samchain/econo-pairs-v1 huggingface dataset:
tourist packages), the various measures of core inflation are holding at very moderate levels of around 1%, far removed from the monetary policy reference. Indeed, since 2013 euro area inflation has averaged 0.9%, practically half that observed during the first 10 years of EMU (2.1%). In parallel, the financial markets-based indicators of long-term inflation expectations have fallen forcefully since late last year and are holding at very low levels. That broadly coincides with the signals captured in opinion-based surveys. These indicators are habitually used to ascertain how anchored inflation expectations are with respect to the ECB’s medium-term objective (inflation rate at below, but close to, 2%). True, most of the reduction in inflation expectations according to the market indicators appears to be due to the decline in the  5  In France, real GDP rose by 0.4% quarter-on-quarter in the last quarter of 2018, while in Spain it rose by 0.7% in the first quarter of 2019. 6/16  inflation risk premium. But the level of this premium is in negative territory, indicating that agents would appear to be hedging against the risk of very low or even negative inflation rates. As regards the medium-term outlook, the latest ECB survey of professional forecasters showed an average forecast of annual HICP-based inflation of 1.3%, 1.4% and 1.5% for 2019, 2020 and 2021, respectively, marking a downward revision of 0.1 pp for each year compared with the previous forecast. For 2021 it is even below the Eurosystem’s June projection, which placed it at 1.6%.

It may also be inferred from this symmetry that, since inflation has been below-target in recent years, fulfilment of the aim in the medium term may require it to be above the aim at some time in the future. Consequently, the ECB Governing Council has announced that it stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner. Against this background, we have tasked the relevant Eurosystem Committees with examining options, including ways to reinforce our forward guidance on policy rates and options for the size and composition of potential new net asset purchases. There is a possibility that durably low or even negative interest rates may have effects on financial stability and bank profitability. It is true that Eurosystem estimates suggest that so far the positive effects, in terms of greater economic activity and improved credit quality, offset the adverse effects on banks’ net income. But it is necessary to monitor this matter continuously in order to determine whether measures are needed to mitigate the adverse effects of low rates on the banking system’s intermediation capacity. The Governing Council has thus also requested that the Eurosystem’s technical committees analyse a potential tiered system for reserve remuneration. It should be recalled that, in March, new quarterly longer-term financing operations were announced.
Today, when rising domestic resource utilisation is beginning to slacken in response to developments in the United States and falling stock markets, the element of uncertainty in our work is highlighted again. All this cautions against attaching undue importance to assessments of the longer run. Another matter that has been discussed a great deal in recent years is how monetary policy ought to handle price movements in assets such as real estate and shares. This is not much of a problem in the normal course of events. Rising house prices, for example, are usually connected with a general economic upswing that may generate increased inflationary pressure and thereby prompt an upward revision of forecast inflation and perhaps a repo rate increase. But what if that does not happen inside our normal time horizon? I personally believe there may still be grounds for adjusting the repo rate if one either foresees a future ‘bubble’ that may show up in inflation in the longer run or is concerned about the consequences for the economy and the financial system when the ‘bubble’ finally bursts. In the light of our experiences when the ‘financial bubble’ burst in the early 1990s, I believe that support for such a line of action could be justified, which of course would require clear motives and arguments. Not an exact science Our preparations for monetary policy decisions consist to a large extent in constructing forecasts.

