samchain/econo-pairs-v1 huggingface dataset:
William C Dudley: The monetary policy outlook and the importance of higher education for economic mobility Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Council for Economic Education’s 56th Annual Financial Literacy &amp; Economic Education Conference, New York City, 6 October 2017. * * * Good afternoon. It is a pleasure to have the opportunity to speak at this Council for Economic Education (CEE) event, marking the CEE’s 56th Annual Financial Literacy and Economic Education Conference. Given the hard lessons of the financial crisis—and the economic challenges still facing many Americans—there are few goals more worthy than promoting greater financial and economic literacy. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.1  Personal educational experience Before discussing the economic outlook and the role of education in income mobility, I will offer a few remarks on my own educational experience. While it may not be surprising that I have a Ph.D. in economics, the path that led me to the University of California, Berkeley, is a bit unusual. I started college in the 1970s at Columbia University. On the positive side, the professors were engaging, and I had the opportunity to read the great books of the university’s core contemporary civilization curriculum. But, I was troubled by the emphasis on grades and test taking. I wanted something that was more free-form.

The uncertainty about how markets respond in conditions of acute stress - uncertainty in terms of how correlations behave, how much liquidity will be available, the risk profile of counterparties, etc., combined with the inherent uncertainty about the probability of a seemingly remote event, and the scale of losses associated with such an event, all argue for a more prudent cushion against risk than would be necessary in a less complex and more certain state of the world. Third, our approach to financial stability relies a lot on market discipline and, as a result, depends significantly on the quality of accounting and public disclosure. We see some progress in the extent to which firms provide a clear picture of their underlying risk profiles, but there is room for improvement. Accounting standards have notably struggled with the challenges of incorporating innovations in financial instruments, especially when those instruments are used to offset the risks inherent in more traditional activities whose fluctuations in value have not typically been recorded in earnings or in balance sheet valuations. It is hard to see how we can be comfortable that we have achieved a reasonable resting place on these issues. In the long run, it is critical for the cause of market discipline that accounting and disclosure of financial instruments be consistent with the ongoing direction of innovation in risk management. And finally, the broad changes in market structure place a much higher premium on cooperation among supervisors, market regulators, and central banks, both nationally and internationally.
A new configuration of players in the financial system has led to a blurring of distinctions between different types of intermediaries, to greater consolidation, and to a rapid growth of new financial players and services. Payment, clearing and settlement systems naturally evolve in response to such financial market developments. As the number of new financial products is growing and existing markets are rapidly expanding, the infrastructure needs to be in the position to handle such developments. A good example is the evolution of clearing and settlement arrangements for OTC derivatives. It took a while for the infrastructure to adjust to the tremendous growth in OTC derivatives. Eventually, with support from central banks, the most pressing shortcomings began being addressed. Today, there is a far higher degree of automation, new technical processes have been introduced, and innovative services are available. The infrastructure for the OTC derivatives markets will undoubtedly continue to evolve. Whatever path the evolution takes, as the market infrastructure moves further in the direction of centralised processing of trades and posttrade events, several issues will assume greater importance. First, providers of essential post-trade services for OTC derivatives should provide open access to their services and should aim to achieve convenient and efficient connectivity with other systems. Moreover, central banks and supervisors will need to consider whether certain existing standards for securities settlement systems, central counterparties or systemically important payment systems should be applied to providers of clearing and settlement services for OTC derivatives.

