samchain/econo-pairs-v1 huggingface dataset:
Sweden’s Riksbank has chosen to use two of its four quarterly inflation reports for this purpose. Members of the Executive Board give lectures and express their personal views on economic questions and monetary policy. In its December 2000 Bulletin, the ECB presented for the first time price inflation projections in the form of a broad range. Bank staff prepare the projections. In the ECB’s two-pillar system, developments in the first pillar, the money supply (M3), and the second pillar, which comprises other factors that may influence price inflation, are equally important. According to the Maastricht Treaty, the Governing Council shall meet at least ten times a year. Since the implementation of a single monetary  8  BIS Review 51/2001  policy in January 1999, monetary policy meetings have been held fortnightly. Press conferences are held after every second meeting, but no explicit expression is given of the Bank’s stance regarding interest rate movements in the future and the minutes of monetary policy meetings are not published. Members of the Governing Council make individual statements about monetary policy, but the actual interest rate decision is presented as a collective one. In the US, the Federal Open Market Committee determines the interest rate. The Committee holds eight pre-announced meetings a year, but has also occasionally changed the interest rate between meetings. Decisions are announced after interest rate meetings. The future policy bias is expressed implicitly through the discussion of the balance of risks with respect to the economic outlook.

It follows, therefore, that in an environment of rising interest rates abroad, domestic rates must also rise in order to maintain a premium over euro rates, and thus protect the Maltese lira by making domestic financial assets more attractive, thus discouraging capital outflows. That is why under fixed exchange rate regimes, the state of the economy cannot be a primary consideration. Having said that, it must be pointed out that the two objectives are not mutually exclusive. Indeed, since a prudent monetary policy stance contributes to macroeconomic stability, it indirectly creates favourable conditions for sustainable economic growth. It should also be noted that the recent increases in domestic interest rates – after a long period at historically low levels, it must be said – are unlikely to have slowed down the economy unduly. The sensitivity of the economy to interest rates is, in fact, thought to be relatively small. Higher rates will have some impact on growth and employment only if they are sustained over a long period of time. Our estimates show that a half-percentage point rise in interest rates, for example, will reduce the GDP by only 0.06% in the first year, reaching 0.1% by the third year. At the micro level, of course, higher interest rates raise borrowing costs for businesses and households. On the other hand, depositors benefit from higher interest income. Once again, however, monetary policy decisions cannot be based exclusively on such considerations. Exchange rate stability must take precedence over the cost of money in a small, open economy.
It takes many forms, and should extend across all areas of central banking. Few of the materials that will be discussed today and tomorrow illustrate this initiative very well. I hope there will be more similar examples in future workshops. The presentations and discussions today and tomorrow address a wide range of issues, reflecting the nature of problems that our economies are facing. I understand from the programme that our guests’ focus of research is similar to the one at the Bank of Albania. During the past year, we have focused on financial stability and monetary policy, trade integration and trade relations, and the modelling of stochastic economic process. But above all, the crisis, its implications, the channels of transmission, and policy response have become the focus of empiric and theoretic research in the central banks and academia during the last 4 years. The results of this research and analysis have taken central banks and their monetary and regulatory policies beyond what was considered sacred limits of monetary policy. However, this has not proven very helpful for the economy. It is now five years since the crisis began and the more authorities deal with short-term problems of growth and unemployment, the more they reveal long-term imbalances and structural problems of national and global scale. In the meantime, we still cannot fully define, understand and model the economy in its true stochastic form.

