samchain/econo-pairs-v1 huggingface dataset:
6  BIS central bankers’ speeches  experiences of individual firms and households are extremely diverse but like to think we can nonetheless lump them all together and treat them as homogenous wholes. Much of the time that’s a reasonable thing to do. But sometimes it matters what’s happening underneath. As we’ve seen, there was a distinct skew in recent job creation towards the less well paid in 2013 and 2014, one that has subsided in the first half of this year. While not the only factor – narrowing slack in the labour market has probably been more important – this helps to explain why growth of average wages was weak in those two years and has since picked up a bit. At least at the margin, these shifts will have had similar effects on productivity. So, in and of themselves, they have no direct bearing on impact on inflationary pressure9. Indeed, because the compositional effects are highly counter-cyclical, and tend to go up and down with unemployment, perhaps it doesn’t matter much if you never took them into account and stuck with Phillips curves estimated on unadjusted wage data. The problem is that, although they’re qualitatively similar in different cycles, the compositional effects do appear to vary in scale. This means it’s worth allowing for them: changes in the mix of employment may not affect inflationary pressure but they can have an impact on the aggregates we normally use to assess that pressure.

Chart 8 Euro area output gap  Measures of the euro area output gap across a suite of models (percentage of potential output)  Sources: European Commission’s Autumn 2022 European Economic Forecast, OECD’s June 2022 Economic Outlook and IMF’s November 2022 World Economic Outlook. Quarterly estimates are interpolated from annual data. An alternative way of analysing whether supply capacity has fallen is to examine the possible effects of individual adverse supply shocks. ECB staff recently conducted a series of studies which suggest that shocks analogous to those seen in recent months are likely to have limited effects on potential. The studies found that even significant hypothetical negative shocks such as deglobalisation[15] – and the associated global supply chain disruptions – or a permanent and large increase in oil prices[16] would induce only a moderate downward revision in the level of potential output in the euro area after four years, ranging from -0.3% in the first case to -0.8% in the second compared to the baseline scenario without these shocks. [17] These effects need to be set against a projected cumulative increase in potential output of around 5% over the same period, as estimated by the European Commission. Similarly, analyses focusing on the euro area labour market suggest that the shocks we have seen in recent years – in particular, the pandemic – do not seem to have left lingering scars on labour supply and potential output, for instance, by triggering early retirement. [18] As always, such estimates are surrounded by considerable uncertainty.
I know I will fall short in fully acknowledging all the hardship that our fellow citizens have endured – including devastating losses of loved ones, homes, communities and livelihoods – as well as widespread misery caused by flooding and disruptions to power, fuel, food, transportation and other services across the region. Nor will I be able to fully commend the ways in which family members, neighbors, co-workers and strangers have helped those in need. I am deeply moved by the evidence of people reaching out and pulling together across the region. At the New York Fed we are committed to supporting the recovery process. In addition to our economic analysis, we are convening our advisory groups and other regional contacts to receive first-hand accounts of the impact on communities, families and businesses and to assess other ways in which we may help. For example, we are holding a clinic in Staten Island to help people obtain information about different types of financial support that is available. We’re also encouraging banks to show appropriate flexibility when dealing with small business and other borrowers impacted by the storm. After my remarks, I’ll be happy to answer any questions you have about what the Fed does and why, and about the economic outlook. But I won’t comment specifically on the upcoming FOMC meeting next month. As always, what I have to say reflects my own views and not necessarily those of the Federal Reserve System or the Federal Open Market Committee, also known as the FOMC.

The storm shut down all New York City schools for a full week, and many schools across the region remained closed the following week. Hardships borne by students and families are also reflected in record low post-storm attendance rates. The New York City Department of Education moved quickly to relocate schools from damaged buildings to temporary premises, enabling children to resume their studies. But even two weeks after the storm, schools that had to be relocated had attendance rates below 70 percent, a huge drop from their regular rates of over 90 percent. Research shows that lost school days and relocations can significantly impair student learning. The good news is that the situation is getting closer to normal every day. Today, only 9 out of a total of 1,750 New York City schools remain relocated. Also of particular importance is that their leaders – administrators, teachers, principals and others – have agreed to make up three and a half days of the lost time. It is impressive that so many districts across the region are working hard to make up for much of the lost time. Our region must learn the right lessons from this experience. The storm revealed significant shortcomings in the resilience of our public and private infrastructures in three critical areas: power, transport and communications. This vulnerability must be addressed. National economic conditions Turning to the storm’s effects on the national economy, I expect a modest negative effect on the annualized growth rate of real GDP for the fourth quarter of 2012.
But, like the SIB, the SROs operate indirectly under statute, and have a duty to regulate in the public interest. We therefore have no self-regulation in the strict sense, rather a variety of statutory and statute-backed bodies with practitioner involvement, each with different relationships with the industry and with Government. Effective regulation needs the input of all BIS Review 21/1997  -4-  participants in the market if it is to offer appropriate protection without stifling innovation. Regulators can benefit greatly from effective practitioner input but to retain the confidence of the investing public they must persuade them that regulation puts their interests, and not those of the firms and their shareholders, first. The system we now have is undoubtedly capable of achieving an appropriate balance between market sensitivity and consumer confidence; it has, in many respects, worked well. But it has been stress-tested in a number of difficult episodes: the Maxwell affair, the private pension mis-selling saga, the collapse of BCCI, Barings Bank and Sumitomo. These episodes have taught us something about the strengths and weaknesses of our system, just as the S&L crisis and the Daiwa New York problem have done in the US. Furthermore, markets themselves have moved on. The financial landscape of today is almost unrecognisable from the one which informed legislators’ views in the early 1980s, before the Banking and Financial Services Acts were put on the statute book.

