samchain/econo-pairs-v1 huggingface dataset:
As an alternative and a cross-reference, we also make medium-term projections using a more detailed analysis of a number of economic variables. Simple equations where the parameters are econometrically determined and smaller systems of equations are used in this work. The baseline scenario that is published in the Inflation Report is based on a discretionary overall assessment of the projections derived from the model and the projections from the more detailed analysis. Thus, we do not use a macro model mechanically. But a macro model can function as a reference and a guide while ensuring consistency in the projections over time. The value of a macro model depends on how useful it is for monetary policy assessments. Under an inflation targeting regime, the focus is largely on risks, on understanding what type of disturbances to which the economy may be exposed and on analysing the monetary policy response to various disturbances. The recurrent question that we seek to answer is at what level the interest rate should be set to bring inflation back to target and stabilise economic developments around trend. In the policy analysis and the risk analysis, we look at the consequences for economic developments of alternative assumptions about the interest rate, the current economic situation and the functioning of the economy. Such analyses of alternative scenarios must be based on a macro model. What are the requirements we set for a macro model?

We have called the new macro model “Norwegian Economy Model”, or abbreviated “NEMO”. In the work on developing the model, we have benefited greatly from our close cooperation with the IMF and the Federal Reserve Bank of New York. We have also been inspired by and learned from the work of a number of other central banks, for example in the UK, Sweden and Canada. In addition, we have the benefit of a long history of model-building in Norway. NEMO belongs to a class of macroeconomic models that tends to be referred to as DSGE models, which stands for “Dynamic Stochastic General Equilibrium”. The term dynamic means that the entire path from the short term to the long term is modelled. The model is stochastic in the sense that the economy is exposed to random disturbances. Such disturbances can, for example, stem from a change in preferences, technology and market structure. General equilibrium implies that supply equals demand at all times in all markets, but there may be considerable temporary deviations from the long-term growth path. BIS Review 4/2005  5  A prominent feature of this type of model is that the behaviour of different economic agents is modelled explicitly. Each model parameter therefore has its own economic interpretation. Households maximise utility and choose the optimal distribution between work and leisure and between consumption and saving. Firms maximise profit. The authorities have defined specific economic policy objectives.
BIS central bankers’ speeches  9  ... making it difficult to maintain price stability and financial stability It is very clear that it will be more difficult for the Riksbank to carry out its main tasks of price stability and financial stability in the event of a substantial fall in prices on the housing market. I shall begin with price stability. If demand grows weakly as a result of a fall in housing prices, we would normally end up with lower inflation. However, if decreasing confidence in the Swedish housing market among foreign investors leads to a general fall in interest in investing in Sweden, we would presumably see a substantial depreciation of the krona, which could strongly push up inflation. It is very likely that uncertainty over the development of inflation would increase. If we go over to financial stability, I can repeat what I have said many times before, which is that financial stability and price stability are interconnected. One reason for this is that if it becomes more difficult for the banks to obtain funding, it will also become more difficult to ‘reach out’ with repo rate changes. We usually describe this as a weakening of the monetary policy transmission mechanism. And this, naturally, makes it more difficult to stabilise inflation around the target. The Riksbank would also have to use its various tools to manage liquidity problems in the banks. We saw this clearly during the acute financial crisis of 2008–2009. I shall now summarise my comments so far.

