samchain/econo-pairs-v1 huggingface dataset:
3  The relationship estimated is: Change in unemploymentt = a + b0*(GDP growth)t + b1*(GDP growth)t-1 + b2*(GDP growth)t-2+ q*(Change in unemployment)t-1. εt . 4  IMF World Economic Outlook, April 2010. 2  BIS Review 58/2010  Studies have shown that unemployment may suffer long-lasting effects from a deep recession. This is partly because a person who has been unemployed for a long time loses part of his or her human capital and therefore becomes less attractive in the labour market, and partly because some people, after job-seeking for a long time, quite simply give up and leave the labour force. What is usually referred to as structural or “natural” unemployment may thus increase during periods of high and protracted unemployment. Labour market policy can counteract these effects to some extent, by for instance, offering further education and retraining to the unemployed. The situation today is in contrast to what we saw during the crisis in the 1990s. Then, GDP fell for three years and the fall in employment was greater than the fall in GDP. That crisis was domestically-generated and it was generally known that tough times lay ahead, as public finances were to be consolidated. This time, the crisis has come from outside and there has been scope for forceful fiscal policy and monetary policy measures. It is always difficult to make forecasts. Moreover, I believe it is more difficult than normal in the current situation.

Periods of low productivity are normally followed by periods when productivity recovers quickly. The labour market and current monetary policy Last week the Executive Board of the Riksbank decided to hold the repo rate unchanged at 0.25 per cent. But at the same time we made it clear that the time for a repo rate increase was not too far off. This could come in the summer or the early autumn. But even with the increases in the repo rate included in our repo rate path, monetary policy will be expansionary for a long period of time. The real repo rate is negative throughout the whole year, and will be below one per cent for the whole of 2011. The underlying CPIF inflation rate, that is, the CPI excluding the effect of changes in mortgage rates, is now relatively high at 2.5 per cent. But our assessment is that inflation will begin to fall, partly as a result of a stronger krona. In addition, slowly rising wages and increasing productivity growth will together mean that companies can produce goods at low cost. As economic activity strengthens the inflation rate will be pushed up and when we look ahead to the end of the forecast period it is close to 2 per cent. The forecast for the CPIF is therefore only marginally changed, compared with the assessment in the February Monetary Policy Report. Resource utilisation is an important variable for monetary policy as it is, for instance, an important indicator of future inflationary pressures.
Besides these more fundamental explanations with links to the theory of purchasing power parity, there are numerous notions connected more or less closely with the flows in currency markets. The nominal exchange rate is the price of a currency; like prices of other goods, this price is naturally affected from time to time by more or less temporary fluctuations in demand and supply. It is explanations of this type that market players are most prone to put forward for short-run exchange-rate fluctuations. The most general flow-related explanation is probably the short-term interest rate differential. Textbooks teach that international currency flows and nominal exchange rates are susceptible to differences in current and expected monetary policy. Today, when monetary policy throughout the industrialised world is focused on price stability, so that interest rate differentials between countries are tending to decrease, the explanatory power of this variable is presumably weaker. Another factor that has been of major importance for nominal exchange rates from time to time is the state of the government finances. High and growing government debt leads to expectations of a suspension of payments or a monetary policy realignment in a more inflationary direction. That in turn results in a depreciation of the exchange rate. The picture in Sweden Since 1975 the Swedish krona has weakened in nominal terms by as much as 90 per cent. But at least half of this depreciation can be explained by Sweden’s higher inflation. And in this respect there has been a decisive change.

