samchain/econo-pairs-v1 huggingface dataset:
It is crucial for long-term financial stability that those who make long-run debt commitments are fully aware of this reality and that they plan accordingly. What about inflation risk? Personally, I do not share the view that the current period of central bank activism will be followed by a resurgence of inflation. First, contrary to common assertions, persistent - as opposed to unanticipated - inflation is limited in its capacity to reduce sovereign debt burdens. Second, the low levels of inflation we are currently experiencing are the result of improved monetary policy, combined with a general acknowledgement that inflation does not buy durable economic performance. Neither of these factors are affected by recent events. We can therefore anticipate that, with current or enhanced levels of understanding of monetary mechanisms, and central bankers’ continued preference for price stability, future inflation levels will resemble those of the last 20 years. References Bernanke, Ben S. 2005. The Global Savings Glut and the U.S. Current Account Deficit. Remarks at the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia. 10 March 2005. Borio, C., and P. Disyatat. 2011. “Global imbalances and the financial crisis: link or no link?” Bank of International Settlements. Working Paper No. 346. May 2011. Gagnon, J., Raskin, M., Remache, J. and Sack, B. 2010. “Large-scale asset purchases by the Federal Reserve: did they work?” Federal Reserve Bank of New York Staff Report No. 441. IMF. 2005. Building Institutions. World Economic Outlook (International Monetary Fund). September 2005. Joyce, Michael, Ana Lasaosa, Ibrahim Stevens and Matthew Tong. 2010.

“The financial market impact of quantitative easing.” Bank of England Working Paper No. 393. July 2010, revised August 2010. Krogstrup, Signe. 2012. “The effects of the SNB’s liquidity expansion on asset prices at the zero lower bound.” SNB Internal Note. February 2012. Krogstrup, Signe, Samuel Reynard and Barbara Sutter. 2012. “Liquidity Effects of Quantitative Easing on Long-term Interest Rates.” SNB Working Paper. January 2012. (forthcoming). Taylor, John B. 2009. Competing Explanations: A Global Savings Glut. pp. 6–7. BIS central bankers’ speeches  5  6  BIS central bankers’ speeches  BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11
The crisis and response Of course these are anything but normal times. The financial crisis that broke in mid-2007 and intensified dramatically following the failure of Lehman Brothers has been among the most virulent ever. And it was followed by the longest and one of the deepest recessions since World War II, called by many the “Great Recession.” The Fed responded aggressively and creatively in an effort to pursue our dual mandate. Our actions fell into two broad buckets. First, we took steps to supply liquidity to the financial system, so that financial markets could continue to function properly and to enable households and businesses to maintain access to credit. Carrying out an age-old central banking role, we loaned funds to financial firms, secured against their high-quality collateral. Traditionally, such loans were only made to depository institutions, such as banks. Of course, the modern U.S. financial system includes many lenders that are not banks. These companies and markets provide vital financing for credit card loans, short-term business needs and many other activities. Many years ago, Congress gave the Fed the emergency authority to lend to nonbanks in “unusual and exigent circumstances.” During the crisis – in order to limit damage to the wider economy – we exercised this authority to lend to a wide variety of financial firms and markets. A handful of times, we made the difficult decision to make emergency loans to prevent the disorderly failure of particular firms.

Since June 2009, economic activity has grown – but not robustly. 2  BIS Review 141/2010  In recent months, the momentum has slowed. After rising at a 3.25 percent annual rate during the second half of 2009, real gross domestic product growth has slowed. With demand growth barely keeping pace with firms’ ability to increase productivity, job creation has been too weak to significantly reduce unemployment, which stands today at 9.6 percent. And, as is typical in such circumstances of considerable slack, the rate of inflation has declined. Why are we experiencing this soft patch now? There are several reasons:   In its first year, this recovery – as is typical – benefited from firms replenishing their inventories. But this effect is now petering out.   The growth impulse from the 2009 fiscal stimulus package is beginning to wane.   The usual hand-off from inventory-led growth to private final demand is not yet fully established. Instead, we have ongoing sluggishness in two key sectors that have led past recoveries: consumer spending and housing. The slow recovery of consumer spending and housing in the face of very substantial monetary and fiscal stimulus reflects the painful unwinding of the dynamics at work during the expansion that preceded it. Beginning around 2003, underwriting standards for residential mortgages were significantly relaxed, leading to a sharp rise in household borrowing and in home prices.
I hope you will see from our response to the TSC that we at the PRA – right up to and including the Prudential Regulation Committee – have been putting a lot of effort into this package of reforms, which are needed in order to make Solvency II work better in the UK. But we haven’t done this in a regulatory ivory tower. We have always engaged closely with industry – through our membership on various ABI working groups, our frequent meetings with firms and our close analysis of comments we receive through public consultations. However, we acknowledge that the challenge of Solvency II implementation may have crowded out space to engage with the industry and stakeholders on other strategic issues. We have therefore decided to go further, and with Martin Gilbert’s agreement we are launching an insurance sub-committee of our Practitioner Panel in order to free up more space for discussion focussed on insurance issues. 6  Based on Solvency II data, as at end 2016. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  It’s important that we get insurance regulation right. At this juncture, that means two things in particular. First, the TSC has rightly highlighted aspects of Solvency II which are not working well. We are taking forward reforms to address those issues at a good pace.

