samchain/econo-pairs-v1 huggingface dataset:
Stefan Ingves: Monetary policy, openness and financial markets Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at Skandinaviska Enskilda Banken, Stockholm, 24 September 2007. *  *  *  "Say as little as possible and say it cryptically". 1 This type of communication strategy is probably quite unthinkable for most central banks today. But this is how US professor of economics Alan Blinder describes central bank communications not so long ago. And I believe that this description is a pretty good one of how things actually worked, say 15 to 20 years ago. I would also guess that those of you here this evening who either monitored or worked in the financial sector at that time would agree with me. But since the beginning of the 1990s the Riksbank as well as most other central banks has taken considerable steps towards greater openness and clarity – both with regard to what we are trying to achieve and how we are going about it. Constantly working towards more efficient communication has been high on the Riksbank’s priorities list ever since the inflation target was introduced. But the pace of this work has varied as conditions for monetary policy and demands on the central bank have changed. So sometimes we have had fairly long periods without any major changes in our methods of communication, sometimes we have made many changes in a fairly short period of time.

However, there are good reasons to expect that corporate bond and commercial paper issuance in the euro area will gather pace in the future. During the first few months of this year we have already seen a fair amount of activity in this field. For large companies in particular, it makes sense from the point of view of efficiency to have all the methods of financing at their disposal, namely bond and paper financing, bank loans and equity financing. Indeed, since the credit ratings of many large companies are better than the credit ratings of most banks, this should lead to savings on the cost of capital for the corporate sector. The introduction of the euro should provide sufficient depth and liquidity for the corporate debt market that would guarantee competitive pricing. On the demand side, the reduced borrowing of the public sector will leave more room for the private sector to issue debt securities. As you know, the amount of public debt in the euro area is still high, and we trust that governments will keep their commitment to bring it down to more sustainable levels as agreed in the Stability and Growth Pact. In addition, the euro area has to save  BIS Review 63/1999  2  in order to be able to take care of its future pension payments, and a part of these savings is likely to be invested in corporate debt securities.
Outlays on welfare benefits will absorb a further 43%, more than the combined amount dedicated to the three crucial areas just mentioned. The remaining 18% represents the cost of general administration. The imbalance evidenced by these shares raises serious questions about the rationale governing the use of public funds, a fair proportion of which are borrowed not earned. We need to ask, for example, whether the allocation of such a substantial budget to social security is promoting a culture of dependence rather than self-help, and of reliance on the State rather than the kindling of economic initiative. And this within the context of an educational system which, despite its merits, continues to produce one of the highest early school leaving rates in the EU and one of the lowest rates of science and technology graduates, and which dedicates a substantial portion of its budget to a subsidy system with questionable educational value. One could also ask whether enough resources are being allocated to priority areas such as tourism, IT and the development of industrial areas, which are vital for the creation of jobs and wealth that would in turn lessen the dependence on welfare payments and subsidies. Returning Malta’s public finances to a sustainable basis also requires careful consideration of the revenue generation mechanisms. The ratio of taxation to GDP stands at around 32%, which is one of the lowest in the EU. This can of course be viewed as one reason for the relatively high fiscal deficit.

We would also like to reaffirm our unwavering commitment to the financial inclusion cause and look forward to deepening our cooperation with all stakeholders to fulfil the promise of greater financial inclusion, thereby bringing hope and better opportunities to our communities. Thank you. BIS central bankers’ speeches  3
We need a holistic approach for Asia's energy transition that meets three objectives: reduce emissions significantly; meet growing energy demands; and limit any adverse impact on jobs and communities. Neither the continued burning of coal nor the immediate cessation of coal plants meets all three objectives. What we need is a coherent strategy for the managed phaseout of coal that achieves environmental sustainability, energy security, and a just transition for communities whose livelihoods depend on coal. Finance alone is not enough but it can play a critical role in getting us from coal to clean. A combination of public and private capital, coupled with appropriate policy reforms, can provide the right economic model to encourage owners to voluntarily wind down their coal fired power plants ahead of their technical end of life. We will also need innovative financing structures to blend public and private capital. But there are significant challenges to financing the early retirement of coal. Financial institutions will need to justify how such financing is consistent with their net-zero commitments, especially when their financed emissions rise over the short term. They will need to address potential greenwashing concerns that new coal capacity is being created to replace the coal plants being phased out early. There is a lack of scalable risk sharing mechanisms to support coal plant owners in their transition to cleaner energy.

