samchain/econo-pairs-v1 huggingface dataset:
This seems especially germane in the current environment in which very low longterm government bond yields in Europe and Japan appear to have been an important factor in pulling U.S. long-term yields lower over the past year or so. •  Given the uncertainties about the current and future levels of the equilibrium real short-term rate, an inertial policy rule may lead to better outcomes. As a consequence, the process of normalization of monetary policy should proceed cautiously, with short-term interest rates more likely to rise only gradually toward the equilibrium real short-term rate. BIS central bankers’ speeches  1  That said, I think the paper leaves some open questions worthy of further exploration. First, although the equilibrium real short-term interest rate, which I will refer to as r*, is only loosely related to real potential GDP growth, could we do better if we were to decompose real potential GDP into its components – such as the growth rates of labor input and productivity – and examine the relationship between r* and each component separately? Second, accepting the principle that an inertial monetary policy rule performs better as uncertainty about the level of the equilibrium real short-term rate increases, what does this imply for monetary policy under current circumstances? Third, in light of the evidence on the volatility of the equilibrium real short-term rate, what are the implications of adopting a Taylor-type rule as a benchmark for monetary policy evaluation?

I will argue that in the U.S. context, a Taylor-type rule – even an inertial one – is an incomplete guide for policy because it does not explicitly include financial variables that are important factors in the transmission of monetary policy to the real economy. Finally, I will briefly comment on the issue of secular stagnation and my views on the long-term equilibrium real federal funds rate. Turning to the first issue of the relationship between real potential GDP growth and the equilibrium real short-term interest rate, the authors find, at best, only a very loose relationship. I would have welcomed some further work here, more closely focused on the components of real potential GDP growth – such as labor input and productivity – and their potential links to the level and dynamics of the equilibrium real short-term rate. First, I would look more closely at the demographic factors that influence the amount of labor input. In my view, it seems plausible that when the labor force is rising rapidly, this might put upward pressure on r* by increasing the demand for capital needed to equip the new army of workers. This might have been particularly relevant during the late 1970s when the labor supply in the U.S. was rising rapidly due to the influx of the baby boom generation into the workforce and the climb in female participation rates. Second, the equilibrium real short-term rate might be influenced by the productivity growth rate.
For that reason, they became relevant for our monetary policy. 2  BIS central bankers’ speeches  The role of domestic inflation These global factors, however, have by no means been the only force driving disinflation in the euro area. If we decompose inflation in the euro area and the United States, a striking difference is that, at least until the start of this year, domestic factors explain a much more important part of our disinflationary trend (Figure 3). This stronger role for domestic forces in the euro area has contributed to core inflation diverging from some other advanced economies. It has hovered consistently around 1% since mid-2013 (Figure 4). The ECB’s objective is headline inflation, and there are good reasons for this, not least to keep purchasing power stable. Headline inflation is also a better predictor of short-term inflation developments. But core inflation has to be taken into account because it is more closely linked to medium-term inflation trends. In fact, ECB staff analysis shows that core inflation is a better predictor of medium-term headline inflation than headline itself. Persistently low core inflation is therefore a risk to our mandate. So why have domestic factors affected inflation more in the euro area? The main reason is that, from 2011 onwards, the euro area experienced a sovereign debt crisis and a double-dip recession, while other advanced economies recovered (Figure 5). That led to a very prolonged downturn, which was associated with a decline in employment, depressed wage growth, and low business and consumer confidence.

