also complicates the communication of the decision to a wider audience, whose expectations of inflation matter for economic behaviour. The avoidance of confusion requires some forbearance by individual members of the Committee, and a clear understanding of which forms of communication are appropriate to explain individual views and which forms are suitable for explaining the reasons for a collective decision”. Or, as Alan Blinder has put it in a discussion of individualistic policy-making committees, “a central bank that speaks with a cacophony of voices may in effect have no voice at all”. The results of the survey are broadly consistent with the propositions I put forward in my Mansion House speech last year.
At the same time, the number of households, whose deposits are guaranteed by the deposit insurance scheme, has increased six fold, to 2.4 million. In parallel with quantitative indicators, the Albanian banking sector has developed, has become more cutting-edge, and has marked significant progress in the range of bank products and payment instruments that it provides. Lastly, and equally important to the development indicators, this sector has proven resilient to shocks and – unlike many other experiences in regional countries – it did not need to use public funds. While highlighting, on the one hand, the progress made insofar, I would like to point out that the banking sector development – and of the financial system in general – has not been a linear one: it has constantly faced challenges of different forms and types. These challenges have required prudence as well as active, intelligent and courageous decision-making. I am confident that our combined experience may and will help us in future decisions. Therefore, I consider this conference as an excellent opportunity to reflect on certain challenges that we may face in the period ahead. First, let me present a brief overview of the economic and financial situation and development perspective for Albania. As we have repeatedly said, the Bank of Albania deems that the Albanian economy is set on a steady path of improvement of its cyclical position.

Government bonds were swapped for covered bonds issued by banks and normal lending activity was restored. However, this was not the first time the Government had used swaps to stimulate the real economy. We did so around 200 years ago...  A swap of government bonds for privately issued securities was used already in 1819 when Norway emerged on the scene as a sovereign country after the Napoleonic wars. The 1819bonds were swapped for bills of exchange issued by farmers and merchants in the domestic market. With these bonds as collateral they managed to raise sufficient credit to import seed to secure important supplies to farmers and merchants in this difficult period in Norwegian economic history. This is a historical example of how financial markets underpin economic growth. BIS central bankers’ speeches  1  More generally, financial markets contribute to economic growth in three ways:   They create credit to make it available for real investment.   They allocate credit to the most profitable investment projects.   And they improve risk sharing in the economy. The caveat is that they create the credit volumes that they find privately optimal, and allocate it to the projects that are most profitable to them. Neither the credit volume nor the credit allocation is necessarily socially optimal: this is one basic reason why financial markets are and should be regulated. The next question is: How strictly should they be regulated? When does regulation severely impair the positive effect from financial markets to economic growth?
This paradigm shift could jeopardize our independence and our mandate. Ultimately, it could lead to a loss of confidence in the value of the money, as observed in the past. In revisiting the interaction between monetary and fiscal policies, there is a need to make a clear distinction between short-run opportunities, corresponding to the current crisis period, and medium-term challenges, which will arise when the economy has fully recovered. In addition, in the euro area, having a single monetary authority and 19 national fiscal authorities creates further challenges in the absence of coordination among Member States on their budgets and of a permanent euro area fiscal capacity. This is why risk-sharing across the euro area should not rely only on fiscal mechanisms but also on private markets by completing the Capital Markets Union. In the short term, the risk of fiscal dominance is not an issue. Today, monetary and fiscal objectives are fully aligned and require expansionary policies from both sides. Fiscal policy can help monetary policy to achieve its inflation objective by boosting demand. Firms and households are encouraged to borrow in such an environment, which allows them to benefit fully from the monetary stimulus. Monetary policy can also render fiscal policy more effective. The dominant view is indeed that fiscal policy becomes more effective at the Effective Lower Bound (ELB) because monetary policy is less likely to react to offset its effects.

