samchain/econo-pairs-v1 huggingface dataset:
José De Gregorio: Chile’s latest Monetary Policy Report Presentation by Mr José De Gregorio, Governor of the Central Bank of Chile, of the Monetary Policy Report before the Honorable Senate of the Republic, Santiago de Chile, 7 September 2011. *  *  *  The Monetary Policy Report of September 2011 can be found at http://www.bcentral.cl. Introduction Mr. President of the Senate, Senator Guido Girardi, Senators: I am grateful for your invitation to the Board of the Central Bank of Chile to present our Monetary Policy Report. As in September of every year, this presentation coincides with the Central Bank Board’s yearly account to the Senate, where we share with you our vision regarding recent macroeconomic and financial developments in Chile, as well as their prospects and implications on monetary policy conduct. At the time of presenting this Report, we are about to complete three years since the outbreak of one of the worst economic and financial crises in modern history, known as the Great Recession. The string of events that followed the collapse of Lehman Brothers drove the world to an unprecedented confidence crisis, with a drop in global output that has no comparison with any other episode over the last eighty years. Chile was able to mitigate the adverse effects of the crisis, and succeeded in quickly recovering its levels of output and employment, in sharp contrast with what happened in developed economies (figure 1).

Today I intend to take up a couple of questions that I consider relevant to both the debate in Sweden and the international debate. The first question is what role monetary policy should play with regard to promoting financial stability. This is a question that is still raised as one of the most important ones in the international discussions on possible changes in the inflationtargeting framework, although in many countries this has been overshadowed by the recent low inflation figures. A second question that, for natural reasons, is always topical when discussing whether the inflation-targeting policy needs to be modified is whether the level of the central banks’ current inflation targets – usually around 2 per cent – needs to be changed. This is also something that has been discussed quite a lot by academics and in various policy forums since the financial crisis. Internationally, the discussions have focused  BIS central bankers’ speeches  1  on the question of whether the target should be raised, while in Sweden the focus has instead been on whether the target has been set too high. I intend to address the arguments for both points of view and to give my own views on the subject. Should monetary policy take financial imbalances into account? But let me begin with the question of monetary policy and financial stability. One lesson from the financial crisis is that price stability is not sufficient to ensure financial stability in the economy.
Chris Salmon: Financial market volatility and liquidity – a cautionary note Speech by Mr Chris Salmon, Executive Director for Markets of the Bank of England, at the National Asset-Liability Management Europe symposium, London, 13 March 2015. *  *  *  I would like to thank Andrew Butcher, Jonathan Rand, Allison Parent, Joseph Noss, Olga Cielinska, Liam Crowley-Reidy, Sebastian Vismara, Lu Liu and Yuliya Baranova for their comments and contributions. As Executive Director for Markets at the Bank of England it is my job to manage the balance sheet, implementing various policy decisions that the Bank makes. I am also responsible for ensuring that the Bank extracts as much “market intelligence” from financial market developments as is possible to inform those decisions. But it’s not my job to set policy. Given that, my remarks will focus on the key insights we have drawn from financial market developments over the past year or so, in the context of what has been quite a dynamic period for monetary policy. But I will not speculate on the future course of policy by the Bank of England or any other central bank, nor the likely effectiveness of the different strategies employed by central banks to achieve their targets. And my punch line will reveal me to be the central banker that I am: there are reasons to be cautious. In particular, recent periods of financial market volatility suggest that there are reasons to be cautious about the robustness of liquidity in core financial markets.

