samchain/econo-pairs-v1 huggingface dataset:
Unlike commodity prices – and world prices more generally – over which the United Kingdom has no direct control, an exchange rate represents the relative price of two currencies and is thus affected by monetary policy decisions at home and abroad. The timing of the depreciation, however, and its subsequent relative stability makes it natural to attribute the fall not to changed expectations of monetary policy at home and abroad, but rather to the perceived real impact of the crisis on the UK economy. Prior to the crisis, the United Kingdom was consistently running a moderate current account deficit. At some stage, that deficit needed to be closed, most probably through a higher national savings rate. The natural counterpart to that would be a real depreciation of sterling in order to improve UK international competitiveness, boosting net exports and leading to a re-balancing of the composition of output away from meeting domestic needs and towards internationally tradable sectors. Moreover, the crisis has probably also resulted in a loss in net foreign earnings by some parts of the financial sector, necessitating an even larger decline in the real value of sterling to re-balance the economy. In order to get a handle on the likely impact of the depreciation of the exchange rate, we can follow a couple of approaches. One approach is to compare inflation rates here with those in other jurisdictions with stable exchange rates.

Nigel Jenkinson: Developing a framework for stress testing of financial stability risks Comments by Mr Nigel Jenkinson, Executive Director, Financial Stability, Bank of England, at the ECB High Level Conference on “Simulating Financial Instability”, Frankfurt am Main, 12-13 July 2007. I am very grateful to Adrian Penalver, Prasanna Gai, Geoff Coppins and Piergiorgio Alessandri for input and helpful comments. *  *  *  1 Developing a rigorous, coherent and robust framework to analyse the resilience of the financial system to withstand strain presents many well-known and formidable challenges. Financial system behaviour is very difficult to model, particularly under stressed conditions when strategic interactions between participants and risks of spillover and contagion come to the fore. And, thankfully, episodes of stress are rare, so history offers only limited assistance. 2 We are currently witnessing a period of major change in financial markets. The global financial system is evolving at a tremendous pace, fuelled by rapid innovation and crossborder integration, and supported by lower macroeconomic volatility. Innovation and integration may have a profound impact on the behaviour of the financial system under pressure. In particular, risks may have been dispersed more broadly through credit risk transfer and increased participation in capital markets. The resulting reduction in credit risk concentration may have strengthened the robustness of the financial system to withstand small to medium shocks. But equally, greater market integration has strengthened the ties between financial firms within and across borders, both through direct exposures and through common exposures to asset markets.
An obvious reason for why inflation can be higher or lower is the kind of risk for different economic developments that I have just talked about. But one factor that has puzzled us is the surprisingly low wage growth in Sweden bearing in mind how the economy has strengthened in recent years. 17 Even though we have seen that wages are now rising more rapidly both abroad and in Sweden, uncertainty remains over the strength of inflationary pressures. This is also a reason why we are expected to proceed very cautiously with repo rate rises in the coming years. The Swedish krona may grow weaker or stronger than our forecast, but as we have tried hard to get inflation to rise towards the target, we are more concerned about the potential effects of a rapid and sharp appreciation of the krona. The fourth and final category of uncertainty factors concerns ongoing major structural changes, the effects of which are very difficult to assess “in real time”. I have mentioned two factors today: the trend of low global real interest rates and the increasing interest-rate sensitivity of households. But there are also other factors that I have not discussed today, but that are nevertheless very important to consider. The mega trend towards greater digitalisation is changing many parts of society, and at the Riksbank we are affected not only as regards monetary policy but also as regards our other operations, such as our responsibility for a safe and efficient payment system.

