samchain/econo-pairs-v1 huggingface dataset:
Should monetary policymakers have sacrificed 1 ½ million jobs for the sake of an extra 1 or 2% of productivity? Hand on heart, I can tell you this one would not knowingly have done so. Of course, this experiment is only illustrative and is based on a number of simplifying assumptions. For example, it assumes there is no adverse effect on the output of firms who do not go bust but who nonetheless find their cashflows squeezed. This would tend to raise the output and employment cost of higher interest rates and make the terms of trade for productivity improvements less favourable still. 16  All speeches are available online at www.bankofengland.co.uk/speeches  16  Acting in the opposite direction, gazelle firms may be able to borrow to avoid bankruptcy in the event of higher interest rates – their solvency threshold might be higher than for zombie companies. If we assumed instead that only the lowest-productivity firms went bust, the boost to productivity is around 3% (Chart 24d). This is more material, but would still need to be weighed against the significant output and employment cost. The Dispersion of Productivity and Wages  A final use to which the distributional data can be put is to analyse whether rising dispersion in productivity among firms is mirrored in rising dispersion of wages among households. Have productivity differences been a contributor to rising income inequalities?

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I. Monetary policy is doing its duty, and has already done a lot  I am well aware that some recent monetary policy decisions of the Governing Council are hotly debated in Germany. The expression of such criticism reflects, at a minimum, the need to explain our monetary policy decisions better. However, I’d like to argue that our recent monetary policy decisions are very much in line with the principles of stability that German culture incarnates so well. Let me elaborate on three of these principles. First, independence. The divergent inflation performance of the major industrialized economies after the collapse of the Bretton Woods system had a profound effect on the subsequent conduct of central banks. On the practical side, Germany was seen to have navigated the so-called stagflation episode of the 1970s considerably better than others. The Bundesbank was role model for the independence of other central banks. Second, a clear mandate for price stability. The Eurosystem was built on these foundations as enshrined in the Maastricht treaty. We also adopted, as early as 2003, a transparent quantitative definition of price stability as an inflation rate close to but below 2% over the medium term – very close to the present definition of the US Fed, the BoE or the BoJ: so this is nothing new or specific to the ECB. From 1999 to 2011, the HICP inflation rate averaged 2% in the euro area, remarkably consistent with the objective.

In the same vein, we do not have previous experience of structural changes of this magnitude, which also require a very long term perspective, and where the presence of non linearities and irreversible tipping points are likely. In this regard, national and international regulatory and supervisory authorities have an important role to play to fill in these data gaps regarding banks’ exposure to climate risk, by collecting more granular data by location, sector and also at the firm level. And, in parallel, we have to use all our research capabilities to better quantify the climate change consequences on risks to financial stability, and the effect of potential mitigation measures. And these efforts must be coordinated globally to ensure adequate standards and comparability across regions. From the purely central bank perspective, I think it is also important to frame our actions in this field taking as a basis our price stability objective. Here again I think that, in our pursuit of price stability, we cannot ignore the transition and physical risks that I have mentioned before. Insofar as they affect the macroeconomy, the transmission of our monetary policies or the inflation outlook, then such risks are bound to affect the conduct of monetary policy.
An increased credit risk means that it becomes more difficult and more expensive for the banks concerned to fund themselves on the credit markets, which can hold back lending. This also dampens the real economies in the countries concerned. (Figure: CDS premiums for the banks). Reduced concern, but still not normal In an attempt to assess the stability of the banking sector the Committee of European Banking Supervisors, CEBS, carried out stress tests on 91 European banks in July this year. The results of these stress tests have now been published. The assessment is that all but 7 banks have sufficient resilience to manage a worse scenario in the period 2010–2011. The CEBS has here assumed a weaker economic growth, higher interest rates and poorer stock market than in the European Commission’s forecasts, as well as losses linked to the banks’ holdings of European government bonds. The four major Swedish banks included in the survey managed all of the stress tests with a good margin. 2 The results of the stress tests have generally been well-received by the market. However, it should also be pointed out that there has been some criticism, which has concerned the CEBS’ assumptions not being sufficiently tough. Nevertheless, interest rate differentials towards Germany declined after the CEBS reported its results, as did the basis spreads and the CDS premiums for banks in the four countries concerned, although they have risen again in August and the levels remain higher than they were in the spring.

