samchain/econo-pairs-v1 huggingface dataset:
A corollary fundamental principle in the design of monetary policy in this environment is that – in order to avoid a long-term de-anchoring of inflation expectations – easing measures must be sufficiently pre-emptive to guard against a further downward drift in inflation dynamics. Furthermore, under conditions in which policy rates are likely to rise only gradually over time, fiscal measures have an especially powerful macroeconomic impact, both by providing stabilisation in the event of adverse shocks and by supporting the return of inflation to our aim. In conclusion, I have briefly described some of the forces shaping the ECB’s current monetary stance. However, there are still many open questions that are raised by the combination of low interest rates and low inflation. Accordingly, this year’s review of our monetary policy strategy provides an excellent opportunity to take stock, reflect on our experiences and listen to a wide range of external voices. 1 For a more detailed discussion, see: Lane, P. R. (2020), “The monetary policy toolbox: evidence from the euro  area”, speech at the US Monetary Policy Forum, New York, 21 February; and Lane, P. R. (2019), “ Determinants of the real interest rate”, remarks at the National Treasury Management Agency, Dublin, 28 November. 2/2  BIS central bankers' speeches

And the unemployment rate continues to come down, and now stands at 5.2 percent. But I cannot stress enough that we still have a long way to go to get back to our maximum employment goal. For example, there are still over five million fewer jobs today than before the pandemic, and the unemployment rate is still far above the levels reached early last year. A more nuanced picture appears when you look more closely at the employment story. In typical recessions, the challenge is that there are not enough jobs available for the number of people seeking work. In today’s job market, demand for labor is very high—we hear that from employers who are finding it hard to fill all their openings—and a lot of people are getting hired. At the same time, people are leaving their jobs in large numbers, either to look for new work or exit the labor force altogether. This cycle of hires and quits reflects the extraordinary nature of the pandemic, as workers and employers adapt to rapidly changing circumstances. These vacancies won’t be filled instantly—it takes time for employers to find the right workers. But as demand for workers and progress on hiring remains strong, I am confident that we will continue to see meaningful job gains and continued progress toward maximum employment. The last aspect of the outlook that I’ll speak about is inflation.
Outstanding debt on other forms of consumer credit is ten times that. The main risks are with the finance companies offering these contracts – typically arms of car manufacturers. Unlike credit cards or personal loans, the lenders here are predominantly the finance arms of car companies. Their losses – however painful to them – pale in significance for the wider economy next to situations in which it’s the banking system making the losses. Nevertheless, the banks that are involved, as well as the shareholders of car companies, will want to think very carefully about the risks. While the borrower knows the monthly payments they are committing to, the lender does not know with any certainty whether they will make money on the deal. The initial deposit and the monthly payments are set to cover the expected depreciation in the value of the car, plus a margin. The final balloon payment is therefore less than the expected value of the car at the end of the contract. But if used car prices were to fall, the PCP purchaser has every incentive to give the car back after making the monthly payments, skipping the final balloon payment and instead buying the same car from a used car dealer for a lower price. The finance company is left with a car that has depreciated by more than they’ve been paid. Unlike a credit card or a personal loan, the borrower does not need to miss payments for the lender to lose money.

