samchain/econo-pairs-v1 huggingface dataset:
A few months earlier, in October 1998, the Governing Council of the newly-created central bank had dismissed the adoption of either inflation or monetary targeting and had decided instead to develop its own strategy, which aims at maintaining price stability over the medium-term. Today I will provide you with an overview of the monetary policy strategy of the Eurosystem. I will comment on some of the core principles of sound monetary policy that our respective strategies share and will point out some specific aspects in which they differ. And let me just note at this point that the Eurosystem’s monetary policy strategy – combined with its strong institutional set-up – has provided the right foundations for an effective and successful monetary policy in the euro area. I will conclude my remarks with some brief comments on the challenges ahead which have been brought about by the recent episodes of turbulence in financial markets. Needless to say, my remarks today reflect my own views and not necessarily those of the ECB’s Governing Council. Introduction In June 2006 – just a few days before I took office as Governor – Banco de España hosted an International Conference on "Central Banks in the 21st Century", to mark the 150th anniversary of the adoption of its current name. At the Conference – which discussed the main challenges facing central banks today – Professor Allan Blinder provided a survey of relevant questions around monetary policy.

The average annual increase in the HICP since the launch of the euro has been very close to 2%, despite the sizeable adverse price shocks during this period. Moreover, long-term inflation expectations have been stable and well anchored at levels broadly consistent with the definition of price stability, as shown by the evidence coming from surveys or from indicators derived from index-linked bonds. The 318 million citizens of the euro area believe that price stability is here to stay. This is a considerable achievement that could not be taken for granted a few years ago. And the Governing Council of the ECB can claim credit for it. Concluding remarks But monetary policy is constantly confronted with new challenges and, certainly, developments since this summer (winter in this hemisphere, of course) indicate that we are not currently short of such challenges. At the beginning of July, the ECB Governing Council pointed out the risk of a potential abrupt shift in market sentiment. This risk materialised in August, although through somewhat unexpected channels. Growing default rates in the US market for subprime mortgages resulted in a loss of confidence in the valuation of structured  7  Papademos, L. (2006): “The role of money in the conduct of monetary policy”. Speech at the 4th ECB Central Banking Conference “The role of Money: money and monetary policy in the 21st century”. 6  BIS Review 132/2007  credit instruments and the disruption of the asset-backed commercial paper (ABCP) market.
I will aim to cover three topics: first, the progress of the economic recovery to date; second, the prospects for UK economic growth looking ahead over the next couple of years; and third, and most crucially, the role of monetary policy in supporting sustainable economic growth in the UK economy over the economic cycle. The current recovery – progress to date Economic recoveries are normally uneven – particularly in their early stages – and we should not be surprised to see significant fluctuations in the GDP growth rate from quarter to quarter. We have seen this in previous recoveries, with the quarterly rises in GDP fluctuating from zero to 1.5% in the first three years of the 1980s recovery and from –0.2% to 1.4% in the equivalent period when the UK economy was recovering in the early 1990s.2 In this context, the performance of the UK economy over the recovery so far does not look unusual. Before the snow arrived at the end of the year, we had four quarters of economic growth in which the rise in GDP fluctuated from 0.3% to 1.0%. In fact, until the snow-affected fourth quarter, the growth of the UK economy over the first year of this recovery was stronger than in the equivalent period of the early 1980s and early 1990s recoveries.

