samchain/econo-pairs-v1 huggingface dataset:
2  BIS Review 20/2005

The 2012 MoU sets out a panoply of safeguards against the repetition of such an incident, including a requirement for timely notification from the Bank to HM Treasury of any risk to public funds, and analysis of the systemic impact of alternative policy options. The MoU makes it clear that the Chancellor has sole responsibility for the use of public funds, approves all ELA (including the terms on which it is provided), and may if necessary direct the Bank to extend ELA – though this is a backstop power, whose use is not expected to be considered in the majority of crisis situations. Where it is judged necessary to keep ELA covert for a period in order to minimise the risks to financial stability, key Parliamentary Chairs will be briefed orally by senior officials on any government indemnity attached to such lending – and full disclosure to Parliament would be made at the earliest subsequent opportunity once the risk of damage to the public interest had passed. 6 Covert operations, particularly those involving a fiscal component, are often cited as the most troubling forms of LOLR by those concerned that central banks have a bias to lend “too much”. In the United Kingdom, the disclosure of large covert loans to HBOS and RBS in late 2009 (more than a year after the loans were advanced) triggered a public debate about the  3  http://www.bankofengland.co.uk/markets/Documents/smf/annualreport15.pdf. 4  http://www.bankofengland.co.uk/about/Documents/mous/statutory/moufincrisis.pdf. 5  “The view from No.11” by Nigel Lawson, pages 402-6. 6  See page 22 of http://www.publications.parliament.uk/pa/cm200910/cmselect/cmtreasy/181/181.pdf.
When we consider the deterioration that inflation brought about both in economic and social life, we see that this fight is indispensable and significant; that it is one of the determinant factors in shaping the future of an economy, a society, a country on solid foundations. Distinguished Guests, Now, let me briefly mention the developments in inflation in 2006, the basic reasons leading to divergence from the target and the applications of the monetary policy within this process. 2006 has been a year during which supply shocks, seasonal conditions and external factors were determinant on inflation. As of the beginning of 2006, an upward trend in inflation was observed especially in the first seven months and the annual inflation went up to 11.7 percent in July. The leading factor driving the inflation upwards in this period was the soaring unprocessed food product prices as of the end of 2005 due to the unfavorable weather conditions. Annual rate of increase in the prices of this group became 21.8 percent in July. BIS Review 28/2007  1  Fluctuations in the markets and depreciation of the Turkish Lira due to the negativities in the global liquidity conditions and the increase in uncertainty perceptions regarding our country during the MayJune period led to an increase in the prices of commodities priced in foreign currency besides imported goods and affected inflation figures unfavorably.

Another important factor that was influential in the first half of 2006 was an accelerated increase in the prices of crude oil and other commodity prices in the international markets. This increase, accompanied by the depreciation of the Turkish Lira led to a rise in domestic energy prices and so played a key role in increasing the inflation figures. A slow-down in price increases has been observed as of August due to the decrease in the prices of gold and oil in the international markets, stabilization in the financial markets with the re-appreciation of the Turkish Lira and the effect of the decisiveness in the fight against inflation over expectations. Nevertheless, inflation remained high due to the sustained upward trend in the unprocessed food products, Ramadan-based effects and the belated reflections of the depreciation experienced in the Turkish Lira following that date. Looking at the end-year inflation in the main expenditures groups, we see that the annual inflation remains below the target in clothing, footwear and communications groups, whereas it goes beyond the target in all other groups. In this respect, rigidity of inflation in the services group constituted an important handicap against the fight against inflation in 2006 as it did in the previous years. End-year inflation became 12.2 percent in this group. Rents in the services group showed a great increase and an annual inflation rate of 20 percent remained above the general consumer inflation.
Here we seek to make the financial system more resilient. This is the world of risk management, prudential standards, liquidity standards, resilience of payment  6  BIS Review 36/2005  systems etc. It can involve the promotion of codes and standards over a wide field ranging from accounting to improving legal certainty, and management of countries’ external balance sheets. Decision making about priorities is particularly challenging because we cannot be clear ex-ante how well the mitigation techniques will work, and we often need to rely on others to implement them. In addition we need to ask whether we are the right party to act. We also need to think about the relevance of our activities to our mandate – or “must dos”. In some areas, for example payment systems – one of our “must dos” – it is clear that we have a responsibility to reduce risks. In this case the questions we need to answer relate to the degree, methods and resource implications. But in other areas whether we should act is less clear cut. What particular contributions can we make and are there any areas where we can sensibly act alone? We need to ascertain areas where we can achieve results both domestically with HMT and FSA, and internationally with organisations such as the Basel Committee, the Committee on Payment and Settlement Systems and the Financial Stability Forum. Perhaps I can mention one area to which the challenge process suggests we should devote considerable resources – global institutional liquidity.

