samchain/econo-pairs-v1 huggingface dataset:
Rosanna Costa: Heterogeneity in macroeconomics - implications for monetary policy Opening remarks by Ms Rosanna Costa, Governor of the Central Bank of Chile, at the XXV Annual Conference of the Central Bank of Chile, Santiago, 21-22 November 2022. ***  1. Welcome Remarks Dear colleagues and friends, distinguished guests: welcome to the XXV Annual Conference of the Central Bank of Chile (CBC). We are very pleased to host you again face-to-face in Chile after three long years. Although it is unquestioned that the new forms of hybrid work have opened unforeseen opportunities, closeness and old fashion face-to-face discussion are essential inputs for the development of ideas and their practical implementations. Since 1997, the CBC has been convening prominent scholars and policymakers to this Conference to discuss major issues in central banking and their implications for emerging economies. Since its inception, this conference has been a bridge between academia and policymaking. This version is no exception: fresh and thoughtful research will support the discussion over the next two days on a topic that is very much front and center in the policy agenda. We will enjoy the presentations of 30 authors, 9 discussants, one keynote speaker, and a policy panel. 2. Introduction and context This year´s Conference is focused on the role of Heterogeneity in Macroeconomics and its Implications for Monetary Policy in general and Chile in particular. Understanding the heterogeneous-micro implications of a given macro aggregate shock can improve our knowledge of how the economy works and help us predict its future evolution.

Starting with my first consideration, whether recent strength proves persistent or temporary. Even absent a further impact from Covid, it is unlikely that the current pace of GDP growth can be sustained for much longer. Indeed if current strength represents a bringing-forward of the recovery that we had expected later in the year, then subsequent growth might if anything be expected to be weaker rather than stronger. The very latest indicators suggest the pace of underlying demand growth may indeed be slightly moderating, though as I mentioned previously the read from the latest GDP data itself is clouded by supply constraints. But there are certainly upside risks to household spending, if consumer confidence continues to rise or if households run down their accumulated aggregate savings faster than we have assumed. The current strength in the housing market is suggestive in this regard, both as a potential indicator of household confidence and due to the consumption of things like durable goods that goes alongside housing transactions. One of the early legacies of the pandemic appears to be an increase in the number of people taking advantage of the ability to work more remotely and moving house for lifestyle reasons, a trend which I think could be sustained for some time; like many of the long-term effects of Covid, that is likely to have differential impacts within regions and in different parts of the country.
In other words, even if creditor A believes the firm is solvent, it may not lend because it does not want to risk a delay in repayment. So what can creditors do to mitigate these risks? First, they can respond by charging a higher interest rate in compensation for the increase in the risk of default. However, there are a number of difficulties that limit how well this works in practice. Most significantly, by undermining the firm’s profitability, the higher interest rates may increase the risk of insolvency. If higher rates push insolvency risk up sharply, then higher rates may not be sufficient to make lending – even at higher rates – an attractive proposition. In addition, some investors such as money market mutual funds may have a very low tolerance for risk. Thus, they may not be interested in trading off higher rates as compensation for a non-negligible increase in insolvency risk. Finally, paying higher rates may generate an adverse signal about the health of the borrowing institution. This may cause investors to become more worried about the risk of default. Second, creditors can secure their lending – taking collateral valued at more than the amount they lend. However, this is not foolproof because secured funding can be just as vulnerable to a run dynamic as unsecured funding. For starters, the same types of uncertainties about the value of the firm may apply to the liquidation value of the collateral.

