samchain/econo-pairs-v1 huggingface dataset:
I would like to take the opportunity to answer the criticism against us that we care too much about the price of oil and food commodities in the world market when we make our monetary policy decisions. The reason given is that we cannot affect these prices with our monetary policy. Of course it is quite true that we cannot affect world market prices. But nor have we tried to stop the direct effects of the upturn in oil and commodity prices. If this had been our aim, the interest rate would have been much higher than it is now. Inflation is also much higher now than our target, because of the direct effects of higher commodity prices. The reason we have not tightened our monetary policy severely is out of consideration to the real economy, production and employment. However, what we are anxious to see is that the indirect effects of the increases in oil and food prices are not allowed to push up inflation more permanently. We conduct a flexible inflation-targeting policy. If shocks occur that mean inflation will deviate from the target, we can allow it to take some time to attain the inflation target. The normal time horizon is a couple of years, but sometimes it may be sooner and sometimes it may need to take a little longer. Weaker growth With regard to growth in Sweden and abroad, my views were more pessimistic than the assessment presented in the September Monetary Policy Update. Developments in the United States appeared particularly uncertain.

This applies for amounts of up to SEK 250,000 per customer and institution. It is only if the deposit has been made by another financial institution or in some cases if the amount is frozen that the deposit guarantee does not apply. This reasoning concerned what we could do in a situation where financial stability is threatened. Some central banks have recently been forced to take this type of measure. But none of the Swedish banks has had problems with its liquidity in the way I described in my example. So how do we view the current situation? Recent developments As I mentioned earlier, the financial turbulence has been included in our analyses for some time now, both with regard to monetary policy and financial stability. The Riksbank has regularly emphasised many of the risks in the financial system and what could happen if the financial turbulence should grow worse. The Riksbank bases its assessment on an analysis that focuses on the four major Swedish banks, as they account for around 80 per cent of the market. The Swedish banks have considerable equity, good profitability and limited loan losses. Our assessment is that there is a high degree of resilience to the international turmoil  BIS Review 119/2008  3  that has prevailed for some time now. But this is not the same as saying that the Swedish financial markets and banks are not affected by the situation. Of course they are.
Although most countries now have well-functioning modern Central Securities Depositories, the structures below this top layer for providing posttrade services in securities markets remain in many cases extraordinarily complex and balkanised. Multiple tiers of custodians and sub-custodians, issuing agents, correspondent banks, clearing members, registrars and brokers – many operating on a solely national basis – provide an overlapping web of services to separate pools of market participants, using different operating procedures, systems and databases. That siloised model delivers settlement and collateral movements which, though much smoother than they were twenty years ago, are still typically measured in days rather than minutes or hours, and require multiple reconciliations – posing fixed costs, raising settlement and operational risks, tying up collateral, reducing transparency and posing barriers to entry. These segmented structures have not arisen by chance – in many cases they reflect the differing needs of market participants, variations in national practice and regulatory rules, and legacy systems. But they stand in the way of establishing a genuinely efficient international capital market. And they are now under unprecedented pressure from three sources: demand, technology and regulation. The strongest demand pressures come from the largest users of capital markets, who need to find further sharp cost savings if they are to deliver improved return on equity to investors.

Unsurprisingly, a fifth of all trades failed to settle on time. If the case for change was clear, so too was the common purpose shown by the public authorities. As Pen Kent, the Bank’s Executive Director in charge of CREST said at the time, “TAURUS gave the Bank the legitimacy to step in and get on with the job: it needed a market failure to get everyone pointed in the right direction.” The Bank of England, called upon privately to act by the Chairman of the Stock Exchange, had two main goals: first, to reduce the material risks to financial stability posed by such an extended and uncertain settlement process; and, second, to ensure the UK had an efficient and internationally competitive market infrastructure. There is no doubt that the second of these goals weighed particularly heavily with the Bank’s Governors of the day. Not everyone agreed that the Bank should become closely involved, worrying that it could be a costly and reputationally risky distraction from the post-ERM project of repositioning the Bank as an organisation capable of taking on independent responsibility for setting monetary policy for the country as a whole. But the majority view won out, bolstered by the active support of the UK Government, notably HM Treasury, which took responsibility for ensuring that the complex and extensive legislative changes required were delivered in a timely and effective way.
The figures for the third quarter are unlikely to be dramatically different from what we have seen so far. Unemployment is still rather stable at a relatively low level. We have, of course, started to see the first signs of a slowdown in our major markets with some companies reducing the number of work days and letting go of some employees. We are a very open economy, we depend on external demand and it is only natural that we will be affected. Has personal debt in Malta increased in the last years? As you would expect in a growing economy, household debt has been rising. It is currently estimated at € billion or 48 per cent of Malta's GDP. It was 31 per cent in 2002, but the ratio remains below the euro average of 60 per cent. The interest burden on Maltese households arising from this debt as a proportion of disposable income is comparable to the euro area average at three per cent. Are we saving more? It is unlikely. There has been a declining trend because habits and cultures change. The existence of a very extensive social safety net has acted as a disincentive to save for one's old age. It is appropriate for households to borrow funds to smooth their consumption patterns as long as this is backed by reasonable income expectations. The number of non-performing loans has been coming down for some years in the household sector though it has risen slightly recently to 2.5 per cent.