The FSB working group took on the task of investigating the way in which these benchmarks were fixed and recommending ways to improve them. The group’s work was independent of simultaneous investigations into foreign market manipulation by supervisory authorities in a number of different countries, which resulted in the imposition of fines in November. The final report presented at the end of September found that – unlike the situation for benchmark interest rates – liquidity in the foreign exchange market was high and therefore provided an adequate breadth of data for calculating benchmarks. However, the problem for benchmark fixing in this area stems from a different source, namely the fact that trading orders become heavily concentrated shortly ahead of the fixing time. This gives traders opportunities to manipulate the price of the fixing to their own advantage. In order to eliminate these opportunities, the working group is proposing that the fixing window be widened, thereby broadening the range of data sources. In addition, the group also recommends various codes of conduct guidelines for fixing orders. What is particularly important is to ensure that banks do not share information with each other about customer orders before the fixing. The SNB supports the recommendations contained in the report by the working group. It is now up to the private sector, first and foremost, to implement these recommendations. The reforms carried out so far, with regard to both interest rate benchmarks and foreign exchange benchmarks, are steps in the right direction.
Our remit from the Chancellor of the Exchequer tells us that our target is 2% inflation “at all times”, but also recognises “that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.” Economists and monetary policy makers have long understood that there is generally no conflict between stabilising inflation and stabilising output when the economy is subject to adverse demand shocks. But that there is a real choice to be made when there are adverse cost shocks: inflation can be stabilised, but only at the cost of volatility in output. From a monetary policy perspective, the rise in commodity prices and VAT are both essentially adverse cost shocks. And so, in my view, is the rise in import prices associated with the depreciation in sterling, given that it was not primarily a consequence of monetary policy actions (though the subsequent stance of monetary policy will surely have affected the extent to which that rise in import prices has passed through into consumer prices). The exercise above suggests that together they account for a rise in the level of consumer prices of 9 to 13 percentage points. Since the “excess” inflation relative to the 2% target is a little over 5 percentage points, that suggests that, in practice, we have ended up accommodating around half the impact of the shocks on inflation.

But even abstracting from the snow, activity seems to be have been broadly flat. How much should we read into that? One possibility is that the figure is simply erratic or will be revised away in due course. But other indicators – particularly some measures of consumer and business confidence – also weakened during the second half of the year,  3  While some outside commentators regarded that projection as being on the optimistic side, it would still have left output below its pre-crisis level until 2011 Q4 and broadly in-line with the average experience after banking crises recorded by the IMF (Chart 1). 2  BIS central bankers’ speeches  suggesting that something more substantial may have occurred. It could just be a short-lived soft patch – after all, recoveries are rarely smooth. Indeed, that is the judgement incorporated in the projections we published a couple of weeks ago (Chart 2). But it could instead be the harbinger of a more durable slowing – only time will tell. Let me now turn to the sources of the recent elevated inflation and the chances of inflation remaining above our 2% target into the medium term and beyond. A year ago, in our February 2010 Report, our central expectation was that inflation would be around 1% in the first quarter of this year. Yet in January, CPI inflation reached 4% and is likely to move higher in the coming months, in part reflecting the recent surge in oil prices.
Nevertheless, through our communication, we have sought to take account of the possibility that debt and asset price developments may be a potential source of subsequent instability, but it is neither our ambition nor our conviction that monetary policy can control developments in these variables. Moreover, we have stated in clear terms that the interest rate has been unusually low and that it would have to increase gradually to a more normal level. Since 2005, this has been reflected in our own interest rate forecast. Since inflation expectations have been firmly anchored, we have also been able to increase the interest rate gradually even though actual inflation has been below target. The time horizon for reaching the target in our forecasts has been stretched. Let me now turn to economic models and their use. Even though monetary policy cannot operate with objectives for developments in the labour market, asset prices or debt accumulation, these and other economic variables can provide information about future price developments, which is included in the basis for interest rate setting. In order to glean as much information as possible about future inflation and to gain insight into how the interest rate is affecting the economy, Norges Bank – like other central banks – uses economic models as an analytical tool. What makes a good model depends on the intended purpose of the model. The models' purpose must thus be given decisive weight in the choice and design of modelling tools.

