samchain/econo-pairs-v1 huggingface dataset:
And, even for domestic imbalances, short-term interest rates would probably need to be held substantially higher for a persistent period in order to suppress rapid rises in asset prices or growing imbalances. Such policy actions could generate significant economic costs. The practical difficulty of implementing a policy of “leaning against the wind”, where the main policy instrument is short-term interest rates, should not be underestimated. If, as  BIS Review 86/2009  3  policymakers, we were successful in preventing a bubble from inflating, it might appear as if we were responding to phantom concerns. The bubble or imbalance would be nowhere to be seen, but interest rates would be higher, inflation would undershoot the inflation target and we would appear to have inflicted unnecessary economic hardship. That could undermine public faith and support in both the inflation target and the MPC. For me, the single most important lesson from the financial crisis is the need to expand the range of instruments available to policymakers. The inflation targeting framework provides the scope to respond to asset price bubbles and to imbalances that threaten future economic stability. But short-term interest rates are not well suited to managing such risks. The precise design of such new instruments is now the focus of much work and analysis. It is likely that a range of instruments and initiatives will be required. These may extend beyond new regulatory instruments and should embrace the need for greater international policy coordination.

I do not think it is coincidence that arguably the two most significant monetary policy decisions taken over the past year – the decision to reduce Bank Rate by 1.5 percentage points in November and the announcement in February that the Committee had sought approval to use the Asset Purchase Facility to conduct large scale asset purchases – occurred in months when the Inflation Report was published. The quarterly forecast round provides an opportunity for the Committee to reassess thoroughly its view of the economic outlook. This view is then explained and communicated via the Inflation Report and in particular through the projections for GDP growth and inflation contained in the Report. In both November and February, the judgement of the Committee was that, without further substantial easing in monetary policy, there was a significant risk of a large and persistent undershoot of the inflation target. Given the transparency of these judgements and the clarity of the target, it would have been courageous not to have taken the decisions we did. The inflation target is symmetric. Likewise, the discipline it imposes on the MPC is symmetric. The inflation target has been instrumental in ensuring that monetary policy has responded boldly and decisively to the events that have unfolded since the autumn. And, when the time comes, the clarity and transparency of the inflation targeting framework will ensure that the Committee takes the right decisions on the way back up, however courageous or unpopular those decisions might appear.
We are among the most transparent central banks anywhere in the world. Our debate is informed by a huge input from our very able professional staff both in London and in our Agencies throughout the UK, and I’d frankly be surprised if you were able to identify any relevant issue that we have not considered in one way or another. Indeed I would very much hope that you would let me know if you did. I don’t plead ignorance; I plead intrinsic uncertainty. Monetary policy operates with a lag, having its full effects only after about a couple of years. Unlike some outside commentators apparently we know we don’t have a crystal ball. Our judgements are necessarily based upon a very careful assessment of the balance of risks at the time, continuously updated in the light of the constant flow of information of all kinds relevant to that assessment. That’s the nature of the process. Given that, I would not expect, and you would not reasonably expect me, to be able to demonstrate to you that we have precisely the “right” answer at any particular time. But I can promise that if the evidence changes in either direction so too will our assessments. You can of course question our processes, our interpretation of the data or the quality of our analysis - it’s there for all to see. But ultimately the proof of the pudding is in the eating, and it is only on average and over time that our policy decisions can sensibly be judged.

