samchain/econo-pairs-v1 huggingface dataset:
Jean-Pierre Roth: No news, good news - transparency and communication in monetary policy Address by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Annual Meeting of the European Business Press, Zurich, 16 June 2006. This paper was prepared with the support of Martin Brown, International Research and Technical Assistance Section, Swiss National Bank. *  *  *  Introductory remarks Ladies and gentlemen, it is a great pleasure to address you here, on the occasion of your annual meeting. I would like to take this unique opportunity to talk about an issue which, in recent years, has strongly affected my job as a central bank's President and your work as journalists: transparency and communication in monetary policy. Over the past two decades, central banks, especially in Europe, have undoubtedly be-come more transparent. Central bankers now regularly communicate their assessment of inflationary pressures to the public and go to great lengths to explain their monetary policy stance. Gone are the days when central banks argued that secrecy was an essential ingredient of an effective monetary policy. As a consequence, monetary policy decisions are no longer taken at irregular intervals or at weekends, in order to surprise markets on Monday mornings. This, of course, is fortunate for business journalists. You no longer need to spend your weekends worrying that you might have to suddenly start writing about a surprise policy intervention.

With new knowledge and new solutions, the sea will continue to be a force that carries us forward. Chart: The new banknotes More than a thousand years ago, the Vikings brought home the idea that Norway should have its own monetary system. Olav Tryggvason was to be the first Norwegian king to have his name stamped on Norwegian coins. Our methods of payment have changed since then – from coins via banknotes and plastic cards to online and mobile payments. But banknotes and coins will stay with us. Norges Bank’s responsibility is to ensure that they are safe to use – based on the most advanced modern technology. And they should be beautiful – as beautiful as the sea that surrounds us. Thank you for your attention. 4/4  BIS central bankers' speeches
For example, central bank reporting now typically includes the publication of detailed data on monetary policy and liquidity operations. Most academics make a good case that more transparency is always better than less. Yet there are a few critics. Fed Governor Frederic Mishkin, for instance, argues that central bank transparency has gone too far. Mishkin's verdict is related to transparency about the monetary policy strategy of a central bank. As he puts it: "Transparency is a virtue, but like all virtues it can go too far". 16 In light of recent experiences, I wonder whether we have gone too far in improving transparency with respect to central banks' actions as liquidity providers. More specifically, the events of the last few months arguably raise the question of whether we should distinguish between transparency in normal times and in times of crisis. Let me illustrate this point by a recapitulation of the developments surrounding the Bank of England’s liquidity support to Northern Rock. Northern Rock had apparently been facing some institutional deposit outflows for a few days in September 2007. But the run on the bank only started when the emergency liquidity assistance of the Bank of England became public, incidentally by way of a news report from the BBC. 17 The outflows stopped immediately after the U.K. Treasury issued a blanket deposit guarantee. The Northern Rock case is a reminder of the importance that psychology plays in times of crises.

Stefan Ingves: Cash management - an important social issue Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the first meeting at the Sveriges Riksbank of the cash management advisory board, Stockholm, 26 April 2006. *  *  *  I would like to welcome you all to the first meeting of the new cash management advisory board. All of you sitting at this table are in some way concerned with cash management in the economy: banks, cash-in-transit companies, representatives of the retail trade, trade unions and authorities such as Finansinspektionen (the Swedish Financial Supervisory Authority), the police and the Swedish Work Environment Agency. My hope is that the advisory board will function as a forum for identifying and discussing issues in the field of cash management. The idea is that we should meet once or twice a year, and I look forward to fruitful discussions. Before opening the debate, I would like to mention two questions that I believe can form a starting point for our discussions: •  The process of change undergone by cash management in recent years and the new structure for cash management that the Riksbank is establishing together with the banks. •  The social problem comprised by the many and increasingly violent robberies of cash transports. Towards a more expedient structure for cash management One of the Riksbank’s tasks is to promote a safe and efficient payment system, and we are responsible for issuing banknotes and coins.
For the case of fiscal policy, the working assumption is that fiscal expenditure will increase this year less than will output, consistently with the recent announcement of the government on the matter, to subsequently converge to a structural deficit of 1 percent of GDP until the end of the current Administration’s term. In the baseline scenario, the cyclical situation of the Chilean economy plus the withdrawal of the macroeconomic stimulus will result in y-o-y CPIX1 inflation moving from its present level of around 0.5 percent to a little over 3 percent in the early part of 2012 (figure 8). It is expected to then oscillate around the target until the end of the projection horizon, that is, the first quarter of 2013. Headline inflation, meanwhile, will surpass the upper bound of the target range, largely due to the effects of higher prices of oil and oil derivatives. The baseline scenario assumes that the oil price will average somewhat more than 100 dollars per WTI barrel in the two-year period 2011–2012. Accordingly, annual CPI inflation will stand above 4 percent for the entire second half of this year and into 2012. For December 2011, it is forecast at 4.3 percent, which compares with 3.3 percent assumed in December. Inflation projections for the latter part of this year have been revised upward in many economies around the world, even before the oil shock intensified (figure 9).