8 [13]  … but their cashflows are affected more by interest rate adjustments than before Increasingly higher household indebtedness – in combination with a large share of mortgages taken at variable interest rates – has resulted in their cashflows being more affected by rate changes than previously. Traditionally, we tend to talk about the so-called interest rate channel when discussing the effects of monetary policy on household consumption. Simplified somewhat, the interest rate channel implies that it will be more attractive to save than to borrow when the interest rate is raised – and vice versa when the rate is lowered – which affects consumption. Another effect is that when the interest rate is raised, disposable income for savers increases and decreased for borrowers – and vice versa when the rate is lowered – which also affects consumption. This is usually referred to as the cashflow effect of monetary policy. 9 We can understand this effect by looking at how disposable income is defined: Disposable income ≈ wages + transfer payments + interest income + other capital income – interest expenditure – taxes According to the Financial Accounts from Statistics Sweden, households’ debts are approximately twice the size of their interest-bearing assets. Which is why a rate increase has a negative net effect on total disposable household income. This effect has increased as household indebtedness has grown. What then does an increased effect mean in actual monetary terms? We have studied this as well.
Today I want to pursue a number of monetary policy issues, looking back over the almost nine years I have been on the MPC and seeking to draw lessons from that experience for the very difficult decisions that seem likely to face the Committee over the next couple of years. In particular, I will make some observations about the problems that policymakers inevitably face in assessing the implications for inflation of the pressure of demand on the economy’s supply capacity, and also about the time horizon over which the MPC seeks to bring inflation back to target. A more general theme of this discussion reflects on whether the approach to policy should be somewhat different in the more uncertain economic environment we face today, compared with the relatively tranquil period of the MPC’s first ten years. The pre-crisis period Given the scale of the recent financial crisis and consequent recession, it is not possible to look back over my lengthy period as a policymaker with the degree of satisfaction I would have wished. The big question it seems natural to ask is: to what extent did the conduct of monetary policy contribute to that crisis? Here the real issue must be about the role of policy in the period prior to the summer of 2007. Once the financial crisis was underway, I remain doubtful that monetary policy could have done very much more to alleviate the depth of the recession.

If forceful measures are not taken to deal with the financial crisis and maintain financial stability, there is a risk of the crisis also having major effects on inflation and growth. The fall in output and employment can then be both deep and prolonged and that in turn can worsen the financial crisis. An efficient fixed-income market is a prerequisite for an effective monetary policy In other words, the monetary policy machinery I have described consists of two components. The first thing is to ensure that the repo rate does in fact affect the overnight market. Effects on this shortest rate must then spread to longer rates that are more important for economic activity. An effective monetary policy steering system is not enough by itself. We also need a fixed-income market that functions properly. So what are the fixed-income market’s functions? The fixed-income market caters both for those who need funds for their operations and for those with funds they need to invest for a certain period of time. As investment in the market is not risk-free, one of the market’s primary tasks is to price risk correctly. That in turn leads to an optimal distribution of risks between the markets’ participants. In this way the market contributes to an efficient distribution of economic resources. What a central bank requires of the fixed-income market is therefore not all that different from what society in general requires.
The first is whether the balance of risks to the outlooks for either economic growth or inflation are skewed to the upside or downside. The second is whether the efficacy of monetary policy itself is asymmetric when monetary policy is at, or close to, the zero lower bound for interest rates. In this situation, it may be easier to implement a tighter monetary policy through raising rates, than it would be to implement a looser policy using unconventional tools. Also, the effects of a policy of raising rates may be more predictable compared to the effects from using unconventional tools. As I noted earlier, I think the medium-term risks to the U.S. economic growth outlook are somewhat skewed to the down side. Thus, this needs to be taken into consideration in terms of the appropriate stance for U.S. monetary policy. With respect to the efficacy of monetary policy, given how close we remain to the zero lower bound for interest rates, I also think the risks are asymmetric. Therefore, we need to be a bit more careful about the risk of tightening monetary policy in a manner that proves to be premature, as compared to the alternative risk of being a little late. If we were to realize that we were slightly late, policy can be adjusted by raising short-term interest rates more quickly.

