samchain/econo-pairs-v1 huggingface dataset:
Some stylised experiments affecting the natural interest rate So if it’s not monetary policy, what might have caused the long decline in the real risk-free rate of interest in the past twenty years or so, both before and since the financial crisis? Chart 3 provides a basic visual framework for thinking about these things. What follows, based on a simple asset-pricing model, gives a slightly more quantitative flavour. Any such model will generally allow for three sorts of influences on asset prices: the underlying discount rate (the extent to which people care less about the future than the present), expected economic growth and the degree of uncertainty about that growth. The particular model I’m using here allows for two sorts of uncertainty – a generalised, two-sided risk and, on top of that, the possibility of a large downside hit to growth.6 The first of these terms is connected with saving. All else equal, a lower discount rate means people want to save more – at the margin, they’re prepared to tolerate a lower rate of return on any asset. In terms of Chart 3 you can think of this as a rightwards shift in the saving schedule. In the simple model, the effect of a 1%-point drop in the discount rate on the risk-free interest rate and the value of equities is shown in Chart 6(a). Interest rates fall and, at least on impact, equity prices jump. This is because the present value of future profits increases, not because the profits themselves do so.

But independent changes in monetary policy will ultimately be reflected in inflation and, despite a decline in interest rates that’s now gone on for 20 years, inflation has remained pretty close to target, throughout the developed world (Chart 1). This suggests that, rather than causing the decline themselves, central banks have instead been accommodating a deeper downward trend in the “natural” or “equilibrium” rate of interest. That is not a trivial matter: if they had failed to track this trend, policy would have been too tight and inflation and output too low. And although stocks performed well through the early part of that decline, for much of it they’ve not done so. Chart 2 plots the yield – inversely related to the price – on indexed gilts and UK equities. Through the 1990s these two markets tended to move together and, in price terms, generally upwards. Since around 2001, however, their yields have diverged. Equities have significantly underperformed bonds. This suggests that, over that past decade or so, the forces depressing the natural rate of interest have also been increasing the extra premium required of risky assets. What I want to do today is say something about the causes of these trends and (in only the broadest possible terms) their implications for the distribution of wealth and income. None of this will be particularly novel.
Isabel Schnabel: The European Central Bank’s policy in the COVID19 crisis – a medium-term perspective Remarks by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at an online seminar hosted by the Florence School of Banking & Finance, Frankfurt am Main, 10 June 2020. * * * Accompanying slides of the speech. Over the past few weeks, hopes for a short duration of the COVID-19 pandemic and a quick rebound in economic activity have started to fade. Evidence is increasingly pointing towards a protracted impact of the crisis on both demand and supply conditions in the euro area and beyond. For central banks, this implies a shift in focus from economic “firefighting” – ensuring orderly market functioning and a sufficient provision of liquidity – to dealing with the implications of the crisis on medium-term inflation. My remarks today will focus on these implications. Based on our most recent Eurosystem staff projections, I will first discuss the risk of COVID-19 leaving a deep footprint on growth and inflation in the euro area. Against this background, I will then describe how we designed and calibrated our policy response, and explain why the pandemic emergency purchase programme (PEPP) remains the appropriate tool to address the current challenges of the crisis in the context of our price stability mandate. The medium-term economic impact of the crisis The immediate economic fallout from the COVID-19 pandemic has been substantial. In the first quarter of 2020, euro area GDP declined by 3.6%.

In the baseline scenario, ECB staff projections predict notable downward pressure on inflation arising from the much larger shortfall in aggregate demand than 1/7  BIS central bankers' speeches  supply. As a result, headline inflation is not anticipated to be back on its pre-COVID-19 path by 2022 in that scenario, and underlying inflation is also expected to remain subdued in the medium term (see right chart on Slide 2). Given the unprecedented impact of the crisis on income and consumption, such disinflationary effects are not surprising. But uncertainty around these forecasts is exceptionally large: while measuring economic slack is already a challenge in normal times, it is currently exacerbated by the highly uncertain effects of the crisis on potential output, both in the short and in the medium to long run. In the short run, potential output is severely affected by disruptions in global value chains and social distancing measures, which constrain the full use of capital. Think of the hairdresser who may only be able to use half of his or her physical capacity. Such effects may partly offset the negative effects of weakening demand on inflation even in the short run. In the medium to long run, the impact of the crisis on potential output, and hence on inflation, will crucially depend on the response of firms and policymakers to the challenges we are currently facing. First, some sectors of the economy may never return to their previous size, requiring a large reallocation of capital and labour, also across borders.
Other pertinent examples might be the United Kingdom's dependence on the euro area, Ireland's dependence on the United Kingdom, Switzerland's 4 links with Germany, and so on. Moreover, many of these other currency pairs have exhibited considerable fluctuations when compared with the stability of the cross rate between the renminbi and the Hong Kong dollar in recent years, indicating that exchange rate variability may not be an obstacle to the continuing expansion of mutually beneficial economic ties. On this evidence there would be no obvious advantage in a closer link between the Hong Kong dollar and renminbi. In our particular case, there is a further crucial consideration: the renminbi is not convertible. There would be little logic in trying formally to fix a fully convertible currency against a non-convertible one. One might argue that the constancy of the HK dollar against the renminbi for the past several years amounts to de facto fixing, but it does at least allow for variation at such time as might be justified – for example, in the light of major or sudden structural shifts such as WTO entry or eventual convertibility. It would not anyway be possible to operate Hong Kong's currency board system by reference to a nonconvertible currency, since the essence of the system, namely continuous convertibility between the HK dollar and the anchor currency, would be denied.