This has not altered the liquidity available in the local money market, which has remained stable, aside from some transitory turbulence in early October that was addressed by the Central Bank through the implementation of new modalities in the provision of liquidity. Secondly, the meltdown of world output and trade is increasing credit risk globally. In turn, firms and households with a better financial situation tend naturally to postpone their spending and borrowing decisions, awaiting the normalization of the financial environment, thus shrinking the demand for credit. All of this results in increased average financing cost and tougher lending standards for those agents actually engaging in borrowing operations. We can see that the various risk and volatility indicators are substantially above their preSeptember figures (figure 2). As we wrote in our latest Monetary Policy Report, 1 the extra financial burden for the clients of Chilean banks has tended to reflect precisely the higher levels of global uncertainty and their impact on the Chilean economy. I must stress that these phenomena are occurring today in every economy in the world, sometimes with catastrophic implications on their levels of output and the solvency of their financial institutions. Because we prepared as a country for a long while to confront severe deteriorations of the international economic environment, Chile and our financial market have suffered limited effects, with no sudden stops but, on the contrary, with increases in credit supply and without a generalized process of insolvency.
Indeed, the very knowledge that the Bank stands ready to purchase assets may be as beneficial as the actual purchases. And over a period of time, as market functioning improves, the quantity of private sector assets held by the Asset Purchase Facility may well decline as assets mature and are rolled over into the private market. This should be seen as a sign of success not of dwindling support. The Bank continues to review actively the case for extending its operations into other corporate credit markets, and recently announced its intention to extend its purchases to include commercial paper secured on loans for working capital. But given the relatively modest size of corporate credit markets in the UK, to increase significantly the scale of our corporate debt purchases would involve changing the nature of our operations. Rather than improve their functioning, large scale asset purchases would risk crowding out private debt markets: substituting for markets rather than supporting them. That is not consistent with the aims of the Asset Purchase Facility and could detract from the long-term efficiency of the economy. A second criticism that is sometimes made against the asset purchase programme is that some of the gilts we have purchased have been from foreign investors and this may limit the effectiveness of the purchases. This argument is based on the supposition that overseas investors may be more likely to reallocate their portfolios into foreign currency assets, rather than into alternative sterling assets, such as corporate bonds or UK equities.

The net value of non-performing loans for the last 12 months decreased by over BGN 660 million. Their share represents 2.66% of the total net value of loans and advances, and their amount is fully covered by the capital surplus above the regulatory requirements and buffers; Profitability, measured by the amount of profit of BGN 1.7 billion, guarantees a return on assets and capital, and is a serious source of internal support for balance sheets if necessary. In this context, the main challenges facing the banking sector to date can be summarised along three lines: the dynamics of the macroeconomic environment, the pro-cyclical behaviour of banks, and the potential risks to their profitability. The macroeconomic environment, as I noted at the beginning, is characterised by high uncertainty and the potential for escalation of risk scenarios. This implies the continuation of stress tests for the banking sector with various hypothetical negative scenarios. The banks' pro-cyclical behaviour is associated with continued credit growth. Under upward credit dynamics, the capacity of borrowers to service their obligations is sometimes overestimated. That is why the supervisory policy will continue to aim at ensuring that credit institutions act conservatively. 3/5  BIS - Central bankers' speeches  The profitability of the banks is put at risk along two lines simultaneously. First, due to the need to set aside additional provisions under a growing probability of non-performing loans; and secondly, due to limitation of the banks' scope to generate income from core activities.
The Committee intends to provide information about its updated view in its August Inflation Report. Guidance, Contingency and Brexit My third example of guidance is associated with another major structural change: Brexit. To put the upcoming regime shift into context, consider what has already transpired merely in anticipation of possible future changes to flow of goods, service, capital and people. On the eve of the referendum, the MPC expected that a vote to leave would prompt the exchange rate to fall sharply, inflation to rise above the 2% target and growth to slow materially. That is exactly what has happened. Sterling fell sharply immediately following the result, and remains some 15% below its late-2015 peak before the referendum was called. Financial markets are valuing today what they expect tomorrow: a relative fall in real incomes as the UK moves toward its new trading arrangements. Inflation rose well above the 2% target, peaking at 3.1% late last year, an overshoot entirely due to the referendum-induced fall in the exchange rate. And UK growth has dropped from the fastest to the slowest in the G7. The economy has significantly underperformed the MPC’s projections ahead of the referendum, which were conditioned on a vote to 11  remain. That deceleration has occurred despite support from a much stronger-than-anticipated euro-area  and global growth and much more supportive domestic financial conditions, with the latter importantly influenced by the timely, comprehensive package of easing measures introduced by the Bank’s policy committees after the vote.