Copper export earnings, at US $ million, were 7.8% higher than US $ million recorded during the third quarter of the year, reflecting an increase in the average realised price by 6.8% to US $ per tonne from US $ per tonne recorded in the third quarter. In addition, copper export volumes increased by 0.9% to 224,128.6 tonnes from 222,034.6 tonnes. 39. However, cobalt export earnings declined by 1.4 % to US $ million in the fourth quarter of 2010 from US $ million in the previous quarter. This followed a slide in the average realised price by 3.9% to US $ per tonne from US $ 33,467.08 per tonne in the preceding quarter despite a rise in export volumes by 2.6% to 2,308.0 mt from 2,249.9 mt recorded in the third quarter. BIS central bankers’ speeches  5  40. Similarly, non-traditional exports (NTEs) f.o.b. fell by 5.1% to US $ million from the US $ million realised the previous quarter. This was largely due to declines in export earnings from copper wire, cotton lint, electrical cables, fresh fruits and vegetables, petroleum products and electricity. 41. In the period under review, merchandise imports, at US $ million were 15.4% higher than US $ million recorded the previous quarter. A surge in import bills associated with commodity groups, such as, food items, chemicals, iron and steel and item thereof and industrial boilers and equipment explained this outturn. 42.
A specific concern, which I know has occupied a number of members of the Basel committee, is how small and medium sized enterprises might be affected, given their importance to economic activity and their reliance on bank finance. It is not yet clear how the proposed new Accord would affect the pricing of finance for SMEs. Many factors are relevant, including whether banks are on the standard or IRB approaches, what types of collateral or guarantees SMEs can offer, whether the borrowers are classed as part of the retail portfolio (as very small enterprises will be), whether the regulator sets the bank's overall target capital ratio (which in the UK is set individually for banks) and how much excess capital the bank has over that. It seem likely that in the UK at least the overall result for many SMEs will be 'no change', not least because banks' economic capital and pricing is often already riskadjusted. But I know that a number of major British banks are concerned about the impact on SMEs, and the Bank is working closely with them to understand the precise factors behind this, and to ensure that there is no inadvertent increase in capital requirements for finance to smaller companies. Ultimately the best guarantee of a stable and reasonably priced supply of credit to SMEs, as to other borrowers, is a stable and competitive banking industry.

First, have the proposals achieved enough risk sensitivity? And second, do they achieve too much risk sensitivity, particularly in the context of the debate about whether ratings amplify procyclicality? As I said earlier, the new Accord has been designed to incorporate some real-world pragmatism. A major achievement of the existing 1988 Accord, and one that we would like to see preserved, has been its near-universal worldwide acceptance as the minimum standard for banking stability. So, if this huge advantage is not to be lost, it means that the new Accord has to be adaptable to a wide range of situations, to accommodate not only differing levels of sophistication amongst banks but also differing levels of expertise amongst supervisors. The answer, unsurprisingly, is a menu approach. For credit risk, alongside the greatly more risk sensitive internal ratings based approach, we have the option of a revised standard approach. This is certainly a step forward from the existing approach, but it remains a relatively simple framework. In its implementation, for many banks it may prove very simple indeed, since the large bulk of their loans are likely to have no ratings and so fall into the unrated bucket. The result will be little change on the existing Accord. I think this is inevitable.
For example, the price of hand soap in a pump dispenser is lower than the equivalent quantity in a refill package: http://www.nettavisen.no/okonomi/privat/article373382.ece. 23  According to the economist Stephen Quinn, secure central bank money triggered a spate of financial sector innovations. The central bank could offer notes with little risk regarding liquidity and public acceptance. On the other hand, notes were costly to use – an example is the considerable interest payments forgone when large amounts are held in cash. With the monetary system firmly anchored, private participants could offer more cost-effective payment solutions: deposit accounts, giro transfers, clearing and cheques. This system rested on confidence in central bank money. (Quinn, Stephen F., and William Roberds. 2005. “The Big Problem of Large Bills, the Bank of Amsterdam and the Origins of Central Banking.” Federal Reserve Bank of Atlanta Working Paper 2005–16). 24  Large-value payments between banks are settled continuously in Norges Bank. See also Lerbak, Marie N. (2013): “Om pengemengden” [On the money supply], Norges Bank Staff Memo no. 14. 25  A characteristic of money as a means of payment is its anonymous nature. Before the use of money became common among ordinary people, payments usually took place in connection with commercial transactions, whether for goods or services, via networks from which it might be difficult to extricate oneself. The farmer was usually indebted to a town merchant, which resulted in dependency and an obligation to deliver a portion of his produce.

