samchain/econo-pairs-v1 huggingface dataset:
As there is normally great uncertainty in the inflation assessment of the main scenario, the Riksbank also produces risk scenarios; we also publish estimates of the probability distribution of different inflation outcomes. The distribution around the probable outcome is taken into consideration when decisions on the interest rate are taken. In the third place, we can make different assessments as to how monetary policy is to be conducted to strike a reasonable balance between fluctuations in growth and inflation. As I mentioned earlier, the Executive Board has agreed that we can decide not to bring inflation back to target within one to two years if CPI is affected by temporary factors or if the economy is affected by extensive disturbances. Making assessments and evaluating when - within these frameworks - there are sufficient reasons for avoiding output variations by extending the control horizon is far from self-evident, however. To maintain the credibility of monetary policy aimed at price stability, it is important therefore to justify such departures. In the fourth place - and I am now starting to sound as if it is not at all possible to conduct monetary policy with a demand for clarity - we do not know exactly the stimulation or tightening produced by a particular interest rate. This depends on our, like everybody else’s, limited knowledge of the “transmission mechanism”. It is also due to it being difficult to exactly define at what real interest rate, monetary policy has a neutral effect on demand.

When the new Executive Board of the Riksbank took office at the beginning of 1999, we found no reason to change the target formulation. To make it possible to evaluate how we carry out our task, we endeavour to be as clear as possible about the grounds on which monetary policy decisions are made. Inflation assessments and interest rate decisions are explained in the Riksbank’s inflation reports. The Riksbank has also stated a rule of conduct for what should normally lead to decisions on interest rate rises, and the justifications for departures from this rule of conduct. Finally, the published minutes of the Executive Board’s monetary policy meetings contain an account of how we voted and the reasoning underlying the decisions. Resource use is important for inflation Since the interest rate affects inflation with a time lag, monetary policy decisions are based on forward-looking assessment of inflation. Highly simplified, the conceptual framework, used by the Riksbank in the appraisals of price tendencies, can be described as follows: when there is unused capacity in the economy, price pressure is low and inflation is under the target. When demand is sufficiently high to lead to output exceeding the level that coincides with the long-term trend level of production, inflation instead tends to exceed the target. Inflation will be on target when output is at the level of the long-term trend level of production - the output gap is closed. This reasoning assumes that inflation expectations are close to the target for monetary policy.
Recent data releases and survey information provide further indications that economic activity over the remainder of this year is likely to remain weak but should decline less strongly than was the case in the first quarter of 2009. This assessment incorporates adverse lagged effects, such as a further deterioration in labour markets, which are likely to materialise over the coming months. Looking ahead into next year, after a phase of stabilisation, a gradual recovery with positive  2  BIS Review 83/2009  quarterly growth rates is expected by mid-2010. Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. A cross-check of the outcome of the economic analysis with that of the monetary analysis corroborates the assessment of low inflationary pressure, as money and credit indicators continue to be weak. Against this background, we expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term, thereby continuing to support the purchasing power of euro area households. As the transmission of monetary policy works with lags, our policy action should progressively feed through to the economy in full. Hence, with all the measures taken, monetary policy will provide ongoing support for households and corporations.

As a macroeconomist whose work is grounded in thorough analysis, and a profound knowledge of models and data, he also takes into account the policy implications of the findings of his research. This is an important factor as he is a pioneer who has done groundbreaking work, and his research frequently encourages others. In this respect his work on the global decline in labour’s share of income has prompted a number of papers from academia and different institutions so as to understand this change over time and its implications for income distribution and productivity. Similarly, his work on capital allocation and productivity in Southern Europe has been widely influential. Mr. Karabarbounis, congratulations on my behalf and on that of the Banco de España. 2
The longest cycle of synchronous, massive capital inflows lasted from 1975 to 1982 and was followed by the debt crisis. The heavy capital inflows resurfaced during the 1990–1993 period and were followed by debt restructuring in the emerging economies. Starting in 2002, a large number of countries were faced with massive capital inflows. The end of the capital flow bonanza overlapped the onset of the financial turmoil in July 2007. In Romania, this episode became more manifest in 2004 and came to an end in 2008. Next, I will elaborate on the causes generating synchronous, massive capital inflows in a relatively great number of countries and the key developments emerging when the countries are faced with heavy capital inflows. In so doing, I will show the stylised facts, as they can be elicited from literature (Calvo et al., 1993). Then I will describe the case of Romania and the major challenges to economic policies. Finally, I will resort to the results described in the literature to present in a stylised manner the implications on some macroeconomic variables in the event of a capital account worsening. I will draw on these results to show that the provisions under the arrangement signed with the EU and the IMF are in line with the results described in the literature. 1. Causes and effects of massive capital inflows  In recent years, one of the causes of massive capital inflows in emerging economies was excess liquidity.

