samchain/econo-pairs-v1 huggingface dataset:
•  And the regulation must be proportionate to the risk posed. Take for example internet-based payments or P2P lending that takes place outside regulated banks. •  2  We regulate banks chiefly because they take deposits. –  When they get into trouble, they have systemic consequences. –  So, we supervise their lending activity and their payments systems. BIS central bankers’ speeches  •  We do not regulate P2P lending platforms – as long as they do not take deposits. –  •  But if they get very large and pose macroprudential concerns, then we may consider regulation. Likewise, a payment service through the Internet will not automatically attract regulation –  These are typically small payments, often in connection with e-commerce. –  Only larger, more significant players that cross the materiality and other thresholds are regulated. –  Even then, we do not regulate them as banks and throw at them the whole kitchen sink of capital and liquidity requirements under the Banking Act. –  We regulate them under the Payment Systems Oversight Act or the Remittance Agents Act – modular regulation customised to address the specific risks or concerns they pose. –  But I must acknowledge we do not have ready-made regulations for all new technology solutions; often we must improvise the use of existing legislation, even as we draw up new ones. Third – actively promote the FinTech ecosystem and seek to harness its potential for good.

BIS central bankers’ speeches  3  MAS will therefore introduce a “regulatory sandbox” approach that aims to give FIs more confidence to experiment and launch their innovative products or services within controlled boundaries. •  The idea is not to remove all risk. Failure is an inherent part of innovation. •  Rather, we want to create an environment where if an experiment fails, it fails safely and cheaply, without larger adverse consequences. •  MAS will soon issue guidelines for public consultation on how the regulatory sandbox will work. Three, we promote greater inter-operability within the industry to harness the full potential of technology. An innovative environment proliferates a wide range of technologies and solutions. •  But if the solutions cannot interact with one another, we sub-optimise efficiency gains or customer experience. •  While we should allow a hundred flowers to bloom, we should also take care we create a garden. Greater inter-operability across data systems is therefore a key priority. Let me give two examples of what MAS is doing together with the industry. •  •  One, common standards for payments systems to realise more seamless payments across a range of platforms. –  We are working towards a unified Point of Sales (POS) terminal – a single terminal that can read all kinds of cards at retail and hospitality outlets.
(2010) stated that “it was tempting for macroeconomists and policymakers alike to take much of the credit for the steady decrease in cyclical fluctuations from the early 1980s on and to conclude that we knew how to conduct macroeconomic policy. We did not resist temptation. The crisis clearly forces us to question our earlier assessment”. Since we participate today in a seminar dedicated to banking and financial history, please allow me to put things into perspective. In the 1970s, inflation was high and there was a divorce between theoreticians and practitioners concerning the monetary policy effectiveness on real variables. In line with Sargent and Wallace’s Policy Ineffectiveness Proposition (1976), towards the end of the 1970s many were thinking of monetary policy as being powerless also in the short term, not only in the long term, as Friedman (1968), Phelps (1968) and Lucas (1972) had already stated. However, practitioners were aware that their monetary policy decisions were effective in the short run with respect to both inflation and activity. This divorce lasted for a while, until the New Keynesian economists, starting with Fischer (1977) and up to Taylor (1980) and Calvo (1983), found solutions to incorporate nominal rigidities into their models with a view to putting them in line with practice. The economists belonging to the Real Business Cycle mainstream opted for exploring the lack of rigidities to the maximum and created general equilibrium models.

It was now visible to the naked eye, without requiring sophisticated econometric models, that distortions from relatively high inflation are second order relative to losses from financial sector distortions (Stiglitz, 2010). That being said, it is safe to assume the crisis also shattered the illusion that the great challenges to the monetary policy decision-making framework have been overcome at least in part. Reality proved much too complicated to be managed based strictly on ideal theoretical schemes. In other words, textbook economics was no longer in tune with financial market realities. This also calls for rethinking the connections or retracing the boundaries between price stability and financial stability. The global crisis has once again drawn the attention of economic policymakers and theorists to the issue of separating or integrating price stability and financial stability tasks. The idea that the two tasks should be completely separated had gained ground before the outbreak of the crisis. The rationale behind this view was to free the monetary policy conduct from conflicting objectives and thus render policymakers’ mission and life easier. Following this line of thought, it was considered that two distinct entities should be in charge of the two tasks respectively. In particular, it was advocated that banking sector supervision should no longer be assigned to the central bank, but rather to an independent agency (which might also ensure the consolidated supervision of all financial markets).
These trends will also be affected by initiatives taken by the Government to transform the economy in this next decade into a high value-added, high-income economy, the greater leverage on the advances of technology and the acceleration of the pace of regional financial integration in Asia. The Malaysian financial system enters this new environment from a position of strength. The successful implementation of the first Financial Sector Masterplan in this recent decade has produced a financial system that is well positioned to respond to the new imperatives of the decade before us. Our financial institutions are well capitalised with strong buffers and improved risk management and governance practices. Significant efficiency gains have also  BIS central bankers’ speeches  1  reduced intermediation costs in an environment of greater competition. This is largely arising from the cumulative efforts to building strong institutions, the development of the financial infrastructure, and the strengthening of the regulatory and supervisory framework. This decade has also seen the enactment of wide ranging legislation that has given greater certainty and predictability in the financial system. This includes the Central Bank of Malaysia Act 2009 and the Financial Services Act expected to be tabled in Parliament in 2012 has strengthened the legal framework for the financial sector. It will also enhance the Bank’s capacity to manage risks from financial intermediation activities that occur outside the banking system and provide enhanced powers for timely intervention actions.