Furthermore, the level of government welfare services (including unemployment insurance, social security and welfare services, and senior citizens’ assistance insurance) is systematically lower in the United States than in the euro area countries; at present it stands 19 at 12% of GDP in the United States and at 15% of GDP in the euro area. Thirdly, the importance of automatic stabilisers depends also on the taxation system, in terms of its level  16  Cimadomo, J. (2008), Fiscal Policy in Real Time, ECB Working Paper, No 919. 17  See, for instance, Brunila, A., M. Buti and J. in’t Veld (2002), Cyclical Stabilisation Under the Stability and Growth Pact: How Effective are Automatic Stabilisers?, Bank of Finland Research Discussion Paper, No 6; Darby, J. and J. Melitz (2008), “Social spending and automatic stabilizers in the OECD”, Economic Policy, Vol. 23, pp. 715-756. 18  Girouard, N. and C. André (2005), Measuring Cyclically-Adjusted Budget Balances for OECD Countries, OECD Economics Department Working Paper, No 434. 19  Debrun, X., J. Pisani-Ferry and A. Sapir (2008), Government Size and Output Volatility: Should We Forsake Automatic Stabilization?, European Economy – European Commission Economic Paper, No 316. BIS Review 135/2008  7  of taxation and of the overall fiscal drag in the tax system.
These included the migration of activity and risk to unregulated “shadow banks” (Adrian and Ashcraft (2012)); the hard-wiring of rating agency risk assessments into the regulatory engine (Edmonds (2016)); the payment of bank CEOs in common equity encouraging “gambling for resurrection” (IMF (2014)); and the implicit subsidies conferred on “too-big-to-fail” institutions, encouraging them to become larger and more complex and connected still (FSB (2013b)). Another example of these incentive effects came in the area of capital regulation. Whichever risk-weighting scheme is in place, it is likely to give rise to incentives to adjust asset positions to maximise profits. For example, if the regulatory constraint takes the form of a leverage ratio there are incentives to alter the composition of assets towards those with higher risk weights – though the evidence on such “risk-shifting” is mixed (Sheldon (1996), Furlong (1988)). Contrarily, if assets are risk-weighted and determined by banks’ internal models, there are incentives to lower modelled risk weights over time (Mariathasan and Merrouche (2014)). In short, when setting capital standards for banks, there is a two-sided incentive problem. 28  All speeches are available online at www.bankofengland.co.uk/speeches  28  Pre-crisis, both incentives were at play, albeit to differing degrees in different parts of the global financial system. In the US, where a leverage ratio was in operation and often the binding constraint, there were incentives for banks to seek higher-risk assets rather than expand balance sheets (Chart 20).

I will set out each of them, and then discuss the issues that arise from them. First, we should remove the adverse incentives introduced by the liquidity thresholds related to the use of suspensions, gates and redemption fees. Second, we should simplify the landscape to make clearer the critical distinction between cash-like funds and investment funds. We should remove the ambiguity of intermediate descriptions such as low volatility funds. Third, and to support removing the ambiguity, it will be important to define in an accounting and substantive sense more explicitly what constitutes cash-like. Current guidance leaves a lot of judgement to managers and auditors to make these decisions on a fund by fund basis1. Money-market funds are a cash management instrument, so it may seem odd that the meaning of cash-like as a term has not been well defined. The resultant ambiguity may have seemed convenient as a means to stretch the boundary of the definition to allow less liquid instruments in, but when a stress event like the dash for cash happens, the flaw is badly exposed and financial stability is in jeopardy. The authorities then have to intervene in scale to restore well-functioning markets, but that should not be the accepted way to run the system. 4/6  BIS central bankers' speeches  That said, the definition of cash-like therefore needs to be clear and appropriate rather than overprescriptive. For many purposes it does need to provide near instant access to cash – i.e.
The average level of such quantities is determined by other factors, such as demography, competition and tax policies, research and development and education and training. There are therefore good reasons why monetary policy should focus on inflation and have an inflation target. Flexible inflation targeting policy A strict interpretation of the possibilities of monetary policy can easily be perceived as being that central banks can only affect inflation. However, although monetary policy can not affect the average level of real factors, this does not mean that it is ineffectual in stabilising  BIS Review 111/2009  1  fluctuations in these factors. I mean by this that monetary policy can contribute to the stabilisation of resource utilisation at a normal level. In practice, central banks with an inflation target conduct what is called flexible inflation targeting. This flexibility means that – alongside the long-term inflation target – the central banks also strive to ensure that fluctuations in both inflation and the real economy are kept at a reasonable level. Striking the right balance between these factors is what the Riksbank calls a well-balanced monetary policy. The flexibility of inflation targeting becomes particularly important in situations where a conflict arises between the objective of reaching the inflation target and the objective of stabilising the real economy. In some situations, the inflation target calls for a certain type of monetary policy while resource utilisation calls for another. One example of this is the situation that prevailed during most of 2008, the year before I joined the Executive Board.