Monetary policy can, however, support the economy during the adjustment process. During these exceptional circumstances, the MPC is required by its remit to balance the trade-off between the speed at which inflation is returned to target and the support that monetary policy provides to jobs and activity. 14  The MPC set out our framework for managing this trade-off including guidance on its tolerance for the overshoot of inflation of target under exceptional circumstances. Chart 6 illustrates the MPC’s framework for setting policy to manage this trade-off. The red lines represent the potential trade-offs that the Committee could strike: mapping the size of the inflation overshoot that it could be prepared to tolerate for a given amount of spare capacity, and vice versa. The flatter the line, the less weight the Committee places on output stabilisation and the more it is willing to tolerate large output gaps in order to eliminate small overshoots in inflation. Chart 6 also demonstrates how the expected trade-off has evolved in successive MPC forecasts since the referendum. It shows the MPC's central projections at Year 2 for CPI inflation on the vertical axis against those for spare capacity (the opposite of excess demand) on the horizontal axis from successive Inflation Reports since August 2016. The projections are conditioned on the market yield curves prevailing at the time the forecasts were made.
Second, emergency assistance to countries was provided, without strict conditionality and at favourable interest rates, through the SURE and the Pandemic Credit Line of the ESM. Third, the NGEU provided funds to countries, earmarked for investments in digital capacities and the fight against climate change, in exchange for the implementation of structural reforms. This brief historical review can be summarised as follows: beyond its foundational components (independent monetary policy, focus on national debt sustainability, nobail-out clause), the framework has been continually adapted to a changing environment. 1  See Efstathiou, K., and Wolff, G. B. (2019). What drives national implementation of EU policy recommendations?. Bruegel Working Papers and “Country-specific recommendations: An overview September 2020”, European Parliament Briefing. 2 Stability and Growth Pact. 3  Let me now come back to the present and first discuss some unpleasant fiscal arithmetic. The main idea in the Treaty for the conduct of domestic fiscal policies was that excessive deficit and debt levels were to be avoided. In this regard, it is well known that, over the long term, and for a given inflation rate, the primary balance that allows a given government debt-to-GDP ratio to be stabilised depends on the differential between the real interest rate and the real output growth rate, the so-called “r-g” gap. The wider this gap, the higher the primary balance needed to maintain a stable medium-term government debt-to-GDP ratio. Over the period 1995-1999, the r-g differential was positive and close to 2 percentage points.

