samchain/econo-pairs-v1 huggingface dataset:
As Englund (2011) shows in the Riksbank’s inquiry into the risks in the Swedish housing market, the fundamental value of housing is largely determined by the long real mortgage rate after tax and the value of the housing services provided by the housing. The value of the housing services in turn has a stable relationship to disposable income (housing costs comprise 25–30 per cent of disposable income).7 Put simply, the after-tax mortgage rate determines how much a homeowner is prepared to pay for his or her home for the housing costs to be 25 to 30 per cent of the homeowner’s disposable income. This means that the relationship between housing prices and disposable income is largely determined by the long real mortgage rate after tax, including the effects of wealth and property taxes. As Englund  goals of maximum employment and stable prices”. In this case too, maximum employment means maximum sustainable employment. The Federal Reserve Board (2012) also emphasises the longer-run normal rate of unemployment. 7  Statistics Sweden (2012, table 9.1.8). BIS central bankers’ speeches  3  demonstrates, developments in Swedish housing prices in relation to disposable income are largely explained by a strongly negative trend in long real mortgage rates after tax since the mid-1990s. The established view of monetary policy is that it is not able to affect short and long real interest rates in the long run.

In practice, monetary policy has to some extent neglected the price stability objective and led to unnecessarily high unemployment. Against this background, it is remarkable that monetary policy in Sweden nevertheless seems to have been aimed at influencing household indebtedness. Any problems arising from household indebtedness could be better managed by other means than the policy rate, such as mortgage caps and tax regulations, which, unlike monetary policy, are effective in both the short run and long run (Svensson 2012c). The Riksbank’s mandate – price stability and the highest sustainable employment – demands a lower policy rate and policy-rate path I thus believe that monetary policy should be more expansionary than it is at present, that is, the policy rate and the policy-rate path should be lower. The Riksbank’s mandate should, in line with the Sveriges Riksbank Act and its preliminary works, be interpreted as price stability and the highest sustainable employment (Svensson 2012b).5 The highest sustainable employment is in practice the same as the lowest sustainable rate of unemployment. Every monetary-policy decision thus entails setting the repo rate and selecting the repo-rate path that best stabilises inflation around the inflation target and unemployment around a long-run sustainable rate.6  3  Andersson, Palmqvist and Österholm (2012) discuss the Riksbank’s target attainment during a different period, that is a period beginning in 1995 instead of in 1997, which gives an average of 1,5 per cent for CPIinflation in 1995–2011 instead of 1.4 per cent. During 1995–1996, CPI inflation was 1.8 per cent, which increases the average.
That means it is also the best contribution monetary policy can make to combating unemployment. A short-run increase in employment can be obtained by stimulating demand, even if this entails a risk of higher inflation. But this short-term exchange can be risky, as we know not least from the experiences in the 1970s and 1980s I referred to earlier. And just the fear of an unduly expansionary policy that may lead to rising inflation is liable to push interest rates up, leading to weaker growth and employment. For monetary policy it is therefore crucial that confidence in the low-inflation regime is strong. The construction of the inflation target automatically involves some allowance for economic activity. Weaker growth that leads to a capacity surplus normally implies diminishing inflationary pressure from demand. This in turn leaves room for a more expansionary monetary stance: the interest rate is lowered, thereby stimulating demand. Conversely, unduly high demand involves a risk of excessively high capacity utilisation, with upward pressure on prices and wages. To prevent this, the monetary stance has to be tightened by raising the interest rate. In this way, the Riksbank’s endeavour to fulfil the inflation target normally contributes to economic stabilisation. There are, however, situations in which this relationship does not apply. One case is when inflation is being driven from the supply side, for example because an isolated oil price rise is pushing prices up. There may then be grounds for accepting a temporary increase in the price level instead of acting swiftly to push inflation down.

