samchain/econo-pairs-v1 huggingface dataset:
They all kick off with the same unwelcome economic conditions, presumably caused by some prior, off-stage shock to costs: inflation is 2% points above the target, output’s 1% point below potential and official interest rates are at (what is assumed to be) their “neutral” rate, which is assumed not to change. All three simulations also have inflation back at target two years later. But each involves a very different means of getting there. In the first, the policymaker – call it Committee A – hikes Bank rate immediately and aggressively, by 2% points. This rapidly pushes the economy into recession, making the output gap even larger. But it does at least succeed in bringing inflation back to target pretty promptly, well within the two-year point. Indeed, inflation then falls somewhat below target thereafter, and interest rates fall back sharply, to a level below where they started. Perhaps “A” stands for “austere”, or (hyper) “activist”. Committee B – “balanced”, maybe? – is a little gentler in its approach. Recognising that a significant existing output gap will do some of the work in reducing inflation it raises rates only a touch. Inflation therefore takes longer to come back to target. But it just about gets there by the two-year point and, in the interim, the real side of the economy suffers less and interest rates are less volatile. Finally, just for effect, I’ve added a Comedy MPC (Committee C).

Gabaix Xavier 2012, “Variable rare disasters: an exactly solved framework for ten puzzles in macro-finance”, Quarterly Journal of Economics, Volume 127, Issue 2, Pp. 645–700. Joyce M. and A. Meldrum, 2008, “Market expectations of future Bank rate”, Bank of England Quarterly Bulletin. Macaulay Frederick, 1938, “Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields, and Stock Prices in the United States Since 1856”, National Bureau of Economic Research, pp. 33. Mankiw G., and L. Summers, 1984, “Do long-term interest rates overreact to short-term interest rates?”, Brookings Papers on Economic Activity. Shiller Robert, 1979, “The volatility of long-term interest rates and expectations models of the term structure”, The Journal of Political Economy, Vol. 87, No. 6, pp 1190–1219. BIS central bankers’ speeches  9  Sutton Gregory, 1997, “Is there excess comovement of bond of bond yields between countries”, Bank for International Settlements, Working Paper No. 44. 10  BIS central bankers’ speeches
In 2022, inflation rose initially on the back of the rapid surge in prices of import items, in addition to an ever increasingly strong aggregate demand and an overall upswing in costs of production. However, inflation trend recorded a turning point in October 2022, declining progressively onwards at 4.7% in May 2023. This performance reflected the dynamics of prices in global markets, the first effects of our monetary policy's reaction, - which I will elaborate on in more detail below, - and the appreciation of the exchange rate. Also, the relatively low inflation rate in Albania was also backed by the contained electricity prices for households and some businesses, thus transferring the increased cost in energy imports to the public sector's balance sheets. Year 2022 marked progress in terms of improving the external position of Albania as well. More specifically, the Albanian exports grew by 42% over the past year, driven by the rapid growth in tourism income. This growth led to the reduction in both the trade deficit and the current account deficit. In parallel, external debt of Albania declined while its sustainability indicators improved. The improvement in the balance of external trade, the high levels of foreign direct investments coupled with the stability of the domestic financial markets, drove to the strengthening of the lek exchange rate during the past year. These trends seem to have continued in 2023 as well.

However, in parallel with them, it also reflects the appropriate reaction of monetary, financial and fiscal policies, as well as the fruits of the continuous structural reforms that we have undertaken in the real and financial sector of the economy. 2/5  BIS - Central bankers' speeches  In this context, allow me to elaborate on the main directions and results of the work of the Bank of Albania throughout 2022. The augmented intensity and the expanded base of inflationary pressures during the past year dictated a change in the monetary policy stance. In fulfilment of our legal mandate of price stability, the Bank of Albania undertook a normalization of the monetary policy stance. The rise in the interest rate to 2.75% as at end of 2022 from 0.5% at the beginning of 2022, led to the realisation of this normalisation. In parallel, we have intensified communication with markets and public, re-affirming our will to take all the necessary measures for inflation return to the target and to clarify our monetary policy strategy. This strategy is based on three important principles: First, the normalisation of monetary policy stance was and remains necessary for inflation to return to the target in a steady manner. The purpose of this normalisation was to curb the pass-through of rising international prices to the overall and steady surge in prices in the Albanian economy. In this context, it remains in line with the reaction of the other central banks.
In this regard, some of the domestic banks have launched special deposit schemes to attract such funds. Those who already hold lira deposits, bonds and similar assets do not need to do anything. Such assets will be automatically converted into euro when the changeover takes place, and free of any charges. For those who own Maltese lira and euro assets that represent income previously not declared for income tax purposes, the recently launched Special Registration Scheme represents a timely opportunity for such persons to regularize their holdings in terms of the law. In summary, therefore, I would say that there is no advantage to be gained by converting Maltese lira assets into euro before the changeover date. From that date onwards, there will be an ample supply of euro notes and coin to satisfy the needs of the public. More importantly, euro currency will be provided at the official conversion rate without any changes or commissions. Still on the euro, do you think that people are as worried about inflation as they were? According to the Eurobarometer poll taken in September 2006, some 70% of Maltese respondents said they feared the euro would give rise to inflation and over 80% were afraid of abuses and cheating on prices. This fear is largely based on sometimes inaccurate reports in the local media of what happened in some of the countries that introduced the euro in 2002.

