samchain/econo-pairs-v1 huggingface dataset:
This so called “productivity puzzle” – why the UK’s productivity had fallen so far and had not recovered – was a major part of the uncertainty the Committee faced about how fast the UK could grow without generating inflation pressure. If some or all of that lost productivity growth could be recovered, the economy could grow faster and for longer without putting the inflation target in jeopardy. But looking forward the Committee took a cautious view and based its view of the future on the expectation that productivity growth would recover only slowly and that none of the “lost” productivity would be recovered. Third, the MPC was operating under the “forward guidance” it had agreed in August last year and to which I had subscribed on joining the Committee. The underlying concern behind forward guidance was that the market might react too quickly and too simplistically to strong GDP growth numbers and forget the amount of spare capacity still in the economy. If the market predicated the Bank’s reaction to strong growth on a pre-crisis basis and, incorrectly, began to price in a tightening of policy the recovery could be choked off. To head off that risk the Committee had, earlier in the year, made clear its intention, through “forward guidance” not to consider tightening policy at least until there was a substantial reduction in spare capacity as evidenced by a fall in the unemployment rate to below 7%. So, over the subsequent year what have we learned? Have the puzzles and uncertainties resolved themselves?

Even adjusting for that effect though, unit labour costs look broadly flat – much below the 2% rate of increase we need to meet the inflation target in the medium term. The big surprise, therefore, for the MPC – and it is a positive, if puzzling, development – has been the extent to which employment has been able to grow without generating clear inflationary pressure. Understanding why that has happened and how long it will persist is, in my view, now key to deciding policy. One possible explanation is simply a longer-than-usual lag between falls in unemployment and pay pressure emerging. Once you take into account productivity, the unexplained weakness in wages only really materialised over the last three quarters, a period over which unemployment was falling very rapidly. Some survey measures suggest the pay of newly hired employees is growing at a much faster rate, of between 2% and 6%, rather than the 1% rate seen across employees as a whole in the official data. On this view, a rapid pick up in average pay levels is in prospect, once more and more workers start to shift jobs and as pay of existing employees is adjusted in annual pay rounds. The parable of the rock pulled by the elastic band is a very relevant one in economic policy making: the rock may not move for a long time, but eventually it will. And the longer it takes to move the faster the move is likely to be.
The terms and the form of deferred compensation are an important tool that could be further developed to generate a better set of incentives consistent with our financial stability objectives. We must also ensure that firms can respond to financial or operational weakness of any type by having robust recovery plans that get triggered long before resolution becomes necessary. They should develop and track metrics that not only identify when they are on the verge of insolvency or default, but that trigger appropriate remediation actions whenever the firm begins to become stressed. These plans should identify actionable options that the firm can take in response to financial weakness that will restore the confidence of the firm’s counterparties without the need for extraordinary official sector support. They must also have disciplined processes that analyze the root causes of their problems and identify longer-term strategies that will need to be employed as other recovery options to restore capital and liquidity are being executed. And firms must support the viability of their contingency and recovery plans by implementing the internal governance necessary to develop, test, update and implement them credibly. Some argue that what I have proposed – higher capital requirements and better incentives that reduce the probability of failure combined with a resolution regime that makes the prospect of failure fully credible – are insufficient. Perhaps, this is correct.

The provision of liquidity had the desired effect of reducing strains in markets, narrowing the dispersion of rates, and keeping the federal funds rate within the target range.5 Moving to more recent events, in March of this year the global spread of the pandemic led to a rapid and massive movement of funds around the world as investors sought to protect themselves from the highly uncertain and darkening economic outlook. These flows threatened to overwhelm the financial system and resulted in intense strain and disruption in short-term funding markets and markets for Treasury securities and agency mortgage-backed securities.6 Measures of market functioning deteriorated to levels near, or in some cases worse than, those we saw at the peak of the 2008 global financial crisis.7 In response to the extraordinary volatility and signs of market disruption caused by the pandemic, the Federal Reserve greatly expanded its repo operations and decisively and immediately began purchasing enormous quantities of U.S. Treasury securities and agency mortgage-backed securities. Our approach was to deliver a rapid and overwhelming response that would give assurance to market participants that liquidity would be there in the coming days and months. These actions, combined with the introduction of emergency lending facilities to provide liquidity to funding and credit markets, proved successful.
8  For an interesting academic exposition of this “macroeconomic shortage of assets”, see Caballero, R, “A Caricature (Model) of the World Economy”, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1724897  BIS central bankers’ speeches  7  Chart 11  Chart 12  Central bank balance sheets  US, UK and Euro area GDP  £ billions  Local currency billions  350  3000  300  2500  Indices: 2008 Q1 = 100 102 100 98  250  2000  96  200  94 1500  92  150 1000  100 Fed (right-hand scale) ECB (right-hand scale) BoE (left-hand scale)  50 0 2007  2008  2009  2010  Sources: Bloomberg and Bank of England. 2011  500  United Kingdom  90  Euro area  88  United States  86 84  0 2004  2005  2006  2007  2008  2009  2010  2011  Sources: ONS, Eurostat and Bureau of economic analysis. It is still early days, but the combination of portfolio rebalancing and this reported shortage of specific high-quality assets might have wider implications for financial stability if it encourages investors to look for additional yield by moving into more illiquid products (by investing in new asset classes or in derivatives of more liquid underlying instruments) or into more complex products (which they might not fully understand, and which might not be appropriately priced for correlation, optionality or underlying credit risk).