Many of its customers, aged 75 and over, had invested their life savings into these products but were left with significantly reduced retirement income. Ten years later, the Government agreed to pay compensation amounting to £ billion. But many policyholders and their families suffered over the decade when their fate remained uncertain, and some of those affected were no longer alive to benefit personally from the compensation. Another way to think about this is to consider the importance, at a human level, of what insurance companies do – and therefore, how we would feel about it if an insurer couldn’t make good on its promises. Much of this is about the everyday business of work, family and home, and I have spent some time this year with policyholders to remind myself of this. The most striking thing about talking to a group of policyholders is simply the vast range of insurance needs people have, from burst pipes to with-profits funds. One is also 1  Based on ABI data, as at end 2016. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  struck by how complex people find insurance, and some of the different experiences that can arise. One person I spoke to had a really excellent experience with a UK home insurer. Another’s family had been injured in a motorway pile-up, and was having terrible difficulty trying to find out if the non-UK insurer of the driver who had hit them is or is not solvent.
But we certainly asked ourselves whether that would be all the stronger because of the liquid nature of this extra wealth. Asking the question is one thing, answering it accurately another. It’s obviously possible that we got that judgement wrong and under-estimated the significance of these extra deposits. However, in my view it’s quite hard to argue that this could account for much of the subsequent upside surprise in inflation. First, consumption growth – and that of aggregate demand – turned out to be weaker, not stronger, than the MPC (and many other forecasters) had anticipated. It was also weaker than the prediction of a simple, money-driven model. The orange line in Chart 4 (reprinted from the introduction) plots the forecast values of an empirical “consumption function”, estimated on data up to the end of 2019, that looks a bit like equation [1] but includes an additional term in household  Page 24  deposits (effectively splitting the “W” term into monetary and non-monetary assets). In principle this would allow for any additional impetus provided by the liquid nature of the extra wealth that households had accumulated during the pandemic. Yet the MPC’s forecast in the May 2021 Monetary Policy Report was stronger than this model’s prediction. And the actual out-turn was weaker than both. This might be for any number of reasons. One thing that might help to explain the shortfall is that the “excess deposits” seemed to be skewed towards those – older and betteroff households – less likely to be credit constrained.

For example, while it may capture some important aspects of how asset purchases work it’s not really an accurate representation of how the conventional policy rate is set. That’s fine for today, as I’m focusing more on QE. But one should at least be aware that the monetary authority needn’t vary the supply of reserves in order to change its policy rate[7]. Second, the downward slope of the MD line was often justified, in the textbook account, by the assumption that reserves don’t pay interest. This would mean that any rise in bond yields is bound to make central bank money comparatively less attractive to hold. These days, however, reserves do pay interest (at the official central-bank rate). As a result, central bank money and government debt – the two sides of the QE transaction – are closer substitutes than they otherwise would be. This has the effect of making the downward slope of the MD line less pronounced. Third, the model – the way it was often taught in the textbooks, at least – glosses over the distinction between “narrow” and “broad” money. For the wider economy it’s clearly the second that matters. Firms and households don’t have deposits at the central bank – for them, “money” is  Page 13  what they hold in their commercial bank accounts. But, as conveyed to students, IS-LM elides the two, assuming that the one is just a multiple of the other[8].
Norges Bank considers it important, therefore, that payment services are organised in a way that enables the market to find efficient solutions for production and use of such services. In this presentation, I will focus on retail payment systems. BIS Review 66/2002  1  Criteria for assessing efficiency We place emphasis on four elements when assessing the efficiency of the retail payment system. 2. Efficiency in retail payments depends on • Access to appropriate payment instruments • Direct pricing of all payment services • Exploitation of economies of scale and network externalities  • Competition in the supply of payment services  It is important that both corporate and retail customers have access to payment instruments that cover their needs in all payment situations. Customers must feel confident that payments reach the correct payee at the correct time. This in turn requires a high level of operating reliability in the electronic payment systems and correct processing of paper-based payment instruments. The security experienced by customers in connection with different payment instruments has an impact on the use of the instruments and thus also on the public’s perception of whether the service range is acceptable. Prices tell customers something about the value of the product or service and the costs associated with procuring the product. This affects customer preferences. Prices which reflect the relative costs of producing different payments services provide important incentives for selecting the services that satisfy their needs at the lowest possible cost.

