samchain/econo-pairs-v1 huggingface dataset:
As things look now, there is considerable probability that global interest rates will remain low over a long period of time, and then monetary policy will have to find other ways of working to attain the inflation target than those we are used to, and many of the measures will have consequences for the balance sheet. We need to endeavour to attain a better analysis of how measures that have an effect through the balance sheet affect the economy and become as clear and systematic when we talk about these as we have tried to be with regard to steering interest rates. I intend to begin with a historical retrospective – focusing on the past 30 years – and to describe how monetary policy has developed over time. Then I will move on to the challenges that monetary policy has faced and that have led to the use of new tools. This takes me to the international discussions about the monetary policy toolbox, and, in conclusion, I would like to discuss what opportunities and limitations the Riksbank Inquiry’s proposed new act entails. The development of monetary policy – a retrospective Ever since central banks in the modern sense were created, their objective has been clear: to provide the economy with a payment system and with a means of payment and to ensure that the value of these funds remains stable over time.

The first of these is that size must be determined by the banking system’s size and funding structure. It is therefore inappropriate to confirm a specific figure by law, as it is very difficult to make an accurate forecast of how the banking system and financial markets will develop over the coming decades. My second point concerns whether foreign exchange should be held in advance or borrowed when problems arise. One advantage of having small foreign exchange reserves is that the running costs for them will be very small. If you believe that foreign exchange can always be borrowed when necessary, there is good reason to only have small foreign exchange reserves. But I have been involved in managing a number of banking crises around the world and one lesson I have learned from that work is how rapidly a developing crisis can worsen when foreign exchange reserves are not easily accessible. Neither do I believe that it will be so easy to borrow foreign exchange fast enough in all conceivable scenarios and therefore consider it important that the possibility of holding well-balanced foreign exchange reserves is not restricted. Sufficiently large foreign exchange reserves also send an important signal to the rest of the world that we are ready to manage problems should any arise. Furthermore, it is always the lender who sets the terms, at the same time as lending preferably takes place to those who do not need to borrow.
In addition, about $ billion of Treasury securities mature between now and the end of 2011, giving the FOMC scope to reduce its asset holdings even further if it chooses to not replace some of those maturing securities. While the passive strategy of relying on redemptions may be appropriate for now, it might not be sufficient over the longer-term. One problem is that relying only on redemptions would still leave some MBS holdings on our balance sheet for several decades. As indicated in the minutes from the January meeting, the FOMC intends to return to a Treasuries-only portfolio over time. This consideration could motivate the FOMC to sell its agency debt and mortgagebacked securities at some point, once the economic recovery has progressed sufficiently. Draining tools: control of short-term rates Under the strategies just described, the Fed’s asset holdings are likely to still be elevated at the time that the FOMC wants to raise short-term interest rates. That creates a challenge for controlling those rates, because of the large amounts of reserves that were created from the Fed’s purchases of those assets. It is therefore important for the Fed to determine the way in which it will raise short-term interest rates in an environment with so much liquidity – a topic that I will now cover. The primary vehicle for making adjustments to short-term interest rates in that environment is the ability to pay interest on reserves.

