samchain/econo-pairs-v1 huggingface dataset:
First, while papers are still produced in the tradition that “macroeconomists can safely go on ignoring finance”, we – policymakers – are having to make sense of a macro environment in which the supply of credit has been interrupted by problems sourced in part to swings in risk premia, and quite possibly swings in risk aversion. Models incorporating risk premia – and, indeed, embracing bubbles – might just help us with that. But it is striking that, so far, the progress in finance hardly features in the macro models used around the world for forecasting. Indeed, such models barely recognise the existence of financial instruments beyond risk-free bonds and equities. 19 In modern DSGE models, asset prices (and so risk premia) merely reflect economic developments; they are not “actors” in any way. Even if we were to accept that risk premia are not “actors”, for policymakers they might serve as useful diagnostics of what is going on in the economy – of the nature of the underlying shocks – given that asset price changes are typically apparent some time before the associated real economy adjustments. On that view, we need research that will help us read the “risk premia” tea leaves. For example, an increase in premia that could be traced to an increase in the correlation between consumption and investment returns, might point to a prospective increase in households’ precautionary saving.

2  1  See Tucker, PMWT, 2008 “Making monetary policy by Committee” Bank of England Quarterly Bulletin 2008 Q3 (forthcoming) for some thoughts on the relatively collective nature of the MPC’s forecasts given its one person, one vote decisions on Bank Rate. 2  I have to say that the textbook stress on the mean (or expected value) might be somewhat overdone in some circumstances, in particular where the mean is materially influenced by certain types of low probability/high impact risks. I hope the following will illustrate that. Imagine, not in the current context, that there is a risk of a dollar collapse against the euro, the currency of the UK’s largest trading partner, but without a similar risk of sterling collapsing. Say the probability is judged to be low, but the impact large; so that, in the probability-weighted way, it is enough to shift the mean outlook for future inflation. If (if) the risk crystallised,  BIS Review 112/2008  1  Now, putting this together, the following inference can be drawn; and I hope that I shall be excused if I plod through this in slow motion. Focusing on a roughly two-year horizon, if inflation was most likely to be below target in the context of the August modal forecast for output, then it would be even further below target if the MPC’s view in August of the downside risks to growth were to materialise (ie consistent with the mean path for output but no further adverse shock to costs).
However, worse than expected outcomes regarding unprocessed food prices and ongoing supply-side structural problems led to an upward revision in the assumption for food inflation from 7 percent to 9 percent for 2010, which added 0.55 percentage points to end-2010 inflation forecast (Table 2). Similarly, assumptions for 2011 food inflation have been raised to 7 percent from 6.5 percent, and 7 percent from 6 percent for the following years (Table 2). At this point, I would like to highlight that the recent measures regarding meat prices posed a downside risk especially for our assumption on food prices in 2010. In the previous Report, the impact of the tax measures implemented in January on fuel, alcohol, and tobacco products on 2010 inflation were estimated to be around 1.5 percentage points. However, the realization was 1.9 percent, partly reflecting the change in the weighting  scheme of the CPI, and thus shifting the inflation forecast path by around 0.4 percentage points throughout 2010. Here I would like to particularly underline once more that the impact of the tax hikes would disappear at the beginning of 2011. Regarding fiscal policy, it is assumed that, in line with the Medium Term Program, the fiscal stance will remain expansionary – but less so than in 2009 – throughout 2010, and that fiscal consolidation would gradually ensue starting from 2011 as guided by the fiscal rule set out in the Medium Term Program.

Accordingly,  we predict that aggregate demand conditions would not restrain inflation for a while. In this context, our revised medium-term forecasts are based on a disinflationary output gap – albeit narrower than envisaged in the previous Report. As I mentioned earlier in my speech, the tightness in credit conditions tend to attenuate with the effect of easing global liquidity conditions and improving risk appetites. The healthy state of the Turkish banking system is conducive for a rapid recovery in credit volumes. In fact, credit markets have been increasingly supportive of domestic activity in the recent period. Accordingly, the first quarter of 2010 was marked by the increasingly benign outlook for credit markets (Figure 30). Consumer loans have continued to recover while commercial loans have accelerated. Credit extended to small- and medium-sized enterprises has also begun to recover after a long period of stagnation, indicating the support of easy monetary conditions on economic activity (Figure 31). Assuming that external finance conditions continue to ease steadily and that the fiscal stance does not crowd out domestic funding, we expect that credit volumes would continue to expand in the forthcoming period. However, expectations that unemployment rates will remain at high levels for a long period, and ongoing problems in the global economy are still potential factors that might restrain credit expansion.
Accordingly, our financial system will be significantly strengthened by the setting up of an effective banking union with all the important components, including the single resolution mechanism. Once again, it is clear that defence of the national interest requires unreserved support for initiatives that tend to deepen and speed up the process of European integration. Thank you very much for your attention. 6  BIS central bankers’ speeches