Measures of global economic slack are good predictors of national inflation in advanced countries, as shown empirically e.g. by C. Borio and A. Filardo (2007), “Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation” BIS WP no. 227; and in New Keynesian open economy models e.g. by R. Clarida, J. Gali, and M. Gertler, (2002) “A Simple Framework for International Monetary Policy Analysis,” Journal of Monetary Economics 49: 879–904. BIS central bankers’ speeches  1  driving disinflation, and a notable increase in global shocks. Those global shocks are, however, overwhelming associated with oil and commodity price falls (Figure 1). As is well-known, global factors linked to oil and commodities should not, in principle, have any effect on price stability over the medium-term. They may have a lasting impact on the price level, but not on the rate of change of prices. All things being equal, lower prices for oil should, over time, lead to higher prices elsewhere as disposable income increases and overall demand from consumption and investment rises. In light of this, central banks typically choose to “look through” such global forces until their effect on inflation fades out or until prices reverse. As oil and commodity prices swings have opposing effects on output and inflation, monetary policy usually does not want to overreact and reinforce the effect on growth, in either direction.
Exploiting the new market opportunities takes time because institutional structures and  BIS Review 16/2006  1  operating practices need to be adapted. Some of the funds Malta is getting from the EU are being used precisely to strengthen the economy’s export potential. At the same time, it is also true that the EU economy did not grow as rapidly as anticipated in 2005. It expanded by 1.6 per cent, compared with 2.3 per cent in 2004. A higher proportion than ever of consumer demand, moreover, was satisfied by imports from more competitive producers at the expense of established suppliers. Finally, as I have already observed, the persistence of sluggish growth in the Maltese economy cannot be explained exclusively in terms of a cyclical downturn. Delays in implementing effective competitiveness-enhancing reforms were also a factor. As a result, the economy was not fully prepared to exploit the single market. 3. In these circumstances, isn’t this the worst time to be strait-jacketed by the conditions for euro adoption? Wouldn’t a fiscal boost speed up economic growth, now that your already limited monetary policy tools have been put in the shed? Allow me first to correct two misconceptions implicit in your second question. For a start, our monetary policy tools have not been put away but are available for use if needed, as was the case in April last year when the Bank’s central intervention rate was raised by 25 basis points.

And that kind of investment tends to go to countries with sound economic fundamentals, including a budget that is balanced over the course of the business cycle. More immediately, if we renege on the Convergence Programme targets, there would be a real risk of a drop in investor confidence. This is confirmed by recent developments in interest rates and in bond markets in central Europe, where markets have started to punish countries who risk delaying euro  2  BIS Review 16/2006  adoption. It is indeed relevant to point out that Malta’s current ‘A’ rating is predicated upon the continued pursuit of fiscal consolidation. There is an additional short-term gain from staying on course. As I have mentioned, fiscal restraint also helps to reduce the country’s external imbalance, and this, in turn, could allow a cut in the interest premium that investors require in order to hold Maltese lira assets. This would mean lower interest rates. On balance, therefore, the outcome of a u-turn on fiscal policy is unlikely to be positive. 4. Last year’s entry in ERM II has been described as hasty and premature. Why the rush to join the euro? Does it not rule out any possible adjustments to the value of the lira? One of the arguments made in support of this view is that our euro adoption calendar does not allow government to run a higher deficit and thus promote faster growth. I have just explained why I am not convinced by this argument.
While these developments are likely to further reinforce the strong intra-regional trade and investment linkages that are already in place, a key aspect of the increased financial integration in Asia is the need for more efficient intermediation of funds within the region. This includes the mobilizing and channeling of some part of the sizeable savings in Asia to productive investments. The average savings rate in Asia is 35% of GDP and Asia as a group has a total of about USD5 trillion in foreign reserves. Even if we invest 1% of this amount, the impact would be significant. With further liberalisation of the financial sector and the capital account, and the increased linkages of the national payment systems in Asia, financial flows within the region is envisaged to increase. This trend is reinforced by the increased presence of regional institutions in the individual countries’ domestic financial systems and Asia’ s favourable economic prospects and the increasingly more developed and sophisticated financial markets. This region has already experienced an increase in intra-Asian financial flows. One should expect that given the uneven growth paths across economies in the next few years, issuances out of the emerging economies, in particular Asia, will also likely assume greater importance as an asset class. The greater variety of asset classes would contribute to the stability of the international financial system. It will also provide a wider range of options for investors and borrowers and thus, contribute to a more efficient allocation of financial resources across borders.

Muhammad bin Ibrahim: Pilot platform for cross-border investment and settlement of debt securities Remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the press conference for the launch of the pilot platform for cross-border investment and settlement of debt securities, jointly with the Hong Kong Monetary Authority and Euroclear Bank, Hong Kong, 13 March 2012. *  *  *  The world as we know is changing. Many aspects of how the global financial landscape will change have been discussed. One key area of focus has been the uneven growth momentum across the world, which is expected to persist for some time, and this development will have an impact on the trends and direction of the flows of trade and capital across the world. In essence, the nature of trade and capital flows will be significantly different from what we have experienced in the past decades; gross capital flows from across the globe between the east and the west, the north and the south, will be larger in size and more robust, going forward. These developments may pose risk in particular, to open economies like Malaysia and Hong Kong. A key safeguard to manage the risks that may arise from this transformation would be by strengthening our financial systems, to further develop the capital markets and to strengthen the regulatory and supervisory frameworks. In the Asian region, accentuating this global transformation are the rapid regional economic and financial integration and the expansion of domestic demand.
To achieve this, we will not hesitate to deploy our full range of actions and expertise, a range that we have enriched by recognising the importance of experimenting with the ecosystem. 4/4  BIS central bankers' speeches

