samchain/econo-pairs-v1 huggingface dataset:
Is this method to the disadvantage of other countries? The method is to the advantage or disadvantage of other countries depending on whether a normal monetary policy expansion, an interest rate cut, is to the advantage or disadvantage of other countries. The effects of a small, open economy's monetary policy on other countries is normally limited, and the net effect depends on a number of circumstances. Monetary policy is normally conducted in each country without regard to such effects. The impact that a currency depreciation or a monetary expansion in a larger country has on the trade balance of other countries depends on both income and substitution effects. The former is positive due to the greater output and the greater demand for foreign imports, while the latter is negative due to changes in the real exchange rate and the terms of trade. Depending on the initial position, the positive income effect can be quite substantial. However, as the income and substitution effects normally have different signs it can be expected that the net effect is normally fairly small. This is supported by simulation studies. 14 Today, however, we have a situation in which the two largest economies in the world, the US and Japan, both have a zero interest rate. If the authorities in these countries want to stimulate the real economy by lowering the real interest rate further by creating higher inflation expectations, they clearly cannot do this by depreciating their currencies against each other at the same time.

It is possible that the level of inflation can become negative and that we will thus see deflation in some countries. Deflation for a short period is not a major problem. We even had this in Sweden a few years ago. But if deflation is prolonged, and especially if inflation expectations fall and deflation expectations arise, the situation can become very problematic. The combination of very low policy rates, a weak real economy and the risk of deflation has thus revived the debate about how monetary policy can and should be conducted in the event of a zero interest rate bound. In the 1990s, Japan experienced a long period with a zero interest rate, deflation and, compared with previous decades, weak real economic development. The experience gained in Japan has stimulated extensive discussion and a great deal of research at universities and central banks on monetary policy in connection with a zero interest rate bound. At Princeton University, Ben Bernanke, Paul Krugman and I conducted research on this subject. 3 The Japanese experience and the research conducted on monetary policy with a zero interest rate are now topical again. For Sweden, a scenario with deflation and a zero interest rate is as yet not particularly likely. However, at the Riksbank we must of course be prepared for all eventualities and consider what measures would be possible and appropriate in such a situation. We must also think about how we can minimise the risk of ending up in such a situation.
The Central Bank of Iceland responded to the pandemic-induced recession with policy rate reductions totalling 2 percentage points. These rate cuts and other measures adopted by the Bank and the Government made it possible to safeguard purchasing power in Iceland, and we made it through the shock with a 7.2% drop in GDP. The tide turned quickly, however. In May 2021, the Central Bank of Iceland became the first central bank in the West to start ratcheting its policy rate upwards at the start of the recovery. It has now raised the policy rate a dozen times, by a total of 6.75 percentage points, to the current 7.5%. We admit freely that the Central Bank of Iceland underforecast inflation, as did its counterparts abroad. In retrospect, we could have raised interest rates faster. On the other hand, the impact of rate hikes can never be predicted with perfect accuracy, and prudence surely puts limits on how fast interest rates can be increased. Furthermore, policy makers must be careful not to take excessive macroeconomic risk. Nevertheless, appraisals by foreign experts have concluded unanimously that the Central Bank took the right action in a timely manner, both in response to the pandemic and in the effort to maintain price stability in its wake. Among these experts are the International Monetary  4/8  BIS - Central bankers' speeches  Fund and the appraisal committee appointed pursuant to Article 36 of the Central Bank Act.