Statistics Norway has not adjusted for the direct effects of excise duties in their indices, but projects that the combined effect of changes in excise duties in January and July will depress the year-on-year rise in the CPI by 0.5-0.6 percentage points in July. According to Statistics Norway, the CPI excluding energy prices and excise duties can then be estimated at 2.2-2.3 per cent. Whereas the activity level and pressures in the Norwegian economy are high, there is growing uncertainty about developments in the global economy. The Norwegian business sector has so far largely been protected from weaker growth in the global economy, but this may change. Low growth in the world economy may reduce demand for Norwegian products and pressures in the Norwegian economy. It may also help to curb imported price inflation. This could also result in lower price inflation than we have projected. Against this background, Norges Bank has expressed its view that with an unchanged interest rate ahead, the probability that inflation two years ahead will be higher than 2½ per cent is the same as the probability that it will be lower. BIS Review 72/2001  3
Compared to the Asian financial crisis twelve years ago, the dynamic of macroeconomic adjustment in this crisis also looks similar, although the trigger point this time is more bankled than currency-led. The real surprise, however, was in the timing, the scale, and the intensity of how the problem quickly deteriorated into a major global turbulence. According to the IMF, compared with the previous crises, the cost of the current crisis in terms of financial losses could be as high as 10 percent of US GDP. This implies a very substantial welfare loss. Is this the time of upheaval? My answer is both yes and no. The “No” part refers to the fact that, despite the magnitude of the current crisis, aggressive policy response and the willingness to do more by Governments have successfully contained the fallout to the extent that collapse of the global financial system has been avoided. Financial markets, to an appreciable extent, are stabilizing, risk appetite is returning, and signs of improvement in the real economy are beginning to emerge on a world-wide basis. Although it is still early days, they do point to the beginning of stabilization which is an important first step for economic recovery to take hold. The “Yes” part of my answer comes from what I see as a major challenge in the ideas and policies on how best to manage the global economy going forward in this era of globalized finance.

The value of the Norwegian krone against the Deutsche mark was nearly halved between 1973 and 1987. We paid about 2 kroner for 1 mark in 1973 and close to 4 kroner in 1987. Since 1987, the krone exchange rate against the Deutsche mark has remained more or less unchanged. During this period, price inflation in Norway has been no higher than that in Germany. We cannot be sure how fast the inflation differential between Norway and other countries will translate into changes in nominal exchange rates in the future. Nevertheless, we must expect that any differences in the rate of inflation may be a key cause of changes in the nominal krone exchange rate over time. The Norwegian monetary authorities abandoned the devaluation approach in 1986. From 1986 to 1992 Norway had a fixed exchange rate with a defined central rate and fluctuation margins. This system was abandoned in 1992 following extensive speculation against the krone in connection with the turbulence in European exchange markets. After the krone was allowed to float on 10 December 1992, the guidelines for monetary policy were also revised. Monetary policy was still oriented towards the objective of krone exchange rate stability, but no specific central rate with fluctuation margins was stipulated. The krone depreciated slightly in 1992, but thereafter it remained relatively stable. Looking back at developments in the Norwegian foreign exchange market in the 1990s, no significant change really appears to have occurred in 1992. However, there was a marked shift in January 1997.
First, a significant number of large, internationally active financial firms reached the brink of failure. Second, the financial system was not very resilient when these firms got into difficulty. Instead, the threat of failure propagated further shocks that reverberated throughout the global financial system. These two shortcomings reflect many factors including inadequate capital and liquidity buffers, poor incentives to correctly measure, price and manage risks ex ante, the opacity of firm balance sheet and counterparty exposures, and the manner in which large financial firms were interconnected within the financial system. In the end, there was too much leverage in which large amounts of highly illiquid, long-term assets were financed by short-term liabilities. The fact that a large amount of the wholesale funding used to finance these assets was provided by leveraged financial intermediaries to other financial intermediaries increased the  BIS central bankers’ speeches  1  system’s vulnerability to adverse shocks. As it turned out, the amount and quality of capital was grossly inadequate relative to the quality of the assets and off-balance-sheet exposures of many of the major global banking institutions. Moreover, many institutions had inadequate liquidity buffers. The lack of liquidity forced the fire sale of assets, which depressed prices and increased the pressure on capital. When troubled institutions did fail, this exacerbated the pressure on the remaining institutions. Aggravated by the lack of transparency about their counterparty exposures and the contingent liabilities they faced, the problems of a single institution quickly became the problems of many.