Every economic unit needs the services of a booming insurance sector, through your brokerage, for them to contribute more to economic growth and development. In this regard, I wish to urge you to continue facilitating and promoting investments in the insurance sector. Mr Chairman, allow me to point out that, in order for you to contribute positively to the development of the insurance sector in the country, it is imperative that you carry out your work in an honest manner, maintaining the highest degree of integrity, only then can your firms become credible enough to attract business from the public and private firms operating in Zambia. One of the most important attributes of a credible insurance broker is the ability to remit funds to insurance companies on time. As intermediaries between clients and insurance companies, you are entrusted with a heavy responsibility of looking after other people’s funds. Clients pay premiums due to insurance companies through insurance brokers. To enhance credibility of your institutions and contribute to the growth of the insurance industry, I would like to urge you to ensure that you remit your clients funds to insurance companies on time and as agreed. Delays in remitting funds may tempt you to put such funds to other uses which may lead to default and erosion of the integrity upon which your intermediary role is based. Mr Chairman, Zambia has come a long way to attain the current macroeconomic stability and economic growth.
If this crisis is not suitably resolved, the effects on the global economy and financial markets might be most significant not only due to the strong links connecting the main economies, but also because the doubts over the sustainability of public finances might ultimately pass through to other major developed economies. The euro area is the epicentre of a crisis whose resolution is key to what may happen in the European and global economies in the opening decades of the 21st century, and it is on this that I shall focus today. European integration can only move forward if the euro area economy operates once again without upheavals. And since European integration is fundamental to the well-being of all Europeans and, naturally, of Spaniards, Spain must, like the other countries and the European institutions, make every effort to resolve the crisis. The truth is, as the Governor of the Bank of France said last week, if we don’t resolve this crisis properly, a “horror scenario” might ensue. But I’ll resist the temptation of detailing all the adverse consequences that failure to overcome this crisis would have for European citizens. To quote Fernando Pessoa, “to be a pessimist is to see everything tragically, an attitude that’s both excessive and uncomfortable”. Therefore I’m going to take a realistic but optimistic approach, stressing the steps forward we have taken to date and presaging a happy ending for this crisis if the necessary measures are adopted. All the EU Member States have a responsibility to resolve the crisis.

As you know, regarding interest rates, the Governing Council early December decided to lower the key ECB interest rates by 25 basis points, following a 25 basis point decrease on 3 November 2011. As regards the short-term growth outlook for the euro area, the intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty. Euro area economic activity should recover, albeit very gradually, in the course of 2012, as also projected by Eurosystem staff in early December. Substantial downside risks to this economic outlook nevertheless remain. With regard to price developments, inflation was 3.0% in November. Inflation is likely to stay above 2% for several months to come, before declining to below 2%, which view is also broadly confirmed in the December staff projections. Given the environment of weaker growth in the euro area and globally, underlying cost, wage and price pressures in the euro area should also remain modest. Risks to the medium-term outlook for price developments remain broadly balanced. The latest monetary data reflect the heightened uncertainty in financial markets. Looking beyond short-term volatility, the monetary analysis indicates that the underlying pace of monetary expansion remains moderate. The Governing Council of the ECB is determined to ensure that inflation expectations continue to be firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. BIS central bankers’ speeches  1  Let me now turn to the latest non-standard measures.
10 Moreover, the fact that European countries have tended in the past to merge failing banks, rather than resolve them, probably reduced space for new entrants: only a handful of new banks enter national markets each year. Against that background, the establishment of Banking Union will be catalytic in triggering a change in the banking landscape. The balance sheets of cross-border banking groups will become progressively more fungible, allowing liquidity and capital to be more efficiently managed at the group level. And with the Single Supervisory Mechanism (SSM) and the new resolution framework barriers to entry and exit into national markets are expected to fall. All this should meaningfully lower the cost of doing business for cross-border banks and increase efficiency in the sector. At the same time, a more integrated banking landscape implies greater risk-sharing within the sector, which should in turn support the stability of credit provision. Cross-border integration entails greater geographical diversification. 11 And the local affiliates of crossborder banks are also less likely to be exposed to the kind of market funding dry-ups we saw during the crisis, as intragroup funding acts as a shock-absorber. 12 That said, we of course do not want to move from a situation of too low concentration towards a banking landscape dominated by large banks with excessive market power. Recent research looking at the pre-crisis period suggests that where banks face limited competition in their domestic markets, financing constraints for SMEs are higher.

