samchain/econo-pairs-v1 huggingface dataset:
Davíð Oddsson: Recent economic and financial developments in Iceland Speech by Mr Davíð Oddsson, Chairman of the Board of Governors of the Central Bank of Iceland, at a seminar organised by the Iceland Chamber of Commerce, Reykjavik, 7 November 2006. *  *  *  I would like to thank the Iceland Chamber of Commerce for giving me the opportunity to say a few words here as has become customary at this time of year, following the Central Bank of Iceland’s interest rate decision and the publication of Monetary Bulletin. That publication provides indications of the position and outlook at the end of this year and what is to be expected over the forecast horizon of the next two years. Of course the Bank’s long-term forecasts are presented with due humility and respect towards the uncertainties that time may bring. Something of a milestone was reached on November 2 when the Board of Governors of the Central Bank decided to leave the policy interest rate unchanged at least until the next interest rate decision day, which was in fact brought forward to December 21. The last decision marked an end to 17 successive hikes on interest rate decision days. At this juncture it is uncertain whether a real turning point has been reached, because the decision was presented more as a deferral of a rise in the policy rate than as an end to the hike process. In other words, the data available to the Central Bank supported raising the policy rate still further.

People may well question and in fact some already have the Bank’s grounds for its concerns and its strongly worded message, bearing in mind the short-term and long-term downturn in inflation, slower credit growth, lower oil prices and substantially less wage drift than was feared. The answers are obvious from the Bank’s core writings on these issues. They show that a tight monetary stance must be maintained for longer than would seem to be generally expected. Inflation has certainly slowed down but it is still running high and will continue to do so, and for quite a while will remain incompatible with the target and main tasks assigned to the Bank. Almost everywhere we look, strong pressures persist in the economy. The labour market is greatly overstretched and labour demand is enormous. This has been met with heavy imports of labour and it is questionable whether such a swift influx is necessarily beneficial or healthy for Iceland in the long run, despite making the battle with inflation easier for the moment. In the banking sector, credit growth remains robust even though it is now slower than at the peak, and is still unsustainable in the long term. Now that the banks have fortunately managed to secure medium-term funding, the risk is that they will become more complacent and ease their restraint. Such signs seem to be emerging. The housing market appears to be picking up again and household and business sentiment is still very upbeat.
But the analysis of the euro area will be undertaken centrally to a large extent and the level of interest rates will be decided by the ECB Governing Council, which consists of the members of the ECB’s Executive Board and the NCB Governors of the, initially eleven, participating countries. The European System of Central Banks (ESCB) has been given a highly independent status so as to be in a position to conduct a monetary policy for price stability without short-run political considerations. But its independence does not relieve the ECB of the duty to inform and communicate. On the contrary, it accentuates the need for a dialogue and exchange of information. The European Parliament has displayed a high profile in these matters and worked to establish a basis for discussing and monitoring monetary policy continuously. The ECB will be obliged to make difficult decisions in various matters. One problem may arise from cyclical disparities between euro area countries. While these disparities may diminish over time, they are unlikely to disappear completely. Meanwhile, the ECB has to set a single instrumental rate for the whole monetary union. The common interest rate will normally not be ideal in relation to the economic situation in every country. The national financial structures also differ considerably, which means that, for instance, interest rate sensitivity varies.

