samchain/econo-pairs-v1 huggingface dataset:
Már Guðmundsson: Capital flows and fragmentation of the international financial system Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, in Session I in the conference “Fragmentation in the international financial system – can the global economy become one again?”, organised by the Central Bank of the Republic of Turkey and the Reinventing Bretton Woods Committee, Cappadocia, Turkey, 14 July 2012. *  *  *  For the most part, I will discuss some flaws in the international monetary and financial system(s) (IMFS) and in the European Union (EU) framework for cross-border banking and financial stability as they relate to both net capital flows and vulnerabilities in gross capital positions. My perspective on these issues is that of a policy-maker from a very small, open, and what used to be financially integrated economy, but it is also informed by the work I was involved in during my tenure at the Bank for International Settlements. The current international and monetary and financial system is in some sense a non-system, a hybrid of miscellaneous exchange rate regimes and diverse rules on cross-border capital flows and activities of financial institutions. This opens the door to country choices that, in the aggregate, cause and perpetuate global current account imbalances. This problem and its solution have been discussed extensively, and I will not dwell on that topic here.

But the final brushstrokes remain undone: we have yet to develop tools that can be used to reactivate the interest rate channel if and when it becomes clogged up because of capital inflows related to carry trade. In this context, one might ask whether we are too late. To be sure, the capital inflows are taking place sooner than generally expected. We still have not released those who entered last, but we have already received capital inflows of nearly 50 b.kr. for investment in nominal Treasury bonds – most of it after Iceland’s sovereign ratings were upgraded because the next steps towards capital account liberalisation were announced in early June! And this has certainly disrupted the monetary policy transmission mechanism, as can be seen in Chart 4. Thus far, the impact has been more or less limited to the Treasury bond market, and the banks’ nominal interest rates have broadly followed Central Bank rates. The first signs of contagion to other parts of the financial market had begun to show before the Central Bank’s rate hike yesterday. It will be interesting to see what impact the rate hike has. Independent monetary policy entails the possibility of maintaining a different monetary stance than other countries do if and when the need arises. Recent research and international discourse indicate that it can be difficult for small, open, and financially integrated economies to pursue monetary policy that differs significantly from that in large economies.
This is not a trivial matter. Most countries have inadequate information on the composition of their external liabilities, especially those of the private sector. Nevertheless, monitoring and managing the exposures of the public and financial sectors are important to avoid a build up of potential vulnerabilities. In this respect, the IMF can play a helpful supportive role by providing assessments of vulnerability as part of the Article IV process, the new joint IMF/World Bank financial sector assessment programmes and debt management guidelines, and technical assistance on the data requirements implied by the need to monitor national balance sheets. 2. Second, limitations on official finance mean that countries should think carefully about the provision of self-insurance against a liquidity crisis. A simple, but often expensive, way to do this is to build up large foreign currency reserves, a strategy taken to heart by a number of emerging markets, including China and also Korea following its crisis. A potentially superior alternative is the creation of contingent credit facilities with both official and private sector creditors. So far, even at the high spreads on emerging market debt, these facilities have not proved attractive, and the CCL facility created by the IMF has lain dormant. The next few years will be a test of the value of such facilities. 3. Third, experience has shown the value of borrowing countries establishing good relationships with creditors well before any possibility of difficulty in repayment arises.

In the upper storeys of the Bank he placed pavilions which are derivatives of the ends of the Secretariat blocks in New Delhi. As Lord Keynes said in his speech at the closing plenary session of the Bretton Woods Conference on 22 July 1944, "it has been our task to find a common measure, a common standard, a common rule applicable to each and not irksome to any. We have been operating, moreover, in a field of great intellectual and technical difficulty. We have had to perform at one and the same time the tasks appropriate to the economist, to the financier, to the politician, to the journalist, to the propagandist, to the lawyer, to the statesman – even, I think to the prophet and soothsayer. … We have shown that a concourse of 44 nations are actually able to work together at a constructive task in amity and unbroken concord. If we can continue in a larger task as we have begun in this limited task, there is hope for the world." The IMF is still the only international body with the legitimacy, as well as staff and expertise, to build and defend a successful international financial system. It is important, therefore, that we not accept uncritically the way it has developed, and we must examine closely how far changes in international financial markets require us to understand the consequences of limits to IMF lending and the implications of those limits for borrowing countries and private creditors alike.
Central banks usually set policy not on the basis of past inflation but rather their expectations of future inflation, looking through temporary movements in inflation that result from shocks to commodity prices or indirect tax rates. During 2002–5, the FOMC judged that prospective underlying (“core”) inflation was considerably weaker than realised headline inflation, and that the latter would move down towards the former in the medium term once the temporary effects of one-off disturbances had passed through. Bernanke finds that merely substituting Greenbook inflation forecasts  2  4  Three broad drivers for the Great Moderation have been advanced: structural changes that reduced volatility, such as enhanced inventory management and easier access to credit; better policy making; and plain good luck in the form of smaller, or more benign, shocks. As yet, the academic literature has not reached a firm conclusion as to the relative roles of these factors, in part because of the difficulty in distinguishing the influences of good luck and better policy. BIS Review 111/2010  for actual inflation in an otherwise standard Taylor rule eliminates much of the discrepancy with the target Federal Funds rate. That, of course, still leaves open the possibility that the FOMC’s fears that inflation would turn out too low were, at least with hindsight, exaggerated. Whether or not policy was appropriate ex ante will always be difficult to answer because we do not know what would have happened under a different policy path.