What we observed before the crisis, and what we became painfully aware of when it erupted was, however, that public and private agents in some countries did not change their behaviour, that financial markets did not play any disciplining role and that the loose application of the Stability and Growth Pact and the Broad Economic Policy Guidelines rendered them ineffective as stabilisation devices. The Pact and the Guidelines were not strong enough to prevent the accumulation of a series of imbalances. We also discovered two other gaps during the crisis: too little attention had been paid to how financial markets work within a monetary union and no crisis management mechanism was available. To be stable, the European building needed operational repairs. The stability principles, as conceived in Maastricht, were insufficient and a new culture of stability had to take over. The ECB acted on several occasions to curb the so-called “tail risks” – the risk of the monetary union breaking up – and to gain the time needed for others’ actions to bear fruit. It is worth noting, however, that monetary action can hardly go beyond this as the cracks detected in the building were not of a monetary nature. At the Member State level, fiscal consolidation policies and structural reforms were needed and are being implemented to better accommodate domestic behaviour to the patterns of stability required within a Monetary Union. As for euro area governance, a deep process of reform has been undertaken.
In my regular visits, I have criss-crossed the Province and come to realise how important is the business community as the agent of change and reconciliation. It is a challenge to which you continue to rise with spirit and determination. And it is why I enjoy coming here to meet with you, to learn about your progress, and to appreciate the extraordinary beauty of the Province. I am conscious that there are significant differences between the economies of Northern Ireland and the rest of the United Kingdom. Tonight, however, I want to focus mainly on the economic outlook for the United Kingdom as a whole. What are the Bank of England’s diagnosis, prescription and prognosis for the UK economy? At one level, the diagnosis is self-evident. Growth has been much weaker than most commentators expected. In fact, according to the official figures, there has been barely any growth at all over the past 2½ years. Unemployment, at a rate of almost 8%, is markedly higher than the level of around 5½% before the crisis. And inflation, despite its fall over the past fifteen months from over 5% to around 2½%, remains above our 2% target. Living standards have been squeezed for longer than at any time in living memory.

But, as the President of the European Central Bank, Mario Draghi, has said on many occasions, only politicians can produce lasting solutions to the problems facing the euro area, whether by restoring competitiveness to the periphery or creating a framework for a transfer union. The euro area illustrates a major problem for the world economy as a whole – the need to rebalance domestic demand away from countries with trade deficits to those with trade surpluses. Without that, an increasing number of countries are coming to the view that only a lower real exchange rate will provide the stimulus to demand that their economies require. Several have taken action to achieve that end. That is a recipe for competitive depreciations, what some have called “currency wars”. Yet the existing configuration of exchange rates is unlikely to deliver stability. For almost two decades the world has struggled with, but failed to resolve, this problem. So it is hard to be optimistic about how easy it will be to manage the resulting tensions. The fall in our own exchange rate, of some 25% between late 2007 and the beginning of 2009, has reduced the gap between our exports and imports in real terms from around 3½% of GDP to around 1½%. But the persistence of the current account deficit is evidence that an adjustment of sterling of that order was certainly necessary for a full rebalancing of our economy.
So let me conclude by mentioning some other changes in fields where retailing is not directly involved. Other changes: Securities  BIS Review 41/1997  -6-  The countries in the euro area may, and should, denominate new sovereign issues in euro. A country wishing to convert its outstanding debt into euro will be allowed to do this, too. We can also pass national laws enabling, for instance, the Stockholm Stock Exchange, OM and the Securities Register Centre (VPC) to switch to euro right from 1999. Many institutions and agents are in favour of this. The above institutions as well as participants in the Swedish securities market, banks, financial institutions and others unanimously recommend a big-bang solution - a quick, concerted changeover from kronor to euro right from the beginning of 1999. With a single monetary policy and no exchange risk, the only factor behind interest rate differentials for sovereign securities will be the credit risk. The market for Swedish government paper will be more or less integrated with the euro market for government securities. Given a reasonably similar debt situation, government bonds issued by different countries can then be handled in a similar way. Banks. During 1996 the banks have worked on strategies and routines for changing over to euro. It has been agreed that during the changeover period banks, the postal giro, the bankgiro and the private giro will handle kronor as well as euro.

