samchain/econo-pairs-v1 huggingface dataset:
The main purpose was to explain that the Riksbank is not able to control inflation precisely in the short term, but that it aims to limit deviations from the target. The band was abolished in 2010 because the Riksbank then assessed that it no longer had a role to fill. In the memorandum published in connection with the decision, it was noted: “There is considerable understanding for the fact that inflation commonly deviates from the target and that the deviations are sometimes larger than 1 percentage point. Inflation can thus be outside of the tolerance band without threatening the credibility of the inflation target. Such deviations have proved to be a natural part of monetary policy.” 13 The view was therefore that even the relatively broad band of 1 to 3 per cent gave the appearance of excessive precision. However, as economic agents did not find it noteworthy that inflation was outside this band at times, the Riksbank felt it was not a problem. The tolerance band was thus a pedagogical tool intended to illustrate the uncertainty surrounding the inflation development. It was never intended to be a target range, i.e. that the target was actually 2 percentage points wide, and that inflation of marginally over 1 or just under 3 was as consistent with the target as inflation of 2 per cent. 14 This appears to be many people’s interpretation today, however.

Confidence in the inflation target is then weakened and it will not be able to fulfil its role as a benchmark for expectations in the economy as well as it could. But there is one more reason why the inflation target should not be lowered – and this is in my opinion, probably the most important. It is that there needs to be enough scope to lower the policy rate if inflation falls substantially or the economy weakens. When the inflation target is, say, 1 or 0 per cent, then inflation will vary around that level. The nominal interest rate will of course also be lower for a lower target on average. And the lower the interest rate is in normal conditions, the less scope there is to lower it before it hits its lower bound and can no longer be used to stimulate the economy. With an inflation target of 2 per cent and a real interest rate which on average is expected to be around 2 per cent, the policy rate will be around 4 per cent in normal conditions. 8 Before the financial crisis, this was usually considered to be a sufficient distance to ensure that the  8  4  The Riksbank’s assessment is that in the long term the repo rate will be in the range 3.5 to 4.5 per cent on average.
Given the gloomy economic prospects, I and the other Executive Board members considered in February that a substantial repo rate cut was needed. We were expecting a rapid deterioration in the labour market situation, which together with rapidly falling energy prices meant that inflationary pressures had declined. In this situation there was thus nothing to prevent monetary policy being used in a forceful manner to alleviate the effects of the fall in demand that came in the wake of the financial crisis. On the contrary, the interest rate cut was necessary to attain the inflation  6  BIS Review 38/2009  target in the long run. If the situation were to deteriorate, a first measure would be to cut the interest rate further. If the repo rate were to be cut to zero, or close to zero, and this was still not sufficient, other types of measure would be necessary. We are prepared to implement the measures that are necessary. If inflationary pressures were instead to increase, it may be necessary to raise the repo rate more quickly than we have assumed. A few years ago the Riksbank was criticised for not giving sufficient consideration to other variables than inflation, such as unemployment, for instance. Economic theory and experiences show, however, that monetary policy has only a very limited ability to lastingly affect real economic variables. On the other hand, the Riksbank tries to achieve a reasonable balance between attaining the inflation target and stabilising the real economy.

I think the answer is a clear “no,” principally because the returns earned by investors primarily are due to the absence of sufficient private balance sheet capacity rather than underlying credit risk. In fact, from the Federal Reserve’s perspective, the risk of loss is very low. Indeed, there are three layers of protection that stand between the Federal Reserve and losses. First, the underlying securities are AAA-rated, which means that losses on the underlying loans have to be unusually large to move that high up in the capital structure. And although some of the rating agency models have not held up well in the crisis, the consumer ABS models have proven to be reasonably robust. In other words, a AAA-rating still means quite a bit in this market. This is in contrast to the collateralized debt obligation or CDO market, where AAA-rated securities often used subprime and Alt-A mortgage loans as their raw ingredient. Second, as noted earlier, the Fed has taken additional haircuts against the underlying securities averaging about 10%. These haircuts provide additional protection to the Fed. Third, if the underlying collateral is put back to the Fed, the Fed puts the collateral into a special purpose vehicle. In such a situation, the Fed would be protected by the excess spread earned on the TALF loans and Treasury-provided TARP capital. Only if those buffers were wiped out, would the Fed suffer losses. BIS Review 69/2009  3  We have done stress simulations on the underlying loans.
This provides a tool that allows Fed officials to tighten monetary policy and raise private sector interest rates by raising the rate paid on excess reserves. Some skeptics note that when interest on excess reserves was first implemented, the federal funds rate traded somewhat below the rate on excess reserves. This has created worry in some quarters that paying interest on excess reserves might not work very well as a tool for controlling the federal funds rate. On this issue, two points are warranted. First, the relatively large gap between the interest rate on excess reserves and the federal funds rate was due, in large part, to the impaired condition of the banking system, which inhibited the willingness of banks to arbitrage that gap. Because balance sheet capacity was scarce, banks were reluctant to use their balance sheets to purchase federal funds at a slight discount to the interest on excess reserves rate. As the banking system returns to health, this arbitrage is likely to become more attractive, causing the gap between the interest rate on excess reserves and the federal funds rate to narrow. Second, the Federal Reserve could alter its monetary policy framework in order to increase its control of monetary policy in a large excess reserve environment. It is beyond the scope of this speech to get into the details, but we have plenty of options in devising incentives for banks to hold reserves at the Fed that would improve our ability to control the federal funds rate.