A non-exhaustive list of microeconomic factors includes: the incentive to shift loans off banks’ balance sheets to avoid capital requirements; the reduced incentive for care in the origination of loans, when those loans are then securitised; the distorted incentives facing ratings agencies; pay packages encouraging the pursuit of short-term returns and the adoption of trading positions with the characteristic of a deeply out-of-the-money option; and the moral hazard arising from financial institutions that are too big or too systemically important to fail, together with inadequate supervision of the same. On top of that, the crisis exposed previously unappreciated informational deficiencies created by the underlying complexity of some asset-backed securities and the high degree of interconnectedness of financial institutions. Potential macroeconomic factors include the international payments imbalances, and the side effects of the Great Moderation, as well as monetary policy. In our view, it would be a mistake to assign a key role to any of these factors in isolation. On their own, none can surely explain the worst financial crisis in eighty years. But together they constituted a potent cocktail. Monetary policy makers would therefore be remiss if they did not re-examine their own decisions in the lead-up to the crisis and strive to learn the lessons for the future conduct of policy. In the normal course of events, looser monetary policy boosts asset prices, as lower policy rates are usually associated with somewhat lower longer-term interest rates too.
Finally, I also look forward to discussing with you on the governance and other related issues of our Start-up Committee. Without further ado, let us now give our attention to Alfred who will be updating us on AFI’s latest progress and lead us through the rest of today’s agenda. Thank you for your attention. Alfred, the floor is yours. 2  BIS Review 87/2009

These discussions aim to help us all on a journey we have embarked, a journey that can only be made through constant and diverse dialogue until we reach common ground and close to perfection possible solutions. Thank you, ladies and gentlemen, for your attention. I wish you a lively and successful debate. 2  BIS central bankers’ speeches
The debate is focussed once more on the risks of overheating. The setting for our activities is evidently liable to change at short notice. I shall begin, as usual, by talking about what has happened since we last met and commenting on the public debate. One of the changes this time has to do with the set-up for the Riksbank. New legislation from the beginning of this year has given the Riksbank a more independent status and a new managerial structure. So I shall also be saying something about the new conditions for the Riksbank’s communications. Finally I shall be looking ahead and commenting on our appraisal of the coming years. In doing so I shall consider a matter that has attracted a lively discussion recently: has the trade-off between growth and inflation in Sweden changed? This is an issue we have had to consider carefully in recent years. 1. Monetary policy in the past twelve months  Weaker international course in the wake of the crisis The international financial markets were very turbulent last autumn after Russia’s suspension of debt payments and the problems with the hedge fund Long-Term Capital Management. Analyses at that time suggested that the financial turmoil would have considerable global consequences for the real economy. The Riksbank judged that even with good domestic demand and a weaker exchange rate, the slacker international trend would cause inflation in Sweden to be below the target in twelve to twenty-four months’ time.

