samchain/econo-pairs-v1 huggingface dataset:
Implementing the reforms needed to create a better balance on the housing market and to build more housing will, however, take some time. Measures to restrain the accumulation of debt by households and to strengthen the banking system will therefore be necessary during this period. Over the long term, mortgage borrowers will benefit from lower indebtedness The measures that need to be applied to restrict households’ opportunities to borrow and to strengthen the banks’ resilience may have short-term effects on demand and inflation, which monetary policy needs to consider. But the measures may also impact different groups in society in different ways. In practice, this could be one reason for why it has been difficult to apply appropriate measures. There are so many groups to consider: mortgage borrowers and other households, high income earners and low income earners, households in rural areas and households in metropolitan areas, and so on. But in several cases, the variations are also large between different households within these different groups, which makes it difficult to determine who will win and who will lose from different measures. It may therefore be difficult to conduct a policy that clearly mitigates the consequences for those households hit hardest by the measures. Another difficulty concerns distribution effects in the short and long terms. These can often differ. In the short term, it is likely that many indebted households – mortgage borrowers – may be forced to cut back on their consumption while they reduce their debts.

Sources: Na tional Institute of Economic Research, Statistics Sweden and the Riksbank  The real return on capital and the real interest rate should be strongly associated with each other, i.e. the exact opposite to what we observed in both the United States and Sweden. A falling real interest rate tends to reduce the cost of investment, which should increase the rate of investment and thereby decrease the return on capital. The various premiums that measure the difference in return on capital and government bond yield should therefore not show a trend, even though that appears to be the case. An important factor that can often explain some of the difference between return on capital and government bond yield is the so-called credit risk premium, which compensates the investor for the risk of the company going bankrupt. There is  9 [23]  reason to believe, however, that the credit risk premium has been stable as the number of bankruptcies has been constant or falling. Another premium is the so-called liquidity premium. Risk-free assets such as government bonds can often be used as collateral for various loan contracts. Government bonds and other risk-free assets that can relatively easily converted into liquid funds therefore have an added value given by the liquidity premium. The higher the liquidity premium is on an asset, the higher the price and the lower the yield will be. The falling trend in the real interest rate should, at least in part, be due to the premium on government bonds having risen.
“Does Inflation Targeting Matter?” Ball L., Sheridan N. in: ”The Inflation-Targeting Debate” Bernanke B.S., Woodford M. (2005). 24  See Corbo V., Landerretche O., Schmidt-Hebbel K. “Does Inflation Targeting Make a Difference” in: N. Loayza and R. Soto (red.) “Inflation Targeting: Design, Performance, Challenges” (Central Bank of Chile: Santiago 2002). 25  Gürkaynak R.S., Levin A.T., Marder A.N., Swanson E.T. “Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere”, forthcoming in Mishkin, Frederic and Klaus Schmidt-Hebbel (red. ), Series on Central Banking, Analysis and Economic Policies X: Monetary Policy under Inflation Targeting (Santiago, Chile: Banco Central de Chile), 2006 and Gürkaynak R.S., Levin A.T. Swanson E.T. “Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the U.S., U.K., and Sweden”, Federal Reserve Bank of San Francisco Working Paper 2006-09, March 2006. 26  For example a question whether monetary policy should burst asset bubbles was hotly debated during the large European Central Bank conference on 16 to17 March 2006. 27  The examples are the following articles: N. Roubini “Why Central Banks Should Burst Bubbles”, mimeo, Stern School of Business and Roubini Global Economics, January 2006, and A. Posen “Why Central Banks Should Not Burst Bubbles”, Institute for International Economics Working Paper WP 06-1, January 2006. 28  Bernanke B. “Reflections on the Yield Curve and Monetary Policy”, Remarks by Chairman Ben S. Bernanke Before the Economic Club of New York, 20 March 2006. 8  BIS Review 32/2006  respectively so as to prevent possible deflation.