Our data indicate that, in recent quarters, borrowers are becoming less likely to fall behind on their mortgages, so fewer households are now entering the foreclosure process. At the same time, though, major lenders have acknowledged serious problems in the processes they have used to repossess homes and announced moratoria on new foreclosures. Taken together, these developments suggest that the situation in housing remains uncertain for the foreseeable future. The Federal Reserve actively encourages efforts to find viable alternatives to foreclosure, like loan modifications, or deeds in lieu. We also support due process and access to legal counsel for homeowners facing foreclosure, for instance through legal aid programs. At the same time, it is important that foreclosures that properly comply with state and federal law can ultimately take place, as this is a necessary part of the adjustment that will eventually return us to more normal conditions in the housing market. At present, the extent of the documentation problem and its wider ramifications are still uncertain. In conjunction with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, the Federal Reserve is therefore seeking to establish the facts through a review of the foreclosure practices, governance and documentation at the major bank mortgage servicers. We want to ensure that the housing finance business is supported by robust back-office operations – for processing of new mortgages as well as foreclosures – so that buyers of homes and investors in mortgage securities have full confidence in the process.
During  BIS Review 68/2010  9  this period, lower-than-targeted tax revenues due to contraction in domestic demand as well as higher-than-targeted primary expenditures mainly due to increase in current transfers to Social Security Institution due to slowdown in employment growth have been the primary causes of the surge in the budget deficit. An analysis of developments in public finance in the first quarter of 2010 reveals that the central government budget balance had an improved year-on-year performance, this being mainly attributable to the increase in tax revenues with the revival in economic activity. Central Government Budget Deficit and EU-Defined Public Debt Stock Budget Deficit  Public Debt Stock  (Ratio to GDP)  (Ratio to GDP) 80  12  Pu blic Debt St ock  B udge t D efici t M aast rich t Cri teri a: 3%  Maastricht Crit eria: 60 %  60  9  49.0 48.8 47.8 6  40  4.9 4.0  * Medium Term Program (2010-2012) Targets. Source: Ministry of Finance, Medium Term Program (20102012). 2012*  2011*  2010*  2009  2008  2007  2006  2005  2004  2003  2001  2 012*  20 11*  201 0*  2 009  20 08  200 7  2 006  20 05  200 4  2 003  0 20 02  0 200 1  20  2002  3 .2 3  * Medium Term Program (2010-2012) Targets.