After all, it is beyond doubt that those who took out mortgages at nominal rates have benefited greatly from negative real rates. There is no reason for such subsidy to continue with contributions from the Treasury. We are looking ahead to a time when we must wage a full-blooded assault on inflation. Hopefully this period will be short-lived, but while it is ongoing, lenders must work effectively with their customers so as to keep their debt service burden within tolerable limits. Most borrowers in the housing market have strong equity and therefore considerable scope for adjustments and restructuring. On this front, lenders must behave responsibly. Honoured guests:  6/8  BIS - Central bankers' speeches  The past few weeks of unrest in foreign financial markets - including the collapse of two banks in the US and the forced merger of two large Swiss banks - have opened people's eyes to how closely monetary policy, financial stability, and financial supervision are connected. In the US, weaknesses in the regulatory framework and the supervision of financial institutions not considered systemically important, together with the lack of an overview of financial stability, have prompted the Federal Reserve to slow down its policy rate increases. It has been said that monetary policy is handcuffed by financial instability in the US and elsewhere, and that central banks cannot take the necessary action against inflation because of systemic risk in the financial market. This situation erodes the credibility of monetary policy. It is our loss as well.
This curbs the impact of oil price fluctuations on domestic demand and production – and on inflation and the exchange rate. A floating krone also has a stabilising effect, as the exchange rate normally appreciates in good times and depreciates in bad. At the same time, the fiscal rule and the inflation target anchor exchange rate and inflation expectations. As a result, the impact on these variables of a terms-of-trade change, stemming from variations in the oil price, becomes less pronounced. Moreover, the fiscal rule slows the pace at which exposed industries are scaled back. According to the fiscal rule, petroleum revenue spending shall be limited to four per cent, i.e. the expected annual real return on the accumulated financial wealth in the petroleum fund. This implies a steady phasing-in of petroleum revenues into the mainland economy. This partly insulates the economy from fluctuations in petroleum prices and extraction rates in the petroleum sector – and when followed it ensures that revenue spending in the Norwegian economy is at a level that can be sustained over time. Nevertheless, as the petroleum fund is becoming very large, the fiscal rule implies that sizeable and increasing revenues will be spent every year, thereby leading to expansionary impulses from fiscal policy. We must also strive for an equitable distribution of our wealth across generations. Although the value of the petroleum fund is considerable, financing the large future pension payments under our universal pay-as-you-go scheme will be very demanding.

Second, firms which are already covered in emissions trading systems can tap on the voluntary carbon market to decarbonise further, going beyond their mandatory targets. There is great opportunity to scale the voluntary carbon markets. Globally, the demand for voluntary carbon credits is expected to grow 15-fold over the next 2/5  BIS central bankers' speeches  10 years, to 2 billion tonnes in 2030. More governments and companies are committing to net-zero targets. Last year, 1,500 companies across the world made net-zero commitments, a three-fold increase from the year before. This number will continue to grow rapidly. There is also greater international impetus for growing the voluntary carbon markets. The Taskforce for Scaling Voluntary Carbon Markets, sponsored by the Institute for International Finance, has set out 20 recommendations for building trusted and wellfunctioning markets for voluntary carbon credits. Climate Impact X This is why today’s announcement of Climate Impact X, or CIX, is significant. CIX is a visionary idea for a global carbon exchange and marketplace anchored out of Asia, centred on trust and innovation. It is an initiative borne out of the Alliance for Action on Sustainability under the Emerging Stronger Taskforce The Sustainability Alliance proposed to develop an Asian voluntary carbon credit market, and I am happy to see more partners coming together to take forward this meaningful work. CIX is a promising solution to the problem we face today of fragmented carbon credit markets characterised by thin liquidity and credits of questionable quality.
21 Banks earn a return from providing liquidity services, and so make a trade-off in deciding how much liquidity risk to run. But, because of the spillover effects from bank failures, the overall social cost of banks’ liquidity risks crystallising can be considerably greater than the costs for the individual banks themselves. Regulation by the micro-prudential authorities has been the primary tool for dealing with that issue. There is currently a very important, and long overdue, international debate about how to improve the regulation of liquidity. I want to dwell today on just one important element of this debate. This concerns whether or not the assets counted by prudential regulators as part of a bank’s liquidity buffer should be defined to include all of the assets held by the bank that are eligible in the operations/facilities of the central banks to which the bank has access. Some argue that they should. The Bank of England would regard that as a big mistake. For the reasons I have described, the collateral eligible at most central banks goes way beyond securities that can be relied upon in stressed conditions to be liquid in private markets (whether outright or repo). So if they all counted as core-liquidity for regulatory purposes, banks would in effect be liberated from having to hold a buffer of low-yielding assets that they could confidently use in the market before they turned to us.

