samchain/econo-pairs-v1 huggingface dataset:
Present: What implications do the lessons of the past twenty years imply for our assessment of the current situation and the challenges facing monetary policy today? We are not without advice on this dimension. Some monetarists expressed concern that the expansion of central bank balance sheets via QE during the financial crisis would trigger inflation. This fear proved mis-founded. More recently, other monetarists have attributed the current strength of inflation to the expansion of bank deposits associated with monetary easing and QE at the onset of the pandemic. Different diagnoses reflect the existence of different sects within the overall monetarist doctrine, often associated with varying focus on either narrow measures of ‘outside’ money (the monetary base, M0) or broad measures of inside money (such as M4 in the UK or M3 in the euro area). Interestingly, having been critical of the failure to tighten UK monetary policy in the face of strength in broad money growth through the pandemic, one stream of British monetarist thinking now advocates a gradual tightening of policy, despite the current elevated level of inflation. This preference for gradualism stems from the view that monetary growth has eased of late and strong policy action now risks tightening too much, inducing unnecessary macroeconomic volatility. [8] This contrasts with the advice of others who advocate stronger immediate policy action in the face of elevated spot inflation.

When shocks to money demand are large, expressing the stance of monetary policy in terms of an interest rate – in other words, as a price rather than as a quantity – can help to insulate the wider economy and price developments from the volatility that those demand shocks induce in monetary quantities. This insight had long been embedded in central bank practice, with short-term interest rates being the operational instrument of monetary policy. And it is now central to the canonical model of monetary policy outlined in Woodford’s magnum opus Interest and Prices, which both captures and has catalysed the large and still growing literature on interest rate rules for monetary policy. Three questions: Past, present and future While I will revisit some of these arguments in what follows, you should not expect much innovation from me on those dimensions. But, two decades on, a number of new questions have emerged, which I do hope to address. Page 4  Past: What are the lessons of the past twenty years? A natural focus is to explore how we should think about the expansion of central bank balance sheets via quantitative easing (QE) and other mechanisms. In Lord King’s article, discussion of QE is limited to the case of Japan and treated as something of an anachronism.
A century ago, depositors could lose confidence in the banks and rush to withdraw their savings. However, deposits stabilised when guarantee schemes were established in the 1930s. Loans to households make up a third of banks’ assets. Residential mortgage loans are longterm loans. At the same time, funding for Norwegian banks has changed. Market funding has assumed a more important role. In recent years, both short-term market funding and funding  BIS Review 8/2010  1  in foreign currency have grown in Norwegian banks. Banks have increasingly transformed short-term deposits from international money markets into long-term domestic lending. This is the main reason for the strain on liquidity experienced by Norwegian banks when foreign funding came to a halt in 2008. For Norwegian banks, the financial crisis has primarily been a liquidity crisis and not a solvency crisis. The authorities all over the world are currently reviewing the regulation of banks’ liquidity. The Basel Committee on Banking Supervision presented recommendations on quantitative liquidity requirements in December 2009. The UK, Switzerland and New Zealand have introduced, or are in the process of introducing, stricter rules. Norwegian banks must also expect the regulation of liquidity to be more stringent in the future. It will be more difficult to base housing finance on short-term funding. Issuing covered bonds may be an alternative.

