samchain/econo-pairs-v1 huggingface dataset:
Weimar Germany in the 1920s is one well-known example. Post-revolutionary France, in the 1790s, is another. There are more recent instances in some emerging economies. Hyperinflations of this sort are essentially fiscal events. Chart 1, taken from the well-known book about financial crises by Reinhart and Rogoff4, shows that waves of formal defaults on governments’ debts have broadly coincided with waves of rapid inflation. Nor do you have to go to such extremes, or away from these shores, to find episodes in which the nominal anchor has been abandoned (if only for a time) in the face of big increases in government spending. Britain 4  Reinhart and Rogoff (2009) 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  suspended the gold standard during the Napoleonic wars and again at the onset of the First World War. Prices rose significantly, particularly during WWI, and yields on government debt did so as well. But the relationship between debt and inflation isn’t a simple one, nor is it readily apparent in the long-term UK data. For example, if there was “monetary finance” during these two episodes it’s not something that endured because, in both cases, Britain restored the original price of gold after those wars had ended. If rising price levels had conferred any fiscal benefit while they were being fought, that was then reversed, via deflation, once peace was established. Any long-lasting reduction in government debt had to be achieved by running a tighter fiscal policy.

The reduction in the cost of borrowing for the public sector is an additional effect of monetary policy to which the government can choose to respond with changes in spending and  19  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  19  taxes, or not, depending on its fiscal objectives. And the central bank will take into account the impact of those changes, if any, on aggregate demand and inflation. This is not to deny the many other connections between monetary policy and government debt or the many occurrences of “fiscal dominance”, in various countries, over the past. If accompanied by restrictions on capital flows, the monetary authority might be able to depress borrowing costs preferentially for the fiscal authority, avoiding the inflationary consequences of an economy-wide easing in monetary conditions (“financial repression”). Depending on the share of non-indexed debt, and the maturity structure of the public sector’s overall liabilities, rapid inflations can themselves reduce the real burden of government debt. This has almost always come at a much wider economic cost and, whatever it’s done to the government’s existing debt, has usually been followed by an increase in the real cost of new borrowing. Even from the narrow perspective of the public finances they’ve rarely ended well. Nevertheless, there have been many episodes of very rapid inflations and they’ve often (though not invariably) been the result of immense strain on the public finances.
When rumours about some European banks’ exposure to the US subprime market in August 2007 strongly affected money market interest rates and trading volumes within just a few hours, the ECB reacted by providing liquidity to the banking sector on a short-term basis – first overnight, then for slightly longer maturities. This served to ensure that solvent banks would obtain the liquidity that was disappearing from other sources. The first overnight provision of liquidity by the ECB of almost € 100 billion was demand-driven and revealed the  3  See Allen, F, Chui, M., and A. Maddaloni, A., 2004. “Financial Systems in Europe, the U.S.A. and Asia.” Oxford Review of Economic Policy 20(4):490–508. BIS central bankers’ speeches  3  high uncertainty within the banking sector on the ability to obtain funding from private sources. In general, during the first year of the crisis, there was a high degree of uncertainty on individual exposures, but not yet a very strong perception of more severe problems in the banking sector as a whole. Central bank liquidity provision thus aimed at stabilising interest rates, and ensured that temporary liquidity problems of banks would not create problems for bank solvency. The Eurosystem was able to deal with these tensions by only slightly altering its operations under the standard operational framework. This was due to the fact that the number of counterparties to monetary policy operations has historically been very large in the euro area, and because the standard framework offers quite some flexibility.