Jean-Pierre Roth: The role of the International Monetary Fund in promoting financial stability - a Swiss perspective Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at a meeting with directors of the most important Swiss firms in Argentina, Buenos Aires, 16 November 2004. * 1. *  *  Introduction  I am delighted to be here in Buenos Aires to address such a distinguished audience, and I thank Ambassador von Muralt for organizing this event. For the next 20 minutes or so I would like to speak about the International Monetary Fund’s role in promoting international financial stability, and this from a Swiss perspective. I know that talking about IMF policy can be difficult here in Argentina. However, the Argentine case should not hamper our discussions. It should invite us to reflect on what the Fund has achieved so far in promoting international financial stability and what its present challenges are. Promoting and safeguarding international financial stability was part of the mandate of the IMF in 1944, when the institution was established. It is still, in my mind, the core mandate of the IMF today. There should be no doubt that a strong and resilient international financial system is crucial for global growth and prosperity. This is even more so the case after the structural changes of the last decade, in particular the worldwide information technology revolution that led to a strong increase in the size and sophistication of international capital markets.
Many of these implications are positive, for the benefits of integration over time are powerful and compelling for all economies. In important ways, economic integration may have made the principal job of central banks easier, by contributing to productivity growth and reducing some sources of inflation pressure, at least during the transition when a large share of the working age population of the world is being brought into the market. But the process of change in how economies and financial markets interact also complicates the task of central banks. Our understanding of the how these changes affect our capacity to forecast economic activity and inflation and our ability to assess how monetary policy affects the economy almost certainly lags the changes underway. In my remarks today, I will talk about some of the implications of these challenges for the conduct of monetary policy. I will focus on two features of what is happening in the world economy and financial markets today that are among the most interesting and consequential of the many questions we face today in thinking about the changes in the world economy and the task of central banking. These are, first, the behavior of forward interest rates in financial markets, and, second, the pattern of external imbalances. These features are interesting, in part, because they seem somewhat anomalous, or inconsistent with what the past has led us to expect. They seem likely to be related to each other and both are a feature of the changes underway in global financial integration.

The residual impact of the one-off factors on annual inflation is set to be entirely gone in one year’s time – in the first quarter of 2020. Now, I will say a few words about the economy and the forecast. Economic growth rates remain close to their potential levels. Unemployment is invariably low and close to its natural rate. Having said that, certain economic activity indicators continue to post a mixed performance. The forecast remains essentially unchanged. Given the state of the global energy market over recent months, we have downgraded the oil price path somewhat in the baseline scenario. The assumption has been updated to reflect faster declining oil prices in the course of 2019 – based on the calculation that the average oil price will total $ per barrel (from the previous estimate of $ a barrel). Moving forward, the average price is set to remain at this level between 2020 and 2021. As before, our approach to oil price assumptions is conservative. The oil price volatility we saw in the fourth quarter (from $ to $ a barrel) is an indication of the validity of this approach. The running fiscal rule will ensure that the impact of changing oil prices on economic growth 2/3  BIS central bankers' speeches  remains limited. We therefore leave our GDP growth forecast unchanged at 1.2-1.7% for 2019, admitting it may rise to 2-3% in 2021 as the Government implements its structural reforms. Changing oil price assumptions have stronger implications for our estimated balance of payments.
Until relatively recently, the emerging economies have been considerably more dynamic, partly offsetting the greater slackness in the more industrialised countries such as the United States. However, doubts over the real ability of these economies to continue posting robust growth rates amid the virtual stagnation of the more advanced countries are ever greater. The increase in oil and commodities prices is the second of the basic factors behind recent developments in activity and inflation at the global level, despite the relative easing since the summer. The effects of these price rises have been fully felt in the more advanced economies, while in the emerging economies the pass-through of higher energy costs is proving slower and is still far from complete. BIS Review 122/2008  1  But it is the third of these factors that will most likely influence developments in the world economy in the coming quarters. I refer here to the severe worsening of the financial crisis in United States and in much of Europe, and to the turmoil on international financial markets. Somewhat more than a year back now, when the US subprime mortgage crisis broke, there was great uncertainty over the scope and duration of the episode then beginning. Today, there is unfortunately no doubt that we are facing a global financial crisis of enormous proportions. Although at first the difficulties appeared to be confined to just a few investment funds and relatively minor US mortgage institutions, the overall number of banks affected has since widened considerably.

This is because making a payment is about more than just exchanging money for goods and services: it is a form of social interaction made possible by money, which has been described as “the most universal and most efficient system of mutual trust ever devised”7. Finally, a digital euro would increase privacy in digital payments thanks to the involvement of the central bank, which – unlike private suppliers of payment services – has no commercial interests related to consumer data. Ensuring privacy is an essential element of modern democracies and part of our European values. Payments must also respect people’s right to privacy in the digital era, and the design of a digital euro would have to respect this principle. This is a core aspect we will look at – indeed, we have already started exploring possible ways of enhancing privacy.8 At the same time, payments in a digital euro – just like any form of payment – would have to respect the rules on countering money laundering, the financing of terrorism and tax evasion. This would enable public authorities to combat any illegal activity more effectively. To summarise, the digital euro would still be a euro, only in digital form. It would both shape and promote the digitalisation of payments, while reducing the associated risks. This would in turn support the ongoing digitalisation and modernisation of the European economy.9  Why might we need a digital euro? A digital euro would be critically important in a number of scenarios, which are analysed in our report.
Ladies and gentlemen, We forecast Thailand to grow at around 4.8% next year, a rate that means steady recovery to normal levels of economic activity. As the economy returns to full capacity, inflation and financial risks may surface. To ensure sustainability, the process of growth must not create imbalances in the economy that will draw down future growth. This brings us to the two other aspects of stability: price and financial stability. The Bank of Thailand has had much success in anchoring inflation expectation through our Inflation Targeting framework, adopted since 2000. Many times during this period, well-anchored inflation expectation has allowed flexibility for the Bank of Thailand, when needed, to actively support growth and ensure financial stability. As you well know from the Subprime Crisis, an economy with growth stability and price stability can still fall into contraction due to financial causes. The Bank of Thailand has learned from our own experience with a financial crisis as well as others’ and has been vigilantly monitoring indicators of risk to financial stability in the economy, and has policies developed especially to ensure financial stability. Conducting policy through the use of interest rate alone may not be sufficient to take care of financial imbalance. In addition to monetary policy, which sometimes is too blunt to optimally take care of financial stability, we have adopted macroprudential tools since 2002 and employed them to help us cover and specifically target areas of the financial system.

