samchain/econo-pairs-v1 huggingface dataset:
I am therefore delighted that we were able to organise this colloquium with such a set of distinguished speakers, all of which have their exceptional professional standing deeply associated with the financial crisis, either as policy-makers, crisis managers, academics or proponents of regulatory initiatives. My introductory remarks this afternoon are organised around the title of this colloquium. My aim is to review policies in the last few years and draw some policy conclusions. I will first touch upon some of the lessons for financial stability, where Lucas’s contribution was especially important, as responsible for the financial stability function, and then turn to the experience with monetary policy. Lessons for financial stability The financial crisis erupted in August 2007, when off-balance sheet vehicles that had been set up by banks to manage portfolios of complex structured credit securities ran into funding liquidity problems. Although initially a liquidity squeeze, concerns about counterparty credit risks quickly spread as uncertainties intensified about the nature and extent of exposures of banks to what we now call “toxic assets”. And, as we know, these escalating tensions culminated in the bankruptcy of Lehman Brothers in September 2008, an event which triggered an unprecedented surge of volatility across mature-economy financial markets and a broad-based decline of asset prices. With this, an adverse feedback between the condition of the financial system and real economic performance was unleashed, contributing to a sharp economic slowdown across the developed economies.

Further development of this framework promises to support financial and macroeconomic stability, within an overall strategy focused on achievement of our primary objective: price stability. Such considerations, in concert with the development of a new framework for macroprudential oversight, should permit to reduce the frequency, duration and economic impact of financial crises. These are themes that will be discussed in depth in the course of today’s colloquium. We have to make sure that the global financial system, as well as continental and national ones, are made much more resilient. Yet, it would be unrealistic to believe that financial crises can be eliminated. Recent experience has also demonstrated the need for central banks to be timely and agile in managing financial crises without ever – in any circumstances – losing their sense of the medium to long-term orientation to price stability. As regards the ECB, in the face of financial crisis, monetary policy was eased significantly through conventional means in late 2008 and early 2009, with key interest rates being reduced significantly. Moreover, non-standard measures, in the form of the ECB’s enhanced credit support were introduced. These aimed at maintaining an efficient transmission of monetary policy by supporting market functioning. Such measures were instrumental in the maintenance of price stability, since, in the face of downside risks to price stability, they ensured that the easing of the monetary policy stance was transmitted into a broader easing of financing conditions.
The authors focus only on the United States. Thus, it is difficult to know whether the value of financial conditions indexes are specific to the United States or should be applied more broadly. Fifth, I thought the paper could have gone further in exploring the implications of its results. The focus of the paper is on how to construct a financial conditions index that does a good job of forecasting economic activity. The paper does not tackle the implications for monetary policy stemming from developments in financial conditions as measured by the new FCI. If financial conditions evolve in an unanticipated way, how should this influence the conduct of monetary policy? In particular, the authors note that during the 2003–06 period, financial conditions tightened less than expected given the rise in the fed funds rate and, during the 2007–08 period tightened even as the Federal Reserve slashed its fed funds rate target. These results raise a number of interesting questions. In particular, does the behavior of the new FCI imply that the Federal Reserve should have tightened more aggressively during the 2003–06 period or eased more aggressively during the 2007–09 period? The paper’s results seem to imply this, but it would be interesting to see whether this is the case or not. It also would be useful to know how qualitatively important these differences are.

