samchain/econo-pairs-v1 huggingface dataset:
25  By the long-run sustainable rate of unemployment, also known as the long-run equilibrium rate of unemployment, I refer to the rate of unemployment in steady state, where the economy is in a state of what is known as balanced growth, the effect of all shocks has waned and expectations are fulfilled. This should not be confused with other more short-run equilibrium concepts. According to Rogerson (1997), this is the only equilibrium concept for unemployment that is well-defined. The Ministry of Finance’s (2011) assessment from April 2011 entails a long-run sustainable rate of unemployment of 5 per cent. The National Institute of Economic Research’s (2011) assessment from December 2011 entails a long-run sustainable rate of unemployment of 5.8 per cent. The Riksbank's (2012b) assessment from July 2012 lies in an interval with a midpoint of 6.25 per cent. My own assessment is that the Riksbank’s midpoint is an overestimate of around 0.75 percentage points and that long-run sustainable rate of unemployment is thus around 5.5 per cent (Sveriges Riksbank 2012a, appendix). 26  In Svensson (2011b) I note that the forecasts for inflation and unemployment looked similar for Sweden and the United States in summer 2010 and that in this situation the Federal Reserve held its policy rate close to zero and began to prepare QE2, the second round of its quantitative easing, while the Riksbank began to raise its policy rate. 12  BIS central bankers’ speeches  How high is the cost of the current policy?

Moreover, in my opinion it is not clear that the current level of household debt entails any risks to financial stability or the macro economy. But once again – potential risks should and can be managed using other means than monetary policy. Monetary policy should instead be aimed at maintaining price stability and attaining the lowest sustainable rate of unemployment. Let me conclude on a positive note. Previously, as I see it, it was not so easy to determine where the main dividing line went in views on monetary policy, and the discussion therefore tended to have less focus than it ought to. Recently, the dividing line has become clearer, which is good. A situation that I nevertheless believe there is fairly considerable agreement on is that there are other tools than the repo rate better suited to managing household debt and promoting financial stability. Monetary policy should be “the last line of defence”, not the first line. As I noted earlier, a potential framework for macroprudential policy is being investigated. Once a framework is in place, monetary policy will be “unburdened” in that one of the tasks that some people feel it should carry out will be removed – namely to prevent a substantial buildup of debt in the household sector. This means that the differences of opinion on monetary policy should decline considerably. And hopefully this will happen fairly soon. In Sweden we have deliberately chosen to have a high degree of openness regarding monetary policy.
But it will be hard for the recovery in the second half of 2020 and 2021 to make up for this year’s downturn. Is the ECB’s current monetary policy sufficient to deal with the economic impact of the coronavirus (COVID-19), or can we expect additional measures soon? We have taken a number of key measures. In terms of monetary policy, our response to the situation has been very active, with three types of measure. First, we have provided liquidity to the banks, adjusting the rules on collateral for accessing liquidity-providing operations. European banks therefore have more liquidity at their disposal and at more favourable conditions. Second, we have responded with the measures taken by the ECB Banking Supervision. To avoid a credit crunch, we have eased the requirements on capital held by European banks, the classification of non-performing loans and the accounting rules. And third, we have launched the € million Pandemic Emergency Purchase Programme (PEPP), which will increase the total assets purchased by the ECB to € trillion in 2020. This is a large sum in order to maintain financial stability in the debt markets, in particular in the government bond markets, and to safeguard the monetary policy transmission mechanisms. In addition, of course, we have the fiscal policies of national governments and the European Commission, as well as the decision by the Eurogroup last week.

