samchain/econo-pairs-v1 huggingface dataset:
The Riksbank is in no way an exception in this respect either. I am convinced that the monetary policy discussion at most central banks is largely conducted using this type of more qualitative argument. I am also convinced that many economic-policy decision-makers in the countries that were hit hard by the crisis now regret that they did not act to a greater extent on the basis of the concern they may have felt, even though it was difficult to quantify. 23  See for example the column by Calmfors, Lars (2012), “Riksbanken måste bli tydligare (The Riksbank must be clearer), in the newspaper Dagens Nyheter on 13 September. BIS central bankers’ speeches  11  What can we demand of inflation targeting? Let me conclude by summarising my view of the scope of inflation targeting – what it can do and what we can demand of it. As I have already mentioned, the main advantage of inflation targeting is that it provides a nominal anchor for the economy – a guideline for decisions on pricing and wage setting. This does not mean that economic agents count on inflation being on target at every given point in time, but they know that over time it will be close to the target and not get out of hand. As I noted initially, the Swedish economy lacked such an anchor 20 years ago. The fact that developments have been so favourable since then is probably largely due to the stability and order that inflation targeting has created.

The third type of criticism is that monetary policy has recently been unclear and difficult to understand. Inflation targeting’s most important contribution But before I move on to the different types of criticism, I would like to dwell a little longer on the situation twenty years ago. When analysing the inflation-targeting regime, I believe that it is important to remind oneself of the situation when it was introduced. Why was there such strong support for defending the krona, even though it meant high interest rates in the middle of a recession? What were the problems policymakers were so anxious to resolve? As I have already mentioned, the recession in the early 1990s can be regarded as a setback following an excessive credit expansion, similar to the situation in many European countries today. The regulation of the Swedish credit market was phased out in the mid-1980s. Combined with a tax system that encouraged borrowing and an overly expansionary stabilisation policy, this contributed to creating a property market bubble. When the bubble burst in the early 1990s, it led to a banking crisis. As this coincided with an international economic downswing, the recession in Sweden was particularly severe. But there was also a deeper and more fundamental problem in the Swedish economy at that time. Sweden had been caught up in what might be termed a devaluation cycle since the early 1970s. Fixing the exchange rate is equal, at least in theory, to setting a target for domestic inflation.
Only last week, ECB Banking Supervision communicated to banks that climate-related risks have been identified as being among the key risk drivers affecting the euro area banking system. And, of course, the Central Banks and Supervisors Network for Greening the Financial System published its first progress report just a few weeks ago, reasserting that climate-related risks fall squarely within the supervisory and financial stability mandates of central banks and supervisors. An area that has received less attention though, both in policy and in academia, is the impact of climate change on the conduct of monetary policy. Today I would like to contribute to this debate and offer a way of thinking about how climate change fits into our current monetary policy framework – the way we react to shocks and the way we think policy propagates through the economy – and how it may affect our monetary policy implementation. I will argue that climate change can be expected to affect monetary policy one way or the other. That is, if left unchecked, it may further complicate the correct identification of shocks relevant for the medium-term inflation outlook, it may increase the likelihood of extreme events and hence erode central banks’ conventional policy space more often, and it may raise the number of occasions on which central banks face a trade-off forcing them to prioritise stable prices over output.

