samchain/econo-pairs-v1 huggingface dataset:
4  BIS central bankers’ speeches  From principle to practice The question is then how the principle of consideration of financial risks and imbalances should be put into practice in monetary policy. How should the balance between the different tasks be managed? When determining this we must consider whether other tools than monetary policy are more suitable for managing financial risks, whether our concerns regarding household debt are justified and what effects monetary policy has on the imbalances and risks that concern us. I do not intend to conduct any deep discussion of the links between monetary policy and other tools today. As expressed by the Riksbank (2010), I note that it is not primarily monetary policy, but an efficient regulatory framework and supervision that is important to prevent financial imbalances. The way in which monetary policy should take into account financial risks may therefore depend on the formulation of the regulatory framework and the supervision. I shall return to this question when I discuss the new framework for macroprudential policy. Household indebtedness is worryingly high Also, I do not wish to get into a detailed discussion now as to whether the concern over rising house prices and household debt in recent decades is justified.5 It is clear to me that we do not fully understand what the underlying factors are. We therefore do not know whether the upturn is largely explained by fundamental factors or whether it reflects imbalances that have built up in the economy.

Martin Flodén: My view of monetary policy and household debt Speech by Mr Martin Flodén, Deputy Governor of the Sveriges Riksbank, at Swedbank, Stockholm, 24 September 2013. *  *  *  This is my first speech since taking up the post of Deputy Governor of the Riksbank. Since I started in the spring I have taken part in two monetary policy meetings. On both occasions I have entered a reservation against the majority decision and advocated a lower repo rate. It therefore seems natural for me to devote my speech today to explaining my view of monetary policy and the reasons for my reservations. Should monetary policy take into account households’ high and rising indebtedness? This is a question that has been central for monetary policy in recent years and also at my first monetary policy decisions. I consider it clear that the Riksbank has a responsibility to safeguard financial stability and prevent crises linked to credit granting. However, it is not so clear what consequences this responsibility has with regard to conducting monetary policy in practice. I shall explain my reasoning at the recent monetary policy meetings. I also intend to comment on how the new framework for macroprudential policy may affect my view of monetary policy. However, I shall begin with a brief description of my view, and the Riksbank’s view, of the economic situation. Positive signs but risks remain In recent months we have been able to see some positive signs in the Swedish economy, and also abroad.
While his opponents saw the assumption of the states’ debt by the national government as a threat to the republican government, Hamilton saw it as a unique opportunity to pursue his agenda of creating a more powerful national government. He considered assumption as a way to assure the new country a solid credit standing at home and abroad. This would allow the United States to take full advantage of the emerging global commercial and financial opportunities. In the end, Hamilton prevailed thanks to a classic political compromise involving the future permanent site of the capital of the United States. 7 With history in mind, let me end on an optimistic note: As more details emerge about the EFSF and as the European authorities proceed with their stress tests, I am confident that market strains will begin to ease. While the EFSF provides a financial backstop, the importance of publishing credible bank stress test results cannot be overemphasized. I am convinced that meaningful transparency about the solidity of European banks and corresponding swift action to raise capital where necessary will bolster market confidence significantly. In a longer term perspective, credible steps are now being examined and will be undertaken to enhance fiscal discipline in the EU. The EU authorities and governments of the member  5  See also Lorenzo Bini Smaghi: “… it requires a strengthening of the institutional framework for budgetary surveillance”, Speech at “Group of Thirty”, 63rd Plenary Session, Session 1: The crisis of the Eurosystem, Rabat, and 28 May 2010.

