samchain/econo-pairs-v1 huggingface dataset:
Taking account of this uncertainty is particularly important in the case of the euro area, whose “deep structural parameters” are somewhat uncertain to the extent that the inception of the euro may have been associated with a “regime shift”. More prosaically, this medium-term orientation of the single monetary policy recognises that it is impossible for a central bank to control price developments with accuracy over the short-term. The second implication is that the relevant indicators for monetary policy must reflect, almost exhaustively, the main sources of both short and long-term inflation. In the light of this, the monetary policy strategy seeks, as far as possible, to rely on a “full information approach”. This is what the concepts economic analysis and monetary analysis – also known as the two-pillar approach – used notably at the press conferences given by the ECB President following monetary policy decisions, reflect: -  the economic analysis examines cyclical, economic and financial indicators related to the main determinants of short-term inflation;  -  the monetary analysis, is based on a monetary explanation of the low frequency movement of inflation. -  The medium-term orientation of the single monetary policy makes necessary the crosschecking of these two complementary approaches. From this point of view, the ECB’s monetary policy strategy is more comprehensive than pure inflation or monetary targeting strategies.

However, there remain two causes for concern: -  one is the natural difficulty in moving to an entirely new set of price references – and it may take a number of years before this switch is fully made by the public at large. -  and the second, probably related to the first one, is the feeling in the public that there have been excessive price increases linked to the cash changeover. Indeed, the public’s attention has focused on a small number of goods and services in which abnormal increases occurred at the time of this event, leading to a misperception of the real rate of inflation. This gap between perceived inflation and real inflation has however been narrowing progressively and should hopefully disappear in the near future. Concluding remarks To conclude, let me emphasise that eight years after its adoption, the euro has lived up to all of our expectations. After the unprecedented challenge of a continent-wide cash changeover, the euro almost instantly replaced the legacy currencies without any disruptions. It has fostered both price and macroeconomic stability through its credibility and has shielded many euro area countries from significant exchange rate volatility and financial market  1  On average, central banks of industrialised countries changed their policy rates every 5 months both in the 1980s and the 1990s (Source Clerc et Yates (1999): “Interest rate stepping: some puzzles and facts”, mimeo Bank of England), which is close to the frequency of the ECB interest rate changes (4.7 months).
That hard-headed economist I mentioned earlier would at this stage spring to their feet. Brandishing revealed preference theory, they would say this is obvious – that it is these very benefits that explain why the volunteer army exists in the first place. And, once again, they would largely be wrong. For research has shown that people tend systematically to under-estimate the positive effect for them of giving to others. In a nice experiment, people were randomly assigned $ to spend, either on themselves or others. Those who were told to spend it on others subsequently reported significantly higher subjective well-being ex-post, contrary to their expectations ex-ante. 23 This means that volunteer army would possibly be larger still if individuals had greater selfawareness of the private benefits of volunteering. When it comes to volunteering, preferences may be as much concealed as revealed. 24 Social value of volunteering Finally, let’s consider the social welfare benefits of volunteering. Why might these differ from the economic and private benefits? And by how much? Let’s take a simple example. Consider a volunteer who helps out a charity providing support services for the homeless. Is the value of this activity captured by the hours spent volunteering? By the amount it would have cost to hire that person to provide that help? By the amount that person themselves benefit from volunteering? Well, all of the above are important and large, as I have shown. But they would still potentially significantly under-estimate the value society should place on this activity.