In formal terms he was on leave from the Central Bank from the middle of June until the end of August. Jón Sigurðsson was appointed Governor from October 1, 2003. He therefore served on the Board of Governors for almost three years. Before that he was a member of the Supervisory Board for just over two years. On behalf  BIS Review 34/2007  1  of the Supervisory Board I would like to thank Jón Sigurðsson for our pleasant work together during his terms as both a member of the Board of Governors and a member of the Supervisory Board. Ingimundur Friðriksson was temporarily appointed Governor from June 15 to August 31, 2006, then appointed Governor for a seven-year term from September 1, 2006. Ingimundur Friðriksson had been Assistant Governor since 1994 and held a temporary appointment as Governor for one year from 2002 to 2003. A number of changes took place in Central Bank staffing during 2006. Fifteen employees left or retired from the Bank and ten were hired, so their number decreased by five during the year. At the end of 2006 there were 111 employees at the Central Bank of Iceland, while the number of full-time equivalent positions was just over 102. Among the retirees was Sveinn Erling Sigurðsson, Director of the Statistics Department. Lilja Steinþórsdóttir left the post of Chief Auditor during the year. The Chief Auditor is directly accountable to and appointed by the Supervisory Board.
For those judgements to command respect, it is vital that the Committee demonstrate their determination to react to all signals about the outlook for inflation. It is common – both in the press and within central banks around the world – for discussion of the inflation outlook to be dominated by an analysis of so-called real changes in the economy such as movements in demand or supply and changes in the relative prices of imports or energy. It is true that, in trying to stabilise inflation in the short-term, the MPC will take those events into account. But we know that, beyond the short-term forecasting horizon of up to around three years, inflation has nothing to do with these developments. It is, in the old adage, the result of too much money chasing too few goods. That is why money growth rates and inflation rates are well correlated across countries and over long time horizons. Many of the great economists of the past from David Hume to Milton Friedman emphasised the link between money and the price level in the long run. 13  At present the Chief Executive is Jeff Llewellyn. BIS Review 43/2007  7  Why, then, does money not play a more prominent role in discussions of the outlook for inflation and monetary policy? Monetary developments can reflect two different causes: changes in the demand for money and changes in the supply of money. They have very different implications for inflation.

Structural improvements in the labour market are, however, unlikely to explain the full improvement in the stability of inflation and output. They cannot explain the low and stable level of inflation expectations. Changes in the yields on government bonds indicate that investors’ expectations of inflation over the medium-term – and the premium they require to compensate them for the risk of future inflation – have also fallen significantly. Chart 5 shows the sharp fall in expected inflation that resulted from the actual announcement of independence for the Bank of England in 1997. It seems to me likely that the new framework for monetary policy has been a key, though not the only, driver in moving the frontier inwards. By eliminating uncertainty about the inflation target and ensuring that the objective of low and stable inflation is well understood and credible, the change in the framework in 1997 helped to anchor expectations of inflation in the medium term. By doing so, it has made it possible for the MPC to keep inflation closer to target with smaller changes in monetary policy, and hence fluctuations in output, than would otherwise have been the case. The anchoring of inflation expectations has changed the way businesses respond to unexpected shocks. Faced with changes in their costs stemming from, for example, changes in import or energy prices, businesses can respond in two ways, each consistent with the necessary change in employees’ real take-home pay. They can pass those cost changes forwards to prices or backwards to money wages.
Also, we must recognize that, at times, actions will be taken that are clearly inconsistent with the spirit of the rules that are place, or the rules will simply be violated. Consider the use by Lehman Brothers of so-called Repo 105 transactions to window-dress its balance sheet. Beginning in late 2007, Lehman used Repo 105 transactions to temporarily remove securities from its balance sheet for a few days in order to mislead investors and counterparties about its financial condition. These transactions had the benefit of being 4/8  BIS central bankers' speeches  recognized as “sales” even though they were nearly identical to standard repo transactions that stayed on the balance sheet. In another example, following the introduction of Basel III, some banks tried to reduce their capital requirements by transferring risk to other counterparties. In certain cases, this occurred even when those counterparties did not provide any additional resources to absorb potential losses— either because they were very thinly capitalized, or were affiliated with the banks in question. I would also note that the establishment of too many bright-line rules may prove counterproductive to the goal of encouraging good bank cultures. For one thing, detailed rules can be construed as implying that the responsibility for good conduct rests with the public authorities. For another, rules may create opportunities or incentives for legal or regulatory arbitrage. When banks work to find creative ways around rules, it can have an insidious effect on culture.