Summers, L (2013), speech at IMF Fourteenth Annual Research Conference in Honor of Stanley Fischer. Susskind, R and Susskind, D (2015), The Future of the Professions: How Technology Will Transform the Work of Human Experts, Oxford University Press. Swinney, P (2018), ‘The wrong tail’, Centre for Cities. Universities UK (2017), ‘Patterns and Trends In UK Higher Education’, Universities UK. Van Reenen, J, Bloom, N, Draca, M, Kretschmer, T, Sadun, R, Overman, H and Schankerman, M (2010), ‘The Economic Impact of ICT’, SMART N. 2007/0020. Willetts, D (2017), A University Education, Oxford University Press. 26  All speeches are available online at www.bankofengland.co.uk/speeches  26  Annex Chart 1: World GDP per head since 1000 AD 1990 International Dollars  7000 6000 5000 4000 3000 2000 1000 0  1000  1100  1200  1300  1400  1500  1600  1700  1800  1900  2000  Year Sources: De Long (1998). Chart 2: UK productivity, real wages and GDP per head Index, 1760 = 100 1800 1600 1400 1200 1000 800 600 400 200 0 1760  1810  1860  Productivity  1910 Real wages  1960  2010  GDP per head  Sources: Bank of England, ‘A millennium of macroeconomic data’, available online. Notes: Labour productivity per head uses GDP at factor cost. Real wages defined as nominal wage divided by GDP deflator at factor cost.
More recently, the EU has responded collectively by, inter alia, imposing severe economic sanctions on Russia. The growing significance of European policies renders all the more important continuing to push on with the development of the European institutional framework. The response to the war in Ukraine must, once again, be more Europe. In this regard, the EU’s recent proposals to increase its autonomy of decision and action in such important areas as energy, technology and the digital arena stand out. It is essential that, in these fields, the policies be designed and implemented so as to minimise the risk of fragmentation within the EU and of undesired distortions emerging. The war in Ukraine will also exert upward pressure on government expenditure, both to mitigate the effects on the most vulnerable households and firms and to cover the reception of refugees and military spending. The current shocks could be tackled more appropriately by strengthening the coordination between countries. The severity of the EU-wide supply shock (amplified after the outbreak of the war in Ukraine), its exogenous nature and the strong cross-border impact of domestic fiscal policies all warrant this coordination. Specifically, a common fiscal response to the challenges posed by the war in Ukraine would be desirable, including pooling the government spending needed to address its effects on the Member States’ economies. Moreover, the European Commission is currently reviewing the European fiscal rule framework.

Second, it would also be advisable to avoid arrangements that automatically link wages to past inflation or indexation clauses, with the aim of reducing the risk of a wage-price feedback loop. In addition, the incomes agreement should include multi-year commitments relating both to wage increases – where the nominal benchmarks for wage bargaining should exclude components associated with energy products and be based on the projected trend in underlying inflation – and to job protection. Lastly, the agreement needs to be complemented by explicit and verifiable profit margin moderation commitments. Monetary policy The third economic policy element I would like to refer to is monetary policy. In the inflationary context I have already described, the ECB has embarked on the process of monetary policy normalisation, starting from an extraordinarily accommodative position. Before the onset of the pandemic, the ECB maintained highly accommodative financial conditions through the asset purchase programme (APP) and negative interest rates. The aim was to drive inflation, which had remained persistently below 2%, to levels close to our target. During the pandemic, in an effort to combat the risk of financial fragmentation and  11  the deflationary trends, the ECB rolled out, among other measures, the pandemic emergency purchase programme (PEPP). The measures taken by the ECB are part of the new strategy approved by the Governing Council in 2021, which established a symmetric medium-term inflation target of 2%. Medium-term guidance means that decisions are conditioned by the inflation projected over a two or three-year horizon.
Let me start by saying that the HKMA is committed to ensuring we all have the right tools and expertise to deliver an effective response. That’s why we are all here. 8. Responsible innovation will drive the agenda for responding to those questions, and it is very clear that data and technology are at the heart of that. 9. Technologies like robotic process automation and natural language processing are already being used by quite a number of banks to automate existing processes but there are still a lot of banks using highly manual processes. We need to accelerate this transition. 10. Machine learning is also increasingly being used in AML work, for example to reduce false positives in monitoring and screening, but many banks are still grappling with huge numbers 1/2  BIS central bankers' speeches  of false positives. We need to enable a wider application of technology to AML work in the sector. 11. Moreover, data driven approaches applying network analytic tools are already proving to be valuable in more effectively identifying risk in banks and a game changer in how global money laundering networks are tackled. At the moment not every bank has the full capability to participate or even consider such an approach. Greater collaboration is required if we are really going to improve outcomes in combating networks, because currently each one of you can only see a part of the picture. 12.