Climate change, for example, will make some areas of the world less habitable, which can be 12 3/9  BIS central bankers' speeches  expected to increase the frequency and intensity of international migration.12 The events of recent years, though different in nature, highlight how migration can have long-lasting effects on broader labour market dynamics and, ultimately, wage developments. 13 There is evidence that migration has contributed to dampening wage growth in Germany in recent years, thereby further complicating our efforts to bring inflation back to levels closer to 2%.14 Similarly, in the absence of clear and tangible evidence that the demand for fossil fuels will decline, and with existing conventional oil fields depleting rapidly, persistent energy shocks cannot be ruled out.15 There is no shortage of examples in history of this causing material disruptions to growth and employment.16 In the late 1970s and early 1980s, major central banks raised interest rates to prohibitive levels to avoid what central banks call “second-round effects” – that is, oil price shocks feeding into core inflation. Central banks, including the ECB, were forced to take similar action more recently. 17 I will come to this in a minute. But the point is that, although the “medium term” notion offers central banks flexibility that caters for different shocks, there is a limit to how much they can look through persistent supply shocks. The horizon of monetary policy is stretchable but it is not infinite. Policy needs to act before risks of broad-based second-round effects materialise.
I won’t use any more of this speech today to look backwards. For those that do want to dig deeper, I’d like to briefly plug a speech by my colleague Jon Hall, which will cover the risks of leverage including in LDIs next week. What I’d like to do instead is explain what the Financial Policy Committee (FPC) is doing to build steady state resilience in LDI funds and what needs to be done by pension funds to ensure risks to financial stability are reduced. Then I’ll look forwards to how the FPC might use this framework for steady state resilience in LDI funds to build resilience throughout the system of market-based finance[6] in the future. How are we building resilience in LDI funds? As this audience will know, the FPC does not have specific regulatory responsibility for pension schemes or LDI funds. However, the FPC has recommended a framework for steady-state resilience within LDI funds. [7] The FPC recommended that The Pensions Regulator (TPR) specify and enforce minimum levels of resilience for LDI funds, continuing its collaboration with other  Page 3  relevant regulators where necessary. TPR took a first step towards this in April. [8]  What should LDI funds be resilient to? And what form will this resilience take? The FPC wants to ensure that in the future, core markets such as gilt markets can continue operating even while suddenly repricing.

Source: Statistics Sweden  14  BIS Review 100/2008  The policy rate in Sweden Per cent 5  5  4  4  3  3  2  2  1  1  0  0 00  01  02  03  04  05  06  07  08  09  10  11  Note. Broken line represents the Riksbank’s forecast in the M PR 2008:2. Source: The Riksbank  GDP growth in Sweden Quarterly change in per cent, seasonally-adjusted data 2,0  2,0  1,5  1,5  1,0  1,0  0,5  0,5  0,0  0,0  -0,5  -0,5 00  01  02  03  04  05  06  07  08  Sources: Statistics Sweden and the Riksbank  BIS Review 100/2008  15  CPI and CPIF Annual percentage change 5  5 CPI 4  4  CPIF  3  3  2  2  1  1  0  0  -1  -1 -2  -2 95  96  97  98  99  00  01  02  03  04  05  06  07  08  Note. The CPIF is the CPI with a fixed interest rate. Sources: Statistics Sweden and the Riksbank  Summary The picture presented in July remains largely unchanged, with lower growth and high inflation.
With the possible exception of Australia, I don’t know if any other country has a word for “gazumping”. In April, over 500 newspaper headlines referenced house prices, around two thirds more than the total seen in that month last year. Central banks are very well aware of the impact that expectations about prices can have in the generation of inflationary pressures across the economy – the way in which expectations of future prices increases or decreases change people’s behaviour and actions. And while inflation expectations in the UK are generally well anchored around the MPC’s 2% inflation target, it is a very different story when it comes to expectations for house prices. Though expectations for sharply rising housing prices are not an issue of inflation pressure generally, they can matter a lot for the actions of people and the choices they make. Expectations of a fast rising market put pressure on potential buyers to get into the market as quickly as possible for fear of being priced out. And on sellers to delay and ask for higher prices. And expectations of future increases in the value of homes can make people more willing to take on debt to get on the ladder or to reach for that next rung. It is difficult to know how much expectations are driving the current market.

