samchain/econo-pairs-v1 huggingface dataset:
4 When the Reserve Fund “broke the buck” after Lehman’s failure, there was a run by institutional investors. The industry had to be given access to central banks’ liquidity facilities to contain the vortex. Many banking groups running supposedly arms-length money funds injected “capital” into their funds to keep them afloat. Yet the funds had not been consolidated, and their bank sponsors had not had to hold capital against such implicit support. Echoing the concerns that Paul Volcker is reported to have expressed at internal Federal Reserve meetings around thirty years ago, 5 the Bank of England believes that Constant-NAV money funds should not exist in their current form. They should become either regulated banks or, alternatively, Variable NAV funds that do not offer instant liquidity. Meanwhile, so-called “enhanced return" funds should surely have to make clear what they are and what they are not. Offering 300bp (or whatever) over LIBOR is to offer a risky investment. There is nothing wrong with that. But securities regulators should ensure that the marketing and distribution is appropriate. “Money fund” does not seem to be quite the right label. For both those riskier funds, and Variable NAV money funds, investors would clearly be exposed to risk, just as in mainstream equity and bond mutual funds. Finance companies My second example is so-called finance companies. They are prominent in, but by no means unique to, the US. Some operate globally.

But he stayed involved in U.S. diplomatic, political and financial matters. Until his death in 1849, he served as a diplomat in Paris, and later in London. He also directed the Bank of New York, and indulged in economic, financial and ethnographic research. He was laid to rest in the Trinity Church cemetery on Wall Street. Years earlier, Trinity Church had already become the final resting place of Alexander Hamilton. If you visit Trinity Church, you will find that the two are buried at opposite ends of the cemetery, perhaps fittingly so in light of their difficult personal and political relationship. 23  Real growth averaged 3.1 percent in OECD countries between 1994 and 2000, as compared to an average growth rate of 2.8 for the period 1980 to 2006. During the more recent seven-year period between 2000 and 2006, growth has averaged 2.5 percent, and no OECD country has reduced its debt-to-GDP ratio by more than Gallatin’s record. 24  Ireland experienced an average real growth rate of nine percent during the years in question. This compares to an estimated average growth rate for the United States between 1801 and 1808 of just over three percent. Source: Author’s own calculations based on data provided in Carter et. al, op.cit., and the IMF World Economic Outlook. 25  See, for example, Rappard, op.cit. 26  Rappard, op.cit. recounts Gallatin’s post-treasury diplomatic career as well as his travels in Europe and time spent in Geneva. BIS Review 106/2008  5  3.
16.11.2022  The ECB’s monetary policy normalisation: a roadmap Conference of the Asociación de Mercados Financieros Pablo Hernández de Cos Go bernado r  Ladies and gentlemen, good afternoon: It is a pleasure for me to take part in this conference organised by the Asociación de Mercados Financieros. I have already had the honour of speaking here on several occasions in recent years, and I am delighted to be back. Regrettably, the current economic and geopolitical setting continues to be one of unprecedented uncertainty. We now face a slowdown in global growth, but crucially, we also face much higher and more persistent inflation. In the light of today’s uncertain circumstances, the ECB has recently decided to stop providing forward guidance about the future path of its policy rates and will instead make its actions over the near term entirely “data dependent” following a “meeting-by-meeting” approach. However, eliminating forward guidance as a policy tool does not mean that we central banks wish to give up or reduce communicating on our actions. On the contrary, in the present state of uncertainty, it is particularly important that we provide the public with insight into the analysis and rationale underlying our past and future monetary policy decisions. Therefore, today I will explain the ECB’s monetary policy normalisation process. I will begin by discussing the monetary policy decisions adopted at our latest meeting, in October.

