samchain/econo-pairs-v1 huggingface dataset:
However, these large deviations from our definition of prices stability (an annual inflation rate below, but close to, 2%) have been short lived. In line with the theoretical underpinnings of our monetary policy strategy, at the long-term horizon, the impact of all non-monetary shocks on inflation dissipates, so that inflation comes to be uniquely determined by money supply. It is for these reasons that the central banks bear the ultimate responsibility for inflation. This leads me directly to the sixth and final principle, pertaining to the crucial role played by the institutional framework for the conduct of monetary policy. If central banks are, de facto, ultimately responsible for keeping inflation low and stable, such responsibility ought to be clearly enshrined in institutional frameworks for the conduct of monetary policy. In this respect, a key virtue of the Euro area’s framework is that it clearly assigns the European Central Bank that primary responsibility. Let me now turn to the lessons we learned from the crisis. II. Lessons from the crisis and implications for policymaking  Although the financial crisis did not invalidate the just-discussed general principles underlying the conduct of monetary policy during the pre-crisis years, it nonetheless presented policymakers with several sobering lessons, calling for changes in both the intellectual framework surrounding monetary policy, and specific aspects of policymaking. 2  2  On this see Papademos and Stark (2010), Section 4. BIS central bankers’ speeches  II.1.

Adaptive compliance – adding speed and agility to process and procedure  Over the past 20 years, as ethics and compliance has moved through infancy and into early childhood, we have become committed to the process and procedure that is emblematic of a program. There is much about this progression that is good. The building of compliance programs has produced real benefits,5 and these benefits have created the compliance profession. There is a risk too. The risk is that the process and procedure that is the substance of the compliance program will become a kind of iron cage, restraining innovation so that the organization cannot adapt to changing circumstances. In short, the process and procedure can stifle speed and agility. One place where this has occurred recently is in financial services. Some institutions witnessed some malefactors violating the law and engaging in anti-competitive practices with respect to the setting of the Libor rate. Those institutions responded to very specific rate fixing abuses, but they did not envision that the abuses with respect to Libor could also be occurring in other businesses, like foreign exchange. Compliance, in this particular instance, was not adaptive. Compliance professionals, in this instance, did not show the needed speed and agility. They did not reason along the lines that “if it is happening concerning Libor then it might be happening concerning foreign exchange.” As compliance becomes increasingly routinized and subject to what the consultants would call the “repeatable process”, the process can have a tendency to drive out creative thought.
The effect would then be in practice the same as if the target had been lowered to 1 per cent. With a lower expected rate of inflation the nominal interest rates in the economy, including the repo rate, will on average be lower. This means that in future economic downturns the distance between the repo rate and the lower bound may be smaller than before. If the repo rate hits its lower bound earlier, and remains there for longer periods, it will be a less effective tool in counteracting economic downturns. It will be even more difficult than it is now to bring down the real interest rate as low as one might need. The essence of this is that “preventive” increases in the repo rate would ultimately not result in more ammunition, but less. It is therefore important that increases in the repo rate are not made in such a way that inflation will be tangibly lower and confidence in the inflation target is put at risk. Cut the repo rate further? Another possible means of counteracting an economic slowdown is to cut the interest rate more than to the −0.5 per cent level which has so far been the lowest point. It may be possible to go even lower − for instance, the policy rate in Switzerland is at −0.75 per cent. But personally I think the possibilities here are fairly limited.

