samchain/econo-pairs-v1 huggingface dataset:
4 Such a growth rate has some historical precedent, as shown on the right side of the chart, but it is much faster than the growth rate in the past two recoveries. And to reach 5 per cent unemployment by 2015 would still take growth averaging 4.2 per cent per year – considerably faster than the average rate of growth after the 1991 and 2001 recessions. Given the need for very rapid growth to get unemployment back to 5 per cent, let me pose an oversimplified question – why would policymakers not keep monetary policy very accommodative, and fiscal policy very stimulative, until we had a sustained growth rate that brought the economy much closer to full employment? At least on the monetary side, one reason might be concern among policymakers that rapid growth would be inflationary. To explore that, let’s turn to Figure 7, which shows the total and core inflation rates, measured by changes in the CPI, with recession shading. What the chart shows is that inflation has declined in each recession, including this so-called Great Recession. It also highlights that inflation tends to continue falling in the early stages of a recovery. Figure 8 shows the change in the inflation rate from the business cycle peak. From the peak (shown at zero on the horizontal axis) the inflation rate is very restrained, and generally negative, for many months.

The sharp reduction in the ratio of employment to population highlights our challenge – achieving a full recovery will require creating jobs for those currently unemployed and actively seeking work, those entering the labor force as the population grows, and those likely to return to the labor force once jobs become more available. Employing all these workers within a reasonable period of time will require very strong economic growth. The question is, how likely is that? Figure 4 shows the growth rate in each of the first three years of the last three recoveries, as well as the average rates for all three recoveries. The most recent two recoveries were quite slow to get started, but picked up steam over time. This is the pattern projected in most forecasts for this recovery. Over the past three quarters, GDP has increased 3.7 per cent. 3 However, some of the growth resulted from temporary rebalancing of inventories by businesses, as suggested by Figure 5, which shows that the per cent change in real final sales was quite a bit smaller than the per cent change in GDP. The gap between them would be inventory rebuilding. Most private forecasts expect growth in the next four quarters to be fast enough to begin to make more improvement in the labor market. My own expectation is consistent with this. As financial headwinds subside, and consumers and businesses gain more confidence in the recovery, expenditures that have been deferred will be made – and we should begin to see stronger economic growth.
We used to hear about brokerages such as E-Trade offering stock trading at a $ flat commission; now we have the likes of Robinhood in the U.S. offering retail trading for free. 45. The advent of “robo advisers” also suggests that investors can access automated investment advice on their Smartphones, without the need for human interface. Some  6  BIS central bankers’ speeches  commentators believe that computer algorithms can essentially provide customized advice to investors at a fraction of costs compared to human financial advisers. 46. The interplay of new technology, different platforms and new players inevitably suggests faster and cheaper options ahead. These can impinge on the existing job roles in our financial marketplace. Technology-driven applications may very well become alternatives to the traditional stockbroking service offering. If a consumer is already getting regular and instant updates on the markets using his Smartphone, it is only natural for him to expect higher service levels from his stockbroker beyond ad-hoc market updates and pure execution. If consumers are already comfortable with making and receiving payments instantly via internet banking, there will be calls to shorten if not eliminate the 2 to 3 days taken to settle and deliver his stock. So the business model of CDP as a central securities depository may need to be reviewed in future. Upskilling the stockbroking industry 47. This leads me to the subject of skills upgrading.