Decisions made by the FOMC in Washington are equally as important for investors in New York as those in London, Tokyo, Rio de Janeiro, Shanghai or even Warsaw. Not only do the FOMC decisions influence US economy, but also — via the financial markets channel — the entire global economy. An unexpected increase in interest rates in the USA may bring about a sudden outflow of capital from the emerging markets, and thus weaken the currencies of those countries and increase their bond yields. Some economists 20 make the point that an important aspect of the growing internationalisation of financial markets is increased discipline, which is extorted by investors on governments and central banks in individual countries. According to this hypothesis, the financial markets, through their continuous valuation of securities, duly reward good and punish bad economic policies. However, the empirical results do not provide hard evidence to support the thesis on fiscal policy discipline. It may be stated, on the other hand, that financial globalisation may have contributed to the discipline of central banks and to “forcing” them to conduct a monetary policy focused on low and stable inflation 21 . At the same time, a significant risk related to the financial markets integration is the possibility to shift economic problems of one country upon other countries, which is greater than before (the contagion effect).
I would like to urge that, in searching for labor market solution, attention must also be paid to the problems of the wage structure, since at the going wage, price mechanism and its signaling function do not work efficiently enough to clear the labor market to eliminate this skill mismatch. Related issue is that of a long stall in labor productivity as well as overall productivity growth. Policy distortions and a lack of clear policy directions can discourage firms from accumulating physical capital and investing in innovation, and prevent workers from moving to higher value-added sector. For example, agricultural price subsidy measures, while serving their redistributive purposes, may inadvertently channel workers away from highly productive manufacturing to agricultural sector, thus contributing to lower overall productivity of the economy. At the same time, low public spending on R&D and insufficient protection of intellectual property rights may deter innovative entrepreneurship and hinder a transformation towards a knowledge-based economy. Good news is, the risk of a sustained growth slowdown could be reduced or even avoided, as success of some mature economies in Asia have shown in the past. This will depend crucially on the quality and the timeliness of public policies across a wide spectrum in tackling these long-term issues. To be sure the task is not going to be easy. Reorienting the country’s growth strategy to focus more on skills development, innovation, and productivity involves deliberate planning over relatively long stretch of time. Three principles are of the essence: visionary leadership, consistency, and continuity.

Jean-Pierre Roth: Switzerland as an industrial location and National Bank policy Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Europa Forum Lucerne, Lucerne, 27 October 2003. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  In a high-wage country such as Switzerland enterprises can only maintain their position in the face of international competition by a process of ongoing innovation. The resulting structural change in the direction of highly technological and increasingly productive economic sectors is also a prerequisite for strong economic growth. In an international comparison, however, Switzerland’s growth is poor. This weak perfomance in terms of growth highlights the need for action in economic policy. Monetary policy cannot, however, fulfil this role. The primary task of monetary policy is to ensure price stability. Price stability is an important locational advantage that Switzerland has to offer. Moreover, monetary policy can also contribute to stabilising the economy and warding off undesirable exchange rate shocks. It is, however, not in a position to bring about a sustained improvement in economic growth. The result of such an attempt would merely be economic overheating with the threat of a subsequent slide of the economy into recession. Lasting effects on economic growth may, by contrast, emanate from education policy, research policy, policy on foreigners and fiscal policy.
This reflects extreme movements in oil prices, which reached USD 145 a barrel in July 2008, only to fall to USD 35 in December of the same year. The temporary nature of fluctuations in inflation was correctly anticipated, as evidenced in our previous inflation forecasts. Since it takes time for the impact of monetary policy to feed through, it would have been futile to attempt to counter these movements. The path of inflation in the near term will be largely dictated by recent movements in oil prices and the associated base effects. Inflation will already return to positive figures from the end of this year. This is mainly due to the base effect linked to the USD 35 low reached by oil prices in December 2008. Inflation will tend to decline thereafter, despite the recovery in growth. In fact, economic activity will remain subdued and will return only gradually to normal. Inflation will nevertheless remain positive throughout 2010. Assuming that our monetary policy remains unchanged, our new forecast shows that inflation will begin to increase again from the beginning of 2011, to reach 2% in the first half of 2012. Our expansionary monetary policy cannot be maintained indefinitely without incurring inflation risks. Considerable uncertainty remains attached to this inflation forecast. Global economic developments could be less favourable than I described in the first section of my remarks. The financial crisis could reappear. Monetary policy decision The inflation outlook has not changed since the September assessment.

