samchain/econo-pairs-v1 huggingface dataset:
In response to the weaker outlook, the Governing Council took a series of decisions in September this year to ensure that financing conditions remain favourable. It decided to lower the interest rate on the deposit facility to -0.5%, to restart net asset purchases, to strengthen forward guidance on both these tools, to make the conditions on the targeted longer-term refinancing operations (TLTROs) more attractive, and to introduce a new regime of remuneration for excess reserves held by banks with the Eurosystem. These measures work together to keep interest rates at all maturities around levels consistent with very accommodative financing conditions. The ECB’s negative policy rates and forward guidance on their likely future path influence short to medium-term interest rates, which are used by banks to price loans to firms. In parallel, the net purchase of bonds eases medium- to long-term yields, which provide the benchmark for longterm loans to households. The more attractive conditions on the TLTROs help keep bank credit flowing to customers on affordable terms. At the same time, the Governing Council’s decisions in September showed that it was alert to the potential side effects of monetary policy. The new two-tier regime of excess reserve remuneration exempts a share of banks’ liquidity deposited with the Eurosystem from the negative interest rate applied on the deposit facility. This will also ensure that banks remain willing and able to pass on very accommodative financing conditions to the economy.

This calls for us to review our strategy and to consider how our monetary policy can best deliver on our mandate. Indeed, a question that is common to the entire community of central banks today is how to best define the medium-term objective of monetary policy, so as to ensure that expectations are firmly anchored. This could be particularly beneficial in conditions – like today’s – in which the policy space to buffer the economy from adverse developments is more limited than it was prior to the crisis. And, we are all trying to gain a better understanding of how the longer-term trends I mentioned might affect variables we monitor regularly and seek, to some extent, to control. This being said, it is premature to venture here into debates about the precise scope, direction and timeline of our review, as the matter has not yet been discussed thoroughly by the Governing Council. What I can confirm, however, is that the strategy review will be guided by two principles: thorough analysis and an open mind. This will require time for reflection and for wide consultation. The Parliament, and this Committee in particular, have traditionally offered a unique forum for dialogue, which has been enriched by the expert reports prepared ahead of the hearings.4 The ECB greatly benefitted from these debates 16 years ago when it undertook its last strategy review. This time around, we will be seeking a dialogue which is even more intense and productive than in the past.
This implied that capital accumulation was not associated with technological change and hence TFP growth. Indeed, in the catching-up economies capital flowed disproportionately into the non-tradable/services sector, which was in general experiencing significant productivity losses.2 Specifically, capital accumulation was highest in the construction and real estate sectors, closely followed by retail, transport and leisure. There seem to be two explanations why this happened. First, in some sectors the falling marginal product of capital was counterbalanced by rising profit margins, meaning that total compensation from investing in these sectors remained high.3 This was principally the result of an incomplete single market and a lack of competition – for example, in network industries such as utilities and telecommunications – which allowed  2  See European Commission, 2014, “The drivers of total factor productivity in catching-up economies”, in Quarterly Report on the Euro Area, Vol. 13, Issue 1, April 2014. 3  See European Commission, 2013, “Catching-up processes in the euro area”, in Quarterly Report on the Euro Area, Vol. 12, Issue 1, March 2013. 2  BIS central bankers’ speeches  incumbent firms to charge excessive rents and distorted price signals. The capturing of rents by firms in these sectors may have affected productivity growth not only by channelling resources away from more productive uses, but also by creating a drag on incentives to become more efficient in other sectors.

