samchain/econo-pairs-v1 huggingface dataset:
It is also essential to maintain the criterion of demanding conditionality when designing public assistance, so that this is only received by institutions that adjust their capacity and manage to improve their efficiency, which is easier to do when their size is increased. At the same time, any strategy that encourages banks to seek private solutions requires more time than one of wholesale public intervention. But this system of incentives, which has required an enormous amount of work not only by the supervisory authorities at the Banco de España but also by many savings bank managers, has meant that most institutions have voluntarily undertaken integration and restructuring process. That has not only served to reduce the contribution of the Spanish taxpayer, but also to increase banks’ size and reduce their capacity, thus giving rise to a banking system that is somewhat better prepared to withstand  6  BIS central bankers’ speeches  the crisis than the one we had when it started, although all the institutions still have much to do in the way of improving their efficiency. It is also important to emphasise that the key to every restructuring is to clean up balance sheets. Some of the criticisms that you may have heard during the savings bank restructuring process have been that it was unfair to require savings banks first to write down their assets and then to recapitalise too.

The experience of the IMF is most illustrative as regards the importance of demanding strict conditionality criteria so that aid programmes may be successful. Another fairly common mistake is to believe that crisis-management solutions should always and everywhere be the same. Before applying uniform measures, it should be borne in mind that countries may differ in respect of their problems, their legislation and their institutional structure. Likewise, learning from the past may prove of limited use when it comes to teaching us how to act in the face of a crisis such as the present one. As I have illustrated when talking about the Spanish case, the current crises may generate a very different pathology from those in the past, which means new solutions tailored to the present-day problems must be sought. In this respect, a consistent and internationally coordinated response to the crisis must be made compatible with a reasonable adaptation to the specific circumstances of each country. For example, it is one thing handling a bank crisis in a country where the major systemic institutions have been seriously affected and where, therefore, a rapid response is called for, providing all the public aid needed to avoid the harmful consequences that a bank failure might have on the banking sector and on the economy as a whole.
BIS central bankers’ speeches  9  Macroprudential policy does not resolve the structural problems on the housing market It is important to emphasise that the macroprudential tools will not be able to prevent all types of risk associated with household indebtedness and developments on the housing market. The structural problems of low housing construction and an inefficient rental market, which lead to a housing shortage in major cities and university regions, are an important reason for rising house prices and thus also credit growth. However, these structural problems are beyond the area of macroprudential policy and must be addressed by other policy areas. The housing shortage in itself is also a social problem with more dimensions than household indebtedness. For example, the housing shortage also risks affecting geographic mobility, which is fundamental to, for instance, efficient matching of vacant positions with job seekers. Efficient matching is important to achieving low unemployment. In a broader socioeconomic sense, it is therefore desirable to achieve a more smoothly functioning housing and mortgage market. To this end, measures are needed which promote a more flexible offering of homes which better respond to price changes and reduce construction costs. Reforms are therefore needed which would lead to a further softening of rent regulation and increased competition in the construction sector. In the fiscal policy area, the possibilities of tax relief on interest can be phased out, and real estate tax reintroduced.

However, more expansive monetary policy can also increase the risk of a financial crisis, and thus of very severe outcomes in the longer term. The way central banks work is changing The financial crisis has led to a change in how central banks should approach the trade-off between price stability and financial stability. Before the crisis, the general perception was that the policy rate should be used to achieve price stability and to support the economic development. If a crisis nevertheless occurred, cleaning up afterwards would be relatively painless. With this approach, it was fairly simple to manage the trade-off between the objectives of monetary policy in the short term, and risks to financial stability in the slightly longer term, because the trade-off was negligible. Recently, the pendulum has swung over to the view that monetary policy should lean against the wind to a greater extent, and take greater account of financial stability.2 In the autumn of  1  This rationale is based on Drehmann, M., C. Borio and K. Tsatsaronis (2012) Characterising the financial cycle: don’t lose sight of the medium term! BIS Working Papers No 380. 2  See e.g. King, M. (2012) Twenty years of inflation targeting, The Stamp Memorial Lecture, London School of Economics, 9 October 2012 and Eichengren, B. et al. (2011) Rethinking Central Banking, Committee on International Economic Policy Reform, September 2011.
6 It is therefore difficult to understand why the effects should be so much bigger and more permanent in Sweden that the inflation target should be lowered here but not in any other countries, or why the rest of the world has not identified the problems. 7 It is possible that digitisation and globalisation have played some role in how inflation has developed in recent years, but the Riksbank’s assessment is that the low inflation seen in Sweden since 2010 is mainly explained by a strong exchange rate, a weak global economy, falling energy prices, and that companies have generally not been inclined to raise their prices. That prices have not been raised could be due, for example, to the fact that uncertainty has increased following the crises and that inflation expectations have fallen as inflation has remained low for so long. 5  Another way of expressing this is that inflation is fundamentally a monetary phenomenon. 6  There is a lively debate about the low interest rate policy also in the US, but it has a slightly different focus than the Swedish debate. Those who criticise the Fed for pursuing an overly expansionary monetary policy are usually convinced that inflation will soon return to the target even if the central bank tightens monetary policy (see for example George, 2015, and Lacker, 2015). 7  According to Hammond (2012), 27 countries were fully fledged inflation targeters a few years ago.

