samchain/econo-pairs-v1 huggingface dataset:
GDP outcomes and forecasts Annual percentage change 6  6  5  5  4  4  3  3  2  2  1  1  0 mar-00  0 mar-01  mar-02  mar-03  mar-04  mar-05  mar-06  mar-07  Sources: Statistics Sweden and the Riksbank  BIS Review 138/2007  7  Figure 2. Employment outcomes and forecasts Annual percentage change 4,0  4,0  3,0  3,0  2,0  2,0  1,0  1,0  0,0  0,0  -1,0  -1,0  mar-01  mar-02  mar-03  mar-04  mar-05  mar-06  mar-07  Sources: Statistics Sweden and the Riksbank  Figure 3. CPIX outcomes and forecasts Annual percentage change 3,5  3,5  3,0  3,0  2,5  2,5  2,0  2,0  1,5  1,5  1,0  1,0  0,5  0,5  0,0  0,0  -0,5 mar-00  -0,5 mar-01  mar-02  mar-03  mar-04  mar-05  mar-06  mar-07  Sources: Statistics Sweden and the Riksbank  8  BIS Review 138/2007  Figure 4. Productivity outcomes and forecasts Annual percentage change 5,0  5,0  4,0  4,0  3,0  3,0  2,0  2,0  1,0  1,0  0,0  0,0  -1,0  -1,0  -2,0 mar-01  mar-02  mar-03  mar-04  mar-05  -2,0 mar-07  mar-06  Sources: Statistics Sweden and the Riksbank  Figure 5.

The type of time series model chosen for the comparison is, despite its simplicity, difficult to surpass, according to several international studies. Moreover, they have analysed how far ahead we can make forecasts with good accuracy, that is to say what forecasting memory the different variables have.5 They have also looked at whether there are tendencies to systematically over-estimate or under-estimate the different variables, that is, whether the forecasts have any bias. What does the analysis show about our forecasting performance? Let us first look at the entire period and compare our forecasts for GDP, employment and CPIX with outcomes. CPIX is a measure of underlying inflation, which until recently was known as UND1X. Hardly surprisingly, it appears that the forecasts have varied in accuracy (Figure 1). For instance, we have under-estimated employment growth recently (Figure 2). Nor did we predict the sharp rise in inflation spring 2001 in our assessments the previous year. However, we were more successful in capturing the downswing in inflation during 2003 (Figure 3). But how do things look in more detail for the different variables? Forecasts for GDP growth With regard to the GDP forecasts, we have periodically been accurate and close to the outcome, while we have fallen short on other occasions (Figure 1). It is often particularly difficult to make forecasts in an economic turnaround. Compared with the time series model that is used to gain a perspective of the forecasting memory, we make better GDP forecasts up to a year ahead.
Left unattended, they are prone to instability, excess and abuse. Following the global financial crisis, a series of scandals ranging from mis-selling to manipulation undermined trust in banking, in the financial system, and to some degree, in markets themselves. In FICC markets, misconduct was revealed on a scale that impaired their ability to function fairly and effectively. The economic consequences have been enormous. Global banks’ misconduct costs have exceeded $ billion, capital that could otherwise have supported around $ trillion of lending to households and businesses. 5  More worrying still, an industry of the scale, importance and complexity of finance needs social capital as well as economic capital in order to operate, innovate and grow. Repeated episodes of misconduct have called the social licence of finance into question. In a system where trust is fundamental, it ought to be of grave concern that only 20% of UK citizens now think that banks are well run, compared to 90% in the 1980s. 6  The scale of the challenge of restoring trust is thrown into sharp relief by the FMSB’s comprehensive review of misconduct over the past two centuries. The history of financial fraud has rhymed all too frequently. Potential Solutions  In the cycle of scandal, response, integrity, drift, and renewed scandal; potential solutions have oscillated between the extremes of Self Regulation and Total Regulation. Recent difficulties illustrate the problems with each of these approaches.

