samchain/econo-pairs-v1 huggingface dataset:
Spencer Dale: Inflation targeting and the Monetary Policy Committee’s forward guidance Speech by Mr Spencer Dale, Executive Director, Monetary Policy, and Chief Economist of the Bank of England, at the International Journal of Central Banking Annual Conference, “Inflation targeting and its discontents”, Warsaw, 6 September 2013. *  *  *  A central theme of this conference has been to highlight potential shortcomings of inflation targeting and to consider potential alternatives. I believe that the traumatic events in the UK economy over the past five years have, in fact, strengthened the case for inflation targeting. The credibility of the inflation target has played a crucial role in anchoring inflation expectations over the past five years, a period in which inflation has been consistently above target. That credibility has been vital in giving the Monetary Policy Committee (MPC) the flexibility to loosen monetary policy aggressively in order to support growth and jobs. But while it has not constrained the MPC’s freedom to act in support of the economy, the inflation target, on its own, has proved less well suited to addressing some of the exceptional communications challenges posed by the sustained combination of weak growth and elevated inflation. I would highlight two in particular: the need to make clear the central role that monetary policy has played in supporting output and employment; and the need to provide guidance about the Committee’s view of the appropriate trade-off between bringing inflation back to target and stimulating the recovery.

They highlight the role an impaired banking system may have played in contributing to the weakness in productivity. And to evidence that suggests that a failure to reallocate resources from less to more productive firms has had a pronounced effect on productivity growth. Such factors may persist even as demand recovers, suggesting that any rebound in productivity growth may be more muted.4 Both sets of arguments are very plausible. Indeed, it is likely that both played some role in the weakness of productivity. The challenge for the Committee is weighing up the relative importance of these different factors. And this judgement is central to the setting of policy. Too optimistic and we risk stoking up excessive demand that will feed through into higher inflation and a potential loss of credibility. Too pessimistic and our nation’s resources will remain underutilised for an even longer period, with potentially damaging effects on the longrun health of our economy. The design of the forward guidance – in particular the combination of the unemployment threshold and the knockouts – makes the setting of monetary policy more robust to this uncertainty, allowing the Committee to learn about the responsiveness of supply as the economy recovers, without needing to work out the precise cause of the productivity weakness up front.5 Let me explain.
Much can be done by individual governments to craft exchange rate policies that truly 7  BIS Review 53/1999  complement economic fundamentals. But actions by individual jurisdictions can only go so far towards tackling problems that also arise from defects in the international financial architecture and not just out of local imbalances. Reforms to the international financial architecture are needed to help ensure that capital flows reinforce, rather than undermine, monetary stability. In the long run, we should also be looking towards a more sophisticated and solidly based regional financial system: this would include taking further the debt market and infrastructural development that is already in progress, as well as greater monetary cooperation - perhaps, on the distant horizon, even monetary union. For Hong Kong’s part, the experience of the last two years has left us more firmly convinced of the appropriateness of our linked exchange rate system to the special needs and characteristics of Hong Kong’s economy, and more confident in our ability to defend the link under the currency board arrangements. I am not so complacent as to suppose that there is no room for improvement, and we continue to explore ways of refining the system. Nor do I suggest that such a system is suitable for every economy in the region. But I believe that it has provided Hong Kong with the anchor of monetary stability that such an externally oriented economy needs, particularly during these years of global instability.