The collateral pool for covered bonds may comprise residential mortgages or mortgages for holiday homes with a loan-to-value ratio (LTV) of up to 75 per cent, commercial property mortgages with an LTV of up to 60 per cent or loans to public sector entities with an LTV ratio of up to 100 per cent. These instruments are highly collateralised, carrying lower risk premiums than ordinary bank bonds, and are well suited to pension fund investment and other investments with a long-term horizon. According to the rules for the issue of covered bonds, the value of the cover pool is required at all times to exceed the value of the covered bonds. Both assets and liabilities are to be recorded at estimated market value. This implies that a mortgage company must add further collateral to the cover pool, for example in the form of government bonds, to replace any shortfall. An efficient bond market can handle large trading volumes without substantially affecting prices. Such a market requires instruments that are easy to understand and clear regulation. Trading should be transparent. Ideally, there should be multiple independent bidders and askers and trading volumes should be high in primary and secondary markets. Issues of covered bonds have picked up in Norway since the regulations relating to covered bonds entered into force on 1 June 2007, supported since autumn 2009 by the arrangement for the exchange of government bonds for covered bonds.
1 In addition to these changes in choice of interest rate assumption, Norges Bank has on some occasions commented on market expectations. In December 2000, the Bank stated in its editorial in the Inflation Report that market participants had a different view of the future interest rate. Communication following monetary policy meetings sometimes contained information concerning probable interest rate developments in the near future. After the inflation target was introduced in March 2001, monetary policy assessments had a more prominent position in the Inflation Report. In some cases, the Bank has indicated that it would prefer an interest rate path that differed from the path on which the projections were based. For example, Inflation Report 2/04 stated that “the most appropriate alternative now seems to be that the interest rate should be kept unchanged for a longer period than indicated by market expectations”. In other words, the interest rate considered by the Bank to provide a better balance was lower than the rate factored in by market participants. The chart illustrates what happened in summer 2004. The broken blue line shows the interest rate path underlying the projections. The line was consistent with interest rate expectations in the market as measured by forward rates. Norges Bank indicated in the Inflation Report that a lower interest rate than expected by the market would provide a better balance. What the appropriate interest rate level should be, however, was not stated explicitly, but the shaded area can perhaps provide an illustration.

Basis for the interest rate forecast In forecasting economic variables, Norges Bank uses an approach that captures and juxtaposes many different elements. The chart provides an illustration of the structure of forecasting. One important source of information on the current situation is current statistics. In addition to official statistics, information from our regional network plays an important role. In the course of a year, around 1400 interviews are held with leaders from various parts of the corporate and public sectors about economic developments in their enterprises and institutions. In our forecasting, we seek to build a bridge between our assessments of the current situation and the knowledge we have about long-term relationships in the economy. As a tool in this work, the Bank uses several macroeconomic models: one core model and a number of smaller models. Central to this process is the use of judgment. The macroeconomic models provide a very simplified description of the economy and only serve as a forecasting tool. The forecasts for inflation, output, the interest rate and other variables in the economy must be perceived as a result of the Bank’s best judgment. There is no mechanical relationship between the models the Bank uses and its forecasts. Nevertheless, the models are a very useful tool in the conduct of monetary policy. In the process of arriving at an interest rate forecast that in the Bank’s opinion provides a reasonable balance, a model system is needed where the interest rate and other variables in the economy are interdependent.
Urban Bäckström: The Swedish economy  Speech by Mr Urban Bäckström, Governor of Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, to the Swedish Shareholders Association, in Stockholm on 28 November 2000. *  *  *  First a word of thanks for the invitation to talk to you this evening. My topic is the Swedish economy and monetary policy. Provided nothing unexpected occurs, in my opinion it will soon be time to raise the repo rate. It is, however, difficult to tell just when this will happen. The Board is made up of six members, each with their own opinion of what is the most appropriate monetary stance and a say in the final decision. But this evening I would like to elaborate on why I personally believe it will soon be time to raise the repo rate. In order to put the present monetary policy situation in perspective, we need to look back some years into the past. During 1996, when confidence had been established in economic policy’s overall commitment to price stability and the consolidation of the public finances had begun, the Riksbank was in a position to initiate a comparatively marked reduction of the repo rate. This had been preceded by a period with a tight monetary stance, when the repo rate had reached a high of almost 9%. When the 2% inflation target was introduced, few observers believed at first that trend inflation would ultimately land up around 2%.