Lending rates for small and medium-sized enterprises, which provide two-thirds of total private sector employment in the euro area, have declined by over 180 basis points. The sharp reduction in bank lending rates has been accompanied by easier access to funding, as recent ECB surveys on bank lending and access to finance have shown. But it is not just lending rates that are more favourable. Bank lending volumes have also been gradually recovering since early 2014. Annual growth in credit to euro area households increased in January to 2.2% and growth in credit to businesses remained at 2.3% – the highest growth rates in more than four years. Market-based funding conditions, too, have improved significantly in response to the corporate sector purchase programme launched in June 2016. While monetary policy has been the mainstay of the recovery, there are other potential sources of macroeconomic stabilisation. Given the heterogeneity of countries across the euro area, the lack of synchronisation of business cycles, and the absence of fiscal transfers between Member States, capital markets play an important role in mitigating the income effects of region-specific shocks. For example, evidence suggests that capital markets and credit markets together help smooth around two-thirds of a shock to regional GDP in the United States, dwarfing the 13% contribution of federal transfers. In comparison, the overall contribution of markets to risk sharing in the euro area has, on average, been limited.
Given these considerations, the public sector has to be forward looking in its approach to data. HM Treasury set out the Government’s ambitions for data5, and the policy challenges presented by its economic characteristics, in an insightful discussion paper this summer. At the Bank, we have been exploring how new sources of data can deepen our understanding of the economy and financial sector to further our mission.6 There are many use cases I could give, but in order to best frame today’s proceedings, I will focus on our ambitions for renewing the Real-Time Gross Settlement (RTGS) service.7 The RTGS renewal programme The renewal of the RTGS service is an opportunity for the Bank of England to influence the future of data from the heart of the UK economy. To play our part in the data revolution we are using this programme of investment in critical national infrastructure as an opportunity to set data standards nationally and drive them internationally.8 Infrastructure change does not happen very often – our current RTGS service is over twenty years old. But when it does, it is a foundational change – not least because, as the central hub for payments in the UK, everyone talking to it needs to speak the same data language. The current language – SWIFT’s MT messaging – has its origins in the 1970s, to replace paper forms and Telexes. It was not designed for the modern era, and indeed earlier in the year SWIFT itself consulted users on retiring MT messaging for payments in 2025/26.

In a similar vein, some forms of “good” deflation could be accepted as conducive to stronger growth. To me, this approach is very misleading. I will indulge here in a little bit of history. As you know, at the inception of the euro, the definition of price stability was set as “lower than 2%”. That definition was quickly perceived by markets and economists as meaning we took a benign view of low inflation or, even, stood ready to accept deflation. As a result, the Governing Council felt the need, in 2003, to change the wording and specify the definition of price stability as “lower but close to 2%”. Third, the validity of the 2% target is widely acknowledged. That definition of close to 2% has today been broadly adopted in major advanced economies, including in the US and Japan. This is no coincidence. There is a robust rationale for aiming at 2% or close to 2% and, therefore, not tolerating persistent lower inflation. First, since the work of the Boskin Commission, which, I believe, is also valid for the euro area, we know that available measures tend to overestimate this rate. So it is legitimate to consider that, technically, an inflation rate of 1% may, in reality, be zero. Then, if the central bank aims at 1%, any negative shock would plunge the economy into deflation. To absorb such a shock, some margin – in the order of an additional 1% – is necessary. This simple reasoning provides a very strong basis for the current definition.
Over the recent years, the Bank of Thailand has built awareness of this risk in the public which has contributed to the natural adjustment of the market and therefore the slowdown of household debt 2  BIS central bankers’ speeches  accumulation. Going forward, the Bank is proposing a national agenda to the government to promote financial literacy and discipline to ensure long-term stability in line with our own ongoing financial awareness projects. I have now talked about the central bank’s commitment to growth, price, and financial stability in order to support sustainable growth. Now that we are in recovery, minding the future risks to financial and price stability, and being in possession of stabilization tools tested and refined over time, the Monetary Policy Committee will carefully weigh the tradeoff between short-term growth and long-term risks and ensure that the economy will have enough financial ease to recover to sustainable growth. Ladies and Gentlemen, I would now like to move on to the second role of the Bank of Thailand: facilitating an expansion of the growth frontier. Keeping balance as described in the first part is achieved through the use of the Bank of Thailand’s tools in guarding economic stability. To allow stakeholders to move forward and capture new opportunities, the Bank of Thailand employs its other instruments to enhance financial sector efficiency and create a favorable financial environment for investment that would lead to higher productivity growth.

