samchain/econo-pairs-v1 huggingface dataset:
Both monetary and fiscal policy are inherently counter-cyclical, and arguably never more so than when we face a shock of the scale of a global pandemic. But at the core of the argument for central bank independence is the evidence from the past that without an independent institution operating monetary policy the overall effects of economic policy were dangerously pro-cyclical at times, leading to bad outcomes. In the face of what may be the deepest recession since 1709, with a collapse of economic activity alongside very low inflation, the question we ask ourselves is what should an inflation targeting central bank do in this situation? The lessons of history don’t change. The answer is to respect our remit and our target, no good will come of ignoring that. The logic of counter-cyclical policy is that all the tools should be applied to raise activity and support employment and the welfare of the public, all of which is consistent with an inflation targeting monetary policy. In practice, doing so has meant using tools to keep financial conditions sufficiently accommodative to offset as best we can such a large shock. This has been essential to support the flow of credit to businesses, which has been very substantial, and has called on both the monetary policy and financial stability tools of the Bank of England. This has also helped to lessen any longer term economic damage from the pandemic, resulting from longer term unemployment and business failures.

Since the banks themselves have massive investments in this market, they were obliged to make writedowns which, in some cases, were hefty. There is still uncertainty about the volume of additional bank writedowns that will be needed, so that the situation on the international money markets remains tense. In this crisis, central banks have reacted fast and flexibly in order to secure the supply of liquidity to banks and counter distortions on the money market. By means of various measures, the Swiss National Bank was able to stabilise the three-month Libor within the target range, thereby keeping fluctuations in the relative restrictiveness of monetary policy low by comparison with other countries. However, it is not possible to solve the fundamental problems in the banking sector through the flexible deployment of an expanded range of monetary policy instruments; neither can they be resolved by means of coordinated actions on the part of central banks alone. The banks themselves must make a substantial contribution to solving the problems which triggered the current crisis. In this respect, the most urgent matters are transparency with regard to endangered positions and their valuation, increasing the capital base, and improving risk management and control systems. BIS Review 37/2008  1
As a consequence, world GDP and world trade are estimated to have fallen at an annualised rate of about 6% and 25% respectively in 2008Q4. Banking contributed to a Great Recession on a scale last seen at the time of the Great Depression. Yet the official statistics on the contribution of the financial sector paint a rather different picture. According to the National Accounts, the nominal gross value-added (GVA) of the financial sector in the UK grew at the fastest pace on record in 2008Q4. As a share of wholeeconomy output, the direct contribution of the UK financial sector rose to 9% in the last quarter of 2008. Financial corporations’ gross operating surplus (GVA less compensation for employees and other taxes on production) increased by £ to £ also the largest quarterly increase on record. At a time when people believed banks were contributing the  BIS Review 95/2010  1  least to the economy since the 1930s, the National Accounts indicated the financial sector was contributing the most since the mid-1980s. How do we begin to square this circle? That is the purpose of this chapter. It is planned as follows. In Section 2, we consider conventional measures of financial sector value added and how these have evolved over time. In Section 3, we consider a growth accounting breakdown of the factor inputs which have driven growth – quantities of labour and capital and the returns to these factors.