Emerging Market Forum – Paris, 16 May 2022 Welcome remarks: “Multipolarity and the role of the euro in the International Financial System”  Speech by François Villeroy de Galhau, Governor of the Banque de France  Page 1 sur 7 Ladies and Gentlemen, It is a great pleasure to welcome you today in Banque de France premises for the 15th Emerging Markets Forum. “Navigating in a fast moving and turbulent world” certainly requires great skills, and recent developments in the International Financial System remind us that it is currently all but smooth sailing. We have seen disruption in the global value chains due to the still ongoing pandemic. International trade may slow down or even contract if these disruptions lead to a significant wave of re-shoring. Now the brutal war in Ukraine has induced further supply disruptions and led our democratic leaders to use financial sanctions in response. In this uncertain situation, our first duty as a central bank is to provide appropriate monetary policy. The consensus in our Governing Council is now clearly emerging, as summed up by Christine Lagarde in her speech last Wednesday i: to fight an inflation which is not only higher but broader, we now have to normalise our monetary policy. I won’t add my precise calendar prediction to the many existing ones, but expect a decisive June meeting, and an active summer.
The settlements in 2004 and 2005 resulted in moderate wage growth. There are now signs of higher local pay increases in some industries. Pay increments are probably rising in occupations where pay is directly linked to performance. Municipalities and public entities have recorded a sharp increase in revenues, and this may easily translate into higher labour costs. Nevertheless, the labour market is not so tight that there is a pronounced risk of a marked increase in wage growth in connection with the spring income settlement. Moreover, employee organisations have  6  4  Information from Norges Bank’s regional network, January-February 2006. BIS Review 10/2006  gained acceptance for important changes in labour legislation and regulations. This probably reduces the near-term risk of pay increases that weaken production. A characteristic of the wage formation process in Norway has been that fairly long periods of moderate nominal pay increases and rising employment have culminated in a sharp rise in cost inflation – often as a result of working hour reforms – and a decline in employment. Developments in labour costs and the wage settlements in 1974 and 1975, 1986 and 1987 and in the period between 1998 and 2002 laid the basis for a subsequent decline in output and employment. In our interest-rate setting, we must continuously assess how we should take account of the risk of another sharp rise in cost inflation when the labour market tightens.

The basis for establishing new businesses has not been as favourable as in Kongsberg, but there are now at last signs that the situation is improving. Kongsberg Våpenfabrikk was wholly state-owned. This was widely perceived as a guarantee for continued operations. The company repeatedly required state capital injections following unfavourable results. When the government allowed the company to fail, this also represented an important choice with regard to state ownership policy. Profit requirements bolstered discipline in the fledgling companies. At the same time, when the original company was split up, competencies and values became visible. The state still has extensive ownership interests in Norwegian business and industry, but it has adopted a completely different approach to the management of its interests following the experience in Kongsberg, Mo i Rana, Sulitjelma and Syd-Varanger. Corporate governance is now exercised through resolutions in general meetings and according to recommendations from nominating committees, and the board and management can run companies with the objective of increasing value. The state-  6  BIS Review 10/2006  owned companies are subject to exactly the same market discipline as other operators, with a required return and continuous adaptation and development. This is also the only way companies can avoid stagnation. Through the Government Pension Fund, the state owns equities worth more than NOK 500 billion, spread across nearly 3 500 companies in over 30 countries. The holdings are minority interests.
In such a context there is a risk that the banks could act even more procyclically than they usually do and would amplify the cycle. To be clear, the uncertainties and the economic slowdown have so far not caused banks to tighten their lending conditions or to grant less credit. But we need to keep a very close eye on how this evolves. How will the banks behave if the economic slowdown continues? Would you say that financing conditions in the euro area as a whole have already tightened significantly? Financing conditions have tightened somewhat in recent months, but not significantly, thanks in part to our forward guidance on interest rates. This partly compensates for such effects. But you’re absolutely right, we as central bankers must always ask ourselves whether our monetary policy stance is appropriate for us to attain our objective. And what is your answer at the moment? We have revised our assessment of risks to growth downward. I would say that is a clear indication that the level of alert is higher than before. 2/5  BIS central bankers' speeches  Three quarters of below-potential growth, higher risks and at least slightly tighter financing conditions – what does that signify for the inflation outlook? Is the ECB’s Governing Council losing its confidence in reaching the target of 2% over the medium term? Three quarters of below-potential growth are certainly not good news. But we have a medium term perpective.