An appreciation of the Swiss franc against the euro would run counter to the relaxation in monetary conditions brought about through the interest rate channel. This is why the SNB will continue to act decisively to prevent any excessive appreciation of the Swiss franc against the euro. An assessment of monetary conditions can be misleading if it is based on prices, which, like currently the libor, have reached a bound. For this reason, an assessment based on quantities – money and credit – is particularly important in the current circumstances. The monetary base has increased substantially since October 2008, when the financial crisis entered a new phase following the collapse of Lehman Brothers. We supplied the interbank market with sufficient liquidity to meet burgeoning demand in a climate of uncertainty, in order to prevent any increase in money market rates. Since then, precautionary base money demand has declined and we have reabsorbed liquidity accordingly. The monetary base has thus fallen by 28% compared to the peak recorded in April 2009. The level of sight deposits is, however, still almost ten times higher than before the crisis. There is thus a risk of excessive money creation once confidence is restored. Monetary conditions should not be judged in terms of banking sector liquidity, but rather on the basis of the liquidity available to households and firms – i.e. the monetary aggregates. M3 growth, which had been modest for a long time, has accelerated. In October, it reached an annual rate of 7.7%.
If the differences are worth only a few basis points on the fed funds rate, then having a good indicator of financial conditions is not going to be a very important input in the formulation of monetary policy. In contrast, if a shift in financial conditions implies that the fed funds rate path was “off” by a hundred basis points relative to what actually occurred, then this obviously has big implications for monetary policy. The development of equilibrium models that incorporate financial conditions in a meaningful manner might prove helpful in answering these types of questions. 5 In addition, I would like to know how the various linkages have changed over time. Is the linkage between the fed funds rate and financial conditions as measured by the new FCI  4  See, for example, Tobias Adrian and Hyun Shin, manuscript in preparation for the forthcoming Handbook of Monetary Economics, volume 3, currently circulated as Federal Reserve Bank of New York Staff Reports, No. 398, October 2009. 5  The work of Vasco Curdia and Michael Woodford referenced above is one step in this direction. 4  BIS Review 23/2010  loosening over time or not? If so, why is this happening? Is it due to financial market innovation or the growth in share of the non-bank financial sector? I also would like to know how the linkage between financial conditions and the real economy is changing over time. If this is happening, what are the implications for macroeconomic stability and monetary policy?

First, including 44 variables may generate good results more because the additional variables add greater flexibility to soak up variability in real GDP, rather than providing a more solid theoretical underpinning. As the authors note, the variables were selected, in part, on the basis of what we know today about which variables are likely to be important. But this type of selection process – even if conducted on a pseudo real-time basis – introduces selection bias, which the authors do admit could be important. Second, despite the inclusion of a large number of variables, some important ones may still be missing. In particular, leverage variables – such as the leverage ratio of the major securities dealers – may be an important component of financial conditions. The work of Tobias Adrian and Hyun Shin suggests that the increase in leverage of the major securities was a major factor that fueled the asset bubble preceding the recent crisis. If this was indeed the case as seems likely, this type of variable should also be included in a financial conditions framework. 4 Third, as the authors note, the resulting FCI is complex; it is difficult to estimate, update and to communicate what the results mean. I think FCIs have value as heuristic devices in highlighting what is important. One loses that benefit when the number of variables becomes large and the indexes become complex. Fourth, it would be interesting to know how financial conditions indexes for other countries and regions would differ.
Donald Kohn, former deputy chairman of the Federal Reserve Board of Governors and now member of the Bank of England's Financial Policy Committee, recently put forward another aspect: “When one policy is leaning so hard in a particular direction, the other can’t compensate, can’t achieve its objectives. … So for example, the example that’s often used, very easy monetary policy builds imbalances that may be so large, that may become so large they can’t be countered by regulation.” (see Talley, 2013). 18  For example, Norges Bank writes in an article about the countercyclical capital buffer: “The countercyclical buffer will strengthen the resilience of the banking sector during an upturn. It may also, to some extent, counteract the build-up of financial imbalances, but the effect is uncertain. Thus, Norges Bank cannot disregard taking financial imbalances into consideration when setting the key policy rate.” (Norges Bank, 2013, p. 23)  10  BIS central bankers’ speeches  central banks, one could say that one consequence of the crisis has been an increased divergence in central bank policies. As in other countries, we in Sweden must now try to find good solutions, on the basis of the conditions applying, for designing the interplay between macroprudential policy and monetary policy. I am convinced that we will succeed in this task, with join efforts and as we gain greater knowledge of how the new upcoming framework for macroprudential policy functions in practice. References Aikman, David, Haldane, Andrew G. and Nelson, Benjamin (2011), Curbing the Credit Cycle.