William C Dudley: Financial conditions indexes – a new look after the financial crisis Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the annual US Monetary Policy Forum, University of Chicago Booth School of Business, New York, 26 February 2010. *  *  *  Thank you for having me to speak as a panelist today. As always my views are my own and do not necessarily reflect those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. I am glad that Narayana Kocherlakota is here as well as I don’t think I qualify as the most “objective” person to be a panelist on this particular topic. After all, I have long been a proponent of using a financial conditions framework to think about the economic outlook and monetary policy. When I was working as the chief U.S. economist at Goldman Sachs, we built one of the earliest financial conditions indexes, the Goldman Sachs Financial Conditions Index (GSFCI). I am going to divide my remarks today into two parts. First, I will discuss why a financial conditions framework is useful when thinking about the economic outlook and monetary policy. Second, I will discuss the paper, “Financial Conditions Indexes: A New Look after the Financial Crisis,” by Jan Hatzius, Peter Hooper, Frederic Mishkin, Kermit L. Schoenholtz and Mark W. Watson, in some detail – evaluating its considerable strengths and pointing out some areas where additional work would be useful.
The merits of such interventions need to be judged on a case-by-case basis. For tonight’s discussion I just want to argue that such decisions should be undertaken with the support of the democratic political system and should be implemented as a fiscal operation. Indeed, during this crisis, the UK Government has made a number of such interventions – such as the Enterprise Finance Guarantee Scheme and the Vehicle Discount or “Scrappage” Scheme. The Special Liquidity Scheme Now, as an aside, some keen watchers of central banks may want to argue that the Bank of England’s Special Liquidity Scheme (SLS) appears to have provided £ funding for the UK banking sector. The SLS, supported by a Government indemnity, was probably the single most generous liquidity support scheme introduced by a central bank during the crisis. 4 Its  2  In the past, when financial markets were less well developed, the Bank of England has played a part in selected industrial or financial market interventions (see Sayers, 1976), but that is not a role we have now. 3  The Bank of England issues banknotes of course, but these are monetary liabilities or “central bank money” which impact on the monetary stance. They are backed only by the highest quality assets, in order to maintain confidence in the integrity of the currency. 4  This was required given the relatively small capital base of the Bank of England – around £ ½ bn at end-Feb 2009.

It would be dangerous to financial stability if we gave so large a capital carrot to banks to use the internal ratings based approach that many of the world's most important financial institutions, which account for the vast bulk of global and G10 domestic banking activity, saw a significant reduction of their regulatory capital requirement. It is the need to balance incentives with the maintenance of overall capital levels which makes this issue a difficult one. This, along with a large number of other questions about the impact of the proposals, will be further examined by the Committee in the course of a quantitative impact study to be carried out before finalising the proposals. The Bank of England has been asked to co-ordinate this work calibrating the impact of the new Accord on individual institutions and on the system as a whole. I recognise that the time allowed for this exercise is short, but I hope very much that we can count on the contribution and co-operation of the banking community. 2  BIS Review 29/2001  Turning to the second possible consequence of maintaining a risk insensitive alternative approach, we may find that the combination of having some banks on the IRB approach and some on the standard approach will, perversely, introduce a financial stability risk that is not present with all banks on the standard approach. This is that the more sophisticated institutions would have to hold more regulatory capital against weak loans than banks that remain on the standard approach.
To the contrary – the competition in the market should develop on the foundation of a common, efficient infrastructure. In the long run, this is of common interest to all the parties concerned, whether they are public institutions, private companies, banks or our nation. This should provide a good basis for finding sound and future-oriented solutions. Thank you for your attention. 4  BIS central bankers’ speeches

We will see later that these areas find a strong echo in Islamic finance, which has also to deal with issues linked to lack of transparency, of a level playing field and harmonised regulation. Thus, the overhaul of regulation in conventional finance should be an opportunity for Islamic finance to tackle these issues, and to better integrate into financial globalisation. In France, in particular, Islamic finance has a role to play, which could be beneficial both to Islamic investors and to the French economy. Indeed, the French economy offers major and diversified investment opportunities for Islamic investors in the financing of a wide network of often innovative firms and projects, or in real estate. These sovereign funds, corporates or wealthy individuals should have the opportunity to invest, either directly in individual assets or projects, or indirectly through funds or  BIS Review 118/2009  1  collective vehicles. It is up to banks to offer to these investors the type of Shariah compliant products and investment or financing tools they might wish to have. Let me make a brief point on sovereign wealth funds (SWFs) and their link with Islamic finance. SWFs have attracted much attention recently but the oldest ones were set up back in the 1970s. Their expansion accelerated about a decade ago, when many emerging countries started to accumulate sizeable foreign exchange reserves, due to high oil and gas prices and to the conjunction of macroeconomic factors and foreign exchange policies.
In the construction industry, it has declined slightly, but remains at a very high level. Narrow profit margins and mounting concerns over the international outlook held companies’ demand for labour in check. The introduction of the minimum exchange rate has corrected the massive overvaluation of the Swiss franc and has given companies a sounder basis for their investment planning. This notwithstanding, the situation for a big part of the economy remains difficult. Waning global demand will continue to hold back export growth. Economic uncertainty, coupled with a difficult earnings situation for many companies, will curb corporate investment. Moreover, since October, the seasonally adjusted unemployment figure has risen again slightly. The deterioration in the labour market should constrain both consumer spending and investment in residential construction. It is likely that the Swiss economy will stagnate in the fourth quarter. For 2011 as a whole, real GDP growth of 1.5–2.0% can be expected. This is only because of the favourable economic development in the first half of the year. For 2012, the SNB is expecting economic growth in the order of 0.5%. Monetary and financial conditions In October and November, inflation turned negative, a development largely driven by the strong appreciation of the Swiss franc during the summer. Prices for a large number of tradable goods fell markedly. Following the introduction of the minimum exchange rate, the SNB is expecting temporarily negative inflation rates, but not a sustained decline in the general price level. Moreover, surveys also show that medium-term inflation expectations are still positive.