However, considerations of the external balances of our economy, its financial stability and the need to anchor expectations, constrained our decisions. I will elaborate briefly on these factors. Faced with contained upward pressures in inflation, the central bank focused its attention on determinant factors of financial stability. By refraining from pursuing an expansionary monetary policy, the central bank did not exacerbate the pressures on the exchange rate which would than put additional strain on un-hedged borrowers and the bank’s balance sheets. Furthermore, interest rate cuts had the potential to affect deposit withdrawals and cause liquidity problems and further depreciation. At the time these two were the main concerns to financial stability. The Albanian economy did however receive some macroeconomic stimulus in the form of fiscal expansion. This countercyclical policy was made possible because of the previous work done to consolidate the fiscal position and to anchor macroeconomic policies and public expectations. Albania approached the crisis with sustainable fiscal position in terms of deficit and public debt, creating room for maneuver and fiscal expansion to support economy before  BIS Review 173/2010  3  monetary policy could intervene. Therefore the first lesson from the crisis for authorities would be to follow countercyclical policies, which will permit for bolder action in time of crisis. What are the lessons for the future? I think I already mentioned the first one. The second lesson, which relates to the price and financial stability, is equally important. Price and financial stability do not conflict each other in the long run.
16  Table 1 External scenario (annual change, percent)  2015  GDP Domestic demand Domestic demand (w/o inventory change) Gross fixed capital formation Total consumption Goods and services exports Goods and services imports Current account (% of GDP) Gross national savings (% of GDP) Nominal gross fixed capital formation (% of GDP)  2016  2017 (f)  2018 (f)  Mar'17 Report  Jun'17 Mar'17 Jun'17 Report Report Report  Mar'17 Report  Jun'17 Report  2.25-3.25 4.1 2.8 3.0 2.8 2.7 7.2 -2.1 20.5 22.6  2.5-3.5 3.9 2.9 3.0 2.9 3.9 6.6 -1.9 20.3 22.2  2.3 2.0 1.7 -0.8 2.4 -1.8 -2.7 -2.0 21.4 23.6  1.6 1.1 2.0 -0.8 2.8 -0.1 -1.6 -1.4 20.2 23.2  1.6 1.1 2.0 -0.8 2.8 -0.1 -1.6 -1.4 20.2 23.2  1.0-2.0 1.0-1.75 2.3 2.5 1.9 1.8 0.2 -0.9 2.5 2.6 1.6 0.7 4.3 4.3 -0.9 -1.0 20.3 20.2 22.5 22.1  (f) Forecast. Source: Central Bank of Chile.

In the context of a flexible exchange rate, access to forex hedging with the proper regulation and supervision is certainly important for the various players. Chile has made great advances in this area with a derivatives market that has increased as a fraction of GDP, being above the average of Latin America and other emerging economies. In this context, it is important to expand the information system of derivatives, which allows to further approve the internationally accepted standards to "Transaction Repositories", which are currently considered as important as other types of financial infrastructures, such as Central securities depositories, counterparty entities and payment systems. Summing up, we believe that there is a series of legal changes that will enable the Chilean financial system to improve its efficiency and stability, providing the necessary tools for agents to make better decisions and foster growth. This, together with monetary policy oriented at keeping inflation stable over the medium term, is the best contribution the Central Bank can make to our country’s development. Dear senators, In the second quarter of last year there was a change in Chile’s economic scenario, with sluggish demand and lower inflationary pressures, that were particularly visible in low numbers for activity and prices at the end of 2016 and early 2017. As incoming data allowed to gauge the nature and magnitude of this change, the Bank adjusted its monetary policy by cutting the policy rate by 100 bp in five months.
The Rt Hon Sir Edward George: Macro-economic developments in the UK and its effects on the West Midlands Speech by The Rt Hon Sir Edward George, Governor of the Bank of England, at the West Midlands Conference “20-20 Vision”, Birmingham, 20 September 2002. *  *  *  Your conference title is “20-20 Vision” - which I thought initially - and not unreasonably - meant it was to be all about hindsight. And I happily accepted the invitation to speak on that basis, because, as we all know, 20-20 hindsight is very easy - as a lot of commentators have demonstrated just recently in their criticisms of US policy-makers in the light of the economic and financial market bubble which built up in the late 1990's! It was only later that I realised you intended that we should look forward to the year 2020 - that the conference was to be a foresight saga - and at that point I began to get cold feet! Central bankers are jolly lucky if they feel at all confident looking ahead 18 months, let alone 18 years - and sometimes recently - given the volatility in financial markets - its been difficult to predict what was likely to happen over the next 18 minutes!