Ladies and gentlemen, We forecast Thailand to grow at around 4.8% next year, a rate that means steady recovery to normal levels of economic activity. As the economy returns to full capacity, inflation and financial risks may surface. To ensure sustainability, the process of growth must not create imbalances in the economy that will draw down future growth. This brings us to the two other aspects of stability: price and financial stability. The Bank of Thailand has had much success in anchoring inflation expectation through our Inflation Targeting framework, adopted since 2000. Many times during this period, well-anchored inflation expectation has allowed flexibility for the Bank of Thailand, when needed, to actively support growth and ensure financial stability. As you well know from the Subprime Crisis, an economy with growth stability and price stability can still fall into contraction due to financial causes. The Bank of Thailand has learned from our own experience with a financial crisis as well as others’ and has been vigilantly monitoring indicators of risk to financial stability in the economy, and has policies developed especially to ensure financial stability. Conducting policy through the use of interest rate alone may not be sufficient to take care of financial imbalance. In addition to monetary policy, which sometimes is too blunt to optimally take care of financial stability, we have adopted macroprudential tools since 2002 and employed them to help us cover and specifically target areas of the financial system.
iv)  The weekly repo auctions will be held at 11:00. and the results will be announced on Reuters’ “CBTG” page no later than 11:30.The traditional method will be used in auctions; in other words, the successful bidders will be evaluated with their own interest rates. v)  In case of unforeseen excessive liquidity shortage during the day, which would exert excessive pressure on money market interest rates, the CBRT may announce “Intraday Repo Auctions” in addition to the regular ones announced at 11:00.  vi)  The primary dealer banks will be able to conduct repo transactions within the framework of open market operations, between 10:00-12:00 and 13:00-16:00.  vii)  In case of an excessive increase in the liquidity surplus in the market, mainly the Central Bank liquidity bills with maturity up to 91 days, and when necessary New Turkish Lira deposit buying auctions with standard maturities of 1, 2 and 4 weeks and reverse repo auctions with maturities up to 91 days will be used actively, in order to enhance the effectiveness and flexibility of monetary policy and liquidity management strategy. However, the Central Bank will continue to focus on sterilizing the excess liquidity, which is at such a level that would bring the overnight interest rates in the money markets close to the Central Bank borrowing rates, through overnight transactions.

By moving the banking industry collectively back to Figure 1 from Figure 2, the “bad state of the world” becomes less likely. In the SCAP, we had to make a number of important decisions. These included:   The appropriate capital target. We focused on the Tier I common ratio because we believed that this was the most credible form of capital. This put much greater emphasis on common equity than previously.   The severity of the stress test. We assumed a stress scenario with an unemployment rate 1.5 percentage points higher than the baseline scenario, and further home price declines of about 29 percent compared with 18 percent in the base case. We were aiming for a stress test scenario that had about a 5 percent to 10 percent probability of being realized.   The capital target at the end of 2010 and the stress test severity were both important in terms of the credibility of the SCAP. Going in, we were worried that with our capital goal, the BHCs’ needs might turn out to be higher than the available  BIS central bankers’ speeches  3  resources from the private sector and the U.S. Treasury. We decided not to compromise the credibility of the stress test to save on needed capital resources.
Banking liberalisation provided the spur for our local banks to raise their game and compete with some of the world’s largest banks while maintaining high prudential standards and they have done well. We had previously announced the Government’s policy of maintaining the local banks’ market share at no less than 50% of total resident deposits. This remains our position. We are committed to having strong local banks at the core of the banking system. In a very real  BIS central bankers’ speeches  3  way, our three strong local banks also give Singapore the confidence to continue opening up the banking sector to foreign competition. Encouraging foreign banks to deepen their Singapore roots A diverse international presence and global connectivity must remain key strengths of Singapore’s financial centre. We host many international banks, who conduct an increasing share of their activities out of their Singapore offices. Some banks have moved their global heads of business to Singapore, or hubbed specific business lines or IT operations in Singapore. Consumers and corporate customers have benefited from the wider range of products and services, offered at competitive rates. The majority of foreign banks in Singapore operate as branches, taking advantage of the cost efficiencies arising from branching within an international bank. We continue to support the use of branches for the vast majority of banks in Singapore, which are in the wholesale and investment banking businesses. Additional measures may be appropriate for retail banks that are important to the domestic market.

