samchain/econo-pairs-v1 huggingface dataset:
What do you think are the qualities that a central banker needs today? Jean-Claude Trichet: It seems to me that in periods that are marked by turbulence, unexpected events, a high level of uncertainty – and I’m afraid that a large part of the reasons for this are structural – central banks are the institutions that have a mandate for price stability, a sense of direction, a stake in overall stability in a medium and long term perspective. They are independent. They can be precisely those anchors of stability that I would say an economy and society need even more in times that are very demanding and very turbulent. That would perhaps be the best way to sum up the responsibility of central banks. Financial Times: Are you concerned, in the wake of this crisis that there’s been any weakening of support for the concept of central bank independence? Jean-Claude Trichet: If I take a global perspective, it seems to me that one of the lessons that has been drawn from the crisis, or taken into account, is that the concept of independent central banks having a stake in stability, and a medium to long term perspective, has been recognised as the right concept. Financial Times: Very soon, you’re going to be chairing the new European Systemic Risk Board, which will take an EU view, so you will actually be including the United Kingdom in your work, your daily outlook, I suppose. To what extent do you think the UK should fear or embrace this process?

There is no other model to which we can refer – either in history or in a fully fledged political federation such as the US, and certainly not in comparison with centralised states such as Japan or the UK. But I’m always confident. In May we had additional proof of the capacity of Europe to cope with new challenges. Financial Times: Can you explain why [in May] the ECB changed its mind on government bond purchases? There was a lot of criticism in Germany especially. Jean-Claude Trichet: When I talk of “credible alertness” I really mean it. When we decided on 9 August 2007 that it was appropriate to embark in an unlimited supply of liquidity in our own money market, and we supplied 95 billion euros for 24 hours, that was not a decision that was in the textbooks. We were criticised a little bit at the time, and then, after a while, it was recognised that this decision had been wise and lucid. So in May this year I would say that we were in a situation where it was considered appropriate by the governing council of the ECB to take the decision, as I said earlier, to help restore a more normal functioning of our own monetary policy transmission mechanism. We had previously purchased covered bonds and we had not excluded intervening in other markets. Financial Times: What lessons do you draw in terms of euro governance from this crisis to date?
The Bank of England had described in its so-called Red Book how it could act in such a way in exceptional circumstances. Here too, there is a lot more to be done to consider the circumstances in which this tool could be used. Conclusion The rapid trend towards greater use of market-based financing is one that should be welcomed. But, it is important that accompanying risks to financial stability are well understood and managed. Credit creation since the financial crisis has been heavily reliant on market based finance in the UK and internationally. We have to be alert to, and ready to handle the risks and consequences of any reversal in market conditions. Recent incidents of market volatility act as a reminder that it can disappear very quickly in more normal as well as stressed times. Moreover the business models of the broker-dealers that act as market makers are changing in response to the financial crisis and they are becoming reluctant to absorb large positions. In my view those changes are inevitable, because the pre-crisis state  7  8  Financial Stability Paper No 33 – February 2015 “A European Capital Markets Union: implications for growth and stability”. BIS central bankers’ speeches  of affairs was ephemeral and unsustainable. But the impact of the change is of course important for both monetary policy and financial stability, because it affects the supply of credit to the economy and the stability of the financial system.

