samchain/econo-pairs-v1 huggingface dataset:
Yves Mersch: Advancing Monetary Union Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Euro Exhibition, Osnabrück, 25 January 2015. *  *  *  Ladies and gentlemen, Euro banknotes and coins are not just a means of payment. The bridges and arches on our banknotes are a symbol of European integration. They stand for the fact that there is a lot which connects us within the Monetary Union, and that our once so divided continent has succeeded in overcoming these deep divisions, as the crisis has recently shown. Our common currency also therefore stands for shared values. “Stability of institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities” have been some of the accession criteria for membership of the EU since the European Council in Copenhagen in June 1993; “Membership presupposes the candidate’s ability to take on the obligations of membership including adherence to the aims of political, economic and monetary union.” 1 The recently published legal opinion of the Advocate General of the European Court of Justice in the case of Peter Gauweiler and the Die Linke party against the ECB on the Outright Monetary Transactions (OMT) programme also refers to these constitution-like shared legal values. This “constitutional compact” underlies European integration and includes the German constitutional principle of constitutional identity review – it does not exclude it.

There was a time back in history when it could have been claimed with some justification that HSBC, as it is now known, which then served as clearing bank to the banking system, wielded considerable influence over monetary conditions, but that capability was dismantled progressively, by the requirement introduced in 1988 for HSBC to hold a countervailing balance with the Exchange Fund, by the creation of the Hong Kong Monetary Authority in 1993, and by HKMA's subsequent assumption, in 1996, via the Exchange Fund, of the role of settlement institution for the local payments system. Government and Monetary Authority So, having dismissed the possible involvement of a number of other players, we are left with the clear conclusion that it is in essence the Hong Kong government which determines monetary policy. More specifically, the authority rests in the first instance with the Financial Secretary, since the Exchange Fund Ordinance places him in control of the Exchange Fund, which in effect provides the resources for  1  For a discussion, in lighter vein, of the relationship between HKMA and other central banks, including PBoC, see the Viewpoint article "Central Bank Cooperation", 8 November 2001, at www.info.gov.hk/hkma/eng/viewpt. BIS Review 31/2002  1  the conduct of monetary policy. He is, however, obliged to consult the Exchange Fund Advisory Committee in the exercise of his control of the Exchange Fund.
It speaks volumes that the Group has focused its work in recent years on effective governance, the role of supervision, and on conduct and culture. Each of the four remaining panels will address one aspect of the multidimensional nature of cultural change. •  In the first panel, we will hear about engagement with employees – especially those who are skeptical of the benefits or practicality of reform. •  In the second panel, we will discuss accountability – not only in the sense of being “held accountable,” but also in the broader sense of promoting responsibility and stewardship. I am particularly interested in designing incentives – both the carrot and the stick – that yield conduct aligned with the public purposes of banking. •  The third panel will focus on skill development – particularly on recruiting and training as levers for sustained cultural change. •  And the last panel will focus on leadership and industry collaboration. A prime element of leadership, within a firm and across the industry, is character – behavior anchored in values consistent with the public’s legitimate expectation of trustworthiness. Our keynote speaker today is Christine Lagarde, the managing director of the International Monetary Fund. Christine Lagarde has been outspoken in her view that “financial leaders [must] take values as seriously as valuation, culture as seriously as capital.” 9 This makes abundant sense to me – culture and capital each promote financial stability. Thank you for joining us.