Unfortunately there is no measure of inflation that in every situation can show whether monetary policy is properly balanced or which measures are called for. I have already mentioned the CPI’s advantages. The main drawback is that from time to time this index is markedly affected by price movements that the Riksbank neither can nor wants to counter. Not wanting to counter them mainly has to do with the time lag before monetary measures bite; another reason is that we would be chasing our own tail if, for example, we were to raise the interest rate to counter an increase in interest expenditure that stems from our own earlier interest rate hikes. We have therefore clarified how policy is formed in relation to price movements that are transitory. In practice, monetary policy in recent years has been based on forecasts of inflation excluding indirect taxes, subsidies and interest expenditure, that is, on the index known as UND1X. •  The third issue is the exchange rate’s role in monetary policy. There is less talk about this today but in the early years with the inflation target the public debate was all the more lively. The discussion subsided when the Riksbank, early in 1996, made it clear that policy is guided by the long-term outlook for inflation and continued to lower the repo rate even though the krona had weakened. For monetary policy the central consideration is thus the exchange rate’s impact on inflation.
Their loan ratio to total assets is down to around 12% from around 50% in 1985 and 30% only 5 years ago. That is still much higher than the illiquid asset ratio for the large US securities firms which has fairly consistently been around 2%. The conclusion that I draw from all of this is that while there certainly have been important changes affecting the banks, and the environment in which they operate, they have not, yet at least, been such as to affect fundamentally their relevant key functions or the importance of those functions to the economy; nor have they altered fundamentally the distinctive characteristics of either the banks’ liabilities or their assets. To what extent have other financial institutions become more like banks? So, then, to what extent have other financial institutions developed similar characteristics to the distinctive characteristics of the banks as I have described them? The question, let me be quite clear, is not whether other financial institutions perform economically or socially important functions - clearly they do - and those functions may equally be special in their own distinctive ways. It is also obviously true that, with the upsurge in financial innovation and globalisation that we have seen in the past 10-20 years, there has been substantial blurring of the boundaries between different types of financial institution and the increasing emergence of multifunctional, multinational, financial groups, so that non-bank institutions have taken over banks or offered banking services just as banks have entered substantially into non-banking financial activities.

This explains why, in their routine monetary operations to relieve shortages in the money-market, central banks in many countries tend to confine their (late) lending to banks even when they accept a wider range of counterparties in providing liquidity through open market operations. The same distinctive characteristics make banks especially dependent upon public confidence. Bank depositors are not generally in a position to monitor or assess the financial condition of their bank, so that any suggestion that a particular bank may not be in a position to meet its liabilities is likely to lead to the panic withdrawal of its deposits. This can precipitate the suspension of payments as a result of lack of liquidity even when a bank is solvent as a going concern; and the forced realisation of illiquid assets may in itself result in insolvency. Moreover, any suggestion that one bank is in trouble may be taken - perhaps wholly unjustifiably - as evidence that other banks are likely to be facing similar problems, especially when they are engaged in similar activities. Bank runs can for this reason become contagious. And the risk of contagion is increased by inter-bank exposures, including those arising from the banks’ role in the payments system. So the special nature of banks has reflected not just their distinctive functions, and the importance of those functions to the wider economy, but also their peculiar vulnerability to liquidity pressures.
Mr Latter gives an overview of the current monetary policy stance of Hong Kong Address by Mr Tony Latter, a Deputy Chief Executive of the Hong Kong Monetary Authority, at the CLSA Investors’ Forum in Hong Kong on 17 May 1999. I should like to say a few words about the present stance of monetary policy in Hong Kong and its relation to the broader state of the economy. Hong Kong has a fixed exchange rate against the US dollar. The pros and cons continue to be a focus of debate in some quarters, but I don’t intend to dig over that ground yet again today. Suffice it to say that over the past fifteen years Hong Kong has enjoyed, on balance, remarkable prosperity. I happen to think that the visible and trusted monetary discipline of the exchange rate link has been a decisive contributory factor to that prosperity. Of course, one cannot deny that there is some association between the strength of the exchange rate and the level of interest rates on the one hand, and the current recession on the other, but I would caution against adopting too short-term a horizon when drawing conclusions, and I would also suggest that some of the adjustment which we have experienced - for example in property prices - was both necessary and somewhat overdue.

