samchain/econo-pairs-v1 huggingface dataset:
Banks that undergo a capital shortfall as a result of these new requirements will have to reinforce their capital, resorting to financial aid from the FROB if necessary. Overall, the clean-up and capital increases arising from the two RDLs approved this year will see a considerable reinforcement of the banking system’s buffer against potential losses. Indeed, once these measures have been fully implemented, the provisions set aside by the Spanish banking sector since early 2008 will amount to close to 19% of GDP. In addition, the legislation demands problem foreclosures be transferred to asset management companies, and a programme for private appraisers to value the entire credit portfolio of the banking sector has been set in train. Allow me to conclude with some reflections on two issues I consider very important: the restoring of confidence, and the importance of independent regulatory agencies. In the difficult circumstances facing the Spanish economy, the most critical variable is neither growth nor unemployment, no matter how serious recent developments have been, but rather the deterioration in confidence. The priority aim of action by all authorities should be to restore lost confidence, since without it resuming growth and job creation will not be possible. The low level of confidence we have hit in recent months and weeks means that resolving Spain’s fiscal and financial problems has become more difficult and costly. The potential impact on confidence should, therefore, be a primary determinant of any action by the authorities, political representatives and economic agents.

The correction of this imbalance is particularly pressing in that the reliance on external saving has become a major factor of vulnerability of the Spanish economy during the crisis. The increased dependence on external financing in the pre-crisis period is the consequence of the sizeable accumulation of debt by households and firms, which also led to the Spanish banking system becoming oversized. The need to correct these imbalances poses an added difficulty to recovery in the economy, given that it restricts the headroom available to raise investment and consumption through resort to external financing. It is also crucial to continue with the restructuring of the banking system. Hence, when solvent demand recovers, it may be serviced by a normal flow of financing which, both in Spain and in the rest of continental Europe, is routed essentially through credit institutions. But households and firms still have a relatively lengthy process of debt reduction ahead of them. Accordingly, in the short term, the recovery in growth cannot be credit-led as in the past. Along these lines, credit to the non-financial private sector in 2011 fell by around 4%, although there were significant differences from sector to sector. In the case of households the pace of debt reduction was somewhat slower, whereas in that of firms the reduction in credit was more marked in those sectors, such as construction and real estate development, that had become oversized to a greater extent before the crisis.
As far as economic growth is concerned, there have been repeated setbacks over the past few years. Geopolitical uncertainties such as Brexit and the threat of protectionism are currently weighing on economic sentiment. That is also why inflation remains subdued. Moreover, it has taken a long time for the decline in unemployment to be reflected in higher wages. The number of people who lost their jobs in the crisis but never registered themselves as unemployed has been underestimated. When the economy revived, these people returned to the labour market. A great many people, above all part-time workers, began to work longer hours when the upswing set in. In brief, the labour supply was underestimated. It’s only when the labour market has thoroughly cleared that 1/3  BIS central bankers' speeches  wages start to climb more steeply. We’re seeing that in Germany for example. One serious criticism of the ECB’s programme is that it is effectively only subsidising the southern crisis countries. The central bank has pushed interest rates down. Without this life-saver, Italy would have gone bankrupt long ago and the euro would have been history. Hold on a moment. All have benefited from the measures. The savings for taxpayers resulting from lower interest rates were nowhere as high as in Germany. But isn’t it also true that the ECB is indirectly financing governments here? Any creditor who invests in Italian or Spanish government bonds knows that the ECB will buy these bonds off them in the future.

