samchain/econo-pairs-v1 huggingface dataset:
Charles Bean: The UK economy after the crisis – monetary policy when it is not so NICE Speech by Mr Charles Bean, Deputy Governor for Monetary Policy at the Bank of England, to Alumni of Cambridge University, London, 16 March 2010. *  *  *  Good evening! Tonight I want to talk about what the future might hold for the British economy and draw a few lessons from the recent crisis for the conduct of monetary policy. As you will no doubt recall, the Bank was given the operational responsibility for setting interest rates in 1997 by the incoming Labour government. In retrospect, the Monetary Policy Committee’s first decade can be seen to have been part of a golden era of steady growth and low and stable inflation, which began in 1992 after the exit from the Exchange Rate Mechanism and the subsequent adoption of the inflation target (Chart 1). Economists refer to this period of benign macroeconomic outturns – which was not confined to the United Kingdom – as the “Great Moderation”, though the Governor has somewhat more colourfully referred to it as the NICE (for Non-Inflationary Consistently Expansionary) decade. Well, it is pretty clear that the NICE decade has come to an end, with a financial crisis unparalleled in almost a century in its severity and reach, together with the sharpest and deepest downturn in global activity experienced in the post-war period.

A case in point is the decisions we have taken in Frankfurt since the start of the crisis, such as interest rate cuts, the unlimited supply of liquidity, purchases of bonds and covered bonds and three-year refinancing operations, which, while aimed at resolving problems of the euro area as a whole, have proven particularly beneficial for Spain. But there are other less evident instances, such as when Europe obliges us to use competitive procedures to award banks that have been taken over or oversees the granting of public aid. Admittedly, this makes bank restructuring a lengthier and more complex process, but it should be acknowledged that it helps Spain ensure that sell-offs are open to all new investors that may be interested and that the taxpayer’s money is better allocated. The help of the European institutions should likewise be appreciated when, in compliance with the new economic governance framework, they obliged the Spanish authorities to be rigorous in cutting the budget deficit. This has not been to the liking of some but, however we view it, it is rightly one more reason to be confident about Spain’s possibility of emerging from the crisis. The discipline required by Europe, which may prove uncomfortable and even debatable in the short term, has, like monetary discipline, extraordinarily positive effects on our economy in the medium term. It is as though Spaniards had taken out insurance so that our governments, authorities and companies cannot take decisions that harm Spain in the long run.
My own assessment is that the GDP gap was around + 2 per cent in 2007, prior to the start of the crisis, and that potential GDP has declined by around 4 per cent as a result of the crisis. The GDP gap therefore only fell by around 6 per cent between 2007 and 2009, despite actual GDP declining by around 10 per cent in relation to the trend. The GDP gap was thus approximately – 4 per cent in 2009 when the recession was deepest. According to current forecasts, the GDP gap will have closed by the end of the forecast period three years from now. I intend to begin by talking about what the real economy – in other words, production and employment – means for monetary policy. I shall then go on to talk about how one can measure potential production and resource utilisation – two central concepts in this context. Then I shall discuss what has happened to GDP in conjunction with the financial crisis. After that, I will describe what different methods can tell us about potential GDP and resource utilisation. Finally, I intend to talk about the significance of resource utilisation for inflation and current monetary policy. What does the real economy mean for monetary policy? The overall principles for monetary policy are described in the publication Monetary Policy in Sweden. 1 It states the following:   “According to the Sveriges Riksbank Act, the objective for monetary policy is to maintain price stability.

