samchain/econo-pairs-v1 huggingface dataset:
exchange rate targeting, was not really an option, given the particularities of the Romanian economy. The explicit use of the exchange rate as an anti-inflationary anchor would have been extremely risky considering the threat of an excessive current account deficit widening, as well as the low foreign exchange reserves in the first decade of the transition period. The latter would have left the central bank little room for maneuver to protect the exchange rate in the event of a speculative attack. By the mid-nineties, the literature on monetary policy strategies came to include recommendations varying from exclusive focus on monetary anchors to ignoring them altogether. In 1996, Mishkin and Estrella wondered “Is there a role for monetary aggregates in the conduct of monetary policy?” in an article that stirred heated debates. “Not really”, was the conclusion. Even the classical example of successful monetary targeting – the Bundesbank – did not apply the strategy “by the book”. They managed to keep inflation at low levels, but the monetary targets were missed in several years. The success of the Bundesbank’s strategy lay to a greater extent in the credibility of its clearly anti-inflationary stance – also reflected in announcing annual inflation targets – than in strict compliance with monetary targeting rules. Although central bankers tend to think of themselves as upholders of timeless values – as Mervyn King put it – a new fashion started to attract followers. The era of inflation targeting was dawning.

As a rule, small open economies that joined the club over the nineties felt that a managed float regime would serve them better. This was also the line pursued by the NBR when introducing inflation targeting in 2005, with the extensive technical support generously offered by the IMF and the Czech National Bank. At that time, inflation targeting seemed poised to become the monetary policy framework in most countries that did not have fixed exchange rate regimes in place – and this was still the case only a few years ago. However, the global crisis broke out and changed the order of priorities on policymakers’ agenda. It remains to be seen how inflation targeting will adapt to the post-crisis economic and financial environment, which also challenges the overriding importance of the low inflation goal. While monetary targeting failed to survive for reasons of the break in the monetary aggregates-inflation relation (in other words, the nominal anchor was unable to actually “anchor” inflation), inflation targeting will have to rely more on its flexible component, be it constrained, in order to be successful in an environment where financial stability needs particular attention. 2. Exchange rate arrangements: from managed float to corner solutions and back again  As I mentioned earlier, let me turn now to the developments in exchange rate arrangements. In the early nineties, when I became Governor, almost two thirds of the countries had some form of managed float. By the end of the same decade, their share had dropped to around one third.
And shorter cycles make for a more effective monetary policy. 1  Krugman, P. “Crisis: the price of globalization?” Paper presented at Jackson Hole, Wyoming, 2000. 2  World Economic Outlook, May 2001, Chapter III: “Three Current Policy Issues: Impact of the Global Technology Correction on the Real Economy”, page. 57-66. 3  Brookings Institution (2001): “The Economic Payoff from the Internet”. www.brook.edu/es/research/areas/it/ipibisummary.htm. Blinder, Alan (2000): “The Internet and the New Economy”, Brookings Institution Policy Brief N°60, June. Altig D. y Peter Rupert (1999): “Growth and the Internet: Surfing to Prosperity?”, Federal Reserve Bank of Cleveland Economic Commentary, September. 4  For instance, Robert Gordon (Does the “New Economy” Measure Up to the Great Inventions of the Past? Journal of Economic Perspectives, Fall 2000) mentioned “the new economy has meant little to the 88 percent of the economy outside of durable manufacturing; in part of the economy, trend growth in multifactor productivity has actually decelerated, despite a massive investment boom in computers and related equipment”. Page 72. BIS Review 53/2001  1  Optimal inventory management in an increasingly open international economy will not only imply shorter, but also, most probably, more synchronic cycles. A by-product of this development is an expansion of the geographical limits of optimum currency areas à la Mundell. 3. Terms of trade shocks and emerging economies  The synchronization of the cycle increases volatility in commodity markets, an important source of international transmission of the cycle to a good number of emerging economies.