So, the phenomenon of large capital inflows into Asia is here to stay and we should learn how to handle it. Large capital inflows pose two risks. First, these flows can potentially overwhelm Asia’s ability to channel them to productive use, and create asset market bubbles – especially in real estate. Residential property prices in some Asian markets have increased by more than 50% since 2009, outpacing income growth. To be sure, there are underlying structural factors supporting housing demand, such as urbanisation, growing populations, and the rise of the middle class. But surplus liquidity and rapid credit expansion fuelled by low global interest rates and large capital inflows have exacerbated asset price inflation in Asia. The unwinding of asset bubbles can be rapid and extremely unpleasant. Second, large capital inflows can turn into sudden outflows. Sharp capital flow reversals can cause exchange rates to weaken, trigger panic in funding markets, and even result in destructive wealth effects. The unwinding of long positions in Asian markets as global investors sought to de-risk their portfolios was partly responsible for the sharp selloff in many Asian currencies in recent months. The most effective way to manage capital inflows is to allow interest rates or exchange rates to go up so that capital is priced appropriately. Indeed, as emerging Asia continues to grow, allowing the exchange rate to steadily appreciate over the medium term is vital to ensuring that capital inflows are moderated and allocated to productive investments.
On the other hand, the turmoil on the financial markets and weaker growth in the world economy were expected to curb growth and inflation in Sweden. This led to our decision to hold the repo rate unchanged at 4.25 per cent, a decision I voted in favour of. We also held to our forecast that the repo rate would remain at this level over the coming year in order to bring inflation back to the target over a period of a couple of years and to enable production and employment to develop in a balanced way. We also emphasised that there was still considerable uncertainty over future developments. Personally, I saw an evident risk that the slowdown in the United States could become more prolonged than was assumed in the forecast. I also saw a risk that the rapid price increases in the world energy and food markets could subdue demand and thereby growth in the rest of the world, which could also further hold back Swedish growth and inflation. There were also clear signs that the Swedish labour market was about to cool down and my view was that the weak productivity growth indicated that companies’ demand for labour could decline. This indicated that there was no great risk that the rate of wage increase would accelerate more than anticipated. This was the combined reason why I did not wish to rule out the possibility of a cut in the policy rate later in the forecast period.

The analysis made in that scenario only takes into account an alternative outcome for the oil price. The analysis made in a monetary policy decision takes into account everything that has happened in the economy. How all these aspects should be weighed together is something I and my colleagues on the Executive Board will have to consider when we meet for a new monetary policy meeting in the first week of July. 6  BIS Review 68/2008
The question now is how to sustain and strengthen this new simpler system. I have two answers:  First of all, keeping the spaghetti bowl untangled means global infrastructure. The deep pools of liquidity that make central clearing economical don’t correspond to national borders. Derivatives clearing is a global service. UK CCPs clear global markets for interest rates, foreign exchange, credit default swaps, and commodities. Foreign clearing members make up 63% of the clearing members at  6  Speech by Alex Brazier. How to: MACROPRU. 5 principles for macroprudential policy. 13 February 2017. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  UK CCPs. At the end of 2020 there were £ trillion of derivative contracts between UK CCPs and EU clearing members, and £ trillion between UK CCPs and US clearing members.7  The growth of global infrastructure that spans national borders is a direct result of the reforms we put in place after 2008 – again a feature not a bug. This cross-border nature of clearing means that there must be a consistent approach for the regulation and supervision of cross-border CCPs. The Principles for Financial Market Infrastructure, issued in 2012, provide that foundation. It also means that regulators and supervisors must do something difficult and for some, radical: we need to trust each other. This trust should not be blind.