Philipp Hildebrand: Global and Swiss economic outlook – overview for 2011/12 Introductory remarks by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Berne, 15 December 2011. *  *  *  The Swiss National Bank (SNB) reaffirms its commitment to the minimum exchange rate of CHF 1.20 per euro. It will continue to enforce this minimum rate with the utmost determination. It is prepared to buy foreign currency in unlimited quantities. The target range for the Libor remains at 0.0–0.25%, and the SNB continues to aim for a three-month Libor close to zero. Even at the current rate, the Swiss franc is still high and should continue to weaken over time. The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require. In the third quarter, the global economy picked up again slightly, thanks to positive stimuli from Japan, the US and China. Growth in Europe, however, remained weak and the economic outlook for the euro area deteriorated. In Switzerland, the pace of growth slowed considerably in the third quarter. The substantial appreciation of the Swiss franc over the summer is weighing heavily on the Swiss economy. For 2011 as a whole, real GDP growth of 1.5–2.0% can be expected. This is only because of the favourable economic development in the first half of the year. For 2012, the SNB is expecting economic growth in the order of 0.5%.
Now the IMF is assuming that it will only amount to just over 3 per cent. 1 The speed of the global economic downturn is unparalleled in modern times and has come as a surprise to the Riksbank and many other forecasters. At the beginning of September we were expecting world growth to amount to almost 4 per cent in 2009. In the Monetary Policy Report we published in February we are instead forecasting almost zero growth this year. Developments in the world economy are thus expected to be the weakest since the beginning of the 1980s. Inflation has fallen significantly in recent months. It rose rapidly in 2007 and up to summer 2008, primarily as a result of rising energy and commodity prices. Since then the price of oil has more than halved. This has led to a rapid changeover from high to low inflation. In July inflation in the OECD countries was close to 5 per cent. In January it had fallen to zero per cent in the United States and to around 1 per cent in the euro area. Over the coming six months we will probably see very low or negative inflation in some industrial nations. Inflation excluding energy and food prices has been more stable in recent years. In the United States, core inflation has fallen slightly, but only from 2.5 per cent during the first half of 2008 to 1.7 per cent in January 2009. In the euro area, core inflation is just below 2 per cent.