The current uncertain macroeconomic and market environments underscore the importance of staying vigilant to new or growing risk areas and vulnerabilities. 3. But it is also important not to lose sight of the long-term positives. Our capital markets continue to attract a diverse range of players and activities. Besides SGX, international exchange groups such as the InterContinental Exchange (ICE) and EUREX, have or will establish exchanges and clearing houses in Singapore. These will add to the vibrancy of our exchange landscape in parallel with the continued growth in our asset management industry. The last asset management survey done for 2014 showed robust growth in total assets under management, with assets under management increasing by 30% to $ trillion. There is clearly a role for our capital markets to help match savers and users of capital and in the management of financial risks. 4. The SGX Equities Dialogue this afternoon is a good occasion for sharing, discussion and reflection on developments affecting our securities market. Allow me to use this address to share some thoughts on our market regulatory structure, and MAS’ roles in market surveillance and enforcement; and I will conclude by sharing some shorter remarks on new trends and on skills development. A sound regulatory system 5. As an international centre, Singapore’s financial market is influenced by many external factors.
At this meeting we will make a collective assessment of events since the previous forecasts were made. The monetary policy strategy Many may wonder why we increase the interest rate despite the fact that inflation is currently slightly below target and there is still spare capacity in the labour market. What must be remembered in order to understand why monetary policy needs to be brought gradually onto a less expansionary path is that it takes time for the economy to adjust to changes in the repo rate. This means, for instance, that we have not yet seen the full effect of the expansionary monetary policy we have conducted in recent years. It also means that interest rate decisions must be based on an assessment of how the economy will look a few years from now. Let me describe how we usually reason when making interest rate decisions. This is also something described in greater detail in the document on monetary policy that we published last week. The objective of monetary policy is to maintain price stability. This was established in the changes to the Sveriges Riksbank Act, which came into force in 1999. The Riksbank has specified this in the form of an inflation target, whereby the rate of change in the CPI should be 2 per cent with a tolerance interval of +/- 1 percentage point. Stable prices are thus the objective of monetary policy in Sweden, as in all other countries in the industrialised world.

For this reason, it is important that deviations from the target should not be allowed to become too prolonged. This is why the Riksbank has chosen to aim under normal circumstances to bring inflation back on target within two years. One can say that this is a restriction we have placed on ourselves to create flexibility in an orderly manner. At the same time, it is not appropriate to set restrictions for monetary policy that would be binding regardless of developments in the economy. There may – exceptionally – be situations where the consequences of bringing inflation back on target within two years may lead to unacceptable fluctuations in economic activity. It has sometimes been claimed that there is currently a risk that inflation could remain subdued over a long period of time, partly as a result of globalisation, and that this may mean that inflation is below target for longer than two years. We have made another assessment, as I mentioned earlier, but this type of situation is an example of when it might be  4  BIS Review 44/2006  appropriate to deviate from our normal target horizon. If we were to make the assessment that this type of situation had arisen, we would make it quite clear in advance. We also make clear how long we expect inflation to deviate from the target, and why we think this will happen, in connection with our monetary policy decisions. Conclusion Let me conclude with a brief summary of what I have just said.
For many advanced economies, the decade and a half leading up to the financial crisis was indeed a period of unusual macroeconomic stability, with low and stable inflation accompanied by steady growth – the Great Moderation. Inflation targeting and similar price-stability oriented monetary policies appeared to have delivered the goods. But in a number of countries – most obviously the United States, but also including Australia, Ireland, Spain and the United Kingdom – this period was also characterised by rapid credit growth and property price inflation, sowing the seeds of future problems (Chart 3). Now many factors contributed to the severity of the subsequent financial crisis. A non-exhaustive list includes: the development of complex securities which were impossible to value in stressed conditions and which connected financial institutions in unexpected ways; disguised leverage through the use of securitisation vehicles, whose real aim was regulatory arbitrage; remuneration packages encouraging positions that generated decent returns most of the time but high losses in some states of the world; excessive reliance on credit-rating agencies; defective risk management; and insufficient high-quality capital to absorb losses when they materialised. But macroeconomic conditions possibly also played a part2. Far from fostering financial stability, the Great Moderation may itself have contributed to the build-up of credit and the adoption of risky positions by leading investors to underestimate potential macroeconomic risks. And commentators, such as John Taylor (2009) and Bill White (2009) have blamed excessively loose monetary policy during the years leading up to the crisis.