It is more extensive than the FOMC’s as it will cover, among many things, structural changes: climate change, financial stability; and the effects of digitalisation. The Eurosystem will take its time, as the Fed did, to consider the different alternatives. But we can already today shed some light on three key points, especially after the excellent “ECB Watchers” conference in Frankfurt on 30 September: 1. A dual mandate like the Fed’s and the ECB’s two-tiered mandate are actually more similar than they look. 2. There is some room for clarification in our inflation objective. 3. We should look again at the “second pillar” of the ECB and its possible link with the so-called “secondary” objectives. 1/5  BIS central bankers' speeches  1/ Our mandate puts a clear priority on price stability, and is not a dual mandate.
We have always been diverse, yet connected. I recall how amazed I was when, during my first visit to Portugal, two decades ago, I realised that in two countries located at the two ends of the European Union – Portugal and Romania (which were also the extremities of the Roman Empire) – a saying about the bare necessities of life sounds almost the same in the two languages. The sentence that really shocked me was the following: “In this house with a litre of wine and a kilo of beef, one cannot be dying of hunger or thirst”. This is not an exception, though. In Spanish and Italian, a lot of words are close to the 1/3  BIS central bankers' speeches  Romanian ones. A proof in this respect is that many Romanians have chosen to work or to live in those countries as they find it easy to adapt to the local culture and language. It’s like a home away from home. In the very heart of Rome, anybody can see Trajan’s Column, the monument commissioned by the Roman Emperor Trajan, born in Spain. It was completed in the year 113 AD and features a remarkable spiralling, sculpted bas-relief depicting the wars between the Dacians and the Romans. Trajan solved a budgetary crisis by crossing the Danube and entering Transylvania – the land beyond the forests in Latin (trans silvae) – to seize the gold of the Dacians. I wouldn’t say this would qualify as model behaviour nowadays.

I am very fortunate to have had the opportunity to chair the Committee during the period in which the PFMI were created. I recognize that this was just an initial step in the process, but it was an essential first step. Subsequent CPMI committees, under the leadership of Paul Tucker and Benoit Coeure, have been working with the other Basel Committees, the Financial Stability Board (FSB), IOSCO and individual country regulators to continue to take this effort forward. We have placed a lot of financial stability eggs in the FMI basket. It is important that we monitor and oversee that basket carefully. I would now like to turn the floor over to our first panelist, Claudio Borio. Claudio, the floor is yours, you have 10 minutes. Shari Bower, Caren Cox, Alex Merle-Huet, John Rutigliano, Johanna Schwab, Larry Sweet and Joseph Tracy assisted in preparing these remarks. 1  2  BIS central bankers’ speeches
That would imply an increase of around 1 trillion euros. There is considerable debate amongst economists and market participants as to whether the size of a central bank’s balance sheet is a relevant  2  BIS central bankers’ speeches  parameter; and, above all, whether it has an impact on inflation expectations. Let me give you my take on this. The statement by the Governing Council is not formulated as a firm commitment but as an expectation. Nevertheless, it is very significant. It should certainly be seen as a clear indication that further policy action, if necessary, will not be inhibited by any overall quantitative restraint or limit. This is all the more important that the Eurosystem balance sheet will be expanding whereas balance sheets of other central banks are bound to contract. Communication on the size gives a very concrete signal and content about future policy intentions. As such, it can only help in bringing expectations more in line with our definition of price stability. I will end up with two remarks on the relationship between monetary and other policies. First, when inflation is low, it matters whether nominal wages are rigid or flexible. Japan benefits from a high degree of wage flexibility. That is favorable to competitiveness, but may increase the economy’s vulnerability to deflationary pressures. By contrast, in Europe, and especially in France, nominal wages are fairly rigid and keep growing, even in the current context, at a robust 1.1% annual rate.

