samchain/econo-pairs-v1 huggingface dataset:
Fluctuations in the exchange rate can be an important source of such trade-offs, as they can exert pressures on consumer price inflation without proportional effects on activity.27 A simple way to represent formally how the policymaker optimises the trade-off is in “linear-quadratic” form – a set of linear constraints describing the behaviour of the economy, and quadratic preferences that penalise deviations of inflation from its target and output from its potential. The relative weight the policymaker places on output stabilisation, relative to inflation stabilisation, is often denoted 𝜆 – or ‘lambda’. A lambda of zero would imply no weight on the stabilisation of real activity – so-called “inflation nutter” preferences. A positive lambda implies a willingness to strike at least some trade-off between output and inflation stabilisation; a higher value indicates that relatively more weight is given to output stabilisation, so that more of the effects of any shock flows through to inflation. In this framework, the value of lambda should vary over time in light of the nature and persistence of the shocks hitting the economy and features of the economy. The MPC’s remit explicitly builds in such flexibility. It recognises that in exceptional circumstances, when shocks to the economy may be particularly large, persistent or both, the MPC is likely to be faced with more significant trade-offs.

And the required adjustment still has a long way to run – few of the largest banks in the United Kingdom managed to reduce their leverage ratios through 2008, which remain at historically high levels. Third, interconnections between institutions create potential fragilities across the system, as we saw last September. Fourth, the risks associated with large-scale proprietary trading are probably harder to control in limited liability companies. So we need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. The resulting “macro-prudential” toolkit will contain a number of instruments to reduce risk, both across the system and over time. It must not be put together in a hurry. And I share the concerns of many of you that we are a long way from identifying precise regulatory interventions that would improve the functioning of markets. As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector. If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give.
The stability of the banking sector has been further strengthened by the ongoing reforms and boosted both mergers and acquisitions and foreign bank participation to the sector. The volume of the banking sectors’ credits to non-financial sector rose by more than 70 percent in real terms and the sectors’ profits increased by a considerable amount since 2002; capital adequacy and loan quality of the sector also improved. As of today, efforts towards increasing the consistency of the legal framework with the EU, completion of the restructuring process and then privatization of the public banks and development of modern risk management are on the agenda. Distinguished Participants, Today we not only have a stronger banking sector, which forms a basis for macroeconomic stability, but we also see remarkable progress in the Turkish economy in general. With the stabilization program that was launched in May 2001, great progress toward macroeconomic stability was made, especially in the disinflation process and recovery in growth. As the inflation rate is regarded as a signal of the quality of economic management, the achievement in the inflation front in the Turkish economy is among the most significant examples of progress toward better macroeconomic fundamentals. Single digit inflation was reached after a period of more than thirty years of high and chronic inflation. Additionally, as inflation targets were attained in 2002, 2003 and 2004, and thanks to a sound communication policy, the public in general now believes in the determination of the policy makers to fight against inflation.

Having suffered from the reckless and unstable macroeconomic management together with inefficient supervision, the system deteriorated severely and faced a serious moral hazard problem. Dear participants, A closer look at the Turkish financial system would be helpful to characterize its weaknesses and structural problems during that period. First of all, because of the high public sector borrowing requirement, fiscal dominance increased considerably in the financial markets and led the public sector to crowd out the private sector. Hence, the relationship between the banking sector and real sector could not develop as it should have done. Instead, the relationship between the banking sector and the public sector strengthened year after year. Secondly, the banking sector as a whole failed to exercise good risk management in its credit allocation. Since financing the public sector budget deficits with high real interest rates was an easy way to make profits, banks did not pay much attention to basic principles of risk management, such as maturity and currency mismatches. Some banks also created considerable amount of connected-loans in their balance sheets. On the public banks side, more specifically, which had a high share in the overall sector, banks were heavily used to support government policies and credits were allocated inefficiently, which resulted in big losses and weakened their capital structure.
Let us assume that Finansinspektionen conducts a wise policy in the coming decades and succeeds in preventing one or more financial crises that would otherwise have occurred. It would be very difficult to actually prove that this was due to successful macroprudential policy – the only thing that can be observed is that no crisis has occurred. I can easily imagine that the general impression in retrospect would be that Finansinspektionen had been imagining things and tightened macroprudential policy unnecessarily. Ironically, it may be the case that the more successful macroprudential policy is, the less useful it is perceived to be. Over time, this could lead to fairly strong pressure on Finansinspektionen not to take any action. In addition, there will of course also be the common criticism that one, as in monetary policy, is “taking away the punch bowl just as the party gets going”. Moreover, it is possible that macroprudential policy measures will be perceived as more dramatic and as a larger intervention than raising the repo rate, and the pressure not to take action can thus be particularly great in this field. Macroprudential policy also needs support Just as monetary policy cannot be left alone to try to manage the risks linked to household debt and developments on the housing market, macroprudential policy cannot be left without support. I believe it is important that there is some degree of concordance between macroprudential policy and monetary policy – so that they, so to speak, do not pull in different directions, but help one another.