Besides exchange rate movements, these include the development of world market prices and the level of resource utilisation in Sweden. The importance of domestic resource utilisation has to do, for example, with the fact that most imported goods are handled and processed in Sweden before reaching consumers and that raising prices is generally more difficult when demand is weak. When we look back at the 1990s in order to draw conclusions about the future, all these factors have to be born in mind. Let me cite a couple of examples. During 1994 and much of 1995 a comparatively weak exchange rate led to rising import prices but the pass-through to consumer prices was smaller than the Riksbank had anticipated. One explanation was that capacity utilisation turned out to be below the Riksbank’s assessment both because it was overestimated initially and because demand was weaker, partly as a result of the Riksbank’s interest rate hikes. Another explanation was the krona’s marked appreciation towards the end of 1995. In 1998 the krona weakened again in connection with the Russian crisis. On a 12-month basis the depreciation amounted at most to about 10 per cent. Even so, import prices did not rise; on the contrary, they actually fell a good way into 1999. This largely reflected the factor that triggered the crisis: one of the largest price falls in modern times in commodity markets, including a barrel price of oil down towards USD 10. The result was markedly decreased international export prices - the equivalent of our import prices.
7 [14]  markedly and resulted in a price and wage build-up process, where wage costs rose by at most about 20 per cent a year. The Minister of Finance at the time, Per Edvin Sköld, took a number of measures: Excise duty on sales of cars was raised, building regulations were tightened, the forest industry had to deposit some of its large profits in special accounts and an investment tax was introduced.19 The interest rate was also raised by half a percentage point, which, according to a modern yardstick, may seem rather modest given the circumstances. Altogether, this meant that inflation was short-lived on this occasion too, and it is also known in the history books as the ‘one-off inflation’ (engångsinflationen). Expansionary policy during the most recent inflation period The longer period of high inflation from the early 1970s onwards is, of course, the first one I remember myself. The link to war is not as obvious as in the previous episodes, but it is definitely there (see Figure 2). The two oil crises in 1973-74 and 1979-80, often referred to as OPEC I and OPEC II, play quite an important role in this process OPEC I was preceded by the so-called Yom Kippur War of 1973 between Egypt and Syria on the one hand and Israel on the other. OPEC II is linked to the revolution in Iran in 1979, which led to a significant loss of oil production that was not matched by the other oil-producing countries.

I consider that an important conclusion can be drawn from this: Merely because inflation expectations are close to the target, the Riksbank cannot refrain from conducting an active monetary policy to make sure that it is attained in due course. The price increases we have seen in recent months are not something that monetary policy can affect. But the high inflation we have had in recent months risks setting off a spiral of price increases, wage drift, price increases, wage drift and so on. It is essential to ward off these tendencies in time. Therefore, it was time to adjust the direction for monetary policy. At the monetary policy meeting in April, the Executive Board decided on a less expansionary monetary policy, and the repo rate was raised by 0.25 percentage points. It was important to act in good time. As I see it now, the repo rate needs to be a couple of percentage points higher in a few years’ time. One of the purposes of a less expansionary monetary policy is to slow down economic activity and in this way reduce inflationary pressures in the economy. This can at the same time mean lower activity in the labour market. Here it is important to bear in mind that monetary policy can only affect the labour market in an imprecise way, while labour market policy has a significantly greater capacity to focus on the specific problems. References Boianovsky, Mauro (1998), “Wicksell on Deflation in the Early 1920s”, History of Political Economy 30(2), pp. 219–73.
Set against the serious circumstances then facing Spain, it may be said that the right approach was chosen, and the initiatives adopted helped mitigate the risks that had materialised. Despite this favourable change of course, the situation twelve months on remains complex, both from the European perspective and from the domestic standpoint of the Spanish economy. The European sovereign debt crisis is the most serious episode to impact the euro area since the single currency was founded. Its very nature and the difficulties in tackling it have, moreover, highlighted the shortcomings of the institutional framework of the euro. These include most notably the insufficient degree of fiscal discipline imposed by the Stability and Growth Pact, the absence of mechanisms to check the build-up of macroeconomic imbalances and the lack of tools with which to manage crisis situations such as those witnessed. Yet we must also acknowledge that there has been significant progress in recent months in these three areas. There have been various legislative initiatives to reinforce the Stability and Growth Pact, to establish arrangements for the prevention and correction of macroeconomic (other than fiscal) imbalances and, finally, to address crisis situations with the so-called European Stability Mechanism. But beyond the necessary reform of the economic governance of the euro, the difficult position of the Irish, Portuguese and, above all, Greek economies must be redressed. Tensions are at a peak and the outcome of the situation may have very important consequences for the euro area as a whole.