As I mentioned at the outset, every act of misconduct starts with an individual’s decision – and that individual should be accountable for that decision. But that decision is also heavily shaped by the environment or “the barrel” that individual works in – by the standards or norms established by regulation, market practice and firm-level expectations; by the extent to which responsibilities are clearly allocated and governed; by the incentives that an individual is given, financial or otherwise;  6  BIS central bankers’ speeches  by the perceived probability of being caught; and by the expected penalty if he or she is caught. The recent speeches by Bill Dudley 5 and Dan Tarullo 6 of the US Federal Reserve at a workshop on reforming culture and behaviour in the financial services industry set these issues out very nicely. 4. Standards of market practice  We start with standards or norms of market practice. On one view, the existing regulatory provisions and voluntary codes – and there are many of the latter – provide a sufficient guide to expectations of market practice. If that is the case, the main priority should be enforcement actions against those who are in breach, and a parallel process of ensuring that all FICC market participants understand the implications of those provisions. The Review explores a number of ideas for deepening that education process and encouraging more of Kahneman’s “System 2” type thinking.
This problem was even more acute in the case of those firms, mainly SMEs, that relied in only a limited number of lenders facing 1  Beck, T., and Levine, R. (2002) “Industry growth and capital allocation: Does having a market- or bank-based system matter?”, Journal of Financial Economics, 64, 147 – 180; Gambacorta, L., Yang, J., and Tsatsaronis, K. (2014) “Financial structure and growth”, BIS Quarterly Review, March 2014, 21 - 35. 2 López-Espinosa, G., Mayordomo, S., and Moreno, A. (2017) “When does relationship lending start to pay”, Journal of Financial Intermediation, 31, 16-29. 3 Tengulov, A. (2016) “The Impact of Borrowing Diversity on Firm Value, Financing and Real Decisions”, Working Paper SSRN 2361401. 4 De Fiore, F. and Uhlig, H. (2015) “Corporate Debt Structure and the Financial Crisis”, Journal of Money, Credit and Banking, 47, 1571‑1598. 3/6  financial problems since their ability to switch to a new lender was not always easy due to asymmetric information problems.5 Given the generally low level of diversification of liabilities of European firms, and the risk this poses for the corporate sector to face shocks affecting the bank lending channel, there seems to be some room for a higher role of capital market financing in Europe. Moreover, European financial markets not only are less developed than their US counterparts but they are also less integrated.

Paradigm is a word too often used by those who would like to have a new idea but cannot think of one. Optimism about growth rates has been greatest in the United States, which is hardly surprising given the recent performance of the US economy. But wiser heads counsel caution. Alan Greenspan has argued that, although there is evidence of a structural shift in the level of productivity, the laws of supply and demand have not been repealed. Eventually the old relationships will return. If the UK economy moves in mysterious ways, it does not always perform wonders. A comparison between the US and UK is instructive. In both countries earnings growth has been lower, given the level of unemployment, than would have been predicted on the basis of past relationships. Inflation has not picked up despite a tight labour market. In the US one explanation for this benign outcome is that costs have been held down by an increase in productivity growth. Over the past three years labour productivity (output per person hour) in the US has grown at an average annual rate of around 22%, well above the average rate of 1–12% over the past thirty years; and over the past year productivity growth rose to an annualised rate of 3% or more. Over the same three years productivity growth in the UK has been 12% a year, well below the thirtyyear average of 2–22% a year.
In the assessment, potential effects of property prices and the krone exchange rate on the prospects for output, employment and inflation are also taken into account. The results of this trade-off are presented in the Monetary Policy Report in the form of a chart that presents baseline scenarios for the interest rate, inflation and capacity utilisation in the economy. In Monetary Policy Report 3/07 it was pointed out that the inflation outlook is marked by opposing forces. The rise in prices for domestically produced goods and services is gathering pace. The Norwegian economy is still expanding, with unusually high demand for intermediate goods and labour. At the same time, the krone had appreciated markedly. This  BIS Review 141/2007  5  may restrain inflation. The analysis implies that the key policy rate should be raised further, but to a lesser extent than envisaged in June. At its meeting on 31 October, Norges Bank’s Executive Board decided to leave the key rate unchanged at 5 per cent. At the same time, it was made clear that the key policy rate will probably remain in the interval 4¾-5¾ per cent until the next Report is published in March 2008, unless the Norwegian economy is exposed to unexpectedly severe shocks. The projections are shrouded in uncertainty. The projections for inflation, output, the interest rate and other variables are based on an assessment of the current economic situation and the functioning of the economy.