29  This was not the first time Norwegian authorities established a silver standard. In accordance with the regulation of King Haakon V of 1314, silver was to have a standard of purity of 13 ½ lødig, which is equivalent to .844 silver according to the modern method for calculating fineness (Halén, Widar (2009): “Arvesølvet og Peter Wessel Zapffes sølvgave” [The family silver and Peter Wessel Zapffe’s gift of silver]. Lecture at the Norwegian Academy of Science and Letters. 30  The speciedaler became legal tender shortly after Norges Bank was established. 31  Adam Posen, a former member of the Bank of England Monetary Policy Committee, compares central banks to pharmacists: “[W]ith a limited medicine cabinet, and restricted by law from exceeding certain bounds, both must make sense of scrawled prescriptions from differing specialists, decide what side effects to take into account, and then ultimately dispense the proper dosage of medicine to their customers, all without knowing or controlling everything else the patient is consuming.” See Foreign Affairs: http://www.foreignaffairs.com/ articles/139465/adam-s-posen/the-myth-of-the-omnipotent-central-banker. 32  Karl Bomhoff was appointed as the first Governor of Norges Bank in 1893. When Norges Bank’s head office was moved to Oslo, Bomhoff also moved to the head office, where there was more extensive expertise than earlier. This facilitated Norges Bank’s role as bankers’ bank. The theme of my speech is institutions. It might seem paradoxical to refer to physical persons, such as Bomhoff, and not decision-making bodies.
As they differ greatly in terms of economic structure, exchange rate and monetary regimes, and in the degree of nominal and real convergence already achieved, no single path towards the euro can be identified or recommended to all of them. Various strategies may be feasible, provided they are based on sound economic reasoning, conform to the existing institutional framework and contribute to the high level of sustainable convergence, which is essential when joining the euro area. Progress towards the adoption of the euro will thus need to be assessed on a case-by-case basis. At the same time, the principle of equal treatment will continue to apply throughout the entire process of monetary integration. Adopting the euro is an irrevocable decision and it is of the utmost importance that countries fulfil the convergence criteria not only nominally but also in a sustainable manner before they enter the euro area, as required by the Maastricht Treaty. There will be no additional criteria, neither will there be a relaxation of the criteria. The need for structural reforms Let me now discuss the need for structural reforms in Europe which applies to both “new” and present Member States. On March 2000 the European Council held a special meeting in Lisbon dedicated to employment, economic reform and social cohesion.

On the domestic front, fast aggregate demand growth continues to be an important source of inflation risks, particularly amid increasing evidence of limits to the expansion of supply – and despite the robust behavior of fixed-capital investment. Moreover, it is clearer now that additional increases in aggregate supply depend on increases in the investment rate of the economy, a process that requires time. In this context, the Central Bank evaluates that the consistent reduction of the unbalances between the pace of expansion of supply and demand continues to be crucial in the design of monetary policy. The Brazilian Central Bank adopts a strategy aimed at avoiding inflation volatility. This approach takes into account the time lags in the transmission mechanism and has proved to be the most adequate to deal with uncertainties intrinsic in the process of monetary policy formulation and implementation. Thus the importance of developing an appropriate analytical framework for monetary policy, including forecasts and the balance of risks to inflation, as well as the preemptive stance in the decision-making process of the Monetary Policy Committee. In the current circumstances, there is a potential risk that economic agents start to attribute a higher probability that inflation increases will become persistent, a fact that would reduce the effectiveness of monetary policy. The Central Bank stresses that the performance of monetary policy tends to be more effective when the deterioration of inflation dynamics is in the early stages, rather than when it is more established.
Considering it as a very significant recommendation, we have recently added our contacts with the Albanian Banking Association in order to find a quick solution. A concrete action plan on the part of the recommendations directly related to the activity of the Bank of Albania and its competencies has already been completed and introduced to IMF authorities. What I deem as crucial is the complete assimilation of each suggestion made, and based on this absorption we have tried to build up a realistic and fully possible action plan. We believe that the successful accomplishment of the tasks included in the action plan shall be a key factor in enhancing the banking system financial stability. It shall influence the establishment of a modern payment infrastructure, increase financial market efficiency, perfect human capacities and set up a safe foundation for more sophisticated future developments. I would like to take this opportunity to emphasize that the Bank of Albania shall provide all its expertise to the inter-institutional group established to meeting many other FSAP recommendations. We hope the commitment of other institutions, be they central or supervisory, shall be provided properly, in order for these recommendations to be accomplished in due course. I am convinced the Minister of Finance and me share the same objective, which is to lead our institutions to stepping this process forward, aiming at achieving a sustainable and sound financial sector development in the country.

