samchain/econo-pairs-v1 huggingface dataset:
In all, the domestic economy seems to have adjusted well to the greater risks and challenges that have emerged. The pace of growth has moderated from last year’s but the overall growth momentum still looks firm and economic stability remains sound. The key issue going forward is the risk posed by the higher oil prices to the outlook on domestic growth and inflation. And under a more pessimistic scenario, an important question is how resilient is the domestic economy to absorb a much larger shock, this is to say persistently higher oil prices. In the meeting of the Monetary Policy Committee last Wednesday, members of the Monetary Policy Committee spent considerable time discussing this type of questions based an preliminary analyses prepared by our staffs at the Bank of Thailand. While the numbers are still preliminary, the results seem to suggest a greater trade-off between growth and inflation going forward. In particular, higher oil prices will adversely affect both growth and inflation, but the effects on inflation is projected to be more pronounced because of the pent-up pressure on prices as mentioned earlier. Reflecting this, the Committee felt that the risks to economic stability have increased with higher oil prices and it is only proper that monetary policy should be vigilant on inflation.

As supervisors we do not think in terms of countries, but of banks’ business and risk profiles. Each bank operates differently and therefore has to face different problems; it would be unwise not to see them individually. BIS central bankers’ speeches  3
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, 1 July 2013. *  *  *  The Monetary Policy Report of June 2013 and the Financial Stability Report of the first half of 2013 can be found at http://www.bcentral.cl. Introduction Mr. President of the Senate’s Finance Commission, Senator Andrés Zaldívar, senators members of this Commission, ladies and gentlemen, I appreciate your invitation to present our Board’s vision on recent macroeconomic and financial developments, their prospects and implications for monetary and financial policy. This vision is contained in detail in our Monetary Policy Report of June 2013 and our Financial Stability Report of the first half of 2013. The macroeconomic scenario facing the Chilean economy has undergone significant changes in recent months. Output and demand decelerated and, although some moderation in their growth rates was expected and desirable, the first quarter brought a sharper adjustment than had been anticipated. On the external front, there have been significant developments in the composition of global growth, the trajectory of commodity prices and the evolution of global financial markets. From a medium-term perspective, recent developments point to a healthy normalization of the unusual international conditions that have prevailed for some years now, and their effects on our local economy.

However, we cannot rule out that more serious events can occur with more severe and longer-lasting effects on global markets, in light of their renewed political difficulties to implement fundamental structural reforms, and where the banking sectors are still dealing with deteriorating portfolios due to slow economic activity. Another risk coming from abroad has to do with how the conventional and unconventional measures of monetary stimulus will ultimately be withdrawn in the United States. Having no history in this creates uncertainty in the markets, mainly about the financial effects it might have. There may be an overreaction of the markets, with increased stress and sharp rises in long-term interest rates. The rising cost of financing this would entail for emerging markets and some Eurozone economies more dependent on external financing, would pose important policy challenges for them. In Chile, this could lead to increases in both the cost of external financing of companies and banks and higher long-term interest rates domestically. As emphasized in our Financial Stability Report, it is important for banks in this context to keep the exposure of their balance sheets at bay. In any case, the U.S. monetary authorities have argued that if confronted with an unwanted reaction the process could be delayed or even reversed to some extent, so it is possible for the effects of the withdrawal to be fairly limited.
While risk has a long tradition of being measured, especially in the field of finance, inferring its magnitude from the behavior of asset prices, uncertainty, being it a broader concept, has been more difficult to quantify. However, with the increased use of qualitative analysis, Big Data and Artificial Intelligence, in recent years there have been important advances in this area, which have been factored into the statistical and analytical work of the CBC. Thus, the CBC has been using two indicators that, following international methodologies, seek to capture the degree of uncertainty related to economic decisions. Basically, these indicators measure the degree of attention on Twitter regarding economic issues, economic policies, the economic climate, or uncertainty regarding economic events. The underlying premise is that the more discussion and attention there is on a topic, the greater the dispersion of opinions and uncertainty about it. An analysis from 2012 onwards shows that these indicators tend to closely follow national and international events that presumably signify jumps of uncertainty. Examples are the recent United States elections, the Brexit referendum, international trade conflicts, the onset of the social crisis in October 2019 and the Covid-19 crisis playing out since March 2020. Page 11 of 27  The concept of uncertainty, due to the intrinsic difficulty of measuring it—especially at the micro level—is difficult to operationalize in specific economic decisions.

