samchain/econo-pairs-v1 huggingface dataset:
We are very much data driven; we are driven by facts. We'll look at how all kinds of circumstances, including trade but also the global economy generally and the momentum we have in Europe, feeds into eurozone inflation and that will be the basis for our decisions. So far we are coming from a starting point which is strong and where we have increasing confidence that our inflation objective will be met. When I look at some of the wage deals going around at the moment in Germany and beyond, I see very healthy wage growth of some of those deals as well. When's that going to start feeding through into broader inflation, the kind of figures you want to see to be able to feel more comfortable about raising rates to a normalised level? We've seen some uptick in inflation even in the most recent numbers. It is slow, because we are starting from a point where unemployment at eurozone level was high and broad. We know that it takes time for it to translate into wage pressures. We have to be patient, but there is no reason to think that this will not translate into higher price and wage pressures. We've started to see it. In terms of the cover you've given countries like Italy and others as well, do you feel they've squandered that cover that the ECB has given and the support the ECB has given them through a lower yield and lower borrowing cost?

I think there is very broad agreement in the Governing Council of the ECB that a high degree of monetary accommodation will remain needed and that's irrespective of the trade war or anything we've seen recently. That's because the economy and in particular the inflation in the eurozone is not yet where we want to see it. Monetary accommodation will remain needed but we'll see a change in the mix of our instruments. In particular as we come closer to the point where our medium-term inflation objective is met, I would expect the role of rate guidance to be strengthened. We've been clear on that. In terms of the models which you must be running that a trade war could affect as well and could affect Europe as well, those models would've been run at the ECB, I'm sure. What are they saying? 1/3  BIS central bankers' speeches  They clearly say that a trade war would have a damaging impact on the global economy, more so in the US and more so in economies which are either very closely related to the US or are deeply integrated in global value chains. The impact on the eurozone would be less and it all depends on how this conversation on trade will evolve and we don't know yet. That's why I'm saying we should look through it. Does the ECB have the tools, though, to negate the effects of a trade war if indeed the worst ramifications do happen?
They cut back spending 16  more sharply as incomes and house prices fall, amplifying any downturn ; 17  Distressed sales of homes drive house prices down ; 18  Reliance on foreign capital inflows can expose the economy to global risks ; 19  And credit booms overseas can translate to crises at home . All of this economic analysis would still not have told us what would happen in 2007. It would not have allowed us to predict the roll of the economic dice. But it would have revealed that a bad roll would have very serious consequences. The financial system could have been stress tested against that. Its resilience could have been reinforced. It could have been prepared. What became a disaster could have been contained to a downturn. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Now, with my second principle ringing in our ears, the toughness of our stress scenarios reacts not to whether a downturn is likely to unfold but to how deep it could be if it did. So when all appears bright – as real estate prices rise, credit flows, foreign capital inflows increase, and the last thing on people’s minds is a downturn – our stress scenarios get tougher. And my first call to arms for academia this evening is for further research into indicators that can help to guide us in asking how bad it could be.

However, recent empirical estimates for the UK suggest the effect is qualitatively present with the increase in banks’ overall funding costs due to higher capital requirements lower than in the absence of the theorem by 45% (Miles et al 2013) and 53% (Brooke et al 2015). 11 For example, the now defunct authority regulating the US Government-sponsored mortgage agencies stress tested them to only an 11% fall in house prices – a more severe shock than any nationwide house price decline to be found from 1945 onward. The peak-totrough fall of 11% was calibrated based on house price data for the West South Central Census Region between 1984 and 1993. Frame et al (2015) show that an alternative scenario based on realised post-2006 data would have revealed that Fannie and Freddie’s capitalisation was much weaker than what the original stress tests suggested. It wasn’t only regulators who made the mistake of relying on the recent past only. During a week when Goldman Sach’s Global Equity Opportunities fund lost 30%, Goldman’s chief financial officer famously stated: “We were seeing things that were 25-standard deviation moves, several days in a row.” His focus was too narrow. While the moves in 2007 were substantial, they were not unprecedented. Even within the last thirty years, equity prices had experienced larger single day falls than they did during 2007. 12 Danielsson et al (2016) show that systemic risk indicators constructed with market data were low and falling before the stress events in 1997 and 2008, and shot up during the events.
How has the Pact changed? The fiscal problems encountered by some countries during the downturn triggered a change of the Stability and Growth Pact. In my view, changes were necessary and many of the amendments to the Pact go in the right direction. However, some of them make the framework less predictable. The change consists of three parts: better governance, changes in the preventive arm and changes in the corrective arm. Better governance Better governance includes better budgetary discipline at national level, more realistic forecasting and more reliable statistics. National budgets should be complementary to the member states’ commitments under the Stability and Growth Pact. National institutions could play a more prominent role in budgetary surveillance through increased attention to the development of public finances in public opinion. But apart from those general words, the reformed pact does not spell out any guidelines for appropriate developments of national institutions. Within the EU we have now begun to analyse various forms of national regulations. I hope that the continued work will lead to stronger anchoring of fiscal policy among the member states. I will return to this question a little later. More realistic forecasting consists of having some common assumptions, mainly on external developments, in the stability and convergence programmes. The experiences from the first year of the reformed Pact indicate that it has led to more realistic national growth forecasts. More reliable statistics refer to budget data problems ranging from creative accounting via methodological problems to understaffed and non-independent statistical compilers.