Its aim, then and now, is to match economist volunteers into projects in the charitable sector, often to work on measuring the social impact of charities’ activities. In effect, PBE is a match-maker between economists and charities. Why might we match-make between the uplifting art of charities and the dismal science of economics? Well, our hope was that there were significant gains from trade: on the charitable side, because of the rising pressures many charities have felt to demonstrate the impact of their interventions; and on the economist side, because of the usefulness of their applied skillset for tackling measurement issues of just this type. Five years on, the heartening news for both sides is that these theoretical gains from trade appear to have been realised in practice. PBE has worked with over 170 charities, spanning such diverse issues as homelessness, eating disorders, child exploitation and prison rehabilitation. And we have matched over 170 economist volunteers into around 85 projects, with a large lump of unused economist labour waiting in the wings. PBE’s experience illustrates nicely some of the broader points I wish to discuss about the value of volunteering – value not just to the recipient but also to the provider and to wider society. In other words, in giving our time through volunteering, we – individually and societally – stand to receive. One of the aims of this lecture is to demonstrate that the societal gains from volunteering are potentially large – and also largely under-appreciated. Certainly, they are not well measured.
There were a number of special factors that boosted real income in the first half of the year, helping to offset a sharp drop in hours worked and very sluggish hourly wage gains. These factors included the sharp drop in gasoline and natural gas prices; the large cost-of-living-allowance increase for Social Security recipients reflecting last year’s high headline inflation; a sharp drop in final tax settlements; a reduction in withholding tax rates; and a one-time payment to Social Security recipients. These factors provided a transitory boost to real incomes, which will be absent during the second half of the year. As a result, real disposable income is likely to decline modestly over this period. Second, households are still adjusting to the sharp drop in net worth caused by the persistent decline in home prices and last year’s fall in equity prices. This suggests that the desired saving rate will not decline sharply. That means consumer spending is unlikely to rise much faster than income. In other words, weak income growth will be an effective constraint on the pace of consumer spending. BIS Review 94/2009  1  Moreover, some sectors such as business fixed investment in structures are likely to continue to weaken as existing projects are completed. In an environment in which vacancy rates are high and climbing, prices are falling, and credit for new projects is virtually nonexistent, this sector is likely to be a significant drag on the economy over the next year.

And at this point, I would like to stress more on why we cannot afford to be complacent with the situation. Most importantly, there always seems to be an unbridgeable gap between what market anticipates and what governments and central banks can really offer at the end of the day. And if history is any guide, it is precisely this gap that creates ripples of disappointment and risk aversion that propagate throughout the global financial market almost instantly. When we look back, not so far in the past, all of us have just witnessed a panic sell-off in global stock markets starting from late July to September. In addition to stocks, almost every type of risky assets was also under tremendous selling pressure across the board, and some  2  BIS central bankers’ speeches  market commentators even went so far as comparing this event with the onset of the 2008 global financial crisis. And when we look forward, the future is not very promising either due to two major reasons. First is the fact that so-called “milestone” developments toward the resolution of the crises in the U.S. and the Eurozone so far do not seem to address problems at their root causes; rather, issues have been dealt with merely temporarily, one after another. A recent example of this would be the eleventh-hour negotiation in the U.S. in raising debt ceiling limits only to meet the August-second deadline, which did nothing but leave the big elephant standing in the room.
The figure shows that the trend increase has not been as large at the end of the 1990s as during the period up to 1995. It should also be remembered that the method used to calculate the trend has the characteristic that it reflects changes in the actual underlying trend at a slower rate. In addition, the very high rates of increase for productivity during the latter part of the 1990s reflected both a relatively rapid growth in the private sector relative to the public sector and a strong growth in the IT-producing sectors, particularly the telecom industry. It is not likely that future developments will follow the same paths. Nevertheless, there are many indications that the long-term increase in productivity now is higher than it was during the 1970s and 1980s. Factors in favour of this are the fairly comprehensive changes that took place during the 1990s, particularly the introduction of the new stabilisation policy regime and a greater degree of openness in the Swedish economy. Labour supply a major cause for concern Let us now move on to study how the labour supply has developed during the same period of time. My next slide shows the actual growth and trend for the number of hours worked (Figure 6). To begin with, one can conclude that developments have been relatively adverse during the greater part of the 1980s and 1990s.