In this, central banks of the time viewed acting through foreign central bank correspondent accounts as preferable to acting through private intermediaries. Central banks’ mutual need for safe, confidential, and reliable account services The need for reciprocal relationships continues to resonate with central banks today even following the demise of the international gold standard and major changes in the international monetary system over the past one hundred years. Why do central banks value these relationships so highly? 2/8  BIS central bankers' speeches  Safety, confidentiality, and reliability are strong motivations for the reciprocal provision of banking and custody services among the world’s central banks. In particular, central banks around the world have a mutual need for correspondent banking12 and custody services to execute on core central banking functions in which the safety, confidentiality, and reliability of service provision is essential. This befits the character and role of central banks as highly risk-averse stewards of national wealth. It reflects the imperative for central banks to maintain untarnished credibility in the formulation and implementation of monetary policy, and an unblemished reputation in the operation and oversight of domestic and cross-border payment systems. And it is driven by central banks’ responsibility to safeguard financial stability. This results in central banks often preferring, and sometimes requiring, foreign reserve managers to use the account services of fellow central banks.
The following two structural changes, in particular, drove our decision to adopt the new approach to implementing monetary policy. 4 First, since the GFC the stock of reserves has grown tremendously. 5 As a result, the money market is today characterised by a structural reserve surplus instead of a structural reserve deficit. A return to the status quo before the GFC would have required us to reduce the stock of reserves on a very large scale. 6 Given the substantial quantities involved and the long time it would have taken to complete this task, we doubt that we would have been able to steer money market rates in the short term. Second, the landscape of Swiss franc reference rates has changed significantly. In particular, Libor was replaced by SARON as the new reference rate in Swiss francs. 7 SARON – an acronym for Swiss Average Rate Overnight – is calculated based on actual transactions by the private sector in the overnight segment of the Swiss franc repo market. A sufficient volume of interbank money market activity is therefore required to ensure a robust basis for calculating SARON. Why does the SNB apply reserve tiering? Let me now explain in more detail how our approach works and, in particular, why both elements of the approach are required in order to implement our monetary policy in a positive rate environment. We begin with the first new element in our implementation approach, which is reserve tiering.

In this new world, phenomena which had traditionally a local or even a national impact may be amplified and become dangerous at the global level: amplification of financial cycles, herd behaviour, global contagion. Analysing the opportunities and the risks, and understanding the functioning of our system with a view to making it as stable as possible is a very exiting, ambitious and urgent task. And, last but not least, union. I can not avoid mentioning the question of completing monetary union with the entry of the United Kingdom. I would like to stress the following points in this regard: let us never forget that the UK is unanimously warmly welcomed in the euro area. It depends only on the decision of the British people and of the British authorities to join in. You know that the Germans and the French on the continent, as well as all other nations on the continent are very warmly hoping for a positive decision by the UK. I thank you for your attention. BIS Review 60/2002  5
Higher federal deficits in the wake of the financial crisis required Treasury to increase the amount of issuance for some time, but the deficit has now shrunk to a level closer to historical norms, bringing the required level of additional issuance, also known as “net issuance,” down in tandem.4 However, gross issuance, defined roughly as the sum of the issuance required to refinance maturing debt and the net issuance required to fund the existing deficit, continues to be very high by historical standards. For example, in 2014, the U.S. Treasury issued just over $ billion on a net basis, whereas there was $ trillion in total gross issuance taking place over the year. A deep and liquid secondary market, where traders buy and sell existing securities at an agreed-upon price, is a crucial attribute of the asset class, and primary dealers and other market participants also play an important role here. Strong liquidity in the secondary market facilitates smooth price discovery and ensures that investors can adjust their holdings of Treasury securities at minimal cost. The attractiveness of Treasury securities to investors, in turn, helps minimize the cost of issuance to the U.S. Treasury and facilitates the Federal Reserve’s ability to implement monetary policy. The secondary market for Treasury securities operates on an over-the-counter basis – that is, not on an exchange.5 Historically, secondary market trading has fallen into two categories: trades between dealers and customers, and trades between dealers.

That will give the bank the ability to evaluate and then drain out any excess liquidity in the system. Unlike the US, we do not need to develop new techniques to drain cash. The Bank can do that, for example, by issuing one-week Bank of England bills as it did in 2008/09. Conclusions In this speech, I have commented on why the asset purchases were undertaken and how well they worked. I have described some of the complicating factors in designing, implementing and maintaining the operations. Finally I have covered some of the issues we will face when we eventually come to sell the assets – noting that it is possible that we yet might purchase more. The unconventional journey is not over yet! 6  BIS Review 135/2010  BIS Review 135/2010  7
14  The impact of central bank credibility on inflation expectations in the UK would over time have lowered the inflation expectations adjusted Phillips curve in much the same way, though by a very different mechanism, as a drop in the natural rate. Arguably we are only now discovering the impact at very low levels of unemployment of the Bank of England’s credibility as an inflation anchor. Change in pay norms  One way of looking at the Phillips curve relationship between pay and employment is that it incorporates not only inflation expectations but also some ‘norm’ for real pay increases – some ‘going rate’ for an expected increase in real disposable income. Some of this will reflect increasing productivity – as output per worker rises, so their real pay ought to rise. But this norm may be demanded regardless of tightness in the labour market and regardless of whether increases in real pay are justified by increases in productivity. 13  See for example Brainard (2017)  14  Since the 1970s several monetary frameworks have been in place with the goal to provide an anchor for the price level and credibility for the government’s commitment to low inflation. In the 1970s, targets for monetary aggregates were introduced, first for broad money and then for narrow money. With membership of the ERM in 1990, the exchange rate became the explicit target. Finally, following the departure of the ERM in 1992, an explicit inflation target was adopted. Operational independence was granted in 1997.

