samchain/econo-pairs-v1 huggingface dataset:
The Riksbank’s inflation targeting policy today An explicit target and a clear intellectual framework The Riksbank’s decision in 1993 to let its policy be guided by an inflation target was a fairly new approach at the time.1 The idea had only really been tried in three other countries before (New Zealand, Canada and the United Kingdom). An inflation target has considerable advantages over the methods of conducting monetary policy under a floating exchange rate that have been tried before, e.g. a target for the growth rate of money. Communication becomes simpler when the operational target agrees with the final one. In addition, an explicit target facilitates a stabilisation of inflation expectations and enables policy to be evaluated. The inflation target also has the advantage of capturing all important variables in one single variable. The inflation forecast is influenced not only by interest rates but also by an assessment of credit developments, the exchange rate and other factors of significance to demand. The monetary policy objective laid down by Parliament is to maintain price stability. The Riksbank has operationalised this objective in the shape of a quantitative target for the inflation rate: the annual increase in the consumer price index, CPI, should be 2 per cent. Around this target is a tolerance band of +/- 1 percentage point, the purpose of which is both to make clear that inflation from time to time will deviate from 2 per cent and that the Riksbank’s ambition is to limit such deviations.

MONETARY POLICY REPORT PRESENTATION BEFORE THE FINANCE COMMITTEE OF THE HONORABLE SENATE OF THE REPUBLIC∗  Mario Marcel Governor Central Bank of Chile 2 April 2018  See the March 2018 Monetary Policy Report at http://www.bcentral.cl. ∗  Mr. President of the Senate’s Finance Commission, senator Juan Pablo Letelier, senators members of this Committee, ladies, gentlemen, I am grateful for your invitation to present the vision of the Board of the Central Bank of Chile on the latest economic developments, their perspectives and implications for monetary policy. This vision is contained in detail in our Monetary Policy Report (the Report) of March 2018. First and foremost, let me introduce to you our new Board member Mr. Alberto Naudon, who became part of the Board only a few days back, after being unanimously recommended by this Committee and then his appointment approved, also unanimously, by the Senate. It is worth noting that this is the first time we present the Report under the new monetary policy scheme that we began this year and under which we have tied its release with the monetary policy meetings. With these changes, we have significantly increased the information we deliver, establishing its relationship with monetary policy decisions more clearly. The greater transparency required by this scheme makes it necessary for the dates of our Meetings and the subsequent publication of the Monetary Policy Report to be communicated to the market well in advance, so that there are no surprises in this regard.
Ten years ago – at the time of the Asian crisis – emerging markets as a whole were running a current account deficit. Since then they have been running progressively bigger current account surpluses reaching an estimated $ billion last year (1.3 % of world GDP). 3 The counterpart to this is that developed countries as a group have been running progressively bigger current account deficits not just in the United States but also in a number of other developed countries including the UK. 4 Of course there are some notable exceptions in each group: Canada, Japan and Germany for example are still creditors while many countries in central and eastern Europe and Africa are running large deficits. But maps 1 and 2 show how much the pattern has changed in the last 10 years. Most of South America and South East Asia have swung from deficit to surplus. Perhaps as important, the scale of the differences has grown with more countries running surpluses or deficits of over 5% of GDP. Oil and other commodity inflation is part of the story, of course, but that does not account for the large current surpluses in most of East Asia. Here strong manufacturing growth resulting from higher labour productivity has not been matched by higher domestic spending so savings have grown ahead of even dramatic investment growth. A deliberate policy of fostering export industrial growth has slowed the rise of exchange rates that would reduce these imbalances.