Not only can banks no longer securitize assets as before, but assets that they thought were off their books have come back on. BIS Review 48/2009  1  Although the deleveraging process is inevitable following periods when the financial system has become overextended, it does matter how this deleveraging process takes place. In the current crisis, the deleveraging process at times has been very violent and dangerous, with powerful reinforcing feedback loops intensifying the process. During these episodes, bystanders who did not engage in excess may be trampled and fail. This may exacerbate the tightening in financial conditions, intensifying the constraint on credit availability and the downward pressure on economic activity. For example, in March 2008, in the run-up to Bear Stearns’ demise, the deleveraging process intensified. Market volatility increased; this caused lenders to increase the haircuts they assessed against collateral to secure their lending. The higher haircuts, in turn, squeezed highly leveraged investors who were forced to sell assets. This drove down asset prices and increased price volatility further, leading to still-higher haircuts. This intensified the deleveraging process, which led to more mark-to-market losses. The Federal Reserve’s facilities for banks and dealers have been designed, in part, to slow down the deleveraging process. The TAF, the TSLF and the PDCF have provided assurance to banks and dealers that they have a place where they can obtain funding for their less liquid collateral.
We have a lot of bank supervisors who typically get degrees in public policy or business, and come and work at the Federal Reserve and become bank examiners. We have a lot of people in the Markets Group, which I ran prior to becoming President of the Bank. We monitor the markets. We talk to market participants to understand what’s going on. 4 / 15  BIS central bankers' speeches  We execute monetary policy on behalf of the Federal Reserve System. We have people that are in Operational Risk, who assess risk. We have people who manage custody accounts for foreign and central banks. We have about $ trillion of foreign central bank assets in custody at the New York Fed. We have the largest holdings of gold in the world in the vault of the New York Fed, so someone has to protect that. We have a number of people in the Protection and Law Enforcement Services that make sure that the gold is safe regardless of what one of the Die Hard movies implied, that it could be robbed pretty easily. That’s not the case. When I became the President of the Bank, I actually rented out the Die Hard movie because I wanted to see if it was plausible – the way they stole the gold from the New York Fed, and it turned out that they sort of glossed over that.

In fact, what did I do last weekend? Well, I was in Basel, Switzerland, at the BIS. This is where central bankers get together from across the world, exchange information with one another. So, the first thing is to explain ourselves to people in the community. Because the Federal Reserve is pretty mysterious in terms of – when I went to grad school even, I wasn’t really sure again what the Federal Reserve was. Had to be explained to me. The second thing we do in the community, and this is the more important piece, is to really learn what’s going on, on the ground, in the community. What’s happening in terms of businesses – are they successful? If they’re having trouble, what are the reasons for the trouble? Do they have access to the credit? Can they find people with the job skills they need to support their businesses? What are the challenges in the community, in terms of education, in terms of transportation? Queens, one of the issues is that if you’re not located near a subway line, it’s pretty hard to get around in Queens, and that has pretty significant implications for people’s ability to get to and from work, which is important in terms of economic development. Another issue is the affordability of housing. Queens is actually doing quite well. If you look at the employment growth in Queens over the last few years, it’s been very strong. Just like New York City as a whole.
The three-month Libor has been in negative territory since the announcement, dropping to a low of –0.96%; it is currently roughly in the middle of the target range (cf. chart 4). Long-term interest rates have also fallen, and the exchange rate too has now pulled back from the extreme values observed immediately following the discontinuation announcement. In tradeweighted terms, the Swiss franc is still at least 10% higher than it was at the beginning of the year. Overall, the Swiss franc is significantly overvalued and should weaken with time. When discussing the structure of the instrument, our deliberations focused on the interest rate level, but also in particular on the exemption thresholds above which negative interest was to be charged. We ultimately concluded that these thresholds should be calculated according to the minimum reserves banks are legally obliged to hold. This is a method that is both firmly anchored in law and for which clear rules exist. As a result, banks with large Swiss franc holdings at the SNB relative to the size of their balance sheets bear a heavier burden than banks with lower sight deposit balances. The fact that the banks face differing burdens has been criticised in certain quarters. Some have argued, for instance, that negative interest rates are distorting competition. This is certainly not our intention. Negative interest is a monetary policy measure that – like any other form of interest rate change – affects different industries and companies in different ways.