26  Given the uncertainties I have described and the serial disappointments we have had in recent years  in forecasting the impact of unemployment on pay growth, there is in my view a not immaterial risk that the trade-off is not as it currently appears and that domestic inflation pressure will undershoot the Committee’s collective expectation. In my view the low level of domestic pressure on inflation now, the absence of second round effects from the deprecation of sterling, and inflation expectations around their historical averages, make it possible to wait 24  I have quoted the shorter-term measure for regular pay, rather than total that I use elsewhere, as the inclusion of bonuses in total pay leads to more short-term volatility in that series. 3-month-on-3-month annualized growth for total pay was 2.1% in August but had been above 3% earlier in the year, and has risen well above 4% at two points in the preceding three years without signaling sustained higher wage growth. 25  Job to job flows within a quarter have been at about 2.5% - which is what they averaged over 2005-07 before falling down below 2% in 2009 – since early 2016. Similarly, the MPC’s swathe of surveys have been pointing to recruitment difficulties for some time, for example the REC survey has indicated below-average staff availability since 2013 – and significantly so since mid-2014.
Under normal circumstances there is a relatively stable relationship between the level of the repo rate and the level of the rates that companies and households face, as well as between interest rates and access to loans. The financial crisis affected these relationships. When, for example, the Riksbank cut the interest rate at the beginning of October the short market rates did not fall. The risk premiums increased as a result of the uncertainty and turmoil that followed in the wake of the financial crisis, so that the difference between the repo rate and the short market rates expanded. This meant that the interest rate cut did not have a full impact on interest rates paid by households and companies. Market rates thus became higher than would normally have been justified by the level of the repo rate. Since the financial crisis worsened last autumn, the Riksbank, like many other central banks, has implemented a number of measures to safeguard financial stability. These measures have largely concerned the provision of liquidity to the banking system. This has improved the functioning of the short term markets and risk premiums have fallen. The interest rate channel in the transmission mechanism has thus begun to function more normally. The primary purpose of the Riksbank’s measures has been to safeguard financial stability, but they have also lead to monetary policy functioning more efficiently. The Riksbank’s two main tasks, managing monetary policy and safeguarding financial stability, are thus closely linked to one another.

And the reason I am doing so now is that it may be a good starting point for distinguishing what monetary policy may achieve in the short and long run. We can note already that the policy areas I recently mentioned concern politics in a broad sense and not monetary policy. It is thus not monetary policy that can affect these most fundamental conditions for long-term growth. One illustration of monetary policy’s limited potential to affect employment in the long term is the disparate regional developments in one and the same country. In Sweden, for instance, there are large regional differences in employment levels, despite monetary policy being the same for all regions. These differences appear to be lasting, which might indicate that they are due to underlying, structural factors that are beyond the control of monetary policy. However, monetary policy can affect the conditions for long-term growth on one very essential point, namely by keeping inflation close to the target and inflation expectations anchored around the target. If inflation deviates from the target the Riksbank’s aim is normally to bring it back on target within a couple of years. Depending on how large the deviation is and its cause, the time horizon may be extended. This flexibility makes it possible for the Riksbank to take into account developments in the real economy in its monetary policy considerations. In the short term, monetary policy can contribute to reducing the fluctuations in production and employment that arise during an economic cycle.
However, as I mentioned earlier, we see increasing volumes of less liquid and more complex assets for which firms have themselves to assign a CQS. Given firms’ judgements play an important role in determining the CQS we need to be confident that their internal rating processes are robust. We have set expectations for firms in Supervisory Statement 3/17: “Solvency II: Illiquid assets”8, that where ratings are a significant driver of technical provisions and capital requirements, we expect those ratings assigned by firms to be broadly consistent with public ratings that could be obtained from ECAIs. Consistency with ECAI public rating methodologies, including any allowance for rating caps, are key points to distinguish from opinions ECAI only provide privately, based on other assumptions. Rating consistency remains a key area of PRA engagement with firms, and to demonstrate consistency firms need to show that they understand what ECAIs do, and then to internalise this in their own processes. Secondly, the fundamental spread sector. As well as credit rating, the sector that an asset comes from is a key driver of the FS. Chart 9 compares at year-end 2020 the FS for A-rated assets depending on whether the financial or non-financial FS is used.