From a longer-term perspective, currency should be able to move flexibly in line with economic fundamentals. Active foreign exchange interventions can cause potential distortions. First, financial market development would be hindered. A certain level of exchange rate volatility is often a pre-condition for market development. Without sufficient volatility, there would be no incentive for firms to hedge themselves against currency risks and for financial institutions to start offering currency hedging tools. It should also be noted that heavily managed exchange rate may discourage businesses from upgrading their technology, productivity, and competitiveness, so as to command more bargaining power in the global market and better withstand exchange rate volatility. Given limitations and side effects of short-term exchange rate management strategies, exchange rate interventions should only be employed to deal with excessive movements or special circumstances when the market needs anchoring. Interventions should also be two-way, not aiming to resist trend movements but to cushion the impact of extreme movements. For normal times, the exchange rate should move flexibly to serve its role as shock absorber for the economy. Ladies and Gentlemen, Now, policymakers have to strike the right balance between implementing short-term measures and building long-term capacity for the economy to better withstand external shocks. To promote economic resilience in the long run, it is important to press ahead with reforms that deepen local capital markets. Deeper and more liquid markets help absorb higher capital flow volatility and large shocks, preventing large swings in price movements.
9 The recalibration of these operations decided at our last meeting will likely encourage early voluntary repayment of outstanding TLTRO III balances by increasing  8  Fo r instance, under the TLTRO III co nducted during the pandemic, the ECB tempo rarily lent to banks meeting the lending targets at rates as lo w as -1%. 9  The first TLTRO III o peration, which amounted to € billion, matured on 28 September 2022 (with early repayment between September 2021 and June 2022 o f € billion). In the fo urth TLTRO III operatio n in June 2020 the participating banks received a to tal o f € billion, an all-time reco rd in Euro system refinancing operations, which will mature in June 2023, altho ugh it can be repaid earlier. 5  the expected average cost of TLTRO III funds. Such early voluntary repayments of TLTRO III funds would reduce the Eurosystem balance sheet. In my view, it may be appropriate to wait until sufficient outstanding TLTRO III balances have been repaid before starting the bond portfolio run-off, for two reasons. First, the large TLTRO repayments expected in the first part of 2023 will give us an initial picture of any potential asymmetry and non-linearities in the effects of balance sheet reduction vis-à-vis those generated by balance sheet expansion, by when we will probably have too a clearer idea about whether we are in, or headed towards, a recession.

Financial institutions will also be required to develop recovery plans for surviving a range of stressed scenarios, a key objective of which is to preserve the continuity of critical economic functions performed by systemic financial institutions. Work is also in progress to establish a financial sector cyber threat intelligence platform. The platform which will be operational in the coming year, seeks to overcome barriers to critical information sharing on cyber threats and will have the capacity to collate, aggregate, analyse and share cyber threat information from multiple sources in real time. We have also doubled our approved headcount for IT supervision to ensure that we continue to provide adequate coverage of technology risks in the financial system in our supervisory activities. Second, the Bank has sought to encourage a more nimble response to innovation in the financial sector. Along with a number of other regulators, the Bank introduced its regulatory sandbox in 2016 to enable firms to test innovative solutions in actual production with appropriate safeguards, while suitable regulation that is fit-for-purpose is developed. At a practical level, this has led to important changes in the way the Bank works, leveraging on “agile” teams where small, crossfunctional and dynamic groups are formed to observe, gather feedback, efficiently assess and formulate regulation iteratively. Since its establishment, over 80 solutions have been evaluated for testing in the sandbox.
We will have to devise a system to make ECB responsibility compatible with a rational division of work, so the ECB will have the direct oversight of significant banks with the cooperation of the national competent authorities. The direct supervision of the Less Significant Institutions is for the National Authorities, which will have to comply with regulations, guidelines and general instructions issued by the ECB. In fact, the ECB will indirectly supervise such banks, having access to their data and the power to assume, if so decided, the direct supervision of any of them. It is important to underline that this is not going to be a two-tier system, but a single one with a distribution of tasks; this is not going to be a “confederation” of supervisors, but an “Union” of supervisors under a single European authority. Preparatory work already done to launch the Single Supervisory Mechanism At this point, I will briefly describe the work we have done, how the SSM is going to be set up in organisational terms, and the work ahead of us. Steered by a High-Level Group on Supervision, chaired by the President of the ECB, a preparatory structure has laid down the work schedule regarding the following areas: (i)  The mapping of all the EU banking institutions, to determine the supervisory regime applicable under the Single Mechanism Regulation.

