samchain/econo-pairs-v1 huggingface dataset:
John C Williams: The research-policy nexus - ZLB, JMCB and FOMC Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Conference celebrating the 50th Anniversary of the “Journal of Money, Credit and Banking”, Federal Reserve Bank of New York, New York City, 31 May 2019. * * * As prepared for delivery John Maynard Keynes quipped, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” I wonder whether Keynes would see this as a feature rather than a bug in light of his enduring influence on the profession more than 70 years after his death. The theme of my talk today is that during my quarter century as a researcher and policymaker at the Fed, we have not been overly beholden to defunct economists. Quite the contrary. A quick scan of FOMC memos, briefings, and meeting minutes provides ample evidence that a wide range of economic research—new and old, conventional and outside the box—regularly enters into our debates and influences our decisions. This represents a rich two-way dialogue between researchers and policymakers, with both sides probing for new answers to old questions. I could list a long catalog of examples of the synergistic relationship between research and policymaking at central banks. Instead, I will focus my comments today on one specific topic: the zero lower bound on interest rates, or ZLB for short.

10 Board of Governors of the Federal Reserve System, FOMC transcript and presentation materials, January 29-30,  2002. 11 Board of Governors of the Federal Reserve System, FOMC transcript and presentation materials, June 24-25,  2003. 12 See, for example, Lars E. O. Svensson, The Zero Bound in an Open Economy: A Foolproof Way of Escaping  from a Liquidity Trap, Monetary and Economic Studies, Volume 19, Issue S1, pp. 277-312, February 2001; Günter Coenen, Athanasios Orphanides, and Volker Wieland; , Price Stability and Monetary Policy Effectiveness When Nominal Interest Rates Are Bounded at Zero, Advances in Macroeconomics, Volume 4, Issue 1, 2004; Ben S. Bernanke and Vincent R. Reinhart. 2004. Conducting Monetary Policy at Very Low Short-Term Interest Rates, American Economic Review, Volume 94, No. 2, pp. 85-90, May 2004; Klaus Adam and Roberto M. Billi, Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates, Journal of Money, Credit and Banking, Volume 38, No. 7, pp. 1877-1905, October 2006. 13 Reifschneider and Williams 2000; Board of Governors 2002. 14 Gauti B. Eggertsson and Michael Woodford, The Zero Bound on Interest Rates and Optimal Monetary Policy,  Brookings Papers on Economic Activity, Volume 34, No. 1, pp. 139-211, 2003; Reifschneider and Williams 2000. 15 Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack, Monetary Policy Alternatives at the Zero Bound: An  Empirical Assessment, Brookings Papers on Economic Activity, The Brookings Institution, Volume 35, No. 2, pp. 1–100, 2004.
One sign of this is the historically high September figure for the 12-month increase in the number of bankruptcies world-wide among companies with a credit rating from Moody’s. According to Moody’s assessments, we can expect an increasing number of bankruptcies up to the end of March. This has been accompanied by appreciably higher borrowing rates for companies with a low rating, as well as a down-grading of more and more companies. The group of firms with the highest credit rating has shrunk to a proportion that is small and even lower than at the time of the latest major slowdown in the early 1990s, for example. In view of the increased financing costs for firms with a low credit rating, there is a risk of more bankruptcies in the future, with contagious effects among other firms and sectors. For firms with a higher credit rating, on the other hand, the generally lower level of interest rates implies if anything that financing costs have been reduced. So the risk of increased problems with credit should not be exaggerated, though it does look as though to some extent at least, the present fall in activity stems from the supply side. Above all, it appears to concern an overly rapid and abnormally high investment in the IT and telecom sectors.