The bad news is that it has become increasingly clear that we cannot rely on Libor in the long term. Libor is meant to measure banks’ short-term unsecured funding costs. But the reality is that bank funding markets have changed, and banks no longer take enough wholesale term deposits to form the basis for a robust transaction-based benchmark. As we have pointed out in the past, the result is that Libor is overly reliant on expert judgement rather than actual transactions. That situation is neither desirable nor sustainable. There is also a risk that panel banks might withdraw from Libor and precipitate its collapse, which raises obvious financial stability concerns. So there is a clear need for the authorities and market participants, across every sector, to come together, and transition to alternative benchmarks. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Under the auspices of the FSB, authorities in the UK, US, Japan and Switzerland have worked with market participants to identify alternative benchmarks. In the UK, the market-led Working Group on Sterling Risk Free Rates recently confirmed SONIA as its preferred alternative to Sterling Libor. 12  Market participants in every sector and market that uses Libor now need to come together to identify and resolve issues, change business practices, and adopt alternative benchmarks. To support the next phase of this work, the Bank and FCA are today announcing that from January, the Sterling Risk Free Rate Working Group will have a new mandate and wider representation from across the market.
Of course, expert judgment and shortterm analyses still play an important supplementary role in the design of the final forecast. The good standard of our current forecasting know-how is reflected, among other things, in our ability to start providing technical assistance in the forecasting field to some other central banks in transition and emerging market economies. It is clear that the development of the forecasting system has not always been straightforward and easy. During the first years, many of the details were adjusted in response to the changing needs,  2  BIS Review 40/2006  challenging experience and evolving thinking of the central bank. Given the legacy of the communist period and the lack of available data, we were forced to leave out, unfortunately or fortunately, the period of large-scale econometric models. First, there was no experience with that kind of modelling in our communist history. Second, the reliable data series start in 1994, which significantly constrains the proper use of econometric techniques. Therefore, our macro models have relied heavily on calibration. Despite, or maybe because of, the latter, they seem to provide consistent guidelines for policy decision-making. The entry of the Czech Republic into the European Union in May 2004 has not so far created any serious issue in respect of the practical forecasting of the Czech economy. However, we can identify two issues related to the future development of the forecasting system.

Well, you all well know that Milton Friedman was rather sceptical about our ability to avoid serious mistakes in this very area and that led him towards the formulation of a “simple rule” of constant growth of the money stock. In this framework no forecasting was required. Of course, he faced evidence of the failure of the large-scale econometric models that had been used in the 1950s to 1970s and that were later subject to strong criticism. The models were hit by a series of structural breaks, which made the previously observed relationships unreliable. Consequently, it was argued that these breaks were not a result of bad luck only, but also reflected a lack of microeconomic foundations in the models, neglect of forward-looking expectations and ad hoc econometric restrictions. The terms “Lucas critique” and “Goodhart law” have become standard warning signs for all macroeconomic modellers. The actual way in which forecasts are produced and used at central banks has, however, changed substantially over the past two decades. The changes have reflected developments both in the economic (and econometric) theory and in monetary policy regimes. Bearing in mind the failure of large-scale models, the profession has started to prefer smaller-scale models with a sounder microeconomic background, built in recent decades usually along the lines of New Keynesian Economics. As the first generation of these new models matured, though, the second generation started to become more detailed again.
Inflation targeting and credibility Adoption of IT has also contributed to the buildup of credibility of monetary policy in IT countries. Several authors show that the IT regime has helped in anchoring inflation expectations at levels close to inflation targets and inflation expectations are more stable than in the U.S. (Ramos et al., 2007; Gürkaynak et al., 2007). In Chile, the distance of inflation expectations from inflation targets was closed as targets converged toward the stationary 3% level and the Central Bank showed strong commitment to attaining targets (Céspedes and Soto, 2005). During the past five years, inflation expectations have remained close to the mid-point of the inflation target range, reflecting high credibility of the IT regime (figure 9). Inflation targets and stability Emerging economies have experienced reductions in the volatility of both inflation and output (figure 10). However, volatility reductions have been more pronounced in IT countries than in non-IT countries. Volatilities of growth and inflation have fallen very significantly in Chile, even in comparison to other IT countries. Two factors explain most of the volatility reduction in IT countries: smaller shocks hitting the economy and improvements in monetary policy efficiency (Mishkin and Schmidt-Hebbel, 2007). Figure 11 depicts the estimated average efficiency frontier of MP for emerging economies before their adoption of IT (orange schedule) and the observed pair of output and inflation volatilities (red point).