In Norway, the Banks' Standardisation Office establishes the standards for payment services. The Banks' Payment and Central Clearing House (BBS) and EDB Fellesdata produce most of the payment services in Norway. In some areas, the two companies produce different kinds of services, while in other areas, they compete in the same market. This solution exploits economies of scale in the development and production of payment services. 6  BIS Review 66/2002  Reduction of risk in the payment systems Risks in payment systems have received increased attention in the 1990s, both internationally and here in Norway. An average of NOK 160-170 billion is settled in Norges Bank’s Settlement System every day. In addition, a number of banks settle transactions in Union Bank of Norway and Den norske Bank. If a bank is incapable of timely settlement, the settlement systems may be a source of financial instability. The settlement systems may also contribute to spreading liquidity and solvency problems. The Committee on Payment and Settlement Systems (CPSS) in the Bank for International Settlements (BIS) has established 10 core principles with which all systemically important settlement systems must comply in order to limit risk in the payment system. Norges Bank's assessments indicate that all the important bank-operated settlement systems in Norway that have been authorised, i.e. the systems operated by Union Bank of Norway, Den norske Bank, NICS (Norwegian Interbank Clearing System) satisfy these 10 core principles. 10.
This may affect the formation of monetary policy. The risk of conflicts between the inflation target and the need for exchange rate stability is sometimes emphasised in discussions. For several reasons I do not believe we need to be particularly concerned about that. For one thing, ERM2 participation is not an ordinary system of fixed exchange rates but the preliminary stage of acceding to a monetary union in which exchange rates are irrevocably locked. So currency unrest during this period should really only occur in the event of uncertainty about Sweden's EMU participation on account of problems either in Sweden or in EMU. Note that these risks are not really economic but political. Presumably they would also be extremely small in a situation where accession to ERM2 has been preceded by political agreement both in Sweden and in the rest of the European Union. Moreover, currency risks arise as a rule when economic policy is out of step with the fixed exchange rate. If Swedish monetary policy before and during the ERM2 period is focused on price stability and economic policy in other respects is also in line with the direction in the monetary union, the risks of a currency crisis would no doubt be even smaller. Furthermore, the ERM2 period will presumably be comparatively short and directly connected with Sweden's subsequent full participation in the monetary union. If the Swedish economy is in step with the euro area on accession to EMR2, the probability of any serious imbalances having time to arise is therefore small.

