samchain/econo-pairs-v1 huggingface dataset:
It should be specified in Inflation Reports and in connection with monetary policy decisions that we expect inflation to deviate from target for a longer period than two years, why this is the case and when we expect the target to be attained. Increased clarity on the principles guiding monetary policy These principles as to how monetary policy is formulated are in many ways an accepted reasoning for those who have followed the monetary policy discussion in Sweden and in other countries that apply inflation targeting. However, there have also, as I mentioned earlier, been some changes in recent years that are worth highlighting. As it is a question of a gradual development of our work, the extent of what can be regarded as new elements depends on how far back one looks. A point of comparison that feels natural is the clarification of the Riksbank’s monetary policy strategy published in 1999 2 . The difference between then and now is that the Riksbank can now go a little further with regard to how we communicate the consideration that monetary policy gives to the real economy. I do not consider it particularly strange that there have been changes on this point. The possibility to formulate monetary policy based not only on inflation prospects but also on how production and employment will develop has come about because the inflation target is today firmly anchored in the economy.

The assumption that the repo rate will develop in line with expectations in the financial markets should not be interpreted as a stance with regard to which interest rate path the Riksbank considers to be most desirable, just as the assumption of a constant repo rate was no reflection of this. If the forecasts of inflation two years ahead are on target, it means that the interest rate path expected by the market could be a desirable path for the repo rate. However, we must also evaluate the course for inflation and the real economy that the interest rate path is expected to entail. The monetary policy decisions and how we regard market expectations are based on a total assessment of these courses of events. Personally, I think the time is right to go one step further and publish our own interest rate path. My experiences of increased transparency have been only positive. As we have gone over to the new interest rate assumption, it has been a natural progression to abandon the simple policy rule that was previously used to explain monetary policy and relied on forecasts based on a constant repo rate. One purpose of the rule was that it would be simple to understand. However, it often did not provide a sufficiently good description of the monetary policy considerations. For instance, the policy rule did not give any guidance as to how the Riksbank views future interest rate developments.
Thus, if it were to leave its decision until the uncertainty is resolved, and it discovers the outcome of the event, the firm would go ahead with the project only if the news was good. The probabilities of these outcomes, conditional on the event occurring, are 1-λ and λ respectively. As for the event itself, this has a per-period chance q of being realised. This means the expected duration of the uncertainty E[T] is equal to 1/q. If the firm expects to have to wait a long time for things to become clear this equates to a low value of q – there isn’t much of a chance, in any given period, of the uncertainty being resolved. A high value of q corresponds to an expectation that the resolution is imminent. 4  There is a direct parallel between the nature of this extra margin required for real investment decisions and the value of an option in financial markets. A financial “call” option gives its owner the right to buy an underlying security for a pre-set price, known as the “strike”. If the price of the security in the spot market rises above that level the owner can “exercise” the option and buy it for less than it’s now worth. In that sense he or she enjoys the same exposure to good news – to upside moves in the spot price – as the owner of the underlying security itself. The big difference is what happens when there’s bad news (i.e.

Inflation rates have been falling in most countries and they have registered appreciable expansion in economic activities with GDP growth rates averaging at about 5% in 2007. In addition, most countries have become more democratic in political circles, giving more say to the public on the running of governments and their institutions. Distinguished Participants, allow me now to turn to the subject we are gathered here for, that is, “Central Bank Governance”. Good corporate governance is generally acknowledged as  BIS Review 26/2008  1  important in economic management. In this regard, Central bank governance is arguably defined by a number of key-concepts or pillars, which together should form the basis of an effective legal framework governing a central bank and on which central bank governance should rest, that is, operational independence, democratic accountability and transparency. Despite its common usage, it is not always very clear what central bank transparency amounts to. Generally, two definitions of transparency can be distinguished in the policyoriented literature. Firstly, central bank transparency is referred to as the activities of the central bank in providing information. Thus, in this case, transparency has been defined as the degree to which information on policy actions is available. However, a somewhat broader approach to transparency includes the public’s understanding of the decisions taken by the monetary authorities and the reasoning behind it.
Such instruments might have proven very helpful had they been in place before and during this crisis. Investors would have anticipated that common equity would be replenished automatically if a firm came under stress, and this knowledge might in turn have tempered anxieties about counterparty risk. At a minimum, contingent capital instruments might have enabled common equity buffers at the weaker firms to be replenished earlier and automatically, thereby reducing uncertainty and the risk of failure. There are many details that still need to be worked out to determine the potential for contingent capital instruments to enhance financial stability. For example, what are the circumstances under which conversion is triggered? How much common equity do debt holders receive upon conversion? However, our early work on this issue suggests that contingent capital may be a promising mechanism for injecting common equity into the banking system in times of stress without unduly raising intermediation costs or pushing financial activity out of the banking sector into the unregulated sector. On the liquidity front, there are a host of initiatives underway. For starters, the Federal Reserve is now supervising most of the holding companies of the systemically important financial institutions. That was not true at the start of the crisis.

