samchain/econo-pairs-v1 huggingface dataset:
Page 1  Looking through a glass onion: lessons from the 2022 LDI intervention − speech by Andrew Hauser Given at the Initiative on Global Markets’ Workshop on Market Dysfunction, the University of Chicago Booth School of Business  Page 2  Published on 03 March 2023  Andrew Hauser reflects on our gilt market intervention last year and the key lessons for Central Banks when tackling liquidity crises. The lessons are informed by wellestablished principles but we need new tools for a new era given the growing role of non-banks. Speech Introduction It was just over two years ago when Lorie Logan and I first sat down to map out a plan for a working group of the Bank for International Settlements (BIS) Markets Committee on tools for market dysfunction. A year earlier, central banks around the globe had been required to intervene, at pace and scale, to prevent the sudden ‘dash for cash’ that followed the announcement of Covid lockdowns from undermining monetary and financial stability. Those interventions worked, aided by the fact that the stance required to tackle market dysfunction was directionally aligned with that required to achieve monetary policy goals more broadly. Nevertheless, given the speed with which dysfunction appeared, many central banks had to innovate, using tools they had to hand, rather than those designed specifically for the purpose. [1] If the mayhem in financial markets in Spring 2020 had been a genuine one-off, that might have been the end of things.

But a spread is only defined around some mid-price, whether market or model-determined – and the former may simply not exist in dysfunctional markets, leaving it hard to avoid being a price setter, whether you like it or not. We found ourselves coming close to this in our index linked gilt purchases, where a near-complete lack of liquidity required us to set an additional level of reserve pricing in levels terms (a ‘reference yield’ below which we  Page 12  would not buy) to ensure we both removed the threat of renewed dysfunction while also preventing yields from falling to levels that would leave us acting as the entire market (Figure 5). That proved workable for a few days – whether it could be applied over longer periods is an important question for future reflection. Questions for future research Let me end with some questions for future research, drawing on points I’ve made today: First, we need a clearer sense of how much market dysfunction societies are willing to tolerate – whether defined in terms of a certain spread around risk-free rates, a certain level of liquidity, or the absence of unstable firesale dynamics. And, we need a clearer sense of the extent to which this tolerance should be achieved through self-insurance by market participants (in particular non-banks) – with the residual presumptively falling to public authorities to backstop through tail risk insurance.
This is mainly due to a slightly more positive assessment of developments in the United States and Asia, but also to more favourable developments in Latin America, and central and eastern Europe. On the other hand, developments in the euro area, particularly in the larger countries - Germany, France and Italy - have been more subdued than expected and a slightly weaker development is foreseen in the near future than was previously assessed. Although international demand has developed largely as we expected, the same cannot be said for prices. The subdued international price trend in recent years has probably been linked to the earlier economic slowdown. However, there are also other explanatory factors. One possible cause of the weak price pressure is the globalisation of trade and production patterns that has followed in the wake of deregulation and the spread of information technology. Many new markets are being integrated into the global economy, including countries in central and eastern Europe and Asia. We are now seeing weak international price trends for manufactured goods, while there is a sharp rise in commodity prices. This could also be at least partly due to changed international patterns in production and trade. The best example of this is China, with its huge size and rapid industrialisation. The country is now one of the world’s largest commodity importers, particularly crude oil, copper and certain agricultural products.