What I have in mind is next year’s prospect of a relatively large increase in fiscal policy’s contribution to household disposable income, accompanied by low interest rates. An expansionary economic policy normally tends to stimulate cyclical activity, which implies that 2002 should be a fairly good year for domestic demand. However, there are at least two factors that could limit or counter this effect. One factor has to do with the lower share prices and the tendencies for house prices to stop rising and in certain cases to fall. In recent years, purchases of cars and other consumer durables have been stimulated by the appreciation of assets that feature in household wealth. Conversely, falling asset prices during the past year have tended to subdue these purchases. The stimulus from economic  BIS Review 98/2001  3  policy may accordingly be dampened or delayed as long as asset prices continue to fall. Of course, the situation will be reversed if share prices and property prices instead stabilise, or even begin to rise once again. Another factor is connected with the risks in the labour market. The redundancy statistics suggest that employment will level out or even fall next year, which may involve an attendant increase in unemployment. Households are already expressing such fears in Statistics Sweden’s surveys. Besides the direct downward effect on household disposable income, a weaker labour market may make people in Sweden more cautious when making purchasing decisions.
Such is the European financial system, which combines integrated segments with retail banking markets that are not even national but local, and transnational institutions among the biggest in the world with small banks with just a handful of employees. Accordingly, the lifting of barriers to integration must remain high on the agenda of Community and national authorities. I would not wish to conclude this section without referring to the efforts of the Banco de España to inform bank customers. But before discussing our initiatives in this area, we should stress that our efforts here are aimed at reinforcing financial stability. Just as solvent, efficient and competitive entities are the best guarantee of stability in a financial system open to international competition, customers with sufficient financial acumen who are demanding in their dealings with banks are also a basic pillar of the efficiency of the financial system and of its stability. In 2005 the Banco de España instituted its bank customer’s portal. This provides consumers with overall information on the risk characteristics of different products, on their rights and on the commissions applied by institutions to their customers. A provisional evaluation of the results is very favourable, but at the same time leaves no room for complacency. This is an area where we must make greater efforts, improving co-ordination with other supervisory and consumer protection agencies.

When public sector balance sheets reached their limits, it was the turn of deleveraging at a national level through fiscal consolidation, a process which is likely to continue for some time to come in the UK and euro area. It would be overly pessimistic to have as one’s central case that the headwinds currently affecting the economy will persist for decades to come. Although they will be persistent, they will not be permanent. Indeed there are now nascent signs that some of these headwinds have already begun to ease. For example, against a backdrop of improved confidence in the recovery (Chart 5), firms have slowly but surely been increasing the amount they invest relative to the amount they save (Chart 6). And household saving has also declined from its very elevated precautionary levels. But that is not to say that it is imprudent of financial markets to attach weight to the downside risks – they are real. Indeed, reducing the probability of those risks materialising has been a driving factor in the MPC’s decision to maintain Bank Rate at its historically low level of 0.5% for 6 years, and the committee’s guidance that when Bank Rate does begin to rise, it is expected to do so more gradually than in previous cycles, and is expected to remain below average historical levels for some time to come. 4. Diminished potential output growth  Let me turn next to potential output growth.
The Riksbank is one of the central banks that will need to take an active stance on whether or not to issue a digital currency first. We cannot wait any longer, and I shall now tell you what we intend to do in the coming years. We will need to work within three different areas at once. Firstly, we need to identify what technologies can be used. This includes investigating both decentralised and centralised alternatives. It is important not to exclude alternatives in advance and thus limit the room for manoeuvre. Perhaps what we need is a combination of centralisation and decentralisation? We also need to study what technical competence we have, and what we need. We need to investigate in what way payments in e-krona can be initiated: with smartphones, plastic cards or in other ways. The second area is what I call policy issues, where we study the potential effects on the Riksbank, the payment market, monetary policy, financial stability and so on. Here, we ask ourselves what properties an e-krona should have to best meet the needs we see in the economy. I discussed examples of these questions earlier. The third area concerns legal issues. Examples here are what opportunities and what flexibility the Riksbank’s current mandate allows us, how different laws affect the requirements we should make of an e-krona system and so on. Even if we intend to work within these different areas in parallel, there will be interdependencies that we must take into account.