Svensson also took up the possibility, as a last resort and in a hypothetical situation with a zero interest rate and very low inflation expectations, of introducing a temporary exchange rate target to bring up inflation expectations. This method would involve first introducing a price level target and then depreciating the currency to attain this price level target. It would in theory make inflation expectations rise and inflation accelerate. The real interest rate would therefore be lower, which would stimulate production and employment. My own opinion is that the Riksbank should not even temporarily hold the krona exchange rate at an artificially low level. When the repo rate is cut, this normally means that the krona weakens. But the current weakening of the krona began back in August last year before the repo rate cuts were made and ought mainly to be due to the financial crisis. There are primarily three reasons against temporary interventions to keep the krona at a low level. The first is that there is no reason to do this, as underlying inflation and inflation expectations are close to 2 per cent. The second reason is that the current problem is that this is a global crisis and all countries cannot depreciate their currencies at the same time to stimulate production and push up inflation. The third is that our experiences of trying to solve problems by depreciating the currency are not positive.
Public-Private Partnerships 21 Moving on, I would like to touch on public-private partnerships – the other equally important arm of our alternative risk transfer strategy. 22 Continued industrialisation, expanding cross-border trade, and infrastructure development are at the heart of Asia’s growth. These create vast investment opportunities in the region, and will also drive demand for insurance solutions to mitigate a variety of business risks. 23 One such initiative is China’s One Belt One Road (OBOR) initiative, the most ambitious infrastructure project of its kind to-date. OBOR seeks to connect China and countries across Asia, the Middle East and Europe through a series of land and sea trade routes. Vital public infrastructure, such as roads and railways, gas pipelines, power plants and ports will be built in over 60 countries, with total estimated infrastructure investment to exceed USD 1 trillion. 24 However, modern risks lie along these ancient routes. There are a myriad of geopolitical, legal, credit and environmental risks in many countries along the corridor. Political instability, rioting, terrorism and conflict can lead to contractual issues and financial losses. Unfamiliarity with legal frameworks and regulations can lead to expensive delays. Non-payment risks can be exacerbated by emerging markets’ vulnerability to external shocks, such as currency and commodity price volatility. 25 The MAS is thus seeking to co-create new risk solutions with regional governments and the industry, and utilise these solutions on a pre-emptive basis to help governments and investors safeguard against key risks like natural catastrophes, construction risks and political risks.

31 The two strategies of ILS and public-private partnerships that I have highlighted earlier mark the metamorphosis of Singapore’s reinsurance industry as we transform from a mainstream traditional reinsurance hub, to a sophisticated full-fledged global capital for Asian risk transfer. 32 I invite you to be a part of this metamorphosis, as we chart new paths together in this journey that Singapore is embarking on. 33 Thank you very much. 4/4  BIS central bankers' speeches
There was a marked expansion in the issuance of asset-backed securities: bundles of residential and commercial  1  2  Most notably Nouriel Roubini, Bob Shiller and Bill White and others at the BIS. BIS Review 101/2009  mortgages, other consumer credit, and of loans to businesses that were sold on by the loan originator, thus shifting the associated risks. And a new class of asset in the shape of Collateralised Debt Obligations (CDOs) was created, which facilitated a further layer of restructuring and redistribution of the risks in an asset-backed security. The extent to which loans were moved off balance sheet through these means is shown in Fig. 2 (left-hand panel). Finally, we saw a veritable explosion in the issuance of Credit Default Swaps (CDSs), which allowed investors to hedge themselves against a wider range of default risks (righthand panel). The picture that emerges from this is one of a more complex process of financial intermediation, but one in which the innovation in contracts apparently allowed specific types of risks to be split out, traded and redistributed towards those in a better position to bear them. We thus seemed to be moving ever closer to an idealised Arrow-Debreu world of a full set of state-contingent securities.

Source: Bloomberg. 14  Figure 13  Share prices of U.S. regional banks and S&P 500  Stock of bank credit to enterprises  (index, 1.Mar.23=100)  (index, Dec.2019=100)  Regional banks index  120  S&P 500  110  130  100  120  90  110  80  100  70  90  60 Jan.23  Eurozone  United States  140  80 Feb.23 Mar.23  Apr.23  May.23  20  Jun.23  21  22  23  Sources: Bloomberg and respective central banks. Figure 14  Two-year inflation expectations (1)  Inflation expectations of enterprises (EDEP) (2)  (annual change, percent)  (annual change, percent)  6  12  Financial Traders Survey Economic Expectations Survey Breakeven inflation  5  in two years  in one year  10 8  4 6 3  4 2 Nov.21 Mar.22  2 17  18  19  20  21  22  23  Jul.22  Nov.22 Mar.23  (1) For details,, see note to Figure I.18 in June 2023 MP Report. (2) EDEP: Price Determinants and Expectations Survey. Source: Central Bank of Chile. 15  Figure 15  Economic uncertainty (DEPUC) (*) (index)  500 400 300 200 100 0 21  20  22  23  (*) Dashed horizontal line corresponds to 2020-2023 average DEPUC. Source: Central Bank of Chile.