Challenges to turn this framework operational Let me now move on to challenges for this framework to become operational. We have been working since the end of 2012, on the preparation of the Single Supervisory Mechanism. Now that the Regulation has finally been approved by the European Council, the challenge is to turn this new framework operational before the ECB assumes its supervisory tasks. This poses, first, a logistical challenge as a new institution has to be created and numerous professionals have to be recruited. But most importantly, a complete set-up has to be developed to underpin the supervisory decision-making process, keeping it properly separated from the monetary policy structures at the ECB. And last but not least, before the SSM is fully operational by November next year, a comprehensive assessment of the European banking system will be performed by the ECB. 2  BIS central bankers’ speeches  From domestic to joint supervision The transfer of responsibilities from the National Authorities to the ECB should be a smooth process. The National Authorities have the expertise in the supervision of credit institutions. We will have to provide information, knowledge and staff, and we should not preclude the possibility of running certain processes in parallel for a while. Both the ECB and the National Authorities should seek to attain mutual confidence and understanding. The ECB supervisory powers will cover all tasks relating to the prudential supervision of all credit institutions. This entails supervising over 6,000 institutions.
Mainland fixed investment has gradually become an important driving force behind the upturn. Investment has picked up in most industries and growth was stronger than expected towards the end of 2004. Norges Bank’s regional network has registered rising investment in all industries. Petroleum investment in particular appears to be growing at a faster pace than projected. This may continue to boost mainland output. High wage growth in Norway relative to other countries and a periodically high krone have weakened the profitability of Norwegian export companies and dampened export growth. Growth in traditional exports has nevertheless picked up in the past two years. Prices for many of our main export goods have risen as a result of strong growth in new markets. However, growth in Norway’s total exports, excluding oil and gas, is lower than import growth among our trading partners. The fall in interest rates has pushed up house prices. Turnover in the housing market has been high. High resale home prices have made it more profitable to build new homes, and residential construction is rising. Higher housing wealth provides increased borrowing opportunities and thereby also boosts demand for consumer durables. Household debt has risen by around 11 per cent over the past year. Credit demand in the enterprise sector remains low. Despite the strong upturn in the mainland economy, the rise in the number of employed has been fairly modest. Productivity rose sharply in the first few quarters after economic growth picked up. Normally, strong productivity growth is gradually followed by an increase in employment.

In the current crisis, monetary policy is said to have played a role in contributing to excessive risk-taking behavior in the period leading up to the crisis, but monetary policy is also powerful in handling the economic and financial downturns through aggressive actions on interest rate and the provision of liquidity. This shows that it is crucial to get the stance of monetary policy right early by formulating monetary policy in a forward-looking manner. This, of course, is easier said than done. And the last lesson is communication. One lesson we learnt clearly from the crisis is that policy actions alone cannot ensure a successful outcome without the support of an effective communication strategy. In this crisis, the Fed has demonstrated the importance of this to the highest level through its ability to articulate its understanding of the situations, to communicate the rationale for the use of unconventional measures, its approach to making the results of the stress-testing exercise public, as well as its ability to manage market expectations while maintaining policy credibility. All these have been instrumental to the success so far of the Fed’s policy response. It is, therefore, clear from the crisis that wellexecuted and credible communication can help anchor market expectations. Let me now turn to my second remark on strengthening the monetary policy framework. I agree much with what has been said about the need to improve bank regulation and supervision going forward, especially to reduce procyclicality in the financial system.
Table 4 Main assumptions of the international baseline scenario (yearly average) 2008  2009 (f)  2010 (f)  Sep.08  Nov.08  Jan.09  May 09  Sep.08  Nov.08  Jan.09  May 09  WTI oil price $  100  116  70  50  52  115  80  60  64  LME copper price $  316  310  165  150  180  300  190  160  185  Terms of trade (annual change, %)  -15.0  -7.2  -18.2  -19.1  -13.5  -4.3  -2.5  -2.0  -3.8  External prices in $ (annual change, %)  12.0  3.3  0.5  -0.8  -5.7  2.8  4.8  5.5  7.0  (f) Projection. Source: Central Bank of Chile. BIS Review 65/2009  13  Figure 11 Real exchange rate (index,1986=100) 120  120  110  110  100  100  90  90  80  80  70  70  88  90  92  RER  94  96  98  00  1989-2008 average  02  04  06  08  1994-2008 average  Source: Central Bank of Chile.