This adds objectivity to what is in many senses a subjective process. Here is an example:  4  BIS Review 36/2005  MATRIX: ORGANISING PRINCIPLES FOR FINANCIAL STABILITY  Sources of Threat Credit Risk Activities  Assessment of Threats Financial Stability  Market and Liquidity Risk  Infrastructure (including Payment Systems)  International Architecture  to  Risk Reduction Preparation for and Managing a Financial Crisis  The matrix is a common sense map, which enables us to visualise why something is being done, and where it fits into the overall financial stability effort. The specific activities and deliverables that are located in each of the boxes can be scrutinised to see if they meet our objectives or if they should be discontinued. This helps us decide on the level of resource and the nature and qualities of people we need. It also helps with budgeting, and provides a basis for motivating good performance. To explain the relevance of the boxes let us look first at the columns: sources of threat. Our desired end objective is to promote financial stability by seeking to prevent threats from crystallising, or at least to reduce their impact. Then we will look at the rows – the different types of activity we undertake: the means if you will to achieve our ends. ii)  Sources of Threat  First, the columns: the sources of threat.
To become really effective, macroprudential policy needs to acquire the distinct status of an independent policy area with its own tools for promoting stability in the financial system as a whole. There are a number of factors that I believe are particularly important in order to create an effective institutional framework. 1. The power to make decisions. This presupposes a clear mandate and effective and clearly defined tools. However, as macroprudential policy is a policy area that is still under development, the legislation also needs to clarify how new tools can be added to the toolbox in the future. 2. Independence. The body that is given responsibility for macroprudential policy should be free from external pressure, both from the political sphere and from the financial sector. I believe that this is particularly important, as macroprudential policy will entail making many unpopular decisions. 3. Accountability. If a body for macroprudential policy is given a high degree of independence, it must also be made accountable for the actions it has taken – or  11  Ingves & Lind (1996): The management of the bank crisis – in retrospect, Sveriges Riksbank Economic Review 1996:1. 12  See for example Hallvarsson & Halvarsson (2010): The communication of the major banks and the authorities during the financial crisis 2007–1 July 2009. 8  BIS central bankers’ speeches  failed to take. This means that both the mandates and the tools must be clearly defined.

So who should be responsible for the macroprudential-policy tools? In Sweden, as in many other countries, there has long been a lack of a clear mandate and a clear division of labour and responsibility for this type of supervision. Initiatives have therefore been taken in several parts of the world recently to fundamentally reorganise financial supervision. In the United Kingdom, for example, the main responsibility for macroprudential policy has been given to the Bank of England. In Sweden, both Finansinspektionen and the Riksbank have tasks relating to the stability of the financial system. Both authorities also have a role to play in the prevention of financial crises. Finansinspektionen has the task of exercising supervision over financial companies, in particular those that are of the greatest significance to the stability of the system, and of working for orderly financial markets by supervising securities trading on stock exchanges and other marketplaces. The Riksbank has the task of promoting a safe and efficient payment system, which in practice means that the Riksbank has a broad responsibility for financial stability. The Riksbank oversees the development of the financial system as a whole, with a focus on institutions, markets and infrastructure of importance to financial stability, and presents its views on risks in, and the efficiency of, the financial system. 6  BIS central bankers’ speeches  Finansinspektionen and the Riksbank thus have partly overlapping tasks, but have different ways and means of performing these tasks and base their analyses and assessments on slightly different perspectives.
Former Governors, former and current Board members, as well as a great contingent of excellent economists and professionals have contributed to the design of monetary policy, a better understanding of our economy, and to administering an institution to which the country has entrusted great responsibility and to which we have an enormous obligation of excellence. Thank you very much. 4  BIS Review 156/2009  Table 1 Evolution of the central banks' autonomy index and inflation (*) I. Late 1980s Autonomy index Political Economic  Average inflation (1989)  Economies Advanced Emerging Developing  5.3% 18.6% 22.5%  0.39 0.27 0.27  Total 0.59 0.38 0.45  0.48 0.32 0.35  II. 2003 Average inflation (1989)  Economies Advanced Emerging Developing  Autonomy index Political Economic  2.1% 7.0% 8.4%  0.74 0.47 0.29  Total 0.81 0.75 0.67  0.77 0.61 0.48  (*) Countries with annual inflation above 100% were deleted from the sample. Sources: Arnone et al. (2007) and IMF. Figure 1  Drop in inflation and change in the autonomy of the central banks*  % drop in inflation  -0.2  -0.1 0  0.2  0.4  0.6  -0.3 -0.5 -0.7 -0.9 -1.1 Change in independence index  (*) Drop in inflation corresponds to the percent variation of average inflation between periods 1980-1989 and 2000-2008. Change in the independence index corresponds to the change in Arnone et al. (2007)'s autonomy index between the late 1980s and 2003. Sources: IMF and Arnone et al.