Norman T L Chan: Hong Kong as a private banking hub – a regulator’s vision Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the HKAB – HKIB Distinguished Speaker Series and HKIB Fellowship Conferment Ceremony, Hong Kong, 12 June 2012. *  *  *  Peter (Wong), Anita (Fung), Patrick (Fung), Julia (Leung), Ashley (Alder), distinguished guests, ladies and gentlemen, Good afternoon. I am most honoured to be conferred a Fellowship by the Hong Kong Institute of Bankers (HKIB) and would like to thank HKIB for recognising my contributions, which are in effect contributions of the HKMA, to the banking sector. The achievements of Hong Kong’s banking industry are attributable to the efforts of many stakeholders. Among them is HKIB, which has been providing quality education and training to the banking industry for decades. Many industry practitioners, and the banking industry as a whole, have benefited from the good work of HKIB. On this special occasion, I am also honoured to be invited to speak in HKAB-HKIB Distinguished Speaker Series. I will be speaking on “Hong Kong as a private banking hub – A regulator’s vision”.
First, mandating the standardization, whenever possible, and central clearing of OTC derivative trades can reduce risk by transforming a complex web of bilateral firm exposures into a smaller set of net exposures between each dealer and the central counterparty (CCP). Given their role in fostering financial stability, robust financial market infrastructures (FMIs) that are properly risk-managed can serve as a source of strength in times of stress. Central clearing can also reduce systemic risk by requiring collateral from the participants. To the extent that the OTCD reform effort results in the greater use of collateral, that should also help make the system safer. Second, increasing capital and liquidity requirements, improving governance, risk management, and resolution and recovery, as well as implementation of the Principles for Financial Market Infrastructures (PFMIs) promulgated by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) should make FMIs more robust and resilient. FMIs performed well during the financial crisis, but with OTCD reform, we are asking FMIs to do even more, so the bar needs to be higher. Third, firm-level risk management is being strengthened in a variety of ways such as requiring mandatory margin requirements for bespoke, non-cleared trades. Firms need to understand the risks associated with OTC derivatives activity and set aside capital and exchange margin to cover these risks. Moreover, authorities are developing supervisory approaches to oversee market infrastructures and participants to ensure compliance with evolving regulatory frameworks. Activity in the OTC derivatives market is gradually being moved into clearer view.

These institutions are just devices to achieve an end – less risk, more robustness and greater transparency. In the end, we will need to assess our progress on OTCD reforms against those broader qualitative metrics. Thank you very much for your kind attention. BIS central bankers’ speeches  3
In early March, the Bank of  8  BIS Review 41/2009  England cut its policy rate to 0.5 per cent and is thus also close to zero. Many other central banks, including the Riksbank, have also reduced their policy rate to all-time low levels. When the central banks' traditional tools for influencing demand in the economy can no longer be used – when no further cuts in the policy rate are possible – then other options have to be found. In both the USA and the UK, as in some other countries, the central banks have begun to conduct monetary policy using unusual, and in some case untested, methods. It may be worth pointing out, however, that there may be good reasons for implementing a lot of what the central banks have done irrespective of whether the policy rate is close to zero or not. This relates to various measures that aim to improve the functioning of the financial markets and ease the supply of credit. One way of trying to illustrate the course of events is to study the central banks' balance sheets. The exact form of these balance sheets varies from country to country, but they have a number of common features. For the sake of simplicity, and without claiming to present an exact picture of reality, allow me to assume a stylised balance sheet. On the asset side there are foreign and domestic assets and the lending to the banks.

We will seek feedback on these with the industry. 33 I will now turn to the topic of financial scams, a concern of some retail investors. MoneySense runs regular campaigns to remind investors of the need to be on guard against investment scams. I have highlighted here a web page capture of an earlier campaign where MAS had put out an advertisement to resemble a typical online investment scam. The advertisement showed an island property investment. When a consumer navigated to the scam website and indicated interest to invest, he would be told that the island property investment was a scam and he would have lost money if he had invested. He could then learn about how to spot red flags and protect himself when investing. You may be surprised that quite a few people had actually “clicked” to invest into this. Thankfully, there were others who contacted us to alert on this suspicious investment scheme. 34 Some fraudulent websites have also attempted to solicit investments using fabricated information attributed to well-known personalities. Both MAS and the police have issued 4/5  BIS central bankers' speeches  advisories on these scams. 35 To safeguard your monies, you should approach all investment propositions with a healthy scepticism and challenge exaggerated claims. As it is often said, if it sounds too good to be true, it is probably not true. 36 Financial education and advisories issued by the authorities will not stop those who are out to cheat investors.
These uncertainties imply that no single approach is likely to be entirely reliable. The inherent uncertainty faced by the central bank cannot simply be wished away. Reliance on a single indicator or forecast, or a single model of the economy or view of the world, would, in these circumstances, be extremely unwise. The strategy needs to incorporate the full range of relevant indicators and assess them in the context of a variety of different models. In this respect, the two pillars complement one another. They allow for a structured cross-checking of the evidence and analysis underlying policy decisions, encompass all information and allow for various views of the structure of the economy. The academic literature and other external commentators are slowly coming to recognise the importance of “robustness” in monetary policymaking - something which I believe has been understood by central bankers for some time. A successful monetary policy is not one that performs “optimally” in the context of a specific model or given a particular view of the world. In the light of our limited understanding of how the economy works, no single model is reliable enough. Rather given the great uncertainty faced by central banks - a successful monetary policy should perform well in a broad range of possible situations and across a variety of models or views of the world, each one of which may capture important aspects of actual economic behaviour or may, ex post, turn out to be close to reality. Monetary policymaking is therefore complex.