Under these plans, competencies in respect of financial stability and the prudential oversight of all types of financial intermediaries (banks, investment firms and insurance companies) would be under the roof of a single authority, integrated into the Banco de España; and responsibility for the oversight of markets and the supervision of the conduct of financial intermediaries would be assigned to a second agency established drawing on the current CNMV. The outbreak of the financial crisis shortly afterwards and the need to manage the delicate situation of the banking system, up until very recently, advised against implementing at that time an institutional reform which, undoubtedly, would have involved a considerable organisational challenge. At present, following the completion of the intense process of restructuring and reform of the banking system, the circumstances for resuming reflection on an ambitious reform of the institutional model for supervision are admittedly more favourable. I thus believe it would be worth considering again plans to reform the supervisory framework, taking as a reference, as was envisaged in 2008, the twin peaks model prevailing in Europe. In any event, the new supervisory model should be adjusted to accommodate, as it has in other countries, the setting up of a macroprudential committee (on which government authorities and supervisors would sit) coordinated by the Banco de España.
Simplifying somewhat, the former view was that monetary policy operated effectively by surprising economic agents. Today, economic theory posits that monetary policy works best if it is predictable. I will come back to the economic theory, but allow me to start by some changes in society at large. Transparency of economic policy The economic crisis in the 1930s shattered confidence in free market forces. Markets had to be controlled. The British economist John Maynard Keynes was working on ways of regulating and improving markets. Prominent Norwegian economists, with Ragnar Frisch at the fore, went even further. They advocated that the market economy must be replaced by a planned economy. Ambitions were high. One could almost say that transparency, in carefully selected portions, was a tactical tool. 7 It reached a head in 1973 when a commission led by  4  Preben Munthe (1994): “Økonomen (The Economist)” in Jan. F Qvigstad, Sigbjørn Atle Berg and Kjell Storvik (eds. ): Stabilitet og langsiktighet: festskrift til Hermod Skånland (Stability and a long-term perspective: Festschrift for Hermod Skånland), Aschehoug, p. 73. 5  See for example Alan S. Blinder, Michael Ehrmann, Marcel Fratzscher, Jakob De Haan and David-Jan Jansen (2008): “Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence”, in Journal of Economic Literature, 46, no. 4, pp. 910-945 and Petra M. Geraats (2002): “Central Bank Transparency”, in The Economic Journal, 112 (November), pp. F532-F556.

In most cases, foreign banks have brought with them the expertise and the mentality of modern business development from the more developed countries they come from. As Mr. Bini Smaghi mentioned in his key note speech, the increase of foreign presence in our financial market has also triggered new ideas on how financial institutions and particularly banks intend to adjust their business volume and size to position themselves better in the marketplace. But this is something where we would like to see a more active and consistent approach, in both establishing active business development policies and bringing in good quality and experienced management in applying those policies. It is indispensable for our supervisory authorities to be informed of the policy of different important financial or banking groups that operate throughout our region. Host to host cooperation can help in this regard because some of us enjoy better communication links with the home country supervisory authority and they can share this information with the rest of the supervisory authorities in the region, within ethics and transparency principles. In practise, this can turn out to be a very valuable approach,  2  BIS Review 103/2006  because these regional foreign banks tend to adopt similar policies in countries with similar characteristics. Another area where we could establish a strong cooperation is the discussion that should occur when any of us is adopting certain measures that are intended to control risks that appear from trends in the financial business developments.
On the other hand, the results also show the effectiveness of the measures implemented to date to mitigate the impact of the crisis. Such measures include most notably the guarantee  7  programmes, the ECB’s extraordinary refinancing measures and the recommendation to banks not to pay out dividends, thereby strengthening their resilience. Under the harsher scenario in which the cumulative decline in euro area GDP mounts to 6% by 2022, the 5.8 pp reduction in the solvency ratio is much bigger, leaving average CET1 at 8.8% of risk-weighted assets. Moreover, under this scenario a significant proportion of banks would remain below the minimum prudential requirements. As you know, the probability of this scenario materialising is low but not negligible; should it do so, it might possibly be necessary to adopt additional measures to those already implemented. I shall return to this issue later. The latest developments in Spain’s public finances reflect the impact of the pandemic, which has been particularly severe in our country, and of the measures adopted to contain it. All of which has translated into a significant increase in the budget deficit and public debt, and also in the contingent obligations assumed by the different tiers of government. Specifically, general government debt stood at 110% of GDP in June (14.6 pp more than in December 2019). The Banco de España’s macroeconomic projections forecast a very marked deterioration in the general government balance for the whole of 2020 and a partial correction in the following two years.