14 However, by the same token, a faster balance sheet reduction than currently anticipated by markets could trigger some yield tightening. Second, compared with QE, QT conveys much less information about the future path of interest rates. Purchases and interest rates were linked in the ECB’s forward guidance, as I have already explained, but the ECB no longer employs forward guidance on rates as a policy instrument. Therefore, the ECB’s balance sheet adjustments alone no longer provide direct information about the timing of its interest rate adjustments. Again, this weakens the announcement effects of QT compared with QE. In sum, all these arguments point, in my view, to the need for the balance sheet reduction in the euro area to be very gradual and predictable. It is also essential that balance sheet reductions leave room for action against fragmentation if it reappears, whether either through flexibility in PEPP reinvestments or through activation of the TPI should this prove justified and necessary. 15 A coherent monetary-fiscal mix In the last part of my address, I wish to focus briefly on how the monetary -fiscal policy mix should be in the current context. High inflation and monetary policy normalisation present a complex scenario for fiscal policy. The normalisation of policy rates and of the Eurosystem balance sheet means that  13  See M. Bernardini and A. Co nti (2021), “Assessing the flexible implementatio n o f the ECB’s pandemic asset purchases”, Banca d’Italia Covid-19 Note, 20 December 2021.
However, this crisis was apparently not significant enough in an international perspective to budge the paradigm that the financial markets were functioning smoothly and could manage themselves. This required a much larger shock, like the global financial crisis that came fifteen years later. The crisis has also led to discussions of the role of central banks An obvious conclusion from the crisis is that we need to learn more about the financial markets, how they are linked together and how they interact with and influence the economy as a whole. The crisis has also led to the discussion of other questions, where it is much less obvious what conclusions should be drawn – and perhaps even which questions should be asked. As I mentioned earlier, one such debate concerns monetary policy and the role of the central banks. There is a striking contrast with the previous occasion that monetary policy was debated on such a fundamental level. Then, one quickly reached the conclusion that monetary policy should focus on price stability and be delegated to independent central banks. Today, the debate on monetary policy could be said to have arisen from the opinion that “something should be done”, but that it is as yet unclear what should be done and how. I would like to discuss two areas that were not really on the agenda at all prior to the crisis, but have cropped up again. The first is the central banks’ independence and the second is inflation targeting.

And vice versa, a reduction in confidence in the inflation target may make inflation expectations, and thereby actual inflation, more difficult to control. Inflation targeting is then perceived as unsuccessful, the political support for this policy and for central bank independence thus declines, credibility is further undermined, and so on. Criticism: Inflation targeting could not prevent the crisis and has difficulty getting us out of it Inflation targeting has also been questioned after the crisis and also from slightly different starting points.9 Two main types of criticism have been expressed.10 Firstly, some say that inflation targeting prior to the crisis focussed too heavily on its traditional targets, particularly price stability and therefore missed – or perhaps even contributed to – the credit-driven property bubbles that arose in a number of countries. Secondly, some say that inflation targeting does not appear particularly suited to helping countries out of a crisis and may even make it more difficult to conduct a sufficiently expansionary policy. It should therefore be replaced with something else. I think that this criticism is rather unfair. As I see it, there was, perhaps, a hope that inflation targeting could prevent financial crises, but one can hardly say that it was part of the deal. The main purpose of inflation targeting has been to supply a credible nominal anchor for the economy.11 It has succeeded in this purpose.
The subdued demand has entailed declining office rents for new leases. This has led to price falls in the office market. Since 2000 real prices have dropped by 35 per cent in Stockholm and by 21 and 11 per cent, respectively, in Gothenburg and Malmö. However, since the beginning of the year, both the rate of increase in the number of vacancies and the decline in office rents has moderated; as a result prices have stopped falling and have stabilised in the metropolitan regions. Future developments in prices and rents depend on economic developments in general, and developments in office-intensive sectors in particular. The low number of new offices, coupled with expectations of higher employment in the metropolitan regions in 2004, is likely to contribute to a reduction in the number of vacancies in the office market in the long run. Given the Riksbank’s assessment that the Swedish economy will recover in 2004 and a positive outlook for the Swedish business sector, with improved earnings and a lower or unchanged risk of bankruptcy, conditions are in place for a stabilisation of prices and rent levels for commercial property during the year. It is likely, however, that price increases may not materialise until further into the economic upswing. The slowdown in recent years affected to a large extent office-intensive sectors, and many premises are vacant today as a result. Consequently there is a surplus of office space at present.