Not one of these countries has a target lower than 2 per cent, but Israel has a target range which goes as low as 1 per cent. If we also include the euro area, Japan, Switzerland and the US among the inflation targeters, we can add that the ECB's target is for inflation to be close to but lower than 2 per cent, and that the target in Switzerland is for inflation to be between 0 and 2 per cent. BIS central bankers’ speeches  3  Figure 1 Inflation has been higher in the UK and the USA, and the fall is expected to be temporary Annual percentage change  Note: HICP is an EU-harmonised index for consumer prices. Quarterly data for Sweden and the UK, annual data for the US. Sources: Bank of England, Bureau of Labor Statistics, Eurostat, IMF, SCB and the Riksbank. Risky to have a target that is too low Another objection to lowering the target is that it would risk reducing confidence in the inflation targeting regime. As I have noted, it is important for monetary policy to stand by a target once it has been formulated. If a target is changed because it seems too difficult to achieve, then there is always a risk that economic agents will expect the same thing to happen in similar situations in the future – both when inflation is higher and when it is lower than the target in place.
This in turn reflects the automatic contribution made by the central government budget to curbing cyclical fluctuations because more money accrues to the state in good times than in bad. If the economy had not been in a period of strong expansion, and the economic situation had been more normal, a considerably larger transfer from the Pension Fund to the Treasury would have been necessary in order to balance the budget. This cyclically adjusted transfer is estimated at a good NOK 71 billion this year, and just under NOK 77 billion in 2008, and has increased gradually over time. It is this estimate that forms the basis of the plan drawn up by the Government and the Storting, referred to as the fiscal rule. The rule states that the government is to spend, as an annual average through the business cycle, the expected return on the petroleum fund, i.e. 4 per cent. Because of the high level of activity, the Government has proposed using somewhat less money from the petroleum fund than 4 per cent of the Fund’s value at the beginning of the year. The proposed tax programme for next year will have a fairly neutral impact on economic activity. Proposed direct and indirect tax rates will generate approximately the same government revenues as last year’s tax rates had they been continued. As a whole, however, the central government budget will have the effect of stimulating activity.

In other words, the Swiss franc already faces competition, not only against the currencies of other countries but also against alternative non-governmental currencies. 8  4  For further information, cf. ‘Bericht des Bundesrates zu virtuellen Währungen’ (Federal Council report on virtual currencies, in German only) of 25 June 2014 (www.news.admin.ch/NSBSubscriber/message/ attachments/35361.pdf). BIS central bankers’ speeches  However, the key issue is rather different. A modern economy with a well-developed financial market requires a statutory means of payment. The Swiss franc is the official unit of currency in our country; Confederation coins as well as SNB banknotes and sight deposits are Switzerland’s statutory means of payment. Therefore these instruments must be accepted as payment in this country by every individual, without restriction, unless otherwise agreed. A statutory means of payment creates legal certainty and efficiency in everyday life. Consequently, the governmental Swiss franc is indispensable in Switzerland, even in a situation of competition with private currencies. Moreover, as long as a central bank fulfils its mandate diligently, I do not consider it likely that a private currency can pose any serious competition to a state currency. Return to a gold standard The second reform idea, the return to a gold standard, is directly linked to the financial crisis. In some circles there are fears of massive inflation in the short or long-term as a result of the unprecedented relaxation in monetary policy worldwide. The solution that is sometimes proposed is a return to a gold standard, in other words, pegging the currency to gold.
The use of data with superior software will enable financial services to be unbundled and increasingly custom-made for individual consumers. Data will enable increased transparency and better assessment of credit worthiness as well as reduction of risks, thus extending financing to previously underserved segments of society. The third observation is that finance may display ‘winner takes all’ characteristics over the long term. This characteristic is apparent in Silicon Valley and the digital economy in general. Market leaders such as Google and Facebook control over two-thirds of the market. This is due to ‘network effects’, where a service becomes more valuable when it has more users. What is also worrying is the value that the market attach to these network effects. We have seen staggering valuations of tech-startups, the so called “unicorn companies”, that sometimes have not even realised any meaningful profits. However, their large user base and ability to scale up quickly have resulted in frenzied valuations. It is as if the world has forgotten the dot-com bubble crash of the early 2000s. For financial regulators, a winner takes all outcome is not ideal. It is associated with concentration risks and “too-big-to-fail” issues. Concentration of risks and dependence on too few service providers never ends well. The only consolation I can think of is that “network effects” in the digital economy are not as durable as those found in traditional sectors such as railway networks and power grids.