In addition, the severe supply-chain bottlenecks that initially affected this category began to improve last year, which likely contributed to the easing of prices for some durable goods in recent months. However, there are factors that may throw sand in this gear going forward. The economic resiliency of Europe and a rebound in growth in China following the end of COVID restrictions will likely increase global demand for goods. And further improvement in global supply-chain disruptions has stalled over the past few months. For example, the New York Fed's Global Supply Chain Pressure Index remains elevated relative to pre-pandemic levels. The slowest gear to turn is the one that represents non-energy services. It's influenced by the balance of overall supply and demand, and it will take the longest to rotate at the right pace for low and stable inflation. One area where we are seeing signs of this gear turning is in shelter costs. After a sharp rise, we have seen a steep decline in the rate of increase in new lease rents. Assuming this trend continues, we should see a slowing of overall rent inflation during this year. That said, we have yet to see the gears turn for inflation of non-energy services excluding housing, which is still quite elevated, averaging 3-3/4 percent over the most recent six months. Tightening Monetary Policy Taking into account the different speeds the gears are moving, it is clear that overall demand remains well in excess of supply, and inflation is running far above our 2 percent target.
And it is true equally of government intervention in the form of regulation and social protection. But my strong impression is that there is a growing awareness in many countries that policies in all these areas need to take account of potential supply-side effects, with an increasing bias towards structural reforms, in labour, product and capital markets, with a view to increasing employment and reducing distortions that impede efficient resource allocation. Now I do not pretend to you, Mr. Chairman, that the international policy consensus that I describe - particularly on the supply-side - is fully articulated; nor do I claim that it is subscribed to in its detail equally in every IMF member country. But it does represent a substantial evolution in our collective thinking over the past decade or so towards a much more common approach to economic management, which serves as a valuable framework within which countries’ performance can be assessed. The snail may have moved slowly but it has in fact travelled a considerable distance! It has nonetheless still a long way to go. Its progress has been impeded in the past few years by the eruption of a number of financial disturbances - most recently in Asia - which have drawn attention to continuing deficiencies in our approach to economic management; and we spent much of the time last week in Washington discussing what lessons we might learn from those events.

We can expect other events to occur with a greater or lesser degree of probability. Historically, the deviation between actual underlying price inflation and our projections has been within an interval of +/-1 percentage point. When we later report on the implementation of monetary policy, we will place special emphasis on analysing the causes when deviations from the target are more than +/- 1 percentage point. 1  “Box: Effects of a change in interest rates” in Inflation Report 4/2000, Norges Bank. 2  Economic models of the Bank of England, Bank of England (1999). 2  BIS Review 7/2002  Normally, we make projections with a time horizon of about two years. During this period, a number of events will necessitate a revision of the projections. A number of uncertainties will be clarified along the way. New information about how the economy functions may be revealed. As we approach the period for which the projections apply, the uncertainty surrounding the projections will diminish. The chart shows how the projections for the rise in the CPI from 2000 to 2001 have changed from December 1999 to the end of 2001. Through 2000, the estimate was revised upwards by more than 1 percentage point. The most important factor influencing this adjustment was an upward revision of the projections for oil and electricity prices in 2001. We see that from the end of 2000, the deviation of estimated price inflation from actual price inflation, which was 3 per cent, was modest.
An important issue in the analysis of stability is therefore whether there is a risk of house prices falling sharply and thereby eroding the security value underlying loans to households. Security value is of no consequence as long as borrowers can service and repay their loans but if a household becomes unable to pay, it is important that the value of the pledge covers the loan. While one cannot be absolutely sure about the appropriate long-term price level for houses and tenant-owned apartments, the estimates the Riksbank has made in various contexts do suggest that fundamentals such as incomes, interest rates and residential construction provide a fairly good explanation of both house prices and loans in the past decade. This reduces the risk of house prices falling sharply. Moreover, the speculative elements in the housing market are probably small. One reason for this is that Swedish households, unlike households in a number of other countries, buy housing to live in rather than to make a profit. They do not buy a house merely to be able to sell it a little later and make a capital gain. This means that prices are not forced up in the same way as in a financial bubble like the one we saw on the stock market not so long ago. Neither is it remarkable that households have enlarged their debts so much since the mid 1990s. Debt ratios were low after the crisis in the early 1990s.