There is a case that we should take some notice of this in the way the regime operates, rather than just ignore it. In summary, our experience of operating the MA suggests to us that the broad mechanism works but that the EU design makes insufficient allowance for uncertainty, the difference in riskiness between assets, and signals from the market. As a result of this, we are concerned that it overestimates the portion of future returns which can confidently be assumed to be free of risk for insurance companies and therefore safely banked as capital up-front. Some might suggest that this is fine, because insurance capital requirements are set to cover a 1in-200 year stress. [6] But that mixes up capital requirements and capital resources. The risk of a weak MA is that capital resources could be over-stated, and strong capital requirements are no defence if the capital being used to meet those requirements is not sufficiently solid. [7] The system as currently set up provides a particularly strong incentive for insurers to hunt out assets which happen to have a high return relative to their credit rating. Here is an intuitive way to think about the risk in this if taken too far, which our team calls the “high-spread-for-rating assets” – or more colloquially the “too-good-to-be-true assets” – issue. Imagine you have two bonds. [8] Both mature at the same time, both are in sterling and both have the same credit rating.
But what we were able to do - given that inflation was marginally below target - was to try to compensate for that external weakness by stimulating domestic demand here in the UK. The Bank sought to do this by cutting interest rates to buoy up consumer spending. And the Government has stepped up its own spending, which was certainly helpful in the recent international environment. Although we couldn't avoid an overall slowdown altogether we did manage to keep the UK economy as a whole moving forward despite the recession in the internationally-exposed sectors of manufacturing. In fact overall GDP growth in 2001, at 2.4%, was by some margin, the highest among the G7 countries, and the rate of UK unemployment is currently the lowest, on a comparable basis, in the G7. And interest rates are, as I said, the lowest they've been in this country in a generation. Of course we'd all have been much happier with better balanced growth. Stimulating domestic demand to offset the external weakness - the only option available to us - was very much a second best option, and not without its own risks, but it was better than doing nothing at all. That would have meant a much sharper slowdown, and probably recession, in the economy as a whole. And, given the fact that inflationary pressure remained subdued, it would have meant a quite unnecessary loss of overall output - and income and employment. In effect we took the view that unbalanced growth was better than no growth.

And provided it does not happen too abruptly, that would be the best possible outcome. But if consumer spending were not to moderate of its own accord, we would, in the context of strengthening external demand, clearly need at some point to consider raising interest rates to bring that moderation about. I don't suggest that the timing of any such move is imminent - that will obviously depend upon the timing and the strength of the recovery abroad and on the strength of domestic demand as we move forward. BIS Review 19/2002  3  And that, Subhash, is of course my answer to your second question - "what precisely will happen to interest rates?" In case any of you are confused, I think that what I said was that interest rates will rise - unless they fall or stay the same! Mr President, there is no doubt that the past year or so has been a difficult time for the world economy which made life increasingly difficult for the internationally-exposed sectors of our own economy. We are not yet altogether out of the wood, but there is increasing light between the trees. I am "cautiously optimistic" that the overseas environment will improve as we move through 2002, and that by this time next year we here in the UK will have seen a return to somewhat stronger and better balanced growth, with unemployment not far above its recent lows, and with continuing low inflation.
As part of my revision, I studied the inflation rates since the Second World War for several different measures of inflation. They were all at or very close to 3% a year. No-one in Cambridge at that time – and certainly not the students that were to become part of the inflation generation – heeded the late Richard Kahn’s warning that creeping inflation was about to accelerate. The rest, as they say, is monetary history. I would like those of you revising for your final exams this month to be able to look back in thirty years time and recall that the year in which you graduated was when we finally laid to rest the idea that the UK was an inflation-prone economy. Inflation was the norm for most of my adult life. It should not be in yours. BIS Review 63/1999  8  Why then, you may ask, do we need to build a constituency for low inflation? There are two reasons. First, it is important that support for low inflation not wane as the experience of high and unstable inflation of the past recedes. It would be a counsel of despair to believe that the inflationary excesses of the recent past would have to be repeated in order to retain support for low inflation. Yet, in a recent survey of households in Germany, Robert Shiller2 found that support for stability was much higher among those who had experienced hyperinflation.

Despite that, inflation has been above the target more often than it has been below – in fact, it has been below the target in only one month so far since the MPC was set up. As the benign effects of those temporary external influences on inflation start to wear off, the challenges facing the MPC will become, if anything, even greater than those in its first two years. If the time lags in the monetary transmission process mean that it is too early to judge the MPC on its inflation track record, then what other criteria for assessing its performance might be relevant? One measure would be expectations of future inflation. Following Gordon Brown’s announcement of Bank independence on 6 May 1997, inflation expectations in financial markets fell sharply. Chart 2 shows the expected inflation rate at different horizons implied by yields on conventional and index-linked government bonds. These expectations fell by about 0.5 percentage points on the day of the announcement. Since then inflation expectations have fallen further. Chart 3 shows the way in which two particular measures of inflation expectations have evolved since May 1997. The first of these measures is the expectation of inflation ten years ahead implied by bond market yields. The second is a Consensus Economics average of the expectations of inflation five years ahead held by economic forecasters. Since 1997, inflation expectations on both measures have steadily fallen towards the target, and the economic forecasters’ expectation has now become firmly anchored on the target.