The region’s 45 countries in the MSCI AC World Index account for less than 10 per cent of the Index although their share of world GDP is 19 per cent. 21. We need to make emerging Asia’s capital markets deep enough to effectively intermediate its considerable savings pool and broad enough to provide a range of suitable instruments for risk mitigation. 22. The crying investment need in Asia is for infrastructure. A report released by the Asian Development Bank Institute estimates that the total investment needs for national infrastructure development in Asia will average close to $ billion per year from 2010 to 2020. But private participation in infrastructure investments in Asia amounted to just $ billion in 2009, less than half the $ billion that went into real estate investment. It will be a shame if Asia’s considerable savings pool, not to mention the inflows of capital from abroad, goes into speculative real estate instead of productive infrastructure investments that enhance long-term economic growth. Having well-developed capital markets is a good way of ensuring that capital is allocated to productive uses. 23. A promising experiment in developing better mechanisms for allocating capital is the World Bank-Singapore Urban Hub. Established in 2009, it brings together Singapore’s public agencies, research institutes, and private sector players to share their experiences with developing countries, in areas ranging from water and waste management, land use planning, and urban development.
For example, in terms of subprime mortgage underwriting, this would have included enforcing standards with respect to loan valuation, loan-to-value ratios, household income verification, and the quality of loan documentation. As I have argued before, monetary policy will often, though not always, be too blunt a tool for such tasks. Generally, it will be better to develop and use more surgical instruments designed to fit the particular circumstances. In addition, no matter how effectively we reform the financial system, it seems unlikely that we will ever be able to completely eliminate booms and busts. There will be problems in identifying the boom – distinguishing between what is sustainable and what is unsustainable. There also will be broader and even more subtle obstacles – booms, when they are underway, are typically enjoyable. As a result, regulatory interventions that temper booms normally are going to be unpopular. So in practice even activist regulators may struggle to act early enough and with sufficient force to arrest a boom before it becomes a bubble. This suggests that to make the financial system secure, we are going to have to do much more than just act to temper booms and busts. In this regard, making financial markets and institutions, in their practices and structure, less prone to amplifying and propagating shocks is a critical step. This means, in particular, that regulation should be designed to create incentives that operate over sufficiently long time horizons so that the entire cycle of boom and bust is included.

Moreover, many firms have been able to raise their profit margins in sectors faced with constrained supply and resurgent demand. The energy price shock implies a hit to the domestic economy, which should be absorbed by both firms and workers in order to ensure that it does not lead to a spiral of upward price and wage adjustments. In the baseline of our latest staff projections, headline inflation has been revised down, mainly reflecting a smaller contribution from energy prices than previously expected. We now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying price pressures remain strong. Inflation excluding energy and food is expected to average 4.6% in 2023, which is higher than foreseen in the December projections. Subsequently, it is projected to come down to 2.5% in 2024 and 2.2% in 2025, as the upward pressures from past supply shocks and the reopening of the economy fade out and as tighter monetary policy increasingly dampens demand. As inflation is projected to remain too high for too long, the Governing Council last week decided to increase the three key ECB interest rates by 50 basis points, in line with our determination to ensure the timely return of inflation to our 2% medium-term target.
It’s not clear whether the overall effect is positive. While nominal conditions are more accommodating in euro area than in the US, real indicators point to a more restrictive stance. We may see a perverse feedback loop develop, with low inflation, increasing real rates, capital inflows and exchange rate appreciation mutually fuelling each other. The financial economy may be heading towards a bad equilibrium that would threaten the real economic recovery. The situation called for an appropriate policy response and, as you know, the Governing Council has agreed last Thursday on a strong package of four significant measures: First the refinancing and deposit rates have both been reduced – bringing the deposit rate into negative territory for the first time. This should encourage financial intermediaries to actively put their cash balances at work both on credit and asset markets. Those cash balances themselves will be significantly boosted as:  2  BIS central bankers’ speeches  Second, the ordinary regime of unlimited liquidity provision has been extended to the end of 2016. Third, the Eurosystem will conduct a new set of targeted longer-term refinancing operations. This exceptional liquidity will be provided at long maturity (up to four years) and a guaranteed fixed rate, a clear sign that monetary accommodation should persist for a very long time. Finally, the Eurosystem is actively preparing to buy asset based securities that will help channel monetary accommodation and ease financial conditions to private non-financial borrowers, especially SMEs. BIS central bankers’ speeches  3