This will lead to a significant overshoot of the structural deficit planned for the year, which the government would formalize by invoking an “exit clause” from the committed fiscal targets. Although new official projections are not yet available, it seems clear that, despite  Page 2 of 27  the improved outlook for activity, this year’s fiscal impulse will not only exceed the forecast but will be significantly higher than in 2020. Despite the recovery of activity and the extension of fiscal packages, the overall economic sentiment worsened in recent months, with consumer expectations still in pessimistic ground. This could be explained by factors such as the evolution of infections and quarantines, and the heterogeneity observed in the recovery. About the latter, it stands out that the performance of part of services, construction and passenger transportation sectors is still not matching pre-pandemic levels, a milestone that trade and manufacturing achieved six months ago or before. Add to this the aforementioned heterogeneity in the labor market (Figure 6). Differences are observed in the case of business expectations, with smaller firms and hardest-hit sectors lagging behind in the recovery. The Business Perceptions Report (IPN) for May reported that smaller companies were the worst affected by the quarantines in March and April. In addition, the IPN noted that a significant percentage of companies were having second thoughts about their investment plans for this year or had simply decided to shelve them altogether. Uncertainty indicators remain high and well above those prior to the social crisis.
CPI and PPI core inflation rates remain contained and wage growth is moderate, both in the U.S. as well as in Europe. Moreover, despite near-record global economic growth in 2004, there are substantial unutilized capacities in the U.S., Japan, and Europe. As a result, despite record oil prices a few weeks ago, global inflation expectations appear to be well anchored. The growth outlook for Switzerland remains constructive, supported by an expansionary monetary policy stance. The rise in oil prices has, however, dampened domestic demand. Weakness in Germany and, more recently, in France are exacerbating the situation. Economic growth is unlikely to accelerate into 2005. Upward pressure on the exchange rate may exert additional unwelcome downward pressure on aggregate demand. Some slack in Swiss labor and product markets is likely to prevail. The output gap will close in 2006 at the earliest. In such an environment, it will take time for the unemployment rate to decline from the current 3.7%. Real wage growth is well contained with growth rates fluctuating around 1% per year since 2001. Core inflation rates remain moderate at around 1%. Despite substantially higher oil price related CPI and PPI inflation since August of this year, longer-term inflation expectations remain firmly anchored as swap spreads and consensus  4  BIS Review 69/2004  forecasts confirm. The growth rates of Swiss monetary aggregates and the development of credit confirm the overall picture of a moderate inflation outlook.

2  For a survey on the literature on speculators and their impact on price developments in the oil market, see Weiner, R, (2002): “Sheep in wolves’ clothing? Speculators and price volatility in petroleum futures”, Quarterly Review of Economics and Finance, 42 (2), 391-400. 2  BIS Review 69/2004  at 35 USD per barrel for WTI delivery in 5 years (see Figure 7). Moreover, despite the most recent sharp correction in spot prices from 55 to 46 USD per barrel WTI, long-dated futures prices have receded only marginally. Since 2002, prices of oil futures are generally quoted below expected spot prices - a state labeled backwardation. Backwardation implies uncertainty about production and supplies and effectively favors further inventory draw downs (see Figure 8). Price information extracted from the market appears to confirm that at least for the time being, average oil prices are likely to remain elevated compared to historical price ranges. Forecasting market prices is an inherently difficult endeavor. Immense uncertainties on the supply side make oil price forecasts particularly challenging. Reserve figures can be increased rapidly by the discovery of new oil fields or by exploitation at greater margins due to new technologies. Proven oil reserves in the Middle East, for example, increased from 16 billion barrels in 1944 to 116 billion barrels of meanwhile extracted or still available reserves in 1975.
If actual and expected inflation vary less, this will entail fewer variations in real interest rates and real exchange rates. This may, in turn, allow for the more stable development of demand and, thereby, the real economy. Well-anchored inflation expectations also make it easier for monetary policy to  BIS Review 68/2010  5  stabilise the economy. Unless households and companies immediately adjust their inflation expectations upwards, a minor increase in the interest rate will be enough to prevent an inflationary impulse from becoming entrenched. And when substantial interest rate changes become less necessary, fluctuations in the real economy become less extensive than when inflation expectations are poorly anchored. One way of putting it is that well-anchored inflation expectations make it easier for central banks to take consideration of the real economy. For Sweden’s part, one important explanation for the increased macroeconomic stability is probably also that inflation targeting – together with a more long-term focus for fiscal policy – spelled the end of the uneven “stop-go” policy entailed by the many devaluations of the 1970s and 1980s. Quite simply, the stabilisation policy has shown more orderliness. To sum up, the manner in which monetary policy is conducted across the world has thus changed quite extensively in the last fifteen to twenty years. Within both the central bank world and among academic researchers, a great deal of effort has been expended upon attempting to find a solution for how monetary policy best should be formulated. These efforts have also borne fruit.