The progress can be observed by both trade with CLMV, which has been growing annually with double digits over the past 4 years, and more efficient allocations of capital and resources as seen in an increasing number of Thai companies doing outward Foreign Direct Investment. In addition the SMEs, which account for approximately 95% of total businesses in Thailand, have been playing an essential role in driving the economy and will continue to do so going forward. They are an integral part of the supply chain and one of the key success factors of Thailand’s previously-mentioned high-potential industries. There are also SMEs who have the capability to produce high value added products by creating their own innovation such as the seasoning packages you see in Asian grocery stores here. Another example is ready-to-drink coconuts, a product that combines a coconut in its natural shell with an opener such as one you’d find on a soft drink can. It is a recent entrepreneurial product that has outstanding growth in exports since launch. In 2004, the Bank of Thailand launched the Financial Master Plan which aims to increase efficiency and financial access by promoting competition in the market. Since implementation, we have observed the improvement in Thailand’s financial infrastructure from reduced cost-to-income of commercial banks and particularly from SMEs’ greater  BIS central bankers’ speeches  3  financial access. The cost of raising funds in Thailand has been reduced through the welldeveloped financial market since more players are allowed to offer variety of financial products.
One argument is that it is good to have some margin as there is a risk that CPI overestimates inflation. For instance, it is difficult to exactly measure price increases as a result of better quality, which is thus not inflation. Another argument is that it is often difficult in practice to implement nominal reductions in prices and  BIS Review 8/2006  3  particularly wages. Some measure of inflation may therefore simplify necessary adjustments in relative wages and prices. At the same time, there have seldom or never been attempts to stabilise inflation at a level much higher than 2 per cent. This may be because this does not sufficiently anchor inflation expectations. Experiences from Sweden and other countries indicate that low, stable inflation is an important condition for favourable economic growth and that the work on maintaining low, stable inflation is made easier if the central bank can act independently. This is why the Riksbank, like many other central banks, has been given greater independence and an inflation target. If the central bank is not allowed to independently formulate monetary policy there may be political pressure to conduct monetary policy that aims to achieve other objectives. How does the Riksbank influence inflation? The tool the Riksbank has at its disposal for steering inflation is the repo rate. This is the interest rate the banks pay to borrow money from us. The objective of changes in the repo rate is to influence demand in the economy and thereby price developments.

In October 2011, the number of persons registered as unemployed in the groups regarded as vulnerable amounted to 220,000 (of a total of 372,000 persons registered as unemployed), which is almost double the amount in 2008 (an increase of 100,000). A large number of the persons registered as unemployed also have long periods without work behind them. One in four people has been without work for more than three years of the past ten years. As the matching for vulnerable groups appears to function poorly and there has been a rapid inflow in recent years to the labour force of people from groups that have difficulty getting jobs quickly, this is having a more long-term impact on unemployment and is thus also impacting various measures of equilibrium unemployment. It means that a change in the composition of the labour supply could lead to substantial changes in equilibrium unemployment and resource utilisation. When we try to assess resource utilisation, we therefore need to take into account the heterogeneity of the labour supply and expected changes in the composition of the labour supply. Concluding thoughts What I have discussed today points, as I see it, to a general truth; namely that many apparently simple and straightforward concepts are suddenly revealed, in a confrontation with reality, to be much more complicated. We have an official measure of unemployment, but even here there is reason to reflect on what this measure says about the amount of spare  10  BIS central bankers’ speeches  capacity in the labour market.