Structural questions have been brought to the fore during the British Presidency and there have been somewhat more concrete discussions in various committees about how to get Member States in step here as well. One approach involves finding good examples in different fields, just as in the case of employment, and analysing the structural problems of each country. This process generates what the British call peer pressure, which can also contribute to the desired national changes coming about. Once again, however, the decisions in this field largely have to be made at national level. But to perhaps an even greater extent than with fiscal policy, the major benefits of a successful national policy will accrue to the country in question. By itself, this seems hopeful and should facilitate changes. At the same time, the political resistance in most EU countries is strong. Some believe that the very fact of monetary union will generate desired reforms in labour markets. Possibly but not necessarily - when high unemployment rates in recent decades in many EU countries have failed to produce changes, why, it may be asked, would monetary union be more successful? In conclusion, I consider that much work at EU level will be invested in political education and a search for methods to gain support for changes in this field. But I do not foresee the same pressure in the joint processes as in the case of fiscal policy; there is less need of a common approach.
Monetary policy needs to take this onboard, even before considering other issues such as risk-management at the zero bound. I have argued today that the central bank needs to have a major role in ensuring that the financial system is sound. Without this, the central bank cannot ensure that monetary policy will be effective in achieving its objectives. This is the important linkage of monetary policy to banking. Now some express concern that involvement in banking regulation and supervision may lead a central bank to bias the setting of monetary policy to try to help troubled banks or other institutions. This fear is misplaced. Problems in the financial sector are taken into account for monetary policy purposes only to the extent that they affect the transmission of policy to the real economy. There is a separate tool kit to address problems at the level of the banks themselves. Others will argue that having the central bank involved in the oversight and regulation of the financial system puts too much power in the hands of one authority. Another concern is that such a consolidation of responsibilities is dangerous for the central bank because it could threaten the central bank’s independence with respect to monetary policy. I think these are legitimate issues. But the bigger risks, in my view, are a monetary policy that fails to accomplish its economic objectives because of financial instability, and difficulties that stem from the inevitably imperfect coordination that takes place between multiple agencies with divided responsibilities during a crisis.

The problem we face is that unemployment’s critical level cannot be identified for certain and we do not know when shortages and rapid wage increases will actually arise. Estimating these matters is difficult and the results cannot be taken for granted. It is therefore hard to tell how much scope there is for a temporary phase of economic growth above the long-term trend. The ability to look ahead and formulate monetary policy cautiously is particularly important when an economy is moving further and further along an upward phase. Otherwise there is a risk of price and wage increases accelerating so that the brakes have to be applied more abruptly later on, leading to a situation that is worse than would otherwise have been the case. Thus it is in this phase of rising activity that we can be said to influence the depth of the next slowdown. It was the overheating in the late-1960s, the mid-1970s and the end of the 1980s that set the stage for the subsequent deep troughs. And each recession was worse than its predecessor. Looking back, it is easy to see that economic policy ought to have been tightened much earlier than was the case on those occasions. At the same time, it has tended to be difficult, not least in fiscal policy, to take such measures sufficiently early, particularly as that needs to be done before the problems are clear to everyone.
It is not even self-evident that inflation will return to the target level in the long run if monetary policy is too tight. If we are worried that a long period with a low repo rate will give rise to an unjustified upturn in housing prices and indebtedness, we should perhaps ensure we conduct a monetary policy that means we quickly move towards the inflation target, and that still works even if  8  BIS central bankers’ speeches  economic developments are less favourable than forecast in our main scenario. Such a monetary policy could entail cutting the repo rate now to increase inflation and then raising the repo rate slightly faster in the coming period when inflation accelerates (see Figure 7). Admittedly, preliminary assessments within the Riksbank, based on model calculations combined with empirical relationships, indicate that a large repo-rate cut now, followed by faster increases in the future would entail slightly higher risks linked to household indebtedness than if the repo-rate path advocated by the majority is followed. However, the difference in the risk outlook for these two alternatives is almost negligible.