Mr Bäckström elucidates the economic situation in Sweden and describes the consequences it may have for future monetary policy  Speech given by Mr Urban Bäckström, Governor of the Sveriges Riksbank at Föreningssparbanken, Ulricehamn on 1 September 1999. *  *  *  First a word of thanks for the invitation to visit Ulricehamn and talk about something that is close to the heart of a Riksbank governor, namely Sweden’s economic situation. I shall be describing the situation as I see it and saying something about the consequences it may have for future monetary policy. Unexpectedly strong trend The new statistics in recent months show that economic activity is stronger than most forecasters had foreseen as recently as in the spring. The growth of both domestic and external demand has been higher than expected. Relative to the first half of 1998, the GDP growth rate for the first six months of this year is an estimated 3.7%. Most observers are in the process of revising their forecasts upwards, if they have not already done so. In the Inflation Report last June the Riksbank judged that growth this year would reach 2.5%, followed by 3% next year as well as in 2001. When the Executive Board discussed monetary policy on 12 August, however, our assessment was that this year’s growth rate would be 3.5%. We also saw grounds for an upward revision of growth in the next two years, though the prospects for that period are more uncertain.
In fact, with the measures adopted last year and specific factors cleared out, the money market’s interest rates have shifted toward levels in line with the current and forecast levels of the policy rate (figure 1). Beyond the recent measures, the Bank has at its disposal a toolkit it can use when the need arises. On one hand, in the years 2008 and 2009 we devised new ways to provide domestic and foreign currency liquidity which can be activated quickly but which in the present conjuncture have not been thought necessary. In case of a worsening of external financial conditions, the Central Bank has to possibility of alleviating its effects by using a number of guaranteed financing instruments, such as swaps, long-term REPOs and collateral extension, among others. Moreover, there are reserves available of close to 40 billion dollars, augmented with the reserve hoarding plan we carried out in 2011 and which has helped to strengthen the liquidity position of the Chilean economy. It is worth noting that these measures are an alternative for providing subsidiary support, whose adoption is warranted only in the presence of major distortions in monetary and financial markets. In this complex environment, agents, banks, financial intermediaries and firms need to carefully evaluate the associated risks and take prudent action to properly manage their liquidity and financial risks. Any hasty behavior of the authority may mistakenly signal bad conditions to a market that is operating normally.

Chile)  3.5  6.3  4.2  4.2  3.6  3.6  4.0  3.9  Commodity exporters  3.1  2.9  2.0  2.1  2.5  2.4  2.8  2.6  Trading partners  3.6  6.1  4.2  4.2  3.8  3.8  4.2  4.3  Terms of trade  8.1  23.8  -2.9  -  -6.7  -  -3.5  -  (levels) LME copper price BML $  -  342  401  -  350  -  340  -  Gasoline price $  -  598  804  -  784  -  748  -  (e) Estimate. (f) Forecast. (1) Assuming average economic growth for the rest of the world of 3.2% in the three-year period 2011-2013. (2) Assuming average economic growth for the rest of the world of 1.7% in the three-year period 2011-2013. Sources: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts, the IMF and statistics bureaus of respective countries. Figure 1 Conditions of 90-day rates in CLP market(1) (2) (percent) 12  12  10  10  8  8  6  6  4  4  2  2  0  0 08  09  10  11  12  (1) Prime deposit rate. (2) Dotted vertical line marks date of CBC's REPOS purchase announcement. Source: Central Bank of Chile. 4  BIS central bankers’ speeches
Let me explain why in more detail, and then conclude with where that leaves my policy thinking. The Brexit vote  Turning first to Brexit. The vote to leave the EU leaves the UK in a position which is not just unusual but unique. As my colleague the Governor said recently, the Brexit negotiations are the biggest challenge as well as the biggest opportunity facing the country at this moment. And the outcome of those negotiations remains the most significant influence on the economic outlook, as well as the greatest source of uncertainty about the future. As a member of the MPC, my task in the face of this uncertainty is to balance any trade-off between the speed at which inflation returns sustainably to target and supporting employment and activity, in line with our 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  remit from the Government, as the UK economy transitions to whatever end state results from those negotiations. What does that mean in practice? In the MPC’s assessment, consistently held since before the referendum, Brexit is affecting the UK economy via three main channels – that is, through its effects on supply, demand and the exchange rate. On the supply side we expect Brexit to have both a long and a short run effect on productivity. 5  The long run effect comes about through the effects on the UK’s openness. We know that on average being more open to trade makes an economy more productive.