In such an environment, it requires a very courageous investor to be willing to step in against such a speculative tidal wave, regardless of how far out of line with reality markets may have gone. Pursuing sustainable exchange rate and monetary policies requires countries to devise defensive strategies against such forces. This is no easy task. Capital controls have been suggested by some. In Hong Kong’s case, such controls would be anathema to our free market philosophy: they are anyway prohibited by Hong Kong’s Basic Law (as they are, with effect from 20 December, in the Basic Law of Macau). But, even for jurisdictions that wish to consider the option, the practical problems are considerable. Traditional types of controls have impeded growth, and have proven difficult to administer. Attempts to impose capital controls may also foster evasion that undermines the transparency and integrity of markets. More recently, innovative schemes have been suggested aiming at taxing short-term capital inflows, or otherwise obliging lenders and borrowers to pay a price that reflects the risk to the overall economy of this activity. Some of these proposals are quite interesting and may be appropriate for consideration by some developing countries, especially those in the process of financial liberalisation. 3  BIS Review 53/1999  There are limits to the amount that regulation of short-term capital inflows can achieve. It would not, for instance, prevent massive speculative positions from being quietly built up in currency and stock markets. It would not stop manipulation of individual markets by large investors.
One mechanism is the wealth effect, which  US Stock Market Prices 450  450  400  400  350  Index: 1990-1999  350  300  300  250  250  200  200 Index: 1980-1989  150 100 50 0  150 Index: 1970-1979  3  100 50 0  BIS Review 128/1999  means that households consume more since rising asset prices make them feel richer, and vice versa. Another factor - which many regard as at least as important - has to do with the interaction between the credit market and companies’ balance sheets. When asset prices rise, the value of the collateral that households and enterprises can provide when they borrow for consumption and investment rises too. Higher assets make it easier for them to borrow, or to borrow at lower cost, as a result of which aggregate demand increases. Large fluctuations in asset prices can have substantial effects on the real economy. Why should a central bank worry about the development of asset prices? One obvious reason is that it is natural for a central bank with a declared inflation target to follow asset price trends since, as I just mentioned, they can affect aggregate demand in the economy. And changes in demand in turn ultimately affect inflation, as we all know.

The fact that low inflation is not sufficient to achieve a moderate price trend in asset markets is illustrated by the development of the American stock market in the last few years. Naturally, this represents something of a dilemma. What should central banks do? Does this mean, then, that monetary policy should, to a greater extent than hitherto, be used to take firm action in response to rapid price increases in asset markets? There is no easy answer to this question, but the predominant view nowadays is that the answer is no. Nevertheless, as a decision-maker I must keep my options open on this one. Situations may arise in the future that we cannot predict today in which monetary policy might have a role to play. BIS Review 128/1999  4  Perhaps the main reason why it is normally not advisable to try to influence asset prices is that it is extremely difficult, if not impossible, to be sure when a bubble has formed and when rising prices are due to improvements in underlying economic factors. The appropriate monetary policy must be determined by the fundamental causes of the rise in asset prices. Let us assume, for example, that a rise in share prices reflects better prospects of higher future corporate profits as a result of faster underlying growth in productivity. In that case, the rise in prices is the result of an improvement in fundamental economic factors, which means that it is based on “real”, rather than psychological, causes.
Nevertheless, for many observers, Switzerland remains a tiny spot on the European map, a country of 7.5 million inhabitants completely surrounded by the European Union whose population has already grown to several hundred million. Our geographical position obviously puts the question of joining the European Union squarely in the centre of often heated debates. For our economy, however, the real challenge is not to become more European, but to open up further to global markets. Today, Switzerland is more than merely a quaint little country for tourists; it is not only home to watchmakers and bankers or trains that run on time. This cliché is a thing of the past. Switzerland today is a global production platform with 4 million jobs within its borders and 1.8 million people working in Swiss companies abroad. This ratio is unique for an industrialised country. It is the result of a long tradition of Switzerland’s presence abroad. We are all familiar with the big names in our industry which, as early as the beginning of the last century, courageously invested abroad with the goal of conquering new markets. Switzerland’s identity in the world has often been better perceived through the activities of the International Committee of the Red Cross and through our big companies, rather than through diplomacy. The internationalisation of the Swiss economy has not slowed down in recent years - on the contrary, it has amplified. Let’s look at the figures: 20 years ago, our current account surplus, i.e. foreign investment, accounted for 5% of Swiss GDP.