The FPC has published its assessment of Brexit risks and it’s ‘Checklist’ of actions necessary on both sides of the Channel regularly since 2017. The FPC also published, in response to a request from Parliament, its severely adverse Brexit stress scenarios. This approach has not been without some criticism – in the UK and in the EU. I would argue however that not only is it our statutory duty to report on risks to financial stability but that by making our assessments public we have encouraged others to prepare for the risks.3  And by making transparent not just our assessment of the resilience of the financial system but the assumptions and judgments that underpin them, we reduce risk by ensuring people can have confidence in the system even if it comes under severe stress. Looking further forward, there are two Brexit related financial stability risks that may surface after we have left the EU. The first are the risks that may arise from our future relationship with the EU. The choice of that relationship is for government and parliament and not for central bankers. It will need to balance very different economic and social objectives on which views are, as we have seen in recent months, very divided. Financial stability, which is my responsibility in the Bank, is I think an important consideration in that equation, but it is only one consideration.
Being based on a common debt, this instrument would also make it possible, should it be activated, to raise the quantity of safe European assets available on financial markets, and thus to reinforce the Capital Markets Union and the international role of the euro. 3. Focusing the debate on the quality of public spending One essential point often remains the blind spot in our budgetary debate: the quality and efficiency of public spending. I am aware of the risk of appearing to give too easy or theoretical lessons on these subjects I am a great believer in our public service, and I am affected by the current crisis it is going through. So many public services in France are suffering from the dissatisfaction of both their players - the civil servants - and their users - the citizens. Pointing systematically to a lack of resources and staff seems to be a slightly simplistic explanation, when public spending in France is the highest of the advanced countries and ten GDP points higher than the average of our European neighbours sharing the same social model. This crisis is less a financial issue than a management issue for the public service: I believe in re-legitimising its objectives, better recognising its civil servants, granting greater autonomy to its managers, improving its capacity for performance and innovation, and investing in its modernisation. Hollow utopias?

It may be added that if housing prices had not been included in the CPI, the rate of inflation would have exceeded 10% in the recessionary year of 2001, which would have demanded even tougher measures on the part of the Central Bank than were applied then. Standard & Poor’s recently upgraded its credit rating for the Republic of Iceland, which now has very good ratings from the three main sovereign ratings agencies, i.e. Standard & Poor’s, Moody’s and Fitch. All the agencies keep a very close watch on economic developments in Iceland. Because Standard & Poor’s has recently upgraded Iceland’s sovereign rating, it is interesting to examine the main points in its rationale, both the positive factors that support the rating and others that are identified as potentially weakening it. The agency says that its upgrade reflects significant and sustained improvements in the resilience and structure of the Icelandic banking sector. Improved regulation and supervision leave the financial sector much more resilient. The recent entry of the commercial banks into the Icelandic mortgage market provides the private financial sector with additional domestic stability and profitability. Public finances continue to be healthy and Iceland boasts stable and flexible political institutions. However, the agency also points to very high and rising levels of net external debt throughout the economy, high current account deficits and relatively poor external liquidity. Adherence to the government’s medium-term fiscal framework is central to maintaining the ratings and further unforeseen adjustment would need to be accommodated through fiscal policy, not monetary policy.
While high food and energy prices curb consumption on these products, they would also encourage investment and increase supply in the long-term. In short, the common view is that central banks have nothing to do but wait for the supplydriven shocks to work out their natural course. However, in the current environment where persistent and rapid increases in food and energy prices have been observed for a considerable period, the prevalence of this view has become questionable – especially in the light of current projections that foresee even higher prices in the near future. As a matter of fact, many countries under inflation targeting regime now project that inflation will converge to the target at the end of 2009 or in 2010, at the earliest. Going through a long period of high inflation is a serious risk for price stability. First, the general price level may shift upwards at a faster rate, as producers and workers in other sectors ask for higher prices and wages in response to the loss of their real purchasing power. The fall in real interest rates due to deterioration in inflation expectations is another risk, since lower real rates will lead to a faster pace of credit expansion. The common factor of these two risks is that persistent supply shocks may turn into demand shocks after a while. Thus, at some point, central banks have to decide to what extent they can tolerate the rise in inflation.