However, ensuring that the payment system functions efficiently is also a fairly general definition that requires further precision. To become more specific, it is necessary to define what characterises an efficient payment system. I intend to discuss two characteristics here that I perceive to be the most central – price stability and financial stability. Price stability An important component of an efficient payment system is that economic agents have confidence that the value of the means of payment will remain stable over time, that is in practice that inflation will be low and stable. One usually expresses this as there being a nominal anchor that prevents inflation and inflation expectations from drifting off. If households and companies are confident that the general price level will not change very much, they are better able to plan for the future and need not put effort  1  See, for instance, Santomero, A.M., S. Viotti and A. Vredin, (2001), "Challenges for Central Banking: An Introduction”, in Santomero, A.M., S. Viotti and A. Vredin (ed. ), Challenges for Central Banking, Kluwer Academic Publishers. BIS Review 52/2006  1  into finding ways of protecting themselves against inflation, but can focus on more productive activities. Another argument for keeping inflation low focuses on the role of price formation as a signalling system. When inflation is low and stable it is easier for economic agents to distinguish changes in relative prices and to adjust their decisions regarding consumption, saving, work and investment accordingly.
First, there is the question of whether, in stabilising the money market, the SNB released a flood of liquidity, thereby entering into inflation risks. The SNB did indeed sometimes inject large amounts of central bank money into the market. Since the onset of the turmoil, we have in principle always provided a generous supply of liquidity through repo operations. However, fine-tuning was also consistently used to absorb any excess liquidity, as soon as call money rates fell below a certain level. Since the banks ultimately only have limited end-of-day demand for central bank money, there was a regular flow of funds back to the SNB. These operations allowed us to do two things: first, to limit the volatility of call money rates; and, second, to keep market rates close to our repo rate. This is shown in chart 2. Moreover, this also enabled us to keep the average level of sight deposits stable, which meant that we did not allow the banking system to be supplied with excess liquidity. As can be seen from chart 3, there was a wide day-to-day fluctuation in sight deposits during the crisis but, on average over the month, levels remained more or less stable. Thus Switzerland cannot be said to have been flooded with liquidity. Second, attention has focused on how the interest rates are fixed for monetary policy repo auctions. The SNB, on the basis of its monetary policy assessment, decides on a range for the three-month Libor which it considers appropriate for monetary policy purposes.

Yet the most notable thing is that, despite these difficulties, we have succeeded in keeping the Libor around the middle of the target band. This is, after all, what counts for the implementation of monetary policy. So neither the current criticisms levelled at the Libor nor the actual movements in the Libor are an immediate reason to dispense with this rate as the operational target of the SNB. Conclusion Let me briefly conclude. Despite clear signs of a return to calm, the money market has not yet gone back to “business as usual”. The Libor/TOIS differentials continue to indicate a certain degree of tension. The various waves of turbulence also show how difficult it is to predict what will happen next. Central bank actions have helped to defuse the situation. Nevertheless, they can only treat the symptoms of the malaise, or fever. An effective cure and the restoration of confidence between market participants are primarily a matter for the banks themselves. The SNB’s tools – its medicine cabinet – have so far proved their worth during the turbulence. Yet the crisis provides a reason to review and where necessary adapt them. For central banks, it is important to consider, not just the immediate effect of an instrument, but also the longer-term repercussions. Thanks to their monopoly in issuing currency, central banks can engage in almost unlimited short-term intervention when markets and market participants are threatened with collapse. However, such extreme measures carry high risks for the longer term.
(2016), “Central Bank  http://www.ecb.europa.eu/press/key/date/2017/html/sp170330.en.html[03.04.2017 15:53:14]  Central bank independence revisited  Independence Revisited: After the financial crisis, what should a model central bank look like?”, M-RCBG Associate Working Paper Series, No 67, Harvard Kennedy School. [4]For a representative contribution, see Barro, R., and Gordon, D. (1983), “Rules, Discretion, and Reputation in a Model of Monetary Policy”, Journal of Monetary Economics, Vol. 12, pp. 101-121. [5]Tinbergen, J. (1952), On the theory of economic policy, North Holland Publishing Company. [6]See paras. 150 and 155 of the Opinion of Advocate General Jacobs in Case C-11/00, Commission v ECB, EU:C:2003:395 (the “OLAF case”). In this respect Advocate General Jacobs has in the OLAF case cited economic literature noting that the foremost argument put forward in favour of an independent monetary authority is that of price stability because “governments are tempted to create money for their own ends and in order to produce economic benefits in the short term, which eventually leads to an increase in the rate of inflation.” The literature cited by Advocate General Jacobs concludes that “[t]heoretical considerations on the relationship between central bank independence and the rate of inflation are backed by empirical evidence. On the basis of comparisons of the degree of independence of central banks and the inflation record of the respective country a negative correlation between the degree of independence and the inflation record has been generally acknowledged.” The Opinion of Advocate General Jacobs in the OLAF case cites, e.g., Alesina, A., and Summers, L.H.