Various adjustments to this set-up might reduce some partial imbalances, but if the cause of the problem is not tackled head on, the effects of such adjustments will be short-lived and it will only be a matter of time before the whole system comes crashing down. Now let’s move forward in time some 20 years, to the split of the Czechoslovak currency following the dissolution of Czechoslovakia in 1993. For many years, fiscal transfers had masked the significantly inferior performance of Slovak economy relative to its Czech neighbour to the west. This performance gap was further widened by the closing-off of the Slovak armament industry from the federal centre at the beginning of the 1990s. After the country split in two, the stated goal of keeping a common currency came under market pressures as Czech and Slovak entities transferred their deposits to Czech banks and capital flowed out of both countries. As a result, this goal was abandoned in less than two months and an independent Czech crown – or koruna – was introduced. I should add that the CNB had its plan B and had been running preparations for the currency split since the second half of 1992. Consequently, after it had decided to act, it was able to act fast. So, what lessons can we learn from this event? The lack of political will to preserve the federal Czechoslovak state had quickly recognisable consequences for the common currency.
That might create room for a somewhat lower interest rate in this area in the coming years and thereby ease the situation for the consolidation of government finances in the countries with the greatest problems. At present, however, there are no mechanisms for bringing such a policy about. Thirdly, even if the fiscal position in all the countries in question were now in good order, the tradeoff between fiscal and monetary policy raises issues for which there are still no ready-made solutions. Let us take the hypothetical case of a falling stock market in the United States that pulls the dollar down. The recent trend would then be reversed into an appreciation of the euro. That would be liable to check the recovery of manufacturing in the euro area. What should the EU finance ministers do? One possibility would be to go for an overall tightening of fiscal policy in order to pave the way for lower interest rates and a weaker euro. As things stand, however, it is not clear how this could be done in practice. Once again we face the question of the restriction’s distribution among the participating countries. These three interrelated issues are all important. The solutions are hardly self-evident, partly because they involve the difficult balance between national concerns and matters that should be decided at union level. Conclusion The euro’s introduction in eleven countries in our part of the world is the biggest economic policy change in Europe for decades.

Although the burden of servicing these debts is currently manageable because of the low level of mortgage interest rates, concerns about future servicing costs as interest rates normalise may lead the high stock of outstanding debt to weigh on these households’ spending. The possibility of unemployment may also encourage saving, though happily unemployment has so far risen by less than many observers, including the Monetary Policy Committee, feared. The relative robustness of employment, given the depth of the decline in output, owes something to the willingness of employees to accept low pay awards in the face of the downturn. Last year over a third of private sector pay settlements were pay freezes, and a recent survey of their business contacts carried out by the Bank’s regional Agents points to a similar outcome this year (Chart 2). Third, the Government allowed the fiscal deficit to rise in response to the downturn. That was helpful in cushioning the fall in demand. But the deficit now looks set to be around 12% of GDP this year, which is unsustainable in the medium term. That creates a difficult balancing act. Cutting spending and/or raising taxes is likely to result in lower domestic demand, though a failure to do so may lead long-term interest rates to rise, also hitting demand. The recent depreciation of sterling appears to owe something to heightened fears about the UK’s fiscal prospects.
Stefan Ingves: From ideas to implementation Remarks by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the 8th High Level Meeting organised by the Basel Committee on Banking Supervision and the Financial Stability Institute and hosted by the South African Reserve Bank, Cape Town, 24 January 2013. As prepared for delivery. *  *  *  Introduction Let me begin today by thanking Josef Tošovský, Chairman of the Financial Stability Institute, for organising the latest in its series of High Level Meetings. The Basel Committee continues to view these events as extremely important, as they bring together senior policymakers and supervisors in a forum in which we can share thoughts on critical issues of the moment and reflect on long term challenges. Let me also extend my thanks to the South African Reserve Bank for its superb hospitality as the annual host of this High Level Meeting. Change and reform – new ideas and new ways of doing things – can be challenging in good times. When all is well, the perceived need is low and the costs – including opportunity costs – are difficult to justify. Even small ideas can be difficult to implement. Crises, on the other hand, provide a catalyst for fundamentally rethinking past practices. Many banks have learnt this as a painful lesson in recent years: when times were good, potential operational, risk management and cultural deficiencies were not examined closely enough.