One advantage put forward on the basis of this is that a nominal growth target can provide a desirable adjustment even to more long-term  29 See Cecchetti and Schoenholtz (2017). For a more detailed review of different types of criticism, see Yellen (2015) (footnote 14) and Bernanke (2017b). 30 Summers (2018). However, it is interesting to note that one of Summers’ arguments in favour of a target for nominal GDP growth (of 5-6 per cent) is that it: ”would attenuate the issues around explicitly announcing a higher inflation target, which I think are a little problematic on political economy grounds”. Examples of other advocates are Scott Sumner and Jeffrey Frankel (see, for instance, Sumner, 2011 and Frankel, 2012). Another variation on this is that the target should instead concern the level of nominal GDP. For a discussion of this and other target definitions that I do not take up here, see Andersson and Claussen (2017). 31 Inflation is in this case measured according to the so-called GDP deflator. 14 [24]  changes in the economy. If, for example, the growth potential declines, it is probable that the neutral real interest rate will fall. But the lower growth potential means that with a nominal growth target one also has a higher implicit inflation target, which in turn should make it easier to attain a negative real interest rate and an expansionary monetary policy in situations when this is needed. The effect would thus be similar to the increase in the inflation target I talked about earlier.
If we focus adequate political capital on the factors within our control,  4  BIS Review 3/2006  we will have more credibility internationally in encouraging policy changes outside the United States that might reduce our collective risks in the adjustment process ahead. What does this mean for monetary policy? Monetary policy itself cannot sensibly be directed at reducing imbalances, but the past and future evolution of global capital flows will of course matter for monetary policy by virtue of their impact on the outlook for output and inflation. For example, the forces that seem to be supporting an unusual level of capital flows into the United States may be materially dampening the level of forward nominal and real interest rates, and other things being equal, this would tend to produce higher levels of demand growth than would prevail in the absence of those factors. Thus, the factors that have contributed to this pattern of external imbalances complicate the task of judging the appropriate stance of monetary policy in the United States today. Perhaps it makes sense to conclude with the more general observation that changes in the size of global capital flows and the accompanying imbalances increase the importance of sustaining the credibility of monetary policy, because they increase the costs of a loss of credibility or a negative shock to credibility. We live with considerable uncertainty about the sustainability of the pattern of global capital flows and the relatively low risk premia that prevail today.

But it is, at least, a job that requires very little investment in training or equipment: the only “capital” a rag collector will need is a pushcart, which might sell for $ Yet, despite saying they’d very much like to own their own, nearly all these rag collectors instead rent their pushcarts, at a cost of $ a month. They therefore spend in a matter of 3-6 months what it would cost to own the thing outright. This is an enormous, and self-imposed, effective rate of interest – an annual rate of somewhere between 200 and 400 per cent.3  1  Gathergood (2013). Laibson (1997). This would cover any depreciation costs, which the owner of the cart would have to bear. But these are likely to be only a small part of the rental cost. 2 3  4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Mullainathan and Shafir document many such examples. And they go further: they claim, supported by the result of interesting experiments, that the tendency to over-weight the present, at the expense of the future, is itself increased by financial stress. The more cash-strapped people feel, the more prone they are to taking decisions that make the situation worse. Financial distress isn’t just the partial result of wanting things sooner rather than later: according to Mullainathan and Shafir it can also be the cause of it. The result can be what the authors describe as a “scarcity trap”.
These assessments have been recently upheld by the comprehensive assessment exercise for the European banking system carried out by the ECB, in collaboration with national supervisors, as a prior step to the start-up of the SSM. The Spanish banking industry can claim today to have healthy balance sheets and to be considerably resilient to potentially adverse macroeconomic scenarios with a limited probability of occurrence. The European banking industry following the comprehensive assessment exercise From a European standpoint, the exercise identified certain banks whose solvency had to improve, a matter which will no doubt be among the priorities of the SSM, to which I will later refer. Broadly, the exercise highlighted the fact that European banks evidence ample solvency and that the asset quality review did not detect significant valuation failings or substantial provisioning shortfalls. In short, the ECB’s comprehensive assessment contributed to allaying doubts over the vulnerability of European bank balance sheets and over their resilience, both of which had been identified as factors of risk to financial stability. That said, the European banking industry faces a series of additional challenges stemming from the changes under way in regulation and supervision, which have arisen as a response to the financial crisis. I shall now turn to some of these challenges, beginning with those linked to the current macroeconomic and financial situation. BIS central bankers’ speeches  1  First, it is a concern that in some market segments investors, in their search for yield, may be taking on excessive risks.

