samchain/econo-pairs-v1 huggingface dataset:
There are many signs that the Central Bank's interest rate rises are producing results in the form of less activity in the areas of the economy which are most sensitive to interest rates. Had the Central Bank not reacted in this way, it is quite certain that overheating of the economy would have produced a much higher rate of inflation than Iceland has known in recent years, with corresponding consequences for the economy. The Central Bank's tight monetary stance has been quite widely discussed in Iceland. Questions raised have included its impact on the current account deficit and whether monetary policy was actually achieving its set aims, given unrestricted access to foreign capital and the insensitivity of households and businesses to interest rate changes. The Central Bank has made special studies of the impact that interest rate rises have on the real exchange rate and current account deficit. Research suggests that, since 1996, the tighter monetary stance has led to a 2-3.5% appreciation of the real exchange rate. At the same, the real exchange rate appreciated by 10.5%. Studies also indicate that this appreciation in the real exchange rate caused the current account deficit to widen by 0.5-2% of GDP, but that it will shrink again in the course of time. Bearing in mind that last year's current account deficit was equivalent to 10% of GDP, rises in interest rates have clearly not had much impact on it. A wide range of other obvious factors are at work there.

Jean-Claude Trichet: Interview in Bild Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in Bild, Germany, conducted by Mr Oliver Santen and published on 15 January 2011. *  *  *  Mr Trichet, in one word, how would you describe the state of the euro today? If you allow me two words: credible and stable. Will the euro crisis get worse this year? Let me be very clear: this is not a crisis of the euro. Rather, what we have is a crisis related to the public finances of a number of euro area countries. All governments have to put their finances in order, and above all those governments and countries which have lived well beyond their means in the past. How are the euro area countries ever to reduce the debt, now totalling € trillion? This year, the budget deficit in the euro area will be half as high as that in the United States or Japan. Virtually all advanced economies face acute fiscal problems. This is something that is often forgotten. That being said, this is no time for any complacency. Let me repeat: the ECB expects the governments in the euro area to make enormous efforts to bring down their debt. Some countries have to get their debt under control again. Can you understand that many Germans are afraid of inflation? The Germans are right to be fiercely against inflation. Inflation hurts in particular the poorest. Price stability is a precondition for growth.
In theory, a rise in inflation in our trading partners driven purely by looser monetary policy would not have the same impact because it would be offset by a strengthening of sterling’s exchange rate. 10 The impact on inflation of a period of slower productivity growth depends on what it does to demand and on how easily wage growth falls in response. If people recognise the drop in productivity growth, and demand growth falls alongside it, and/or if nominal wage growth is reasonably flexible and can accommodate the decline in the warranted real wage without unemployment having to rise, it needn’t result in higher inflation. But if demand fails to decline or if there’s resistance in real wages inflation is likely to rise. 9  15  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  15  tighter than the rate of unemployment alone would suggest. Though this assessment is necessarily preliminary, the news since the end of the furlough scheme does not look to have changed that picture. In October, claims for unemployment benefit fell again and survey indicators of labour market conditions tightened further. Although it’s made little contribution to higher inflation so far, the risks to future inflation from the tight labour market may well be more significant. Developments in domestic costs tend to be more persistent than those in tradable goods prices (Chart 6 is one indication of that).

I do understand these concerns. Let me assure you now that I will not bore you with a recollection of past events. I intend my exposé today to be forward-looking, as should the exposé of any central banker. I want to discuss what lessons for the future we can draw from over-optimistic expectations related to so-called regime shifts, such as the supply-side shock of a perceived “new economy”, and the subsequent financial boom and bust cycle in asset prices. How should monetary policy-makers deal with the resulting financial imbalances and reconcile monetary stability with financial stability? In my presentation today, I shall first briefly discuss the challenges that have been presented by the new environment for monetary policy-makers, in particular by the “new economy” and the growing importance of capital markets. Then, I shall look at what I call the excesses of this new environment, which for me are the speculative boom in asset markets and evidence of a corporate culture infatuated by short-term considerations. Finally, I shall look at the financial stability concerns and conclude by presenting some lessons for the future. The paradigm of the “new economy” Without a doubt, the world has experienced overwhelming progress in technology and productivity over the previous century, resulting in enormous growth in economic activity and individual wealth. It has been calculated that the industrialised countries were about 20 times better off at the end of the 1 20th century than they were a hundred years earlier.
The PRA’s changing approach to policymaking Under the Government’s proposals, the PRA is expected to move from ‘rule taker’ to ‘rule maker’ for most areas of prudential policy within our remit. This is a fundamental increase in the scope of our responsibilities. As is only right, this increase in responsibility will be accompanied by a new framework of legal requirements and increased scrutiny, including, importantly, to Parliament from which our powers and responsibilities derive. This will include new requirements to ‘have regard’ to issues like international standards, equivalence, the relative standing of the UK to do business, as well as climate change and productive finance. We expect more focus on these by external stakeholders, and we are committed to paying due attention to these factors as we carry out our activities. But within the context of this new regulatory framework a key question remains: what kind of regulator does the PRA wish to be, as it steps into this new role? I will begin to answer this question now. Let me first say that the PRA approach to policy making will continue to have robust prudential standards at its heart to safeguard UK financial services and the stability of the UK financial system.