Even though I am not the strongest advocate of our government bond purchases, we do not finance individual governments with them, directly or indirectly. Our aim is to maintain price stability. Thanks to our bond purchases, interest rates go down and loans become cheaper, primarily benefiting households and businesses. Besides, we have a very clear set of criteria for the timing, selection and volumes of our government bond purchases. Our parameters ensure that the private market for government bonds remains intact. One sign of the continuing relevance of this market is the divergence in the prices for German, Italian and Spanish government bonds. Another criticism is that the ECB defers problems rather than solving them. Owing to the low interest rates, cheap credit is even available to firms that are no longer competitive, and would otherwise have gone under long ago. These zombie firms tie up capital and employees, all of which is harmful to economic efficiency. We have only bought corporate bonds with high ratings. This has indeed improved financing conditions predominantly for the companies in question, but also indirectly for the firms with lower credit standing. However, banks lending to companies must take the risk involved into account in their financing conditions. So, basically, the higher the risk, the more expensive the loan. Moreover, European banking supervision requires more capital to cover the risk and looks very closely at credit standards. And indeed: not every group in the euro area can borrow for five years at less than 3% interest.
Governor’s Feature Address at the Khazanah Megatrends Forum 2022 Speaker: Tan Sri Nor Shamsiah Mohd Yunus / Venue: Kuala Lumpur / Language: English / Speech/Interview Date: 03 Oct 2022 /  Navigating Malaysia's Economic Transition, in a post-COVID world 1. A very good afternoon to all of you. I would like to thank Khazanah for inviting me to speak. This morning, I will be pleased to share with you what we in Bank Negara Malaysia are seeing in the economy today, and what we believe is needed to secure our future. 2. For a good part of the past three years, the world has been grappling with managing not only a health crisis, but an economic crisis. Actions were taken to protect both lives and support people’s livelihoods. Following the warp speed effort to vaccinate the country last year, containment measures were soon lifted and borders reopened. Today, the economy is no longer in a crisis, and Malaysia’s economic recovery is well underway. A number of key indicators support this. 3. First, the Malaysian economy is showing positive growth momentum. This year, growth is expected to be strong. The reopening of international borders has and continues to lift tourism-related sectors. This will have significant spillovers to the rest of the economy given the importance of the services subsectors. Also, investment activity and prospects continue to be supported by the realisation of multi-year projects.

More recently, during the pandemic, Malaysia’s financial sector continued to serve as a source of strength, with banks and insurers stepping in to offer important relief to households and businesses. This in turn, cushioned the economic shock from lockdowns. Earlier multi-year reforms to digital financial infrastructures, especially on e-payments, also proved to be useful. Consumers and businesses could transition to low-touch demands with greater ease. 34. In fulfilling the aspirations set out in the Blueprint, all these experiences will continue to be relevant as the financial sector plays its part to secure the future of Malaysia. Conclusion 35. Let me conclude. The future ahead will be challenging, highly uncertain and unpredictable. However, we are not in a crisis, our growth trajectory remains positive and we should remain confident about the future. The next one to two years will present a crucial window for Malaysia to be taking bold steps forward. As a country, we must now focus on strengthening our economic fundamentals, resilience and flexibility. Our neighbours within the region are actively pressing on with reform measures. We run the risk of being left behind if we do not act now. 36. I am confident that we as a nation can achieve this if we put our minds and importantly, act together. History is instructive. We have time and time again, done what is necessary to transform ourselves to reach for greater heights. I am certain that this time is no different. Thank you.
This is the focus of the related field of “behavioural economics” and the work of the Nobel laureate Robert Schillervi. Page 7 of 14  To respect the mandate entrusted to us under the Treaties, one thing remains certain: in the face of the too-low level of inflation caused by the cooling of the economy since the end of 2018, it is our duty to maintain an accommodative monetary policy to support economic activity. In September last year, the ECB thus announced a package of measures, the most innovative of which is the reinforcement of its forward guidance which gives visibility as to the future path of short-term rates. However, at our December meeting we noted the first signs of an economic stabilisation, consisting in a relative reduction in trade-related uncertainties. If this stabilisation is confirmed, it would need to be followed by a stabilisation in monetary policy. Put another way, the low point observed in growth justifies rates that are “low for longer”, but not, at the present time, “lower for longer”. II. Low rates: what are the effects? 2.1  Effective policies to support inflation and the economy  While these accommodative monetary policies are justified by their causes, are they also effective in terms of their impact? Here too, we need to take stock, both on an overall level and for each category of economic agent. From a macroeconomic perspective, low rates and, more broadly, accommodative policies, have indeed lent support to the economy.