With greater transparency, a customer can decide if he is getting his money’s worth for the service and advice provided by his FA representative. Benefit illustrations also do not include a detailed breakdown of the split between the protection and investment components in an investment-linked insurance product. Customers often assume that the insurance policy they bought covers only insurance to their dependants, when in fact the product may contain a substantial savings element. Insurers should strive to provide greater disclosure on how the premium is split between protection and investment on bundled insurance products to enable customers to better understand what they are buying. 6  BIS central bankers’ speeches  Promoting a culture of fair dealing The fifth thrust in our approach to instilling customer trust in life insurance and financial advisory services is through promoting a culture of fair dealing by financial institutions. Dealing fairly with customers goes beyond mere compliance with regulatory requirements. It is an attitude that springs from the ethos and values of the institution. It is about a culture that places the consumer first, that is focused on doing what is right for the consumer, and that places a premium on integrity. It is the responsibility of the Board and Senior Management to forge this culture of fair dealing throughout the organisation. The Board and Senior Management must set a clear strategy to achieve the fair dealing outcomes, monitor its implementation, and train their staff and representatives to treat customers fairly.
Equity prices called the crisis early and differentiated the sick from the sound. Market discipline worked. Had CoCos with market-based triggers been in place, the crisis may just have played out differently. Pre-emptive recapitalisation of failing institutions would have occurred, either due to automatic CoCo conversion or remedial action by managers under pressure from (potentially converting) debt- and (potentially diluting) shareholders. CoCos could have operated as a contractual prompt corrective action mechanism. This market-based contractual approach has the advantage of turning poacher into gamekeeper. It uses the risk-taking incentives embedded in equities to sharpen market discipline. A market problem is turned into a market solution. With less discretion and bankruptcy, these contracts would stand a greater chance of proving time-consistent in a crisis. Historically, that has been the hardest nut to crack. (c) Control rights A third set of potential structural solutions would be to address governance and control problems at source. Post-crisis, a number of proposals have already been put forward to strengthen bank governance. These include increasing board expertise and performance and upping the power of bank risk committees (Walker (2009), Basel (2010b), OECD (2010)). These are steps in the right direction. But looking down the star-studded cast of nonexecutive directors on the boards of failed financial institutions during the crisis, to wish for better is to wish upon a star. So what else might be done? In banking, the two prevailing ownership and control models are the public limited company and the mutually-owned co-operative.

Consider this graph:  Over the past six years, the monetary base has increased 340 percent, 10 times the rate at which the economy would have expanded in nominal terms had we not suffered the recent recession. One is hard pressed to argue that there is much efficacy derived from additional expansion of the Fed’s balance sheet. This is why I’ve been such a strong proponent of dialing back our large-scale asset purchases. It is my firm belief that the fault in our economy lies not in monetary policy but in a feckless federal government that simply cannot get its fiscal and regulatory policy geared so as to encourage business to take the copious amount of money we at the Fed have created and put it to work creating jobs and growing our economy. Fiscal policy is not only “not an ally of U.S. growth,” it is its enemy. If the fiscal and regulatory authorities that you elect and put into office to craft taxes, spending and regulations do not focus their efforts on providing incentives for businesses to expand job-creating capital investment rather than bicker with each other for partisan purposes, our economy will continue to fall short and the middleincome worker will continue being victimized, no matter how much money the Fed prints. I don’t want to ruin your evening after such a pleasant dinner.
Compared with the June projections, the ranges projected for real GDP growth have been adjusted slightly downwards. For 2005, this mainly reflects slight downward revisions of past data, while for 2006 this reflects the projected effects on disposable income of increases in oil prices. This outlook for economic activity is subject to a number of downward risks, relating mainly to higher oil prices, low consumer confidence and concerns about global imbalances. In particular, the potential further dampening impact of oil prices on the outlook for growth is being monitored very closely. Oil prices have continued to rise, increasing considerably since the beginning of the year, and developments in futures prices suggest that market participants expect the current tightness in oil markets to persist. Obviously, the situation has been further complicated by the tragic effects of Hurricane Katrina. All our thoughts are with the people of the city of New Orleans and all affected neighbouring areas and we are touched by the wave of global solidarity helping them to cope with  1/3  their immediate needs. At the same time, it remains difficult to assess the full extent of the damage and the period of time necessary for its repair. Normally, despite the significant wealth destruction resulting from such storms, the economic impact at the national level is limited to the short term and is increasingly offset by the positive impacts of rebuilding activity.