Lars Heikensten: Introduction on monetary policy Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at the Riksdag Committee on Finance, Stockholm, 1 April 2004. *  *  *  Let me begin as usual by thanking you for the opportunity to come to the Riksdag Committee on Finance and give an account of monetary policy. The committee’s public hearing of the governor is an important part of the transparency the Riksbank wishes to uphold. These meetings illustrate the clear link between the bank and the democratically-elected body in Sweden. Now these meetings are a part of our legislation. As is usual on these occasions, I intend to begin by commenting on our current assessment of inflation and our view of monetary policy. Then I shall briefly discuss events in the Swedish economy last year and the results of the monetary policy we conducted. The current assessment World economy recovering As Sweden is a small country, very dependent on events in the outside world, it is natural to begin a discussion of the current economic situation with a description of developments in the world economy. Global economic growth has largely followed the path anticipated by the Riksbank and most other analysts during the autumn and winter. Compared with the picture we envisaged in December, we are now assuming that international growth will be slightly stronger.
As I mentioned, one of the core objectives of supervision and regulation is to support resilience in supervised firms so that they can contribute to the sustained provision of credit and other financial services. We strive to do that in the most effective and efficient manner possible. I mentioned just a few examples of our work in this area, and I look forward to continued dialogue on this key topic. Conclusions We at the Federal Reserve Bank of New York and the Federal Reserve System have a strong interest in understanding the issues facing community banks and ensuring that they continue to play their critical role in the U.S. financial system. We hope that today’s conference sparks an informative discussion around many of those issues. 5/6  BIS central bankers' speeches  I’ll conclude by noting that this conference is just one of several initiatives to encourage communication and outreach with the industry. The Federal Reserve Board also has initiated numerous industry outreach opportunities to provide resources on key supervisory policies, including the development of two programs—"Outlook Live” and “Ask the Fed"—as well as the publication of three newsletters—Community Banking Connections, Consumer Compliance Outlook, and FedLinks. We hope you are able to utilize these resources, and our team will be happy to provide instructions on how you can subscribe to them. Thank you for joining our conference today; I hope you will find today’s presentations useful and informative. 1 FDIC Community Banking Study (December 2012). 2 A Perspective on Supervisory Objectives and Trade-offs, February 23, 2017.

In the euro area, the corresponding yields on German government bonds also rose by almost 2 percentage points to about 1.7%. The rise in yields was similar in Switzerland, with ten-year Confederation bonds yielding around 1.3%, their highest level in more than ten years (cf. chart 2). In the US, the monetary policy realignment led to a considerable increase in inflation-adjusted bond yields, or real yields. For instance, real yields on ten-year Treasuries have risen by more  Page 1/4  Berne, 16 June 2022 Andréa M. Maechler  News conference  than 1.5 percentage points since the beginning of the year and are now back at just above 0% for the first time in more than two years. In historical terms, however, this is still very low. On the stock markets, too, the expectations of a tightening of monetary policy and the heightened uncertainty resulted in price corrections. The leading share indices have recently been trading at well below their levels at the beginning of the year, and the SMI, Switzerland’s leading index, has lost more than 15% over the same period (cf. chart 3). Foreign exchange markets were likewise heavily shaped by the shift in monetary policy: The US dollar, for instance, has appreciated more than 7% on a trade-weighted basis since the beginning of the year. The trade-weighted euro, on the other hand, has lost around 1.5% and the Japanese yen has actually depreciated by more than 10% on a trade-weighted basis over the same period.
I should like to stress the importance of international cooperation between authorities in different fields, particularly now that problems in one country tend to spread to other countries more quickly than before. The Riksbank accordingly participates in the work of the Group of Ten, the Bank for International Settlements, the International Monetary Fund and so on. The recurrent crises in financial markets clearly show that work on strengthening systems is a continuous endeavour and that much remains to be done. Banks and other financial institutions have admittedly done a great deal to improve risk management, not least as regards loan portfolios. But the pace of developments in the financial sector is so rapid that neither financial institutions nor authorities can rest on their laurels. It should also be realised that the extensive work in progress on reinforcing the financial system does not mean that in future the system will be completely immune to problems. Moreover, our knowledge of phenomena of this type is limited. It may be asked whether it will ever be possible to predict financial crises. The models with leading indicators that are being tested at present tend to be too blunt. They sound the alarm about things that never happen and are silent about those that actually occur. The authorities must therefore focus on doing everything so that banks and other financial systems have such good systems for risk management that the probability of financial crises is reduced to a minimum.