If such losses were still to erode a bank’s capital, the new EU resolution framework will ensure, first, that the costs of bank failure fall mainly on the private sector rather sovereigns, and second, that they are spread evenly across the euro area banking sector rather than concentrated in the affected countries. The relevant innovations here are the minimum requirements for bail-in before sovereign interventions, and the creation of the Single Resolution Fund for all banks that participate in the SSM. That said, in my view achieving high quality financial integration must also involve deepening capital markets in Europe, both to improve the possibilities for market-based debt and equity financing, and to provide further channels for private risk-sharing. This obviously goes beyond Banking Union and will not be straight-forward, as it concerns multiple aspects of national law. But there are practical ways in which progress could be made. To give just one example, a Securities Law Directive has not been proposed to date, although it was already recommended in the second report by the Giovannini Group more than ten years ago (in 2003).22 Managing the financial cycle Facilitating the process of resource reallocation should allow TFP convergence to resume in catching-up economies, while the structural reforms being undertaken in these economies should help ensure that efficient resource allocation lasts. However, there is still one question from the pre-crisis period that I have not addressed: how can we ensure that the  21  Giannetti, M., and S. Ongena, 2009.
Consumers get lower prices and new product varieties, and, over time, benefit from the spur to innovate and higher productivity. Some workers, however, lose their jobs and the dignity of work, or see their “factor prices” – in plain English, wages – equalised downwards. Such dynamics have been recognised by trade theory for over 75 years. xvi  And they are felt by those at  either end of the great convergence. Survey evidence shows that 70% of Chinese workers believe that trade creates jobs and increases wages, equivocal. xvii  US households think the opposite, and UK public opinion is  xviii  People’s attitudes towards trade shocks are being hardened by the effects of accelerating technological innovation. As my colleague Andy Haldane has explained, up to 15 million of the current jobs in Britain could be automated over time. xix  The fundamental challenge is that, alongside its great benefits, every technological revolution mercilessly destroys jobs and livelihoods – and therefore identities – well before the new ones emerge. This was true of the eclipse of agriculture and cottage industry by the industrial revolution, the displacement of manufacturing by the service economy, and now the hollowing out of many of those middle-class services jobs through machine learning and global sourcing. The combination of open markets and technology means that returns in a globalised world amplifies the rewards of the superstar and the lucky. Now may be the time of the famous or fortunate, but what of the frustrated and frightened?

Monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target. Since early November, the sterling exchange rate is up around 6% and market interest rates in three years’ time are up around 30 basis points. Long-term interest rates are back to their pre-referendum levels. Markets also responded strongly to the US election result, with both breakeven inflation and real yields rising. Alongside those market developments, UK indicators suggest continued solid growth, and the pace of fiscal consolidation is now expected to be slower. The MPC will assess these and other developments at its meeting next week as it plots the monetary course ahead. Whatever economic developments and prospects, the MPC will always set monetary policy to maintain price stability and promote the good of the people of the United Kingdom. As it did when it was the only game in town after the global financial crisis; and as it will going forward, in better balance with fiscal and structural policies. Monetary policy will continue its good work as the UK economy adjusts to new opportunities with Europe and the rest of the world. In the end, monetary policy isn’t a spectre but a friendly ghost. 18  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  18  i  Monetarism is the view that the dynamics of money have a temporary influence on demand and, via the celebrated “quantity equation”, a major influence of prices.
At the initial stage of the financial crisis the importance of the macro prudential policies in the overall policy mix was highlighted and therefore, a lot of attention has been put on the monetary and macro prudential policy nexus, conveying the main message that the price stability and financial stability are interconnected. With the appearance of the sovereign debt and banking crisis in the last couple of years in the euro area, it was quite obvious that the poor public finances management could also impose threats to the financial system. The financial instability and weak public finances can potentially have adverse effects on the financial markets, imposing distortions in the monetary policy transmission mechanism, and resulting in serious macroeconomic imbalances. The required policy nexus is becoming a necessary precondition for designing and implementing a sound macroeconomic management. Under situation that was more specific than usual, when the role of traditional instruments was limited, the monetary policy turned to unconventional policy measures. Although the monetary policy in the region has not been constrained by zero lower bound on interest rates, the central banks also turned towards unconventional monetary policy tools, having in mind the potential risks of repeated deterioration of the external imbalances and inflationary pressures or aiming at supporting other objectives (including credit growth).