Figure 2 CPI inflation around the world (1)  Commodity prices (5)  (annual change, percent)  12  12  10  10  8  8  6  6  4  4  2  2  0  0  -2  -2  -4  -4 05  06  07  08  09  10  11  U.S.  Eurozone  Latin America (2)  Emerging Asia (3)  (monthly index, Jan.00-Sep.11=100)  250 200 150 100 50 0 00  02  Emerging Europe (4)  04  06  08  10  FAO foodstuffs WTI oil  (1) Regions weighted at PPP. Data through August 2011. (2) CPI includes Argentina, Brazil, Chile, Colombia, Mexico and Peru. (3) CPI includes China, India, Indonesia, Malaysia, South Korea, Thailand and Taiwan. (4) CPI includes the Czech Republic, Hungary, Poland, Russia and Turkey. (5) Data through September 2011. Sources: Bloomberg, CEIC Data, IMF and statistics bureaus of respective countries. BIS central bankers’ speeches  7  Figure 3 Inflation indicators (annual change, percent) 10  10  8  8  6  6  4  4  2  2  0  0  -2  -2  -4  -4 06  07  08  CPI  09  10  11  CPI excluding food and energy  Sources: Central Bank of Chile and National Statistics Institute (INE).
For reasons of time, I would like to concentrate briefly on monetary policy in order to provide an example of the type of analysis which will be conducted, and is being conducted, also in other areas. There is now a broad consensus that the policy of very low interest rates, especially in real terms, which was followed in particular in the United States in the period 2002-04, increased the incentives for financial institutions, households and businesses to raise their levels of indebtedness and to take high-risk speculative positions. 1 In a recent paper, John Taylor illustrated that if the Federal Reserve had implemented a less expansionary monetary policy, and had instead followed a simple rule to determine interest rates, in line with past  1  J. Taylor (2009), Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Hoover Institution Press. BIS Review 66/2009  1  behaviour, less liquidity would have accumulated at the global level. Clearly, this is an ex post evaluation. And it is too easy to lay the blame at the door of the US monetary authority. Looking back at the analyses conducted at the time, it can be seen that this policy met with the approval of the academic world, market analysts and political parties. Following the bursting of the technology bubble and 11 September, there was a general consensus that deflation represented the greatest risk and needed to be countered by strong and sustained monetary expansion.

To conclude the first part of my remarks, the crisis has revealed the need for economic policies, and monetary policy in particular, to have a largely medium-term orientation, rather than supporting the procyclical behaviour of agents. To this end, central banks must pay considerable attention to developments in the financial markets, both domestic and global, in order to identify potential imbalances and forestall their effect on monetary and financial stability. The analysis that I have just conducted with regard to monetary policy clearly needs to be extended to other policy areas, such as fiscal policy or financial regulation. It is essential to conduct an in-depth analysis of these subjects in order to fully understand which problems caused this crisis and how to rectify them in order to prevent them from happening again. An interesting aspect, in some ways worrying, is that despite the consensus that has developed with regard to the analysis of the past, and the causes of the crisis, there does not seem to be a great deal of willingness to incorporate the lessons learned into present and future behaviour. To paraphrase St Augustine, give economic policy-makers more chastity and continence, but not yet. It is this apparent contradiction that leads to the view that this level of analysis is insufficient. I believe that we need to ask an additional series of “why” questions in order to understand thoroughly what induced economic policy-makers to make certain choices. A traditional response to this question is the short-sightedness of politics, which also applies to economic policy.
2  BIS Review 157/2010  14% to over 21% in the last 20 years. 6 This shows just how well Swiss companies – including small and medium-sized enterprises – have diversified their markets in the past few years. But the pie is only so big and the total is always 100%. This means that the share of exports to industrialised countries has inevitably decreased. In particular, Switzerland’s dependence on the European market has declined. Especially countries such as Germany, France and the United Kingdom have lost some of their relevance as export destinations. Switzerland is not alone in experiencing a shift in its market share in favour of emerging economies. This is merely a reflection of the growing significance of these countries for the global economy. 7 Accordingly, many EU countries have witnessed similar developments. There are, however, two very divergent developments responsible for this aggregate trend; both of which proved highly beneficial for Switzerland in dealing with the latest crisis. While many European countries intensified their trade relations with the emerging economies of Eastern Europe as part of the EU’s expansion eastwards (cf. chart 1a), Swiss exporters focused more on the Asian market (cf. chart 1b). As a result, Switzerland’s share of exports to emerging Asia – not including the four tiger economies – practically doubled in the last 20 years, and recently amounted to around 6%, compared to around 4.5% for the EU. 8 Chart 1a  Chart 1b  Sources: IMF Direction of Trade Statistics (DOTS) 9 , Federal Customs Administration (FCA).