I believe we need to have this new framework in place by 2010, as the current crisis is left behind, hopefully, and growth and stability are restored. As part of the work program already laid down in the G-20, critical points in the reform include the need to make regulatory capital more neutral over-the-cycle, by integrating the macro prudential framework into the required capital of individual institutions; the need to reach, with prudential regulation and supervision, all quarters of the financial industry; and the need to enhance transparency of financial instruments and markets. Thank you very much. 2  BIS Review 44/2009
Considering the size of government debt in a number of EU countries, continued adherence to a tight budget policy is to be desired. Such a policy can make further interest rate cuts possible if economic activity slackens and inflation prospects improve. There is a consensus on this today in the European Union but reaching an agreement on how the countries should share the burden of adjustment can be difficult. It will no doubt require many lengthy discussions, which have already begun, between the finance ministers of the euro countries. Consequences for Sweden The Riksdag (Sweden’s parliament) has decided to stay outside the monetary union at present. We are accordingly continuing to conduct our own monetary policy with a flexible exchange rate and an inflation target. The political consequences of being outside the euro area were considered by the Riksbank in its submission on the report from the EMU Enquiry. The conclusion that the consequences would be considerable has been reinforced now that the monetary union has started with eleven countries. This would be even clearer if Denmark and the United Kingdom were to decide to join. It is also clear, from discussions in which I have taken part, that the advent of the euro has been accompanied by closer collaboration on the construction of economic policies in Europe, as well as on Europe’s actions on the global stage. In these respects Sweden now carries less weight.

Mr Heikensten discusses the new currency and the Swedish economy Speech by the First Deputy Governor of the Bank of Sweden, Mr Lars Heikensten, before the Swedish Shareholders’Association in Sölvesborg, Bromölla, on 23/1/99. On New Year’s Day, ten currencies in Europe were replaced by a single, common currency. The changeover went well, no doubt exceeding some expectations. The elaborate systems that were used in earnest for the first time to transmit cross-border payments functioned properly, with no serious technical hitches. This made it possible to establish a uniform instrumental rate for monetary policy throughout the euro area. The new currency also had a favourable reception in financial markets, accompanied by falling interest rates. EMU has thus got off to a successful start. But the challenges posed by monetary union and any risks connected with the project are mainly of a different nature. They are economic and political, affecting the participants as well as non-euro countries. With eleven countries subscribing to a single monetary policy, the conditions for economic policy in Europe have changed. So have the terms for Sweden and economic policy here. These matters have not yet been discussed at all fully in Sweden. Under these circumstances, I shall be opening our debate today by touching briefly on four issues: the new challenges posed by the euro to economic policy in Europe; the consequences for Sweden; the path of the krona’s exchange rate; and current monetary policy. Challenges to EU economic policies The euro’s successful launch was underpinned by intensive preparations.
At the G7 meeting in October 2008, I was part of the group of ministers and central bank governors who threw away the prepared communiqué, and replaced it by a bold short statement of our determination to work together. That spirit, so strong then, has ebbed away. Current exchange rate tensions illustrate the resistance to the relative price changes that are necessary for a successful rebalancing. The need to act in the collective interest has yet to be recognised, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism as the only domestic instrument to support a necessary rebalancing. That could, as it did in the 1930s, lead to a disastrous collapse in activity around the world. Every country would suffer ruinous consequences – including our own. But, to borrow a phrase, in order to be tough on protectionism, we need also to be tough on the causes of protectionism. So what needs to be done? Let me suggest two principles for the way ahead. First, focus discussion on the underlying disagreement about the right speed of adjustment to the real pattern of spending. Without agreement on this, policies will inevitably conflict. Once broad agreement is reached, it should be easier to agree on the instruments of policy. Second, in terms of policy instruments, put on the table many potential policy measures – not just the single issue of exchange rates.