It is our objective – although it is difficult to accomplish – that the community understands our work, which is to provide the public good of stability that allows the country to progress, and is not an operation carried out by technocrats with incomprehensible criteria. There is another important reason why central banks need to be transparent: the efficacy of monetary policy. In the past few years, advances have been made towards consensus that a more predictable monetary policy is better, without itself being a source of noise and instability. To that end, it is necessary to properly communicate our vision of the way the economy works and how monetary policy decisions affect inflation. Results During the 1990s there was a substantial increase in the number of autonomous central banks; many countries enacted legal reforms favoring central bank independence (table 1). The evidence shows that the increase in central bank independence has been associated with a reduction in inflation (Figure 1). This is valid for both developing and advanced economies, and confirms the findings of a large body of research that includes more rigorous statistical analysis to verify the robustness of the partial correlations. Also, higher degrees of independence have helped to reduce inflation volatility. Therefore, autonomy is the adequate strategy to correct the inflationary bias. In summary, the evidence indicates that higher degrees of independence are associated with lower, more stable inflation and, hence, with increased growth. In Chile, over the twenty years of central bank autonomy, inflation has averaged 7.5% per year.
But such a turnaround requires considerable caution, in my opinion. As regards the Riksbank’s holdings of government bonds, we presented an overall strategy for normalisation before Christmas. 2 In brief, it states that the Riksbank shall continue to reinvest redemptions and coupon payments until the repo rate  See the article “The Riksbank’s strategy for a gradual normalisation of monetary policy” in the December 2017 Monetary Policy Report. 2  3 [13]  has reached a suitable level. Thereafter, reinvestments can also be scaled back. When this happens, bond holdings will decrease. What the environment looks like going forward Economically, things look relatively good and if everything goes as expected, monetary policy internationally and in Sweden will gradually and slowly move closer to a normal situation. But in what kind of environment will monetary policy be conducted going forward? And what does this normal situation actually look like? These are questions that have come increasingly into focus in recent years. It would probably be a mistake to take it for granted that the same map used before the crisis can be used to get our bearings in the current situation. To begin with, it is important to properly evaluate the experience gained over the last decade and integrate the lessons learned into our economic thinking. Structural changes may also have influenced underlying trends in the economy and I would like to give three examples of such changes which, in some way or other, will influence Swedish monetary policy in the future.

In hindsight we know that inflation gradually fell and that it happened earlier in Sweden than in other countries –  2 [13]  discounting the effect of interest-rate changes, inflation fell from around 2 per cent during 2010 to around 1 per cent in 2012. When inflation then fell further in late 2013 and early 2014, despite brighter economic signals, it became necessary for the Riksbank to focus more and more on bringing inflation back to the target. This was particularly urgent bearing in mind that the long period of low inflation had begun to leave its mark on inflation expectations. To bring up inflation and help anchor inflation expectations to the target, the Riksbank cut the repo rate to 0 per cent in 2014 and then gradually down to –0.5 per cent in the following years. As a way of making monetary policy more expansionary, we also began purchasing government bonds at the start of 2015. At that point, the ECB had begun buying assets on a large scale to stimulate demand and bring up inflation. There was a concern that the Swedish krona might strengthen significantly against the euro as a result of this and that this would further prolong the period of below-target inflation. Monetary policy needed to protect the economy against such a development. Today, we can observe that the extremely low interest rate and the Riksbank’s asset purchases have contributed to economic activity growing ever stronger.
Looking ahead, the fragility and heterogeneity of the recovery in the euro area, projected medium-term inflation far below our objective and a nominal effective exchange rate that has in recent months offset a large part of our stimulus measures lead us to conclude that there is no room for complacency. Significant monetary stimulus will have to be maintained until we achieve a solid recovery. Moreover, we cannot rule out the possibility that the measures described above may have to be recalibrated, or new measures introduced, in order to fulfil our price stability mandate, understood always in a symmetrical manner. It is also crucial that we retain flexibility in the implementation of our asset purchase programmes, to avert any potential financial fragmentation problems. 3.2  Macroprudential and microprudential policies  The various national and international authorities with prudential powers – which include the Banco de España, the ECB, the European Banking Authority (EBA), the ESRB, the Single Resolution Board (SRB) and the Basel Committee on Banking Supervision (BCBS) – have adopted a plethora of decisions during this crisis with the main aim being that the financial system contribute to overcoming the crisis. First, supervisory processes have been adapted to free up banks’ operational resources so that they may be used to ensure business continuity. Also, all regulatory changes that entailed heightened requirements for institutions have been postponed.