From now on, we will hold press conferences after each monetary policy meeting, regardless of what decision has been taken. Until now we have only held a press conference if the repo rate has been adjusted or if we have published a Monetary Policy Report. But to understand the monetary policy conducted, it is equally important to explain why the repo rate has been held unchanged as to explain why the repo rate has been changed. By publishing our own interest rate forecasts and by holding press conferences after each monetary policy meeting we will provide more detailed and more regular information on the considerations taken by the Executive Board. We have also decided to make changes in our way of signalling. By signalling I mean how we communicate our monetary policy intentions. Previously, when we Executive Board members have gone out and talked about the current economic situation between the monetary policy meetings we have sometimes given indications of how we consider the repo rate should be set at the next meeting. This has been on the condition that it is clear that the points of view expressed are the individual member’s. The idea was that when the interest rate decision was taken at the monetary policy meeting, enough information on the different Executive Board members’ views would already have been given by degrees so that the decision would not surprise market agents.
Historically, central banks have relied on the assumption that, even if liquidity shortages emerge in the non-banking sector, banks are likely to remain an effective conduit for LOLR. The efficacy of that channel may be less reliable in the future, however. For that reason, the Bank of England has extended access to its published facilities to broker dealers and CCPs overseen by its supervisory arm the Prudential Regulation Authority, and has ensured it faces no technical obstacles to providing ELA if required. The Bank has also set out principles under which it might operate as market maker of last resort – consistent with the role it played in sterling corporate bond and commercial paper markets during the crisis. Conclusions Ensuring central banks lend neither “too little” nor “too much” in pursuit of financial stability is vital if countries are to retain LOLR toolkits that can both protect their economies against genuine liquidity risks whilst maintaining broad-based public support and legitimacy. In recent years, reforms to the Bank of England have focused on minimising the risk that it might lend “too little”, significantly increasing the Bank’s ability to provide structured LOLR assistance, to a wider range of counterparties, against a wider set of collateral, at longer maturities and somewhat lower prices. But at the same time, safeguards have also been strengthened against the Bank lending “too much”: better supervisory and resolution frameworks; transparent terms for access, pricing and collateral; and stronger accountability and governance. The UK’s arrangements are no panacea.

Indeed the transition to net zero is likely to be a bumpy one, particularly in light of recent events, and macro-prudential regulators have an important role to play in helping manage those bumps. 14 In support of this work, we are running a stress test of the UK’s largest banks and insurers that will extend the time horizons over which we, and they, view climate risks. This is a good start in 5/7  BIS central bankers' speeches  understanding the implications of climate change and transition for the financial system. But more work is needed to build the green market infrastructure that will support an orderly transition to net zero, and this will be an important area of focus for macro-prudential regulation over the coming years. Conclusion: The road ahead Where does all this leave us? It’s clear that we macro-prudential policymakers need to look forwards as well as backwards as we do our risk assessment. And we must also ground our analysis in the impact of shocks to the financial system on businesses, households and so the economy, and not just their impact on financial players. The source of shocks and the mechanisms through which the financial system could amplify those shocks is wide – covering climate, Covid, crypto, cyber, and conflict as well as the credit cycle and the core banking system. But our understanding of many of these is still developing, reflecting differences in the maturity across our framework.
Managing their liabilities in such a way as to ensure that these vital services continue to be provided, and citizens view that they are getting appropriate value in exchange for their taxes is a daunting challenge. I am happy to see such a distinguished group assembled here at the Bank to address this challenge. Good luck in your work and I look forward to learning of the results of today’s discussions. BIS central bankers’ speeches  3

3 The forecasts of inflation and the real economy are then conditional on the central bank’s view of the transmission mechanism, an estimate of the current state of the economy and a forecast of important exogenous variables. The central bank uses all relevant information that has an impact on the forecast of inflation and the real economy. In this framework, the central bank takes financial conditions such as credit growth, asset prices, imbalances, potential asset price bubbles and so on into account only to the extent that they have an impact on the forecast of inflation and resource utilization. Inflation and resource utilization are target variables, that is, variables that the central bank tries to stabilize. Financial conditions are not target variables. Instead, they are only indicators, as they provide information to the central bank about the state of the economy, the transmission mechanism and exogenous shocks. Financial conditions then affect policy rates only to the extent that they have an impact on the forecast of inflation and resource utilization. 4 Now, is there any reason to modify this view of monetary policy given the experience of the financial crisis so far? Let me approach this question by first asking what the causes of the financial crisis were, whether monetary policy contributed to the crisis, and whether a different monetary policy was warranted and could have prevented or reduced the size of the crisis.
In this respect, banks are now allowed to close branches freely and also are free to decide opening and closing hours. We are working on the rules on the free opening of branches, being quite far ahead in this, and we expect to announce it, certainly within the next two to three months, whereby lending conditions tied to branch opening are probably going to be removed. This initiative is undertaken under the concept that banking services coverage is now adequate and we need not force banks any longer to do things for social reasons. Competition between service providers will probably lead to better results than government directed banking. We have now also agreed on the rules for internet banking, defined as the traditional counter service banking using e-commerce technology. Our idea is simple in that what could be done over the counter will be allowed over the internet. The similarity in service even goes so far as that we will not allow pro-active selling in the internet but that it must be passive in the same way that we require that selling of non-banking services over bank counters must be passive. In terms of e-commerce, what that means is that logos of non-bank service suppliers in the bank’s web must not be on the main page. Transactions with the suppliers must be done by transferring into the supplier’s web rather than on the bank’s web services and, of course, the bank’s client, must log in. The banks may not push their services onto their clients’ computers.