It can and should take on an international dimension. Through facilitating the inward investment of foreign savings, the source of funding for much needed domestic investments can be tremendously enlarged. This would also enhance the overall efficiency in the international allocation of funds, to economies that can provide a higher return commensurate with the risks involved. An economy with capital controls should therefore plan for the eventual internationalisation of the bond market, even though the associated financial liberalisation process can be quite a risky one. But risks are to be managed and not avoided, and the benefits of open markets far outweigh the costs in terms of financial instability. I can confirm this, even with the unpleasant experience of the financial turmoil of 1998. Free and open markets impose a valuable discipline on policy makers that is to be welcomed in the long-term interest of the people they serve. Fifth, and turning to the actual bond market development issues, there is a need to adopt a comprehensive approach. We should address the demand and supply sides, the environment in which they interact to discover the prices for the debt instruments, including market making arrangements and the determination of benchmarks, and the market infrastructure, including payment, clearing and settlement systems. Focusing on these issues individually, and this is the sixth point, there is usually strong latent demand for debt instruments, particularly in economies with a high savings rate.
And finally, these developments have been continuously reinforced by the strengthening of the financial infrastructure, the settlement system, the legal and regulatory framework to ensure the robustness and vibrancy of the bond market. Malaysia has benefited immensely from the development of the bond markets. As an important source of financing, it contributes to the economic growth process. It also allows for more efficient mobilization and allocation of financial resources. With greater efficiency in the intermediation process, it reduces the cost of financing. It also allows for the increased diversification of risks both for issuers and investors. In addition, it enhances financial stability through potential diversification, increased transparency and greater market discipline. The development of the bond market also enhances the transmission mechanism  BIS Review 53/2008  1  of monetary policy. Finally, and most importantly, the more developed bond market has enhanced our resilience to the implications of increased volatility in the international financial markets. The Malaysian bond market has several distinguishing features. Firstly, it comprises both the conventional and Islamic bond market. Secondly, the secondary and repo market is now growing in significance. Turnover volume in the secondary market has been steadily increasing over the years marking the active participation in the bond market by investors. In 2007, total annual turnover volume increased by 46% to RM777 million. There is also an increased diversity of instruments being issued ranging from asset-backed bonds, bonds bearing features such as stepped-up coupons and "floaters" and pass-through ABS.

1  See A. Espitia, A. Mattoo, N. Rocha, M. Ruta and D. Winkler (2021), Pandemic Trade: COVID-19, Remote Work and Global Value Chains, Policy Research Working Papers, no 9508, World Bank  2 www.ecb.europa.eu/press/key/date/2017/html/ecb.sp170825.en.html 3 www.oecd.org/officialdocuments/publicdisplaydocumentpdf/? cote=ECO/WKP(2018)63&docLanguage=En#:~:text=We%20find%20that%20the%20EU%20ETS%20led%20to%20a%20statist  4/4  BIS central bankers' speeches
The problem of which decisions belong to the government sphere as opposed to markets is not confined to the nation state. At the international level there are also differences of opinion as to what should be left to individuals and nations to decide instead of being settled in joint political assemblies. The global level lacks overriding democratic structures that could help to establish common rules that are broadly supported. In the debate on the globalisation process there are also many who consider that the global market is not sufficiently ‘democratic’ and that ‘the struggle is about securing the shared values that transcend economism’. Another criticism is that the poor countries have too little say in the global markets. So what do we mean by ‘globalisation’? Pope John Paul has said that “globalisation is something that is present in every aspect of our lives”. Others see globalisation as the emergence of a common global culture, perhaps at the expense of national and local cultures. One is inclined to agree with His Holiness — globalisation is not a straightforward phenomenon that is easily explained. I would say that globalisation stands for the growing interdependence of individuals and countries that is resulting from the increasingly comprehensive exchange of everything from goods, services and capital to ideas and know-how. Defined like that, globalisation is not something anyone would want to abolish but a fundamentally positive process that contributes to an increasingly prosperous world, as well as to the democratisation of a great many countries.

Political as well as economic reforms are also needed. The most important step the rich countries can take is to open their markets to imports from developing countries. Let me take a topical example. Additional support for Argentina has been discussed in recent weeks, in reality to support banks in industrialised countries, among other things. How much better would it not be, both for them and for us, if instead we opened our borders for their exports of beef and other products on reasonable terms? In addition, there are sound reasons both for debt relief and for greatly increased assistance, particularly for the poorer developing countries. These measures should, however, be accompanied by demands for reforms. A reasonable ambition is that all industrialised countries at least achieve the assistance target of 0.7 per cent of GNI. I mentioned initially that aiming for the poor people in the world to share in our rising material prosperity is not enough. As I see it, the criticism of globalisation should be met with a policy that aims to narrow the economic gaps. More open trade and increased assistance, together with political and economic reforms in the developing countries, can contribute to this. BIS Review 2/2002  7
Summing up Back in 1983 when the peg was installed, I recall being asked whether it was the government's intention that the arrangement should be permanent, or in what circumstances a change would be contemplated. I said then simply that the peg was for the time being the most appropriate monetary anchor for Hong Kong. I would give very much the same answer today. Our peg is not a fixed rate that is supported by or dependent on discretionary intervention. It is a rulebased currency board system which imposes a particular discipline of adjustment through interest rate channels and domestic prices. It enjoys widespread support from international observers both in official circles and more widely. This is not just people being nice to us and choosing not to say anything which might rock the boat, although there may be one or two of them. Rather it reflects an appreciation of the unique features of a currency board structure and the benefits which it has brought over 18 years, as well as an appreciation of the distinctive characteristics of the Hong Kong economy. The main distinctive characteristics to which I allude are the following: the flexibility in costs and prices, as discussed earlier; the extreme openness of the economy in terms of both trade and capital flows; the constitutional commitment, through the Basic Law, to support the free movement of capital and not to operate exchange controls; and the soundness of the banking sector.