Research must be designed like an increasing spiral, where the newly gained knowledge in philosophy, economic history, empiric research and application of mathematic and statistical models must return to the starting point to confront the set of all new and old problems, prove the generality of its application, and evaluate the set of potential externalities. As I mentioned at the beginning, this is the 100th jubilee of Albania’s independence and our annual conference this year focused on the development of monetary policy during the last  2  BIS central bankers’ speeches  100 years and paid particular attention to the impact that domestic and international political and economic events have had on the nature of the central bank and its monetary policy. Addressing the mixture of historic and economic developments, the large variety of monetary regimes, abrupt swings in economic, politic and philosophy systems, and modern economics was amazingly refreshing, interesting, and thought-provoking. It certainly deserves more attention. Our traditional approach to research has largely contributed to our understanding of monetary and financial stability issues and models with a large set of parameters, forecasts and shock analysis. It has enriched the envelope of models and methodologies that are available in the process of policy design and implementation and has increased our confidence. However, it is time to go deeper in the understanding the fundamental of economic behaviour as an individual and social phenomenon. This understanding requires, among others, proficient research in economic history and economic behaviour and economic welfare.
With excessive euphoria, the expansion of the capital stock may go too far. Sizeable investments are made in sectors that will never yield the expected return. The subsequent adjustment accordingly involves a marked fall-off in investment activity and thus a weak development of demand. Both the excessive investment earlier and the inevitable correction of asset prices contribute to this. The setback can also lead to problems in the financial system in general. Much of what the Austrian School had done was forgotten during the half-century of regulation from the crisis in the 1930s to the 1970s. Political economy was dominated instead by Keynesianism. It may also be the case that the efficient market hypothesis has been interpreted too freely. This theory largely amounts to a warning that the market is basically the best judge of a share’s real value. Under normal conditions that is probably true. When a bubble has got under way, however, the market’s normal information processing tends to be disrupted and prices are driven instead by impenetrable forces of a psychological nature. In many respects the financial turbulence in the 1980s and ‘90s was a rude awakening for many economists, decision makers in economic policy, authorities, representatives of the business and banking communities and people in general. I find it important to underscore how broad was this lack of insight into how financial problems arise. One cannot single out a person or group as being solely responsible for how things took a turn for the worse.

The banking system lacked the necessary know-how for risk management, both for its own institutions and for its clients. People had become used to credit being rationed and were now suddenly able to borrow large amounts. The political system, the authorities and professional economists all stressed the advantages of deregulating the financial system but were less clear about the risks. In their struggle for readers, listeners or viewers, the media sometimes forgot to question and scrutinise important  2  BIS Review 50/2002  elements of what was happening. Think how much advice about share transactions has been passed on airily in recent years without a careful scrutiny. In the early 20th century these financial cycles and the risks of major crises were given a lot of thought by economists, not least those of the Austrian School. They pointed to the existence of transitory risks in the process of adjusting to a higher rate of productivity growth in connection with technological breakthroughs. At first there is a good circle: rising productivity tends to pull share prices up, making it easier to finance new investments. New investments and a growing capital stock lead through capital deepening to even higher productivity growth. When productivity goes on rising, however, expectations may become excessive and push share prices up still more. In certain cases, moreover, expectations of increased profits may lead to higher lending. All this can generate a vicious circle where a further increase in asset prices results in a continued expansion of credit.
And it is also clear that that transition in thinking needs to lead soon to transition in action, if we are to reduce these financial risks in a timely manner and so avoid a late and abrupt transition to the low carbon economy to which governments have committed. To make this happen, we need to learn by doing, to identify decision-useful information that will support the necessary transition; and we need to identify the barriers to the mainstreaming of green finance so that the transition can be financed in practice. It’s a tough ask that gets more pressing by the day. The prize could not be more important. We must keep up the good work. 7  https://www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  References Carney, M. (2015), “Breaking the Tragedy of the Horizon – climate change and financial stability”, speech given at Lloyd’s of London, September 2015. Carney, M. (2016), “Resolving the climate paradox”, Arthur Burns Memorial Lecture, Berlin September 2016. Climate Bonds Initiative (2017) “Bonds and Climate Change, The State of the Market 2017”. Climate Bonds Initiative and UNEP Inquiry into the Design of a Sustainable Financial System (2015) “Scaling up green bond markets for sustainable development”. OECD (2016), “A quantitative framework for analysing potential bond contributions in a low-carbon transition”. PRA (2015), The Impact of Climate Change on the UK Insurance Sector. Scott, M., Van Huizen, J. & Jung, C. The Bank of England’s response to climate change. 98–109 (Bank of England, 2017).