At some point – and no-one could know at all precisely at what point – demand in the US would begin to outstrip supply and the growing external imbalance between the US and the rest of the world would become unsustainable; relative asset prices – including the dollar’s exchange rate – would over-discount prospective US corporate earnings growth and both equity and foreign exchange markets would then become vulnerable to abrupt correction. Against that background it has been clear for some time that there needed to be a slowdown in the growth of the US economy to a rate which was more sustainable, both in the US itself but also in terms of the imbalance within the global economy – and the debate turned to whether it would come  BIS Review 1/2001  1  as the “soft landing” we would all welcome or a more disruptive “hard landing” which we could all well do without. And slowdown, of course, is what we have seen over the past six months. In the third quarter US GDP growth fell to an annualised rate of some 2¼% - less than half that in the earlier part of last year, and much of the more recent data suggest a further weakening.
Rather, the Bank estimate was developed in the spirit of trying to give some guidance to the members of the MPC on the relative weights that they should attach to the conflicting pictures painted by the Halifax and Nationwide indices. The house price index constructed by the Department of Environment, Transport and the Regions is also helpful in this respect. That index has the advantage that it is constructed using a more complete method for adjusting for the mix of houses transacted than the Bank estimate, but it is based on only a small sample - approximately 5% - of mortgage-backed transactions. The Bank estimate suggests that house prices increased by 9.0% in the year to 1997 Q4, compared with 6.9% measured by Halifax and 12.9% by Nationwide. The Bank estimate is broadly consistent with the DETR index, which shows a 7.9% increase over the same period. But further work is required on this issue which is of importance to us all. “Divided we stand, united we fall” That brings me to the Monetary Policy Committee and the prospect for interest rates. The transparency of the new process means that the debate about monetary policy within the MPC is explained clearly to the world at large. Hence the reasons why monetary policy is so finely balanced are, I believe, now widely understood. But it is not just the policy debate which is now more transparent. The voting record of each individual member of the MPC is in the public domain.

Mugur Isărescu: Developments in the Romanian economy since 2008 Speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the “Romania Investors Days” conference, Bucharest, 16 June 2015. *  *  *  Ladies and gentlemen, I am happy to witness the growing interest the investors’ community is showing towards the Romanian economy. Since this is the first reverse roadshow focused on Romania, I hope it will prove fruitful for all parties involved and that it will be followed by other similar events. In my address today, I intend to briefly touch on the most relevant developments in the Romanian economy and I guess you will agree with me that we have come a long way since the beginning of the crisis. Probably the most synthetic assessment of the transformation is given by the fact that, at the onset of the crisis, Romania fell short of all four Maastricht criteria – inflation, long-term interest rates, public deficit and debt, exchange rate stability –, but now they are all fully met. Up to 2008, Romania was going through a period of fast economic growth (in excess of 7 percent per year, on average), fuelled by large capital inflows and the strongly pro-cyclical stance of the fiscal policy, especially in the last two years before the onset of the crisis.
Yet citizens can be certain that three elements will remain constant. The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within the limits of its mandate. Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools. When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area. We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole. The ECB is not a political institution. But it is committed to its responsibilities as an institution of the European Union. As such, we never lose sight of our mission to guarantee a strong and stable currency. The banknotes that we issue bear the European flag and are a powerful symbol of European identity. Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high. What we need is a gradual and structured effort to complete EMU. This would finally give the euro the stable foundations it deserves. It would fully achieve the ultimate goals for which the Union and the euro were founded: stability, prosperity and peace.

It is clear that monetary union does entail a higher degree of joint decision-making. But economic integration and political integration can develop in parallel. Where necessary, sovereignty in selected economic policy fields can and should be pooled and democratic legitimation deepened. How far should this go? We do not need a centralisation of all economic policies. Instead, we can answer this question pragmatically: by calmly asking ourselves which are the minimum requirements to complete economic and monetary union. And in doing so, we will find that all the necessary measures are firmly within our reach. For fiscal policies, we need true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed. For  BIS central bankers’ speeches  1  broader economic policies, we need to guarantee competitiveness. Countries must be able to generate sustainable growth and high employment without excessive imbalances. The euro area is not a nation-state where persistent cross-regional subsidies have sufficient popular support. Therefore, we cannot afford a situation where some regions run permanently large deficits vis-à-vis others. For financial policies, there need to be powers at the centre to limit excessive risk-taking by banks and regulatory capture by supervisors. This is the best way to protect euro area taxpayers. There also needs to be a framework for bank resolution that safeguards public finances, as we see in other federations.
The reserves were above the minimum aimed at during the prelude to capital account liberalisation. Relative to GDP, Iceland’s reserves are currently at their largest since the end of World War II. There is no doubt that we have already benefited greatly from these relatively large reserves. They have enabled us to lift the capital controls without taking excessive risk with economic and financial stability. The reserves play a key role in Iceland’s recent credit rating upgrades, as can be seen in the press releases from the rating agencies. The upgrades will lead to an improvement in the borrowing terms offered to the Treasury, the banks, and large companies in foreign credit markets. And last but not least, large reserves provide a buffer against shocks in the future. They greatly increase the probability that if the króna depreciates because the equilibrium exchange rate has fallen and the positive output gap has closed, it will not pose a threat to stability. Many countries have undergone such an adjustment, and a sudden collapse of the currency such as that occurring in Iceland during the financial crisis is the exception rather than the rule. The benefits deriving from the reserves are therefore significant. The problem, however, is that the benefits are distributed widely, while the Central Bank bears the costs alone. Last year the Bank recorded an operating loss of 35 b.kr. This was due to an exchange rate loss of nearly 90 b.kr. on the reserves, owing to the appreciation of the króna during the year.

