samchain/econo-pairs-v1 huggingface dataset:
Mervyn King: Twenty years of inflation targeting Text of the Stamp Memorial Lecture by Mr Mervyn King, Governor of the Bank of England, London School of Economics, London, 9 October 2012. All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  *  *  *  I am indebted to my colleagues in the Bank and on the Monetary Policy Committee for invaluable help and insightful comments on earlier drafts of this lecture, especially to David Aikman, Charles Bean, Nils Blythe, Alex Brazier, Spencer Dale, Iain de Weymarn, Richard Harrison, Andrew Hauser, David Miles and Tony Yates. In particular, I regard Tim Taylor as a co-author of the lecture, although he is absolved of any errors in the current draft. Introduction I am delighted to be back at the School to deliver the Stamp Memorial Lecture. Lord Stamp was eminent in the worlds of both academic and public life. Among other achievements, he was an alumnus and a governor of the School, and a Director of the Bank of England. Following his untimely death, in an air raid in 1941, he was succeeded at the Bank by John Maynard Keynes. Keynes and Stamp often broadcast live discussions on the BBC which were published a week later in The Listener.

In February 1929, Josiah Stamp went to Paris as a member of the Young Committee to assess whether the reparations debts run up by Germany could be repaid – the similarities with the present situation in Europe are too poignant to dwell on. In a letter to Keynes, Stamp compared these international meetings to a conjuror trying to pull a rabbit out of the hat: “It is still a madhouse, in a way – but all are mad in a very genteel way, the main occupation being elaborate proofs, from different angles, of sanity. One half sit round a hat saying with Coué reiteration: there is a rabbit – there is. The other half try to make a noise like a succulent lettuce. There is a general conviction that the more eminent the conjurors convened, the more certainty is there of the existence of the rabbit”. 33 The only escape from madness is the power of ideas. Today, we understand less than we would wish about how the economy works. The challenge of trying to understand more, and of developing those new ideas, belongs to you – the next generation of students and academics at the LSE and elsewhere. Go to it! 33  Stamp’s letter is reprinted in the collected works of J.M.Keynes volume XVIII, p.306-7, Macmillan 1978. Émile Coué was a French psychologist who developed a popular method of psychotherapy based on optimistic autosuggestion. He would have been right at home in modern economic policy debates.
Under fixed exchange rate regimes, a particular exchange rate serves as the instrument. Under monetary targeting regimes, the instrument is typically the quantity of central bank money in the banking system. 1 The Swiss National Bank (SNB) has used all of the above-mentioned instruments in its recent history. During the Bretton Woods period of fixed exchange rates, the SNB intervened in foreign exchange markets to keep exchange rates stable. After the collapse of the Bretton Woods system in the early 1970s until 1999, the SNB adopted a monetary targeting strategy. During this period, the SNB used the level of bank reserves as operational target. From 1978 to 1979, the SNB temporarily abandoned  1  Since the quantity of money is directly related to its price, using the quantity of money as the instrument is fundamentally equivalent to using a short-term interest rate. BIS Review 30/2006  1  the strategy of targeting bank reserves in favour of targeting the exchange rate. Since the introduction of the new monetary policy framework in 2000, the SNB has used the three month CHF Libor as its operational target. 2 The precise sequence of the monetary transmission mechanism depends on the instrument which is used. I will assume that the monetary policy instrument is a short-term interest rate. This reflects common practice for central banks with floating exchange rates. Bond prices and the exchange rate Short-term interest rates alone have only limited direct effects on the economy.

