samchain/econo-pairs-v1 huggingface dataset:
The inflation target and consideration of the real economy Since the inflation target was formulated in 1993, the reasoning regarding the monetary policy strategy has gradually developed. It has been affected by both practical experiences in Sweden and other countries and new research results from the academic community. The primary reason for our new monetary policy strategy document is to increase understanding of the inflation target and of how we decide the monetary policy stance required to attain this target, while giving consideration to developments in the economy as a whole. How have we then chosen to conduct monetary policy to meet our commitments in the best possible way? The Riksbank has the statutory objective of maintaining a low and stable inflation rate, or of maintaining price stability as it is expressed in the Sveriges Riksbank Act. We have specified this task as ensuring that CPI inflation is around 2 per cent a year, with a tolerated deviation interval of +/1 one percentage point. As long as confidence in the inflation target is not threatened, the Riksbank also has the possibility to take into account developments in the real economy, such as production and employment. Although the latter has not been written into the Act, it was stated in the preliminary work to the new Sveriges Riksbank Act that came into force in 1999 that it was natural that the Riksbank should support the economic policy objectives of sustainable growth and high employment without neglecting the long-term price stability objective.

Thomas Jordan: Mortgage financing and the risks of a credit crunch in Switzerland and abroad Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the Schweizer Ökonomentag, University of Zurich, 10 September 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The international financial crisis has raised the question of the risks of a credit crunch on domestic and foreign property markets. A credit crunch can occur if banks’ ability to lend is constrained, or if their lending practices become more risk averse. From a macroeconomic perspective, a credit crunch is relevant because it can reinforce an economic slowdown. The risks of a property market credit crunch differ from country to country. Mortgage markets in the US and UK are showing clear signs of a credit crunch. Both countries have typically seen a sharp slowdown in credit growth, falling house prices and weaker bank balance sheets. Mortgage lending in these countries over the past few years has increasingly been financed through securitisation. The current loss of investor confidence in securitisation has thus hampered banks’ ability to refinance mortgage contracts and, as a result, banks in both countries are finding it harder to grant new mortgage loans. At the same time, falling prices have dampened their risk appetite as regards lending. This decline in the supply of credit is now weighing on economic developments in these countries.
Second, participation rates within the labour force have increased significantly, both prior to the crisis and over the past couple of years, especially among women and older age cohorts. This reflects a range of factors including the abolition of the default retirement age, concerns about the adequacy of pension and saving income and changes to the benefits regime. Third, levels of immigration have increased significantly over the past 20 years, boosting labour supply. There is an active debate on its effects on the wage distribution. For example, Dustmann et al (2013) find that each 1% increase in the share of migrants in the working age population leads to a 0.6% decline in the wages of the 5% lowest-paid workers. Several studies report similar results (Migration Advisory Committee (2012)). At a headline level, these polarising patterns are also clear in aggregate wage data. According to contacts of the Bank’s Agents, staff shortages are rising in highly-skilled professions such as IT, engineering and construction. Furthermore, the Recruitment & Employment Confederation (REC) survey suggests that the annual rate of wage inflation for new hires is now above 4% (Chart 19). But measures of economy-wide average weekly earnings (AWE) paint an altogether different picture. Annual rates of wage inflation are currently around 0.7%, below the rate of inflation. Put differently, the jaws between the wage growth of the highly-skilled and the rest of the economy are wide and have widened.