The steps taken by central banks have taken them into, up to now, uncharted territory. Interest rates have been reduced to very low levels by historical standards, clearing the way for significantly lower bank interest rates (although with a significant time-lag), thus supporting credit demand from households and firms. At the same time, non-conventional measures have been adopted with the aim of bringing abnormally high money market spreads down and ensuring a proper transmission of the monetary policy impulse. These exceptional measures have had important effects on macroeconomic and financial stability, and improved the overall conditions on financial markets. 19 In particular, they have helped to “liquefy” assets that could otherwise have caused the insolvency of many financial institutions. More generally, they have helped to restore confidence by reducing uncertainty. In addition, they have prevented contagion effects that can arise in the financial system as a result of the inter-connectedness between various market participants. The monetary policy intervention also helped to restore the profitability of banks as the fall in short-term interest rates steepened the yield curve, to the benefit of the banking system, which usually funds itself in the short term in order to provide credit for longer terms. This profitability also helped to support the flow of credit to the economy. Financial measures have also been adopted, such as increased deposit insurance, guarantees for bank liabilities, and injections of capital. In addition, fiscal budgets have supported aggregate demand via automatic stabilisers and expansionary measures.
And do the authorities themselves have arrangements in place to produce comprehensive assessments of the operations and the risks of these groups? Under the prevailing regulatory structures I am afraid that the answers to both of these questions are likely to be no. Policy actions are needed As I have tried to illustrate so far, financial integration gives rise to several challenges related to the supervision of cross-border banks. Most importantly, I have argued that the present  BIS Review 83/2007  3  supervisory arrangements are not designed to prevent the cross-border externalities that financial crises may result in. This, of course, is a growing problem in an integrated world. Furthermore, I have argued that there are deficiencies in how the supervision of internationally active banks works in practice, which can partly be explained by limitations in legislation and partly by supervisors not being sufficiently coordinated. In my opinion all this gives us good reasons to reflect on how to take actions for revising the present regulatory frameworks. We need to find ways for countries to cooperate closely and establish mechanisms for coordination and conflict resolution. Motives for a coordinated financial supervision Most of what I have said so far is probably pretty uncontroversial both in terms of the analysis of the challenges of integration and of the need for action. However, it may be more difficult to reach agreement on how to move forward. A number of alternative solutions have been brought into the debate.

Different countries may also have different priorities in terms of resources for supervision and crisis management or in terms of their regulatory structures. One reason may be that the financial systems differ quite significantly between countries. Additionally, in crisis management, the use of public funds can never be completely ruled out. In a cross-border context, serious conflicts of interest can arise when it comes to agreeing on how to share the potential burden of such interventions. All these challenges have a common theme. Increasingly, national financial stability is becoming dependent on the activities of banks and authorities in foreign countries. Also, given the roles and responsibilities of these authorities, conflicts of interest are likely to occur. The typical illustration of this problem is a bank being of limited size in the home country while having a systemically important branch abroad. While a potential failure of the bank would not create any substantial disturbance in the home-country economy the consequences to the host country could be destructive. As the host country, in the event of failure, is likely to end up with the bulk of the bill for resolving the crisis, the incentives to conduct close supervision of the bank are substantial. For the home-country on other hand the same incentives do not exist. Financial integration also raises a number of practical issues. Do the present legal frameworks provide authorities with the necessary tools for supervising cross-border banking groups in an efficient way?