These timely, coordinated and comprehensive set of measures, were ultimately aimed both at containing the adverse economic impact and at preserving monetary and financial stability, as a precondition for the future recovery of the economy. I believe we got the balance right. So far, Albania managed to avoid both a spike in unemployment and major business failures, despite the financial difficulties they faced. Furthermore, our financial system remains solid, with little volatility across financial markets, low lending rates, a stable exchange rate, and a liquid and well capitalized banking sector. Just as importantly, our stress-tests indicate the banking sector’s resilience to additional shocks. Under these premises, I believe the Albanian economy enjoys sufficient preconditions for a gradual recovery. However, challenges remain. For the remainder of my speech, I would like to briefly share with you our perspective on them. *** Ladies and Gentlemen, While most baseline economic projection scenarios remain positive, it’s clear the ongoing global recovery remains fragile. Policy challenges still present, both in the short and in the mid to long run. The first challenge is to ensure the sustainability of the ongoing recovery and to safeguard it against downside risks, such as potential second lockdown. At the Bank of Albania we believe the overall policy stance should remain accommodative over the foreseeable future. Any policy normalization should be coordinated and data-dependent. A coordinated normalization means an ideal sequencing of macroprudential policy stance first, followed by fiscal and monetary policy later.
(1997), “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets”, European Economic Review 41, pp. 1111–1146 introduced this type of loss function to analyse so-called flexible inflation targeting. However, the behavioural assumption that the loss function (or very similar variations of it) implies, has a long tradition in analyses of monetary policy (for example, Kydland, Finn E. and Edward C. Prescott (1977), “Rules Rather than Discretion: The Inconsistency of Optimal Plans”, Journal of Political Economy 85, 473–491.) 15  One can also calculate the mean value of these deviations, what is known as the mean squared gap. The mean squared gap for inflation and resource utilisation can then be drawn in as points in a figure; see, for instance, the article “A method for assessing different monetary policy alternatives” in the Material for assessing monetary policy 2011, Sveriges Riksbank. 16  See, for example, Apel, Mikael, Per Jansson and Lars Heikensten (2007), “The role of academics in monetary policy: a study of Swedish inflation targeting”, Sveriges Riksbank Economic Review 2007:1, pp. 21–58. 17  The document “Monetary policy in Sweden 2010”, Sveriges Riksbank, summarises the Riksbank’s monetary policy strategy. It is stated there (p. 5) that monetary policy “in addition to stabilising inflation around the inflation target, also strives to stabilise output and employment around long-term sustainable paths”. However, this does not mean that policy needs to be pegged to specific numerical estimates of these paths; see the continued discussion in this speech.

On 6 October, a statement of government policy declared that there was almost total support for the hard currency policy and that the prospects of success were good. We all know what happened. Just over one month later, on 19 November, the Riksbank was forced to give up the fight and the krona was allowed to float, or perhaps I should say sink. As I have understood things with hindsight, there was no clear plan in place as to how monetary policy would be conducted from then on.1 And this was perhaps not so strange – with the exception of a couple of brief periods between the wars, Sweden had had a fixed exchange rate for the past 120 years. So it was probably difficult to think along new lines. The aim also seems to have been that Sweden would return to some form of fixed exchangerate system as soon as possible, and so the idea was to find some way of conducting monetary policy until then. Inflation targeting has worked well, but has been criticised Some countries, New Zealand, Canada and the United Kingdom, had begun to apply a new type of monetary policy known as inflation targeting. This entailed setting a numerical target for inflation, which the central bank then tried to attain by using the policy rate to affect aggregate demand. Sweden also jumped onto this bandwagon and it proved to be a much more enduring solution than most people expected at the time.
26  See for example Bean, C. et al (2011) “Monetary Policy after the Fall”, in Macroeconomic Challenges: The Decade Ahead, Federal Reserve Bank of Kansas City. BIS central bankers’ speeches  9  if there was collateral damage, it could be justified for a period of time to offset the danger of a much larger risk to price, financial and economic stability in the future. When imbalances are regional or sectoral in nature, however, interest rate policy would seem too blunt a tool. We need more surgical instruments, namely an effective macro-prudential policy framework. For example, tools such as loan-to-value ratios or debt-to-income ratios could be used to limit credit misallocation to non-productive sectors, without at the same time harming sectors where capital needs to flow. Conclusion Let me conclude. Real economic convergence supports the cohesion and smooth functioning of monetary union. What I have tried to illustrate today, however, is that there are no shortcuts to achieve it – and least of all by riding the upswing of the financial cycle. As Hyman Minsky demonstrated, what goes up must sadly come down. One way to begin a more sustainable convergence process, in the near term, is through reallocating resources where they are most productive. But the challenge for euro area countries does not stop there. Raising productivity is a complex process that reaches across the economy and into many different policy domains, be they education, judicial systems or administrative capacity.