Market intelligence is crucial here, in that it can provide us with near real-time information about whether and where these risks might be building (or eventually crystallising). So far, there is little evidence of excessive risk-taking on a generalised basis across the financial system. But the intelligence we have gathered during 2011, notwithstanding the recent pull-back in June, has flagged a number of pockets of increasing risk appetite and a few specific markets which have been showing signs of excess. That tendency seems to have been most prevalent in the United States, where the financial and real economy recoveries appear somewhat more established than in the UK and the euro area (Chart 12). But during recent discussions, some market participants have noted that this tendency has begun to spread to Europe as well. One example comes from the high-yield corporate bond markets, where demand has been very strong and where issuance, which reached record levels in 2010, has continued apace in 2011 (Chart 13). That is likely to reflect the generalised disintermediation of stricken banking systems – for those that are able to tap capital markets, bond issuance poses a useful alternative to bank lending. Moreover the extent of high-yield issuance may reflect the fact that it is smaller businesses, which are likely to be sub-investment grade, who are finding it hardest to secure affordable bank finance.9 Given oligopolistic banking systems like those in the UK, a deeper and more liquid capital market might help improve the supply of credit to UK businesses.
GDP growth rates for most of these economies will likely turn positive in 1999. The outlook for the year 2000 is similarly benign. Indeed, the concern for the Korean economy has even turned into one of over-heating. Asia’s nascent recovery has set it apart from other emerging economies. Discerning international investors are placing much lower risk premiums on Asian economies compared to other emerging economies. For example, the difference between the yields on Latin American and Asian US dollar bonds has risen from less than 100 basis points in August 1998 to around 250 basis points in November 1999.1 The Singapore economy too, has recovered strongly, rising together with the regional economies. GDP grew by an estimated 5.6% last year, compared to 0.3% in 1998. This year, we expect the momentum to be sustained, with GDP growth at around 4.5-6.5%. But we cannot be complacent. To ensure that Singapore continues to prosper, we need to remain competitive, regionally and globally. Global markets have become much more integrated and global competition has intensified. We need to be part of this globalisation process and not close our doors to it. This is why we have been gradually introducing more competition into previously protected sectors of the economy, such as the financial sector and the telecommunications sector. These are challenging times ahead for us. But as economic recovery gathers pace, it is easy for euphoria to overtake the need for improvement and change. It could also tempt us to scale back or postpone painful restructuring initiatives.

Marvin’s intellectual pursuit of all aspects of the ZLB logically drove him to explore the possibility for currency to have a digital component. Although many think of central bank digital currencies as a new-fangled idea, Marvin was thinking deeply about the prospect long ago. This has become one of the hot topics in the world of central banks today. The conversation that Marvin began in Woodstock in 1999 became the basis for discussions that were had later on at the FOMC meeting in January 2002. At that FOMC meeting, Marvin expanded upon the idea of asset purchases as a policy tool that he had proposed in his paper at the conference in Woodstock. He emphasized that the Fed asset purchases can affect financial conditions and thereby the economy. He was expanding the conversation away from thinking about conventional monetary policy to unconventional options, like the balance sheet. Importantly, he distinguished between central bank purchases of short-term government securities, as the Bank of Japan was doing at that time, versus purchases of longer-term securities. Marvin viewed purchases of short-term securities as ineffective under the ZLB, while he saw purchases of longer-duration securities as potentially powerful owing to a “preferred habitat” motive on the part of investors. Of course, large-scale asset purchases later became a tool of critical importance for easing financial conditions in the United States and abroad. Although the consequences of the predicted Y2K glitch were minimal, the ZLB became a central issue when the financial crisis hit.
But the pressures we currently face go well beyond that. The effects of BSE and then of foot and mouth disease on agriculture, and the impact on the rural economy more generally, have been wholly abnormal. And the pressures on the wider economy have recently been hugely aggravated by the international economic environment - first, by the persistent strength of sterling against the euro; then, by the global economic slowdown - including the dramatic contraction of activity in the previously booming high-tech sectors, and most recently by the vicious terrorist attacks in the United States. With the best will in the world, there is nothing that we can do - certainly not through our domestic monetary policy - that goes to the causes of these problems. That's obviously true in the case of the problems in agriculture. Many people suppose that interest rates would have a predictable effect on exchange rates, but in fact it's not as simple as that. Many other factors influence exchange rates which can respond perversely to interest rate changes even for quite long periods of time. Despite the 4% cut in the US rates this year the dollar is still stronger against the euro - where rates have fallen by only 1% - than before the interest rate cuts started. And sterling, too, rose against the euro even though we cut interest rates earlier, and by more, than the ECB.