As I in practice have not let concern for households’ rapid build-up of debt affect my view of how the repo rate should be set today, measures of the first type, that is, measures that directly limit vulnerable households’ opportunities to become or remain heavily indebted, would probably also have little effect on my choice of repo rate and repo-rate path. On the other hand, measures that entail an increase in the average lending rates or a weakening of general demand would justify cutting the repo rate. The purpose would then be to counteract the effects of the supervisory measure on total economic developments. However, the supervision measures could nevertheless affect financial imbalances, for instance, by changing the level of household mortgage rates in relation to companies’ borrowing rates. Further macroprudential policy measures thus need not change my view of which monetary policy is most appropriate now. However, such measures are nevertheless important to monetary policy as they can reduce risks and uncertainties. It is easier to conduct monetary policy if financial stability is good. References Blanchard, Olivier and Galí, Jordi (2007), Real Wage Rigidities and the New Keynesian Model. Journal of Money, Credit, and Banking 39(p1), pp. 35–62. Farhi, Emmanuel and Tirole, Jean (2012), Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts. American Economic Review 102(1), pp. 60–93. National Institute of Economic Research (2013), Are households borrowing too much? Article in Swedish Economy June 2013 [NB! only a summary of the report is published in English].
Unlike others, I would not necessarily look for a certain figure (beyond the already 3/4  BIS central bankers' speeches  mentioned minimum level of roughly 70–75 percent); I would tackle this issue by approaching  real convergence not as a race where the fastest track is also the right one, but rather as a complex process giving the steady runner (a marathoner rather than a sprinter) the opportunity to reap most of the potential benefits, while avoiding excessive risks. Speaking about risks, it is worth noting that relatively sizeable current account and fiscal deficits may erode the very foundation of this edifice that is the national economy. It is therefore much wiser to adjust them in a gradual manner than leave market forces to cause a sudden correction. Fiscal discipline, consistent economic policies and an ambitious, yet viable, calendar should make a successful euro adoption possible, so that the economy adequately withstand competitive pressures within the euro area. Equally important is to reduce the still overly large disparities across Romania’s development regions, as it takes the entire country to join the euro area, not only Bucharest and Ilfov county. Economic growth is not enough, it should be accompanied by lasting economic development. Before ending my speech, instead of my personal view about the future, let me quote a recent column in Financial Times by Tony Barber 2 relevant for the state of affairs in the region: “Nevertheless all is not well in the region. Why?

Such fluid arrangements are also being leveraged to build internal capacity building and support transition. A survey conducted by Capgemini reported that more than 60% of businesses fill new jobs powered by AI and automation with fluid workers first, then gradually seek to transfer knowledge from these specialists to other full-time employees in the organisation. These strategies will have important implications for how we build the future workforce from without rather than within. Such strategies can create greater flexibility for organisations to respond to changing business needs, but they also call for a fundamental re-thinking of pre-existing organisational and cultural norms. As we move forward, deepening employee engagements will become more important to enable firms to better anticipate shifting trends and inform approaches to building a future-fit workforce. It is not uncommon today to find up to four different generations coexisting in many workplaces, each with different perspectives on leadership, learning and workplace culture. Recognising these differences within talent strategies will be important to successfully cultivate a future-ready workforce. Closing message: In closing, I am reminded of the words of Mr. Colin Powell, former U.S. Secretary of State who said: "One of the greatest talents of all, is the talent to recognise and develop talent in others". This lies at the heart of building a workforce fit for the future. We all have a part to play – as employers, professional development bodies, training providers and workers – to build a resilient and sustainable talent pipeline for the future.
(a) Excluding Saudi Arabia due to unavailability of data. (b) Weighted averages use each country’s equity market capitalisation as weights. (c) Numbers may differ slightly to those in the text due to rounding.

A reduction in those capital market frictions would tend to lower the asset market spillover costs of the BFSP problem.   Finally, what guideposts should be provided by the international community in tackling the BFSP problem? The IMF recently began to explore such a framework (IMF (2011)). This raises a set of key questions about global financial governance. Are global financial network externalities sufficiently large to justify the international community imposing rules of the financial road? And how much driver discretion should instead be left to nation states which ultimately may bear the costs of the BFSP problem? These are big public policy questions. They are by no means new ones. If the quantitative experiments presented here are even roughly right, these questions may assume a new urgency in the period ahead. The BFSP problem is real. It may be rising. The result would be growing waves of global financial exuberance, punctuated by crashing capital busts. This roller-coaster has the potential to leave some nation states feeling queasy. They may even wish to get off. What is at stake may be more than just the future stability of the international financial system. References Barro, R J and Sala-i-Martin, X (1992), “Convergence”, Journal of Political Economy, Vol. 100 (2) pages 223–251. Dornbusch, R, Goldfajn, I and Valdés, R (1995), “Currency Crises and Collapses”, Brookings Papers on Economic Activity, Vol. 26(2), pages 219–294. French, K R and Poterba, J M (1991), “Investor Diversification and International Equity Markets”, American Economic Review, Vol. 81 (2), pages 222–226.
It is remarkable how often problems in financial firms can be overlooked because of a sense that are they part of a normal, business-as-usual state of affairs. A diversity of inputs can help us see the flaws in what we accept as normal. Diversity is a frequent topic of conversation, but it is not easy. My view is that, like other ethics, diversity is a habit that takes practice. As first line of defense professionals, try to develop the habit of seeking out other points of view. Diverse points of view may come from junior employees in your line of business. They may also come from HR professionals, sociologists and psychologists, communications experts, even lawyers. For financial firms, prudential supervisors can also contribute to a diversity of viewpoints. Their horizontal view of practices across firms not only helps promote a more stable financial system, but also helps firms identify problem areas. A diverse set of views, professional training, and life experience may help you see shortcomings in your risk management framework—even in the three lines of defense model. Just because three lines of defense is a sensible way to manage risk does not mean it is perfect—no model is. A diverse set of inputs will help you figure out how to apply more effectively the three lines of 2/7  BIS central bankers' speeches  defense in your organization. Choice architecture I recommend as well that you pay attention to choice architecture in deciding how best to construct a first line of defense.