I can safely say that for a central banker of an emerging market country, managing monetary policy has more qualifications as an art, rather than a science. As Mervin King, the Governor of the Bank of England, once said, “I have raised more questions than I 8 have answered, perhaps that is what happens when you become a central banker” . I hope that you will find some of the answers in the panel. Thank you. 8  King, M. (2004). “The Institutions of Monetary Policy”. Lecture at the American Economic Association Annual Meeting, San Diego, 4 January 2004. 6  BIS Review 88/2006
To speed the process and avoid unnecessary delays that might exacerbate liquidity problems, and to halt any possible contagion to other parts of the system, the Banco de España took the swiftest of decisions while fully observing the provisions of the Law on the Discipline and Intervention of Credit Institutions. The conduct of the Banco de España has been informed by the lessons that all supervisors have drawn from the unfolding of the financial crisis in other developed countries. In particular, it is our resolve to prevent the problems of an individual credit institution degenerating to such an extent as to spread to other domestic banks and savings banks. BIS Review 42/2009  1  The speed behind the Banco de España's decision also justifies the urgency of and need for the Royal Decree-Law adopted by the government. Without going into details on the legislation, I would like to stress that the granting of guarantees by the Treasury has a dual purpose. First, it allows the Banco de España to act with full force, providing a very high volume of guarantees backing potentially significant funding. Such provision is necessary if the ailing credit institution is to meet all its commitments and honour all its payments. Since autumn 2008, when the suspension of payments by Lehman Brothers led to a risk of widespread collapse on the international financial markets, no country has allowed any credit institution active on international markets to suspend payments.

The talks between the interested parties themselves and with the Fund did not however prosper. Accordingly, the Banco de España took action to avoid a crisis of confidence in CCM and market convulsion. On this point I should like to draw your attention to the reasons for adopting this decision with such urgency. Article 31 of the Law on the Discipline and Intervention of Credit Institutions authorises the Banco de España to take control of a credit institution or to resolve to replace provisionally its governing and management bodies when there is a situation endangering its own funds or its stability, solvency or liquidity. Since the directors of CCM had been unable to find a solution to prevent the problems worsening, it did not seem reasonable to delay the use of the precautionary measures provided for in the Law on the Discipline and Intervention of Credit Institutions in order to seek other solutions. Further, once the prospect of a merger had fallen through, there was an evident risk that, once the financial markets opened on Monday, 30 March, CCM would be subject to a crisis of confidence on the bond markets and further withdrawals of deposits from its branch network that could prompt a liquidity collapse. The delicate situation of CCM required the immediate activation by the Banco de España of the precautionary measure provided for in the rules governing the replacement of the Board and the appointment of new managers.
In Peru, the expansion of annual GDP in the first quarter was higher than in the previous year, but the continued decline in consumer and business confidence has reduced dynamism going forward. Activity projections are maintained for the other countries (Figure 9). 3  On commodities, the increase in the oil price stands out—the Brent rose to 80 dollars a barrel at some points in the second quarter—driven by geopolitical factors and changes in supply and inventory levels. The baseline scenario, in line with the market futures in the ten days prior to the statistical closing, supposes that the price will decline slowly with respect to its current levels. Thus, Brent and WTI will average 70 dollars per barrel in 2018, 68 dollars in 2019 and 64 dollars in 2020. This contrasts with prices of 63, 59 and 56 dollars that were considered for the same years last March. As for copper, the average price estimates for 2018, 2019 and 2020 are practically unchanged at 310, 295 and 285 cents of dollar per pound, respectively. Towards the statistical closure, the price of the metal climbed to about 330 cents per pound and, according to market reports, has been affected by the uncertainty surrounding possible labor-related downtime in some mines. In the baseline scenario, this increase is assumed to be temporary, so it does not modify the average price projections. Should a mine paralyze, it could be necessary to review both the projected copper price and other macroeconomic variables for Chile.