In the context of actions taken to support the financial system, the Federal Reserve and other government agencies have provided considerable support to banking organizations and other large systemically important financial institutions. The employees and executives of those institutions have benefitted from our intervention. In a perfect world we would be able to prevent those individuals and institutions from benefitting; we would have a better way to penalize those who acted recklessly. But once the crisis was underway, one goal took precedence: keeping the financial system from collapsing in order to protect the nation from an even deeper and more protracted downturn that would have been more damaging to everyone. The Great Depression represents an important example of the consequences of inaction. Recall that during the Great Depression the unemployment rate rose to 24 percent. It is generally accepted that the authorities at that time, by not responding sooner and more forcefully, contributed greatly to the severity and duration of the Great Depression. In contrast, during this crisis, the Fed and other agencies acted much more aggressively to ward off a total collapse of our financial system – liquidity was restored to markets and the banking system was recapitalized much more quickly. These aggressive actions helped to prevent the type of deep and protracted crisis that occurred during the 1930s. Going forward, the Federal Reserve and other regulators need to move aggressively to change the system so we don’t ever find ourselves in this position again.
There are many sides to this. One has to do with whether monetary policy ought to allow for other matters besides inflation, for instance the real economic situation or the risk of problems that might threaten financial stability. I shall be returning to that shortly. Another is the timing of an interest rate adjustment. It is, of course, primarily the inflation forecast that guides monetary policy. But there may be room at the margin for other aspects. Normally it is a matter of whether a measure can be taken a little sooner or later than otherwise. This may be desirable to ensure that the measure is well received in the financial markets, for example. On other occasions we have prepared the general public for future decisions in order to avoid unnecessary conflicts and discussions in society. When we raised the interest rate in 1997, for instance, the decision was timed with a view to sending a clear message in advance of the wage negotiations at that time. 4. Should we take output and employment into account? Price stability is the Riksbank’s policy objective. The antecedents to the Riksbank Act state that, without prejudicing this objective, the Riksbank should also endeavour to promote other economic policy goals that the Riksdag has established, for example a favourable development of growth and employment. One reason for focussing on low inflation is that most things suggest this is a prerequisite for a favourable long-term development of growth and employment.

This institution could consist of a democratically legitimate euro area “Finance Minister”. It could also – subject to certain conditions – have a European stabilisation budget to enable it to cushion any economic shocks in Member States; one possible solution, which remains to be discussed, could be a shared unemployment insurance scheme, as suggested by Finance Minister Pier Carlo Padoan. * * * Allow me to conclude with the words of Carlo Azeglio Ciampi, that great Tuscan and President of 5/6  BIS central bankers' speeches  the Italian Republic, who unfortunately passed away just recently. “What has been achieved [in Europe], in both the economic and political spheres, seems too important each time to be put at risk: it is so important to give governments and citizens the courage to make further steps forwards […]. In this sense, the creation of the euro is not only an end point but also a starting point.” The euro has never been easy but it is not a self-imposed straitjacket – rather it is a political and historical ambition. In these troubled times for Europe, we need both to buttress this vital asset and to build on it for the future. We have to do it for your generation, because you are the hope for Italy and for Europe. But more than that, we need to do it with your generation. Thank you for your attention. 6/6  BIS central bankers' speeches
As regards expenditure, 28% of interviewees live in households whose spending has outpaced income over the past 12 months, a percentage that is in line with the average observed in OECD and EU countries. 51% financed this shortfall resorting to savings, and 35% through informal credit (friends, employer, etc.). As in the foregoing cases, differences were observed in terms of educational level and level of income. As both levels increase, the percentage of instances in which spending has exceeded income diminishes and the percentage of cases where greater spending is financed with savings increases. Undoubtedly, financial behaviour does not depend solely on financial literacy, but is also influenced by other circumstances; but, in light of some of the above-mentioned results, I do believe there is clearly room for improvement in the field of financial education in Spain, and that we should continue to strive in this direction. Financial education in a context of technological innovation and developments Giving priority attention to financial education is, moreover, particularly significant in the current context of financial innovation. Technological developments are changing the way in which customers relate to financial institutions and how they take up financial products. And this, though it has attendant advantages, also entails risks. Greater financial culture, greater awareness of the new reality and a greater development of the general public’s digital competences can help mitigate these risks. 5/7  I would like to refer, in particular, to three examples of these risks.