So much so, that we actually formed a taskforce to look into that possibility for ASEAN. However, that seminal work reached a very firm conclusion, which was accepted by regional policymakers. The conclusion was that ASEAN was not ready for a currency union, and will not ready for a long time to come. It was therefore not a goal that ASEAN should pursue as other forms of integration provided much more opportunity for increasing regional economic welfare. What should the role of financial integration be within ASEAN? Essentially, it is as a catalyst for economic growth. Finance is the bridge that will facilitate the movement of trade and investment flows across the borders of regional economies. This is recognised and accepted by all ASEAN economies. However, given the reality of the differing stages of financial development, and the risks associated with premature financial openness, the outcome has been the adoption of a flexible approach that enables its members to pace their integration based on their state of readiness. For example, in March 2015, the ASEAN Banking Integration Framework was launched. It adopts a bilateral approach to banking integration. Countries can negotiate reciprocative agreements that would allow Qualified ASEAN Banks to operate in each other’s territory. The Financial Integration Blueprint also recognises the risks of financial integration as well as the need to ensure that all sectors of society benefit from financial integration.
In the second quarter of 2008, core inflation indicators also showed an upward trend. The rise in core inflation in the second quarter should be viewed as a temporary movement arising from the exchange rate pass-through, rather than deterioration in the general price setting behavior. Ongoing difficulties in global credit markets coupled with domestic uncertainties have led to a depreciation of Turkish Lira vis-à-vis major currencies in the first four months of the year. As a consequence, first round effects of exchange rate pass-through  BIS Review 100/2008  3  have been significant on the headline inflation as well as on core inflation figures during the March-May period. Yet, the recent rebound in Turkish lira and weakening domestic demand has limited the overall pass-through and consequently core inflation showed signs of easing in June. Currently, annual rate of increase in CPI excluding food, energy, tobacco and gold items stands at 6.4 percent, confirming that the inflation can be mostly attributed to factors beyond the control of the Central Bank of Turkey (Figure 5). Figure 5: Main Inflation Indicators and Policy Rates 18  18  16  16  14  14  Policy Rate H  12  12  I  06.08  03.08  12.07  09.07  4 06.07  4 03.07  6  12.06  6  09.06  8  06.06  8  03.06  10  12.05  10  H: CPI excluding unprocessed food, energy, alcoholic beverages, tobacco, and gold. I: H excluding processed food.

Our inflation forecast for mid-2011 is 5.4 percent. We expect non-food inflation to be lower than these figures. Figure 14: Inflation Forecasts* Forecast Range*  Output Gap  Uncertainty Band for 2008  End-Year Inflation Targets  12  Control Horizon  10 8 Percent  6 4 2 0 -2 -4 2011-II  2011-I  2010-  2010-III  2010-II  2010-I  2009-  2009-III  2009-II  2009-I  2008-  2008-III  2008-II  2008-I  -6  Source: CBT * The shaded region indicates the 70 percent confidence interval for the forecast. To sum up, although economic activity in the past quarter have evolved in line with our expectations, the significant increases in oil and processed food prices have led to an upward revision in our forecasts. The main message of the forecast is that preventing the materialization of potential second round effects and ensuring a steady decline in inflation towards the medium term targets, requires the monetary policy to maintain a cautious stance for a while. BIS Review 100/2008  11  Therefore, the path for the policy rates indicated above should not be perceived as a commitment on behalf of the CBT. I would like to once more emphasize that any new data or information regarding the inflation outlook may lead to a change in our policy stance. 4.
But since 1970, real gross private capital flows have risen by a factor of more than eight double the growth in world trade and four times the growth in world income. Rising capital flows have delivered huge benefits to the developing countries. Capital liberalisation, like trade liberalisation, has facilitated “catch-up” in the levels of income of these countries. It delivers a permanent, and potentially huge, welfare gain. The experience of the Asian tigers from the 1970s onwards, and before that of Germany and Japan during the 1950s and 1960s, is testimony to that. But large-scale capital flows also bring risks. Capital flows are not just large, but volatile too. The financial crises in Mexico in 1994, across South-East Asia in 1997, in Russia in 1998 and in Brazil last year are the most recent and visible examples. But the incidence of financial crisis has in fact been rising since the early 1980s. And the cost of financial crises are considerable. In the stricken South-East Asian countries, capital flow reversals and output losses were anywhere between 5% and 20% of GDP. In many of these cases, there has been encouraging evidence of a V-shaped recovery in output and asset prices following crisis. But the depth of the V is clear evidence of the potential cost of volatile capital movements. Capital markets have of course been prone to “panics, manias and crashes” for as long as they have existed.