In turn, higher real interest rates tend to depress economic activity and bring even lower inflation. This is the kind of spiral, possibly leading to deflation that monetary policy must seek to control and avoid. The process may become even more self-sustaining if it negatively affects inflation expectations. Over the last months, inflation expectations in the euro area have dropped to 1.2% at a one-year horizon and 1.5% at a two-year horizon. More worrisome, long-term expectations – up to now extremely well-anchored around 2% – have been drifting downward. Markets currently expect an inflation rate of 1.8% on average between 2019 and 2024 in the Eurozone. Monetary policy therefore must aim at influencing both nominal interest rates and inflation expectations. This is exactly what we are currently doing in the Eurosystem. Let me explain how. First, on nominal interest rates: Policy rates are now close to zero (%). Negative interest rates have been imposed on the deposit facility. Forward guidance has been used to signal that rates will stay at those levels for a very lengthy period of time. A new liquidity facility, the “targeted very long term refinancing operation (TLTRO)” has been created, with a four-year maturity and, for the first time, a guaranteed fixed rate. Basically, banks are able to get a four-year funding for a 0.15% fixed interest rate. Most recently, the ECB Governing Council has decided a program of private asset purchases, for both covered bonds and ABS.
Prasarn Trairatvorakul: Connecting Thailand to the new investment frontiers – contribution of monetary and financial policies Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at “Thailand Focus 2013 – connecting to new investment frontiers”, Bangkok, 28 August 2013. *  *  *  Good morning, Distinguished Guests; Ladies and Gentlemen, I would like to thank the Stock Exchange of Thailand and Phatra Security and Bank of America Merrill Lynch as co-organizers for the invitation to address our distinguished audience on the topical issue of “Connecting Thailand to the New Investment Frontiers”. I also would like to extend a very warm welcome to our foreign guests and to thank you for your continued interests in Thailand and the region. Today I would like to discuss the roles of monetary and financial policies in supporting the Thai economy as we prepare ourselves for the new investment frontiers. Economic outlook and headwinds from volatility in global financial markets As you know, much has happened recently with events taking a complete 180 degree turn from the beginning of the year. It did not seem long ago when the EMEs were the fascination and destination of choice for international investors. But since May, global market sentiments have turned with the expectation of a scale back of the Fed’s asset purchases. This coincided with the concern over regional slowdown, initially starting with China, but lately moving to other South and South East Asian economies.

There is need for deeper collaboration between the public and the private sectors to position Thailand as an anchor or a hub for the region. Strategies for the private sector to ensure a durable growth strategy can best be summarized in terms of three moves; Move up, Move out and Move in. 1. Let me elaborate further. “Move Up” is a reminder for our firms and enterprises to raise their productivity to support the competitiveness of the Thai economy and in preparation for the upcoming economic integration. Moving up the value chain will enable us to differentiate our products, enhance its value, and to enable us to command the margins for our trade. Competing through cheap prices is no longer a viable and sustainable model, both for the firms themselves and for the resource-constraint economy. Our labour force is in much need of productivity upgrades through relevant education, training and apprenticeship. Although these are long drawn processes, the rewards and returns for the economy is more durable. Increasingly, we are seeing large Thai corporates working in close cooperation with the education bodies, in the recruitment and training, to ensure the necessary and relevant supply of skills for their businesses. 2  BIS central bankers’ speeches  2. The next strategy is “Move out” beyond the boundaries and the comfort of one’s own home market. Thai corporates can no longer wait for the transfer of knowledge and technology through FDI. They need to venture abroad to secure the resources, know how, franchise value or distribution channels.
With hindsight, information generation and processing was too reliant on a limited number of rating agencies, and there was too much confidence in the ability of individual rating agencies to solve the highly complex information problems underlying some securities. 22 Third, it is very hard to determine counterparty credit risk for state-contingent securities. In a world of full information, the state-contingent survival of counterparties would be known and nobody would accept contracts from those who could not honour them – at least not without a substantial price discount by way of compensation. But when investors cannot know the full network of exposures in the financial system, it is extremely hard to estimate  6  BIS Review 93/2008  where the ultimate incidence of losses from an extreme shock will occur. The failure of your counterparties’ counterparty can shift you up the queue of potential losers quite quickly. Moreover, the fear of potential counterparty risk itself quickly affects the behaviour of individual firms and thus leads to a collective lowering of risk appetite. 23 These problems are potentially the most acute for what might be called tail-risk products. During the boom, tail-risk products, like deeply out of the money options, seemed an easy way to make money. The protection seller could collect a steady stream of premia with the extremely unlikely prospect of having to make a very large payment. Since these sorts of contracts offer “deep” insurance, it is important to the system as a whole that they are held by the most robust institutions.