If this analysis suggests that monetary developments are a threat to future price stability, monetary policy will respond in a manner appropriate to counter this risk. In parallel with the monitoring of monetary aggregates, the ECB also pays close attention to various other indicators which may signal inflationary risks or tensions: this is the second pillar of the monetary strategy. Indeed, while inflation is a monetary phenomenon over the long term, it is useful in the short to medium-term to detect those inflationary tensions in the economy - reflected in various real and financial indices - which are not captured by monetary aggregates. With these two pillars and the various indicators, monetary policymaking in the euro area may appear complex, but this reflects the complexities and uncertainties which surround the transmission mechanism of monetary policy in modern economies, and, even more so, in the new economic environment created by the changeover to the euro. Against this background, the Eurosystem must rely on a whole range of indicators and on a variety of models which help to sharpen and crosscheck the analysis. The efficiency of monetary policy does not rely only on a careful analysis of the monetary, financial and economic situation, but also on the ability to explain monetary policy decisions to the public in a convincing manner.
o  Excess capacity in some heavy industries could reduce growth in investment spending more than expected. o  Further volatility in stock market could undermine consumer confidence and spending. Third, the region. o  Financial conditions could tighten more than expected, as US Fed begins to hike interest rates. o  This could raise borrowing costs and constrain private spending. Inflation 9. Singapore experienced negative headline inflation for seven months now. But not facing deflation – price decline neither persistent nor pervasive. Temporary factors keeping inflation muted but underlying cost pressures persist. 10. Look at headline and core inflation separately. Headline inflation at lower half of forecast range in 2015 but should pick up in 2016 11. Headline or CPI All-items inflation averaged –0.4% y-o-y in first five months of 2015 compared to 1.0% for whole of 2014. 12  CPI All-items inflation likely to continue to be negative for rest of 2015. •  For year as whole, CPI-All items inflation expected to come in at lower half of forecast range of –0.5 to 0.5%. 13. Drag on headline inflation from COE premiums and accommodation costs. •  Car COE premiums currently about $ compared to about $ in H2 last year. 2  BIS central bankers’ speeches  •  Imputed rentals on owner-occupied accommodation are 3% lower compared to year ago. 14. But headline inflation to pick up in 2016. •  Effects of lower car prices and housing rentals could start to wear off on YoY basis.

Several hundred collective wage agreements will expire in the first part of 2016. It is the social partners who will negotiate and sign new collective agreements. What the Riksbank can do is to inspire confidence in the inflation target, which can in turn provide a starting point for the negotiations. The inflation target and the Industrial Agreement have worked well together since 1997. They can continue to do so. 6  BIS central bankers’ speeches  BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches
Rodrigo Vergara: The Monetary Policy Report and the Financial Stability Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, before the Finance Commission of the Honorable Senate of the Republic, Santiago de Chile, 3 June 2015. *  *  *  Accompanying charts can be found on the Central Bank of Chile's website. The Monetary Policy Report of June 2015 and the Financial Stability Report of the first half of 2015 can be found at http://www.bcentral.cl. Introduction Mr. President of the Finance Committee of the Senate, Senator Andrés Zaldívar, senators members of this Committee, ladies and gentlemen. Thank you for inviting me to share the vision of the Board of the Central Bank of Chile on recent macroeconomic and financial developments, their prospects and implications for monetary and financial policy making. This vision is contained in detail in the Monetary Policy Report of June 2015 and the Financial Stability Report of the first half of 2015. The macroeconomic scenario shows minor changes with respect to forecasts in March. Annual inflation declined between February and April, but it remains above 4%. Output and demand continue to grow at a moderate pace, and the first quarter was better than expected, but incoming data suggest that the remainder of the year will be somewhat less dynamic than previously estimated. In the global economy, the growth outlook showed no major changes either. The weaker US figures early in the year and the consolidation of better prospects in Europe are worth mentioning.

Prices, investment and home sales show considerable swings. Homes are important forms of collateral and price developments influence household borrowing and give rise to credit cycles. Housing loans account for 40 per cent of Norwegian bank balance sheets. 5 The framework conditions for the housing market are thus important for how wide fluctuations in output and employment are and for the risk of financial shocks and instability. The experience of the banking crisis in the early 1990s did admittedly entail limited bank losses on loans to households, and substantial losses on loans to business and corporate customers, which were affected by a fall in household consumption. Banks may certainly refer to this when they assess the credit risk of their loans, but they should perhaps not be as certain that people will stand by their creditors in the future as they did 15-20 years ago. Household debt is very high. Attitudes may change and debt servicing discipline may also be influenced by the debt settlement scheme that has gradually become less  4  See Financial Stability 2/2004, p 36, Norges Bank. 5  Including branches of foreign banks, subsidiaries and housing loans in mortgage companies. 4  BIS Review 110/2008  restrictive. 6 Banks should make ample allowance also for this risk in their loan disbursement and interest rate premiums. It is important for stability in the housing market that the supply of housing reacts rapidly to changes in demand.