In this climate of nervousness, the high levels of private-sector debt, the need for balance-sheet write-downs in the financial sector and the difficulty the economy faced in growing at a sufficiently high level all weighed on the perception of the sustainability of our public finances. Moreover, the banking system, which had negotiated the first wave of the international financial crisis without excessive difficulties, came up against bigger problems when the main elements of the underlying macroeconomic crisis began to be felt at banks. Combining with this was the tightening of financing conditions for credit institutions raising funds abroad, as a result of the prevailing instability on financial markets. Faced with all these circumstances, it was vital to firmly show that matters could be turned around and that Spain was not bound to follow the path of instability of other countries. To do this, the change in economic policy stance last spring was essential, since it demonstrated a willingness to react to and redress the imbalances. Given the source of the tensions, the priority was to right the trajectory of public finances. To this end, an ambitious fiscal consolidation plan was approved in May last year. It brought forward the bulk of the adjustment to be made to the years 2010 and 2011. In parallel, there was a patent and pressing need to tackle the labour market shortcomings that were hampering the absorption of unemployment and the adjustment of the economy. Hence a labour market reform was launched.
Before leaving the topic of crisis management and resolution in the case of the Icelandic banks, I would like to say a few words about deposit guarantees. Why did the Government give a verbal blanket guarantee only for domestic deposits and not the deposits in the banks’ foreign branches? After all, this distinction probably added fuel to the fire of the so-called Icesave dispute about the settlement of deposit guarantees in Landsbanki’s Dutch and British branches. The short answer is that such a guarantee would never have been credible. As a result, it would not have stopped the run on these deposits and, if attempted, might have bankrupted the Government. At the time, the Central Bank of Iceland’s FX reserves amounted to 2½ billion euros, while the foreign currency deposits in Landsbanki’s Dutch and British branches totalled 11½ billion euros and payment of the EU minimum deposit insurance would have required 4½ billion euros. In economic terms, given that these deposits were used to a significant degree to finance illiquid assets in these same countries, such a payment would have amounted to a net transfer of resources from Iceland to these countries at a time when Iceland was going through its deepest financial and economic crisis in the post-war period! That made no sense, and the only solution was for the governments concerned to pay out the insurance in their own currency with the aim of settling later with Iceland.

The financial crisis revealed major fault lines in cross-border banking, the most important being large foreign currency balance sheets with significant maturity mismatches but with limited lender of last resort facilities in foreign currency. The nature and magnitude of this phenomenon were not well understood before the crisis.2 Maturity mismatches are, of course, the bread and butter of modern banking, although they make banks vulnerable to runs. In the case of solvent institutions, we have known theoretically since Thornton (1802) – and probably over a century, as a practical policy – how to deal with that vulnerability in a domestic setting: with central bank lender-of-last-resort (LOLR) operations, later complemented by deposit insurance. In the current setting, it is far from guaranteed that this process can be replicated at the international level. Of course, in normal times and with developed capital markets, banks can use foreign exchange swap markets to convert domestic liquidity into foreign exchange liquidity swiftly and relatively cheaply. However, this process broke down almost completely during the global run on cross-border non-US bank liabilities in the immediate aftermath of the Lehman collapse. In a situation like this, the home central bank’s ability to assist banks in acquiring the foreign liquidity denied them on the market and thus avoid a failure to deliver on their foreign currency payments, is limited by the size of its reserves or the willingness of the central bank issuing the international currency in question to help.
François Villeroy de Galhau: Monetary strategy and inflation in Europe - what’s new? Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the SUERF Conference, New York City, 12 October 2021. * * * Ladies and Gentlemen, I am very happy to join you today for this discussion on "EU and US Perspectives". Exactly one year after my previous intervention in this Forum, I definitely see a change for the better in the economic climate in Europe. Europe is now the most vaccinated continent in the world. Economic growth in the euro area has so far been stronger than expected and according to our latest forecasts, real GDP is expected to exceed its pre-Covid level by the end of this year. If anything, we can perhaps say that uncertainty has shifted a little bit from the growth outlook to the inflation outlook, but I will come back to this point later. My speech today will address three interconnected issues: I. What are the key changes following the ECB strategy review? II. Where do we stand on inflation? III. Perspectives on the ECB's monetary policy up to and after the end of the Covid crisis. I. The ECB’s monetary policy framework The unanimous adoption in July of the new monetary policy strategy was an important achievement for the Eurosystem. Let me pay tribute to Christine Lagarde, and sum up our review in three key messages: 1.