All those concerned must of course also solve any problems they encounter as a consequence of EMU. For the Riksbank, a highly important task in Sweden's preparations is information about and consultations with the financial sector on matters to do with the changeover. To this end we have formed a consultative group (SIFS) and five sub-groups to work on the practical preparations together with the financial sector. This collaboration has led us to conclude that the financial sector can cope with a changeover to euro on 1st January 1999. We also consider that in some respects joining later would make the preparations more difficult. The worst alternative would be a long period of uncertainty about our participation, what we usually call a "soft no". Costly double systems would then be required in several areas. We have also observed concern in the financial sector that staying outside the euro area would entail increased costs, competitive disadvantages and risk various forms of discrimination. "Wait-and-see" may be less attractive A common opinion at present seems to be that a soft no is not unlikely and would not involve appreciably higher economic costs than participation from the start. Deferring participation for some years would not exclude us from the euro area for good. In our cooperation with the financial sector, however, we have seen that uncertainty about participation is causing many financial agents to make preparations for handling euro as well as kronor.
I anticipate that, over the next few years, the geographical area under our remit will expand and that the number of directly and indirectly supervised banks will continue to grow. On the one hand, further countries will join the euro area. On the other hand, the regime of “close cooperation” gives EU Member  BIS central bankers’ speeches  1  States who do not yet have the euro as their currency a chance to participate in the banking union. When this option was introduced into the SSM Regulation, sceptics thought it unlikely that a Member State would exchange its exclusive supervisory competences for membership of the supervisory mechanism. Developments over the last few months have shown, however, that the ECB has significantly more to offer than just a seat on the Supervisory Board. The ECB enjoys trust and credibility – valuable assets for both monetary policy and banking supervision alike. Credibility, however, has to be earned anew each day. In this respect, the ECB’s monetary policy can already look back on a solid track record. In the area of banking supervision, we stand at the very beginning. But that does not mean that we will only start to find our way on 4 November. For many months now, my colleagues and I have been working to determine, among other things, the focus of our supervisory approach, both conceptually and thematically. The critical issues are: how can the ECB reap the intrinsic benefits of supervising 19 national banking systems?

That is of course just one example, among many, of how we are drawing on the various approaches to establish what is “best practice” as the basis for our supervisory activity. This process will not be completed by 4 November, but will rather be further refined over the coming years. Horizontal analyses and a level playing field Another considerable advantage of European banking supervision will be the possibility to draw comparisons across European countries and to establish a level playing field. The banking sectors of many European countries are dominated by a few large banks. The national supervisory bodies were therefore faced with the problem of having to assess circumstances on the basis of just one bank, or on that of a very small group of banks. I am not just thinking of the assessment of specific portfolios here, but also of the early identification of risks, which only become visible, or are at least easier to identify, in horizontal analysis. Although international working groups and the European Banking Authority (EBA) have addressed this problem, it is only with the establishment of the SSM that a quantum leap forward can be made. The SSM is able to draw on detailed supervisory information from across the euro area and prepare comparative analyses. And I am using the present tense here on purpose. With the ongoing comprehensive assessment, we are already active at the European level.
So had you told me then that 40 years later inflation would be around 1% having hovered around ½% for two years, that Bank Rate would be ¼%, having been stuck at ½% for eight years, I might well have replied that this was as likely as my being invited back here in 2016, to give a speech on economics. (I might also have looked to see what you had been drinking or perhaps smoking.) There are perhaps two lessons in this. The first is that life and the economy never quite turn out as you forecast – in the longer term at least. The second is that in life and in economics you should never stop learning. I want to talk today about some of the possible reasons why Bank Rate is at ¼% and has been stuck at what appears, by reference to history, to be exceptionally low levels in the UK and in other advanced economies. And why long-term interest rates are similarly low. In 1976, you would have had to pay 11% to borrow for a year whereas the long-term rate was 16%. Today, the equivalent figures are ¼% and 2½%. 1  Some of the difference, of course, is inflation and the inflation expectations I and everyone else had back in 1976. Bringing inflation under control in the UK in the 1990s and anchoring inflation expectations at around 2% clearly led to a material drop in nominal interest rates and a drop in the entire nominal yield curve.