There is a risk, therefore, that the fall in the US current deficit will not be matched by a fall of surpluses in high surplus countries but a rise in deficits in other deficit countries. The imbalances could be transferred not reduced. So it is important that the current large gap between savings and investment in the Far East and oil exporting countries narrows. In the near term, the ability to increase spending will be constrained by the recent increase in inflationary pressures in these countries. But more exchange rate flexibility should be helpful on both fronts. And over the medium-term, in oil exporting countries, government spending is likely to increase further in response to past increases in incomes since part of the rise in the oil price looks to be permanent. This gives oil exporters the opportunity to spend more on diversifying production in their economies. It is encouraging also that in China the government has plans to increase its own expenditure on the infrastructure, encourage higher spending by households through speeding up financial sector reform and improving the safety net as well as allowing more flexibility than in the past in the exchange rate. Conclusion Given the growth of the foreign currency reserves in many EMEs, the emergence of SWFs making long term investments on financial criteria in a wider range of instruments is a positive development.
The analyses are also based on the assumption that the krone exchange rate will shadow the path for the forward exchange rate as observed on 24 June. At that time, market pricing reflected expectations of a fairly stable exchange rate ahead. 5  See Akram, Farooq Q. (2003): “Reell likevektsvalutakurs for Norge” (Real equilibrium exchange rate for Norway), in Norsk Økonomisk Tidsskrift 118, pp 89-112. BIS Review 47/2004  5  Given the assumptions underlying the projections in the last Inflation Report, inflation will be considerably lower than the inflation target in the period to the summer of 2006. Monetary policy also places emphasis on avoiding imbalances in the real economy. Capacity utilisation in the economy is rising, but the output gap, as it is measured by Norges Bank, will only be marginally positive during the period. Our assessment is that monetary policy should be aimed at increasing inflation at a somewhat faster pace than projected in the last Inflation Report. In connection with the monetary policy meeting on 11 August, the Executive Board stated that the inflation outlook may imply an unchanged interest rate for a longer period than implied by the interest rate assumptions in the last Inflation Report. On the other hand, the prospect of continued low inflation in Norway implies that Norway should not be the frontrunner when interest rates are increased in other countries.

As a result, they have been, and probably still are, able to increase production to a fairly large extent without any substantial increase in real capital and employment. There are prospects of solid growth in productivity in 2004. Nevertheless, our regional network reports that companies in a number of industries are now considering an increase in employment. After rising sharply for several quarters, economic growth in the US slowed in the second quarter and employment growth appears to have stalled this summer. Economic growth has picked up from a low level in the euro area. Economic growth has also gained momentum in Sweden and the UK. Strong growth in the US and China exerted upward pressure on commodity prices in 2003 and the beginning of 2004. Since then, price inflation has been dampened. Oil prices have risen considerably during the summer. Interest rate expectations indicate interest rate increases in a number of countries. The effects of oil price developments on the Norwegian economy are mixed. Persistently higher oil prices may eventually contribute to higher petroleum investment and increased activity in sectors affected by petroleum activities. A sharp rise in oil prices, however, restrains global economic growth and affects demand for our other export products. The analyses in Norges Bank’s last Inflation Report in July 2004 are based on the technical assumption that interest rates will move in line with forward interest rates.
As much as public bodies are willing to step in as coordinators before and during times of crisis and eventually as lenders of last resort, they also want to see private sector entities being involved and actively participating in shaping resilience and resolving crises. The responsibility for financial stability is a shared responsibility. I am fully aware that none of us can precisely estimate today the economic consequences of what we all yet have to do in order to increase the resilience of financial systems. Since this resilience is bound to be tested again harshly sooner or later, there is no alternative to rapid, serious, adequate and if necessary costly preparations by all of us. Let me end by expressing my gratitude. I enjoyed contributing to the exchange of information, evaluations and views. This is the essence of the SIBOS conference. I am particularly grateful since I know that all of us in this room as well as those financial sector professionals who were unable to attend this conference, those of the private sector as well as those from the public sector, willingly share the noble responsibility for the efficiency and stability of today’s and tomorrow’s financial systems. Thank you very much for your attention. BIS Review 55/2002  5

My hope is that governments are recognising that accommodative monetary policy and low oil prices, rather than removing the need for reforms, creates the perfect environment to do them. Research suggests that reforms can be more costly in a weak macroeconomic environment and, in particular, when there are serious credit constraints. With our successful credit easing policy we are progressively removing each of those barriers. More generally, however, I would question how much monetary policy decisions should be based around reform incentives. Applying again the Tinbergen rule, this creates two objectives to be attained with one instrument – and just as for financial stability, in the current environment those objectives conflict. The ECB has to prioritise price stability rather than acting as the censor of governments. Euro area governments as a community must ensure that each economy meets the requirements of membership. And it is in this context that I and other ECB Executive Board members have recently called for a stronger Economic Union in the euro area with improved common governance of structural reforms. Conclusion Let me conclude. The diminishing price pressures over recent years have required the ECB to act forcefully and repeatedly to fulfil its mandate. This culminated in January 2015 with our decision to expand our asset purchase programme to stave off deflationary risks and stop the fall of inflation expectations. In doing so we have sent a strong signal that we will safeguard price stability no matter what. This is our mandate as enshrined in the Treaty.
I will tell you how we expect this council to work and I will also touch upon the need to develop communication concerning financial stability. However, already at the outset I would like to emphasise that this macroprudential council should be seen as a temporary solution while awaiting a more permanent framework for macroprudential policy in Sweden. In the longer term, we need to clarify where responsibility for macroprudential policy should lie. It is also important that there are clear and well-defined tools for macroprudential policy. The financial crisis in the United States became a debt crisis in Europe What began as a financial crisis in the United States in 2007–2008 has now become a debt crisis in Europe. However, the current problems in a number of euro countries are basically due to the fact that they pursued policies that were not in line with economic development. The introduction of the euro meant that the euro countries lost the possibility to conduct their own monetary policies. All of the responsibility for stabilising an economy when it was exposed to asymmetric shocks fell instead to fiscal policy. But fiscal policy has not been used to the full in this way in several euro countries. In countries such as Greece and Ireland, growth and inflationary pressures have been much higher than the average for the euro area. These countries should have conducted a much tighter fiscal policy in order to counteract this. But, unfortunately, they did not.