Responsive policymaking means that we respond swiftly and appropriately to issues, favouring flexibility over a ‘one size fits all’ approach. This will ensure our framework is appropriate in light of the risks, and it will benefit industry by being more tailored. Our policies will be implemented in a way that minimises frictions, recognising that the creation of new rules is only one option we can take. Setting expectations for firms and effecting change through our supervision are alternative tools in our toolkit, and new issues should start with an open conversation, for example through a Discussion Paper. Being responsive means that we are alive to new concerns as they arise – we need only look to the events of last year that highlight the importance of this. And our aim to be accessible reflects our goal of ensuring prudential regulation is as clear as possible through reform of the rulebook. We are well aware that the ‘patchwork’ of primary legislation, statutory instruments, on-shored binding technical standards, and PRA rules and guidance currently in force, is difficult to navigate – a rationalisation of this material will yield benefits for us as well as firms. The realisation of this vision will take years of coordinated work. Legislation will need to be passed that sets out the framework of our new responsibilities and our new powers. Thereafter, rules will need to be transferred in the correct way from the statute book to our rulebook.
We absolutely must keep a clear line around central banking. 26 Which brings me to the third “instrument” I want to say something about today. Capital of Last Resort However much the authorities do to forestall or alleviate a crisis by providing liquidity, I fear that we cannot rule out that very rarely the banking system will end up needing to be supported by some ultimate source of capital. We absolutely must be prepared to let banks fail when, in systemic terms, it is safe to do so. Such decisions call for technocratic judgment. But, as we have seen, sometimes disorderly bank insolvencies would bring systemic distress. For that reason, at least three things follow. First, each country needs a Special Resolution Regime for distressed banks, and probably more widely; we cannot rely on general insolvency law to help control threats to system stability. Thank goodness, the UK now has such a regime for banks, and the Bank will draw lessons about whether it needs refinement over time. Second, given the prevalence of internationally active banks in a globalised economy, national authorities just must be able to work together – in reality; when it matters – to control the resolution of banks whose activities cross borders. 27 And third, as by now  26  This was re-affimed recently in a joint statement by the US Federal Reserve and the Department of the Treasury (www.federalreserve.gov/newsevents/press/monetary/20090323b.htm).

Let me just highlight two of them: First, since investment funds are large institutional investors, their portfolio choices may be indicative of more general trends in portfolio diversification. For that reason, these statistics are certainly also useful for explaining monetary developments. Second, changes in investment funds’ asset value are transmitted, through the valuation of their shares, to households and firms. In turn, these wealth effects, may have implications on aggregate demand. The structure of the financial assets held by investment funds also provides important information regarding the financial risks that are indirectly borne by households and firms through their portfolio of investment fund shares. BIS Review 165/2009  1  In addition to the new statistics on investment funds, separate data are now also published every quarter on euro area Money Market Fund balance sheets. As a consequence, one can now perform analyses for the whole sector of funds. These new data on Money Market Funds are also a useful addition to the ECB’s monetary analysis. Because of the close substitutability between their shares issued and bank deposits, money market funds form part of the Monetary Financial Institutions sector and are thereby contained in the M3 figures. From now on, the new investment fund and money market fund data will be published in regular monthly ECB statistical press releases. I am convinced that the new harmonised statistics yield novel insights into the structure and development of the financial sector of the euro area economy.
Mervyn King: No country is an island Speech by Mervyn King, Deputy Governor of the Bank of England, at the Institute of Petroleum Annual Dinner, London, 21 February 2001. *  *  *  No country is an island - in terms of economics, if not geography. Trade and capital flows link all the economies of the world. Since 1970 the volume of world trade has increased more than five-fold. Globalisation is not a slogan; it is a fact. The economic winds can rapidly alter direction bringing significant changes in the economic weather. What happens in the world economy is of great importance to your industry. But no business in a country, such as the United Kingdom, which exports and imports almost a third of its national output each year, can ignore global economic developments. Recent events have reminded us of just how volatile that economic weather can be. Only a few short months ago, the United States was experiencing rapid economic growth at a rate which surprised us all. The new frontier had become the new economy, and some had forgotten that economic downturns are a regular feature of a market economy. Share prices had reached levels four times that of a decade earlier, and the price earnings ratio of America's top 500 companies was over forty, an unprecedented level. Now, after a swift and sharp fall of business and consumer confidence, the business cycle appears to be alive and well, and living in the United States.

