samchain/econo-pairs-v1 huggingface dataset:
We know that central bank policies do affect financial conditions facing the private sector, not just the public sector. And we know that monetary policy makers can, and do, thereby affect inflation. Indeed, in the longer run, it’s all they can affect and – barring the sorts of restraints necessary for financial repression – the only enduring means by which they can have an impact on the real value of public-sector debt. We’ll now have a look at how that works. What higher inflation does to the public sector’s liabilities: a simple simulation As I said in the introduction, levels of government debt that are ultimately unaffordable – that the government cannot (or will not) finance through conventional fiscal measures – can in extremis present a threat to the stability of inflation. That’s because inflation – above all surprise inflation – can reduce the burden of that debt. What I want to do here is use a simple, stylised simulation to gauge the scale of this effect. I’m interested only in the pure effect of higher inflation. So the simulation assumes that all the real determinants of indebtedness – the path of real GDP, real (ex ante) bond yields and the government’s primary deficit (relative to GDP) – are all fixed. This is unrealistic. In the short term generating the higher inflation would probably require a period of lower real interest rates (if only a brief one, relative to the timescales involved).

All else equal – for a given setting of monetary policy – it was also disinflationary. Qualitatively, at least, the same thing is going on right now. Public sector debt has risen significantly, across the developed world, in response to the pandemic. But, as was the case after the financial crisis, this has not been caused by any material rise in governments’ spending on goods and services, or their direct demand for underlying economic resources. It’s because tax receipts have fallen sharply and, more materially, because governments have compensated people for the impact of mandated lockdowns. Private and aggregate demand have fallen, below the economy’s supply capacity – despite these huge transfer programmes, rates of unemployment and wider measures of spare capacity are rising. And it’s in response to these disinflationary pressures that independent central banks everywhere, including in the UK, have eased monetary policy. Anyhow, having set out at some length the points I want to make, I hope I can be reasonably concise in the body of this talk. I’ll cover first the cyclicality of interest rates under inflation targeting. Via some very simple simulations I’ll then look briefly at the impact of inflation on the public finances, focusing in particular on the effect of paying interest on central bank reserves. After an equally brief canter through some of the relevant bits of UK history there’s a short concluding section.
In either case, the argument goes, the global financial crisis should lead central banks to reevaluate their role in this new era. There is no doubt that we have the responsibility to carefully assess the recent events. We need to do it in order to improve our understanding of the economy and in order to improve our macroeconomic policy design, so as to avoid crises, but also handle them appropriately. In my view, many of the lessons will not be new, but they draw from lessons from previous experiences, but forgotten in academic and policy circles in industrialized countries. I will start my discussion on the new role for central banking after the recent financial crisis by discussing the factors that were behind it. Understanding these factors will be crucial to analyze if and how the objectives of central banks should be modified and potential tradeoffs between competing objectives. Finally, I will discuss the interactions between price and financial stability and the challenges for central banks in the new times. What caused the financial crisis? There are many candidates being pointed out as the culprits of the financial crisis of 2008–2009. Many have blamed monetary policy. In my opinion, even though monetary policy may have played a role, it was a secondary one.

As Malaysia moves into the next stage of economic development, by transforming from a mainly production-based economy to a more innovation-driven and knowledge-based economy, the financial services sector will play a prominent role in this evolution. In support of this transformation, Bank Negara Malaysia is developing a new blueprint for the financial services sector. This blueprint will chart the next phase of the development of the financial sector, position the financial sector as one of the main catalysts for the transformation of the Malaysian economy and ensure our economy remains robust and resilient to respond to any emerging risks. Risk management for insurance institutions It is expected that the financial sector in Malaysia will expand and become more complex and inter-connected over time. Therefore, the corporate governance and risk management practices in insurance institutions will also need to evolve to keep pace with the fastchanging environment. It is a fact that institutions which performed better during the crisis were consistently differentiated by more robust governance and risk management practices. According to a recent Towers Perrin survey of major U.S. corporations, failure in risk management has been cited to be the key characteristic of financial institutions that suffered large losses during the global financial crisis. Thus, improving risk management was the top priority of CFOs in reaction to the global financial crisis. Prioritizing risk management is even more important for insurance companies. This is due to the fact the core activity of insurance involves risk-taking and risk-transfer, and that insurance risks are usually long-tailed.
Reducing the diversion of resources to deal with uncertainty and volatility allows resources to be directed toward more productive uses and, in so doing, promotes long-term growth by increasing the resource base available to the economy. We have seen in high-inflation economies how the transfer of resources away from productive activities and into financial transactions geared toward dealing with inflation uncertainty can negatively affect growth. We have also seen how a proliferation of tax code dodges can decrease the available resource base. If individuals must spend more time engaging in financial maneuvers because of uncertainty, then more of the economy’s productive capacity is transferred to the activity of handling transactions. An expansion of the financial sector that stems from an increasing number of people employed to handle distortions arising from inflation and its attendant uncertainty is growth that diverts resources better employed elsewhere. By contrast, an expansion of the financial sector that stems from growth of productivity is growth that offers benefits to all. The same basic principle applies to the foreign exchange market. Foreign exchange rates are fundamentally determined by market forces and should be free to fluctuate as a vital adjustment mechanism for the global economy. However, excessive volatility, like price instability, can diminish resources otherwise available for productive growth. The economy in which we live and work is a global one, and becomes more so every year.