Many of you will know that similar changes are taking place globally in AML/CFT; technology is providing practical solutions that are being applied in the real world. So what’s holding some of us back? Should we be afraid to experiment, to change the way we are doing AML work? 13. Let me be very clear about one thing: the risk for all of us is being complacent, of carrying on as we have been and not confronting the barriers that may stand between us and progress. We should not be afraid of trying out solutions that we feel will have genuine impact, even if some turn out not to deliver everything they promise. 14. With that in mind, our focus in these two days is to bring banks, regulators, technologists and other important players within our AML/CFT eco-system together to challenge our thinking, tackle pain points and discuss how we can move further ahead. Working collaboratively with like-minded people, we need to be ambitious because this is just as much about the human element, the impact of global financial crime, as it is about compliance with AML/CFT requirements. 15. We want to help enable change in banks because we recognise that, the better banks are able to apply a data driven, technology-enabled approach to AML work, the better we are able to discharge our role and achieve the HKMA’s statutory objectives. 16.
Its origin is rooted in the 1957 Treaty of Rome establishing the European Economic Community. At this point Belgium, France, Germany, Italy, Luxembourg and the  1  Schumpeter (1976, p. 83). 2  See IMF (1997). 3  For a historical overview of globalisation and its economic implications, see Williamson (1996), and Obstfeld and Taylor (2005). BIS Review 43/2006  1  Netherlands wished to remove economic barriers among Member States, but wanted to remain within the Bretton Woods system of stable exchange rates. In 1969, when the Bretton Woods system appeared on the verge of collapse, the European leaders of the time were already thinking about creating their own alternative system of stable exchange rates among the European currencies. Three key initiatives leading towards EMU can be highlighted: the Werner Report in 1970, which introduced the concept of the “Snake in the Tunnel” that was later launched before the end of the Bretton Woods system in 1973; the European Monetary System in 1979, involving the introduction of the European Currency Unit; and the Delors Report in 1989, which is reflected in the Maastricht treaty in 1991. The years since 1969 depict a period of repeated attempts to establish a zone of exchange rate stability in (Western) Europe. 4 These initiatives can also be seen in the context of the globalisation process.

Correlation was not expected to be high between investments in, for example, Japanese inflation-indexed government bonds, bonds issued by international organisations such as the European Investment Bank, European covered bonds and US mortgage-backed bonds. These experiences and the abrupt turnaround in market liquidity suggest that active management of the fixed income portfolio should be limited and measured on the basis of a number of criteria, as laid down by Norges Bank’s Executive Board. The Fund currently has extensive holdings of bonds that are difficult to trade in today’s market. Realised losses related to these investments have, as mentioned above, been limited. The flipside of large book losses is that this portfolio has a high return, reflecting not only the increase in credit risk but also high liquidity premiums and fears and uncertainty in the market. The return, measured as the difference in the effective interest rate between the actual portfolio and the benchmark portfolio, is now close to two percentage points. History has seen a number of deep financial crises, and market conditions will return to normal in time. The final results of the management of the Fund’s fixed income portfolio since the beginning of the financial crisis cannot be deduced from the quarterly results while the crisis is at its  BIS Review 53/2009  3  most intensive. Values are not lost as long as borrowers fulfil their obligations. The Fund is prepared to retain ownership of a large volume of bond holdings until they mature in a few years.
Global imbalances were built up If we are to understand the origins of the crisis, we cannot ignore certain factors in the macroeconomic landscape. This applies in particular to the major global imbalances that were built up over a long period of time. In the rapidly-developing economies in the oilproducing countries and Asia, particularly China, domestic saving reached a level that was higher than required to fund domestic investments. This led to substantial current account surpluses. Large amounts of capital were built up which sought an outlet on the global financial markets. These were used, for example, to buy assets in the West. At the same time, the economies in the West, especially the USA, experienced an unusually long, uninterrupted period of favourable conditions with strong growth and low inflation. Policy largely focused on maintaining these good conditions. It was possible to stimulate domestic demand at the cost of a gradually increasing current account deficit. The large capital flows on the financial markets helped to keep interest rates down. With consumer prices held in check, it was also felt that there was no real reason to conduct a stricter monetary policy. The result was that significant global imbalances arose – a lasting savings surplus in some countries and a deficit in others.