In my view, the task could be easier achieved if the focus of EWE is narrowed down to the really important systemic issues i.e, the issues that have high-global impact but are beyond the capabilities of market and individual economies to monitor and make assessment. For example, instead of trying to spot vulnerabilities in all the possible key risk, in all markets, and in all economies, EWE should narrow its focus instead on the systemically-important issues, especially the known-unknowns. This include the robustness of the key global financial markets and infrastructure, risk relating to the systemically-important large economies and the operations of the internationally-important financial institutions. Such focus will make the whole EWE process more valuable and complements well with the surveillance that are done elsewhere at the country or regional level. With regards to the nature of future crises, a few realities have emerged from the current global financial turmoil. First, it is clear from recent experience that nobody is above crisis. Crisis can happen in any economy regardless of whether it is large or small, developed or emerging, with or without a sophisticated financial system, and regardless of whether the country adopts a fixed or flexible exchange rate system. And once happens, the impact is large because of the  BIS Review 19/2010  1  globalized nature of markets that drives the spillover or contagion. For emerging markets, this means the risk of future crises are wide-ranging and can be both externally and internally induced.
The weakness of the world economy and the higher volatility in global financial markets has certainly taken a toll on economic expectations. But in Chile, the business climate has also been affected by the years-long debate about what changes we must make to meet the challenges of being a middle-income country in the twentieth century aspiring to become developed in the shortest time possible. In my opinion, it would be self-indulgent to blame all our problems on the more adverse external scenario. We must analyze what we can improve internally in order to better weather the vicissitudes that such external scenario presents us, how to improve the investment climate and return to higher growth rates as fast as we can. About how monetary policy has taken in this new situation, I think we must begin by recognizing that these phenomena come with major changes in relative prices, as this is how the markets tell economic agents that they must move resources from one sector to another. Contributing to such adjustment is a key role of monetary policy, and, in a context where indexation to past inflation is high, this must be done while allowing the exchange rate to fluctuate. Actually, it is no coincidence that our policy framework features exchange rate flexibility as an essential element. Moreover, it is important for domestic financial conditions to be consistent with a lower growth scenario; in particular, that real interest rates are the right ones for the state of the business cycle.

Inflation expectations that are low and stable clearly help to combat inflation. But I believe the low-inflation policy has wider implications. It is presumably one factor behind the recent improvement in trend productivity in Sweden. Firms today are exposed to considerably stronger pressure to change than they were in the 1980s. The conditions for labour market negotiations have also changed in ways that may well have positive effects on unit labour costs and thereby on inflation. Another consequence is that measures for strengthening competition have suddenly become politically relevant in ways that were not the case at least when I was working on such questions in the 1980s. Deregulation and the enhancement of competition can now have positive effects that are directly evident in the form of low inflation and thereby lower interest rates and higher economic growth. Moreover, with the division of responsibilities that now applies in stabilisation policy, fiscal policy is freer to focus on long-term issues and structural matters. The Riksbank’s way of working I should now like to comment briefly on how the Riksbank works and on the implementation of our so-called rule of action. These matters have featured in the general debate in the past year, presumably just because inflation and our inflation forecasts have continued to provide relatively weak arguments for raising the repo rate even though activity is strong. In simple terms, the Riksbank can be said to formulate monetary policy on the basis of inflation’s forecast rate, in the first place one to two years ahead.
Through our strategic plan, we will also increase the transparency of our work on financial stability. We will publish the results of regular bank stress tests. As with monetary policy, we also intend to publish more of the research and analysis underlying our policy choices. Over  21  See King (2005). BIS central bankers’ speeches  9  time, the financial sector will be better placed to anticipate our responses and as with monetary policy, increased transparency will make us not just accountable, but also more effective. Conclusion The first Mais Lectures launched the fight against inflation. With time and increased confidence policymakers would win that war only to lose the peace. As a consequence, George Osborne’s 2010 lecture heralded the return of prudential supervision and the introduction of macroprudential policy to the Bank of England. Today’s challenge is to create a macroeconomic environment that provides the basis for strong, sustainable and balanced growth, the economist’s equivalent of a land fit for heroes. This evening I have sketched how the Bank of England intends to makes its contribution. I am in no doubt that those who come after me will add to our collective knowledge of how best to coordinate the Bank’s vast array of policy levers to achieve our fundamental mission. An open and confident Bank will welcome such advice and criticism. Why? Because the need for broad macroeconomic management is not just an intellectual curiosity, but rather a reality that will persist for years to come.