Markets are also questioning the overall solidity of bank balance sheets in the aftermath of the financial crisis. Therefore, last Thursday the heads of governments of the EU member states agreed that the results of stress tests on their respective banks will be published in the second half of July. This decision can play an important role in fostering market confidence. In the event that these stress tests reveal cases where additional capital is necessary, recapitalization efforts will have to be undertaken swiftly. Institutional investors appear to be underweight in their exposure to European banks. This should prove helpful in lending support to potential capital raising efforts following a credible and transparent stress test exercise. Indeed, one of the reasons investors currently appear to underweight European banking stocks may very well  3  See IMF (2010): World Economic Outlook, April, chapter 1, p. 9. 4  ECB press release, 10 May 2010. BIS Review 87/2010  3  be related to the fact that there is insufficient transparency about bank balance sheet conditions in Europe. Credible stress tests can remedy this problem. Contrary to what some commentators suggest, financial markets also look beyond the shortterm. As a result, Europe’s authorities had to recognize that decisive and comprehensive longer-term fiscal programs are needed to put the EU as a whole on a sound fiscal basis. Equally, individual countries can’t forever live beyond their means.
Such framework needs to be accompanied by adequate accounting, auditing and disclosure standards, to improve market transparency and enhance supervisory effectiveness. Turning to Mainland China's experience, the liberalisation of capital account has been selective. Inflows of foreign direct investment have long been encouraged, which has contributed significantly to China's robust economic growth. In more recent years, steps have been taken by the authorities to allow greater portfolio flows. In particular, the Qualified Foreign Institutional Investors (QFII) schemes have enabled foreign investors to access the domestic financial market, while under the Qualified Domestic Institutional Investors (QDII) schemes, financial institutions can, upon approval, invest overseas on behalf of domestic investors. Reflecting the limited channels of outward investment and market conditions, however, capital flows have been overwhelmingly inward bound in recent years, and China has experienced a rapid accumulation of foreign exchange reserves. This had fed into pressures on the exchange rate and inflation which were only eased somewhat by the global economic slowdown in more recent months. The People's Bank of China has employed sterilisation through open market operations, reserve requirements and credit quota in order to offset the impact of capital inflows on domestic monetary conditions. Such measures, however, have incurred costs to the central bank and the banking sector. Thus it would be useful to consider ways in which outflows of capital can be liberalised in an orderly and regulated manner to alleviate the BOP pressures in the near term.

I will point out two particular areas for such cooperation. 2  BIS Review 141/2008  First, Hong Kong can be used as a platform for pilot schemes for further expansion of crossborder fund flows. The use of Hong Kong as a financing platform has played an important role in Mainland's economic development and a continued and expanded use should be made going forward. In addition to the well developed platform for Mainland enterprises to list on the Hong Kong's stock exchange, consideration could be given to facilitate SMEs to raise funds through bond issuance with credit enhancement in Hong Kong. At the same time, Hong Kong can serve as a platform for more investment outflows from the Mainland, which would improve investment choices for Mainland investors. For instance, financial instruments issued in Hong Kong could be allowed to be listed on the Mainland, or Mainland investors could be allowed to use their own foreign currency deposits to invest overseas through Hong Kong. Second, Hong Kong can be a testing ground for the international use of the renminbi, a process closely related to Mainland's capital account liberalisation. The renminbi business scheme in Hong Kong, which is supported by a clearing arrangement provided by the People's Bank of China, has developed steadily since its launch in early 2004. It has now extended from personal banking to bonds issuance by Mainland financial institutions. Renminbi deposits in the Hong Kong banking system have also risen significantly over the last few years.
According to the most recent forecast, it can be assumed that investment as a share of GDP will be under 14% in 2010, the lowest ratio since the end of the War. Exports can drive GDP growth for a while, but a lasting recovery and stable growth require a reinstatement of investment in value-generating commercial activities. Domestic interest rates have been blamed for the sluggishness of investment activity, and certainly, financing costs are an important factor in investment. Under current circumstances, however, it would be fantasy to maintain that a sizeable interest rate cut would catalyse a turnaround in investment. Considering how strong investment was during the upswing years, the Bank’s surveys show that current investment trends in Iceland are similar to those in other countries that have experienced financial crises. Furthermore, it should be borne in mind that business investment is minimal in most industrial nations at present, even though their interest rates are very low. Risk aversion in the wake of financial crisis and economic recession, together with uncertainty about future demand, are hurdles to investment. The Central Bank’s studies and informal surveys indicate that the same situation prevails here in Iceland. Added to this are heavy indebtedness, uncertainty about companies’ future operational environment, and limited access to foreign credit. Consequently, it will require more than interest rate cuts to stimulate investment.