The severity of the recession might appear to tilt the argument in favour of “leaning”, but the question still arises as to how effective such a policy would have been in restraining the boom in credit and property prices and at what cost to activity. Together with colleagues from the Bank (Bean et al, 2010), I recently attempted to investigate this question using simple vector autoregressive models of the US and UK economies. I will refer you to the paper for the details, but Table 1 shows the results of counterfactual simulations of a pretty aggressive “leaning against the wind” policy, in which the policy rate is held around 200 basis points higher over the 2003–2006 period. The simulations suggest that the peak in real house prices would have been about 7½% lower in the United States and some 20% lower in the United Kingdom. The impact on the stock of credit is, though, more modest: just 3–4% lower by the end of 2006. Moreover, the cumulative impact on activity is considerable, with output around 3% lower by the time the crisis begins. Clearly, then, the terms of trade for controlling the risks to financial stability through monetary policy alone do not look very favourable: even substantially higher interest rates over a sustained period would not have prevented the crisis. A similar conclusion is reached by Bernanke (2010) and Carmen Reinhart and Vince Reinhart (2011).
Similarly, in our case, the Bank of Thailand recently launched the Financial Sector Master Plan 2, in which we outline the key principles and guidelines for further strengthening of the financial sector over the next five years. Chief among the agenda are our commitments to bring down financial transaction costs through further deregulation and promotion of more competition in the banking industry. The second element of financial soundness is the integrity aspect. That is, financial institutions must be sufficiently immune to “runs”, which I define loosely as correlated and large-scale withdrawals of deposits, triggered by sudden loss of confidence in the solvency of banks concerned. On this, a key lesson for emerging markets from the global financial crisis is that the push for financial market development must be accompanied by constant efforts to review and bolster as necessary the supervisory framework and standards, so that financial soundness can be ensured without compromising the financial system’s integrity. The third and last element of financial soundness is the stability aspect. The financial sector, while playing an important role in supporting the real economy, can at the same time be the source of risk and instability to the real sector. As we know, the spillover effects from financial to real sector can take many forms. For example, the tendency for financial institutions to extend more credit during economic upswings, and scale back lending precisely during downturns, can contribute to the amplitude of the business cycles.

It is not clear that before the late 19 century a single dominant financial centre existed in Europe as the economies of scale were not sufficiently developed. 5  There is perhaps another puzzle in the way financial services have developed, one that is closer to home. The resurgence of London. According to the Global Financial Centres Index, London is the world’s leading 6  financial centre, just as it was in the days of Cunliffe Bros. But as we know, London did not enjoy uninterrupted status as a premier financial centre over the intervening period. As I have noted, international financial activity dried up materially after the First World War. But even accounting for the overall decline, London’s relative importance as a financial centre declined further as the global footprint and importance of the UK economy decreased along with sterling’s reserve currency role. It was only with return to financial globalisation, some 50 years ago, that this process was reversed – leading to the concentration we now see. The puzzle here is that historically, the clustering of financial activity has tended to follow trade and commerce. It was commerce that led to the rise of Venice and then Amsterdam as financial centres in the th  th  16 and 17 centuries.
See the Federal Reserve Bank of New York’s report and accompanying data file, “Projections for the SOMA Portfolio and Net Income (July 2017).” 15 These liabilities include Federal Reserve notes (U.S. dollar paper currency), the U.S. Treasury’s General  Account, deposits held by designated financial market utilities and government-sponsored enterprises, and reverse repos conducted with foreign and international account holders. On average, these line items summed to over $ billion in 2017, on top of more than $ trillion in Federal Reserve notes. Fed liabilities are discussed more thoroughly in Lorie Logan, “Implementing Monetary Policy: Perspective from the Open Market Trading Desk,” remarks before the Money Marketeers of New York University, New York City, May 18, 2017. 16 It is worth noting that the size and structure of Fed’s securities portfolio and the role the portfolio played have  undergone substantial shifts at various times over the course of the Fed’s history, reflecting changes in policy implementation imperatives. See Meryam Bukhari et al, “The SOMA Portfolio through Time,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 12, 2013. 17 Throughout this discussion, I focus on forward guidance and use of the central bank’s balance sheet (through  large-scale purchases of additional assets and reinvestment policies, but not funding for lending programs) as possible tools. U.S. policymakers have shown little appetite to pursue negative nominal interest rates, although that is another unconventional tool used by several central banks in recent years.