We need to start with an admission of humility. Contrary to a widespread preconception, central banks do not bare full responsability for the low level of interest rates. The downward trajectory of global nominal rates is part of a trend that has been going on for nearly 40 years.ii  Source: FRED, Banque de France, Levy-Garboua and Monnet (2016), “Les taux d'intérêt en France : une perspective historique”. Page 2 of 14  However, the decade since the financial crisis has marked a turning point. Nominal rates have continued to decline and short-term rates have even fallen into negative territory in the euro area since 2014, a radical development and one that we share with Sweden and Switzerland, and with Japan since 2016. In parallel, inflation has stabilised at a low level, dragging real interest rates down in its wake. A long-term analysis of the global path of real interest rates shows that current levels are historically low, and that, over the very long run, global real long rates have instead remained between 2% and 4%. 1.1  Structural causes  To understand the origin of today’s low real interest rates, we need to consider the concept of the natural or neutral rate of interest: in other words, the real interest rate that would balance savings and investment in a context of full employment and stable prices. This “R*” rate, described by the Norwegian economist Wickselliii in 1898, has been back in the spotlight recently.
Neither the EU, nor, as a matter of fact, Switzerland can be interested in such a development. Like any other country in Europe, Switzerland has a vital interest in EMU becoming a success. Switzerland’s economy is closely linked to the economy of the EU. High growth in Europe is essential for a sound economic development in Switzerland, whereas a lackluster economic situation in the EU contributes to sluggish economic growth in our country. The success or failure of EMU will thus directly affect our economic well-being. In fact, not only our economic well-being, but also our ability to conduct a relatively autonomous monetary policy will be affected. Market turbulence during the transition period, uncertainties about the future monetary policy of the ECB and unfulfilled expectations about the stability of the new currency and the degree of political independence of the ECB all have the potential to create an upward pressure on the Swiss franc. An appreciating currency would make it more difficult for our export-oriented companies to compete on the world market and would increase the competition faced domestically from abroad. Should the Swiss franc appreciate to an extent that economic activities in Switzerland were severely disrupted, we would have several courses of action open to us. The Swiss National Bank (SNB) could relax monetary policy in an effort to counteract the effects of the strong Swiss franc on the domestic economy. Attractive as this response may be, its major drawback is that we would have to walk a tight rope.

Its importance, however, should not be overstated. Otherwise, rational decision-making is made difficult. It is therefore important to de-emotionalize the discussion and to take decisions based on facts, economic and political common sense rather than on wishful thinking and unrealistic expectations. The introduction of the Euro presents Europe with both opportunities and risks. Let me first dwell on the opportunities. A successful monetary union will contribute to sustainable economic growth in Europe. It will complement the most important part of the EU, which is the single market. The free movement of capital, labor, goods and services will be made easier when only one currency exists. The allocation of resources will reflect expectations BIS Review 102/1997  -2-  about the profitability of investments and will not be distorted by unexpected exchange rate movements. Comparing prices of the same goods in different countries will become much easier as they will all be expressed in the same currency. Competition will thus be enhanced. Monetary union will also most likely contribute to lower interest rates in at least those participating countries which now have interest rates above the average. This should further enhance growth prospects. All of these advantages depend of course on the belief that monetary union will be a success. The likelihood of this happening is relatively high. The new ECB will have as its primary statutory goal price stability. In the performance of its task, it will enjoy a high degree of political independence.
Before all else, the point that I would like to emphasize is that our inflation targets are point targets. These targets have been set as consumer price index inflation. Our policies are established solely with the aim of achieving these targets. In our monetary policy implementations, we have announced our inflation targets for a three-year period in order to increase the emphasis placed on medium-term. In this context, the inflation target is 5 percent for 2006 and 4 percent for 2007 and 2008. To apply a rule to the Central Bank’s accountability in the event of any deviation or the possibility of deviation from the inflation target, a + 2 point-uncertainty band has been established around the point target. Once again, I would like to underline the significance of this issue. This band, which has been formed around the inflation target, aims at setting the accountability criteria. Looking at the practices around the world, we see that a 40 percent-uncertainty band has been formed around the point target in most countries. Our implementation is based on this approach. In the event that inflation is realized outside this band or, in case of such a possibility, the mechanisms specified with respect to accountability will start. With the introduction of the formal inflation targeting regime, interest rate decisions are made by voting at the Monetary Policy Committee meeting. Monetary Policy Committee meetings are held once a month on pre-announced dates. Nevertheless, when deemed necessary, extraordinary meetings may be held, such as yesterday’s meeting.