Lower interest rates should contribute to easing current tensions in the financial markets and also to facilitating the flow of credit. But monetary policy alone cannot resolve the financial and economic crisis. Corrective actions at other levels of policy are required, and these have indeed been taken by national governments and central banks as well as by international institutions. It will, however, take a while for confidence to return to a level that would permit the financial system to fully service the needs of a globalised economy. So why did the ECB increase rates in the first place in July? Consistently with its interpretation of the mandate, at that time the ECB perceived that there were strong upside risks to price stability. Decisions are always based on the latest information available and on a full analysis at a given point in time. The slowdown in economic activity has been very sudden, and projections for inflation have in the meantime been revised downwards. 2  BIS Review 152/2008  Do you think the cuts should always be passed on to the customer? In some cases the local banks have refused to do so, or they didn't reduce them to the full extent. In Malta, banking practice has generally been to set interest rates with reference to the official policy rate. Where such is the case, we would expect most of the ECB's interest rate cuts, one percentage point in the past month, to be passed on to customers, particularly at a time of weakening growth prospects.
Given their balance-sheet structure, funding liquidity is a key risk for banks: the transformation of short-term liabilities into long-term assets leaves them structurally vulnerable to liquidity pressures. Banks therefore need to position themselves so as to be able to withstand extraordinary demands on their liquidity. If capital markets work efficiently, a solvent bank in need of liquidity should, in principle, always be able to rely on the market to obtain funds. However, in practice, the interbank market may not always work perfectly; asymmetric information and coordination failures are among the most severe potential frictions. Banks may, therefore, find themselves unable to access normal sources of funding liquidity. The measures to which a bank in this situation would have to resort, such as large scale asset sales, could have major adverse spill over effects through the system, as could the most extreme case of an outright failure to meet obligations as they fall due. Liquidity buffers may help in this regard: a bank holding a buffer of assets that is reliably liquid under conditions of stress, perhaps with a core component that is eligible as collateral at the central bank, should always be able to access liquidity in a way that avoids precipitating severe market disruption. The trends described at the outset are also important here. First, a shift to greater reliance on wholesale funding and greater involvement in capital market activity more broadly perhaps makes banks more exposed to funding liquidity pressures than in the past: they are at the mercy of nimble wholesale lenders.

Market failures in infrastructure provision and single points of failure It is instructive to consider why providers of the market infrastructure and their members might, left to their own devices, invest too little in resilience and risk-mitigation. The answer lies in the microeconomics of infrastructure provision, and, in particular, the presence of market characteristics such as network externalities, increasing returns to scale and coordination failures. By network externality, I refer to the incremental benefit derived by existing owners of a particular good or service when another party purchases that good or service. For instance, the broader the participation in a particular exchange or trading facility, the more extensive the trading opportunities and the deeper the liquidity; as a result, the greater the potential benefits from membership of that exchange. Equally, in the case of post-trade infrastructure – clearing and settlement systems – the greater the volume of transactions cleared or settled, the greater the potential for netting exposures and/or cash-flows (or in gross payment and settlement systems, the more efficiently liquidity can be recycled). BIS Review 77/2007  3  Increasing returns to scale reflect the fact that infrastructure provision is, by and large, a fixed-cost business: once an investment has been made in the information technology supporting the trade, clearing or settlement of a given volume of transactions, the marginal cost of each transaction up to the capacity of the system is very low.
This will primarily be of relevance for import and export enterprises as well as subcontractors in industries that are heavily exposed to the euro area. However, several factors point to the continued use of Norwegian kroner among enterprises and households. Government payments such as pensions, social security and taxes will continue to be in Norwegian kroner, as, most probably, will wages. Furthermore, Norwegian residents are not permitted to settle outstanding claims in foreign currency in cash, according to Norwegian Foreign Exchange Regulations. Regulatory issues Norway is under no obligation to incorporate EU legislation pertaining to the introduction of the euro into Norwegian law. However, there has been some discussion as to whether it would be appropriate to implement some changes in the regulatory framework. One issue has been whether there is a need for statutory amendments to assure the continuity of contracts in which the parties’ payment obligations are expressed in ECUs or in one of the participating countries’ currencies. Norwegian law is considered to be clear on this issue, however, and in the view of the Ministry of Finance there was no need for legislative changes. In its deliberations on the Revised National Budget last spring, the Storting (Norwegian parliament) took note of this. Another issue is the possibility of keeping accounts in currencies other than the Norwegian krone. The new Accounting Act, which entered into force on 1 January 1999, provides for the registration of accounting information in Swedish, Danish, English or Norwegian.