Moreover, firms today appear to be adapting their costs to more strained financial conditions, which has resulted partly in less office space per employee. A bubble in the housing market? Developments in the housing market have been markedly different than those in the rest of the property market. Housing prices have risen by almost 60 per cent since 1992. During the same period the general price level has increased by around 20 per cent. The sharp rise in prices has continued despite the economic slowdown in recent years. This is a new experience that distinguishes the situation from previous business cycles. A significant driving force behind these price developments is the lower interest rate level. Lower interest rates mean that households and firms can finance more expensive properties, all other things being equal. The low-inflation economy that has been established in Sweden since the crisis at the beginning of the 1990s has therefore also brought with it higher debt ratios among households. Debt as a proportion of disposable income has risen on average from 90 per cent in the mid-1990s mitten to around 120 per cent at the end of last year.2 In spite of this, households’ interest ratio, i.e. the proportion of disposable income that is used to make interest payments, has fallen from 7 per cent to below 5 per cent. In comparison, the ratio during the crisis years was up to 11 per cent.
After considering these elements and the prospects for the economic scenario, the right move was to reduce the MPR. I believe it is important to stress that this decision is based on an important analytical effort of the Bank, backed by the search for more evidence and capacity to identify structural phenomena that affect the Chilean economy. This is the conclusion of an announced and documented process, which required a rigorous development before materializing in a change of the MPR, because monetary policy cannot be conducted on the basis of intuitions or perceptions. We have characterized this exercise as a monetary policy recalibration because it is largely derived from an update of the structural parameters that serve to characterize the macroeconomic situation and inform the policy rate decision. This translates into a one-time adjustment of the rate, whose exceptionality is reinforced by the unusual combination of changes in the parameters, including the new measurement of inflation. However, we must make it clear that this does not mean ignoring the recent performance of the economy. On the contrary, the effective growth rate of recent months is weaker when compared with a higher trend growth. Page 1 of 18  Similarly, recalibrating the MPR does not mean that it cannot be adjusted in the future in the face of changes in the macroeconomic environment: rather it will allow for an adequate response to said changes to be evaluated on their own merits, without mistaking them for the factors that justified this adjustment.

New forecasts have not been prepared for this monetary policy meeting, but we have assessed new information against the forecasts we presented in March. Chart 3: International inflation has slowed Inflation among trading partners is also high but has eased in many countries in recent months. Gas and power prices have come down from the very high levels seen last year. Problems at some US and Swiss banks led to large movements in financial markets in March. Global equity indexes have risen since the March Report, and bond risk premiums have fallen. US and European households and firms appear to be finding it more difficult to obtain loans. Chart 4: The krone has depreciated High inflation has prompted central banks in many countries to raise policy rates quickly and more than in Norway. The Norwegian krone has depreciated in recent months and  1/2  BIS - Central bankers' speeches  is now at its weakest level since the onset of the pandemic in spring 2020. The krone is weaker than we projected in March. Activity in the Norwegian economy is high. Household consumption has continued to increase despite high inflation and higher interest rates. The employment rate is high and employment has risen further so far this year. The labour market is tight. Economic growth has nevertheless slowed recently. Unemployment moved a little higher in April, and the number of job postings has declined. Chart 5: Wage growth has risen The tight labour market has led to a pick-up in wage growth.
GDP growth in Sweden slackens from the annual rates of 3 to 4 per cent in recent years to around 2.5 per cent in the coming years. The GDP figure for Q4 last year suggests that a fall-off has already begun. Some observers talk of a soft landing. Most things point to a downward adjustment of demand to the long-term trend rather than a regular downturn with the risk of a recession. In this situation it is a help that, after a number of years with good growth and price stability, the Swedish economy is soundly balanced and that the public finances are also in a comparatively good state. Combating inflation effectively and consolidating the government budget have increased the freedom of action in economic policy and made an economic slowdown relatively less difficult to handle. The adjustment we now foresee will occur through a variety of channels. Slacker international activity implies a slowing of exports. The decreased order inflow and less pronounced capacity restrictions tend in turn to dampen investment. With falling share prices and less optimism among households, the growth of private consumption becomes more subdued. Moreover, stock adjustments this year imply a temporary lowering of demand. In the labour market, the number of new job vacancies is already levelling off, which shows that the growth of employment will be slower in the coming years.