In the UK, where the annual increase in house prices amounted to approximately 4 per cent the second quarter this year, the ratio of debt to disposable income is around 150 per cent. In Sweden, house prices have more than doubled in the past decade, with a par-ticularly strong increase in metropolitan regions. Part of the explanation is that household incomes have also risen rapidly in this period. It is reasonable to assume that house prices follow income in the long run. What gives some cause for concern is that house prices and household debt have both been rising very much faster than income and have continued to do so this year. At the end of the second quarter this year, house prices had risen by more than 7 per cent and house-hold debt by over 10 per cent compared with a year ago. Since 1995, house prices and debt have both risen over 40 per cent more than income. The pertinent issues have mainly been whether there are “bubbles” in the housing market in the sense that house prices have deviated markedly from what can be motivated by underlying factors such as disposable income and interest rate costs, and whether households have taken on too much debt in relation to their future ability to pay. Another question that has come up in recent years in Sweden, as well as in England and elsewhere, is why the strong credit growth and rising house prices have not been accompanied by increased consumption.
This could occur as part of a reform package comprising three main components: first, a large cut to the “Risk Margin”, which is an extra liability that firms have to carry in order to make it more likely that another firm will agree to take on their insurance policies if the firm gets into trouble, to ensure policyholders are still protected in that scenario; second, a package of measures to remove unnecessary bureaucracy from the regime and enable insurers to invest in a wider set of assets; and third, measures to put one part of the regime (the “Matching Adjustment”) onto a more sustainable footing. While there are important issues to debate on the first two elements, it’s on the third of these that there is the main current difference of view between the PRA and parts of the life insurance sector and I will focus mainly on that element in my remarks today. What is the “Matching Adjustment” and why does it matter? The main point of contention in the review is what, if anything, to change about the calibration of a part of the regime called the “Matching Adjustment” (or “MA” for short). It’s usually at this point in any speech about insurance regulation that most people switch off, but bear with me while I try to bring the issue to life. First, what is this “MA” and what does it do?

What should we do about this? Based on the analysis and evidence we have reviewed, we think we need to take some steps now to guard against these problems with the MA leading to an insurer getting into trouble in the future. As part of the wider package of reforms under consideration, we think those steps should also support the government’s investment objectives. This should occur in one or both of two ways. First, our analysis indicates to us that the combined effect of the reforms – in particular loosening the risk margin while tightening the MA – should free up a significant amount of capital for insurance companies across the sector, which they could choose to re-deploy into investment if their boards support that course of action rather than returning it to shareholders. [11] We think that on recent economic conditions – specifically, those at both year-end 2020 and yearend 2021 – the amount of capital released would be equivalent to 10-15% of the current capital held by life insurers, which could support between £ and £ in additional investment in the economy. In higher interest-rate environments the figure would be a bit lower, simply because the risk margin in its current form shrinks as interest rates go up and therefore the large cut we propose releases less capital when rates are higher. But we think it is still a material release – for instance we estimate it would be 5-7% under one long-run 'rates up' scenario.
William C Dudley: Address to the New College Class of 2010 Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the New College of Florida 44th Annual Commencement, Sarasota, Florida, 21 May 2010. *  *  *  Congratulations, graduates. And congratulations, even more so, parents and all of you who supported these graduates along the way! Thank you to the graduates and members of the faculty and administration for selecting me as New College of Florida’s 44th commencement speaker. I am very grateful for the opportunity to speak here today in such a beautiful setting. It’s nice to be back. Earlier today, I had the pleasure of meeting a few of you – in a smaller setting – to hear about your plans for after graduation; or should I say, tomorrow. I am very impressed with the high caliber of graduates in your class. I also had a tour of the campus today, which I must say has changed a lot in the past 30 years. One thing that hasn’t changed, however, is the Palm Court – or as you all so affectionately call it, the “center of the universe.” I have very fond memories of my time at New College, aside from those great Palm Court parties. I received a terrific education and made some life-long friends. I hope the same has been true about your New College experience.