Rather peculiarly, the UK economy appears to be writhing in both agony and ecstasy. It is twin-peaked. Short-lived or secular? So which of these twin forces is likely to win out? This is an issue on which a global debate is currently raging. For some, the world is experiencing a fairly conventional recovery – perhaps slower and lower than usual, but with normal service resuming. For others, the world is instead facing a more protracted period of sub-par growth – an era of “secular stagnation” (Summers (2014)). The MPC’s central view, as contained in its August Inflation Report, is a mix of the two views, but with a stronger flavour of the first. It envisages a slower and lower recovery than in the past, but which builds in momentum over time. For example, according to the Inflation Report projections, productivity and real wage growth are expected to enter positive territory during the first half of next year and real interest rates by 2016 (Chart 6). Thereafter, all three are forecast to continue rising. By the end of 2017, productivity growth and real wage growth are back to around 2% and real household deposit rates are in positive territory (Chart 6). The agony index would then be back in line with its historical average. In other words, on the MPC’s central view the sun will come out tomorrow. The experience of past recessions supports this weather forecast.
TARGET2, which is due to go live at the end of 2007, will further improve the degree of integration of wholesale payment infrastructures and will represent a major step forward in their consolidation. It will provide to its users fully harmonised settlement services and prices across Europe, supported by a single shared platform. An important issue which is now under consideration is how TARGET2, as “backbone” of the euro market infrastructure of the euro, can best contribute to the integration and consolidation of the securities settlement systems with which it is going to interact. Should TARGET2, as announced by the Eurosystem and implemented in the system’s specifications, support a wide range of interaction  BIS Review 53/2006  1  modes in order to foster competition between systems and let market forces select the most efficient one (i.e. the so-called no prohibition no compulsion principle) ? Or should TARGET2 influence that selection process by limiting the interaction modes to only one in a long-term perspective? It goes without saying that in the latter case the Eurosystem, given its statutory responsibilities, can only select the most efficient interaction model, namely a model of settlement of cash and securities, which is in real time as it is the case in the US for instance, and which is integrated in a single platform. In the segment of retail payment systems, the situation is quite different. Retail infrastructures are still separated by national borders and characterized by a high degree of diversity.

The first half of the nineties experienced a major transformation in the design of large-value payment systems with the widespread introduction of real-time gross settlement (RTGS) systems. In a second step, further advances in information technologies have made possible new designs like the so called “hybrid systems”, i.e. systems that settle in real-time but, at the same time, minimise liquidity needs thanks to highly sophisticated optimisation mechanisms. In short, advances in information technology allowed large-value payment systems to settle faster, with a lower amount of liquidity and at a lower cost. On the retail payments side, technological progress should also allow safety and efficiency gains beyond those which have resulted, for instance, from the implementation of cheque truncation or those that are expected from introduction of the EMV (Europay Mastercard Visa) technology for card payments. Innovation has definitely an important role to play in order to keep the SEPA project futureoriented and promote the use of new delivery channels for retail payments like the internet and mobile devices, or new types of services like electronic invoicing. However, this flow of innovations come together with the entry in the payments market of new actors which do not always offer the same level of security as the traditional suppliers of those services, namely credit institutions. There is obviously a trade-off between, on the one hand, encouraging innovation by facilitating access to the payments market and, on the other hand, ensuring the safety of payments provided by setting prudential requirements on their suppliers.
First, the decline in these forward inflation compensation measures has been highly correlated with the fall in oil prices – a pattern that is hard to explain. Second, a careful analysis of the factors behind the decline in inflation compensation suggests that changes in liquidity risk premia and what investors are willing to pay for inflation protection account for most of the decline, rather than the decline reflecting a change in inflation expectations. Still, we need to continue to monitor inflation compensation closely, while recognizing that sorting out the allocation of the decline in inflation compensation across the three factors – liquidity risk premia, the price for inflation protection and inflation expectations – is admittedly difficult. And also, the conclusions reached in such models are sensitive to these models’ assumptions and structures. Regardless of how much signal one takes from these recent data, a decline in inflation expectations below levels consistent with our 2 percent inflation objective would be problematic because inflation expectations are an important influence on actual inflation. Businesses, for example, make decisions about the size of annual wage increases based, in part, on their expectations of future inflation. And, households base their spending decisions, in part, on how fast they expect their incomes to rise, and inflation expectations play a role in that process. Lower inflation expectations also raise the level of real interest rates, all else equal, which can undercut the power of monetary policy to support economic activity. This is particularly relevant at the zero lower bound for interest rates.