Timothy F Geithner: Risk management challenges in the US financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Global Association of Risk Professionals (GARP) 7th Annual Risk Management Convention & Exhibition, New York City, 28 February 2006. *  *  *  Thank you for giving me the opportunity to speak to you today. We have seen dramatic changes in the U.S. and global financial system over the past 25 years, and we are now in the midst of another wave of innovation in finance. The changes now underway are most dramatic in the rapid growth in instruments for risk transfer and risk management, the increased role played by nonbank financial institutions in capital markets around the world, and the much greater integration of national financial systems. These developments provide substantial benefits to the financial system. Financial institutions are able to measure and manage risk much more effectively. Risks are spread more widely, across a more diverse group of financial intermediaries, within and across countries. These changes have contributed to a substantial improvement in the financial strength of the core financial intermediaries and in the overall flexibility and resilience of the financial system in the United States.
Ardian Fullani: The financial future of the region Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the summit of finance ministers and governors “The financial future of the region”, Becici, Montenegro, 14 June 2013. *  *  *  Dear Ministers of Finance, Dear Governors, The crisis we are going through, being so profound and lasting, will leave its mark on economics in general, and central banking in particular. Up until the Great Recession, monetary policy was living in a world that we may call “the inflation targeting era”. To anyone that has followed the discussions regarding the optimal central bank policy ever since the onset of the crisis, it is clear that the validity of the previous approach has been heavily questioned. In many ways inflation targeting made the central bank’s job simple, as long as it followed the policy correctly. The Central Bank, seen by the public as an independent institution, had to credibly commit to an explicit inflation target, in order to anchor mid-term inflation expectations. Self-fulfilling expectations from economic agents and price setters would, in turn, help deliver the objectives of monetary policy. Unfortunately, as shown recently, this strict approach to monetary policy has some shortcomings. What this approach missed, due to its focus in consumer prices, was the drift in prices of assets in general. Escalating asset prices and their sudden burst affected significantly the behaviour and balance sheets of the economic agents and challenged the stability of the financial system.

It is from this perspective that an incentive package is being considered by the Bank to subsidize the costs related to minimum professional qualifications for FAs. We hope that it will entice more agents to consider upgrading themselves to become successful FAs. Growing demand for independent financial advisory services As our economy continues its track towards high income nation status, and as our society becomes more affluent and discerning, we envisage an increasing demand and preference for high-quality, independent and personalized advisory services among financially-savvy consumers. Apart from rising levels of disposable income and financial sophistication, Malaysians are expected to live longer now than ever before. It is projected that by 2040, 17% of the Malaysian population will live beyond the age of 60 years old compared to about only 8% of the total population in 2010. This creates the need for more effective long-term financial planning on the part of consumers to ensure they have sufficient funds to see them through their golden years. In this respect, as part of the Government’s initiative to encourage savings among Malaysians to better prepare for their retirement, the Government had announced a tax relief of RM3,000 for individuals who have bought an annuity plan for the next 10 years commencing in 2012. 2  BIS central bankers’ speeches  An increased competition within the financial sector and evolving demographic structures has also led to the introduction of new and more complex financial products offered by financial service providers.
Of importance is the need for merchant banks to continuously review their comparative advantage, business focus and organisational structure to strengthen their strategic and operational agility to respond proactively to the competition and maintain their market niche. In this regard, investment in human capital and expertise is essential to deliver customised and unique value propositions. With the entry of new players into the industry, it is expected that staff mobility within the industry could increase. The challenge for merchant banks will be to continuously train and retain their pool of expertise. 2  BIS Review 83/2005  The transformation of merchant banks into investment banks will also bring about new risks as well as a multitude of new opportunities. The placement of banking and capital market activities under one roof entails wider risks which need to be addressed to ensure that they do not pose undue risks to safety and soundness. Safeguards and Chinese walls are essential to manage conflict of interest situations within the investment banks. As capital market intermediaries, investment banks would also need to carefully manage issues on investor protection and the need to promote fair, efficient and transparent markets. The principles of fair market practice to promote investor confidence and ensure the protection of their interests need to be embodied in investment banking operations. Reputation and trust are indeed valued assets and the cornerstone of banking business.