The model used for monetary policy of decisions being made by a committee made up of both Bank of England executives and independent experts has been expanded to financial stability with the creation of both a Financial Policy Committee and a Board of Prudential Regulation. As I have argued, those policy committees will be more effective if they have access to the broadest range of the Bank’s analysis and information and are as well informed as possible about each other’s reaction function. The now very wide range of the Bank’s responsibilities also creates a need to strengthen the oversight arrangements for the Bank as a whole. For delivery of our statutory objectives, the Bank is accountable to the public, through Parliament’s Treasury Committee. That accountability is being reinforced. Parliament has created an Oversight Committee of 8 non-executives who are in the Bank but not of the Bank. The Government has today announced the appointment of Anthony Habgood to lead the Bank’s Court of Directors and the Oversight Committee. I welcome the appointment of someone of his depth and breadth of corporate experience. Independent oversight by the committee he will chair can strengthen the Bank’s legitimacy and effectiveness. The Oversight Committee has access to internal papers, is able to observe meetings of policy committees, and is responsible for reviewing all aspects of the conduct of the Executive of the Bank, including the delivery of policy, the design of and adherence to rigorous processes and procedures, and the monitoring of our transparency and openness.
Despite the recent pause, the forward looking indicators we have suggest that the period of rising prices is set to continue, with a number of survey indicators of housing market activity consistent with a double digit annualized rate of house price growth in the near term. Sustained momentum in house prices and transactions have in previous episodes in the UK led in turn to rapid growth in aggregate mortgage debt and overall household indebtedness. That increase in indebtedness proved to be a vulnerability for borrowers and lenders subsequently contributed towards economic and financial instability. During the house price correction in 1989–92 and 2007–9, a number of lenders were dangerously exposed to a  1  Measured on the average of the lenders’ indices. BIS central bankers’ speeches  1  tightening in conditions in wholesale money markets and nursed large losses on their riskier property lending. We have yet to see a return to rapid growth in aggregate debt. Gross flows of new mortgage lending have grown pretty sharply, by over 40% over the past year. But a large part of that has been offset by higher gross repayments. The stock of mortgage debt has been growing at a rate of around 1.5% a year, some way below the growth rate of house prices. Past experience, however, suggests that growth in net mortgage lending tends lags growth in house prices and transactions.

But there is good reason to believe that a mutually reinforcing combination of strong demand, weak supply and expectations of a rising market could lead to a period of sustained and very powerful pressure on house prices in the UK. The extent to which that will jeopardise financial stability depends on whether that pressure actually results in more transactions at higher prices, whether that in turn leads to an increase in household indebtedness and where that debt is concentrated. These are, of course, all linked. The laws of supply and demand must, in the end, apply also to housing even in the UK. House prices cannot grow faster than earnings indefinitely. While households may be prepared to spend an increasing amount of their income on housing, there is a level at which house prices are simply not affordable. Ultimately – given purchases are in the main financed by long term mortgage lending – it is the price and availability of mortgage credit, including maximum loan-to-value and loan-toincome ratios, offered by lenders that determines the point at which affordability constraints bite on house purchasers and so how far they can stretch to match rising prices. At present, affordability constraints do not seem to be having a braking effect on the rise in prices. But prices are still below their 2007 levels in most regions and the house-price-toearnings ratios a multiple below its pre-crisis peak. If prices continue to grow faster than earnings, affordability will increasingly be an issue for purchasers and for lenders.
Just as a pebble dropped into a lake disturbs the water not just at the point of impact but ripples outward far from the origin, changes in the federal funds rate influence the prices of financial assets more broadly and this, in turn, affects the broader economy. An important insight of modern monetary theory is that this transmission of monetary policy to the broader economy through its many channels works best when the central bank is transparent about its goals, policy strategy and approach to implementing its strategy. In this case, market participants and households both understand and can anticipate actions by the central bank. By doing so, the transmission channels of monetary policy are enhanced. This places considerable importance on effective central bank communication. Recognizing this, the FOMC has undertaken many initiatives over the years to improve its communications with the public. These include providing clarification in terms of the goals of monetary policy, discussions of the FOMC’s broad policy strategy, as well as FOMC participants’ ongoing explanations of their views on monetary policy. As part of this effort, I provide a comprehensive update on my outlook for the economy and monetary policy several times during the year. Once a year we publish our staff’s judgmental economic forecast. We have also provided in the Liberty Street Economics blog discussions of an internal staff modelbased economic forecast. In addition, we now regularly release our real-time forecast of “current quarter” real GDP growth.