A range of indicators is reviewed in these reports, accompanied by a discussion of risks and opportunities in the field of inflation. The present situation In the latest inflation report, published this March, GDP growth in 1997 and 1998 was expected to be around 2 and 3 per cent, respectively. It was also argued that sizeable capacity restrictions should not arise in the course of the period. Given that, and inflation expectations being low, underlying domestic inflation (measured with the CPI excluding transitory effects on inflation) in the coming two years was put at between 1.5 and 2 per cent. As we all know, to forecast inflation is a complicated task. In view of the shortcomings in such estimates, it is more a matter of assessing the balance of risks. Our latest  BIS Review 47/1997  -4-  inflation report therefore includes a discussion of two alternatives in which future inflation might be either lower or higher than in the main scenario. One alternative is that inflation could be lower than in the main scenario, mainly if private consumption were to be weak. The other envisages the opposite - higher inflation - on account of a weaker exchange rate that stimulates a stronger growth of exports and GDP, leading to increased inflationary pressure. What are the economic tendencies that have appeared during the last months? During winter there were signs of a slowdown in manufacturing.
While the Federal Reserve has a domestic mandate set for it by the U.S. Congress, it needs to be mindful of the international effects of its actions, which can have important potential consequences for the global economy and financial markets.9 A high level of global interdependence also requires robust cooperation and effective international 6/8  BIS central bankers' speeches  institutions. To provide one example, I have traveled several times a year for the last decade to Basel, Switzerland, to discuss economic, monetary, and regulatory policy with foreign central bankers at the Bank for International Settlements (BIS). This dialogue—supported by ongoing bilateral discussions between central banks—helps build trust, understanding, and the valuable relationships that are crucial during periods of stress. The global financial crisis put the need for a more robust and resilient financial system in stark relief. Such a regime is necessary if we are to maintain the flow of credit to the real economy— both domestically and internationally—during times of stress. Over the last decade, policymakers have implemented a range of reforms that have materially strengthened the banking system, including higher capital and liquidity buffers for the major international banks.10 International coordination has been essential to the successful implementation of these reforms. Banking is a global business that requires a high degree of regulatory consistency and as level a playing field as possible to avoid distortions and regulatory arbitrage.

There are various measures available in current trade agreements, such as antidumping measures and countervailing duties for dealing with “unfair” trade, as well as escape clauses that provide safeguards for industries that face a sudden surge of imports. Again, the challenge is to ensure that such measures are effective, that they help facilitate rather than retard adjustment, and that they are not abused so as to avoid foreign competition. But, both sanctions and temporary relief have been provided for in global trade rules. We should be willing to use them when their use would lead to more equitable outcomes and would help sustain political support for a more open trade regime. Financial Globalization Is Also Important Financial globalization—the flow of capital across national borders—is also an important issue that must be considered. These flows help to support global economic integration in the trade of goods and services. This is a large, complex subject—and one the Central Bank of Brazil is well acquainted with, having successfully managed the pressures of heavy capital inflows as well as outflows during periods of stress. The tremendous damage of the global financial crisis underscores the importance of this issue. As with issues related to trade, achieving effective financial globalization requires robust and mutually supportive measures at both the domestic and international levels.
First, each could commit to provide the other with a safe, reliable and confidential service based on the best independent intelligence about trends in their respective markets, untainted by commercial motives. Second, as the owners of the dominant reserve currencies of the day, each understood the need of the other to maintain ‘exchange stability’, ensuring that potential borrowing 5  or lending needs were met, but in a way that did not ‘antagonise’ the policy goals of the other. And, third, such arrangements could help protect financial instability, by reducing the reliance on the increasingly strained system of physical gold movements, and providing a channel that could be used even if private banking linkages were impaired. Between 23 and 30 March 1916, Strong and Norman drew up a confidential ‘Memorandum of Conversations’ setting out a framework in which the two central banks would provide each other with mutual accounts, undertake to purchase bills on the other’s behalf in local markets, to ‘earmark’ gold for one another, and  4  ‘The Bank of England 1891-1944’ by R S Sayers, page 66. Britain briefly experienced concerns about policy antagonism itself when its attempts to borrow in dollar markets using short term Treasury Bills were forcefully censured by the Federal Reserve Board in late 1916. 5  4  All speeches are available online at www.bankofengland.co.uk/speeches  4  6  exchange information ‘respecting credit matters and financial conditions’.