The chart shows the net investment result since the first quarter of 2010 for the foreign exchange reserves, as well as for the individual components. The dominant role of exchange rate movements is clearly evident. In the past, too, exchange rate movements have posed by far the greatest risk to our portfolio. Taking a long-term view, exchange rates have been responsible for about 80% of the total risk on the foreign currency reserves. Reform of interest rate benchmarks Following last year’s revelations that Libor interest rates had been manipulated, various activities to reform the Libor and other interest rate benchmarks are under way. The SNB is involved in these reform activities at both international and national level. The objective is to improve the credibility and acceptance of the existing interest rate benchmarks or, where appropriate, to take steps to ensure the provision of robust alternative interest rate benchmarks. International efforts are being coordinated by the Financial Stability Board on behalf of the G20 countries. They involve not only central banks and supervisory authorities but also an international group of private sector financial market participants. They are examining, first, the extent to which the existing Libor interest rates fulfil the requirements laid down by securities supervisors last July (the IOSCO standards). Second, they are investigating whether there are alternative interest rate benchmarks which would better meet the needs of the market and the requirements of supervisory authorities in the longer term.
This, in turn, strengthens the financial sector’s resilience during periods of distress. I am convinced that when banking systems are adequately capitalised and well-managed, and risks are correctly assessed within the appropriate time horizon, the financial system becomes more stable, less procyclical, more resilient during periods of distress and therefore better able to promote sustainable growth. In the light of our mutual interests, I am especially pleased to share with you some thoughts on the landmark efforts under way to revise the Basel Capital Accord. The Basel Committee embarked on this undertaking to promote the responsible pursuit of risk and rewards across the banking sector and, hence, to promote greater financial stability. This reform builds on trends in many countries to incorporate incentives into the regulatory framework encouraging banks to identify and understand the risks they face today, to consider what risks may arise tomorrow, and to respond actively and appropriately to both. As you know, this has not been an easy task for supervisors or for bankers. Yet we have achieved considerable goals over the past four to five years, and I would like to begin with a brief look back to recall why bankers and supervisors decided that a New Basel Accord was needed. Then, I’d like to share with you the latest news on consultations with the industry and the Committee’s most recent decisions on the way forward to finalise, and then to implement, the new rules.

It is no secret: the New Accord offers a far more sophisticated view of risk than the far simpler 1988 Accord does. But that is indeed the point. The Committee is adopting the best measures of credit and operational risk being developed by leading institutions worldwide. Today’s conference offers a good picture of just how sophisticated – and sometimes complex – the measures of credit risk are becoming. Loan officers and risk managers now have at their disposal a constantly evolving array of databases, software, credit risk models, and risk rating systems, all of which provide supplemental empirical insight into a risk previously not readily quantified. And all of these new tools were initially developed or refined to  BIS Review 46/2003  3  promote a bank’s competitiveness and protect it against loss – and not just to respond to a regulatory mandate. We seek a balance between complexity and risk-sensitivity, between complexity and the necessary room for diversity and between complexity and comparability. Where complexity in the rules fails to add much to the sensitivity of the New Accord’s measures of risk, the Committee has worked to remove it. In the past, this has included eliminating the so-called “W” factor for credit risk mitigation and even shortening and simplifying the disclosure requirements of Pillar 3. Just two weeks ago, the Committee announced in our Madrid press release that we will simplify the proposals for securitisation exposures and replace the “Supervisory Formula” approach to unrated tranches with a simpler rule.
The communiqué issued by the four Sponsoring Organizations at the close of the Round Table recommended that market participants from regions that have not yet vigorously tackled the problem should consider the need to invest significant resources in the short time that remains. The Sponsoring Organizations further recommended that external testing programs be developed and expanded and that all financial market supervisors worldwide should implement programs that enable them to assess the Y2K readiness of the firms and market infrastructures that they supervise. The Sponsoring Organizations urged telecommunications and electricity providers to share information on the state of their own preparations and encouraged market participants and supervisors and regulators to consider the need to develop appropriate contingency procedures. At the Round Table, a new private-sector initiative known as the Global 2000 Coordinating Group was announced. The aims of the Global 2000 effort are to identify and support coordinated initiatives by the global financial community to improve the Y2K readiness of financial markets worldwide. For example, current Global 2000 projects include the development of recommendations for financial infrastructure testing and guidelines for addressing Y2K compliance issues related to vendors and service providers. The Global 2000 Coordinating Group, which includes representatives from over 75 financial institutions in 18 countries, represents an extremely valuable private-sector attempt at cooperation on this important issue.