Michael Held: The evolving first line of defense Keynote address by Mr Michael Held, Executive Vice President of the Legal Group of the Federal Reserve Bank of New York, at the 1LoD Summit, New York City, 17 April 2018. * * * Good morning. It’s an honor to join you at the 1LoD Summit. The views I express today are my own, not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.1 I’ve heard it said that being in the risk control business can be, and often is, a thankless task. We get all the blame when something goes wrong, and none of the glory when things go right. So, I want to start my remarks with a word of gratitude to you, my fellow travelers in the world of risk controls. Thank you—not just for the invitation to speak today, but also for the work you perform each day at your firms. The growing sophistication and stature of the first line of defense is, in my view, an unqualified improvement in corporate governance—especially at financial firms. Let’s begin with what you are defending. The credibility and reputation of your colleagues, your employer, and your industry. The trust of your customers and clients. And, perhaps most important, the public interest. From my perspective, you are not just a first line of defense for your organization. You are the first line of defense against significant risks to the financial system. This may sound inflated to some.
The Governing Council therefore supports the implementation of the ambitious objectives described in the evaluation report.” In terms of the broader service to Spanish society we have just mentioned, let me remind you that three CEMFI faculty members currently participate in the Council of Economic Advisors of the Spanish Ministry of Economic Affairs, two have recently been appointed members of the Advisory Committee of the Ministry of Inclusion, Social Security and Migration, one is a member of the Advisory Board of the Spanish Independent Agency for Fiscal Responsibility, and another one is chair of the Scientific Committee of the Spanish State Research Agency. In addition, last December, CEMFI signed an agreement with the Ministry of Inclusion, Social Security and Migration to collaborate in the evaluation of 34 pilot projects to improve the design of poverty reduction policies. CEMFI will participate both in the design and the evaluation of the projects, and researchers will be able to use the data generated by these evaluations for the production of papers publishable in scientific journals. Carrying out these evaluations will allow CEMFI to take a qualitative leap forward, positioning itself as an academic institution of reference in the evaluation of public policies in Spain. I would like to thank Samuel Bentolila and Mónica Martínez-Bravo for leading this important initiative.

To address current structural and cyclical challenges we need to rely on the analysis and advice of well-trained economists whether they are in the academia, in the public administration, central banks or the private sector. This is why it is so important to have academic institutions like CEMFI, that produce groundbreaking research and invest heavily in boosting the single most important determinant of economic growth: human capital. Students of the class of 2022, what you take from here – your knowledge and the tools needed to analyse and understand reality – is the accumulated capital stemming from what is probably the most important investment you will make in your whole life. You have invested your time and effort. And the yield on this investment will be a wide array of opportunities. But, above all, this human capital you now possess is something that nobody can take away from you. It will accompany you everywhere you go and you can apply it in every endeavour you may undertake. Besides the Master and PhD programmes, organised in collaboration with the Universidad Internacional Menéndez Pelayo, the CEMFI provides other valuable services, such as a summer school that brings leading academics to teach courses in relevant areas to participants – among them a large number of central bankers – and a highly valued summer internship programme for top undergraduate students. And it also collaborates with the Banco de España in various research activities, including the organisation of workshops and international conferences.