A continued recovery requires that this is accompanied by a broad and sustained increase in demand; otherwise the upswing is liable to be relatively brief. In this respect there may still be some uncertainty, mainly perhaps as regards the American economy. The economic imbalances in the United States are still large and stock-market values are high, both historically and in relation to the current cyclical phase. However, high productivity compared with the rest of the world may make these problems less troublesome. Household saving has admittedly become somewhat higher relative to disposable income since the end of last year but the level remains very low compared with earlier years. Unemployment continues to rise. Against this background there are grounds for expecting that growth in the coming years will not be as high as in the late 1990s. But as overall economic policy is expansionary, there should be a successive recovery during the second half-year, though of course there are both upside and downside risks. Turning now to Europe, there do not seem to be any clear signs of a strong recovery. Leading indicators admittedly point to a more positive business mood but the prospects for Germany – the largest economy in the euro area – are still uncertain and unemployment is rising from a high initial level. The euro area has not accumulated imbalances such as those in the United States and this may help to maintain a recovery once it has begun.
On the external side, even though export growth in January is especially robust at 33 per cent, the likelihood of seeing a repeat of spectacular export performance is slimmer this year, as global growth is projected to slow down considerably. In fact, export growth in February has already decelerated to 16 percent. Going forward, the risk factors that can weigh on the ability of the Thai economy to expand will likely come from the US recession and high oil and commodity prices. In an increasingly integrated world, the slowdown in US demand can impact on Thailand’s export prospects. Despite the Fed’s aggressive interest rate cuts and innovative measures to forestall the rise in mortgage interest rates, substantial downside risk remains. Most US watchers agree that the US economy may not be able to avoid a recession; indeed, employment, house price and business confidence data all point to a possibility that it is already in a recession. It’s only a matter of how deep and how long this process will last. But while the US economy weakens substantially with worsening prospects, global price pressure is not letting off. Crude oil prices continue to rise as world oil demand strengthens in the face of limited global production capacity. In this tight demand-supply situation, adverse geopolitical events, unfavorable weather condition or further dollar slide can spike up oil prices. This phenomenon is not new. In fact, continued demand pressure coupled with supply constraint and other uncertainties have led countries to find substitutes to fossil fuel.

So far they have found them in bio-fuels, which in turn put pressure on agriculture commodity prices. Signs of mounting cost-push pressure from oil and commodity prices can be observed in the recent acceleration of domestic headline inflation, which rose above 5 per cent in February. 2  BIS Review 33/2008  Such increase, if continued, can pose risk to the incipient recovery in private consumption as it lowers households’ purchasing power. Rising production and construction costs can also dampen business profit, especially in the face of tight control on final goods prices. Dampened prospects for profits in turn may lead to delays of planned investment. While this downside risk is substantial, there is also an upside. Higher commodity prices strengthen farm income, which tends to benefit a large section of the Thai workforce. Ladies and Gentlemen, The risks to global growth and global inflation have both increased in the near-term. At this point, we cannot be sure how the slowdown of global growth will affect global inflation this year. And even though, from an asset price perspective, there is a positive probability for a correction in oil and commodity prices going forward, we cannot be certain that such correction will be substantial enough to bring the inflation risk down. One thing is more or less certain, however: Global financial interconnectedness almost all but ensures that we should expect higher financial volatility in the near term, as market players alternate between yield-seeking and risk-aversion investment strategies.
Equities however have remained robust with some indices reaching  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  record highs last week, a trend which the Bank’s Financial Policy Committee drew attention to in its July Financial Stability Report. In the UK, the GDP releases for March and April revealed notably stronger growth than we had expected in May, with monthly growth rates of 2.1% and 2.3%. At the time of our June meeting Bank staff had revised up their expectations for 2021 Q2 GDP growth to 5½% on the previous quarter, from 4¼% at the time of the May Report. That would be consistent with output in Q2 being less than 4% below its 2019 Q4 level. The monthly figure of 0.8% growth for May, released last Friday, contained some offsetting downside news. Within that however consumer-facing services continued to grow, with the drag coming from sectors like cars and construction where demand was constrained by supply shortages – a theme I will come back to. The UK labour market has also outperformed our May expectations, with unemployment falling to 4.7% and employment growing 0.3% in the three months to April. That continues a trend of downside surprises to our unemployment forecasts over the past year, even after allowing for the extensions to the furlough schemes. The falls in unemployment have however been accompanied by higher inactivity.