Under normal circumstances, supply shocks are expected to have a temporary impact on relative prices, not changing the course of medium-term inflation. Nevertheless, the emergence of multiple shocks at the same time and their persistence for a considerable period aggravated the risks on pricing behavior. In fact, the research conducted by the Central Bank staff indicates that economic agents increasingly focus on past inflation while forming their inflation expectations. After evaluating the said developments, the Central Bank concluded that the increases in food and energy prices in recent years reflect a structural change stemming from the global economic environment. In other words, these shocks are likely to prevail for a longer time period, contrary to previous forecasts. There is no clear evidence at this point that this trend will reverse in the short term. Moreover, our revised projections suggest that even with the maintenance of a cautious monetary policy stance for the foreseeable future, reaching the 4 percent target is going to take an extended period of time. Dear Guests, In light of these evaluations, the Central Bank of Turkey announced the framework of its monetary policy for the upcoming period in the April 2008 Inflation Report and in the letter on inflation targets that was sent to the Government on June 3, 2008. The first pillar of the monetary policy framework is the target revision.
Many observers criticised the Japanese central bank for having reacted far too slowly and for being too cautious about testing various methods to escape from their liquidity trap. I believe that we at the Riksbank should be prepared with analyses and measures at an early stage. Today I will therefore address the problem that a situation with a zero interest rate represents and the possible alternative solutions. I will, among other things, discuss a price level target and a method that in my research I have called the “Foolproof Way” of escaping from a liquidity trap. Finally, I summarise how effective the alternatives may be and how they can be selected depending on how serious the situation with a zero lower bound for the interest rate is deemed to be. In a situation with a zero lower bound for the interest rate, fiscal policy acquires a very important role. How effectively an expansionary fiscal policy can stimulate the real economy is, however, dependent on a number of factors, for example the degree of Ricardian equivalence – that is the extent to which a reduction in public saving gives rise to increased private saving. The initial size of the national debt, the structure of public expenditure and the distribution between expenditure increases and tax reductions in the national budget may also be decisive for the impact of fiscal policy on the real economy. Here, however, I only discuss monetary policy alternatives in the event of a zero interest rate.

Jean-Claude Trichet: Testimony before the Committee on Economic and Monetary Affairs of the European Parliament Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank, at the European Parliament, Brussels, 14 September 2005. *  *  *  Madame la présidente, Mesdames et Messieurs les membres de la Commission économique et monétaire, j’ai l’honneur de paraître devant votre Commission aujourd’hui dans le cadre de notre dialogue régulier. À cette occasion, je voudrais rendre hommage à Wim Duisenberg, qui est décédé à la fin du mois de juillet. Le premier président de la Banque centrale européenne a apporté une contribution considérable à la construction européenne. Il a joué un rôle décisif dans la mise en place des institutions monétaires en Europe, dans le lancement réussi de la nouvelle monnaie, dans l’affirmation de la crédibilité de notre monnaie unique – l’euro – et dans l’instauration de la confiance placée en elle. Nous le regrettons profondément. Je commencerai mon intervention aujourd’hui par une évaluation de la situation économique et monétaire actuelle. Ich möchte außerdem zu aktuellen Themen der Fiskalpolitik und zu den Fortschritten im Bereich der Strukturreformen Stellung nehmen. Abschließend möchte ich die Position der EZB zu den Folgeaktivitäten hinsichtlich des EU-Aktionsplans für Finanzdienstleistungen erläutern. Economic and monetary issues At the time of my last appearance before the European Parliament in July the underlying trend in real economic growth in the euro area remained modest.
However, there is still no consensus on operationalizing the EDIS, on debt mutualization, on setting the minimum requirement for own funds and eligible liabilities, on the features of the fiscal union, and the list could go on. I think that the Union should also clarify the fine balance between the consolidated microprudential supervision of banks and national accountability in terms of resolution. The home-host issue has not been dealt with yet. Moreover, the European financial architecture is populated with unfinished, incomplete, or untested mechanisms created after the crisis. Even so, my message on the reform of the European financial sector is twofold. First, the reform is fundamental for the success of the European project. Romania welcomes all the European Commission’s initiatives aimed at enhancing supervision, consolidation, and accountability in this area, and we will do our best to help reach a consensus on these proposals during our incoming EU Presidency. Second, it is also fundamental for the integrity of the European project that euro-area should not be ring-fenced; the reform should still make it possible for non-euro countries to join euro, when they will be ready, on a level playfield. Price stability and financial stability are two sides of the same coin. You can’t have one without the other – this is a lesson that history has recently taught us. And none of them is possible without credible public policies. 1. Lipton, David (2018), “Trust and the Future of Multilateralism”, Introductory Remarks for the  Eurofi High Level Seminar, Sofia, Bulgaria, April 30, 2018. 2.