I am thinking instead of, for example, Mexico, Indonesia, Thailand, South Korea, Malaysia and Brazil. In these cases, inflated asset prices and both domestic and external debt had an important bearing on the subsequent course of events. One important lesson is that a floating exchange rate with an explicit inflation target makes it easier to avoid a situation with rapidly rising asset prices, an unduly strong expansion of credit and high short-term borrowing abroad. That does not mean that a fixed, but adjustable, exchange rate is bound to result in problems of this type. Experience from Denmark is a good example. A clear problem in Sweden’s case, however, was that in the 1980s monetary policy could not be used to counter the tendencies to strong credit growth and rapid asset price increases. Another problem, as I just mentioned, was that the fixed exchange rate policy lulled people into a false sense of security and provided an incentive for short-run borrowing in foreign currency. With a floating exchange rate, the krona’s fluctuations make the exchange risk more evident (Diagram 2). Such a regime may have other drawbacks but it does show potential borrowers that foreign-currency loans involve a risk. The stock of foreign-currency loans to households and firms is in fact smaller today than it was a decade ago. A point to bear in mind is that the problem in the late-1980s was not the strong asset price rise as such but the combination of this and heavy borrowing in Sweden and abroad.
Flexibility in working hours and in the retirement age gives each worker the opportunity to choose between work and leisure. This freedom to choose is a benefit in itself. However, the terms - wages,  10  BIS Review 20/2002  working hours and pension schemes - should reflect the value added of labour. Pension benefits should therefore depend on how long each person chooses to remain in employment. Many countries have evaluated and some countries have worked out changes in their pension systems to cover a higher portion of pension expenditure through accumulated capital, i.e. a funded system. Sweden has recently implemented a pension reform that ensures that annual pension benefits increase in relation to the number of years the person has worked. At the same time, an increase in life expectancy for each age group will reduce the annual pension. This motivates the person to remain in employment and helps to ensure that the system is sustainable. Due to the duration of the transfers to pension reserves in Sweden, the replacement of the former pension system by the reformed one requires a transitional period over several years. In Norway, the surpluses on the current account and the Government Petroleum Fund simplify any replacement of today’s pension system by a funded pension system. Labour is our most important resource. The decline in average hours worked cannot continue if we are to have a sustainable pension system.

First, developments in finance have primarily been driven by the needs of society and the economy. The creation of banks, the stock market and finance as we know it today, reflect this. Secondly, as with other sectors of the economy, finance has synthesised considerably during periods of significant technological innovation. For instance, the pervasive use of smartphones in societal mainstream has enabled finance to reach a wider segment of society today than was ever conceivable in the past, making it possible for previously underserved segments of society to gain access to finance. As we ponder on the future of finance, and to start off the conversation, I would like to share five observations or themes that might possibly shape the development of finance in the future. Indeed, some are already beginning to take form in our market today. The first, finance will be democratised as we move forward. Technology is the catalyst. The great equaliser. This will open up a vast spectrum of possibilities for new entrants. Conventional wisdom holds that banking business is intricately tied to economies of scale. Size, scale and barriers to entry are thus traditional key determinants of competitiveness. This conventional wisdom or axiom is very much dated. In the future, competitive advantage will come from those who are able to harness the power of technology and be bold enough to venture into uncharted territories. The rules of the game have been reset, and more players are getting into the game.
Rodrigo Vergara: Chile in the international scenario Keynote address by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, at the 2014 IIF (Institute of International Finance) Latin America Economic Forum, Bahia, Brazil, 29 March 2014. *  *  *  I thank Luis Oscar Herrera, Enrique Orellana, Consuelo Edwards, Ivonne Vera and Luis Alvarez for helpful comments. Thank you for inviting me to this year’s Latin America Economic Forum of the IIF, where I will share with you the Central Bank of Chile’s views on where my country stands in the current global scene. I will also talk about the Chilean macroeconomic policy framework and how does it cope with the changing global economy. International scenario The external economic environment in which Latin America operates is changing, and it is necessary for the economies of the region to adjust to these changes. First there is the rebalancing process the world economy is undergoing. The developed economies are beginning to show more evident signs of recovery. Consensus forecasts are that global growth will be stronger this year than it was in 2013, but virtually all the extra boost will come from said recovery in developed economies. Growth projections for emerging markets in 2014, on the contrary, have been revised down time and again throughout the past year. These revisions have been particularly sharp in Latin America, and the region probably will grow less this year compared with 2013.