The fact that many people have entered the stock market in a short time is not entirely a good thing. Besides the losses they may incur and thereby run into financial difficulties, there is a risk of the stock market functioning less well because prices bolt from more fundamental levels. An example of this is the IT bubble in recent years. The ease with which firms attract capital in an over-valued market leads to misinvestment which, if it becomes too prevalent, can be harmful for society in general when the economy and the stock market both turn downwards. The behaviour of inexperienced investors is thus a general economic issue. The American study argues that firms, banks and analysts had incentives to talk inexperienced people into investing in new enterprises on grounds that were not entirely sound. Many new technology companies were not generating a profit and had to rely instead on paying for wages and equipment by issuing shares. For this to be feasible, stock markets need to be high. In this sense there were incentives for managements to trim reports and statements about their firm’s future profits. At the same time, analysts and investment banks, with potential earnings from launching share issues, lacked incentives to take a critical look at these reports and statements. Inexperienced investors did not get the assistance and support they needed. As a sign of this, the paper mentioned that in summer 2000 professional analysts were summoned to Washington for a congressional hearing on their market recommendations.
Why has inflation been so low? Let me now go on to address the factors behind the current inflation rate. The gauge that the Riksbank has chosen for its inflation target, the consumer price index (CPI), measures the price of a basket of goods and services for household consumption. On average, the rate of increase of the CPI has been 1.4 per cent1 from 1995, when the inflation target was introduced, through 2004 (Chart 1). The CPI is the broadest index that we use and includes the effect of our interest rate adjustments on mortgage interest expenditure. The fact that average CPI inflation has been so low is due in large measure to the Riksbank’s rate cuts in the mid-1990s, when confidence in the inflation targeting policy increased. In terms of UND1X, which excludes this effect, inflation has averaged 1.8 per cent over the same period. UND1X inflation has in actual fact guided the Riksbank’s monetary policy for a large part of the current period and is thereby also an important inflation measure when evaluating policy. In recent years, however, inflation has been markedly lower. Since May 2003 it has averaged 0.8 per cent according to the CPI. The substantial monetary easing that began at the end of 2002 and continued through 2003 and 2004 has held down households’ interest costs and thereby contributed to the low CPI inflation. But inflation has been below target in terms of UND1X as well; on average it has been 1.2 per cent over the same period.

This is partly because electricity prices rose to record-high levels at the turn of the year 2002-2003 and then fell back somewhat. We judged that to be a temporary effect and predicted that electricity prices would fall back, thus bringing inflation figures down again. For both CPI and UND1X inflation this meant that the change in relation to the  1  Inflation measured according to the method for computing the CPI that was used up to the end of 2004. The analysis in the rest of the discussion is based on the new CPI method, though  2  BIS Review 25/2005  corresponding month a year earlier dropped sharply at the beginning of 2004 – an effect that was partly expected, as I was saying. But excluding energy prices, too, inflation since the beginning of 2003 has been very low, with non-energy UND1X averaging 0.9 per cent. There are many reasons for that, but the most important is unusually low import prices and surprisingly high domestic productivity growth. Allow me now to discuss this in a little more detail. One way to do so is to look at the developments in different components of the CPI. As a first step, the CPI can be broken down into prices of goods and services. I then choose to exclude oil, electricity and mortgage interest, which we already know has contributed to the low CPI inflation. Goods prices (Chart 2) rose weakly in 2003, but since the end of the same year they have been falling.