Christian Noyer: Does money matter? A European perspective Speech by Mr Christian Noyer, Governor of the Bank of France, at the 4th ECB Central Banking Conference “The role of money: money and monetary policy in the twenty-first century”, Frankfurt am Main, 9 November 2006. *  *  *  It is a great pleasure and honour for me to take part in this Central Banking Conference. My communication will be organised as follows: I will first review some stylized facts about money and inflation that show that money still matters; second, I will relate these stylised facts to the two-pillar monetary policy strategy of the Eurosystem. I will conclude my presentation by addressing some interesting challenges we face in implementing our monetary analysis. Some stylized facts about money and inflation Let me start with a well known paradox which can be articulated in three propositions: first, price stability is the objective of all Central Banks; second, as Milton Friedman put it "inflation is always and everywhere a monetary phenomenon"; and third, nevertheless, in most countries, money has little or no part in the design or implementation of monetary policy. There is, of course, one noticeable exception: the euro area. Before getting into more details about our approach, I would like to mention two reasons why I think money, as such, remains an essential component for the design and implementation of monetary policy. •  First, money is still of direct relevance to monetary policy in exceptional circumstances: either strong (or hyper) inflation or deflation.
I would particularly like to thank Saba Alam, Gillian Anderson, Filippo Busetto, Harvey Daniell, Andrew Gaffney and Alex Rattan for their help in preparing this speech. I have received helpful comments from Andrew Bailey, Ben Broadbent, Rich Harrison, Jonathan Haskel, Andrew Hauser, Bob Hills, Neil Kisserli, Rhys Phillips, Dave Ramsden, Matt RobertsSklar, Andrea Rosen, Michael Saunders, Fergal Shortall, Tom Smith and Silvana Tenyero, for which I am most grateful. References A. Bailey, J. Bridges, R. Harrison, J. Jones and A. Mankodi (2020). ‘The central bank balance sheet as a policy tool: past, present and future,’ Bank of England staff working paper no. 899. Broadbent, B. (2022). ‘Reliable partners,’ speech given at Gresham College, London. Busetto, F., M. Chavaz, M. Froemel, M. Joyce, I. Kaminska and J. Worlidge (2022). ‘QE at the Bank of England: A perspective on its functioning and effectiveness,’ Bank of England Quarterly Bulletin Q1. Evans, C.L., J.D.M. Fisher, F. Gourio and S. Krane (2015). ‘Risk management for monetary policy near the zero lower bound  ,’ Brookings Papers on Economic Activity (Spring), pp. 141-196. Mann, C.L. (2022). ‘A monetary policymaker faces uncertainty,’ speech given at a Bank of  Page 18  England webinar. Nickell, S. (2005). ‘Why Has Inflation Been So Low Since 1999? ’ Bank of England Quarterly  Bulletin 45, pp. 92-107. Pill, H. (2022). ‘Monetary policy with a steady hand,’ speech given at the Society of Professional Economists online conference. Pill, H. (2021).