This may involve shifting resources to new areas of business or markets. In striving towards long-term competitiveness. Experience has shown that the aptitude for hard work, prudent practices, the agility to adapt to changing conditions, perseverance and the ability for reinvention are some of the qualities of the successful SMEs in our economy. The creation of the SME Credit Bureau is another milestone in the development of the enabling supporting infrastructure for strengthening the SME sector. The creation of such an information credit bureau industry is a further step forward in generating a financial intermediation process that is more efficient and effective. I hope that financial institutions and the SME Credit Bureau would work together towards making today's initiative achieve its objective. In enhancing greater access to credit to the SME sector, it would strengthen the potential for SME contribution to the economy. BIS Review 47/2009  3
Invited Guests, Ladies and Gentlemen, In 1999, a survey of the microfinance market in Zambia was conducted to determine the status of the microfinance market and its players, and the basis for establishing regulation and supervision of the industry. The survey revealed that although most microfinance institutions were exceptionally weak, they had the potential to grow as an industry and to provide sustainable financial services to the majority Zambians. The results of the survey enabled us to recognize that appropriate legislation, regulation and supervision were essential to assist this young industry to grow and be able to find investors, expand and provide sustainable services to an increasing number of low-income groups. Accordingly, we have placed our focus on the establishment of a regulatory and supervisory framework that would encourage responsible growth and create a safe, sound, stable and efficient environment in which microfinance institutions can operate. The regulation development process that we have adopted has been a regular system of consultations with stakeholders and various interested parties. We have managed to achieve this through public and focus group discussions and one-to-one meetings with key players in the market. Further, we have also made consultations with supervisory bodies, practitioners and other stakeholders from other countries at various workshops as well as regional and international training forums. I am happy to note that some of the countries we have been sharing ideas with are represented at this forum.

Consequently, it makes sense, in principle, for central banks to take on macroprudential tasks as part of their contribution to financial stability. However, because the situation can vary depending on the individual country, there is no consensus about either the extent of these measures or the institutional responsibilities. Switzerland has limited its macroprudential arsenal to what is absolutely necessary and has clearly allocated responsibilities to the different authorities. In this respect, the relevant legislation has extended the SNB’s role in financial stability in some areas but not completely changed it. I am fully convinced that this cautious approach with clear allocation of responsibilities makes sense. We are doing everything we can to fulfil this extended role as best we can, in the interests of our country; in doing so we can draw on our wealth of experience in “traditional” financial stability. Concluding remarks Ladies and gentlemen, we have reached the end of our perusal of monetary policy and financial stability. I particularly wanted to show you which roles can and cannot be assumed by central banks and especially the SNB. As regards monetary policy, our role has not changed, even if the use and the extent of monetary policy instruments have taken on new dimensions since the beginning of the crisis. In the case of financial stability, our role was extended as a result of the experiences gained in the financial crisis, although the adjustments have been much less extensive than in some other countries.
Government debt levels are being better taken into account and sanctions will become more automatic. Ideally those European disciplines should be now completed by the adoption, in each member states, of strong national fiscal rules. The second Pillar is a new process to monitor competitiveness and, in particular, unit production costs. Lastly, member states have agreed on a new euro area framework for crisis management. Experience has shown the need to provide temporary financial support to EA Member States facing impaired access to market financing, As you know, a new facility, the EFSF, was created in May 2010 for a three year period. It has been used to support and finance the Greek and Irish programs. Although nominally set at 440bn its effective lending capacity was in fact limited to 250bn, an amount which may have been insufficient to instill confidence in the markets. Last March, an agreement was reached to raise that capacity to an effective 440 bn. Member states also agreed on a permanent crisis management framework due to be implemented in 2013 and mainly based on a European Stability Mechanism (ESM) with an effective lending capacity of EUR 500 bn. That mechanism will have the possibility of  2  BIS central bankers’ speeches  exceptional interventions in sovereign debt primary markets. Identical and standardized Collective Action Clauses (CACs) will be included in all new euro area government securities, with maturity above one year, from July 2013.

Small changes in projections can have a huge impact on sustainability. Some of the implicit assumptions underlying current negative judgments seem to me seriously misguided. Let’s look first at the short run. As you know, we have been recently surprised on the upside with the dynamics of growth in the Euro area. Consumer confidence is almost back to pre crisis levels, PMI are at an all time high and GDP growth will almost certainly be above potential, on average, for the year 2011. Those developments take place at a moment where drastic fiscal consolidation programs are implemented in all countries. Those analysts who predicted that fiscal tightening would stifle growth in the Euro area are currently being proven wrong. Positive confidence effects in the private sector are outweighing the negative impact  BIS central bankers’ speeches  3  of public expenditure reduction. In our economic jargon, we seem to be living to day in a “Ricardian” world. What about countries in the periphery? Spanish growth rate swung from –3.7% in 2009 to –0.1% in 2010, despite the fact that a major austerity plan was being implemented. Spanish exports are booming with an increase of 10% within the euro area in 2010 and 19% outside the euro area in 2010. This compares very favourably with performances of other countries both inside and outside the eurozone. Turning to the long run, it is essential, when looking at the inner workings of the euro area to make a distinction between real and nominal evolutions.
But adjusting the level of the inflation target to the structural underlying trends that for the moment are influencing the economy does not seem like a good idea. A related and equally important circumstance is that even if globalisation and digitisation can subdue inflation, this does not mean that they determine inflation – and transform the central banks into passive onlookers, without any opportunity to influence inflation over time. In practice, the central bank has the possibility to try to estimate how much digitisation and globalisation will dampen inflation and to compensate for this. This is what central banks with an inflation target do now. It is not always an easy task, I will admit, as knowledge of the quantitative effects of digitisation and globalisation is so far fairly limited. This also means that a monetary policy that tries to compensate for the effects of these trends on inflation will not always be right, but will sometimes compensate too much and sometimes too little. However, digitisation and globalisation are not different in this aspect from other factors that affect the economy and that the central bank must try to take into account. My point is that structural trends that put downward pressure on inflation during a period of time do not necessarily mean that actual inflation will be permanently lower than the national authorities intend it to be on average.