The Banque de France played a central role in setting this agenda, notably through the creation of the Network for Greening the Financial System (NGFS) and its global secretariat. 3. The ECB also intends to step up its communication. As I often stress, communication is 1/5  BIS central bankers' speeches  fundamental for economic efficacy and for the transmission of monetary policy to all economic agents. Better-informed households and firms will also make better economic decisions. Our inflation targeting policy will be much more effective if economic agents understand it, adhere to it and believe in it, thus helping to better anchor inflation expectations. To this aim, a first step is our new Monetary Policy Statement, which is shorter and provides a clearer narrative of why we took our monetary policy decisions. Since effective speaking also means active listening, the Banque de France organised 17 listening events this year, both at national and regional levels, reaching out more than 300 000 French citizens. We discussed our mandate, the principles of monetary policy, and the effect of monetary policy on their daily lives. I have decided to make this an annual event. II. The current and future courses of inflation Let me now turn to the economic outlook. The robust euro area recovery has been helped by a successful combination of accommodative monetary and fiscal policies, both at national and EU levels.
In the first quarter, the seasonally-adjusted GDP series declined 0.8% from the previous quarter, with a drop of 0.2%  2  in non-mining GDP. In April, the seasonally-adjusted Imacec series showed a 0.3% drop compared to March; however, this variation was positive (0.2%) for the non-mining Imacec. Demand has evolved with a marked difference between private consumption and investment, where the former is persistently high. First-quarter data show that private consumption has not lost any significant dynamism and remains above expectations in March, remaining around the highs observed during 2021. Consumption of durable goods has undone part of the fall of the end of last year and services consumption has continued to perform strongly, especially in areas such as health care, restaurants & hotels, and transport, reflecting that the economy has been easing restrictions. Gross fixed capital formation (GFCF), in contrast, has shrunk in its every line, as we anticipated in March. In the first quarter, its seasonally-adjusted series fell by almost 6% from the previous quarter. The most notable decline was seen in the construction and other works component, although machinery and equipment also fell (figure 4). In the labor market, the demand for work has lost strength. This is reflected in the decline in the online job postings Index from its peak of a few months ago, although it is still above its levels of mid-2019.

The background data for the May Business Perceptions Report also points to less dynamic employment in the months ahead, in line with business expectations as reported in the IMCE. This is consistent with declining real wages amid rising inflation. In any case, the unemployment rate remains below its historical averages, standing at 7.7% in the February-April quarter (figure 5). On the external front, global inflation has risen significantly in recent months, with core inflation accelerating in several economies. In the United States, in addition to high goods inflation, there has been higher records in services and volatile components of the basket, amid a still tight labor market and high house prices. In the Eurozone, while energy remains the main factor behind price increases, food inflation and core measures have accelerated lately. In the United Kingdom, in addition to higher goods and energy inflation, services have become more prevalent, amid upward wage pressures. In Latin America, energy and food prices have continued to drive inflation, which has also passed through to higher prices for some services (figure 6). The rise in inflation has occurred in a scenario of high cost pressures around the world. The continuing impact of the pandemic on global supply chains and commodity prices has been compounded by the effects of Russia's invasion of Ukraine and recent confinements in China. Producer price indexes have risen to unprecedented levels and across countries in the last year, reflecting the higher costs of commodities and intermediate inputs.
We need, therefore, to assess the extent to which spare capacity is dragging down on prices. In this particular context, we can take some comfort from the growth of earnings (wages and staff bonuses etc) being subdued, below 2%. But with productivity growth having been incredibly low for a while now, it is possible that the rate of earnings growth consistent with achieving the 2% inflation target has been below the 4–4.5% we typically used as a rough benchmark in more normal conditions before the financial crisis and subsequent recession. How and when businesses in aggregate will again generate productivity improvements will be at the heart of the Committee’s deliberations. To be clear, this is about the path inflation takes back to target, not whether it will return to target. The MPC will ensure that it does return to target and that medium-term inflation expectations are anchored to the target. Conclusion To conclude, UK companies are having to adjust to a different pattern of demand, to profound shifts in world trade and prices, and you are having to cope with this while the financial system both recovers itself and adapts to new “rules of the game”. Given some threats to stability linger, the Financial Policy Committee’s primary focus has to be on encouraging continued progress in building resilience in the banking sector. That will pay dividends in the longer run.

It would not be sensible to relax capital requirements when the unusual hazards persist. Today, gradually strengthening capital adequacy, and so building resilience, is best not only for stability but also for sustaining the recovery through what might lie ahead. Monetary policy With government needing to set fiscal policy in order to repair the public finances, that means that the burden of stimulating our economic recovery falls mainly to monetary policy. Bank Rate is at, effectively, zero. And the Bank has provided further stimulus, via quantitative easing, in order to underpin demand, and so guard against inflation being persistently below our 2% target further down the road. For the economy as a whole, that has bought time to smooth the adjustment. For firms, it has reduced the cost of capital and the weight of debt burdens. The equity prices of leveraged firms have generally risen more than the market as a whole. Easy monetary conditions no doubt go some way to explain why more firms haven’t failed; and why the Bank has received few approaches, under what is still known as the London Approach, to help banks and firms keep talking when a co-operative solution is within reach. In all this, the Monetary Policy Committee faces a delicate and unavoidable balancing act.