The more closely a specific financial instrument is matched to the risk preferences of an individual investor, the harder it is to find another investor willing to trade that exact instrument in the event of a shock to those risk preferences. 32 In other words, the improved matching of risk to an individual’s risk profile has given rise to an increase in basis risk within the system. As one illustrative example, any investor wishing to hedge any exposure to the US sub-prime mortgage market over the past year or so would have little alternative but to trade in the standardised ABX indices (which themselves have often been relatively illiquid) rather than in the specific instrument they held. The developments over the past year have illustrated that hedges have often provided less effective than envisaged, and that there was a significant under-pricing of the inherent basis risk of many innovative structured instruments at the point of origination, given the lack of secondary market liquidity for such specific risk. Looking forward, it is quite likely that there will be greater unbundling of complex instruments into standardised components that are likely to be liquid and readily traded with low transactions costs, and bespoke elements that will command a higher risk premium given their inherent illiquidity. 8  BIS Review 93/2008  Strengthening financial infrastructure 33 Because of the specificity of the risk, innovative financial products are rarely exchange traded. Non-standardised products require the services of a broker-dealer to trade.
However, since no central bank follows a specific reaction function mechanically, it would be misleading to present a single reaction function specified mathematically. Judgement is always applied when responding to shocks, and a specific reaction function will give a very simplified representation of the reaction pattern. There is thus a trade-off between misleading precision and uninformative generality. Norges Bank tries to balance this trade-off by applying various approaches to communicating the reaction pattern. 2  BIS Review 94/2008  First, the Bank presents alternative scenarios in the Monetary Policy Report. Chart 2 illustrates the interest rate response to a positive and negative shock to inflation respectively. The exact specification of the shocks in the illustrations can differ somewhat from one Report to another, but the shifts in the interest rate, and the corresponding scenarios for inflation and the output gap give an indication of how the Bank responds. The shifts are specified such that, if shocks of the same type and size should occur, the alternative interest rate path is the Bank’s best estimate of how the interest rate would be set in such a situation. In addition to presenting policy reactions to new developments, the Monetary Policy Report includes an account of the disturbances that have lead to a change in the interest rate forecast from the previous Report. For example, we see from Chart 3 that our interest rate forecast was revised upwards in the Monetary Policy Report 2 published in June. The shocks contributing to this revision are illustrated in Chart 4.

Before turning to the road ahead, I wanted to pause and recognize two things. First, it’s clear that progress has been made across the industry in a number of areas – particularly in making firms and the system more resilient through improvements in capital and liquidity, as well as enhancements in risk management, including capital planning and stress testing across the range of risks firms face. But, in the remaining two areas of the Framework– less complex and better managed – I think it’s safe to say that despite the fact that firms are addressing a number of outstanding issues, these areas continue to present challenges in reaching the desired end state. As I’m sure you would agree, we collectively still have quite a bit of work to do to fully implement the changes required under new rules and regulations. While it is important to take stock of the changes made over the past few years – first, to assess the impact of those changes, both intended an unintended; and, second, to understand the contours of the “new” financial system operating under a plethora of new rules and regulations, both national and global in nature – we must acknowledge that some of the changes necessary have yet to be fully implemented. We must continue to devote sufficient attention and resources to complete the efforts. And, firms and supervisors will continue to face challenges and competing demands as we press ahead on reform efforts in the coming months and years.