What we have learned will, as you would expect, inform our considerations of potential Solvency II reform. 1  https://www.bankofengland.co.uk/speech/2018/david-rule-2018-conference-on-bulk-annuities-and-longevity-risk-transfer and https://www.bankofengland.co.uk/speech/2019/david-rule-westminster-and-city-programmes-2019-bulk-annuities-conference 2 https://www.gov.uk/government/publications/solvency-ii-review-call-for-evidence 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  1. Market developments since 2019  The annuity market largely bifurcates into bulk purchase annuities and the purchase of annuities from personal and occupational pensions. Since David spoke to you in 2019 the growth in the bulk annuity market has continued, and is expected to continue [Chart 1 in the Appendix]. From our perspective, the additional capital that annuity firms bring to back these pension obligations provides increased security for scheme members, and gives pension scheme sponsors the opportunity to benefit from de-risking. For some insurers, annuities are part of a wider product set, diversifying with for example term assurance or general insurance products. But for specialist annuity firms the increase in annuity sales leads to concentration in both longevity and credit risk. Chart 2 shows the composition of the solvency capital requirement (SCR) across a range of specialist and mixed-line annuity firms: What this chart does not convey is that the longevity component would be notably larger were annuity writers retaining all of this risk. We are aware that the design of the risk margin has had a number of unwelcome effects such as adding excessive balance sheet volatility which has contributed to longevity risk being something many annuity writers continue to look to cede.
Inflation has risen more slowly following the recent pay hikes than perhaps could have been expected in view of historical experience, and it is still well below target. This could be due in part to the additional scope provided by the favourable initial position of many firms and by the improvement in terms of trade. But the most obvious explanation is that lower prices in international trade and low or zero inflation in trading partner countries offsets domestic inflationary pressures, as can be seen in Chart 3. The downward price pressures from abroad have been stronger in recent months than was projected last spring, partly because of economic developments in China. But it is unlikely that the price of oil and other commodities will continue falling for a long time to come. The question, then, is what happens when prices stop falling – not to mention if they begin to rise again, as is forecast. Other things being equal, measured inflation would rise in Iceland. The Central Bank’s new forecast assumes, in fact, that oil prices will begin to rise again towards the end of this year. In addition, a portion of the wage increases will finally pass through to prices. According to the forecast, inflation will therefore rise in coming months, overtaking the target next year and peaking at just over 4% in the first half of 2017. It will not return to target until 2018.

Modelling the desired behaviors sets a powerful example and serves as a form of behavioral risk mitigation. All of these actions reflect choices that a firm makes, either implicitly or explicitly, that can build cultural capital. On the other hand, cultural capital can also decline or deteriorate as a result of internal choices. For example, overt incidences of misconduct such as a trading scandal or a legal issue, deviations between employees’ actual experiences and a firms’ stated values, or observations of 2/5  BIS central bankers' speeches  inappropriate behavior that is tolerated or even rewarded can all contribute to the depreciation of a firm’s cultural capital. This decline can be self-reinforcing as certain behaviors are rewarded and individuals advance in an organization, or the composition of the workforce changes as employees choose to work at firms with higher cultural capital. The Pandemic’s Impact on Cultural Capital While the discussion so far has focused on how internal choices that a firm or its employees make can impact cultural capital, it is equally true that external factors have the potential to have a similar impact. For example, changes to social norms around what constitutes acceptable workplace practices can alter behavioral norms inside a firm. The nation-wide racial justice movement is another example of an external factor that could impact the internal culture, based on the choices a firm makes in its response. The current COVID-19 pandemic will also surely impact cultural capital in unpredictable and enduring ways.