In turn, higher real interest rates tend to depress economic activity and bring even lower inflation. This is the kind of spiral, possibly leading to deflation that monetary policy must seek to control and avoid. The process may become even more self-sustaining if it negatively affects inflation expectations. Over the last months, inflation expectations in the euro area have dropped to 1.2% at a one-year horizon and 1.5% at a two-year horizon. More worrisome, long-term expectations – up to now extremely well-anchored around 2% – have been drifting downward. Markets currently expect an inflation rate of 1.8% on average between 2019 and 2024 in the Eurozone. Monetary policy therefore must aim at influencing both nominal interest rates and inflation expectations. This is exactly what we are currently doing in the Eurosystem. Let me explain how. First, on nominal interest rates: Policy rates are now close to zero (%). Negative interest rates have been imposed on the deposit facility. Forward guidance has been used to signal that rates will stay at those levels for a very lengthy period of time. A new liquidity facility, the “targeted very long term refinancing operation (TLTRO)” has been created, with a four-year maturity and, for the first time, a guaranteed fixed rate. Basically, banks are able to get a four-year funding for a 0.15% fixed interest rate. Most recently, the ECB Governing Council has decided a program of private asset purchases, for both covered bonds and ABS.
So far there has been little sign of significant deterioration in these areas. But as you know, bad debts are a lagging indicator of the state of the economy. The most reasonable assumption is that bad debt provisions and charge-offs will increase, though we do not yet know to what extent. •  Provisions may also increase as a result of a decline in property prices and collateral values caused by SARS. The value of bank premises may also be affected. Some of these effects may prove to be short-lived. Others may take longer to emerge, as in the case of the impact on asset quality. The overall impact on earnings is thus difficult to quantify. As of now, and assuming that the SARS problem does not drag on for too long, most banks seem to think that the adverse effect on profits will not be too severe. It bears repeating that the balance sheets of the banks remain strong. We have updated our stress tests to take account of the SARS outbreak, and these continue to show that the banks can withstand a great deal of pressure from a variety of sources. We do not expect that this will actually be put to the test in practice, but it is comforting to know that the banks are more than adequately capitalised in case of need. What can the banks do to limit the potential downside risk from SARS?

Under the new monetary framework, the Central Bank of Iceland has been  4  BIS Review 95/2001  provided with the same mechanisms as central banks in most industrialised countries for creating such an environment. The Central Bank takes this role seriously and will strive to fulfil the conditions laid down by the new legislation and in the joint declaration which it issued with the Government on March 27. The global economic climate has been dramatically transformed in recent years and is still changing in the wake of the terrorist attacks on the USA on September 11. It is quite obvious that we in Iceland do not carry much weight in global economic terms. However, the situation in our immediate environment, especially among our main trading partner countries, is crucial to us. At the moment we are having a somewhat stormy ride. In this new environment, the role of everyone involved in economic policy-making in Iceland will be to act in a disciplined and responsible fashion. Doing so will be the main way to contribute to economic growth and prosperity in Iceland. BIS Review 95/2001  5
The number of vacant jobs is significantly higher than two years ago, specifically by about a third. Many industries are facing a shortage of workers, including both specialists and low-skilled workers. Speaking of the inflow of labour migrants, it has already returned to the pre-pandemic level, according to recent data. However, as the demand in the industries with a large portion of labour migrants (in courier services and construction) has surged over this period, companies still experience a deficit of labour migrants. Consequently, the rise in the demand for labour in various groups of employees is translating into the steady increase in nominal wages. In the course of the discussions preceding our today’s decision, several executives of our regional branches stressed that increasingly more companies were forced to raise wages at a double digit pace to be able to retain their employees. The staff shortage is a factor limiting enterprises’ capacities to expand output. It is hard for them to catch up with growing demand. This suggests that proinflationary risks brought about by labour market gaps are strengthening. Monetary conditions continue adjusting to our earlier decisions on the key rate. After the meeting in October, nominal interest rates, including on federal government bonds, deposits, and loans, continued to go up. Yields on federal government bonds rose over the entire curve. The growth of short-term yields has been mostly driven by the increase in the key rate and the updated forecast of its further path, whereas long-term yields are largely influenced by the escalation of geopolitical tensions.

Previously the uncertainty in the credit markets around the world in particular has appeared to be an obstacle to economic recovery. But now there are many indications that we are approaching a more normal situation and that the widespread uncertainty and mistrust during the crisis has declined. Many measures taken by central banks and other authorities to restore confidence in the financial markets and to stimulate the economy are still in place. Naturally, this makes it difficult to say how the situation would look without this support. But some measures have already disappeared. This is in itself a sign of greater stability. In Sweden, for instance, measures such as the loans to the banks in US dollars and the loans with a maturity of 12 months at a variable interest rate have more or less phased themselves out. The demand for the measures, and in other words the need for them, has quite simply faded. We can also note that the price of risk has fallen, for instance, on the interbank market where the banks are lending to and borrowing from one another, and on other credit markets. This can also be seen in a measure called the TED spread, which I have also shown earlier to the Committee on Finance (Figure 2). The TED spread is the difference between an interest rate in the interbank market and a government bond rate, both with three-month maturities. The measure provides an indication of the confidence between the banks.