Recorded in John Osborne’s unpublished War history of the Bank, op cit. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  on ensuring ready access to currencies that are freely convertible and tradable in deep and liquid financial markets and widely used in goods and services trade, security issuance and reserves holdings. Using a range of such metrics, the dollar and sterling currently account for 42% and 8% respectively of the IMF SDR basket. Of course, central banks do not have to use their fellow central banks for such services: they can (and do) also use private sector providers (as they could in 1917). But confidence in those currencies is critically reliant on the knowledge that, subject to appropriate terms and conditions, central banks of issue stand ready to provide safe, confidential and reliable access to their currencies if asked to do so – whether by retail customers wishing to exchange notes, or by fellow central banks wishing to undertake wholesale transactions. -  Third, access to central banking services provides an important safety valve in conditions of financial instability. Although private sector cross-border banking and capital markets are highly developed, deep and liquid, they can still be subject to periods of dysfunction – as the financial crisis vividly illustrated. The network of central banking relationships provides the infrastructure, expertise, legal and personal contacts required to ensure the global system can continue to operate in such extreme tail events.
It also covers the policies that central banks have put in place to confront the crisis and, more importantly, the role our institutions must play in the current recovery process. Central banks have played a crucial role in confronting the crisis. In a setting of high uncertainty and a still-fragile economic situation, monetary policies need to continue contributing to maintaining favourable financing conditions that allow the recovery to take firm root. The road ahead will not be easy. We will have to contend with the legacies of the current crisis and face more structural challenges – such as the digitalisation of the economy, population ageing and the fight against climate change – which, in one way or another, will affect all of our countries. In particular, the role of central banks in combating climate change is one of the top priorities on our institutions’ agendas over the coming years. As is well known, the pandemic has led to a global health crisis with a huge and likewise global economic impact, on a scale never seen in peacetime. The unprecedented economic policy 1/4  BIS central bankers' speeches  response to the shock caused by the pandemic has been crucial in limiting the impact of the crisis. Our experience of this challenging period allows us to draw some lessons that might be relevant for the management of the next stages of the current crisis and, of course, for future crises.

There is also a supermarket contest to illustrate the importance of spending within your budget, plus a chef to show you how you can cook up a storm without spending a bomb. 6. There are plans to bring these activities to other parts of Singapore, and several community centres are in discussions with MoneySENSE. Important Role of Media 7. The media is still the most effective channel for financial education. In the national financial literacy survey conducted by MoneySENSE, 54% of the respondents said they were interested to learn about financial education through mass media. 8. I am glad the local newspapers have been very supportive in running MoneySENSE articles on a regular basis. The Straits Times, Lianhe Zaobao and Berita Harian have been doing so regularly for more than two years. Other publications like Today and Smart Investor have also begun to run regular MoneySENSE columns. I would like to thank all of you for partnering us in this important effort, and I would like to see this continue. 9. MoneySENSE will soon launch a TV game show requiring participants to make financial decisions such as on whether to purchase certain items, whether to take on more credit, whether to take up insurance and whether to invest in certain financial products. A preview of this new TV game show will be staged at this Roadshow on Sunday. So look out for this sneak preview. BIS Review 30/2006  1  10. These are all good initiatives.
We have to continue to defend the rules that have made the financial system less crisis-prone. How well prepared are we then? The next crisis might not necessarily start in the financial system. It might come from another quarter instead. At the ECB, we are currently looking closely at cybersecurity, for example. We don’t want the next crisis to be triggered by a hacker. Continued investment is needed to protect the financial system from cyberattacks. What is the ECB doing in this respect? For example, we have set up a Euro Cyber Resilience Board, which is a forum for regular discussion and cooperation between central bankers, supervisors and providers of critical financial infrastructures. We have designed a European framework for red-team testing in the financial sector, Tiber-EU. And cybersecurity is also becoming more important for ECB Banking Supervision. Credit institutions have to report any attacks on their systems. Those are just a few examples. The next few years will bring many more initiatives on this front, also at the G7 and G20 levels. After all, cyber threats don’t stop at borders. Bitcoin and the like are giving rise to new crypto currencies and new risks. Do we need regulation in this area? I prefer to speak of crypto assets rather than currencies – if anything, their volatility clearly disqualifies them as currencies. The priority is to prevent them from being used to launder money and finance terrorism.