As you may know, Peter Fisher, an executive vice president of the New York Fed, chaired a working group of the Euro-Currency Standing Committee of the G-10 central banks, which published a discussion paper on “Public Disclosure of Market and Credit Risks by Financial Intermediaries” in September 1994. This so-called Fisher report described how trading and financial risk management practices had developed far beyond the public disclosure of financial information, creating a gap between the precision with which a firm’s management could assess and adjust the firm’s own risk exposures and the information available to outsiders to help them assess the riskiness of that firm’s activities. Recognizing that such an asymmetry of available information could cause the misallocation of capital among firms and amplify market disturbances, the Fisher report recommended that all financial intermediaries -- regulated and unregulated -- move in the direction of publicly disclosing periodic quantitative information. The information requested would provide estimates relied upon by the firm’s management of: the market risks in the relevant portfolio or portfolios, as well as the firm’s actual performance in managing the market risks in these portfolios; and the counterparty credit risks arising from the firm’s trading and risk management activities. By and large, these proposed measures for reporting risk have been adopted voluntarily by many major banking institutions around the world, with many others moving in that direction. As such, they have contributed importantly to improved transparency in financial markets.
While overall labor market indicators for the second half of 2013 were not particularly strong, the overall trend in unemployment showed some improvement with the unemployment rate falling sharply over that period, from 7.5 percent in June to 6.7 percent in December. However, as has been the case since October of 2009 when the unemployment rate peaked at 10 percent, this decline in the unemployment rate was driven in large part by a decline in the labor force participation rate. Much has been written about the forces that are causing this decline of the labor force participation rate. Researchers have shown that the aging of the population is playing a role, as are changes in behavior. But our own analysis suggests that the cyclical weakness of demand for labor is an important contributing factor. As a result, I conclude that the decline of the unemployment rate significantly overstates the degree of improvement in the labor market. 4  BIS central bankers’ speeches  Looking forward, I believe that the underlying fundamentals of the U.S. economy have improved to the point where we can expect sustained growth above the roughly 2 1/4 percent annual pace that prevailed from mid-2009 through mid-2013. Also, the amount of fiscal drag continues to diminish. Another good piece of news is that Congress has raised the debt ceiling until March 2015. This lessens the risk that political brinkmanship in Washington could harm consumer and business confidence.

Sandy was a catastrophe for many in our region and significant challenges remain in the years ahead. Recently, the Federal Emergency Management Agency issued preliminary Flood Insurance Rate Maps that show a much larger number of Brooklyn residents and businesses at risk of a future storm. While a once-in-a-hundred-year risk of flooding may not appear worrisome, many within this expanded zone may be required to purchase insurance. The expanded flood zones, coupled with federal government efforts to have insurance premiums accurately reflect the risk, could create a serious affordability problem in the years ahead. The New York Fed has created maps of community-level flood risk in Brooklyn. Now I would like to turn my attention to recent developments in the national economy. National economic conditions From the end of the Great Recession in mid-2009 through mid-2013, real Gross Domestic Product, or the aggregate value, after adjusting for inflation, of all the goods and services produced within the borders of the U.S., grew at a rather tepid 2 1/4; percent annual rate. Then, in the second half of 2013, the pace of growth moved notably higher, reaching an annual rate of 3 1/4 percent. Nonetheless, despite this pickup in the growth pace, the average monthly gains in nonfarm payroll employment were somewhat lower in the second half of the year compared to the first half.
Some have labored over a precise definition of the word “culture.” Bill Dudley, the President of the New York Fed, has offered the following description, which works for me: “Culture relates to the implicit norms that guide behavior in the absence of regulations or compliance rules – and sometimes despite those explicit restraints. Culture exists within every firm whether it is recognized or ignored, whether it is nurtured or neglected, and whether it is embraced or disavowed.”1 The New York Fed’s interest in reforming culture is a product of events since the Financial Crisis. Take, for example, the manipulation of LIBOR and foreign exchange rates, much of which was collusive. Each of those episodes involved misconduct affecting wholesale markets on which the real economy relies. Both cases shared an underlying, flawed outlook. Bankers failed to see beyond their immediate financial goals. They ignored the broader social consequences of their decisions on the firm and its customers, as well as on consumers, producers, savers and investors. The same flawed outlook may have contributed to the Financial Crisis.2 There are many more examples. One bank was fined for doing business with Sudan despite economic sanctions imposed for engaging in genocide.3 Another bank manipulated electricity markets in California and Michigan.4 Other banks helped U.S. citizens evade taxes.5 I will not review the full litany.