Given how much debt banks will need to refinance or repay to the authorities around the world over the next few years, the Bank is keen – as reflected in the recently published minutes of the Chancellor’s Council for Financial Stability – that individual banks agree indicative refinancing plans with their supervisors; and that at least aggregate national conditions be shared amongst international peers. That would help to avoid each bank thinking that it can  2  BIS Review 21/2010  delay its effort, risking an almighty scramble in eighteen months or so when official-facilities will be running off. As household sector saving has risen and as banks have deleveraged, government borrowing has increased very sharply as it helped to absorb the macroeconomic shock. Without too much exaggeration, this can be thought of as a rescheduling of private sector debt facilitated by the only balance sheet currently strong enough to bear it – HMG’s. But, like financial services, the public sector had accounted for an increasing share of measured output in the run up to the crisis. And since a good deal of that was debt financed, this source of support is not unlimited. Indeed, those two sectors have to be part of the process of rebalancing demand and activity in the economy over the years ahead. Overall, the rebuilding of balance sheets and the rebalancing of demand pose a downside risk to the outlook for activity. Effective supply, and inflationary pressures Repair of balance sheets will affect the path of demand. What of supply?
These variations in staff numbers naturally have an impact on the running costs of central banks, but relative salary levels and non-staff costs are obviously also important. Figure 6 is based on data for 1992, taken from central banks’ Annual Reports. The vertical axis shows the gross operating costs of each central bank as a percentage of GDP. The horizontal axis shows population. For a swathe of countries across the bottom of the chart - from New Zealand at 0.06% through Sweden, Denmark, Switzerland, the Netherlands and Australia (0.04 - 0.05%) to Britain (0.037%) and Canada and the United States at 0.03% - there may be some scale effect, but several European countries do not fit this model at all. The central banks of Italy and France - countries with the same population as the UK - then cost 5 and 3.5 times more than us, and the picture has changed little since. Some of the differences may be down to national culture, but another factor may be that the funds at the disposal of the different central banks vary widely. In particular, I suspect that some of our relative cheapness may be attributable to the Bank Charter Act of 1844, since which time the seignorage on our banknote issue has been passed directly and immediately to the government. This is not generally the case abroad, at least in European countries - west or east - where profits, a fraction of seignorage, are passed only periodically to government.

It’s the result of enhancing our own – and the banks’ – operational resilience and business continuity plans. It’s the result of communicating effectively with stakeholders to maintain confidence in the financial system. 16. So this quality of resilience is the product of a long term investment in the many factors that make our system strong. Abundance of opportunities 17. The second quality of an international financial centre that I want to talk about is its ability to generate opportunities for investors. Advanced financial centres like Hong Kong compete fiercely with each other. We succeed by offering investors opportunities so that they can succeed. That means we need to keep innovating, exploring new frontiers and developing our value proposition. 18. Hong Kong’s advantages in offering opportunities to global investors is mainly down to three macro trends. I believe these will provide the impetus for us to continue growing and outperforming. 19. First of all, financial liberalisation on the Mainland creates enormous opportunities for Hong Kong. We have always been the dominant financial gateway between the Mainland and the rest of the world. Today, more than half of international investors’ stock and bond investments on the Mainland are made through Hong Kong. We have also announced a pilot scheme for Wealth Management Connect and have other initiatives under development in the Greater Bay Area. 20.
In 1998 a few of the banks launched the so-called Cash card, which was a prepaid cash card designed to replace banknotes and coins for transactions entailing small amounts made at small points of sale. Afterwards, one can say that it was a flop. Consumers never liked it. Maybe there were too few places where one could recharge the card, perhaps the normal debit cards were too similar, maybe one believed that the banks should have paid some interest on the money when it was transferred to the Cash card? Anyway, it was not a success. At most in an individual year the number of transactions amounted to 4.2 million. The Cash card was finally discontinued in the autumn of 2004. However, it is not just in Sweden where developments have been sluggish. Developments have been slower than expected in the rest of Europe also. There are countries where prepaid cash cards – similar to our Cash card – are used to a relatively large extent, and here I am thinking in particular of Belgium and the Netherlands. All in all, however the use of prepaid cash cards is modest. What has grown in recent years is the use of so-called server-based network money. Companies that manage prepaid payments on the Internet, so-called e-payment companies, have become increasingly common. Neither buyers nor sellers need give sensitive information – such as card numbers or account numbers – on the Internet by using these companies.

The use of cards has increased rapidly Card payments have increased rapidly in Sweden in recent years. In ten years the value of card payments has almost quadrupled and the number of payments by card has increased sevenfold. Six years ago, in 2002, for the first time ever more card payments were made in payment terminals than ATM cash withdrawals. In the most recent statistics available, from 2006, card payments in payment terminals were three times more common than ATM cash withdrawals. If one calculates in terms of the number of transactions, cards are now the most used account-based payment instrument. Like cash, card payments are mainly used for payments that are made at the actual time of the transaction. According to a 2006 Temo survey, 45 per cent of those questioned used cards as legal tender in at least four of five purchases. 3 (3) The value of an average card payment has almost halved in the past ten years, from around SEK 730 to around SEK 380. We are then using cards to a greater degree to pay smaller amounts. In this way cards increasingly appear to act as a substitute to cash. This is particularly so in the case of younger people, which is indicated in a study recently published by the Riksbank. 4  1  The Economist, 17-23 February 2007. 2  The stock of banknotes and coins totalled SEK 114 billion on 31 December 2007. Sveriges Riksbank.