Other factors that may have contributed to the surplus is that the financial market in the United States is more highly developed than in many Asian countries, which has made it advantageous to invest savings there rather than in the domestic economy, and that companies in China pay out a relatively small part of the profits in dividends, which probably helps to boost saving but restrict consumption. 13 Global imbalances and capital flows after the crisis The crisis that actually arrived took an entirely different course than many expected. Although the United States was hit hard, the dollar was actually strengthened initially because investors fled from risk and US government securities were seen as a safe asset. The countries that had large current account deficits were, however, hit to a greater extent  9  See for example Bernanke, 2009, White 2008 and King 2009. 10  For example Krugman, 2007. 11  See Bernanke, 2005. 12  See Llaudes et al., 2010. 13  See for example Caballero, 2006, Hoffman and Kuijs, 2006 and Bayoumi et al., 2010 for a discussion of this. BIS central bankers’ speeches  5  than countries with surpluses by major falls in housing prices. 14 This shows that current account deficits were often a reflection of underlying weaknesses, for example unsound lending practices and the build-up of debt. However, the crisis itself and the subsequent recession reduced the imbalances, at least temporarily.
Chart 5: Pull factors have reduced Capital Flows at-risk for EMEs since the Asian Financial Crisis Probabilty density 0.12 0.10 0.08 0.06 0.04  B  A  0.02 0.00 -8  -6  -4  -2  0  2  4  6  8  10  12  14  16  18  Capital flows as a % of GDP Post-2008 crisis  Asian Financial Crisis  Sources: IMF and Bank staff calcluations. Notes: Chart shows the contribution of pull factors to capital flows to EMEs during the Asian Financial Crisis (purple), and since 2008 (green). The diamonds highlight the fifth percentile, which is our preferred measure of Capital Flowsat-Risk. In both distributions push factors are held at their sample average, so only pull factors are changing. 19  All speeches are available online at www.bankofengland.co.uk/news/speeches  19  Capital Flows as a % of GDP 2 0 -2 -4 Average Capital Flows-at-Risk Contribution of pull factors Contribution of push factors Total Capital Flows-at-Risk 1996  1999  2002  2005  Gross Gross outflow inflows s  Chart 6: Push shocks have offset some of the improvements in the ‘pull factors’  -6 -8 2008  2011  2014  2017  Sources: IMF and Bank staff calculations. Note: The grey bars on this chart show the unconditional 5th percentile of the distribution of capital flows in a panel of 13 EMEs since 1996.