Today, it amounts to 13%. It was also said at the time that one franc out of three was made abroad. Today, it is one franc in two! The 1990s marked the real turning point in our economy’s trend toward globalisation. Our commercial relations with China are exemplary in this regard. After having levelled off at approximately 900 million francs a year in the late 1990s, our exports to China grew at a rapid pace in more recent years, reaching 2.9 billion francs in 2004. With regard to Chinese exports to Switzerland, the trend is just as spectacular, but much more steady. Sales of products manufactured in China in the Swiss market have risen continuously for 20 years now, be it textiles, electronic equipment or - naturally - product components that are reintegrated into our domestic production. Owing to soaring exports to China, our trade balance with this country has thus flattened out steadily; toward the end of the 1990s, it was clearly negative, in 2004 we even had a slight surplus. Despite the rapid expansion of our trade with China, its overall significance remains modest, amounting to just 2% of total Swiss trade. From a Chinese perspective, the relative importance of trade relations with Switzerland is even smaller. Switzerland accounts for less than 1% of Chinese imports and exports. A similar picture can be observed with respect to Swiss foreign direct investment here. Despite a thirty-fold increase between 1993 and 2003, it still amounts to less than 0.6% of total Swiss investment abroad.
However, at their origin, these institutions were created precisely to deal with the financial instability caused by frequent bank runs in the late 19th and early 20th century. Furthermore, the concern for price stability was even institutionalized later on around the world, with the inflation-targeting regime being the latest stage of its development. It is important to review jointly the issues of price stability and financial stability, because here the well-known Tinbergen principle is clearly present. This principle indicates that, to achieve a certain number of objectives, at least an equal number of instruments are needed. We often have used this argument when asked to achieve inflationary, output and exchange rate objectives with only one instrument, that is, the interest rate. Although several objectives can and do coincide with an instrument fairly frequently, there is no reason why they should. For instance, during a period of declining inflation, an expansionary monetary policy could be justified, which could trigger an excessive credit expansion, asset price bubbles and, hence, introduce vulnerabilities into the financial system. If the monetary authority decides to fight the credit expansion with a high interest rate, it may end up reducing inflation excessively incurring in unnecessary costs in terms of employment. Here a new instrument is in order, namely, financial regulation. About these issues I want to talk today. Price stability: inflation targets The regime adopted in Chile and in a number of other countries with low and stable inflation to pursue the price stability objective, is that of flexible inflation targeting.

The remedial legislative response to the financial crisis in the United States was the DoddFrank Act.7 While the Federal Reserve Act did not use the words “financial stability”, this was not the case with the Dodd-Frank Act. Instead of being observed in the penumbra, financial stability is an open and obvious topic of the new law. Title 1 of the Dodd-Frank Act is named the “Financial Stability Act of 2010.” One of Title 1’s most consequential provisions is Section 165, which empowers the Board of Governors to develop enhanced prudential standards for systemically important financial institutions.8 In a provision directly affecting central bank powers, the Congress instructs the Federal Reserve to develop prudential standards “to prevent or mitigate risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large interconnected financial institutions.”9 There are other provisions of the Dodd-Frank Act granting new powers to the Federal Reserve with respect to financial stability, and time does not permit me to review all of them here.
In the first presentation, Gauti Eggertsson will analyze how the fiscal multiplier is affected by the degree of coordination between the fiscal and monetary authorities. Then, Giancarlo Corsetti will question the conventional wisdom that fiscal policy is more expansionary under a fixed exchange rate than under a floating regime. Finally, Luis Felipe Céspedes, Jorge Fornero, and Jordi Galí will present a paper that estimates the effects of Chilean fiscal policy on consumption and income using a framework that relaxes the assumption of Ricardian equivalence. The final section will focus on fiscal policy in emerging market economies. Jeffrey Frankel will discuss the structural fiscal spending rule implemented in Chile in 2001. Eduardo Engel, Christopher Neilson, and Rodrigo Valdés will conduct a welfare analysis of the effects of Chile’s fiscal rule. Michel Strawczynski and Joseph Zeira will examine the cyclicality of fiscal policy in a broad set of emerging market economies, and will analyze whether the dynamics they observe can be characterized using Aguiar and Gopinath’s distinction of permanent and temporary shocks. I would like to thank the organizers, Jordi Galí and Luis Felipe Céspedes, for putting together this first-rate programme, and Yan Carrière-Swallow and the Department of Institutional Affairs for coordinating the logistics that have made this event possible. I look forward to two days of engaging presentations and fruitful discussions. Thank you. 2  BIS Review 143/2010