When we begin to normalize monetary policy, will we provoke another “taper tantrum,” or will market participants be relaxed as was the case when we actually tapered the rate of our asset purchases in 2014? If financial conditions were to tighten more than expected when we began to normalize monetary policy, then I suspect we would go more slowly. In contrast, if financial conditions did not respond at all, or eased, then I suspect we would go more quickly, all else equal. Also, I don’t think there is a particular set of financial conditions that we should target. After all, the linkage between financial conditions and the economy is variable and the economic outlook is influenced by much more than financial conditions. Thus, I have no target in mind for the U.S. equity market or other indicators of financial conditions. But I do care about how financial conditions evolve when the changes are sufficiently large or persistent enough so they are likely to influence the economic outlook. In that case, financial conditions need to be taken into consideration in the design and conduct of monetary policy. It has been a pleasure to speak here today. I hope my comments have made it clear that the monetary policy decision-making process is difficult when the margins of excess capacity narrow, but inflation remains below our objectives. The world is highly complex and there is much we don’t know about how the economy will evolve in the future.
Total premiums to GDP increased from 4.1 percent to 4.5 percent over the same period. Structural reforms undertaken has also transitioned the industry towards more market-based pricing mechanisms in key market segments, improved efficiencies in the insurance eco-system, and a strengthened framework for consumer protection. These trends have also been reinforced by liberalisation measures which aim to support and catalyse the further development of the industry. A proposed new legislation for our financial sector is also now well advanced and will provide a solid foundation for the insurance industry going forward. This event is taking place at a time of significant change and in a period of transition into a new era for the financial services industry. We can reflect on these developments in the industry and take the opportunity to learn from the different experiences in the region. While we face different challenges and priorities, the insurance industry in the East Asian economies share three important common goals – sustaining growth and performance under more challenging economic and financial conditions, strengthening the capacity to support and drive economic transformation, and building resilience to withstand future shocks and economic cycles. As we turn our minds to these goals, the question before us is: how should the insurance industry in East Asia, in the period ahead, respond to these demands?

Going forward, innovations in insurance solutions will also need to take into account the higher regulatory expectations for more transparency, stronger financial buffers against unexpected losses and the requirements to do more to ensure that products offered are suitable to the different customer segments. Regulators will also be applying a much higher level of scrutiny on complex insurance products that increase risks to financial stability. Simplifying insurance products and institutional structures, and creating a strong risk culture in which managing risks is a shared responsibility within institutions, will be important goals to ensure that the risks facing an insurer are well understood and effectively managed. The third point concerns the far reaching implications of climate change for the insurance industry. This also calls for the industry to pursue a different path from what history has shown in determining the growth strategies for the future. Climate change has been described as one of the biggest risks to the insurance industry. The cost of climate change, without action, is estimated to be at least 5% of global GDP each year, not to mention its significant impact on human society. Some of the effects of climate change are already being felt in increased frequency and severity of weather related natural disasters, water scarcity and crop failures. Asia’s exposure to climate change effects is also anticipated to increase. In 2011, Asian countries accounted for 70 percent of 380 billion US dollars in economic losses from natural disasters, however only a quarter of that was insured.
A platform creates value by connecting users—who could be consumers or suppliers—reduce search cost and make economic transactions that would have not happened otherwise possible. Businesses left and right are being disrupted by the platform movement: hotels by Airbnb, transportation services by the likes of Uber or Grab, and retail shops by e-commerce platforms. 7  Thais are especially keen on social media platforms, e-commerce, and social commerce. We are ranked among the top five countries with the highest share of ecommerce purchases, and this share is expected to keep increasing. For traditional businesses who do not adapt, this means more competition in a shrinking market. On the other hand, there are plenty of opportunities to be taken. By enabling their users to share assets, sharing platforms help eliminate the need for individual business to take on huge investment cost upfront. The direct connection and platform-based trust between buyers and sellers across the globe also provide opportunities for firms—especially SMEs—to design their own product flows, get direct customer feedbacks, and quickly expand their customer base like never before. 5. Excess global liquidity with historically high leverage The last trend I want to highlight this evening is excess global liquidity which has led to a historically high degree of leverage, along with the vulnerabilities that come with it. We have been living in the low-for-long interest rate environment since the Global Financial Crisis.