Europe has already made good progress on this with the fifth EU anti-money laundering directive, which obliges providers of cryptocurrencies platforms and wallets to report conspicuous transactions to the authorities. When it comes to the use of new technologies such as blockchain, we need to weigh things up carefully. On the one hand, similar 1/3  BIS central bankers' speeches  activities should be regulated in a similar way, so the requirements for (say) blockchain transactions need to be similarly stringent to those for traditional transfers. On the other hand, we should be careful not to stifle new, innovative technologies. Some central banks are thinking about developing their own cryptocurrencies. The ECB as well? Whether central banks should develop their own digital currencies is a relevant question in countries where people are turning away from cash. There is then a case for offering them a digital alternative safer than commercial money. This is why we are seeing such initiatives in Scandinavia, for example. But in the euro area, cash remains a popular means of payment and the question does not arise. To be clear: the ECB is not developing a crypto currency. That said, as all central banks, we are studying in depth the underlying technologies, such as blockchain. Cyber security is just one of the risks currently facing the economy. Another is the escalating trade dispute. How well prepared is Europe on this front? The euro area economy is proving very robust at the moment. There have been five years of uninterrupted growth.
For all its problems and obstacles, the year has laid bare the degree to which financial institutions and banks are prepared for unexpected circumstances. The resilience of banks and other financial institutions, and their so-called ability to adsorb the shocks the epidemic has brought about, suggest that rehabilitation of the Russian financial sector is an accomplished fact. This is why recent months have seen — despite the difficulties — the financial sector evolving and carrying on with providing support to the economy, as borrowing from banks has been on the rise, and the stock market has been growing at a faster pace. Our current priority is to strike the right balance between the objectives of supporting economic recovery and long-term projects as part of our national development agenda. It is essential to ensure that a maturing financial market relies on the principles of trust and competition and — this is of paramount importance — the principle of customer interest protection (rather than only on a short-term gain strategy). You are aware that lending continued this year, unlike in prior times of crisis. More so, we have seen record growth in mortgage lending, which is the point the Speaker has made. For all these welcome developments, our central focus should remain with the real target, which is to make housing more available to people, and not to stage a kind of race for records.

These include insurance companies, mutual funds and pension funds which achieve important economies of scale through pooling small savings, diversifying investments and monitoring market information. Institutional investors raise the level of professionalism within markets through requiring better information and increased transparency. Financial infrastructure: Capital market participants nearly unanimously agree that they should not engage in underwriting, trading or asset management activities in the absence of a secure legal and regulatory environment. Foreign investment funds usually cannot go into a market that lacks adequate legislation and oversight. Ladies and Gentlemen, many organized exchanges operate as self-regulatory organizations (SROs) that sometimes do not meet internationally recognized norms for transparency and disclosure. Although exchanges perform a self-regulatory function, most developed financial systems additionally have a securities exchange commission-type institution that provides an additional layer of oversight. Investors look to these organizations to safeguard the markets through establishing minimum standards of capitalization, registration of securities and market participants, timely and material disclosure and effective enforcement. In addition to the legal and regulatory framework, the financial infrastructure should include a non-bank payments system for the organized exchanges. Commonly called clearance and settlement within a central securities depository, these clearing houses depend importantly on legislation enabling their establishment and on the clarification of legal concepts such as netting and the treatment of guarantees in bankruptcy for their effective operation.
This is a lot in an historical perspective. Although some mortgage rates have declined slightly following the repo rate cuts, the gap remains. Mortgage rates are to a great extent governed by the banks' possibilities to borrow abroad. The effect of this is that interest costs for households with mortgages fall less than one might have expected. As a result of the financial crisis, the stimulating effect of a repo rate cut is thus less than it would have been otherwise. I would like to emphasise that there is unusually great uncertainty surrounding the assessments and forecasts at present and that it is thus more difficult to judge the effects of our monetary policy. The outcome data and indicators the Riksbank has received since the  6  BIS Review 149/2008  monetary policy meeting in September clearly pointed to a severe deterioration in economic activity, both in Sweden and abroad. Compared with the assessment made in September, the Riksbank revised down its forecast for international growth by almost one percentage point. Growth in 2009 was assumed at the monetary policy meeting held on 22 October to be close to zero in the United States, the euro area and Sweden. There are also signs that the economies in Asia are slowing down. In China, growth has fallen during the first half of the year and is expected to continue to fall. Economic activity in Japan has also slowed down and the most recent GDP figures show that the economy is now in a recession.

Lars Nyberg: The crisis, the Riksbank and monetary policy Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at the Bankmarknadsdagen, Stockholm, 28 November 2008. *  *  *  Introduction The financial system is an important part of our social structure. The payment system and the supply of credit are central to all economic activities. When the general public’s confidence in the financial system is shaken and when the participants in the system no longer trust one another, then something serious has happened in our society. This means that all those involved, both in the private and public sectors, must have a discussion on how this situation arose and what we can do to avoid it happening again. The financial turbulence, which began in summer 2007 with problems in the US mortgage market, has during the autumn become an acute crisis. Also during the autumn we in Sweden have gone from largely watching the crisis from the sidelines, to being very much involved. Today I will give my views on how this could happen and on what has occurred during the autumn. Last spring there were many indications that conditions in the financial markets were gradually improving. I shall also reflect on the methods used by central banks and governments around the world to try to manage the problems and to safeguard financial stability.