It is a pity that government accounts, which affect everyone in a society in a compulsory way, are less transparent, less well audited and less understood than the accounts of companies listed on the stock exchange, which only affect few people. Sweden has pre-decided ceilings on government expenditure three years ahead and a target of a 2 per cent surplus for the public sector over the business cycle, a figure that includes pension savings and that, given an ageing population, is in fact akin to targeting a balanced budget over the cycle. This target is present in the debate of every budget. The National Institute of Economic Research comments on the target and helps the public to understand it. This keeps the government accountable not only in the normal political sense but also in relation to the targets agreed upon. The political debate is in a sense being taught to keep the long term in view. The public then knows from the national debate that fiscal discipline is good for the country and, if “accountants” in Brussels or other nations criticise your budget policies, there is a greater chance of the criticism being interpreted as a help towards fiscal soundness. The Swedish trade unions, for example, are among the most vocal defenders of our budget target. The expenditure ceilings have been respected but to some extent with the help of creative accounting. In addition, the last couple of years no decisions have been taken on the ceilings for all three years, as was intended.
First, in response to the Global Financial Crisis of 2008 the Bank increased the supply of liquidity in pesos and dollars – through repos and swaps –, augmented the extensions of the swap program, and broadened the range of eligible collaterals. They were all measures designed to align market rates with the Monetary Policy Rate and to mitigate foreign currency liquidity tensions. Forward guidance was also an important tool. With the Monetary Policy Rate close to zero – we cut the interest rate from 8.25% to 0.5% in less than a year – , communicating that we planned to keep a very low short-term interest rate for an extended period of time. This was essential in keeping medium and long term interest rates low. These measures – as well as some other more exogenous developments such as the rapid recovery of commodity prices – allowed the economy to rebound quite fast from a mild recession in 2009. Actually, in the post-crisis years GDP growth was above 5% in a context of low inflation. Over time, these measures were eliminated, but certainly the lessons we learned from the crisis have been incorporated into our policy analysis and toolkit. Among the most significant I would mention two: First, the fact that the central bank must be rapid to respond and use all the available tools if necessary.

In essence, all policy actions by the Fed, the ECB, the banks of Japan, England, Canada, and of many small open economies in the last 6 years have been about affecting long-term rates by influencing one, and often times more, of these interest rate components. Take the case of forward guidance. When nominal rates reached the ZLB, and particularly due to the low inflation environments, traditional monetary policy became very constrained –fully constrained by definition, one might say, given the impossibility of lowering short term rates any further. However, to the extent that one can credibly influence the expected path of future monetary policy actions, risk-neutral rates at different horizons can be lowered, perhaps even significantly so. However, as pointed out by Mike Woodford in an influential paper presented at Jackson Hole a few years ago, to truly make a dent on rates with this strategy, central bankers were likely to run into a temporal-inconsistency problem. This problem is basically that in the event that long-term rates can be reduced enough to jump-start the economy, the expost optimal policy stance would be inconsistent with the one promised in the midst of stagnation.
In parallel, the pandemic has heightened uncertainty, causing a sharp downturn in agents’ confidence and a heavy decline in the price of many financial assets. As a result, this year will foreseeably witness the heaviest declines in GDP since the Second World War in the advanced economies as a whole and since the Civil War in Spain’s case. Seeing the forceful impact on our economy through the statistical evidence of the past weeks and the difficulties that we are beginning to discern ahead of any future recovery mean, in fact, that the scenarios projected a month ago of more moderate declines in GDP are now rather unrealistic, as I shall set out. Second, at issue here is a crisis caused by a factor which, at least in principle, is temporary in nature - though probably more lasting than initially expected - and unrelated to the inherent workings of the economy. The duration of the shock is uncertain. However, it should be limited and make way for a recovery once we have controlled the disease. Yet as I shall go on to stress, it cannot be ruled out that, despite its temporariness, the wake of the crisis will also see structural damages and/or changes. It is important we should identify these promptly. The third and final characteristic I wish to highlight is the global nature of this crisis, which is going to land a most severe blow on the world economy.