This will be a signal that the interest rate will probably deviate from these assumptions in the period ahead. Monetary policy under uncertainty There is always uncertainty associated with economic projections, but there is also uncertainty concerning the actual state of the economy at the time of the decision. Moreover, the effects of our own interest rate setting are uncertain.10 Because most aspects of the future are uncertain, our projections are seldom 100 per cent correct. Viewed in retrospect, it might appear that monetary policy could have been conducted better. However, interest rate decisions have to be assessed ex ante, in the light of the information that was available at the time that the decisions were made. One of the main problems associated with the conduct of monetary policy under uncertainty is access to real time data that provide good information about inflationary pressures in the economy. Petter Jacob Bjerve pointed this out in an unusually perspicacious article in 1981 on cyclical policies in Norway in the 1970s: “It will otherwise always be a problem for economic policy that the statistics are prepared more or less after the events, and that it takes time after the statistics are published before we are aware of whether new trends have begun to emerge.
News conference  Berne, 12 December 2019 Andréa M. Maechler  Introductory remarks by Andréa M. Maechler  I would like to begin by reviewing developments on the global financial markets, paying special attention to the situation on the Swiss franc money market. I will also brief you on how preparations to replace Libor are progressing. After this, I will address the importance of climate risks for the SNB’s investment policy. I will close with a few remarks about the SNB’s involvement in the new Innovation Hub being set up by the Bank for International Settlements. Situation on the financial markets  Economic concerns and political uncertainty have shaped developments on the global financial and foreign exchange markets in recent months. For instance, the tug of war in the US-China trade dispute weighed on investors’ risk sentiment, especially in the third quarter. Interest rates declined significantly around the world during this phase. Yield curves flattened markedly. In some countries, long-term interest rates even dropped below the level of shortterm rates. The yield on ten-year Confederation bonds fell to a historic low of −1.1% in August (cf. chart 1). Investor sentiment picked up again from September against a backdrop of monetary policy easing by the US Federal Reserve and the European Central Bank and somewhat more favourable economic data. The equity markets benefited in particular from reduced trade tensions in October, with some of the major share indices reaching new highs in November.

With respect to integrating digital central bank money, the focus is on two options: an SNB-issued digital token for financial institutions (‘wholesale central bank digital currency’) and an interface with the Swiss Interbank Clearing payment system. The project will be carried out as part of a collaboration between the SNB and SIX Digital Exchange in the form of a proof of concept. The second project will address the growing demands placed on central banks to be able to track and monitor fast-paced electronic markets. We are convinced that the work of the new BIS Innovation Hub will make an important contribution to central banks’ understanding of developments in the fintech area. Page 4/6  Berne, 12 December 2019 Andréa M. Maechler  News conference  Charts  Page 5/6  Berne, 12 December 2019 Andréa M. Maechler  News conference  Page 6/6
To make a domestic retail payment, you can use physical cash (drawn from a bank or a LINK ATM), a cheque, a credit or debit card, a real-time payment over FPS, or a batch payment across Bacs. Wholesale payments may go through CHAPS or the embedded payment schemes of CREST or LCH. 1  http://www.bankofengland.co.uk/publications/Pages/speeches/2015/799.aspx 2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  Cross-border payments might use a correspondent bank, a direct link to an overseas RTGS system or CLS. In fact, it’s easy to list 10 or 15 payments pathways without even trying. Each system does a great job for its own customers. But each operates, by and large, in splendid isolation from one other, requiring different standards and languages, technologies, fees and governance frameworks. Those frictions in turn create barriers to entry for new payments providers, and can also pose risks to system-wide resilience, making it hard (sometimes impossible) to reroute payments between systems in the event of outages. Those characteristics are increasingly anomalous in a world in which payments users are demanding ever more seamless services – in real time, 24/7 – at lower cost, using the latest technology, providing rich information – and, perhaps most importantly of all, in ways that are secure against increasingly innovative forms of cyber attack. That is why it is timely to look afresh at the UK’s retail payments systems, as the PSF has done.

Well-crafted innovation can reduce market concentration, yield new risk-mitigating technologies, and increase the scope for electronic settlement in central bank money: all of which enhances, not reduces, financial stability. So we are open, not closed, to such advances. At the same time, we make no apologies for having a relentless focus on stability and resilience, and have 1  previously set out the criteria against which we assess change in the payments landscape . Indeed, households and companies expect nothing less. Surveys regularly show safety to be at the very top of people’s expectations from payments. No amount of real-time, API-enabled, mobile front ends can make up for the prospect – however remote – that one’s money might be lost or mislaid; or that a failure in one part of the payments network might bring down other parts of the banking system. Judged against those yardsticks, the UK’s payment systems have actually performed very well in recent years: combining the innovation of Faster Payments, Direct Debits and widespread use of online banking (to give just three examples) with a resilience record which – though by no means perfect – stands in contrast to some other parts of the financial system. So why the need for change? There is a one word answer to that, and that is: complexity. The UK has world-beating technologies. But too many sit in silos.