And we can see this clearly when we study developments adjusted for absence due to sickness (Figure 8). Here we can see that the average working hours have shown a declining tendency even when adjusted for people who have not worked due to illness. Compared with the period 1994-1995, average working hours have declined by around 3 percentage points and the negative tendency is particularly strong after 1999. Moreover, the other curve in my diagram - for the number of employed shows that the growth in working hours last year was curbed by a lower increase in employment. This was in turn a result of the economic slowdown no longer affecting just manufacturing, but also the services sector. The decline in working hours appears to depend on three main factors, apart from increased absence due to illness. The first factor is an increase in other types of absence than illness, e.g. holidays or looking after sick children. The second is a decline in the amount of overtime worked and a reduction in the working hours agreed between employers and employees. The third factor is a shift where more people choose to move over from full-time to part-time work. The relative significance of structural and economic factors in this context is again difficult to assess. There are many indications that variations in overtime are particularly affected by economic activity. Although it is more difficult to determine how this relates to the other factors.
This means that unemployment in Sweden is as high as that in the United States and almost as high as in the United Kingdom (7.9 per cent). At the same time, unemployment is much lower in other countries that should reasonably be comparable with Sweden, such as Germany (5.4 per cent), the Netherlands (5.4 per cent), Austria (4.4 per cent) and Norway (3 per cent).24  22  I describe this in more detail in, for instance, Svensson (2011a). 23  National Institute of Economic Research (2012, Figures 12 and 43). 24  Data gathered from Eurostat and the Bureau of Labor Statistics. As a result of the differences in publication dates between the countries, the most recent figures refer to July with regard to the United Kingdom and Norway, and to September for the Netherlands, Germany, Austria, Sweden and the United States.

The low inflation as such has no doubt helped to make the economy function better. The conditions for a long, stable upswing have improved. Together with clearer price signals, this makes it easier for households and firms to plan and make decisions. The workings of the economy have also been improved by the tax reform, various deregulations and changes to social security systems. Competitive pressure has grown as a result of EU membership and the globalisation of trade. The result is discernible in a higher rate of capital formation and structural changes in the economy. In both 1994 and 1995 GDP growth topped 3 per cent. In 1996 the growth of final demand remained fairly high, 2.1 per cent, and the rate accelerated in the second half-year to 2.6 BIS Review 56/1997  -3-  per cent from the corresponding period the year before. Total production, however, did not match the growth of final demand, the reason being that firms chose to trim stocks. The growth of GDP, which represents total output, stopped at 1.1 per cent in 1996.
The lower levels of yields would be expected to boost other asset prices as investors substitute into alternative asset classes. These patterns describe what researchers often refer to as portfolio balance effects. Such effects are important to consider, because they have implications for monetary policy. If the Fed’s holdings of assets have produced lower long-term interest rates, the FOMC has to carefully take into consideration how it will manage the size of its balance sheet going forward. In particular, a rapid and substantial reduction in our holdings of assets would likely push up long-term interest rates that is, it would put upward pressure on those rates by unwinding the portfolio balance effect. That increase in long rates would, in turn, weigh on other asset prices, reversing the positive effects that had been associated with the expansion of the Fed’s balance sheet. Under this view, the size of the Fed’s asset holdings becomes a relevant policy lever. Accordingly, this will be the first tightening cycle for which there are two broad policy decisions in play, as the FOMC will have to set out not only the path of the short-term interest rate, but also the path of its asset holdings. The decisions on these two variables will have to be made in conjunction with one another to produce the desired outcome for economic activity and inflation. These considerations leave open a range of outcomes for how the two instruments will be used.

Against this background, we judge that the level of nominal wages can move up at an annual rate of just over 4%. This is marginally less than foreseen in the December Report. In the longer run, however, wages cannot go on rising at this rate because they would then exceed the room that now looks like being provided by the probable trend for productivity growth. One illustration of this is that in the coming one to two years, underlying domestic inflation will be somewhat above 2%, though this is countered by downward effects from import prices. In our main scenario we judge that overall inflation prospects are in line with the target one to two years ahead but that UND1X inflation will be marginally above the target at the end of the period. With an unchanged repo rate, UND1X inflation is expected to be 1.6% one year ahead and 2.1% after two years. Diagram 3. UND1X forecast with uncertainty intervals  3. UND1X with uncertainty intervals Percentage 12-month change  5  5  4  4  3  3  2  2  1  1  0  0 95  96  97  98  99  00  01  02  Sources: Statistics Sweden and the Riksbank  The transitory factors that the Riksbank should disregard in the formation of monetary policy are judged to be small in the coming one to two years. Moreover, the Riksbank considers that the risk spectrum for inflation is balanced.
We have tried to transpose these challenges to the countries in the region, as in some of them economic boundaries for the monetary policy are lesser compared to the ECB, given positive policy rates. Our simple analysis shows that financial vulnerabilities, observed through the leverage of the public and private sector, seem to be contained, despite the loose financial conditions. Sovereign  17  debt has decreased in the last couple of years, indicating that countries use the benign financial conditions for creating more fiscal space. Private leverage is well below some of the accepted benchmarks. Yet in many of the countries, given the low interest rate environment, household credits are on a rising path, and potential risks are addressed through macro-prudential measures. Hence, some vigilance is needed, with respect to build-up of financial vulnerabilities, though they seem to be much lesser in the region compared to the more advanced economies. Inflation dynamics and its drivers seem to resemble those in the euro area, asking for more profound scrutiny of prices, before proceeding with monetary loosening. At the current juncture, it seems that despite the monetary policy space which exists in part of the region, further policy cuts should be carefully calibrated and considered in the context of country specific assessment of future financial and inflation risks. References: 1. Aleksandra Riedi “Household debt in CESEE economies: a joint look at macro- and micro-level data”, Focus on European Economic Integration, 2019, issue Q1/19. 2. Bank of Spain. 2019.