The proportion of loans at high loan-to-income multiples has already gone through pre-crisis levels in London. When that has happened in previous episodes of a sharply rising housing market in the UK, lenders relaxed lending standards as house prices – and so the value of the asset they were lending against – rose. Expectations of future price increases also probably played a role in this. The FSA’s 2009 Mortgage Market Review sought to reinforce lenders’ standards and the reforms recommended by the Review were brought into force this month. They should help to ensure that affordability constraints do act against pressures on house prices. But they have not yet been tested. BIS central bankers’ speeches  3  A key determinant of whether a loan is affordable is the level of interest rates over time, which determine the cost of servicing those debts. The substantial falls in mortgage rates over the past twenty years – with the move to a lower inflation environment in the late 1990s and later, through the late 2000s, as Bank Rate was cut to combat weak demand – have been associated with a large increase in both house prices relative to earnings and levels of mortgage debt relative to household income. The current exceptionally low level of interest rates will need to increase once the recovery is well established.
The infrastructure of the market is at a high level in terms of listing requirements, ongoing supervision, as well as settlement and custody arrangements. IPOs and capital raisings by local companies have been gaining pace, and this augurs well for corporate governance and operational efficiency. Government specialized credit institutions (such as the Public Investment Fund, the Real Estate Development Fund, the Saudi Industrial Development Fund, the Saudi Credit & Saving Bank and the Saudi Agricultural Development Fund) play an important role in providing long-term credit to productive sectors of the economy. Their outstanding loans as at the end of 2010 totalled SAR 178 billion. Moreover, government partnership in investments is an important factor in Saudi Arabia. For instance, the Saudi Electricity Company has a programme of public-private partnership projects in the power industry. The third source of local funds for businesses after banks and equity market should be corporate bonds. The corporate debt market is in the process of emerging, with outstanding corporate bonds to GDP at about 3%. The first corporate bond issue in Saudi Arabia took place in 2003 and in 2009 a corporate bond trading platform was launched. A number of bond issues have taken place, but so far no active secondary trading in debt has developed. Nevertheless, I am confident that this will develop in due course, both in conventional and sukuk form, as it has done in other markets. 4. Sources of finance: external  Businesses in Saudi Arabia also have access to external capital markets.

If private sector support can be organised, such as in the case of LTCM, that is of course to be preferred. BIS Review 42/2000  2  If the view is accepted that ELA should function as a “bridge” measure to prevent acute crises from occurring, it is very important that the support is given in a way that minimises the credit risk for the central bank, in order to avoid moral hazard effects. The central bank must have a well-considered exit strategy for its lending operations. The most obvious way to do this is to lend against collateral. In most cases where a need for support occurs, collateral that is normally accepted by the central bank will probably not be available. The central bank may in these cases be required to accept lower quality collateral. It should in these cases apply a larger haircut on the collateral than is used for normal collateral. Another part of a proper exit strategy is that financial support should not be given to shareholders or other holders of risk capital. 2. Internal procedures for ELA  In the previous section, two main points were suggested: (1) that ELA is a measure that predominantly should be used for problems that arise without warning; and (2) that ELA should only be provided if there is a risk that a systemic problem would occur if the central bank did not act. These two features bring about requirements for the way central banks should organise the ELA function internally.
Distinguished Members of the Press, Let me underline that the rise in annual inflation observed in the last quarter of 2009 can be attributed to several temporary factors, rather than a deterioration in the general price setting behavior. In fact, core inflation indicators in the last quarter pointed to an underlying inflation trend of around 4 to 5 percent and remained consistent with medium-term targets. Although annual inflation in core measures increased modestly with the expiry of tax incentives on durable goods, seasonally and tax adjusted data indicate that the underlying trend of inflation did not deteriorate (Figure 8). Furthermore, the inflation diffusion index, calculated by using the difference between the share of items with increasing prices and the share of items with falling prices in the CPI, hovered around historically low levels (Figure 9). These observations indicate that the increase in inflation in the last quarter of 2009 is mainly due to temporary developments, and to factors beyond the immediate control of monetary policy, rather than the main components of inflation. Parallel to these developments, inflation expectations for 12 months ahead that followed a downward course throughout the year increased slightly in the last quarter; whereas inflation expectations for 24 months ahead remained relatively flat (Figure 10).

Commodity prices continued along a rising trend during the last quarter of 2009, with the improving perception regarding the global economic recovery (Figure 32). Accordingly, oil prices hovered above our assumption of 70 USD per barrel for the fourth quarter (Figure 33). Therefore, oil price assumptions stated in the previous Report have been revised in line with futures prices registered during the first half of January. In this context, the previous assumption of oil prices have been revised up from 75 USD per barrel to 80 USD for 2010, and from 80 USD to 85 USD for 2011 and thereafter (Table 1). This revision has added around 0.2 percentage points to the 2010 inflation forecasts. Moreover, in line with oil prices, imported input prices are also assumed to increase gradually throughout the forecast horizon in response to the gradual recovery in the world economy. BIS Review 31/2010  13  The October Inflation Report envisaged annual food inflation to be 5.8 percent for 2009 and 6 percent for the years to follow. However, as I have mentioned earlier in my speech, unprocessed food prices exceeded our forecasts. Therefore, we revised our assumptions for food inflation up from 6 percent to 7 percent for end-2010 (Table 1) and this added around 0.3 percentage points to the 2010 inflation forecast. Similarly, assumptions for 2011 food inflation have been raised to 6.5 percent from 6 percent. We maintain our 6 percent annual food inflation forecast for subsequent years.
One might say that it is a question of giving the right information at the right time and about expressing oneself clearly. This is an important aspect that ties in with a survey of central banks recently made by JP Morgan. There the Riksbank was ranked as the most open central bank. But the main message of the study was that a central bank, once it had passed a particular degree of openness, perhaps did not become much more predictable by providing even more information. And I believe there is some truth in this. At least if the central bank is already very open, the quality of the communication may be more important than the quantity. And we are consciously working all the time to become even better with regard to clarity and efficiency in our communication. As recently as a couple of weeks ago, we Executive Board members decided to take a few further steps in this direction. To begin with, the public minutes of the monetary policy meetings will now state which of the Board members has said what in the general discussion. This means that we have both a correct decisionmaking procedure and everyone will be able to follow the reasoning of the individual Executive Board members with regard to each interest rate decision. Stating the names in the minutes will make us even more open and clear. It will provide better opportunities for evaluation and accountability.