One question on the minds of many in the official sector is, “what is the most effective way to promote reform?” Sharing ideas on leading practices, challenges and the opportunities for industry collaboration is a start – but it is not the end. Financial firms need to act on this information, and the official sector should hold institutions accountable for demonstrating sustained, observable progress. Overview of agenda Let me now give a brief overview of today’s agenda. The first panel will present the Group of Thirty’s recent report on banking conduct and culture, which calls for fundamental and  5  William C. Dudley, Ending Too Big to Fail, Remarks at the Global Economic Policy Forum, November 7, 2013. 6  Federal Advisory Council and Board of Governors, Record of Meeting, May 8, 2015. 7  William C. Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry, Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, October 20, 2014. 8  See, e.g., Mirea Raaijmakers, ed., Supervision of Behavior and Culture: Foundations, Practice & Future Developments, De Nederlandsche Bank (2015). 2  BIS central bankers’ speeches  sustained change. As you all know, the Group of Thirty is a forum consisting of senior public officials and private sector bankers. Its purpose is to facilitate non-partisan discussion of issues that threaten global economic stability and economic progress.
The Riksbank's former scientific adviser Eric Leeper said in a report that an excessively tight fiscal policy may have contributed to the Riksbank's problems in bringing up inflation after the global financial crisis.40 I think this shows that some form of information exchange between monetary and fiscal policy may be desirable in certain situations. I also note that the conclusions of the recent review of the Reserve Bank of Australia go in this direction.41  Scope for exchange of information In a speech to the Swedish Economic Association a few years ago, my predecessor Stefan Ingves raised the issue of exchange of information in cases where monetary policy's room for manoeuvre is limited by the policy rate being close to the lower bound.42 He gave two examples of how the exchange of information could take place. The Riksbank could publish scenarios in the Monetary Policy Report that illustrate both the limitations of monetary policy and the effects on inflation of a more expansionary fiscal policy. The Ministry of Finance can then decide to what extent they want to take the information into account. The Riksbank could also directly inform the Ministry of Finance if it considers that a more expansionary fiscal policy is needed to fulfil the inflation target without the need to take overly drastic monetary policy measures. The Riksbank conducts monetary policy independently to achieve low and stable inflation. This is important for maintaining confidence in the inflation target.

This intensification of concerns has raised the  BIS central bankers’ speeches  1  threat of contagion from these countries, and the consequent financial market developments that have affected several other European countries have added to the risk of a spill-over to the largest European banking systems, including our own. So far, the threat has been limited. An important reason for this is that banks have done the right things over the last two years, namely to focus on their resilience by refinancing debt at longer maturities and raising their buffers of capital. It is hard work in an environment that is still affected by the crisis, but there is no doubting that it is the right thing to have done and continue to do. Sound banking is about having a strong capital base and a funding profile in terms of maturity that can withstand the sorts of shocks in the world that will happen from time to time. It is not about expanding your bank rapidly and funding the growth in the overnight money market. This need for adjustment also explains why at the Bank we are sticking firmly to the plan to allow the Special Liquidity Scheme to run-off on time a year from now. Over the last twelve months, banks have taken the necessary steps to move towards that goal.
On the other hand, it would make greater demands of our analysis, in order to understand the various steps in an ongoing process of change, whether we put the label of ‘new’ or ‘new and old’ on parts of this process. 5  BIS Review 93/2000

In Norway and other countries, the period of very high and variable inflation and high inflation expectations was interrupted towards the end of the 1980s. We have seen the benefits of this in the 1990s and thus far in this decade. The effects of persistently high oil prices and the generally strong rise in commodity prices internationally cannot be compared to the experience of the 1970s and 1980s. Monetary policy is now delegated to central banks whose objective is to maintain low and stable inflation, and which are not of the view that there is a positive trade-off between inflation and economic growth in the long term. Inflation expectations are entrenched at a low, stable level. Even though inflation during the past 15 to 20 years has been under control, consumer price inflation has nevertheless in periods varied somewhat from one month to the next. A large portion of the variations may be explained by tax changes and variations in energy prices. These fluctuations have generally had transitory effects on the CPI. When assessing actual price inflation in the recent past, in the present and in the near term, we do not take account of the rise and fall in individual prices, but we look at whether the general price level in the economy exhibits a persistent increase. Indicators of underlying inflation seek to reduce or exclude movements that are due to temporary disturbances and that should be disregarded when the interest rate is set.
But when the landscape is dark and threatening, those charged with making monetary policy must comport themselves with a grace that reassures markets and the public that they are calmly in control of the sacred charge with which they have been entrusted. They must keep their “cool” even when the vast, infinite cry of the money changers reaches a fevered pitch, the economic seas are blue-black and the clouds in the financial markets are red as blood and tongues of fire. Presenting an image comparable to that of the visage depicted by Edvard Munch – of policymakers trembling with anguish at the daunting demands of their profession – would provide scant comfort to those who depend upon them to maintain their composure and skate ably across a cold and foreboding economic landscape, seeking to guide the economy to a better place. Central banks are just one vehicle for influencing overall macroeconomic behavior, in addition to influencing through regulation the microeconomic agents that transmit that influence to the markets – banks of deposit and other financial institutions. We work alongside another potent macroeconomic lever: fiscal authorities – governments that have the power to tax the people’s money, spend it in ways they deem appropriate, and create laws and regulations that influence microeconomic behavior. Unless fiscal authorities can structure their affairs to incent the private sector into putting the cheap and ample money the Fed has provided to the economy to work in job creation, monetary policy will prove impotent.