The majority of countries with relatively strong GDP growth rates prior to the crisis also experienced a relatively strong downward adjustment, in some cases undoing much of the welfare gains that were achieved since the launch of the euro. Some might see this as evidence that the assumptions of the neoclassical growth model need to be qualified – that absent credit-driven growth, there is no reason to believe that euro area economies should converge towards similar levels of productivity, or even rates of productivity growth.12 Indeed, endogenous growth models allow for persistent divergences as some forms of capital exhibit non-diminishing returns. Yet, I think it is too early to draw such a conclusion. The neo-classical assumptions have not yet been properly tested, simply because capital did not flow where the marginal return would have been highest. What the euro area needs, in my view, is to “re-run” the convergence process, but with the appropriate conditions in place to ensure efficient allocation of resources, and the right framework to make convergence sustainable. Let me explain in more detail what that might entail. To begin with, catching-up economies have to address the immediate after-effects of the previous misallocation of capital. The pre-crisis inflows into the non-tradable/services sector were associated with real exchange rate appreciation, rising unit labour costs (ULC) and increasing dependence on external financing. When the financial cycle turned, however, capital flows quickly reversed.
Measures may be warranted for nonbank financial institutions if they expect Federal Reserve credit to be made available to them during times of stress. 5  The interest income and fees that accrue to the Federal Reserve from these facilities are ultimately remitted to the US Treasury. 6  BIS Review 80/2010  Conclusion Overall, recent financial market developments serve as a reminder that the central bank’s role as a liquidity provider can be critical during periods of financial stress. In this speech, I discussed the reintroduction of the liquidity swap lines with foreign central banks and reviewed our experience involving the TALF—two programs that provide dollar liquidity to a broad set of counterparties. Our experiences with these two programs, and with the other facilities launched during the financial crisis, suggest that liquidity programs can be quite effective at restoring market functioning and facilitating the flow of credit to households and businesses. However, because these facilities differ from traditional discount window activity, they raise questions about the appropriate scope and structure of the Federal Reserve’s role as liquidity provider. We should continue to evaluate our experience with these facilities and with other liquidity programs to more clearly define an appropriate framework for providing liquidity to the markets in the future.

Compared to some countries at this time, the banking sector in Thailand is functioning normally, with the financial markets remaining relatively stable despite greater volatility and uncertainty in the global economy. At the Bank of Thailand, we are optimistic that policy efforts at the global level will be successful in stabilizing the financial markets and in providing a comprehensive solution to the current crisis. Nevertheless, our view is that the adjustment that follows, and hence the process of global recovery, will probably take time. More importantly, in the Thai context, given the global nature of the crisis, and the fact that our economy has been affected mainly through contagion, it will be difficult for an economy like Thailand to achieve a sustained recovery on our own, if the global economy does not recover. Therefore, in the context of policy, the focus of policy response in Thailand should be on helping the economy and the private sector to adjust to the impact of the crisis, while ensuring that the key economic institutions and systems 6 most importantly the banking sector 6 continue to function normally, so that the economy will be in a position to move forward quickly once the crisis storm passes. BIS Review 45/2009  1  It is in this context that the Bank of Thailand has been shaping our response to the current economic downturn.
5  CFTC UBS, 2012, page 12. 6  CFTC UBS, 2012, page 13. 7  CFTC Barclays, 2012, page 13. 4  BIS central bankers’ speeches  We have learned as well that compensation and hiring practices also helped to undermine the integrity of the reporting regime. For example, we have seen that compensation and promotion within a bank are often tied to a trader’s market share and profitability. In addition, traders often move between firms so having a network of external contacts and being viewed as a team player could help to support job mobility. Consequently, one can conclude that even the loss of a job is not necessarily a permanent setback, and that market participants with allegations of improper behavior could potentially move on to other firms with the expectation that they would generate revenue and profits for their new employer. These incentives were amplified by the structure of the markets that underlie the setting of LIBOR and those that use LIBOR. The interbank cash borrowing market that LIBOR references is very small relative to the enormous markets that use LIBOR, for example interest rate derivatives. The standardization of settlement dates further concentrated trading activity. In this type of environment, relatively small changes in LIBOR submissions – either because the actual borrowing costs fluctuate or a submitting bank intentionally misreports its submissions – can have substantive effects on a trader’s profitability because the trader can hold large derivatives or futures positions that reference the cash LIBOR rate at the time these contracts settle.

For each currency, there is a designated panel of contributing banks that each submit an estimate of its own borrowing costs for each maturity. For each panel, these estimates are aggregated to form LIBOR. The LIBOR rates are then used as a basis for financial contracts ranging from adjustable rate mortgages to interest rate swaps and futures. To make sure that the submitting banks have sufficient expertise in the funding trends in a particular currency, it is important that they be actively involved in that market. For this reason, the contributing banks are the large banks that have been active in the London market and the panel of submitting banks varies across currencies. The LIBOR reference rates were intended to capture on a daily basis borrowing costs along each currency-maturity combination based on the experience of the submitting banks. The actual process for fixing LIBOR each day is quite straightforward. Each morning the submitters from each contributing bank answer the following hypothetical question: “At what rate could you borrow funds, were you to do so by asking for and then accepting interbank offers at a reasonable market size just prior to 11 a.m.?” The transmitted submissions are ordered by rate for each currency and maturity pair. The ordered rates for U.S. dollar LIBOR, for example, are then trimmed by generally dropping the top and bottom 25 percent of submissions to remove any influence of outliers. The average of the remaining individual submissions is calculated and then posted.