Via the effects on inflation, asset prices are thus taken into account in the formulation of monetary policy, although they do not feature explicitly in the target variable. However, the simple use of financial asset prices as indicators is not a panacea for the central banks’ forecasting problems. Asset prices can move for a variety of reasons. Understanding those reasons is important in determining the appropriate monetary policy response. For example, if a rise in share prices stems from increased productivity and thus from expectations of higher future profits, the implications for monetary policy would be very different from a case with no such fundamental reason for the higher share prices. This raises a number of questions. The first pertains to the relative informativeness of different kinds of asset prices. The second is how to integrate the information obtained from asset prices with other macroeconomic information. Notwithstanding the empirical evidence of the indicator properties of asset prices, the causal relationships between asset prices and real macroeconomic variables have 1  BIS Review 51/2000  proved to be more difficult to understand and model. But, as I have just illustrated, the answers to these questions can be very important for monetary policy. It seems quite clear that central banks cannot afford to adopt a view of asset markets as merely “side-shows”. There can be other, sometimes less straightforward, situations where monetary policy has reason to react to movements in asset prices even though the effect on inflation is negligible.
The MPC is using Forward Guidance to help avoid those possible misconceptions. The Committee cannot make the uncertainty about the supply side of the economy and, thus, about the degree of slack go away. But by adopting a probing approach and maintaining an eclectic approach to its assessment of the outlook, the MPC has the wherewithal to provide broadly the right degree of stimulus without risking, or diluting its commitment to, price stability. BIS central bankers’ speeches  5

The interest of the ECB in this process therefore relates especially to the independent status of central banks of the accession countries and to the implementation of sound legal regimes in the area of financial law. At a later point in time before an accession country adopts the euro, further legislative amendments will be required in order to integrate the central bank into the Eurosystem and to enable it to fulfil its part in our monetary policy and other operations. So, what has been achieved in terms of legislative amendments in accession countries and what remains to be done before accession? The ECB co-operates with the legal experts of the national central banks of the accession countries in order to follow the legislative developments, and I can therefore give some indications of the degree of progress. Turning first to the requirement of central bank independence, several accession countries have amended their central bank legislation, although further adjustments are generally required. The drafters of the Treaty placed a strong emphasis on central bank independence as a reflection of the generally held view that the achievement of price stability is best served by an independent institution with a precise mandate. In line with this Treaty principle, the precursor of the ECB, the European Monetary Institute, established a list of features of central bank independence, which will form the basis for the assessment of the compliance of the accession countries with the requirement of central bank independence.
The executive body consists of three members with equal rights who jointly carry out the tasks defined in article 46 of the National Bank Act and bear joint responsibility for them. First and foremost, the law describes these tasks as conceptional and operational monetary policy decisions. The Chairman does not have any special powers. Consequently, responsibility is shared. Transparency and accountability are crucial, particularly in times of crisis, when the information needs of the general public and financial markets, as well as other authorities, are increasing exponentially. We have responded to this need. For instance, information on central bank balance sheet items and SNB Bills has been stepped up, and our news conferences can now be watched on our website. During the course of the crisis, in particular, at the time of the measures to strengthen the Swiss financial system in October 2008, the number of appearances of Governing Board members before parliamentary commissions increased significantly.8 I would like to hazard a guess that the SNB has never been as transparent as it is today. In this respect, it also stands up well to international comparison. 7  This is also laid down in the Message on the revision of the National Bank Act with regard to art. 7 para. 1 NBA (6191), “The SNB’s decision-making autonomy must be retained because its accountability would otherwise inevitably come into conflict with its authority to act independently of instructions (under art. 6).” Consequently, the SNB bears “sole responsibility for the mandates described in art.

We maintain, against all temptation of nilateralism or deregulation, our commitment to the multilateral rules of the game in place since 2009. And we are stabilising these rules once and for all: there will not be a Basel IV. In sum, 2017 positively marked a turning point for both the United States and France. The beginning of 2018 has thus been characterised by a welcome optimism, but one which must not act as a disincentive: confidence yes, complacency no. We must not lie back and enjoy the return of blue skies; we must take steps to ensure that this improvement is transformed into stronger and sustainable growth. To this end, I wish to make four collective wishes for the coming year. 2. Four wishes for 2018 My first wish concerns Europe. This does not so much concern our monetary policy, which has 1/3  BIS central bankers' speeches  entered a gradual normalisation phase, and which is a success; I will not discuss it further this evening during the "silent period". 2018 must above all be the year of Economic Union, which still largely remains to be built. We must now or never take advantage of the recovery to tackle the shortcomings of the euro area. Because France and Germany’s electoral calendars are aligned for the first time in 15 years, and since last Friday, there is a prospect of a pro-European coalition in Germany.