Page 2 of 9 Furthermore, the nature of inflation changed: it became more domestic, affecting services and manufactured goods, and it is precisely on this "underlying" component that monetary policy had to act, and acted strongly. But it must be reiterated, the rise in interest rates generally benefits French and European banks, thanks to their diversified business model, broad deposit base and large loan portfolio. The 'SVB model' in the United States, penalised by the rise in interest rates, was an exception rather than the rule. French banks have demonstrated their robustness: their net banking income and their interest margin increased by 5.3% and 4.5% respectively in 2022. I hear that French banks' margins would be penalised, compared to their European counterparts, on the liabilities side due to regulated savings, and on the assets side due to fixed-rate housing loans. With regard to the first subject, the interest rate on the Livret A accounts must strike, and continue to strike a balance between the effective financing of social housing and, more broadly, of the French economy, and the fair return on savings: in this regard, I am pleased to note that the Livret d'épargne populaire (LEP), which pays 6.1% interest, is finally ‘taking off’ with 9.6 million passbooks at the end of March; I encourage banks to pursue this progress with their customers.
We would then sell kronor to buy currencies, which would mean that we acted in a way that weakened the krona prior to transition to a fixed exchange rate regime. This is not the way to proceed. Of course currency risk is a problem, but this applies mainly in the short term. We shall of course do what we can to limit this risk, but it should be remembered that our currency holding is long term and in this perspective currency exposure is probably a minor problem. As monetary policy in the countries whose currencies are included in the reserve is similar to that in Sweden, it is in principle only real economic differences that lead to any trend changes in exchange rates. If the economies of these countries develop similarly, it is thus reasonable to assume that short-term fluctuations will offset one another over a longer period of time 9 . The diagram below shows that empiric evidence supports this reasoning (see Figure 3). At the same time, there is a clear advantage to keeping these assets in other currencies than the krona. Namely that they provide us with an opportunity to manage our assets actively in an entirely different way than would be possible if they were invested in kronor. This is because changes in the holdings could be perceived as monetary policy signals and because the size of our holding would mean that changes could upset the markets.

17  The risk of interest rates, and thereby bond prices, developing unfavourably and thereby having a direct impact on the results. This risk increases with the length of the average duration of the investments. 4  BIS Review 33/2006  Summary To summarise, the decisions I and my colleagues make regarding the focus of the Riksbank’s financial asset management ensure that the management complies with the Riksbank's statutory tasks as well as providing good earnings. These tasks require us to hold US and European government bonds to enable us to intervene in the foreign exchange market if necessary. However, we must also limit the financial risk in order to protect the capital allocated to cover potential losses in connection with a financial crisis. We try to limit currency risk, which is the entirely dominant financial risk, by choosing a currency allocation that keeps the fluctuations, as measured in Swedish kronor, low. We endeavour to meet the requirement to generate good earnings by taking credit and interest rate risks and making use of diversification effects in order to reduce any negative impact from these risks. By investing in asset types with credit risk, that is, other fixed-income securities than government bonds, we can increase the risk-adjusted earnings on our investments. This is partly because the actual earnings on assets with credit risk can be higher and partly because the earnings on different types of asset do not usually covary perfectly.
In Britain the creation of the Financial Services Authority led the Bank of England to build up its resources in financial stability analysis. This was a result of the Bank’s efforts to ensure that oversight of the financial system did not fall between the gaps in the new institutional structure of supervision. Since then other central banks have followed the Bank of England’s lead. Financial stability units – small teams with backgrounds in economics and banking supervision whose job it is to monitor wider trends in the financial system – are now increasingly a feature of the organisational charts of many central banks. These factors have led to a redefinition in the way in which central banks have begun to approach their traditional macro prudential remit. I would like to mention four of these in particular: •  The formalisation of payments and settlement system oversight;  •  The publication of financial stability reports;  •  Stress testing and scenario analysis; and  •  Concern with financial condition of non-bank financial intermediaries and health of corporate and household balance sheets. Let me now briefly talk about each of these in turn. Payment system oversight has been part of the core functions of central banks almost from the very beginning. However, once the formal responsibility for banking supervision was split away from central banks like the Bank of England and the Reserve Bank of Australia, these central banks began to formalise their role in payment system oversight.