But while central banks need to be mindful of the possible side-effects of their policies, I would caution against requiring them to make more granular distributional judgments. Low and stable inflation and smoothing output volatility are public goods that benefit all; technocratic central bankers should use the tools available to them to achieve that public good and avoid as far as possible taking views on distribution. Distributional considerations and decisions should remain the province of elected authorities that have many instruments to address these issues. 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  I have discussed some of the policy implications of a low natural rate for central banks generally. In the UK, of course, Bank policy is now focused on assessing and, where necessary addressing, the implications for the economy over our policy horizon – the next two to three years – of the UK’s forthcoming exit from the European Union. I don’t need to say too much about this today. The minutes of the MPC’s November meeting and the November Inflation Report give a detailed picture about the Committee’s current forecast and policy stance to which I fully subscribe. But there is one point that is relevant to the analysis I have just laid out on the natural rate. As I said earlier, the policy rate may need to depart from the natural rate if the policymaker is faced with a shock that creates a tradeoff – for example between bringing inflation to target and smoothing output volatility.
The Bank of Albania asserts that the financial markets and agents have sound and liquid balance sheets, but they continue to be risk averse into undertaking long-term investments. In conclusion, the Supervisory Council decided that the actual monetary policy stance is appropriate and decided to keep the key interest rate unchanged at 2.0%. The new information analysed at the meeting does not change our evaluations for the current situation of the economy and financial markets, and expectations for their outlook. The current monetary conditions are adequate for ensuring the return of inflation to our 3.0 % target in the medium term. Judging from the expected developments and the balance of risks surrounding them, the Supervisory Council deems that the monetary policy of the Bank of Albania will continue to maintain its stimulating nature, for some quarters ahead. 2  BIS central bankers’ speeches

We use weights based on the American Community Survey to construct summary statistics for our public releases. The survey consists of a core monthly module on expectations about macroeconomic and household-level variables and an additional quarterly module that allows us to address special topics. Our core module contains questions about survey respondents’ expectations for inflation, wage growth, home prices, various commodities, household income and spending, taxes, government debt, credit access, and job search. So far, quarterly modules have included questions on housing and employment, work history, job search, retirement, financial literacy, consumption and savings behavior, student loans, and various field experiments. These quarterly modules are developed by Federal Reserve staff in collaboration with academic consultants and the Nielsen team. First, however, new questions are evaluated using cognitive interviews, and every new module is pilot-tested before being put into the field. The Bank began publishing the results of the Survey in January 2014, after having fielded the Survey since December 2012. We introduced it through a series of posts on our Liberty Street Economics blog; eventually, after a suitable embargo period, we plan to release to the public all the micro data from the Survey. Approach to and benefits of eliciting probabilistic beliefs As I mentioned earlier, an important innovation of our Survey is that, in addition to asking the respondent for a point forecast, it uses probabilistic questions to elicit a respondent’s density forecast.
So the technologies that support money in the UK are central to our purpose and we need to assess how changes in those technologies – physical, legal, institutional (public and private) will affect that purpose. Against that background, I want to pick up two changes in the technologies supporting our money. I am not referring here to Bitcoin or crypto-currencies, on which so much ink (physical and virtual) has been expended recently. I want rather to talk about two related developments that are actually happening or about to happen. The first is the growing use of non-cash technologies for small value payments. And the second is the change to the way we manage and use our payment accounts at banks, the form in which most of us hold our money. As I noted, some £ 20%, of the money in the UK is issued by the public sector. A very small amount of this, by value, comprises the coins issued by the Royal Mint. The rest is Bank of England money. Bank of England money is used at the extreme ends of the payments hierarchy – for the very largest and for the very smallest transactions. At the top end, the very large payments that private banks make to settle their claims on each other must be made in ‘Bank of England’ money by transfers between the banks’ reserve accounts at the Bank of England. This happens over an electronic payment system, the Real Time Gross Settlement (RTGS) system operated by the Bank of England.

Or should they stay their hand, in the expectation that what appears to be structural unemployment might actually be cyclical? This is the debate that I would like to enter into today, from the perspective of the euro area – that is, to ask whether we have indeed seen significant hysteresis effects, and whether this warrants changing how we think about our monetary policy decisions. My tentative answer today is that we have not yet seen hysteresis in its typical form – we have seen scratches, not scars. And though this more subtle type of hysteresis may warrant policy accommodation over a longer period, this is solely with the aim of achieving our price stability mandate, not preventing a rise in structural unemployment per se. Indeed, if those two aims were ever in conflict, our choice would be absolutely clear. Evidence of hysteresis in the euro area Let me start with a chart similar to the one Larry Summers showed for the US economy in his seminal 2014 speech.2 You can see that the level of potential output in the euro area today is much lower than what we had expected before the outbreak of the crisis, assuming it would have continued to grow at its 2007 growth rate. By this measure, the output gap has largely closed – not because the economy has been doing so well but because potential GDP has been revised significantly. These effects have been taken by many as evidence for hysteresis.3 But the discussion is arguably more complex than this.