In the realistic case when the state variable affecting the probability of a financial crisis is a vector that includes not only leverage but, for instance, maturity mismatch and liquidity mismatch, it is even more the case that additional financial-stability instruments such as restrictions on maturity and liquidity mismatches are superior to the policy rate in achieving and maintaining financial stability. BIS central bankers’ speeches  5  for many years for several reasons, including global imbalances, fiscal policy, and shocks to aggregate demand and supply. This confusion means that the conclusions from this work for monetary policy are not clear. Monetary-policy instruments The standard monetary-policy instruments are the policy rate and communication, including statements and the publication of forecasts of inflation, the real economy and (by some central banks) the policy rate. During the financial crises, in particular when the policy rate is at or close to the zero lower bound, we have seen other more unconventional instruments being used to implement more expansionary policy, as noted above. There is a lively debate and a considerable body of research on the effects of the LSAPs undertaken by the Federal Reserve. Estimates based on a number of recent studies, as well as Federal Reserve estimates, suggest that, all else equal, the Federal Reserve’s QE2 program launched in November 2010 lowered longer-term interest rates by 10 to 30 basis points.
Bandid Nijathaworn: Regional financial supervision – challenges and the way forward for Asia Remarks by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at a conference on “Macroeconomic and financial stability in Asian emerging markets”, organised by the Central Bank of Malaysia and the Asian Development Bank Institute, Kuala Lumpur, 4 August 2010. *  *  *  First, let me thank Bank Negara Malaysia and the Asian Development Bank Institute for the invitation. It is a pleasure to be here. Since the first session this morning, we have covered many important issues facing Asian Emerging Markets, and I can not agree more that they are the important policy issues for Asia in the period ahead. In this concluding panel on coordination of regulatory practices, I want to make a few observations on the challenges and the way forward for Asia, focusing on cross-border financial regulation and supervision. A good way to begin is to note that the global financial crisis not only offers important lessons for monetary policy and financial regulation, it also points to the need to further strengthen policy coordination on cross-border financial supervision and resolution amongst regulators in the region, as well as between home and host regulators, in order for us to be able to react better to the risk and the global-wide impact of a systemic financial distress.

This included measures to ensure adequate levels of capital and liquidity for the distressed foreign entities operating in their jurisdictions, or to ensure an orderly unwinding of their local operations in some cases, while maintaining confidence in the overall financial system. And third, while there were significant benefits associated with a closer exchange of information and policy discussion between regulators at the international level and the regional level, the conduct of policy actions that followed was more on a bilateral basis. A case in point was the US dollar swap lines which were available selectively. So, while financial systems in Asia were able to successfully weather the impact of the global crisis, recent experience points to an important gap in the coordination of supervisory policies and crisis resolution, both at the international and the regional levels. BIS Review 105/2010  1  Currently, as we know, efforts to strengthen financial regulation and supervision are being undertaken at all levels. The most important and also the most widely known is the BCBS’s reform, which aims to increase the quality, quantity and international consistency and transparency of bank capital, to strengthen liquidity standards, to discourage excessive risk taking, and to improve the overall risk coverage framework. The proposed new international standards, while important, are complex and will pose a critical adoption and implementation challenge. Another important point at issue is the proper treatment of macroprudential policies in the context of financial regulation and supervision.
Paul Fisher: The outlook for the UK economy Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, to the Cardiff Breakfast Club, Cardiff, 24 May 2013. *  *  *  Introduction It’s nice to be back in Cardiff again. As always, I will be taking the time while here to visit a number of local businesses in an effort to find out what is happening “on the ground” in the Welsh economy. Our network of agents across the UK provide the MPC with valuable intelligence on a continuous basis, but there’s nothing quite like hearing it at first hand for oneself. Recent changes at the Bank of England I’d like to start this morning by outlining some of the recent institutional changes at the Bank of England, which will help shape the policy environment for a generation. First of all, supervision is back! The new Prudential Regulation Authority, a subsidiary and therefore part of the Bank of England, has moved into its new offices at 20 Moorgate, just a two minute walk from the back of Threadneedle Street (or faster on a cold morning!) The move back to the Bank will help us to exploit the synergies between microprudential supervision on the one hand and the markets, economics and financial stability expertise of the wider Bank on the other. But most importantly this is an opportunity to change the way in which banks (and building societies, credit unions, insurers and major investment companies) are supervised.

The impact of interest rate changes is transmitted with a lag, but monetary policy gradually delivers results, now as ever. Reducing imbalances and restoring stability is in everyone’s interest. Some strain is inevitable during an adjustment from heavy imbalances, so complaints come as no surprise. But this does not mean that the wrong monetary policy measures are being applied – it could even mean quite the opposite. The Central Bank’s policy rate is high. The press release announcing the Board of Governors’ decision on February 8, which I quoted earlier, stated that the current interest rate may suffice to bring inflation to target within an acceptable period of time. It is impossible to state this categorically now, because it depends on the inflation outlook. What is certain is that the policy rate will be lowered as soon as the Central Bank deems this compatible with the inflation target. It is wrong to claim that this is ruled out because the interest rate differential with abroad must be maintained to prevent turbulence when glacier bonds mature. However, an untimely reduction in the policy rate will benefit no one. It has been claimed that the Central Bank is undermining the króna with its interest policy, which will cause businesses and households to abandon the currency. In this context it must be remembered that without a tight monetary stance and high interest rates, the króna would probably have depreciated by more than it actually did, demand would have grown faster and inflation moved much higher.
Inflation: A Tiger by the Tail? Speech given by Andy Haldane Chief Economist and Member of the Monetary Policy Committee Online 26 February 2021  The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Jack Meaning for his help in preparing the text and Ben Broadbent, Rebecca Freeman, Colm Manning, James Oxley and Harry Rigg for their comments and contributions 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Most countries around the world now have targets for inflation, often pursued by operationally-independent central banks. Inflation-targeting requires central banks to assess the future path of inflation, and the risks around it, often through published inflation forecasts. Monetary policy is then set to meet the inflation target in expectation, subject to these risks. This is the operational essence of flexible inflation-targeting.1 The Covid crisis has resulted in an unusually high degree of uncertainty about the future path of inflation. This is clear from the confidence intervals around the MPC’s two-year-ahead inflation projections, which are currently twice as large as normal. In its latest forecasts in February, the MPC judged there to be a  one-in-three chance of inflation lying below zero, or above 4%, at the two-year policy horizon (Chart 1). This high degree of two-sided uncertainty is understandable. Economies have taken a huge hit as a result of the Covid crisis, contracting by almost 8% in the UK and 4% globally during 2020.