The member countries can decide on an appropriate name and the structure of the apex body. For convenience, I have taken the liberty to name it as the SAARC Payments Council (SPC) which can be chaired by a member central bank or co-chaired by two central banks. The Council should draft vision and mission statements for the SAARC region and prepare a road map for payment reforms for the next 5 – 10 years, taking into consideration the modernization that needs to be attended to by member countries at national and regional levels. Under SPC, there should be several task forces consisting of senior officials of central banks and other financial institutions directly involved in payment and settlement related activities who will attend to the preliminary work, such as stocktaking and identification of gaps in the national payment systems. There should be task forces on (a) policy and operational matters; (b) legal and regulatory aspects; (c) technical and institutional infrastructure; and (d) communication and exchange of information. The task forces should make their recommendations to the SPC, which will take considered decisions. In nominating members to the task forces, where possible, countries should select officers from their respective NPCs, as such councils are expected to have representatives of all stakeholders with the necessary skills and expertise to handle work relating to the above areas. Sri Lanka has already established an NPC with a clear mandate to take forward payment reforms across the nation.
On an optimistic view, if consumption continues to hold up, and assuming that the recent underlying productivity gains can be maintained, investment spending will recover as the spread of ICT through the economy resumes, and the downward stock adjustment will come to an end. On this view we can look forward to a pick up in US activity as we move, say, into next year. But the pessimist is inclined to point to the weakness of private sector saving, which could induce more cautious consumer behaviour especially if unemployment continues to rise; he points to a possible overhang of past investment excesses; and he points to the US external deficit which will at some point need to be corrected. These adjustments might take place gradually over time, in which case the US might face a more protracted period of relatively slow growth; or, if you are really pessimistic, the adjustments might be more abrupt implying a possible period of negative growth and global financial instability. The recent somewhat erratic recovery of US stock markets from their earlier gloom suggests that they are beginning to side with the optimists; some of the survey evidence of consumer and business confidence on the other hand still supports a rather more pessimistic view. For what it is worth, and given the strong policy response in the US, I am modestly optimistic, but I recognise the downside risks.

Our own exchange rate against the euro today, for example, is stronger than it was before our reductions in interest rates this year; and the dollar, too, is substantially stronger against the euro than it was before the much larger cuts in US interest rates. So, in setting interest rates, we can – and do – make allowance in our projections for what has happened, and, on a best guess, for what is likely to happen, to the exchange rate, and that may cause the exchange rate to soften or it may cause domestic demand growth to strengthen, thereby offsetting the exchange rate's dampening effect on the economy. But what we cannot do – any more than the ECB – is to target the exchange rate, without putting the stability of the economy as a whole at risk of re-emerging inflation. That would not be in the interests even of the internationally-exposed sectors of the economy except possibly in the short term. They operate in the same labour market as more domestically-oriented businesses; and what matters to them is the real, rather than the nominal exchange rate, and it is not at all clear how that would be affected. Mr Chairman, given the uncertainties, I am reluctant to speculate as to how, precisely, the present imbalances within and between the major industrial economies will work themselves out, as they necessarily will over time.
Those new concerns and risks have understandably pushed many welllaid plans into the background, and the pandemic has had such far-reaching effects that all sorts of things we thought we knew would happen have become uncertain. What I want to do today is remind you all that despite everything else that’s happening, the end of LIBOR is still coming. Exactly how that happens is still uncertain, but the best response to uncertainty about tomorrow is to take decisive action today. Since my speech last year, there has been substantial progress in addressing some of the uncertainties that surrounded LIBOR transition, even as new uncertainties have arisen. Now, many lawyers love uncertainty. If everything were crystal clear, what would we spend our time arguing about? I have said before that the end of LIBOR presents a rather frightening—or awe inspiring, depending on your perspective—litigation risk. But it’s not just litigation risk. The LIBOR transition encompasses a whole panoply of risks. Yes, legal risk, but also operational risk, credit risk, regulatory risk, reputational risk, you name it—LIBOR has it all. So the possibility of a failed LIBOR transition is something that should keep all of us up at night. But let’s try and stay positive in these rather dark times—let’s talk about what progress has been made, and what you can do now to minimize the uncertainties that remain. My remarks will focus on the transition in the United States for U.S. dollar LIBOR, but I will touch on some international developments that are relevant to that transition.

Thus, i)  The maximum amount to be purchased in daily foreign exchange buying auctions has been set as USD 45 million for 2007, with USD 15 million for auction amount and USD 30 million for optional selling amount,  ii)  Then, the auction amount has been raised to USD 40 million as of 25 July 2007 with an assumption that the capital inflow to Turkey will follow a strong trend due to the end of the election process and positive expectations for macroeconomic policies,  iii)  However, the auction amount has been lowered to USD 15 million as of 15 August 2007 due to the fact that the unfavorable developments in housing and credit markets in developing countries increased the volatilities in the Turkish markets as well as in other developing markets in the said period. iv)  The measures taken by central banks in order to alleviate the problems in housing and credit markets have relatively reduced the volatilities in these markets and increased the global risk appetite. Therefore, the maximum amount to be purchased in auctions has been set as USD 90 million with USD 30 million for auction amount and USD 60 million for optional selling amount from 9 October 2007 onwards. As of 14 December 2007, the total amount of foreign exchange purchased via auctions in 2007 is USD 9.5 billion and there has not been any direct intervention in the foreign exchange market.