The working group on scenario analysis has produced some really useful guidance and tools that should be useful both to financial firms and to businesses.10  Next steps  It is critical that financial firms recognise now that the race to net zero has started. Indeed many have.11  9  See Climate Biennial Exploratory Scenario. See Climate Financial Risk Forum. The Glasgow Financial Alliance for Net Zero includes 87 asset managers representing $ trillion in assets under management; 43 banks with $ trillion in assets; and 58 asset owners with $ trillion in assets under management. 10 11  In support of their ambitions, and consistent with our expectations, they need to run climate scenarios as part of business as usual risk management and embed climate risk management within day-to-day decision-making. Time is running out. Perfection tomorrow cannot be the enemy of progress today. We also need experts from academia, think tanks and consultancies to fill in the blanks, helping turn the high-level into ground-level decision-useful material. A lot of promising work is already happening – including NGFS-led work to increase the sectoral granularity of risks and to quantify the impacts from flooding and tropical cyclones. But more research is needed. I will highlight three areas in particular:   What are the implications of government policy design on the transition, particularly on jobs, productivity, prices and different sectors of the economy?
In the long run, however, inflation cannot be explained solely as a function of nominal exchange rate movements, as it reflects, on the one hand, rises in wages and prices in excess of those in other countries and, on the other, changes in the real exchange rate, which stem from developments in underlying economic conditions such as terms of trade. Inflation that remains above target levels for a protracted period can only be explained by weaknesses in economic structure and policy, particularly monetary policy. In the short run, however, under- or overshooting of the nominal exchange rate can cause swings in the inflation rate, particularly if inflation expectations are poorly anchored to the target and exchange rate movements are significant. In trade-weighted terms, the króna has fallen by 5.8% year-to-date and just over 7½% since November, when it last peaked. The depreciation seems to stem from several causes. It appears that net foreign currency inflows from trade in goods and services have been at a low ebb in recent months. While seasonal factors are at play here, it could also be that foreign currency subject to repatriation requirements is not being returned to Iceland in full. This situation is being investigated by the Bank’s Capital Controls Surveillance Unit. In addition, firms and municipalities have been paying down foreign debt. In many instances, they are forced to do so, as they have no access to refinancing from abroad and would otherwise default on these loans.

To my mind, the answers will invariably call attention to three imperatives – a rethinking of value; a rethinking of risk; and a rethinking of human capital. Allow me to briefly address these in turn. Key Message 1 – Rethinking value through a renewed focus on the fundamentals of Shariah First, rethinking value. The industry must elevate the fundamentals of Shariah to realise its full promise. The business models of Islamic financial institutions should be guided by the 1/4  BIS central bankers' speeches  overarching objectives of Shariah (Maqasid Shariah) – which are to preserve and advance the common interest of society at large, by preventing harm and maximising benefits. This is now more important than ever to steer growth and development on a more sustainable path. In Malaysia, the industry with the support of the Central Bank, is taking concrete steps to drive strategies aimed at increasing the positive impact of finance on society. This is outlined in a Strategy Paper on Value-based Intermediation (VBI), which was released in July last year. The commitment to adopt VBI is a significant step by the industry to clearly identify Islamic finance with sustainable practices, as it should. It has also set in motion initiatives that will raise the bar for processes, practices, offerings and conduct that promote sustainable businesses and communities. We expect that over time, the adoption of VBI will have a significant impact on business models of Islamic financial institutions, including the drivers of profitability and risks.
In addition to changes to the expiry date of the controls, major amendments have been made twice: in October 2009, when cross-border transfers of krónur were prohibited and outflows deriving from new investment were liberalised; and in March 2012, when exemptions from the Central Bank of Iceland were required for disbursements from the failed banks. Parliament has just passed amendments to the Foreign Exchange Act, with broad-based support from its members. The Central Bank participated in drafting this amendment and supports it. The amendment creates a stronger foundation for the work that lies ahead in finding a solution to the settlement of the banks’ estates that is consistent with monetary and exchange rate stability and facilitates larger steps in liberalising the controls. The Bank also welcomes the enhanced understanding of the nature of the capital controls and the fact that they are a necessary evil, as is reflected in the consensus on the issue. The aim of the controls was to arrest the decline of the króna, provide shelter for the restructuring of private sector debt and the financial system as a whole, and create the space for economic policy to mitigate the recession and ultimately support recovery. In broad terms, these goals have been realised. Without the controls, much stricter monetary policy would have been required in the early stages of the crisis. The Treasury would have had much less scope to mitigate the contraction in 2009, as domestic financing of the deficit would have been much more expensive.