Estimations for 2015 and 2016 based on available information from listed companies (FECU), Capital Goods corporation surveys, Chilean Chamber of Construction and National Accounts by institutional sector. For 2017 and 2018, Central Bank projection models and sectoral sources are used, including investment plans and Capital Goods Corporation surveys. Source: Central Bank of Chile. 4  10. The labor market continues to gradually adjust and runs the risk of becoming a drag on consumption. Wage employment declined by 2% annually in the moving quarter ending February, and annual wage growth moderated. In addition, working hours declined due to demand rather than supply reasons. Yet this has not translated into an increase in open unemployment, due to flexibility in the Chilean labor market: the unemployment rate is still low from an historic perspective. In fact, despite being more precarious, self-employment has acted as a significant buffer to the loss of dynamism in wage employment (Figure 6).
With its very strong and well-regulated banking system coupled with its flexible, effective and fit-for-every-condition liquidity management framework based on its past experience from several crises, Turkey was well prepared for the global crisis. These factors reduced the need for the Central Bank to take additional radical measures, and the Central Bank’s balance sheet structure did not deteriorate during the crisis. Hence, the Central Bank’s exit strategy will be simpler and easier as compared to many central banks. Yet, owing to the importance that we attach to transparency and predictability, we informed the public about the general framework of our exit strategy in our Press Release of 14 April 2010, before putting the strategy into practice. 47. Accordingly, taking account of the recent developments and the normalization in both money and credit markets; we plan to gradually withdraw some of the measures taken in the foreign exchange and Turkish lira markets during the crisis. Hence, measures taken for crisis management will be withdrawn first and the exit strategy in Turkey, like elsewhere, will be a strategy that is cautious, gradual and  16  BIS Review 68/2010  safeguarding financial stability. I would like to repeat that you can find the details of our exit strategy in our press release of 14 April 2010. Distinguished Guests, 48. In the last part of my speech, I would briefly like to mention our foreign exchange policy.

BIS central bankers’ speeches  1  •  But Mark is one of the few who understand both worlds well, equally versed in the big, strategic issues related to macroeconomics and monetary policy and the nuts and bolts of financial markets and regulation. •  It is this combination that has enabled Mark to bring to our meetings a breadth of vision and depth of insight that make people sit up and listen. •  He has a knack for “herding the cats” as it were, bringing people together and finding consensus in the cacophony of views that international meetings are noted for. •  And Mark does this with a cheery disposition, a witty sense of humour, and considerable charm. Ladies and gentlemen, please join me in warmly welcoming Mark Carney. 2  BIS central bankers’ speeches
It is often sufficient with loans with a three to five year term to restore balance in the foreign payments. In the case of developing countries, however, it has increasingly been seen that short-term instability often depends on deep-seated structural problems. Examples of this type of problem are inability to collect taxes, inefficient bankruptcy legislation, widespread corruption and weaknesses in the banking sector. These types of issues are in the borderland between the mandate of the IMF and the World Bank and the two organisations collaborate in initiatives in this area. Among other things, the IMF and the World Bank have certain types of loans which, in combination with economic reform programmes, are focused on building long-term, strong structures in poor countries. Another type of structural problem is the unsustainable foreign debts burden that some of the most poor developing countries have to contend with. For a couple of years, the IMF and the World Bank have been working together in debt relief projects for these countries. In practice, this implies writing off parts of the debts. The debt relief goes hand-in-hand with economic reforms in the countries, aimed at decreasing poverty. In the longer term it is only through a responsible economic policy, focused on growth, stability and sound government finances, that these countries can avoid debts building up again.