Bernanke, Ben (2010): Monetary Policy and the Housing Bubble, speech held on 3 January, 2010. Claussen, Carl Andreas, Jonsson, Magnus and Lagerwall, Björn (2011): A macroeconomic analysis of housing prices in Sweden, The Riksbank’s commission of inquiry into risks on the Swedish housing market. EBA (2011): EBA recommendation on the creation and supervisory oversight of temporary capital buffers to restore market confidence (EBA/REC/2011/1). Dokko, Jane, Doyle, Brian, Kiley, Michael, Kim, Jinill, Sherlund, Shane, Sim, Jae and Van der Heuvel, Skander (2009): Monetary Policy and the Housing Bubble, Finance and Economics Discussion Series 2009–49, Federal Reserve Board. Ekholm, Karolina (2009): Some lessons for monetary policy from the financial crisis, speech held on 4 December 2009. Hallvarsson & Halvarsson (2010): The communication of the major banks and the authorities during the financial crisis 2007–1 July 2009, report for FSPOS. Ingves & Lind (1996): The management of the bank crisis – in retrospect, Sveriges Riksbank Economic Review 1996:1. BIS central bankers’ speeches  9
However, now the foundations for a potential turnaround are discernible, the structural problems of the Spanish economy must be addressed to avoid the risk of a scenario of protracted economic sluggishness. Regarding monetary policy, the cuts in official rates by the ECB are helping alleviate financial pressure in the private sector. And this is a factor which, given the prevalence of floating interest rates in Spain, will continue to alleviate the burden on households and firms over the coming quarters. Fiscal policy has also contributed to softening the downturn in activity by means of a highly significant budgetary effort that has been greater than that in other developed countries. The cost, though, has been a very swift and sharp rise in the budget deficit which, on the latest official government figures, might rise to around 10% of GDP this year. Irrespective of how long the cyclical change takes to exert positive effects on the budgetary situation, I would like to draw your attention to the fact that much of the deficit generated over the past two years has a significant structural component; and the recovery, therefore, will not correct this component. Indeed, despite the fact that in the coming years revenue will foreseeably increase owing to the reversal of the temporary effects of some of the activitysupporting measures adopted in recent years, it should be borne in mind that the exceptionally high revenue obtained during the real estate boom will not recur.

The euro area has also shown some improvement recently, with positive growth rates in some countries as early as in the second quarter. The latest figures suggest that economic activity may be expected to show positive growth rates across the area in the third quarter. That said, the upcoming recovery will be slow, meaning that quite some time will elapse before pre-crisis output levels are restored. BIS Review 151/2009  1  Public finances have worsened considerably in the euro area owing both to the operation of the automatic stabilisers, which have responded to the cyclical downturn, and to the discretionary measures adopted to boost demand and the action taken to support the financial system. The financial crisis and the decline in activity have severely affected some European credit institutions, which have come to depend largely on public-sector support and which are immersed in a process of adjustment that may have repercussions for their ability to effectively channel funds in the future. On the inflation front, we have continued to witness year-on-year declines in consumer prices in the euro area, due above all to notably lower oil prices than a year ago. Most forecasts suggest positive inflation rates will resume in the area in the coming months, as the comparison effects with the levels reached by commodity prices twelve months back cease to apply.
Quarterly Journal of Economics, November 1985 volume 100, number 4; and Walsh C.E.,1995,‘Optimal contracts for central bankers’, American Economic Review, volume 85, number 1. 8  BIS Review 46/2006  analyses of the economic outlook that, notwithstanding the absence of news, we have subsequently deliberately junked – and so abandoned as an input to our policy judgments – when it suited us in order to secure a ‘better’ path for output. For example, I have mentioned how in late 2003/early 2004, some MPC members explained that, if the economy continued to recover, we expected to vote for a gradual withdrawal of monetary accommodation. If the economy had been knocked off course, speaking for myself I would not have had any difficulty in referring back to my earlier statements and explaining how things had changed. It would have been the obvious thing to do. That would not have involved breaking a promise; and I do not think it would have been misunderstood. Perhaps more important than that, the model world in the stabilisation-bias story seems to be better than reality in one key respect, and therefore to miss something rather central to the policy maker’s job. In the face of a major cost (or supply) shock, the big question is whether, as well as a temporary upward impetus to inflation, there will be ‘second-round’ effects via wage earners trying to recover lost purchasing power.

