samchain/econo-pairs-v1 huggingface dataset:
When I attend conferences and seminars at other central banks, my foreign colleagues often assume that such a policy must have been tremendously popular. Indeed, the economics behind it is straightforward, and the resulting boost to peoples’ wages is hard to deny. In spite of that, the exchange rate commitment caused the sharpest ever deterioration of public confidence in the Czech National Bank: from around 75% to around 50%. Confidence only recovered after the commitment was terminated. These were precisely the times when its hard-won independence had to be put to work. Thus, central bank independence built into the country’s law code is a treasure without which price stability is rarely possible. But equally important is the perception of independence by central bankers themselves. This perception, in turn, depends on the compatibility of the monetary policy regime with the preferences of the population. It is often overlooked, however, that central bankers have an impact on these preferences. Rhetoric matters a great deal, and communication is now one of the most potent tools of monetary and other policy. True, enhancing financial literacy and altering public preferences in the process is a thankless, tiresome, long-term job, one that is often only appreciated years or even decades later. The man responsible for instilling a low-inflation mentality in Czechs, Alois Rašín, was shot dead in 1923 by a young communist. At that time, Rašín’s policies were very unpopular among some groups of the population.

But nowadays his legacy underpins the thinking of Czechs about inflation, for better or worse, and through that, the stability of the Czech currency. Thank you for your attention. References: Ichiro Iwasaki & Akira Uegaki, 2017. “Central Bank Independence and Inflation in Transition Economies: A Comparative Meta-Analysis with Developed and Developing Economies,” Eastern European Economics vol. 55(3), pages 197–235. Thomas J. Sargent, 1982. “The Ends of Four Big Inflations,” NBER Chapters, in: Inflation: Causes and Effects, pages 41–98, National Bureau of Economic Research, Inc.  2/2  BIS central bankers' speeches
And ultimately delivering low and stable inflation is the best contribution monetary policy can make to achieving a robust and sustainable recovery. The trade off between growth and inflation Let me turn now to the second issue I wanted to discuss today which concerns the operation of monetary policy and, in particular, the likely trade-off between growth and inflation in the current environment. As I said, in February the MPC made clear that we thought it appropriate to bring inflation back to target more slowly than usual in order to support the nascent recovery. But is there a case for monetary policy going even further? What if, as some commentators have claimed, it were possible for the MPC to inject additional monetary stimulus, thereby providing even greater support to growth, with relatively little consequence for inflation. Stronger growth with little or no higher inflation: surely that would be a good use of the MPC’s flexibility? There are two strands of argument put forward as to why the current trade-off between growth and inflation may be unusually favourable. The first is that cost and price pressures in the current environment may be relatively insensitive to the degree of slack in our economy. If that were the case, the economy could grow relatively rapidly, absorbing spare resources and capacity, without putting much upward pressure on wages and prices. In economists’ speak, the so-called Phillips curve – which sketches out the relationship between spare capacity and cost and price pressures – may be relatively flat at the moment.

McCafferty, Ian (2013), “Monetary policy in a changing economy”, speech given at Bloomberg, London, available at: http://www.bankofengland.co.uk/publications/Pages/speeches/2013/627.aspx Monetary Policy Committee (2013), February 2013 Inflation Report, available at: http://www.bankofengland.co.uk/monetarypolicy/Pages/framework/framework.aspx Monetary Policy Committee (2013), Minutes of the February 2013 MPC meeting, available at: http://www.bankofengland.co.uk/publications/minutes/Pages/mpc/default.aspx Oulton, N and Sebastía-Barriel, M (2013), “Long and short-term effects of the financial crisis on labour productivity, capital and output”. Bank of England Working Paper no. 470 and Centre for Economic Performance, Discussion Paper no. 1185. Available at: http://www.bankofengland.co.uk/publications/Documents/workingpapers/wp470.pdf Tucker, Paul (2012): “Competition, the pressure for returns, and stability”, speech given at the British Bankers’ Association Annual Banking Conference, London, available at: http://www.bankofengland.co.uk/publications/Pages/speeches/2012/611.aspx  8  BIS central bankers’ speeches  Annex: Charts  BIS central bankers’ speeches  9
1990 = 100 350  350  300  300  250  250  200  200  150  150  100  100  Finance and insurance Mainland Norway  50 1990  50 1994  1998  2002  2006  2010  2014  Sources: Statistics Norway and Norges Bank  In parallel, banks’ branch networks have changed. In 1987, there were almost 200 bank branches in Oslo, while today there are fewer than 40. This has cut costs substantially for both banks and the general public. Our payment system is now among the world’s most modern and cost-efficient. 4 Salvanes, K.G. (2017): “Omstillingsevnen i norsk økonomi under finanskrisen” [The adaptability of the Norwegian economy during the financial crisis], Arbeidsnotat 2017/7, Ministry of Finance (Norwegian only). 4  The payment system is facing an era of change. Use of cash is on the decline, while deposit money is becoming available in ever newer forms. The next innovation is instant settlement, which will make it possible to transfer funds from one account to another immediately, regardless of amount. Maybe your car purchase can be paid by pressing “send” on your mobile phone and, at the very same instant, the seller can safely hand you the keys. Norges Bank Economic perspectives 15 february 2018  Banks continue to play a dominant role in the payment system, but there are clear signs that their position can be challenged. New regulations and technology are making it easier for new participants to take market share.