Asset prices, on the other hand, display much greater volatility, and the collapse of property prices has created problems for some homeowners and financial institutions, despite presenting opportunities for others. Plainly, stability is preferable to volatility. But the plunge in prices has much more to do with the earlier exuberance, plus structural influences, such as growing cross-border integration, than with the exchange rate. Although the current deflation may undoubtedly be painful to some, before we rush to argue that deflation could be avoided if only we had a floating exchange rate, let's pause to reflect on the Japanese experience. At times, Japan experienced deflation accompanied by upward pressure on the yen, which only served to exacerbate the deflation. It may not be appropriate to draw too close an  BIS Review 17/2002  7  analogy, given the contrasting economic circumstances between the two economies, but it is worth noting that, with a fixed exchange rate, deflation, if it continues, eventually restores any lost competitiveness and will then bottom out (assuming no significant continuing deflation overseas). In other words, in the Hong Kong context the peg in effect sets upper and lower bounds to the inflation rate relative to the rate in the United States. In sum, the peg has certainly not been the only contributor to deflation, and such contribution as it has made, has probably not been severe. The presence of deflation does not itself make a compelling case for altering the exchange rate regime.
We also run surveys that provide information on exposures to hedge funds. But these provide only a partial view of portfolio leverage: either because they do not provide a link between borrowing and investment activities; or because we only see part of the portfolio due to non-banks’ multi-jurisdictional presence; or because the data are simply not sufficient to assess the risk of leverage. [19]  Given the global nature of non-bank business models, it is essential that transparency and data availability are enhanced through international efforts, and that authorities have the right metrics to assess the risks of leverage. [20] It is encouraging to see progress being made, for example by the SEC. [21] Beyond improving transparency, regulators will need to consider how best to ensure leverage is well managed. These could, for example, include broad market-wide measures such as market regulations to ensure excessive leverage is better controlled by market pricing and margins. Some international work is underway. The BCBS-CPMI-IOSCO margin group has published its final report on margin practices. [22] The report recommends policy work in six areas[23] – including increasing the transparency and predictability of margin calls, evaluating their responsiveness to stress, and enhancing liquidity preparedness by clearing members and non-banks. As part of the ‘next steps’, there is already work underway evaluating the responsiveness of cleared and uncleared margin models. Finally, there are important questions about the role of central bank balance sheets.

And in a stress, that can lead both to sudden spikes in demand for liquidity – either to support the financing of leveraged positions or as deleveraging leads to forced sales – and a corresponding contraction in liquidity supply, with potentially systemic consequences. Leverage is of course not the only cause of systemic vulnerability in the non-bank system – as we have seen with liquidity mismatch driving run dynamics in money market funds (MMFs) and open-ended funds (OEFs) during the dash for cash. [4] But it is important where any form of leverage is core to a non-bank’s business and trading strategy. Indeed what happened to LDI funds is just the latest example of poorly managed non-bank leverage throwing a large  rock into the pool of financial stability. From Long Term Capital Management in 1998; to the 2007 run on the repo market; to hedge fund behaviour in the 2020 dash for cash; and the failure of Archegos in 2021. These episodes highlight the need to take into account the potential amplifying effect of poorly managed leverage, and to pay attention to non-banks’ behaviours which, particularly when aggregated, could lead to the emergence of systemic risk. I see systemic risk from leverage in the non-bank system arising through two different channels of contagion: to markets – both those non-banks invest in and those they borrow from; to counterparties – who either provide cash, or take the other side of instruments that are used to provide synthetic leverage.
In the event domestic consumption growth has continued to hold up pretty well; but it has done so inevitably - on the back of a rapid build-up in household indebtedness, including mortgage debt, which in turn was associated with a sharp acceleration in the rate of increase in house prices - to some 25% on average across the UK over the past year. And that is something that, as we've been pointing out for some time, clearly can't be sustained for ever. So that's the background against which I turn once again to the question of whether we can continue to maintain reasonably steady growth of output, with high levels of employment and continuing low inflation over the next two years or so. Now there is no denying that we are - as we always are - faced with significant uncertainties and potential risks in the period ahead, even without the possibility of imminent war with Iraq. The global economy may not pick up gradually - as we certainly hope that it will - and some real gloomsters still talk of the possibility of a double dip back into recession. Domestically the gloomsters talk of the risk of a sudden sharp fall in the rate of growth in consumer spending - often related to a "crash" in house prices generally. That's to say not just a sharp moderation in the rate of increase in house prices but a fall in their actual level generally.