After a period of very low inflation in 2004, inflation was on the rise through 2005. Thereafter, domestic inflation showed an unexpected drop in 2006. Lower electricity prices have contributed to a fall in total CPI inflation in 2007. Underlying inflation, i.e. inflation adjusted for tax changes and excluding energy products, was fairly stable for a long period at between 1 and 1½ per cent. Underlying inflation has edged up gradually since late summer 2006. The most recent figures indicate that underlying inflation is now approximately 1½ per cent. The Norwegian economy is expanding sharply after the strong upturn began in summer 2003. The upturn followed a period of slow growth from 1998 and a mild recession in 2002 and into 2003. Growth has been stronger than in the cyclical upturn in the mid-1990s. We have just reached the end of an unusually long period of economic growth. So far in the cyclical upturn, the mainland economy has grown by an average of just over 4 per cent annually. This year, growth appears to be over 5 per cent. Growth is very strong for such an advanced stage of the economic cycle. This is clear from a comparison with the upturns in the 1980s and 1990s. Unemployment has declined considerably and is now very low. The labour market is tight. Unemployment has not been as low since the latter half of the 1980s, and employment has risen faster this year than in living memory.
I will argue that in the U.S. context, a Taylor-type rule – even an inertial one – is an incomplete guide for policy because it does not explicitly include financial variables that are important factors in the transmission of monetary policy to the real economy. Finally, I will briefly comment on the issue of secular stagnation and my views on the long-term equilibrium real federal funds rate. Turning to the first issue of the relationship between real potential GDP growth and the equilibrium real short-term interest rate, the authors find, at best, only a very loose relationship. I would have welcomed some further work here, more closely focused on the components of real potential GDP growth – such as labor input and productivity – and their potential links to the level and dynamics of the equilibrium real short-term rate. First, I would look more closely at the demographic factors that influence the amount of labor input. In my view, it seems plausible that when the labor force is rising rapidly, this might put upward pressure on r* by increasing the demand for capital needed to equip the new army of workers. This might have been particularly relevant during the late 1970s when the labor supply in the U.S. was rising rapidly due to the influx of the baby boom generation into the workforce and the climb in female participation rates. Second, the equilibrium real short-term rate might be influenced by the productivity growth rate.

I am pleased to note the vital role played by the EXIM Bank in providing the financing facilities for the construction sector to undertake projects abroad. In today’s Seminar, we have the opportunity to hear from the EXIM Bank on the various available financing facilities to contractors with overseas projects. Similarly, we will also be enlightened on the role of the ICD in promoting economic development among OIC member countries, particularly on private sector project, by providing financial as well as advisory services for a range of client requirements. Malaysia’s Islamic financial industry, as we are all aware, distinguishes itself a proven platform for conducting Islamic finance activities. The vibrancy and dynamism of Malaysia’s Islamic financial system is reflected by its continuous product innovation, the diversity and strength of its domestic and international financial institutions, the wide range of available financial instruments, a comprehensive Islamic financial infrastructure and the adoption of global regulatory, legal and Shariah best practices. Leveraging on the strengths of the ever growing domestic Islamic financial sector, Malaysia has launched the Malaysia International Islamic Financial Centre (MIFC) initiative in August 2006 to offer its value proposition in Islamic finance to the world at large to leverage on its inherent strengths, advantages and experience to tap the trillion-dollar opportunity that awaits financial institution worldwide. The Islamic financial system in Malaysia has evolved as a competitive component of the overall financial system, with both acting as drivers of economic growth and development.
It is difficult to judge to what extent the recovery abroad can be attributed to the monetary policy that has been conducted. There is, however, little doubt that it has had a positive effect. Lower interest rates have given firms and households access to cheaper funding. It has also eased the interest burden for heavily indebted borrowers and contributed to growth in disposable income. In addition, the value of households’ financial wealth has increased. This may also have provided a basis for higher demand. Studies conducted so far also suggest that the unconventional measures have had an effect. 13 A study by the Federal Reserve suggests that the Fed’s asset purchase program has reduced unemployment by 1¼ percentage points and increased inflation by ½ percentage point. 14 The Bank of England estimates that the Bank’s purchases of government  12  Jordà, O., M. Schularick and A. M. Taylor (2013): “When Credit Bites Back”, Journal of Money, Credit and Banking (45), 3–28. 13  IMF (2013): “Global impact and challenges of unconventional monetary policies”. IMF Policy Paper, October 2013. 14  Engen, E. M., T. T. Laubach and D. Reifschneider (2015): “The macroeconomic effects of the Federal Reserve’s unconventional monetary policies”, Finance and Economics Discussion Series, Federal Reserve Board, Washington D.C.  BIS central bankers’ speeches  7  bonds from 2011 to 2012 boosted GDP by just over ½ percent. The effect on inflation was also found to be positive.