I do accept, however, that the BES case has served as a reminder that there are risks beneath the surface in the European banking sector, and I am convinced that  BIS central bankers’ speeches  3  the Single Supervisory Mechanism will be able to examine the financial health of the institutions in depth. Q: Could something similar to the BES case happen in other countries? A: This is always a possibility. Risks are inherent in banking activities. The only solution is a robust management framework within each bank and on a European level, coupled with instruments such as the Single Supervisory Mechanism or the Single Resolution Mechanism, which will be available in case of crisis. Q: Some analysts are comparing the situation in the euro area to that in Japan. A: I would imagine that they are referring to the situation in Japan in the 1990s, rather than to present-day Japan. At that time, Japan did not have anywhere near as expansive a policy as ours and it did not have the definition of price stability that we have to anchor inflation. Its approach to the financial sector was also different, as we have banking union, resolution rules, stress tests, etc. To put it plainly, European supervisors, in particular the ECB, are not going to allow European banks to turn into zombie banks lending to zombie businesses, as was said in the case of Japan in the 1990s. Q: I understand that you met with Syriza, an aspirant party for government in Greece.
The Federal Reserve’s role is to ensure that the institution has the necessary strong processes in place to achieve this objective. As risks emerge, supervisors intervene, within the realms of their safety and soundness mandates, to require that banks take corrective actions as necessary. Supervision can reduce the chance that a financial firm fails, but it can never provide a guarantee against failure. Supervisory policies have undergone important changes over the past few years, especially in the context of the largest financial institutions. Banking supervision no longer focuses solely on the safety and soundness of individual institutions – so-called micro-prudential supervision – but now also focuses on the implications for financial stability more generally. The evolving supervisory framework has resulted in a number of organizational changes in the way supervision is conducted at the New York Fed and in the Federal Reserve System more broadly. A very important change in the Federal Reserve System is that supervision of the largest, most systemically important financial institutions are now coordinated across districts through the Large Institution Supervision Coordinating Committee (LISCC). The LISCC is a System-wide committee, chaired by the director of the Board of Governors of the Federal Reserve’s Division of Banking Supervision and Regulation, and composed of senior officers at the Board and Reserve Banks. In addition, the Federal Reserve has instituted three major horizontal evaluations, which are a key element of the new enhanced supervisory framework for large banking companies.

Across all of the episodes of market distress in the emerging world over the past two decades, an essential element of heading off or minimizing damage from a crisis has been policymakers showing that they "get the message" about the need for reform, and are prepared to take appropriate measures. §  In this regard, the comparative advantage of the international public sector is in guiding economic and financial policy, and fostering the conditions that will facilitate the restoration or maintenance of voluntary credit and investment flows. IMF support should provide an unambiguous signal of the international community’s confidence in the capacity of crisis-affected countries to take the measures necessary to restore economic health. §  This role is particularly important in unfolding crisis situations, because borrowing country authorities too often are slow to recognize the full dimensions of the policy challenges confronting them, and the private sector is ill-equipped to deal with this. A case-by-case approach by definition is supremely tactical, but it also needs to be strategic in orientation if it is to be successful in the longer run. I would like to highlight several ways in which the case-by-case approach needs to be strategic. G  First off, strategy needs to be informed by a long-run view about the case at hand. The emphasis should not be merely on "working out" the problems at hand, but on "working through" them.
This action was taken within a scenario where some of the risks foreseen in March had materialized, and others had dissipated. In particular, as I will review shortly, output grew above expectations during the first quarter, so we are revising upward its annual expansion rate from our March estimate. In contrast, commodity prices have shown a more benign behavior in external markets, as they ceased to increase and posted some declines in the margin for oil prices and some food items. In our June meeting (last week), we slowed the pace of MPR increases, taking it to 5.25 percent. In addition, we said that, in the most likely scenario, further increases in the MPR would be necessary, the timing of which would depend on the incoming information and its implications. Changes in monetary policy operate with lags on output and inflation. In the baseline scenario, which I will be presenting in a few moments, the full transmission of the monetary stimulus withdrawal will help in moderating the current economic dynamism and stabilize it near the growth rate trend, contributing at the same time to help inflation stand at three percent over the projection horizon. But the risks are still there. So let me describe the factors that shape our baseline scenario and the risks that might affect it. Macroeconomic scenario Headline inflation is still around three percent annually, while core measures, although on an upward trend, continue to be contained, both below March’s forecasts (figure 1).