European Central Bank: Press briefing – transcript Transcript by Mr Jean-Claude Trichet, President of the European Central Bank, following the meeting of the Governing Council, Frankfurt am Main, 2 August 2007. *  *  *  Let me just say a few words and then I will be ready to respond to questions, as usual. Recent economic developments and survey indicators confirm that sustained economic growth continued in the euro area through the second quarter. Rising oil prices, emerging capacity constraints and the potential for stronger wage and cost dynamics, among other factors, imply upside risks to price stability over the medium term. The existence of upside risks to price stability at medium to longer-term horizons is confirmed by the strength of the underlying rate of monetary expansion: strong vigilance is therefore of the essence to ensure that risks to price stability over the medium term do not materialise. Both, our previous economic and monetary analysis as expressed in particular in the last press conference have been fully confirmed by the ongoing information we have received since the last meeting of the Governing Council. Let me also stress that we never precommit, we decide at the moment of the meeting of the Governing Council on the basis of the information that we have, facts and figures, and according to the judgement that we make at that moment. I re-emphasise that we never pre-commit.
Coase understood the existence of firms to be a manifestation of how market based exchange between employers and employees was not efficient (see his 1991 Nobel lecture, for example). More recently, economists like Kiyotaki and Moore (an example is their 2002 paper) and many others have built models in which debt markets are incomplete because it is costly to enforce contracts, and which constrain the amount individuals can credibly borrow and pay back. These models can also be used to explain how money comes to exist, as I discuss below. Another body of work that seeks to study the institutions that underpin market exchange is the subject that has come to be known as 'law and economics'. Scholars in this field study the economic origins and consequences of the legal system. See, for example, many works by Gary Becker, Ronald Coase and Richard Posner. BIS Review 102/2006  3  laws, and to abolish the unhelpful ones. And it is that challenge of institutional design to which I now want to turn. As Governor of the Bank of England, you will not be surprised to learn that money is a social institution close to my heart. It is crucial in facilitating exchange and therefore, in allowing the division of labour.

One of the key pillars of Title II is that, unlike a bankruptcy proceeding, the FDIC will have access to liquidity from the U.S. Treasury to help ensure an effective resolution. While this access provides significant support for an effective resolution, it will still be important for the resolution authorities to provide clarity about the timing and the amount of liquidity resources that will be made available after a firm enters into resolution. This clarity will likely be necessary in order to calm creditors and markets at the time of resolution. Under the single point of entry framework, the intent is to create a highly capitalized bridge entity so that counterparties will be willing to stay engaged based upon the improved creditworthiness of the bridge parent and its recapitalized subsidiaries. If successful, this will reduce the need for the up-front provision of external liquidity resources. Nevertheless, to make the viability of the bridge entity fully credible, market participants must believe that the bridge company has access in a timely way to whatever additional liquidity resources might prove necessary. In addition, under the Dodd-Frank Act, Title II is not the baseline or preferred approach for dealing with the failure of a large complex firm. For a firm to go through Title II, a determination must first be made that the failure of the firm and its resolution would have serious adverse effects on U.S. financial stability under the insolvency law that would otherwise apply.
But, as we all know, long-term rates have actually fallen as the FOMC has raised short-term rates. For example, the benchmark ten-year Treasury rate is down by more than ½ percentage point since the funds rate started heading up in the middle of last year. This is the basis for what Chairman Greenspan has called the bond rate “conundrum” that has commanded so much attention recently. There is a debate about how to interpret the decline in longer term yields and it essentially boils down to whether the surprising behavior of long rates is due to various “special factors” operating  independently of the current business cycle or instead augurs bad economic news on the horizon. If special factors are holding down long term yields, then the total amount of stimulus to spending from interest rates is currently greater than would be surmised on the basis of the current federal funds rate. In effect, unusually low long-term bond rates are now providing extra stimulus to offset the drags I described. A number of “special factors” might be at work to flatten the yield curve. One possibility is that low bond rates reflect a drop in risk premiums because inflation has become better anchored and the volatility of the real economy has fallen. But let me also note that other factors would seem to work in the opposite direction—for example, our large and growing federal budget and trade imbalances could be raising risk premiums.