Second, as the SNB has repeatedly emphasised, given the cyclical risks in the Swiss mortgage and real estate markets, a temporary adjustment of banking system-wide capital requirements may have to be considered. To this end, on 1 June the Swiss Federal Council announced that a macroprudential instrument will be made available to the Swiss authorities from 1 July, in the form of a countercyclical capital buffer. Introduction of a macroprudential instrument To conclude, I would like to briefly describe how the countercyclical capital buffer will work. This instrument will enable the authorities to adjust capital requirements in the banking system, depending on potential excesses in the Swiss credit market. It is a preventive instrument that can be activated if necessary, to a level deemed appropriate. It can also be targeted to a specific segment of the credit market. Once the imbalances have been corrected, the countercyclical capital buffer will be deactivated, either immediately or gradually. In activating the countercyclical capital buffer, the aim of the authorities is twofold: First, it should increase the resilience of the banking sector, thereby helping to protect against the consequences of a correction of excessive credit growth. Second, it should help to lean against the build-up of such excesses. The Federal Council decides on the activation, deactivation and level of the countercyclical capital buffer, upon the proposal of the SNB. The SNB consults FINMA before submitting its  BIS central bankers’ speeches  3  proposal.
Given the sharp drop in output during the recession and lackluster early recovery, GDP is currently below its potential by nearly 7 percent, or $ trillion dollars.1 Just prior to the recession, the unemployment rate averaged between 4-1/2 and 5 percent. It peaked at 10.1 percent during the recession and, as I just noted, is still 9.1 percent today. In terms of jobs, payroll employment is about 6-1/2 million below its pre-recession level. These are massive shortfalls in output and employment. It does not appear as if these gaps are going to be reduced significantly any time soon. Real GDP growth has been anemic so far this year. Gains in employment have slowed markedly. Even though credit conditions overall have been improving, many households and small businesses still seem to be having trouble getting credit. In addition, the repair process in residential real estate markets is painstakingly slow, and households are still in the process of paring debt and adapting to the huge losses in real estate and financial wealth that they experienced during the recession. I largely agree with economists such as Paul Krugman, Mike Woodford and others who see the economy as being in a liquidity trap: Short-term nominal interest rates are stuck near zero, even while desired saving still exceeds desired investment. This situation is the natural result of the abundance of caution exercised by many households and businesses that still worry that they have inadequate buffers of assets to cushion against unexpected shocks.

As in the 1930s, today’s low Treasury interest rates in good part reflect elevated demand for low-risk assets – we see investors run to U.S. Treasury markets every time they hear any bad economic news from anywhere in the world. Consider another metric for interest rates, the well-known Taylor  4  BIS central bankers’ speeches  Rule, which captures how monetary policy typically adjusts to output gaps and deviations in inflation from target. Its prescriptions would call for the federal funds rates to be something like –3.6 percent now, well below the zero lower bound the funds rate is currently stuck at. Our large-scale asset purchases have provided additional stimulus, but by most estimates not enough to bring us down to the Taylor Rule prescriptions. Also, I should note that in 1998, Friedman gave a similar recommendation to the Japanese, advocating that the Bank of Japan undertake more accommodation by buying government bonds on the open market. Other critics raise the specter of 1970s-like structural changes in the economy. Such changes, they argue, have reduced our productive potential, in particular the mechanisms by which resources – most notably labor – move from declining to expanding sectors of the economy.3 I am acutely aware of the costs of making such an error. No central banker wants to repeat the painful experiences of the 1979–83 period.
At a global level, inflation was undershooting national inflation targets by almost 2 percentage points in January 2015.1  Chart 9: International inflation rates over time  Chart 8: Global CPI inflation Global PPP-weighted deviation of CPI inflation from target UK  Per cent  4 3  Higher than 5% Between 1% and 3% Below 0%  Between 3% and 5% Between 0% and 1%  Proportion of countries 100%  2 80%  1 0  60%  -1  40%  -2 2000  2003  2006  2009  2012  20%  -3 2015  0% 1961  Sources: Thomson Reuters Datastream, CEIC and Bank calculations. Notes: Global equates to approximately 70% of world PPP GDP; inflation targets fixed using 2014 targets and PPP-weighted according to share over time. 1  4  1971  1981  1991  2001  2011  Sources: Datastream and Bank calculations. Notes: Sample varies over time. Average sample sizes are: 30 countries between1960 and1980, 55 between 1980 and 2000 and 110 from 2000 onwards. See Carney (2015). BIS central bankers’ speeches  UK CPI inflation has closely followed global CPI trends since the crisis, with their correlation strikingly high at 0.8 – double its level pre-crisis. UK inflation currently stands at 0.3%, its lowest-ever recorded level. According to the MPC’s latest Inflation Report, it is more likely than not the UK will join those countries facing temporary deflation this year.

Indeed, those latter countries have in addition embarked on programmes of asset purchase which might have intensified downward pressures on euro and yen assets. This decoupling of the relative demand and monetary policy positions of the UK and US on the one hand, and the euro-area and Japan on the other, might have on-going implications for exchange rate movements. If these trends continued, they could result in some further appreciation of sterling and the dollar relative to the euro and yen, which would tend to increase disinflationary pressures in the UK and US. Chart 23: IMF output gap estimates and world export prices Percent Percent 6 4 5 3 4 2 3 1 2 1 0 0 -1 -1 -2 -2 -3 -3 -4 -4 2000 2003 2006 2009 2012 2015 2018 Global output gap - UK wtd (rhs) Global output gap - PPP wtd (rhs) World export prices - UK wtd (lhs) Sources: IMF, CEIC, Eurostat, Thomson Reuters Datastream and Bank calculations. Notes: The world export price series shows domestic currency non-oil export prices of goods and services of 49 countries weighted according to their shares in UK imports.