Auctions of funds against wider collateral of the kind introduced by the Fed and the Bank of England side-step the stigma problem by having a number of banks borrow at the same time. They have definitely helped to underpin the system. But, compared with a facility, those auctions are available only periodically – fortnightly in the UK at present – rather than every day. The DWF is available on a continuous basis, and is designed to avoid the stigma problem. In particular, in its usual mode of operation, it involves a collateral swap, so there is no give away of its being used in the size of either the banking system’s reserves balances or our open market operations. And we publish data on its use on an aggregate, averaged basis and with a lag. This puts onto a permanent footing some of the technology of the Bank’s Special Liquidity Scheme, which was used in 2008 to provide 3-year financing, via a collateral swap, for assets that had become illiquid as a result of the crisis. 20 How the facilities can work in extremely stressed conditions Monthly, wide-collateral repos for a 3-month maturity and typically of fairly modest size, together with a continuously available Window for 30-day collateral swaps, are now permanent features of the Bank of England’s regime. Various parameters can be adapted in the face of extremely stressed conditions of the kind we have been facing. Thus, the widecollateral repos have been held fortnightly rather than monthly, and for very large sizes.
Our focus as the supervisor of the banking sector will remain in having institutions that are well capitalized and liquid, and that continuously improve their standards of risk management. In our forthcoming communication with banks, we shall pay special attention to how they assess and monitor credit, market and liquidity risks; and how they include the results of this process in the management decisions. Finally, I want to stress again the importance of economic reforms that would ensure stronger economic growth in the medium term, and will provide for more effective banking activity. The objective of such reforms must be to improve the productivity and competitiveness of our economy through: reducing uncertainties over the direction of future developments by identifying the right policies and reforms; creating a favorable fiscal, legal, business and political climate that will promote investments in the economy; improving the workforce education and specialization; generating the benefits of economies of scale through integration of businesses in the regional or European market; and increasing the efficiency of the public and private sector through the improvement of governance. In the financial system, the reforms must focus on deepening and broadening the financial market, with the objective of improving access to finance, improve efficiency and reduce risks. I hope that this forum will bring up new ideas on how to overcome current challenges that the real economy and the financial sector is facing.

Unlike 2008, the solvency and liquidity of the banking system was not at the very forefront of market and regulator concerns. And, of course, the shock itself did not originate in the financial system but rather in a once-in100 year pandemic that has left us with many other, more powerful, and disturbing memories. But it is worth refreshing our memories about just how extraordinary were the events of late February and March 2020. The realisation that we were facing a global pandemic – and that, in order to contain it, large parts of the global economy would need to be shut down – sparked a reassessment of financial asset values and, as one would expect, a ‘flight to safety’ by investors. In February 2020, as you would expect, risky asset prices fell sharply. At the same time, the price of traditionally safe assets rose sharply and yields fell – the yield on US treasuries for example fell by around 100 bps. This flight to safety was also reflected in the gold price, which rose by around 4% over this initial period. In the early weeks of March however – from the 9th to the 18th – a different dynamic took hold; an accelerating ‘dash for cash’ in which, given the illiquidity of other markets, investors sold their most liquid assets, driving safe asset prices down. A dash for cash which turned into a stampede. The numbers are impressive.
Let me now explain briefly the main reasons why the Governing Council chose COOP HIMMELB(L)AU’s design. I am delighted that the architect, Prof. Wolf Prix, and his colleagues, Mr Dreibholz and Mr Halm, have joined us for this press briefing today. The design chosen The Governing Council judged the revised design concept of COOP HIMMELB(L)AU not only to be superior from an overall aesthetic and urban planning perspective, but also to be the one that best met the functional and technical requirements specified by the ECB. It was felt that this expressive, dynamic and appealing design would serve as a unique landmark, and result in the ECB’s new premises having a strong identity. In the Governing Council’s view, this design concept had features that reflected the ECB’s values - in particular, unity and transparency - and translated them into architectural language. Furthermore, the way in which the three elements of the design - the high-rise building of a twisted shape, the “groundscraper” and the Grossmarkthalle - formed a harmonious and well-proportioned ensemble was assessed very positively. We also considered that the integration of the Grossmarkthalle into this ensemble was addressed in an excellent way, while at the same time respecting the fundamental appearance of this historic building. The design concept also met, in principle, the ECB’s functional and spatial requirements. The Governing Council appreciated especially the good connection of the different functional areas and the excellent workplace quality, guaranteeing natural light for all members of staff.