But the predominant opinion was that  1  See Ordinance (2013:1111) amending Ordinance (2009:3) with instructions for Finansinspektionen, which also clarifies that “[w]ith a solution in which Finansinspektionen has the main responsibility for financial stability instruments, it is ultimately the Government that is responsible.” Questions regarding Finansinspektionen’s legal mandate to introduce amortisation requirements have arisen recently, however, and it is important that they are resolved quickly. 2  See, for instance, Blanchard (2015). A survey of the debate is provided by, for instance, Smets (2013). 3  See, for instance, Schularick and Taylor (2012) and Jordà, Schularick and Taylor (2013). 2  BIS central bankers’ speeches  this is not something that monetary policy should do. One argument was that it is too difficult to identify bubbles and that in practice it may make things even worse if one tries to counteract them. 4 The fact that the earlier consensus view is now up for discussion is of course due to the experiences from the financial crisis that show that the economic costs to society of financial imbalances can be substantial and that it is not so easy for monetary policy to “clean up” afterwards when the economy has suffered. The inflation target is still the foundation There are different ways of justifying why monetary policy should take financial stability into account. Different arguments lead to slightly different conclusions regarding exactly how inflation-targeting should be adapted.
BIS Review 21/2009  9  Some argue that the framework imposed a straightjacket on central banks including ours by setting too narrow a remit. Interest rates could only be changed when there was a clear and present danger to the near-term outlook for consumer inflation. So they could not be used to prevent imbalances building up. Action was almost bound to be too late. This critique takes an unduly narrow interpretation of the framework. There is nothing in the MPC’s remit which would prevent us from consciously allowing inflation to undershoot the target for some time, in order to avoid a significant overshoot at some point in the future. Or as my fellow Deputy Governor Charlie Bean put it: “a central bank seeking to stabilize inflation and output over a sufficiently long time horizon, should necessarily aim to incorporate the possible adverse long-term consequences of an asset price bubble in its deliberations” Intelligent inflation targeting on these lines run by independent central banks still seems to me the best foundation for macroeconomic policy. But that does not mean the current framework or the way we explain it is perfect. First a point on communication. Inflation targeting was designed not just to control inflation but as the best policy framework for promoting wider economic prosperity and stability.

That would certainly be workable – we have done something like it before – and there could be changes in the euro zone which might add to the attractions of a move in that direction. However, it is important not to underestimate the costs of the transition and the new boundary issues it would create. The cultures and staffing of the Bank and the FSA have changed a great deal since 1997 and would not be easy to reshape. And there are genuine costs for firms and supervisors in split responsibilities for different parts of complex groups. Personally, I am not convinced there is a clearly superior arrangement to the revised arrangements we have now put in place. It is not clear that any country has done much better than the others despite the differences in regulatory structure. Perhaps Canada has the best claim and that has a system similar in many respects to the UK’s. Whatever the boundaries, in a crisis like today’s I am sure that cooperation between the regulator, Central Bank, and Finance Ministry would be essential. I am pleased therefore that the new legislation makes clear the duty of the Bank to cooperate with the FSA and Treasury. Lesson 3: Tighten international coordination If the tripartite arrangements at home needed to be improved, cross border coordination needs to be transformed if we are to avoid a drift back into a network of national and regional financial enclaves. The failure of Lehmans was a fully fledged disaster for the world economy.