In conjunction with the 30th Meeting of the Board of Governors of the Islamic Development Bank in June this year, an initiative was taken to develop a ten-year Master Plan for the Islamic Financial Services Industry. The Master Plan for the global development of Islamic finance is now being finalised by the Committee established by the Islamic Development Bank and the Islamic Financial Services Board. The Plan will provide the strategic direction envisioned for the development of Islamic financial services, looking beyond the near term and taking a longer-term perspective into the needs and requirements of the future. Islamic financial institutions thus need to adopt a positive approach in re-inventing themselves to meet the emerging issues, challenges and opportunities. In the domestic Islamic financial sector, despite the achievements that have been achieved thus far, the need remains for the Islamic financial institutions to strive to further enhance their capacity and capability so that they will be on par with global Islamic players in terms of efficiency, effectiveness and financial soundness. As we enter into an increasingly challenging environment, the ability of the Islamic financial institutions to compete by creating innovative and differentiated products, and by adopting strategic positioning to increase unique and tangible value to their customers will be the key to determining performance and relevance. It is imperative that players in the Islamic financial industry reposition themselves to create a unique and sustainable competitive position in responding to the changing environment.
Figure 10 Employment & unemployment (1) (index, centered on mean of period 1990-2011)  Real wages (2) (annual change, percent)  40  40  9  9  20  20  6  6  0  0  3  3  -20  -20  0  0  -40  -40 -3  -3  90 93 96 99 02 05 08 11 Unempl. Employment  01  03 L.C. 05  07  09  11  Rem. Index  (1) Seasonally-adjusted series. (2) Dashed lines show average for period 2001-2011. Source: Ricaurte, M. 2011. “Indicadores de Mercado Laboral para la Comparación de las Crisis Asiática y Financiera Internacional”. Preliminary document. Central Bank of Chile, June. 12  BIS central bankers’ speeches  Figure 11 Private consumption and income  (annual change, percent)  15  15  12  12  9  9  6  6  3  3  0  0  -3  -3 04  05  06  Wage mass  07  08  Private consumption  09  10  11  Private disposable income (*)  (*) Yearly moving average. Source: Central Bank of Chile.

Accordingly, the behavior of the labor market must be closely monitored in order to prevent the incubation of inflationary pressures. The evolution of output and demand is also important in this setting. If they keep on growing as strongly as they did in the first quarter, an over-utilization of installed capacity may result, generating inflationary pressures. We have paid particular attention to consumption; however, it is unlikely that the current dynamism can be sustained very long. From a longer perspective, the recent increase in consumption may be responding to a recovery from the crisis of 2008–2009 and the earthquake and tsunami of 2010. Estimates of the ratios between consumption, income and their trend levels show no significant differences (figure 11). In addition, a substantial part of the consumption components that show the larger increases – durables and clothing – is generally of imported origin, so a lower exchange rate favors consumption and replacement, especially considering that their rate of  BIS central bankers’ speeches  3  depreciation may have accelerated in tandem with technological change. This is compounded by the low prices of these goods in dollars. Meanwhile, growth in consumer credit, although showing a higher velocity in the margin, has not posted any increases like the ones observed in previous expansion phases or in other emerging economies (figure 12). About the implications of credit behavior, the IEF states that, so far, indebtedness has not risen above its long-term trend.
If we need a stronger European centre, then to maintain this principle we also need profound improvements in democracy at the European level. The justification for rethinking these principles can be found, I believe, by acknowledging that membership of EMU entails a significant degree of political union. We have seen that preventing crises requires that all countries exercise close and effective mutual surveillance of each others’ policies. We have seen that correcting crises requires that decisions are taken jointly, with a euro area perspective. The need for institutionalised collective decisionmaking is, fundamentally, what defines a political union. And this is de facto the condition of all euro area countries. Third proposition: ECB independence and the prohibition on monetary financing are essential for euro area integration This condition of de facto political union raises questions about the proper role of the central bank in EMU. The ECB is very much in the focus at the moment. Some observers call for it to play the role of a “national” central bank like the Federal Reserve or the Bank of England, and emulate their policies. But these viewpoints are partial. They overlook what is my third  6  BIS central bankers’ speeches  proposition: that the Treaty prohibition on monetary financing by the ECB, over the medium term, is a force in favour of euro area integration and greater stability. The positive effects of the ECB’s policies are fairly obvious in the case of the banking sector.

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