In the case of banks, there is also an increase in their external debt. It is worth noting, however, that this has not been associated to larger currency mismatches in the banks’  BIS central bankers’ speeches  5  balance sheets, nor to increased credit in foreign currency to firms whose income is in pesos. The maturities of such debt have been extended, contributing to the solid situation of the banking industry, despite the increase in lending activity. Finally, on aggregate, the indicators of international solvency of the Chilean economy – such as the net international investment position and the current-account deficit – remain stable with a marginal improvement of the liquidity position. Overall, in the scenario we estimate today to be the most likely, the Chilean economy will operate in a favorable context. Risks persist, however, that must be taken into careful consideration, both because of their implications for monetary policy making and because of their associated risks for our economy’s financial stability. Now let me make a few remarks. Final remarks The Chilean economy has recovered strongly from the 2009 recession, and the different variables are beginning to converge to their estimated equilibrium levels. Output gaps are closed, unemployment is down, and trend inflation remains below the lower limit of the target’s tolerance range, but gradually approaching three percent. Thus, the monetary policy rate should be around its neutral level, neither increasing nor reducing aggregate demand with respect to its trend.
The micro-economic evidence discussed earlier suggests these effects are difficult to detect and, to the extent they do exist, might be relatively modest in the contribution they have made to slowing aggregate investment and productivity growth. And if higher markups have, in fact, been the counterpart to a rise of ‘superstar’ firms, benefiting from network economies, that would, in principle, raise productivity growth and r*. A second structural parameter in the IS curve is the interest elasticity of aggregate demand, 𝜎. In the simplest baseline model, this is determined by (the inverse of) the intertemporal elasticity of substitution. In more general settings, with credit constraints, it may depend additionally on the balance sheet characteristics either of borrowers or lenders or both (for example, Kashyap, Stein and Wilcox (1993)). A rise in market power could, in principle at least, affect the balance sheets of borrowers and/or lenders in ways which could influence 𝜎. For borrowers, a rise in market power might raise equilibrium profit rates and market valuations. It may thus reduce companies’ collateral constraints and their reliance on external sources of finance (for example, Bernanke, Gertler and Gilchrist (1999)). For lenders, a rise in market concentration could in principle reduce the speed of pass-through of policy rates to retail deposit and lending rates (Gerali et al (2010)). Each of  24  Equation (9) is specific to the Galí model presented here, but equation (10) is a more general feature of macro-economic models, where r* is a function of the household discount rate and productivity growth.

Despite the significant shifts in macro-economic relationships and in policymakers’ preferences arising from a rise in market power, the net effect on the (level and variability) of the optimal interest rate path is more modest. At root, that is because of the trade-off inducing nature of mark-up shocks. Third, the presence of market power and higher mark-ups also has implications for the level of output in the economy which could provide additional incentives to generate inflation. Monopolistic competition implies that output is inefficiently low relative to its (perfectly competitive) social optimum. For sufficiently small deviations from the steady state, the policymakers’ loss function can be re-written to reflect that inefficiency:  16  All speeches are available online at www.bankofengland.co.uk/speeches  16  𝐿𝑡 = 𝜋𝑡2 + 𝜆𝑥𝑡2 − Ʌ𝑥𝑡  (14)  where  Ʌ=  1 (1 − 𝜃)(1 − 𝛽𝜃) 1−𝛼 2 𝜖 𝜃 1 − 𝛼 + (𝜍 + 𝜑)𝜖  (15)  The optimal targeting rule is also then altered to become:  𝜋𝑡 =  1 𝜑 + 𝛼 −1 1 −1 (𝜎 + ) − 𝑥𝑡 𝜖2 1−𝛼 𝜖  (16)  The additional constant term reflects the well-known inflationary bias under discretionary policy, first articulated by Barro and Gordon (1983). Output at a sub-optimally low level increases the incentives of a discretionary policymaker to run looser monetary policy to push output towards its social optimum, thereby generating an inflation bias.
This is the paradox of policy at present – almost any policy measure that is desirable now appears diametrically opposite to the direction in which we need to go in the long term. Spending now supports the economy, but in the long run we need to save more and borrow less. Public borrowing sustains spending, but in the long run needs to fall. Banks are encouraged to run down their capital to enable them to absorb losses while continuing to lend, but in the long run they will need more  BIS Review 8/2009  3  capital. Interest rates have fallen to unprecedented levels, but in the long run will need to rise to more normal levels. In each area of policy it is important that there is a clear framework which guides both the short-term response to the current downturn and the exit strategy when normal conditions return. For monetary policy, the inflation target is that framework. Bank Rate is set to meet our target of 2% for the twelve-month rate of consumer price inflation. For a decade inflation and Bank Rate were remarkably stable. But in only four months, the MPC has cut Bank Rate by 3½ percentage points to its lowest ever level of 1½%. Does this mean we have changed our target? No. We have taken those actions precisely because the sudden downturn in the world and UK economies created a significant risk that inflation would fall below the 2% target.