The conundrum in fact has been the persistent relative weakness of the euro, since its introduction, and I very much welcome its modest recovery since the summer. But on top of this exchange rate effect, external demand for goods and services produced in this country has been adversely affected by the unusual simultaneous slowdown in the world's three largest currency areas - the US, the Eurozone and Japan - that we have seen this year. And the terrorist attacks - with their inevitable effect on business and consumer confidence at least in the short term - could not have come at a worse time. We can't, as I say, do anything directly ourselves to reduce the negative impact on the economy of these exogeneous shocks. What we can do is to try to compensate for them by encouraging the growth of domestic demand, and in particular consumer spending. And that in effect is what we have been trying to do through six cuts in interest rates so far this year, which have brought the mortgage rate, for example, to its lowest level for years. In the year to June final domestic demand grew by 3½%; but a fall in external demand helped to reduce the growth of total output to just over 2¼%. Overall UK manufacturing output in particular fell by 2% in the year to August, and while that is substantially less than the equivalent fall in Japan (of over 11%) and in the US (of 5½%), that's cold comfort to British industry.
Page 19 of 27  Figure 11 International cost of maritime freight (1)  Commodity prices  (dollars per a 20-foot container)  (index 2002-2021 average=100)  4,200  Foods (2)  600  3,500  Iron (3)  Lumber (4)  500  2,800  400  2,100  300  1,400  200  700  100  0  0 15  16  17  18  19  20  21  02  04  06  08  10  12  14  16  18  20  (1) Weekly data from Shanghai Containerized Freight Index that weights the prices of 15 routs from Shanghai, for a 20-foot container. (2) Bloomberg Commodity Spot Index. (3) S&P GSCI Agricultural & LiveStock Index Spot CME. (4) Import spot prices of iron ore on Qingdao Port, China. (5) Prices of lumber futures contracts, in dollars per thousand board feet. Source: Bloomberg. Figure 12 Headline and core inflation (*) (annual variation, percent) CPI  Core CPI  6 5 4 3 2 1 0 15  16  17  18  19  20  21  (*) Core CPI represents 65.1% of the total CPI basket. For details, see Box IV.1 in December 2019 MP Report, and Carlomagno and Sansone (2019). Sources: Central Bank of Chile and National Statistics Institute (INE).