In a context of persistent recession, this strategy would have important benefits, in the form of an increase in the economy’s potential growth, generated by the reforms, and an improvement in the credibility of the sustainability of public finances in the medium term, which would in turn expand the fiscal headroom available and boost the expansionary effects of the current fiscal actions. In short, to have the fiscal space necessary to be able to expand the support measures for the economy should the course of the pandemic make this necessary, the reform agenda needs to be implemented decisively, fiscal consolidation  5  See R. Blanco, S. Mayordomo, A. Menéndez and M. Mulino (2020), Spanish non-financial corporations liquidity needs and solvency after the COVID-19 shock, Occasional Paper No 2020, Banco de España. 17  needs to be planned and support instruments need to be reformed to make them more flexible and focused. In the case of structural reforms, the Annual Report, which I am presenting to you today is a veritable catalogue of the main challenges that, in the opinion of the Banco de España, the Spanish economy faces in order to raise aggregate well-being. These challenges are wide-ranging in type and require the following issues to be addressed: low productivity growth, labour market duality, high unemployment, population ageing, inequality, climate change action, changes in the globalisation model and the speed of digitalisation of the economy.
The overheating changed into a severe setback at the beginning of the 1990s. Between 1990 and 1994 the Swedish GDP fell by a total of 4.7 per cent. In Finland the fall experienced during the same period amounted to 10.4 per cent. Finland was hard hit by the large decline in export brought about by the collapse of the then Soviet Union. Open unemployment in Sweden rapidly soared from a level of around 3 per cent in 1991 to 8.2 per cent in 1993. In Finland, the number of unemployed increased from just over 6 per cent to 16 per cent. Some of this difference can, however, be due to the slightly different form taken by labour market policy in the two countries and to how unemployment is defined. The deficit in public finances increased considerably; in Sweden it was at worst 12 per cent of GDP in 1993 and the borrowing requirement amounted to almost 17 per cent. The deficit in Finland in the same year was 7.3 per cent of GDP. The crisis in the banking system at the beginning of the 1990s hit both Swedish and Finnish banks hard. Sveriges Riksbank, like the Bank of Finland, found itself in a difficult situation at the end of 1992, following the currency crisis. The decision on a new monetary policy strategy was taken in an environment where confidence in monetary and foreign exchange policy was low.

Eva Srejber: Life outside Euroland Speech by Ms Eva Srejber, Second Deputy Governor of Sveriges Riksbank, at the annual meeting of the Economic Society, Helsinki, 11 February 2002. *  *  *  Let me begin by thanking you for the invitation to speak at the Economic Society's annual meeting. I intend to take developments in Finland and Sweden during the 1980s and 1990s as the starting point for my talk and to illustrate the similar experiences our countries have had. After that, I shall touch on the economic arguments in favour of and against EMU membership and take up the role of the Riksbank in this debate. As the political temperature has risen in the EMU issue in Sweden, I intend to conclude with some words regarding the potential timetable. Sometimes Finland and Sweden are compared in terms borrowed from family life or the world of sport. However, the question is not which brother or sister is the oldest, or who is ahead in the international economy race. Our countries are interwoven to such an extent today that we often go in the same direction. However, in one area our two countries have chosen – at least for the time being – to take different paths. This applies, of course, to membership of the Economic and Monetary Union (EMU). Finland has for various reasons decided to participate fully from the start, while Sweden has decided to "wait and see".