All societies, whether open or closed, must find ways of ensuring that people are not excluded when technological progress makes old industries unprofitable. All societies also have a responsibility for production and consumption not having too great an impact on the environment since the welfare and health of future generations will otherwise be imperilled. We must be clear that development and collaboration are good. Almost everyone, including many of the poor in the world, has experienced great improvements in the past decades. In many respects, it is exactly the increased contacts and trade between countries that has contributed to it being possible to solve the problems that I have just mentioned. Growth in the industrialised countries has led to us being able to afford to conserve our environment, which most poor countries cannot afford to do. To reverse the trend - to attempt to isolate countries from one another - is not the way forward. Globalisation makes new demands I will now make some remarks on challanges specifically related to globalisation. Like all other development, globalisation is not without problems. These were clearly expressed in the severe economic crises that we have seen in recent years - in Mexico in 1994-95, in South-East Asia in 1997-98, in Russia in 1998 and in Brazil in 1999. These crises illustrate that increased trade and financial flows makes new demands public policy. Firstly, requirements increase on the national institutional settings - on laws, authorities and practices.
It is worth noting that the transmission mechanisms under study do not stem from the traditional recommendation of Friedman (1959) in his famous A Program for Monetary Stability, where the focus is on money demand stability and the role of money as a price anchor, and whose analytical base is the quantitative theory of money. Actually, recent works that assign a role to money, and to credit in general, do so because it can reveal future inflationary pressures or because it can contribute to achieve increased stability (Christiano et al., 2007; Goodfriend and McCallum, 2007; Kilponen and Leitemo, 2008). Nonetheless, the empirical evidence on the ability of money to provide information to forecast inflation is not so favorable to monetary aggregates. 5 It is more promising to conceive monetary and credit aggregates as indicators of potential distortions in financial markets, an issue I will discuss in the next section. In this review of inflation targeting regimes it is worth to bear in mind that they are subjected to stress when inflation is of external origin and corresponds to a cost (or supply) shock. A cost shock that increases inflation may require a restrictive monetary policy in order to prevent relative price increases from snowballing into an inflationary spiral. In any case, and to avoid costly repercussions in terms of output losses, a horizon is established to correct deviations, which permits relative price changes to occur without requiring sharp monetary policy adjustments .

Timothy F Geithner: Further investments to strengthen the financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Economic Club of Washington, Washington, 9 February 2005. *  *  *  Good evening. I am honored to be here. It’s good to be back in Washington and to have a chance to talk with such a distinguished group. Much of our nation’s financial history and the history of our central bank is a story of contest for influence and over ideas between political leaders in Washington and the financial center of New York. I think it is important that ideas shuttle back and forth between our cities, and I am pleased to have a chance to share a few tonight. My overall argument this evening is this. We face a delicate balance between genuinely positive near-term economic conditions, and some fundamental challenges. If we are to increase the likelihood of continued strong growth in living standards, we should use this time of relative prosperity to address the imbalances that hang over our economy. Even with good policy choices, and with considerable luck, these imbalances will take time to unwind. During this time we face some risk of a more volatile and less benign overall financial environment. This makes it important that we continue to invest in making our financial system stronger and more resilient. Markets now reflect a fairly positive view about overall economic prospects.
In this context, it is worth noting that, on average, real interest rates on new domestic Treasury borrowings were negative by almost half a percentage point in 2009–2012. But these stabilisation gains of the capital controls will diminish over time. The capital controls also have efficiency costs associated with them – costs that were probably modest to start with but increase with time. There is little or no research on how high these costs are at present, and assertions to that effect are not well founded. It is still more difficult to make a quantitative assessment of the risk accompanying liberalisation of the controls, which is presumably greater the faster the controls are lifted and as the economy is less prepared for it. From a theoretical standpoint, we should lift the controls the moment the present value of future efficiency costs exceeds the present value of future stabilisation gains, including the risk accompanying speedy liberalisation. That precise moment can never be identified with any certainty, however, although most signs indicate that it has not come yet, for if it had arrived, rapid liberalisation would be underway. At this point, it is likely that the benefits of lifting the controls more gradually are still greater than the cost of retaining them for a little longer. The pivotal issue here is what tools they give us in order to prevent the settlement of the failed banks from jeopardising financial stability.

In its November statement, the Monetary Policy Committee implied that the Bank’s nominal rates could remain unchanged in coming months if developments were in line with the forecast and no additional pay rises were negotiated during the wage settlement review early this year. This has been borne out so far, and the Committee kept rates unchanged at its December, February, and March meetings. At present, the Central Bank’s effective real interest rate is positive by just under 1%. Although it has risen by nearly 2 percentage points in the past year, it is still below the equilibrium real rate once the economy has recovered and the slack has disappeared. If the economic recovery maintains its pace in coming months, it will therefore be necessary to withdraw the accommodative monetary stance still further. The pace at which this happens depends on economic developments, and the degree to which this normalisation takes place through higher nominal Central Bank rates will depend on future developments in inflation. Towards the end of last year and in the past several weeks, the Central Bank has sold foreign currency in the interbank market. The Bank also announced that it had temporarily suspended its programme of weekly foreign currency purchases. These measures were approved at an extraordinary meeting of the Monetary Policy Committee in early January. The intervention measures amount to 7 b.kr., including 4 b.kr. this year. In comparison, the Bank was a net buyer of foreign currency in the amount of 60 b.kr.