Moreover, because it takes time for  2  For example, see Alan Blinder, “The Mystery of Declining Productivity Growth,” Wall Street Journal, May 14, 2015. BIS central bankers’ speeches  3  technological advances to be adopted broadly throughout the economy, it seems unlikely that the productivity gains from recent innovations have yet been fully realized. Because I am uncertain about the near-term trends of GDP growth and productivity growth, I am also uncertain about whether we will see further progress in the labor market over the remainder of the year. There are many possible outcomes to consider. For example, if real GDP growth were to pick up more than productivity growth, then employment growth would likely remain sufficiently firm to lead to further tightening of the U.S. labor market. But, if the reverse occurs, then payroll gains could slow even as GDP growth strengthens. In contrast to my uncertainties about growth and the labor market, I am becoming more confident that inflation will return to our 2 percent objective over the medium term, as long as the labor market continues to improve – an important caveat. The reasons here are straightforward. First, a number of factors that threaten to keep inflation below our 2 percent objective appear to be transitory. In this camp, I put the sharp decline in oil and gasoline prices that began in mid-2014, and the weakness we have seen in nonpetroleum import prices due to the strength in the dollar.
Consequently, a higher share of SMEs than of large firms said that their profits had deteriorated in the first half of the year. Given the economic situation, it may come as no surprise that a limited share of euro area SMEs (10%) also reported a deterioration in their own capital (the share of large firms reporting a decline was lower). These developments certainly had an impact on the response to applications for bank loans and, more generally, on the availability of bank loans to euro area firms in the first half of 2009. Notwithstanding the deterioration in the economic situation, the majority of SMEs report that they were successful in applying for a bank loan in the first half of 2009 (see Chart 8). This is one of the main findings of the survey. It provides a very useful overall picture of bank loan supply and helps to answer the question of whether SMEs experienced financing constraints in the first half of 2009. In the period under review, 60% of the SMEs that had applied for a bank loan received the full amount they had requested. An additional 17% said they had received at least part of the amount requested, so that 77% of SMEs received either all or part of the requested bank loan. By contrast, 12% of SMEs had their bank loan application rejected. Unfortunately, we are not yet in a position to compare these results over time to assess whether these shares are high or low.

Third, the estimates of the natural level of output at the end of 2022 are much lower than predicted before the pandemic. The current HLW estimates of r-star in the United States are shown in Figure 3. For comparison, the figure also shows estimates using a version of the model that is not adjusted to take into account COVID or outliers and holds the parameter values fixed at estimates using data through the end of 2019. The two sets of estimates are very similar through 2019. They differ sharply during the acute period of the pandemic, however, when the estimates from the unmodified model exhibit large swings due to the presence of sizeable outliers. Interestingly, the two estimates are very close to each other at the end of the sample. That is, the modifications to the model do not interfere with "letting the data speak." A Modest Imprint Based on the new r-star estimates for Canada, the Euro Area, and the United States, we see no signs of a significant reversal of the decline in r-star estimates evident in prior decades.13 In fact, in all three economies, the r-star estimates in 2022 are within twotenths of a percentage point of the corresponding estimate in 2019. The largest differences between model estimates pre- and post-pandemic relate to the level of each economy's potential output. Figure 4 compares the model's measure of the natural level of output based on estimates using data through the fourth quarter of 2019 (the blue line) to current estimates.
The weighted average yield on 10-year euro-area sovereign debt is similar to that in the UK, at close to 1%. And yet, the euro area’s fiscal deficit is half that in the UK. Its structural deficit, according to the IMF, is around one third as large. It is difficult to avoid the conclusion that, if the euro zone were a country, fiscal policy would be substantially more supportive. 15 See Blanchard, O. and Milesi-Ferretti, G.M. (2011), ibid. 16 The macro policies included in the IMF’s analysis are fiscal, credit, foreign exchange reserves, the social safety net (proxied by spending on health) and capital controls. For Germany, for example, the IMF estimate that only 0.6pp of the assessed 4.8% excess current account surplus is due to an overly tight domestic policy mix relative to other countries and a further 0.8pp is accounted for by the policy mix being too loose elsewhere. In China, the IMF analysis indicates a tightening of domestic policies is needed, which would increase the current account surplus rather than reduce it. For more detail, see the IMF’s 2016 External Sector Report, available at https://www.imf.org/external/np/pp/eng/2016/072716.pdf. 17 See the IMF 2016 External Sector Report, available at https://www.imf.org/external/np/pp/eng/2016/072716.pdf. 13  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Chart 4: Excess current account balances and policy gaps in 2015  Source: IMF July 2016 External Sector Report. Notes: The countries labelled in the chart are China (CN), Germany (DE), Japan (JP), the United Kingdom (UK) and the United States of America (US).