At the same time, we have seen the risks in this development in no uncertain terms. The flows in the financial system have increased substantially while the system has become increasingly complex and difficult to survey. The mutual dependence of the various markets has increased. This means that crises can more quickly and more forcefully hit an increasing number of economies at the same time. The important thing now is to find the right tools for managing these new risks; to find instruments for a better-balanced development. We need a better insight into the build-up of global risks. This requires increased cooperation between public authorities around the world. It requires greater harmonisation of regulations and supervision. It requires a better readiness to manage cross-border crises. And to find the means to counteract the build-up of large imbalances we must begin to think along new lines. At present the functioning of the financial system is being maintained with the aid of the measures implemented by public authorities. One sign that the crisis is no longer as acute is that the TED spreads have fallen in Sweden, as well as the United States and the euro area. These spreads are now back to around the same levels that prevailed immediately prior to the worsening of the crisis in autumn 2008. But the financial markets are still functioning much less efficiently than normal. It is also still difficult for companies to finance themselves in the capital market.
They consist of, first, risk-sensitive minimum requirements; second, a more consistent system of supervisory review; and, third, enhanced transparency and market discipline. Each of these three pillars offers unique benefits on its own, but the real strength of the three pillars stems from their ability to complement each other. The first pillar - which specifies the minimum capital requirements - constitutes a very direct approach to supervision. By applying a uniform set of rules to banks, the first pillar adds transparency to the regulatory process. Applying a shared set of rules to all banks makes it easier to compare organisations and get a sense of their relative degrees of solvency. On a technical level, the Committee based the measures of risk on the advanced practices that banks are adopting. The rules reflect the evolution in credit risk management by allowing qualifying banks to rely partly on their own estimates of the drivers of credit risk to determine the amount of capital required against particular exposures. One such driver of credit risk might be the bank’s own estimate of a borrower’s probability of default. Similarly, the new capital rules will reflect the advances in operational risk measurement by incorporating an explicit capital charge for such exposures to loss. BIS Review 32/2004  3  So the minimum rules will align capital charges more closely to better measures of the actual underlying economic risks that the industry is developing.

It is often acknowledged that European construction has been forged through the overcoming of recurrent episodes of crisis, from which the project has always emerged strengthened. Let us hope this is true this time and that the European authorities’ decisions will rise to the challenge. The Spanish economy was particularly affected by the sovereign debt crisis when the Greek and Irish economies had to resort to adjustment programmes. Conversely, when the same happened with Portugal in April this year, the impact was less, despite our closer economic, trade and financial ties with this country. This was due to the set of measures that had been  BIS central bankers’ speeches  1  adopted previously to speed the approval of some reforms and thus tackle confidence problems. In any event, the Spanish economy remains under the scrutiny of the markets, which continue to demand an unjustifiably high level of sovereign risk premia. In past weeks we have witnessed the effect caused by the recent discussions in Europe on the potential participation of the private sector in the bail-out of the Greek economy, while doubts resurfaced over the seriousness of Spain’s commitment to pushing through outstanding reforms. The spread of the sovereign debt crisis to Spain was ultimately due to the presence in our country of certain factors of vulnerability as a result of the imbalances that had built up during the previous upturn.
The Asset Purchase Facility also pays interest at Bank Rate to the Bank of England on the loan used to buy the assets. At present, the average coupon on the purchased gilts is around 5%, which substantially exceeds Bank Rate at 0.5%. Consequently the net interest income of the Fund is positive. But international accounting principles dictate that the assets on the balance sheet of the Asset Purchase Facility are also marked to market. Since gilt prices are highly sensitive to movements in discount rates, it is quite plausible that falls in the prices of gilts as a result of any future increase in discount rates will leave the Asset Purchase Facility accounts in deficit overall. The question is: Does this matter? At first sight, any loss on the Asset Purchase Facility would represent a cost to the taxpayer, given the Treasury indemnity. But of course the gilts held in one part of the public sector, the Asset Purchase Facility, are just a liability of the rest of the public sector. In the accounts for the rest of the public sector, there must therefore be  2  The ECB has undertaken no such purchases of government debt, while the Federal Reserve’s purchases of US Treasuries represent a much smaller fraction of the market. BIS Review 126/2009  3  offsetting interest flows, as well as corresponding capital gains or losses, at least if those accounts were also to be marked to market.

Combining these two facts, central bankers in emerging economies face the challenge of modeling the economy properly and react accordingly. In addition, I believe it is not an exaggeration to say that subsequent crises and reform processes have largely defined the economic landscape of emerging market economies in the last twenty years. Thus, uncertainty, which naturally exists in every economy, constitutes a real challenge for central bankers in many emerging economies because of their volatile and unpredictable structure. Dear guests, What we have been experiencing in the Turkish economy in the last five years can be classified as one of the clear examples of the impact of structural changes on an economy. First of all, after a thirty-year period of high and chronic inflation, inflation declined from 68.5 percent in 2001 to 10.26 percent in August 2006. This decline in inflation also made it possible to perform the currency reform at the beginning of 2005 and we dropped six zeros from our currency. Second, we experienced high growth rates while inflation was falling. I can say that the Turkish economy has left behind the boom-bust cycle of growth and has been growing for the last eighteen quarters consecutively. Additionally, the sources of growth have changed, as well. Third, the declining trend of the ratio of public debt to national income has contributed both to the fight against inflation and the relative stability in financial markets.