In addition, the policy interest rate was lowered by 0.75 percentage points last year, the króna has appreciated by over 16%, the Central Bank has bought more than 350 b.kr. worth of foreign currency, the foreign exchange reserves have grown by over a third in foreign currency terms, and capital controls have been almost completely lifted in three large steps. These are substantial changes in a single year – changes that will presumably take their place in economic history. What lies behind these developments? How could the domestic economy grow by more than 7% in 2016 without overheating and unleashing inflation? Five major factors are presumably of considerable significance whose mechanism it is important to understand in order to assess what comes next and formulate appropriate economic policy responses. First of all, the supply side of the economy is more flexible than before, owing to increased economic integration with the rest of the world. The EEA Agreement plays a large role here, but so do other trade related agreements and 1  general market-driven developments in the global economy. Because of this, when demand pressures start to develop, it is easier than before to mitigate them: by importing labour and other production factors, by using foreign inputs in domestic production chains to a greater degree, or by moving a portion of operations out of the country. Last year, for instance, net migration among foreign nationals was closing in on the previous peak from 2006.
Governor Zhu suggested that the role and status of the SDR be enhanced, with the long term objective of creating a “super reserve” currency. However, the Triffin dilemma goes back to a period when international capital markets were poorly developed. By then, international liquidity was limited to instruments used to settle payments between official monetary authorities. It was represented by claims on such official  BIS Review 120/2010  3  entities. By contrast, in today’s world, most international liquidity is privately provided and represented by claims on private institutions. Interbank markets play a crucial role in this process. The more capital markets become integrated at the short end, the more international liquidity is provided by the private sector. As a consequence, there is a strong continuity and complementarities between domestic and international liquidity. Both depend on the willingness of counterparties to extend credit to each other. Both are subject to aggregate supply and demand shocks with sudden shifts in risk aversion or liquidity preference. Both result from leveraging and deleveraging by private institutions (Adrian and Shin, 2008). When markets seize, counterparty risk is perceived as excessive, uncertainty settles in, financial institutions deleverage their positions towards non residents, and then international liquidity dries up and disappears. When a shock occurs, public provision of liquidity has to substitute to private provision. In a domestic context, this is the function of the lender of last resort. But when the shortage is about foreign currency liquidity, this role has to be played by foreign exchange reserves.

Out of the total, only a small part of the SDR allocation  BIS Review 120/2010  5  will benefit countries which may effectively need to use them. More may be needed to substitute for national foreign exchange reserves as a permanent insurance mechanism. Contingent liquidity The search for new liquidity sources meets with an inescapable moral hazard problem. On the one hand, to be equivalent to reserves going forward, multilateral liquidity must be available ex ante and without condition. On the other, there is a danger that fully unconditional liquidity be used to deal with fundamental “solvency” imbalances. In real life, this is not an easy distinction to make. The dilemma is solved, at the domestic level, by the provision of eligible collateral. This may prove very uneasy for international liquidity: transferring ownership of substantial amounts of sovereign assets between countries or to international institutions would meet with huge legal and political difficulties. This is the rationale for conditionality. But, of course, conditionality creates an uncertainty which is incompatible with the purpose of instant supply of liquidity. A conditional facility will never be a perfect substitute for reserves. Many countries fully eligible to the Flexible Credit Line (FCL) have used foreign swaps instead. Anecdotal evidence suggests that swaps are often perceived as carrying less of a stigma effect.