As I see it, financial cycles, at least those which are big enough to create significant disorder, are often the result of the regulations governing the financial system not being sufficiently stringent or even, perhaps, of fundamental shortcomings in the entire ‘business model’ of the financial sector. The failure of important markets to function sufficiently well may also be of great significance. One example that I have raised before, but which is worth raising again, is the comparison of how policy rates and housing markets have developed in Sweden and Germany (see Figure 6). Despite a similar monetary policy, the development of housing prices in Germany has differed entirely from that in Sweden. Of course, a wellfunctioning financial sector and well-functioning markets would not generate completely stable credit paths, for example. But it is highly likely that the large and dangerous fluctuations would be heavily restrained. It seems reasonable that the financial system should be sufficiently stable and robust to be able to handle both an occasionally very low neutral interest rate – as is the case today – and that monetary policy is conducted in a manner that fulfils normal monetary policy targets – such as an inflation target – without collapsing.
Because it is defined as the unemployment rate at which there is no immediate pressure for a change in the inflation rate, it is a reduced form – not a structural – variable. This difference is reflected in the methods used to generate empirical estimates of the two concepts. The natural rate of unemployment can be estimated only by reference to a structural model of the labour market which has explicit microeconomic underpinnings and which can be used to identify the characteristics determining the natural rate. Empirical estimates of the natural rate would typically be related to inflation only in the long run when the effects of shocks average out. In contrast, the NAIRU is estimated using a system of time-series equations relating inflation to past and present economic shocks. The sole criterion for judging the success of estimates of the NAIRU is their short-term correlation with inflation. Indeed, the NAIRU as defined here – and in recent work by Estrella and Mishkin (1998) – is the level of unemployment such that the difference between it and the current rate of unemployment is all that is necessary to describe short-run inflationary pressure. BIS Review 103/1998  –4–  Although the NAIRU will tend towards the natural rate of unemployment in the long run, there is no reason to expect there to be a close relationship between the two measures in the short run. The natural rate is likely to move only relatively slowly over time in response to changes in its structural determinants.

So if, over the past 40 minutes, I have been sufficiently boring then I promise to carry on in that vein. If not, then I promise to mend my ways. References Blinder, A.S., (1987) “Hard Heads, Soft Hearts: Tough-Minded Economics for a Just Society”, published by Addison-Wesley Publishing Company Estrella & Mishkin (1998) “Rethinking the Role of NAIRU in Monetary Policy: Implications of Model Formulation and Uncertainty”, paper prepared for The National Bureau of Economic Research conference on Monetary Policy Rules, Islamorada, Florida, January 15–17, 1998 Friedman, M., (1968) “The Role of Monetary Policy” American Economic Review, March: 1–17 Keynes, J. M., (1923) “A Tract on Monetary Reform”, published by Macmillan, London Keynes, J. M., (1923) “Notes for Lecture to the National Liberal Club” reprinted in “Collected Writings of John Maynard Keynes”, Vol. XIX, Macmillan, London, 1981 King, M.A., (1997) “The Inflation Target Five Years On”, Lecture given to mark the tenth anniversary of the LSE Financial Markets Group Mankiw, N.G., (1998) “Comment” in (eds.) Solow, R.M. and Taylor, J.B. “Inflation, Unemployment and Monetary Policy”, MIT Press, Cambridge, USA Modigliani, F. & Papademos, L., (1975) “Targets for Monetary Policy in the Coming Year”, Brookings Papers on Economic Activity , No.