Without losing sight of the interest this seminar has in the challenge the new technologies pose, I would like to focus today on another major challenge that is not exclusive to the banking industry but applicable to everybody: financial education. Allow me first to set out, non-exhaustively, some of the results drawn from the Survey of Financial Competences presented by the Banco de España and the CNMV last month. I shall then refer to how important it is to continue dedicating efforts to financial education, especially in the current context of financial innovation. The Survey of Financial Competences The Survey of Financial Competences, which is included in the National Statistics Plan, adapts for Spain a questionnaire devised by the International Network for Financial Education, coordinated by the OECD. The aim is to measure, in an internationally comparable way, the financial competences of the population aged 18 to 79. The Survey measures these competences from different perspectives, and obtains information on: (i) financial literacy; and (ii) knowledge, holding, acquisition and use of financial products. To measure financial literacy, the Survey poses questions on three basic financial concepts: i) inflation; ii) compound interest rates; and iii) risk diversification.
Still, we must be aware that accumulated trust does not suffice; in our present world such trust must be renewed every day, on the basis of the ability to respond to new demands and challenges. I will comment on some of these challenges towards the end of my presentation. On the recent evolution of the economy, the most noticeable event has been the drop in inflation. After several quarters in which the annual CPI variation was above 4%, in recent months it fell sharply to 3%, placing y-o-y CPI inflation at 2.9% in November. We had foreseen inflation declining at a slower pace. In the Monetary Policy Report we presented to the Senate last September, we projected that annual headline inflation would close this year at 3.5%. Today, private expectations—as well as our own—put it a little under 3%. In addition, in the baseline scenario I will be describing in a moment, we assume that this decline will continue, such that during most of 2017 annual CPI inflation will stand in the lower part of the tolerance range, to start converging back to the target by year’s end. Domestic activity has also shown some surprises. It grew in line with forecasts in the third quarter and even somewhat better in sectors not related with natural resources—what we call Other GDP. However, it began the fourth quarter quite poorly. The decline in mining activity weighed significantly, as has been the trend throughout the year, and so did some specific industry lines.

Most recently, after OPEC agreements and announcements by other producers that they would limit production, it is trading around 55 3 / 19  BIS central bankers' speeches  dollars per barrel. I now turn to our projections and associated risks. In the baseline scenario of the MP Report I present today, this year’s growth is estimated at 1.5%. As I said, this is the lower bound of the range we estimated in September, considering the slower growth foreseen for the fourth quarter. About 2017, the slower initial pace, in a context of higher risks and still very pessimistic confidence levels, we foresee that activity will take longer to resume near-potential growth. Accordingly, our growth estimate for 2017 has been adjusted to a range between 1.5% and 2.5% (1.75% to 2.75% in September). This higher growth in 2017 compared with 2016 is based on the fact that the economy does not present any imbalances, the mining sector will not to repeat the sharp drops of previous years, and investment will post some increase after three years in a row falling in annual terms. The effects of these changes will be seen more clearly in the second half of the year. All this, in a context where the fiscal consolidation announced by the government continues and monetary conditions remain expansionary. Excluding inventories, domestic demand will grow 2% in 2017. Just as in 2016, we expect private consumption to boost expenditure, considering a further gradual adjustment of the labor market and lower inflation driving real wages.
14 But in day-to-day monetary policy communication, these relatively abstract arguments about the benefits of a credible and sufficiently high inflation target have to compete with observations that are significantly more concrete for economic agents: that the policy rate has been negative for rather a long time – in itself an exceptional circumstance historically – in a situation where output and employment have generally developed well, and the expansionary policy has helped lending continue to rise and led to a depreciation of the exchange rate. Regular overviews of the remit important for understanding and legitimacy What lessons can be learnt from this? To begin with, I think that it is quite a useful observation that a central bank with an inflation target may sometimes have to conduct a policy that is so exceptional as to bring the policy’s legitimacy into question, despite the aim of it being to fulfil the remit that the central bank has been instructed to pursue. Bearing in mind the current international economic environment with low real interest rates and powers that are having a restraining effect on inflation, this is something that an increasing number of countries may experience in the period ahead. A lesson to be learnt from this is, in my view, that regular public reviews of the monetary policy remit as such are a good thing, so that it becomes clear what the central bank’s task actually is and that it only does what it is intended to do.