In September 2013, shareholders of a major U.S. bank requested that the bank prepare “a full report on what the bank has done to end [its] unethical activities, to rebuild [its] credibility and provide new strong, effective checks and balances within the [b]ank.” That request was forwarded, by the way, by a Catholic nun. The bank responded through its attorneys that the nun’s proposal was “materially false and misleading” and “impermissibly vague and indefinite.”9 Fast forward to May 2015. The Federal Advisory Council-a panel of bankers that advises the Federal Reserve System-reported that “Regulators and the banking industry have worked extensively to restore financial stability through a series of mechanisms and rules that establish appropriate levels of capital, liquidity, and leverage. . . . As often as not, however, the challenges faced in recent years have been behavioral and cultural; post-crisis episodes such as LIBOR and foreign exchange manipulation provide hard evidence that there remains work to be done.”10 This is clearly an encouraging difference in perspectives. The public sector, too, has paid increasing attention to culture. The Group of Thirty, the Basel Committee, the European Systemic Risk Board, and the Financial Stability Board have issued papers on culture, governance, and misconduct risk. The Fair and Effective Markets Reviewa joint project of the Bank of England, the Financial Conduct Authority, and Her Majesty’s Treasury-has called for heightened standards for market practice in matters affecting the public good.
As the NPSO’s supervisor we will watch closely to ensure the underlying resilience of the payment systems is maintained. NPA: Resilience at its core As I have said on many previous occasions, resilience is key. This is true both for the current systems being run by the NPSO, but also as it thinks about its journey to a new payments architecture. One of the NPSO’s key priorities will be designing, developing and facilitating the safe and secure transition to this new architecture that will underpin retail payments in the UK. The NPA is intended to replace the three separate systems with an integrated framework which facilitates competition, innovation and interoperability. When I last spoke to this Forum I discussed the PSF’s vision for an NPA based on a Simplified Payments Platform and highlighted several key themes from a financial stability perspective. The NPSO inherited this blueprint for the NPA and it is now at the behest of the NPSO to decide how it will take these plans forward. And this responsibility becomes even more demanding in the face of rapid change. Especially since the design and build of the new architecture will pose its own challenges. The NPA design must be driven by a strong business case; and resilience and security need to be built into every step of the NPSO’s process from inception to any ultimate transition from one system to another. The smooth operation of payment systems must remain a priority.