This is why it is important not to give the wrong incentives to capital flows. This reminds me of my days as a child when, being asked what I want to become when I grow up, I confessed that I wanted to be a firefighter. It turns out that I am now a central banker, which is not far from being a firefighter in these uncertain times. National Bank of Romania has started the tightening cycle of the monetary policy, to contain the higher inflation and inflation expectations. Although most of it is supply-side and temporary, and fighting fiscal loosening with monetary tightening is a sub-optimal policy mix, we considered that the 3 rate hikes we implemented this year were warranted to preserve a hard-fought public good: price stability. Coming to an end of my intervention, I would like to express a few thoughts on one of the most important remarks of the REO. It states that “the recovery provides an opportunity to move faster to deepen the Economic and Monetary Union”. The report details three lines of action in this regard: completing the Banking Union, creating a central fiscal capacity, and advancing with the Capital Union. Too much financial innovation, deregulation and the blind, theological belief in self-regulating markets have brought us here, back to the era of re-regulation; but coordination is needed for that, and Glexit is threatening this coordination. It is however undeniable that the completion of the Banking Union is of paramount importance.
Improving the state of the labor market, removing rigid labor market regulations, reducing the tax wedge, and more importantly enhancing the human capital through education reforms are essential to accelerate the growth rate of the economy on a sustainable basis. Second, Turkey is a net commodity importer in contrast to Latin American countries and South Africa. We need to import in excess of 35 billion USD worth of oil and natural gas each year, almost 5% of our GDP. Looking at the composition of the foreign trade, you can see that our imports are mainly commodities and intermediate goods, whereas industrial goods cover more than 90% of our total exports. Therefore, promoting Turkey's competitiveness is the key to her future success. 2  BIS Review 32/2008  Third, high domestic savings rate, which is high in emerging countries in Asia, is quite low in Turkey. It is around 20%. We need to attract foreign savings to finance investments. It is not surprising to observe a strong and direct positive relationship in Turkey between growth rate and current account deficit. Of course, the upward trend in energy prices has also contributed to the widening of the current account deficit to 5.8% in 2007. The current account deficit is a structural problem and a source of vulnerability. However, Turkey did not have difficulty in its financing in the last 6 years. In fact, the quality of foreign capital flows has improved sharply.

The current account deficit can now be financed through foreign direct investments (FDI) and long-term capital inflows. The FDI inflows were in excess of USD 20 billion in each of the last two years, putting Turkey among the top 5 developing countries in FDI inflows. Fourth, Turkey is one of the few countries with a “convergence story”. Negotiations with the European Union over the full membership status provide a major stimulus to policy makers to put Turkey’s huge potential into life and complete the reform agenda. This agenda consists of next generation policies and reforms that focus on removing structural bottlenecks and improving the economy’s capacity for labor absorption, innovation, and competitiveness. Dear Guests, Turkey has had a heavy structural reform agenda since 2001. However, continuation of structural reforms is of vital importance for the sustainability of economic gains achieved in recent years and for the resilience of the economy to further shocks in the future. The most important structural reform in the pipeline is the social security reform that is expected to significantly improve Turkey’s fiscal balances in the medium and long term. It is also expected to contribute to our domestic savings rate.
Experiences have also shown that the settlement process can be managed smoothly even when a large number of contracts are settled at the same time. An increasing number of contracts are also being settled in cash rather than through delivery of an underlying bond. On the legal side, there is always the fear of disputes. Will the person taking over the credit risk actually pay when a credit event occurs? It is not unusual for major disputes to arise in the insurance market regarding the interpretation of policy terms. But the problems of unclear rules and practice that existed when the market was new now seem to have been resolved for the most part. This is because they use almost exclusively international, standardised contracts. However, the possibilities for completely standardised solutions are still limited. There are so many different types of more or less complex credit derivatives. According to the market participants themselves, the legal risks in credit derivative trading have not been completely removed. 2. Counterparty risks  The second source of concern is risk management. A bank that buys credit protection through credit derivatives will get rid of the credit risk, but instead expose itself to counterparty risk, that is, the risk that the party selling the credit protection cannot pay. Counterparty risks exist in most financial agreements, but as the credit derivatives market is so young and growth is so rapid, there is particular reason to be aware of them.

The risks depend, for instance, on how well-diversified the credit portfolio is. The more concentrated it is to certain industries and countries, the greater the capital requirement. A portfolio where the risks are well spread instead reduces the total risk in the portfolio and thereby the capital requirement. This means that the banks  BIS Review 24/2007  5  may have reason to sell some of the risks that arise in their own credit granting and to buy others instead. The current rules do not allow the banks to reduce their capital very much when they use credit derivatives. Basel II increases the opportunities here. It is also likely that the credit derivatives market will to a greater degree develop to include traditional loans. It is already possible to obtain prices for credit derivatives for companies that do not have bonds issued on the bond market. This is on condition that the loan documentation meets the predetermined requirements. It increases the opportunities for Swedish banks to use credit derivatives to sell parts of their own credit risk. Concluding remarks Let me round off. My assessment is that the advantages of credit derivatives exceed the risks for the economy. They have revolutionised the trade in credits in important aspects. The problems related to the market infrastructure are being dealt with successfully and there are many indications that the risks in this field are declining as the market matures. The financial sector has also improved its routines for risk control over the past ten years.