Those who look for a sharp downward adjustment typically point to the ratio of household debt to income, and to the ratio of house prices to earnings. They discount the relatively low debt-service to income ratio on the grounds that it could rise sharply if interest rates went up, and ask what might happen if unemployment were to start to rise sharply. To my mind those arguments have a degree of circularity. The possibility of a sharp rise in unemployment depends substantially on a sharp slowdown in consumer spending rather than the other way round. Similarly a sharp rise in interest rates is less likely if consumer spending is slowing down. So it is not all obvious to me at least that the household sector will suddenly run for cover in the  current environment, where the labour market remains remarkably robust, and the prospect for inflation - and hence the prospect for interest rates - remains relatively benign, remaining somewhat above target in the near term but moving down gradually as we move into next year. I don't say that things could not turn out rather worse than that - and there are other uncertainties, like development of the exchange rate, or the effect of the upcoming increase in National Insurance Contributions, which I have not touched upon this evening. Uncertainty is a fact of economic life.
Of course, attention will have to be paid to these aspects in terms of the implementation of the new framework as well. C.3  Responses to further integration  Let me talk next about the challenges caused by the third development, progressing financial integration. I will first discuss some of the relevant European issues and then turn to global issues. EU/euro area issues In the EU there is first of all the challenge of increasing the efficiency of the complex regulatory process to meet the pace of innovation sustained by the markets and to increase regulatory convergence across countries in order to support integration and reduce the burden on financial institutions operating in several countries. The so-called Lamfalussy procedure - where some experience has already been gained in securities supervision - will seek to do precisely this, and will also improve the state of affairs in banking and insurance supervision. The deepening market integration experienced in the EU has given rise to the need for enhanced supervisory cooperation and common financial stability surveillance. As regards pure, micro-level supervisory cooperation, cooperation is being gradually stepped up through the “Lamfalussy procedure” and the establishment of the so-called level three committees, where supervisors exchange views - the primary aim being to achieve a consistent implementation of the existing legal framework. We need adequate cooperation between central banks and supervisory authorities as well as a safeguard in relation to crisis prevention.

An additional element threatening the stability of the global financial system was that virtually all of the leveraged Treasury bond investors had similar positions, including major financial institutions. Banks’ direct exposures may be an important aspect of financial instability in periods of financial market volatility. In addition, banks may hold significant exposures with non-bank financial institutions, which themselves suffer from direct market exposures. The Barings crisis in 1995 is an example of the first case, while the LTCM case is an example of the second. In my view, the eventual scale of a systemic crisis might depend on the magnitude of the deviation of asset prices from fundamentals. How, then, do asset price bubbles get created in the first place? They may be created or exacerbated by some form of herding and overly buoyant investor expectations, as groups of investors imitate leading institutions’ strategies. Bubbles may be further boosted by a lack of adequate disclosure, problems of conflicts of interest, and destabilising trading or investment strategies. Once bubbles burst, portfolio insurance strategies in the event of falling prices - or dynamic hedging might heighten the downward spiral. Particularly in earlier episodes of equity-driven financial instability, such as the 1987 stock exchange crash, the initial wave of the sale of equity futures appears to have resulted in an accelerated decline in stock prices. However, the jury is still out on the role of tools such as portfolio insurance or automatic trading rules in exacerbating aggregate financial risk.