[15] In this context, the MPC needs to ensure that domestic price setting does not achieve a selfsustaining, expectationally-driven momentum, which would maintain inflation at elevated levels even as the direct external impulse coming from commodity prices recedes and unemployment starts to rise. Avoiding any drift towards the embedding of such ‘inflationary psychology’ into the price setting process is crucial. With that in mind, and after a very prolonged period of supportive monetary policy in the United Kingdom since the onset of the global financial crisis, the time has now come to withdraw that accommodation in the interest of returning inflation to target in a sustainable way. It is the need for a continuation of this transition in monetary policy that led me to support the 25bp hike in Bank Rate at the May MPC meeting. And, even after this hike, I still view that necessary transition as incomplete. Further work needs to be done. Chart 9: Inflation forecast conditional on alternative assumptions about the path of Bank Rate(a)  (a)This chart shows central projections drawn from fan charts shown in the May 2022 MPR. These depict the modal outcome for CPI inflation in the future, conditioned on an assumption of constant interest rates at 1% and on an assumption that interest rates would follow the market implied curve. Please see the May 2022 MPR report for information on the conditioning assumptions underlying the forecast.
The scale of these flows has waxed and waned, but it is clear cross-border flows of people today are at high levels historically. 7 In London, the fraction of non-UK born residents was almost 3 million or 37% of the population in 2011. And Edinburgh has the largest non-UK born population of any region in Scotland at 16%. Accompanying this co-mingling of ethnicities and cultures has been an evolution, bordering on revolution, in social attitudes. Through the course of several centuries, laws have emerged forbidding discrimination based on race, gender, disability, ethnicity and age. And, during the latter part of the 20th century, there has been rapid growth in a new set of social norms and policies to promote diversity in schools and universities, in the workplace, in sport and leisure activities and in wider society. One interesting window on these changing societal attitudes is provided by looking at the etymological roots and evolution of the word “diversity” itself. These can be traced to the Latin “divertere” meaning “to turn aside” – which in turn led to our word ‘divert’, meaning to change course - and the old French expression “diversite” meaning “difference, uniqueness, oddness”. In other words, the semantic roots of diversity support a dual interpretation, part positive, part negative. 8 That dual interpretation has continued through the ages. Chart 1 plots the incidence of the word diversity in books printed since the 15th Century. 9 Diversity entered the English lexicon in the mid-14th century. At that time, its meaning was broadly neutral.

After the collapse of Lehman Brothers in October 2008, the turmoil mutated into a full-blown financial “crisis” and many market segments seized up. The “Great Moderation” gave way to the “Great Recession”, characterised by a massive fall in industrial output and trade. BIS central bankers’ speeches  1  Policy interventions were made by central banks and other public authorities to restore and secure the orderly functioning of markets and economies. I like to think of the interventions by public authorities as “lines of defence” against the crisis. They proved successful in guaranteeing those authorities’ ability to continue delivering macroeconomic and financial stability against the crisis. Let me recall briefly the three main lines of defence: central banks increased their provision of liquidity and financial intermediation services; monetary and fiscal authorities adjusted their policies in order to mitigate the macroeconomic impact of the crisis; and governments implemented a variety of measures in support of the financial sector. The government measures adopted in response to the economic crisis – both those related to fiscal policy and those in support of the banking sector – did not come cheap. This is true not only in the euro area, but – more generally – in all advanced economies. Together with the impact on government budgets of the massive economic contraction recorded during the crisis, they led to a significant deterioration in the public finances of a number of economies in the euro area.
If Sweden chooses to remain outside, it will ultimately be difficult to get the participating countries to understand our actions. The fact that the monetary union is a major component of a larger process of integration means that we cannot expect to get simple answers to our questions by adopting an attitude of wait-and-see. Assessing the project over a complete business cycle certainly has its advantages but the prevailing uncertainty is costly. Investments are postponed or shelved. Twin systems have to be maintained. I am convinced, moreover, that new questions will arise all the time. We shall never be able to tell just how EMU will develop. This is something that those who participate decide as they go along. In the event of turbulence in the world around us, participants in the euro area have extra protection. This was evident last autumn, when the financial market turbulence hit the Swedish krona more heavily than the Finnish markka. On the other hand, as euro participants we would be in the same boat as at least eleven other countries. That naturally implies greater dependence – we would be clearly involved in problems that arise in the euro area. The only way to counter that would be by actively influencing developments in the euro area in the right direction. An insurance argument can be put for remaining outside the euro area. If we continue to manage the economy properly, there should be freedom of action in our economic policy. But this is not a simple matter.

The report considered that the arguments in this respect were not clear-cut either way but that the advantages of staying outside for the time being predominated. With a national monetary policy at a time when the economy still had major imbalances and was highly vulnerable to shocks, Sweden would then be in a position to parry any negative repercussions that might hit the economy while leaving the euro area relatively unaffected. 1  BIS Review 92/1999  A radical change in conditions for the forest industries is the standard example of such a shock. But even a more general worsening of conditions for growth in the rest of the world might have particularly adverse effects for a small economy with a high level of foreign trade. Moreover, with an independent monetary policy, interest rates can be increased to counter effects of a specific domestic policy failure, for instance an excessively weak budget policy or inflationary wage settlements. At present some observers might perhaps regard this as the greatest risk. According to the report, the high unemployment that had occurred in Sweden since the early 1990s made constraints on Swedish monetary policy particularly risky. In the situation at that time, a shock could have serious consequences for unemployment, with a further increase from a level that was already high. Experience in other countries, moreover, pointed to a major risk of an increase in unemployment becoming permanent. Swedish monetary policy could then provide support for the necessary labour market reforms that were advocated in the report.
Companies in the main advanced countries are running significant financial surpluses, on average of around 2.5% of GDP (Chart 13). Pre-crisis, companies were running financial deficits of around 1% of GDP. The cash position of the corporate sector is even more striking, with large UK corporates’ stock of cash up by over 40% since 2006. But as among households, this picture of aggregate health conceals a long tail. A number of companies appear to be struggling to meet interest payments even at ultra-low interest rates. The fraction of companies whose profits do not cover interest payments has actually risen slightly since the crisis; it is currently around one third (Chart 14). Within some sectors, such as property, debt-servicing capacity has deteriorated sharply. Despite these balance sheet headwinds, the macroeconomic situation today is far better than at the time of the Great Depression – with one exception. The exception is government finances. Despite the much smaller fall in GDP, UK government debt-to-GDP ratios have deteriorated more than in the 1930s (Chart 15). This pattern is mirrored across advanced economies. The IMF expect debt-to-GDP ratios in the G7 economies this year to breach 100% of GDP for the first time since the Second World War (Chart 16). 1  Perhaps because banks’ asset measurement is not distorted by errors in risk weights and equity measurement is forward-looking and not distorted by different capital definitions – see Haldane (2011). BIS central bankers’ speeches  3  There is no magic number for debt ratios.