In the case of social bonds, for example, the European Platform on Sustainable Finance has been working on a proposal for a social taxonomy, but this area evolves very quickly and more dimensions need to be included, such as diversity, equity and inclusion. In addition, the focus of sustainable finance is widening from climate to include nature and the environment because climate change and biodiversity loss are interconnected and mutually reinforcing. 7  Central banks are starting to analyse the consequences of the loss of biodiversity for the financial system. The Network for Greening the Financial System (NGFS) has set up a task force on biodiversity loss and nature-related risks. We need to research and learn more about the transmission channels from nature loss to the economy and the financial system, as we are already doing in relation to climate change.7 Thus, we have a further challenge here, and probably next year there will be a session at this conference focusing on biodiversity. In the meantime, to conclude, we can see that the issuance of green bonds is recovering in 2023. However, other bonds in the sustainable finance family are seeing less interest from investors. The challenges are several: i) the lack of common definitions, ii) the voluntary aspect of the European green bond standard, and iii) the lack of verification of sustainabilitylinked bonds. In addition, a higher degree of transparency and a global disclosure standard would contribute to the development of sustainable bond markets and a reduction in greenwashing. 7  See NGFS (2022).
It will, in other words, be more expensive for the banks to increase lending in good times at the same time as this will create some protection against losses when a downturn comes. As I mentioned earlier, the policy rate is an instrument that has an indiscriminate impact on the economy, while countercyclical buffers, for example, can be seen as an instrument that is more specifically aimed at the “credit cycle”. Instruments of this type could also reduce the need to use the policy rate to promote financial stability. The special characteristics of the Swedish banking market – what demands do they make? I would now like to draw your attention to the conditions on the Swedish banking market that indicate that substantial safety margins are justified. Sweden has a large banking sector in relation to the size of the economy and the banks have substantial operations abroad (see slide 7). At the same time, the market is dominated by a few large players. These banks also have low risk weightings for, among other things, mortgages. Another risk factor is that Swedish banks are highly dependent on market funding, particularly in foreign currencies (see slide 8). In addition there is the effect of the market players’ expectation that the government will ultimately act as a guarantor of the banks’ operations and will not let them fail, in other words there is an implicit state guarantee.

There is thus a significant risk that the collapse of a Swedish bank would have major, negative consequences for the entire Swedish banking system and for the economy as a whole. It is important for a central bank to manage these risks in such a way that they can never threaten financial stability. A reasonable consequence of this is that a systemically-important bank should be subject to particularly stringent capital requirements. The study that the Riksbank published at the end of last year shows that increasing capital ratios is an effective way of safeguarding financial stability, at the same time as the economic  BIS central bankers’ speeches  5  costs of this – in terms of lower GDP – are not necessarily significant.6 Sweden’s historical experience of low capital ratios is also bad, which is demonstrated not least by the banking crisis of the 1990s, and this has led to a gradual improvement. At the end of November last year, the Riksbank, the Ministry of Finance and Finansinspektionen issued a joint press release in which they declared how much capital they believed the four major Swedish banks should have. The capital ratio should be at least 10 per cent by 1 January 2013 at the latest, and at least 12 per cent by 1 January 2015.7 I would like to emphasise that it is very important that the banks reach these levels. However, we should not make this sound more dramatic than it actually is. The Swedish banks are already well-capitalised (see slide 9).