So the premium on sound regulation and good living conditions has gone up. Location However, the trend towards concentration is unlikely to end in the extreme of only one or two global financial hubs. Location still matters even in the globalised financial landscape of the New Economy. Physical proximity to potential clients will remain important, especially in capital market origination, the M&A business or private banking, where personal services and physical interactions with clients are essential. Indeed, the growing customisation of finance to suit local conditions and meet individual client needs will mean that regional financial centres will continue to play a complementary role. Competition among financial centres will not be a zero-sum game of winner takes all. Smaller centres can coexist with the mega centres, focusing on different niches and serving different regions. There are thus collective gains to be shared through co-operation. Linkages between key financial centres, both across and within time zones, can help the centres to reap the benefits of integration while at the same time preserving close access to local communities. Similarly, there is an important role for closer regulatory co-operation and, where appropriate, harmonisation of standards, particularly in cross-border listing requirements, ongoing supervision, and accounting and disclosure. For the regions they serve, international financial centres make good economic sense. They provide easy access to funding and hedging opportunities, links to other key centres, and markets with liquidity and reach, especially for emerging economies. Financial centres tend to prosper when their hinterlands are buoyant.
Calculations show that for the most indebted Swedish hedge fund this measure is 320 per cent, compared with a median of 80 per cent. An international study from 2003 shows that the debt/equity ratio was less than 200 per cent in more than 80 per cent of the funds examined. These are modest levels in comparison with financial institutions. For example, the major Swedish banks have a debt/equity ratio of 2,300 per cent on average. Thirdly, hedge funds are often accused of engaging in herd behaviour, that is, of imitating one another's behaviour and taking similar positions. This type of strategy risks reinforcing market fluctuations and having a destabilising effect. This applies in particular to macro funds, which take positions and investment decisions on the basis of an expectation of macroeconomic developments. For example, it is often claimed that hedge funds were involved in and reinforced the effects of the ERM crises. The evidence is not clear-cut. I believe that it is difficult to claim that hedge funds follow the prevailing trend to a greater extent than other investors. Traditional investors often have limits that force them to sell when there is a sharp fall in the price of an asset. This could in turn lead to a selfreinforcing spiral. The absolute, rather than relative, required rate of return on hedge funds should reduce the incentives for herd behaviour.

Before I go any further, I will give the standard Fed disclaimer that the views I express here are my own and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or anyone else in the Federal Reserve System. Overheating Whenever I talk about monetary policy, I start with the Federal Reserve's dual mandate: price stability and maximum employment. With the unemployment rate back to very low pre-pandemic levels, and a variety of indicators showing the labor market is very strong, maximum employment has been achieved. But, with inflation rising to unacceptably high levels, we are far from our longer-run goal of 2 percent inflation. High inflation harms those who are most in need. Too many families are now struggling to meet the increasing cost of necessities. I am resolutely focused on restoring price stability, which is the foundation for a vibrant and healthy economy. Over the past year, inflation has increased rapidly and dramatically to levels last seen in the early 1980s. A year ago, overall inflation, as measured by the percent change in the personal consumption expenditures (PCE) price index, was 2.5 percent. In March, it was 6.6 percent. A portion of this sharp rise reflects global increases in food and energy prices. But, even excluding energy and food costs, the "core" inflation rate has increased from 2 percent a year ago to 5.2 percent today. 1/4  BIS - Central bankers' speeches  Three major imbalances are contributing to an overheating economy and high inflation.
And to ensure that they can do so in an orderly manner, a European resolution mechanism has been devised. It defines the tools and the institutional setup. It forms the second pillar of the banking union alongside European banking supervision. But again, resolving a bank is just the very last resort. Thus, the new framework becomes applicable long before a bank fails. It requires banks, for instance, to draw up recovery plans. In these plans, the banks set out how they would overcome severe crises using their own resources. Now, recovery plans are drawn up when the going is good. When times are tough, the new framework offers some more tools, including early intervention measures. Supervisors can use them if they see that a bank is about to get into trouble. The idea is to be intrusive and to make the bank officially aware of the supervisor’s serious concerns. This helps to get the bank back on track. Early intervention measures can be an important tool to prevent bank failures. In practice, however, it is challenging to use them, for two reasons. First, because they overlap with some of our standard tools. To give you just one example, asking a bank for a capital plan can be either a standard supervisory tool or an early intervention measure. This overlap is a challenge as it often prevents us from applying early intervention tools. We are bound to use the least intrusive tool, which is always the standard one.

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