However, the FOMC said it would be prepared to resume reinvestments if a “material deterioration in the economic outlook were to warrant a sizable reduction in the Committee’s target for the federal funds rate,” and it would be prepared to use its “full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal fund rate.” These conditions help identify the types of circumstances that might lead to some adjustments in the balance sheet normalization process, although Chair Yellen has noted there is a high bar for altering the balance sheet’s current course.10 The FOMC’s balance sheet reduction strategy lays out a gradual and predictable path for portfolio runoff, which should reduce the risk that balance sheet normalization will generate 2 / 13  BIS central bankers' speeches  undesirably large asset price reactions, volatility, or disruptions to financial markets or Treasury debt issuance.11 That strategy—together with the FOMC’s steady communications throughout 2017 as the Committee developed it well in advance of implementing any change in policy—has helped to keep market expectations closely aligned with the FOMC’s intentions. The market response to the commencement of the Fed’s balance sheet reduction has been calm.
There are also indirect linkages between macro and financial stability through the main instruments used to achieve them. The main tool used by most central banks to achieve macro stability is the management of a short term reference interest rate. Movements of this benchmark rate not only directly affect the consumption/saving decisions of firms and households, but also have consequences for all asset prices (e.g. equities, bonds, exchange rates, housing), the cost and availability of credit, and the willingness of investors to take risks. For instance, in a stable context, persistently low interest rates may generate incentives for investors whose income depends on absolute returns (such as hedge fund managers and insurance companies) to invest in more risky assets. It may also make it more profitable to engage in carry trades and create currency or maturity mismatches. On the unintended side, the success in achieving macro stability may change the perception of agents about the riskiness of the environment and lead them to take more risky bets in the expectation that good times will continue indefinitely (or at least until the bet pays off). Also, the way to deal with bubbles in monetary policy in the US, applying the so-called Greenspanput (Blinder and Reis, 2005), may have increased the chance of bubble formation (De Gregorio, 2011).

Of course, this policy is not free of cost, since holding reserves is costly, and therefore its use is limited.4 It is difficult to recommend a particular strategy, since realities are different across countries, not only on the nature and impact of capital flows, but also on the overall macroeconomic policy framework and deepness and strengths of financial systems. However, the general principles discussed above should be taken into consideration. Final remarks The connections between price and financial stability suggest that the central banks should consider the cross effects of financial policies and monetary policy. In countries like Chile, the central bank has an explicit mandate on financial stability, and many other countries are moving in this direction as the interactions among policies have been recognized. But also, it is important to have a close and continuous coordination among all authorities with responsibilities on the financial system. This coordination becomes also more needed in times of crisis or extreme distress, since the central bank has to implement its LLR functions. In normal times, the pursuit of price stability in a small open economy is not in contradiction with financial stability in the presence of capital flows. In this context, the potential vulnerabilities to high exchange rate volatility can be handled with prudential regulation. However, in episodes of capital surges that may affect macroeconomic and financial stability a close coordination of monetary policy and prudential policies is required. References Bernanke, B.S.
If individuals have remained unemployed for a prolonged period due to the absence of appropriate job skills so there is a mismatch between labor demand and supply – a structural imbalance in labor markets, then this is very different than if individuals lost their jobs during a deep recession that has been followed by a still tepid recovery – a cyclical problem in labor markets. In the first case, the long-term unemployed may be less well-attached to the labor market in terms of exerting downward pressure on compensation, while in the second case they were particularly unlucky – they are long-term unemployed because of bad timing. I suspect that a much greater proportion of those who are currently long-term unemployed have simply been very unlucky compared to historical averages. This blunts somewhat the distinction between being short- versus long-term unemployed. •  If the long-term unemployed are simply unlucky as opposed to not having the appropriate skills, then their impact on wages presumably depends on whether or not there is an excess supply of short-term unemployed. If there are plentiful shortterm unemployed, they may get the best job opportunities first. In part, this reflects employer bias against the long-term unemployed when they compete with those who have been unemployed for shorter periods. But, once the short-term unemployed pool is depleted, then the long-term unemployed will become more relevant to the labor market supply, so their impact on wages and the labor market will likely increase as the labor market tightens.

One obvious wildcard is the situation in Ukraine and relations with Russia. How this will evolve is difficult to predict. The big risk is that conditions deteriorate and the ultimate outcome is a disruption to energy supplies from Russia. When all these cross-currents are considered, the impetus to growth from abroad appears little changed from last year. Now a reasonable question would be: If the outlook is improving, then how does one explain the sharp slowdown in growth in the first quarter? My own view is that the principal factors behind the slowdown were transitory so we should not be overly concerned at this point. Some slowing in the first quarter was nearly inevitable. Foreign trade and inventories provided unsustainably large contributions to growth over the second half of last year and payback for those large gains was expected in the first quarter of this year. Also, the expiration of extended unemployment compensation benefits and bonus depreciation at the end of the year was likely to take some of the starch out of consumer spending and business fixed investment. Beyond these anticipated factors, we had unusually harsh winter weather, which likely depressed housing activity, manufacturing production and some aspects of household spending such as motor vehicle purchases. With the fundamentals of the economy improving and fiscal drag abating, I expect the economy to get back on to a roughly 3 percent growth trajectory over the remainder of this year, with some further strengthening likely in 2015.