Ladies and Gentlemen, the development of the local bond market is central to Government’s strategy for diversification of the economy for one key reason. All businesses, including state owned enterprises, require finance, covering both equity and debt, and ranging from short-term to long-term. In the absence of a properly functioning local bond market, those in need of capital and qualified enough have had to turn to international financial markets to finance their local projects with the attendant exchange rate risk. Similarly, those seeking a competitive return on their investments that also meet their maturity preferences but are unable to find these features locally, have always sought out alternative avenues offshore in foreign currency, thereby creating pressures in the foreign exchange market. Therefore, Government’s involvement in improving the local bond market has been deliberate. Ladies and Gentlemen, Government’s participation in improving the functioning of the local bond markets has seen the establishment of appropriate market infrastructure that facilitates cost-effective and secure trading, and a transparent price discovery process. Further, Government’s decision to bring to market longer term bonds in 2005 have proved to be positive and catalytic for the local bond market as this has resulted in an extended yield curve that has provided a benchmark for pricing longer dated security issues by the private sector and banking industry.
And our balance sheet tools must evolve alongside it towards a “future normal”:   On the financial stability side, the experience of the Covid crisis, and the turbulent “dash for cash” that took place in financial markets in March 2020, when exceptionally high demand for cash led to a breakdown in the functioning of core financial markets, has raised questions of whether central banks need new tools for dealing with market dysfunction.12 (I will come back to this question later in the context of the impact that our QE purchases had).   On the monetary policy side, the Bank’s Monetary Policy Committee, which is responsible for deciding what monetary policy actions to take, has asked us to start “internal technical preparations to deliver the option of a tiered system of reserve remuneration that could be ready to be implemented, should it be judged appropriate, alongside a negative Bank Rate”.13    Looking further ahead central banks around the world are grappling with the question of whether to provide the public with electronic money, or Central Bank Digital Currency, and the challenges and opportunities that such a decision could throw up in a possible “future normal”.14  Set out in Mark Carney’s speech ‘The UK at the heart of a renewed globalisation’ I described the evolution of these tools in my 2018 speech “Finding the right balance”. As set out in Andrew Hauser’s speech “From Lender of Last Resort to Market Maker of Last Resort via the dash for cash”.

To make the macroeconomic effects of QE more concrete: previous Bank of England analysis suggests that the initial £ billion of QE during QE1 may have increased GDP by 1.5%–2% and inflation by 0.75pp–1.5pp.19 Using similar estimates in a 2016 speech, Mark Carney, estimated that if the MPC had left monetary policy – Bank Rate and QE – unchanged in the financial crisis, the level of GDP would have been 8% lower and 1.5 million more people would have been out of work.20  Whether the £ of QE we announced last March had the same impact is a complex question, and there are arguments in both directions as to whether its impact will turn out to have been larger or smaller. On the one hand, government bond yields have been very low by historical standards and it is possible that there may be limits to how much more QE can do to push them down. On the other hand, our March purchases in particular took place as I have said against a backdrop of extreme market disorder. Our purchases, alongside other policy measures here and abroad, were instrumental in restoring order, and indeed we deliberately carried them out at an unprecedentedly fast pace to achieve that – in the words of the Governor, Andrew Bailey, we “went big and fast”. Had we not done this then that market disorder might, as we said at the time, have led to an unwarranted tightening of monetary and financial conditions, and an even sharper contraction in GDP.
The fewer alternatives available, the more serious the liquidity bottlenecks and counterparty risks. An additional aspect relates to the network. It comes into play when a system is the connecting link between other systems, such as in the case of the central counterparty SIS x-clear, which links the trading platform virt-x and the securities settlement system SECOM. The failure of such a connecting link can significantly affect operations at the upstream and downstream systems, even if the link itself is only of minor direct relevance to the market participants. Our analyses led to the conclusion that the following systems should be classified as systemically important: the interbank payment system Swiss Interbank Clearing (SIC), the securities settlement system SECOM, the central counterparty SIS x-clear and the multi-currency payment system Continuous Linked Settlement (CLS). PostFinance is not classed as systemically important. This may be surprising given the economic significance of postal payment transactions, but it is a direct result of the existence of alternatives, ie bank payment transactions, which are instantly available should the postal payment system experience any serious problems. Of the systemically important systems, CLS has been exempted from the minimum requirements as it is already adequately overseen by the Federal Reserve Bank of New York and because the exchange of information between the New York Fed and the National Bank runs smoothly. By strictly avoiding duplications, we can reduce the burden of oversight, ie the density of regulation, also in the case of SECOM and SIS x-clear.