8  BIS central bankers’ speeches  may choose to temporarily deviate from the inflation target to support the target of the committee with responsibility for macroprudential supervision.27 Riksbank’s strategy well in line with international debate Let me conclude by returning to the question in the title of my speech today. Is the Riksbank’s monetary policy strategy in tune or out of tune with the rest of the world? Right now there is an international debate on potential changes in the strategy for monetary policy that was common prior to the crisis. One of the most central questions is whether monetary policy should give greater consideration to financial imbalances. Most people agree that macroprudential policy should be the first line of defence. But an increasing number have also begun to take the view that monetary policy may need to provide support by leaning against the wind. Given this, it is difficult to understand the critics who try to claim that the monetary policy the Riksbank has conducted in recent years is strange and our own invention. On the contrary, I would say that the Riksbank’s monetary policy strategy has been well in line with the international debate. To be sure, this claim may seem strange to someone who has only followed the Swedish debate on monetary policy. And this worries me somewhat. It is not a good thing if the debate in Sweden is not as open and inquiring as the debate going on in the world around us.
BIS Review 42/2007  1  Beyond that, there may be some additional questions to consider which, for the sake of argument and in order to launch the debate, I will put on the table rather in a provocative mode, but are dealt with in more detail and balance in my own (and some other) contributions to the Review. First question: what are the conditions to ensure an appropriate level of investor protection, and in particular, what are the consequences of the increased "retailization" of hedge funds? A second question is the future of the hedge fund industry. It is the nature of technological progress to spread in a way that the profits it creates to be competed away. Replicating hedge funds strategies – at lower costs – seems to be expanding. M. Hsieh will tell you more about it during the panel discussion. A third and important issue relates to the evolving relationship between banks and hedge funds. This relation is complex and multi-faceted. It is at the heart of the concept of indirect regulation. Finally, we have an ongoing debate about "transparency", on which I am sure that members of the panel will tell you more in a few minutes. By nature, hedge funds are secretive investors. They do not publish information about their positions and strategies. On the one hand, for markets to be fully efficient, some investors must be able to hold proprietary information and make profits on this basis.

Enhanced coordination can also provide increased clarity on the direction of policy and reduce overreactions by the market while boosting confidence in prospects for the policies to achieve their intended outcomes. Strong fundamentals in Asia will continue to support our prospects in this more challenging environment. Following the Asian financial crisis, several emerging economies in Asia have strengthened their economic and financial fundamentals, improved their fiscal and external debt positions, and reformed their banking sectors. This has yielded tremendous payoffs. It has supported our economies to withstand the effects during this recent global financial crisis. Structural adjustments to diversify our economic structure and sources of growth have been an important part of this resilience. Asia also continues to have considerable policy flexibility to respond to external and domestic developments, although a prolonged delay in the recovery in the advanced economies will erode this policy flexibility in the future. Part 2 Asia’s development agenda also forms a key part of the efforts to firmly anchor our future growth. Several imperatives in the development of the financial sector are key in enhancing and maintaining both growth and stability in our region. First, is the further financial deepening in the Asian economies through the development of market-based and diversified channels of intermediation to support the region’s economic transformation. Since the Asian financial crisis, Asia has already made significant progress in this direction, in particular, in the progress and growth of the capital markets. Across Asia, the development of the financial system also continues to be pursued with vigor.
This does not differ much from how the Federal Reserve has behaved historically – set the fed funds rate at a level consistent with the desired level of economic activity and inflation over time. So how does the IOER rate relate to the fed funds rate? The two rates are likely to track each other closely in most circumstances. 4 First, banks generally do not have any incentive to sell fed funds at rates below the IOER rate. Only nondepository institutions – such as the government sponsored enterprises (GSEs) – that can buy and sell fed funds but are not able to hold excess reserves with the Fed, might have an incentive to sell fed funds at rates below the IOER rate. But even in this case, the fed funds rate would not likely fall far below the IOER rate. After all, if the fed funds rate were to fall significantly below the IOER rate, banks could purchase the fed funds and hold them as reserves with the Fed, earning the difference. The ability of banks to engage in arbitrage should limit the size of the deviations between the IOER rate and the fed funds rate. Thus, through the IOER rate, the Federal Reserve can effectively retain control of monetary policy. In addition to paying interest on excess reserves, the Federal Reserve also has the ability to drain the excess reserves from the banking system.