During the recovery phase after the crisis, the Riksbank has also tried to reduce the risk of exaggerated indebtedness and overly-inflated housing prices by conducting slightly less expansionary monetary policy than would otherwise have been the case. 6  See, for example, Mishkin (2007) and Cagliarini, Kent and Stevens (2010). Heikensten (2008), writes: “With house prices increasing drastically, risks for the real economy have been perceived to be bigger. On a few occasions in 2004–05 the Riksbank did for that reason not follow a strict inflation-targeting rule. We “leaned against the wind”, in the sense that we did not take rates down as quickly as we could have done considering the outlook for inflation alone.” The development of house prices and household debt have long been on the agenda of the Riksbank’s Executive Board, see for example Srejber (2002). 7  Ingves (2007). I said, for instance: “[W]hen we observe long periods of high growth rates in asset prices and debt, growth rates that appear to be unsustainable in the long run, our view is that it is not reasonable to completely ignore that there may be risks associated with this[. ]…What this view has meant in practice is fairly marginal changes in the timing of our interest rate changes, and substantial oral and written focus on the issue.” This problem is also taken up in Ingves (2010).
This applies, for example, to the need for consolidation and which strategy is best for finding solutions to the debt crisis in the euro area as quickly as possible. The question of what role the central banks should play in counteracting an excessive expansion of credit and indebtedness is also often debated, and the members of the Executive Board of the Riksbank also have different opinions about this. I don’t find this strange at all, on the contrary it is entirely natural. Hopefully, this debate will contribute to constructive solutions going forward. Thank you. BIS central bankers’ speeches  13

A recent Economist article even asked, “Can central banks talk too much?”15 It essentially argued that forward guidance on interest rates could complicate price dynamics in the bond market as the central bank simultaneously signals its intentions to the markets, while taking its cue from them. As policy decisions are ultimately a judgement call made against an inherently uncertain backdrop, there is naturally a limit to how much transparency can do to make central bank action predictable. Communication is also context-specific, where a standard rules-based approach will not work. Discussions at forums like this are extremely valuable because they provide the opportunity to share experiences from real-life settings, including what has worked and what has not, as well as the pitfalls and the nuances. Hopefully, some general guiding principles can emerge, that will prove useful for practitioners gathered here today. In conclusion, the guidelines for monetary policy communications are probably due for a refresh given the increased complexity facing the formulation and implementation of monetary policy. For 3/5  BIS central bankers' speeches  sure, central banks must continue to talk, engage, and be accessible and accountable. How we do it could evolve, and this high-level seminar serves to help us do just that and hone our communication skills. I wish you a most productive session. Thank you. References Bernanke, B S (2007), “Federal Reserve Communications”, Speech at the Cato Institute 25th Annual Monetary Conference, Washington, D.C., 14 November.
People could, of course, eloquently talk of sound monetary policies; effective fiscal policies; well structured private/public partnerships; super regulatory institutions; vibrant markets; skilled managers; technical capabilities; clean environments; safe living conditions; developed infrastructure; speedy justice; transparent systems; stable governments; corruption – free societies; free media; lower crime; balanced development; trickle down effects; equal opportunities; equitable distribution of wealth; good living standards and a whole host of similar outcomes. But, mere talk of such conditions would not lead us to achieve those goals or achieve high sustainable growth. If we are to realize all those outcomes, the continuous implementation and close monitoring and evaluation of all our programmes and policy actions is essential. That then, is the key. Let us remember that it is better to implement one action than write 100 reports that no one takes notice of. It is better to deliver one outcome than deliver 100 speeches that no one listens to. It is better to improve one life than organize 100 workshops that no one finds useful. It is better to light one candle than curse the darkness! This then, my dear friends, is the challenge that is before us. Very often, we encounter prophets of gloom and doom who attempt to demoralize us by showing off the magnitude of the problem or by continuously criticizing, or by telling us that we can’t. We should not fall prey to such distractions or falter in the implementation of our policy actions.

In this background, we cannot realistically expect oil prices to reduce in the near future and therefore we would have to consciously brace ourselves to deal with the harmful effects of this highly destructive attack on future growth, if we are to maintain our growth momentum. As if the of oil shock was not enough, the international commodity prices too, have been rising sharply during the past year or so. This outcome possibly displays how tightly linked the prices of commodities are, to each other. As a result of these increases, which resulted in the global food price index recording a 54% increase over the past year, many countries are now facing their highest recorded inflation figures in the new millennium. China’s inflation in January 2008 was at its highest in 11 years. In Singapore, it was their highest in 25 years. Australia recorded their highest figure in 16 years. We, in Sri Lanka also recorded our highest rate in 18 years while we know Pakistan too is struggling with its inflation, amidst high food prices. In this volatile scenario, the challenge before the emerging countries is how to maintain price stability, without hampering the growth momentum. Unfortunately, in the backdrop of high international oil and commodity prices, there does not appear to be an easy escape route or a quick fix. Worse still, many experts are now proffering the view that the current increases in oil and commodity prices may be a “structural adjustment” rather than just another “supply shock”.