6  BIS Review 65/2002  If Sweden joins ERM2, the responsibility for maintaining economic balance rests essentially with the Government and the Riksdag. In the event of a referendum next autumn resulting in a majority for Swedish entry into the EMU, followed by entry to ERM2, the fiscal policy that is already being established this autumn will be highly important. However this may, the Riksbank should do what it can to contribute to price stability being maintained also in ERM2. Under these circumstances there are grounds for continuing to make forecasts, publish Inflation Reports and set the repo rate in much the same way as at present. Neither do I see any reasons for altering the inflation target. But the room for manoeuvre in monetary policy would rapidly narrow as entry to full monetary union approaches. At the same time, exchange rate stability in ERM2 is important but the potential risks of conflicts between price and exchange-rate stability during this short period should not be exaggerated. It is natural that the central rate in ERM2 will be the conversion rate in the changeover to the monetary union and this reduces the scope for speculation. The objective of monetary policy in Sweden as well as the euro area is price stability. Moreover, the process for EMU entry by other countries was calm even though the circumstances in a number of cases were more difficult than they look like being in Sweden's case. BIS Review 65/2002  7
Modeling socalled pre-provision net revenue (PPNR) was one of the innovations introduced in the SCAP and represented one of the key challenges in that exercise – and, I will argue, is a continuing challenge today. Given the choice to model net income and regulatory capital ratios, another set of design choices concerns the horizon over which net income is calculated and how cumulative changes in net income over this horizon are incorporated into regulatory capital ratios. The SCAP assumed a two-year forward horizon, while the subsequent CCAR and DFAST stress tests have assumed a 9-quarter forward horizon.6 Other supervisory stress test regimes have made different assumptions – for instance, the European stress tests use a three-year forward horizon.7 An 2/8  BIS central bankers' speeches  alternative choice would be to project losses and income over the full lifetime of a bank’s loans and other assets. Estimating lifetime losses on particular fixed portfolios of loans and securities was arguably the prevalent approach during the financial crisis period.8 But in a stress testing context, the lifetime loss approach presents practical difficulties given the varying maturities of different types of assets, as well as the greater uncertainty inherent in more distant future points. At the time of the SCAP, we judged that a two-year horizon was long enough to capture significant losses while remaining within what could reasonably be projected conditional on the macroeconomic scenario.9 Closely related to the scenario horizon question is how cumulative losses and revenues are incorporated to calculate post-stress capital ratios.

Jean-Pierre Danthine: Calmer waters after the storm? Speech by Mr Jean-Pierre Danthine, Member of the Governing Board of the Swiss National Bank, at the Money Market Event, Zurich, 18 March 2010. * I. *  *  Looking back  We are emerging from a financial and economic crisis of major proportions. The extent of value destruction during the last two and a half years may well match the losses registered during the Great Depression. The lessons we will draw from this historical episode should leave us wiser. They will alter, in some fundamental ways, our understanding of finance and macroeconomics and hopefully, as well, the behaviour of economic participants – with a better designed economic system. Today I will begin by looking back and reviewing some of the main events that have occurred since the last Money Market Event which happened to coincide with the turning point of the financial crisis. I will then look forward and describe how the SNB perceives the immediate future. Finally I will briefly address two of the most pressing challenges confronting us – exiting from unconventional monetary policy measures and rethinking financial regulation. Let me turn my attention to where it all started, that is, the US real estate sector. During a long period of low interest rates, low risk premia, subdued volatilities and general economic optimism, US house prices increased in an unprecedented wave to the end of 2006, at which point the bubble burst.
At the same time as monetary policy is aimed at attaining the inflation target, it is also supposed to “support the objectives of general economic policy for the purpose of attaining sustainable growth and a high level of employment”. The Riksbank does this by not merely striving to stabilise inflation around the inflation target, but also striving to stabilise the real economy, that is, production and employment. The Riksbank thus conducts what is known as flexible inflation targeting. Flexible here means that the Riksbank does not focus solely on inflation. To be rather more concrete, one might say that every time we make a decision we try to find a forecast path for the repo rate that means monetary will be, as we say, well-balanced. This means that we try to find an appropriate balance between stabilising inflation around the inflation target and stabilising the real economy. One way of illustrating this balance is to say that the deviations arising during the forecast period between, on one hand, inflation and the inflation target, and, on the other, the real economy and a trend, may not become too great. …and in theory It is common in the literature to describe flexible inflation targeting as the central bank minimising a loss function that is a weighted sum of a measure of the variation in inflation and the variation in the real economy.

But if we look ahead, it is likely that the picture will be further complicated by the changes that will follow in the wake of the financial crisis. What I am mainly thinking about here is the increased focus on macroprudential policies. After the financial crisis we have learnt two main lessons. The first is that the central banks’ interest rate-setting must take into account financial stability to a greater degree. The second is that we need new regulation in the financial market that focuses on systemic risk. But the macroprudential policies may have effects that are in many ways similar to the effects of monetary policy – particularly if the tools are varied over time. This increased interaction between monetary policy and macroprudential policies is another circumstance that means that the connections between the simple theoretical framework and practical monetary policy become twisted. Of course, it is not the case that monetary policy and regulation were two entirely independent policy areas prior to the crisis and that after the crisis they will be fully integrated. But I nevertheless believe that monetary policy and regulation will come closer to one another in the future. When I was here a year ago, I spoke at length on how monetary policy can contribute to maintaining financial stability and how different types of regulations can affect monetary policy and its transmission mechanism. I will not go into this again today.