Policymakers now had the capacity to expand the size of the Fed’s liquidity facilities and other programs without the threat of compromising the control of monetary policy. This new tool immediately proved enormously helpful. The Fed was able to respond to the deterioration of conditions in the fall of 2008 by sharply increasing the size of its Term Auction Facility program and removing the limits on the size of many of the foreign exchange swap programs. These programs, along with the increased use of the Fed’s standing liquidity facilities and the start-up of the Commercial Paper Funding Facility in late October, led to a sharp growth in the Federal Reserve’s balance sheet beginning in late September. The third phase is marked by the launch of the Fed’s purchase programs, starting with the agency debt program that began in December 2008 and extends through to the present. During this phase, the Fed’s overall balance sheet has actually declined slightly. The demand for the Fed’s special liquidity programs has diminished more quickly than the purchase programs have been ramped up. Although this shrinkage was not anticipated or targeted, it is a welcome indication that there has been improvement in the functioning of the short-term funding markets. 1 As market function has improved and credit spreads have narrowed, many of the Fed’s liquidity facilities have become less attractive and there has been a corresponding decline in usage.
In autumn 2002, Norges Bank established a regional network as a tool to gauge the level of activity in the Norwegian economy. The network consists of companies, organisations and municipalities throughout Norway. In the two contact rounds in connection with Inflation Report 1/03, discussions were held with 440 contacts. We will be having six rounds of talks each year with business and community leaders concerning financial developments in their enterprises and industries, with about 200 visits in each round. The selection of contacts represents the production side of the economy, both industry-wise and geographically. In the course of 2003, the number of contacts associated with the network will rise to about 1000 persons, who will be contacted once or twice a year. Østlandsforskningen is responsible for the network and conducts contact meetings in Hedmark county. Our assessments are based primarily on official statistics, but because of the time lag involved and revisions of these statistics, supplementary information from other sources is useful. The regional network provides up-to-date information on the state of the Norwegian economy. Regular talks with local business and community leaders provide information that can supplement available official  BIS Review 23/2003  3  statistics. Moreover, we obtain supplementary information about areas not covered by official statistical sources. We also learn which issues are of particular concern to enterprises. Region Inland seems to have felt the impact of the downturn to a lesser extent than other parts of the country. Developments in domestic manufacturing are approximately in step with domestic consumption.

When it comes to mutual insurance against asymmetric shocks, it is clear that fiscal risks do not always stem from fiscal action, but from unsustainable economic and financial policies elsewhere. Therefore, any move in this direction should be accompanied by a new convergence process towards more resilient economic structures. Such a process would allow us to advance together towards a better-equipped EMU, outlining a clear path of reform and a commitment to a fiscal capacity. Political convergence is needed to kick off such a process, as any new convergence process can only be as effective as the legitimacy underpinning it. Conclusion Let me conclude by saying that protection against moral hazard is of course very important. At the same time, it should not be used as a strategy to relegate the move towards a fiscal capacity for the euro area to never-never land. The move towards a fiscal capacity could take the form of a gradual and conditional process that allows us to move in parallel towards restored fiscal buffers at the national level, convergence in the capacity to absorb shocks at the national level and a strengthening of institutions at the euro area level, while moving, equally gradually, towards more central fiscal stabilisation. 3  See Cœuré, B.: “Drawing lessons from the crisis for the future of the euro area” speech at “Ambassadors Week”, Paris, 27 August 2015. BIS central bankers’ speeches  3  I think we should be more ambitious in that respect.