The willingness of savers to entrust their money to a bank presupposes that those savers have confidence in the financial integrity of the institution - in other words, that their savings will be BIS Review 27/2000  2  available when they need or want access to them. If that confidence is undermined, society’s ability to collect and deploy its savings will be impaired, and the principal means to economic growth and rising living standards - intermediation by banks - will be short-circuited. With this reality in mind, it must be acknowledged that, in the final analysis, commercial banks have only one asset that really matters public confidence. Sound lending - the key to preserving public confidence The key to maintaining the financial integrity of any banking company - and, therefore, to preserving the all-important asset of public confidence - is the credit process. If credit is extended carelessly, banks are likely to incur losses, which in turn will undermine their ability to honor deposit obligations. And if banks’ ability to honor deposit obligations falls into question, if the public’s confidence is undermined, households and businesses will likely rush to redeploy their savings, raising the specter of a flight to cash and real assets with all the associated implications for inflation and destabilizing runs on banks. The best defense against this serious and very real threat is for banks to extend credit wisely, objectively and impartially.
Property prices soared as a result (Chart 1). Such excesses were possible because a decade of non-inflationary, consistent expansion turned initially well-founded confidence into dangerous complacency. Beliefs grew that globalisation and technology would drive perpetual growth, and that the omniscience of central banks would deliver enduring stability. With a growing conviction that financial innovation had transformed risk into certainty, underwriting standards slipped from responsible to reckless and bank funding strategies from conservative to cavalier. Financial innovation made it easier to borrow. Bonus schemes valued the present and discounted the future. Banks operated in a heads-I-win-tails-you-lose bubble and were capitalised for perfection. And a steady supply of foreign capital from the global savings glut – and in Ireland’s case, the initial euphoria of European Monetary Union – made it all cheaper. When the Minsky moment finally struck, debt tolerance decisively turned and the kindness of strangers evaporated. UK households swung from borrowing 4% of GDP annually to saving 2% of GDP. The comparable swing in Ireland was more than twice as large. 3 In the wake of the crisis, three truths came back to the fore. First, while asset prices rise and fall, debt endures. Second, the distribution of debt and assets matters. And third, it is very hard to reduce high debt in one sector or region without at least temporarily increasing it in another. The debt tail is wagging the market dog. These realities continue to weigh on the European financial system.

Mr. Erçel reports on medium and long-term prospects for the Central Bank of the Republic of Turkey Address by the Governor of the Central Bank of the Republic of Turkey, Mr. Gazi Erçel, before the 66th Shareholders’ General Meeting, in Ankara, on 28/4/98. A detailed account of economic developments during 1997 is given in our annual report for that year which has already been delivered to you. We are keeping the public informed of our expectations for this year through the quarterly announcements of our monetary programme. Today, instead of repeating these short-term perspectives, I would like to speak of the medium and long-term prospects of the Central Bank. For the last two years, my discourse has touched on what kind of institution an ideal central bank should be. Today, I want to consider this matter in a more detailed way. In recent years, there has been a worldwide trend towards simplification of the goals of central banking. This has led to a reduction of the responsibilities they take on. Funding their governments, for example, is no longer the main purpose of central banks. There is none among the western central banks that aims at achieving full employment of the highest level of production. Today’s modern central banks have only one aim: to maintain price stability.
Vitor Constancio, Vice-President of the ECB, defines the banking union as a transfer to the European level of the regulatory and institutional framework responsible for safeguarding the robustness and stability of the banking sector. More recently, the Liikanen Report recommends a structural reform of the EU banking sector to limit the likelihood of banking crises, to improve the resolvability of banks and to protect taxpayers’ interests. In this respect, the Liikanen Group concludes “that it is necessary to require legal separation of certain particularly risky financial activities from deposit-taking banks within a banking group.” This form of separation is also being discussed in the U.S. and U.K., although with some variations. It is evident that if this separation is effected, the resilience of banks will be enhanced, systemic risk reduced and tax payers safeguarded. The implications of this proposed framework will also have to be taken into account by the banking industry so as to adjust the banking models used to this now safer but more constrained model. BIS central bankers’ speeches  7  Closing an institutional gap The concept of sustainability can also be applied to the funding of the government’s capital expenditure programme. In particular, the funding of infrastructure and public utilities through fiscal resources may also have to be reviewed in light of the public sector funding constraints. The domestic financial sector has witnessed remarkable structural developments over past years.

Wage increases are not sustainable unless they are financed from higher productivity and economic growth. Financial stability The financial sector clearly plays a crucial role in the economy. This sector is a prominent employer of trained professional staff, with financial and insurance activities on their own employing 7,280 persons or 4.3% of the gainfully occupied population and contributing 8.5% of gross value added in 2011. The gap between these two ratios is a sign of the relatively high level of productivity in this sector. 1  International Monetary Fund 2011 Article IV Consultation – Staff Report, May 2011. BIS central bankers’ speeches  5  As a matter of fact, as shown in Chart 11, productivity – as measured by the value added per employee in the sector – has risen considerably in recent years and in 2011 stood at nearly EUR 65,000, significantly more than the corresponding per capita value added in the services sector in general, which stands at around EUR 34,000. Bank credit remains the main source of external funding for non-financial businesses in Malta. Moreover, as in most other European countries, bank financing is regarded as the main, if not the only, avenue of external financing for SMEs. External funding is however primarily suitable for large corporates, given the costs and regulatory requirements associated with debt issuance. A more active and innovative debt market is in the interest of the country’s economic growth potential. Undoubtedly this needs to be harnessed through an appropriate macro-prudential policy safeguard of financial stability.