), 2001, ‘Reforming Britain’s Economic and Financial Policy: Towards Greater Stability’, HM Treasury, page 10: ‘Although there are many reasons for the UK’s poor inflation record in recent decades, one key factor was poor institutional arrangements. Monetary policy, if set correctly, should be a stabilising force for the economy. However, serious mistakes were made, which often meant that inflation was higher and more volatile than it would otherwise have been. This, in turn, created substantial economic instability that harmed the long-term performance of the UK economy. Many of these policy mistakes were made because the aims and procedures of monetary policy were not properly defined’. 14  For example, Lomax, R., 2004, ‘Stability and statistics’, speech to the North Wales Business Club dinner November 2004, Bank of England Quarterly Bulletin Winter 2004, vol 44, number 4. 4  BIS Review 46/2006  maintaining stable inflation. But that does not mean that we can always smooth out quarter-to-quarter, or even year-to-year, fluctuations in demand and output to the extent some commentary implies. In terms of the political economy of monetary policy making, it is important for the central banking community to get that across and accepted. If we fail in doing so, and the public believes that central banks can deliver more than is realistic, there will at some point down the road be disappointment, conceivably putting in jeopardy the real achievements of monetary policy in delivering price stability. Of course, these strictures apply most of all to ourselves.
Indeed, such measures often backfire, resulting in harm to workers and diminished growth. A better course is to learn from our experience. From a U.S. standpoint, we should work to reduce remaining foreign trade restrictions that impair our ability to capitalize on our comparative advantages. For example, market access restrictions can mean that certain U.S. industries cannot realize their full potential. Similarly, weaknesses in the protection of intellectual property rights limit the ability of U.S. producers to realize the full returns from their investments. This lowers profits and diminishes incentives to grow the business and employ more workers. If we are going to enhance the benefits of free trade and better manage its costs, it is critical that we continue to strengthen the global rules-based system. On the positive side, I would point to the WTO’s recent Trade Facilitation Agreement, which addresses customs procedures and could reduce global trade costs by almost 15 percent. But, at a broader level, the momentum behind global trade reform has clearly waned in recent years. This has occurred notwithstanding the fact that there are substantial areas in need of further reform, such as agriculture, services and non-tariff barriers. That momentum needs to be rekindled and reaffirmed. Although advanced economies historically have tended to lead the way, it is important that large emerging market countries now play a greater role. This is appropriate given their growing prominence in the global economy. There are many approaches to dealing with the costs of globalization, but protectionism is a dead end.

Trade restrictions address the symptoms and not the underlying problems, and they introduce other costs and distortions. While such measures might generate temporary boosts to growth from greater domestic production and consumption, these would likely be offset by a range of other costs. Over time, such measures would retard productivity growth and thereby shrink the economic pie. As an illustration, import substitution models that were pursued by many emerging market economies following the Second World War eventually led to lower long4/6  BIS central bankers' speeches  term growth outcomes. This was the experience in India, which helped trigger the reforms of the early 1990s. In assessing the benefits and costs of trade, it is important to understand that a nation’s trade balance reflects much more than its trade policy. Just as important are the country’s saving and investment spending proclivities, which are affected by many factors, including tax and fiscal policies. For example, in the United States, we have a chronic trade deficit because domestic investment spending exceeds our domestic saving. Foreign capital inflows make up the gap. In this process, the foreign exchange value of the dollar plays an important equilibrating mechanism. If the domestic saving/investment imbalance is unchanged, then any reduction in the trade balance from higher trade barriers will be offset by lower exports. The domestic currency will appreciate to cause the trade deficit to widen to accommodate the desired capital inflows.