Furthermore, central banks should seriously consider the question of whether they need to intervene when risks in the financial system increase as a result of strong credit growth and an easing of lending conditions. Credit aggregates are part of the SNB’s monetary policy strategy, and the National Bank monitors their development closely. However, the SNB’s main aim is and will continue to be the maintenance of price stability. BIS Review 35/2010  1
These uncertainties put a premium on keen listening skills on our part and continued dialogue both among central bankers as well as between central bankers and the market. In my view, it is important to recognize that our large scale asset purchase programs affect the size of term risk premia globally. This new set of monetary policies affects financial asset prices in a different way compared to changes in short-term interest rates, and we should be humble regarding what we claim about our understanding of the importance of this distinction. Looking ahead, it seems likely that markets will remain focused on vulnerabilities that they might have ignored prior to the taper tantrum in 2013. The greater premium on strong fundamentals, policy coherence and predictability will likely remain. There will be no one right answer in managing the trade-offs that come with the changed environment, and adjustment will sometimes be difficult. Moreover, we will undoubtedly experience further bumps in the road. The renewed volatility we saw last month is evidence enough of that. Yet, I think we can remain generally optimistic on the outlook so long as market participants continue to appropriately discriminate across countries, rather than treating EMEs as a homogenous group. Furthermore, many EMEs generally appear to be better equipped today to handle the Fed’s prospective exit from its exceptional policy accommodation than they were in past tightening cycles.

In July, the Central Bank of Malta joined the Network of Central Banks and Supervisors for Greening the Financial System, a collaborative structure that aims to green the financial system and strengthen the efforts of the financial sector in achieving the Paris climate agreement goals. This includes mobilising capital for green and low-carbon investments. Staff members have joined work streams to further research in this area and adopt a number of proposals. Furthermore, the Central Bank of Malta is also represented in the Sustainable Advisory Committee of the Bank for International Settlements and is working in aligning our international portfolio towards holding more green bonds. Page | 6
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.

Decisions have to be made and it would not be reasonable to go on acting as though nothing had changed until sufficiently long time series are available for econometric analyses. Recently I had the pleasure of chairing a central bank seminar that the BIS arranged on just these issues. My impression was that it has proved difficult to produce definite evidence of any structural shift in the relationships that govern inflation, such as various versions of the Phillips curve. In many countries, including Sweden, appraisals of resource utilisation, for example, are now more optimistic. As you are no doubt aware, in the past five years our output gap estimates have in fact been revised a number of times. One explanation I find fairly plausible is that after the profound crisis in the early 1990s we simply misjudged the size of the gap. There is also some support for the possibility that productivity has followed a more favourable trend than expected, thereby reducing the risk of bottlenecks. Total factor productivity, for instance, has been on a rising trend since 1993. Another possibility is that, for various reasons, the labour market is functioning more efficiently. One indication of this is that rapidly falling unemployment in recent years has not been accompanied by acute labour shortages. Perhaps I should mention that we have also detected certain changes in inflation relationships.