Monetary policy can reduce inflation, but only at the cost of reducing output and increasing unemployment. If inflation is above target and output is below potential (or vice versa), there is a fundamental trade-off between achieving the two objectives. Since 2013 the MPC’s remit has required us to manage significant trade-offs when exceptional circumstances cause them to arise. And that has been the basis for the Committee’s assessment of the UK situation since the referendum. 12  To explain how our position on this has evolved, let me turn to the second unusual aspect of the economy that I want to focus on this afternoon: the UK labour market. 11  For more details see Box 5, “How has the economy evolved relative to the February 2017 Report”, in the Prospects for Inflation section of the May 2018 Inflation Report. 12 For a detailed explanation see: Carney, M (2017), “Lambda”, speech at the London School of Economics, 16 January 2017. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  The labour market I said at the start of this speech that wage growth has been surprisingly weak. That wasn’t a figure of speech. This chart (Chart 8) shows the MPC’s wage growth forecasts from the past few years against the actual data. As you can see, the MPC have been consistently surprised by the continued weakness of wage growth.
Cost growth is subdued in many economies, reflecting continued slack as illustrated by the comovement of an estimated world output gap with world core inflation – a glimpse of a “global” Phillips curve (Chart 8). 15 The impact of these forces on domestic inflation depends crucially on movements in the exchange rate. In the face of purely nominal shocks, for example if foreign monetary policy were excessively tight, disinflationary impulses from abroad could be expected to be dampened by an exchange rate depreciation acting as a buffer. But today, in the UK, the exchange rate is reinforcing disinflationary impulses from abroad, with sterling appreciating by around 20% since early 2013. While the appropriateness of moves of this scale in sterling and of a similar magnitude in the dollar may be subject to debate, directionally they suggest real forces at work. One possible driver could be the speed of adjustment of different economies to the financial crisis, with those more flexible economies that took the more decisive action to fix their financial systems seeing the fastest recoveries and largest appreciations. For very open economies like the UK, with a high proportion of imports invoiced in foreign currencies, persistent, sizeable moves in exchange rates matter for the inflation outlook.

After adjusting for unconventional policy there’s greater monetary policy divergence than implied by a simple eyeballing of the currently highly synchronised global rates cycle. And there remains the prospect of a further widening. In other words, domestic economic conditions – conditions affected by domestic monetary policy – still very much matter. None of this diminishes the considerable challenges of returning inflation to target in the face of global developments. There are profound secular and cyclical disinflationary forces at work in the global economy, and for economies like the UK their impact is being reinforced by exchange rate movements which will drag inflation down further at the policy horizon. Moreover, as events of the past few weeks have reminded us, a variety of global factors can affect global financial conditions and influence the neutral rate of interest. Central banks must take these Disparate Confounding Dynamics (DCDs) into account when setting policy. 2 Even for those economies with the strongest recoveries and the best functioning financial systems, they mean that the policy rates consistent with returning inflation to target will likely need to rise in a gradual fashion and to a limited extent despite robust domestic demand and firming domestic costs. For the UK at least, global DCDs influence but do not dictate policy. 1  Subramanian, A and Kessler, M (2013), “The hyperglobalization of trade and its future”, Global Citizen Foundation working paper 3, June.
BIS central bankers’ speeches  21  Figure 7: Average number of hours volunteered by age group in 2011  16 to 29  Average number of hours volunteered per year* 87  30 to 49  77  50 to 69  109  Older than 70  113  UK average  97  Age group  Sources: ONS (2013), “Household satellite accounts: valuing voluntary activity in the UK”. Underlying data from the Understanding Society survey. *Conditional on volunteering. Figure 8: Change in volunteering activity over time in the UK  Source: Chart reproduced from ONS, “Household satellite accounts: valuing voluntary activity in the UK”. Original data come from Home Office, DCLG and Cabinet Office surveys. 22  BIS central bankers’ speeches  Figure 9: The “Volunteering Onion”, a summary of the estimated contribution from volunteering activities in the UK  Social value Social impact multipliers of 2-10? Private value Probably more than £ per year* Economic value Around £ per year Labour input 15m volunteers 1.25m FTE  Source: Bank and Pro Bono Economics calculations. Note: The estimate of private value shown is an estimate of the benefits to an individual’s well-being, not including health benefits or improvements to an individual’s skills or employability. BIS central bankers’ speeches  23  Figure 10: Illustrative calculation of the economic contribution to the UK economy beyond formal volunteering £ in 2012).

We need to ensure that any new requirement provides the right incentives to financial institutions, gives a certain degree of flexibility to the authorities and does not create disincentives to make headway in the energy transition process. Modest, adaptable, yet determined. Because there is a battle to be won and because the current market signals – overly low carbon prices and an overly short time horizon – are insufficient to ensure full mobilisation. There are a large number of private initiatives. But there is also a need for a public framework to ensure the general and lasting alignment of interests. We are determined to play a full part, from Basel to Paris and elsewhere. Thank you. 4  BIS central bankers’ speeches