The implementation of this strategy is funded through levies on the financial  BIS Review 139/2010  1  services industry and through partnership programmes with a range of stakeholders, including financial services providers. There appears to have been little contestation of the strategy, with broad support from the industry, the Treasury and other stakeholders. In South Africa, the Financial Services Board (FSB), the regulator for non-bank, non-credit financial services, has developed and championed two national strategies; a strategy developed in 2001 and a revised version in 2008. The 2001 strategy received limited support from stakeholders and the FSB revised it in 2008. However, the revised strategy did not receive much support and is currently under review. Contestation of the South African strategies arose mainly from the fact that the FSB is not the regulator for the banking sector, and banks were against having their activities regulated through a non-bank regulator. Contestation also came from civil society organizations and other regulators, in particular, the credit regulator. Ghana has had an approved strategy for financial literacy and consumer education since January 2009. In the first attempt, largely consultant driven, it appears there was insufficient stakeholder buy-in. However, in the second process which was driven through the Ghana Micro-Finance Institutions network, there appears to have been sufficient stakeholder buy-in, and in due course, the Ministry of Finance accepted responsibility for the strategy and has been tasked with its implementation.
If not addressed, this pro-cyclicality could erode the solvency cushions that banks should be holding against the effects of economic downturns. Addressing this is one of the most important remaining challenges of Basel II and is particularly associated with the implementation of the more sophisticated approaches of the new capital framework. Despite reassuring noises from the Basel Committee, this is not going to be an easy problem to address. Few people, and definitely not banking supervisors, can foresee the peaks and troughs of economic cycles. But our inability to perfectly foretell the future should not be a pretext for inaction. An effective supervisory review process will be critical to create a counter-weight to the cyclical tendencies of the new capital framework, in order to prevent increased incidences of failures and financial instability. Managers of banks and bank directors have an even more important role to play. They have the primary responsibility for identifying and assessing various threats to solvency of their own bank, including the risks that are partially covered or not covered at all under Pillar 1 of the framework. They also need to be cognizant of the cyclicality arising from their quantitative tools and should have sufficient compensatory mechanisms against the cyclicality of regulatory capital requirements. These issues are referred to in Pillar 2 of Basel II. This is what we refer to as “Supervisory CAR”, to address risks not covered or not fully covered by the formulae in Pillar 1.

But with more autonomous units, an internationally-active and  BIS Review 42/2004  1  complex bank has to expend more effort to identify, measure, and control the risks arising from its diverse and far-flung activities. Traditional rules of thumb used by management and supervisors to assess risks and to ensure the adequacy of capital to buffer risks are no longer adequate. And continuing financial success depends critically on how a bank responds to the risk management challenges. In response to these challenges, the successful banks have developed enhanced tools for measuring risks. These can be grouped into two broad categories. The first category of tools are those that give a bank the ability to discriminate among risks by differentiating the riskiness of customers, and of various banking facilities and products. The second category of tools includes those that give a bank an enhanced capability to quantify risks. The end of the road for Basel I In and of itself, the enhanced capability of institutions to differentiate and measure risks has been a welcome development. But, the increasing sophistication of institutions in risk management meant that the crude system of risk weights under Basel I became less meaningful in ensuring the adequate capitalisation of large, complex banking institutions. By the mid-1990s, less than five years from the official implementation of Basel I,1 it was apparent that Basel I was becoming less relevant for some banking institutions.
The fact that inflation remains subdued rather reflects constraints operating at the third stage of transmission – from activity to prices – that are often outside the control of monetary policy. Before I conclude I would like to illustrate one last point. Bank lending rates are without doubt a key variable in explaining output movements in the euro area. The evidence I provided today further emphasises this point. At the same time, the financial conditions that are ultimately relevant for firms and households may be broader than that. One of them – the exchange rate – I discussed in more detail earlier in my remarks.16 Other factors may include equity prices or long-term interest rates that are often relevant for household mortgages.17 One way to summarise these factors is to use financial conditions indexes (FCIs). My colleague 10 / 14  BIS central bankers' speeches  Peter Praet gave a detailed speech on such indices earlier this year, which I strongly recommend reading.18 Here I would like to focus on the relevance of these broad measures for economic activity. As you can see in column 9 of slide 7, FCIs are highly statistically significant when used in a New Keynesian IS curve. This is unlikely to be a statistical artefact.

But the world is complex and people don’t have endless time to devote to understanding monetary policy. In practice, therefore, guidance can be useful in providing people with information about how the MPC sets policy and, over time, in improving understanding of how monetary policy will adjust to news. Guidance thus helps people to think along with the Committee so that their expectations about the path of policy adapt with ours as economic circumstances change. This can make monetary policy more effective by reducing unwarranted volatility in interest rate expectations and the extent to which the MPC has to move Bank Rate to meet the inflation target. The more those expectations are aligned with the policy path necessary to achieve the inflation target, the higher the probability that policy objective will be achieved. Guidance is not a promise of the future path of policy. And its use will not mean that all observers will agree on the likely path of policy for the simple reason that not everyone will agree on the likely path for the economy. However, with guidance, someone who has a different outlook can better anticipate how the MPC will adjust once the scales fall from the Committee’s eyes. Again it is the combination of the economy and the primacy of the inflation target, not the MPC, that ultimately determines that path of policy. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  The MPC’s guidance speaks first and foremost to UK households and businesses.