•  In financial firms, it is important that these policies and practices dispel the perception of good ethics as a constraint on profitability or hurdle to career advancement. We are beginning to see some progress. BIS central bankers’ speeches  5  •  Performance appraisals in some banks now take into account how an employee’s conduct is consistent with the banks’ avowed principles and values. •  Others have developed balanced scorecards for remuneration that go beyond traditional measures of financial performance to include indicators relating to culture and controls. •  Yet others take into account a business unit’s record on compliance, customer experience, internal audit findings and other relevant considerations to underscore the organisation’s behavioural expectations of staff. Conclusion Let me conclude. The global financial industry’s standing with the public is at an inflection point. It could continue a downward spiral of mistrust with yet more egregious misconduct, or it could seize this opportunity to restore high ethical standards. Thankfully, we are in a better place in Singapore. The financial industry here is generally well regarded and trusted. But we have not been immune to some of the egregious practices in global finance, for example, attempts to manipulate financial benchmarks and the mis-selling of financial products. We must be on our guard, and work to further strengthen ethical standards and a culture of trust in the industry. •  We must foster a culture in the industry that looks beyond the question “is this legal?” to the larger question “is this right?”.
A key channel is obviously through the interest rates faced by households and businesses when they want to borrow, for example to buy houses or to invest. Fixed-rate mortgages have become increasingly popular in recent years and now  represent 95 per cent of the flow of new lending and 80 per cent of the stock. Two-year fixedrate products are particularly popular and their cost to the lenders who provide them is derived from two-year interest rate swaps. A year ago the two-year swap rate was 0.5%, a month ago it was 4%, after the 22 September MPC meeting it was close to 4.5% and at yesterday’s market close it was around 5.4% having peaked at nearly 6% in the intervening fortnight. (Chart 6). Chart 6: UK 2-year swap rate  Sources: Bloomberg Finance L.P. and Bank calculators  The Bank’s latest figures for quoted mortgage rates in September were published this morning. Because these are averages for the month they lag somewhat market measures, but the increases are still marked. Quoted mortgages rates on two-year fixed rate mortgages increased by around 50bps between August and September and were up by nearly 300bps compared to last September and have been rising further into the start of October. Recently lenders have also withdrawn a large number of mortgage products from the market because of the turbulent market conditions.

UK-specific factors also have had a particular effect on the price of long-dated UK government debt, which fell very sharply over a very short period, leading to dysfunction which, had it continued or worsened, would have been a material risk to UK financial stability. The Bank started intervening in this segment of the gilt market on 28 September, in a timelimited and temporary way. Because this is not a monetary policy operation – although it involves buying assets I think of it as an operation designed to buy time - I won’t say any more about it here[5]. Markets continue to be volatile and so extracting any signals from the noise is even more challenging than usual. One key consideration for the MPC at its upcoming meetings will be whether the recent repricing of UK assets reflects a changed assessment by markets of the UK macroeconomic policy mix between fiscal and monetary policy[6]. The extent to which that can be determined will depend on whether markets settle at a new level, which itself will depend in part on getting a clearer picture on fiscal policy and the fiscal outlook. Prospects for inflation What does all this add up to in terms of the overall impact on the economy and on inflation. An obvious starting point might be to look at the evolution of our forecasts over the last year in response to the four shocks I’ve highlighted and other developments.
It is essential to prevent these risks from materialising by ensuring a meticulous and rigorous budget outturn allowing budget deviations to be detected in time and any required remedial action to be taken. Should this be necessary, additional adjustments would have to be made in current expenditure, given that the freedom of action in relation to capital expenditure has shrunk enormously, and new tax measures would have to be taken, preferably in the area of  BIS central bankers’ speeches  5  indirect taxation, which has fewer distorting effects on growth and the allocation of resources and where the tax burden in Spain is lower than in other developed countries. Looking ahead, moreover, it cannot be ruled out that the temporal tax increases applied may have to be replaced in time by measures of a permanent nature. Simultaneously, it is important that the process of budgetary consolidation be accompanied by a strengthening of the national budgetary framework, so as to allow governments at all levels to meet their commitments. In this respect, the reform of the Constitution in September 2011 so as to include the deficit and debt ceilings set at European level, which was subsequently implemented in the draft budgetary stability law, was designed to meet this need and is fully consistent with the recent EU governance reforms.

In this respect, in the opening months of this year, the Government set in train various regional and local government support mechanisms in order to smooth the refinancing of their existing debts or payment to trade creditors. The financing mechanisms agreed also require fulfilment of adjustment plans. It is now crucial to insist on strict compliance so that this type of aid does not provide inappropriate incentives. The consolidation strategy must, finally, be completed while keeping in mind the mediumand long-term factors affecting public finances, particularly those deriving from the pressure  6  BIS central bankers’ speeches  exerted by population ageing on certain items of expenditure. In this connection, following the enactment in July 2011 of the Social Security Reform Law, an appropriate definition of sustainability is needed as soon as possible so that the system’s parameters may be automatically adapted to demographic changes. In short, the current budgetary imbalance has become one of the main obstacles to growth of the Spanish economy. Correcting it is urgent and unavoidable. What is thus needed is a fiscal adjustment strategy based on commitments made at European level. This strategy has to be accompanied by a strengthening of the national budgetary framework, as reflected in the constitutional reform, and by the application of the medium and long-term reforms that enable the challenge of population ageing to be addressed.