According to this methodology, spillovers from the euro area accounted for around half the variance in US Treasuries for most of 2015. And these spillovers have been regaining momentum since mid-2017. Strong correlation between international asset prices therefore doesn’t necessarily result from a common shock. Indeed, in the light of the strong idiosyncratic forces that have increasingly driven a wedge between the monetary policy cycles of advanced economies in recent years, portfolio rebalancing by private investors due to domestic shocks is likely to have increased over time. A dominant chase for yield by private investors, in turn, also distinguishes the current situation from that in 2005 and 2006, which was the last time global yield curves were unusually flat. Back then, purchases by foreign official institutions – themselves often reflecting large current account 3/7  BIS central bankers' speeches  surpluses in certain parts of the world – coincided to drive down long-term yields in the United States, whereas official investors have been net sellers of US long-term Treasuries over the past couple of years. You can see this clearly on my next slide. To the extent that private capital flows are more volatile, the ECB’s November 2017 Financial Stability Review noted the risk of a sudden repricing in fixed income markets should investors decide to rebalance their portfolios. Low inflation risk and bond term premia This brings me to my second factor.
We believe that effective IT governance process will enable financial institutions to effectively utilize their technologies to meet business' expectations and to add value to their business. In that way, IT will truly help the organizations to improve competitive advantage, customer satisfaction, cost efficiency, and ability to grow and innovate the business. Eventually, it will help financial institutions to realize better return on investment in technology infrastructure. Independent audit and review A financial institution is required to have IT independent audit and review all IT related areas to ensure that the board and management emphasize IT as a key business driver. IT controls are evaluated and those having a material impact on financial processes are specially focused. The assessment of these controls should be conducted on a regular basis. In Thailand, we require financial institutions to perform IT audit at least once a year. In addition, we also require an independent assessment of internet security. Now, let's turn to operational risk. Operational risk Supervisory objective In operational risk supervision, supervisors have to ensure that financial institutions have adequate security measures, data integrity process and contingency plans in place. Supervisory areas The focal point when we evaluate operational risk regarding IT is to ensure a financial institution establish adequate control mechanisms in IT process and procedure. The control can be done either technically or manually, or both. Segregation of duties is an example of manual control which should be maintained especially for critical functions or processes to prevent fraud.

This group is responsible for promoting the consistency and quality of implementation of the New Accord and facilitating the exchange of information among national supervisors about bank and supervisory practices. Through the AIG, senior line supervisors - that is, the people who actually assess banks’ risk profiles - are seeking ways for examiners to validate and supervise internal risk assessment processes in a more consistent fashion across jurisdictions. Implications of Basel II on the supervisory approach We’ve also continued to think about how we should adjust our method of supervision to incorporate the tenets of the new framework, which brings me to the third and final area that I would like to address today. Naturally, allowing banks to rely on internal models in determining their capital requirements has led, and will continue to lead, to changes in our supervisory process. Fortunately, we have the benefit of some experience already at our side. In 1996, under the “market risk amendment” to the original Basel Accord, qualifying banks with large market risk positions were first permitted to incorporate internal estimates of the associated risk in their regulatory capital requirements. When determining whether a bank may rely on its market risk model for capital purposes, our examiners have had to evaluate the technical underpinnings of the model, as well as the risk management and control processes surrounding its implementation and use.