The third pool of local talent that we want to tap on is our network of overseas Singaporeans. Overseas Singaporeans in finance and in technology are well placed to excel in Singapore’s international financial centre. They have a solid understanding of overseas markets, useful networks, and good experience working in a cross-cultural environment. Indeed, many returning Singaporeans have progressed well in their careers and taken on leadership roles here. Take for example Melissa Lim who returned from Germany. Melissa is a Technology & Innovation Strategy Director at Standard Chartered Bank, where she is involved in driving the bank’s tech strategy and other transformation projects. Prior to that, Melissa spent five years in Frankfurt, Germany, where she was the Head of Investment Platform Transformation at Allianz Global Investors, leading a global team to deliver strategic investment transformation programmes. Melissa is one of the panellists for the Relocation Fireside later today, so do tune in to hear more from her. I hope that more overseas Singaporeans – when you are ready to return home – will take up opportunities in Singapore’s vibrant financial sector, grow further in your careers, and make a difference here in Asia. As important as growing the Singaporean Core, we must continue to welcome and embrace high quality global talent. I know questions have been raised on Singapore’s continued openness to global talent. First, the pandemic-related border controls were very difficult for many of our expatriate staff and their families. Many firms faced challenges bringing in foreign manpower due to our border controls.
In the event of excess liquidity, banks will be able to lend New Turkish Lira to the Central Bank at the Central Bank’s borrowing rate without any limit. (ii)  The current implementation of the Late Liquidity Window Facility will continue. Banks will borrow from the Central Bank against collateral, and lend to the Central Bank without any limit between 4:00 p.m. – 5:00 p.m. and on the last working day of the required reserve provision between 4:00 p.m. – 5:15 p.m.  (iii)  In case of a temporary or permanent liquidity shortage, the Central Bank will continue to execute its liquidity management mainly through one-week repo auctions. During the periods when the Central Bank does not apply a technical interest rate cut, the Central Bank will announce the amount of repo auction for the day of liquidity shortage on Reuters’ “CBTF” page at 10:00 a.m. As long as no extraordinary fluctuations are observed in the markets, the Central Bank, while determining the amount of the auctions, will endeavor to maintain the average auction interest rate as close as possible to the borrowing rate of the Central Bank announced for intraday transactions. (iv)  Weekly repo auctions will be held at 11:00 a.m. and the results will be announced on Reuters’ CBTG page no later than at 11:30 a.m. as much as possible. The traditional method will be used in auctions; in other words, successful bidders will be evaluated with their own interest rates.

It should be underlined that this is a temporary situation and the predictability of monetary policy will increase in the upcoming period when the stability in the global economy is restored Decision-making process and the communication policy The Monetary Policy Committee (MPC) will continue to meet once a month in 2009 as well, in accordance with the schedule announced beforehand. Monetary policy decisions at these meetings and their rationale will be made public on the website of the Central Bank in a press release posted at 7:00 p.m. on the same day. As in the previous year, the summary of the MPC Meeting will be released on the website of the Central Bank within eight working days, along with its English translation. As in previous years, the Inflation Report, which is the main communication tool of the monetary policy, will be published quarterly and introduced to the public at a press conference.