When inflation in Sweden is expected to be below target, the Riksbank conducts expansionary monetary policy. The aim is to push inflation up towards the target. At the same time, output and employment will also rise. But expansionary monetary policy also has other consequences. For example, rising asset prices lead to more uneven wealth distribution. In Sweden, however, this effect is mitigated by the fact that a comparatively large share of the wealth is  7  OECD (2019), Table 9.1, see also OECD (2020). 8 Ylva Hasselberg and I have written about this, see Hasselberg and Ohlsson (2016). 5 [6]  in collective pension funds. In many countries, there are no such funds. This hidden wealth is an aspect to consider when discussing the distributional effects of expansionary monetary policy. References Hasselberg, Y. and Ohlsson, H. (2016), “Collective wealth formation: Conflict and compromise in Sweden, 1950-2000”, in Hudson, P. and Tribe, K., ed., The contradictions of capital in the twenty-first century: The Piketty Opportunity, Agenda Publishing, pp. 109-130. Nilsson, C., Söderberg, J. and Vredin, A. (2014), “The significance of collective pension saving for the Swedish financial system”, Economic Commentaries 2014 (3), Sveriges Riksbank. OECD (2019), Pensions at a glance 2019: OECD and G20 Indicators, OECD Publishing, Paris, https://doi.org/10.1787/b6d3dcfc-en. OECD (2020), Pension Markets in Focus 2020, http://www.oecd.org/finance/pensionmarketsinfocus.htm. Ohlsson, H., Roine, J and Waldenström, D. (2020), “Inherited wealth over the path of development: Sweden, 1810–2016”, Journal of the European Economic Association 18 (3), pp. 1123-1157.
The same may undoubtedly be said about the Central Bank. After all, useful and supportive as these institutions may be, they neither can nor should play a leading role. That role can only be performed by the financial companies themselves. Because they rely so heavily on open access to credit markets, it is crucial for them to enjoy the confidence of their creditors. In this respect like many others, credibility is a fragile thing and a very high price can be paid for losing it. Turbulence in global markets is sure to continue. Naturally people try to read the signs and foresee the most important parameters, in order to adapt to them in good time or respond sensibly. Important as it is to keep a close watch on developments and changes in global markets, what matters most of all is to be strong and well-positioned enough to withstand the most unexpected shocks. Global liquidity has been exceptionally abundant in recent years, and has been widely tapped on good terms. The benefits of resourcefulness and bold, quick action can be realised to the full in such circumstances. It is impossible to rule out that such a climate will persist for a long while, but this is by no means certain. And when a change does take place, it may be caused by unexpected circumstances and strike quickly. It is then that caution and prudence prove most effective.

Thomas Jordan: Monetary policy and the business cycle Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 75th anniversary celebrations of the KOF Swiss Economic Institute, Zurich, 23 September 2013. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Monetary policy contributes to the prosperity of an economy by ensuring price stability in the medium and long term. This makes it possible to put resources to more efficient use, from an economic point of view, and also promotes investment and, with it, long-term growth. Price stability also helps to avoid undesirable distribution effects. Households with lower incomes derive particular benefit from this. Monetary policy can be used to dampen cyclical fluctuations. However, it is not suitable for short-term fine-tuning of the economy. From the point of view of the business cycle, the goal of monetary policy must rather be the reduction of larger risks and the alleviation of extreme situations. An example of one such measure is the minimum exchange rate, which the Swiss National Bank (SNB) set on 6 September 2011 to halt the Swiss franc's upward trend, thus averting a deflationary spiral and warding off the danger of a serious economic crisis. Monetary policy decisions are always subject to uncertainty. It is therefore of key importance that the SNB has a sound decision-making basis.
13  “Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs)”, published by the Financial Stability Board, 12 April 2011. The Bank of England covered similar issues in its June 2010 Financial Stability Report, pages 40–41. BIS central bankers’ speeches  5  to keep up with innovations and, like bank supervisors, they need to be ready to accept an occasional steer from macroprudential authorities. Product “gatekeepers”: Credit Rating Agencies It would be hard to talk about the issue and distribution of securities without mentioning Credit Rating Agencies. It is important to reduce the significance of CRA ratings in our capital markets. Pervasive mechanistic reliance on ratings is by no means mainly the fault of the Rating Agencies themselves or of financial firms, although many of the latter have acted – and probably continue to act – foolishly. The extent to which ratings have been bolted into regulatory regimes – by securities regulators and prudential supervisors – has plainly been a great mistake. And it is one of those mistakes whose effects have become so woven into the fabric of “modern” finance that it is going to take an extraordinary act of will (and patience) to undo it. Yes, we do have asset managers (and banks) who might not be able to evaluate some securities on their own if they were not permitted, by official regimes, to rely on CRA ratings.

As evidenced by the information available so far, we have not had any problems with external financing resources; however, the Central Bank has assured that, should such problems come up, it will provide any necessary liquidity in dollars and pesos for the financial system to continue providing credit adequately. The average cost of foreign financing has dropped, although for some companies it has risen, as a consequence of greater global uncertainty and of a less fluid operation of the international financial markets (Figure 7). This crisis has also had significant implications in the real sector. Even though the world demand reduction affects all countries, the most direct impact has been borne by the economies driven by exports of manufactured products – particularly machinery and equipment – to developed countries (Figure 8). Some countries, such as Germany and Japan, have witnessed a severe effect on their output, although they initially were in a much better position than was the United States. Therefore, although a decline in investment and in durable consumption in the world has a more direct impact on exporting industrial economies, it also results in declines in exports of countries which produce intermediate and basic goods, including Chile. However, our country should not be too affected thanks to a characteristic that has always been pointed out as a hindrance to our development – with which I agree – : the low value added, or the low human capital content, of our exports. Chilean exports are closer to being commodities, which face relatively abundant demands.