On the credit market, growth in mortgage lending is slowly receding, with the current rate of increase below 5%. The “other loans” category continues to expand rapidly, while matching observations of the past in comparable phases of the economic cycle. This category is now growing at a rate of about 8– 10%, as at the beginning of the 2000s, when their level in fact considerably exceeded the levels we are currently experiencing. M1 and M2 shrank, which is nothing out of the ordinary during a phase of rising interest rates. When this happens, savings and sight deposits are shifted into time deposits. M1 and M2 are affected by this substitution. M3, which is not affected, is growing at a rate of 2% to 3%, which is appropriate for an expanding economy. Inflationary risks In the current environment, price stability is subject to three types of risk: The first risk is connected with the development in the price of oil. The barrel price for Brent crude rose by 40%, from USD 51.0 in January to USD 71.7 in May. This will lead to higher inflation during the course of the year. Unlike oil price hikes between 2004 and 2006, the most recent rally took place when capacity utilisation was higher. If the current surge in oil prices were to continue, it could affect prices more easily than previously. The second risk is due to the fact that demand is growing at too rapid a pace in relation to the development in production capacity.
Since the beginning of 2013, Spain has experienced a decrease in its unemployment rate of some 6 percentage points and Spanish growth is nowadays one of the main drivers of the European recovery. Contrary to preconceptions, France has also demonstrated in the past its capacity to meet the challenge of economic and social reform. In the 1990s, to prepare for the introduction of the euro, France pursued a competitive disinflation policy that proved highly effective. Remember that in the late 1990s, France experienced the highest GDP growth and the weakest inflation rate among European countries, along with a significant fall in its unemployment rate. Today, French reforms are heading in the right direction, [Slide 5] in particular the tax credit for competitiveness and investment (CICE) and the Responsibility and Solidarity Pact (RSP) that enhance the competitive strength of the French economy. A policy of administrative simplification, the so-called ‘simplification shock’, and a new law to sustain economic growth and entrepreneurship (‘loi Macron’), are also being conducted in order to rebuild business confidence. However, we are not there yet and a number of reforms need to be complemented. In particular, in the labour market: hopefully renewed progress will be made with the draft law under discussion in Parliament. Finally, in the euro area, fiscal policy is now more balanced since significant adjustment has already been achieved. Structural efforts and a growth recovery have led to a reduction in deficits and to a stabilisation in the ratio of debt to GDP.

Going forward, he/she could also be in charge of a common budget. BIS central bankers’ speeches  3
It may be useful to distinguish between three channels through which monetary policy operates: •  The demand channel  •  The exchange rate channel  •  The expectations channel  The effect on inflation of changes in interest rates occurs with a lag and may vary in intensity. In the time it takes for a change in interest rates to feed through, other factors will also have an impact resulting in changes in inflation and output. We cannot assume that the various relationships are entirely stable. As interest rates fall, household and municipal consumption and investment will tend to accelerate. This is because they have more money left over after servicing their debt and because borrowing is less expensive. Corporate finances are strengthened and investment may become more attractive. Higher demand leads to higher output and employment. Wage growth may pick up. Higher wage growth combined with higher profit margins will result in higher inflation. The effect of interest rate changes may be amplified because the interest rate also affects the krone exchange rate. When interest rates are lower, more people will borrow money and fewer will invest in NOK. Lower interest rates will thus normally lead to a depreciation of the krone. Imported goods will then become more expensive and inflation will accelerate. A weaker krone also boosts exports and improves profitability in Norwegian business and industry. The effect on the exchange rate of a change in interest rates will vary as themes and sentiments shift in the foreign exchange market.

In recent years, capacity utilisation has declined from a high level and is now on a par with the level prevailing in the years 1995-1997, before the rise in costs accelerated. Consumer price inflation in 2003 and the background for the deviation from the target In the years 1998-2002, the Norwegian economy was characterised by substantial labour shortages and a considerably higher rise in labour costs than among trading partners. Last year was the fifth consecutive year of very high annual growth. Wage growth was substantially higher than the level that over time is consistent with the inflation target and with normal productivity growth. Pay increases varied widely across the different groups. In Norges Bank’s view, there was therefore a substantial risk of new wage-wage spirals. Further rounds of such strong wage increases might have led to a decline in output and employment. Monetary policy was therefore tightened through an interest rate increase last summer while the krone remained strong. At the one-year horizon, the strong krone would push down inflation to below 2½ per cent, but subsequently the effects of strong wage growth would dominate. Last year, Norges Bank’s Executive Board struck a balance between the consideration of stable inflation developments in the short term and the consideration of stabilising developments in output and employment. Inflation was thus expected and intended to be low in 2003. In the October 2002 Inflation Report, inflation was projected to fall to 1¾ per cent in summer 2003.