Looking ahead, our challenge is now to specify the rules and implement them. The main challenge for regulators now lies in finalizing the rules and incentives that will be conducive to reaching these targets. Thanks to the agreement reached by G20 leaders, ambitious regulatory reforms and markets initiatives are now under way. I recognize that the regulation of global finance is a considerable challenge: we have to preserve innovation while setting the limits on the capacity of instruments, markets or models to weaken the whole system. –  Our goal now is to ensure consistency across countries of the detailed regulations while keeping the momentum of the reform. Indeed, OTC derivatives are a global market, large banks are not local players and accounting standards should be a common language. Any discrepancies in the regulatory frameworks would be easily arbitraged, creating loopholes in the system. In that perspective, we clearly need to strengthen our coordination. Ladies and gentlemen, thank you for your attention. BIS central bankers’ speeches  5  ANNEXES : 1.
BIS central bankers’ speeches  9  separate policy committees with separate objectives and instruments but, especially given the overlap of some committee members, with full information on which policy is being conducted in each area. This is also natural, as financial stability has a longer cycle and thereby needs less frequent decision-making than monetary policy. The well-functioning relationship between separately conducted monetary policy and fiscal policy in Sweden can, in my opinion, serve as a model for how the relationship between monetary policy and financial-stability policy should be. If one mixes together monetary policy and financial stability, it also becomes more or less impossible to evaluate monetary policy. Then an overly tight monetary policy can be blamed on an endeavour to maintain financial stability. Inflation and unemployment in the longer run Average inflation has undershot the target If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time. Indeed, “without prejudice to the price stability objective” can be seen as making sure that average inflation over a longer period of time is close to 2 per cent. But during the period 1997–2011 average CPI inflation in Sweden was 1.4 per cent, measured using real-time data. 11 One cannot of course expect average inflation to have been exactly on target over the last 15 years.

The average inflation rate in the euro area in the period 2000–2011 was 2.1 per cent. The United States, on the other hand, did not have an explicit inflation target until the Federal Reserve announced a target of 2 per cent for PCE inflation in January 2012. 14 However, a common view is that the Federal Reserve has even prior to this targeted a core inflation rate of 2 per cent or somewhat lower. The average for core CPI inflation in the United States in the period 2000–2011 was 2.0 per cent and for core PCE inflation 1.9 per cent. Sweden differs from these examples in that inflation in Sweden has both fallen below and deviated more from the target. Figure 2 shows that all of the five-year moving averages for CPI inflation are well below 2 per cent. The five-year average of CPIX/CPIF inflation has also been well below the target, apart from the period 2003–2004. 15 As the average for CPI inflation is so far below 2 per cent, especially in comparison with other countries that have had inflation targets as long as Sweden, one could perhaps claim that the Riksbank has neglected the price stability objective. However, an even more important question is whether the missed target has also led to costs to the real economy. Inflation expectations anchored to the target entail a sloping long-run Phillips curve The standard response to the question of whether missing the target has led to costs to the real economy is no.
This time the likelihood that the disinflation program will succeed is high for three main reasons. First, there is now political stability and consensus on implementing this inflation-reduction policy. Second, all parts of society are aware that there is no alternative to solving, now, our budget and debt burden problems. Third, the technical 3  BIS Review 109/1999  foundation has already been prepared. These three factors underline the importance of the new program. Accordingly, the inflation targets have been set at 25% for the year 2000 and 10% for 2001. Consistent with these inflation targets for the next two years, fiscal policy will be conducted according to a broad-based approach aimed at improving all aspects of public sector revenues and expenditures. With this effort, monetary policy will continue to be supportive of fiscal policies. Although we should not expect a radical change in the implementation of monetary policy, its efficiency will definitely improve in step with the improvement of the fiscal stance. I would also like to underline once more the importance of Turkey’s recent efforts towards disinflation. As you know, in the 1980s the Turkish economy succeeded in making the transition from a closed economy to a market-oriented one. Turkey aims, through this more recent effort, to build a macroeconomic infrastructure suitable for membership in the global economy, where low inflation and a sustainable growth rate, combined with sound and well functioning financial and real sectors, are the minimum standards.

Our knowledge of the economic situation is not complete, and neither is our knowledge of how monetary policy affects inflation and the real economy, the so-called transmission mechanism. There is a considerable time lag before monetary policy measures have an impact on inflation, and the duration of this time lag also varies depending on the circumstances. This impact is normally gradual and becomes apparent over the course of a couple of years. As monetary policy works with a time lag, it is most effective if it is based on forecasts. In order to achieve an inflation rate of two per cent, it is therefore best to set the policy rate so that the inflation forecast a couple of years ahead corresponds to the inflation target. However, during the time it takes for changes in the interest rate to have a full impact on inflation the economy will be affected by new and unexpected shocks. The inflation outcome a couple of years ahead will therefore have been affected by events that could not be predicted when the monetary policy decisions were made. A direct comparison of outcomes and targets for inflation may therefore lead to the wrong conclusions. The inflation outcome may be in line with the target even if the monetary policy decisions were incorrect because the central bank was lucky and unexpected shocks nevertheless resulted in the right inflation outcome.