Fortunately the FSB – working with the Committee on Payments and Market Infrastructure (CPMI) and the International Organization of Securities Commissions (IOSCO) are doing just that. 11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11
Inflation expectations are a decisive factor for credibility My view is that the decisive factor for a central bank with an inflation target is inflation expectations. Expectations should be anchored around the inflation target in the long run. I say “long run”, as inflation expectations in the short term vary considerably in accordance with actual inflation. Figure 4 shows inflation expectations 1, 2 and 5 years ahead according to Prospera’s survey for money market participants. We can see that inflation expectations 5 years ahead have been around 2 per cent during the past 10 years. I interpret this to mean that there is still unshaken confidence in the inflation target. Figure 4 Money market participants’ inflation expectations according to Prospera Per cent  Note. Monthly data from September 2009. Quarterly data prior to this. Source: TNS SIFO Prospera. BIS Review 85/2010  7  I have so far discussed our experiences of publishing repo rate paths. Let me now go on to discuss the most recent repo rate path in the Monetary Policy Update published in April this year. Some aspects of the current repo rate path Figure 5 shows the repo rate path from the Monetary Policy Update in April together with market expectations of the repo rate. For the coming year both forward rates and survey expectations were very close to the Riksbank’s forecast. Expectations as expressed in the surveys agree fairly well with the Riksbank’s forecast, even in the longer run.

Figure 3 shows two summarising measures for the deviations between market expectations according to forward rates and the Riksbank’s repo rate forecast at the time of all 18 publications. 7 We can see that the deviations have become larger since the financial crisis erupted, which is natural as uncertainty increases. Looking at the whole period since 2007, however, there does not appear to be any systematic deviation in any direction (the average deviation is approximately zero for the whole period). It is important to point this out. One question that may nevertheless arise is why market expectations deviate from the Riksbank’s forecast. Figure 3 Deviations during the forecasting horizon between the repo rate path and market expectations according to forward rates Percentage points  Note. For a description of the calculations, see footnote 7. Sources: Reuters EcoWin and the Riksbank. 7  The measures show the following: at the time of a given forecast the difference between market expectations and the Riksbank’s forecast for the repo rate 1 to 12 quarters ahead are measured. This thus gives 12 different deviations for each time of publication. One measure gives the average of all 12 deviations. The other measure shows a “standard deviation”, where the sign of the deviation is unimportant. 6  BIS Review 85/2010  …and what are they due to? To begin with, I would like to make the reservation that market expectations cannot be observed, they can only be estimated.
Risks will, I should be clear, persist from the international environment and, in particular, the pattern of international saving. If the Asian economies were to continue to save at an extraordinary rate but the Western economies increase their saving, as over time we must in order to repair national and sectoral balance sheets, longer-term risk-free rates could again fall in order to bring about the counterpart expansion in investment. And, although it may seem far-fetched right now, that could give an upward impetus to asset prices over the medium-term. We would need to be careful not to mistake any such future developments for a miracle improvement in underlying economic and financial conditions. Indeed, internationally, we need to learn lessons about brewing risks from medium-term imbalances. BIS Review 71/2009  1  The Bank’s policy response, and credit markets Alongside the Government’s actions to underpin the capital resources and funding of the banking system, the Bank’s policy actions have been designed to assist recovery in credit flows and nominal demand. The big downside risks to the outlook have warranted a substantial monetary stimulus, which the MPC has provided by bringing Bank Rate down to nearly zero, and by injecting a substantial amount of money directly into the economy. Speaking of course only for myself, I have so far preferred that approach to one where we would instead commit to keep Bank Rate low for a specified extended period.