In view of the discussion that this matter occasions from time to time, there may be reason to say something about the view of the Riksbank. 1. A new currency is created A new currency will see the light of day in January 1999. Eleven countries in Europe are forming a monetary union and will accordingly be having a currency, a monetary and exchange rate policy, and a central bank in common. The euro will be the domestic currency of a major economic area. Today, the euro area’s share of world output is around 30 per cent, as against around 35 per cent for the United States. As regards world trade, the share for EMU’s external trade amounts to around 17 per cent and the United States around 15 per cent. EMU is a central component in the process of European integration. This process was initiated in the 1950s with agreements on the joint control of certain means of production, the European Coal and Steel Community. The idea was to forge economic bonds between nations as a way of promoting peace in Europe. The establishment of the Common Market in the 1980s was a further step, aiming at freedom of movement within the Community for goods, services, capital and individuals. With the introduction of a single currency, the countries of Europe will come still closer to each other in economic and political terms. At the same time, yet another obstacle to the creation of a large internal market in Europe will be removed.
Rising commodity prices are an indicator of strengthening demand around the globe. BIS central bankers’ speeches  3    Higher energy prices likely to boost overall inflation in the near term. Whether energy and commodity prices raise inflationary levels for the medium term depends on the persistence of the commodity price rises.   Because commodity price changes have shown less persistence over the last 20 or more years, economists have seen little evidence of pass-through of higher commodity prices into underlying inflation (Chart 39). In the past, sustained rising prices for energy and commodities have been tempered over time by business and household adopting more energy-efficient practices, as well as investment in and adoption of substitute sources. Sixth, what does the market expect the Federal Reserve to do in the near-term? The last statement of the Federal Open Market Committee said:   The Committee…continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.   Current market expectations, inferred from the federal funds (overnight interest rate) futures curve, are that:      The Fed will purchase the full $ billion of Treasury securities by mid 2011.   The Fed will begin to raise the federal funds rate in the second half of 2011 (Chart 41). The Committee has stressed that policy is conditional on the performance of the economy.

The Federal Reserve responded to the slowing of the recovery in midyear 2010 by beginning a second round of large-scale asset purchase programs. Those purchases are resulting in a rough tripling of the Federal Reserve’s balance sheet (Chart 42).   U.S. economic conditions are currently quite far away from levels consistent with the Federal Reserve’s dual mandate of the pursuit of the highest level of employment consistent with price stability. I’ve discussed the high unemployment and unused productive capacity in the United States. Let’s turn to inflation.   While trend inflation is quite low at the moment, we see it likely to be near the low point of this cycle. The rate of inflation for nonenergy services is beginning to increase, led by faster increases in apartment rents (Chart 36). A firming of demand along with a decline of the exchange value of the dollar should begin to put upward pressure on nonfood, nonenergy goods prices.   However, underlying inflation fundamentals suggest relatively low trend inflation for some time:      A substantial amount of slack in the economy, reflected in the sharp deceleration of core services prices – and the United States is a services economy (Chart 35).   Relatively wide profit margins, so that firms facing very competitive output markets are able to absorb changes in energy and commodity prices. Moreover, unit labor costs are still falling (Chart 37).   Inflation expectations remain well anchored (Chart 38).