I quote: “A transfer of production and employment between firms and industries may occur through higher domestic cost pressures” … and further … “How strong the pressures will be depends in particular on how strongly Norwegian business and industry is involved in petroleum activities and the scale of revenues that are used domestically”. The report underlines the responsibility that economic policy would have for developments. Fourteen years later, in 1988, former central bank governor Hermod Skånland summarised the experience gained up to that point in time.1 He was pessimistic. We had spent a large share of the cash flow from the petroleum sector on costly counter-cyclical policies and a rapid expansion of welfare schemes. Internationally exposed industries were scaled back, and it seemed that the economy was unstable. Inflation had taken root. Skånland concluded the lecture as follows: “We will be facing greater challenges with regard to demand management than countries with a broader industry base. It still remains to be seen whether we are more capable of addressing these challenges.”  Experience of other countries The experience of other countries that had received large, unexpected income from natural resources was not encouraging. The classic example is Spain’s substantial revenues from the colonisation of America in the 1600s. The historian David Landes summarised the Spanish experience as follows: Landes stated that easy money is bad for a country. It is very tempting to live comfortably on this income and be less concerned about safeguarding other revenue sources.
Lower interest rates induce investment, thus strengthening the productive capacity of the economy and making higher output and consumption possible. We expect that in the case of Poland the interest rate adjustment after eurozone accession will reduce long-term rates by more than one percentage point. Any estimation of the exact impact on investment, output and consumption is subject to several assumptions. Nevertheless the NBP’s analyses show that an interest rate reduction will be the main source of benefits from joining the euro (Borowski 2003). Research shows that the elimination of the exchange rate fluctuations and the coordination of monetary policy within the euro zone have been the main driving forces behind the financial integration in Europe (Fratzscher 2001; Galati and Tsatsaronis 2001; European Commission 2002; ECB 2006). Integration, in turn, promotes competition in financial markets, leading to an improved efficiency in financial intermediaries and a reduction in the cost of their services. A single currency provides domestic companies with an access to more liquid and deeper financial markets, which not only drives down the cost of capital, but also allows better risk diversification. Therefore, apart from stimulating economic growth, development of financial market also reduces output fluctuations. Since empirical research indicates that countries with relatively less developed financial markets benefit the most from financial integration (Giannetti et al. 2002), we believe that Poland should be among the largest beneficiaries of this process (NBP 2004). The benefit we know the least about is related to trade creation.

One of the problems with joining a common currency area might be that real interest rates in this area will be lower than the natural rate of the new member. Recent research shows that this might be the case for Poland, where the natural rate has remained in the past above the euro area level (BrzozaBrzezina 2006). For Poland, entering the eurozone means lower nominal interest rates (the spread on long-term rates still exceeds 100 basis points) and higher inflation (due to appreciation of the real exchange rate related to the catching up process, with no longer available nominal exchange rate channel). Together this means a drop in real interest rates, which could induce people and enterprises to substantially increase borrowing, and spend the loans on consumption and investment goods. What could be the consequences of this? First, if borrowing accelerates massively, banks may start extending loans without properly checking their customers’ creditworthiness – this could result in bad debt problems. It is a well known phenomenon (e.g. Demirgüç-Kunt, Detragiache 1998, Gourinchas et al. 2001) that lending booms are often followed by banking sector crises. Fortunately, recent research on the potential for lending booms in Poland after euro area accession forecasts a rather moderate increase in lending (Schadler et al. 2005, Brzoza-Brzezina 2005), and shows that the expected credit growth is rather an equilibrium phenomenon – a structural adjustment that should not have negative consequences (Kiss at al. 2006).
We expect this positive momentum in consumption to persist in the final quarter of the year, amid relatively resilient labour market conditions, though the containment measures introduced in October are likely to limit expenditure on certain services and may keep household saving still abnormally higher. Overall, consumption is expected to decline in 2020, but is expected to be the main driver of the recovery in the coming year. Page | 2 Document Classification: Public  The decline in demand and the elevated level of uncertainty have also led to deferrals in private investment plans. Therefore, overall investment is projected to fall significantly in 2020. However, as the level of uncertainty recedes, private investment is expected to bounce back. Furthermore, the EU Budget as well as NGEU funds will provide a substantial boost to government investment during the next year. One of the surprising aspects of this recession has been the extraordinary resilience of the labour market in Malta. Despite the unprecedented decline in economic activity in 2020, overall employment levels have held up very well. Following an increase in unemployment levels in April and May, thereafter unemployment embarked on a gradual downward path. The unemployment rate, though above pre-pandemic levels, remains very low historically and the lowest in the euro area. Nonetheless, the outlook remains surrounded by an elevated degree of uncertainty and risks remain firmly tilted to the downside. These relate mainly to the response of consumers and firms when a number of support measures came to an end.