Certain key elements - for example, affirming a commitment to the objective of price stability; defining this objective clearly; evaluating a broad range of indicators, including monetary aggregates, real and financial variables and macroeconomic forecasts - were, in fact, common to all successful strategies. Taking note of these two observations, the Governing Council of the ECB adopted a strategy which aimed to maintain some continuity with the strategies pursued by NCBs in the euro area prior to Monetary Union while, at the same time, ensuring that the new and distinct challenges facing monetary policy in a wholly new currency area were appropriately addressed. We recognised at the outset that the key feature of a successful strategic framework for monetary policy can be described in very simple terms. Monetary policy must always be determined in the manner which best serves the maintenance of price stability over the medium term. In taking monetary policy decisions with the goal of price stability in mind, the Governing Council relies on the information about the economic situation and the threats to price stability that is revealed by a thorough analysis of a very broad range of economic indicators. As NCB experience has demonstrated, the relevant set of indicators is potentially very wide. In consequence, the ECB adopts a “full information” approach, ensuring all the relevant information is encompassed in the analysis. To impose some structure on this body of information, these indicators are organised in the context of the strategy’s two pillars.
The system’s rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur though participation in it. VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing. VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy. 13. ECB proposal for core principles for retail systems IX. The system should have objective and publicly disclosed X.  criteria for participation, which permit fair and open access. The system’s governance arrangements should be effective, accountable and transaparent. In addition, this principle should also be fulfilled: IV. The system should provide prompt final settlement on the day of value, preferably during the day, and at a minimum at the end of the day. The Act relating to Financial Agreements and the Payment Systems Act ensure that Norway has a modern, comprehensive legal framework for payment services. The Payment Systems Act has also contributed to removing banks’ legal risk linked to participation in the payment system. Therefore, the Norwegian retail payment system should satisfy the principle of a well-founded legal basis. Earlier today, I concluded that settlement risk in the Norwegian payment systems was very limited. I believe we can also say that the financial risk has been publicly disclosed and is understood.

In gross settlement in Norges Bank, banks have coordinated their transaction exchange and there is a built-in anti-gridlock function which becomes operative if a transaction lacks cover. So far, queues have not been a problem in NBO. Settlement risk is therefore not considered a threat to financial stability. The fourth type of risk is operational risk. Operational risk arises as a result of failure or downtime in computer systems or communication lines between systems or inadequate routines. After one of the major operators experienced a system breakdown that lasted several days in the summer of 2001, all the key operators in the settlement system have initiated measures to increase operational reliability and to have better back-up solutions in the event of any disturbances at the ordinary operations site. The problems during the summer of 2001 had no impact on financial stability, but reduced the efficiency of the Norwegian payment system until the operators had restored normal operations. The operational reliability of Norges Bank’s Settlement System has been very high the last year. In the period from 8 October 2001 to 5 June 2002, Norges Bank has not been responsible for any settlement errors, i.e. 239 days without errors. On 5 June 2002, an error that was classified as a small error by BBS gave us one error point. Since 5 June, operations have run smoothly, i.e. 162 days without errors.