Re-establishing it may require a prolonged and costly process, which should also be taken into account. It is such fears that largely explain the policy conducted by the Riksbank in recent years. Does a policy that “leans against the wind” require there to be confidence in the inflation target? It is probably possible to construct theoretical and quantified examples in which the recession that is prevented or mitigated by “leaning against the wind” is sufficiently long and deep for it to be worth taking the cost of losing, and having to re-establish, confidence in the inflation target. But in practice, it is very difficult to imagine how a central bank, seeing that confidence in the inflation target is being eroded, could stick to a tighter policy and risk inflation expectations staying permanently low in order to perhaps prevent a financial crisis sometime in the future. I am not saying that this is a reason to never conduct a policy that “leans against the wind”. On the contrary, I am personally in favour of the idea as such, and can well imagine formally integrating such a policy into the monetary policy set-up, in the way it has been done in Norway. But one can argue a policy that “leans against the wind” is in practice a “fair-weather” policy – windy but sunny, in other words. Only as long as confidence in the inflation target is intact, there is scope to use monetary policy to counteract financial imbalances.
The fifteen central banks furthermore agreed not to expand their gold lending and gold forward transactions during this period. While the U.S. and Japan were not part of the joint statement, they declared that they had no intention of changing their “passive” gold policy. Furthermore, the IMF announced that it would abandon its plan to sell some of its gold reserves in the market. These declarations had a big impact on the market for two reasons: First, they removed the uncertainty about the behaviour of the holders of 85% of the world’s official gold reserves. Second, the planned annual total sales (400 tonnes) compared favourably with the sales and increases of gold lending activity of the previous years (700 tonnes). 1  The idea of a Swiss Foundation of Solidarity was suggested to the President of the Swiss Confederation by the then President of the Governing Board of the SNB. 2  BIS Review 31/2005  The Washington joint statement on gold was a coordinated effort aiming at clarifying the intentions of the participants in a market prone to rumours and secrecy. Of the 1,300 tonnes of gold which the Swiss National Bank intended to sell, 1170 tonnes were included in the 2000-tonne total sales quota of the Washington Agreement. In other words, the SNB ended up being the main beneficiary of the agreement. Formally, the initiative for the Washington Agreement did not come from the SNB.

The first gold sales by the SNB were promptly executed the day after the new law came into force. Meanwhile, the market environment was far from optimal for the SNB’s gold sales. While the SNB had merely announced its intention to sell gold, the central banks of Argentina, Austria, Australia, Belgium, Canada, Luxembourg, the Czech Republic and India had all initiated actual sales. Against this backdrop, the gold market had been under pressure since 1996. Here in Washington, intense discussion revolved around the question of whether the IMF should sell gold. Moreover, the gold policy of the future European monetary area had been subject to intense speculations. The market feared that once the European Monetary Union came into force, the participating central banks or governments would lose their inhibition about selling off parts of their 12’000 tonnes of total reserves. In May 1999, the announcement by the UK Treasury that it planned to sell 415 tonnes set a new wave of producers hedging activity and front running speculation. The gold price dropped by 10% to 252 USD/oz, a 20 year record low (see Figure 3). It is against this background of heightened speculation about wide-ranging central bank gold sales and corresponding market anxiety that the joint statement on gold was signed at the IMF meeting in Washington on September 26, 1999. The participating central banks undertook to sell a total amount of no more than 2,000 tonnes of gold in the next five years, with annual sales limited to approximately 400 tonnes.