Nonetheless, these developments will likely lead to some tightening in credit conditions for households and businesses, which in turn will weigh on spending. It is still too early to gauge the magnitude and duration of these effects, and I will be closely monitoring the evolution of credit conditions and their potential effects on the economy. The Federal Reserve has a dual mandate to promote maximum employment and price stability. These goals are intrinsically linked-price stability is essential to sustaining maximum employment over the long term and for the economy to reach its full potential. Right now, while there are some indications of gradual cooling in the demand for labor, the labor market remains very tight. Job growth continues to be robust. Job openings far outnumber applicants. And at 3.5 percent, the unemployment rate is near 50-year lows. That brings us to inflation. Inflation soared to a 40-year high of 7 percent last June, as measured by the personal consumption expenditures (PCE) price index. It has since  1/4  BIS - Central bankers' speeches  moderated to 5 percent, and the most recent data indicate that this trend of slowing inflation is continuing. Still, inflation is well above the FOMC's longer-run goal of 2 percent. This inflation target is an important bedrock principle for the FOMC. It provides a "North Star" for policy decisions and helps to improve the public's understanding of our goals and actions.1 We are committed to attaining-and maintaining-a sufficiently restrictive policy stance to achieve our 2 percent longer-run goal.
11 Moreover, domestic banks that compete with foreign banks exhibit more interest in introducing new accounting standards and financial reporting requirements, so that better quality of information on the companies financed allows them to extend more profitable loans. Domestic financial institutions are becoming more efficient, due the new technologies and best practice provided to the market by foreign companies. Integration of financial markets worldwide enables better risk diversification. Residents do not have to invest their savings in their own country and thus they are not exposed to the business cycle risk. They are free to invest in many countries and could obtain a better ratio of expected return to assumed risk. Globalization of financial markets also entails new challenges and threats. The lack of transparency, resulting from asymmetry, raises the risk of speculative bubbles and herd behaviour of investors. Uneven access to information in the global markets environment may lead to a negative selection in the financing of the enterprise sector and the moral hazard in a situation where the bankruptcy of a given institution would jeopardize the banking sector. 12 Economic reforms and opening the country to international trade in the emerging markets attract foreign capital, which, however, in the case of deteriorating economic situation, is withdrawn quickly. This invokes FX crises, which, as a result of an increase in interest rates, may turn into bank crises. 13 Additionally, international links of institutions and the speed of transmission of information among markets streamline the spreading of such crises over other economies.

12  BIS Review 60/2006  The hypothesis of the existence of an informal Breton Woods 2 says that a system has been established in which it is profitable for the Asian countries to finance the US current account deficit, because it enables them to increase their exports to this market. Thus, it supports the economic growth of the Asian countries and makes it possible for them to create new jobs, which is particularly important in China, where – according to various estimates – each year between 10 and 20 million of jobs must be created, due to migration of the population from rural areas to cities. In order to maintain the competitiveness of their exports, the Asian countries intervene on the FX market, thus preventing appreciation of their currencies. The purchased US dollars are invested in American bonds, and thus the American current account deficit is financed. Another hypothesis that explains the mechanism of occurrence of global imbalances has been formulated by the current Chairman of the Federal Reserve, Ben Bernanke. 29 His major concept is that the large US current account deficit cannot be explained solely by internal factors. In the opinion of Bernanke, external factors, which he has defined as the global savings glut, have played a key role. The hypothesis says that a significant surplus of savings over investments in the Asian countries, in combination with the structurally high savings in Germany and Japan, have caused the global savings glut.
Let us not forget the fact that the link has served Hong Kong well in the last 14 years by providing an anchor for monetary stability, without which it would not have been possible for Hong Kong to weather numerous shocks during this period and to develop into a leading financial, trade and services centre in the region, with a per capita income higher than many of the developed economies, including the United Kingdom. Even in the latest regional currency turmoil, the link has once again proved its resilience and the Hong Kong dollar has remained very stable against the US dollar. However, questions or doubts have emerged on whether the price for maintaining the link is too high for Hong Kong. 3. This leads me to my next point. Is the price for maintaining the link too high for Hong Kong? The higher interest rates resulting from the defence of the $ under the currency board arrangement are causing some pain, especially on the asset markets and on the finance costs for doing business generally. It is true that, under the currency board mechanism, when the $ is under speculative selling pressure, local interbank interest rates may go up sharply, as they did on 23 October. On 24 October, the major banks raised their best lending rate by 75 b.p. to 9.5% in view of the rising funding costs.