There is in the marketplace a lingering fear that the Fed has already expanded its balance sheet to its stretching point and that an exit strategy, though articulated, remains theoretical and untested in practice. And there is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress. I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington. Raeburn versus Munch There is no question that these are worrisome times: The world economy is slowing, joblessness is rampant in many countries, and in the United States, growth is anemic and unemployment remains unacceptably high. To me, this means that the Fed, and all central  BIS central bankers’ speeches  5  banks, must keep their heads about them and not give in to the convenient recommendations of those who are given to solving all problems with monetary policy. If only for your visual pleasure, I have chosen two paintings anybody in the vicinity of St. Andrews and Edinburgh would know, in order to illustrate alternative approaches to central banking at this juncture. The first is an icon of Scottish culture: Sir Henry Raeburn’s depiction of The Reverend Robert Walker Skating on Duddingston Loch, a seminal work in the permanent collection of the Scottish National Gallery and a favorite of mine since I first saw it some 30 years ago.
As a consequence, products manufactured in these countries become more expensive and such countries loose competitiveness (e.g. Estrada, Lopez-Salido 2001). It is relatively difficult to foresee how the Polish economy will react to demand pressures once in the euro area. However, as in the case of asymmetric shocks, labor market flexibility is probably the best answer to the described phenomena. It allows a smooth and relatively painless adjustment if the economy looses competitiveness. Summing up, I have discussed selected aspects of the cost-benefit analysis of Poland’s adoption of the euro, with a special focus on issues which are less familiar to the general public. As I argued, some costs will materialize if asymmetric shocks hit the enlarged eurozone. We do not know the likelihood of such shocks though, so it is impossible to calculate the expected value of costs related to these events. We know, however, that the probability of asymmetric shocks declines with rising similarity or progressing real convergence of the EU economies. Let me also stress that the magnitude of costs depends crucially on domestic policy – prudent banking sector supervision, labor market reforms and sound fiscal policies to name a few. Adoption of proper policies reduces future potential costs related to euro-zone membership and, at the same time, enhances future benefits. In my view, given the evidence that reforms have been halted in many countries after entering the eurozone, these measures should be taken before the euro area accession. Thank you for your attention. References: 1. Borowski J. 2003.

European Commission (2002), Report by the Economic and Financial Committee (EFC) on EU financial integration, European Economy, Economic Papers No 171, May 2002, European Commission, Directorate-General for Economic and Financial Affairs 12. Fidrmuc J., Korhonen I. 2001 “Similarity of Supply and Demand Shocks between the Euro Area and the CEECs”, BOFIT Discussion Paper No. 14. 13. Financial Times “EU’s grim climate change”, 6 January 2007. 14. Fratzscher, M. (2001), “Financial market integration in Europe: on the effects of EMU on stock markets”, ECB Working Paper No. 48 15. Galati, G., Tsatsaronis, K. (2001), “The impact of the euro on Europe’s financial markets”, BIS Working Papers No 100, July 16. Giannetti, M., Guiso, L., Iappelli, T., Pagano, M. (2002), “Financial market integration, corporate financing and economic growth”, European Economy, Economic Papers no 179. 17. Gourinchas, P.O., Valdes, R., Landerretche, O. 2001. “Lending Booms: Latin America and the World”, NBER Working Paper 8249. 18. Kenen, Peter B. (2002) “Currency Unions and Trade: Variations on Themes by Rose and Persson” Reserve Bank of New Zealand Discussion Paper 2002/08. 19. Kiss, G., Nagy, M., Vonnák, B. 2006. “Credit Growth in Central and Eastern Europe: Convergence or Boom?”, WP 2006/10, Magyar Nemzeti Bank. 20. Micco, A., Stein, E., Ordonez, O. 2003. “The Currency Union Effect on Trade: Early Evidence From EMU”, Economic Policy, 316-356. 21. NBP 2004. “A Report on the Costs and Benefits of Poland’s Adoption of the Euro”, ed. J.Borowski, National Bank of Poland 22.
The first shortcoming of this paradigm is its inability to explain and recognise the importance of financial frictions and the role of money. Money is at best ignored – and at worst derided – as a redundant and unnecessary complication. This has to do with the fragile theoretical foundations of the mechanisms which – in this paradigm – account for the connection between the real economy, financial imbalances, and the state of confidence and inflation. This disregarding of money goes hand-in-hand with the assumption of the absence of risk. The mainstream model excludes default. If assets are formulated at all, they all net out. No risk generated in the financial sector can affect the real economy. The financial crisis has clearly exposed the flaws in this assumption. It has led to a misapprehension of the root causes of the crisis and its propagation mechanism. Liquidity and money are key for the ECB’s monetary policy strategy. Far from showing that the ECB’s strategy lacks theoretical foundations, the crisis has borne out our broad-based approach and exposed the incompleteness of the transmission mechanism in the reference model. The second shortcoming of this paradigm is its undue focus on small economic fluctuations around benign states of the economy. This left economists unprepared in terms of being able to predict the crisis and its impact. Third, the paradigm rests on the built-in assumption that the announcement of an inflation target automatically yields credibility.