While high food and energy prices curb consumption on these products, they would also encourage investment and increase supply in the long-term. In short, the common view is that central banks have nothing to do but wait for the supplydriven shocks to work out their natural course. However, in the current environment where persistent and rapid increases in food and energy prices have been observed for a considerable period, the prevalence of this view has become questionable – especially in the light of current projections that foresee even higher prices in the near future. As a matter of fact, many countries under inflation targeting regime now project that inflation will converge to the target at the end of 2009 or in 2010, at the earliest. Going through a long period of high inflation is a serious risk for price stability. First, the general price level may shift upwards at a faster rate, as producers and workers in other sectors ask for higher prices and wages in response to the loss of their real purchasing power. The fall in real interest rates due to deterioration in inflation expectations is another risk, since lower real rates will lead to a faster pace of credit expansion. The common factor of these two risks is that persistent supply shocks may turn into demand shocks after a while. Thus, at some point, central banks have to decide to what extent they can tolerate the rise in inflation.
Average difference between forecasts and Sources: Consensus Economics Inc. and the Riksban outcome of forecasts made during 2005 and 2006  Actual and trend labour productivity 6  6 Outcome and forecast Trend  5 4  4  3  3  2  2  1  1  0  0  -1  -1 -2  -2 81  83  85  87  Annual percentage change, seasonally adjusted data  6  5  89  91  93  95  97  99  01  03  05  07  09  Sources: Statistics Sweden and the Riksbank  BIS Review 17/2007  Revised GDP 115  115 Outcome February 2007 Outcome and forecast M arch 2005 Outcome and forecast June 2005  113  113  111  111  109  109  107  107  105  105  103  103  101  101  99  99  97  97  95  95 03  04  05  Index Q1 2003 = 100  06  Sources: Statistics Sweden and the Riksbank  GDP Annual percentage change 6  6  5  5  4  4  3  3  2  2  1  1  0 mar-02  mar-03  mar-04  mar-05  mar-06  mar-07  mar-08  mar-09  0 mar-10  Sources: Statistics Sweden and the Riksbank Note. Broken lines represent the Riksbank’s forecast.

The forecast for the repo rate that we presented last week agrees fairly well with the market expectations in October. But this does not mean that we will not need to revise our assessment in the future. I would once again like to emphasise that the path for the interest rate is a forecast and therefore uncertain. It is not a promise. But nevertheless it is our best current assessment of how the repo rate will need to be adjusted in the near future. It is reasonable that we report it in a similar manner to the way we talk about what we think will happen with production growth and the labour market and a number of other variables. Summary I have today emphasised that our decision to publish our own forecast for the interest rate should be regarded as a further step towards greater openness and clarity in monetary policy. When looking back, I observed that inflation in 2006 was held down by, among other things, the strong development in productivity. This has contributed to a high GDP growth without any significant rise in prices. Gaining a deeper understanding of the driving forces behind productivity growth is a difficult task. It is also an important one, to which we devote considerable effort. I have also described the background to our decision to raise the interest rate by 0.25 percentage points and to our assessment that a further increase is necessary over the coming six months before we probably pause before making another increase.