We thank the Fund for its analytical work on assessing reserve adequacy, but we would like to stress that reserve holdings are not an economic policy goal, nor are they driven primarily by precautionary self-insurance motives, but are the outcome of a larger policy strategy for macroeconomic and financial stability. Thus, we view that the Fund’s emphasis on assessing reserve adequacy might be misplaced and would add little value to policy dialogue in the Fund’s surveillance process, the focus of which should be on the broader macro-policy mix in relation to economic policy objectives. Moreover, assessing reserve adequacy remains an inexact science, with theoretical underpinnings yet to be concretely established. The Fund’s recent exercise may therefore be best viewed as an addition to ongoing research on this issue, which would help clarify expectations about what the new metric can and cannot achieve. 8. The Fund cannot hope to establish confidence in the IMS without building adequate financial safety nets to ensure the necessary backstops in the event of global systemic crises. We therefore call on the Fund to strengthen its financing toolkit, including the possible inclusion of a short-term liquidity line, taking into account reinforcing relationships with Fund facilities and other regional financing arrangements. 9. Over the long term, the eventual choice of a global reserve currency, or currencies, needs to reflect evolving international trade and investment flows and be widely accepted by the market.
Rather, I will draw from our collective experience of dealing with capital flows and offer some guiding principles from an emerging market point of view. Let’s begin with a broad perspective of the impact of financial integration. Some of you may have seen the film Red Cliff directed by John Woo based on a historical battle in China around the early third century. On one side was the northern warlord Cao Cao (โจโฉ) with numerically superior forces who commanded thousands of ships to attack the southern warlord Sun Quan. In what is known as the Battle of Red Cliffs, Cao Cao had BIS central bankers’ speeches  1  chained his battleships together to make them more stable and prevent his men from getting seasick. Observing this, Sun Quan’s generals sent unmanned fire ships towards Cao Cao’s fleet and set it ablaze. Unable to separate from each other, the flames quickly swept across the entire fleet and Cao Cao was defeated. This story reflects well the double-edged sword of financial integration. On the one hand, connectivity acts as a shock-absorber. They help to distribute and diversify risk, raising economic efficiency and contributing to system stability. Cao Cao’s men did not get seasick. But when a sufficiently large shock hits, connectivity may instead act as a shock transmitter. Risk-sharing becomes risk-amplifying. The system transforms into a network incendiary device. A globalized financial system has a split personality. It is at once calm and turbulent, stable yet unpredictable, robust yet fragile.

With each central bank focusing on  2  BIS central bankers’ speeches  their own domestic mandates, financial conditions collectively for the world as a whole can be suboptimal. Global credit and monetary expansion seems to be precariously unanchored. Given the complexity of cross border interactions, the expansion of central bank balance sheets the world over has implications for the system as a whole that are by no means clear. This is especially worrying given that existing facilities for international liquidity support is inadequate for absorbing a large international crisis should one occur. In a highly integrated global economy, the need for collective action is inescapable. But progress in achieving this with respect to the international monetary and financial system so far is very limited. As with all common goods, achieving political will to further the collective interest is extremely difficult. Thus while we can hope for greater international coordination, we can certainly not plan on one. Instead, countries are left to fend for themselves. Here, the experience of Asia offers some guiding principles. In many ways, Asian countries have been pioneers in terms of policy responses to dealing with capital flows. This often entailed going against prevailing wisdom and convention. In 1998, facing intense speculative flows from hedge funds, the Hong Kong Monetary Authority purchased stocks to counter the steep fall in equity prices. In the same year, Malaysia introduced capital controls amidst the Asian financial crisis to stem the decline of its currency.
Importing the stability-oriented policy that had long been conducted in the EMU's core countries helped to create better conditions for future growth. The policy model we now follow comes originally from Germany. During the entire post-war period they have endeavoured, to a great extent successfully, to maintain price stability. The task of achieving this has fallen to the German central bank - the Bundesbank - which has operated independently, at arm's length from party politics. The Bundesbank model is now copied by a number of industrial nations, which have given their central banks a large degree of independence and the task of aiming for price stability. This policy is also reflected in the Maastricht Treaty and in the Riksbank legislation. My colleagues in the major industrial nations also try - as long as they are sure that inflation is not about to deviate from the desired level to take account of economic activity and unemployment. There are thus considerable similarities and this applies not only in Europe, but also in a comparison with, for instance, the US, although the stipulated targets vary, sometimes for historical reasons. In this sense we are all the children of the Bundesbank! Within the central bank world the methods of working have also become more similar in recent years. Although not all industrial nations with a floating exchange rate say that they use inflation targeting, they actually do so in some form.

Moreover, although nominal interest rates may be at very low levels, if inflation continues falling, real interest rates will trend upwards, contributing to reducing consumption and investment. Secondly, in economies posting a high level of public or private debt, or both, very high or rising real interest rates may exacerbate the difficulties of bringing about a reduction in household, corporate and public-sector debt, the reason being that the stock of debt, though it holds constant in nominal terms, will rise in real terms. The macro adjustment of a highly indebted economy in an environment of very low inflation or, indeed, deflation, thus becomes difficult and complex. And, thirdly, in relation to financial stability, the events we have seen in recent years indicate that asset price bubbles and the misallocation of financial resources may coexist alongside low inflation. If the situation of low inflation extends over time and draws close to deflation, we will arrive at very low or even negative interest rates, and that will entail additional risks for institutional investors, for the allocation of resources and for the sound functioning of the financial system. This was what we experienced in the euro area in the second half of last year. What role can monetary policy play in such a scenario? In September 2014, the ECB decided to expand the tools available to monetary policy by adding a private asset purchase programme followed, in January this year, by public-sector and public debt purchases.