4/6  Growth in the swedish economy continuing to strengthen For the Swedish economy, too, it was concluded in the Inflation Report that the economic upswing appeared to have gained impetus again after the slowdown at the start of the year. Compared with the previous assessment, GDP growth and resource utilisation were forecast to be somewhat higher in the years ahead, largely owing to more expansionary economic policy. All in all, the assessment was that growth would be relatively firm in the Swedish economy in the coming years. The recent years’ high productivity growth has partly laid the foundation for this development. Companies have been able to boost output with their present workforces, which has improved their cost situation and held back price increases in the economy. The low inflation rate has enabled monetary policy to be expansionary for a comparatively long period. In addition, the high productivity and relatively good profitability is anticipated to create scope for comparatively favourable wage growth in the period ahead. This means that there are good prospects for firm growth in domestic demand over the coming years. Expansionary fiscal policy will also help to boost domestic demand, while more robust growth in Swedish export markets will contribute to stronger exports. New information broadly supports the picture of a continued improvement in economic activity in Sweden. The National Institute of Economic Research’s (NIER) latest business tendency survey provides a relatively bright picture of economic conditions in most of the surveyed industries.
In this way, we aim to ensure that price stability is not endangered in future. The monetary policy decision The economic and monetary situation has developed in the way we anticipated. The inflation outlook prior to today’s decision was largely in line with the figures presented at the last monetary policy assessment. For 2006, however, we forecast a slightly higher level of inflation to that presented in the last assessment. This is due to revisions made to certain figures that point to a higher rate of utilisation in the economy. In view of this inflation outlook, what is the justification for our decision to increase the target range for three-month Libor by 25 basis points? While we anticipate falling rates of inflation next year, this decline is not relevant in terms of monetary policy. Recent inflation levels of over 1% are probably largely due to the rise in oil prices which began in the first half of 2004. At the time, we decided not to take this increased inflation into account in our monetary policy decisions, due to the fact that its consequences could not be neutralised through monetary policy measures. It seems logical, therefore, not to take account of a decline in inflation attributable to subsiding oil prices, particularly since this drop also results from a statistical effect. A number of inflation components are likely to persist at a low level, even in 2006.

the act laying down the setting up of the National Bank of Romania, was published, ranking our institution among the first modern central banks. We hold dear the memory of our founding fathers. We honour them each year, but now I wish to commemorate two of them: the Prime Minister of those times, Ion C. Brătianu, whose commitment and great efforts materialized in the cornerstone law for the establishment of Romania’s central bank as a modern institution for “monetary circulation and a solid credit system” and the the artisan of the National Bank of Romania Eugeniu Carada, advisor to the Prime Minister, a man of deeds, rather than words. Eugeniu Carada took up the strategic mission to achieve the establishment of our central bank, had a clear vision of its role and set up a sound and modern credit system to foster loans and investments. By implementing modern instruments and policies for those times, the National Bank of Romania also contributed to the expansion of financial intermediation and the dissemination of financial education, since 1880 until the present day. Even though we are living difficult times, we should remember that we share a common institutional collective memory. The National Bank of Romania has been a member of the Bank for International Settlements since its establishment, on January 20, 19301, when the Final Act of the Second Hague Conference2 was adopted.
They take independent decisions that they must account for publicly. This arrangement ensures both transparency and distribution of power. In addition, three Deputy Governors have taken office – in the fields of monetary policy, financial stability, and financial supervision – in order to ensure even more fully that the authority for decisions on application of policy instruments is distributed effectively. There has been complete consensus among us four Governors, as well as the other members of the Bank’s three committee, in our support of the measures taken in response to the COVID19 threat, and we have met at very short notice to discuss and approve measures when necessary. The Central Bank of Iceland stands together as a cohesive and united whole in the tasks that lie ahead. Unlike many other Western central banks, the Central Bank of Iceland has considerable scope for policy action, as interest rates here are higher than in many other economies and the capital requirements made of the banks are much more stringent than they are elsewhere. And we have used the scope this has provided us. In the past two weeks, the Bank has lowered interest rates by a full percentage point. Its key rate is now 1.75%, and we can lower it still further. We have lowered the banks’ liquidity reserve requirements, easing their liquidity position by 40 b.kr. We are ready to inject more liquidity into the system if the need arises.

•  The risks to financial stability are nowhere near pre-Crisis levels, but they bear close watching. We must not repeat the mistakes of the past. 11 But there is as yet no consensus on how to secure financial stability and, in particular, what role, if any should be played by monetary policy. 12  There are three broad approaches to these questions. •  The first is to stick to the status quo. Monetary policy remains focused on price stability and no recourse is made to macroprudential policy beyond the use of capital buffers to pre-empt insolvencies. •  In the second approach, monetary policy explicitly takes account of financial stability in addition to price stability. •  Under the third approach, monetary policy remains focused on price stability, while financial stability is secured with the help of macroprudential policy. 13 I will keep my remarks on the first approach brief as it is well-known and is still the dominant practice in most central banks today, especially in the advanced economies. Under this inflation targeting approach, monetary policy will not try to respond to credit cycles or asset bubbles unless they have a demonstrable impact on inflation outcomes. •  As Lars Svensson puts it, flexible inflation targeting “remains the best-practice monetary policy before, during, and after the financial crisis”. •  John Taylor, who will address us this evening, provides a more rule-based characterisation of this approach through the Taylor rule.