Eesti Pank concentrated on stabilising the economy and on earning and maintaining confidence in the Estonian currency. Today the European Union and its member states are Estonia’s main partners both economically and politically. Working together with the European System of Central Banks has become a matter of course for Eesti Pank, be it in monetary policy, financial stability or economic analysis. We are in an unprecedented position to engage in defining the economic world around us, and our input is listened to. Evidently there are limits on how much a small country can contribute in the functioning of the European Union, because smaller countries have fewer resources. But we can widen  BIS central bankers’ speeches  1  those limits by making the best use of our resources, by learning from our own experience and that of our partners, and by working well together. Working together is particularly important right now, at a time of geopolitical tensions in and around Estonia and of deepening insecurity. It is right now that we need to find the ideals, the ideas, and the goals that can bring us together, and we must work together to achieve them. I wish us strength and good luck in all of this. Thank you again. 2  BIS central bankers’ speeches
Against a background of firm growth and a limited margin of spare capacity, and with inflation above the target, the MPC judged last week that an increase of 0.25 percentage points in Bank Rate was necessary to keep CPI inflation on track to meet the target in the medium term. So that is where we are now. Where will interest rates go next? I do not know. And the reason I do not know is that we do not take our decisions in advance, but wait to see how the economy unfolds and then take our decisions one month at a time. The Black Country is where it all began. But now we must look to the future. The Black Country has entered a new era. And you are making it happen. I have explained how the MPC sees the prospects for the economy. If we can retain the degree of stability that we have seen now for more than a decade, then you will have the opportunity to start and expand businesses that will compete for Black Country business awards in the years to come. The winners tonight are shining examples, and I know you are all looking forward to finding out who they are. It has been a pleasure to come back to where it all began for me. And, whether or not you are one of the lucky few to win an award tonight, I wish your business every success. 2  BIS Review 112/2006

0.2 0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 Mar 2015  Chart 22: Term structure of inflation swap forward rates  5th to 95th percentile (2009-13) Interquartile range (2009-13) Unconditional mean (2009-13) Latest  Per cent 4.5 4.0 3.5 3.0 2.5 2.0  2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years ahead  Sources: Bloomberg and Bank Calculations. Notes: Unconditional distribution from a parametric factor model using data from January 2009 to August 2013. Data from May 2012 to January 2013 are excluded due to uncertainty about proposed changes in RPI methodology, which temporarily affected expectations of the RPI-CPI wedge. On either measure, inflation expectations have fallen over the past year at all horizons. At longer-term horizons, that is difficult to reconcile with global disinflationary trends having been the result of one-off falls in global prices. Measured expectations suggest that lower inflation is expected to persist. To the extent this affected wage and price-setting, those expectations could become self-fulfilling. A number of plausible explanations for a shift in longer-horizon inflation expectations are possible. One is greater slack in the economy than is currently assumed in the MPC’s central projections. A second is doubt about the ability of monetary policymakers to boost inflation – for example, because of the constraint of the zero lower bound on interest rates. A third explanation is greater expected persistence in low global price pressures.