The challenge that lies ahead of us is how to include this new objective in our policy making; whether inflation targeting and financial stability can be combined or whether a new regime altogether is needed. Various new radical approaches have been mentioned so far. However, I believe that we should not discard all the hard-learned lessons and the successes of the past. Stabilizing inflation should be something that central bankers may be proud of, something that we should cherish and continue to strive for. Incorporating financial stability objectives with the inflation targeting regime should be seen as an opportunity to understand economic developments and potential macro-financial risks, to achieve both these objectives and preserve long-run economic stability. I believe the course of the monetary policy will continue to be extensively discussed in the future, including our improved understanding of the role of asset prices and financial frictions. Under the current conditions, the largest central banks in developed countries have stretched central banking theory and practice beyond traditional activities. Their balance sheets have increased beyond imagination and, in some cases, include private assets; they have accepted a much broader role and have assumed more responsibility. This all new and untested type of central banking will have a strong impact not only on the nature of monetary policy and its interaction with other central bank objectives but also on the independence and credibility of the central bank itself.
We are again at a similar junction. A wide array of economic indicators now suggest that growth in the U.S. has picked up and is widely expected to be around 3 percent during the second half of 2014 and in 2015. These forecasts seem quite reasonable to me and are consistent with views I have expressed in the past. Various “headwinds” have been impeding economic activity, but some of these forces have gradually subsided, allowing the substantially improved underlying fundamentals to exert themselves more forcefully. For example, fiscal restraint, which was a big factor last year, has subsided and is likely to disappear altogether next year. Credit availability has also improved, reflecting healthier bank balance sheets and improving job and income prospects for prospective borrowers. In addition, the excess supply of housing built up over the boom of the previous decade has been worked off, and both home prices and rents suggest that the supply of housing is not keeping pace with demand. This has allowed supportive financial market conditions, spurred, in part, by a very accommodative monetary policy, to shine through. As a result, aggregate household net worth has climbed relative to income and consumer balance sheets are healthier. On the business side, financial markets conditions suggest that risk aversion has subsided, leading to some firming in business investment spending. All of these developments help boost the confidence of consumers and businesses that this consensus forecast will in fact unfold.

As you might suspect, Principle 17 on last look likely consumed the most time and energy of any of the principles in the Code. In many areas within the last look principle there was broad consensus as to what constitutes good practice. What was clear from this process was that market participants seemed to define last look in different ways and apply it in different ways as well. Last look is described in the Code as a practice in which a market participant receives a trade request and has the opportunity to accept or reject that trade request against its quoted price. The Code notes that if utilized, last look should be used as a risk mechanism to verify validity and/or price. The principle focuses on the importance of transparency and fairness. Market participants should be clear about whether and, if so, how last look might apply to their client trade requests to allow clients to make an informed choice regarding their execution. In one particular area—that of trading during the last look “window”—there was a definite diversity of views. On the one hand, some market participants argued that such trading activity would always be detrimental to the client as it could move the market in a direction that is not to the client’s advantage. On the other hand, some market participants felt that such trading activity could increase their ability and willingness to conduct client trades presented by clients without necessarily placing the clients at a disadvantage.
This positive outlook needs to be underpinned by responsible fiscal policy-making and by social partners reacting appropriately to the increase in oil prices. It is crucial that any loosening in fiscal policy be avoided. Similarly, continued wage moderation is important in order both to contribute to further decreases in the level of unemployment and to maintain a favourable outlook for price stability. It will be equally important for structural reform to be intensified further in order to allow current high growth rates of real GDP and employment to be sustained into 2001 and beyond, without generating inflationary pressure. Let me now give the floor to the Vice-President to inform you about two further issues decided by the Governing Council today. I should like to inform you that, in the course of next week, the ECB will release an update of the so-called Balance of Payments Book. This annual publication documents the statistical methodologies applied in EU Member States for the compilation of balance of payments statistics and, as such, improves the transparency of the compilation of euro area statistics. In addition to updated individual country chapters, this version includes two new chapters on the compilation and methodological standards for the euro area balance of payments and international investment position. The Book will be published on the ECB’s website and hard copies will be available at the ECB.

The Governing Council has today also adopted an ECB Regulation establishing transitional provisions for the integration of Greek credit institutions into the Eurosystem’s minimum reserve system, as a consequence of the introduction of the euro in Greece as from 1 January 2001. BIS Review 97/2000  2