As described  10  In addition to improving competition in money markets, by conducting a daily operation with a known, fixed rate, the Fed can reduce uncertainty and absorb day-to-day variations in the supply of and demand for funds and collateral. An eligible lender that cannot earn the IOER rate and that has an unexpectedly large amount of funds to invest would be able to place the funds in the ON RRP facility rather than sell them in the market at an unusually low rate. This should reduce downward pressure on money market rates. 11  See the discussion in the minutes to the June and July FOMC meetings, http://www.federalreserve. gov/monetarypolicy/fomcminutes20140618.htm and http://federalreserve.gov/monetarypolicy/fomcminutes 20140730.htm. 12  See the Survey of Primary Dealers and the Survey of Market Participants. BIS central bankers’ speeches  5  earlier, if the magnetic pull of IOER alone is insufficient, ON RRPs should help to form a floor on rates by providing a risk-free, overnight asset to a broad range of non-bank investors. As a result of these forces, the effective funds rate should generally print within the target range. That said, as the Chair noted during her September press conference, the Committee expects that the effective fed funds rate may vary within the target range and could even move outside of it on occasion. For example, the effective rate could move outside the target for a day or two around key financial reporting dates, such as quarter-ends, when some banks’ marginal balance sheet costs are particularly high.
We want to reduce the risk of bank runs through a deposit guarantee. But we also want to avoid banks taking too much risk. An important task for the creditors of a company is to influence the company to avoid excessive risk-taking. This applies to all companies. The problem with the deposit guarantee is that if it applies to all depositors – and by extension all creditors – it increases the likelihood of the bank taking excessive risks, what is usually called moral hazard. 6 This is reflected, for instance, in the evaluation of the Basel III reforms, see Basel Committee on Banking Super-  vision (2022). 7 The US banks that got into trouble did not even need to comply with all aspects of the Basel rules. 7 [30]  It is therefore necessary to find the right balance between guaranteeing deposits to avoid a bank run on the one hand, and ensuring that creditors give the bank incentives to avoid excessive risks on the other hand. Some smaller Swedish banks fund themselves almost exclusively through guaranteed deposits. This means that in practice there are few creditors who can influence the bank in a risk-reducing direction, and this increases the likelihood that these banks will take major risks. The consequence will also be that these banks can charge higher interest rates and thus also offer higher interest rates to small savers who in turn feel protected by the deposit guarantee.

But I am also very clear that really  2  BIS central bankers’ speeches  achieving the objective of avoiding a no failure regime requires a fundamental change of mindset both inside the PRA and in society more broadly. Fear of failure is an important conditioner of behaviour in a financial regulator, and achieving a change on this front depends on establishing a wide acceptance of our approach that orderly failure that does not compromise our public policy objectives is an acceptable outcome. To be clear, we should be criticised where failure compromises those objectives and we could have taken steps to avoid it, and we will be required to report on such failures. But if failure is orderly, and does not compromise our public policy objectives, the responsibility should rest with the board and management for failing to serve the private interest of their shareholders and creditors. Last on the theme of failure, having firms that are either too big or too important to fail is bad for competition in the industries that we regulate. An industry where exit is too difficult is one where entry is likewise inhibited. Put simply, if we don’t know how to deal with a failed firm, we will inevitably set a higher barrier to entry. This is what we see in the banking industry.
These criteria are necessary because our models are uncertain and because confidence in monetary policy cannot always be taken for granted. The criteria do not conflict with Svensson’s monetary policy research, but can be regarded as a bridge between the model and reality. Allow me to show you how the criteria were used in the work on the March Monetary Policy Report by outlining the thought process involved. Although the charts I will be presenting are a simplification , they serve to illustrate our working methods. Norges Bank’s assessment of the current situation and the forecasts – with below-target inflation and a considerably negative output gap – might, under criteria 1 and 2, indicate in isolation that the interest rate should be set very low and even be negative towards the end of 2009. This is illustrated by the green line. However, the Executive Board chose to take a less drastic course of action on the basis of the other criteria taken into consideration. Criterion 3 states that previous methods of operation should be taken into account and that the interest rate should normally only be changed gradually. With emphasis on interest rate smoothing in the loss function (i.e. criteria 1+2+3), the result is the black line. This interest rate path is still low, and lower than the path that was in fact chosen. Criterion 4 states that monetary policy should be robust and criterion 5 that cross-checking should be carried out.

Jan F Qvigstad: Comments on Lars E O Svensson's lecture "Policy expectations and policy evaluations – the role of transparency and communication" Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the conference "Ten Years of Riksbank Independence", Stockholm, 11 September 2009. *  *  *  Introduction It was a great pleasure to accept the invitation to discuss professor and fellow central bank deputy governor Lars Svensson’s lecture in connection with the tenth anniversary of Riksbank independence. In his lecture, Lars Svensson discussed communication, credibility and monetary policy evaluation. He looks at general issues for central banks seeking to influence key rate expectations, using the Riksbank as an example. 1 I will not venture to remark on the Riksbank’s assessments but will offer my comments on the same issues in the light of Norges Bank’s experience of interest rate forecasts. There are a number of similarities between the communication strategies of the Riksbank and Norges Bank. And underlying these strategies is a model developed by, among others, Lars Svensson. In his lecture today, he described how to arrive at an interest rate path that “looks good”. He showed, as he has on many previous occasions, that this can be formalised by finding the interest rate path that minimises a given loss function. When does the interest rate “look good”? Svensson raises the issue of whether monetary policy is well balanced, not only ex-post but also ex-ante.