The strong public finances to start with have helped Sweden to pursue an expansionary fiscal policy during the crisis without putting the long-term sustainability of public finances at risk, and to keep interest rates down at German levels. (Slide: Government bond rates of different countries). Important to have a surplus over the economic cycle One of the reasons why public finances in Sweden are so strong is that after the crisis of the 1990s the government and parliament formulated a surplus target for the public sector. Public finances were to show a surplus of 2 per cent of GDP over an economic cycle. This was in line with the growth and stability pact in the EU, which among other things meant that public finances should be in balance in the medium term, or show a surplus. This target was changed to 1 per cent of GDP when the definition of general government net lending was changed in the National Accounts. During the ten-year period prior to the most recent crisis, the surplus averaged 1.4 per cent of GDP and it was possible to reduce the gross public debt by almost half in this period. BIS Review 56/2010  5  The framework for fiscal policy also includes another essential part, the expenditure ceiling that prescribes an upper limit in Swedish kronor for general government expenditure over the coming three years.
Chart 6: Annual growth rate of total debt and post tax Income Percent  20 18 16 14 12  Total Debt  10 8 6 4  Income  2 0 2001  2002  2003  2004  2005  Chart 10: www.Statistics.gov.uk It is interesting to reflect on whether this increase has been a factor in the recent turndown in consumption. We cannot prove it, but I have been struck by two things. Firstly, has the stabilisation in house prices led homeowners to become more conservative or precautionary in their borrowing habits, realising that they can no longer assume that their debt will be offset by significant increases in house prices? Secondly, could the attitude of lenders have contributed to the downturn, through the withdrawal of credit? To my mind the jury is out as to whether their attitudes have yet had any impact. But I do believe that they could do so over time, as they change their behaviour in response to changes in their perception of risks: and recent press coverage suggests that lenders are looking seriously at their lending policies. Given my interest in leverage, I also spend time thinking about what could happen to consumption in the event of a set of shocks to the economy. In this respect the Minutes of the February 2002 Monetary a Policy Committee meeting - seven months or so before I joined the Bank - are to my mind revealing.

Long-term fixed-rate financing is far less common in Norway than in Denmark, for instance for financing dwellings. As a result, interest rate changes have a greater impact in the relatively short term. However, the strong impact of the interest rate also places constraints on its use to underpin the exchange rate. The situation in Denmark, with its well-developed bond market, is somewhat different, since here the short-term interest rate has rather less pronounced effects on the real economy and prices, and can therefore be used to a greater extent to underpin the exchange rate. Consequently, a monetary policy strategy in which interventions are used to influence the exchange rate will have greater credibility, and the risk of ending up in game situations with the market is smaller than in Norway. Norges Bank does not intend to act in a way that will prompt game situations. The bank may nevertheless use interventions to a limited degree if the exchange rate moves significantly out of line with what we consider to be reasonable on the basis of fundamentals or in the event of exceptional short-term volatility in thin markets. In such circumstances, there is less risk of ending up in a game situation against exchange market operators. We have also experienced game situations in which one or more major operators were behind the krone exchange rate fluctuations at the same time as they took speculative positions in the bond market in the expectation that Norges Bank would raise its key interest rate to defend the krone.