Dimitar Radev: Spillovers from the ECB’s monetary policy decisions are fast and strong Statement by Mr Dimitar Radev, Governor of the Bulgarian National Bank, for the IFLR Yearbook: Global Banking & Financial Policy Review 2019/2020, published on 24 September 2019. * * * There is much discussion these days about the course of monetary policy in the euro area. What global headlines rarely catch, however, is how such policy affects the European economies outside the euro area. Bulgaria is an example where, due to the high openness of our economy and the strong financial links with the euro area, spillovers from the ECB’s monetary policy decisions are fast and strong. Around 50% of Bulgaria’s exports go to the euro area. Investors from the euro area account for 67% of our FDI stock. Our banking system is dominated by the presence of euro area owned banks, which hold around 55% of the sector’s assets. The monetary policy regime in Bulgaria (a currency board with the national currency fixed to the euro) is another factor enhancing the direct transmission of ECB’s monetary policy. Therefore, even though Bulgaria is not a member of the euro area yet, it is important to consider how our economy is affected by the ECB’s continued accommodative stance. Financial stability and its implications are issues to be potentially concerned about. The ECB’s monetary policy in recent years has succeeded in sustaining the economic recovery in the EU following the great financial crisis.
As a result, the structure of the euro area financial sector is changing. In 2008, total assets held by investment funds were only 15% of banking sector assets. In 2017, euro area investment fund assets had grown to 42% of total banking sector assets, amounting to EUR 12 trillion. This major growth in relative size is likely to have far-reaching implications for the ability of the financial system to absorb shocks and for the financing of the economy more broadly. On the positive side, an increase in market-based finance through the issuance of debt and equity instruments can help diversify the funding base of the real economy. It also gives investors more choice and enables them to benefit from diversification effects offered by investment products. This holds true for retail and institutional investors alike, as an increasing share of institutional investors are using professional asset management services. The growing share of investors outside the core financial system tends to increase the system’s risk-bearing capacity, as traditional end-investors, typically not leveraged, can absorb any potential losses more smoothly. One should also acknowledge that thanks to significant efforts in the last ten years, investment funds in the EU are subject to an enhanced regulatory framework.

To better understand how that happened and what it portends, it is useful to think of inflation in terms of three distinct layers of an onion. In this analogy, the onion's outer layer consists of prices of globally traded commoditiessuch as lumber, steel, grains, and oil. They have experienced a surge in demand as the global economy has rebounded from the pandemic downturn. In addition, Russia's war on Ukraine and the resulting actions have caused energy prices to soar. These higher costs get passed on as higher prices for consumers. I am sure everyone in this room has been forced to manage skyrocketing costs on important supplies over the past two years. The middle layer of the inflation onion is made up of products-especially durable goods like appliances, furniture, and autos-that have been affected by severe supply-chain disruptions. Many of you have also had first-hand experience with the impact of shutdowns and supply-chain bottlenecks. There haven't been enough inputs to produce products, and not enough products to sell-all at a time when demand has been skyhigh. Many of you have also had customers lining up at your doors-but not enough products in stock. This imbalance between supply and demand has contributed to large price increases. To give some examples, prices for furniture rose over 13 percent last year, new cars were up nearly 12 percent, and used vehicles skyrocketed an astounding 50 percent. The innermost layer of the onion consists of underlying inflation, which reflects the overall balance between supply and demand in the economy.