With these measures, one needs to take into consideration the fiscal support through a broad range of Page | 4 Document Classification: Public  government measures aimed at helping households and businesses, which also indirectly sustain the banks by mitigating the effects of the crisis on bank balance sheets. The negative implications from the pandemic will continue to be felt in the near term and this is why the Central Bank encourages all financial institutions to preserve capital, while at the same time continue to lend prudently and avoid unnecessary forbearance measures. I will repeat: the banks are sufficiently liquid, with strong capital ratios and financial resources, and these, coupled with their technological infrastructure and human resources, is enabling them to meet the challenges that the pandemic presents. To conclude, although the pandemic has been around with us for some nine months, the uncertainties surrounding it are still high, although recent news of the rollout of a vaccine in the very near future have surely given hope that we are closer to the end of the pandemic. Nevertheless, its effects will not go away any time soon, and 2021 will be a challenging year, both from an economic perspective and for the banking sector. Therefore, both fiscal and monetary authorities will need to remain vigilant and monitor closely the situation to avoid untimely withdrawal of support measures. Finally allow me a footnote. I would have welcomed this opportunity to say something about Brexit.
Mohd Razif bin Abd Kadir: Shared services and outsourcing in the Malaysian financial sector Address by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the Shared Services and Outsourcing in the Financial Sector – A Joint Forum by Bank Negara Malaysia and the Multimedia Development Corporation, Kuala Lumpur, 13 November 2007. *  *  *  Distinguished guests, ladies and gentlemen, It is with great pleasure that I welcome you to the inaugural forum on shared services and outsourcing (SSO) in the financial sector. This forum is jointly organised by Bank Negara Malaysia and the Multimedia Development Corporation in a cooperative initiative to enhance the significance of SSO in the Malaysian financial sector. The organisation of this event, which focuses specially on the financial services industry and its players, is a timely bringing together of minds to discuss the issues and concerns faced by financial institutions in SSO. The growing significance of the global SSO market suggests to the financial industry players that the outsourcing of operations which would otherwise be performed in-house is certainly an idea worth exploring. According to a recent study by Frost & Sullivan, the global SSO market was estimated to be worth $ billion in 2006 and is forecasted to reach a market size of $ billion by end-2009. Further, the banking, financial services and insurance sectors had the largest SSO spending in 2006 at an estimate of $ billion or almost a third of total SSO spending.

It is hoped that the discussions during the forum will assist in gathering a consensus on the viability of such an initiative where efforts and resources involved may be substantial. Indeed, it should be noted that there is certainly potential in the development of this shared platform, where combined resources and expertise would foster greater efficiency and provide fresh impetus for a more meaningful and far-reaching development of Islamic finance in the international stage. The prospects of such pioneering works with the possibility of international appeal, if successful, would certainly be exciting. Ladies and gentlemen, SSO, at first sight, seems very much the domain of large global players – where opportunities for significant cost arbitrage involved in, say, the relocation of call centres from the UK to Malaysia seem to be very compelling and obvious options. Understandably, the issue of SSO is tread very cautiously by the smaller and boutique players in the industry. Where bottom lines are concerned, an institution's Board may find little appeal in the proposition of outsourcing where the cost-savings involved may seem minimal. However, there are many rewards to be reaped by an institution's successful execution and maintenance of SSO arrangements and a reduction in operating costs may only form part of the picture. The outsourcing of back office operations, say, allows institutions to accord greater focus on their core competencies and core businesses such as the execution of growth strategies or capturing market share.
At the end of his speech, referring – with an irony that shows a keen sense of human nature – to how the public might change its future perception on his activity, Professor Issing added: “I can only hope that in my modest case the reversal of the sequence of events does not end where the news on Napoleon started”. For me, a European of Latin origin living at the gates of the Orient, this excerpt does not reflect the so-called German rigidity whatsoever, but rather a healthy, accommodating sense of humour, which is part, I hope, of the new European culture. Turning back to the euro area tensions generated by the situation in Greece, the future definitely holds new surprises in store for us. One never knows who the next ogre may be… No matter how much uncertainty surrounds any prediction, I would rather conclude my presentation today on a positive note, by recalling the words of Jean Monnet, one of the founding fathers of the EU project, who thought that “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises”. I only hope that policymakers in Europe have learned their lessons well enough from treading the desert of the crisis so that it has taken us closer to that Promised Land Professor Issing was mentioning.