The negative interest rate and our willingness to intervene in the foreign exchange market as necessary remain essential. In so doing, we are keeping the attractiveness of Swiss franc investments low and reducing upward pressure on our currency. Page 1/4  Berne, 13 December 2018 Thomas Jordan  News conference  The new conditional inflation forecast for the coming quarters is lower than it was in September. This is mainly due to the drop in oil prices. The medium-term inflation forecast is also slightly lower owing to more moderate growth prospects. For the current year, we continue to anticipate inflation of 0.9%. For 2019, we have revised our forecast down from 0.8% to 0.5%. For 2020, we expect inflation of 1.0%, compared with the previous forecast of 1.2%. The conditional inflation forecast is based on the assumption that the three-month Libor remains at –0.75% over the entire forecast horizon. Global economic outlook  I would now like to turn to economic developments abroad, as these have a considerable bearing on the inflation and economic outlook in Switzerland. The global economy is somewhat less robust than it was a few months ago. Although the pace of growth remains strong worldwide, it is no longer quite as pronounced as at the beginning of the year. One reason for this is that the economic recovery is already well advanced in many countries, and momentum is slowing as a result of the high utilisation of production factors. Another reason is that a number of uncertainties are hampering growth.
One could also say that long-term credibility and sustainability are necessary conditions for monetary policy and fiscal policy to be able to provide short-term stimulation. A rather worn but appropriate expression used with regard to fiscal policy is to “save for a rainy day” during good times. We appear to have succeeded in doing so this time. So the second of the three global challenges I listed does not actually apply to Sweden. Better regulatory framework also important for us One cannot rule out the possibility that our previous crisis contributed to some extent to our bank system managing better this time than banks in many other countries. But the Swedish banks’ memories still do not appear to have been terribly long. A couple of them were carried away by the over-optimism in the Baltic countries, and most of them would have faced much larger problems if the Swedish authorities had not intervened so resolutely. On the positive side, they largely avoided securities containing high-risk US mortgages. New share issues and good earnings capacity mean that the Swedish banks now appear well-capitalised from an international perspective. The first challenge – the design of a better regulatory framework and more effective supervision – is of course something to which Sweden is contributing in various ways. Our own financial markets and banks coped relatively well on this occasion, but it is nevertheless clear that we are also hit hard when there is international turmoil.

We also have an expenditure ceiling and a surplus target in the fiscal policy area, which are designed to prevent public finances being undermined or savings having to be made in inappropriate situations. Sweden has been one of the countries in the front line, both in reforming the framework of monetary policy and that of fiscal policy. Many other countries have later made changes similar to the ones we made. It is also worth noting that  4  BIS Review 149/2010  the most recent crisis, and the public finance problems it has entailed, have triggered a new wave of interest in fiscal policy regulation. 3 The stable frameworks for monetary policy and fiscal policy have in many ways functioned as “shock absorbers” in this crisis. Unlike during the previous crisis, economic agents have been able to assume that inflation will be fairly stable and that public finances will remain under control. This creates a security which I believe is particularly valuable during periods like this, when there is considerable uncertainty in general around the world. I imagine, for instance, that households in countries with weak public finances are much more concerned about the future. …and make it easier to stimulate the economy The stable frameworks have also made it easier to stimulate the economy strongly during the crisis without anyone questioning the credibility of the inflation target or the sustainability of our public finances.