And this was an important reason why the Riksbank began to publish its forecasts and other material on which decisions were based early on in the new inflation-targeting regime. Building up confidence in the price stability target as quickly as we actually did would probably have been very difficult if we had not been as open as we were with regard to our work and our decisions. Secondly, openness and clarity are nowadays an important part of monetary policy in itself. According to economic theory, there is a correlation between interest rates with different times to maturity. And expectations of short-term interest rates, which the central bank governs, are important to the longterm interest rates. By influencing expectations of short-term interest rates, a central bank can therefore also indirectly affect interest rates with longer maturities. Greater influence over interestsetting for all maturities – the yield curve – means that the impact of monetary policy is more effective. This is often called conducting monetary policy by “management-of-expectations”. And the best way to do this is to provide good information. A third reason for working to achieve greater openness and clarity “outwards” is that it can help us to work more efficiently within the Riksbank’s walls. And this is an argument I do not think should be underestimated. Openness quite simply increases the incentives for us to do a good job as it makes it easier for others to evaluate how well monetary policy functions. 3  Sveriges Riksbank Act (1983:1385), Chapter 3, Article 3.
Ardian Fullani: Achievements and challenges of the Albanian banking system Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Open Forum with the Albanian banking system’s players, Tirana, 29 September 2008. *  *  *  Dear heads of commercial banks operating in Albania, Dear participants, It has almost been 6 months since the first open forum was held, at the core of which were the achievements and challenges of the Albanian banking system. Today’s forum is a follow-up of the debate which commenced 6 months ago with the good will and goal to further bolster the banking system’s stability in Albania. I consider the first forum a successful one, given that it generated a number of important decisions that have been made recently. In addition, I have the strong conviction that the discussions to be held this afternoon will be productive and will serve to the prudent examination of the banking system’s activity, in particular in the context of the recent developments in the global financial markets. To begin with, I would like to provide a general overview of the banking sector’s financial situation and the extent of impact from the developments in the international financial markets. During the first half of 2008, the banking sector maintained its stable growth pace. The Albanian banking system is lucrative, well-capitalized and liquid. The good financial result continues to be driven by the rapid growth of high return on investment activities.

The Bank of Albania, through its Supervision Department, has prudently and constantly monitored the developments’ dynamics in the banking sector, part of which are also the  2  BIS Review 120/2008  recent developments related to interest rates on market products. We consider these interest rates as aggressive, providing their impact on the profit margin and representing a potential risk to the structure of balance sheet. As you are aware, we have required from you information related to the strategy and procedures followed by your bank with respect to the application of these terms and interest rates, the purpose and grounding basis for the decision-making process and the structures involved. It is essential for the Bank of Albania that any decision made is a product of deep and comprehensive analyses from the most junior expert to the decision-making structures, placing in addition special emphasis on the impact on the financial result. The entire process should be transparent, understandable and absorbing by the public at large. Otherwise, it will provide opposite effects. This summer provided evidence for the fact that competition in terms of gaining market shares is a determinant element of the Albanian banking system’s behaviour. It also holds true that we are dealing with one of the core principles in the functioning of free market economy: COMPETITION. However, given the fact that the other market principles, namely profit maximization, are not on the same wavelength, the balances between them may be distorted and consequently, different risk elements may be present.