Indeed, these investors may choose not to enter emerging markets in the first place - standstills would pre-empt the inflow rather than precipitating the outflow. But the behaviour of longer-term investors needs also to be weighed. They would stand to gain from country runs being forestalled. Their incentives to flee are thereby diminished. The net effect might be some change in the composition of the developing countries’ capital stock, with fewer fleet-of-foot, skittish investors and a greater number of longer-term, sticky investors. This change in capital stock ought to be advantageous from the welfare perspective. Third, might standstills worsen contagion between markets, the like of which we saw following Russia’s debt moratorium in 1998? Contagion appears to be a fact of life in a world of cross-border capital flows. The question is: would articulating a role for structured standstills worsen contagion? It is not clear that more coherent crisis-management framework would increase the incidence of standstills; it might reduce their cost. And to the extent that contagion is sourced in investor uncertainty, it might to some extent be mitigated by the proposals I have outlined. So, to summarise, there are good reasons to think that a world of structured standstills might alter investor behaviour and the international flows of funds. It is difficult, however, to believe that these changes would be damaging to the international capital market mechanism - indeed, some would clearly improve its functioning. Sovereign defaults will continue to occur periodically.
One international example is the establishment of a European Systemic Risk Board (ESRB), where the governors of the central banks in the 27 EU countries will play an important role. The ESRB’s work will focus on analysing financial stability and the risks that exist in an EU perspective. With regard to straightforward monetary policy, the question is whether the interest rate decisions should take into account asset prices and credit growth with the aim of preventing bubbles from arising. An interest rate policy that takes such factors into account can be described as “leaning against the wind”. When there are signs that a bubble is building up, the interest rate is set slightly higher than would otherwise be justified by the inflation outlook and resource utilisation. What are the arguments for and against such a policy? Arguments against The prevalent opinion is probably that monetary policy should not be used to prevent bubbles arising in the financial markets. Three conditions should be met if one is to use monetary policy to prick financial bubbles: It must be possible to identify the bubbles, there must be tools to prick holes in them and pricking holes in them must provide potential gains. 6 A common perception has been that none of these conditions is actually fulfilled. It is very difficult to ascertain whether there is a bubble or not. Policy rates would certainly seem to be far too blunt an instrument to fine tune asset prices.

The expected policy rate 3 months ahead is based on STINA contracts combined with STIBOR T/N and the policy rate. Both this series and the rate on treasury bills are shown as 10-day moving averages. Sources: Nordea markets, the Swedish National Debt Office and the Riksbank. The right-hand panel in Figure 3 instead compares the rate on covered bonds with the expected policy rate.8 According to the portfolio balance sheet theory, purchases of government bonds can also push down rates on other bonds with similar maturities, such as covered bonds. But it is difficult to see any such effect in Figure 3.9 During 2015, the rate on covered bonds instead rose in relation to the expected policy rate. Later during the purchase period, the interest rate differential declined, but to approximately the same level as before the start of the purchases. What conclusions can we draw from these observations? First, we have already observed that the rate on short government securities was lower than the policy rate. This reasonably means that, although the policy rate was cut to −0.50 per cent in 2016, it was not at its technical lower bound.10 The Riksbank's asset purchases meant that two short market rates were established, the Riksbank's policy rate, which was still indicative of pricing in the interbank  8 Covered bonds are issued by banks and mortgage institutions and used for financing mortgages to households. 9 All this is in line with Krishnamurthy and the Vissing-Jorgensen (2011).
Opting for the central bank as a national macroprudential authority can be warranted by the experience accumulated in the field, especially in the case of a dominant position of the banking sector, and by the possibility of a quick implementation of adopted measures (since the institution is responsible for identifying systemic risks and, at the same time, has available the macroprudential tools to put into practice the measures considered adequate). Some disadvantages of having supervision integrated in the central bank are manifest in this case as well, such as the backfiring of potential errors in the area (be they real or merely perceived as such by the public) on monetary policy credibility or a keener interest in politically capturing the institution as a result of the substantial rise in central bank powers. As Klaas Knot has showed more than once, the key argument in favour of creating a board is that it enables the pooling of the expertise of all financial market supervisors and of the government; the drawbacks would be more diffused accountability and the risk of delayed implementation of recommendations, given the involvement of several institutions. A prominent role of the central bank in the board (either by chairing it or through the number of members assigned) might mitigate the risk of inaction.

Dependence on one or a few products leaves the economy susceptible to external shocks. (vi)  In the financial sector, the key lesson is that liberalisation of the industry is not tantamount to relaxing of regulatory and supervisory measures. In fact the legal, regulatory, and supervisory frameworks should be strengthened to deal with any excesses arising from entry of institutions with poor management or governance practices due to the attractive liberal environment. (vii)  Legal and operational framework requires continuous reviews to remain relevant in this technologically fast moving world. Ladies and Gentlemen After learning the lessons from the past 40 years, the following are some of the challenges we have to confront: •  Achievement and maintenance of price stability, i.e. low and stable single digit inflation;  •  Maintenance of a stable and competitive exchange rate;  •  Diversification of the economy and the export base;  •  Enhancing economic policy credibility. Policy reversals tend to undermine gains made in achieving macroeconomic stability; and  •  Sustained reduction of fiscal dominance (deficits) to contribute to low inflation, lowering of interest rates and release more funds for lending to the private sector. Turning to the question of where we go from here, I wish to state that all indications are that the economic outlook for Zambia, in the medium and long-term, is favourable. This is premised on the continued favourable performance of a few sectors, such as agriculture, mining and tourism.