I am delighted that the Governing Council’s decision has been very well received; not only by representatives of the City of Frankfurt, but also by the local and international media. Let me conclude by stressing that the Governing Council was very pleased indeed with the way the competition ran, with the quality of the designs and with the outcome of the competition. Of course, more challenges and many further decisions lie ahead. The successful completion of the competition is, however, an important milestone on the way towards building a new home for our institution. I am convinced that the winning design chosen by the Governing Council will become not only a Frankfurt landmark, but also a symbol of a united Europe and its single currency, the euro. I would now like to invite Prof. Prix to present his design proposal. BIS Review 5/2005  3
For banks subject to minimum reserve requirements, the exemption threshold is calculated as 20 times the minimum reserve requirement, based on a reference period. For sight deposit account holders not subject to any minimum reserve requirements, the exemption threshold has been set at a minimum of CHF 10 million. By applying negative interest universally to all account holders, we are adhering to the principle of equal treatment. It therefore makes sense that banks with above-average sight deposits in proportion to their minimum reserves pay higher interest than other banks. In this respect, negative interest is no different to traditional monetary policy measures. Although the conditions are always the same for all participants, the precise impact may differ for individual banks or market participants and depends on their balance sheet situation. The full effect of negative interest is felt on the money and capital markets even in the case of high exemption thresholds. At present, at approximately CHF 170 billion, some 40% of SNB sight deposits are subject to negative interest. Nevertheless, transmission of the negative interest rate is working well, with interest rates on this market aligning themselves directly with the negative interest rate of –0.75%. This is because interest rate determination is based on the marginal interest rate, in other words the rate for holding one additional unit of sight deposits. Movements in SNB sight deposits Chart 2 shows sight deposits of domestic banks (dark blue area) which, together with other sight deposits (light blue area), comprise total sight deposits at the SNB.

But I must stress the urgency here: we don’t have much time left, one or two years. Everybody is talking about a CBDC; but first, and much earlier, we need to regulate crypto-assets, and then implement EPI. The third and final action: be ready to launch a general purpose CBDC, which means for the public and for the financial sector, to reassert the anchoring role of central bank money in case of need. Let me insist on the dual purpose: public attention is naturally focused on a retail digital currency, for individuals and firms. But a “wholesale” or “interbank” form is also important, particularly as the use cases are already even more obvious, and because this interbank money will be vital for cross-border transactions. The next investigation phase and technological prototypes selected by the Eurosystem will, in my view, need to cover both these functions, separately or together. The results of the ECB’s public consultation, published mid-April, show that European citizens regard two aspects as particularly important: privacy and security. Therefore, the retail CBDC would be made available to citizens as an easy-to-use, secure and accessible payment instrument, that protects user privacy and can be used for all types of payment. How would it be distributed? We want to develop a model where CBDC is distributed by intermediaries, to allow private players, first and foremost the banking sector, to keep a key role. Let me be clear on this: it is not the Banque de France’s or any Central Bank’s role to open bank accounts!
The two first-named banks have supplemented low policy rates with quantitative easing to try to make monetary policy more expansionary. 14  See Smets (2013) for a review of various points of view on this question. BIS central bankers’ speeches  7  short time before other macroprudential policy measures are in place. But studies show that typical credit cycles are much more protracted than normal business cycles.15 The status of the inflation target would probably be questioned if monetary policy “leans against the wind” – that is, results in an inflation rate below the target – for many years to dampen an expanding credit cycle. This reasoning becomes increasingly important the lower the inflation and policy rates are. If inflation expectations fall, increasingly expansionary monetary policy will be required to bring inflation back up to the target.16 And as the policy rate has a lower bound, it may be difficult to make monetary policy sufficiently expansionary once this bound has been reached. One conclusion from these insights may be that monetary policy should react asymmetrically when inflation is low.

Monetary policy should then counteract falling inflation particularly strongly if there is a risk that the policy rate will otherwise reach its lower bound.17 But the danger of deflation should not be exaggerated The low inflation in Sweden and the euro area has recently led to much discussion on the risks of deflation, that is, a general fall in price levels.18 Although I am worried that Swedish inflation has been too low for several years, I believe that the debate on deflation is sometimes too foreboding and that it often focuses on the wrong risks. To begin with, I do not see a lengthy period with falling prices as a likely scenario for Sweden. Growth is relatively strong, which should contribute to a rise in prices. Moreover, we have the scope to counteract falling prices with more expansionary monetary policy. The repo rate can be cut by at least 50 basis points before the lower bound is reached. If this were not enough, we could draw up other monetary policy measures that would contribute to a rise in inflation. Moreover, nothing dramatic will happen merely because inflation falls below zero and is weakly negative rather than weakly positive. The problems of low inflation that I have listed above gradually increase when inflation is lower and this will of course continue to apply when inflation is negative.