A warehouse cannot easily or cheaply be turned into an office building; if a manufacturing company installs an extra production line, and demand for its product subsequently weakens, it can’t then choose to lease the line to another firm; the same is true of specialised software for a bank or insurance company. Clearly, this “sunk-cost” property of investment spending may in practice apply to some types of capital more than others. What we do know is that, without it, economic theory would have a hard time explaining why greater uncertainty depresses investment to the degree it does – or even at all. 3 Conversely, once you do take it into account, the predicted effects can be quite powerful. Investment projects that would otherwise make a great deal of sense – because the income they’re expected to generate easily exceeds the costs of financing them – will be avoided, or at least postponed, if the reversal costs are high enough and the uncertainty about those returns sufficiently acute. Instead, it often makes sense to wait until the expected value of the project is sufficiently high that it covers not just the direct cost of the project but an extra margin of safety on top, something economists have called the “option value of waiting”: Return on investment > cost of finance plus option value of waiting  [1]  The greater this margin, the higher the profitability required of any new investment. As this hurdle rate goes up the number of new projects that can meet it declines.
At its most basic level, the government exists to provide services that otherwise cannot be carried out by private market – things like infrastructure, law enforcement, or national defense. Public policy may also pursue social welfare objectives in accordance with its citizen’s wills, for example to promote income equality or access to health care and education. Finally, but no less important, public policy must provide a stable environment for the nation to prosper, and avoid being the cause of malaise itself. Based on these basic tenets, the present challenges for Thai policymakers are twofold. Public policy must first aid the private sector in overcoming structural bottlenecks and lift the economy’s potential growth by addressing areas where market has failed. Secondly, the policymakers must restore and maintain macroeconomic policy credence, and lay a stronger foundation for the economy to grow on a sustained basis. Let me take each of these in turn. 1. Structural policy to boost potential growth  The Thai economy is growing at a pace well below what a typical country with the same level of income should be able to attain. Failure to sustain a higher pace of growth over an extended period, even when demand pressure has eased, suggests that part of the problem could be from the supply side. It is no secret that infrastructure in Thailand needs an overhaul. Indeed, very few would dispute the merits of large-scale public investment.

We expect the recovery of domestic demand to gain more traction going forward, especially in the second half of this year. In light of these recent events, our latest growth projection for this year has been revised upward to 1.5 percent. While this figure may be much lower than long-term potential growth of around 4 to 5 percent, it is chiefly dragged down by the first-quarter contraction – bygones if you like. From this quarter onwards, we anticipate a clear pickup in growth and a V-shaped recovery. Many independent forecasters are currently holding a similar view, and most have revised up their growth projections after the political turning point in May. BIS central bankers’ speeches  1  This brighter economic outlook is not without risks, however. Exports of goods in particular have underperformed thus far this year, despite their insulation from domestic political turmoil. A number of factors are at play, some temporary, others more secular. Weaker economic growth in regional trading partners, including China and ASEAN, has been one cyclical hindrance. Global trade also appears to be lagging global growth, limiting scope for emerging economies like Thailand to leverage on advanced economies’ recovery. More deep-rooted structural issues at home may also be responsible, as segments of the manufacturing sector are not integrated into the modern global supply chain. For these reasons, exports may play a less active role in its contribution to growth this year. On the financial stability front, we remain cautious but optimistic.