And parallel migration by both the Bank and the NPSO will encourage widespread adoption of ISO 20022, a precondition for unlocking these benefits. We encourage stakeholders to take this opportunity to feed into the process and help shape the future of payments in the UK. So, what has been achieved? The consolidation and transition of Bacs and the Faster Payments Service (FPS) to the NPSO has been st  delivered. On the 1 of May of this year, the NPSO formally took over responsibility for the operation of these 1  See: The Bank of England’s supervision of financial market infrastructures – Annual Report 2018. Which manages the paper processing system for cheques and the recently launched Image Clearing System. 3 See: public statement on the commencement of the Bank’s direct delivery of CHAPS. 4 See: ISO 20022 consultation paper: a global standard to modernise UK payments. 2  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  two systemically important payment systems and was brought within the supervisory remit of the Bank. It has been operational for almost two months now, and, with the Cheque and Credit Clearing Company to be integrated shortly, another key milestone on this journey will soon be achieved. Between these retail payment systems, the NPSO will be responsible for the processing of £ trillion payments each year, almost two and half times the UK’s GDP. I think we would all agree that its continued resilience and smooth functioning is a matter of primary concern.
Enriching the array of financial products and payment instruments In addition to its primary function, intermediation of funds, the banking sector has an essential role to play in providing payment services to the economy. The scale and efficiency of accomplishing this role is in proportionate correlation to the scale of financial inclusion of the population, the overall efficiency of the economy, and – why not – the level of its formalisation. In the framework of its role as overseer of payment systems, the Bank of Albania has undertaken a series of measures to further improve legal and regulatory frameworks. These improvements aim to accommodate innovative technological developments in the field of payments, enhance effectiveness by promoting competition and ensure transparency and consumer protection. Acknowledging the role of other institutions, the Bank of Albania, together with the National Payment Systems Committee, have drafted for the first time the National Retail Payments Strategy, which identified market needs and relevant measures for intervention. The goal of the Strategy is to improve the retail payment market by providing Albanian citizens with more choices for their daily transactions, in an easy-to-use cost-effective way, as well as to increase financial inclusion. The Strategy has a detailed action plan; the Bank of Albania is fully committed to its implementation. In this framework, I would like to emphasise a notable achievement, the finalisation of the draft law on “Payment services”, which transposes the Revised EU Directive on Payment Services (PSD2). The draft is currently subject to public consultations.

The risk of financial imbalances being built up as a result of over-optimism still remains, but is now assessed to comprise less of a threat to the recovery of the economy than was previously thought. Monetary policy considerations Developments over the past months also indicate that the risks of a profound and prolonged international economic slowdown have declined considerably. There are a number of signs that the lowest point has now been reached. One condition for an upturn in international economic activity is that growth in the US economy picks up. Productivity has continued to develop very positively relative to the economic situation, which is a good sign. The fact that American households' demand for consumption has improved since the autumn also indicates that the lowest point has been reached and a turnaround is on the way. The unease that has existed, and which was accentuated after the terrorist attack on 11 September, over the possibility that rapid and perhaps exaggerated adjustments of financial imbalances in the American households' and companies' balance sheets might cause a deeper decline appears, at least  4  BIS Review 18/2002  so far, to have been quite unfounded. Better functioning financial markets as a result of the changes in economic policy and the improvements in regulatory frameworks and supervision that I mentioned earlier may have contributed to this.
Svein Gjedrem: Inflation targeting - some theory with main focus on practice Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), given at the Centre for Monetary Economics/Norwegian School of Management, Oslo, 8 June 2004. The speech does not contain assessments of the economic situation or of current interest rate setting. *  *  *  Norway has had an inflation target for monetary policy since March 2001. In my speech today, I will attempt to explain why and how an inflation targeting regime was introduced. In a number of countries, including Norway, short-term interest rates are now the lowest for generations. Let us look back to the views on monetary policy in Norway the last time interest rates were very low, in the postwar period up to the mid-1950s. As part of the measures taken in February 1955, Norges Bank increased the discount rate, which had remained unchanged since the war, from 2.5 per cent to 3.5 per cent. In his annual address, central bank governor Erik Brofoss discussed this change:1 “In the longer run, the aim must be to bring interest rates down again. The outlook for achieving this is promising. Saving is high and can be supplemented by foreign capital. This provides the basis for a low interest rate if moderation is shown in relation to an expansionary urge.” In retrospect, we can safely say that the expansionary urge proved to be too strong.

Arjuna Mahendran: The latest financial crisis and Sri Lanka Speech by Mr Arjuna Mahendran, Governor of the Central Bank of Sri Lanka, at the International Research Conference, Colombo, 7 December 2015. *  *  *  Professor Yi Fu Lin, Dr. Harsha De Silva, distinguished delegates, ladies and gentlemen. Welcome to this 8th research conference by the Central Bank of Sri Lanka. I must congratulate Dr. Nandalal Weerasinghe and his colleagues who have developed this tradition which in no small way has established the Central Bank of Sri Lanka on the international research map as a meeting place for the profound minds of several leading academic and banking institutions. This conference itself is no small feat to have organized given that we have participants from several parts of the world in Europe and Asia including several areas that we have very strong relationship with as a country, and I think this is a great testimony to the continuing tradition that we have evolved in the Central Bank in terms of creating another center of excellence in Sri Lanka. In my opening remarks I thought I would perhaps take a leaf from Professor Lin’s commentary just now, and perhaps adapt Sri Lanka’s situation in terms of the structuralism or the lack of it that Professor Lin discussed. Now when you look at the total economy, we have in the last five years gone through a fairly challenging period.