François Villeroy de Galhau: With economic recovery underway in Europe, what monetary policy? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at a lunch-debate at the Centre des Professions Financières, Paris, 28 September 2017. * * * Accompanying slides  Ladies and gentlemen1, It is a pleasure to be here with you for this lunch-debate of the Centre des Professions Financières. I would especially like to thank your chairman Michel Pébereau for his kind invitation. Today, I am delighted to be able to speak to you on a highly topical subject: monetary policy in Europe in the context of economic recovery. The prospect of a very gradual normalisation of our monetary policy gives rise to concerns and expectations. I will begin by focusing on what our accommodative monetary policy has already achieved today, before talking about prospects for the future. I. What is the situation today? Economic recovery in the euro area is here [slide]. It is robust and broadly based across  countries and sectors. Our latest ECB forecasts2 confirm this: growth should stand at 2.2% in the euro area in 2017, i.e. a significant upward revision of 0.3 point compared with June’s forecast of 1.9%. This means that for the second consecutive year, euro area growth will be comparable to that of the United States.
As long as the basic willingness to share fiscal sovereignty is lacking, we could and should then agree that sovereignty will be relinquished if a Member State does not comply with the jointly agreed objectives, such as the deficit and debt limits. At the same time, it’s necessary to strengthen national ownership and private risk-sharing. From an economic perspective, it would seem obvious: if a state gets into financial difficulty, why shouldn’t the state’s creditors bear the losses? In reality however, this is not so easy to implement. Bear in mind how long it took to arrange that for the resolution of banks their creditors will also be liable in the future. Where does the problem lie? It lies in the possible contagion effects and in concerns about financial stability. The creditors of countries are in many cases the domestic banks. A state bankruptcy with a bail-in could therefore trigger a financial crisis. 2  Masuch, K.; Moshammer, E.; Pierluigi, Beatrice (2016), Institutions and Growth in Europe. Centre for European Policy Studies (CEPS Working Document No. 421). 3  “Completing Europe’s Economic and Monetary Union”, presented by J.-C. Juncker, in close cooperation with D. Tusk, J. Dijsselbloem, M. Draghi and M. Schulz, 22 June 2015. BIS central bankers’ speeches  3  This problem is intensified by the fact that the regulation creates incentives for banks to hold government bonds.

Many countries are now on the right track. Ireland, Spain and Portugal, for example, have implemented a series of reforms; they have become more competitive and their economies are recovering. And yet, in some euro area countries, unemployment remains very high, especially among young people. In addition, many countries still have large public deficits and high levels of debt. So further reforms are necessary here. The same applies to goods markets and the general business environment. In many Member States bureaucratic hurdles have to be overcome in order to start a business, and not only in the crisis countries. Removing such administrative barriers is much  2  BIS central bankers’ speeches  less expensive than national recovery plans, and can contribute significantly to sustained growth and increasing prosperity. 2 It is all the more worrying that the OECD in its recent “Economic Policy Reforms” report notes that particularly in the euro area countries the pace of reform is slowing. It would be disastrous if necessary reforms cannot be implemented or, if implemented, reforms were even to be withdrawn. That would slow down, or even totally impede, the necessary economic upswing. Central banks would then come under pressure to counteract this by pursuing an exceptionally loose monetary policy. A stable monetary union rests on the shoulders of individual Member States. Sound economic and responsible fiscal policies at national level are an essential basis for a stable monetary union.