Another possibility is that low long-term rates reflect unusually strong demand for long-term securities, for example, by pension funds seeking to improve the match between the durations of their assets and liabilities, by holders of mortgage-backed securities seeking to maintain the durations of their portfolios, or by foreign central banks that have been acquiring dollars. China may have been playing an especially large role, as its central bank has intervened in foreign exchange markets to peg the renminbi at a low level against the dollar. Of course, last week the People’s Bank of China announced that it had revalued the renminbi against the dollar by 2.1 percent, with the stated intention of managing the renminbi’s exchange value against an unspecified currency basket. This is not a large revaluation, but some observers think that it is the beginning of a much bigger move over time. If this is the case, we may gain a better understanding of the impact, if any, that Chinese exchange rate policy has had on U.S. bond rates. An alternative to “special factors” as an explanation for the low level of long-term yields is the possibility that the flat yield curve reflects the market’s assessment that bad news is on the horizon. In other words, investors may expect only modest increases in the funds rate in the future because they think that the drags I’ve described will keep demand on the weak side for some time to come.
Instead, it implies that the latest inflation data matter insofar as they contain information regarding medium-term inflationary pressures. By its very nature, the medium-term orientation requires projecting the future path of inflation. Surveys and financial market instruments provide us with a useful tool in this respect, as they give us evidence of how different agents (experts, households, firms, and financial market participants) see inflation evolving going forward. In addition, central banks rely on their staff’s forecasts for inflation and economic activity –which typically draw on a huge amount of economic and monetary analyses– as a key input in their decision-making process. Summing up, our task is not to respond to the latest inflation data point, a futile and – especially in the face of adverse supply shocks– counterproductive task, but to stabilise inflation over the medium run at the desired level, in our case 2%, while ensuring that longerrun inflation expectations remain anchored to the target. Returning inflation to 2 % over the medium run In the context of a steady increase in medium-term inflation expectations, as economies recovered from the worst phase of the pandemic crisis, at the end of 2021 we started at the ECB Governing Council a process of progressive normalisation of our monetary policy. The first step was to withdraw the extraordinary policy stimulus that we had launched at the onset of the pandemic. To this end, in March we stopped the net asset purchases under the PEPP.

In this scenario, energy and food commodity prices are assumed to increase substantially due to severe supply disruptions associated with an intensification of the war in Ukraine, combined with other negative shocks to the European economy.5 The result would be an inflation rate of 6.9% in 2023 and 2.7% in 2024. Let me emphasise, however, that despite all the recent developments regarding gas supply through the Nord stream pipeline, one cannot assume that we are already in the downside scenario. This is because the other shocks assumed in this downside scenario have not materialised yet. Indeed, several key commodity prices – including energy prices - are currently below the ECB baseline scenario (and more so in comparison to the downside scenario), which may reflect lower than expected demand. 4  For a discussion of second round effects in the euro area, see Battistini, N. , H. Grapow, E. Hahn and M. Soudan “Wage share dynamics and second-round effects on inflation after energy price surges in the 1970s and today”, ECB Economic Bulletin, Issue 5/2022 5 See Box 3 of the September ECB staff macroeconomic projections for the euro area,  2  Finally, an additional element of uncertainty is related to the synchronised tightening of monetary policy across countries and its impact on activity – including global spill-overs – and inflation.6 Framing our monetary policy response: the ECB’s monetary policy strategy As I said before, it is the ECB’s responsibility to preserve price stability in the euro area.