Obviously, not only the developments in the Eurozone, but also the progress in non-euro area countries contributed thereto. As for Romania, I cannot refrain from underscoring that, while in 2008 the country did not fulfil any of the Maastricht criteria (the only indicator below the reference value was that on government debt, which is part of the fiscal sustainability criterion), today it is a frontrunner in terms of macrostability. This refers to the fulfilment of the nominal convergence criteria and the observance of the reference values in the scoreboard for the surveillance of macroeconomic imbalances (net international investment position is the only indicator in excess of the reference value, the same as in all new Member States). BIS central bankers’ speeches  1  This is the right time to reassess the schedule for euro adoption, especially in the context of the governance framework reform that is underway in the euro area and of the wait-and-see approach of other non-euro area Member States (I am referring to Central and Eastern European countries, namely Bulgaria, the Czech Republic, Croatia, Poland and Hungary). We should ask ourselves whether setting a target date is a good idea. The answer would be: yes, to the extent that it helps reach political consensus, while also providing a policy anchor by rendering macroeconomic policies more coherent and acting as a catalyst for structural reforms.
Both make high demands on banks’ risk management and their value may react sharply to market movements because of leverage. Investments in HLIs are thus comparable to other risky investments. Let us now have a look at the collapse of LTCM – by far the largest hedge fund to date – in order to obtain some idea of the potential disruptive capacity of HLIs. Almost all of the fund's capital was destroyed in the collapse. Losses amounted to USD 4.4 billion, of which USD 1.9 billion were incurred by the manager of the hedge fund, USD 0.7 billion by UBS and USD 1.8 billion by other investors. Moreover, if the Federal Reserve Bank of New York had not intervened to organise a bailout, the hedge fund's counterparties would have incurred estimated losses of about USD 5 billion. 7 Although these amounts seem high, they are in fact modest in relation to the involved banks' capital and to the size of the financial markets. Second transmission channel: banks as price takers on financial markets HLIs act as buyers and sellers on the financial markets. Their actions have an impact on prices, liquidity and volatility in just the same way as any other market participant's action. However, there are two reasons why the impact of HLI trading could be stronger. First, in certain market segments they have an above-average share in trading volume.

In some market segments, especially in more complex ones, a large share of trading volume is attributed to HLIs. However, measured by assets under management, the HLI industry is still small compared to traditional investment funds and the trading books of large international banks. Because of its modest size, its  14  See also The President's Working Group on Financial Markets, 2007, recommendation 5. BIS Review 74/2007  5  heterogeneity and its absence from the field of financial intermediation, the HLI industry is no direct threat to financial stability. Nevertheless, there are two channels through which a shock occuring in the HLI industry could be transmitted to systemically relevant banks. First, banks are exposed to HLIs in their role as counterparties and creditors. Second, in periods of stress, banks may suffer from a lack of market liquidity and a decline in prices, and this may be aggravated by HLIs. Potential regulatory measures should therefore focus on the link between the HLI and the banking industry. Of particular importance is that banks simulate their risk exposures to HLIs and the liquidity situation in periods of stress. We encourage the private sector to take the initiative and come up with measures which will enhance market discipline and strengthen banks' resilience to losses from HLIs and adverse market situations. At present, we do not see a need for direct regulation of HLIs.
It therefore was natural to communicate policy in terms of factors that are relatively easy to measure and comprehend, and to do so according to concrete, relatively simple principles that could serve as a guide for monetary policy and that could contribute to stabilising inflation expectations. Moreover, from the point of view of explaining policy it is good if the overall objective of price stability that has been adopted by elected bodies in many countries can also be used in the implementation of policy and be allowed to play a prominent part in the debate. That the communication still tends to focus so strongly on inflation, despite the considerable confidence in low-inflation policies today, could reflect a perception that it is not all that easy to make substantial changes to the policy rhetoric. Personally, however, I think the problem runs deeper than that. It is quite simply difficult to clearly communicate the kind of varying, subtle deliberations that are involved. Of all inflation-targeting central banks, Norges Bank is perhaps the one that has come furthest in terms of the ambition to clarify the way policy takes the real economy into account, regularly publishing estimates of the output gap parallel with inflation forecasts as well as discussions of how policy takes account of it. It seems an interesting path to take, but at the same time it is evident - on the basis of my ten years’ experience - that far from all the considerations we have faced would be captured by this model.

Although foreigners, including non-EU nationals, are present in all sectors and at all levels, their employment has increased mainly in professional and administrative support services, and not as is sometimes claimed, in sectors characterised by lower skill levels. The increased employment of foreign nationals across occupations has enabled organisations to grow and venture in new areas. A sudden reversal of this pattern could stall activity in several sectors. Efforts to upgrade the country’s infrastructure should therefore be complemented by measures that prevent a disorderly depletion of foreign human resources and enhance the skills of Maltese nationals. *** Favourable economic developments, although easing somewhat, are expected to continue to buttress financial stability. Lending volumes remain supportive of interest income but pressures on margins persist due to the low interest rate environment. Notwithstanding, profitability remains a challenge for traditional banking models such as those of our banks. In fact, though still comparing favourably with their European peers, the profitability of domestic banks has been slimming. In addition to the limitations on their ability to generate more interest income, banks have to contend with ‘no-fee’ alternative products being developed by fintech players which operate with a lower cost base and hail from a less intrusive regulatory environment. Concurrently, banks are facing a more rigorous and intrusive supervisory approach coupled with more rigorous standards of Anti Money Laundering and Combating the Financing of Terrorism. This is absolutely necessary and has our full and active support.